The creation of a land-lease concept involving the government-sponsored enterprises, could help overcome issues inside the housing finance industry, reported chief executive officer Myron Curzan of UniDev, a provider of housing for moderate-income public employees.
As of Aug. 1, the conservator of the Federal Housing Finance Agency decided that Freddie Mac and Fannie Mae would not write down the principal on loans the GSEs control, fearing that if listed homeowners would default on their current mortgage.
Curzan noted in comments on the Urban Land Institute website: “If first mortgages held by the GSEs are reduced, all second mortgagees will be unjustifiably enriched because the reduction increases the likelihood that they will be repaid.”
The pseudo-policy is based on a shared-appreciation model, which will create stable homeownership and avoid foreclosures.
The concept emphasizes that GSEs could require homeowners to transfer the land that their homes sit on to Fannie Mae or Freddie Mac, which holds the land for itself and for any second mortgagee. This would establish the value of the principal and it would also allow an interest rate of 1%. Homeowners would also use 60% of sales or refinancing proceeds to pay off their land leases.
For example, the homeowner would continue to pay off the lease that was in effect even if the home is sold.
If a second mortgage were in place it would be treated equally with the first mortgage and the lender would agree to this transfer, which is a better outcome than foreclosure.
Purchasers could also be given 20% of the appreciation as a discount, or GSEs could allow outstanding mortgages to be assumed by purchasers at an interest rate 50 basis points below the market rate.
UniDev is confident the concept would cost the government less, provide a loan-to-value ratio option for homeowners and avoid upsetting borrowers who remain current on mortgage payments even if they’re underwater.