Real Estate Law

Federal Housing Finance Agencies Impact on Condominium Purchasers

The financial industry and housing market crisis of 2008 has taken a tremendous economic toll, not just upon investors and homeowners, but also upon the three federal agencies: the Federal Housing Administration, Fannie Mae and Freddie Mac. In the aftermath of the crisis, these three agencies have undergone a retrenchment of sorts with the consequent effect of reduced availability and affordability of housing for condominium purchasers. In this Analysis, Professor Shelby Green discusses how the agencies' tightening standards are impacting housing availability and affordability for condominium purchasers. She writes:

Effect of Crisis on Housing Markets

     The crisis wreaked havoc across the spectrum. The fiscal condition of the three agencies was impaired. With a sharp increase in defaults, the FHA experienced higher claims and experienced substantial net costs. Fannie Mae suffered a $14 billion loss in 2010, down from $72 billion in 2009 and Freddie Mac, a $14 billion loss, down from $21.5 in 2009. These losses, in tandem with the larger economic conditions, spurred other declines in the housing markets. There was an almost complete halt to starts for single family home construction, with a demonstrative decline every year since 2005. Prices for existing homes declined almost 40% nationwide. Recent reports show that 2011 prices have fallen to levels existing in 2002. While mortgage rates are at historical lows (averaging under 5%), these rates are only available to prospective borrowers with higher income, solid employment and stellar credit credentials, who don't need to rely on FHA insurance.

A Condominium as an Alternative Housing Choice

     For many would be homeowners, a condominium may be the only realistic housing option. Condominium ownership, in which the separate owners of the individual units jointly own the development's common areas and facilities, typically cost less than detached family homes. This is so for several reasons. The cost of construction is reduced because of the physical configuration of the homes-common walls and other infrastructure result in reduced building costs. Because the structure is often vertical, the amount of land needed is also reduced. But life in a condominium can be far from idyllic. Because ownership and living are in common-there is shared space and owners contribute to maintenance and upkeep-owners must yield significant amounts of autonomy and freedom as to how they enjoy the property. Restrictions on landscaping, alterations, color choices, parking, clotheslines and pets, abound.

New Processing Rules and Limits Call for Extra Caution

      Alas, after the horses had already left, Congress acted to close the barn door. The 2008 Housing & Economic Recovery Act of 2008 ("HERA"), created the Federal Housing Financial Agency ("FHFA"), which in turn placed the enterprises under conservatorship. FHFA was given the safety and soundness supervisory and oversight responsibilities of the enterprises. When FHFA came into being, it assigned the enterprises a rating of "critical safety and soundness concerns". FHFA would have to work very adeptly to achieve two seemingly opposed goals: staunching the financial hemorrhaging of the enterprises, while at the same time allowing them to continue to fulfill their historical role in bringing liquidity to the market.

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