Fannie and Freddie toughen rules on short-term rentals | Real estate report


(November 12, 2021) The two government-controlled mortgage giants, Fannie Mae and Freddie Mac, have taken action to tighten mortgage rules on buildings with many short-term rentals and hotel-style amenities.

The move could make entire buildings ineligible for loans guaranteed by Fannie / Freddie, and has already caused some problems at our resort since its implementation in early 2021.

When a project functions more as a resort, the building may become ineligible for funding supported by Fannie / Freddie. This stems from the new wording in Fannie and Freddie’s revised guidelines which disqualifies buildings if they are “transitional in nature” meaning that most units are intended for short term rentals of less than 30 days.

The specific wording of Fannie Mae’s website reads: “Projects which do not have other condotel characteristics, but which allow unit owners to offer short-term rentals on a seasonal basis while ‘they reside in the units for a significant part of the year, do not meet the criteria of “primarily transient nature” under the condotel policy. “

Additionally, when asked if a property is not eligible if it is professionally managed by a hotel or resort management company that facilitates short-term rentals, they state: “Projects professionally managed by Hotel or resort management companies are likely to hire these companies for -term rentals for unit owners. In rare cases, some projects may choose these entities for professional management services that do not include rental or other condotel features. In that case, Fannie Mae would be willing to discuss the possible eligibility of these projects and could review them through the Project Eligibility Review Service.

These changes in the guidelines and interpretation of the guidelines would ultimately result in an increase in the cost of purchasing vacation condos if Fannie / Freddie secured loans are not available. This is because buyers should rely on non-compliant loan products, which require larger down payment percentages and higher interest rates than traditional 30-year fixed loans for second homes.

Condominium loans represent about 7-10% of Fannie and Freddie’s total business.

“With the requirements of condominium agencies tightening, lenders will have to resort to private equity or portfolio sources to fund these types of properties,” said Jason Cook, director of Embrace Home Loans on the east coast. “This will most likely come with different prices for the units affected by these changes. Buyers in our resort town should understand the importance of using not only a local real estate agent but also a local lender for their financing needs to help them get through this most recent change.

– Lauren Bunting is Associate Broker at Atlantic Shores Sotheby’s International Realty Inc. in Ocean City.

About Michael B. Billingsley

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