Why is baseline funding no longer accepted for the reserve-study exception?

For loan applications dated on or after August 3, 2026, Fannie Mae does not allow a baseline-funding reserve study to replace the Full Review reserve-allocation budget test. Baseline funding does not independently fail a project whose budget satisfies the applicable allocation test.

What changed?

Fannie Mae describes baseline funding as a method that allows reserve cash to approach, but not fall below, zero. LL-2026-03 and the current Selling Guide say that method may not be used to waive the reserve-allocation requirement.

The distinction matters:

• Budget passes the allocation test: the baseline label does not create a separate failure under this rule.
• Budget is below the allocation test: the association cannot use a baseline-funded study as the substitute.
• Another study method is used: substitution is still not automatic. The lender must apply every reserve-study condition, including the highest recommended allocation and the content requirements.

The current Full Review test remains 10% of annual budgeted assessment income. LL-2026-03 makes 15% mandatory for Full Review loan applications dated on or after January 4, 2027.

What should the board gather?

Bring the current budget, annual budgeted assessment income, the reserve-study completion date, the stated funding method, and the study's highest recommended reserve allocation. Those facts answer different parts of the rule and should not be collapsed into one “funded” label.

This is an informational explanation of one Fannie Mae path. It is not lender approval, a project-eligibility determination, or a promise that a study will qualify.

Sources

• Fannie Mae Lender Letter LL-2026-03, issued March 18, 2026 — baseline-method restriction effective for applications dated on or after August 3, 2026; 15% allocation effective January 4, 2027.
• Fannie Mae Selling Guide B4-2.2-01, Full Review Process, version August 5, 2026 — current budget test and reserve-study substitution conditions.

Primary sources accessed September 11, 2026.