What Is a Tandem Plan?

A Tandem plan is a type of strategy that makes it possible for construction professionals and developers to obtain the funds needed to create non-profit public housing. This type of arrangement is utilized within the United States and involves the extension of what is known as tandem loans through agencies affiliated with the federal government. Essentially, the Tandem plan makes it possible for the Government National Mortgage Association, known popularly as Ginnie Mae, to purchase outstanding mortgages at rates that are below the current market value. Ginnie Mae can then sell those mortgages through the Federal Home Loan Mortgage Corporation or Freddie Mac, or through the Federal National Mortgage Association, also known as Fannie Mae. The end result is a greater ability to construct public housing in areas in which there is a housing shortage and make those units available to individuals who meet the basic criteria for qualification.

In order for a Tandem plan to function, the applicant must receive what is known as a tandem loan. Essentially, this is a loan that is extended on property that already carries some type of debt obligation, with the balance of the two loans being consolidated. While a tandem loan can be used for various types of lending strategies outside the scope of a Tandem plan, the goal is normally to assist potential homeowners to obtain financing that is affordable and within the limitations of their income and budget, making it possible for more people to become homeowners.

In order to participate in the Tandem plan, builders and developers must meet the criteria set by Ginnie Mae for participation. The development must be in an area that is approved by the agency, and meets all local building codes as well as the quality standards set by Ginnie Mae. In addition, the builder or developer must also meet the credit requirements put in place by the agency and agree to the repayment terms as outlined by that agency. If everything is in order, the loan can be purchased by Ginnie Mae, then restructured into a debt obligation that can then be sold to Freddie Mac or Fannie Mae.

While the Tandem plan is associated with the creation of public housing in the United States, the approach does bear some resemblance to other public housing strategies used in other nations. Typically, the structure of the plan will call for purchase of a loan by one government entity and reselling that loan to another entity, making it possible for the public housing to provide basic living quarters for more citizens. The practicality of the Tandem plan is an ongoing source of debate, with supporters holding that governmental intervention is necessary to ensure the housing is made available for lower income households, and detractors holding that this approach can be manipulated in a manner that benefits some but not necessarily all of the citizens that the plan was intended to support.