CHARLIE NILSEN
Condo supply rising

As single-family home prices continue to soar in Massachusetts, condominiums have become a popular alternative for many, especially first-time homebuyers. The trend has remained strong for at least five years, and Fannie Mae is now acknowledging the changing marketplace by streamlining its condo guidelines to make it faster and easier for mortgage lenders to obtain project approval for homebuyers purchasing condos.

Fannie Mae announced the news in late March and said details of the changes will be provided in a Fannie Mae Selling Guide announcement in early May.

“Condominiums are a first step to homeownership for many first-time buyers and are a more affordable housing option in many high-cost areas,” said Tom Lund, acting head of Fannie Mae’s Single-Family Business Unit. “These updated condominium guidelines will ease the process for obtaining Fannie Mae acceptance for condo projects, which should ultimately benefit homebuyers seeking financing on condo units.”

According to Lund, the revised condominium project standards will enable more lenders to participate in condo lending and boost the availability of Fannie Mae-accepted condo projects in smaller markets.

Fannie Mae said in an announcement that the changes will occur over four categories, based on the four processes by which a single-family mortgage loan secured by a condo unit will be approved for delivery to Fannie Mae.

Limited Review, the most streamlined way to gain approval to deliver a condo loan, will be expanded with broader eligibility criteria, particularly when a loan is evaluated by Desktop Underwriter. Expedited Review, a new lender-delegated review category, will allow more condo projects to benefit from a streamlined process and more flexible guidelines, including reduced pre-sale requirements, according to Fannie Mae. Expedited Review will be supported by a new Web-based online lender registration and project management system known as CondoProjectManager. For projects that are not eligible for Expedited Review, the current Fannie Mae 1028 review process will be simplified, with reduced pre-sale requirements on certain projects and increased allowable investor concentrations.

Opening Doors

Fannie Mae also will begin accepting most Federal Housing Administration condo project approvals without requiring a separate Fannie Mae project acceptance, saving lenders time and money and eliminating duplicate efforts.

Kathleen Schreck, chairwoman of the MMBA and sales manager at Mortgage Network in Danvers, said more flexible guidelines will be a welcome change to the mortgage industry in Massachusetts.

In order to meet current Fannie Mae condo guidelines, Schreck said a newly built condo must be completed and 70 percent of the building must be pre-sold. Sixty percent of the project must be owner-occupied and no more than 40 percent can be investor-concentrated. If a project is dependent on a large number of renters, it becomes riskier to finance, Shreck said.

Schreck said she suspects Fannie Mae may change the percentage to 50/50.

Condos in Massachusetts have been popular, especially in the last five years, and prices have steadily increased.

“Condo supply is rapidly increasing, along with the value of condos,” said Charlie Nilsen, New England regional manager for J.P. Morgan Chase & Co. in Braintree.

According to statistics compiled by The Warren Group, parent company of Banker & Tradesman, median condo prices between 2000 and 2004 throughout the Bay State have increased. In 2000, the median price was $149,262. One year later, the median condo price rose to $172,000. In 2002, homebuyers paid a median price of $210,000 for a condo. A year later, condo prices reached $234,500 and in 2004, the median price was $257,000.

Nilsen said both first-time homebuyers and empty nesters are interested in condos.

“Both ends of the market are driving demand,” he said.

Nilsen said condos comprise between 20 percent and 25 percent of J.P. Morgan Chase’s business.

“The percentage of condo purchases has risen dramatically,” he said.

Five years ago, condos were only 15 percent of J.P. Morgan Chase’s business, according to Nilsen.

Fannie Mae’s announcement of broader eligibility criteria is “good news for both buyers and lenders,” Nilsen said. Lenders will be able to market their ability to accommodate projects more quickly, he noted.

For Sherwood Mortgage in Boston, news that Fannie Mae is streamlining its condo guidelines is welcome. John O’Hara, vice president and branch manager, said condos are approximately 80 percent of Sherwood’s business in Boston and Brookline.

He added that there has been a predominance of three-family homes being converted into condos.

Condos in the city tend to be new construction or built by converting an old building, and O’Hara said Fannie Mae’s existing guidelines can sometimes be strict, making it challenging for lenders to approve financing.

“If they streamline it, it will make the process easier,” O’Hara said.

Because new condos are being built rapidly to meet demand, changes are necessary, according to Denise Leonard, president of the Massachusetts Mortgage Association. She said it is possible that Fannie Mae has realized that investor concentrations may not play such a large role, causing them to lessen the restrictions.

Leonard said that action is especially important in Massachusetts, where there is less of an investor concentration in condos. People are looking at multifamily homes for investment purposes.

“We have such a huge multifamily market,” Leonard said.

Nilsen said the guidelines will allow lenders to approve loans more quickly and will possibly allow buyers to purchase the condo with a lower down payment. Currently, if a condo does not meet Fannie Mae requirements, borrowers can pay a higher down payment to secure the condo. However, Nilsen pointed out that many borrowers can’t afford a higher down payment. The new guidelines will create more opportunities for those borrowers.

“This will open doors for more people with a lesser down payment,” Nilsen said.

Training on the new condo guidelines and CondoProjectManager will be available to lenders in May.

Jennifer Jope may be reached at jjope@thewarrengroup.com.