On March 18th, Fannie Mae issued Lender Letter LL-2026-03 (“Lending Letter”) updating condominium project lending standards and property insurance requirements. This update represents the largest evolution of lending standards impacting condominium associations since 2023. Each condominium association should review the complete Lending Letter to understand its implications for your community. The highlights are:
Master Insurance Policies and Roofs. Prior to the Lending Letter, master policies must have full replacement coverage for roofs and not actual cash value coverage. The availability of full replacement coverage for roofs became difficult for many communities. Recognizing such difficulties, the Lending Letter now allows for actual cash value coverage for roofs, which is effective immediately.
Master Insurance Policies and Deductibles. The maximum allowable per unit deductible under the master insurance policy cannot exceed $50,000.00.
Reserve Contributions and Studies. Effective January 4, 2027, the minimum amount of contribution to reserves is increasing from 10% of the annual budgeted income to 15%. In lieu of such contributions, an association can qualify by adhering to a reserve study.
While a reserve study option remains the budget must reflect the highest recommended reserve allocation as provided in the reserve study. This update eliminates the “baseline funding method” approach to determine if the budget is consistent with the reserve study.
Elimination of Investor Concentration Limits. Prior to the Lending Letter, a condominium community could not be eligible under Fannie Mae if more than 50% of the units within the project were owned by investors. This concentration limit has been eliminated effective immediately.
Overall, the Lending Letter represents a step in the right direction in light of conditions in the insurance marketplace and the overall need to ensure that communities are properly funding long-term reserves. Each community should consult with its legal attorney regarding particular questions or impacts of the Lending Letter.
