Fannie Mae and the Federal Home Loan Mortgage Corp., a fraternal corporate twin known as Freddie Mac, buy or guarantee the large majority of US residential mortgages. Without them, purchasing a home would be out of reach for many Americans with less than stellar credit who lenders wouldn’t touch if they had to hold onto the loans themselves.
The news: Fannie Mae’s power is at the heart of an Address story this week by Globe correspondent Jim Morrison, who detailed how the company keeps a tightly held list of condominium properties where it won’t purchase mortgages based on certain risk factors.
Fannie Mae doesn’t notify the developments when they’ve been added to the list. Instead it distributes a monthly rundown to lenders with strict instructions to keep the information confidential.
(Freddie Mac doesn’t maintain such a list, though it also screens condo developments for risks.)
Most condo boards, owners, and prospective buyers don’t know when a property has been put off limits by Fannie Mae. It’s hard to understand why the company insists on keeping it such a mystery.
The backstory: Jim got a whiff of what was going on more than a year ago.
“I called every lender I know, hoping to get a copy of it and they all told me it didn’t exist,” he said. “Then, on Father’s Day 2023, I woke up to find a copy of the May list in my email inbox from a person in the real estate industry.”
Fannie stonewalled Jim, but others in the condo world began to talk.
Nicholas Perricone joined Boston’s Lafayette Lofts condo board after buying a unit in the Financial District building in 2022. That’s when he began hearing stories from other owners whose attempts to sell were stymied by lenders.
Perricone said he may have been “one of the last unit owners to obtain financing from a commercial lender. . . We knew we were on some type of blacklist, but we didn’t know that it was a list prepared by Fannie Mae.”
Fannie Mae flagged Lafayette Lofts for “significant deferred maintenance” and “water infiltration, which is causing deteriorated mortar joints and cracking,” according to a copy of the list.
After further pressing by the Globe, Fannie Mae finally offered up answers to Jim’s questions.
What Fannie Mae says: The company — it’s formally designated a government-sponsored enterprise because it was created by Congress and its debt carries implicit government backing — said most developments are on its list because of “active or pending significant litigation, hotel- or resort-type characteristics with transient occupancy, too much commercial space, or inadequate insurance.”
Fannie said that a little more than 1 percent of the projects in its condo database were deemed ineligible as of June.
By the numbers: Jim obtained data that showed there were 1,770 developments in the United States on the list in May. By October there were 2,306. Thirty-seven of them were in Massachusetts, 1.6 percent of that list. Florida had the most (34.5 percent), followed by California (10.3 percent) and South Carolina (4.6 percent).
After the fatal collapse in 2021 of Champlain Towers South in south Florida, Fannie Mae changed its eligibility requirements and ramped up enforcement, according to Orest Tomaselli, an executive at a firm that works with condo buyers. The number of properties on Fannie Mae’s list climbed quickly from just several hundred a year ago.
Reality check: It’s logical that Fannie Mae doesn’t want to get involved with loans that might be at risk due to a development’s maintenance problems or tenant profile.But a Fannie Mae spokesperson dodged the question of why the list is kept secret.”
As a secondary-market participant, we believe that lenders are in the best position to have conversations with their customers about mortgage finance options for their home purchase and property eligibility requirements,” the spokesperson said in an email.
Parting shot: I reckon Fannie Mae’s lawyers must have a reason for the “lenders’ eyes only” treatment. But the secrecy is frustrating for condo associations and owners. The company should change its policy.
“Some of the few dozen people I contacted on the list knew they were on it, but most didn’t,” Jim said. “They were shocked to learn a quasi-government agency had a blacklist and their property was on it. Their next question was: How do we get off it?”