In a new Lender Letter dated March 18, 2026, Fannie Mae announced and outlined new requirements for lending practices related to condominiums. Some of these changes take effect after August 3, 2026, while others take effect January 4, 2027, although lenders are encouraged to begin implementing some of the changes in practice sooner. Notable new requirements and guidelines to condo lending eligibility of interest to associations include:
- Expansion of Waiver of Project Review
- Condominiums with 10 units or less may qualify for a project review waiver.
- Projects consisting of 5 to 10 units may not be a part of a master association or larger development.
- Lenders who use this option must comply with all Requirements that Apply When the Project Review is Waived in Selling Guide B4-2.1-02, Waiver of Project Review.
- Elimination of Investor Concentration Limits
- Previously, there was an investor concentration limit in established projects of fifty (50%) percent as part of the full review option. This limit is being retired, and lenders can immediately take advantage of this change.
- Enhanced Reserve Study Requirements
- The current policy permits lenders to obtain a reserve study to demonstrate a project has sufficient reserves when it is not budgeting for replacement reserves that meet Fannie Mae’s Selling Guide requirements.
- Fannie Mae is now updating this policy to clarify when lenders use this flexibility, they must verify the project’s budget includes the highest recommended reserve allocation amount in the reserve study to adequately cover the costs identified. The guidelines go further to clarify that lenders may no longer rely on reserves funded using the “baseline funding method” to determine that such recommended reserve funding is adequate based upon the reserve study. Baseline funding is an alternative commonly included in reserve studies that recommends funding in a manner that funds the bare minimum to keep the reserve cash balance above zero.
- Increased Replacement Reserve Requirement
- Increases reserve allocation requirement for capital expenditures and deferred maintenance from a minimum of 10% to a minimum of 15% of the annual budgeted income assessment.
- All other requirements related to replacement reserves and the review of budget adequacy remained unchanged.
- Master Property Insurance Requirements for Project Developments
- Deductible requirements: An increase in permissible per-unit master property insurance policy deductibles of up to $50,000, as long as unit owners have supplemental coverage that is sufficient to cover the deductible amount.
- Coverage Sufficiency: Roofs no longer must be insured at the full replacement cost. Rather, roofs now may be covered under the “actual cash value”, meaning depreciation is deducted from the insurance proceeds.
- Retirement of the Limited Review process
- Effective for all loan applications dated on or after August 3, 2026, the Limited Review process can no longer be utilized for review of established projects and a Full Review process is required absent a basis for a project review waiver.
For greater detail, see the Lender Letter at: https://singlefamily.fanniemae.com/news-events/lender-letter-ll-2026-03-updates-project-standards-property-insurance-requirements
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