The New Fannie Mae and Freddie Mac Condo Questionnaire

What is the new Condominium Questionnaire that has been causing such a commotion?
The “new condominium questionnaire” is not really “new”; it’s actually just an “enhancement” of the existing condominium questionnaire that most lenders, particularly lenders that will be selling their loans on the secondary mortgage market to Fannie Mae and Freddie Mac, use in underwriting their loans.

What are Fannie Mae and Freddie Mac, and what is the secondary mortgage market?
“Fannie Mae” and “Freddie Mac” are acronyms for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation – government-sponsored enterprises (GSEs) that buy home loans and servicing rights from lenders that originate new mortgages. The mortgage loans are incorporated into the GSE’s portfolios or sold to mortgage aggregators, securities dealers/brokers, and ultimately investors (who buy the securitized loans for their interest income). This “market” is known as the “secondary mortgage market.” These sales allow the local lenders to recover the monies loaned and make new loans to other borrowers.

So, what are the changes to the Condominium Questionnaire, and why were they made?
Effective January 1, 2022, Freddie Mac and Fannie Mae came out with additions to their condominium questionnaires (sometimes now referred to as the “Condominium Supplement”) that are to be completed by condo associations for loans associated with unit purchases. Due to recent condominium defect incidents (notably the Champlain Tower in Surfside, Florida), subsequent investigations revealed that many condominium buildings are suffering from deferred maintenance. To avoid purchasing loans secured by units having the potential for unstable or dangerous conditions, Fannie & Freddie have amplified their requests for more information – particularly inspections, structural soundness, and associations’ financial ability to pay for deferred maintenance and replacement.

Are Associations and their Boards required to complete and return the Questionnaire?
There is no “legal” requirement to complete the Questionnaire; however, if the Questionnaire is not completed, the condo will likely be ineligible for mortgage insurance from Freddie Mae or Fannie Mac, effectively excluding units in that community from being approved for financing. If a community isn’t Fannie Mae/Freddie Mac eligible, the association may be shrinking the market for current owners looking to sell their units (not a good strategy in today’s climate).

What’s an Association to do?
Owing to the pushback associations are expressing, the Community Associations Institute (CAI) has requested that Fannie Mae and Freddie Mac suspend these new requirements until associations, managers, and management companies have had time to absorb the new requirements, conduct necessary inspections, and develop effective means of providing the requested documentation.  As of this writing, Fannie Mae and Freddie Mac are proceeding with the new Questionnaire.

How does the new Condominium Questionnaire impact Agents?
It may be prudent for contracts with buyers of a condo unit needing institutional financing to include a clause making the buyer’s obligation to close subject to and contingent upon the association’s completion of the Questionnaire and subsequent approval of the unit by the lender.