Supporting Upgraded Property Projects and Lending for Yards (SUPPLY) Act
The SUPPLY Act would amend the National Housing Act to create a new HUD-insured loan program for second liens used to finance the construction of accessory dwelling units (ADUs). Under the program, HUD would insure certain second mortgages secured by properties to fund ADU construction, with specific limits on how much could be loaned and how those loans could be repaid. Eligible ADUs include modular/pre-fabricated units, manufactured units, or conversions of existing structures that add a kitchen, bedroom, and bathroom to a single-family property. The bill also directs the Federal Housing Finance Agency (FHFA) to allow Fannie Mae and Freddie Mac to purchase and securitize these insured loans, subject to risk-based exceptions, and requires annual reporting on the program. The key aim is to expand financing options for homeowners to add living space (ADUs), potentially increasing housing supply and affordability. The program would come with premium costs (up to 1% annually of the insured loan) and would rely on mortgage market access through the federal government’s housing giants to support securitization of these loans.
Key Points
- 1Establishment of an Accessory Dwelling Unit Construction Insurance program within 2 years, providing HUD-insured second liens to finance ADU construction.
- 2Loan amount rules: the insured second lien may be up to the lesser of 30% of the FHA 203(b)(2)(A) limit for a one-unit residence or 100% of the projected post-construction value of the property (plus any existing liens), with the potential to increase by 50% of projected annual rental income from the ADU.
- 3Application and terms: borrowers must apply for insurance and certify ownership of the property; a premium may not exceed 1% of the insured loan principal per year.
- 4Mortgage market access: FHFA Director would allow Fannie Mae and Freddie Mac to purchase and securitize insured ADU loans, with an allowed prohibition if market conditions pose excessive risk.
- 5Reporting and rulemaking: annual congressional reports on program activities and securitization, and HUD rulemaking authority to implement the section.