Changes may bring dark days for condos - Jacksonville Business Journal:
This goes back to May. I heard about it this morning on Common Interest Radio, CAI's program that is broadcast on WIND-560 AM here in Chicago. This is a bombshell that I missed when it happened:
NORTHEAST FLORIDA -- Changes in the underwriting standards of mortgage giant Fannie Mae have caused lenders to look more closely at condominiums and the companies that manage them, often resulting in more rejections of mortgage applications. The new lending requirements imposed by one of the nation's largest buyers in the secondary mortgage market have bled through to lenders' requests from condo management companies in the form of additional lines on questionnaires and legal document requirements. Lenders wanting to sell bundles of mortgages are further scrutinizing association reserves, investor occupancy ratios and the number of past-due loans in the complex. One wrong answer that results in a higher risk to the lender can mean a loan is rejected.
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The guests on Common Interest Radio are saying that this will make it impossible for many associations to borrow, and for many buyers to get loans. If Fannie Mae won't buy the loan, many lenders won't lend. It will be a lot of work for association boards, and if they don't do it right they don't get the loan. Basically, Fannie Mae is making the lender hold the association to much higher standards.
This means harder times for associations, especially those that are already in trouble.
5 comments:
Dr. McKenzie,
There was a similiar story in our local paper a few weeks ago. One major point brough out in the very short article was that lenders were going to insist the "right of refusal," be removed from the CC&R's before a loan would be considered. No simple word of mouth guarantees from a board; or, board member.
What does that tell you?
Since condos as I once observed are like publicly traded shares in a closely held real estate holding corporation, it was only a matter of time before the secondary mortgage market began to take a closer look at lending standards for condo purchases. The mortgage market is effectively underwriting a condo buyer's investment and unlike a detached, single family home, most of the financial risk in the equation resides in the condo association and how well (or not) it manages the corporation.
As you (Evan McKenzie) have often pointed out, these associations are prone to mismanagement since they are run by reluctant volunteer homeowners who often find themselves in over their heads, particularly when it comes to capital maintenance and fiscal solvency.
I see this development as a harbinger of the potential restructuring of condos as investment securities rather than real property.
Mr. Pilot,
As a former condo president, of nearly nine years, the problems that manifested had nothing to do with our association. In my experience, the nightmare that was forced upon those vulnerable in our association, was due to the lies, fear tactics, fraudulent assessments, fraudulent lawsuits and targeting of the disabled by selective HOA board members, their attorney and industry affiliation.
This HOA was not a master association, nor, have any rights, including ownership rights, etc., to our property. They and their associates are liars and thieves. They are the poster children for those that abuse, force families to become homeless, and foreclosure due to their fraudulent liens for fabricated attorney fees. If anyone questions the true tactics and abuse of any of these groups employ they should listen to those who have been victimized by one.
The truth is with the numbers of those homeless, lives, careers and families destroyed, by one of these "groups." That is, of course, if anyone cares!
Did you know that Social Security is now awarding disability for PTSD to some of those victimized by these "groups." These families deserve a lot more than a disability payment ans the government shouldn't be paying it!
Those accountable should be held accountable, no matter who they are, or, who they know.
Mr. Pilot,
I wouldn't focus on the "incompetence" of volunteer board members but rather the susceptibility of the organization's members to fraud, embezzlement, etc. to "professional" management companies. These professional management companies have been working on legislation for many years that renders individual members defenseless against the Board of these associations.
The "professionals" have consistently sought ever greater power for the Boards because the "professionals" operate as agents of the Board and are indemnified by the Board. In short, the "professionals" have no vested interest but absolute power over the property belonging to the members of the association.
As more and more people (and lenders) become aware of the abuses by these "professional" management companies, there will be little choice but to enact legislation against these "professionals" in order to preserve some sense of value for the owner of the real estate. Hopefully such legislation will include statutes which criminalize much of the conduct or allow suits in tort for the conduct of these management companies. All one needs to do is read CAI's "Public Policies" to see what is in there and what is conspicuously absent to understand why most homeowners view CAI and its members as little more than organized crime.
"I wouldn't focus on the "incompetence" of volunteer board members but rather the susceptibility of the organization's members to fraud, embezzlement, etc. to "professional" management companies."
But the board hires the professionals and is ultimately accountable under the current real estate based model of condominiums in the U.S. That condo boards are so widely prone to exploitation by their advisers speaks volumes about the weakness of the existing management structure. If condos were structured as investment securities and regulated as such, I suspect the dynamics you describe would change dramatically.
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