B4-2.1-01, General Information on Project Standards (11/06/2024)

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 litigation;

• 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 WaiversB4-2.2-07, 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;

• completion reports;

• project marketing plans;

• environmental hazard reports;

• attorney opinions;

• appraisal 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 agents, insurance professionals, and project developers. Lenders are responsible for the accuracy of any information obtained from these sources.

Document Retention

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.

The Condominium Project Questionnaire (Form 1076) helps lenders collect data to determine condo project eligibility. This form is optional; however, lenders are encouraged to use and retain the form in the loan file. A substantially similar form may also be used in its place.

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.

Horizontal Property Regimes

Fannie Mae considers a development to be a condo project any time it is declared or filed as a horizontal property regime in accordance with local statutes. Exception is made, if the local statute provides for the horizontal property regime to be created as a PUD development and the project’s legal documents specifically state that the project is a PUD.

Lenders must determine if the subject unit is located in a condo or PUD and use the appropriate mortgage documents and appraisal forms.

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.

 Note: Unless specifically noted in the above table, all references to manufactured homes may be single-width, multi-width, or a combination of both.

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, except for PUD projects consisting of single-width and/or multi-width manufactured homes subject to a community land trust, deed restriction, ground lease, or shared equity arrangement;

• Fannie Mae to Fannie Mae limited cash-out refinances with LTV ratios < 80%; and

• high LTV refinance loans.

See  B4-2.1-02, Waiver of Project ReviewB4-2.1-02, 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); and

• when an appraisal of the property is obtained, it must meet all applicable appraisal requirements (described in Chapter B4-1, Appraisal Requirements).

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 statute 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.

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 a variance in the Lender Contract and in the Special Feature Codes document on Fannie Mae's website.

CPM ID Delivery Requirements

Lenders are required to deliver the CPM ID number in the field for "FNM Condominum Project Manager Project Identifier" (Sort ID 39) in ULDD for the following projects:

• projects that require the use of CPM; and
• projects with a Fannie Mae Approval that are delivered as Type T, or Type 2 co-ops.

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.

Project reviews must meet the following timeline requirements.

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).