Fannie, Freddie Guidelines Slow Down Sales In Florida

The folks at Friedman, Billings, Ramsey & Co. Inc. just got back from a tour of south Florida's housing market - visiting Port St. Lucie, West Palm Beach, North Miami and Miami Beach. The news was bleak - the region is still stocked with foreclosures and prices are falling still.

However, those with the cash to buy are finding some huge discounts.

The "market continues to go through severe house price adjustments as foreclosures and short sale transactions continue unabated," analyst Paul J. Miller Jr. writes.

According to FBR, one reason inventory isn't clearing out is Fannie Mae (FNM) and Freddie Mac (FRE)'s new underwriting guidelines, which restrict credit to condo projects with a 15% delinquency rate. That means if a building has more than 15% of housing units delinquent on the Home Ownership Association or condo fees - not unheard of as unemployment mounts and burned investors continue to flee - Fannie or Freddie will not supply financing to buyers, according to Miller.

One condo unit in a West Palm Beach conversion project sold for $37,000 cash, from $247,000 back in February of 2007. More than one-third of the building's association fees were delinquent.

And here's more fuel for cash deals. Last month, Fannie Mae issued new condo lending guidelines, saying at least 70% of units in new condos must be presold and no more than 10% of units can be owned by a single entity, at least 10% of the operating budget is for reserves, Miller pointed out. The requirements, which he said were customized to the battered Sunshine State, were crafted to protect new buyers from buildings crippled by defaults and unpaid maintenance fees.

These new requirements make it more difficult to get loan approvals for condo buyers, in some cases placing complete condo buildings into death spirals once a condo project is disqualified from Fannie Mae and Freddie Mac loans," he said.

That's tough now, but, in the longer-term, it should help stabilize the condo environment as it decreases the risk of buyers defaulting on loans, Miller said.

-Dawn Wotapka; Dow Jones Newswires; 201-938-5248; [e-mail]