My real estate sales team has a listing that is a condo complex in San Leandro, Ca. There are 14 units, of which 5 have been sold.

Lenders have long had a guideline that any given condo complex must be more than 50% owner-occupied in order to achieve the acceptable risk level for making a loan for a property in that complex. The theory is that homeowners will maintain their properties for their own self interest - to protect their investment - while non-owner occupants (renters) will not. The non-owner occupants have no vested interest in maintaining the property. While they live in the property, they want it to be - well - livable. But when they move out, there is no residual value for them. They are gone and the property is left behind. If it has declined in quality or value during their occupancy…oh, well…not their problem. An owner wants to see property value increase. A tenant doesn’t care because the tenant does not share in the increase.

Why is that important to a lender? The property is collateral for the loan. A property that is well maintained and properly cared for is likely to increase in value. A property that is neglected or abused is more likely to suffer in value. Lenders do not want their collateral to decline in value. It increases the risk for their loan.

That is a long explanation to get to my point. Lenders are reluctant to make a loan to a buyer who wants to buy in the complex that we are selling because it is below 50% owner occupied. Do you see the problem? No loan because the complex has only 36% owner occupancy. But owner occupancy cannot increase unless we can get loans for buyers who are interested in living in the complex?

Fannie Mae and Freddie Mac are reportedly considering changes in their policies so that they would consider builder owned units to be owner occupied for the sake of the important ratio described above. The industry needs that change. We need that change!