By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | March 30, 2026

Article originally posted in Orange County Register on March 26, 2026

The Federal Housing Finance Agency recently announced several rules for condo associations looking to remain eligible for Fannie Mae and Freddie Mac financing — or risk getting blacklisted.

A little background: The mortgage institutions launched a stiffer approval process for condos after the Surfside towers collapsed on June 24, 2021 in Florida. Communities that don’t maintain the government’s new standards are put on a “do not lend” list that ultimately blocks them from financing options through either of the mortgage buyers.

For those associations already blacklisted, digging out of that proverbial financing hole might prove much tougher under the newly announced changes.

The new rules will affect HOA budget reserves, the buyers’ condo eligibility review process, roof replacement insurance and interior insurance policies called HO6.

Reserves going up

As of July 1, the condo cash reserves requirement is rising to 15% of the annual budget from 10%.

Where is that money going to come from? Higher monthly dues or special assessments, most likely.

“Some associations will become ineligible,” said Dawn Bauman, chief executive of Community Associations Institute. “Budgets were approved at 10%. This new reserve funding starts July 1st. Reserves will be fine in three to five years.”

The questionnaire

The second change comes to the infamous condo questionnaire for condo buyers.

When you are buying a condo, the complex either receives a questionnaire waiver from Fannie Mae or Freddie Mac or it has to be filled out. It asks rigorous questions about the complex, its budget, maintenance and more. There is also something called a “limited review,” which is much more cursory than the full questionnaire review but not as simple as a complete waiver.

Starting Aug. 3, the limited condo review process will be “retired,” which means the condo you are trying to buy will either require a full review or get a waiver.

A full review is expensive. Generally, HOA management companies charge $200-$500 to fill out the questionnaire. Rush fees (to meet short escrow deadlines) can be an additional $200 or more.

This (full review) transaction will require substantially more documentation and formal lender questionnaires for nearly all condo sales, which will increase the administrative burden on community associations, managers and volunteer leaders, according to Bauman.

The FHFA never responded to my query asking if a condo association will automatically receive a waiver once it passes muster the first time. Will subsequent buyers have to jump through the same hoop all over again? For now, we don’t know.

Roof insurance is changing

Instead of full reroofing replacement costs — called replacement cost value — FHFA is now allowing roofs to be insured using actual cash value. That’s essentially replacement cost minus depreciated value, minus wear and tear. The big idea is to reduce the insurance premium for the homeowners association — for some. For others, it will allow them to have roof insurance in markets not offering RCV.

For example, say a condo complex roof cost $1 million to install 20 years ago. Assume the replacement cost today is $3 million. Assume the actual cash value of that roof is $200,000. Under the new rules, Fannie and Freddie will allow coverage of just $200,000.

At first blush, the idea of lower roof insurance premiums sounds fantastic. After speaking to more than a dozen industry experts, I learned this could backfire.

Why? The HOA could be in big financial trouble should it need to reroof after a fire, for example. If you have $200,000 worth of coverage but the true RCV is $3 million, that leaves a $2.8 million gap (excluding any deductibles). Where is that money coming from? Can you say special assessment?

“We don’t view this as a viable long-term solution,” said Cory Neubauer, co-founder of Nexiter Insurance Services. “Even with the shift to actual cash value, it realistically won’t lower premiums in a meaningful way.”

Here’s a different perspective.

“When actual replacement value coverage is either unavailable or prohibitively expensive, actual cash value is one of the key options for these condominium projects,” Bauman said.

Neubauer also pointed out that some insurance carriers would likely exclude ACV associations from new coverage opportunities.

HOAs are truly between a rock and a hard place on this insurance issue. If you don’t go RCV (which may be cost-prohibitive), some carriers just won’t insure you.

Neubauer told me that his insurance group does not expect to see meaningful premium reductions as a result of the Fannie Mae and Freddie Mac updates.

“Instead, what we are seeing is a shift in how risk is distributed,” he told me via email. “Higher deductibles and more flexible master policy structures are effectively pushing more responsibility onto individual homeowners.”

Interior insurance change

Individual interior insurance coverage of the owner’s individual unit, called HO6, will be mandatory as of July 1 — if interior coverage is not covered in the master policy. In my experience, fewer than 5% of homeowners associations cover interiors.

HO6 insurance runs anywhere from $100 to $200 per month per unit.

Neubauer also explained that, based on his firm’s experience, roughly 65% to 70% of owners maintain HO6 insurance. This means that quite a few owners are uninsured for interior damage, loss assessments or deductible gaps.

What’s ahead?

With so many rule changes coming for HOAs, anyone considering buying a condo should do a thorough review of the financials or get a financial expert to do it for you.

From your lender, find out up front if the condo association is Fannie or Freddie approved or on the blacklist. Blacklisted condo associations are more difficult to sell because they come with a higher mortgage rate.

And definitely get a look at the roof. Does it look old? Find out if the association will be moving to ACV or if it will continue with full replacement coverage. I’d be cautious about buying into an ACV complex.

HO6 insurance is something you should absolutely have and maintain. In the first year, your mortgage lender will force you to get HO6 insurance. It’s vitally important that owners maintain an interior insurance policy.

Freddie Mac rate news: The 30-year fixed rate averaged 6.38%, 16 basis points higher than the previous week. The 15-year fixed rate averaged 5.75%, 21 basis points higher than the previous week.

The Mortgage Bankers Association reported a 10.5% mortgage application decrease compared with one week ago.

Bottom line: Assuming a borrower gets an average 30-year fixed rate on a conforming $832,750 loan, last year’s payment was $148 more than last week’s payment of $5,198.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: a 30-year FHA at 5.75 %, a 15-year conventional at 5.5%, a 30-year conventional at 6.125%, a 15-year high-balance conventional at 5.99% ($832,751 to $1,249,125 in L.A. and Orange County and $832,751 to $1,104,000 in San Diego), a 30-year high-balance conventional at 6.5% and a jumbo 30-year fixed at 6.125%.

Eye-catcher loan program of the week: a 30-year mortgage, interest-only payments, fixed for the first five years at 5.75%, with a 1-point cost.

Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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