In 2010 and 2011, our focus has been on developing mortgage financing options for CLT homebuyers, monitoring proposed rules changes to assure that these changes support CLT homebyers and working with partners to preserve key funding sources. The Network will continue to work with FHA (see below) to create a new mortgage product for CLT homebuyers. The administration has been drafting rules related to mortgage lending - the Network will be reviewing these rules to make sure that CLT homebuyers continue ot have access to mortgages (ie: qualified residential mortgages-QRM). The Network will also work with HUD staff to assure that CLTs have access to existing federal resources such as HOME funds and work with partners to help preserve these resources.
In 2008 and 2009, the CLT Network focused our policy activities on the issues of foreclosure and the Neighborhood Stabilization Program, where our efforts, in collaboration with our strategic partners, really helped make a difference in setting federal policy - encouraging long term affordability.
FHA Update - May 8, 2012
On May 8, 2012 the Federal Housing Administration (FHA) held an Affordable Homeownership Roundtable in Washington, DC to solicit input on the challenges and impediments to the provision and financing of affordable homeownership using FHA insurance. The conversation primarily focused on changes to FHA’s rules that would provide buyers of permanently affordable homeownership models, including CLTs and deed restricted programs, with better access to FHA-insured mortgages. Approximately 45 stakeholders attended, including 16 CLTs and CLT policy groups as well as municipalities with deed restricted programs, mortgage lenders, Fannie Mae, Habitat for Humanity, and state housing finance agencies.
Acting FHA Commissioner Carol Galante kicked off the meeting by acknowledging that the proposed changes for permanently affordable homeownership programs had been put on the back burner due to other pressing issues at FHA, but confirmed that it is now a priority which she and her staff are moving forward on. FHA staff confirmed that a waiver of some of the existing rules is in progress. It will take about 2 months plus an unspecified amount of time for internal compliance review. That waiver will go into effect as soon as it is released; it will be in effect for one year and is renewable for a second year. FHA is also working on a permanent rules change which will take 18-24 months to implement, including the public comment period. While none of this information is new, it’s consistent with what they’ve been saying in recent months, and further indicates FHA’s commitment to move forward.
During breakout sessions, stakeholders provided FHA with feedback on broad topics related to the rules changes that are needed to make FHA loans more accessible. Overall, the comments provided reinforced the proposed changes to the rules that the National CLT Network and its partners have been advocating for.
The National CLT Network will continue to work with FHA as they move forward with both the waiver and permanent rules change. and will keep everyone informed as this process moves forward.
FHA Update - March 22, 2012
FHA is working to update its policies to allow greater access to FHA-insured mortgage financing for CLT home buyers. They propose to address the existing barriers with both a short term waiver and a longer term set of rules changes. As they move forward, FHA staff has asked for more information from programs that have experienced difficulty accessing FHA mortgages. They are particularly interested in hearing the benefits that access to FHA mortgages would offer to communities and families and about the specific challenges that CLTs have faced when trying to secure FHA approval. In addition, FHA staff would like to contact state Housing Finance Agency staff familiar with these issues. If you have a story to share or an HFA contact please e-mail info@cltnetwork.
The National Community Land Trust Network, NCB Capital Impact, the Center for Housing Policy and a number of local practitioners have been meeting with HUD FHA staff to discuss updating FHA’s policy related to financing for buyers of homes with long term affordable housing restrictions. The current policy, which was developed in 1994, is intended to allow buyers of affordability restricted homes to access FHA insured mortgages, but the details of the policy have made it difficult for many programs to qualify. Acting FHA commissioner Carol Galante has appointed Senior Policy Advisor Sarah Gerecke to oversee the process of updating the policy to enable a greater range of local affordable homeownership programs, including CLTs, to access FHA loans.
HUD staff is proposing to address the issue with both a short term and a longer term set of changes. In the short term they have committed to issuing a waiver and interim Mortgagee Letter by the end of August. This step should remove many of the key barriers and open the door for buyers under a much wider range of local programs. However, a more lasting solution will require a formal rules change, a process that will take longer and require a notice in the federal register and public comment period.
More immediately, CLTs can ask that HUD’s Office of General Council review and interpret the current rules. Several local programs have recently received favorable interpretations which allowed them to offer FHA insured mortgages to their homebuyers and FHA staff has suggested that program administrators contact their local HUD Homeownership Center to discuss requesting an opinion.
See below for more background information on FHA and CLTs.
With the high foreclosure rate and financial market issues, mortgage lenders have tightened their underwriting standards. At the same time CLT homeowners continue to outperform the market - in 2010, the CLT homeowner mortgage foreclosure rate was 10 times lower than the market! Given this performance and the current economic challenges, we need to expand mortgage financing options for CLT homebuyers.
Homebuyers need low cost, flexible mortgage financing. This is a key tool for providing low-income buyers access to CLT homeownership. Fannie Mae mortgages are available to CLT homebuyers, but the current underwriting standards are limiting access to this resource. FHA mortgage finance products would be a great fit. FHA-insured mortgages have only been accessed by a limited number of CLT homeowners. The National CLT Network and Cornerstone Partnership have developed recommended changes to FHA guidelines that, if implemented, will make it easier for CLT and other shared equity homebuyers to access this important loan product.
More about FHA and CLTs
Mortgage Financing for CLTs
CLT Mortgage Lending Summary 102810
CLT Mortgage Lending Summary 102710
SAFE Mortgage Licensing Act: Minimum Licensing Standards and Oversight Responsibilities
On June 29th, 2011, HUD published the final rules on the SAFE Act - this act requires the states to certify mortgage lenders. HUD clarified the rules - some non-profits are exempt from SAFE Act requirements.
The rules outline the criteria for the certification of mortgage lenders. The new information should be consistent with the provisions in your state. Consult your legal counsel for a determination on whether or not your organization is exempt. (See page 11 of the Rule for this section on non-profits).
See the complete rules.
In December 2009 HUD published rules regarding the SAFE Act. The SAFE Act is designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators. HUD drafted these rules using broad language; one "side effect" of the SAFE Act is the potential impact on community land trusts and other nonprofit organizations that provide down payment assistance loans (and other types of loans). Under the draft rules, many states would require nonprofit staff working with buyers to be licensed. Most nonprofit staff working with buyers have helped to limit the mortgage issues and should not be subject to these licensing requirements. On 2/23/10 the Network submitted comments to HUD requesting an exemption for CLTs (see letter to HUD). CLTs should check in with their state licensing entities for local updates. The following documents provide some helpful background on this newly implemented piece of legislation.
Title V - S.A.F.E Mortgage Licensing Act (122 STAT. 2810) (7/30/2008)
Federal Register - 24 CFR Parts 30 and 3400: SAFE Mortgage Licensing Act, HUD Responsibilities Under the SAFE Act, Proposed Rule (12/15/2009)
Vermont Housing and Conservation Board Comments on proposed rule (2/15/2010)
Supplemental Comments of Vermont Housing and Conservation Board (2/15/2010)
Letter to HUD from the Network regarding proposed rule (2/23/2010)
The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII of the Housing and Community Development Act of 1977, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.
The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation (Section 802.). To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions (Section 804).
For more information about CRA and proposed changes go to the Woodstock Institute website.
Letter from National CLT Network in support of CRA reform (8/31/2010)
In 2011 Network staff and local CLT practitioners have been meeting with staff in the HUD Regional offices. The focus of the meetings is to present the success of CLTs, identify pressing CLT needs in the region and to review current work with FHA.
USDA 502 Loan Program Proposed Rule
The proposed rule allows USDA to recapture all of its subsidy through the foreclosure or deed-in-lieu process. The result of the proposed rule will not significantly impact CLTs working with the 502 Loan program so the Network did not comment on the rule.
USDA Guaranteed Loan Program Funding Limited
USDA recently issued a notice to its participating lenders that funding for its Guaranteed Loan program will likely be exhausted by the end of April of 2010. See the posted memo for more information.