Provident Funding: Condo Loan Options And Opportunities

California-based Provident Funding Associates LLC has announced that it will no longer be accepting new applications for condominium loans in Florida, marking a significant shift in the company's lending business. This decision has sparked discussions about the future of the Florida condo market and the potential exit of other major lenders. With Provident's departure, the focus now shifts to local community banks and credit unions, which may become the primary sources of financing for condominiums in the state.

Provident Funding Associates LLC is no longer accepting new applications for condominiums in Florida

California-based Provident Funding Associates LLC is exiting the Florida condominium lending market. In an email sent to broker partners on Friday, October 21, 2024, Provident announced that it would no longer accept new applications for condominiums in Florida, effective immediately. This decision by Provident Funding is not entirely unexpected, given the challenges facing the Florida condo market. Some owners of older condo units have struggled due to high special assessments, which are difficult to finance and have resulted in some units being listed at prices significantly below their purchase price. Additionally, Fannie Mae has blacklisted several condo buildings in South Florida, refusing to back loans for those properties.

The exit by Provident Funding may be indicative of a broader trend, with one Florida mortgage broker suggesting that other major lenders could follow suit and exit the Florida condominium market. This could potentially lead to local community banks and credit unions becoming the primary sources of financing for condominiums in the state, with loan-to-value ratios likely to be 80% or lower.

Despite the challenges, some agents remain optimistic about the Florida condo market. Cyndee Haydon, a Seminole-based agent for Future Home Realty, noted that the current market conditions favour condominiums that have been financially responsible or proactive with repairs. In her statement to HousingWire in July, Haydon emphasised that buyers seek comfort in purchasing condominiums with strong financial management and proactive maintenance during uncertain times.

While Provident Funding's decision to exit the Florida condo lending business may be a strategic move to mitigate risks, it is important to note that the company has a reputation for its conservative approach and a better-than-average delinquency rate in its servicing portfolio. As of October 21, 2024, Provident Funding is no longer accepting new applications for condominiums in Florida, and any loans in the pipeline must be locked by the deadline to avoid declination.

Provident's exit from the Florida condo market may be due to its conservative approach

California-based Provident Funding Associates LLC has decided to exit the Florida condo lending business. In an email to broker partners, Provident stated that it would no longer accept new applications for condominiums and that any pending loan applications must be locked by a specific deadline or face rejection. This decision by Provident, an institution known for its conservative approach, may be attributed to several factors inherent in the Florida condo market.

One significant factor contributing to Provident's exit could be the volatile nature of the Florida condo market. The market has experienced turbulence, with some owners of older condo units forced to sell at prices significantly lower than their purchase price due to high special assessments that are challenging to finance. This volatility may have prompted Provident to adopt a cautious stance and withdraw from the market to mitigate potential risks.

Additionally, the presence of blacklisted condo buildings in South Florida by entities such as Fannie Mae further complicates the lending landscape. Provident's conservative approach may have led them to recognize the potential financial risks associated with lending in a market where certain properties are deemed too risky for backing by established institutions. This could have influenced their decision to exit the market and focus their resources on other products with more favourable risk profiles.

The exit of Provident from the Florida condo market could also be a strategic move to prioritize their resources and maintain a strong track record. By focusing on their other offerings, Provident can continue to provide competitive pricing and fast turnarounds, as mentioned in their email to broker partners. This decision aligns with their conservative nature and commitment to maintaining a better-than-average delinquency rate in their servicing portfolio.

While Provident's exit may have been influenced by their conservative approach, it has also sparked predictions of a potential trend in the industry. A Florida mortgage broker suggested that other major lenders might follow suit and exit the condominium market in Florida, leaving local community banks and credit unions to fill the financing gap with more conservative loan-to-value ratios. This prediction underscores the perception that Provident's decision could be indicative of a broader shift in the industry's perception of the Florida condo market.

High special assessments have caused some Florida condo owners to list units at far below their purchase prices

In the wake of the Surfside Building collapse on June 24, 2021, which resulted in the tragic loss of 98 lives, Florida enacted a structural safety law. This legislation has had significant implications for condo owners in the state, who are now faced with soaring insurance rates and substantial special assessments.

The new law mandates that buildings undergo milestone structural inspections by the 30-year mark since their construction. As a result, condo owners, particularly those in older buildings, are confronted with extensive repairs to comply with the updated safety standards. The financial burden is substantial, with special assessments reaching six figures, as high as $100,000 or more.

The impact of these assessments is twofold: firstly, they contribute to the sharp rise in Florida home insurance costs, and secondly, they place a substantial financial strain on condo owners. Many owners, already struggling with higher insurance costs, are now faced with the difficult choice of paying these exorbitant assessments or selling their units.

The situation is further exacerbated by the fact that condo associations are now required to maintain a specific amount in their reserves. This has led to increases in association dues for renters, adding to the financial challenges faced by condo residents. As a result of these cumulative pressures, some Florida condo owners have been forced to list their units at prices significantly below their purchase value.

The story of Ivan Rodriguez, as reported by The Journal, illustrates the predicament faced by many. Rodriguez liquidated his 401K to buy a condo for $190,000, only to be confronted with a $134,000 special assessment. Ultimately, he was compelled to sell his unit for a loss, letting it go for $110,000.

Fannie Mae has blacklisted several condo buildings in South Florida

Fannie Mae, a United States government-sponsored enterprise, maintains a secret "blacklist" of condominium properties deemed ineligible for conventional mortgage loans. This list, referred to as the "Condo Blacklist," serves as a reference for lenders and buyers, impacting the ability of condominium associations to attract buyers and maintain property values.

While the specific properties on the blacklist are not publicly disclosed, it is known that several condo buildings in South Florida have been included. Florida, in particular, experienced a housing bubble between 2001 and 2005, which resulted in a rapid expansion of the housing market and a shortage of properties available for sale. This, coupled with the postponement of regular maintenance and the impact of hurricanes on condominium buildings, contributed to the growing number of blacklisted properties in the state.

The criteria for inclusion on the blacklist include factors such as insufficient reserves, insufficient insurance, and pending litigation. Florida's insurance crisis has further exacerbated the issue, with changes to master insurance policies impacting the eligibility of condominiums for financing. As a result, buyers and lenders are exercising increased caution when considering condominium purchases in the state.

The lack of transparency surrounding the blacklist has been a point of contention for community association advocates and real estate professionals, who argue that making the list public would enable communities to take corrective measures, restore property values, and reduce potential risk for lenders. However, as of the latest information, the list remains secret, leaving condominium associations in the dark about their eligibility status until a buyer or seller discovers it during the mortgage application process.

Local community banks and credit unions may be the future of Florida's condominium market

Florida is one of the fastest-growing states in the country, and its financial landscape is evolving to meet the needs of its expanding population. While large banks and digital solutions have their advantages, local community banks and credit unions offer a unique, customer-centric experience that could be key to unlocking Florida's condominium market.

Community banks and credit unions are deeply rooted in local economies and understand the specific needs of their customers. This localized focus fosters strong relationships and enables personalized services. They offer a sense of trust and community, and their presence as a familiar neighborhood fixture is important to account holders. Credit unions, as financial cooperatives owned by their members, also foster a sense of shared ownership and responsibility. This often translates to a commitment to the financial well-being of its members, resulting in lower fees, competitive interest rates, and more flexible lending practices.

In recent years, there has been a notable trend of credit unions acquiring community banks in Florida. For instance, in 2015, Achieva Credit Union's acquisition of Calusa Bank and Preferred Community Bank expanded its presence in the state. MidFlorida Credit Union, led by CEO Kevin Jones, has also actively pursued bank acquisitions, allowing them to expand their commercial lending focus and enter new markets. These deals showcase a shift towards credit unions and their ability to provide a level of customer service that resonates with individuals and small businesses alike.

Local community banks and credit unions can offer tailored solutions to condominium buyers, who often have unique financial needs. With their understanding of the local market and commitment to their members' financial well-being, these institutions can provide flexible lending options and competitive rates that may not be available from larger banks. By cultivating strong relationships with condominium buyers, these banks and credit unions can contribute to the growth and stability of Florida's condominium market.

Florida's condominium market stands to benefit from the personalized services and community-centered approach offered by local community banks and credit unions. Their deep roots in the state, customer-centric mindset, and flexible lending practices position them to play a pivotal role in shaping the future of Florida's condominium market and meeting the diverse financial needs of its residents.

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