New Fannie/Freddie 15% Reserve Requirement – Does It Apply to Townhome Communities?

Started by ArthurS7 • 10 replies • 55 views

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ArthurS7 (Pennsylvania)
Posts: 39

Posted:

Our property management company's regional manager is warning us that the new Fannie Mae/Freddie Mac 15% reserve contribution requirement, effective January 2027, could make our community ineligible for conventional mortgage financing unless we increase our annual reserve contributions.

From what I understand, the existing reserve contribution requirement for certain mortgage lending reviews is 10%, increasing to 15% in January. However, I'm unclear whether these requirements apply to all HOAs or primarily to condominium associations.

Our HOA consists of 96 townhomes in a planned community, where homeowners own their individual lots. We collect approximately $207,000 annually in assessments and have about $285,000 in reserves, primarily invested in CDs. Our last reserve study was conducted four years ago.

Historically, we've contributed approximately 6% of annual assessments to reserves, with additional growth from CD interest, and we're not aware of any mortgage financing problems in our community's 10-year history. Our proposed budget actually calls for $0 in additional reserve contributions.

Does this requirement actually apply to planned communities like ours, or is it specific to condominium associations?

Has anyone with a townhouse HOA or planned community received similar warnings or experienced actual mortgage financing problems because of reserve contribution percentages? Our property manager also indicated that enforcement has become stricter. Has anyone seen evidence of that?

ElleN (Idaho)
Posts: 1,413

Posted:

Quote:

Posted By ArthurS7 on 10/20/2026, 4:31 PM

Does this requirement actually apply to planned communities like ours, or is it specific to condominium associations?

See

https://governingdocs.dev/blog/fannie-mae-15-percent-reserve-rule-boards/#faq

and

https://selling-guide.fanniemae.com/sel/b4-2.1-02/waiver-project-review

If the above do not answer your question, then consider posting back and explaining what is confusing.

ArthurS7 (Pennsylvania)
Posts: 39

Posted:

Thank you for those references. Both seem to confirm my understanding that the new 15% reserve requirement does not apply to our planned townhouse community.

The GoverningDocs article specifically notes that PUDs are covered under a separate Fannie Mae guideline that does not establish a reserve contribution percentage. And Fannie Mae's Selling Guide B4-2.1-02 explicitly waives project review for new and established PUDs.

It therefore appears that the August 2026 tightening and January 2027 increase apply to condominium project reviews, rather than communities like ours.

Am I interpreting that correctly?

ElleN (Idaho)
Posts: 1,413

Posted:

ArthurS7, good response. I had been wondering if your HOA was a PUD.

For a PUD, the first two links I provided next refer to this:

https://selling-guide.fanniemae.com/sel/b4-2.3-01/eligibility-requirements-units-pud-projects

The above defines what qualifies as a PUD for Fannie Mae purposes. Can you look at this latest guide and see if it answers your question? If anything in the B4-2.3-01 guide is not clear, then once again, ask questions here.

ArthurS7 (Pennsylvania)
Posts: 39

Posted:

Thank you. I've reviewed B4-2.3-01 against our HOA's Declaration and Public Offering Statement, and our community appears to meet all four of Fannie Mae's PUD criteria: mandatory HOA membership and assessments, association-owned and maintained common property, and individually owned properties established under Pennsylvania's Uniform Planned Community Act rather than the condominium statute.

I also don't see a 10% or 15% reserve contribution requirement in B4-2.3-01. Combined with the project review waiver in B4-2.1-02, my interpretation is that the new 15% requirement does not apply to our community.

Am I missing anything, or does that seem correct?

TimB4 (Virginia)
Posts: 21,004

Posted:

Townhome communities can be considered as a condominium or a single family home development.

One indication would be if the roof is common to all of the town homes (meaning that they are connected to each other).

My previous Association was a town home community but had staggered heights and staggered setbacks where each owner maintained everything on the property (roofs, etc.) as only the side walls were common to another unit. Because of this design, our Association was considered an HOA and not a COA.

ArthurS7 (Pennsylvania)
Posts: 39

Posted:

Oh my - our townhome has the same roof for each cluster of homes (5 homes).

ArthurS7 (Pennsylvania)
Posts: 39

Posted:

Thanks, Tim. I agree that townhouses can be structured as either condominiums or individually owned properties within an HOA.

In our case, the governing documents expressly establish the community under Pennsylvania's Uniform Planned Community Act, rather than the condominium statute. Each homeowner owns their individual lot and home, although the association has certain exterior maintenance responsibilities.

Based on Fannie Mae's PUD criteria in B4-2.3-01, the legal ownership structure, rather than whether roofs or walls are connected, appears to be what matters. Our community appears to meet all four criteria.

ElleN (Idaho)
Posts: 1,413

Posted:

I've reviewed B4-2.3-01 against our HOA's Declaration and Public Offering Statement, and our community appears to meet all four of Fannie Mae's PUD criteria: mandatory HOA membership and assessments, association-owned and maintained common property, and individually owned properties established under Pennsylvania's Uniform Planned Community Act rather than the condominium statute.

Based on what you wrote and the Fannie guides, so far I agree.

So far I agree.

I asked AI why Fannie Mae is more generous to PUDs that meet the Fannie eligibility requirements. So far one of the biggest reasons for Fannie Mae being more generous appears to be this: For a PUD meeting Fannie requirements, people own their lots and the physical structure. This reduces liability risks.

You say each cluster has "the same roof."

I would feel a little more confident if you checked the following: Is each owner responsible for the maintenance (and as needed, replacement) of his or her portion of the roof covering his or her unit? Or is the HOA as a whole responsible for the roofs?

If disputes arise, you all might have to consider lawyering up. On the other hand, as a matter of law, Fannie Mae as a GSO might get the last word?

ArthurS7 (Pennsylvania)
Posts: 39

Posted:

Thanks, Ellen. I checked our governing documents, and they specifically address this distinction.

Each homeowner owns the roof over their townhouse, including the structural supports and roofing materials. The HOA is responsible for coordinating maintenance, repair, and replacement, but those costs are assessed directly to the benefiting homeowners as a Limited Direct Charge, rather than being a general expense shared by the entire community.

So although the roofs are physically connected, they are individually owned, and the homeowners benefiting from the work bear the costs.

I also don't see individual responsibility for roof maintenance listed among Fannie Mae's four PUD eligibility criteria in B4-2.3-01. Based on that and our governing documents, I still believe we qualify as a PUD for Fannie Mae purposes.

ElleN (Idaho)
Posts: 1,413

Posted:

I also don't see individual responsibility for roof maintenance listed among Fannie Mae's four PUD eligibility criteria in B4-2.3-01.

I hear you. I brought up the roofs because I wanted to get a feel for how far (close) this PUD is from (to) a "condo."

Fannie's general goals are to keep risk of liability low. Because of the latter I keep going back and forth on whether you and I have really nailed this.

I wonder if your Board could get an answer from Fannie Mae itself? For starters, see https://www.thehoaguide.com/hoa-condo-basics/fannie-mae-condo-approval/

Questions I have:

I guess the PUD's Limited Direct Charge feature justifies Fannie not having to demand as much from PUDs compared to what Fannie demands of condominiums?

Fannie's guides are written with an eye to reducing risk. When a HOA is not responsible for the costs of maintenance and repairs to a buyer's home, the HOA's financial health is not a concern to Fannie?

I see the Uniform Planned Community Act has quite a bit of verbiage on the subject of reserves. Your HOA does have a reserve fund. When reserves are for common areas that do not attach to any owner's home, does Fannie not care about reserves?

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