In the last two years, Fannie Mae has amended it’s guidelines for selling and serving mortgages on condominiums, cooperatives, and planned unit developments three times. Why should service providers, cooperative corporations and community association managers care about what the mortgage giant does?
Today, 70 percent of all mortgages are sold on the secondary market. Fannie Mae, and its sister, Freddie Mac, control roughly 90 percent of that market. In short, if there are to be buyers of condominiums and co-ops, they need to be able to satisfy Fannie Mae requirements. And without the ability to buy and sell units freely, we can readily imagine the impact on property values. In fact, we are seeing it already to a limited degree.
The History of Fannie Mae
How did this come to be? Fannie Mae was created as part of the New Deal in the 1930s to purchase Federal Housing Administration (FHA) loans. Banks had stopped lending for housing (sound familiar?) and this was a way to bring low-cost money back into the market. Fannie Mae became a private company in 1968. Capital was raised to buy mortgages and resell them as mortgage-backed securities.
This has traditionally been referred to as the secondary market. It exists to ensure a ready supply of mortgage capital to the market. Although some banks, and small savings and loans in particular, still retain mortgages in their own portfolio, most mortgages are sold to the secondary market.
Further, most loan originators would like to keep that option open—that is, to sell the mortgages in the future, even if they don’t do it now. That is why Fannie Mae underwriting guidelines have become the de facto standard throughout the mortgage industry.