A Secret Mortgage Blacklist Is Blindsiding Condo Owners Across The Country

Unsuspecting condo owners across the country have found themselves in a galling predicament. They have been placed on a secret mortgage blacklist which prevents them from selling their homes, according to The Wall Street Journal.

Maintained by the government’s loan backer, Fannie Mae, the list has grown from a few hundred residences to 5,175, according to a lawyer interviewed by the Journal with access to the information. According to the report, the list grew after the Surfside condo collapse in Miami in 2021, which killed 98 people. Unbeknownst to property owners, their buildings find themselves on the list if Fannie Mae concludes their building needs essential repairs or has inadequate insurance. 

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More Stringent Underwriting Guidelines

Although Fannie Mae and the sister company, Freddie Mac, do not make loans themselves, they underwrite loans from lenders, buy roughly half of the country’s mortgages, and sell them to investors, guaranteeing payments through insurance. 

Last year, the two companies tightened their guidelines, detailing red flags that could cause properties to be placed on the list. This has caused lenders to issue more stringent insurance requirements. Fannie and Freddie have standardized underwriting criteria. When loans conform to this, it is advantageous to the buyer, requiring lower down payments and better rates. 

A Fannie Mae spokesperson disagreed with the Journal's characterizing the company’s database of buildings that are in a gray area of funding approvals as a “blacklist.” Although Freddie Mac’s insurance guidelines are similar to those of Fannie Mae’s, the company maintains that it does not have any type of list. 

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The Surfside Condo Collapse Changed Everything

According to the list provided to the Journal by Boston law firm Allcock & Marcus, Florida has the most properties on it, with over 1,400 developments, due mostly to the tough condo safety law implemented in the wake of the Surfside collapse. California was next, with just over 700, followed by Colorado and Hawaii.

“For a while there, we were in a panic — no one was lending,” real estate agent Larry Spiteri, who represents units in Rossmoor, an upscale retirement community of 6,700 homes south of downtown Walnut Creek in Contra Costa County, told the San Jose Mercury News.  With no lenders offering qualified mortgages, only those who had found a cash buyer could sell their homes. The result was a temporary drop in home prices in the community. They only rebounded when local mortgage broker Mary Niles found alternative lenders willing to offer non-qualified mortgages to buyers, the Mercury News reported.

Real estate lawyer Tyler Burding told The Mercury News, “There are many condos that are rotting from within. They need reconstruction. By the time HOAs [homeowners associations] get the numbers of what that’s going to cost, there’s no way to raise the money. Banks won’t lend it. The owners can’t afford to pay it.”

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The Rise Of Alternative Insurance Policies

Even if buyers can find a lender, an additional problem arises when they cannot secure insurance. This has been an increasing concern in disaster-prone areas such as Florida and California. Bloomberg revealed that homeowners are turning to alternative types of insurance—non-committed policies—usually used in commercial loans. These policies are an alternative to state-run insurance programs and for highly specialized insurance companies. Surplus Lines Insurance is similar and is also being adopted in high-risk states. 

According to Bloomberg, between 2022 and 2023, non-admitted home insurance premiums grew 27.5% compared to 13.8% in the admitted market. In Florida, between 2009 and 2023, non-admitted insurance used by homeowners grew by 73% to more than 92,000 homes.

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