HR4568-119

What This Bill Does

The SUPPLY Act adds a new accessory dwelling unit construction insurance program to title II of the National Housing Act. Within two years, HUD must establish a program to insure certain second liens secured by a property for financing construction of an accessory dwelling unit. The insured principal generally cannot exceed the lesser of 30 percent of the FHA one-unit mortgage limit or, when combined with other liens on the same property, 100 percent of the projected post-construction property value. HUD may increase the supported amount by considering 50 percent of expected annual rental income from the accessory dwelling unit. Borrowers must certify ownership of the property, HUD may charge annual insurance premiums up to 1 percent of insured principal, and HUD must report annually to Congress. The bill also requires the Federal Housing Finance Agency Director to permit Fannie Mae and Freddie Mac to buy and securitize section 259 insured loans, unless the Director finds excessive and unmitigable market risk and gives Congress written notice.

Who Benefits and How

Homeowners building accessory dwelling units benefit from a new FHA-insured second-lien financing option. Accessory dwelling unit lenders benefit from federal insurance and secondary-market liquidity for qualifying loans. Fannie Mae benefits from authority to purchase and securitize FHA-insured accessory dwelling unit loans. Freddie Mac benefits from parallel authority to purchase and securitize those insured loans.

Who Bears the Burden and How

HUD must design the section 259 insurance program, set terms, review borrower certifications, charge premiums, and report annually. The Federal Housing Finance Agency must permit or justify limits on enterprise purchase and securitization of insured loans. Borrowers must certify property ownership and comply with HUD application requirements. Federal taxpayers bear FHA insurance risk if accessory dwelling unit second-lien defaults exceed premiums.

Key Provisions

• Creates an FHA insurance program for second liens financing accessory dwelling unit construction.
• Limits insured principal by the FHA one-unit mortgage limit and projected post-construction property value.
• Authorizes HUD to count 50 percent of expected annual accessory dwelling unit rental income.
• Requires borrower ownership certification and annual HUD reports to Congress.
• Directs FHFA to allow Fannie Mae and Freddie Mac purchase and securitization unless excessive market risk is found.