In September, Fannie Mae and Freddie Mac implemented updated project eligibility standards for condominiums and housing cooperatives.

Project standards are specific requirements outlined by Fannie Mae and Freddie Mac. These standards apply to condominium, housing cooperative, or any multi-family common interest ownership association with more than five attached units. Fannie Mae and Freddie Mac purchase loans from mortgage lenders so lenders have access to capital, and can provide mortgages to more homebuyers. A mortgage lender must verify each project is satisfactory.

Fannie Mae and Freddie Mac are the financial engine for home mortgages in the U.S. As of 2023, Fannie Mae and Freddie Mac support around 70 percent of the mortgage market, according to the National Association of Realtors. Most conventional loans offered by private lenders end up being backed or purchased by Fannie Mae or Freddie Mac.

It is critically important for condominium and housing cooperative buildings (projects) to have access to loans that will meet the Fannie Mae and Freddie Mac qualifications. CAI continues to provide specific feedback to Fannie Mae and Freddie Mac regarding the requirements to make sure they are achievable by most condominium and housing cooperative projects and ensure mortgage lending availability. These Fannie Mae and Freddie Mac requirements officially go into effect Sept. 18. However, mortgage lenders may implement the practices immediately.

Boards of directors and managers will likely see these changes arise in lender questionnaires and requests from lenders for additional documentation including:

  • Insurance policies
  • Budgets
  • Financial Reports
  • Reserve Studies and Funding Schedules
  • Documentation regarding special assessments, if applicable
  • Documentation about litigation or ADR, if applicable
  • Building Inspection Reports, if available

When lenders ask community association boards and/or managers to complete questionnaires, they will also be asking for the documentation referenced above. If the community association does not provide this information to lenders as requested the project may be deemed ineligible, and Fannie Mae may put the condominium project on an ineligible list for lending. Because Fannie Mae and Freddie Mac back so many mortgages in the U.S., this could be devastating for a condominium or housing cooperative association.

A link to the full standards is below. This post provides highlights for established condominium and housing cooperative projects. Here are several highlights to help prepare you, your community, and your community clients:

A project will likely be deemed ineligible if:

  1. The project needs critical repairs.
  2. There is a current evacuation order due to unsafe conditions.
  3. There are unfunded repairs totaling more than $10,000 per unit.
  4. The property insurance coverage is not full replacement value and doesn’t include all the coverage as required. (Note: cash value replacement is unacceptable)
  5. Association’s budget must include the following:
    1. Adequate funding for insurance deductibles
    2. At least 10% of the budget must be for reserves.
    3. No more than 15% of income comes from rental or leasing of commercial parking facilities.
  6. No more than 15% of owners are more than 60 days delinquent in paying their assessments.
  7. Commercial space may not be more than 35% of the total above and below grade square footage is used as commercial or non-residential space, the project is ineligible.

Reserve Study and Funding Schedule

The lender must obtain a copy of the reserve study. The reserve study must comply with specifics. The reserve study generally must include:

  1. An inventory of major components of the project.
  2. Financial analysis and evaluation of current reserve fund adequacy.
  3. Proposed annual reserve funding plan.
  4. A reserve study’s financial analysis must validate that the project has appropriately allocated the recommended reserve funds to provide the condominium project with sufficient financial protection comparable to Freddie Mac’s standard budget requirements for replacement reserves.
  5. The reserve study’s annual reserve funding plan, which details total costs identified for replacement components, must meet or exceed the study’s recommendation and conclusion.
  6. The most current reserve study (or update) must be dated within 36 months of the seller’s determination that a condominium project is eligible (see Section 5701.2(a)(3)).
  7. The reserve study must be prepared by an independent expert skilled in performing such studies (such as a reserve study professional, a construction engineer, a certified public accountant who specializes in reserve studies or any professional with demonstrated experience and knowledge in completing reserve studies).
  8. The reserve study must meet or exceed requirements set forth in any applicable state statutes.
  9. The reserve study must comment favorably on the project’s age, estimated remaining life, structural integrity, and the replacement of major components.
  10. If the mortgage lender relies on a reserve study that meets the requirements of this section, the project’s budget must contain appropriate allocations to support the costs identified in the study.
  11. The lender must maintain and retain in the mortgage file a copy of the reserve study. The lender also must perform an analysis of the study and retain this analysis.

Building Inspection Reports

If there is a structural or mechanical inspection report completed within the last three years, the lender must obtain a copy and review the report. If the report indicates an evacuation order, unaddressed critical repairs, or other habitability concerns, the project building/association will be deemed ineligible.

Insurance Requirements

There are very specific insurance requirements including master property insurance policies that cover full-replacement value (not cash value) of the project/building. Here is a link to the full insurance requirements. If the project does not have adequate insurance, it will be deemed ineligible.


A project in which the association is named as a party to pending litigation or the lender discovers the association is a part to an Alternative Dispute Resolution (ADR) proceeding such as arbitration or mediation, or the project developer is named as a party to ending litigation, or the lender discovers the developer is a party in an ADR proceeding, in either case, the dispute relates to the safety, structural soundness, functional use or habitability of the project, the project is deemed ineligible.

If the lender determines the pending litigation or ADR involves only minor matters that do not affect the safety, structural soundness, functional use or habitability of the project, the project is eligible if the litigation or ADR proceeding is limited to one of the following:

  1. The litigation amount is known, the insurance company has committed to provide the defense, and the litigation amount is covered by the insurance policy.
  2. The litigation amount is unknown, the seller has documented the mortgage file with a copy of the complaint, or the most recent amended complaint, and with an attorney letter that supports the seller’s determination that the litigation involves minor matters. The attorney letter must state: (i) the reason for the litigation; (ii) that the insurance company has committed to provide the defense; and (iii) that any potential monetary judgment against the HOA or settlement with the HOA, including punitive damages, will likely be covered by the HOA’s insurance policy. If the attorney indicates the matter will not likely be covered by the HOA’s insurance policy, then the project is ineligible.
  3. The matter involves:
    1. A non-monetary neighbor dispute or right of quiet enjoyment, whether litigated or in an ADR proceeding, or
    2. A dispute in which the HOA is the plaintiff in a foreclosure action or action for past due HOA assessments, or
    3. A dispute in which the HOA is the plaintiff in the litigation or a party to an ADR proceeding and is seeking reimbursement for expenditures made to repair the project’s component(s). The expenditures may have included items that related to the safety, structural soundness, functional use, or habitability of the project, provided that the repair permanently resolved the defect or issue, and the expenditures did not significantly impact the financial stability or future solvency of the HOA.
  4. The estimated or known amount in dispute in the litigation or ADR proceeding is not expected to exceed 10% of the project’s funded reserves if use of the project’s funded reserves to pay for project litigation or dispute resolution does not violate the applicable jurisdiction’s laws and regulations.

Find this information and much more in these links.

Freddie Mac Lender Bulletin

Fannie Mae Lender Bulletin

The post Fannie Mae and Freddie Mac New Lender Requirements Go Into Effect in September appeared first on CAI Advocacy Blog.