Freddie Mac Announces Affordable Housing Preservation and Rural Housing Initiatives

• September 28, 2018
• Anna DeSimone

Featuring Community Land Trusts and Allowances for Sweat Equity

September 28, 2018, Freddie Mac issued Bulletin 2018-16, Duty to Serve Affordable Housing Preservation and Rural Housing.  Key points of the bulletin are summarized below.

In its Duty to Serve plan, Freddie Mac committed to increasing support for very low-, low- and moderate-income families in three historically underserved markets: manufactured housing, rural housing and affordable housing preservation. The bulletin announces new and revised underwriting guidelines to facilitate a secondary market for mortgages in support of affordable housing preservation and rural housing.

In response to industry feedback and current market practices, and to help preserve affordable housing, Freddie Mac has announced:

• The eligibility of Community Land Trust Mortgages for sale to Freddie Mac
• Updated requirements for mortgages secured by properties subject to resale restrictions, including resale restrictions imposed to limit the occupancy and resale of the property to individuals or households of very-low, low- or moderate-incomes

Community Land Trusts

To facilitate the origination and servicing of Community Land Trust Mortgages, Freddie Mac has developed the following requirements, effective November 5, 2018. The requirements provided in the new Guide Chapter 4502 include, but are not limited to, the following:

• A Borrower must be an eligible borrower under the Community Land Trust’s program requirements
• The mortgage must be a first lien, conventional fixed-rate mortgage secured by a 1-unit primary residence that is not a manufactured home
• Purchase and “no cash-out” refinance transactions, and as permitted by the Community Land Trust, cash-out refinance transactions, are eligible
• A Community Land Trust Mortgage may be submitted to Loan Product Advisor® or may be a manually underwritten mortgage
• Borrowers must execute a specified form of ground lease meeting certain requirements (a “Community Land Trust Ground Lease”), as well as Freddie Mac’s new form of Community Land Trust Ground Lease Rider, new Guide Form 490
• The appraiser must develop the opinion of value for the leasehold interest based on the hypothetical condition that the property right being appraised is the leasehold interest without the resale and other restrictions included in the Community Land Trust Ground Lease, which are removed by Form 490 upon foreclosure (or expiration of any applicable redemption period) or recordation of a deed-in-lieu of foreclosure
• In the case of a purchase or refinance transaction, “value” is the appraised value on the Note Date
• Special negotiated mortgage products and offerings may not be used with Community Land Trust mortgages unless specifically permitted by Freddie Mac in writing

Please refer to the Guide for additional important information.

Sweat Equity Selling Requirements for Home Possible Mortgages

Freddie Mac has also introduced more flexible requirements to use sweat equity as a source of down payment and/or closing costs for its Home Possible® mortgage offering to make housing affordable, particularly in rural areas. Effective for mortgages with application received dates on and after September 26, 2018, Home Possible mortgages will allow sweat equity as credit for labor performed on the mortgaged premises and/or materials furnished by the borrower. The Home Possible mortgage offering allows for the use of sweat equity, but currently requires the borrower to have 5% of his or her own funds in the transaction to use sweat equity as a source of down payment.

To provide flexibility, Freddie Mac is revising the Home Possible requirements to permit sweat equity as a source of funds to cover the entire amount of cash to close for down payment and/or closing costs. The sweat equity enhancement will benefit sellers by providing a higher allowable LTV ratio when sweat equity is used as a source of funds and give borrowers additional financing options for an affordable home purchase.

Following is a summary of Freddie Mac’s expanded sweat equity requirements for Home Possible Mortgages:

• Allowing sweat equity as a source of funds to cover the entire amount of down payment and/or closing costs, up to a maximum LTV ratio of 97%, where permitted. Sweat equity can be combined with an Affordable Second® up to a maximum 105% TLTV ratio.
• Allowing sweat equity on manufactured homes up to a maximum LTV ratio of 95%
• Sweat equity may be used as an eligible source of funds in connection with the following repairs and improvements.  All repairs and improvements to be completed by the borrower that are listed in the sales contract and included in the appraisal report.  Repairs or improvements that are reflected on the appraisal report that are outstanding at the time of the appraisal. Credit for work completed prior to the original property inspection by the appraiser is not eligible for sweat equity.
• The value of the sweat equity that may be used as an eligible source of funds must equal the value of the labor performed plus the value of the materials furnished, documented as follows: the value of the labor performed must be estimated by the appraiser or a cost estimating service and documented in the appraisal report or separately in the mortgage file; and the value for materials furnished must either be estimated by the appraiser or a cost estimating service, or be calculated using receipts from the purchase of the materials. The estimates or costs as evidenced by receipts must be documented in the mortgage file.

Please refer to the Guide for additional important information.

, Freddie Mac, Mortgage Lending | Comments Off on Freddie Mac Announces Affordable Housing Preservation and Rural Housing Initiatives