Fannie Mae overhauls condo approvals, raises reserve requirements

Fannie Mae Overhauls Condo Approval Standards

Fannie Mae has begun enforcing a major overhaul of condo project approvals that eliminates the fast-track limited review for conventional financing. Under Lender Letter LL-2026-03, every project now undergoes a full review of budgets, reserves, delinquency and the building's financial health.

New York's older, densely packed co-op and condo stock makes this market one of the most exposed to new longer approval windows and frequent documentation requests.

The minimum required reserve allocation for capital expenditures and deferred maintenance will rise from 10 percent to 15 percent of income. This change applies to full review loan applications dated on or after January 4, 2027, according to the lender letter.

Fannie Mae is retiring the 50 percent cap on investor concentration in established projects under full review, but new and newly converted projects face stricter rules.

At least 50 percent of new project units must be conveyed or under contract to principal residence or second home buyers. Buildings with fewer than 10 units will not face the same review, up from the old threshold of four units.

Rising Fees Trap Condo Owners Nationwide

Many condo owners across America are discovering that rising homeowners association fees and costly special assessments can make their homes extremely difficult to sell right now.

Will Hudson, 43, a public employee, bought a two-bedroom condo in Golden, Colorado, sight unseen for $260,000 in July 2024. He now calls the purchase the greatest mistake of his life and says recurring water shutoffs left him wanting out.

His monthly homeowners association fee now stands at nearly $470, and he recently told MarketWatch that he feels completely trapped in his own current condo property.

Among pre-2000 condo buildings, 8.5 percent imposed a special assessment in 2025, with a typical bill near $2,500, Vantaca data show. Some 54 percent of community associations plan to raise fees to cover insurance and new reserve requirements taking effect in 2027.

National condo and co-op sales fell 2.7 percent year-over-year in August, according to the latest National Association of Realtors data. Condos now represent 15 percent of active inventory in the Mid-Atlantic region, up from less than 10 percent before the pandemic.

New York Development Pipeline Hits Decade Low

New York City recently counted its lowest number of new development units in over a decade, according to Marketproof data. From April to September, new development contracts fell 26 percent compared with last year, while resale condo contracts rose 12 percent.

At the end of August, Manhattan was left with just 2,800 units of new inventory, the lowest total since 2014, according to Corcoran Sunshine Marketing Group.

More than 1,000 new units are slated to come online by year's end, a 94 percent increase from last year. Corcoran Sunshine President Kelly Mack said this year's launches should serve as a true litmus test for the new development market.

From 2026 to 2029, Manhattan is expected to see an average of about 1,500 units come to market each year, roughly 16 percent below pre-2021 levels.

Only 43 units per year will come from condos with a blended price per square foot of $1,800 or less. Meanwhile, 123 units per year will come from condos asking over $5,000 per square foot, almost triple the previous 10-year average.