Hi Steve - Thank you for the information and your analysis. Your insight is very helpful.

I had been hearing about the "10% rule" and always assumed it meant that the Feds were finally requiring condos (and I guess co-ops by extension) to accumulate at lease *some* reserve funds. We read on here and in the property management press like Habitat and Cooperator about enough buildings that don't have any reserves and the problems they get into. It seemed like the Feds were using the hammer of not approving loans to convince these buildings they really needed to create a reserve fund of at least 10% of their annual budget.

We do not have a capital project every year (whew!), so I now understand why you must keep replenishing your reserve fund. Unfortunately I have board members who think the operating account and the reserve account are interchangeable, so I have to keep large amounts in both so expenses can be paid from the proper account without having to shift money around.

Please post any responses you get from Fannie Mae about the interpretation of the 10% rule. I would like to know what they mean, and I am sure others on here would also like to know.

--- Steve