The Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) are Government-Sponsored Entities (GSEs) that buy mortgage loans from private lenders and package them to sell as mortgage securities
Now, the requirements are changing. On March 18, 2026, Fannie Mae released a Lender Letter (LL-2026-03) announcing updated project standards and insurance requirements. While Fannie Mae announced the changes, the Letter confirms that Fannie and Freddie are “in alignment . . . and in coordination with U.S. Federal Housing,” and “are issuing these property insurance and project standards updates together to ease the transition.”
Changes to Reserve Requirements
One of the major changes is to condominium reserve fund requirements. Condominium reserve funds serve as failsafe measures for condominiums when a repair is needed. If the reserve fund is short on cash when it is necessary to fix something, condominium unit owners may have to pay a special assessment to cover the cost. For many years, the GSEs have required that condominiums put ten (10%) percent of the association’s total assessment income from regular monthly condominium fees into reserve funds. A contribution of less than 10% to the reserve fund each year may be permitted if a formal reserve study confirms that there will still be adequate liquid funds to cover the cost of unexpected financial needs.
Going forward, as of August 3, 2026, lenders that “obtain a reserve study to demonstrate a project has sufficient reserves when it is not budgeting for replacement reserves . . . must verify that the project’s budget includes the highest recommended reserve allocation amount in the reserve study to adequately cover the costs identified.”
Additionally, and critically, on January
4, 2027, the required percentage contribution to the reserve fund will increase
from ten to fifteen (15%) percent. This increase will not be required if there
is an up-to-date reserve study (one that has occurred or been updated within
the last three years), and if the condominium association follows the highest
recommended level of funding (i.e., not baseline funding). Due to this
requirement that reserve funds hold more across the board, condominium
associations may have to impose increased assessments and adjust their
financial planning in the long-term.
Changes to Project Review
Going forward, only Full Project Review or Waiver of Project Review will be accepted. More projects will be eligible for Waiver of Project Review, and the Limited Review process will be eliminated as of August 3, 2026. This includes projects with up to ten units, and standalone five- to-ten- unit projects.
Changes
to Property Insurance Requirements
Next, changes to property insurance requirements will take place. Unit owners and condominium associations alike will be affected by these changes. For condominium associations, the changes are relatively broad, applying to coverage sufficiency requirements, roofs, and the inflation guard. Regarding coverage sufficiency, the major change is as follows: (1) “[t]he property insurance policy must provide coverage on a replacement cost basis, with the exception of roofs” (which must be insured but, but no longer at cost); and (2) “property insurance policies that provide terms of coverage will be deemed to provide sufficient coverage.” The inflation guard requirement—like the requirement that roofs be insured on a replacement cost basis—is being retired.
For individual unit owners, one important change is to property insurance deductible requirements. With the updated guidelines, unit owners must be sure that, if their condominium’s master policy has a per-unit deductible, they have their own individual unit owner’s policy, too. Unit owners must be sure that the interior of their own unit is covered by an insurance policy—whether that be an individual policy or the master policy—and that their coverage is sufficient to cover either the per-unit deductible of the master policy (if there is one) or the cost for interior improvements or restorations. Finally, effective immediately, unit owner policy deductible requirements have increased to either 5% of the property insurance coverage amount, or $2,500, whichever is greater.
Changes for Lenders and Loan Servicers
In addition to, inter alia, the changes outlined above, there are changes to lender requirements, too. These changes are to property insurance policy monitoring guidelines, including the addition of a requirement that loan servicers remind borrowers that they must have property insurance at least annually.
Changes for Lenders and Loan Servicers
It remains to be seen the impact Fannie Mae and Freddie Mac’s updated guidelines will have. While this newsletter has outlined the highlights, there are specifications and more details in the Lender Letter. Additionally, unit owners and condominium associations should be aware that the timeline for when changes are effective varies depending on what the change is. For more detailed information, consult the Lender Letter.
A member of the REBA Condominium Law Section, Marissa is an associated with the Quincy firm of Moriarty, Bielan & Gamache LLC, She can be contacted at mgiaimo@mbgllc.com.
