Freddie Mac Single-Family Seller/Servicer Guide Section 5705.4 — Cooperative Project eligibility

Freddie Mac Single-Family Seller/Servicer Guide Section 5705.4 — Cooperative Project eligibility

5705.4: Cooperative Project eligibility (03/05/25) This section contains the following subsections: Freddie Mac Single-Family Seller/Servicer Guide Chapter 5705 As of 01/26/26 Page 5705-18 ■ Cooperative Project completion requirements ■ Owner-occupancy requirements ■ Cooperative Project budget requirements ■ Financial obligations of Cooperative Project ■ Market acceptance ■ Minimum number of Cooperative Units ■ Subsidies or other benefits for Cooperative Project ■ Requirements for the underlying Blanket Mortgage for Cooperative Project ■ Prior Cooperative Project financing Except for Freddie Mac-owned “no cash-out” refinance Cooperative Share Loans delivered in accordance with the requirements in Section 5705.7 for Exempt from Review, the Cooperative Project must comply with all of the following eligibility requirements: (a) Cooperative Project completion requirements The Cooperative Project, including all Cooperative Units and Common Elements within the Cooperative Project, must be complete and cannot be subject to additional phasing or annexation. (b) Owner-occupancy requirements Cooperative Interests (i.e., both ownership and the accompanying occupancy rights) that represent at least 50% of the total number of Cooperative Units in the project must have been sold and conveyed or, for New Cooperative Projects (as defined in Section 5705.1(c)(ii)), must be under contract for sale to Shareholders who occupy their Cooperative Units as a Primary Residence or second home. (c) Cooperative Project budget requirements The Cooperative Project’s budget must meet all the following requirements: (i) Financial strength and viability of Cooperative Project Seller must underwrite the Cooperative Project to determine the financial strength and viability of the Cooperative Project. If the most recent budget is not available, the Seller Freddie Mac Single-Family Seller/Servicer Guide Chapter 5705 As of 01/26/26 Page 5705-19 may rely on a review of the Cooperative Corporation’s most recent audited financial statements or corporate tax returns. The Cooperative Project’s most recent operating budget, audited financial statements or corporate tax returns must: ■ Be consistent with the nature of the Cooperative Project; ■ Except as stated in Section 5705.4(c)(ii) below, provide for adequate cash flow to service the current debt and operating expenses; and ■ Provide for adequate replacement and operating reserves For an existing building that is converted to a Cooperative Project and is undergoing or has undergone a Non-Gut Rehabilitation, the sponsor/developer must have contributed to the replacement reserve fund for the expired life of the components that were used prior to the conversion of the building(s). (ii) Negative cash flow of Cooperative Project The negative cash flow for the present year will not exceed 5% of the Cooperative Project’s annual operating budget as demonstrated by the most recent audited financial statements, provided that the prior year’s cash flow was not negative by more than 5%. The negative cash flow must be attributable to an isolated expense, or the Cooperative Project must have supplemental income from sources (e.g., stock transfer fee/flip taxes or assessments), that demonstrates the Cooperative Project has adequate cash flow to service all obligations. If the negative cash flow is attributable to tenant-protected, leased and vacant Cooperative Units, the sponsor/developer (or Holder of Unsold Shares) must: ■ Be current on all financial obligations for the subject Cooperative Project and on all financial obligations relating to any other Cooperative Project in which they own or hold more than 10% of the Cooperative Shares; ■ Not have pledged any Cooperative Shares of the Cooperative Project as security for any loan other than to secure the financing obtained to acquire the Cooperative Project; and ■ Provide financial statements of the Cooperative Corporation that indicate financial stability for the Cooperative Project with no negative impact to the Cooperative Project due to negative cash flow related to sponsor/developer (or Holder of Unsold Shares) ownership Freddie Mac Single-Family Seller/Servicer Guide Chapter 5705 As of 01/26/26 Page 5705-20 Seller must retain documentation that demonstrates the Cooperative Project has adequate cash flow to service all of its obligations. (d) Financial obligations of Cooperative Project The Cooperative Project must have good financial management, including the following: (i) Payment of Blanket Mortgage, taxes and insurance The Cooperative Corporation has not been 30 or more days delinquent on any payments due under any underlying Blanket Mortgage or for taxes, insurance and other financial obligations in the last 12 months. (ii) Maintenance Fees No more than 15% of the Shareholders are more than 60 days delinquent in the payment of Maintenance Fees. (iii) Special assessments No more than 15% of the Shareholders are more than 60 days delinquent in the payment of each special assessment. (e) Market acceptance The Cooperative Project must be located in an area in which there is a demonstrated market acceptance of the cooperative form of ownership. (f) Minimum number of Cooperative Units The Cooperative Project must consist of two or more 1-unit dwellings. (g) Subsidies or other benefits for Cooperative Project If the Cooperative Project is the recipient of any subsidies or similar benefits (e.g., tax or assessment abatements) that will be reduced or eliminated within three years of the Note Date of the Cooperative Share Loan, Seller must assess the impact that the elimination of such benefits will have on the Cooperative Project and include any higher monthly fees in a Borrower’s monthly liabilities when qualifying the Borrower for the Cooperative Share Loan. (h) Requirements for the underlying Blanket Mortgage for Cooperative Project The Blanket Mortgage for the Cooperative Project may be either a conventional mortgage or an FHA-Insured Mortgage that has an interest rate that is at the market rate and not at a subsidized or otherwise reduced rate. Freddie Mac Single-Family Seller/Servicer Guide Chapter 5705 As of 01/26/26 Page 5705-21 If the Blanket Mortgage is a balloon mortgage, the remaining term must be at least six months. If the Blanket Mortgage is an adjustable-rate balloon mortgage with a remaining term between six months and two years, then the current interest rate may not be subject to an interest rate adjustment. (i) Prior Cooperative Project financing The Seller represents and warrants that the Cooperative Project’s Blanket Mortgage is: ■ In compliance with the requirements imposed by the mortgagee of the underlying Blanket Mortgage; and ■ If the Blanket Mortgage includes a due-on-encumbrance clause and the Cooperative Project is located in a State in which Cooperative Share Loans are considered to be an encumbrance on the Cooperative Project, the mortgagee of the Blanket Mortgage must consent to the Cooperative Share Loan

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