Changes to Fannie Mae Project Standards
By Rosemary Liuzzo Mohamed
On March 18, 2026, Fannie Mae issued Lender Letter LL-2026-03, rewriting condominium project standards by ending the Limited Review Pathway for all loan applications dated on or after August 3, 2026. The Limited Review Pathway was a streamlined approval route that in some cases allowed lenders to approve loans in established projects using basic project information, without a deep analysis of the association’s finances. Established projects with more than ten units must now undergo a Full Review, which evaluates the association’s budget, reserve funding, insurance, delinquency rates, pending litigation, special assessments and inspection reports. Projects with ten or fewer units may instead qualify for an expanded Waiver of Project Review. Under this rewrite, the building itself must now qualify, and a larger down payment no longer earns a lighter review.
The letter also tightens a building’s reserve requirements in two steps. Effective August 3, 2026, when a lender relies on a reserve study, the budget must include the study’s highest recommended reserve allocation. The baseline funding method, which lets the reserve balance approach but never fall below zero, is no longer permitted. For applications dated on or after January 4, 2027, the minimum reserve allocation under Full Review rises from 10% to 15% of the annual budgeted assessment income. Fannie Mae explained that it has seen a correlation between underfunded reserves and projects needing critical repairs. Its published guidance also indicates that special assessments cannot be used in place of the budgeted reserve allocation. Boards that have historically relied on special assessments should expect pressure toward higher regular assessments.
The rule on building violations was extremely tightened following the 2021 Champlain Towers South collapse in Miami, Florida, which killed 98 people. This led Fannie Mae to write critical-repair and deferred-maintenance requirements into its Selling Guide. This rule remains unchanged, but a Full Review makes open problems much harder to overlook. A project is ineligible if it has failed a mandatory state, county or other jurisdictional inspection or certification specific to structural safety, soundness or habitability, or if it has unaddressed critical repairs, until the repairs are completed and documented. Unfunded repairs costing more than $10,000 per unit within the next 12 months can also trigger ineligibility, though repairs funded through a special assessment are excluded.
An ineligible building cannot offer Fannie Mae-backed financing to any unit, which limits buyers to cash or portfolio loans and can depress values throughout the building. We recommend that boards review their reserve budgets and reserve studies now, resolve any open violations or critical repairs, and confirm the building’s project status before a unit goes on the market. Buyers and sellers should also build extra time into contract mortgage contingencies. Please contact our office with questions, we are happy to help!