The Miami real estate market is no stranger to uncertainty. However, a new issue could have long-term consequences for buyers and sellers alike. A lending blacklist nixing condos is hurting sales nationwide and possibly causing harm in Miami. With conventional lending giants Fannie Mae and Freddie Mac drafting new lending standards, condos, and co-ops with deferred maintenance, structural safety issues, or shaky finances have found themselves on Fannie Mae's "blacklist." This list is not public; buyers and owners may only discover their inability to secure cheaper conventional financing when they apply for a loan. The potential ramifications of this issue for the Miami real estate market are significant, and it is essential to understand the impact of the lending blacklist.
In this article, we'll explore how the lending blacklist could affect Miami's real estate market and the potential consequences for the city's economy.
How the lending blacklist could impact Miami's real estate market
What we know about the list
How new condo reforms in Florida can help avoid being placed on the lending blacklist
How the lending blacklist could impact Miami's real estate market
The creation of the lending blacklist may cause further frustration for condo buyers blindsided by its existence until after they've gone under contract and applied for a loan. While there is no information on which condos are on the list, the mere possibility that some in Miami may be affected is a cause for concern. It's a disservice to buyers, sellers, lenders, condo associations, and real estate agents that the list is not made public. It leaves buyers and sellers in the dark about the lending status of specific properties.
While we do not know if any condos in Miami are on the list, the possibility is high, given that condos in Miami have already been challenging to secure financing with lower down payments due to the high concentration of investment units, lack of reserves, and litigation. If properties in Miami are indeed on the list, it could lead to a decrease in demand for those condos and co-ops, potentially causing a decline in property values.
It is important to note that Miami's real estate market has been experiencing a slowdown due to rising interest rates. While roughly 40% of condo sales in Miami are cash sales, meaning that most buyers do not rely on mortgages, the impact of the lending blacklist on Miami's real estate market can still be significant.
What we know about the list
While the lending blacklist may be impacting Miami's real estate market, it is still unknown. The list isn't public, so buyers and owners are often unaware that they can't get cheaper conventional financing until they apply for a loan. This can cause further frustration for condo buyers blindsided by this when applying for a loan.
According to Orest Tomaselli, project review president for CondoTek, a Philadelphia-based company that provides documents and services to condo and co-op lenders, "The only way for you to find out if a (condo) project is on that list is if you apply for a mortgage and the lender runs that project to see if it's unavailable. And only then, typically, is a buyer informed."
While the number of buildings on Fannie's list is relatively small, it's growing fast. According to Tomaselli, in the 16 months since the new standards took effect, Fannie Mae's list of ineligible condos and co-ops grew from about 900 nationwide to more than 1,400. Of those, just over 60 are in Southern California. However, once a property lands on that list, buyers or owners seeking to refinance can't get cheap, conventional mortgages.
For a median-priced Southern California condo, paying 2.5 percentage points more in interest and $769 more monthly in mortgage payments. This affects the pool of buyers, limiting sales to those who are paying cash or willing to get higher-cost financing. "You're essentially blacklisting the (condo) community, and that affects values," said David Gaylord, a mortgage broker with Arbor Financial in Laguna Niguel.
While Freddie Mac doesn't maintain a list of ineligible condos or co-ops, both Freddie and Fannie adopted "temporary" guidelines in January and February 2022, making such communities ineligible for conventional loans if they have significant deferred maintenance or lack the reserves or insurance for future repairs. Fannie and Freddie required HOAs to complete a new questionnaire to determine if complexes had serious disrepair or lacked the financial stability for renovations.
Lenders who sell their mortgages to Fannie and Freddie are also expected to dive deeper into a condo or co-op documents, reviewing six months of HOA meeting minutes and examining inspection and engineering reports from the past five years.
How new condo reforms in Florida can help avoid being placed on the lending blacklist
The state of Florida has taken a proactive approach to improving the safety and structural integrity of condominiums after the devastating Surfside collapse. Recently, new life safety reforms were implemented, which could potentially prevent Miami condos from being placed on the Fannie Mae "blacklist" for conventional financing.
The new law requires condos to complete a life safety evaluation, thoroughly inspecting the building's structure and electrical and plumbing systems. Condos must also appoint a building inspector to oversee the inspection process, ensuring that state standards conduct it.
The law requires the establishment of reserve funds for future repairs and maintenance, ensuring that associations can quickly address issues and avoid deferred maintenance that can result in costly repairs in the future.
These reforms can help prevent Miami condos from being placed on the Fannie Mae "blacklist" by addressing deferred maintenance and structural safety issues the lending giant seeks to avoid. By taking proactive measures, Miami condos can ensure that they remain attractive to potential buyers and that financing options remain available to all buyers.
Furthermore, in Miami, the public will soon have easy access to essential condo documents before making offers. New legislation allows condo buyers to review documents such as budgets, financial statements, and board minutes via an online portal. This increased transparency will help buyers make informed decisions about which condos to invest in and could help prevent the purchase of condos with deferred maintenance issues that could lead to being placed on the lending blacklist.
However, it remains to be seen how effective these reforms will be in preventing condos from being placed on the blacklist and whether Fannie Mae and Freddie Mac will adopt new lending standards that reflect the changes made in Florida.
Conclusion
In conclusion, the lending blacklist has caused frustration and uncertainty among condo buyers and owners in Miami and beyond. With the increase in ineligible condos and co-ops, those seeking conventional financing may be blindsided during the closing process. The lack of transparency surrounding the list is a disservice to all parties involved. Discovering whether a property is on the list is cumbersome and unpredictable. However, measures are being taken to help prevent condos from being placed on the list, such as the new condo reform in Florida and the upcoming availability of condo documents to the public in Miami. It remains to be seen how these initiatives will impact the real estate market in Miami and beyond. Still, transparency and communication will be vital in creating a fair and efficient process for all involved.