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Wish You Bought Real Estate in 2012? A Similar Opportunity Is Emerging in Multifamily
It sounds like something out of a Netflix thriller: a secret mortgage blacklist that’s blindsiding condo owners, tanking home sales, and throwing entire developments into financial chaos.
Unfortunately, it’s very real—and it’s hitting the U.S. housing market hard.
According to a Wall Street Journal report, Fannie Mae has quietly compiled a list of more than 5,100 condo and co-op buildings across the country that no longer qualify for traditional mortgage financing. And they’re not telling anyone who’s on it—until it’s too late.
What Is Fannie Mae’s Secret Mortgage Blacklist?
Following the tragic 2021 Surfside condo collapse in Florida that killed 98 people, Fannie Mae began flagging properties deemed financially risky, structurally unsound, or underinsured. While Fannie insists it’s not a “blacklist,” the result is the same: if a condo is on it, buyers can’t get a mortgage backed by Fannie Mae.
This restriction doesn’t just hurt potential buyers—it also traps current owners, making it nearly impossible to sell or refinance. Freddie Mac is believed to maintain a similar list, further tightening the lending noose.
Where Are These Blacklisted Condos?
- Florida tops the list, with over 1,400 blacklisted properties.
- California, Colorado, Hawaii, and Texas also rank high.
As of 2024, the number of blacklisted properties has exploded from a few hundred to over 5,175 nationwide.
How the Blacklist Is Blindsiding Sellers
Take the case of Shadow Ridge, a 440-unit condo complex in Ventura County, California. A real estate agent was about to close a deal when the buyer’s lender discovered the property was blacklisted by Fannie Mae—just days before closing.
With no viable financing options, the buyer had to walk away.
Situations like this are becoming increasingly common—and devastating. Condo owners are suddenly finding their properties unsellable unless the buyer pays cash or uses non-traditional financing.
Why Condos Are Being Blacklisted
There are several reasons a building can land on the Fannie Mae “no lend” list:
- Structural deficiencies or unaddressed safety concerns
- Insufficient reserves for repairs or maintenance
- Pending litigation against the HOA
- High investor ownership, which adds risk for lenders
- Inadequate insurance coverage or non-compliance with Fannie’s strict new insurance standards
These issues aren’t always visible to buyers upfront—and they often catch sellers off guard as well.
The Insurance Crisis Behind the Blacklist
Insurance is the hidden monster in this scenario. Many properties are being blacklisted because they can’t obtain Fannie-compliant insurance—or because it’s unaffordable.
In one example, a compliant insurance policy for Shadow Ridge was quoted at $2.6 million per year, up from $260,000. That tenfold increase made the property financially unviable for residents and investors alike.
Insurers are raising premiums aggressively in response to Fannie and Freddie’s tightened underwriting guidelines, especially in states vulnerable to natural disasters like Florida and California.
Enter: Non-Admitted and Surplus Lines Insurance
With traditional insurance becoming scarce or unaffordable, some condo associations are turning to non-admitted carriers—insurers not backed by state guarantee funds and typically used for high-risk commercial ventures like fireworks factories or nuclear facilities.
These policies are:
- Lightly regulated
- Expensive
- Not backed by the state if the insurer fails
Still, for many buildings, non-admitted insurance is the only option left. In Florida alone, the number of homes using this kind of coverage rose 73% from 2009 to 2023, according to Bloomberg.
Surplus lines insurance is also growing fast in California and other high-risk states. But both are often more expensive—and less secure—than traditional coverage.
How to Navigate the Fannie Mae Blacklist as a Buyer or Investor
If you’re buying or selling a condo, especially in a coastal or disaster-prone area, take these steps to avoid being blindsided:
- Check financing eligibility early: Ask your lender to verify whether the property qualifies for Fannie Mae or Freddie Mac loans.
- Request HOA financials: Look for adequate reserves and a clean record of repairs and maintenance.
- Ask for recent structural reports: If unavailable, consider commissioning one before proceeding.
- Consider alternative financing:
- Buy with cash
- Use private lenders or portfolio loans
- Negotiate seller financing
- Inquire about insurance: Get a copy of the current policy and find out if it’s compliant with Fannie’s requirements.
Final Thoughts: A Crisis With No Easy Fix
Fannie Mae’s mortgage blacklist has quietly changed the landscape of condo investing—especially in Florida and California, where high insurance premiums, aging infrastructure, and extreme weather risks collide.
Buyers and investors are finding themselves locked out of deals, while sellers are watching their property values drop simply because of a list they didn’t know existed.
Until there’s federal or state-level reform—either in insurance markets or Fannie and Freddie guidelines—the situation may worsen. If you’re investing in condos, do your homework early and be prepared to think outside the box when it comes to financing and insurance.
Because in today’s market, simply finding a buyer is no longer enough. You also need a property that Fannie Mae is willing to touch.
In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?“
Wish You Bought Real Estate in 2012? A Similar Opportunity Is Emerging in Multifamily
Has the U.S. Housing Market Finally Begun to Thaw After the Pandemic?
It seems like the housing market might be showing signs of life. According to a recent report from Redfin, pending home sales in early October have seen their largest year-over-year rise since 2021, with a 2% increase in the four weeks ending October 6.
This news is likely to be welcomed by real estate investors who have felt the market has offered limited opportunities over the past few years. However, it’s important to take a cautious approach—one promising statistic doesn’t necessarily indicate a broader trend.
Is the Housing Market Truly Recovering?
Let’s explore the different factors at play.
Interest Rate Reductions: A Critical Factor or a Red Herring?
The Redfin report links the surge in pending sales to the Federal Reserve’s much-anticipated rate cut announcement in mid-September. According to Redfin, this announcement prompted buyers to re-enter the market in late September, despite mortgage rates having already been falling for weeks before the cut.
This psychological boost is crucial. Although buyers were aware of the falling rates beforehand, many seemed to be waiting for a formal signal to act. This could be attributed to a lingering fixation on the ultra-low rates of 3% to 4% that buyers enjoyed before 2022.
Any rate cut announcement serves as a nudge for prospective buyers, making them feel that now might be the right time to purchase, even if mortgage rates had been decreasing already. In an unstable mortgage market, such announcements hold significant influence.
However, mortgage rates are just one piece of the puzzle when analyzing housing market performance. As noted by Investopedia, the real estate market is driven by four primary factors: interest rates, demographics, economic conditions, and government policies.
Demographics: Shaping the Market
During the pandemic, demographic shifts had a profound effect on U.S. real estate, with major population movements like the Sunbelt migration fueling booms in cities such as Phoenix and Austin, which later became unaffordable for many.
Age is another key demographic factor, and the millennial generation’s pent-up demand continues to be a driving force behind the rise in home purchases. Despite the challenges of the past few years, millennials who have longed to become homeowners are now entering the market in greater numbers, as more properties become available.
Rising Inventory: A Sign of Stabilization
A key factor contributing to the market’s stabilization is the growth of housing inventory over the last year. The pandemic had a significant impact on the availability of homes, with sellers hesitant to list properties due to COVID-19 restrictions and, later, higher mortgage rates.
Some homeowners, particularly those upgrading to larger homes, found it financially challenging to sell and take on higher mortgages. Others, however, simply chose to wait for a more favorable market.
Although the latest Realtor.com report shows that inventory remains down by 23.2% compared to pre-pandemic levels, we are seeing an upward trend. For instance, new listings have been rising since last year, with a 5.7% year-over-year increase for the four weeks ending October 6.
As of September 2024, some states have even surpassed their pre-pandemic inventory levels, including Tennessee, Texas, and Idaho, with others, like Washington, close behind.
Vulnerabilities in Certain Regions
However, not all regions are showing positive signs. For example, some areas, particularly those affected by extreme weather, have seen inventory spikes not because of market recovery, but due to homeowners trying to offload damaged properties they can’t afford to repair.
For instance, regions like Florida and North Carolina, hit by hurricanes, have experienced increases in home listings, but these may reflect a response to climate-related challenges rather than market health.
Opportunities for Investors
Investors should be discerning when choosing markets, focusing on regions where inventory is growing due to increased home construction rather than climate-related distress. States like Idaho, Utah, North Carolina, and Texas, which are building new homes, offer potential, though caution is needed in areas prone to natural disasters.
The Midwest and Northeast, meanwhile, still face significant challenges in recovering to normal market conditions. These regions have lower rates of new construction, meaning inventory remains scarce, which could present both opportunities and difficulties for investors.
The Bottom Line
The U.S. housing market is showing signs of recovery, but the situation remains complex and varies by region. Interest rates play an essential role in unlocking the market, but investors should also consider other critical factors, such as homebuilding trends, climate risks, and government policies. While the market is heading in the right direction, it’s crucial to examine regional differences carefully before making investment decisions.
In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?“