|FNMA and FHLMC (Fannie Mae and Freddie Mac) are the major buyers of mortgage loans in the US. As such, they establish standards for loans that can be sold to them by lenders. If individual mortgages meet these standards, they are called conforming loans. If an individual loan isn’t conforming and therefore can’t be sold to these GSEs (Government Sponsored Enterprises), the lender must hold that loan in its own portfolio of investments. Lenders prefer selling their loans to the GSEs so they can free up and re-lend that money. It should be noted here that portfolio loans not sold to FNMA or FHLMC usually carry higher interest rates to the borrower.
So…what does this have to do with South Florida condominiums? Well, the standards for conforming condos focus on the financial health and stable management of the property. Lenders use FNMA’s online Condo Project Manager (CPM) for getting qualification approval. Some of the basic questions include:
* Are any sections of the property used as a condo hotel or
* Has control of the HOA been turned over to unit owners?
* Is there any pending litigation against the HOA?
* Does the building include any commercial space?
* Is the property a conversion or was it purpose-built as a condo?
* Does the property carry sufficient insurance coverage?
* Does the HOA account have sufficent reserves for projected
* Are more than 10% of the units owned by one entity or
These are just an overview of the standards included in the CPM questionnaire for condominiums, which goes into further detail. I call it the “short form”. If you’re familiar with financial market investment terms, you could say that a property appraisal is the technical analysis of value, while the condo questionnaire is the fundamental analysis of value.