FHFA Enacts Private Transfer Fee Exception Under Duty to Serve Requirements

FHFA recently published a final rule setting forth a new exception to FHFA’s general restriction on the GSEs purchasing, securitizing, or otherwise dealing in loans subject to private transfer fee (PTF) covenants.  Under this new exception, the GSEs may purchase loans that are subject to PTF covenants if the loans meet the shared equity loan program requirements that apply to resale restriction programs under the FHFA’s “Duty to Serve” program.

Specifically, to qualify for this exception, the shared equity program in question (which has a PTF feature) must:

• Be administered by a land trust, other nonprofit organization, or a state or local government instrumentality;
• Provide homeownership opportunities to very low-, low-, or moderate-income households;
• Utilize a legal mechanism (such as a deed restriction or ground lease) providing that the program “will keep the home affordable for subsequent very low-, low-, or moderate-income families, the affordability term is at least 30 years after recordation, a resale formula applies that limits the homeowner’s proceeds upon resale, and the program administrator or its assignee has a preemptive option to purchase the homeownership unit from the homeowner at resale”;
• Promote sustainable homeownership, such as through reviewing and pre-approving refinances and HELOCs.

Additionally, no household income limit applies to the above exception.

Finally, the final rule clarifies that regardless of whether a shared equity loan meets the criteria above, the general restriction at 12 C.F.R. Part 1228 on purchasing, securitizing, or otherwise dealing in loans subject to PTF covenants does not apply to shared equity loans (or related securities) with promissory notes dated prior to July 1, 2023.     

These provisions take effect May 13, 2024.