Nearly 700 condominium complexes around California have been placed on a “mortgage blacklist” that has created a headache for owners looking to sell their properties and, in many cases, forced them to lower their asking price.
The list — first reported on by the Wall Street Journal — is maintained by Fannie Mae, a government-sponsored entity that doesn’t issue loans itself, but with its sister company Freddie Mac buys up nearly half of all home loans and bundles them to sell to investors.
Inclusion on the blacklist can make it nearly impossible for buyers to get a conventional loan — the kind that Fannie buys and guarantees, which tend to be cheaper than other mortgages and require lower down payments.
Fannie’s list has been growing in recent years, as it looks to protect itself from taking on mortgages for properties that it considers to be underinsured, dilapidated, or lacking sufficient reserves.
In January 2024, business screeched to a half for real estate agent Larry Spiteri when Fannie Mae blacklisted the majority of units in Rossmoor, an upscale retirement community of 6,700 homes south of downtown Walnut Creek in Contra Costa County.
“For a while there, we were in a panic — no one was lending,” said Spiteri, who specializes in the area. With no lenders offering qualified mortgages, the only people selling were those who could find a cash buyer. With the buyer pool reduced, home values in the community fell temporarily, he said.
In May 2024, local mortgage broker Mary Niles found alternative lenders willing to offer mortgages to Rossmoor condo buyers — what are called “non-qualified mortgages,” or “non-QM loans,” which typically come with somewhat higher down payment requirements and interest rates. Since then, she’s also found a lender for co-ops, and has closed about 30 loans for buyers in the community.
“Sales have been picking back up again, as well as prices,” Niles said. “If we had Fannie Mae’s approval, we’d be in a better place, though.”
Rossmoor is one of 35 condominium projects in Walnut Creek on Fannie Mae’s blacklist. The total number of properties on the list in California had hit 733 as of March 11, according to Stephen Marcus, a condo lawyer at Boston law firm Allcock & Marcus, which has access to the list. That’s up from 695 properties last month.
The other most-listed Bay Area cities are San Francisco, with 21 properties, and San Jose, with 18 properties. In Southern California, Los Angeles had 37 condos on the list, and the Pacific Palisades — one of the cities that suffered the most damage during the wildfires that scorched Los Angeles in January — had 28.
Allcock and Marcus said it wasn’t releasing the names of the properties on the list, as it could harm those condominium’s property values.
Fannie Mae’s blacklist has grown longer since 2021, when the Surfside condo collapse in Florida killed 98 people, raising alarm bells for condo associations nationwide deferring their own maintenance.
California is also adding more stringent requirements for condo owners to ensure residents’ safety. In 2019, following a balcony collapse that killed six young people in Berkeley, the state passed a law requiring apartments and condo HOAs to inspect all balconies and outdoor stairs every six years.
The problem is exacerbated by an insurance crisis that has made it more difficult for both homeowners and condo associations alike to afford comprehensive coverage.
Rossmoor’s insurance policy, for example, covers $1 million in loss per unit in the community, which includes a mix of condo buildings, townhouses and single-family homes — but it only is insured enough to cover about 44% of all dwelling units, Niles said. (Two of Rossmoor’s communities — The Waterford, a 300-unit congregate living facility, and the 63 single-family homes in Heritage Oaks — have their own insurance policies and are not covered by the master policy, and therefore are still eligible for conventional loans.)
Insuring just a fraction of the units within a condominium project has historically been enough for HOAs, since earthquakes or fires may take out some units but leave others intact, said Tyler Burding, a Walnut Creek-based lawyer who specializes in condos. But recent fast-spreading wildfires around California are raising concerns that entire communities could be destroyed in a disaster.
“If the HOA can’t get enough fire insurance to rebuild all of its buildings in case of a major fire, then the mortgage companies are at risk,” Burding said. “Fannie Mae is protecting itself as it realizes that wildfires are hitting urban areas.”
Most condominium associations, though, can’t afford to insure their entire property — or rather, their members aren’t willing to approve that kind of spending.
Jackie Giffin, a real estate agent who works in the Rossmoor community, estimates that it would end up costing property owners an average of $300 more per month — or an extra $3,600 a year — to meet Fannie’s insurance requirements.
“Already, the monthly fees are going up,” Giffin said. “To add $300 more per month, we would probably end up losing a lot in property values because there would be so many people selling.”
Though Rossmoor has still had steady demand despite its blacklist status, others aren’t so lucky.
Lafayette agent Melissa Case represented a seller of a condo in San Pablo that she suspects is on the blacklist — she got three different buyers into contract on the property, but each time, lenders wouldn’t approve a loan. Eventually, the seller wasn’t able to pay her mortgage any more, and the property fell into foreclosure.
Burding, the condo lawyer, said he suspects that Fannie will add to its blacklist in California as some of the condos built 30 to 40 years ago start to deteriorate after years of deferred maintenance and underfunding their reserves.
“There are many condos that are rotting from within. They need reconstruction,” Burding said. “By the time HOAs get the numbers of what that’s going to cost, there’s no way to raise the money. Banks won’t lend it. The owners can’t afford to pay it.”
If they can’t sell their property, condo owners will have to consider alternatives.
This week, Case was contacted by a condo owner looking to sell in Antioch, but she suspects that she could have trouble finding buyers.
“I’m advising him to rent it out instead of sell,” Case said.