Selling Guide

Published August 29, 2017

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 B4-2.2-09, 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.

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 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 the 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.

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 the unit purchasers;

  • 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; or

  • the project is subject to additional phasing or annexation.

Site condo project A project comprised of detached units that meet the criteria described in B4-2.2-05, Requirements for Review of Site Condos. (Note that site condos are a type of detached condo.)
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 an 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 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,

including an attached unit in a condo project that includes a mixture of attached and detached units

  • 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,

including an attached unit in a condo project that includes a mixture of attached and detached units

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), or

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

Detached condo unit in a new or established project,

including a detached unit in a condo project that includes a mixture of attached and detached units

  • Limited Review,

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

  • No project review required for a detached condo unit that meets Fannie Mae’s criteria for site condos. See B4-2.2-05, Requirements for Review of Site Condos.

Note: There are no LTV ratio or occupancy restrictions for Limited Review eligibility for detached condo units.

Attached or detached unit (excluding site condos) in a new or established two- to four-unit condo project Based on the mortgage transaction and project characteristics, two- to four-unit condo 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), or

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

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.

  • Condo or co-op project that contains manufactured homes

  • PUD project that contains single-wide manufactured homes

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

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

Fannie Mae Review through the standard PERS process
Unit in a condo project approved by the FHA and that secures an FHA mortgage FHA Project Approval

A mortgage secured by a unit in a project that fails to meet any of the following requirements is not eligible for delivery to Fannie Mae:

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

  • appraisal requirements (described in B4-1.4-03, Condo Appraisal Requirements); or

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

For additional information on each project review type, see the following topics:

Waiver of Project Eligibility Review for Fannie Mae to Fannie Mae Limited Cash-Out Refinances

The project eligibility review is waived for all Fannie Mae-owned loans that are being refinanced as a limited cash-out refinance with the following conditions. Lenders must confirm

  • the loan-to-value ratio is no higher than 80% (CLTV or HCLTV ratios may be higher);

  • the project has the required project-related property and flood insurance coverage; and

  • the project is not a condo hotel or motel, houseboat project, or a timeshare or segmented ownership project.

Note: This waiver does not apply to co-op projects. See B4-2.1-02, Ineligible Projects, for additional information.

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—Condo project that received a Final Project Approval through PERS using the standard or streamlined process (including projects consisting of manufactured housing submitted under the standard process)
U FHA-approved condo project (applicable to FHA loans only)
V
  • DU Refi Plus and Refi Plus loans secured by a property in a condo project

  • Site condo loans delivered without a condo project review

  • Fannie Mae to Fannie Mae limited cash-out refinances without a condo project review

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 project eligibility waiver

235 Manufactured Home

Used to identify loans secured by a manufactured home

917 Site Condominium

Used to identify a unit in a condo project that meets Fannie Mae’s definition of a site condo

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. See Uniform Loan Delivery Dataset (ULDD) Quick Guide — Guidelines for Condominium/Cooperative Loans for additional requirements about the delivery of project data.

Document Retention for Project Eligibility

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.

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)

Note: If CPM is used to approve the project, a copy of the unexpired CPM certification must be included in the loan file.

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 secured by units in projects 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).

Condo, Co-op, and PUD Project Review Requirements for DU Refi Plus and Refi Plus Loans

The lender is not required to perform a review of condo projects, co-op projects, or PUDs for DU Refi Plus and Refi Plus loans. See B5-5.2-03, DU Refi Plus and Refi Plus Property Valuation and Project Standards, for additional information and 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-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