Just as lower prices are drawing more buyers to the troubled Miami real estate market, federal rules are making it even harder for them to get loans.
One Miami resident can't buy the $94,000 condo he had his eye on at Treetops Lofts on Miami's Upper Eastside, but he does qualify for a smaller, higher-priced loft at a building called The Bank on nearby Biscayne Boulevard.
The reason: complex federal rules that make it extremely tough for buyers to qualify for loans in many Miami real estate, unless they come up with large down payments.
Just as demand seems to be on the upswing, these rules could undermine any recovery in the depressed Miami condo market and drive unit prices even lower.
Here's why:
Burned by soaring default rates on Miami condos, banks have become as careful about selecting the buildings where they make loans as they are about the borrowers themselves.
That means buyers, if they are lucky enough to get a mortgage, have to put down 40% or more on condo purchases unless a project meets regulations set forth by the Federal Housing Administration or Fannie Mae.
Recent changes by Fannie Mae have made it especially tough for Miami real estate projects, especially newer ones, to qualify. Below are the new guidlenes:
Particularly vexing is a new rule requiring that up to 70% of a new project's units be pre-sold and that no more than 49% be owned by investors.
That eliminates scores of new South Florida projects, especially in the new-construction belt between the Julia Tuttle and Rickenbacker causeways.
Many newer condo units in that area were snapped up by speculators who never intended to live in them but saw them as investments to flip for quick profits.
Another new Fannie Mae rule could further chill sales at existing South Florida buildings. It bars Fannie Mae from backing a loan in buildings where more than 15% of the unit owners are 30 days past due on association fees.
With so many units in default, many South Florida projects have a huge number of delinquencies. Condo associations are raising fees on owners in good standing to make up the shortfall.
Fannie Mae put the new rules in place, in part, to prevent buyers from taking out loans on properties that could lose value in the months ahead. But making loans harder to acquire can actually push prices lower still.
In a building that wins Fannie Mae's blessing, buyers generally can secure a mortgage with 20% down. In buildings that lack it, most sales are cash deals at prices vastly below market value. Many are foreclosure or other distressed sales.
Even projects in which all units have been sold desire the Fannie Mae designation because it allows owners to resell units more easily.
In the current climate, some desperate developers, unable to win Fannie Mae approval, may be pressured to sell units in bulk at wholesale-like prices to hedge funds and other institutional buyers. That is considered a last resort.
Contributed by MLR Realty
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