Fannie Mae has released the first in a series of changes to conventional financing approvals for condominiums and they, combined with DC’s poorly-drafted B 26-0495 bill making its way to a city council vote, may cross condos off DC home buyers’ lists.

Last week I wrote about the upcoming FNMA changes. Now, here’s a timeline for new guidelines, and what they will mean for condominium buyers, sellers and owners as they take effect.

Big changes are coming to the condominium market, driven by Fannie Mae’s new underwriting guidelines and a terrible DC condo insurance bill. Together, they raise insurance costs, association fees, lender scrutiny and shrink the buyer pool, making condos harder to finance and sell. Despite rhetoric to the contrary, Fannie Mae’s moves are designed to further privatization goals with little or no regard for their effect on the condo market. In DC, condo owners are in for a rude awakening, particularly if the city council passes that bill. If you own, or are planning to buy or sell a DC condo, read on.

Quick Navigation

• Timeline
• What Does It Mean For Condo Owners?
• What Does It Mean For Condo Buyers?
• What Does It Mean For Condo Sellers?
• Sticking It To The Little Guy
• What Does It Mean For FNMA?
• Gaming The Game
• What You Can Do Right Now In DC

Timeline

In Effect Now:

• The Waiver of Project Review (WPR) has been expanded to cover boutique buildings with 2–10 units. Buildings with 5–10 units and no master association affiliation now qualify for a waiver;
• The 50% investor concentration limit has been removed for established projects under full review. Investor-heavy buildings are no longer automatically disqualified;
• The under 50% owner occupancy provision is now eliminated for established projects;
• Insurance Requirements are simplified. Inflation guard protection is no longer required; Roofs no longer need separate replacement cost coverage, but can now be based on actual cash value (policies still must cover 100% of overall replacement cost).
• Individual owner HO-6 policy deductibles are capped at the greater of 5% of the coverage limit or $2,500.

These initial changes seem positive, at least from a borrower’s perspective. However, that’s where the joy ends.

On July 1st:

• The Per-Unit Association Deductible Maximum will be $50,000 per unit;
• HO-6 individual policies are required when the association master policy doesn’t cover the unit interior or carries a deductible. This means condo owners’ insurance costs will rise. Also, if it is not already present in the condominium CC&Rs, associations are likely to add a Waiver of Subrogation clause requirement for individual policies. In the District of Columbia, city council members are trying to make that a requirement for all condos, to unit owners’ detriment.

On August 3rd Or Sooner:

• The Limited Review option for lenders is eliminated. All projects must pass a strict Full Review if they don’t qualify for a waiver;
• Strict Reserve Studies will be required. Baseline funding that allowed associations to maintain low reserves is no longer allowed. Lenders must analyze condo association budgets in detail going forward. The financial health of associations will carry much more weight in the lending approval process. Also under greater scrutiny will be the building’s maintenance and structural integrity.

While the effective date for these changes is August 3, 2026, Fannie Mae has encouraged lenders to start implementing them immediately.

What Does It Mean For Condo Owners?

• Higher Association Fees: To meet the new 15% reserve funding requirement (up from 10%),Many associations will likely need to raise monthly common charges;
• Increased Scrutiny on Sales/Refinances: The “limited review” process for sales is eliminated, requiring most condos to undergo a more rigorous “full review”. This means more extensive lender questionnaires and documentation regarding building finances and maintenance;
• Special Assessments: Boards may pass special assessments to fix “underfunded” reserves to meet the new 15% threshold;
• Insurance Costs and Requirements: While the guidelines are more flexible on high deductibles (up to $50,000) and allow ACV roof coverage to lower insurance premiums, individual owners may be required to maintain enhanced HO-6 (interior) insurance policies if the master policy does not cover it;
• Increased Risk of “Non-Warrantable” Status: The move to full reviews could cause more projects to be deemed non-warrantable (ineligible for conventional financing), which can lower property values and make condo homes harder to sell or refinance when the time comes.

What Does It Mean For Condo Buyers?

• More confusion over inventory choices and hesitation in decision-making. Since details of a condominium’s financial status are not published in listings, and few listings of of condos that do not meet conventional financing guidelines mention ‘nonwarrantability’ in their marketing (notations like “cash only” or “specialty loan options” are a clue for those that do), condo buyers and their agents are required to perform a great deal more research before making an offer. Some of that information may not be available. Management companies are notoriously unresponsive, they often want a fee for information, or simply refuse to provide it. This will lengthen the contract to close cycle and turn some buyers away completely;
• Sales of condos already underway that will not close until after these changes take effect may see a disruption in the loan approval process, and some loans may subsequently be denied;
• Higher monthly costs due to mandatory increases in reserve contributions from 10% to 15% next January will likely lead to higher condo association fees for buyers, coupled with higher insurance costs to meet new H0-6 requirements;
• Reduced financing options for the many DC associations that will not be able to pass full review;
• If the city council’s ill-conceived B 26-0495 “Condominium Insurance Amendment Act of 2025” bill is passed, buyers may find the prospect of condo ownership so unappealing that they forgo it altogether.

Buyers are likely to see a more expensive market as options dwindle to well-funded, high-demand buildings.

Read more here

What Does It Mean For Condo Sellers?

• A shrinking Buyer Pool. Because condo lending requirements will be much stricter and costs associated with purchasing and owning a condo will be higher, experts expect a shrinking buyer pool as a result. That means condos will sit on market longer, and are more likely to see value reductions;
• Sales of condos not yet closed when these changes take effect could be disrupted during the loan approval process, and some sales may fall out of contract as a result;
• With lenders required to review building safety records, structural reports, and repair projects, securing a mortgage loan in buildings with significant deferred maintenance or outstanding safety violations will be difficult to impossible. Owners in those associations will only be able to sell for cash, or with the use of higher-rate specialty loans buyers tend to avoid. Both drive prices down.

All condo sellers but those in premium buildings are likely to find themselves in a market that is devaluing their property and making it difficult to sell.

Read more here

Sticking It To The Little Guy

IMO, some of these changes are positive and many needed to be made, but they’re being poorly instituted. Others are ill-timed and one-sided. Few are calling out the underlying reasons for this action.

Like the Fed’s drastic, rapid-fire interest rate increases in 2022 -2023, FNMA’s action is a knee-jerk response to its own inaction. It is too much, too fast, and too late.

Fannie Mae let the low reserves and deferred maintenance issues languish too long. Now, under this sudden rule change, associations simply do not have time to bring their reserves up to new minimums. The requirements should have been incrementally raised over the past five years instead of jacking them up wildly on short notice.

For condominiums in the District that can’t quite reach compliance by the deadline using dues increases and spending cuts, special assessments are on the table. Do you know what happens if a condo owner can’t pay a special assessment? They face continuing late fees and interest (inflating the debt), and potential legal action, including a lien on their property and ultimately, foreclosure. Condo boards may have the right to revoke rights to the use of amenities such as pools and parking and, in some cases, utilities. The other option is simply to let warrantability go. What happens then is loss of buyers’ ability to finance with a conventional mortgage loan. They’ll have to pay cash, or suffer the high interest rates, higher downpayment requirement, and less advantageous terms of a ‘specialty loan.’ This often results in longer selling times, price reductions and loss of value for all units in the building over time. That equals loss of equity. This comes at a time when condos have already lost value, in the District and across the country, due to market and economic conditions.

Creating rules that inflate insurance costs for individual owners at a time when insurance + taxes constitute over 50% of monthly housing costs for many borrowers is ill-conceived.  The cost of homeowners insurance has surged by roughly 70% over the past five years. This will be another deterrent to condo ownership.

FNMA claims the elimination of investor limits will boost market activity, but for whom? Investors, not owner-occupants. Yes, removing the 50% investor concentration cap makes it easier to buy units in buildings with many rentals, but what homeowner wants to live in those buildings? They are generally under-funded, under-maintained, and under-improved. You don’t build relationships with your neighbors because they’re always changing. There’s no sense of community. These buildings generally have trouble filling seats on the board, discourage raising dues for maintenance and modernization, and end up losing value over time. That’s not what today’s homebuyer is looking for.

The waiver of full project review for small buildings is nice for flippers, but those are exactly the projects that should be more carefully scrutinized as they are often conversions of old buildings by smaller investors, sometimes inexperienced, who are more concerned with profit than habitability.

For many of the District’s condominiums, these rules are likely to lead to Fannie’s blacklist and a nonwarrantability label. Many are designed to benefit businesses over individuals. For DC condo owners; higher premiums, higher dues, potential special assessments and, for some, loss of their homes.

What Does It Mean For FNMA?

Shoring up the quantity of its loans moves Bill Pulte, Director of FHFA and self-appointed chairman of both GSEs, towards his goal of privatization; selling shares in a potential $500 billion valuation, while keeping them under federal conservatorship (Privatized Profits, Socialized Losses). It’s a move that will profit shareholders and cronies, but not the public.

Let’s be honest: the 2026 condo lending overhaul is a dream come true for Fannie Mae’s balance sheet. The changes are pitched as a fix for affordability and access, but the winners are Fannie Mae’s shareholders and the GSE itself. Pulte is preparing the fatted calf.

Bigger, Riskier Loan Pool (But More Revenue)
By expanding the insurance options (allowing actual cash value for roofs, higher deductible caps) and raising the conforming loan limit ($1,249,125 in the District) for one-unit properties, Fannie Mae has dramatically increased the number of condos eligible for conventional loans. “Tens of thousands” of previously ineligible units are now back in the game, and every new loan is another asset on Fannie’s books. But let’s look back for a moment.

More Loans, Higher Risk Déjà vu

Pre-2008, Fannie Mae and Freddie Mac loosened lending standards, expanded their mortgage purchases, and prioritized volume over prudence. The goal then was to grow the pool of buyers and juice loan volume, hoping that home prices would keep rising. It was a greed-soaked play fueled by corruption. Riskier loans, more mortgage-backed securities (like the $200 billion the president ordered FNMA to buy in January), and a system that finally crashed and shook both the national and international economy. Taxpayers were on the hook then, and we’re still on the hook now.

Fast-forward to 2026:

FNMA is again loosening the rules, eliminating minimum credit score rules, lowering insurance demands, raising loan limits, welcoming back previously “ineligible” condos en masse, and–this time–introducing crypto as collateral for mortgage down payments for standard conforming loans. The investor cap is out, so more units in rental-heavy buildings will qualify regardless of whether they’re underfunded or poorly maintained. Higher reserves and insurance requirements will force costs onto condo owners.

Low Credit Score? No Problem

This move to eliminate a hard minimum credit score, replacing it with a “holistic” risk assessment, including rent and utility payment data, means more potential borrowers, especially those underserved by traditional credit models. And in some sense, this is good, since the monopolistic credit scoring industry in the U.S. badly needs reform.

But… in terms of huge loans like mortgages, is it prudent? Is the same FNMA behavior that helped inflate the 2008 housing bubble back, now dressed in the language of “inclusion” and “market expansion”?

Critics say it’s absolutely a return to loose 2008-style underwriting standards, where the drive to increase homeownership and profits led to approving borrowers who could not afford their loans and never should have qualified for them. In the aftermath of the mortgage crisis, the Financial Crisis Inquiry Commission (FCIC) concluded in its 2011 final report that the push to approve loans for borrowers who could not afford them (many of whom defaulted and later sued) was driven by Fannie Mae and Freddie Mac, mortgage lenders, Wall Street, and regulators who prioritized volume and profit over credit quality, pushing toxic mortgages into the financial system.

Who was held accountable? Financial institutions, primarily, through billions in fines and civil settlements with the U.S. government that helped them avoid prosecution of high-profile execs. Bank of America, Goldman Sachs, JPMorgan Chase, and Credit Suisse paid large penalties for misrepresenting risks on mortgage-backed securities. They made mountains of money, and very few of their executives faced criminal charges. Crime does pay for some. For instance, mortgage lenders such as Countrywide Financial and New Century were heavily blamed for promoting subprime loans, but Countrywide head Angelo Mozilo ducked prosecution and retired to pricey Monticito, CA, taking with him about $44 million plus $140 million from the Countrywide stock he sold off shortly before the market crash.

The government and regulatory officials who ignored oversight, deregulation, and policies that allowed risky behavior to go unchecked were not held responsible. Only the home owners damaged by foreclosures, credit ruination and devaluation of the real estate market for nearly a decade paid the price.

We don’t have to wonder if this could happen. We’ve watched it happen. Why do it again, then? For the same reasons it was done before. Greed and corruption. Those who profit know we don’t pay enough attention and forget too soon.

There are already red flags:

Rising Delinquencies: Data from 2024 and 2025 indicated that mortgage delinquencies were already trending upward, particularly within FHA and VA loan segments, suggesting elevated risk even before the rule changes.

Credit Score Inflation: Some analysts argue that a 620 score today often reflects even weaker underlying credit than in the past, meaning removing the floor could involve even riskier borrowers.

Profitability (and Privatization) Above All
These updates position Fannie Mae for maximum profitability, setting the stage for an eventual privatization push. By showing higher loan volumes, a more “diverse” borrower mix, and fewer regulatory headaches, Bill Pulte and FHFA are painting a picture that appeals to Wall Street and would-be investors while keeping the GSE in conservatorship, a risk still quietly socialized.

At What Cost to Actual Homeowners?
Yes, more condos qualify for Fannie-backed loans. But many of these buildings are now facing higher reserve requirements, stricter oversight, and a new wave of special assessments; costs assessed directly to owners and buyers but don’t appear on FNMA’s balance sheet. Meanwhile, with the investor cap lifted, Fannie can churn more loans in investor-heavy, rental-dominated buildings, even as owner-occupants see their communities and property values destabilized.

Juicing Fannie Mae’s Numbers For The Next Chapter
This isn’t about fixing the condo market. It’s about privatizing Fannie Mae and Freddie Mac.  The policies might bring a short-term bump in loan volume and revenue, but they do little to address the underlying instability, especially in a city where so many associations are already struggling to keep up. More likely, the market will be harmed, any many condo owners with it.

Gaming The Game

Hindsight is 20/20, right?

If the game is beginning again, what would you do differently?

Here’s what I’d do:

• Avoid condos
• Buy low and sell high
• Time it right
• Take out affordable loans
• Use the BRRRR method
• Make improvements that increase value
• Don’t leverage too far
• Watch the market carefully for stress
• Expect another crash
• Dump it all at the top
• Wait 2 years for the market to adjust down and save
• Buy at the bottom and continue to acquire properties with projections of 10+ years of positive cash flow until everyone’s in the game. Then stop and hold. Don’t leverage unless rates make it crazy not to or maintenance demands it. If you can hold through another cycle, you can retire in Montecito.

What You Can Do Right Now In DC

Prices remain elevated for many District locations and home types, making it tricky for buyers to acquire properties with good margins. And I’d still avoid condos unless they’re premium, and located in platinum buildings. There are other options:

• Target “Distressed But Solid” Properties: Look for homes where sellers are motivated due to life changes, job relocations, or properties that have been lingering on the market. These deals often come with some price flexibility and less competition
• Investigate Emerging Neighborhoods: Identify properties in expanding neighborhoods adjacent to solid, well-ranked neighborhoods. They will build value better than properties you pay a premium for, and offer lower risk
• Learn the BRRRR Method And Practice It On Paper: Some buyers with capital can buy, rehab, and rent in stable neighborhoods. It’s important to know the rules and game out a few scenarios before attempting it IRL
• Set a Long Hold Timeline: The time is perfect for Buy And Hold. You should have 5-7 years to build equity. Choose properties you can rent immediately and improve incrementally.

Disclaimer: This content is for general informational purposes only. Some content is the opinion of the author, not Compass or its affiliates or subsidiaries. It is not to be considered investment advice, or financial advise. The author is not a professional investment expert or financial advisor. Always consult profesional advisors before taking action. The author is a licensed real estate agent in DC and Va, however remarks herein are general and based on market and economic conditions when written, and these conditions, along with local, national and international events can change without notice. Everyone’s circumstances are different. Always consult your local, expert real estate agent for current, personalized  advice before making real estate decisions.