Report outlines risks and openings for lenders
Amid a persistent national housing shortage, Fannie Mae has published a study highlighting the growing significance of condominiums in the US mortgage market, alongside the risks and opportunities they present for lenders.
The survey, conducted by Fannie Mae’s Economic & Strategic Research Group (ESR) in late 2023, sought to capture insights from senior mortgage executives on the current procedures for condo project reviews, following a similar study in 2020.
Findings from the survey underscored a preference among lenders for integrating condo project eligibility into automated underwriting systems (AUS) as a method for simplifying the underwriting process. This was closely followed by a preference for utilizing the approval decisions or lists of approved condo projects provided by Government-Sponsored Enterprises (GSEs) or investors.
When comparing data from 2020, there was a noticeable shift towards utilizing homeowners’ associations’ (HOA) questionnaires and lender project approval lists as key information sources for condo underwriting.
As for risk factors, HOA financial instability and deferred maintenance remained high on the list of lenders’ top concerns. The survey also noted a rise in concern over inadequate insurance coverage, going up to 32% from 15% in 2020.
Overall, the survey found that participation in condo lending has increased, with 95% of lenders stating that they had issued mortgages for single-family condos within the last year.
Furthermore, 29% of lenders said they were anticipating a significant increase in their share of condo loans, compared to just 20% in 2020.
The survey also highlighted a higher inclination towards lending for new condo constructions, as respondents expressed more willingness to finance such projects in 2023 (54%) than they did in 2020 (45%).
“We believe that today’s historically unaffordable single-family housing market presents a potential growth opportunity for condos, given that they’re often more affordable and can provide greater location flexibility than traditional single-family homes,” said Jodi Horne, Fannie Mae director, single-family collateral risk management. “Consistent with both our 2020 and 2023 surveys, the condo market remains active, and its participants rely on a wide variety of information sources to guide their decision-making.”
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