Fannie Mae recently announced a new policy requiring associations to allocate at least 15% of their annual budget to reserve funds. This five percent increase from the previous long standing policy of a 10% reserve is a big change and will be a nationwide requirement to qualify for Fannie Mae backed mortgages beginning January 1st 2027.
Keeping Fees Low for this Long Came at a Cost
For years, associations underfunded their reserves to keep monthly fees low and their buildings attractive to prospective buyers. While prioritizing affordability over long-term planning is a short-term achievement, the long-term outcomes can go from bad to worse.
Deferred maintenance, aging infrastructure, and larger repair costs become inevitable in best-case scenarios, but in worst-case scenarios like the tragic Champlain Tower collapse in Surfside, Florida, in June of 2021, everything changed. Since that time, having legitimate condo guidelines, real budgets, reserves, and keeping up with maintenance was on everyone’s radars, including mortgage lenders, insurance companies, and even the state of Florida itself, which created a new law. Regulations in Florida were put in place to mandate more frequent condo inspections temporarily in 2021, and then permanently in 2023.
Since then, condo buyers have faced increasingly strict lending requirements introduced by Fannie Mae and Freddie Mac, aimed at protecting both consumers and lenders from properties with structural issues. Key factors now include identifying significant deferred maintenance, ensuring any critical repairs are completed, and verifying that condo associations can fund necessary work through reserves or special assessments. Additionally, stricter insurance guidelines cap deductibles at 5% of total coverage, which has led to more financing denials as insurers shift costs to unit owners. This most recent change to a 15% reserve requirement increases the cost even more to condo owners.
As all of this has gone on since 2021, condo fees have increased, and special assessments have been put in place all over America. This has caused many condo owners to sell, which has increased inventory and lowered condo prices all over the country, and especially in Florida. Over the last year, things have finally calmed down, and condo values have finally begun to find a new equilibrium. This increased reserve requirement will undoubtedly increase fees and special assessments in order for many condo associations to build reserves up to 15% by January 2027 as required. If they don’t, then their values eventually decrease even more due to buyers not being able to obtain Fannie Mae and Freddie Mac-backed mortgages.
The post Fannie Mae Raises the Reserve Requirement for Condos first appeared on Lamacchia Realty.