Affordable Housing Preservation FAQ

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 are:

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 is on the land through a first lien mortgage.

An income-based resale-restricted program is a type of deed-restriction program. It creates and preserves affordable housing for borrowers with low and moderate incomes 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 typically 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 home's affordability is preserved and serves subsequent low- or moderate-income homebuyers.

Restrictions vary by program. 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 make on the property.

Freddie Mac recognizes that 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.
• 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.

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 resale. 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 used to set prices of homes sold under affordable housing preservation programs that use deed covenants to preserve affordability over time.

Freddie Mac requires Form 490, Freddie Mac Ground Lease Rider, be executed and recorded with the county records. Retain a copy of the executed form in the loan file. 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:

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.

Currently, CLT mortgages secured by manufactured homes are not eligible for sale to Freddie Mac unless the manufactured home is a CHOICEHome; however, we do offer a variety of manufactured home financing options, including Home Possible. To provide borrowers with more affordable housing options, we allow lenders to sell CLT mortgages secured by CHOICEHome manufactured homes.

Community Land Trust mortgages originated by Brokers/Correspondents are eligible for purchase. Freddie Mac recommends that Brokers/Correspondents complete the Freddie Mac CLT mortgage training.

Sellers must review the Community Land Trust Ground Lease and verify that it meets the Freddie Mac eligibility requirements in Guide Section 4502.10.

Freddie Mac developed Form 490, Community Land Trust Ground Lease Rider, that must be completed, executed and recorded in the land records, together with the Community Land Trust Ground Lease.

To learn more, visit our CLT mortgages product page.

Yes, Mortgages secured by properties subject to resale restrictions including, but not limited to, income-based restrictions and age-based restrictions (such as senior housing or units restricted to one or more occupants age 55 and over) are eligible for sale to Freddie Mac if the requirements of Chapter 4406 and the Seller’s other Purchase Documents are met. The resale restrictions must be in compliance with all federal, State and local laws, rules and regulations.

See Guide Section 4406.1

There are no limits of the time period in which the resale restrictions may remain in place on the property.

A Mortgage secured by a property subject to resale restrictions is eligible for sale to Freddie Mac if the resale restrictions:

• Survive conveyance of the subject property following foreclosure or recordation of a deed-in-lieu of foreclosure, or
• Terminate upon foreclosure (or expiration of any applicable legally required forclosure redemption period) or recordation of a deed-in-lieu of foreclosure

See Guide Section 4406.2

The Mortgage must be secured by a 1- or 2-unit Primary Residence that is not a Manufactured Home unless the Manufactured Home is a CHOICEHome^®. (For requirements for CHOICEHome Mortgages, see Guide Section 5703.9). The property must be an attached or detached dwelling unit located on an individual lot or in a Condominium Project, Cooperative Project, or Planned Unit Development (PUD).

See Guide Section 4406.8

Value is the appraised value of the Mortgaged Premises without resale restrictions as determined in accordance with the appraisal requirements.

When the resale restrictions terminate upon foreclosure (or expiration of any applicable legally required redemption period in which the Borrower may redeem the Mortgaged Premises in accordance with applicable law) or recordation of a deed-in-lieu of foreclosure, the appraisal must reflect the market value of the property without resale restrictions by using comparable sales that are not resale restricted.

The Seller, or any third party authorized by the Seller, must ensure that the Borrower and appraiser are aware of the resale restrictions and must advise the appraiser that he or she must include the following statement in the appraisal report:

"This appraisal is made on the basis of a hypothetical condition that the property rights being appraised are without resale and other restrictions that are terminated automatically upon the latter of foreclosure or the expiration of any applicable redemption period, or upon recordation of a deed-in-lieu of foreclosure."

See Guide Section 4406.4

For properties subject to resale restrictions, any right of first refusal must run to:

• The enabling authority or jurisdiction that imposed the resale restrictions, or
• The subsidy provider or program administrator

For a Mortgage in foreclosure and/or subject to an approved short sale, the right of first refusal must have a time period not exceeding 120 days from the date of written notice to the parties to which the notice runs that the resale restricted property is being offered for sale.

See Guide Section 4406.2

A redemption period is the period of time after a borrower’s property has been sold at a foreclosure sale when the borrower can still reclaim ownership of the property. Many states have some type of redemption period, and timelines and procedures can vary from state to state. For more information, seek out specific information about the redemption period in the state where the property is located.

The appraisal report must note the existence of any resale restrictions. Additionally, the appraisal must include an analysis that addresses any impact the resale restrictions have on the property’s value or marketability. Mortgages for properties with age-based resale restrictions may qualify for an automated collateral evaluation (ACE) appraisal waiver or ACE+ PDR. See Guide Section 5602.3 for details regarding an ACE appraisal waiver or Guide Section 5602.4 for ACE+ PDR.

See Guide Section 4406.4

The terms of the resale restrictions must appear in the public land records for the property in a manner discoverable by a routine title search.

See Guide Section 4406.6

There are some enabling authorities, jurisdictions, subsidy providers and program administrators that need the extra time to execute transactions, and 120 days provides additional flexibility that may be required.

The Model Declaration is comprised of the 2021 Model Declaration of Affordability Covenants with Refinance and Resale Restriction and Purchase Option, the Commentary to the Model Declaration and the Model Subordinate Mortgage. Collectively they are referred to as the “Model Declaration.” It was developed to promote best practices and standardization for deed restricted affordable housing programs, while also providing flexibility in program design.

The Model Declaration is intended to be used by shared equity homeownership programs (affordable housing programs managed by a government agency or nonprofit that are designed to keep properties permanently affordable be restricting resale prices) by providing an alternative to the 2011 Model Ground Lease. The Model Declaration will allow for more standardization for shared equity programs that use deed covenants or deed restrictions in lieu of a ground lease.

The Model Declaration was developed by Grounded Solutions Network with additional guidance from an Inclusionary Housing Advisory Group. Freddie Mac and Fannie Mae provided advice and recommendations in an effort to align the Model Declaration with our Guide and offerings.

The Model Declaration is accompanied by a Commentary on the 2021 Model Declaration of Affordability Covenants that provides detail regarding the provisions of the Model Declaration, and identifies limited areas where customization is permitted. Sellers should be familiar with the Commentary when evaluating the programs forms. No additional customization is permitted.

No.

A list of permissible exceptions to coverage of a title insurance policy delivered with a mortgage loan to Freddie Mac can be found in Section 4702.4. Exception (d) permits an exception for restrictive agreements and restrictive covenants if:

• Restrictive agreements or restrictive covenants do not create or provide for any lien that would be prior to the lien of the Home Mortgage nor provide for the elimination of the lien of the Home Mortgage.
• The terms and provisions of the restrictive agreements or restrictive covenants are commonly acceptable to private institutional Mortgage investors in the area where the Mortgaged Premises are located.
• An endorsement to the title insurance policy affirmatively insures that no violation of any such restrictive agreement or restrictive covenant exists and that any future violation shall not result in forfeiture or reversion of title.

Mortgages originated with the Model Declaration should meet all these requirements and, therefore, a policy which excepts them from coverage is acceptable.

All mortgages on properties with income-based deed restrictions must follow the delivery instructions found in Guide Section 6302.37.

The Model Declaration helps:

• To streamline lenders’ review process for the deed restriction covenant and the Affordable Seconds® financing option (if applicable)
• Lenders underwrite the shared equity program eligibility more easily when they adopt the model documents
• Provide clarity to homebuyers on their rights and responsibilities as a shared equity program participant