Fannie Mae and Freddie Mac Overhaul Insurance and Condo Project Rules
Fannie Mae and Freddie Mac issued coordinated updates on March 18, 2026 to their property insurance requirements and condominium project standards. The changes take effect immediately in most cases, with phased deadlines for others. Here is what mortgage lenders and servicers need to know.
The Insurance Changes (Effective Immediately)
Both agencies will now accept Actual Cash Value (ACV) coverage for roofs on single-family homes, condos, and project developments. Full Replacement Cost Value (RCV) is still required for the rest of the structure, but the prior requirement to insure roofs on a replacement cost basis is gone.
Additional insurance updates include:
The documentation requirements for verifying replacement cost value on one-to-four unit properties have been retired
The inflation guard coverage requirement for project developments has been retired
The maximum per unit deductible on master property insurance policies for project developments is now capped at $50,000
The maximum deductible for individual unit owners policies is the greater of 5% of the coverage amount or $2,500
For condo borrowers, a unit owners policy is required when any portion of the unit interior is not covered by the master policy, or when the master policy carries a per unit deductible.
The Condo Project Standards Changes
Fannie Mae's Lender Letter LL-2026-03 and Freddie Mac's Bulletin 2026-C make several structural changes to how condo projects are reviewed, though the specifics differ between the two agencies.
Both agencies are making the following changes:
Waiver of Project Review / Exempt from Review is now available for projects with ten or fewer units
PERS review / Fannie Mae CPM approval for new or newly converted attached-unit condo projects in Florida has been retired; these projects now go through standard lender-delegated Full Review
Streamlined / Limited Review is being retired entirely, mandatory for all loan applications dated August 3, 2026 or later
The agencies diverge slightly on investor-related eligibility changes:
Fannie Mae is retiring the 50% investor concentration limit in established projects reviewed under Full Review on investor loans
Freddie Mac is retiring the 50% owner occupancy requirement for established condo projects, meaning sellers are no longer required to determine whether a project meets owner occupancy thresholds when reviewing an established project
Two reserve-related changes come with later deadlines and apply to both agencies:
Enhanced reserve study requirements take effect August 3, 2026. Lenders must use the highest recommended reserve allocation amount in the reserve study, and the baseline funding method is no longer permitted
Increased replacement reserve requirements take effect January 4, 2027. The minimum reserve allocation rises from 10% to 15% of annual budgeted income assessment
Bottom Line for Lenders and Servicers
These updates require lenders to revisit their compliance checklists and internal processes across origination and servicing. On the selling side, lenders must confirm they are applying the correct project review type, updated reserve requirements, and revised insurance standards to loans in their pipeline, with attention to which changes are immediate and which carry August or January deadlines. For servicers, the updates introduce new affirmative obligations around insurance monitoring and annual borrower notification that must be documented and built into servicing procedures before January 1, 2027.
Given that both agencies issued these changes simultaneously and expect coordinated implementation, lenders and servicers operating across both GSE frameworks should conduct a systematic review of their policies and procedures against the new requirements sooner rather than later.
Questions about how these updates affect your lending or servicing operations?
Contact troy@garrishorn.com.