Fannie Mae’s latest condo policy update is drawing a split reaction across the mortgage industry, with some leaders welcoming targeted relief measures while warning that tougher project-review and reserve requirements could raise costs and make financing harder for some borrowers.
The March 18 lender letter expands waiver eligibility for certain small projects, retires investor concentration limits, eliminates the Limited Review process, raises minimum replacement reserve requirements from 10% to 15%, and makes a series of insurance-related changes with staggered implementation dates.
MBA President and CEO Bob Broeksmit, CMB, praised the update, calling it “meaningful progress” that could ease affordability pressures and expand access to conventional condo financing.
In a statement, Broeksmit said the revised insurance rules could lower costs for existing homeowners, make “tens of thousands” of additional units eligible for lower-cost GSE financing, and provide operational relief for servicers. He added that MBA will continue working with the GSEs to refine condo project approval and insurance standards.
Fannie Mae said the changes are intended to support “the financial resilience and long-term sustainability of condo projects” while also addressing insurance pressures and operational complexity.
Scott Valins, CEO and co-founder of GoRascal, viewed the changes as a mixed bag, with a few elements he sees as clearly “good” and others as clearly “bad,” according to his recent LinkedIn post.
On the positive side, Valins pointed to the expansion of project waivers to projects with up to 10 units and the removal of investor concentration limits.
On the negative side, he flagged the elimination of Limited Review, the new 15% reserve requirement, and stricter deferred maintenance and safety rules.
The positive changes, according to Valins, appear to loosen two constraints that have long limited condo financing. Under the update, Fannie Mae said it is expanding eligibility for a Waiver of Project Review to include new and established condo projects with 10 or fewer units.
Valins said expanding waiver eligibility could make it easier to move smaller condo projects through the process without requiring a full project review every time — less friction, faster execution, and fewer chances for a deal to die in paperwork.
He also cited the removal of the 50% investor concentration limit, which previously knocked otherwise financeable projects out of eligibility. The threshold was also referred to as an owner-occupancy ratio requirement, under which rented units in a condo building were typically limited to no more than 50% of total units. Removing that limit gives lenders more flexibility in projects with higher investor ownership.
Even so, homeowner associations still have the legal authority to impose their own stricter rules to reduce turnover and protect property values, even as some lenders have recently relaxed or eliminated similar standards.
The removal of Limited Review for established projects, however, means lenders will no longer have access to a streamlined underwriting process for Fannie and Freddie loans that required less documentation, faster processing, and fewer condo association checks than a full review.
Lenders may retire Limited Review immediately, but must do so for all loan applications dated on or after Aug. 3, 2026.
Taylor Stork, COO of Developer’s Mortgage Company and president of the Community Home Lenders of America, offered a more policy-focused critique.
In a LinkedIn post, Stork called lower insurance requirements for condominium projects “a meaningful step in the right direction.” But he also warned that the increase in project reserve requirements from 10% to 15%, along with the removal of Limited Review, could affect borrower affordability and access to credit.
“Limited review has long provided a practical, risk-balanced, less expensive pathway for financing condos — especially for entry-level and workforce housing,” he argued. “Eliminating it raises an important question: Are we solving for risk or unintentionally increasing expense in aggregate while restricting access to credit?”
Stork estimated the cost of obtaining full project documentation could range from $100 to $1,000 per project, depending on the HOA and management company.
“Proponents of eliminating limited review argue that requiring full documentation will help ‘crowd source’ more complete and transparent project data over time,” Stork said. “Opponents argue the opposite — that this simply shifts cost and burden onto more borrowers and lenders, thus increasing transaction friction and potentially pricing some buyers out of the market altogether.”
Stork also questioned whether condo underwriting and project rules are becoming disproportionately strict relative to actual loan performance.
“If condo loan performance is comparable to, or in some cases better than, single-family, are we calibrating policy appropriately?” he asked.
Fannie Mae’s letter states that underfunded reserves correlate with critical repairs, and that those conditions can create borrower hardship and default risk.
Stork later posed the issue to his peers on LinkedIn: “Is this about improving data quality, or are we introducing new costs that ultimately fall on the borrower?”
Bottom Line For Originators
Valins suggested the changes could push more condo borrowers outside standard agency eligibility, potentially creating new opportunities for lenders with alternative products. “The reality is we’ve navigated through these types of changes before and we’ll do it again,” he wrote. “With agency guidelines tightening, Non-QM and portfolio products will pick up share.”
