B5-5.3-01, Shared Equity Overview (12/13/2023)

Shared equity programs, sometimes called "below-market programs," create long-term affordability by both limiting income eligibility and imposing a maximum resale price (or a resale formula applies that limits the homeowner's proceeds upon resale). Shared equity providers typically make a one-time investment in a property by subsidizing the sales price for the first buyer and recycling the subsidy for subsequent, income-eligible buyers of the same property. In exchange for purchasing a home below market value, the homeowners agree to restrictions on the future sale of the home, including limitations on sales price or proceeds that maintain affordability for the next buyer.

Loans originated in connection with the following shared equity programs are eligible for purchase by Fannie Mae:

• community land trusts,
• income and resale price restrictions,
• limited or shared equity co-ops.

It is against Fannie Mae policy to compel borrowers to participate in arbitration to resolve disputes regarding their mortgage loan. See  B8-3-02, Special Note Provisions and Language RequirementsB8-3-02, Special Note Provisions and Language Requirements. Similarly, Fannie Mae will not purchase shared equity loans where the borrower is required to submit to arbitration to resolve disputes with the shared equity program unless the mandatory arbitration provision provides, or is amended to provide, that, in the event of a transfer or sale of the related mortgage or an interest in the related mortgage loan to Fannie Mae, the mandatory arbitration clause immediately and automatically becomes null and void and cannot be reinstated. This does not prohibit the borrower and the shared equity program from engaging voluntarily in arbitration, mediation, or other alternative methods of dispute resolution.

Note: This topic focuses on community land trusts and income and resale price restrictions. For information on limited or shared equity co-ops, see B4-2.1-03, Ineligible ProjectsB4-2.1-03, Ineligible Projects.

Community land trusts preserve long-term affordable housing by purchasing homes in their communities, then selling the homes to income-eligible buyers while retaining ownership of the land. The homeowners lease the land from the community land trust using a long-term ground lease with affordable monthly ground rents. The ground lease includes provisions that preserve long-term affordability, including restrictions on the future sales price of the home and income levels of future homeowners.

Note: If there are resale restrictions not contained in the ground lease, the lender should contact its Fannie Mae Account Team for additional guidance.

Resale restrictions are a right in perpetuity or for a certain number of years and are binding on current and future property owners. They remain in effect until they are formally removed or modified, or terminate in accordance with their terms, such as at a foreclosure sale or upon acceptance of a deed-in-lieu.

Income and resale price restrictions help maintain long-term affordability for shared equity programs. These programs include both an income and a maximum resale price restriction that effectively subsidize the sales prices for income-eligible buyers, and in exchange for the subsidy, the buyers agree to resale restrictions that limit the future sales price of the home to preserve affordability for future income-eligible buyers.

For information on other types of resale restrictions, see  B5-5.2-01, Loans With Resale Restrictions: General InformationB5-5.2-01, Loans With Resale Restrictions: General Information  and B5-5.2-02, Loans with Resale Restrictions: Eligibility, Collateral and Delivery RequirementsB5-5.2-02, Loans with Resale Restrictions: Eligibility, Collateral and Delivery Requirements.