Fannie Mae to Reassess Lending Guidelines for Florida Condo Projects
January 7, 2010 by Lucas Lechuga
Earlier this afternoon, Fannie Mae made the announcement that it will reassess hundreds of condominium projects throughout the state in an effort to jump-start the market. The news is a godsend to a condo market that was heavily supported by cash buyers in 2009.
Here are some excerpts regarding the announcement from PR Newswire and Reuters:
PR Newswire
Fannie Mae announced today that it is undertaking a comprehensive review of hundreds of condominium projects in the state of Florida in an effort to allow additional projects to become Fannie Mae-eligible through a new "Special Approval" designation.
A dedicated team of six Fannie Mae professionals based in Florida is conducting a thorough examination of condominium projects across the state that may not currently meet Fannie Mae's standard eligibility criteria and assessing specific criteria more closely, including occupancy, homeownership association dues, financial stability of the project and property condition. Projects deemed to be sufficiently stable following the closer examination are granted a Special Approval designation, meaning lenders can originate and deliver mortgage loans secured by units in these projects to Fannie Mae
Reuters - (full story)
Fannie Mae, the largest funder of U.S. home mortgages, on Thursday said it is making it easier for some Florida condo buyers to qualify for loans in a bid to stabilize one of the worst-hit real estate markets.
The housing finance giant said it is reassessing hundreds of Florida condo projects to see if they are "sufficiently stable" enough to qualify for funding, even if they don't meet current requirements, Fannie Mae said in a statement.
These projects would get a "special approval" designation from Fannie Mae, clearing the way for hamstrung Florida lenders to originate loans and help spur a recovery, it said.
Sweet! Looks like Uncle Barack is trying to create a new bubble.
Desperation. Real estate is subsidized because it is a horrible investment for most people.
Here’s the link to the Miami Herald story
Wow, where do you people get this stuff.
As with most corrections regulations try to correct and the pendulum usually swings to far the other way. Do they really expect a new condo to fill over half it units with cash buyers??? And why would that matter if the condo is a a decent position?
From the article:
A dedicated team of six Fannie Mae professionals based in Florida is conducting a thorough examination of condominium projects across the state that may not currently meet Fannie Mae’s standard eligibility criteria and assessing specific criteria more closely, including occupancy, homeownership association dues, financial stability of the project and property condition.
This seems to be a more sensible approach. Look at each condo individually. It’s not like they’re reducing the requirements that people need to qualify for a mortgage and after all that was the biggest problem. If someone can actually AFFORD to live in a $250,000 condo then why stop them from getting financing.
Even if the value drops in the next year of two it’s not going to matter because the person purchased the condo at a value they can afford to live at. Not to mention as the condo fills up with these people the condo will only get more stable which decreases the likely hood that it will continue to drop. By refusing financing you’re pushing the market artificially lower.
Real estate is a great investment for most people. For most Americans their home is probably their biggest purchase and represents the majority of their wealth. The typical homeowner’s net worth ($205,200) was 49 times that of the typical renter ($4,200) in 2008.
Real estate is a horrible short term investment because its not a SHORT TERM investment.
Gixxer 1000 said: “Real estate is a great investment for most people. For most Americans their home is probably their biggest purchase and represents the majority of their wealth. The typical homeowner’s net worth ($205,200) was 49 times that of the typical renter ($4,200) in 2008.”
Yikes! Talk about a gross over-generalization. Would you mind showing us the average age of a homeowner vs. the average age of a renter?
The last 5 years put the lie to the idea that real estate is a great investment or a great wealth builder. It might have been a great investment back when people bought a home and lived in it for 10-20 (or more) years, but these days, with people moving all the time, renting can be far more economical. Unless a person was 100% sure they’d be staying put for at least 5-10 years, they’d be nuts to buy a house or condo in this market, with stagnant (or declining!) pricing all but assured for the foreseeable future.
Most people put zero down on their house. What do you want to call it, an asset or a liability?
Joe
“Unless a person was 100% sure they’d be staying put for at least 5-10 years, they’d be nuts to buy a house or condo in this market”
To quote you from earlier “Gee, no kidding” 🙂
You should not be buying a home unless you expect to own it for at least 5 years, even in a good market. With the transaction cost of buying and selling most people would lose money in a few years even in a good market.
What part of LONG TERM investment don’t you understand???
“The last 5 years put the lie to the idea that real estate is a great investment or a great wealth builder.”
Yes if your talking about those stupid infomercials telling you how to buy foreclosures for pennies on the dollar and sell them the next day for thousands more. But real estate has been and will continue to be one of the greats ways to accumulate wealth long term.
Where else can a common person obtain that much appreciation on such a large asset with that kind of leverage????
I mean do the freaking math. Let’s just assume a typical 4% appreciation on home values over the next 10 years.
Lets say you purchase a house a $500k house with 10% down at 5%. So for $50k you’ve leveraged a $500k asset. 10 years later that asset is likely to be worth $740k using the 4% appreciation rate. That’s a profit of $240. The mortgage is a sunk cost because you would have had to pay that anyway for rent. To earn that same profit with $50k in another investment you would have to make a 17% return every year!
Declaring that real estate is no longer a wealth builder is ridiculous.
Wild Bill
“Most people put zero down on their house. What do you want to call it, an asset or a liability?”
The funny thing is the less you put down the higher the return. Did anyone take any finance classes? In the example above if you would receive profit of $240k in 10 years without putting ANY money down. Trying asking your stock broker to trade $500k worth of stock for free.
Asset Definition:
Any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Examples are cash, securities, accounts receivable, inventory, office equipment, real estate, a car, and other property.
Gixxer 1000 —
1. “Most people” don’t spend 5-10 years in the same home or condo these days, especially in the highly transient Miami market.
2. It took almost 10 years for home prices to recover after the last major r.e. crash, so you’re doing people a disservice by projecting almost 50% appreciation over the next decade.
3. Rents are at historic lows vis-a-vis ownership costs, so claiming mortgage costs are a sunk cost at a 1:1 par to rental cost is absurd.
“I mean do the freaking math. Let’s just assume a typical 4% appreciation on home values over the next 10 years. ”
Are you serious? Market is still dropping buddy. You have a better shot at the market depreciating 4% annually over 10 years than appreciating at that rate. Most likely it will try to hold steady. No appreciation in sight-at least until inflation strikes-but that will be a real wildcard for outcome predictions.
Yes I’m serious. What do you really think the market is going to drop to???
“You have a better shot at the market depreciating 4% annually over 10 years than appreciating at that rate.”
Are you serious?? If prices dropped 4% a year for the next 10 years then Miami housing prices in 2020 would be the same as they were in 2000. In the entire existence of the US housing market prices have never been flat for 20 years.
Are you forgetting about the decades of housing prices. Here is the historical housing prices for Florida back to 1940:
1940 $2,218
1950 $6,612
1960 $11,800
1970 $15,000
1980 $45,100
1990 $77,100
2000 $105,000
Florida has had an appreciation rate of over 6% a year for 60 years, and the US as a whole has been around 4%.
Looking at historical prices this trend broke around 2001. In Miami at that time the median sales price was around $114k. Had this pricing trend continued and all the bogus loans to unqualified buyers (artificially increasing demand) never happened then pricing would have increased as such:
Historical 4% Trend Actual Trend
2000 $114,000 $114,000
2001 $118,560 $130,000
2002 $123,000 $148,000
2003 $128,234 $160,000
2004 $133,363 $175,000
2005 $138,698 $220,000
2006 $144,246 $260,000
2007 $150,016 $315,000 (Peak)
2008 $156,016 $290,000
2009 $162,257 $250,000
Now $168,747 $183,530
If you continue the pattern to the end of 2010 then the two would be identical at around $175k.
Keep in mind that this is for the Miami MSA. So some neighborhoods may still have more to fall while other may soon begin to rise. If you look at the recent median sales prices for Brickell on Zillow it shows that Brickell bottomed in Aug ’09 at $207k and has since risen to $228k in Nov ’09.
How low do you want the market to go? Lucas is posting sales (retail) between $106-$167 sqft. Where else in America are you going to find rates like that downtown in a comparable city? Are you really waiting for $50 sqft????
The real problem I see in this market is HOA fees. These Condo were obviously built for a higher market. Now that they have reduced in values and are affordable to a different market these amenities need to be cut to be inline with the new buyers.
never said we would depreciate at 4% a year. i said we have a better shot at that happening than it appreciating at 4% a year. this was the scenario you laid out for a discussion above. its a bogus scenario. RE will not appreciate at 4% a year over the next decade. it may make some big movements in another 5 to 7 years, but not before then. over the next five years it will basically be stagnate/negative.
be careful of following trends from the past. we are in a new economic environment, so there is very little justification in assuming past trends will reemerge in the future. I point to two huge examples recently: the japanese stock market and the nasdaq market. Large bubbles, just like RE, which burst. One major difference is those losses were based on cash already in hand-one can recover from that. The RE and credit collapse of today is based on leverage. Many folks will have to work another 10 to 20 years just to earn the money to pay off the debt they have accured-with nothing to show for it. These losses will continue to burden folks for a generation-and they dont even understand that yet.
fyi: http://www.buybeach.com/recent_sales/data/con1209.htm
I am very impressed with Metropolitan. Does anyone know what was going on there?
Gixxer 1000 — Don’t you think it’s kind of silly to suggest Miami condos have hit the bottom of the market, and then claim that slashing HOA amenities will have no impact on condo values?
If a condo sells for $150/sf, as in your example below, and then the condo’s amenities are slashed, how can that condo have the same value? At many if not most of these new condos, the amenities are a huge part of the sales pitch. Minus the amenities, a lot of the actual units are little more than slightly nicer rental apartments.
You cannot slash amenities in a condominium without owners voting on it. You cannot get rid of pools, valets and security. If you don’t want to pay for these things you can live in a smaller 30 unit or less building.
Wild Bill, I agree. Very hard to change a luxury condo building into a non luxury building. The amenities are already there. You can save a couple of bucks by removing valet, but doorman and security most likely wont be eliminated. Pools and other common areas are already built-you are stuck with them. HOA can most likely only be reduced significantly if building owners take active role in governing the building, including pressuring management to be efficient and searching for best value on insurance.