Updates to the FNMA and FLMC Condominium Guidelines

Marissa P. Giaimo 

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

to investors, creating a more accessible housing market overall. Both organizations set strict requirements for condominium projects to qualify for financing. Meeting the GSE guidelines is critical. Mortgage lenders may not sell a loan to Fannie Mae or Freddie Mac if the unit the loan is for is in a non-compliant condominium.

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. 

Significant New Fannie Mae and Freddie Mac Lender Requirements

 Ryan R. Severance

In September, the Fannie Mae and Freddie Mac condominium and cooperative project eligibility standards were updated. Fannie Mae, otherwise known as the Federal National Mortgage Association, and

Freddie Mac, otherwise known as the Federal Home Loan Mortgage Corporation, are government-created entities that buy mortgages on the secondary market and back others, including mortgages granted by private lending institutions large and small. As a result, Fannie Mae and Freddie Mac have a considerable influence over the national mortgage lending market. Importantly for condominiums and cooperatives, they require a project eligibility review in order to approve unit mortgages for their programs. This project eligibility review, which is only for condominiums and cooperatives with five or more units, covers a wide range of subjects: ownership structure and composition, reserve funds, litigation, insurance, and – importantly and the subject of the changed standards – the repair status of any condominium or cooperative building.

The repair status of condominium and cooperative buildings found itself in the spotlight after the tragic collapse of the Champlain South Tower in Surfside, Florida in June 2021. In January 2022, in response to that tragedy, Fannie Mae and Freddie Mac issued temporary revised project eligibility requirements as to projects with potentially unsafe conditions.  Fannie Mae and Freddie Mac have now finalized their project eligibility requirements as to the condition of condominiums and cooperative buildings (See Fannie Mae Selling Guide Announcement SEL-2023-06: here (https://singlefamily.fanniemae.com/media/36376/display and Freddie Mac Guide Bulletin 2023-15: here (https://guide.freddiemac.com/app/guide/bulletin/2023-15).

These updated and clarified standards for eligibility of condominium and cooperative buildings include the difference between critical repairs and routine repairs, the role special assessments play in review of maintenance concerns, the role of any inspections and reports received, and the documentation that lenders may need to collect to confirm maintenance status. While these finalized requirements are not dramatically different than the previous temporary requirements, they do provide additional context beyond those of the temporary requirements as to what lenders will be seeking as they review mortgagee questionnaires for eligibility. For that reason, in addition to the continued requirement that board members act to properly maintain, repair, and replace their project elements, boards and property managers will need to be sure to provide appropriate information on those mortgagee questionnaires, to ensure their condominium or cooperative project remains eligible for loans to be bought or backed by Fannie Mae and Freddie Mac.

The Importance of Eligibility

Eligibility is important for a condominium or cooperative to maintain. In the event that a condominium or cooperative is deemed to be “ineligible,” loans on its units will be rendered ineligible for purchase or securitization by Fannie Mae and Freddie Mac. Practically, this will mean that unit owners and prospective unit purchasers will not have the same number of options for banks at which to obtain or refinance mortgages. While some small lenders may continue to lend despite eligibility concerns, most lenders will be unable to do so. For this reason, unit owners who are selling their units may find sales terminated due to the inability of prospective buyers to obtain mortgages from their preferred lender or may find that they cannot refinance with their chosen lender. For these reasons, the concept of Fannie Mae and Freddie Mac eligibility is important for the marketability and value of a condominium or cooperative project’s units.

Routine Repairs versus Critical Repairs

With the updated lender requirements, Fannie Mae and Freddie Mac have provided a definition of routine repairs versus critical repairs that are performed to project elements. Examples of elements that Fannie Mae and Freddie Mac are concerned about are “sea walls, elevators, waterproofing, stairwells, balconies, foundation, electrical systems, parking structures or other load-bearing structures.”

“Routine repairs” are defined by Fannie Mae and Freddie Mac as those that are not considered critical and include work that is:

·       preventative in nature or part of normal capital replacements (for example, focused on keeping the project fully functioning and serviceable); and

 

·       accomplished within the project’s normal operating budget or through special assessments that are within guidelines.

“Critical repairs” are defined as those “repairs or replacements that significantly impact the safety, soundness, structural integrity or habitability of the project’s building, or the financial viability or marketability of the project.” These critical repairs include, but are not limited to:

1.   Material deficiencies, which, if left uncorrected, have the potential to result in, or contribute to, critical element or system failure within one year;

 

2.   Any mold, water intrusions, or potentially damaging leaks to the project’s building(s);

 

3.   Advanced physical deterioration;

 

4.   Any project that failed to pass state, county, or other jurisdictional mandatory inspections or certifications specific to structural safety, soundness, and habitability; or

 

5.   Any unfunded repair of more than $10,000 per unit that should be undertaken within the next 12 months (this does not include repairs made by the unit owner or repairs funded through a special assessment).

While these definitions are helpful, the interpretation of any repair will be up to the lender representative reviewing the information provided on a mortgagee questionnaire.

In addition, there is a carve out for deferred maintenance or damage that is “isolated to one or a few units that does not affect the safety, soundness, structural integrity, or habitability of the project.”

Special Assessments

Fannie Mae and Freddie Mac have also updated their requirements for eligibility based on the review of special assessment records. Boards and property managers will now be expected to provide extensive records of special assessments to lenders to ensure eligibility of the condominium or cooperative project, regardless of whether the special assessment is planned or currently being collected. Lenders are expected to collect the following information:

1.   The purpose of the special assessment;

 

2.   The date the special assessment was approved;

 

3.   Whether the special assessment is planned or being collected;

 

4.   The amount of the special assessment and how much remains to be collected; and

 

5.   The expected date that the special assessment will be paid in full.

Any special assessment associated with a critical repair, which has not yet remediated the critical repair issue, will deem the condominium or cooperative project ineligible. It is important for boards and property managers to provide complete information as to special assessments to lender representatives to maintain eligibility.

Inspection Reports

The eligibility standards have also been updated to specify in more detail the inspection records that boards and property managers will need to provide, which includes any structural or mechanical inspection report or reports related to the condominium or cooperative project provided by any vendor, federal, state, or local authority within the last three years prior to the review date. Any statement in such records that indicates that critical repairs are needed, an evacuation order is in effect, and/or regulatory action is required will deem a condominium or cooperative project to be ineligible. If any report states that critical repairs are needed, the project will be deemed ineligible until such time as an engineer’s report or “substantially similar document” confirms that the concerns have been resolved. Unfortunately, Fannie Mae and Freddie Mac have not offered any further definition of what “inspection report” means and, thus, board members and property managers will need to engage in a case-by-case review of any form or information received from vendors, federal, state, or local authorities to confirm whether it qualifies as a “structural or mechanical inspection report.”

Documentation Requirements

Fannie Mae and Freddie Mac now have more expansive documentation requirements for lenders to review in order to confirm that condominium or cooperative project conditions do not require critical repairs. The documentation requirement is relatively open ended, which may result in lender representatives seeking documentation well beyond what has traditionally been expected. Fannie Mae and Freddie Mac guidelines provide the following examples of documentation that boards and property managers should be prepared to provide:

1.   Board meeting minutes;

 

2.   Engineer reports;

 

3.   Structural and/or mechanical inspection reports;

 

4.   Reserve studies;

 

5.   A list of necessary repairs provided by the board or its management company; and/or

 

6.   A list of special assessments provided by the board or its management company.

To any extent that a lender is requesting documentation that may be unreasonable or – most importantly – protected by privilege, boards and property managers should seek counsel.

Approach to the New Requirements

We would expect mortgagee questionnaires to be updated by lenders in the face of these new requirements. There is rarely a singular approach to completing all lender questionnaires, and each questionnaire will likely need to be reviewed on a case-by-case basis. This is particularly the case where lender representatives are given some leeway as to the materials to review to determine eligibility under the new guidelines. Most importantly, as boards and property managers review updated mortgagee questionnaires in light of these new requirements, they should consult with experienced condominium counsel to craft the appropriate response as to critical repairs. We expect to work closely with boards and property managers as lenders revise their form mortgagee questionnaires and may have further updates as we see additional issues raised.

An associate in the real estate department of Moriarty Bielan & Malloy LLC, Ryan’s practice focusses on the general representation of condominium associations, including condominium document interpretation, drafting, enforcement, and collections. Ryan’e email address at MBM is rseverance@mbmllc.com.

 

The Future of Real Estate Closings - The Pen Will No Longer Be Mightier

By Kosta Ligris, Esq. @kligris

The real estate title and settlement process has resisted change and deployment of technology for years. But are we experiencing the "beginning of the end" of the real estate closing as we've known it? If you ask our friends in North Carolina, which successfully conducted its first ever "eClosing" in May 2017 the answer is clearly yes!

Aside from the reduction in paperwork, electronic closings stand to provide tremendous convenience and value to consumers. The Consumer Financial Protection Bureau ("CFPB") ran a study which

found that electronic mortgage closings can benefit the consumer. “While technology alone will not address all consumer concerns in the closing process, our study showed that eClosings do offer the potential to make the process less complex,” said CFPB Director Richard Cordray. “We expect this pilot project and its findings to help inform further innovation that will be a win-win for consumers and industry alike.”

Electronic closings will likely provide consumers with more time to review paperwork (such as lengthy loan documents), reduce the need to travel to a law firm, county registry or title company, and provide an audit trail for all the stakeholders including the consumers, lenders, insurers and regulators.

Even Fannie Mae is now accepting electronically executed promissory notes for mortgage transactions (subject to its terms and guidelines). The reality is that as electronic signature platforms continue to develop, the future of electronic closings as mainstream is imminent.

There will of course be critics, concerned with remote notarization, fraud, and cyber-crimes. But the concept and argument that "we've always done it this way" will not be upheld. As Millennials start to enter the housing market, the future is clear that Millennials hold massive buying power and are changing the housing market. They are used to conducting business on-line and via mobile apps (banking, transferring money, communicating, etc.) - the housing and mortgage industry will need to adapt for them as well. The time is now for the mortgage and title industry to prepare for the future in which the mouse and app will be mightier than the sword.

Originally published   on July 19, 2017

https://www.linkedin.com/pulse/future-real-estate-closings-pen-longer-mightier-kosta-ligris

A member of the REBA Title Insurance and National Affairs Section, Kosta Ligris is the founder, CEO and Managing Partner of Ligris + Associates, P.C.. His practice concentrates on residential and commercial real estate transactions; he represents buyers, sellers, and developers in the acquisition, sale and development of residential and commercial real estate. Kosta also serves in a general counsel capacity for certain investors and developers by providing guidance on various legal matters and coordinating representation with other lawyers and law firms.  Kosta can be contacted by email at kligris@ligris.com.