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B4-2.3-02, Co-op Project Eligibility (07/05/2023)

This topic contains information on co-op project eligibility, including:

Co-op Project Eligibility Overview

Fannie Mae purchases or securitizes co-op share loans for units in co-op projects from lenders specially approved to sell such loans to Fannie Mae. Lenders must determine the acceptability of a co-op project, unless the project is comprised of manufactured homes or is a project that is a newly converted non-gut rehabilitation of a co-op project. Such projects must be submitted via the Project Eligibility Review Service (PERS) to Fannie Mae for review.

The lack of available co-op project data and the inconsistent reporting of co-op project information can be a barrier to obtaining affordable financing for co-op housing. Lenders are responsible for determining the most appropriate method for obtaining information about co-op projects and the accuracy of the information they obtain.

For additional information, see:

Request for Co-op Project Information

The Request for Cooperative Project Information ( Form 1074) includes the project information that lenders, investors, and mortgage insurers may use in their evaluation of the eligibility of a co-op project, and provides an efficient means of collecting basic project information from co-op project management agents, boards of directors, or sponsors/developers.

Eligibility Requirements for Co-op Projects

The table below provides project eligibility requirements for co-op projects.

Full Review Eligibility Requirements –

For New and Established Co-op Projects

  In order for a co-op share loan to be eligible for sale, the co-op project in which the secured unit is located must qualify as a cooperative housing corporation under Section 216 of the Internal Revenue Service Code. The lender’s loan or project approval file must contain evidence regarding the project’s compliance with Section 216.

Note: If the co-op project does not meet Section 216 requirements, Fannie Mae will not purchase a co-op share loan from within the project.

  The co-op housing project must
  • be designed principally for residential use;

  • consist of two or more units; and

  • be located in an area that has a demonstrated market acceptance for the co-op form of ownership, as reflected by the availability of similar comparable sales for co-op units in the market area.

  The project must be owned in fee simple.
  The lender is responsible for determining that the co-op cooperation holds title to the property of the co-op project, including the dwelling units. A type of co-op project that does not meet these requirements is one in which the borrower, not the co-op corporation, owns their dwelling unit in the project. Co-op share loans in these projects are commonly referred to as “land-home” or “land-lease” co-op projects and require special approval for delivery to Fannie Mae.
  The co-op corporation must have good and marketable title to the property, including the dwelling units and amenities. The project premises must be free and clear of liens and encumbrances in accordance with B7-2-05, Title Exceptions and ImpedimentsB7-2-05, Title Exceptions and Impediments.
  The blanket project mortgage may be a market-rate FHA-insured mortgage or a conventional mortgage.

The blanket mortgage for the project may be a balloon mortgage. The remaining term may not be less than six months. If the balloon mortgage incorporates an adjustable-rate feature, and the remaining term is less than three years but not less than six months, the current interest rate may not be subject to an interest rate adjustment prior to the maturity date.

Fannie Mae purchases or securitizes co-op share loans regardless of whether Fannie Mae owns the blanket mortgage. However, if Fannie Mae owns an interest in the blanket co-op project mortgage, the maximum mortgage amount available to the borrower must be reduced by the portion of the unpaid principal balance of the blanket mortgage(s) that is attributable to the subject unit’s ownership interest.

  Fannie Mae will not purchase or securitize co-op share loans if the co-op project is an ineligible project type, regardless of the characteristics of the share loan. See  B4-2.1-03, Ineligible ProjectsB4-2.1-03, Ineligible Projects.
  The project must not be a manufactured housing project, unless the project is approved via the PERS process.
  The project must meet Fannie Mae’s insurance requirements, as stated in Subpart B7, Insurance.
  Co-op projects may be newly constructed or conversions of existing buildings.
  All newly converted non-gut rehabilitation of co-op share projects must be approved through the PERS process.

A newly converted non-gut rehabilitation co-op project is defined as follows:

  • a project for which the building has been recently converted from another use such as, but not limited to, apartment use, hotel building, or warehouse;

  • the renovation work did not involve structural or functional changes, such as the replacement of all HVAC and electrical components and was limited to cosmetic or design changes such as painting, flooring, and appliances; and,

  • the project meets the criteria for being a new project because any of the following conditions exist with respect to the status of the project:

    • fewer than 90% of the stock or shares have been sold to purchasers;

    • the developer or sponsor is in control of the co-op corporation;

    • the project is not fully completed, such as proposed construction, new construction, or the proposed or incomplete conversion of an existing building to a co-op; or

    • the project is subject to additional phasing or annexation.


The following newly converted projects may be reviewed by the lender through the standard co-op review process rather than being submitted to PERS:

  All units, common areas, and facilities within the project must be 100% complete. The project cannot be subject to additional phasing or annexation. All construction and rehabilitation for the project must be completed in a professional manner before Fannie Mae purchases or securitizes the share loan, unless the Project Standards Team approves delivery at an earlier date.
  Phase I and II environmental hazard assessments are not required for co-op projects unless the lender identifies an environmental problem through the performance of its project underwriting and due diligence.

In the event that environmental problems are identified, the problems must be determined to be acceptable, as described in E-2-02, Suggested Format for Phase I Environmental Hazard AssessmentsE-2-02, Suggested Format for Phase I Environmental Hazard Assessments.

  Stock, share, or other contractual agreement evidencing ownership, and the accompanying occupancy rights that represent at least 50% of the total number of stock or shares in the co-op corporation and the related occupancy rights of units in the project must have been sold and conveyed (or, for new construction, must be under contract for sale) to principal residence purchasers.
  The project’s most recent operating budget, audited financial statements, or corporate tax returns must
  • be consistent with the nature of the project,

  • provide for adequate cash flow to service the current debt and operating expenses, and

  • provide for adequate replacement and operating reserves.

If the most recent budget is not available, the lender may rely on a review of the co-op corporation’s most recent audited financial statements or corporate tax returns to determine that the financial requirements in this section have been met.

  The project must have a good financial record, with no more than 15% of the owners being more than 60 days past due in the payment of their financial obligations to the co-op corporation. Note: This includes payment of each special assessment.
  If the project is a recipient of subsidies or similar benefits (such as tax or assessment abatements) that will terminate partially or fully within the next three years, the lender must evaluate the impact the expiration of such benefit will have on the project. If the benefit is scheduled to expire within three years from the note date, the lender must include the higher monthly fees in the borrower’s monthly liabilities for debt-to-income ratio qualifying purposes.
  The project and share loan documentation must comply with any specific legal requirements established for the state in which the project is located.
  The units in the project must be owned in fee simple.
  The co-op corporation must have the sole ownership interest in the project’s facilities, common elements, and limited common elements, except as noted below.

Shared amenities are permitted only when two or more residential projects share amenities for the exclusive use of the unit owners. The associations or corporations must have an agreement in place governing the arrangement for shared amenities that includes the following:

  • a description of the shared amenities subject to the arrangement;

  • a description of the terms under which unit owners in the project may use the shared amenities;

  • provisions for the funding, management, and upkeep of the shared amenities; and

  • provisions to resolve conflicts between the residential projects regarding the amenities.

Examples of shared amenities include, but are not limited to, clubhouses, recreational or fitness facilities, and swimming pools.

The developer may not retain any ownership interest in any of the facilities related to the project. The amenities and facilities, including parking and recreational facilities, may not be subject to a lease between the unit owners or the co-op corporation and another party. Parking amenities provided under commercial leases or parking permit arrangements with parties unrelated to the developer are acceptable.

Recent Related Announcements

The table below provides references to recently issued Announcements that are related to this topic.

Announcements Issue Date
Announcement SEL-2023-06 July 05, 2023