Deephaven's Davis says waiting too long could cost you a closing
Fannie Mae and Freddie Mac's condo rule changes have been one of the biggest stories in mortgage lending this year, and the impact is already showing up as loans shift into the non-agency space.
As the changes move properties from limited review to full review, and a future change increases reserve requirements, the non-QM space is gearing up to absorb more condo lending entering 2027.
With one deadline behind the industry and a second closing in fast, the conversation is shifting from what these changes mean to what brokers should actually do about them.
Tom Davis (pictured top), chief sales officer at Deephaven Mortgage, said the agencies have shown no sign of reversing course despite industry pushback.
"I think there are two major changes, and I don't think there's going to be any changes in the plan from the agencies," Davis told Mortgage Professional America. "Just my discussions with folks at the MBA who work directly with the agencies, they're not moving on that stance, even though everyone's tried to lobby them to make an adjustment there regarding those policy changes."
Bumping projects to non-QM
Davis said the first change took effect at the start of August and eliminated a shortcut a large share of condo loans had relied on.
"Close to 40% of condos that were going through the agencies for loan approval went through a limited review," he said. "As of the beginning of August, all condos have to go through a full review, so that is more than likely going to make some projects ineligible."
The second change raises the bar for how much condo associations must have set aside in reserves.
"The reserve requirement for the HOA goes from 10% to 15%," he said. "So we're talking about a 50% increase on the reserve allocation. If these HOAs are not reserving for the adequate amount, those projects are not going to qualify for agency financing."
That reserve increase takes effect January 4, 2027, and Davis said the impact will be heavy in Florida, where associations are already stretched by post-Surfside inspection and reserve mandates.
"Especially in the state of Florida, there's already work that needs to be done to some of these condos," he said. "They've had to reserve for that, and now you need a higher reserve on top of it. I think a lot of HOAs are not going to have that 15%, and that's going to kick a lot of these projects out."
How brokers should prepare
While the process of financing condos is a little different between agency and non-agency, Davis said some of the changes that brokers will notice are actually easier in the non-agency space.
"For a lot of the non-QM investors, we have a different questionnaire. It's not as in-depth as the agencies," he said. "I think it's an easier process to go non-agency for the brokers."
He said the bigger opportunity is getting ahead of the January deadline rather than reacting once a deal is already in trouble.
"I would recommend that brokers or loan officers become proactive and use this market shift as an opportunity to reach out to realtors who specialize in condos, or have listings in these projects, and educate them on these changes," he said. "If they do that, they're providing an advisory approach, and I have alternative solutions. It's an opportunity for a loan officer to provide value instead of the realtor trying to get the loan done and having it kicked back by a lender who doesn't know about these changes."
Davis said he has already seen condo business pick up in the roughly six weeks since the first rule change took effect.
There are roughly 130,000 to 150,000 condo associations nationally, according to the Foundation for Community Association Research, an affiliate of the Community Associations Institute. Davis said that is why financing options for condos are so important.
"I live in South Florida. Florida has more condos than any other state," he said. "If you're an originator or a realtor, these changes are going to impact you. If you don't have access to non-agency products, potentially a lot of your production you can't close. You have to adapt to the market and adopt products that are in the marketplace to stay relevant and serve all the borrowers and their needs."
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
This article is part of our Monthly Spotlight series, which in September focuses on investor-focused loan products. Full coverage can be found here.
