Hunter Creek Phase II ‘unavailable’ to Fannie Mae and Freddie Mac financing

The deed-restricted block of buildings at Hunter Creek Condominiums has been deemed “unavailable” to conventional loans, limiting financing options for potential buyers, in part because they are “in need of critical repairs.”

Hunter Creek Condominiums is a 13-building, 295-unit condominium complex in northeast Aspen on Vine street. In 1982, the 500, 600, 700, and 800 buildings created Phase II of the development — 79 deed-restricted ownership units. Most units are APCHA Category 4, though there are some Category 1 and 3 units; categories are based on income. The majority of units are two-bedroom. 

Buildings in Phase II appear to have issues with standing, contaminated water, though it’s unclear which buildings, according to a copy of the Hunter Creek Phase II Board of Directors’ meeting from June 2023, obtained by a prospective Hunter Creek buyer and given to The Aspen Times.

“Asked SGM about the water under buildings and removal.  Lining crawl spaces may be the next best solution vs. trying to get the water out. To remove the water would require a $10 million price tag. Superfund site ground water will have significant contamination. Removal of specific contaminants would require a processing plant on site and then the removal of that byproduct to another state,” the minutes read under “ground water assessment” bullet point. “Would need to drill a well on Commons Property to keep water levels out of the building and pump it into this well. Clean water can be removed … bad water needs to be packaged up and shipped out of state.  What can be done to mitigate without spending $10m. Install a barrier – similar to Radon – and then add air flow, etc. to keep air flowing.”

The following subhead in the minutes covered crawl-space access and how work in a space with a single egress, a confined space, can be more expensive. Estimates for work in the crawl spaces — though whether that work is tied to the ground water assessment is unclear — is estimated at $15,000 per building in the minutes.

The minutes also said the board had $457,000 in cash on hand as of June 7, 2023. 

Board of Directors (BOD) President Roy Saba and Secretary Deborah Tullman did not respond to requests for comment. Mike Viola of property management company Romero Group and senior association manager at Hunter Creek declined to comment. Civil engineering company SGM directed all questions to the BOD. 

The Federal National Mortgage Association, commonly known as Fannie Mae, is a leading provider of mortgage financing in the country. It purchases mortgages from lenders to allow greater liquidity and further the churn of the residential real estate market. The 30-year, fixed-rate mortgage is a product of its involvement in the housing market.

Fannie Mae uses a tool called the Condo Project Manager (CPM) to track eligibility for projects nationwide. Lenders can see if the project is eligible for its loan to be purchased by Fannie Mae through the tool. 

The CPM page for a Hunter Creek Condominiums For Phase II, Inc., obtained by The Times, says the project is “unavailable” as of Oct. 26, 2023. The reason for change is that the project “is in need of critical repairs and may have conditions such as material deficiencies and significant deferred maintenance.”

“When a project has failed to meet one or more of our Selling Guide project standards requirements (Selling Guide B4-2), units in that project are ineligible for sale to Fannie Mae. We communicate that information to lenders via CPM by making it ‘unavailable,'” a Fannie Mae spokesperson wrote in an email. “Fannie Mae only discloses our condo project eligibility determinations to entities that are Fannie Mae-approved Seller/Servicers or to counterparties that have a legitimate business need to access CPM.”

The “unavailable” status in its CPM means all units in Hunter Creek Phase II are ineligible for financing involved with a majority of national lenders, so any lender who packages and sells loans to Fannie Mae or other government-sponsored enterprises like Freddie Mac, or the Federal Home Loan Mortgage Corporation, cannot work with a Hunter Creek Phase II buyer or seller.

Katie Erickson is a senior loan officer with Bay Equity Home Loans in Basalt. She has a history of working with deed-restricted properties and has worked with Hunter Creek Phase II buyers and sellers.

“We have to comply with Fannie Mae and Freddie Mac’s criteria. And we also do (a) check against (the CPM) where it shows if it’s already approved or if it’s unavailable,” she said. “That (unavailable status) is a hard stop for anyone that does Fannie Mae or Freddie Mac mortgages. Fannie Mae and Freddie Mac won’t take the loan. Conventional loans are off the table.”

What exactly triggered the change in status in the CPM is not certain, but she and Carolyn Hamlet, president of the Hamlet Financial Corporation, said it is likely that Fannie Mae found out by reviewing the BOD meeting minutes. That information could have come from an underwriter or an appraiser, they said.

“That came out with somebody who read the meeting minutes or learned about it, and somehow that got forwarded into the system that Fannie Mae and Freddie Mac look to when they determine whether a project is eligible for them to purchase a loan in that project,” Hamlet said. She worked with a recent lottery winner of a unit in Hunter Creek Phase II to secure financing, then had to help the client find a new lender after they discovered the project was unavailable for Fannie Mae.

What this means for buyers and sellers

The issue can be resolved, Erickson stressed. But the questions of cost and timeline still remain. 

“It’s not a new situation that has never happened before. It will impact people right now, but it’ll get worked through,” she said. “And I don’t know how long it’s going to take, but it will get worked through. It’s just really unfortunate when it happens.”

She pointed to Centennial Condominiums, a deed-restricted development in Aspen whose Homeowners Association has been in litigation with the City of Aspen and the APCHA on and off for years over the financial responsibility for home repairs. Due to the scope of those home repair issues and litigation, it is non-warrantable, she said. 

The 30-year fixed-rate mortgage is a conventional mortgage structure, but smaller, local banks offer other loan structures that do not require selling the bank’s mortgage portfolio to entities like Fannie Mae. Therefore, they are not beholden to Fannie Mae criteria. 

Tyler Barletta is the senior vice president of FirstBank in Aspen. He said that local banks are better equipped to serve local, deed-restricted buyers because of their familiarity with the community.

Condominiums can be warrantable or non-warrantable, meaning they can comply or not comply with the Fannie Mae, Freddie Mac, or other government-guaranteed lenders’ rules for approving a loan. Generally, this means the occupany mix of the complex and whether or not short-term rentals, amongst other things, can impact warrantability. 

It’s a different designation than a project being “unavailable” but the same outcome: The mortgage cannot be packaged and sold. Barletta said his bank will check to see if a condo is warrantable, and if not, it narrows the loan offerings for a borrower. It does not preclude them from getting a loan, but it could mean more money out of a borrower’s pocket.

“Most people in general don’t want to put a large down payment. And Fannie Mae or Freddie Mac typically will allow up to, I think, as little as 3% down. Versus if we go portfolio side, right, we’d ask for 20% down, regardless of if (the property is) warrantable or not,” he said. “And then again, if there’s an issue with the condo complex, if it’s not warrantable, or if it’s a house, even — there’s a couple things that fall outside of our internal policies — we would require an extra 5%. So you’re looking at 25% versus, like, 3% down.”

The exact structure, like a 15- or 30-year fixed or arm products, depends on a litany of circumstances unique to a potential borrower and a lender. But generally, he said, mortgages through local banks that stay in their portfolios require a higher down payment and it may impact the interest rate of the loan. 

And many condo complexes in the region and other mountain towns are non-warrantable, he said, because of things like short-term rentals or their mixed-use. So local banks have loan offerings for buyers whose prospective properties fall outside of Fannie Mae guidelines — whether that’s unwarrantable or being deemed “unavailable.”

He said that they must present potential borrowers with every option, whether that’s an internal portfolio loan or a secondary market loan that could be sold. Erickson said she prefers to present the “best” option to clients among all options.

Refinancing may be an option for some buyers, but variable circumstances like personal finances and complex conditions are all dependent on that outcome. . 

“That happens all the time … just get into the place. You won the (APCHA) lottery. You’ve been playing the lottery for 20 years,” she said. “Take it if you can live with those HOA dues.”

Hunter Creek is known for having very high BOD dues. In one recent APCHA lottery for a Hunter Creek Phase II property, the list is down to winner number nine. A multitude of circumstances could be the cause for moving so far down the list, but high dues and difficulty securing a lower down payment on a mortgage could be responsible.

Four Vine Street properties, all Hunter Creek Phase II, have gone through the APCHA lottery process since the Oct. 26, 2023, status change with Fannie Mae. At least one resident has a closing date set for Jan. 31, though their financing is still not secured.

The property manager and BOD declined or did not respond to requests for comment, so a timeline or potential cost for mitigation is unclear. 

Fannie Mae does not release CPM data publicly, so it is unclear if the “unavailable” status applies to the free-market Phase I and Phase III buildings that make up the rest of Hunter Creek Condominiums. But they operate relatively independently with their own respective BODs and record separate minutes.