Selling Guide

Published June 5, 2018



Fannie Mae’s Project Risk Overview

The quality of mortgages secured by units in condo, co-op, and planned unit development (PUD) projects can be influenced by certain characteristics of the project or by the project as a whole. Before delivering a loan secured by an individual unit in a project, the lender must determine that the project meets Fannie Mae's eligibility requirements.

Project eligibility risk is a risk that is distinct from the credit risk presented by individual borrowers. Units located in a project present risks that are also distinct from the risks associated with properties that are not part of a homeowners’ association (HOA) or project. These risks include the following:

  • the financial stability and viability of the project;

  • the condition and marketability of the project;

  • limitations on the unit owner’s ability to control the decision-making for the project, occupy the unit, or utilize the project’s amenities and common elements;

  • dissolution of the project and the unit owner’s resulting rights and responsibilities;

  • project-level litigation;

  • project-level misrepresentation and fraud;

  • the inability to cure a mortgage default due to restrictions in the project documents such as, but not limited to, right of first refusal provisions; and

  • insurance coverage that is inadequate to protect the project from unexpected losses.

Project eligibility and financial strength are key drivers of credit performance on individual unit mortgages and critical to the long-term success of the project. Fannie Mae’s project eligibility and underwriting requirements seek to mitigate project level risks and to ensure that projects are demonstrably well-managed.

Lenders that sell mortgage loans secured by units in a condo, co-op, or PUD project to Fannie Mae are expected to have staff that are knowledgeable about and qualified to evaluate the specific risks presented by these types of projects. The project review is in addition to the review the lender completes for underwriting the borrower, the transaction terms, and the individual unit appraisal.

Fannie Mae’s project standards requirements are intended to address common project types across a broad geographic range. If a lender determines that a project does not meet all of Fannie Mae’s project eligibility criteria, but feels that the project has merit and warrants additional consideration, the lender may request an exception (see B4-2.2-07, Projects with Special Considerations and Project Eligibility Waivers, for additional information).

Project Documentation

The documentation needed to complete a project review may differ depending on the project and review type. Lenders are responsible for determining the documentation needed to ensure that the project meets all of Fannie Mae’s eligibility requirements. Project documentation may include, but is not limited to, the following:

  • legal and recorded documents including the covenants, conditions and restrictions, declaration of condominium, or other similar documents that establish the legal structure of the project;

  • project budgets, financial statements, and reserve studies;

  • project construction plans;

  • architects’ or engineers’ reports;

  • completion reports;

  • project marketing plans;

  • environmental hazard reports;

  • attorney opinions;

  • appraisal reports;

  • evidence of insurance policies and related documentation; and

  • condominium project questionnaires.

Sources for project information include, but are not limited to, appraisers, HOAs, co-op corporations, management companies, real estate brokers, insurance professionals, and project developers. Lenders are responsible for the accuracy of any information obtained from these sources.

Document Retention

Lenders must retain all of the project documentation needed to demonstrate that the project meets Fannie Mae’s eligibility requirements, including any documentation the lender relied upon to enter information into CPM. This documentation must be retained, and made available upon request, as long as lenders originate mortgages from the project, and until all mortgages sold to Fannie Mae have been liquidated.

Condominium Project Questionnaires

Fannie Mae provides two Condominium Project Questionnaires that will help lenders collect data to determine condo project eligibility. The forms are posted on Fannie Mae’s website:

  • Condominium Project Questionnaire—Full Form (Form 1076) contains a list of eligibility questions to support a Full Review, and

  • Condominium Project Questionnaire—Short Form (Form 1077) contains a shorter list of questions to facilitate a Limited Review.

The use of these forms is optional. However, lenders are encouraged to use and retain the applicable questionnaire.

Project Types

The scope of Fannie Mae’s requirements and the specific eligibility criteria to be met are dependent upon various project types and/or loan level characteristics. The characteristics that define each project type are described in the following table.

Project Type Identification Criteria
Established condo project A project for which all of the following are true:
  • at least 90% of the total units in the project have been conveyed to unit purchasers;

  • the project is 100% complete, including all units and common elements;

  • the project is not subject to additional phasing or annexation; and

  • control of the HOA has been turned over to the unit owners.

A project may also be treated as an established project with less than 90% of the units sold to unit purchasers, provided the deficit is the result of the developer holding back units for rent. The following requirements must be met:

  • construction is 100% complete;

  • the project is not subject to any additional phasing or annexation, and the HOA has been turned over to the unit owners;

  • the developer’s share of the units held back for rental is no more than 20% of the project’s total units;

  • HOA fees are paid current in developer-held units; and

  • there are no active or pending special assessments in the project.

New condo project A project for which one or more of the following is true:
  • fewer than 90% of the total units in the project have been conveyed to unit purchasers (or 80% if it meets the exception noted in the row above);

  • the project is not fully completed, such as proposed construction, new construction, or the proposed or incomplete conversion of an existing building to a condo;

  • the project is newly converted;

  • the project is subject to additional phasing or annexation; or

  • HOA still in the developers control.

Detached condo project A project comprised solely of detached units or that comprises a mixture of attached and detached units and may be a new or established project.
Two- to four-unit condo project A project comprised of two, three, or four residential units in which each unit is evidenced by its own title and deed. A two- to four-unit condo project may be either a new or established project and may be comprised of attached and/or detached units.
Manufactured home project A project consisting partially or solely of manufactured homes.
Co-op project A project in which a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.
Planned unit development (PUD) project A project or subdivision that consists of common property and improvements that are owned and maintained by an HOA for the benefit and use of the individual PUD unit owners.

See B4-2.3-01, Eligibility Requirements for Units in PUD Projects, for additional detail used in determining whether a project is subject to Fannie Mae’s PUD eligibility requirements.

Project Review Methods

Fannie Mae purchases or securitizes mortgage loans secured by units in condo, co-op, and PUD projects that meet Fannie Mae's eligibility requirements. To determine whether the project meets these requirements, a number of project review methods are available. Whether a project review method is allowable or required depends on

  • the number of units in the project (two- to -four or more than four);

  • the unit type (attached or detached);

  • the project type (condo, co-op, or PUD);

  • the project status (new or established); and

  • the mortgage transaction.

The characteristics that dictate which method to use are shown in the following table.

Unit and Project Type Project Review Methods
Attached condo unit in a new or newly converted project
  • Full Review (completed with or without using Condo Project Manager (CPM), or

  • Fannie Mae Review through the standard Project Eligibility Review Service (PERS) process

Attached condo unit in an established project Based on the LTV, CLTV, and HCLTV ratios, occupancy, and location (projects in Florida), these projects may be reviewed using a Limited Review.

Projects not meeting the Limited Review criteria must be reviewed using a

  • Full Review (with or without CPM),

  • FHA Project Approval (HUD Review and Approval Process only), or

  • Fannie Mae Review through the streamlined PERS process (for established condo projects)

Unit in a new or established two- to four-unit condo project

Project review is waived, with the exception of some basic requirements that apply.

Detached unit in a new or established condo project
  • Project review is waived, with the exception of some basic requirements that may apply.

Unit in a co-op project Full Review

Note: Lenders must obtain special approval to be eligible to deliver co-op share loans to Fannie Mae secured by ownership interest in a co-op share project. See A1-1-01, Application and Approval of Seller/Servicer, for additional information.

Multi-width manufactured home in an established condo project Full Review
  • New condo projects consisting of manufactured homes

  • Established condo or PUD projects consisting of manufactured homes that are subject to a community land trust, deed restriction, leasehold estate, or shared equity arrangement

  • Co-op projects consisting of manufactured homes

  • PUD and condo projects consisting of single-wide manufactured homes

  • Newly converted non-gut rehabilitation condo and co-op projects (with attached units) that contain more than four units

  • New or newly converted condo projects consisting of attached units located in Florida

  • Limited or shared equity co-op projects, provided the limited or shared equity provisions are designed to preserve or promote access to affordable housing

Fannie Mae Review through the standard PERS process
Unit in a PUD project Project review is waived, with the exception of some basic requirements that apply
Unit in a condo project approved by the FHA FHA Project Approval (see B4-2.2-05, FHA-Approved Condo Review Eligibility for additional details)

Waiver of Project Review

Fannie Mae does not require a thorough project review for several types of projects or loan transactions, including:

  • detached condo units;

  • units in a two- to -four unit condo project;

  • units in a PUD project;

  • Fannie Mae to Fannie Mae limited cash-out refinances with LTV ratios < 80%; and

  • DU Refi Plus and Refi Plus loans secured by a property in a condo, co-op, or PUD project.

See B4-2.1-02, Waiver of Project Review for additional information and for the requirements that apply when a project review is waived.

Requirements Applicable to All Properties in a Condo, Co-op, or PUD Project

All mortgages secured by units in condo, co-op, or PUD projects must comply with the following:

  • requirements specific to the project review method used to determine that project’s eligibility;

  • property eligibility requirements (described in Chapter B2-3, Property Eligibility);

  • priority of common expense assessments (described below);

  • when an appraisal of the property is obtained, it must meet all applicable appraisal requirements (described in Chapter B4-1, Appraisal Requirements); and

  • insurance requirements (described in Subpart B7, Insurance, including all provisions applicable to projects in Subpart B7-4, Additional Project Insurance).

Priority of Common Expense Assessments

Fannie Mae allows a limited amount of regular common expense assessments (typically known as HOA fees) to have priority over Fannie Mae’s mortgage lien for mortgage loans secured by units in a condo or PUD project. This applies if the condo or PUD project is located in a jurisdiction that has enacted

  • the Uniform Condominium Act,

  • the Uniform Common Interest Ownership Act, or

  • a similar statue that provides for unpaid assessments to have priority over first mortgage liens.

The table below describes the permitted priority of common expense assessments for purposes of determining the eligibility of a mortgage loan secured by a unit in a condo or PUD project for purchase by Fannie Mae.

If the condo or PUD project... Then...
is located in a jurisdiction that enacted a law on or before January 14, 2014, that provides that regular common expense assessments will have priority over Fannie Mae’s mortgage lien for a maximum amount greater than six months, the maximum number of months of regular common expense assessments permitted under the applicable jurisdiction’s law as of January 14, 2014, may have priority over Fannie Mae’s mortgage lien, provided that if the applicable jurisdiction’s law as of that date referenced an exception for Fannie Mae’s requirements, then no more than six months of regular common expense assessments may have priority over Fannie Mae’s mortgage lien.
is located in any other jurisdiction, no more than six months of regular common expense assessments may have priority over Fannie Mae’s mortgage lien, even if applicable law provides for a longer priority period.

Notwithstanding any provisions to the contrary in the Guide, which do not require the lender to represent or warrant compliance with Fannie Mae project legal document requirements, the condo or PUD project legal documents must evidence compliance with the above priority of common expense assessment requirements.

Delivery Requirements

When delivering a loan for a unit located in a project, the lender must provide the Project Type Code and any applicable special feature codes as shown in the following table. The lender must also report all other applicable special feature code(s), including those specified in the lender’s Master Agreement and in the Special Feature Codes document on Fannie Mae's website.

Project Type Code Description
E Established PUD project
F New PUD project
P Limited Review—New condo project
Q Limited Review—Established condo project
R Full Review (with or without CPM)—New condo project
S Full Review (with or without CPM)—Established condo project
T Fannie Mae review through PERS—Condo project that received a Final Project Approval through PERS using the standard or streamlined process
U FHA-approved condo project
V Condo project review waived - for certain project and transaction types
1 Full Review—Co-op project
2 Fannie Mae Review through PERS—Co-op project
Special Feature Code Description
588 Detached Condominium

Used to identify detached units in a condo project

296 Project Eligibility Waiver

Used to identify loans for which Fannie Mae has provided a loan-level waiver for a specific project eligibility requirement

Lenders are encouraged to include the condo or co-op’s HOA or Project IRS Federal Tax Identification Number (TIN) in the loan file and in CPM if CPM is used to review the project.

Expiration for Project Reviews

Project reviews must meet the following timeline requirements.

Project Review Process Employed Expiration of Project Review
  • Limited Review

  • Full Review (with or without CPM) for Established Projects

Must have been completed within one year prior to the note date
Full Review for New Projects Must have been completed within 180 days prior to the note date
Approved by Fannie Mae through PERS PERS approval must be valid (unexpired) as of the note date
Approved by FHA FHA approval must be valid (unexpired) as of the note date

Loans must be delivered to Fannie Mae within 120 days following the note date. When the elapsed time between note date and delivery date exceeds this limit, the lender may deliver the loan only if the project continues to meet Fannie Mae project eligibility requirements at the time of delivery.

Loans secured by units in a project that fails to meet Fannie Mae’s project eligibility requirements under the applicable review type as of the note date are eligible for delivery after the project comes into compliance with the eligibility requirements (provided all standard mortgage seasoning and other applicable requirements are met). For example, if a lender closes a loan in a new project for which the pre-sales are less than the pre-sale requirement, the lender may deliver the loan after the project’s pre-sales meet the Fannie Mae requirement (assuming the loan meets all other applicable requirements).

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2018-05 June 05, 2018
Announcement SEL-2018-01 January 30, 2018
Announcement SEL-2017-04 April 25, 2017
Announcement SEL-2017–01 January 31, 2017
Announcement SEL-2016–08 October 24, 2016
Announcement SEL-2016–04 May 31, 2016
Announcement SEL-2015–12 November 3, 2015
Announcement SEL-2015–06 May 26, 2015
Announcement SEL-2015–02 February 24, 2015
Announcement SEL-2014–13 November 10, 2014
Announcement SEL-2012–06 June 26, 2012
Announcement SEL-2011–06 July 26, 2011
Announcement SEL-2011–05 June 28, 2011
Announcement SEL-2011–01 January 27, 2011
Announcement SEL-2010–10 August 12, 2010
Announcement 09–37 December 30, 2009
Announcement 09–32 October 30, 2009
Announcement 08-34 December 16, 2008