New Questions Added to HWD Questionnaires

Condominium/Cooperative Safety, Soundness, and Structural Integrity Announcement

The tragic collapse of the Champlain Towers in Florida has forced lenders and other industry stakeholders to look for clear and standardized guidance on how to analyze ongoing risk in residential buildings with aging infrastructure and significant deferred maintenance. This concern is expected to grow in the future as most of the nation’s stock of condominium and cooperative projects was built more than 20 years ago.

Fannie Mae has already taken the lead in this matter and has established temporary guidelines for all whole loan and MBS pool purchases taking effect on January 1, 2022 which will continue until further notice. Loans secured by units in condo and cooperative projects with significant deferred maintenance or in projects that have received a directive from a regulatory authority or inspection agency to make repairs due to unsafe conditions are not eligible for purchase. In addition, condominium or cooperative projects that do not pass local regulatory inspections or recertifications are not eligible for Fannie Mae financing. Waivers of this policy will not be granted by Fannie Mae.

Not only are projects with deferred maintenance conditions ineligible, Fannie Mae makes it clear that the project is also ineligible simply if a lender can’t make a determination if deferred maintenance or unsafe conditions exist. This is where the real estate community stakeholders must come together to provide information so lenders can make safety and soundness determinations. Obviously, lack of financing options for older condominium and cooperative projects will have a negative effect on marketability and, ultimately, valuations.

Fortunately, Fannie Mae is suggesting a variety of ways for lenders to make project safety and soundness determinations and has not made this a burden for community management companies alone. Fannie Mae is suggesting that detailed reviews of monthly financial documents, budgets, reserve studies, board meeting minutes and special assessments will be critical in their policy. For those management companies that are unwilling, unable or uncomfortable in providing this type of information, Fannie Mae has issued guidance on how lenders may be able to obtain it from other sources. (HWD) is currently reviewing Fannie Mae’s policy regarding project safety and soundness. On October 25th, the following questions that major lenders are now requiring on their forms will be added to the Condominium and Cooperative Lender Questionnaire templates in the Eligibility Questions section for your associations:

Is the HOA and/or management company aware of any conditions or project-wide deferred maintenance within the project that may negatively impact the safety, structural soundness, habitability, or functional use of the project as a whole or any individual units?

If yes, describe and provide supporting documentation, e.g., architect’s and/or engineer’s reports, insurance inspections, notices of pending or active building code violations, fines or liens from local building authority, special assessments levied for repairs related to these issues, reserve study prepared by an independent third party.

Initially, responses to these new questions will be optional. This will give you time to gather and enter this new information without delaying the processing of questionnaire orders. We plan to make the responses required in December 2021. If you need assistance with a default response for these questions, please contact our Level 2 support team.

Additionally, you might want to review and update the following association documents so lenders have all the information they need:

  • Monthly financial documents (Current Unaudited Financials)
  • Budgets
  • Reserve Studies
  • Board Meeting Minutes
  • Special Assessments

We appreciate the privilege of working with you as your “Proven Partner” in all matters of community management success.