Fannie Mae & Freddie Mac Change Reserve Requirements for Condominiums Including Elimination of Cash Flow Plans

By Richard S. Ekimoto, Esq.

On March 18, 2026, Fannie Mae and Freddie Mac announced changes to their lending guidelines in Lender Letter LL-2026-03.¹ 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 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 10%, but increasing to 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.

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)”. ↩︎