In our final newsletter of 2017, we notified members of a big win for the field. Namely, that Fannie Mae and Freddie Mac (the Enterprises) committed in their Underserved Markets Plans to increase access to mortgages for shared equity homebuyers over the next three years. This past week, Emily Thaden, Grounded Solutions’ Director of National Policy & Sector Strategy, wrote a Shelterforce blog describing the activities each Enterprise will pursue to reach these goals. However, it’s important to note that not all homeownership programs currently meet the definition of “shared equity homeownership” in the Duty to Serve program, as defined in regulation. The following checklist can help you determine if your program is eligible in order to reap the benefits of the upcoming activities of Fannie Mae and Freddie Mac.
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 Plans. For instance, both Enterprises are developing changes in loan products so that more homebuyers or programs are eligible for mortgages and so that the burden on lenders to originate loans is lessened.
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.
Take the test! If the following criteria apply to your program, you should be eligible:
1. Program is 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. Program provides homeownership opportunities to very low-, low-, or moderate-income households (i.e. 80% 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. 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. Legal agreement has a resale formula that limits homeowner’s proceeds at resale.
7. 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. 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.