How new Fannie Mae mortgage lending guidelines may affect condo boards, owners

On March 18, Fannie Mae (FNMA) changed its mortgage lending guidelines concerning reserve funding levels for condominium associations. These revisions will significantly impact condominium boards’ decision-making and directly affect an association’s FNMA eligibility for home mortgage lenders.

Fannie Mae is a government-sponsored enterprise whose primary purpose is to provide stability to the U.S. mortgage market and thereby promote homeownership for the public. FNMA works directly with home mortgage lenders and establishes minimum guidelines for home and condominium mortgage approval. The overwhelming majority of U.S. condominium mortgages are reviewed using FNMA standards and guidelines, making FNMA the primary gatekeeper of mortgage eligibility.

More importantly for condominium associations, it’s not only the individual purchaser or mortgage applicant that must be approved by a lender. But, the condominium association must also satisfy the FNMA eligibility guidelines in order for a purchaser to qualify for many types of mortgage products.

Most originating mortgage lenders transfer or sell their mortgages on the secondary mortgage market after the closing is completed so the mortgages can then be transferred or sold by the originating mortgage company to the secondary mortgage market. As a result, if a condominium association does not satisfy the FNMA guidelines, the association may be considered “ineligible” or “unwarrantable” by FNMA (aka the FNMA “Blacklist) and purchase mortgages for units within an association may not be eligible for sale on the secondary mortgage market. A negative FNMA status (aka “Blacklist”) has a significant impact on the market value of condominium units within the association because it essentially limits the availability of home mortgage products available to prospective purchasers.

The new FNMA guidelines state that beginning Jan. 4, 2027, a condominium association reserve funding baseline will increase from 10% to 15% of the association annual budget. That means if your association does not have an updated (within the past two to three years) professional reserve study, the association’s annual budget must reflect a minimum 15% contribution toward reserve funding (this is an increase from the current 10%) in order to satisfy FNMA guidelines.

In addition to this increase reserve funding baseline, a condominium without an updated reserve study will continue to be subject to lender review of the association’s budget, check for other red-flags (deferred maintenance, known structural issues, special assessments not reflected in budget) and review additional documentation or inspection reports.

FNMA has also revised the reserve funding guidelines for condominiums with an updated professional reserve study, Typically, if an association has an updated professional reserve study, a mortgage lender can use that study to evaluate a condominium association’s reserve status. However, effective Aug. 3, 2026, under the new FNMA guidelines, the association’s budget must reflect reserve funding at the highest recommended allocation from the reserve study.

This is very different from the current approach. Currently, associations who have a recent reserve study can still rely on the old baseline funding method (10% annual contribution) even if the reserve study recommends a great annual contribution.

What does all this mean for condominium associations? Boards will have to review their annual budget carefully with an emphasis on their reserve funding. Boards will have to reconsider the highest recommended contribution in the reserve study.

Of course, all this may require increased monthly assessments or a greater reallocation of operating funds to reserves. Additionally, updated reserve studies will become more important.

From a legal liability standpoint, boards that fail to implement a reasonable reserve funding plan for long-term repair and replacement projects may face owner disputes, special assessment challenges and even potential breach of fiduciary duty claims.

• Matthew Moodhe is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at condotalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.