New Mexico condo associations must budget 15% to reserves by January 4
New Mexico condo associations must budget 15% to reserves by January 4
2026-09-15 · New Mexico · Compliance
From January 4, 2027, a New Mexico condominium association that budgets less than 15 percent of its annual assessment income to reserves can make its own units unfinanceable in the conventional mortgage market. Fannie Mae and Freddie Mac each raised the minimum from 10 percent on March 18, 2026, in coordinated documents issued the same day.12
What the two documents say
Fannie Mae's Lender Letter LL-2026-03 states the change and the date together:
“We are revising our reserve allocation requirement for capital expenditures and deferred maintenance from a minimum of 10% to a minimum of 15% of the annual budgeted income assessment. All other requirements related to replacement reserves and the review of budget adequacy remained unchanged.”
“Effective: Lenders must comply with this requirement when utilizing the Full Review process for all loan applications dated on or after Jan. 4, 2027.”
Freddie Mac's Bulletin 2026-C matches it: “The reserve allocation for capital expenditures and deferred maintenance is being increased from a minimum of 10% to a minimum of 15% of the annual budgeted assessment income.”
Why the agencies say they did it
Fannie Mae's stated rationale is worth reading in full, because it is also the argument a board will hear from owners who object to the increase:
“we have seen a correlation between condo projects with underfunded reserves for capital expenditures and those in need of critical repairs. Condo projects with inadequate reserves typically do not have the requisite resources to maintain the physical condition of the project or to fund unexpected operating expenses. As a result, unit owners can experience substantial financial hardship from unexpected special assessments or higher regular assessments or dues, leading to mortgage default or foreclosure.”
The escape hatch, and the trap inside it
The flat 15 percent is not the only route. An association that funds at the level a reserve study recommends is not held to the percentage — but the rules for that study changed on the same day, and the new rules bite sooner.
Fannie Mae: “Current policy allows lenders to obtain a reserve study to demonstrate a project has sufficient reserves when it is not budgeting for replacement reserves that meet our Selling Guide requirements. We are updating this policy to clarify when lenders use this flexibility, they must verify the project's budget includes the highest recommended reserve allocation amount in the reserve study… NOTE: Lenders are no longer permitted to use the baseline funding method which is the option that allows the reserve cash balance to approach but never fall below zero.”
Freddie Mac states it as a two-part test: the budget “must include the highest recommended reserve allocation amount in the reserve study,” and that amount “must not be based on a baseline funding method — where the reserve cash balance approaches but never falls below zero.”
Those reserve-study rules took effect August 3, 2026 — six weeks ago. A New Mexico association that commissioned a reserve study earlier this year on a baseline funding model has bought a study that no longer qualifies it for anything.
An unexpired review does not protect you
Freddie Mac closes the obvious loophole in terms: “If a Seller has an unexpired project review completed prior to the effective dates listed above, the Seller must still confirm that the project complies with these new Guide requirements for applications received on or after the effective date of such requirements.”
A project review completed in 2026 therefore says nothing about January 2027. The test is applied at the loan application, not at the review.
Why this is harder in New Mexico than the percentage suggests
The figure is budget-relative; the capital items are not. A 15 percent reserve line on a twelve-unit Albuquerque or Santa Fe association is the same percentage of a far smaller pot, applied against the same indivisible expenditures — one roof, one boiler, one parking lot, one stucco cycle. Percentage floors scale; roofs do not.
New Mexico associations also have no state-law reserve mandate to fall back on. The Condominium Act and the Homeowner Association Act impose no reserve requirement, no reserve-study requirement and no funding standard. That means the secondary market's rule is not a floor beneath a state floor — for most New Mexico associations it is the only floor there is, and it arrives with a date attached.
What a board faces before January
The decision has to be made at the next budget, not at the next sale. There are three choices and they are not equally available late: raise the reserve line to 15 percent of budgeted assessment income; commission a reserve study that is not baseline-funded and budget its highest recommended allocation; or do neither and accept that a buyer's lender may not be able to lend on a unit in the building.
The third option is rarely chosen deliberately. It is usually chosen by not deciding — which is how a board discovers the rule from a failed closing in February rather than from a budget meeting in October.
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