The new Fannie Mae and Freddie Mac condo rules, and what they mean in LA

Fannie Mae and Freddie Mac stand behind roughly half the mortgages written in this country, so their rules are not really guidelines — they decide which buildings are financeable and which are not. In March they rewrote the condo rules, and the most significant change took effect on 3 August.

Some of it helps buyers. Some of it will cost owners money. And one part of it lands hardest on exactly the kind of small, older building that Los Angeles has more of than almost anywhere else.

Where this came from

All of it traces back to Surfside. When Champlain Towers South collapsed in 2021 and killed 98 people, investigators found a building that needed major structural work and an association without the reserves to pay for it. Fannie and Freddie responded by requiring structural and financial disclosure, and by making lenders verify that deferred maintenance had actually been addressed.

Those 2021 rules were written quickly. Five years of using them showed which parts caught real risk and which parts only created paperwork. The 2026 changes relax the second kind and tighten the first.

What actually changed

Limited Review is gone. Until August, a buyer putting down 25% or more could often use a lighter review with less documentation. That option no longer exists. Established projects now go through a Full Review or qualify for a waiver — there is no middle path. Freddie Mac retired its equivalent, Streamlined Review, on the same day.

Small buildings can skip the review entirely. Projects of ten units or fewer now qualify for a Waiver of Project Review. There is a catch worth knowing: buildings of five to ten units must not be part of a master association or a larger development. Two-to-four-unit projects have no such restriction.

The investor cap is gone. Established projects previously had to be no more than 50% investor-owned for investor loans under a Full Review. That limit has been dropped with nothing replacing it, which should quietly rescue a number of buildings that were unfinanceable for reasons that had nothing to do with their condition.

Reserves go from 10% to 15%. This is the one that costs money, and it is the one still ahead of us.

The small-building waiver matters more here than almost anywhere

Of the LA condo buildings we track where the unit count is known, 38% have ten units or fewer — roughly 1,540 buildings. Another 350 are in the two-to-four-unit range. This is a city of boutique buildings, and a rule written about small projects is, in Los Angeles, a rule about a very large share of the market.

It is concentrated, too. Santa Monica alone accounts for more than 400 of those small buildings; West Hollywood has 130 and Pasadena 110. If you have been looking at a six-unit building in Santa Monica and the financing kept getting complicated, that specific problem is now materially easier.

A rule written about small projects is, in Los Angeles, a rule about more than a third of the market.

The reserve increase is the part to plan for

From 4 January, an association going through a Full Review must budget at least 15% of its annual income for reserves, up from 10%. An association can use a professional reserve study instead — but if it does, the lender must verify the budget includes the highest recommended allocation in that study, and the baseline funding method is no longer accepted at all. Those reserve-study rules already took effect on 3 August.

A 50% increase in required reserves is not a paperwork change. For an association currently setting aside 10%, meeting the new floor means either raising dues or cutting elsewhere, and there are only a few months to do it. The National Association of REALTORS® has raised exactly this concern about the timing, and the Community Associations Institute has asked for a one-year delay. As of this writing no delay has been granted.

The pressure will not fall evenly. It lands hardest on owners on fixed incomes, on buildings already absorbing steep insurance increases, and on associations that have kept dues low for years — which, uncomfortably, is often the same set of buildings.

What has not changed

Two things are worth stating plainly, because they get lost in coverage of what was relaxed.

• The post-Surfside safety rules are fully in force. A project in need of critical repairs, or under an evacuation order, remains ineligible. Nothing in the 2026 changes softens that.
• New and newly converted projects still need 50% presales. The investor cap that went away applied to established projects. If you are buying in new construction, the presale requirement is unchanged.

One correction worth making, because it circulates widely: Fannie Mae’s Condominium Project Manager is not a Fannie Mae seal of approval. It is a lender-facing tool where the lender enters the project data and certifies it themselves, and the lender keeps the representations and warranties. Only a project that has been through PERS carries an actual "Approved by Fannie Mae" status. An HOA that has been told it is "CPM approved" should understand what that does and does not mean.

If you are buying

Ask your lender early which review path the building falls under, because the answer now changes what documents the association has to produce and how long it takes. Ask the association two questions: what percentage of the budget currently goes to reserves, and whether there is a reserve study and how old it is. An association already at 15% has nothing to do in January. One at 10% with no study has a decision to make, and it may show up as a dues increase or a special assessment while you own the place.

It is also worth remembering that these are the floor, not the ceiling. Individual lenders apply their own overlays on top of agency rules, and two lenders can reach different answers on the same building. If the term warrantable comes up and you are not sure what it means for the building you are looking at, we have written that up separately.

If you own, or sit on a board

The January date is the one to work backwards from. An association that is under-reserved is not merely facing higher dues — it risks its own units becoming harder to finance, which shows up as fewer offers and a wider gap between asking and sale price. Reserve levels have always mattered to a building’s value. From January they are also a lending threshold.

This article is general information about published agency guidelines, not lending, legal or financial advice, and we are not lenders. Figures and dates are drawn from Fannie Mae Lender Letter LL-2026-03 and Freddie Mac Bulletin 2026-C, both dated 18 March 2026, and from the National Association of REALTORS® reporting on them. Guidelines change and individual lenders vary — confirm anything that affects a decision with your lender and your association.