General

1. What is affordable housing preservation?

   Preservation of affordable homeownership entails ensuring that the price of a home is affordable to the initial buyer and subsequent buyers over a long-term period, whether purchasing a newly constructed home or an existing home. Additionally, preserving affordable housing can also be achieved by reducing housing costs through utility savings, and through energy efficiency home improvements.

2. What are Freddie Mac's Single-Family Duty to Serve activities for affordable housing preservation?

   Through our Duty to Serve initiatives, we’re:

   • Facilitating financing of energy efficiency improvements through first lien mortgages
   • Testing and optimizing innovative product features and underwriting guidelines through pilot programs
   • Developing guidelines to facilitate new mortgage originations for properties in community land trusts and other shared equity programs
   • Conducting research on energy efficiency and shared equity markets, to better align our offerings with these markets’ needs
   • Providing borrower education and resources for lenders about Freddie Mac shared equity offering and energy efficiency financing options

Energy Efficiency (GreenCHOICE Mortgages^SM)

1. What is Freddie Mac GreenCHOICE^SM Mortgages?

   This is our newest financing option for energy and water efficiency home improvements. GreenCHOICE Mortgages will:

   • Provide lenders with a simple option to help borrowers finance energy and/or water efficient property improvements and repairs.
   • Help preserve homeownership affordability by supporting home improvements that reduce utility costs.
2. Is GreenCHOICE^SM Mortgages a new offering?

   Freddie Mac is not new to the energy efficiency market. We’ve had energy-efficiency offerings that support financing of energy-efficiency improvements, and they’ve worked; GreenCHOICE Mortgages enhances our current offering to align better with the market’s evolving needs.

3. What new flexibilities does GreenCHOICE Mortgages offer?

   GreenCHOICE Mortgage offers new flexibilities, including:

   • Ability to finance the cost of energy and/or water efficiency improvements up to 15% of the “as completed” value of the property.
   • Basic energy efficiency improvements with an aggregate cost of less than or equal to $6,500 can be completed without obtaining an energy report.

   
   

   For complete information on new flexibilities for GreenCHOICE Mortgages, please review Guide Chapter 4606.

4. When will GreenCHOICE Mortgages become effective?

   GreenCHOICE Mortgages is effective for mortgages with Freddie Mac settlements on or after May 1, 2019.

5. Do GreenCHOICE Mortgages flexibilities apply to both purchase and no cash-out refinance transactions?

   Yes. GreenCHOICE flexibilities apply to both purchase and no cash-out refinance transactions. GreenCHOICE Mortgages can apply to most mortgage products* and any property type eligible under the Freddie Mac Single-Family Seller/Servicer Guide.

   *Seller-owned Converted mortgages, Construction Conversion and Renovation Mortgages are not eligible.

6. Can GreenCHOICE Mortgages be used for manufactured homes?

   Yes, provided the energy efficiency improvements do not impact the structural integrity of the property.

7. What does GreenCHOICE Mortgages mean for Sellers and Servicers?

   These flexibilities provide Sellers opportunities to:

   • Increase loan originations.
   • Expand or enhance their product offerings in the market place.
   • Offer greater housing affordability for low and middle-income families by:
   • Combining these flexibilities with our affordable products such as Home Possible mortgages.
   • Providing financing solutions to help pay for energy and/or water efficient improvements that can significantly lower the borrower’s utility bills.
   • Offering Sellers cost and timesaving opportunities due to documentation flexibilities.

   Sellers must add the GreenCHOICE Mortgages Credit Fee in Price on top of the pricing cap for Home Possible mortgages.

   It is also important to note that Sellers may not sell a GreenCHOICE Mortgages through the Cash Released Xchange execution or enter into a CTOS arrangement if the improvements have not been completed.

   Servicers must have processes in place to meet the special servicing requirements related to mortgages secured by properties with incomplete improvements.

8. Can borrowers still pay off a PACE loan with the proceeds from a refinance transaction?

   Yes, borrowers may still pay off a PACE obligation with the proceeds from a “no cash-out refinance,” and cash-out refinance, provided certain requirements are met, including that the PACE loan is paid in full. See Guide Sections 4301.4 and 4301.8. GreenCHOICE Mortgages did not replace PACE; it is a separate offering.

9. Does Freddie Mac allow the payoff of existing debt used to finance energy efficiency improvements through a no-cash out transaction?

   GreenCHOICE Mortgages do not offer this flexibility currently. However, we continue to research this as a potential option in the future.

10. Why are you allowing higher housing expense-to-income and debt-to-income ratios for GreenCHOICE Mortgages?

    It is anticipated that borrowers will spend less funds on their utility bills and therefore have additional funds available to pay more towards their monthly housing expense.

11. Does Freddie Mac have special requirements related to solar panels?

    Freddie Mac purchases mortgages secured by properties with solar panels. To learn more, start with our requirements for properties with solar panels in Guide Section 5601.2. Solar panels are an eligible improvement for GreenCHOICE Mortgages.

12. Why are you conducting research on the market?

    One of the biggest challenges in the energy efficiency market is lack of information and data. There’s no single standard repository of data about properties that are energy efficient. The research we are conducting will answer two questions:

    • All things being equal, is there a difference in value of an energy-efficient property vs non-energy-efficient property and if so, what is it? What’s the delta?
    • Is there a difference in performance of a loan secured by an energy-efficient property vs. one secured by a non energy-efficient property?

    Research results should provide us with better product parameters to share with the market.

13. When will you publish your research?

    We plan to share our findings publicly in 2019.

14. What are Freddie Mac’s planned Single-Family activities for energy efficiency improvements on first-lien, single-family homes to support affordable housing over the next three years?

    Freddie Mac supports the energy efficiency market, and through our Duty to Serve initiatives, we’re:

    • Conducting research on the impact of energy efficiency improvements on property values and loan mortgage performance and plan to share our research findings in 2019.
    • Developing valuation guidance and data collection mechanisms to account for energy-efficient features.
    • Designing new or improved product flexibilities.
    • Purchasing mortgages on properties with energy efficiency features.
    • Allowing lenders to use energy efficiency to compensate for higher debt-to-income ratios
    • Permitting cash-out refinance transactions that allow borrowers to
    • make energy efficiency improvements.
    • pay off existing debt obligations related to energy efficiency improvements.
    • pay off property assessed clean energy (PACE) loans.

Shared Equity (CLTs and Resale Restrictions)

1. What is affordable housing preservation?

   Preservation of affordable homeownership entails ensuring the price of a home is affordable to the initial buyer and subsequent buyers over a long-term period, whether purchasing a newly constructed home or an existing home. Additionally, preserving affordable housing can also be achieved by reducing housing costs through utility savings, and through energy-efficient home improvements.

2. What's a Community Land Trust?

   CLTs are typically established and managed by non-profits, state or local governments or instrumentalities that provide permanently affordable housing opportunities. They typically acquire land by purchasing it or, receiving it via in-kind donations, or via state/local agencies.

   Under the CLT model, the CLT owns a tract of land and leases individual lots or parcels at below market rents to very low-, low- and moderate-income homebuyers under a long-term ground lease. The ground lease is a legal document that contains certain land use and other restrictions, such as those limiting occupancy, resale price, and financing, that ensure the continued use of the property for very low-, low- and moderate-income households. Then, the CLT sells the improvements on the land (the house) to borrowers at below market rates. Borrowers finance the purchase of the home that’s on the land through a first lien mortgage.

3. What is an income-based resale restricted program?

   An income-based resale restricted program is a type of deed restriction program. They create and preserve affordable housing for borrowers with low- and moderate-income through resale restrictions included in a deed covenant that runs with the property. These programs restrict the sales price of properties for initial and subsequent borrowers. The restrictions are imposed by nonprofits, state and local governments or municipalities, and are set forth in and enforced through a recorded deed covenant.

   Income-based resale restricted programs typically have every new homeowner sign a new deed covenant with a new term. That way, the affordable home is preserved and serves subsequent low- or moderate-income homebuyers.

4. Are manufactured homes securing CLT Mortgages eligible for sale to Freddie Mac?

   Currently, CLT Mortgages secured by manufactured homes are not eligible for sale to Freddie Mac; however, we do offer a variety of manufactured home financing options, including Home Possible.

5. Why does Freddie Mac allow cash-out refinance transactions for CLT Mortgages?

   Homeowners who have built equity in their homes sometimes need to use their home equity to finance capital improvements or home repairs, or to restructure personal debt, or other purposes.

   Under the ground lease, any refinance transaction must be reviewed and approved by the CLT or its authorized representative. When a homeowner requests a cash-out refinance, the CLT completes a calculation to estimate how much equity is available to the homeowner and evaluates the reason for the transaction. Each CLT has specific requirements for refinance transactions, and Freddie Mac requires that any refinance of a CLT Mortgage meet not only the requirements of Chapter 4301, but also the applicable requirements of the CLT.

   Generally, CLT’s will evaluate whether the transaction is not in the best financial interest of the borrower and may decide not to approve it. Most capital improvements or home repairs, however, align with the spirit of preserving affordable housing over time by ensuring the property is maintained and remains in good condition for future buyers. Based on our research, we understand that many affordable housing units being sold under the CLT model are aging and will soon need repairs that homeowners may not be able to afford, unless they use their home equity.

6. What's the purpose of the Community Land Trust Ground Lease Rider

   The CLT Ground Lease Rider help lenders manage default risk and provide greater opportunities for CLT organizations to preserve affordable housing units in their inventory, even in default events. It:

   • Amends the ground lease to facilitate communications between the Servicer and the CLT in the event of borrower default.
   • Helps the CLT exercise their right to cure the delinquency.
   • Documents the homeowner’s permission to share his or her mortgage information with the CLT.
   • Provides time for the CLT to help borrowers in default avoid foreclosure by delaying foreclosure referral by 60 days when a CLT has indicated it is actively working with the homeowner to resolve the default.
7. What do you mean by a resale formula?

   A resale formula establishes an upper limit on the price for which a CLT home or a property with resale restrictions may be resold.) The resale formula is reflected in the CLT’s ground lease or applicable deed covenant and applied consistently to each home upon resales. The resale formula will affect the specific rights and obligations of both the CLT and its many homeowners for generations to come. Additionally, resale formulas are also used to set prices of homes sold under affordable housing preservation programs that use deed covenants to preserve affordability over time.

8. I'm a Seller/Servicer, why do I need a TOB and why do I have to take training to sell and service a CLT Mortgage?

   This is the first time Freddie Mac is purchasing CLT Mortgages, so initially we want to know more about the Seller/Servicers that want to originate and service these loans and their lending experience, if any, in this area. Regarding the training, the requirements to originate and service CLT mortgages are very specific to this offering and require that the Seller/Servicers be familiar with and have the appropriate processes in place to originate and service these loans. By making the training a prerequisite to obtaining the term of business, Freddie Mac can ensure that Sellers/Servicers are well informed of the Freddie Mac requirements, so they can modify their process accordingly. If you are authorized to sell CLT Mortgages to Freddie Mac, you are authorized to service CLT Mortgages for Freddie Mac.

9. What are Freddie Mac's appraisal requirements for properties securing CLT Mortgages?

   Freddie Mac recognizes that these CLTs typically subsidize the sales price of the property. As a result, the price paid may be significantly less than the market value of the property rights being appraised. Finally, the resale restrictions in place would terminate per the terms of the CLT Ground Lease Rider upon foreclosure (including expiration of any applicable redemption period) or recordation of a deed-in-lieu of foreclosure. Therefore, Freddie Mac requires the opinion of value for the leasehold interest must be developed based on the hypothetical condition that the property right being appraised is the leasehold interest without the resale and other restrictions included in the ground lease.

   For complete information on our appraisal requirements for CLT Mortgages, please review Guide Section 4502.8.

10. What are Freddie Mac's appraisal guidelines for properties with income-based resale restrictions?

    The appraisal report must note the existence of the resale restriction and analyze and reflect on any impact of the resale restrictions on the property value and marketability.

    • Resale restriction survives foreclosure or recordation of deed-in-lieu of foreclosure. In the instance where the resale restriction survives foreclosure or recordation of a deed-in-lieu of foreclosure, the appraisal must reflect the impact the restrictions have on value and be supported by comparable sales with similar restrictions.

    • Resale restriction terminates upon foreclosure (or expiration of any applicable redemption period) or recordation of a deed-in-lieu of foreclosure. In instances where the resale restriction terminates upon foreclosure or recordation of a deed-in-lieu of foreclosure, the appraisal should reflect the market value of the property without resale restrictions.
11. What restrictions must a borrower agree to for a community land trust or resale restriction shared equity programs?

    Restrictions vary by programs. Generally, borrowers must agree to the following restrictions for CLT and resale restricted programs:

    • Sales price: program prescribes limits on resale price of the property for initial and subsequent buyers.

    • Occupancy: most programs will require that the property be a primary home, owner-occupied home.

    • Financing: the program will review any first or secondary financing that the borrower may obtain.

    • Allowable property improvements: the program will review any property improvements that the borrower may want to do on the property.