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Update to the Field: Shared Appreciation Loan Fund Exploration

At Grounded Solutions Network, we share a defining trait with our network of members, allies, and funders – we are all creative problem solvers!  Since the ability of CLTs and shared equity homeownership programs to create significant numbers of new homes with lasting affordability is most often tied to access to subsidy, we have been and remain focused on addressing this challenge on multiple fronts.

On the public side, we have worked for years on behalf of shared equity homeownership programs to promote favorable federal policy (e.g., HOME regulations) and state/local policy (e.g., housing trust funds), but we knew that this wasn’t enough. We also wanted to explore creative alternatives with the potential to significantly scale the field. This why we spent the last twelve months working to create a Shared Appreciation Loan Fund that would act like a new subsidy source for homes with lasting affordability.  Although we have recently met insurmountable road blocks, we got close and learned some important lessons for the future.

Shared Appreciation Loans (SALs) are certainly not a new concept. Many nonprofits and public agencies use SALs as a tool to increase access to homeownership for lower income households, but these revolving loan funds either need ongoing infusions of capital or help fewer families over time. We wanted to explore the creation of a self-sustaining SAL fund that would act and feel like subsidy. In a climate where grants, subsidies, and ongoing rental assistance for affordable housing are becoming less popular than tax credits and lending programs, especially those that leverage private capital, we wanted to explore the creation of a Shared Appreciation Loan Fund capitalized, supported, and/or administered by private financial institutions, with the buy-in and support of the Government Sponsored Enterprises (GSEs).

We knew this was a big dream, and we started off guardedly optimistic.  In partnership with Lincoln Institute of Land Policy  and with support from the Ford Foundation, we retained the help of expert consultants at BWB Solutions to answer some key questions about the feasibility of this type of SAL fund.

Questions like:

  • Was anyone else working on this model? Where had they been successful, or why had they failed?
  • Would our members use this type of fund? (Many said they would!)
  • If we modeled the progression of a single home over multiple resales, could we preserve affordability and still offer market rate returns to investors?
  • Could we identify some potential “homes” for this fund?

Much to our delight, after extensive preliminary research and modeling, we had positive response on the demand side and promising results on the model. Based on this outcome, Freddie Mac deepened its partnership with us from thought partner to financial supporter, which allowed us to continue with the next phase of research and development – building a portfolio model, conducting deeper market research, and interviewing a range of stakeholders, including members, industry experts, and potential investors. Throughout this process, our approach was to keep going until we hit a wall that we could not get over.

Sadly, after over a year of work, we hit that wall around the structure of fund equity, capital terms, and anticipated rates of return. Essentially, we do not believe it would be possible to recruit long-term equity with very low returns on investment, which we found was necessary to deploy shared appreciation loans even in the most favorable market conditions. Despite the disappointing result, we learned a lot from our efforts! Our final task is to compile a report, with the support of Freddie Mac, to share our learnings with the field, identify barriers to success, and potentially identify recommendations for local or regional funds to pursue. For all of you who provided insight and support throughout this process, thank you!

We look forward to more collective problem solving in the future.


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