Three years after a condominium building collapsed in Surfside, Florida, killing 98 people, policies have changed regarding the safety of condo buildings — as well as mortgage lending for residents within these buildings. Fannie Mae and Freddie Mac have both updated policies, especially as condo living is on the rise due to a recent lack of housing inventory. 

The number of condominium and homeowner associations is set to increase from 365,000 in 2023 to as much as 370,000 in 2024, accounting for almost one-third of U.S. home inventory, according to a recent Foundation for Community Association Research study and forecast.

"Approximately 67% of the homes completed in 2023 were in a homeowner's association, condominium or housing co-op. That's a big number," Dawn Bauman, executive director of the foundation and chief strategy officer at the Community Associations Institute, recently told National Mortgage News.

Read more: Congress must act to fix Fannie Mae and Freddie Mac, FHFA says 

Community associations new and old now account for around 30% of overall housing stock. While the association component of new home construction is considerable, the sector does also include a significant number of older buildings more than 40 years old, Bauman said. Because of this, Freddie Mac and Fannie Mae established more rigorous guidelines for ensuring the safety and soundness of these residential buildings.

Lenders and associations haven't argued with the need for some rule changes following the Surfside condo collapse, but have looked for improvement in communication regarding which buildings have issues that bar financing and processes available to remedy such concerns.

Both Freddie Mac and Fannie Mae have responded with plans to improve transparency for both associations and lenders. 

In addition, Freddie is extending the use of attorney opinion of title letters to loans collateralized by condominiums and those with deed restrictions, such as properties that are part of a homeowners association.

While broader use of options like attorney opinion letters has gotten pushback from the title insurance industry, saying they're insufficient given the risk, efforts to explore this are moving forward due to the potential to save borrowers hundreds of dollars upfront per loan.

However, American Land Title Association CEO Diane Tomb said the letters are likely to rarely, if ever, result in savings and "will expose additional consumers and lenders to unneeded risk and weaken protection of their property rights."

One-third of title claims are for issues not found in routine searches conducted for an AOL, the cost of insurance has fallen almost 8% since 2004 "seller-pay" regimes in many states minimize buyer costs for insurance. Condos are considered particularly vulnerable to risks, according to ALTA.

Read more about the recent policy changes both Fannie Mae and Freddie Mac have made on condo buildings.