Fannie Mae & Freddie Mac Condo Review Changes Are Here

What happened: On August 3, 2026, Fannie Mae and Freddie Mac eliminated their "Limited Review" and "Streamlined Review" options for most conventional condo loans. This change requires more extensive project documentation and full underwriting review for many condo buildings, potentially delaying closings.

On August 3, 2026, a significant change to condominium financing took effect for the entire country. Fannie Mae and Freddie Mac, the government-sponsored enterprises that back a majority of U.S. mortgages, officially retired their simplified project review paths for new conventional loan applications. This move requires lenders to conduct a more thorough analysis of a condo association's health before approving a loan.

For real estate agents and homeowners in Los Angeles, especially in condo-heavy markets like the South Bay and Westside, this is not a minor policy tweak. It directly impacts transaction timelines, costs, and the viability of deals that would have been straightforward just a month ago.

What changed?

The core change is the retirement of simplified condo review processes for established projects. Effective for all conventional loan applications dated on or after August 3, 2026, both Fannie Mae and Freddie Mac have mandated a shift towards more rigorous project underwriting. This change was communicated to lenders through official bulletins, namely Fannie Mae Lender Letter LL-2026-03 and Freddie Mac Bulletin 2026-C.

Here are the specifics:

• Fannie Mae retired its “Limited Review” process. Previously, a lender could approve a loan in an established condo project with minimal review of the HOA's health if the borrower had a large down payment. Now, those loans must either undergo a Full Project Review or meet the strict criteria for a Waiver of Project Review. You can find the controlling guidelines on the Fannie Mae website.

• Freddie Mac eliminated its corresponding “Streamlined Review” option. Lenders must now use a more detailed method, such as the Established Condominium Project Review, unless the project is specifically exempt. The official requirements are published in bulletins on the Freddie Mac seller/servicer portal.

A Full Project Review requires the lender to collect and analyze a comprehensive package of Homeowners Association (HOA) documents, including:

• The current budget and financial statements
• A recent reserve study to verify financial health
• Proof of adequate insurance coverage
• Details on any pending litigation or special assessments
• A breakdown of owner-occupancy versus investor concentration

This shift means a borrower's strong financial profile is no longer enough to bypass scrutiny of the building itself.

When does it take effect?

The new rule is tied to the loan application date, not the closing date. This is a critical distinction for deals that were in motion when the change occurred. Any transaction where the buyer applied for their loan before August 3, 2026, can still proceed under the old, more lenient rules.

Here is a clear timeline of the transition:

What this means in the South Bay and on the Westside

This national rule change has an outsized impact on Los Angeles County, where condos are a vital part of the housing stock. From Torrance to Santa Monica, agents and their clients will feel the effects.

In markets like the South Bay and Westside, we're seeing lenders immediately request full HOA document packages that can run hundreds of pages. A self-managed three-unit building in Hermosa Beach now faces the same level of documentary scrutiny as a 300-unit high-rise in Playa Vista.

Here’s how it breaks down by area:

• Santa Monica, Venice, and Redondo Beach: These coastal cities have many older condo buildings. A full review may uncover issues previously overlooked by a limited review, such as underfunded reserves for seismic retrofitting, pending litigation over water intrusion, or deferred maintenance on balconies and decks. A deal can now be denied based on the building's health, not the buyer's credit.

• Playa Vista and Culver City: These areas are dominated by large, professionally managed HOAs. While these associations typically have the required documents, the sheer volume of paperwork (budgets, multiple insurance policies, master and sub-association docs) can slow down underwriting. Lenders must now digest this entire package, adding days or even weeks to the loan approval timeline.

• Manhattan Beach and Torrance: These markets feature a mix of small and large condo projects. Many smaller, self-managed HOAs may not have a formal reserve study or a professionally prepared budget. Under the old rules, a 25% down payment often waived these requirements. Now, sellers in these buildings may find their buyer's financing is in jeopardy because the HOA can't produce the necessary paperwork, forcing a pivot to a portfolio lender or a canceled sale.

For escrow and title, the operational impact is immediate. We must work with the listing agent to get a complete HOA package ordered the day escrow opens. Any delay in receiving the budget, reserve study, or litigation status can bring a transaction to a halt.

What agents and homeowners should do now

Proactive management is the only way to prevent these new rules from derailing your transaction. We recommend taking these steps on every condo deal involving a conventional loan:

1. Verify the Loan Type Immediately: As soon as you have an accepted offer, confirm with the buyer's lender if the loan is a conventional product intended for sale to Fannie Mae or Freddie Mac. If so, assume a Full Project Review is required.

2. Order a Full HOA Document Package on Day One: Do not wait. Instruct escrow to order the complete set of documents from the HOA or its management company, including the budget, reserve study, all insurance declarations, and the association's governing documents.

3. Confirm the Project’s Status with the Lender: Some projects may already be on a lender's "approved" list, or they may qualify for a project review waiver (often limited to very small projects or those with significant commercial space). Ask the loan officer to confirm the project's status and what specific documents they will need.

4. Set Realistic Timelines: Advise your clients that condo financing may now take longer. A 30-day escrow may still be possible, but a 45-day timeline provides a more realistic buffer for the lender's underwriting review of the HOA documents.

5. Educate Sellers and HOAs: If you are the listing agent, prepare your seller and their HOA board for the increased scrutiny. Ensure they have their documents in order and are prepared to respond to lender questionnaires promptly.

Open Questions

While the main change is effective, some details are still being clarified as lenders implement the new policies. Here is what we are watching:

• Exact Reserve Requirements: The new rules emphasize "enhanced reserve study requirements," but specific minimum percentages for reserve funding are found deep within the full agency selling guides. These may be updated, and individual lenders can impose their own, stricter requirements.

• Waiver and Exemption Criteria: The precise rules for when a project can get a Waiver of Project Review (Fannie) or is considered Exempt from Review (Freddie) are complex. These are not blanket exceptions and must be verified by the lender on a case-by-case basis.

• Lender-Specific Overlays: The biggest variable is how individual lenders will interpret and add to these rules. Some may refuse to lend in any building with pending litigation, while others may be more flexible. These internal lender policies are not always transparent.

Sources

• Fannie Mae Single-Family Business
• Freddie Mac Single-Family Seller/Servicer Guide
• Los Angeles County Registrar-Recorder/County Clerk
• California Legislative Information (for HOA laws like Davis-Stirling)

FAQ

Does this new condo rule affect all loans?

No, this rule change specifically applies to conventional conforming loans that a lender intends to sell to Fannie Mae or Freddie Mac. It does not directly affect FHA loans, VA loans, jumbo loans, or portfolio loans kept on a bank's own books, though those loan types have their own separate condo review standards.

My loan was pre-approved before August 3, am I affected?

This change is tied to the formal loan application date, not a pre-approval date. If your completed loan application with property address was submitted to the lender on or after August 3, 2026, the new rules apply. If your application was dated before then, you can close under the old rules.

What happens if my condo building fails the full review?

The lender may deny the financing. If this happens, your options include trying to find a portfolio lender who does not sell their loans to Fannie or Freddie, securing a different loan product if available, or, if financing is not possible, canceling the purchase contract under the loan contingency.

How much longer will my condo escrow take now?

You should budget for an additional one to three weeks in the underwriting phase. The primary cause of delay is waiting for the HOA to provide a complete document package and for the lender's specialized condo review department to analyze it. Proactive document collection is key to minimizing this delay.

These changes add a new layer of complexity to condo transactions. Having an experienced title and escrow team that understands the documentary requirements is more important than ever. If you have a condo deal in the South Bay or on the Westside, call us before you get too far down the road. We can help you anticipate what the lender will need and keep your closing on track.

For help with your next transaction, please contact Matt Goeglein and Xavier de la Piedra IV.