B5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting and Collateral Requirements (06/05/2024)

Shared equity providers must comply with the eligible provider requirements in B5-5.1-02, Community Seconds Loan EligibilityB5-5.1-02, Community Seconds Loan Eligibility. Additionally, the following flexibilities are permitted:

• Legal entities that are owned exclusively by a nonprofit organization are also considered eligible shared equity providers. For example, an LLC wholly owned by a nonprofit organization is considered an eligible shared equity provider.
• Shared equity providers are not considered interested parties to the transaction.

Note: Programs on the Shared Eq - Model Forms tab of the Certified Shared Equity Program List meet these provider requirements. See 

B5-5.3-02, Shared Equity Transactions: General Requirements B5-5.3-02, Shared Equity Transactions: General Requirements for additional information.

The shared equity provider must have an established procedure that requires counseling or similar engagement with prospective borrowers to ensure such individuals are educated on the specific terms of the income and resale price restrictions, including the calculation that will be used to determine the maximum resale price. This counseling or engagement must be conducted at least 30 days prior to the closing of any purchase transaction. Examples may include, but are not limited to:

• one-on-one counseling specific to the transaction,
• a program summary document in plain language, or
• an attorney review of the program with the prospective homebuyer.

Because of the affordable terms that they offer, shared equity programs include restrictions on borrower eligibility and on the resale price of the property. Eligible borrowers must satisfy the specific eligibility criteria set up by the shared equity program.

Note: If income limit requirements are imposed by both the shared equity provider and the first mortgage, the most restrictive will apply.

All loans secured by one- and two-unit principal residence community land trust properties are eligible for purchase by Fannie Mae with the exception of units in a co-op project, which are not eligible.

All manufactured homes are eligible; however, if located in a condo or PUD project, Fannie Mae PERS approval of the project is required. (See B4-2.2-06, Project Eligibility Review Service (PERS)B4-2.2-06, Project Eligibility Review Service (PERS))

Manufactured homes must comply with all applicable requirements in this Guide with the following exceptions:

As of the loan application date

• the manufactured home must be affixed to a permanent foundation, and
• unless it has already been converted, the lessor must have initiated the conversion of the manufactured home to real property.

All loans secured by one- and two-unit principal residence properties are eligible for purchase by Fannie Mae.

When the subject property is a unit in a limited or shared equity co-op project, the requirements in this Section B5-5.3, Shared Equity Transactions, do not apply. For limited or shared equity co-ops, the lender must ensure compliance with Chapter B4-2, Project Standards.

These loans may be underwritten manually or through DU.

Any recurring monthly fees or expenses associated with the shared equity program must be included in the monthly housing expense for qualifying purposes. See  B3-6-03, Monthly Housing Expense for the Subject PropertyB3-6-03, Monthly Housing Expense for the Subject Property.

$160,000

The title insurance policy or an endorsement to the policy must expressly confirm all of the following:

• the recording of the complete community land trust ground lease or ground lease memorandum;
• the recording of the Community Land Trust Ground Lease Rider ( Form 2100);
• the community land trust loan is secured by a first lien on the leasehold estate and the improvements;
• there are no existing loans or other liens on the fee estate, except as may be permitted under  Form 2100;
• the ground lessor's reversionary interest is subordinate to the community land trust loan; and
• there are no related community land trust ground lease occupancy and resale restrictions, covenants, or agreements that "run with the land," and that have been recorded apart from the ground lease, except as may be permitted under  Form 2100.

The title insurance policy or an endorsement to the policy must expressly reflect the source and terms of the resale restrictions are included in the public land records so that they are readily identifiable in a routine title search.

Prior to delivering the loan to Fannie Mae, the lender must confirm

• any payments or assessments required to be paid by the borrower under the legal documentation (including ground lease rents for community land trusts) are not past due, and
• the borrower is not in default under any other provisions of the legal documentation, nor has the shared equity provider claimed such a default.

The lender must include the following in the delivery data:

• SFC 054,
• the value of the leasehold (inclusive of the improvements) as the appraisal amount, and
• the Affordable LTV ratio.

The lender must include the following in the delivery data:

• SFC 630 and the Affordable LTV when the resale restrictions terminate automatically upon foreclosure (or the expiration of any applicable redemption period), or the recordation of a deed-in-lieu of foreclosure.
• SFC 631 when the resale restrictions survive foreclosure or a deed-in-lieu of foreclosure.
• SFC 177 when the Grounded Solutions Network 2021 Model Declaration of Affordability Covenants with Refinance and Resale Restriction and Purchase Option form was used.