Key facts
- Housing groups CHLA, CAI, and NAMB sent a letter to FHFA, Fannie Mae, and Freddie Mac regarding changes to condo lending rules.
- The organizations are concerned the changes will raise costs for borrowers and associations, and limit credit availability.
- A key change involves replacing limited reviews with full reviews for condo projects starting August 3.
- Another change will increase required condo project reserves from 10% to 15% starting January 4, 2027.
- The groups requested a delay in implementation and suggested options like temporary underwriting exceptions and clearer definitions for critical repairs.
Three housing organizations—the Community Home Lenders of America (CHLA), the Community Associations Institute (CAI), and the National Association of Mortgage Brokers (NAMB)—have formally requested that the Federal Housing Finance Agency (FHFA), Fannie Mae, and Freddie Mac delay and revise upcoming changes to condominium lending rules. In a letter dated July 8, the groups expressed significant concerns that the new policies, set to take effect in stages, could negatively impact housing affordability, access, and inventory.
The organizations highlighted that condominiums represent a crucial segment of the housing market, particularly for first-time buyers, moderate-income households, seniors, and those in high-cost areas. They believe the proposed changes, including the shift from limited to full reviews for condo projects starting August 3 and the increase in required project reserves from 10% to 15% by January 4, 2027, will unintentionally raise costs for borrowers and community associations. These operational burdens, including increased documentation, third-party review costs, and processing times, are expected to fall on lenders, managers, and homeowners, potentially adding over $1,000 to a borrower's costs.
Furthermore, the groups argued that the mandated increase in reserves could lead to higher monthly association dues and special assessments, without adequately considering the diverse risk profiles of different condo projects. They also pointed to ambiguity surrounding 'critical repairs' and called for greater clarity to improve lender confidence and reduce unnecessary costs. The letter suggested that smaller lenders may face a competitive disadvantage due to friction in accessing project eligibility status information.
To address these issues, the housing groups proposed several improvements, including offering temporary underwriting exceptions for lower-risk transactions and projects with strong financial histories. They also called for a delay of at least one year for the new reserve funding standards. Mat Ishbia, CEO of United Wholesale Mortgage, echoed the sentiment for a delay, stating the industry understands the goals but needs more time to avoid market disruption. The groups also seek standardization of critical repair definitions and a reevaluation of a single underwriting standard for all condo project types, advocating for greater alignment with the Federal Housing Administration (FHA) to streamline reviews and reduce costs.