Fannie Mae's mortgage blacklist snarls condo sales

What you probably already know: Selling a condominium in the U.S. has become almost impossible for some owners in recent years. A mortgage “blacklist” maintained by Fannie Mae has grown from hundreds of properties to thousands in just a handful of years, making it extremely difficult for potential buyers to secure loans. Several sellers’ experiences are featured in a new article by the Wall Street Journal, casting the growing magnitude of the problem in sharp relief.

Why? Fannie Mae, the government-sponsored enterprise in charge of buying mortgages from lenders to increase mortgage affordability and foster a healthy housing market, has tightened its lending standards since 98 people died in a condo collapse in Surfside, Florida in 2021. Fannie Mae doesn’t make loans; instead, it provides mortgage securitization services, essentially serving as a cosigner and backing mortgage lenders to make home loans easier for people to get. Conforming loans — a mortgage that meets Fannie Mae or sister organization Freddie Mac’s underwriting standards — can be cheaper and more streamlined than other types of mortgages. Fannie and Freddie have strict requirements about the level of insurance needed to qualify, but skyrocketing premiums have many condo associations choosing cheaper, more limited policies.

What it means: The WSJ found the number of properties failing to meet Fannie and Freddie’s lending criteria due to inadequate insurance or outstanding critical building repairs went from a few hundred before Surfside to 5,175 as of this month. More than 1,400 are located in Florida alone. After Florida, the states with the most blacklisted sites are California, Colorado, Hawaii, and Texas. Many sales are simply falling through while other sellers are accepting much lower cash offers. Finding out a property is on Fannie’s blacklist also comes as a late surprise for many sellers as the list is confidential, available only to lenders and servicers.

What happens now? Insurers are reportedly lobbying the Federal Housing Finance Agency to make Fannie and Freddie soften their criteria, but the firms’ supporters argue that tight insurance requirements safeguard homeowners in the event of a disaster that necessitates a rebuild. As long as parts of the country continue to be pounded by climate-related disasters, insurers are unlikely to reverse course anytime soon — bumping up premiums and restrictions or abandoning high-risk markets altogether.