FHA did not follow Fannie and Freddie — two federal condo standards now disagree
FHA did not follow Fannie and Freddie — two federal condo standards now disagree
2026-09-15 · New Mexico · Compliance
The conventional mortgage market rewrote its condominium rulebook in March 2026. FHA did not follow — so from January a New Mexico condominium can hold a valid FHA project approval and still fail the conventional test on the same day.
What was checked
HUD issues condominium policy through Mortgagee Letters. The 2026 letters, reviewed in full, are these: ML 2026-02 (January 22, 2026), on a mortgagee's sale of a beneficial interest and declaration of trust submission; ML 2026-03 (January 29, 2026), on bidding at foreclosure and post-foreclosure sales; ML 2026-06 (June 23, 2026), on Limited 203(k) draw requests; ML 2026-08 (June 23, 2026), on loss mitigation and trial payment plans; and ML 2026-09 (June 23, 2026), eliminating certain requirements for FHA mortgagee approval and quality control. ML 2025-23 (December 11, 2025) set the 2026 forward mortgage loan limits.1
None of them touches condominium project approval, reserves, owner-occupancy or master-policy insurance. ML 2026-03 is in fact addressed to HUD's standard condominium distribution list, including “All Eligible Submission Sources for Condominium Project Approvals” — so the channel is open. HUD simply has not used it for condominium policy this year.
The gap that creates
Since August 3, 2026, a conventional lender may no longer use Limited Review (Fannie Mae) or Streamlined Review (Freddie Mac). From January 4, 2027, a conventional Full Review requires a 15 percent replacement-reserve allocation. FHA project approval continues to run on HUD Handbook 4000.1 and the Condominium Project Approval and Processing Guide, with their own owner-occupancy percentage and financial-condition tests, unchanged.
Two federal standards, applied to the same building, now ask different questions.
Why it matters to a New Mexico board which one it passes
FHA financing is disproportionately important in New Mexico's entry-level market, and FHA-approved condominiums are one of the few genuinely affordable ownership entry points in Albuquerque and Las Cruces. If conventional tightening prices small New Mexico projects out of the conventional market while FHA stays put, FHA approval stops being a nice-to-have and becomes the load-bearing route to a sale.
That has a maintenance consequence most boards treat as clerical. FHA project approval is valid for three years and must be recertified. A lapsed approval is not a paperwork problem; it is the removal of the financing route that may be carrying the building's resale market.
The assumption to stop making
“We passed FHA recertification, so we are fine” was a defensible shorthand until this year. It is not one in January. FHA recertification tests HUD's criteria. It says nothing about whether the association's reserve line meets a conventional Full Review, whether its master policy's per-unit deductible is inside the new $50,000 ceiling with matching unit-owner policies, or whether it has a non-baseline reserve study.
The reverse assumption is equally wrong. A project that has quietly satisfied conventional lenders for years may have let its FHA approval lapse, and will discover it when a buyer arrives with an FHA pre-approval.
What to establish, in one afternoon
Three questions, each with a documentary answer. Is the project currently on HUD's approved condominium list, and what is the expiry date of that approval? What is the project's status in Condo Project Manager, the system a conventional lender will check? And does the association's current budget carry a reserve allocation that would satisfy a Full Review in January — 15 percent of annual budgeted assessment income, or the highest recommended allocation from a reserve study that is not baseline-funded?
A board that can answer all three knows which financing routes its owners actually have. A board that can answer none is relying on whichever route the next buyer happens to bring.
One more federal item pointed at New Mexico
HUD has separately proposed to let manufactured homes have a chassis-free upper storey — “Revising the Definition of 'Manufactured Home' to Lower Housing Costs,” published at 91 FR 35632 on June 12, 2026, with comments closed August 11, 2026.2 The proposal would provide “that a transportable section of a manufactured home serving as part of an upper floor of a manufactured home would not need to be transported or built on a permanent chassis.”
New Mexico has one of the higher manufactured-housing shares in the country, and covenants here that exclude “mobile homes” or require “site-built construction” were drafted against a single-storey, permanent-chassis image the federal government is in the middle of dismantling. A final rule is the thing to watch.
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