BlueHub SUN and the Shared Appreciation Mortgage

March 12th, 2023

How we use a shared appreciation mortgage

There’s a common thread among BlueHub SUN clients: They’re in default or foreclosure, often facing eviction and with nowhere else to turn. Many haven’t paid their mortgage for a long time. Some are underwater on their mortgage. They often find us through referrals from housing counselors and legal aid or government agencies. We work with our clients to help them retain and regain homeownership.

Once potential SUN clients apply and are conditionally approved for a new mortgage, BlueHub SUN advocates for its clients and negotiates with the original foreclosing lender to try to persuade them to sell the home to SUN at a lower price. Throughout this months-long process, SUN staff assists its clients through each step.

If a client is underwater on their mortgage, foreclosing lenders, as a general rule, will not sell us the defaulted loan. They will only sell us the home. So, even though it makes for a more complicated transaction, the only way SUN can work is for SUN to buy the home from the client—or their foreclosing lender if they’ve lost title—and sell it back to the homeowner at a price they can afford with a fixed-rate mortgage. The lender releases the homeowner from all prior mortgage obligations, and we process a new loan that reflects the home’s actual value. Now, instead of being underwater, the homeowner has the opportunity to earn equity immediately.

SUN clients come away with a reduced mortgage and relieved from past debt they never have to pay back. In return, they have a shared appreciation mortgage (SAM), a second mortgage based on the percentage saved on the previous mortgage.

Why SUN uses a SAM

Share appreciation mortgages are not unique to SUN. The concept took root in the 1990s and is now used by local housing authorities, nonprofits, private companies, colleges and universities, and municipalities across the United States. A SAM comes with the condition that clients pay it only if their home value increases, and only when they decide to exit the program by selling their home, refinancing out of their mortgage loan, or when the mortgage loan term ends.

The banking industry required BlueHub SUN to use a shared appreciation mortgage to dissuade homeowners from purposefully not paying their mortgage to get the principal reduction offered by SUN. The reduction to their mortgage principal results in smaller monthly mortgage payments that let homeowners regain their financial footing and reestablish their savings. 

Benefits and outcomes

Over 40% of SUN clients have paid off their mortgageand, where applicable, their SAMand successfully exited the program. Because they’ve had the chance to repair their credit, they have access to a conventional mortgage and save even more money.

As a nonprofit, we use money from SAMs to further our mission of building healthy communities where low-income people live and work – a win-win for homeowners and their neighborhoods.

BlueHub SUN issues disclosures (written, verbal and in video format) about the SAM and other key terms of the program 7 times throughout the months-long process from application to closing. Here’s a rundown of the process, step by step.

  1. Applicants have an initial phone screening with a licensed Mortgage Loan Officer followed by a 30-minute application phone call.
  2. Applicants must watch a 4-minute informational video about the SAM and sign a form stating they have watched it before applying.
  3. After submitting the application, applicants must sign written disclosures describing the SUN process and the key program terms, including the SAM.
  4. If we approve the application, we send clients an “Approved for Negotiations” letter that includes an explanation of the shared appreciation mortgage.
  5. Upon preapproval, BlueHub SUN negotiators hold a telephone meeting with every applicant to discuss the shared appreciation mortgage.
  6. After the negotiator’s meeting, we send a written disclosure outlining the SAM and stating the percentage of appreciation the client must share if negotiations succeed, as well as the baseline amount against which any future appreciation will be measured. Clients must carefully review and sign this disclosure. If negotiations succeed and an offer is accepted, we send applicants the final percentage of appreciation owed when they exit the program.
  7. The final step is a purchase and sales agreement, which discloses the SAM one last time. SUN clients sign the P&S and, if negotiations are successful, receive their new SUN mortgage.

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