B4-2.3-02, Co-op Project Eligibility (11/06/2024)

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 may be owned in fee simple or be a leasehold estate (subject to a ground lease).

Note: For additional information applicable to co-op projects subject to a ground lease, see

B2-3-03, Special Property Eligibility and Underwriting Considerations: Leasehold EstatesB2-3-03, Special Property Eligibility and Underwriting Considerations: Leasehold Estates

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.

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:

• any non-gut rehabilitation conversion project that was converted at least three years prior to the co-op share loan note date that is considered “newly converted” solely because more than 20% of the stock or shares are owned by the sponsor as described in the single entity ownership provisions in B4-2.3-05, Geographic-Specific Co-op Project ConsiderationsB4-2.3-05, Geographic-Specific Co-op Project Considerations; and

• two- to four-unit non-gut rehabilitation conversions.

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.

• 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.

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.