AD Mortgage flags condo reserve rules in FHFA letter

AD Mortgage has launched a public policy initiative aimed at increasing its engagement with federal and state policymakers on housing finance issues, beginning with recommendations to the Federal Housing Finance Agency regarding condominium financing.

The initiative has already taken off running. In a July 1 policy letter addressed to Bill Pulte, director of the FHFA, AD Mortgage outlined concerns about upcoming changes to condominium project eligibility requirements for loans purchased by Fannie Mae and Freddie Mac.

According to AD’s press release, “the submission follows a recent meeting between AD Mortgage leadership and FHFA officials focused on housing affordability, condominium financing, and other emerging issues in the residential mortgage market.”

AD Mortgage’s initiative and letter dovetail with previously addressed concerns by those in the housing space. Several industry talking heads are worried that the changes could increase monthly association dues and make it more difficult for some borrowers and condominium projects to qualify for financing.

Corey Chubner, AD Mortgage’s senior vice president of government affairs and investor relationships, told HousingWire in an interview that the goal of the initiative is to be a “collaborative partner” to policymakers.

“We had a great meeting with FHFA back in the middle of June of this year, and we discussed, amongst other things, the changes to the condo guidelines and the sunset of the limited review process and the update to the reserve requirements from 10% to 15%, and we expressed our concerns that it may squeeze what would otherwise be very creditworthy borrowers outside of the conventional financing that would be afforded to them otherwise,” Chubner said.

The company said its recommendations are supported by proprietary lending data showing the importance of the Enterprises’ Limited Review process for conventional condominium loans, particularly in Florida.

“It wasn’t our goal to demand that they delay or revoke the changes, but it was to provide insight, and we have access to an abundance of data, and I think it’s our responsibility as partners with FHFA, with Fannie, with Freddie, to share some of that data and show the real-world implications,” Chubner added. “The hope is that there’s a dialog.”

According to AD Mortgage, more than 750 Florida condominium loans it originated since 2021 used the Limited Review process, representing 53% of its conventional condominium originations in the state during that period.

“AD Mortgage supports prudent project eligibility standards and shares FHFA’s objective of promoting sustainable homeownership and long-term project stability,” the letter said. “At the same time, we are concerned that the combined effect of eliminating Limited Review and increasing reserve funding requirements may materially reduce access to Enterprise-backed financing for otherwise creditworthy borrowers.”

The lender also said about 30% of condominium projects it manually reviewed had reserve funding below the new 15% threshold established under updated Fannie Mae and Freddie Mac guidelines. AD Mortgage is urging the FHFA to monitor how the revised standards affect borrower access to conventional financing and consider future adjustments if data shows the changes reduce credit availability.

Chubner told HousingWire that the letter has not yet gotten a response from Pulte.

“Our objective is simple: bring practical market experience and real-world lending data into policy discussions,” Chubner said in a statement. “The mortgage industry has an important responsibility to help policymakers understand how regulatory changes affect borrowers.”

The letter also addressed the Florida-headquartered company’s concerns about statewide impact.

“In Florida, it’s unique as compared to most of the rest of the country when it comes to their housing stock because it is so condo concentrated that it will have a disproportionate impact,” Chubner said. “We’re headquartered in Fort Lauderdale, so we really have our finger on the pulse of the homeownership community, the community in Florida. We want to make sure that those potential homeowners aren’t being squeezed out of the opportunity to get into what could be a first-time home.”