Today we’re talking about a change in the condominium market that has received surprisingly little attention.
The question is not whether your condo is worth $300,000 or $500,000.
The question is whether a buyer can get a mortgage on it.
We saw this problem extensively in the wake of the 2008 financial crisis. There were condominium projects all over the country where individual owners stopped paying their mortgages. Many also stopped paying their condominium fees.
As delinquencies increased, the financially healthy owners had to carry more of the burden.
Fannie Mae still has rules addressing precisely this issue. Under its Full Review process, no more than 15 percent of the units can be 60 days or more delinquent on regular HOA assessments. The same 15 percent test applies to delinquency on special assessments.
Fannie Mae announced in March that it is increasing the minimum replacement-reserve allocation under its Full Review process from 10 percent to 15 percent of annual budgeted assessment income. That new 15 percent standard becomes mandatory for loan applications dated January 4, 2027 or later.
Fannie has also tightened the rules governing reserve studies. If an association is relying on a reserve study rather than the standard budget percentage, the lender must use the highest recommended reserve allocation in that study. The old baseline funding approach, where the reserve balance could essentially approach zero without going negative, can no longer be used to justify the exception. Those reserve-study changes became mandatory for applications dated August 3, 2026 or later.
Freddie Mac has moved in the same general direction, although its current numerical budget requirement remains 10 percent rather than Fannie’s announced 15 percent. Freddie has likewise eliminated use of the baseline funding methodology when a reserve study is being used as an exception. It also requires lenders to use the highest funding recommendation contained in the reserve study.
Your condominium is no longer being underwritten merely as an individual piece of real estate.
The lender is effectively underwriting your condominium association.
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