The difficulties in the coastal condo markets has affected the condo market here in the Kansas City area as well. This is especially true on newly constructed condos where Fannie Mae lending guidelines have become much more stringent. Fannie Mae has indicated they have no interest in backing condo loans if the new home community is not nearing completion. So we're faced with the chicken and the egg dilemma of  how do you complete the majority of the sales in a condo community if no will lend on the condos until a majority of the condos are completed?  

This dilemma has left many condo developers and homebuyers in a difficult situation. When a borrower is unable to get their condo loan in place, the borrower risks losing their earnest deposit (which is typically non-refundable on new home construction in Kansas City). They also risk losing any deposit they put up front on upgrades they chose.  Developers face the obvious task of now trying to locate a new buyer for the property. I recently had three newly constructed condo listings go under contract and it was quite a process to get them closed. These new condos were categorized as "non-warrantable" by Fannie Mae, meaning a lender making the loans would likely encounter difficulty if trying to sell the mortgage loans off to another investor (now or later). Keep in mind that a majority of lenders ultimately do sell their loans off.

Of course a buyer could pay cash for the condo, but how many buyers can do that? The developer of a community could finance the buyers, but I don't know any developers capable and willing to get into the lending business. So to deal with these non-warrantable condo listings, I'd have to go to the thinking chair... I decided that I was going to interview as many local lenders as possible and ask the lender (1) if they can provide a mortgage loan on a non-warrantable condo to a qualified buyer with good credit and a sizable down payment, (2) if they offer a 30-year fixed rate loan on condos, (3) can they do the condo loan at a competitive interest rate, and (4) can they do all the above at reasonable loan costs.

I put together a list of 32 lenders I hoped could help and I was off and running. Like Forest Gump, I kept running and running. My initial question to each lender only addressed the first question above, of whether they could provide a loan on a non-warrantable condo. After several days of follow up, five of the lenders never called me back. 22 of the 27 lenders who did respond said take a hike. I told them "I think I will, the weather here's sweet" (reference to Peyton Manning's response to the San Diego hotel maid who tells him to go "take a hike"). So this left five lenders who said they were capable of providing a non-warrantable condo loan (assuming the borrowers were credit worthy). Things were looking brighter and it was on to question two on whether they can offer a 30 year fixed rate loan on a non-warrantable condo. Well two of the five lenders only offered 5-year ARMS. If you're not up on ARMS these days, the rates are horrid to begin with and you also get the fun adjustable interest rate down the road as well. So those lenders we're nixed off the list and I was down to three. One of the remaining three who could offer a 30-year fixed rate had the highest rates I'd ever seen - yes, ever.

This is where things finally took a turn for the better. Both remaining lenders had 30 year loan products with solid rates and fees. Both were responsive but one simply responded a little quicker than the other and things moved swiftly thereafter. One of the deals closed  in less than two weeks, and I was as impressed with that as anything else. I should note that all of the buyers had solid credit and at least a 5% down payment. It was great to see the deals close and although I didn't represent the buyers in these transactions, it was very rewarding to see them  smiling at the closing table.  It certainly would have been easy to throw in the towel early in the process but this was a case where persistence paid off - times 3.

  

 

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