The Federal Housing Administration and Long-Term Affordable Homeownership Programs

By Stromberg, Edwin; Stromberg, Brian | Cityscape, May 1, 2013 | Go to article overview

The Federal Housing Administration and Long-Term Affordable Homeownership Programs


Stromberg, Edwin, Stromberg, Brian, Cityscape


Abstract

This policy brief presents the results of a limited survey of housing and mortgage financing practitioners regarding the usage of Federal Housing Administration (FHA) home-buyer mortgage insurance in long-term affordable housing (LTAH) programs (which can also be called shared-equity homeownership). In so doing, the brief presents a description of (1) the various types of LTAH, (2) the U.S. Department of Housing and Urban Development's (HUD's) involvement in LTAH initiatives, (3) the major obstacles to greater involvement of LTAH in FHA and other HUD affordable homeownership programs, (4) arguments for and against changing FHA's current policies, and (5) research that would address core issues regarding HUD's general lack of knowledge about and engagement with LTAH models.

Introduction

Long-term affordable homeownership (LTAH)1 programs, as defined in this article, are designed to provide homeownership opportunities for low- to moderate-income households and keep those units affordable in perpetuity. As discussed below, these programs have been successful both in preserving affordability and in developing household wealth. Despite their success and stability, however, most LTAH programs have been unable to access mortgage products insured by the Federal Housing Administration (FHA) for their lower income homebuyers. This lack of access is largely because of several FHA regulations that conflict with the basic structure and mission of LTAH programs.

This article addresses the central issues around the FHA regulations, describes solutions suggested by LTAH sector advocates, and proposes several avenues of research that will improve the U.S. Department of Housing and Urban Development's (HUD's) and the general public's understanding of this particular form of affordable housing. The first section of this article discusses the basic characteristics, the scope, and the performance of these programs. The second section describes the limited engagement HUD has had with LTAH. The third section describes approval issues with FHA policies when underwriting LTAH mortgages. The fourth section reports on the small field research project we conducted, which was a survey of LTAH program staff, FHA administrators, and lenders. The article concludes with some thoughts about future policy research in this area.

The LTAH Sector: Basic Characteristics

The LTAH2 sector is composed of three models of affordable housing that provide resale-restricted, owner-occupied housing for low- and moderate-income households. These three models are limited-equity housing cooperatives (LEHCs), community land trusts (CLTs), and deed-restricted houses and condominiums (Davis, 2006). In each model, a government agency or nonprofit organization subsidizes homeownership for low- and moderate-income homebuyers, investing public funds (or sometimes private donations) to reduce the purchase price of a house, townhouse, or condominium to an affordable level. In return for the assistance, homebuyers agree to certain limitations to preserve the affordability to future income-qualified families. Most often, these limitations are a restriction on the price for which they can sell the property (usually a certain percentage of any increase in value, plus the original cost of the property and any additions they have made) and a requirement to sell the property to certain households (usually other low- or moderate-income households). Although the upper income limits may be about 120 percent of Area Median Income (AMI), LTAH programs typically serve households with between 50 and 80 percent of AMI.3 The LTAH sector in its various forms has received support from the Ford Foundation, Habitat for Humanity International, NeighborWorks® America, the National Housing Conference+Center for Housing Policy, Fannie Mae, and others.4

LEHCs have a traditional cooperative (co-op) ownership structure but with a similar restriction placed on resale. …

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