Leading Well-Run Boards is a weekly newsletter for volunteer board members and the managers who support them. Grounded in work with condos, co-ops, HOAs, and community associations, it examines issues that matter to volunteer-led boards of all kinds: fiduciary responsibility, financial and legal decisions, governance, planning, and people.
Communication underpins all of it — because it is often the resource boards most overlook and underestimate.
Monday, August 3, was not on most board members’ calendars. It should have been.
As of Monday, Fannie Mae and Freddie Mac retired their “fast-track” condominium-project review paths — known as Limited Review at Fannie Mae and Streamlined Review at Freddie Mac. Loan applications that previously qualified for accelerated project review may now require more-detailed documentation. There are limited exceptions, but borrowers, owners seeking to refinance, boards, and managers should expect the lender to determine which review path applies.
That means that lenders may ask more questions about the building’s finances, reserves, insurance, structural condition, repairs, assessments, and records. That also means boards and managers should expect more mortgage applications to require fuller project files.
Here is the part that makes this a board issue, not merely a lender issue: the association’s documentation is now under review, not just the buyer’s finances.
A sale or refinance can require a board’s budget, reserve study, insurance documents, engineering reports, and repair history in front of a lender. And, as this is a new process and new rules for everyone involved, the requests can come with great urgency and tight timeframes. Communities whose documentation is current and organized may make review more straightforward. If they are incomplete, inconsistent, or difficult to locate, the lender may need more information before it can decide whether the loan meets its requirements.
The new, more stringent rules are not meant to punish boards. They require lenders to take a more complete look at the condominium project that serves as collateral for the loan — including whether the community appears able to maintain the property and address the work ahead. A unit’s value and marketability are inseparable from the condition and financial health of the community around it.
The same Fannie Mae and Freddie Mac guidance made a second change that is less visible but may matter even more over time.
Lenders use several methods to evaluate whether a community association has adequate reserves to maintain its property. One of those methods is a capital reserve study. When lenders base their underwriting decisions on a reserve study, the association’s annual reserve contributions can no longer reflect the contributions for baseline funding — the study’s lowest funding path, designed to keep the reserve balance from falling below zero.
Instead, the association’s budget must include the reserve study’s highest recommended annual contribution, which may be nearer a full funding amount than a baseline funding amount.
In plain language: Fannie Mae and Freddie Mac have raised the bar when a lender uses a reserve study to evaluate a project’s reserves. Keeping the reserve balance above zero is no longer enough. The association’s budget must reflect the study’s highest recommended annual contribution for anticipated major repair and replacement work. Many reserve studies look 30 years ahead, although the new Fannie Mae and Freddie Mac rules do not prescribe a particular study period.
A reserve-funding plan designed to keep the reserve balance from falling below zero. Under the new Fannie Mae and Freddie Mac rules, it cannot be used when a lender relies on a reserve study to evaluate a project’s reserves.
The largest annual reserve contribution recommended in the association’s current reserve study. When a lender uses the reserve-study route, the association’s budget must meet or exceed this amount.
Beginning January 4, 2027, lenders will generally look for annual reserve contributions equal to at least 15% of the association’s annual budgeted assessment income for the applicable project-review process—up from 10%.
The August 3 rule is not the new 15% standard people have been discussing. That change comes later.
Starting January 4, 2027, Fannie Mae or Freddie Mac will generally look for associations to budget annual reserve contributions equal to at least 15% of annual budgeted assessment income. That is an increase from 10% today.
The 15% rule is not a one-size-fits-all test. In some circumstances, a current reserve study can show that a lower annual contribution still provides the funding the community needs. To rely on that flexibility, however, the study must have been completed or updated within the previous three years, and the association’s budget must meet or exceed its highest recommended annual contribution. A baseline-funding plan does not qualify.
So, if 15% of an association’s annual budgeted assessment income is $150,000, but a qualifying current reserve study’s highest recommended annual contribution is $100,000, the lender may be able to use the study in its project review even though a $100,000 contribution is below 15%.
But if that same $100,000 amount reflects a baseline-funding plan rather than the study’s highest recommended contribution, the association cannot use the reserve-study alternative for that purpose. The lender must still complete the rest of the applicable project and borrower review.
A board does not need to become a lender, reserve specialist, engineer, or attorney. It does need to be ready when one of those professionals needs information.
Start here:
Communication cannot turn an underfunded reserve account into a fully funded one. It cannot make a repair disappear or guarantee a mortgage approval.
It can ensure that owners do not learn about a consequential issue from a lender, a buyer, a rumor, or a failed sale. It can show that the board understands what has changed, is seeking the right advice, and has a process for moving forward.
This week’s question comes from Tim, who signed up for The Well-Run Building on Friday and promptly dove right into the discussion.
Welcome, Tim, and everyone else who joined this group!
Q:
Do associations need both an updated reserve study and a 15% annual reserve contribution?
A:
Not necessarily. Beginning January 4, 2027, a lender using Full Review will generally look for annual reserve funding equal to at least 15% of the association’s annual budgeted assessment income.
Boards and associations that believe 15% is excessive based on their financial situation can ask the lender to review a professional capital reserve study that’s been completed within the last three years to verify the contributions they are making meet or exceed the highest recommended contribution amount.
If the study’s highest recommended contribution is less than 15%, the lender may be able to use that professional study as the basis for evaluating the project’s reserves. That is not an automatic exception, however, and the lender must still complete the rest of the applicable project and borrower review.
Boards and associations should not assume that any contribution below 15% will qualify. They should ask the lender handling the loan, along with their community manager, reserve professional, and counsel, which project-review route applies and whether the adopted budget meets it.
Tomorrow, Tuesday, August 4, is National Night Out. It started in 1984 as a simple experiment — turn on your porch light, sit outside, meet your neighbors. Forty-plus years later, it happens in nearly every state, because a little visible, low-stakes connection does more for community trust than any formal announcement ever could.
If your building has a courtyard, a lobby, or even a decent stretch of sidewalk, it’s a built-in excuse to be visible to your owners about something other than a special assessment. It’s worth 30 minutes of each board member’s Tuesday.
It’s a chance to meet your neighbors when they’ve let their hair down. When no one has an agenda other than being social. It’s also an incredible way to get a pulse of what people are thinking. All you have to do is ask one or two questions and people start talking. “What’s your favorite part of living here?” “What would make you want to leave?” “What would you like us to continue doing?” Then, sit back and listen. Intently. Actively. Curiously.
I learned some people are genuine buttholes. I learned some people trigger my own inner butthole. But mostly, I learned that people’s complaints were often reasonable. There just wasn’t enough time to do everything. I had to prioritize, I could have done a better job of saying: “I see your point and totally agree. It’s reasonable. But here’s my situation: I don’t have the bandwidth to tackle that. If I ‘sponsor’ it, can you play nicely with the management office team to make that happen?”
We can’t avoid the rules that took effect today. The train’s already out of the station.
The challenge now is gathering the files and information, getting them organized so they’re at your fingertips and easy to drag and drop into an email.
And, you can take advantage of programs like The Well-Run Building to help your board and manager educate your owners about structural integrity, reserve funding requirements, and mortgage eligibility.
Because they aren’t going away, and we already know the pressure will be higher on January 4, 2027, when Fannie Mae and Freddie Mac’s 10% minimum increases to 15%.
Have a great week, and watch for the next edition of Leading Well-Run Boards.
Reserve funding is one part of a larger governance challenge. Structural integrity, mortgage eligibility, and the systems boards use to turn professional advice into decisions are increasingly connected.
Continue with long-form articles on reserve funding, special assessments, mortgage eligibility, and the decisions facing condominium and community association boards.
BoardOS connects the five systems every board relies on to turn professional expertise into sound decisions.
Board Consulting helps boards clarify decisions, responsibilities, priorities, and the systems needed to move difficult work forward.
