For example, a car dealer may use the condition of the car interior as an indicator of the mechanical condition. The same principle can be applied to homeowner associations like condominiums and planned communities. This requirement comes from proven experience that homeowners take better care of their homes than investors. Since a lender has a share of the common area liability, they want to be sure a majority of residents have a high motivation in caring for the property and are willing to ante up the money to do it.
Homeowners have a higher likelihood of doing that than investors.
Real estate market value is directly related to the availability of financing. No financing will mean declining property values. This is an indicator of how the association is handling its business. If a high percentage of owners are being allowed to be delinquent without aggressive collection, it appears that the board is not doing its job. Further, if people aren't paying, there is inadequate money to get reasonable maintenance done and the property will show it.