To amend the National Housing Act to direct the Secretary of Housing and Urban Development to establish a program to insure certain second liens secured against property for the purpose of financing the construction of an accessory dwelling unit, and for other purposes.
If enacted, the bill would create a new Insurance program (within the National Housing Act) to insure certain second mortgages used to finance the construction of accessory dwelling units (ADUs). HUD would design and implement this program within two years, insuring specified second liens behind a homeowner’s primary mortgage. The loan sizes would be capped, with the base cap tied to FHA’s standard one-unit loan limit and an alternative cap based on the property’s post-construction value; the cap could be increased by up to half of the projected annual rental income from the ADU. Borrowers would pay an annual insurance premium of up to 1% of the insured loan amount. 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 market-risk safeguards. It requires annual reporting on activity and gives HUD and the Secretary authority to issue rules to implement the program. The ADU would be defined to include modular/prefabricated units, manufactured units, or conversions that meet building-code standards and include basic living facilities, attached to or detached from a single-family home on one property.
Key Points
- 1New program: Adds a HUD-administered ADU Construction Insurance program (Section 259) to insure certain second liens secured for ADU construction, to be established within 2 years of enactment.
- 2Loan size rules: Insured second liens generally may not exceed 30% of the FHA one-unit loan limit (section 203(b)(2)(A)) or 100% of the property’s projected post-construction value (whichever is applicable when considering other liens). An additional increase is allowed based on 50% of the ADU’s projected annual rental income.
- 3Borrower and collateral requirements: Borrowers must apply for insurance and certify ownership of the property where the ADU will be built.
- 4Premiums: Insurance carries an annual premium not to exceed 1% of the insured principal amount.
- 5FHFA and securitization: The Director of FHFA would permit Fannie Mae and Freddie Mac to purchase and securitize these insured loans, with an ability to prohibit purchases if market conditions pose excessive risk; annual reporting to Congress on purchases/securitizations would be required.
- 6ADU definition and standards: ADUs can be modular/prefabricated units that meet specified code editions, manufactured units, or conversions of existing structures; must include kitchen, sleeping, and bathroom facilities, and be added to or detached from a single-family dwelling on one property.