What Fannie Mae & Freddie Mac’s policy changes mean for condominium associations, lenders, and homeowners

On March 18, Fannie Mae and Freddie Mac issued a significant update to their project standards and property insurance requirements. These changes reflect the realities of today’s housing market and focus on the long-term financial sustainability of condominium communities based on Fannie Mae and Freddie Mac criteria, which aren’t always aligned with actual financial stability and performance. These updates, outlined in Lender Letter LL-2026-03, are designed to simplify certain processes, respond to insurance market challenges, and strengthen the financial health of condominium communities.

For community associations, board members, managers, and business partners, these changes are important and, in some cases, consequential.

A Shift Toward Project Reviews: One of the most notable changes is the “retirement” of the limited review process, which will be fully eliminated for loans with application dates on or after Aug. 3. Eliminating limited review is a consequential change for the condominium market.

Historically, limited review represented roughly 40% of all project reviews. Doing away with it shifts a significant portion of transactions toward a more rigorous full review process. This transition will require substantially more documentation and formal lender questionnaires for nearly all condominium sales, which will increase the administrative burden on community associations, managers, and volunteer leaders.

Without thoughtful implementation and support, this change has the potential to slow transactions and place additional strain on already constrained communities.

Moving forward, lenders will rely on either: Full review or waiver of project review.

There is expanded eligibility for a waiver of project review to include projects with up to 10 units, providing greater flexibility for smaller communities.

Additionally, the long-standing investor concentration limit (50%) has been eliminated, and Florida-specific review requirements for new, attached condominium projects also are being retired.

These changes shift greater responsibility to lenders and associations to demonstrate that condominium projects are financially sound based on Fannie Mae and Freddie Mac guidelines.

Stronger Financial Expectations for Condominium Communities: Fannie Mae & Freddie Mac are increasing the minimum reserve funding requirement from 10% to 15% of the annual budget effective Jan. 4, 2027.

In addition:

• Associations must follow the highest recommended funding level identified in reserve studies.
• The baseline funding method is no longer permitted.

Boards, managers, and reserve providers should begin evaluating reserve funding now. These requirements may result in:

• Increased assessments.
• Adjustments to long-term financial planning.
• Greater scrutiny during the lending process.

Insurance Requirements Adapt to Market Realities

Fannie Mae and Freddie Mac also made meaningful adjustments to property insurance requirements in response to rising premiums and limited availability in many markets.

Key updates include:

• Elimination of strict replacement cost documentation requirements.
• Removal of the requirement to insure roofs at full replacement cost.
• Greater flexibility in how coverage sufficiency is determined.

For condominium associations:

• The inflation guard requirement has been removed.
• A new maximum deductible of $50,000 per unit will apply beginning July 1.

At the unit level:

• Owners must carry insurance (usually in the form of an H06 policy) when gaps exist in the master policy or when deductibles apply.
• Coverage must align with either interior exposure or the master policy deductible.

These changes acknowledge the challenges associations face in today’s insurance market, while still maintaining a baseline of protection. However, the new deductible cap may create compliance challenges for communities currently carrying higher deductibles.

New Responsibilities for Servicers—and Increased Communication

The update also introduces new expectations for loan servicers including:

• Annual verification of insurance coverage.
• Monitoring for reductions in coverage.
• A new requirement to remind borrowers annually to maintain insurance.
• These changes take full effect by Jan. 1, 2027.

Expect more consistent communication around insurance coverage and increased oversight throughout the life of the loan.

What Community Associations Should Do Now

• Review your reserve study and funding levels.
• Evaluate your insurance coverage and deductibles.
• Prepare to provide this information in lender questionnaires for upcoming sales in your condominium community.
• Engage your management team (CMCA®, AMS®, PCAM® and AAMC® company), insurance professionals (CIRMS®), reserve professionals (RSTM), and legal advisors (CCALTM fellows).
• Begin planning for compliance with 2026 and 2027 implementation timelines.

Condominium communities are strongly encouraged to proactively confirm their eligibility status with Fannie Mae and Freddie Mac by reviewing current ineligible project lists. If your community now meets the insurance coverage, visit these websites to begin the process with Fannie Mae https://selling-guide.fanniemae.com/sel/b4-2.2/project-eligibility and Freddie Mac https://guide.freddiemac.com/app/guide/section/5701.2#a

Taking these steps can help restore access to conventional financing, support property values, and ensure buyers and owners benefit from a more competitive and accessible lending environment.

As always, CAI will continue to monitor implementation and provide resources to support community associations navigate these evolving requirements.

Dawn Bauman, CAE is chief executive officer of the Community Associations Institute (CAI).