Freddie Mac Single-Family Duty to Serve
Yes, we need more affordable homes. But we also need to keep those we do have affordable, for initial and subsequent buyers and reduce housing cost. Affordable housing preservation helps us do that.
One-time investment creates affordable homeownership for borrowers with low or moderate income.
Shared equity homeownership is an umbrella term for programs that provide homeownership opportunities with lasting affordability, sometimes referred to as "permanently affordable homeownership programs" or homeownership programs with "lasting affordability" or "long-term affordability." These programs generally make a one-time investment to create homeownership opportunities that are affordable for purchase by a low- or moderate-income homebuyer. In return for owning a home at an affordable cost, the homeowners agree to certain restrictions including limitations on returns upon resale or limitations on conveyances of the property. In effect, homeowners "share" some of the proceeds from resale to pay the opportunity forward to the next homebuyer with low or moderate income.
The majority of shared equity homeownership programs ("SEH Programs") are resale-restricted programs, meaning that they restrict the maximum price for which the home may be resold and restrict who may purchase the property to income-eligible households. Hence, buyers with low or moderate income purchase and resell homes at prices below fair market value in order to keep the home affordable.
Here's how we’re supporting shared equity programs through our Duty to Serve initiatives:
Upgrading to energy-efficient features can reduce energy costs and help preserve affordability.
Energy, heating and cooling costs are the largest utility expense for most U.S. homes and can be a financial burden. Upgrading to energy-efficient features can reduce energy costs and help to preserve affordability of homeownership, especially in underserved markets where homes are older and in need of these upgrades. But, financing these improvements is also a challenge for homeowners in these markets. Under Duty to Serve, we're developing new mortgage products and enhancing current ones to make financing these energy renovations easier.
Here's how we're supporting energy efficiency improvements:
Featured Video
Heating and cooling account for more than half of the energy use in a typical home
GreenCHOICE Mortgages will help preserve homeownership affordability by supporting home improvements that reduce utility costs
Shared equity homeowners were 10 times less likely to be in foreclosure than homeowners in the conventional market
79 percent of community land trust borrowers are first-time home buyers
Here's another option for affordable, sustainable homeownership.
Listen to our three-part video series.
Community Land Trusts, do you want to attract more lenders to your programs? Listen to our three-part video series, Community Land Trusts, the Conversation You Should Have with Lenders to Attract Financing. These short vignettes suggest three key ways you can frame the conversation to get their attention:
GreenCHOICE MortgagesSM: Our solution for energy-efficient home improvements.
Making and Keeping Homes Affordable
Making Homes Affordable for the Initial Buyer and Subsequent Buyers
As part of our Duty to Serve plan, we've reimagined the mortgage process for Community Land Trusts (CLTs) and properties subject to resale restrictions.
Our robust selling and servicing requirements detail how to underwrite and service CLT mortgages as well as requirements for appraisal of the leasehold interest. Plus, we provide updated selling requirements to support mortgages secured by properties subject to resale restrictions.
Our CLT mortgages, and those for properties subject to resale restrictions, allow lenders and shared equity homeownership providers to increase homeownership for families with low- and moderate-income.
And we're giving you what you need to support affordable housing preservation. Here's how:
We're giving you guidance to better understand the shared equity homeownership field and to help you originate and service community land trust mortgages, including:
Our mortgage offerings will help you
Borrowers now have
For more information on selling and servicing CLT mortgages to Freddie Mac:
"First-time home buyers, current homeowners and buyers with low- and moderate- incomes now have a way to lower their monthly utility cost. GreenCHOICE MortgagesSM offers sellers, buyers and homeowners a financing option to upgrade the energy and water efficiency of their 1- to 4- unit, condominium or 1 to 4-unit single-family home. Energy efficiency is a feature that has been long overlooked. The more efficient our buildings are, the fewer natural resources we use. "
Sandra K. Adomatis
SRA, Adomatis Appraisal Service
" GreenCHOICE MortgagesSM allows people to upgrade their homes without downsizing their bank account. The result is more comfort and true affordability."
Jacob Corvidae
Principal, Rocky Mountain Institute
"The Florida Housing Coalition is elated that Freddie Mac will now purchase loans made with community land trusts and other shared equity models. The ability of lenders to sell such loans in the secondary market is key to bringing community land trusts to scale. Having Freddie Mac in this space, with its additional products available to lenders, will only serve to further strengthen and grow the market for these loans."
Ashon J. Nesbitt
Technical Advisor and Research Analyst, Florida Housing Coalition, Tallahassee, FL
"Offerings that bolster shared equity homeownership in hot real estate markets like Washington, DC, are essential to preserving the ability its residents to remain and flourish. Our collaboration with Freddie Mac to develop a product in support of a community land trust in the historic Anacostia neighborhood, and Wards 7 and 8 in Washington, DC, will pave the way for a model that can be replicated in similar geographic areas across the country."
Ginger Rumph
Executive Director, Douglass Community Land Trust, City First Homes, Washington, DC
"Shared equity homeownership is the only homeownership model that preserves the affordability of owner-occupied homes for multiple generations, improving communities through investment, empowerment and lasting affordability. Our collaboration with Freddie Mac on their offering addresses the biggest challenges facing our network membership: establishing the standards required for greater mortgage lender adoption of shared equity homeownership."
Tony Pickett
CEO, Grounded Solutions Network
"Community land trust (CLT) homeownership is in demand due to rising land costs and gentrifying redevelopment. Freddie Mac's multifaceted initiative supporting CLT stewardship will enable hundreds of renters to enter the homeownership market and bring CLT lending to scale."
Jaimie Ross
CEO, Florida Housing Coalition, Tallahassee, FL
FAQs: General, Energy Efficiency, Community Land Trusts
Freddie Mac Duty to Serve Fact Sheet
Affordable Housing Preservation Underserved Markets Plan
Community Land Trusts
Energy Efficiency
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.
Through our Duty to Serve initiatives, we’re:
This is our newest financing option for energy and water efficiency home improvements. GreenCHOICE Mortgages will:
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.
GreenCHOICE Mortgage offers new flexibilities, including:
For complete information on new flexibilities for GreenCHOICE Mortgages, please review Guide Chapter 4606.
GreenCHOICE Mortgages is effective for mortgages with Freddie Mac settlements on or after May 1, 2019.
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.
Yes, provided the energy efficiency improvements do not impact the structural integrity of the property.
These flexibilities provide Sellers opportunities to:
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.
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.
GreenCHOICE Mortgages do not offer this flexibility currently. However, we continue to research this as a potential option in the future.
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.
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.
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:
Research results should provide us with better product parameters to share with the market.
We plan to share our findings publicly in 2019.
Freddie Mac supports the energy efficiency market, and through our Duty to Serve initiatives, we’re:
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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.
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