Can a combination of public, private and philanthropic financing, rather than grants, be used to make shared equity homeownership possible?
That’s the fundamental question explored in a 2018 report by Grounded Solutions Network and BWB Solutions, “Assessing the Feasibility of a Shared Appreciation Loan Fund” Freddie Mac partnered with Grounded Solutions Network to produce this report under Freddie Mac’s Duty to Serve plan.
Emily Thaden, Grounded Solutions’ Director of National Policy & Sector Strategy, speaks with Dan Ticona, Freddie Mac’s Affordable Lending Strategy and Policy Manager in the Single-Family division, about the key takeaways from this report and Freddie Mac’s goal to play a bigger role in the shared equity market.
This Resource at a Glance
- Learn the intricacies of shared appreciation loan funding
Q: What did Freddie Mac learn from this study?
Before I answer this question, I’d first like to thank you for giving us the opportunity to partner with Grounded Solutions to conduct this research. Expanding sustainable homeownership for borrowers with low and moderate incomes is a key focus of Freddie Mac’s Duty to Serve plan. In this report, we’ve learned about some key challenges confronting shared equity program stewards. Specifically, the research confirmed that the funding required for these programs to succeed is hard to come by. It’s also challenging for shared equity program stewards to find mortgage lending partners who will provide the necessary flexible financing for homebuyers.
Although Freddie Mac doesn’t currently have a broad-based shared equity product offering, we’re committed to launching new product offerings by the end of 2018. We hope this will help program stewards find lending partners. And we’re continuing to collaborate with the mortgage industry, lenders, inclusionary housing staff and other stakeholders to make home financing under shared equity programs accessible for more families and to preserve the affordability of these homes over time.
Q: You mentioned that Freddie Mac doesn’t currently have a broad-based product offering that supports home financing under shared equity programs. Why are you focused on these programs now, and why did you specifically decide to support the Shared Appreciation Loan Fund project?
We’re focused on shared equity homeownership programs because they’re an innovative way to address the affordable housing crisis, and we’ve seen the success that many Grounded Solutions Network members have had in preserving home affordability. We supported the Shared Appreciation Loan Fund project because it explores a forward-thinking way to fund a shared equity homeownership model.
These programs facilitate broader access to affordable, low-risk homeownership opportunities for families with low and moderate incomes. In fact, these programs have steadily grown in popularity, but loan funding and origination supply have not kept up with market demand. A fundamental barrier to expanding the number of shared equity homes across the nation is liquidity to fund first mortgage loans for properties under shared equity programs –that’s where we want to make meaningful and measurable progress. From our work with Grounded Solutions, we have a better understanding of the challenges lenders face when originating mortgages under these programs. Our product design team has been focusing on addressing lender challenges while looking to ensure that our product requirements do not jeopardize the important stewardship role of shared equity providers.
Q: What are some key takeaways and insights from the report?
Shared appreciation loans, although proven successful in preserving long-term affordability, seem to be more challenging to fund than other types of shared equity programs. The concept of blending private and philanthropic capital to fund shared appreciation loans is certainly worth exploring further in a smaller scale or in local markets, but the research indicates that the underlying dependency on grants or affordable capital may not be completely avoided. I would encourage people to read the report for all the details.
Q: What should we expect from Freddie Mac in the future?
As I mentioned earlier, by the end of 2018, we plan to introduce product offerings and guidelines that make it easier to originate new mortgages under shared equity programs. We also plan to launch education campaigns to help lenders fully understand shared equity programs and the product offerings and features that we will introduce. This way, lenders are able to offer mortgage financing to more homebuyers looking to purchase homes under shared equity programs.
We’ll also work on improving liquidity in this market by purchasing loans originated under shared equity programs. Our goal is to support program standardization without jeopardizing program stewardship, which we see as a vital element to sustainable homeownership. With us entering this market, we envision that program stewards will find it easier to partner with lenders who support these homeowners’ financing needs.
Freddie Mac’s Duty to Serve plan focuses on supporting underserved markets by financing more rural and manufactured housing and preserving more affordable housing for homebuyers and renters nationwide. The plan aligns with our corporate mission to stabilize communities, prevent foreclosures, responsibly expand credit, educate future borrowers, counsel current borrowers and build a better housing finance system. To read more about the Duty to Serve plan, click here.
Prior to serving as Director of National Policy & Sector Strategy at Grounded Solutions Network, Emily was Research and Policy Manager at the National CLT Network. Before that, Emily built and managed a new shared equity homeownership program called Our House at The Housing Fund (THF), a Community Development Financial Institution in Nashville, TN. During her two years at THF, funding for the program’s first 100 homes had been secured, the development of 22 homes was completed, and stewardship policies and practices were established.
Dan Ticona manages affordable lending strategy and policy within Freddie Mac’s Single-Family division. He is responsible for the design and execution of Single-Family activities related to affordable housing preservation under Freddie Mac’s Duty to Serve plan, which focuses on addressing the needs of underserved markets with expanded access to manufactured housing, rural housing and affordable housing preservation. His responsibilities include management of strategic initiatives and market outreach as well as the design of affordable housing policy, programs and products. Freddie Mac provides liquidity, stability and affordability to the nation’s residential mortgage markets.