Financing Information for Condos from Fannie Mae and Freddie Mac
Bulletin 2021-38
With a focus on ensuring safety and financial stability, particularly in light of recent building failures, Freddie Mac's Bulletin 2021-38 outlines temporary requirements and updates for condominium and cooperative projects. It also reorganizes certain topics in the Freddie Mac Guide to enhance usability.
Key Points:
Temporary Requirements for Condominium and Cooperative Projects:
These requirements target projects needing critical repairs and those with special assessments.
Critical repairs include significant issues impacting safety, soundness, and structural integrity.
Special assessments need to be reviewed to ensure proper allocation and collection of funds.
Documentation from HOAs, engineer reports, and reserve studies are necessary for evaluating projects.
Definitions for Important Terms:
Critical Repairs
Repairs and replacements that significantly impact the safety, soundness, structural integrity, or habitability of the project. Includes:
Life safety hazards
Violations of federal, state, or local laws and codes
Material Deficiencies
Significant Deferred Maintenance
Material Deficiencies
Problems that cannot be addressed by routine maintenance and include:
Issues that may cause system failure within a year
Significant cost increases for repairs due to aged or damaged components
Mold, water intrusions, or damaging leaks
Significant Deferred Maintenance
Delayed maintenance that leads to:
Advanced deterioration
Inefficiency
Higher operating costs
Decreased property value
Routine Repairs and Maintenance
Regular, nominal-cost maintenance that includes:
Preventative measures
Budgeted work by on-site staff
Minor deficiencies under $3,000 requiring repair within 12 months
Fully funded scheduled repairs over $3,000 within 12 months
Effective Dates:
These temporary requirements take effect for mortgages settled on or after February 28, 2022.
Special Assessments:
Any current or planned special assessments must be reviewed for proper allocation and collection.
Documentation like income statements must be used to verify collections.
Reserve requirement reminders:
There are no changes to reserve requirements; existing requirements must still be met.
Reserve studies must validate financial protection and be conducted by qualified professionals.
Reorganization of Topic 5600:
Effective March 31, 2022, the reorganization aims to improve usability by reducing redundancies and updating headings.
New chapters are created to organize related content efficiently. \
Important Reminders:
Sellers are responsible for ensuring project eligibility and compliance with Freddie Mac's requirements.
Proper documentation and thorough project reviews are crucial.
Homeowners affected by disasters may access specific servicing flexibilities.
Full document of the Bulletin: (please click on the underlined text)
December 15, 2021 Bulletin, Bulletin 2021-38
Condo Project Advisor® Project Assessment Request (PAR) – September 4, 2023
Project Certified Status
Effective Dates:
Required for mortgages with settlement dates on or after September 4, 2023.
Optional implementation for mortgages with settlement dates on or after July 28, 2023, if sellers are ready.
Enhancement:
New "Project Certified" status in Condo Project Advisor.
Assigned when a project meets requirements for Established Condominium Projects and is not ineligible.
Requirements:
Note Date must be within 120 days of the Condo Project Advisor Feedback Certificate issue date.
Refer to Guide Section 5701.1(e) for detailed requirements.
Short Overview of Bulletin 2021-38 and Guide Section 5701
Project Certified Status Enhancement:
Effective from September 4, 2023 (optional from July 28, 2023), Condo Project Advisor adds "Project Certified" status for compliant Established Condominium Projects. Mortgages with this status must have Note Dates within 120 days of the Condo Project Advisor Feedback Certificate issue date.
Delivery and Licensing Requirements:
Mortgages with "Project Certified" status must be Loan Product Advisor® Mortgages, delivered to Freddie Mac within 120 days of the Note Date, using specific ULDD Data Points. Licensing updates reflect the PAR enhancement in Freddie Mac Loan Advisor®.
Assessment of Project Risks and Critical Repairs:
Sellers must review project risks such as marketability, financial stability, and safety, using experienced staff. Critical repairs include significant safety and structural issues, while routine repairs are preventative and within budget.
Delivery Requirements
Effective Dates:
Same as above: September 4, 2023, required; July 28, 2023, optional.
Conditions:
Mortgages with a "Project Certified" status must be Loan Product Advisor® Mortgages.
Must be delivered to Freddie Mac within 120 days of the Note Date.
Use “J97” for ULDD Data Point Investor Feature Identifier and “Exempt From Review” for Project Classification Identifier.
If not delivered within 120 days, a new PAR and Feedback Certificate are required before delivery.
Guide Sections Impacted:
Sections 5701.1 through 5701.3, 5701.5, 6302.20, and Exhibit 34.
Licensing Framework
Effective Date:
July 28, 2023.
Update:
Licensing framework updated to include PAR enhancement in the system-specific license for Freddie Mac Loan Advisor®.
Guide Section Impacted:
Section 2402.2.
Contact Lance Luke if you have any question.