With Florida desperate for some economic good news, a small life preserver has been tossed to the state by two of the country's biggest mortgage underwriters. Fannie Mae and Freddie Mac have loosened financing rules to make it a little easier to buy and sell condos in Florida's moribund market. It's a smart approach.
As the state's condo market collapsed due to high inventory, foreclosures and falling prices, Fannie Mae and Freddie Mac raised their standards for backing mortgages in troubled condo developments. The new rules required that 70 percent of the units in a development be sold, up from 51 percent, and no more than 15 percent of owners could be delinquent on association fees, before they would purchase a loan. It made sense to limit investments to solid, solvent condo developments. But it also helped choke condo sales as mortgages became harder to find. Banks and other mortgage lenders are often unwilling to offer loans that can't be easily resold. Florida's real estate market withered.
Then came a rescue of sorts. Since January a team from Fannie Mae has been visiting condo developments around the state, designating many as qualified for Fannie Mae financing. Even if the development no longer meets every financing standard, if the auditors determine that the project is sustainable, it can be given a special approval. Thousands of units throughout Florida already have been approved and many more will be. A similar program for new condo developments has been in place for more than a year.
Freddie Mac also made accommodations for Florida. Starting Thursday, it will purchase mortgages for condo units where the company already backs the seller's mortgage or has securitized it. The impact of this change could be significant. The company holds 23 percent of all first mortgages in the country.
These approaches are conservative and responsible ways to loosen up financing. With Fannie Mae and Freddie Mac under federal conservatorship since the financial meltdown, taxpayer money is on the line.
Meanwhile, Florida condo values are still sinking, but resales are up, jumping 59 percent in February from the number of units sold in that month last year, according to Florida Realtors. The market may finally be moving again, and easier mortgage financing is only going to help.