New Fannie Mae Guidelines Turn Off the Lights on the Florida Condo Market

January 26, 2009 by Lucas Lechuga

Lights Out

In December, Fannie Mae established new lending requirements for condo developments located in Florida which went into effect January 15, 2009.

Some of the updated lending requirements are as follows:

  • Up from 51 percent, FNMA will now require that at least 70 percent of the total units in a condominium project must be conveyed or be under a bona fide contract for purchase to principal residence or second home purchasers.
  • New and established condominium projects may have no more than 15 percent of the total units in a project be 30 days or more past due on the payment of their condominium/association fees.
  • New and established condominium projects with more than 20 units will be required to have fidelity bond/fidelity insurance.  It was formerly only required of new condominium projects.
  • Borrowers must obtain a “walls-in” insurance policy unless the condo development’s master policy provides the same interior unit coverage.
  • No more than 20 percent of the project’s total square footage can be used for non-residential use.
  • No more than 10 percent of the total units in a condominium project may be owned by a single entity (the same individual, investment group, partnership or corporation).

The new guidelines are a train wreck to an already crippled Miami condo market but a godsend to vulture funds.  Step aside and let the bulk buyers clean up the mess.  They will effectively push the reset button and create a floor to a condo market that would otherwise take much longer to reach.  The guidelines set by FNMA will have a negative impact on established condos as well. Prices there will take longer to fall into place relative to the pricing established by future bulk sales.  Foreclosures will climb in established condo developments until an equilibrium of supply and demand is reached.  However, as one person commented in a discussion about this topic, the market will likely first overshoot to the bottom.   With very restrictive financing policies, true demand will not be represented as those with cash will comprise the large majority of the buyers.  Keep in mind that bulk buyers will either need to hold over the long run or resell the condos to cash buyers themselves due to the rule that no more than 10 percent of the condos can be owned by a single entity.

To get an idea of which new condo developments in Miami will be affected, read my latest condo closing rates published in December.

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69 Comments on "New Fannie Mae Guidelines Turn Off the Lights on the Florida Condo Market"


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Anonymous
Dave
7 years 8 months ago

Isn’t Fannie up to a conforming limit? 417k…Most Condos are priced higher anyway.

Anonymous
Angel
7 years 8 months ago

I wonder what this will do to the rest of SF real estate (residential & townhomes). I suspect these new rules may boost those sales as potential condo buyers are effectively pushed out of the condo market and forced into buying a home or townhouse. Thoughts?

Anonymous
gables
7 years 8 months ago

interestingly, this may force some developers to offer very low non bulk prices in order to push the percent closed number closer to 70% while keeping at bay the issue of 10% ownership of a single entity. individual buyers very well could end up with some great deals near term as developers try to meet these requirements at the minimum, then offer the remaining units at higher prices where standard mortgages will be allowed. Lucas, keep me posted if this occurs and you have a customer!

Anonymous
moretroops
7 years 8 months ago

Anything that gets us to the bottom faster should be applauded. The sooner we hit the reset button — the sooner we rip off the bandaid and get back to econ 101 — the better off every single one of us (distressed homeowners included) will be.

I’m tired of a car crash in slow motion. I want screeching tires, a head-collision and airbags deployed. Ambulances on the scene. Morphine drip and flower arrangements.

Anonymous
DJ
7 years 8 months ago

Seriously, this is great info. I’ve been looking at a property where the developers asking price is ~$350/ sq. foot. I’m planning on putting in my offer next month at ~$200 s. foot (cash offer), thinking I’d be low balling, and would be willing to settle for as much as $220-240/sq. foot. Unit is decorator ready too, so I figure I’ll still have to put in around $30k just to get it into move in condition. Maybe I should hold firm at my $200/sq. foot offer.

Anonymous

Lucas,

Please Explain…

If a Bulk Buyer is only allowed to purchase 1/10th of total units then how will they be able to set a floor on the building.

If my understanding is correct, the Marina Blue deal would not have been allowed to go through if done after these new rules because it was more than 10%.

This seems like a disaster.

Anonymous
Realist Bob
7 years 8 months ago
Lucas, I disagree with your argument that, due to FNMA’s restrictions, “true demand will not be represented.” If you consider true demand to be effective demand (i.e. ready-willing-able buyers), then true demand comes from those buyers able to purchase at prevailing pricing and financing conditions. Not those who want a condo real bad but cannot buy one. In essence, it’s like the Ferrari demand situation: notional demand exceeds effective/true demand. There are many more people who would like to buy a Ferrari (notional demand?) than there are those who are ready, willing and able at current pricing and financing conditions.… Read more »
Anonymous
7 years 8 months ago
Christopher, Bulk buyers can buy as many units as they want with cash. However, if they buy over 10% of the units then FNMA will not approve mortgages in the building for future buyers who require financing. For example, the 60-unit bulk sale at Marina Blue represents 11.6% of the units in the building. I assume that means that FNMA will no longer approve mortgages for the building and that owner’s will only be able to sell to cash buyers unless FNMA provides an exception for the building. Realist Bob, My definition of “true demand” is demand derived from cash… Read more »
Anonymous
Renter Tom
7 years 8 months ago
From my perspective, these revised regulations will simply keep me on the sidelines until things unfold a bit more. Why would I buy into a building knowing that there is a good change that prices will fall substantially in the next 6 months because of lack of qualified buyers and sellers on the edge of collapse? It simply makes owning a CONDO less attractive along with all the other condo negatives to work through…so much for a condo being a carefree lock and leave lifestyle…. I had hoped that I could spend the spring/summer hunting for a deal but looks… Read more »
Anonymous
Wild Bill
7 years 8 months ago

The bottom will be reached when several of these buildings have such dire circumstances that they cannot pay for water, trash pickup, elevator service, electricity or insurance. When the city fire inspector and building department has to close the building down.

When that happens it still won’t be the be the time to buy.

Anonymous
Renter Tom
7 years 8 months ago

Another indicator of things to come, that the consumer is tapped out, is when Smurfit-Stone Container Corp. files for Chapter 11 bankruptcy reorganization. They are the largest producer of cardboard box materials in North America and was regarded as a well run business. The slowdown in demand for cardboard packaging along with tight credit knocked them to the mat. Debt creep is a b*tch and will take you out as you get complacent. Bye-bye debt financed lifestyles, priceless.

I have noticed in my building that rentals outpace buyers 3-1……

Anonymous
jcrimes
7 years 8 months ago

lucas…you should know better. you’ll overshoot on the downside regardless of FNMA’s actions. bubbles are irrational going up, and once bust, going down. the question is how vicious is the downside and “the day after” going to be.

Anonymous
Renter Tom
7 years 8 months ago

Just saw this job that pays $30 Trillion a month!!!….no joke. The bad news is it is Zimbabwe dollars…. Apparently that is now worth only $1 USD. We have nothing to fear, but the printing press!

http://news.bbc.co.uk/2/hi/africa/7848302.stm

Anonymous
Renter Tommm
7 years 8 months ago

I just saw this job that pays $30 Trillion a month!!!….no joke. The bad news is it is Zimbabwe dollars…. Apparently that is now worth only $1 USD. We have nothing to fear, but the printing press!

Article is at below if you take out the spaces….couldn’t get it to post otherwise….

http://news.bbc.co.uk/2/hi/africa/7848302.stm

Anonymous
H2O
7 years 8 months ago

Sites like this are the future of news media. Phenominal. I feel guilty that I get this information for free. Therefore I will punish myself by calling up Ron Shuffield and asking him to explain South Florida’s “totally new economic model”.

Anonymous
copof
7 years 8 months ago

The new 70% FNMA rule pertain to purchase contracts or closed units??

Anonymous
Petronius
7 years 8 months ago
I guess the bulk buyers at Marina Blue came in a little too early. It is reminiscent of all the private capital that was pouring into banks in late 2007 and early 2008. Private capital covered the first $600-700 billion of bank write downs but all those investors were too early as well. Looks like all the early bulk buyers will also be taking a hit as prices continue to deteriorate. The real question is whether private capital becomes completely turned off the idea of condo purchases in Miami, as was the case with continued private investment in the banks.… Read more »
Anonymous
Dave
7 years 8 months ago

“No more than 20 percent of the project’s total square footage can be used for non-residential use.”

The above point would blacklist true mixed use building like the Four Seasons.

Anonymous
Un-Related
7 years 8 months ago

Dave said: “The above point would blacklist true mixed use building like the Four Seasons.”

If you can afford to buy at the Four Seasons, you don’t need FNMA to back-up your mortgage.

Further, if you entered the Four Seasons’ “rental plan”, which a number of owners did, you would be disqualified by FNMA anyway.

Anonymous
Muir
7 years 8 months ago
moretroops : “Anything that gets us to the bottom faster should be applauded. The sooner we hit the reset button — the sooner we rip off the bandaid and get back to econ 101 — the better off every single one of us (distressed homeowners included) will be. I’m tired of a car crash in slow motion. I want screeching tires, a head-collision and airbags deployed. Ambulances on the scene. Morphine drip and flower arrangements.” – I like your anger. – Wild Bill “The bottom will be reached when several of these buildings have such dire circumstances that they cannot… Read more »
Anonymous
Un-Related
7 years 8 months ago
Wild Bill: “The bottom will be reached when several of these buildings have such dire circumstances that they cannot pay for water, trash pickup, elevator service, electricity or insurance. When the city fire inspector and building department has to close the building down. When that happens it still won’t be the be the time to buy.” – Muir: “Had to read that twice. So if that “still will NOT be the time to buy,” when will it?” NEVER……..Soon, we will NOT have to BUY! Obamunism will provide “FREE” housing (aka the 1970’s Brezhnev mandated buildings in Moscow). This will take… Read more »
Anonymous
Raffi
7 years 8 months ago

I think these new rules are a disaster for our condo problem. All these new constructed building are so screwed. I wonder if these guidelines were put in place just to get to the bottom very soon and once that happpens remove the guidelines.

Anonymous
jcrimes
7 years 8 months ago

Petronius
the bulk buyers from two years/year ago are already dead in the water. the MB folks…we’ll see if they’re prescient or morons in a year from now.

Anonymous
Joe
7 years 8 months ago

Lucas,
this new rules mean than that building like Plaza on Brickell that has over 70% closing rate will end up even better because people will not get approved for Marina Blue and will for Plaza on Brickell.
Is that true?

Anonymous
Better Days
7 years 8 months ago

Thank god! The sooner the blood spills the sooner we capitulate the sooner we can resume a ‘normal’ life. Hail to Fanny!!!!

(even if this does cause ‘Bitter Tom’ to have to stay on the sidelines a spell longer)

Anonymous
Wild Bill
7 years 8 months ago

The time to buy will be when condo boards prohibit pornography videos from being filmed in common areas of buildings. I still see all the buildings on this website are on a film crew list. That’s the lowest of the low. Seriously disgusting.

Anonymous
lara
7 years 8 months ago
New rules are actually very bad for the market. They will limit people who are very capable of buying. IT is the same grave mistake as the idea to raise taxes when completely the opposite has a chance to boost the economy. It is very bad for everybody whether you are a buyer or a seller and even if you are waiting on the sidelines. Banks jumped from one extreme to another, It seems like people who make these decisions are absolutely incompetent. I deal with the banks all the time due to my activity with REOs and I am… Read more »
Anonymous
Realist Bob
7 years 8 months ago

“…people who show their assets and stated income with 20%down should be allowed to borrow.”

Such people are allowed to borrow; they just need to find a lender literate and competent enough to make such a loan.

All who think stated income condo lending in Miami is a great idea, should exercise their right to make a buck, and get together with a bunch of like-minded people, and lend their own money.

Anonymous
H2O
7 years 8 months ago

Wild Bill,

Since the depths of Depression are coming I will need a second income. Where are they filming? On a related note, how do I trademark the name ‘Hugh G. Donger’?

Anonymous
jcrimes
7 years 8 months ago

Wild Bill

Leave the Bang Bros. alone. If you didn’t know, they’re the culture in this town.

Anonymous
7 years 8 months ago
Anonymous
Mr Waverly
7 years 8 months ago

Looks like those thirteen unit owners who were able to close at Icon will be living in a rental community soon.. Flamingo on Brickell..

Anonymous
lara
7 years 8 months ago

Lucas, great article. Well enough written. Now we know more about Hollo. I never raised to the level of a developer ( except for developing my dreams) and this mess I am on the other side of the fence but always wanted to work for a developer of a high caliber because of the combination of fantasy , vision, hard work and being brave, very brave.

Lucas, have you met with Hollo? I know you probably have mixed feelings about him but if you did what was your personal impression about him?

Anonymous
louix
7 years 8 months ago
Has anyone had any experience using NACA? They are the Neighborhood Assistance Corporation of America and they help first time home buyers get 100% mortgage at a current rate of 5.5%. A few weeks ago they were offering 4.6%. I checked out their website at naca.com and they seem legit, but I was just wondering if anyone has ever been a member or knows about them. I was thinking with a low rate like that there can be some potential cash flow positive investments, although probably not a luxury condo. They even finance your house up to a 4 unit… Read more »
Anonymous
Un-Related
7 years 8 months ago

Mr. Waverly said: “Looks like those thirteen unit owners who were able to close at Icon will be living in a rental community soon.. Flamingo on Brickell”

Sorry, but AIMCO doesn’t have any money and Huizenga was lucky to clean out Ross’ wallet before the “Estate of Lehman Brothers” serves Gourge with the “Mother of All Foreclosures”!

My recently unveiled re-naming of these buildings: “Stalingrad I, II, and III, may be more appropriate.

Anonymous
Mr Waverly
7 years 8 months ago

Living in the property for three years is not a “catch”, it is part of the program and that should be your intent if you are signing on for this program. We have already had to much fraud and scamming in the system.

Anonymous
Renter Tom
7 years 8 months ago

With prices falling in the Miami area around 38% from peak prices according to Case-Shiller numbers, I would say the market is correcting rather quickly on its own. No need for govt intervention since we are getting closer to a clearing price every day. By the time the govt shows up to distort the markets, we should be near the bottom anyway. Gotta love affordable homes and loans made to borrowers with the ability and will to repay them.

Anonymous
Muir
7 years 8 months ago

Aaahhhhhh…, like, where’s AJ?

I wanted to do my best Mark (zilbert or not) imitation about alpacas and Bay facing versus West facing effects on fur, somehow, I thought of AJ.

p.s. recommended reading “The money game” it’s from the 60s stock market but it’s a blast.

Anonymous
2pence
7 years 8 months ago

Wow. I think that there’s no other endgame than another 30% – 50% drop from today’s *distressed* prices. This is going to be a big, steep drop.

Any possibility that banks might just board up whole buildings to take them off the market for a few years?

Anonymous
7 years 8 months ago

1 bedroom short-sale at The Bentley Bay hit the market on Tuesday for $299,000. I doubt the lender accepts that price but it’s worth mentioning. The owner paid $600,000 for the condo in September 2005. It’ll be interesting to track this one. None of the one bedrooms have sold for less than $375,000 on the MLS. The condo looks to be in immaculate condition.

Anonymous
7 years 8 months ago
The new property search page just went live. Not much has change with the actual search box but you’ll notice that the results are displayed differently and that you can view multiple pictures from within the search results page. Click on the “More Info” link for one of the properties and you’ll notice that the details page has a new format as well. If you register you’ll be able to name and save searches, add properties to your favorites, add notes about those properties, view nearby sales and view recent sales. The “My Dashboard” page, which you’ll view once registered,… Read more »
Anonymous
shwin
7 years 8 months ago

Lucas,

How does one register on your site?

Anonymous
shwin
7 years 8 months ago

Cancel that… I got it. AWESOME! thanks again

Anonymous
Muir
7 years 8 months ago

Came across this little gem:

“From his first success… to his latest project, the white cylindrical Opera Tower, Hollo has personally developed dozens of projects…

Yet the past 12 months have ranked among the toughest in Hollo’s 55 years as a developer. He has sold only about 38 percent of the condos in his multimillion-dollar Opera Tower, which opened last year. To stay above water on the building, he’s renting out the rest of the units for as low as $950 a month.”

Amazing.
Source: New Times Broward/Palm
browardpalmbeach.com/2009-01-29/news/developer-tibor-hollo-helped-build-miami/

Anonymous
Muir
7 years 8 months ago
OHHhhhhhh…… LUCAS! – So modest!!! – From the article: ” Today, only a handful of new towers in South Florida have sold more than 80 percent, and some have sold less than half, according to Lucas Lechuga, a realtor who compiles condo closings on his website. Several are still trying to unload more than three-fourths of their condos. “I still think there’s another round of foreclosures to come,” Lechuga says. “We have another year, until the end of 2009, before we hit rock bottom. And then prices still aren’t going to improve for a long while.” Among the 21 condo… Read more »
Anonymous
7 years 8 months ago

Thanks Muir. You must have missed the link I posted yesterday. See comment 30.

Anonymous
Muir
7 years 8 months ago

Yeap, I missed it.
Great quotes from you!
Incredible article, read all of it, very entertaining, very readable.
This floored me: “he’s renting out the rest of the units for as low as $950 a month.”
If that’s correct any other investor’s PE ratio just went negative.

Anonymous
Scozuzu
7 years 8 months ago

$950 is for a small studio. They are asking 2k+ for 1050 sf 2 bedrooms with bay view which I think is very high. You can get a 1400 sf 2 bedroom with bayview at Quantum which has much nice amenities for 2k. You can also get a 1040 sf 1 bed at 900 Biscayne for 2k.

Anonymous
Muir
7 years 8 months ago

Yes, but I’d love to run the numbers on that studio!!!
The $950 has to cover HOA and taxes.
Bet it doesn’t.
So, say you bought it as an investment and now have to compete and rent it at the current market rate of $950.
I’m not talking about the developer, I said “If that’s correct any other investor’s PE ratio just went negative.”

For me, it’s just the same conversation as months ago.
If an investment has a negative PE, doesn’t that imply that you would need to be paid to buy the “asset?”

Anonymous
Angel
7 years 8 months ago

http://miami.craigslist.org/mdc/reb/1008384969.html

Check it out. 1 bedroom 900 Biscayne unit going for 230k. Is this too good to be true? That equates to 223.00 psf. So much for the prediction of high-end water facing units not going below 300psf. Where is AJ?

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