Fannie Mae To Open Books On Lending Blacklist Dominated By Florida Condos

Fannie Mae keeps a confidential list of condominium buildings that the quasi-governmental agency won't support through mortgage purchases, and no region dominates the list like South Florida.

The list included 2,306 properties in October, with approximately 250 of them, or around 11%, located in Miami-Dade and Broward counties, according to Leigh Katzman, an attorney at Fort Lauderdale-based Katzman Chandler, which obtained the list.

The database, officially called the Condo Unavailable Projects and Phases Report, the Miami Herald reported, is only available to lenders — who have been instructed not to share it.

But Fannie Mae and its counterpart, Freddie Mac, announced they would roll out an online tool next year to allow condo owners and associations to check if their properties have been deemed ineligible for agency backing.  

The database has been rapidly growing in the last year. It had only 200 to 300 properties about a year ago, Orest Tomaselli, president of Philadelphia-based condo and co-op lending service provider CondoTek, told the Boston Globe. 

Florida properties have outsized representation, accounting for 34.5% of properties on the October list, according to Allcock Marcus attorney Jake Marcus, which obtained the list from a third party, he told the Sun-Sentinel. California has the second most condo buildings on the list at 10.3%, followed by South Carolina at 4.6%, the Globe reported. 

A Fannie Mae spokesperson characterized the list to Bisnow as part of a broader web-based tool called the Condo Project Manager that allows lenders to determine if a development already has Fannie Mae eligibility status or to certify a project through their own review process. 

When properties fail to meet Fannie Mae's standards, they are marked as unavailable on the platform, and lenders can access notes on the property to determine the reason they are ineligible, the spokesperson said. 

“It is not the CPM ‘unavailable’ status that causes a project to be ineligible,” the spokesperson wrote in an email. “A project’s failure to meet one or more of our Selling Guide eligibility requirements makes the project ineligible, regardless of whether Fannie Mae is aware of that condition and makes note of it in CPM.”

Inclusion on the list severely limits the ability of condo associations and individual owners to secure traditional mortgages, refinance or obtain loans for repairs at market rates, Katzman said. Because the list is secret, applicants are typically unable to find out why they have been denied. 

“Unit owners in blacklisted associations who need to sell or re-finance their units are unable to readily do so,” Katzman told Bisnow in an email. “As a result, the current owner is left with very few options other than to accept a cash buyer (typically at a price well-below market value), seek private lending (typically at a significant premium on interest rate) or simply walk away from the unit — losing both their home and their investment.”

The Orange County Register first reported on the existence of the list in April, but it has been the subject of increased scrutiny following leaks from Katzman Chandler and Boston-based Allcock Marcus. The two law firms have created a website that allows owners and property managers to check if their properties have been blacklisted and seek help to find out why. 

Fannie Mae announced this month that it would make the list public in the third quarter of 2024. The web-based tool would allow condo associations to determine whether their properties are ineligible for agency lending and understand how they fell short of lending requirements, the spokesperson said. 

Freddie Mac also has criteria to classify some condos as ineligible for agency backing, but instead of maintaining a list, the firm provides lenders with an app to verify whether it will purchase loans on a property. 

A spokesperson for the Federal Housing Finance Association, the government agency that has acted as conservator for Fannie Mae and Freddie Mac since 2008, told Bisnow that Freddie Mac will update its program “in late 2023 and early 2024” to provide greater transparency to both lenders and homeowners associations and introduce an appeals process for when projects are deemed ineligible for backing.

The FHFA “supports a transparent process that provides visibility for loan originators and the homeowners associations responsible for managing and maintaining condo projects,” the spokesperson said in an email.

“FHFA is committed to ensuring and prioritizing the financial and physical safety of borrowers and occupants of condominiums and cooperatives to support sustainable homeownership.” 

The blacklist has existed since around 2005, according to Marcus, but it began to swell after the 2021 collapse of the Champlain Towers South building in Surfside that killed 98 people. Following the disaster, both Fannie Mae and Freddie Mac updated their condo lending requirements and stopped backing loans at properties facing “critical repairs” or where deferred maintenance had resulted in “advanced deterioration.” 

The collapse led to changes in state laws that require condo associations to conduct structural integrity reserve studies and mandate that owners set aside money for repairs. The new rules led to predictions that developers would look to purchase condo buildings from owners facing steep repair bills to fix deficiencies that had previously been delayed. 

Those properties being deemed ineligible for loans from Fannie Mae and Freddie Mac could reduce their value and make them more attractive acquisition targets for developers, Katzman said.  

“The blacklist is not necessarily a negative to a developer pursuing a condo-buyout, and in fact, the blacklist likely renders associations more susceptible to a buyout as the inability to obtain conventional financing on units (and the inability of the associations to obtain conventional financing to address many items that may have landed them on the blacklist) is likely to lower unit values,” he wrote.