The condo HOA is carrying only $675 million of insurance while Fannie requires $1.6 billion of replacement coverage.
Without public warning, Fannie Mae unceremoniously pulled the plug on its condo warranty approval for 6,102 condominiums and single-family condos at Laguna Woods Village as of Jan. 31.
The Surfside association was woefully short on insurance coverage. It reportedly had $50 million in insurance but payout estimates were as much as $1 billion, according to a Wall Street Journal article. For example: assume a $600,000 sales price and a 25% down payment, leaving a loan amount of $450,000. The 30-year Fannie at 6.25% offers a principal and interest payment of $2,771 with 1.25 points costs.
It’s worth noting two other agents hosting open houses did not freely share information about the Fannie financing shutdown until I pressed them.‘We’re not going to tell them.’ was the answer I got from one agent. A fourth agent I interviewed was unaware of this news.“I’m eliminating this,” she told me. “I’m unwilling to pay . I will pay $150,000 to $200,000 more outside the gate with a $300 HOA.”
This is a difficult set of circumstances for all concerned that seems to be nobody’s fault when it comes to legitimately needing but not having enough replacement insurance coverage. According to Yost, $1.6 billion is required but the policy is for $675 million, which means there is a $935,000 gap.Was Surfside a catastrophic isolated incident? Maybe not.
Interior insurance means interior wall damage, for example. In my experience, only very old properties with old CC&Rs might have language covering the walls-in insurance. If the owner has to pay for the walls-in coverage, it might be $50-$75 bill monthly in addition to the HOA fee.
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