Wednesday, July 15, 2009

Tighter Lending Rules Choking Sales

According to Chicago Tribune reporter Mary Ellen Podmolik:

Dramatically tightening guidelines on mortgages that government-controlled companies will back . . . are crimping a local condo market burdened with an oversupply of inventory at the same time consumers are dealing with the Chicago area's 10.7 percent jobless rate.

As of July 1, Freddie Mac no longer will guarantee mortgages in new condo buildings where less than 70 percent of the units have been sold. Fannie Mae adopted the same threshold March 1. Previously, the requirement was 51 percent. The changes come on top of a matrix of fees adopted by Fannie and Freddie this spring that increase the cost of a mortgage for condo buyers with various credit scores and also impose fees for buyers who make down payments of less than 25 percent.

As a result, some developers are turning to their own lenders and arranging short-term private financing for buyers. An increasing number, though, are applying to have their developments approved by the Federal Housing Administration.

A building has to be only 51 percent sold in order for buyers to receive FHA-backed mortgages, and the down payment required is 3 1/2 percent. Because of the lesser underwriting requirements, the FHA's share of mortgages insured for new-home purchases has grown.

Condo buildings want in on that action. Since October, 68 Chicago condo buildings have received FHA approval, and an additional 51 buildings have applications pending.

For the entire article, click here.

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