When it comes to securing Fannie Mae approval for a condominium project, many associations focus on physical condition, owner occupancy, or reserve funding. But one of the most commonly overlooked—and critically important—requirements is fidelity bond coverage. This element of Fannie Mae’s eligibility criteria is often misunderstood, yet it plays a central role in determining whether loans for units in your condo project can be sold to the secondary mortgage market.
If your condo association isn’t properly insured with the right type and amount of fidelity coverage, it can trigger a rejection during the condo project review. That means unit sales or refinances involving conventional loans could be delayed or denied altogether. Understanding this requirement and how it applies to your specific situation is essential for staying compliant and financing-ready.
What is Fidelity Bond Coverage in a Condo Association?
Fidelity bond coverage, often referred to as employee dishonesty insurance, is designed to protect a condominium association or homeowners association from losses related to fraudulent or dishonest acts committed by people in positions of financial authority. These include association board members, officers, employees, or third-party management firms who handle or access association funds.
In a condo setting, the board of directors or the management company is responsible for collecting assessments, managing reserve accounts, and overseeing major financial transactions. Without adequate protection, funds could be at risk. Whether through embezzlement, check fraud, or unauthorized fund transfers, dishonest activity can cause major financial harm to the community and its homeowners.
Fannie Mae requires adequate fidelity bond coverage to safeguard these funds and ensure the financial health of the development. This is not just a suggested best practice—it’s a rule for approval.
Why Fannie Mae Requires Fidelity Bond Insurance
Fannie Mae’s primary function is to purchase mortgage loans from lenders and package them into mortgage-backed securities. In doing so, it assumes a portion of the risk associated with those loans. To mitigate this risk, it sets specific requirements for condo projects that lenders must follow if they want their loans to be eligible for resale to Fannie Mae.
From Fannie Mae’s perspective, condo associations that lack proper financial oversight or protections are high-risk environments. If an HOA experiences internal fraud and lacks the means to recover lost funds, the financial stability of the entire project could be compromised. That can lead to increased delinquency rates, deferred maintenance, or special assessments—issues that ultimately impact property values and loan performance.
Fidelity bond insurance ensures that, even if a bad actor within the association misappropriates funds, the financial damage can be repaired without placing the burden on homeowners or jeopardizing the project’s stability.
How Fannie Mae Calculates the Required Fidelity Coverage
Not all condo projects are required to carry this insurance. Fannie Mae only mandates fidelity bond coverage if the association or its management company handles a certain amount of money. Specifically, the requirement applies when an HOA or condo association:
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Collects more than $5,000 per month in assessments, and
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Holds reserve funds totaling $25,000 or more
Once a project meets that threshold, Fannie Mae requires fidelity coverage in an amount equal to three months of total assessments on all units, plus the full amount of reserves currently held.
For example, if your association collects $80,000 in monthly dues and has $400,000 in reserves, the minimum coverage required would be calculated as:
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3 months of assessments = $240,000
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Plus reserves = $400,000
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Minimum total coverage = $640,000
If your fidelity bond is under that amount, your project will be considered non-compliant with Fannie Mae standards.
Who Must Be Covered Under the Fidelity Bond?
It’s not enough to simply carry a policy with the correct dollar amount. The coverage must also apply to all individuals and entities that have access to or control over the association’s funds. That includes:
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HOA or condo association board members
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Officers and volunteers handling finances
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Employees of the association
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Third-party property managers or management companies
Fannie Mae requires that the management company be specifically named or included via an endorsement on the policy if they are involved in financial activities. This is a common point of failure, as many associations assume that their base policy covers third parties when it often does not. Without the proper endorsement, the project will be rejected during the condo approval process.
Signs Your Condo May Not Be in Compliance
Many associations assume they’re covered because they have some form of crime or employee dishonesty insurance. But meeting Fannie Mae’s specific standards is more nuanced. Here are a few common red flags:
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The policy hasn’t been updated to reflect increases in monthly dues or reserves
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The management company is not included in the coverage
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The coverage amount is based on individual units instead of total collections
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There’s no written proof of the coverage available when submitting the project for review
Another issue is the timing of policy renewals. If the fidelity bond lapses—even temporarily—during a condo approval or loan underwriting process, it can derail transactions.
What Happens if You Don’t Meet the Requirements?
If your condo project is missing adequate fidelity bond coverage, lenders may not be able to approve conventional loans for units in your development. This impacts not just buyers, but also current homeowners trying to refinance or access home equity.
In some cases, lenders may allow a workaround with a limited project review or lender-specific overlays, but these are becoming less common, especially in today’s tighter lending environment. Without full approval, your project is effectively cut off from access to conventional financing—a major disadvantage in competitive housing markets.
It’s also worth noting that while you may not have experienced issues in the past, many lenders and underwriters are increasing scrutiny in response to secondary market pressures. What passed last year may not pass today.
How to Get Your Condo Back in Compliance
If you’ve discovered that your project is underinsured or lacks the required endorsements, the fix is usually straightforward:
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Contact your insurance agent to update the fidelity bond amount to meet the required threshold
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Request an endorsement or rider that explicitly names your management company
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Ensure the association is listed as the insured party and that the policy is current
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Keep documentation easily accessible for submission during condo project reviews
Working with a professional who specializes in Fannie Mae condo approvals can streamline this process. They can identify potential issues in your documentation, guide you through insurance updates, and help package your project approval submission in a way that reduces the risk of rejection.
Why This Matters to Condo Boards, Developers, and Real Estate Professionals
For condo boards and HOA members, maintaining Fannie Mae approval is essential to protecting property values and ensuring marketability. Without it, homeowners may be limited to cash buyers or loans with unfavorable terms.
Developers rely on Fannie Mae project approval to make their new construction or conversions eligible for conventional financing. Without approval, selling units becomes significantly harder, which can slow down or stall entire development timelines.
Real estate agents, mortgage lenders, and buyers also feel the impact. A non-compliant condo association means fewer financing options, longer closing timelines, and frustrated clients.
Simply put, making sure your project meets Fannie Mae’s fidelity bond coverage rules isn’t just about checking a box—it’s about keeping your property financially accessible and competitive.
Get Expert Help with Fannie Mae Condo Approval
If you’re not 100% certain that your condo project meets all of Fannie Mae’s insurance requirements—including fidelity bond coverage—now is the time to take action. Small oversights can lead to big delays, especially when buyers or owners are depending on financing to close on time.
At Condo Approval Professionals, we offer expert-level guidance for every phase of the approval process. Our team will assess your current insurance policies, help calculate the proper coverage, coordinate updates with your broker, and prepare your submission to Fannie Mae for a smoother review process.
Don’t risk delays or denials due to a missing clause in your insurance policy.
Schedule a professional review today and ensure your condo is ready for full Fannie Mae condo approval without surprises.