BUDGET SURPLUS, P.2

 
Do you require or suggest that they do 10 percent?

Obviously, if they're a condominium in particular, I think that the 10 percent would conform with the new rules of Fannie Mae and Freddie Mac.

Attorney Stuart Saft, a partner at Dewey & LeBoeuf, has told me that those rules don't affect co-ops.

They don't apply to co-ops [but to] condominiums exclusively. The Florida real estate market was probably the hardest hit with these condominiums and no one was able to sell any units in Florida, and what they did was as a part of the process, they said."Listen, if you want us to be able to provide the money in loans, and to back the loans if it's FHA [Federal Housing Administration], they want to make sure that these budgets have a ten percent surplus line item allocated in their reserve fund."

And having the reserve fund makes them more attractive?

Well, actually, if they have the line item for the reserve fund, and they meet the certain other "minimum" standards now they comply, and Fannie Mae and Freddie Mac will buy the mortgages. So, if you're an underwriter, if you're a broker or a bank, depending on which entity you're dealing with, Freddie Mac or Fannie Mae, there's only one way you could actually get them to buy the mortgage, basically, was to make sure that your unit-owner and prospective buyer qualified. They would have to provide the financials, the budget for the condominium, and the budget would have to have this 10 percent reserve requirement or line item in it.

How big is this going to be in New York?

We're actually in the process of reaching out to one of the bankers here, in an effort to determine just how much of a push Fannie Mae and Freddie Mac will make [to enforce this rule], because apparently they're offering exemptions, if you don't have this 10 percent line item in your budget, you can probably still get prospective purchasers to sign for mortgages, and, in fact, then, units can be sold. But we're not sure what type of impact it's going to have on the New York market until we talk to Fannie Mae and Freddie Mac, particularly in our metro area. An established condominium can get a waiver of the 10 percent requirement if it's performing capital repairs on an ongoing basis and Fannie Mae can see that they're responsibly dealing with it. If they can see due diligence, they'll get the waiver. They are more worried about new construction condominiums that have no track record.

 
Adapted from the November 2010 issue of Habitat. For complete articles from issues going back to 2002, join our Archive >>