On March 18, 2026, Fannie Mae and Freddie Mac announced updates to condominium
project standards and property insurance requirements. Several changes take effect
immediately, while others will be phased in over the next nine months. The full updates can
be located in Lender Letter LL-2026-03, but several critical changes are highlighted below.
WAIVER OF PROJECT REVIEW EXPANDED
One of the changes that can be implemented immediately expands waiver of project
reviews. New and established projects with 10 units or less are now eligible for this waiver.
To use this waiver, developers must meet certain requirements, included but not limited to
(i) the project is not “unavailable” in Condo Project Manager; (ii) the project meets the
applicable insurance requirements; and (iii) there are no critical repairs if the loan is a Fannie
Mae to Fannie Mae limited cash-out refinance.
RETIREMENT OF CERTAIN PROCESSES
Two important items are being retired. First, the Limited Review Process is no longer
available. Going forward, all projects must be reviewed under the full review process or the
waiver of project review process. This change may be implemented immediately, but must
be applied to all loan applications dated on or after August 3, 2026.
Second, the previous limit of 50% of investment properties in established projects has been
removed, effective immediately. However, the requirement that at least 50% of total units
must be conveyed to principal residents or second home purchasers is still in effect.
CHANGES TO RESERVE REQUIREMENTS
Starting on January 4, 2027, a minimum of fifteen percent (15%) of the annual budget must
be dedicated to reserves. This is an increase from the prior requirement of ten percent (10%).
The goal is to prevent associations from becoming underfunded, which may result in
deferred critical repairs or maintenance.
In addition, associations must observe the highest recommended reserve allocation. The
baseline funding method is no longer permitted, meaning associations may no longer rely
on a minimal cash reserve approach so long as balances do not fall below zero. This change
must be implemented by August 3, 2026.
PROPERTY INSURANCE
Property insurance requirements have also been updated in response to prior concerns with
compliance.
For one-to-four unit properties, several policies have been eliminated. For example, there is
no requirement to document replacement cost value to verify property insurance coverage.
This change is effective immediately.
Furthermore, roofs must remain insured, but not necessarily on a replacement cost basis.
Effective immediately, property insurance policies must provide replacement cost coverage
for everything except the roofs. Roofs must remain insured, but replacement cost basis is
no longer required.
For master policies covering condominium projects, additional policies have been
eliminated. In addition to removing the requirement that roofs must be insured on a
replacement cost basis, the need for inflation guard coverage is no longer required. However,
the insurance policy coverage must equal 100% of the replacement cost value of project
improvements, including common elements and residential structures.
Lenders may rely on any of the following to indicate that the coverage amount is sufficient
for a master policy:
- guaranteed replacement cost coverage, or its equivalent;
- extended replacement cost coverage, or its equivalent;
- a replacement cost value estimate provided by the insurer;
- the project’s insurance risk appraisal; or
- a statement from the insurer or other applicable professional with appropriate expertise to make such a determination.
Additionally, the maximum allowable per unit deductible covered by a master policy is now
$50,000 per-unit. This change may be effective immediately, but compliance is required by
July 1, 2026.
Finally, updated rules apply to individual property insurance requirements. An owner needs
an individual policy when: (i) any portion of the unit or improvements to the unit is not
covered by the master policy; or (ii) the master policy includes a per-unit deductible. The
maximum deductible under the owner’s individual policy must be the greater of 5% of the
insurance coverage amount or $2,500.
STEPS FOR YOUR BOARD
1. Communicate with unit owners.
If the necessary changes require an increase in assessments or insurance costs, be sure to communicate this with owners so they can prepare.
2. Review your reserve study.
Baseline funding is no longer an option, so you will need to review your budget and allocate enough reserves to satisfy the higher requirement of 15%.
3. Assess your insurance coverage.
Evaluate your current insurance coverage, especially with the new $50,000.00 per unit deductible cap. You will need to review your documentation, especially if your community currently carries a higher deductible per-unit.
4. Create a calendar for deadlines.
Some of these changes may be implemented immediately, whereas others have specific deadlines. Create a calendar to ensure you are in compliance with each deadline, especially if changes in documentation is necessary prior to the deadlines.
5. Organize documents.
Prepare all necessary documents such as financials, reserve studies, etc. to ease in full project reviews.
6. Consult the experts.
Schedule a meeting with Manning & Meyers, a reserve specialist, and your insurance broker to further discuss what changes are necessary and how you can remain compliant.