Fannie Mae has developed a thoughtful set of guidelines that allow lenders to originate mortgages for buyers of shared equity homes. The guidelines are designed to protect the lender’s security interest in the property and right to repayment while still allowing local affordable housing programs to protect affordability for the longest term possible. The guidelines allow for resale price restrictions that survive foreclosure by the mortgage holder.
In many markets, the high cost of housing is a significant barrier to owning a home. In response, many government entities and nonprofit organizations are using tools to create and preserve affordable housing in their communities, including inclusionary zoning ordinances and Community Land Trusts (CLTs).
An inclusionary zoning ordinance requires that developers set aside a specific percentage of units in new housing developments as affordable units, usually only available to borrowers within a certain income range. To keep them affordable for the long term, the city or county imposes resale restrictions on the property that limit the income eligibility of future buyers on the sales price of the unit.
Another tool to create and preserve affordable housing is known as Community Land Trusts (CLTs). CLTs are utilized by nonprofit organizations to provide homeownership opportunities for low-income families. In a CLT transaction, the homeowner buys the home (via a long-term lease agreement) and pays a low monthly rate to lease the land from the CLT. The lease includes resale restrictions that require the continued use of the property to serve low-income residents.
Fannie Mae’s Selling Guide provides eligibility requirements for loans it purchases secured by properties with resale restrictions and CLT properties. In March 2006, we updated our policies on resale restrictions and CLTs in Announcement 06-03.