How a Secret Mortgage Blacklist Is Making It Hard for Condo Owners to Sell

Summary

Summary of WSJ “What’s News” Podcast Episode: “How a Secret Mortgage Blacklist Is Making It Hard for Condo Owners to Sell”

Release Date: March 17, 2025
Host: The Wall Street Journal

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Introduction

In this episode of the Wall Street Journal's "What's News," the focus is on a largely concealed mortgage blacklist maintained by Fannie Mae and its profound impact on condo owners across the United States. The discussion delves into how this blacklist is making it increasingly difficult for condo owners to sell their properties, the factors contributing to properties being listed, and the broader implications for the real estate market.

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1. Understanding the Mortgage Blacklist

The episode opens with an exploration of the so-called mortgage blacklist, a database maintained by Fannie Mae that includes condo developments failing to meet the company's stringent lending criteria. Contrary to being a "blacklist," Fannie Mae clarifies that this is simply a compilation of properties that either do or do not meet their standards.

Stephen Marcus, Condo Lawyer: "The number of properties that failed to meet Fannie Mae's standards increased from a few hundred developments in 2021 to more than 5,000 this month." [05:41]

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2. Expansion of the Blacklist

The blacklist has seen a significant expansion over recent years. Starting with a modest number of a few hundred condominium developments in 2021, the list has swelled to over 5,000 properties by March 2025. This dramatic increase poses severe challenges for condo owners seeking to sell their units.

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3. Criteria for Blacklisting

Several factors can lead to a property being placed on Fannie Mae's list:

• Structural and Safety Issues: Properties with safety concerns or structural deficiencies are prime candidates.

• Financial Instability: Insufficient cash reserves and financial mismanagement can result in blacklisting.

• Insurance Coverage Problems: Increasingly, inadequate insurance coverage is a critical issue. Fannie Mae and Freddie Mac require certain insurance standards, and properties failing to meet these are scrutinized.

Jean Eaglesham, WSJ Insurance Reporter: "The issues with a property that can make them blacklisted include structural issues such as safety concerns, but also financial issues like cash reserves. And increasingly, in recent years, a bigger and bigger problem is insurance." [05:41]

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4. Impact on Condo Owners and the Real Estate Market

Being on the blacklist severely hampers a condo owner's ability to sell their property. Standard mortgage loans become inaccessible, forcing buyers to seek alternative financing that is often more expensive or requires larger down payments. This scenario leads to stalled sales and reduced property values.

Jean Eaglesham: "If they look to get an insurance policy that does meet Fannie Mae's standards, in some cases the rate that's being asked for that is unaffordable." [07:15]

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5. Contributing Factors to the Blacklist Surge

Several key developments have contributed to the increased number of blacklisted properties:

• Regulatory Changes Post-Surfside Collapse: The tragic Surfside condominium collapse in Florida in 2021 prompted stricter safety laws, leading Fannie Mae to enforce their requirements more rigorously.

Jean Eaglesham: "After the Surfside collapse in Florida... Fannie tightened up their enforcement of their existing requirements." [07:25]

• Insurance Market Strain: The property insurance market has become increasingly volatile, with insurers raising premiums and reducing coverage. This trend is especially pronounced in disaster-prone areas, further complicating condo owners' ability to secure adequate insurance.

Alex Sosale: "We're seeing these developments particularly in areas of high risk, so disaster-prone areas where the insurers are pushing up the cost of insurance quite dramatically and also cutting the coverage." [06:39]

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6. Fannie Mae and Freddie Mac’s Stance

Both Fannie Mae and Freddie Mac maintain that their databases are not blacklists but rather lists of properties meeting specific lending criteria. They argue that these measures are essential for maintaining financial stability and mitigating risks in the mortgage market.

Greg Zuckerman: "Freddie doesn't maintain a list of condo developments that don't meet its criteria." [06:29]

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7. Geographic and Market Implications

The blacklist predominantly affects condominiums in high-risk, disaster-prone regions where insurance costs have surged. This geographic concentration exacerbates market instability in these areas, leading to decreased liquidity and falling property values.

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8. Broader Economic and Social Implications

The growing blacklist reflects broader economic challenges, including increasing insurance costs and stricter regulatory environments. Additionally, it underscores the interconnectedness of real estate markets, financial institutions, and regulatory bodies in shaping property markets.

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9. Conclusion

The episode highlights a critical issue facing condo owners today—the difficulty of selling properties due to stringent mortgage lending criteria enforced by Fannie Mae. With the blacklist expanding rapidly, many homeowners find themselves trapped with unsellable condos, exacerbating financial and market tensions. The discussion underscores the need for a balanced approach that ensures financial stability without unduly burdening property owners.

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Notable Quotes

• Jean Eaglesham: "The market is sending a message that we should be nervous about the outlook for the future of the economy." [03:44]

• Alex Sosale: "If they look to get an insurance policy that does meet Fannie's standards, in some cases the rate that's being asked for that is unaffordable." [07:15]

• Jean Eaglesham: "After the Surfside collapse in Florida... Fannie tightened up their enforcement of their existing requirements." [07:25]

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This comprehensive summary encapsulates the key discussions and insights from the podcast episode, providing a clear understanding of how Fannie Mae's mortgage blacklist is impacting condo owners and the broader real estate market.

Transcript

[Alex Sosale]

With record levels of dry powder available for investment.

[Greg Zuckerman]

Find out what's in store for private.

[Jean Eaglesham]

Markets in 2025 and beyond.

[Greg Zuckerman]

Listen to Crafting Capital in partnership with [e-mail] UBS, Spotify and Apple podcasts how a secret mortgage blacklist leaves homeowners stuck with condos they can't sell.

[Alex Sosale]

We're seeing these developments particularly in areas of high risk, so disaster prone areas where the insurers are pushing up the cost of insurance quite dramatically.

[Greg Zuckerman]

Plus why last week's market volatility made even the hedge funds flounder. And President Trump lays the groundwork to investigate people pardoned by BIDEN It's Monday, March 17th. I'm Alex Sosale for the Wall Street Journal. This is the PM edition of what's the top headlines and business stories that move the world today. Retail sales rose modestly in February, offering reassurances that while consumer spending has slowed this year, it hasn't stopped completely. Sales edged up A seasonally adjusted 0.2% from the prior month, missing economists expectations. The slimmer gain in February was concentrated in sales at automobile and auto part dealers. The details of the report were mixed. Sales rose at grocery stores and non store retailers, a category that's dominated by online retailers, while they fell at electronics and appliance retailers, department stores and restaurants and bars. Those are a sign that Americans are scaling back on nice to haves. Meanwhile, the Organization for Economic Cooperation and Development OECD said that higher U.S. tariffs on imports are set to slow economic growth and push inflation higher around the world. In its quarterly report published today, the OECD said that the US economy will now likely grow by 2.2% this year and 1.6% next, less than previously forecast. Despite the weaker than expected retail sales data, US Markets were up today, building on Friday's gains. The Nasdaq rose about 0.3%, the S&P 500 ticked up roughly 0.6%, and the Dow ended the day about 0.9% higher. So today markets may be up, but as we've been reporting, they've been volatile recently. Last week's market whipsaw, during which recession fears grew and traders were confused about the market's direction, was an especially wild ride for hedge funds. They floundered like everyone else and even helped drive stocks further down. According to Goldman Sachs, last Monday's market drop witnessed one of the largest reductions in risk by hedge funds in the past 15 years. WSJ Special writer Greg Zuckerman joins me now. So Greg, when hedge funds undo bets en masse like this, what kind of impact does it have on the broader market?

[Jean Eaglesham]

Yeah, so hedge funds, they control a lot of money, but they also have a lot of influence. And it's largely because not only do they manage a lot of money, but they borrow a lot of money. So when they head for the exits, then it affects the broader market, but it especially has an impact on specific stocks, everything from Apple to Alibaba. A lot of high tech names, the momentum names, as we call them.

[Greg Zuckerman]

So what does all this movement in the past week signal about whether or not a recession might be coming?

[Jean Eaglesham]

Well, the odds are going up. And you see that in the economic figures, consumer confidence, for example. You see that in slowing retail sales and such. But you also see in the markets, the market is charged with anticipating the future. They often get it wrong. But the market is sending a message that we should be nervous about the outlook for the future of the economy.

[Greg Zuckerman]

So what are some of the factors that hedge funds are gonna be paying attention to in the coming weeks and months?

[Jean Eaglesham]

You wanna look at the Federal Reserve. But even more importantly, it's all about Donald Trump. And what's really difficult for traders today is to get into his mind and to understand how serious he is about tariffs. Donald Trump has not signaled that he's gonna use these as tools per se. He seems to be more comfortable with an all out trade war. And that gets to the nervousness out there.

[Greg Zuckerman]

That was WSJ special writer Greg Zuckerman. Thank you, Greg.

[Jean Eaglesham]

Oh, great being here.

[Greg Zuckerman]

Coming up, a secret mortgage blacklist is leaving a growing number of homeowners with unsellable condos. More after the break.

[Sarah Randazzo]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day, but what policy changes should investors be watching? Washington Wise is an original podcast for investors from Charles Schwab that unpacks the stories making news in Washington and how they may affect your finances and portfolio. [e-mail] Washingtonwise.

[Greg Zuckerman]

Condo owners across the US are being faced with a nightmare scenario. They're about to sell their property, only to learn that their buyer is falling through because the property is on a mostly secret mortgage blacklist maintained by Fannie Mae. A spokeswoman for Fannie disagreed with characterizing Fannie's database of projects, which includes properties that both do and don't meet its lending criteria, as a blacklist. According to condo lawyer Stephen Marcus, who along with other industry, legal and finance players, has access to the rapidly growing list the number of properties that failed to meet Fannie Mae's standards increased from a few hundred developments in 2021 to more than 5,000 this month. I'm joined now by WSJ insurance reporter Jean Eaglesham. Gene, what could get a property put on this list?

[Alex Sosale]

The issues with a property that can make them blacklisted include structural issues such as safety concerns, but also financial issues like cash reserves. And increasingly, in recent years, a bigger and bigger problem is insurance. Fannie Mae and Freddie Mac, who are mortgage finance giants who are central to the market, are increasingly saying that the coverage these developments have isn't good enough for their requirements. Now that really matters because the main mortgage lenders, they look to sell their loans to Fanny and Freddie. If they can't sell them, then the lenders will turn around and say, actually, we can't give you the most common type of loan. That leaves buyers trying to get a different type of loan, which is often more expensive, may require more money up front, or they may just give up on the transaction.

[Greg Zuckerman]

We should note that a Freddie spokesman said that the company doesn't maintain a list of condo developments that don't meet its criteria. So who' being affected by this?

[Alex Sosale]

We're seeing these developments particularly in areas of high risk, so disaster prone areas, where the insurers are pushing up the cost of insurance quite dramatically and also cutting the coverage. And it's those cuts to insurance coverage that are causing a lot of the problems. Condo owners in these developments, where they're blacklisted, are worried about how that's going to impact their value of their properties or what's going to happen when they do come to sale. But what we found is that if they look to get an insurance policy that does meet Fannie's standards, in some cases the rate that's being asked for that is unaffordable.

[Greg Zuckerman]

What exactly has changed here? Is it that the insurance policies themselves are changing? Is it Fannie and Freddie are changing how they're approaching it?

[Alex Sosale]

So there's a few things changed here. One is, after the Surfside collapse in Florida, the tragedy in 2021, there were tougher safety laws put in place in the state and Fannie as a result as well, tightened up their enforcement of their existing requirements. Another thing that's changed is that Fannie and Freddie are looking to enforce their requirements more strictly according to real estate folk and lenders that we've spoken to. And a third factor that's coming together is insurers in a very tough climate for property insurance. We've seen in the last couple of years are increasing rates but also cutting coverage in some cases.

[Greg Zuckerman]

That was WSJ insurance reporter Jean Eaglesham. Thank you, Jean.

[Alex Sosale]

My pleasure.

[Greg Zuckerman]

President Trump has questioned the validity of pardons granted by President Joe Biden before he left office, laying the groundwork for investigating the people that Biden had granted legal immunity. Any move to investigate or prosecute the individuals pardoned by Biden would mark a significant escalation of Trump's defiance of longstanding legal norms. It comes after the Trump administration said over the weekend that it had deported alleged Venezuelan gang members under a centuries old wartime law, despite a court order that temporarily blocked it from doing so. In a social media post this morning, Trump asserted that Biden's pardons were, quote, void, vacant and of no further force of effect because they were signed with an auto pen. Without citing evidence, the president said that the documents weren't properly explained to Biden and that the staff who used the auto pen may have committed a crime. Former Biden aides didn't immediately comment. Auto pens are robotic machines that imitate signatures and are used frequently by presidents and other officials to sign documents. The use of auto pen has drawn scrutiny in the past, though previous administrations have said that documents signed by auto pen are legally valid. Trump told reporters yesterday that he only uses the auto pen for niceties like signing correspondence and said it's, quote, disgraceful to use the machine for more substantive matters.

[Alex Sosale]

Foreign.

[Greg Zuckerman]

Harvard University is significantly expanding its financial aid. It's making undergraduate admission tuition free for families making up to $200,000 and completely free for families making up to $100,000. Families making more than $200,000 can also qualify for aid depending on circumstances such as the number of children in college and amount of debt they carry. Harvard estimates that 86% of U.S. families could be eligible for financial help under the new system. WSJ education reporter Sarah Randazzo explains why Harvard is making the change.

[Unknown]

There's a few factors. One is just the squeeze that middle income families, those making above six figures face. They don't qualify for the typical financial aid that those who have very low salaries can pretty much go to many colleges for free, but they don't make enough to comfortably be able to pay 50, 60, 70, $80,000 a year to their children to a private school. And so a lot of schools like Harvard have been increasing the aid for this group of families over time. And then secondly, we are in this climate right now of political strife around a lot of elite universities. And so I don't know if the timing is just a coincidence, but there is public pressure on Harvard and others around some of the Israel Hamas war protests, and so this is a bit of good publicity for them in that climate as well.

[Greg Zuckerman]

And finally, do you know what a company called Lumen does if you're watching the Apple TV show Severance, this is one of those big, looming questions, though the general consensus is that it's nothing good in real life. Companies named Lumen do things like make retractable glazing, manufacture metabolic measurement devices, or give you a root canal. As Severance has become more popular, these companies have seen their social media profiles flow flooded with fans of the show, and they've had to decide how to address the new echo that their company name evokes. Some have gone to pains to establish how their company culture is different from the fictional one. Others see it as a potential publicity windfall. Praise Kier, as workers at Severance's Lumen would say, referencing the fictional company's elusive cult like founder. And that's what's news for this Monday afternoon. Today's show is produced by Anthony Banci and Pierre Bienname, with supervising producer Michael Kosmides. Alex I'm Alex Osola for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.