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.

This bill aims to make it easier for homeowners to build accessory dwelling units (ADUs), like backyard cottages or garage apartments. It tells HUD to create a program that insures certain second mortgages used to pay for ADU construction within two years of the bill becoming law. The insured amount is capped: it can be no more than the lesser of a set percentage of a federal loan limit or the home’s projected value after the ADU is built when combined with existing debt, and HUD can raise the cap using up to half of the expected ADU rental income. The yearly insurance premium can’t be more than 1%. Borrowers must own the property, and HUD must report each year on the program’s results . An ADU can be a modular or prefabricated unit, a manufactured unit, or a conversion of an existing structure; it must include a kitchen, sleeping area, and bathroom, and can be attached to, inside, or separate from a single-family home.

The bill also allows Fannie Mae and Freddie Mac to buy and bundle these insured loans, unless the federal housing regulator decides that market conditions make it too risky and formally notifies Congress. The regulator must report each year on these purchases .

• Who is affected: Homeowners wanting to add an ADU; lenders; HUD; Fannie Mae and Freddie Mac; renters who may seek ADU housing .
• What changes: HUD insures certain second mortgages for ADUs; loan size limits apply; up to 50% of expected ADU rent can help qualify; premiums capped at 1% yearly; Fannie and Freddie can buy these loans; annual reporting required.
• When: HUD must start the insurance program within two years of enactment; annual reports begin one year after enactment; Fannie and Freddie purchases are allowed unless later paused by the regulator with notice to Congress .