The words “housing crisis” still have the power to send shivers down the spines of homeowners who are still feeling the effects of the collapse of the market in 2008. That collapse was itself triggered for the most part by the writing of “bad” mortgages to homeowners who couldn’t afford to pay. While homeowners in New York City escaped much better than most of the rest of the country, the long-term repercussions can still be felt here, especially among condo and co-op owners.
In response to what was happening, the Federal Housing Administration and U.S. Department of Housing and Urban Development severely tightened their requirements for how much money buildings must carry in their reserve funds before prospective buyers can secure loans to purchase units within the building.
Bruce Weltin, associate vice president with home lender Shamrock Financial Corporation, says that new lending guidelines from HUD mean that FHA loan requirements will be significantly tightened for condominium sales and that may have a profoundly negative effect on the ability to sell or buy a condominium unit that requires FHA financing.
Unlike the world of “It’s a Wonderful Life,” when banks used to hold the loans themselves, it was about 30-40 years ago that loans started to be securitized, which means they package loans together and sell them through the security markets. Most of those go through Fannie Mae.
“What happened when all these loans started going bad, Fannie Mae started having issues and started looking at what they could have done to prevent this,” says Stephen Beer, CPA, of Manhattan-based Czarnowski & Beer, a certified public accounting, auditing and management consulting firm. “So, they came out with new guidelines, where banks have to follow a selling guide if they are going to be able to sell their loans to Fannie Mae. While meeting criteria for Fannie Mae, the bank figures if they have rules, they should have it on all their loans, so it ended up becoming the standard.”