In our last post, we shared a few high-level observations from the recent Fannie Mae update.
There is one point that seems significant, and represents a meaningful shift. It also aligns with broader changes across Fannie Mae and Freddie Mac.
Baseline funding is no longer accepted in lending reviews, meaning reserves can no longer be planned using zero funds as the minimum balance.
This is a signficant change.
For years, baseline funding has been an accepted methodology within reserve studies. That is no longer the case in lending contexts.
As a result:
- Reserve plans can no longer rely on reaching a zero balance at any point as its minimum balance.
- Funding models that fall below recommended levels may face increased scrutiny.
- Lenders and reviewers are placing greater weight on stronger, more stable funding approaches.
Boards still retain discretion. However, that discretion now exists within a different reality. A baseline approach may create obstacles when financials are reviewed for lending, refinancing, or marketability.
We will share additional thoughts in our next post regarding Fannie Mae’s requirement that the highest recommended funding plan be followed.
If you have a property or situation you are already thinking about, feel free to reach out. If helpful, you can also request a reserve study proposal here.
