Fannie Mae issued updates for all Single-Family sellers and servicers, revising project standards and property insurance rules for one- to four-unit properties and project developments.
The changes follow industry feedback, track with Freddie Mac policy, and were coordinated with the Federal Housing Finance Agency. Fannie Mae says the package aims to support sustainable homeownership and cut operational friction for lenders and servicers.
Fannie Mae published Lender Letter communicating targeted policy updates to condo project standards and property insurance requirements for one-to-four-unit properties and project developments.
These changes are being implemented in alignment with Freddie Mac, in coordination with U.S. Federal Housing (FHFA), and in response to industry feedback.
The company released the insurance and project standards changes together to ease implementation and address the interests of borrowers, unit owners, project developments, and Fannie Mae itself.
Pressure in some markets keeps building. Insurance premiums keep rising, coverage options remain tight, and borrowers along with homeowners’ associations face a rougher market.
Fannie Mae says it still wants to reduce the risk of weak property protection, including underinsurance and underfunded condo projects.
So it updated policy in targeted areas, giving lenders and servicers more flexibility and simpler operating rules. The company says these revisions should help borrowers and homeowners’ associations secure coverage that meets Fannie Mae insurance requirements, while stronger project standards push condo projects toward better financial health over time.
The broader goal is a housing finance system with more stability, better access, and stronger long-run viability.
Fannie Mae is revising project standards across Selling Guide Chapter B4-2 and updating property insurance requirements, plus lender and servicer duties, across Selling Guide Chapter B7-3 and Servicing Guide Chapter B2.
Until each change takes effect under this lender letter, lenders and servicers must keep following the current rules in those chapters.
On project standards, Fannie Mae is expanding the Waiver of Project Review, retiring PERS review for new condo projects with attached units in Florida, ending investor concentration limits, ending the Limited Review process, tightening reserve study requirements, and raising replacement reserve requirements.
On insurance, the revisions cover one- to four-unit properties, master property insurance for project developments, individual unit insurance in project developments, and extra servicing-side rules for one- to four-unit properties plus general requirements.
Fannie Mae ties these revisions to concerns it flagged in 2023, when it added major deferred maintenance and unsafe condition rules for condo projects.
Insurance industry trade associations are applauding a decision to change the homeowners insurance required by Fannie Mae and Freddie Mac, which the trades said will lower costs for homeowners and buyers.
The Federal Housing Finance Agency this week announced the quasi-governmental corporations that buy mortgages from lenders will not require properties with a federally backed mortgage to have full replacement cost value homeowners insurance, reversing a change made in February 2024.
“Limiting consumers to only the most expensive coverage just made buying a home that much more difficult, and created real harm for the homeowners market,” said Neil Alldredge, president and CEO of the National Association of Mutual Insurance Companies.
The vast majority of mortgages are backed by the (government-sponsored enterprises), and so keeping costs needlessly high probably prevented some consumers from becoming homebuyers.
Full replacement cost insurance typically comes with a higher cost, which “worked as a de facto regulation” to prevent other more affordable options that consider depreciation, NAMIC explained.
“Giving consumers more options to fit their needs and budgets will bring with it greater competition in the marketplace and help bring costs down,” Alldredge said.
NAMIC said it opposed the change and helped earned a pause in the requirements in May 2024, but the organization said mortgage lenders continued to reference the change while denying consumers and would-be homebuyers alternative options.
We should be doing everything in our power to make homeownership attainable – especially in rural towns. I commend FHFA Director William J. Pulte and the Trump Administration’s action in restoring common-sense consumer choice to the housing market.
“We appreciate FHFA’s willingness – along with Fannie Mae and Freddie Mac – to engage directly with insurers and other stakeholders to better understand the real-world impacts of the February 2024 guidance,” said Karen Collins, vice president of property and environmental for the American Property Casualty Insurance Association.
“That engagement was critical in recognizing how certain requirements were contributing to higher costs, reduced coverage availability, and unintended challenges for condominiums and other properties.
Since then, it says condo projects with weak reserves for capital expenditures often also carry critical repair needs. Projects without adequate reserves often lack the money to maintain physical conditions or cover unexpected operating expenses.
Unit owners then face special assessments or higher dues, which can push mortgage defaults and foreclosures higher. The revised standards aim to improve condo project finances and support sustainable ownership over the long haul.
The company is expanding eligibility for a Waiver of Project Review to new and established projects with ten or fewer units.
For projects with five to ten units, the project cannot sit within a master association or larger development. Lenders using this option still need to meet all waiver requirements in Selling Guide B4-2.1-02.
Those rules include checking that the project does not carry Unavailable status in Condo Project Manager, meets all relevant insurance standards in Selling Guide B7-3, and has no critical repairs or evacuation orders in place for a Fannie Mae to Fannie Mae limited cash-out refinance.
Fannie Mae also notes that general liability and fidelity insurance are not required for condo projects qualifying for a Waiver of Project Review. Lenders can use this change now.
Desktop Underwriter messages tied to the waiver will be updated later.
In Florida, Fannie Mae is dropping the rule requiring new or newly converted condo projects with attached units to go through Project Eligibility Review Service, or PERS.
Those projects, same as other new attached-unit projects, can now move through the lender-delegated Full Review process.
Lenders can use the change immediately. Condo Project Manager has already been updated, and Desktop Underwriter messages will follow in a later release.
The company is also retiring the 50% investment property concentration limit in established projects reviewed under the Full Review option for investor loans.
Fannie Mae did keep the presale rule in place. At least 50% of total units in the project, or in the legal phase tied to the subject unit, must already be conveyed or under contract to principal residence or second-home buyers, as laid out in Selling Guide B4-2.2-03 for new and newly converted condo projects.
Lenders can apply the investor concentration change now. Condo Project Manager reflects it already, with Desktop Underwriter message changes still pending.
Another major shift, Fannie Mae is retiring the Limited Review process. Established projects that used to qualify under Limited Review now need review through the Full Review process or, where eligible, the Waiver of Project Review path.
The move also removes the remaining geographic restrictions tied to Florida, though those restrictions stay in force until Limited Review officially ends on August 3, 2026.
Lenders can start using the retirement of Limited Review now, though they must apply it to all loan applications dated on or after August 3, 2026. Desktop Underwriter messages tied to Limited Review will be updated later.
Fannie Mae is also tightening reserve study policy. Current rules let lenders use a reserve study to show a project has adequate reserves when the budget does not meet Selling Guide replacement reserve standards.
Under the revision, if lenders rely on that option, they must confirm the project budget includes the highest recommended reserve allocation amount listed in the reserve study, enough to cover identified costs.
Fannie Mae is also ending use of the baseline funding method, the option allowing reserve cash balances to approach zero without dropping below it.
Lenders are encouraged to use the reserve study change now. They must apply it to all loan applications dated on or after August 3, 2026.
The replacement reserve requirement is going up too. Fannie Mae is raising the minimum reserve allocation for capital expenditures and deferred maintenance from 10% to 15% of annual budgeted income assessment.
Other rules tied to replacement reserves and budget adequacy review stay in place. Lenders must follow this higher threshold when they use the Full Review process for all loan applications dated on or after January 4, 2027. Condo Project Manager lender certifications will be updated in a future release.
In February 2024, we made clarifications to our property insurance requirements. Since publication of these clarifications, we have heard concerns from industry partners about lenders’ and servicers’ ability to comply with certain property insurance requirements.
“In response to this feedback, we conducted extensive market outreach and are making various updates to our requirements as a result of these collaborative efforts”, Fannie Mae says.
Fannie Mae is a leading provider of mortgage financing in the U.S. “We purchase mortgages from lenders to free up the money they need to make other mortgage loans, therefore ensuring the ongoing availability of affordable mortgages”.
Our financing solutions allow millions of people across America to access affordable, sustainable rental housing and homeownership.
Fannie Mae helped transform homeownership in the U.S. by driving wider adoption of the 30-year, fixed-rate mortgage loan, which first became popular in the 1950s.
Unlike previous expensive, unpredictable loans, this mortgage option expanded access to homeownership with its lower monthly payments that were predictable for the length of the loan. For the last 70 years, the 30-year, fixed-rate mortgage has helped countless households afford their own home.
“Today, we work alongside industry partners to provide modern, sustainable solutions that increase the availability of affordable rentals and expand access to homeownership”.
