Fannie Mae Strengthens Lender Requirements for Review of Condo and Co-op Project Reserves

In response to the devastating condo collapse in Miami, Florida, and concerns about aging infrastructure, Fannie Mae says it’s taking steps to address properties with significant deferred maintenance that impacts the safety, soundness, structural integrity or habitability of condos and co-ops.

Lenders are responsible for determining that condo/co-op projects meet eligibility guidelines. Here’s what you need to know:

• Lenders should ensure that their appraisers document, any special assessments, or deferred maintenance that may impact the safety and soundness of the unit or the overall project and its amenities.
• Projects must comply with all policies described in Selling Guide, B4-2.1-03, Ineligible Projects, even when completing a Limited Review or when an appraisal waiver is used.
• Loans secured by units in any project with a Condo Project Manager™ status of “Unavailable” are ineligible for purchase, regardless of the project review process used to determine project eligibility.
• Project eligibility waivers (PEWs) will not be issued for significant deferred maintenance, failure to obtain a certificate of occupancy, failure to complete or pass a regulatory inspection, or projects subject to large special assessments as described in LL-2021-14.

Best practices to help lenders meet Fannie Mae’s requirements, it is strongly recommended that lenders follow these best practices:

• Review the past six months of a project’s homeowners’ association (HOA) meeting minutes and obtain information about any maintenance or construction that may have material safety or soundness impacts on the unit or the project. Any references to the following items identified during the lender’s project review should be researched to determine if significant deferred maintenance exists:
o Deferred maintenance
o Special assessments
o Improvements or renovations
o Inadequate reserve funding, budget deficits, or negative cash-flows.
• Review any available inspection, engineering, or other certification reports completed within the past five years to identify significant deferred maintenance that may need to be addressed.

The new requirements are temporary but are in place until further notice.