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012 - New Fannie Mae & Freddie Mac Condo Rules: What Agents Must Do Now · The Loan Daddy Podcast

• 0:00
  SPEAKER_00: This is the reason why we need to take some of these extra steps to get your units sold.
• 0:06
  SPEAKER_00: This is of the utmost importance right now in this market.
• 0:10
  SPEAKER_00: Welcome to the Lone Daddy Podcast episode 12.
• 0:13
  SPEAKER_00: Today I want to talk about the biggest thorn in the side of the real estate industry if you work in a market that has a lot of co-ops and condos.
• 0:21
  SPEAKER_00: So obviously, I'm based in New York City and we work on a lot of co-ops and condos.
• 0:26
  SPEAKER_00: It really is one of the biggest challenges in our business today is getting buildings approved for financing.
• 0:32
  SPEAKER_00: Now everyone probably knows this by now, but in addition to getting a client approved for a loan, we have to get the building approved also.
• 0:39
  SPEAKER_00: So we look at the building's financials, their budget, their insurance, a questionnaire, and we dig in and make sure that the building is financiable, that it's a strong building financially.
• 0:50
  SPEAKER_00: There aren't any issues going on in the building.
• 0:52
  SPEAKER_00: Because that ultimately for a lender is the collateral, right?
• 0:56
  SPEAKER_00: So if something were to happen in the building and it would force the HOA to increase the maintenance on all of the shareholders or unit owners in that building, what would that do to our buyer?
• 1:06
  SPEAKER_00: What would that do to future sales in that building?
• 1:09
  SPEAKER_00: Would everyone be able to afford it?
• 1:11
  SPEAKER_00: Let's say the maintenance went up in the building by$1,000 a month, and then everyone said, I can't afford this anymore, and they walked away from their unit, values in that building would drop pretty quickly.
• 1:21
  SPEAKER_00: So from a bank's perspective, they want to make sure that the building is financially strong.
• 1:26
  SPEAKER_00: This week, Monday was August 3rd.
• 1:28
  SPEAKER_00: So August 3rd, new guidelines came out from Fannie Mae and Freddie Mac.
• 1:33
  SPEAKER_00: And these guidelines are making it even harder for banks and lenders to get buildings approved.
• 1:39
  SPEAKER_00: So I want to go through what some of these changes are and what to watch out for and what we can all do about it.
• 1:46
  SPEAKER_00: As I'm talking, I'm thinking just kind of a quick sidetrack here.
• 1:49
  SPEAKER_00: I had a sales coach that he that I used to work very closely with, and he used to always talk about CPR.
• 1:55
  SPEAKER_00: And CPR stood for the C, stood for cut the wound.
• 1:58
  SPEAKER_00: So in this case, cutting the wound is buildings are a problem right now for everyone.
• 2:03
  SPEAKER_00: If you're a listing agent, if you have a buyer buying into a building, it's a problem.
• 2:08
  SPEAKER_00: So we're cutting that wound right now.
• 2:09
  SPEAKER_00: Pouring salt on the wound is the ne is the P in CPR.
• 2:13
  SPEAKER_00: We're pouring salt on that wound to say if you were working on something on a building and your seller wasn't able to sell because of it, or your buyer couldn't get financing in the building because of some of these issues, what would that do to you?
• 2:26
  SPEAKER_00: Well, you wouldn't be able to close, you wouldn't get paid, your buyer or seller may get upset with you.
• 2:33
  SPEAKER_00: Those are issues that we're all trying to avoid.
• 2:35
  SPEAKER_00: And then the R is the remedy.
• 2:38
  SPEAKER_00: How do we remedy some of these issues that we're seeing right now in the market?
• 2:43
  SPEAKER_00: Right?
• 2:43
  SPEAKER_00: So I want to walk through this.
• 2:44
  SPEAKER_00: I don't want to go into the changes in great detail, but it's important for everyone to know to have a baseline understanding of it.
• 2:51
  SPEAKER_00: And then bigger picture, what are we gonna do about it, right?
• 2:54
  SPEAKER_00: So what are the changes that are being implemented by Fanymane and Freddie Mac right now?
• 2:59
  SPEAKER_00: Number one is they've gone away with a limited review.
• 3:04
  SPEAKER_00: So in the past, if a building met certain specifications where it was 100% completed, it was 90% sold, there was uh limited commercial space in the building, there was no litigation in the building, we wouldn't need to do a full comprehensive review of that building because it met these limited review guidelines.
• 3:25
  SPEAKER_00: We could skirt around the full review, do a limited review, and get that building approved.
• 3:30
  SPEAKER_00: That limited review now is gone.
• 3:32
  SPEAKER_00: We can't do that anymore.
• 3:33
  SPEAKER_00: Fannie Mang and Freddie Mac have gone away with that.
• 3:36
  SPEAKER_00: So now every building will require a full review.
• 3:39
  SPEAKER_00: Number two is every budget in the past, 10% of the budget they had to allocate for reserves.
• 3:47
  SPEAKER_00: Now it's they've increased it from 10% to 15%.
• 3:51
  SPEAKER_00: So 15% of the budget has to be allocated for the reserves.
• 3:55
  SPEAKER_00: And then number three, and this isn't necessarily a new change, but it's stated, and it's something that a lot of people, especially in New York, are experiencing.
• 4:02
  SPEAKER_00: And that is that if the building is undergoing any critical repairs in that building and they'll deem it as this is safety related, they will not land on that building.
• 4:13
  SPEAKER_00: That is so important to know right now because a lot of buildings are not up to code because they're going through these critical repairs.
• 4:22
  SPEAKER_00: So if a building is dealing with that and has repairs that need net need to be done, and those repairs are deemed as safety related, Fannie Mae and Freddie Mac have a problem with that.
• 4:34
  SPEAKER_00: That's an issue.
• 4:34
  SPEAKER_00: Those are some of the big changes that agents, lenders have to be aware of.
• 4:39
  SPEAKER_00: Now, what to watch out for?
• 4:40
  SPEAKER_00: This has always been the case, but I think something to really watch out for is sometimes an agent will come to us and they'll say, Can you lend on this building?
• 4:50
  SPEAKER_00: One, two, three, east 23rd Street, can you close on this specific building?
• 4:56
  SPEAKER_00: And they'll say, XYZ lender was able to close last year or recently.
• 5:03
  SPEAKER_00: And we'll always say, be careful with that.
• 5:06
  SPEAKER_00: Just because a lender or a bank closed on a specific building previously does not mean that they're going to close on that building a second time or for your specific buyer.
• 5:17
  SPEAKER_00: If you don't know all the particulars of that specific buyer for that building, then you saying that the building was already approved by another lender is somewhat irrelevant.
• 5:28
  SPEAKER_00: This is like a doctor referring two patients to a surgeon and the surgeon coming to two different conclusions for each of those patients.
• 5:36
  SPEAKER_00: The reason they'll come to two different conclusions is even if they have the same injury and they're dealing with the same issue, these are two different people.
• 5:44
  SPEAKER_00: They could be two different ages.
• 5:46
  SPEAKER_00: Their health profile could be very different.
• 5:47
  SPEAKER_00: That's the same thing with lending.
• 5:49
  SPEAKER_00: No two clients are the same unless you know exactly what their financial profile is, what they earn, what their assets are, what their credit is, how much they're putting down, whether it's a primary home, a second home, an investment property, all these factors contribute to what a bank or lender can do or what they can't do.
• 6:09
  SPEAKER_00: So forget going forward, just simply forget the fact that someone else were to close in a building.
• 6:15
  SPEAKER_00: I think it's a good, it's, I shouldn't say forget entirely.
• 6:18
  SPEAKER_00: It's a data point.
• 6:19
  SPEAKER_00: It's something it's nice to know, but it wouldn't rest everything on that.
• 6:25
  SPEAKER_00: It's a small percentage of your full calculus.
• 6:28
  SPEAKER_00: You want to treat every file, every client on its own.
• 6:32
  SPEAKER_00: It's a brand new process for that person.
• 6:36
  SPEAKER_00: That's really the biggest thing to look out for right now because we see this all the time.
• 6:40
  SPEAKER_00: Going forward, what can we do?
• 6:42
  SPEAKER_00: Number one, and I'm really speaking to listing agents right now, the more work that you can do up front before you bring your listing to market, the better.
• 6:53
  SPEAKER_00: So do your due diligence.
• 6:55
  SPEAKER_00: Connect with a lender who you have a close relationship with to understand what some of the issues may be with that building.
• 7:03
  SPEAKER_00: Now, the lender can only go as far as the documentation that they have.
• 7:08
  SPEAKER_00: So it is in your best interest as a listing agent, and you need to communicate this to your seller as well, to get as much information up front.
• 7:17
  SPEAKER_00: Get a questionnaire from the management company.
• 7:19
  SPEAKER_00: Maybe they will charge you$400 or$500.
• 7:23
  SPEAKER_00: It is worth it for your seller to pay for that questionnaire up front because it will save them so much time down the road.
• 7:34
  SPEAKER_00: And it's essentially getting the answers to the test before the exam starts.
• 7:38
  SPEAKER_00: That's number one, get the financials, get the budget, get the insurance for that building.
• 7:43
  SPEAKER_00: Because if you can get those items up front, that would be fantastic and would go such a long way in helping your seller sell their unit faster.
• 7:54
  SPEAKER_00: Because let's say that the building is dealing with some issues and it's not fanymate approved, it's not compliant with standard bank guidelines.
• 8:04
  SPEAKER_00: If you get a pre-approval letter from a prospective buyer and it's from a traditional bank who you know ahead of time will not lend on that building, are you going to accept that pre-approval letter?
• 8:16
  SPEAKER_00: Of course not.
• 8:16
  SPEAKER_00: Or at least you're gonna ask the question I know ahead of time as a listing agent, this specific bank will not lend on this building, but your pre-approval letter is from this bank.
• 8:26
  SPEAKER_00: How do you square that?
• 8:27
  SPEAKER_00: And then you put it on the agent, you put it on that prospective buyer to get you those answers.
• 8:32
  SPEAKER_00: A lot of the top agents are doing that right now.
• 8:36
  SPEAKER_00: And again, this helps expedite the entire process and this sets you apart from the vast majority of agents out there.
• 8:44
  SPEAKER_00: Because what's the alternative?
• 8:45
  SPEAKER_00: What a lot of agents will do is they'll take a listing, put it on the market, get offers, accept an offer, go into contract, and then you might find out 30 to 45 and sometimes even 60 days later that the lender will not close in that building.
• 9:00
  SPEAKER_00: Then what do you do?
• 9:01
  SPEAKER_00: You're stuck.
• 9:02
  SPEAKER_00: That contract may get canceled.
• 9:04
  SPEAKER_00: You need to relist the property, find another buyer, and ensure that they have their mortgage approved and they can close in that building.
• 9:11
  SPEAKER_00: You're doing double, sometimes triple the amount of work than you have to.
• 9:15
  SPEAKER_00: Once you go into contract, your job should be done.
• 9:19
  SPEAKER_00: Yes, there's some negotiating that still continues as far as timing, but for all intents and purposes, it's on the attorney and it's on the lender to get you from that point to closing.
• 9:30
  SPEAKER_00: So doing that work up front, working with your lender, working with your attorney, getting your seller on board with this goes such a long way.
• 9:39
  SPEAKER_00: And I think this is the new way that a lot of the top agents are already doing, but the new way that all agents they're ultimately gonna start following to get things done in a more efficient manner.
• 9:50
  SPEAKER_00: Taking a step back for a second, with all these sellers, what they have to understand is not only are we selling your unit and your unit's perfect, right?
• 10:00
  SPEAKER_00: Every seller thinks their unit's fantastic.
• 10:02
  SPEAKER_00: The floors are great, the view is great, the location, the kitchen, the bathrooms, the bedroom count, all that's fantastic.
• 10:08
  SPEAKER_00: But we're not just selling your unit, Mr.
• 10:11
  SPEAKER_00: and Mrs.
• 10:11
  SPEAKER_00: Seller.
• 10:12
  SPEAKER_00: We're selling the association itself in addition to your unit.
• 10:16
  SPEAKER_00: And because this association now is dealing with critical repairs that have to get done, or the financials are not as strong as banks typically want to see, this is the reason why we need to take some of these extra steps to get your units sold.
• 10:34
  SPEAKER_00: This is of the utmost importance right now in this market.
• 10:37
  SPEAKER_00: Now, if you're representing a buyer, there's only so much you can do, but there are things that you can do.
• 10:43
  SPEAKER_00: If you have a buyer who is uber interested in a specific unit in a building, send the lender the address at minimum of that building and let the lenders do some upfront due diligence on that building to see what they can find.
• 11:00
  SPEAKER_00: Are there any glaring red flags, anything that stands out that would prevent that individual or that couple or that family from getting financing on that building?
• 11:10
  SPEAKER_00: What can they find?
• 11:11
  SPEAKER_00: Doing that coupled with pushing back on the listing agent, having a conversation, and seeing what information they can provide on the building.
• 11:19
  SPEAKER_00: Do they have the financials?
• 11:20
  SPEAKER_00: Do they have the insurance?
• 11:22
  SPEAKER_00: Can they get a questionnaire?
• 11:23
  SPEAKER_00: All these things will help you and your buyer, when representing a buyer, understand what's possible in that building.
• 11:30
  SPEAKER_00: Let's say you're looking at a building and it doesn't meet bank guidelines.
• 11:34
  SPEAKER_00: As a result of that, the buyer may need to accept an above-market interest rate as a result of that.
• 11:39
  SPEAKER_00: So, A, it's it's important for your buyer to understand that.
• 11:42
  SPEAKER_00: And no, the last thing you want is your buyer to find that out two, three, four weeks after they've already signed a contract.
• 11:48
  SPEAKER_00: So getting that information ahead of time puts you in a position where you might be able to negotiate a credit to cover that difference between the higher rate for a tough-to-finance building and the rate that it would be for a market rate for a building that meets standard guidelines.
• 12:04
  SPEAKER_00: Again, knowing this upfront, whether you're on the listing side or helping a buyer, separates you from 99% of agents that are out there that just go into contract or put a listing to market without doing this upfront work.
• 12:17
  SPEAKER_00: Taking a buyer to a listing, getting their offer accepted and not doing any due diligence on that building.
• 12:22
  SPEAKER_00: That's what most people are doing right now.
• 12:24
  SPEAKER_00: And then you only find out later that there are issues with that building and it ultimately hurts the buyer and it hurts the seller.
• 12:30
  SPEAKER_00: This really separates you.
• 12:32
  SPEAKER_00: So use your lender.
• 12:34
  SPEAKER_00: We're doing this with all the agents that we work with in our inner circle to help buyers and sellers navigate this lending environment that we're in right now.
• 12:44
  SPEAKER_00: It's not easy.
• 12:45
  SPEAKER_00: It is tough, it is challenging.
• 12:47
  SPEAKER_00: The good news is it's gonna drive a lot of people out of the industry.
• 12:50
  SPEAKER_00: There's gonna be opportunities for so many agents out there to pick up market share.
• 12:55
  SPEAKER_00: So use this as an opportunity.
• 12:58
  SPEAKER_00: Use your lender, use your attorney to do this work up front.
• 13:02
  SPEAKER_00: Your buyers and your sellers will thank you.
• 13:05
  SPEAKER_00: They will love you.
• 13:06
  SPEAKER_00: This will lead to a lot more business for you going forward.
• 13:10
  SPEAKER_00: Guaranteed.
• 13:11
  SPEAKER_00: All right, so that is what I have for today.
• 13:13
  SPEAKER_00: Again, this is a hot topic in our industry.
• 13:16
  SPEAKER_00: We'll probably do another episode on this in the future.
• 13:18
  SPEAKER_00: Please hit the subscribe button, comment if you've experienced any issues with buildings recently.
• 13:25
  SPEAKER_00: I want to hear about it.
• 13:26
  SPEAKER_00: Write in the comments what you've been seeing, what you've been experiencing, any pushback that you've heard from buyers and sellers.
• 13:32
  SPEAKER_00: Let's talk about it.
• 13:33
  SPEAKER_00: I will see you on the next episode of the Lone Daddy Podcast.
• 13:36
  SPEAKER_00: Thank you.