With the economy in the throes of the worst financial crisis in decades, it’s no wonder that the world’s second oldest profession – thievery – is on the rise. The nefarious Bernie Madoff and others of his ilk have highlighted the vulnerabilities of all businesses to criminal activities, even ones that have been, historically, safe – including condominiums.
As a result of the subprime crisis, the Federal National Mortgage Association, or Fannie Mae, instituted a series of reforms earlier this year intended to prevent further defaults on housing loans.
One of these requirements involves a new insurance mandate that directly impacts a condominium buyer’s ability to secure loans. As of March 1, 2009, all condominiums (both new and existing) with 20 or more units must have what’s called fidelity insurance –basically, insurance against thieves – for a loan to be considered “conforming” by Fannie Mae. Previously, only new HOAs were required to have the coverage.
What is a conforming loan and how does Fannie Mae affect New England condominiums? Here’s how Fannie Mae operates at a local level:
Let’s say Denise wants to buy a condo for $400,000. After carefully considering her financial qualifications, the Bank of Small Town New England decides to grant her the mortgage. Now, the bank has a choice. It can either keep that mortgage in house – and with it, the chance that Denise might one day default –or they can do one of two possible transactions with Fannie Mae.