A condominium association client recently wrote to advise of the frustration that a potential purchaser in their community is experiencing in trying to qualify for Fannie Mae (FNMA) financing for their unit purchase. Not only is this purchaser befuddled by the sheer complexity and number of Fannie Mae requirements but the owner/seller and the board have all spent countless hours trying to ensure that the purchase goes through, apparently to no avail at this point.
Two FNMA guidelines that proved to be hurdles to this transaction are:
1. Fannie Mae is requiring that “the annual budget must reflect at least 10% of the total income to be transferred to a reserve account.” This community’s 2010 income was $890,000 and they would be required by Fannie Mae to transfer $89,000into reserves. However, this community’s membership has waived full funding of their reserves since 1988 which is their statutory right. Over the years, they have placed $19,800 annually in reserves and now have approximately $250,000 in reserves, a whopping 28% of their budget. They have not, however, deposited 10% in any given year and that is the sticking point!
2. Fannie Mae is requiring fidelity bond coverage of $456,100. The community bonds the amount in its Operating Account which is $100,000, protects against fraud by annual independent audits and requires dual signatures on all disbursements. Requiring 4 1/2 times the coverage in this economy is not feasible for them right now without increasing assessments.
The purchaser, owner and board were all left to wonder whatever happened to the old-fashioned litmus tests traditionally used by lenders such as credit scores, income and the borrower’s other obligations? The people trying to buy and sell units in these communities are the ones feeling the harsh effects of Fannie Mayhem!