Duty To Serve
Stay tuned to this page for ongoing information regarding Fannie Mae's and Freddie Mac's implementation of their Duty-to-Serve plans.
If you believe your program meets the Duty to Serve rule definition of shared equity homeownership (see below) and you’re interested in increasing access to lenders partnering with Fannie Mae, complete this short self-certification form to save program staff and lenders time.
Big win for the field.
Fannie Mae and Freddie Mac (the Enterprises) help lenders originate and offer a wide range of mortgage products and solutions by purchasing loans that meet certain requirements. This "secondary mortgage market" helps provide liquidity for mortgage lenders, so they can make additional mortgage loans.
Congress imposed a "duty to serve" on the Enterprises and the Federal Housing Finance Agency issued a rule requiring the Enterprises to set specific annual goals to bring greater liquidity to specified underserved markets to increase access to financing for borrowers with very low-, low-, and moderate-incomes. Shared equity homebuyers are included in these underserved markets.
As a result, the Enterprises committed to specific actions to increase access to mortgages for shared equity homebuyers in their Underserved Market Plans. This means that your program may benefit, if it meets the Duty to Serve definition of shared equity homeownership.
If your program doesn’t meet the regulatory definition, then Fannie Mae and Freddie Mac will not get credit for meeting their obligations under the Duty to Serve program. This doesn’t necessarily mean that buyers in your program won’t be able to access their mortgages, but it means that your program will probably not benefit from many changes being rolled out during the implementation of the Underserved Market Plans. Check out this brief overview more information about the Duty to Serve rule and how it could impact your shared equity program.
How do I know if my program is Eligible?
Shared equity homeownership programs should be eligible if they meet the following criteria.:
1. The program is operated by a:
Nonprofit or community land trust with a resale-restricted program (i.e. Habitat, CDC, or CLT with shared equity program)
State, local, or quasi-government entity with a resale-restricted program
2. The program provides homeownership opportunities to very low-, low-, or moderate-income households (i.e. 100% or below median family income).
3. The legal agreement between the program and homebuyer that establishes resale restrictions is one of the following:
Second mortgage loan (or shared appreciation loan)
Other legal mechanism
4. The legal agreement states that the program will keep the home affordable for subsequent very low-, low-, or moderate-income families.
5. The term of legal agreement is at least 30 years.
6. The legal agreement has a resale formula that limits homeowner’s proceeds at resale.
7. The program or its assignee (i.e. an eligible homebuyer) has a preemptive option to purchase the home (a.k.a. “right of first refusal”) from the homeowner at resale.
8. The legal agreement states that program must review and approve any refinances and home equity lines of credit.
Note that: (1) limited equity housing cooperatives may meet this definition, but currently, they are largely excluded from benefiting from single-family mortgage activity at both Enterprises, and (2) shared appreciation loan programs that fulfill these requirements and are run by (or partnering with) a nonprofit, government or quasi-governmental entity are also eligible.
What should you do if your program doesn’t meet the definition?
If your homeownership program aims to keep properties permanently affordable, then consider making changes to your legal documentation or program design. The benefit will be that your homebuyers will likely be able to access more mortgage finance options over time as the Enterprises implement their Underserved Market Plans. Beyond that, Grounded Solutions Network supports these practices and believes the field will benefit from greater standardization. If you have any questions, contact our help desk.