The most recent Fannie Mae’s Lender Sentiment Survey
focuses on the complexities of lending to the condominium market. The company
stresses that this type of housing can play an important role in narrowing the supply gap for
affordable housing options as well as providing an attractive alternative for
homeowners seeking to downsize. However, since the great recession, there has
been a significant shortage of both new and existing units for sale.

Condos
represent 8 to10 percent of the mortgage market but tend to exist primarily and
thus play a larger role in many urban areas. They also present unique risks
given the financial responsibility owners share for the operation and maintenance
of the common areas and shared amenities. Lenders may also face increased time
and costs due to the complexity of underwriting condo project eligibility.

Fannie Mae
asked more than 200 senior mortgage executives about market trends and to help
identify opportunities to streamline or enhance policy and process requirements
and thus more effectively manage condo project risks. Most respondents, 86
percent, said they were currently originating single-family condo mortgages and
71 percent saying they expect their share of those loans as a percentage of
their loan volume to remain about the same. Approximately 40 percent reported
having dedicated condo project-approval teams.

When asked
about ways to improve underwriting to minimize risk, lenders names three risk factors
to which they felt secondary market investors should pay more attention. Sixty
percent mentioned homeowner association (HOA) financial stability
, 33 percent said
oversupply or overvaluation, and 31 percent said deferred maintenance. When
asked about risk factors they have become more concerned about over the last year,
financial instability was still first at 50 percent, followed by deferred
maintenance (33 percent), oversupply or overvaluation (28 percent), and
hotel/resort use or short-term rentals (24 percent).

Lenders also
noted that condo lending involves gathering data from multiple sources, further
complicating the process. They tend to rely on the sources they consider most
useful; HOA questionnaires, appraisals, and approval lists from the GSEs and
FHA.

Even with
the complications involved in condo lending, lenders said the greatest
opportunities for improving
that lending was in the overall loan origination
process, borrower income verifications, appraisals, and loss mitigation
workout
rather than condo review.

Since the
majority of lenders told Fannie Mae that they plan to maintain at least their
current percentage volume of condo lending, any improvements to information-gathering
and data evaluation should benefit both lenders and borrowers. The company says
this is especially critical for condo projects with characteristics that
lenders frequently associate with increased risk. Lenders reported that they
welcome change that improves the review process and further enhances the
evaluation of their risk position, as innovation continues to accelerate
enhancements for other prioritized loan origination and servicing processes.

By Jann Swanson , dated 2020-10-21 11:04:15

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Courtesy of Mortgage News Daily

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