Starting August 3rd, Fannie Mae is retiring the Limited Review process. Over 90% of USVI associations relied on it — here's what changes and what buyers, sellers, and realtors need to do now.
The Easy Button is Gone
Fannie Mae just raised the bar significantly for condominium financing — and the impact on local associations is immediate and widespread. Starting August 3rd, the new Fannie Mae (and Freddie Mac) regulations will require all associations to undergo "Full Reviews" (vs. the previous "Limited Review" requirements) for every loan transaction. Over 90% of condo associations in the USVI used the Limited Review process for conventional financing approval.
Key Highlights
- Reserve Requirements: Increasing from 10% to 15% of an association's budget annually, regardless of total amount held in reserves.
- Full Review: All associations must undergo a Full Review — more thorough reviews on By-Laws, HOA budgets, reserve studies, board minutes, special assessments, appraisals, insurance evidence, deferred maintenance, and any sign of critical repairs.
- Effective Date — August 3rd: All clients must have a loan application on file for the condo association before August 3rd to use the sunsetting Limited Review process.
- Investment Concentration: Removal of the 50% cap for investment unit concentration.
- Exemption: Associations with 10 or fewer units are exempt (previously 4).
Why This Hits USVI Condos So Hard
Nearly every warrantable [eligible] association on island used the Limited Review process for financing. This will render most associations ineligible for conventional financing overnight. Full reviews are extremely rigorous. The 10% (now 15%) reserve rule required associations to set aside 10% of their annual budget for unforeseen events, regardless of current reserves. Many struggle to meet this hurdle already, while others choose not to meet it, feeling their reserves are adequate. Either way, most just don't have what it takes to meet the new requirements right now. It's not that they can't qualify in the future, but Fannie hit the reset button. Our associations will need to put in some hard work to meet the new standards.
The removal of the 50% Investment cap is a move in the right direction. Fannie is basically saying they are putting safety and financial soundness above all, versus worrying about occupancy type. This helps create a better asset for the American taxpayer — much safer than an underfunded, owner-occupied building with crumbling infrastructure.
What This Means for You
Buyers: Many buyers who qualified last month may face financing roadblocks starting this summer. For properties in non-warrantable associations, they will most likely need to turn to alternative loan products — which typically come with higher down payments and higher interest rates. These often include short-term adjustable rate mortgages (ARMs) or balloon products that carry additional risk and cost for the borrower.
Sellers: Properties in non-warrantable associations may sit longer on the market or require price adjustments to attract cash buyers or those using portfolio lenders.
Realtors: Stay informed about condo warrantability. Communicate and start conversations early about potential higher down payments and rates on alternate financing. Connect buyers early with lenders experienced in non-conventional financing.
This is where Virgin Bay really shines — we already have a product for non-warrantable condos. We continue to find ways to bring products that really matter here in the USVI, something that no broker or lender has done here in the past 20 years. It's not like banks are dying to come here and do business — we are out there sourcing them, negotiating with them, and creating products specifically for the USVI.
Virgin Bay will continue to follow these changes and provide updates on associations as they become warrantable under the Full Review requirements.