What Southern California associations need to do now to keep their owners able to buy, sell, and refinance.
I work with buyers, sellers, and owners refinancing in condominium communities across Southern California, and I keep watching the same thing happen. A loan gets to underwriting, everything about the borrower is fine, and then the project review comes back and the deal stops over something the association could have handled easily if anyone had told them it mattered.
Usually it is a missing document for work that was already finished, a reserve number that no longer clears, or an insurance deductible nobody thought about.
Boards are volunteers. Nobody signs up to track secondary market guidelines. So I pulled the current requirements together in plain language, with the dates, and checked every figure against the Fannie Mae and Freddie Mac source documents and the California Civil Code.
So nobody applies the wrong rule to the wrong loan.
A project level problem is not one owner's problem. It stops everyone.
When Fannie Mae flags a project Unavailable, or Freddie Mac flags it Not Eligible, that status blocks every lender selling to that agency, not just the one who raised it.
In my experience the first sign is an owner twenty days from closing a sale, or a buyer's financing falling apart in underwriting.
In the cases I have worked, the repair was done. What was missing was proof it was completed, and that is far cheaper to create the week the job ends than two years later.
Each change has its own effective date, measured by loan application date.
Master insurance rework. Per unit deductible capped at $50,000. A unit owner policy is required whenever the master policy carries a per unit deductible.
Limited Review and Streamlined Review retired. When a reserve study is used instead of the percentage test, baseline funding is no longer accepted and the budget must fund the study's highest recommendation.
Replacement reserves rise from 10% to 15% of annual budgeted assessment income. Both Fannie Mae and Freddie Mac.
The short review path both agencies offered ended August 3, 2026.
Both were shorter reviews for lower loan to value loans that looked mainly at insurance and the ineligible project screen.
For loan applications dated on or after January 4, 2027.
Annual budgeted replacement reserve allocation divided by annual budgeted assessment income. The denominator leaves out special assessment income, income already allocated to reserves, utility income normally paid by individual owners, and incidental income the project does not rely on for operations.
"Since then, we have seen a correlation between condo projects with underfunded reserves for capital expenditures and those in need of critical repairs."
Fannie Mae Lender Letter LL-2026-03, March 18, 2026
In effect since August 3, 2026. It only matters if the budget does not hit the percentage.
A lender can use a reserve study instead of the percentage test. A board whose budget is under the required percentage can still clear the review by producing a study that shows reserves are adequate.
If your budget already hits 10% today, or 15% after January 4, the study rules on the right do not come into play for the agency review. They only apply when the study is the alternative.
The $50,000 per unit cap took effect July 1, 2026. The rest was effective immediately in March.
On the master policy for required perils. Above this, units are not eligible for Fannie Mae or Freddie Mac financing.
Measured as a percentage of the master policy building coverage amount.
Required for the master policy, with one exception. Roofs must be insured but may be on an actual cash value basis.
An association can be fully Davis-Stirling compliant and still fail a lender's review.
Civil Code 5551, for buildings with three or more attached units.
Visual inspection of a random, statistically significant sample of exterior elevated elements, by a licensed structural engineer, civil engineer, or architect. The first deadline was January 1, 2025.
The report must be stamped or signed, presented to the board, and incorporated into the reserve study required by Civil Code 5550. The two documents are legally linked.
Reports are kept for two inspection cycles. Separately, if any structural or mechanical inspection was completed within three years of a lender's review, the lender must obtain and review it.
Since January 1, 2026, sellers must provide prospective buyers a copy of the most recent SB 326 report, under Civil Code 4525. It is now a disclosure document, not just an association record.
Fannie Mae full review, still tested on every loan.
Maximum share of units 60 or more days past due. Regular assessments and each special assessment are tested separately.
Maximum share of total square footage used for non-residential purposes, tested at project and building level.
For projects of 21 or more units. Projects of 5 to 20 units are capped at two units held by one entity.
Unfunded repairs above this per unit due within 12 months count as critical. Work funded by a special assessment, or done by the owner, is excluded.
This is where most projects get stuck.
The lender must review "an engineer's report or substantially similar document" to determine that the repairs completed have resolved the concerns.
Substantially similar is the phrase that matters, and what qualifies is the lender's judgment. In my experience, a signed completion report from the repair contractor that lists each location and confirms the work is finished has been accepted. A new engineering report has not been automatically required. Acceptance varies by lender.
Not everything got harder.
The waiver of project review now covers projects with ten or fewer units, provided a five to ten unit project is not part of a master association. The reserve, delinquency, and ownership tests fall away. Insurance rules still apply, the project still cannot be flagged, and Freddie Mac still requires no critical repairs.
Fannie Mae retired its 50% investor concentration limit for established projects. Freddie Mac retired its owner occupancy requirement for established projects. A rental heavy community is no longer blocked on that basis alone.
Under the rules, a repair funded by an approved special assessment is not counted as an unfunded critical repair. Funding the work properly is exactly what the agencies want to see.
And the free tool most boards have never heard of.
Loans on units in a project with this status are ineligible for purchase, even when the project review would otherwise be waived.
The same effect, project wide. An authorized HOA representative who has been given the reasons can submit a Not Eligible Status Data Form to appeal.
Fannie Mae and Freddie Mac let the lender review the project on each loan. VA does not, and FHA does so only through a limited Single-Unit Approval. Otherwise a unit is only eligible if the project is already on that agency's approved list, and getting on the list is something the association, or a lender working with it, has to do.
| Fannie Mae / Freddie Mac | FHA | VA | |
|---|---|---|---|
| How the project is reviewed | By the lender, loan by loan, under a full review | Project on HUD's approved list, or a lender single-unit approval | Project on VA's approved list. No single-unit option |
| Owner occupancy | No test for established projects, retired in 2026 | 50% for project approval, 35% to 50% with conditions | No published percentage |
| Reserves | 10% of annual budgeted assessment income, 15% from January 4, 2027, or a reserve study under the new rules | 10% of twelve months of assessments, less if a current reserve study supports it | "Adequate," no percentage |
| Delinquency | 15% of units 60 or more days past due | 15% of units more than 60 days past due | No published percentage |
| Commercial space | 35% of square footage | 35%, up to 49% by exception | No cap, considered in value |
| Structural and critical repairs | Critical repairs rule. Engineer's report or substantially similar document. Inspections from the last three years must be reviewed | No critical repairs rule by that name. Pending litigation naming the project sponsor over safety, structural soundness, habitability, or functional use disqualifies, as does other litigation not covered by insurance | No written standard for existing resale projects. Handled through the appraisal |
| Changed in 2024 to 2026 | Yes, three effective dates above | No threshold changes. Site condominium definition clarified in 2024; procedural edits in the August 12, 2026 update | No change. Chapter 16 is unrevised since 2003 |
One list is housekeeping. The other has a January deadline.
Upload the documents every lender is going to ask for. I will read them the way an underwriter reads them and send back a plain language summary of where the association stands against the current Fannie Mae and Freddie Mac requirements, what would likely come back as a condition on a loan, and what to fix first.
A written summary of where the association stands, what a lender would likely condition, and a short list of what to fix first, in the order that matters.
Nothing is submitted anywhere. It stays between the association and me. Documents are not sent to Fannie Mae, Freddie Mac, or any lender.
Prefer email? Send everything to tim.hardin@nafinc.com or call (949) 374-1833. I will turn it around before your next board meeting.