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The real estate industry has a saying: Form follows finance. Main Streets and historic neighborhoods in cities and towns often consist of low- to mid-rise mixed-use buildings that offer housing near local businesses and offices. Regulatory barriers have long inhibited the financing of new construction of these building types, which make the most American of places—Main Street—a financial anachronism.
Low- and mid-rise mixed-use buildings exceed federal restrictions on the percentage of commercial uses allowed, preventing loans from being sold in the secondary market. The loans on these buildings are categorized as “nonconforming,” with predicable results: Many American neighborhoods now feature low single-use buildings next to ten-story towers, with no range of mid-rise mixed-use in between.
CNU works to remove these barriers to finance buildings that have historically formed the backbone of Main Streets and town centers for generations and even centuries.
Through its Live/Work/Walk: Removing Obstacles to Investment initiative, CNU advocates for FHA, Fannie Mae, and Freddie Mac to revise the regulations on the amount of commercial space allowed in mixed-use buildings. In 2012, as a result of CNU-led advocacy, FHA revised rules that limited the cap of commercial space in mixed-use condo buildings from 25 percent to an updated 35 percent commercial use, with possible waivers for developments with up to 50 percent commercial space. (For more coverage, see “FHA Eases Burdensome Condo Financing Rules” — Los Angeles Times, September 23, 2012).
Despite that progress, FHA, Fannie Mae, and Freddie Mac still have rules on the books favoring separate-use zoning. These include percentage limits on condo mortgages and also a 15 percent cap on the HUD 221d4 program that finances most multifamily rental buildings in the US, forcing developers to “build high to qualify.” All of these restrictions combine to undermine existing Main Streets and obstruct new ones.