Fannie, HUD Promote Initiatives to Create More Housing Units and Home Financing Opportunities
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae released a white paper last week providing details on why it made a pair of key underwriting changes. Meanwhile the U.S. Department of Housing and Urban Development (HUD) announced an initiative it hopes will lead to more conversions of commercial properties into residential uses and mixed-use development.
Both announcements continue a trend of agencies and policymakers working to solve an ongoing issue of housing and home financing availability.
The next release of Fannie’s Desktop Underwriter will include an update to LTV ratios for two- to four-unit principal residence properties, as well as removal of the number of borrowers as a risk factor in DU’s risk assessment.
The change in using number of borrowers as a risk category is due to the improved ability to assess risk from other categories, including an applicant’s credit profile, loan application information, and property value attributes. Fannie noted the change is consistent with a similar change made in 2020 by the Federal Housing Finance Agency (FHFA).
“Broadly speaking, we believe this change will positively affect access to mortgage credit for single-individual households and households with children headed by a single parent or guardian,” Fannie wrote.
The GSE said the LTV ratio change is designed to expand access to credit and provide support for affordable rental housing.
Fannie is updating the maximum allowable LTV, CLTV, and HCLTV ratios for two- to four-unit, principal residence, purchase and limited cash-out transactions to 95 percent. The current ratios are 75 percent for three and four-unit properties, and 85 percent for two-unit properties.
In the white paper, Fannie wrote that the largest barrier for obtaining a GSE-back mortgage in the past on these properties has been the larger down payment necessary to satisfy the current ratios. With the change, a potential buyer of a triplex who wants to live in one unit and rent the other two only needs a 5 percent downpayment under the new rules, instead of a 25 percent under the previous maximum ratios.
“Living in and managing a multi-unit property has been a traditional wealth-building strategy for many minority and immigrant households, who may also rent out some units to extended family members or other persons with whom they have a relationship,” Fannie wrote, also noting that the median monthly rent of $900 for these smaller properties is lower for all other types of rental properties except for manufactured housing.
Fannie wrote that 2-4-unit structures make up part of what policymakers refer to as the “missing middle” of US housing supply, a term that also encompasses small apartment buildings and accessory dwelling units (ADUs). The GSE’s research attributes zoning laws preventing construction of these types of homes in most residential areas since the 1920s.
Building new 2-4 unit properties may not be an immediate answer to the housing shortage, but there may be new opportunities to convert unused commercial buildings into these types of housing units.
Last week, the White House released a guidebook, developed in partnership with HUD and other federal agencies, that will help communities and housing providers identify federal resources to finance the conversion of commercial properties to residential uses and mixed-use development.
As part of this announcement, HUD is releasing an updated notice on how its Community Development Block Grant (CDBG) funding can be used to boost housing supply – including acquisition, rehabilitation, and commercial-to-residential conversions. States and localities can also access up to five times their annual CDBG allocation in low-cost loan guarantees to fund projects such as the conversion of properties to housing or mixed-use development.
“Addressing the affordable housing crisis requires an all-of-the-above approach,” said HUD Secretary Marcia L. Fudge. “The White House guidebook on commercial-to-residential conversions and the updated CDBG notice are just a few of the steps that HUD is taking to help our state and local partners to boost supply.”
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
