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 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).
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;
project marketing plans;
environmental hazard 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.
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.
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.
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
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:
|New condo project||A project for which one or more of the following
|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.
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||
|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
|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 A2-1-01, Contractual Obligations for Sellers/Servicers, for additional information.
|Multi-width manufactured home in an established condo project||Full Review|
||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)|
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
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.
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 applicable provisions in Chapter B7-4, Liability and Fidelity/Crime Insurance Requirements for Project Developments).
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.
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 Unit
Used to identify detached units in an attached or detached condominium 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.
Project reviews must meet the following timeline requirements.
|Project Review Process Employed||Expiration of Project Review|
||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).
The table below provides references to the Announcements that have been issued that are related to this topic.
|Announcement SEL-2018-07||September 04, 2018|
|Announcement SEL-2018-06||August 07, 2018|
|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|