Client Alert: Fannie Mae Announces Significant Changes to Project Standards and Property Insurance Requirements for Community Associations
Date: May 4, 2026
Why Fannie Mae Matters to Your Community Association
Fannie Mae, also known as the Federal National Mortgage Association, is a government-sponsored enterprise that purchases and guarantees residential mortgage loans. When a prospective buyer seeks a mortgage to purchase a unit in a condominium or a home in an HOA-governed community, the lender will typically look to sell that loan to Fannie Mae. To do so, the lender must confirm that the community association’s project meets Fannie Mae’s eligibility standards, including requirements related to insurance coverage, financial reserves, and governance. If a community association does not meet these standards, lenders may be unable to sell those loans to Fannie Mae, which can restrict buyers’ access to financing and, in turn, depress property values and limit marketability within the community. It is important to note that an eligibility review is conducted for every loan application.Key Changes to Project Standards
Increased Reserve Requirements. When a lender reviews a condominium association’s annual budget, it must ensure that the association has a minimum budgeted replacement reserve allocation of 10%. Fannie Mae is increasing the minimum replacement reserve allocation for capital expenditures and deferred maintenance from 10% to 15% of the annual budgeted assessment income. According to Fannie Mae, it has observed a direct correlation between underfunded reserves and projects in need of critical repairs, noting that inadequate reserves often result in substantial financial hardship for unit owners through unexpected special assessments.Should a lender opt to use a reserve study in lieu of the budget, the lender must verify that the reserve study demonstrates that the project has adequately funded reserves and the reserves either meet or exceed the reserve study’s recommendations. The lender may review the most current reserve study or an updated study as long as the study has been completed within the past three years.
This change takes effect for all loan applications dated on or after January 4, 2027.
Enhanced Reserve Study Standards. When a lender relies on a reserve study to confirm that a project has sufficient reserves, the project’s budget must now include the highest recommended reserve allocation amount identified in that study. In addition, the baseline funding method, which allowed reserve balances to approach, but never fall below zero, is no longer permitted.
Lenders must comply with this change for all loan applications dated on or after August 3, 2026.
Retirement of the Limited Review Process. Fannie Mae is retiring the Limited Review process entirely. Established projects that previously qualified for Limited Review must now undergo Full Review or, where applicable, the expanded Waiver of Project Review process. Through the Full Review process, lenders ensure that a project meets all of Fannie Mae’s eligibility requirements.
This change must be implemented for all loan applications dated on or after August 3, 2026.
Key Changes to Property Insurance Requirements
Master Policy Coverage Sufficiency. The master property insurance policy must now provide coverage equal to at least 100% of the estimated replacement cost value of project improvements, including common elements and residential structures. Roofs, however, are exempted from this requirement, though they must still be insured. Policies that provide coverage on an actual cash value basis or that depreciate losses will not suffice.Associations may document sufficiency through guaranteed or extended replacement cost coverage, a replacement cost estimate from the insurer, an insurance risk appraisal, or a statement from a qualified professional. Notably, the requirement for inflation guard coverage has been retired.
Lender servicers must annually verify insurance coverage, including monitoring for any reduction in coverage, effective January 1, 2027.
Master Policy Coverage Requirements. The policy must include coverage for the following perils: fire, lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, riot, vandalism, sprinkler leakage, sinkhole, volcanic action, falling objects, weight of snow/ice/sleet, and water damage.
Master Policy Deductible Maximum. When the policy includes a per-occurrence, per-unit deductible, the deductible maximum is now $50,000 and there is the additional requirement that the borrower obtain an individual unit owner’s insurance policy.
Lenders must implement this change for all loans with application dates on or after July 1, 2026.
Unit Owner Insurance Requirements. A unit owner’s policy is now required when any portion of the unit’s interior is not covered by the master policy, or when the master policy includes a per-unit deductible. The minimum coverage amount for the unit owners’ policy must be at least equal to the greater of the cost to restore uncovered portions of the unit or the per-unit deductible amount. The deductible maximum is 5% of the property insurance coverage amount or $2,500.
This change is effective immediately.
Investor Limits. The investment property concentration limit, which was previously 50%, has been eliminated, allowing for an increase in the number of investor-owned properties in a community.
Recommendations for Community Associations
In light of these changes, we recommend that boards of directors take the following steps:- Boards should review their current reserve funding levels against the new 15% minimum threshold and begin planning budgetary adjustments well in advance of the January 2027 deadline if the association does not have a qualifying reserve study.
- If your association has not recently obtained a reserve study, now is the time to commission one, ensuring it uses a funding methodology that does not rely on the now-prohibited baseline funding method. A meeting with your reserve study provider is recommended to begin this dialogue.
- Boards should coordinate with their insurance professionals to confirm that the association’s master insurance policy meets the updated coverage sufficiency requirements, including coverage of at least 100% of estimated replacement cost value. Boards should also review the per-unit deductible levels. If there are gaps in coverage, your insurance professionals can assist with resolving the deficiencies.
- Boards should be aware that the retirement of the Limited Review process and the shift to Full Review will subject associations to heightened scrutiny from lenders. Associations should proactively ensure that their financial documents, governance records, and insurance certificates are current and readily available for lender review. Boards should work in tandem with their community management professionals in preparation for an increase in lender questionnaires.
For additional information and assistance with understanding the impacts of the new guidelines on your association, please contact your counsel at Whiteford.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.