By Richard S. Ekimoto, Esq.

A few weeks ago, we posted about Fannie Mae & Freddie Mac Changes in its Reserve Requirements for Condominium Associations. Fannie Mae and Freddie Mac also made some other changes related to insurance requirements for condominium projects. These changes include:

• Limits on Master Insurance Policy Deductibles for Condominium Projects
• Updated Replacement Cost Coverage Requirements for Master Insurance Policies for Condominium Projects
• Requirements for Unit Owner Insurance Policies in Condominium Projects

Deductibles for the Master Insurance Policy

Fannie Mae and Freddie Mac has established a limit for the deductible on the Association’s Master Policy. The “maximum allowable per unit deductible for all required property insurance perils covered by a master property insurance policy is $50,000 per unit.” Lenders are encouraged to implement this requirement immediately, but no later than July 1, 2026. In addition, Fannie Mae and Freddie Mac have stated that if the Master Policy has a per unit deductible, the Unit Owner will need an owner’s insurance policy (see below under the section, “Unit Owner Insurance”). Since some insurers providing condominium association insurance policies have started including a per unit deductible in addition to an occurrence deductible, this change is of particular importance to condominium associations.

Replacement Cost Coverage Under Master Insurance Polices

The Condominium Property Act in HRS §514B-143(a)(1)(C) mandates that condominium associations must maintain a property insurance policy “in a total amount of not less than the full insurable replacement cost of the insured property, less deductibles, but including coverage for the increased costs of construction due to building code requirements, at the time the insurance is purchased and at each renewal date . . . .” The Association’s Declaration or Bylaws can override that requirement, but that is rare. Having less than full replacement cost coverage often means that the condominium project will not qualify for loans from many lenders, including those under the Fannie Mae and Freddie Mac guidelines.

Last month, Fannie Mae and Freddie Mac provided some clarification for what lenders could rely on to determine whether the condominium association’s Master Insurance Policy meets the full insurable replacement cost coverage. In addition, Fannie Mae and Freddie Mac determined that the roofs of a condominium project needs to be insured, but they do not need to be insured on a replacement cost basis. These changes are effective immediately. However, condominium association should be aware that the provisions in their governing documents and in HRS §514B-143(a)(1)(C) continue to apply. Depending on the condominium association’s governing documents, an amendment may be necessary to obtain less than full replacement cost insurance for the association’s roofs.

Unit Owner Insurance

HRS §514B-143(g) allows the Board, with owner approval, to institute a policy to require each owner to maintain their own insurance policy¹. Even if the Association does not require owners to have their own insurance policy, Fannie Mae and Freddie Mac requires it of owners who wish to qualify for Fannie Mae and Freddie Mac loans in two situations:

• when any portion of the interior of the unit or improvements to the unit are not covered by the master property insurance policy, or
• when the master property insurance policy includes a per unit deductible.

The amount of the unit owner’s insurance policy is required to be at least equal to the greater of:

• an amount sufficient to cover any portion of the interior of the unit or improvements to the unit not covered by the master property policy in order to restore the unit to its condition prior to a loss event; or
• the amount of the per unit deductible, if the master property insurance policy has a per unit deductible.

Lenders are encouraged to implement these requirements immediately, but no later than July 1, 2026.

The second item for determining the amount of a unit owner’s insurance coverage is of particular interest to condominium associations. HRS §514B-143(d) authorizes the Board of Directors of a condominium association to allocate the deductible under the Association’s insurance policy:

• as a common expense;
• to the owners who caused the damage or from whose units the damage or cause of loss originated (but the Board must provide notice and an opportunity for a hearing to the owner); or
• to the unit owners of the units affected to pay the deductible amount.

In the second and third options, the Board can allocate the insurance deductible to the unit owner. We are aware that some unit owner insurers have pushed back on that practice. However, Fannie Mae and Freddie Mac are taking the position that lenders must verify that unit owners’ insurance covers the per unit deductible under the Association’s master policy. This may facilitate the ability of unit owners to obtain coverage for the amount of the Association’s insurance deductible at least in some situations.

1. These policies are sometimes referred to as HO6 insurance policies. ↩︎

By Richard S. Ekimoto, Esq.

On March 18, 2026, Fannie Mae and Freddie Mac announced changes to their lending guidelines in Lender Letter LL-2026-03¹ and Freddie Mac Bulletin 2026-C². There are a number of changes announced in the Lender Letter, some of which will be discussed in later posts. This post focuses on the changes to the reserve requirements for condominium projects.

The Fannie Mae and Freddie Mac changes to their reserve requirements for condominium associations includes:

• Budgets for condominium associations must have reserve contributions equal to at least 15% of their annual budgeted income assessment.  This is up from the current 10% requirement.  The new 15% requirement will be effective on January 4, 2027. 
• If the condominium association doesn’t meet the annual reserve contribution requirement (currently at least 10%, but increasing to at least 15% on January 4, 2027), it must have a reserve study demonstrating that it has sufficient reserves.  Sufficient reserves is the highest recommended reserve allocation amount in the reserve study.  More importantly, the baseline funding method does not qualify for sufficient reserves.  The baseline funding method is the “option that allows the reserve cash balance to approach but never fall below zero.”  In Hawaii, baseline funding method is referred to as “cash flow analysis”. In other words, cash flow analysis, will not be allowed by Fannie Mae and Freddie Mac unless the association is funding reserves at the 10% or 15% requirement. Fannie Mae and Freddie Mac are encouraging its lenders to implement the requirements for sufficient reserves immediately, however, they must do so no later than August 3, 2026. 

Hawaii condominium associations are required by Hawaii Revised Statutes (“HRS”) §514B-148(a)(5) to conduct a reserve study. HRS §514B-148(a)(8) allows the reserve funds to be calculated on a “per cent funded or cash flow plan”. However, in light of the Fannie Mae and Freddie Mac guidelines, any unit in a condominium association that relies on a cash flow plan to meet the statutory reserve requirements would not qualify for Fannie Mae and Freddie Mac loans unless the association is reserving at the 10% funding requirement or next year’s increased 15% funding requirement. Not being qualified for standard Fannie Mae or Freddie Mac loans may have an adverse effect on association members’ ability to obtain loans or sell their units.

Fannie Mae and Freddie Mac back about 75% of all residential mortgage loans in the United States. The percentages are probably slightly lower in Hawaii. However, some lenders rely on the Fannie Mae and Freddie Mac guidelines even if they do not plan to sell their loans to Fannie Mae or Freddie Mac.

Condominium association should check whether their current budget meets the current 10% funding requirement and the impact the changes to reserve requirements by Fannie Mae and Freddie Mac might affect unit mortgages in the Project. Since lenders have been encouraged to implement the new reserve requirements immediately, your project may soon be disqualified for Fannie Mae and Freddie Mac loans. In addition, when developing next year’s budget, condominium associations should consider the impact of both these changes by Fannie Mae and Freddie Mac.

Condominium associations should also check the funding recommendations in their reserve study. If the association’s reserve study includes a recommendation for both of the two statutory requirements for replacement reserves (cash flow funding at 100% and 50% funding on a percent funded basis) and the Association does not meet the 10% funding requirement or next year’s 15 funding requirement, the association would need to meet the 50% funding recommendation to qualify for Fannie Mae and Freddie Mac loans for its members. Moreover, if it also includes a recommendation for say 60% funding on a percent funded basis, the association would need to comply with the 60% funding recommendation unless the association reserved at the 10% or 15% level.

1. Although the Lender Letter was issued by Fannie Mae, it also states that the “changes are in alignment with Freddie Mac and in coordination with U.S. Federal Housing (FHFA)”. ↩︎
2. Although the Bulletin was issued on March 18, 2026, it was not initially available online. ↩︎

Update 3/23/2026: Clarified that the 10% and 15% requirements are minimums and added last paragraph about reserve study funding recommendations.

Updated 4/8/2026: Added link for Freddie Mac Bulletin 2026-C.

By Richard S. Ekimoto, Esq.

On Friday, March 21, 2025, FinCen issued a press release on an interim final rule Removing United States Companies and Persons from the BOI Reporting Requirements. The Final Interim Rule and Explanation is posted here.

The stated basis of the Interim Final Rule is:

FinCEN has determined that an interim final rule is the appropriate mechanism to exempt
domestic reporting companies and United States Persons who are beneficial owners of foreign reporting
companies from the BOI reporting requirements pending the receipt of comments and issuance
of a final rule.

The Interim Final Rule amends the definition of “Reporting company” in 31 CFR 1010.381(c)(1) by removing domestic reporting companies, leaving only what were previously defined as foreign reporting companies within the scope of the regulation. In addition, the Interim Final Rule adds a 24th exemption to 31 CFR 1010.381(c)(2) for any domestic entity. The Interim Final Rule also adds an exemption for Beneficial Owners in 31 CFR 1010.38(d)(4). Under this exemption, any Reporting Company (which is now only foreign entities doing business in the United States) are not required to report the beneficial ownership information of any United States Persons who are beneficial owners. A United States Person is defined under the CTA as a citizen or resident of the United States, a domestic partnership, a domestic corporation, any estate (other than a foreign estate), and a domestic trust meeting certain requirements. The Interim Final Rule is effective immediately.

It’s not clear whether the Interim Final Rule is consistent with the statutory language of the Corporate Transparency Act. Nothing in the CTA indicates that the law was intended to apply only to foreign entities or to exclude beneficial owners that are U.S. Persons. However, since the stated purpose of the Interim Final Rule is to exempt United States companies and persons from the BOI Reporting Requirements pending the receipt of comments and issuance of a final rule, it is likely that the Interim Final Rule would be allowed to stand for now. In any event, FinCen has stated that no fines or enforcement would occur against domestic companies or United States Persons.

Community associations that have not filed their BOI Report should wait before filing its BOI Reports.

By Richard S. Ekimoto, Esq.

Yesterday, the U. S. Treasury Department issues a press release stating that it will not enforce the BOI Reporting Requirements against U.S. citizens and domestic reporting companies. The press release states, “not only will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either.” The information has not yet been updated on the Fincen website.

If the U. S. Treasury Department follows through, community associations in the United States would not be subject to penalties or enforcement actions for failing to file BOI Reports. Technically, the CTA still applies to domestic reporting companies and U.S. Citizens to file BOI Reports unless they qualify for one of the twenty-three (23) exemptions. However, the announcement would mean that there would be no penalties for violations or any enforcement of the law for U. S. citizens or domestic entities. Hopefully, FinCen will also consider revisions to its regulations to expand the number of entities exempt from the BOI Reporting Requirements.

Community associations that have not yet filed their BOI Report should refrain from doing so at this time.

By Richard S. Ekimoto, Esq.

Today, FinCen posted a news release that it will not issue any fines or other penalties for any entity that does not file a BOI Report until new interim rules are adopted. Before March 21, 2025, FinCen intends to issue interim rules that will extend the deadline for filing BOI Reports. In addition, FinCen intends to solicit public comment on potential revisions to existing BOI Reporting requirements. Those comments will be considered by FinCen in adopting changes to the BOI Reporting requirements, including further modifications to the deadlines.

Any community associations that have not filed their BOI Report should wait until after FinCen established a new deadline and potentially new requirements for which entities qualify as reporting companies.