Federal housing finance policies and programs exist to provide financing for the acquisition and construction of homes and boost investment in the housing industry. While a variety of housing loan products exist, a report released by the Regional Plan Association (RPA) in February 2016 highlighted the unintended consequences of housing finance policies at that time. One of the consequences highlighted was the structure of federal loan programs that did not support mixed-use, multi-family developments, effectively limiting the access of these properties to financing options. In areas where two and three story buildings with the potential to support residential spaces above commercial storefronts exist, this type of access could be crucial to revitalization and diversification of neighborhoods.
When RPA’s report was released, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) loans, guarantees and mortgages typically capped commercial floor space or income at 15-25% of multi-family projects, which would disqualify most structures with six stories or less. However, options are now being offered by Fannie Mae and Freddie Mac to curtail this issue, as both have expanded programs to include smaller, mixed-use properties.
Fannie Mae’s Small Loans Program is designed to offer loans for fixed and variable rate mortgages on conventional properties, as well as existing multifamily properties, the construction of multifamily housing properties (market rate and affordable), and properties with 5 or more units. The program now provides expedited processing for loans up to $3 million nationally and $5 million in select markets. With this expansion in financing, the program can now assist with the revitalization of three and four story buildings, provided financing options for the project include community services or affordable housing.
Freddie Mac’s Small Balance Loan program is similar to Fannie Mae’s Small Loans Program in the sense that it offers $3 million and $5 million loans. However, Freddie Mac’s program can support two story buildings, provided that some of the ground floor is housing. In addition, this program received boosts from the Federal Housing Finance Agency’s increase in maximum conforming loan limits and higher-cost area limits for 2017. The program’s standard market loan limit doubled from $3 million to $6 million, and the high cost area limit increased from $3.7 million to $7.5 million. These increases would impact older buildings that will now have access to financing for rehabilitation and potentially provide neighborhoods with vibrant, mixed-use development.
As older, multifamily buildings are already a part of the housing landscape in areas throughout the United States, these loan products represent tools that can be used to foster development of housing stock, especially in neighborhoods in need of investment. In addition, these products represent the changing demands of the housing industry and the recognition that different types of development and housing structures have varied financing needs.
Ashley Tucker is a dual-degree student in the Master of Public Administration and Master of City & Regional Planning programs at UNC-Chapel Hill and a Fellow with the Development Finance Initiative.