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The Hidden Mortgage Blacklist Threatening Condo Markets Nationwide
How Fannie Mae’s Post-Surfside Lending Restrictions Are Disrupting Transactions, Driving Up Insurance Costs, and Creating a Shadow Crisis
What sounds like a fictional plot twist—a secret mortgage blacklist—has become an alarming reality for thousands of condo owners, buyers, and real estate professionals across the U.S. According to a recent report by The Wall Street Journal, Fannie Mae is quietly maintaining an internal list of condominium properties it deems too risky for mortgage financing. The result? Deals are falling apart at the closing table, insurance premiums are spiking tenfold, and affordability is collapsing—especially in high-density, disaster-prone states.
The Origin: Surfside’s Lasting Shadow
The “blacklist” emerged in the aftermath of the 2021 Surfside condominium collapse in Florida, where a structural failure killed 98 people. In response, Fannie Mae and Freddie Mac introduced far stricter lending and insurance criteria, prompting the creation of an internal watchlist of buildings flagged for:
- Structural deficiencies
- Insufficient financial reserves
- Pending litigation
- Inadequate insurance
- Investor-heavy ownership structures
Though the agency avoids publicly labeling it a “blacklist,” real estate professionals and borrowers are experiencing it as exactly that.
Case Study: A Collapsing Deal in California
Paul Gangi, a real estate agent in Ventura County, California, was days away from closing a condo sale at Shadow Ridge, a 440-unit complex, when the lender delivered devastating news: the property was blacklisted by Fannie Mae. Despite efforts to find alternative financing, the deal collapsed.
As of early 2024, over 5,175 properties are reportedly on the list—up from a few hundred before Surfside—with Florida, California, Colorado, Hawaii, and Texas most affected.
Why It Matters for Real Estate Investors
- Lending Freeze on Thousands of Units
With Fannie and Freddie purchasing roughly half of all U.S. home loans, properties on their exclusion list become functionally unmortgageable—unless buyers bring cash or pursue non-traditional financing.
- Insurance Costs Have Skyrocketed
Fannie Mae’s new compliance standards have led to eye-popping insurance hikes. In Shadow Ridge’s case, a compliant policy was quoted at $2.6 million per year—more than 10x the prior rate. This dramatically raises HOA fees and kills affordability, affecting both resale value and cash flow for investors.
- Non-Admitted and Surplus Insurance on the Rise
With traditional insurers pulling out of high-risk markets, condo associations are turning to alternative insurance models like:
- Non-Admitted Policies – Lightly regulated, not backed by state guaranty funds, and significantly more expensive. Used traditionally for high-risk commercial properties (e.g., fireworks factories), they’re now growing rapidly in residential markets like Florida and California.
- Surplus Lines Insurance – Similar in function and cost, offering last-resort options for buildings unable to secure admitted coverage.
Between 2022 and 2023, non-admitted premiums rose 27.5%, compared to 13.8% in the mainstream market. Florida saw a 73% increase in the number of homes using this form of coverage since 2009.
What Puts a Condo on the Fannie Mae Blacklist?
Properties may be flagged for any of the following reasons:
- Unaddressed structural or safety concerns
- HOAs lacking sufficient financial reserves
- Active or pending litigation against the condo association
- Investor ownership exceeding acceptable thresholds
- Failure to maintain insurance that meets updated Fannie/Freddie standards
Navigating the New Lending Landscape
If you’re buying or selling a condo, especially in high-risk or coastal markets, proactive due diligence is essential:
- Confirm financing eligibility – Have your lender verify the building’s status with Fannie and Freddie before proceeding.
- Review HOA financials – Ensure reserves are sufficient and that capital projects or deferred maintenance are being addressed.
- Ask for recent engineering reports – Sellers should proactively disclose structural inspections, and buyers should request them if unavailable.
- Evaluate insurance options – Non-traditional insurance may be the only path forward, but it comes with higher costs and risks.
Final Thoughts: Is Federal Intervention Needed?
This silent crisis in the condo market is spreading, with far-reaching implications for affordability, liquidity, and homeownership access. As Fannie Mae tightens the screws on underwriting standards and insurance compliance, local and state regulators may be left scrambling to pick up the pieces.
With no publicly accessible list of excluded properties, homeowners are often caught unaware—until a transaction falls apart. As real estate investors, brokers, and buyers adapt, the call for transparency and balanced regulation is growing louder.
Absent reform or intervention, the mounting insurance burdens and restrictive financing landscape could severely damage condo markets across multiple states. For now, the onus is on the investor to research, ask the right questions, and navigate an increasingly complex underwriting environment.
In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?“
The Hidden Mortgage Blacklist Threatening Condo Markets Nationwide
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?“