July 23, 2009

Fannie Mae recently adopted tighter standards for mortgages in new construction condominiums. The standards include a provision indicating that Fannie Mae would not guarantee mortgages in new condominium buildings where fewer than 70% of the units have been sold. The prior standard only required 51% of the condominium units to be sold. Freddie Mac has indicated it plans on implementing a similar standard. The tightening of Fannie Mae’s standards may threaten the viability of certain condominium developments and inhibit the pace of the housing market revival.

According to the Wall Street Journal, several lawmakers have sent a letter to Fannie Mae and Freddie Mac asking the companies to “make appropriate adjustments” to their underwriting standards for condominiums. The lawmakers indicated that standards adopted by Fannie Mae have had a chilling effect on the sale of condominiums. According to the paper, Fannie Mae and Freddie Mac are preparing a response to the request.

In the meantime, the sales of new construction condominium units may come to a screeching halt due to an inability of potential purchasers to obtain mortgages backed by Fannie Mae and Freddie Mac.

Brian J. McIntyre is an associate of Hill Wallack LLP in the Princeton office and a member of the firm's Community Association Law and Real Estate Tax Appeals Practice Groups.