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Desperately looking for ways the blow the next bubble, Barney Frank, House Financial Services Committee Chairman, wrote a letter to the chief executives of both Fannie and Freddie, to relax the standards on mortgages for new Condo's. It is the indisputable proof that politicians have no idea what is going on; what the causes of this crisis are and who is responsible. But Barney Frank should be the one man in the US who should have a helicopter view as he is the political financial leader of the US! Should one laugh or cry?
Changes Urged to Rules on Condo Loans
Two Democratic lawmakers are calling on Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery.
In March, Fannie Mae said it would no longer guarantee mortgages on condos in buildings where fewer than 70% of the units have been sold, up from 51%. Fannie Mae also won't purchase mortgages in buildings where 15% of owners are delinquent on condo association dues or where one owner has more than 10% of units, which the firm sees as signals that a building could run into financial trouble. Freddie Mac will implement similar policies next month.
In a letter to the chief executives of Fannie and Freddie, Reps. Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, and Anthony Weiner (D., N.Y.) warned that the 70% sales threshold "may be too onerous" and could lead condo buyers to shun new developments. The legislators asked the companies to "make appropriate adjustments" to their underwriting standards for condos.
The political push illustrates the balancing act facing the two government-controlled mortgage-finance giants as they struggle to keep the housing market afloat without losing more money.
The two companies, along with the Federal Housing Administration, purchase or guarantee the vast majority of mortgages in the U.S. That means that any toughening of lending standards could have an outsize impact on the housing market. But setting guidelines that are too lax could saddle the companies with risky loans that ultimately stick taxpayers with a bigger bill.
In an interview, Rep. Weiner said the rules have "had a real chill on the ability to get these condos sold," at a time when prices of condos have fallen enough to attract potential buyers.
Fannie Mae officials say the new rules haven't been as taxing as some claim. The mortgage company said the 70% rule doesn't apply to loan applications submitted through an underwriting program used by major lenders, and that hundreds of projects submitted through that program since March 1 have been approved even though their sales levels are below 70%. Developers are also able to apply for exemptions to the new policies for loans that are manually underwritten. Both Fannie and Freddie say they are preparing a response to the lawmakers.
"In the absence of these changes, Fannie and Freddie would be putting good money after bad and run the risk of further increasing the building epidemic of foreclosures and dysfunctional homeowner associations in Florida and around the country," said Charles Foschini, vice chairman of CB Richard Ellis in South Florida.
The FHA requires 51% of units to be sold for developers to secure approval to offer mortgages backed by the government agency, a point the lawmakers made in their letter to Fannie and Freddie. The FHA has considered lowering its threshold, citing concerns that tighter underwriting standards could delay a recovery and pointing to its traditional role to provide stability in volatile housing markets.
Fannie and Freddie have also boosted fees on mortgages for condos. Buyers without a minimum 25% down payment have to pay closing-cost fees equal to 0.75% of their loan, regardless of their credit score, under new rules that took effect in April. Fannie has said it will drop that fee in August for cooperative apartments and detached condos.
Tighter lending standards are also creating hurdles for condo owners who want to sell their units. Richard Shepard wasn't able to sell his New Smyrna Beach, Fla., condo in April to a buyer who was prepared to put 30% down on the $216,000 unit. The buyer, a naval officer, couldn't get financing. Mr. Shepard says lenders said the condo association won't be controlled by the unit owners until July, so they wouldn't underwrite any loans for units in the building.
Mr. Shepard, a retired 67-year-old truck driver, owns free and clear his primary residence in Bridgton, Maine, and bought the Florida condo for $225,000 at an auction last year. He and his wife, who have rented out the unit, put it on the market earlier this year after higher property taxes increased his monthly mortgage payments by $350.
"This is stupid," Mr. Shepard recalls telling his lender. "We're going to possibly go into foreclosure even though we've got a buyer with excellent credit who wants to buy and who has a huge down payment."
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