New Challenges
Buying a condo in California isn’t just about location and price anymore. A hidden hurdle is making things more complicated for buyers: the Fannie Mae “naughty list.” This unofficial term refers to Fannie Mae’s “unavailable list,” a growing group of condominium complexes deemed ineligible for traditional financing.
As more properties land on this list, buyers are seeing deals fall through without warning. At LBC Mortgage, we’re helping clients understand this challenge and find smart, strategic ways to secure financing—especially when other lenders walk away.
What Is Fannie Mae’s “Naughty List”?
Fannie Mae plays a key role in the mortgage industry. It buys loans from lenders, creating liquidity and keeping mortgage rates stable. But it won’t buy loans from certain properties if those properties don’t meet strict criteria. These properties get flagged and land on the “unavailable” list.
The list isn’t public, and many real estate professionals don’t know whether a property is on it until underwriting is already in progress. That often results in rejected loans, delayed closings, or buyers walking away from purchases they had already committed to.
In California, this is becoming a major issue. In May 2023, there were around 170 projects on the list. By early 2025, the number had soared to over 700. For condo buyers, this means a much higher risk of financing obstacles—especially if their lender isn’t proactive.
Why Are So Many Condos Being Flagged?
There are several reasons why a condominium complex might land on the naughty list. Most relate to financial health, risk exposure, or maintenance issues.
Inadequate Insurance Coverage
One of the biggest problems is underinsurance. Fannie Mae requires that condo associations carry full replacement cost insurance. However, many associations, especially in wildfire-prone areas like California, can only afford partial or pooled coverage. This shortfall puts the entire property on Fannie Mae’s radar and can lead to ineligibility.
Some properties are being quoted massive premiums just to meet Fannie Mae’s standards. One Los Angeles condo complex reportedly faced a jump from $250,000 per year to $2.6 million—a tenfold increase that threatened the financial stability of the entire building.
Deferred Maintenance or Structural Issues
Condo buildings with aging infrastructure or deferred repairs are also vulnerable. If a development has not completed regular maintenance or has major repairs looming, Fannie Mae considers it a risk. The same is true for associations without adequate reserve funds to cover those repairs. Even if a property looks fine on the surface, poor financial planning can get it blacklisted.
Paperwork Errors and Administrative Gaps
Sometimes, the problem is paperwork. If a condo association doesn’t respond to requests from Fannie Mae, or provides incomplete or inaccurate documentation, the property can be marked as ineligible. These issues are often fixable, but they can stall loans and derail purchases unless handled quickly and correctly.
How This Affects Buyers in California
The impact of the naughty list is particularly severe in California. Buyers across the state are seeing loan denials that seem to come out of nowhere. In a hot real estate market where timing is everything, that kind of surprise can mean losing out on a home.
Financing Falls Apart Late in the Process
Buyers are often approved personally. Their credit, income, and assets are all strong. But when underwriting looks at the condo building, the loan is declined. Without knowing a building’s status up front, many buyers don’t find out there’s an issue until it’s too late.
Fewer Buyers Means Lower Property Values
Sellers in affected buildings are also struggling. When financing isn’t available, buyers need cash—or unconventional loans with higher rates. That reduces the buyer pool, depresses property values, and creates downward pressure on prices. For owners hoping to sell or refinance, this creates real problems.
Rising Insurance Costs Compound the Problem
Because insurance is often the issue, HOAs are facing pressure to dramatically increase their premiums to stay eligible. These higher costs are passed on to residents, making ownership less affordable and increasing monthly dues. That can make a previously budget-friendly condo much more expensive over time.
Why California Is More Exposed Than Other States
The naughty list is growing nationwide, but California is especially vulnerable. Natural disasters like wildfires and earthquakes make insurance harder to obtain. Older buildings in coastal cities often have deferred maintenance issues. And with high real estate values, many associations are underinsured relative to replacement costs.
Other states like Florida, Colorado, and Hawaii are seeing similar issues—but California, with its massive condo market and unique insurance challenges, is right at the center of this growing problem.
How LBC Mortgage Helps You Avoid the Pitfalls
At LBC Mortgage, we understand how frustrating it is to fall in love with a property and then watch the deal fall apart due to lending restrictions. That’s why we take a proactive, informed approach to help buyers navigate the condo lending landscape.
We Check Condo Eligibility Early
Before you make an offer, we help determine whether the property is likely to be approved. Our team communicates directly with lenders and condo associations to uncover potential red flags before they become deal-breakers.
We don’t wait for underwriting to surface problems. Our team investigates early and adjusts strategies accordingly.
We Assess the HOA’s Financial Health
We help buyers look beyond the unit itself. The building’s reserves, insurance coverage, and financial planning matter just as much. If a development is well-managed, it’s more likely to meet Fannie Mae’s requirements—and less likely to result in financing surprises.
We Offer Alternative Financing Solutions
If a condo is flagged by Fannie Mae, you still have options. We can guide you through alternative loan programs that may still approve financing. These include FHA and VA loans, portfolio lenders, or non-QM loan options. We tailor the solution to your situation and help you close on time.
In some cases, we may even recommend renegotiating terms or pursuing another property that presents fewer financial risks.
We Communicate with Condo Boards
Many issues that lead to a condo being flagged are fixable. If the HOA is cooperative, it may be able to provide updated documentation, obtain additional insurance, or address maintenance concerns quickly. We work with the association and their management company to speed up this process and keep your loan moving forward.
Why Choose LBC Mortgage?
We know the California condo market. We understand the rules and how to work within them. While other lenders may give up when a project is flagged, we dig deeper, explore every avenue, and fight to keep your deal alive.
We offer personalized service, expert insight, and creative solutions. Our goal is to help you own your home—not just submit your paperwork.
With LBC Mortgage, you get a partner who’s on your side through every step of the loan process. We help you avoid surprises, understand your options, and move forward with confidence—even in a challenging market.
