What Is a Tandem Plan?
A tandem plan was a mortgage purchase program subsidized by the U.S. government. Under a tandem plan or program, the Government National Mortgage Association (GNMA), colloquially known as Ginnie Mae, bought mortgages at a discounted market price and then sold them through the Federal National Mortgage Association (FNMA), better known as Fannie Mae and the Federal Home Loan Mortgage Corp. (FHLMC), usually called Freddie Mac.
In effect, GNMA footed the difference between the purchase and sale price of the mortgages that it buys. This type of structure allowed for extremely low interest rates, making the loans available to aspiring homebuyers who would not be able to afford them otherwise.
As of 2019, new low-interest loans are no longer being funded through the Brooke-Cranston Tandem Plan, though some other government programs still exist to help with low-income housing.
Ginnie Mae first launched a series of tandem plans in 1970. Congress created the major program for conforming loans, officially known as the Brooke-Cranston GNMA Tandem Plan, in 1974, with the passage of the Emergency Home Purchase Assistance Act.
As of 2019, new loans are no longer being funded through the Brooke-Cranston Tandem Plan, though the concept of special assistance programs still exists. A similar plan could be revived should the mortgage money supply become too tight.
How Tandem Plan Loans Work
Tandem loans provided monetary assistance to builders and developers of non-profit public housing. Here's how the Department of Housing and Urban Development website described the process:
"The program is versatile as to the types of housing which can be provided and the types of tenants which can be served. It permits row, walk-up, elevator, and grouped or scattered single-family construction. Projects may also be developed in conjunction with other Federal or State programs," it stated. "FNMA participation in construction advances for up to 95% is available whether the commitment contracts are held by FNMA or GNMA."
Interest reduction payments could be made for a rental or cooperative housing project, owned by a private nonprofit entity, a limited distribution entity, or a cooperative housing corporation, which is financed under a state or local program which provides assistance through loans, loan insurance, or tax abatement. To qualify for interest reduction payments, a project was required to be submitted for approval prior to completion. Projects did not need to be financed with HUD-FHA insured mortgages, and HUD-FHA would recognize the organization and operation of the project under state or local programs to the extent they were not inconsistent with the National Housing Act, according to the agency.
Alternatives to the Tandem Plan
While new tandem loans are no longer issued, numerous other programs aimed directly at buyers have since been implemented.
One is the Homeownership and Opportunity for People Everywhere (Hope I), which helps low-income people buy public housing units by providing funds that nonprofit organizations, resident groups, and other eligible grantees can use to develop and implement homeownership programs.
For rental housing, there is the housing choice voucher program, the federal government's major program for assisting very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary housing in the private market. Since housing assistance is provided on behalf of the family or individual, participants are able to find their own housing, including single-family homes, townhouses, and apartments. The participant is free to choose any housing that meets the requirements of the program and is not limited to units located in subsidized housing projects, HUD has stated.