HousingWireHousingWire
A growing problem is preventing condominium owners from selling their properties. Many condos are being added to a “blacklist” by Fannie Mae due to the properties not having enough insurance or needing major repairs.
If a condo is on this list, it’s significantly harder for prospective buyers to get a mortgage, making it nearly impossible to sell.
Recent coverage from the Wall Street Journal detailed several sellers’ experiences when attempting to close listings due to the blacklist, which is maintained by Fannie and includes properties that the GSE deems inadequate in terms of property insurance or repairs.
This blacklist became more of a prevalent issue after the 2021 deadly Surfside condo collapse in Florida. Insurance premium crises across the country in places like California, Texas and Florida are exacerbating the costs associated with locking in coverage.
As a result, more and more condos are failing to meet Fannie Mae’s requirements, which are strict about the level of insurance needed. WSJ found that 5,175 properties fail to meet Fannie Mae’s standards.
To lower high insurance costs, many condo associations are choosing cheaper, limited insurance policies. The downside is that many of those pared-down policies don’t meet Fannie and Freddie Mac’s standards
Insurers and regulators agree that climate risks could threaten mortgage borrowers’ creditworthiness and wallets, with soaring premiums and sticker shock leading to dropped deals in weather-event-stricken states. Some lenders and insurers have abandoned markets altogether.
WSJ showcased Shadow Ridge, a Los Angeles-based condo complex that was blacklisted in December due to its shared insurance policy with other complexes, which Fannie Mae rejects. Getting a separate policy for the complex, which is within a brushfire area, would increase monthly homeowner fees from $570 to over $1,100, WSJ reported.
A spokesperson for Fannie told WSJ its requirements are designed to “help protect borrowers from physically unsafe or financially unstable projects,” and disagreed with the characterization of Fannie’s database of projects as a blacklist but rather an online tool. Freddie Mac also denied having a list.
