Fannie Mae and Freddie Mac (along with the Federal Housing Administration) purchase or guarantee the vast majority of mortgages in this country. Any toughening of their lending standards could have a major impact on the housing market. As we have seen over the past few years though, standards that are too relaxed could leave Fannie Mae and Freddie Mac with bad loans when a lender experiences a mortgage default, ultimately becoming the responsibility of United States taxpayers. In March, 2009, Fannie Mae advised that it would no longer guarantee mortgages on condominiums in common interest community associations where fewer than 70% of the units have been sold. The previous percentage was 51%. Fannie Mae also declared that it will not purchase mortgages in associations where 15% of the owners are delinquent in the payment of HOA fees, monthly maintenance fees, special assessments, and other condo fees, or where one (1) owner has more than 10% of the units. Fannie Mae believes that these are evidence of an association that may soon have financial trouble. It is expected that Freddie Mac will implement similar policies this July. Fannie Mae and Freddie Mac have also increased fees on mortgages for condominiums. Prospective buyers without a minimum 25% down payment must pay closing-cost fees equal to 0.75% of their loan, regardless of their credit score (exceptions are pending with respect to cooperatives and detached condominiums).
There are caveats and/or exceptions to these policies and/or rules. According to Fannie Mae, the 70% rule does not apply to loan applications submitted through an underwriting program used by major lenders. Fannie Mae added that hundreds of projects submitted through that exception since March 1, 2009 have been approved even though their sales levels are below 70%. Further, developers can seek exemptions with respect to loans that are manually underwritten.
Debates in Congress are ongoing with respect to whether these policies ought to be further amended, as everyone continues to try to find the right balance between the need to facilitate the creation and purchase of housing, and the need to avoid another round of mortgages for individuals that cannot afford them.