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28 May, 2024

Expand FHA-Insured Loans to Community Land Trust

28 May, 2024

Problem and Opportunity
The number of affordable units has decreased by 40% since the pandemic. In 2023, only 15.5% of homes for sale were affordable for typical households. Homebuyers face lower housing availability, rising interest rates, and high prices. Community land trusts provide an opportunity to ensure permanent affordability and stability for homeowners. We need the Federal Housing Agency to expand access to insured loans for homebuyers.

Community Land Trusts (CLTs) and Permanent Affordability
A community land trust (CLT) is a form of shared equity housing that provides a pathway to ownership for low to moderate-income households (usually below 80% of the Area Median Income) and permanent affordability through deed restrictions. Nonprofits use CLTs to assist with the stabilization of neighborhoods and access to affordable homeownership for workers and vulnerable populations.

The CLT model for permanent affordable ownership typically works like this:

  1. Low to moderate-income homebuyers purchase homes from CLTs, leasing the land under the house through a long-term ground lease (often 99 years), ensuring long-term stability and affordability with a below-market mortgage.
  2. In exchange for purchasing the home at a below-market rate, the buyer pays a small land lease fee ($25-50 monthly). For instance, WeBuild Concord partners with federal and local agencies to provide stackable down payment assistance, significantly reducing homeowners’ mortgage loans by over 41% on average.
  3. As part of the agreement, the homeowner shares profits with the CLT upon sale with a guaranteed rate of yearly equity. This is due to the down payment assistance and other forms of subsidies. Upon resale, the homeowners agree to sell the home at a restricted price to keep it affordable.

Benefits of a Community Land Trust
CLTs have proven to create stability and pathways to greater wealth. Six (6) out of ten (10) CLT homeowners save enough equity to purchase homes in the open market. During the 2007-2010 Housing Crisis, 8.57% of mortgages were seriously delinquent, and 4.63% were in foreclosure proceedings across all incomes. However, CLT homeowners were only 1.30% and .46% for the same categories. Thus, the benefits of CLTs for stability and wealth are well documented. Unfortunately, not all of our housing finance agencies are in alignment to help CLT homebuyers.

Fannie Mae, Freddie Mac, and the Federal Housing Administration
Fannie Mae and Freddie Mac have expanded their products for CLT purchasers. Fannie Mae will purchase loans that originate with a CLT and work to increase the number of loans to shared equity buyers. Freddie Mac purchases shared equity mortgages from approved lenders for conventional loans. Both entities could expand access to CLT buyers with the support of the Federal Housing Agency (FHA).

Unfortunately, most CLT homebuyers do not have access to FHA-insured mortgages for reasons not adequately explained. The lack of alignment between the three entities regarding FHA-insured loans demands the attention of lawmakers.

We request that lawmakers engage with FHA to ensure FHA loans for CLTs and shared equity models are insured and aligned with other federal agencies responsible for our mortgage lending system. The benefits of CLTs and shared equity models have gained national attention, and it is now time for lawmakers to act on behalf of citizens seeking ways to achieve one of the American dreams-homeownership.

J.C. McKenzie, Board Chair

Patrick Graham, Ph.D.

Patrick Graham, PhD
Chief Executive Officer