Considering the Fannie Mae and Freddie Mac reserve study requirements
HOA Detective™ | October 6, 2026: The Fannie Mae and Freddie Mac lending changes discussed last week raise a question that deserves considerably more attention:
What qualifies as a credible reserve study?
Requiring an association to contribute more money to reserves can improve its finances. It cannot establish whether the forecast guiding those contributions is complete, realistic, or objective.
The new requirement for a minimum of 15 percent of annual revenue allocated to reserve funding risks delivering a reassuring message that closer analysis cannot support. Moving forward, we expect many buyers, boards, and other HOA stakeholders to proclaim:
“The Association’s reserve funding passes the Fannie Mae minimum funding test of 15%, so we’re all good here.”
The real-world reality is that depending on the subject property and the replacement obligations, 15 percent of assessment income could still be irresponsibly low.
A hypothetical association collecting $1 million in assessment income would allocate $150,000 under a 15 percent test. If a credible, property-specific analysis establishes that it needs $300,000 annually, the apparently compliant Association is left with a $150,000 annual funding deficit at the time of qualifying, an even larger deficit if the 15% standard is used to determine the funding moving forward.
CIDAnalytics internal data confirms that 43 of the largest high-rise condominiums in Portland, Oregon were recently found to be allocating 23% of annual revenues to reserve funding while the average percent of fully funded level of these same Associations was found to be ~30%.
This one fact alone suggests that for high-rise condominiums, 15% of annual revenue is far less than what should be considered a minimum acceptable funding level.
Bottom Line: Raising the old 10% minimum to 15% does not make an inadequate reserve contribution adequate.
Qualifying the Qualifiers: If mortgage eligibility is going to depend on a reserve study, the reliability of that document should become a matter of significant importance for buyers, sellers, and lenders. Before celebrating tougher funding requirements, we should examine the analytical foundation supporting them.
Fannie Mae’s March 18, 2026 announcements introduced changes with different effective dates for underwriting standards pertaining to condominium mortgages:
- For applications dated August 3, 2026, onward, Fannie Mae retired Limited Review and Freddie Mac retired Streamlined Review, subject to other available review pathways and exemptions.
- The reserve allocation as a percentage of revenue has been increased from 10 percent to 15 percent of annual budgeted assessment income for applicable loan applications beginning January 4, 2027. [1]
- When using the reserve-study alternative to the percentage funding test, lenders must verify that the budget includes the reserve study provider’s highest recommended reserve allocation (funding).
- Baseline funding, which allows the projected cash balance to approach zero, cannot be the basis supporting an alternative funding plan.
That distinction matters. Fifteen percent is a contribution test, not a finding that reserves are adequate for a particular property.
Nor does rejecting baseline funding automatically require every association to maintain reserves at 100 percent funded. A funding label cannot tell an underwriter whether the forecast captures the building’s actual obligations.
Fannie Mae Criteria Requires Validation: Fannie Mae requires an independent reserve-study provider with relevant expertise, analysis of major components and their condition, estimates of remaining life and costs, a funding plan accounting for existing reserves and inflation, and compliance with state requirements. Yet it accepts a study or update completed as much as three years before project approval.
From an analytical point of view, a three-year-old reserve study qualifies as yesterday’s news. Left untouched for three years, a reserve study is only slightly better than no study at all when it comes to evaluating current funding needs.
This three-year pass perpetuates the false narrative that annual updates of the reserve study are unnecessary – I can hear the argument already:
“If Fannie Mae only requires a reserve study less than 3 years old, why should we update the study every year?”
Bottom Line: A useful reserve study must be updated every year to reflect actual spending, current balances, revised costs, and changing conditions – otherwise, the reserve study is a myth. The Fannie Mae requirements represent a minimum funding requirement, not an all-knowing expert opinion.
Importance of the Annual Update: A credible reserve study must reconcile the beginning balance with current financial records and explain changes from earlier forecasts. If an expensive component disappears from the current funding view due to replacement or renewal, the new replacement date moves forward, perhaps beyond the current planning horizon, while a new, more urgent expense moves closer to the current date.
If an asset replacement cost declines substantially, or increases dramatically, the analysis must be revised to explain the changes.
Repeated updates should provide a record of what the provider has learned by monitoring the condition of the subject property over time. Meanwhile, the funding recommendation itself deserves examination:
- If the lender must use the highest recommendation presented, what happens when the provider presents only one funding model?
- Or what happens when the study includes multiple funding models, but no explanation as to which model is the reserve expert’s recommended funding strategy?
Can the provider framework carry the burden? After the collapse of the Champlain Tower South in 2021, a prominent West Coast structural engineer commented to the Detective that if states suddenly started to require structural inspections of large buildings as a matter of law, there would not be enough qualified experts to do the work – especially after taking into account the number of otherwise qualified practitioners who would simply refuse to provide such services, because the client is a homeowner association.
This last point was well taken, as over the years, HOAs have earned a reputation as notoriously difficult clients to deal with.
The same conundrum confronts the current reserve-study provider network as a result of the new Fannie Mae requirements.
The Industry Must ask the Serious Question: Are there enough truly qualified providers capable of delivering the high-quality, reliable, objective reserve spending analysis to satisfy the mortgage underwriters’ requirements? Especially at a scale previously unheard of?
CAI Reserve Study Standards®: The Community Associations Institute (CAI) 2023 Reserve Study Standards (RSS®) deserve careful scrutiny as well [2]:
- The RSS® describe a reserve study as a “budget-planning evaluation” and exclude structural or safety evaluations and destructive testing from its ordinary scope.
- They also recognize updates without site visits,
- Reliance on client information, and
- Reserve balances that have not been audited.
- Separate inspections and specialist input may therefore be essential.
These limitations do not necessarily make a properly scoped study useless. They make it dangerous to treat that study as proof that the building is sound or that every important liability has been investigated.
An underwriter needs to understand what the reserve study provider actually examined, what is unknown, and what criteria were used to develop the reserve funding forecast.
Provider Objectivity Also Needs Scrutiny: A long-standing relationship with an association can preserve valuable knowledge. It can also discourage challenges to familiar assumptions. Where the provider sells related services or benefits from ongoing revenue-generating opportunities by providing down-line services to the Reserve study client, the lender should examine those relationships as part of the lender’s own due diligence.
Disclosure is useful; it does not resolve every conflict. Having a reserve study provider acknowledge that an entangled client relationship exists does not absolve the provider from potential conflict of interest charges. Lenders who do not address this issue are guilty of being lazy at the very least, and potentially negligent in the worst-case scenario.
Professional credentials can help identify relevant expertise, but a designation cannot validate every estimate in every report. State oversight exists in few jurisdictions: Nevada, for example, administers a reserve-study specialist registration process, but the requirements for education, testing, or state oversight for reserve-study practitioners in Nevada are negligible. [3]
The March lending changes do not create a nationwide provider licensing system, compulsory independent peer review, or a published test of forecasting accuracy.
As scrutiny expands, policymakers should demonstrate that adequate preparation and review capacity exists. How much time is available to investigate each property? Who checks a study assembled from earlier reports? Technology may lead to faster production and an increase in the volume of reserve studies while leaving the question of reliability unresolved.
The Unresolved PUD Question: If we are going to raise the bar for condominium associations, we must ask two important questions:
- Are planned unit developments (PUDs) with attached housing going to be ignored by underwriters?
- Or will PUDs face the same reserve criteria as condominium associations?
Under Fannie Mae’s current guide, project review is generally waived for units in new and established PUDs, with specified manufactured-housing exceptions. Attaching the homes does not, by itself, trigger a condominium Full Review. [4]
In theory, a legally created condominium must follow condominium underwriting rules, while the same property plated as a PUD rather than a condominium is not subjected to the new condo underwriting requirements.
Freddie Mac’s March bulletin likewise announces the enhanced reserve requirements under its condominium provisions. It separately addresses PUDs in the insurance changes.
Freddie Mac does not extend the condominium reserve test wholesale to attached PUDs.
Consider two otherwise comparable attached communities. In each, the association might be responsible for roofs, exterior walls, drainage, or private infrastructure. One is organized as a condominium; the other as a PUD. Their documents can allocate responsibilities differently, but the physical assets still deteriorate. An owner’s separate title to a lot does not explain how a shared replacement obligation will be funded.
That is a serious policy gap. PUDs are not wholly outside mortgage underwriting, but association-level capital risk can receive materially different scrutiny when the property is a condominium vs. a PUD.
Conclusions:
The recent underwriting changes represent more lending requirements without sufficient validation. Are the Fannie/Freddie actions simply more of the same, piled higher and deeper? There is a legitimate reason for mortgage purchasers to examine shared financial obligations in the common interest development setting. An unexpected assessment can strain the borrower’s ability to repay a mortgage and complicate sales in the future. The Association with a current reserve study and adequately funded reserves is simply a better investment for everyone involved: lender, buyer, and secondary mortgage market investor.
Notes
1. Fannie Mae, “Updates to Project Standards & Property Insurance Requirements,” Lender Letter LL-2026-03, March 18, 2026, 3, https://singlefamily.fanniemae.com/media/44986/display; Freddie Mac, “Selling and Servicing Updates,” Guide Bulletin 2026-C, March 18, 2026, 2–3, https://guide.freddiemac.com/app/guide/bulletin/2026-C. The Freddie Mac bulletin is also available in the official PDF compilation at https://guide.freddiemac.com/ci/okcsFattach/get/1010547_3, PDF pages 19–21. For the assessment-income denominator and permitted exclusions, see Fannie Mae, Selling Guide, September 2, 2026, B4-2.2-01, “Full Review Process,” 674, https://selling-guide.fanniemae.com/sel/b4-2.2-01/full-review-process.
2. Community Associations Institute, Reserve Study Standards (July 2023), 10, 16–17, https://www.caionline.org/getmedia/688ad625-5fa7-40c4-a1cb-5db1d60133b9/CAI-Reserve-Study-Standards-July-2023-FINAL.pdf.
Public copy consulted: https://eaglespringsga.net/images/updates/CAI-Reserve-Study-Standards-July-2023-FINAL.pdf The standards distinguish baseline, threshold, and full funding goals. Rejecting baseline funding does not itself require full funding.
3. Nevada Real Estate Division, “Reserve Study Specialist Application,” Form 644, revised August 1, 2025, 1–3, https://red.nv.gov/uploadedFiles/rednvgov/Content/Forms/644.pdf . On the scope of the March changes, see Fannie Mae, Lender Letter LL-2026-03, 2–3, and Freddie Mac, Guide Bulletin 2026-C, 1–3.
4. Fannie Mae, Selling Guide, September 2, 2026, B4-2.2-01, “Full Review Process,” 674–75, https://singlefamily.fanniemae.com/media/document/pdf/selling-guide-september-2-2026
