8 STEPS FOR BOARDS TO STOP FANNIE MAE FROM KILLING YOUR CO-OP / CONDO'S SALES

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3. Keep on Top of Paperwork

If there is one thing a bank needs when considering a loan, it's paperwork. The more organized a building is about its financial and insurance documents, the easier the whole process will be. Keep those documents current and up to date.

"They need to actively maintain their approvability with the major lenders by ensuring that their financials and insurance documents are easily available when somebody is looking for them," notes Jan William Scheck, a branch manager at DE Capital Mortgage, an affiliate of Wells Fargo and Prudential Douglas Elliman. 

4. Choose Insurance Wisely

One of the things Fannie and Freddie consider when approving a loan in a condo or co-op is its insurance policy. Make sure the building's policy is compliant with the lending agencies' rules. Otherwise a building may find itself in a position where a buyer is denied loans because the building's policy isn't adequate. "Pay attention to who they get their insurance with. Don't be penny-wise and pound-foolish about it," observes Scheck.

Koppel of H.S.C. Management had one loan kicked back to him in 2010 because the building didn't have adequate crime insurance. In another case, the bank wanted to be endorsed on the property and liability insurance policy.

5. Resolve Major Lawsuits

If there is anything that will absolutely stop an approval in its tracks, it's serious litigation. If a building has a lawsuit that is not covered by a building's liability insurance, it needs to be resolved. "It's like trying to lend to somebody in the middle of a divorce," Scheck notes.

6. Keep Your House in Order

Don't run a deficit. If a building does, it will be hard pressed to get a green light from the lenders. Lenders look fondly on large cash reserves and healthy (and available) lines of credit.

If there are big-ticket capital improvements on the horizon, start preparing for them well ahead of time. "If you're going to have a roof replaced in three years and you don't have a lot of money in your reserve fund, start the assessments three years in advance," says Goldstick.

7. Limit the Sublets and Sponsor-Owned Units

Among the biggest Fannie and Freddie changes to hit condos are new limits on sponsor-owned units. Fannie and Freddie now require that 90 percent of all units be owner-occupied. This can be a major problem for new construction and older buildings that converted to condos and have a large number of rental units. For buildings that don't make the cut and can't get a waiver, they may have no choice but to go through a project eligibility review.

Co-ops need to keep sublets in check. Too many and Fannie may put the kibosh on a loan. An Upper West Side co-op that is planning to refinance in 2013 put the brakes on a family's plans to sublet their unit while their daughter was in France. It relented only when the family paid the co-op a fee and drafted a lease agreement that limited the sublet to a single year, says Koppel.

8. Know the Rules

The rules of the game have changed, and they're continuing to change. Whatever those rules may be — and each of the three agencies has its own requirements — a building will be required to comply with them if it wants to see loans get approved. So keep up on the regulations.

"The rules that we have today may not be the rules that we have tomorrow," says the loan officer. "But what's going to change and how it's going to change, I don't know."

From the February 2012 issue of Habitat magazine. For print-magazine articles back to 2002, join our Archive >>