Trade groups ask Pulte to reconsider Fannie and Freddie condo rules

A coalition of industry trade groups representing lenders, brokers and community associations is asking the head of the Federal Housing Finance Agency (FHFA) to revisit policy changes made by Fannie Mae and Freddie Mac that they claim will negatively impact homebuyer affordability, accessibility and housing supply.

In a joint letter sent Wednesday to FHFA Director Bill Pulte, the trio of trade associations — the Community Home Lenders of America (CHLA), the Community Associations Institute (CAI) and the National Association of Mortgage Brokers (NAMB) — write that the recent rule changes impacting condominium underwriting guidelines “may unintentionally raise costs for borrowers and existing owners, reduce lender participation, and limit financing availability for otherwise qualified purchasers and financially stable communities.”

First announced in March, the FHFA positioned the condo rule changes as “simple, common-sense updates that respond to today’s skyrocketing insurance prices.” A press release issued by the agency highlighted changes to roof insurance requirements, which scrapped the need for full replacement cost coverage and substituted cheaper actual cash value coverage.

“These updates mean lower monthly payments, more first-time buyers able to close on homes, and rural communities keeping access to insurance they were at risk of losing,” the agency stated.

The FHFA, which regulates Fannie and Freddie through a conservatorship arrangement, did not immediately respond to a request for comment on this week’s letter.

Of particular concern to the CHLA, CAI and NAMB is the elimination of a streamlined “limited review” process for loans on units in certain established condo projects. That policy is set to take effect Aug. 3.

“Community lenders report that the elimination of limited reviews will require full project reviews even for many lower-risk transactions, increasing documentation burdens, third-party review expenses and processing times,” the trade groups write, adding that borrowers could incur over $1,000 in additional costs for a full review.

The rule changes also increase the minimum condo reserve allocation requirement for capital expenditures and deferred maintenance from 10% to 15%, as of Jan. 4, 2027.

A Freddie Mac bulletin from March identified a correlation between condo projects with underfunded reserves and those in need of critical repairs. It noted that unit owners can experience “substantial financial hardship” in those situations through sudden special assessments or spiking homeowners association dues, which increases the risk of mortgage default and foreclosure.

While the trade associations note that “reserve adequacy is important,” they object to a “uniform increase applied across widely varying project types,” which they believe “may reduce affordability for current owners and prospective purchasers without fully accounting for differing project risk profiles.”

In turn, the groups suggest the changes could exacerbate the very things Freddie said they seek to mitigate: higher HOA dues, additional special assessments and increased insurance costs.

The letter also calls out ambiguity surrounding what constitutes “critical repairs,” citing reported instances of repurchase demands for Fannie and Freddie loans for “relatively minor repair items that appeared unrelated to material safety or structural concerns.”

The industry groups maintain that “greater clarity and consistency would improve lender confidence and reduce unnecessary costs while preserving prudent risk management.”

The CHLA, CAI and NAMB are requesting a one-year delay on the policy changes, during which time they hope to work with the FHFA and the government-sponsored mortgage companies on “practical solutions that balance safety and soundness with affordability, access and housing supply objectives.”