Fannie Mae Updates Rules for Condos, Co-ops and HomeReady Mortgages
By Anna DeSimone
November 3, 2015, Fannie Mae released Selling Guide Announcement SEL-2015-12. The Selling Guide has been updated to include changes to the following:
- Refund of Loan-Level Price Adjustments
- Co-op Project Review Policy Update
- Project Eligibility Review Service for Established Condo Projects
- Updates to HomeReady
- Incorporation of Announcement SEL-2015-11
- Delivery of Loans with More than Two Borrowers
- Miscellaneous Selling Guide Updates
A summary of key updates is described below. Please refer to the Announcement for further details and other topics.
Co-op Project Review Policy Update
Less than one year ago, Fannie Mae published a comprehensive update to the general project standards and condo project review requirements in the Selling Guide. Evidence has shown that both condo loans and co- operative (co-op) share loans support first-time home buyers. Fannie Mae has now comprehensively updated its co-op policies, aligning with condo policies where appropriate, and with current market practices.
Many of the policy changes provide additional flexibility for co-op project approval and include a new requirement for all newly converted non-gut rehabilitation co-op projects consisting of more than four units to be approved by Fannie Mae through the Project Eligibility Review Service. Also, the update addresses common lender questions about co-op eligibility requirements, commercial space allocation, non-incidental business income, pro rata share requirements, and flip taxes. Redundant text has been removed and content reorganized to help improve comprehension.
NOTE: The co-op share loan documentation requirements that are posted on the Fannie Mae business portal remain unchanged. Fannie Mae continues to require all lenders and servicers to obtain special approval to sell or service co-op share loans as described in the Selling Guide, A1-1-01, Application and Approval of Lender.
Updated Selling Guide Topics
- B4-2.1-02, Ineligible Projects (List of Ineligible Project Characteristics, Non-Incidental Business Arrangements, Commercial Space and Mixed-Use Allocation
- B4-2.3-02, Co-op Project Eligibility
- B4-2.3-03, Legal Requirements for Co-op Projects
- B4-2.3-04, Loan Eligibility for Co-op Share Loans
- B4-2.3-05 Geographic-Specific Co-op Project Considerations (New Topic) Effective Date Lenders may adopt these changes immediately and are required to implement all changes for co-op share loan applications dated on or after April 4, 2016.
Project Eligibility Review Service for Established Condo Projects
Fannie Mae’s Project Eligibility Review Service (PERS) is a fee-based review process required for certain condo, co-op, and PUD projects. With this update, Fannie Mae is creating a new optional streamlined PERS process for established condo projects. Lenders may use this process for eligible projects or for projects that do not appear to meet our requirements, but the lender believes the project warrants consideration. This expanded review option will enable Fannie Mae to gather data about trends impacting condo markets nationally, while potentially expanding the availability of conventional financing in projects that are not currently eligible. The cost to the lender will be a review fee of $1,000.
Updated Selling Guide Topics
- B4-2.1-01, General Information on Project Standards (Project Review Methods, Delivery Requirements)
- B4-2.2-02, Full Review Process (Overview, Unit and Project Types Eligible for a Full Review )
- B4-2.2-06, Project Eligibility Review Service (PERS)
Effective Date
Lenders can begin submitting established condo projects for a PERS review immediately
Updates to HomeReady
On September 29, 2015, Fannie Mae released the details of its HomeReady mortgage loan offering. Today, the Selling Guide was updated to incorporate the following updates or clarifications to HomeReady:
Non-borrower household income: Fannie Mae is expanding the definition of a non-borrower household member to eliminate the requirement that he or she be a family member and adding a requirement that the non-borrower household member affirm his or her intent to occupy the property for a minimum of 12 months. Verified income from a non-borrower household member may be considered a factor to allow a higher debt-to- income ratio in Desktop Underwriter. The HomeReady Non-Borrower Household Income Worksheet and Certification (Form 1019) has also been updated to reflect these changes.
Eligible ARM plans: To provide additional flexibility, Fannie Mae is adding two additional ARM plans that are eligible for HomeReady loans as whole loans (in addition to the MBS options previously communicated): Plan 2727 (seven-year ARM) and Plan 2729 (ten-year ARM).
Minimum borrower down payment and contribution requirements: B5-6-03, HomeReady Mortgage Underwriting Methods and Requirements was corrected to reflect the new minimum down payment requirements for two- to four-unit properties. The minimum contribution requirements for sweat equity have also been clarified for two- to four-unit properties.
Homeownership education: The Announcement indicated that for HomeReady loan applications dated on or before April 1, 2016, Fannie Mae would accept homeownership education completed by a borrower within six months of the loan application date as long as that education was obtained in-person from a HUD-approved counseling agency. In recognition of the fact that HUD-approved counseling agencies provide homeownership education in other formats, the “in-person” portion of this requirement is removed. In other words, as long as the homeownership education is provided by a HUD-approved counseling agency and a certificate of completion from the HUD agency is in the loan file, Fannie Mae’s education requirement for HomeReady loans during this transition period is satisfied. Furthermore, Fannie Mae is extending the transition period from April 1, 2016 to September 30, 2016. This clarification did not require any updates to the Selling Guide.
Updated Selling Guide Topics
B5-6-02, HomeReady Mortgage Loan and Borrower Eligibility (Eligible Loan Types)
B5-6-03, HomeReady Mortgage Underwriting Methods and Requirements (Minimum Borrower
Contribution for Purchase Transactions, Non-Borrower Household Income, Sweat Equity)
Effective Date
Refer to the effective dates in Announcement SEL-2015-10 pertaining to HomeReady mortgage loans.
About the Author
Anna DeSimone is President and Founder of Bankers Advisory and Principal of CliftonLarsonAllen LLP. She can be reached at
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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