The Federal Housing Finance Agency (FHFA) announced sweeping changes on Wednesday to Fannie Mae’s and Freddie Mac’s property insurance and condo project standards. While the government-sponsored enterprises (GSEs) are easing certain insurance mandates — such as allowing cash value coverage for roofs — the overhaul reform package of condo review requirements is drawing immediate concern from some mortgage industry experts who warn of loan approval delays.
The updates detailed in a Fannie Mae lender letter aim to ease the financial strain on borrowers and homeowners associations priced out of the market by strict insurance rules.
Reversing a controversial 2024 policy, the updated guidelines immediately allow for actual cash value (ACV) coverage on roofs for single-family homes and condominiums, rather than requiring full replacement cost value (RCV). The rest of the property must still maintain full RCV protection. Furthermore, the maximum allowable per-unit deductible for a master property insurance policy has been capped at $50,000.
FHFA Director Bill Pulte framed the shift as a necessary correction to increase consumer choice and protect rural communities.
“Lower insurance costs and mortgage rates shrink the monthly payment of a new mortgage, giving new homebuyers confidence that they can afford the American dream,” Pulte stated in a press release.
The Mortgage Bankers Association (MBA) acknowledged the insurance rollbacks as a positive step toward improving affordability.
“MBA has long advocated for targeted changes to address overly rigid requirements that have constrained market liquidity, limited access to condo homeownership and put unnecessary pressure on housing affordability,” commented MBA President and CEO Bob Broeksmit in a statement. “These updates represent meaningful progress.”
The Community Home Lenders of America (CHLA) also supported the changes. In a press release, the trade group commended the GSEs for “taking actions CHLA has been calling for to create more flexible replacement cost and deductible insurance requirements for condominiums.”
However, while the insurance adjustments provide immediate financial relief, the agencies are simultaneously tightening eligibility rules for condominium projects.
Fannie Mae’s lender letter, issued in alignment with a Freddie Mac bulletin, officially retires the “limited review” process for established condo projects, effective for loan applications dated on or after Aug. 3, 2026.
Moving forward, lenders will be required to conduct “full reviews” on these projects. Additionally, the replacement reserve requirement for capital expenditures and deferred maintenance will increase from 10% to 15% of a condo association’s annual budgeted income starting Jan. 4, 2027.
These stricter condo standards have sparked immediate concern. In an interview with Scotsman Guide, Dawn Bauman, CEO of the Community Associations Institute, said that while the rule changes are a step in the right direction, they fail to address some of the deeper problems in the market, especially given the switch from limited review to full review.
She estimated that 40% of current reviews are conducted as limited reviews, meaning that retiring this policy in favor of full reviews will “create some delays in loans being approved,” she said.
As result, Bauman posited, lenders would need to collect additional documentation to verify that condo associations meet all the loan obligations stipulated in the new criteria for every single loan. She cautioned this will cost significant time and resources, with the burden ultimately falling on homebuyers and sellers.
The CHLA also flagged the limited review changes, stating it had “concerns about ending this important option for condos more broadly.”
The tightened standards reflect the GSEs’ focus on mitigating the risks of underfunded condo projects and deferred maintenance. Noting a correlation between underfunded reserves and critical repair needs, Fannie Mae is increasing the mandatory replacement reserve allocation from a minimum of 10% to 15% of a homeowners association’s annual budgeted income. This requirement takes effect for loan applications dated on or after Jan. 4, 2027.
The rules being revoked stem from the prior administration’s response to the 2021 collapse of a condo building in Surfside, Fla., in which 98 people died.
