Fannie Mae Changes its Long Time Investor Policy on Condominium Financing

Fannie Mae has changed its controversial policy on investor units in condominiums. In a memo to lenders last week, Fannie said that when new investors apply for financing to buy a condo unit, they won't have to deal with its former rule whereby vacant, bank foreclosed and REO units were counted as non-owner occupied.

That's important because Fannie's long-time policy has been to bar new investor loans in buildings where less than 51 percent of the units are owned and occupied as principal residences or second homes. The idea is that there's a greater risk of default in projects that have high numbers of investor units, with absentee owners renting out their units.

Under the revised policy, which was requested by the National Association of Realtors in November, Fannie says it will now count bank-owned REO units that are listed for sale, but are not rented, as if they are owner-occupied when computing the 51 percent ratio.

In buildings that still don't meet that baseline occupancy test, Fannie says it will allow lenders to ask for waivers by submitting financial information about the project for individual review by Fannie.

In the same memo last week, Fannie Mae also outlined a series of other policy changes that could potentially affect condo investors.

Here are the highlights:

· Fannie generally will not fund units in developments where more than 20 percent of the space is used for non-residential purposes. For example, if retail or office space exceeded one fifth of the total usable square footage in a project, the new rule would apply.

· Fannie will avoid projects where a "single entity" owns more than 10 percent of the total units. Examples of such owners include investor groups, partnerships, corporations, or individual investors.

· Fannie generally won't finance units in condo projects where it believes there are "excessive" sale or financing concessions being offered to buyers by developers or building owners completing conversions. These might include offers where developers pay purchasers' principal and interest payments for long periods of time, or refund condo fees, taxes or home owner association dues. Excessive concessions up front distort the underlying economics of projects, Fannie believes, and may attract buyers who can't really afford the full payments.

As our market shifts, Fannie is trying to shift as well to pave the wave for prudent financing while still allowing investor dollars to find their way into the real estate market. Their new approach may just be what the housing market needs for 2009.

Would you like more information about investment opportunities in Omaha? Contact bill.swanson@cbshome.com or visit his website at www.billswanson.com.