Council of New York Cooperatives & Condominiums
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Financial Issues

Published: Summer 2009

During much of last fall and spring, the economic crisis was aggravated by the reluctance of lenders to make money available for the purchase of homes, including cooperatives and condominiums. Happily, a number of lenders are now making loans available, but they are hesitant to lend for the purchase of apartments in recently converted buildings or those with a significant sponsor presence, since they want to be sure that the loans will qualify for purchase by institutions of the secondary market.

Banks that make mortgage loans and cooperative share loans don’t generally hold these loans in their portfolios. Rather, in order to maintain their liquidity, they seek, whenever possible, to sell these loans on the Secondary Mortgage Market, to Government Sponsored Enterprises (GSE’s) like the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). 

As the financial crisis deepened, both Fannie Mae and Freddie Mac were placed in conservatorship which contributed to market turmoil.  

In late 2008, Fannie Mae released updates to its Projects Standards Underwriting Criteria, the criteria which lender’s use to evaluate whether a condominium or cooperative project meet Fannie Mae’s lending guidelines.  These, guidelines, together with lender interpretation, along with a certain amount of misinformation have made the evaluation  of loans to coop and condo projects for individual financing even more rigorous.

Fannie Mae’s Selling Guide and Lender Announcements, the documents containing its lending criteria, including the Project Standards criteria, can be found at  For new construction, or newly converting, condominium communities lenders can evaluate the development using the Lender Full Review; a manual process, or they may enter the project into Fannie Mae’s Condo Project Manager (CPM); an on-line condominium evaluation utility. Under the Lender Full Review process, no individual, other than sponsor/developer may own more than 10% of the units and at least 70% of the units must be sold, or under bona-fide contract of sale, to purchasers who intend to occupy their unit as their primary residence or second home.  A project entered into Condo Project Manager which meets all other required criteria will certify as acceptable at a contractual pre-sale of 51%. For a new cooperative to qualify at least 80% of the shares attributable to the dwelling units must be sold, or be under contract, to individuals who intend to occupy the unit as their primary residences.  Other than the sponsor, no single entity may own more than 10% of the shares.
This set of standards does not deal realistically with the complexities of the conversion industry in New York City, where the transition from rental property to cooperative or condominium status with 70% of residents owning their units can take decades.  Our system of non-eviction conversions, where rental tenants in large numbers often opt not to purchase their units often necessitates long term ownership by a sponsoring entity. 

Fortunately, Fannie Mae understands this situation and provides exceptions, at both the loan and the project level, to its rigid guidelines through its lending partners when the risk has been determined to be acceptable.  In addition, Fannie Mae negotiates lender-specific agreements with its lenders which provide flexibility to the standard guidelines.  One such variance, long-known as the New York City “Pilot”, applies specifically to Cooperative Share Lending and has been available since the mid-1990’s to lenders approved to originate cooperative share loans   Alternatively, a cooperative or condominium can, through a Fannie Mae-approved lender, become formally approved by Fannie Mae, ensuring that unit loans from such buildings will be eligible for sale to Fannie Mae. 

CNYC is hopeful that these project approval options will continue to provide the liquidity that the co-op and condo market needs. 

At CNYC’s 29th Annual Housing Conference on Sunday, November 15th, W. Patrick Connolly of Fannie Mae will explain and discuss these guidelines in a midday workshop.                                      



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