Fannie Mae and Freddie Mac’s federal regulator wants the mortgage giants to buy more mortgages that are made to low- and very low-income homebuyers, and also meet new goals that support lending within minority census tracts.
The Federal Housing Finance Agency (FHFA) is seeking comments on the proposed benchmarks for 2022 through 2024, which are intended to promote equitable access to affordable housing.
The FHFA wants at least 35 percent of the purchase mortgages backed by Fannie and Freddie to be taken out by low- and very-low income borrowers, up from 30 percent today.
New subgoals would require Fannie and Freddie to make sure that at least 10 percent of the purchase mortgages they back be taken out by homebuyers in minority census tracts, and 4 percent by borrowers living in low-income census tracts.
The FHFA also wants to see Fannie and Freddie boost their goals for refinancing mortgages held by low-income borrowers, from 21 percent today to 26 percent over the next three years.
FHFA’s proposed housing goals for Fannie Mae and Freddie Mac
Source: Federal Housing Finance Agency
Sandra Thompson
Fannie and Freddie’s goals “should support equitable access to sustainable affordable housing opportunities in a safe and sound manner that bolsters the health of communities,” said FHFA Acting Director Sandra L. Thompson, in a statement.
Some conservative critics have blamed affordable housing goals for incentivizing Fannie and Freddie to invest in subprime mortgages during the housing boom that preceded the mortgage meltdown and recession.
Instituted by Congress in 1992, the goals gradually became more ambitious, leading the privately held “government sponsored entities” into trouble, according to Daniel Press, a former policy analyst at the Competitive Enterprise Institute.
“The initial low-to-moderate income quota for Fannie and Freddie was around 30 percent per year, a goal that was not too hard for them to meet,” Press wrote in a 2018 analysis. “But the LMI goal was continually raised, to 40 percent in 1996, then 50 percent in 2001, and up to 56 percent in 2008. Impressively for a government agency, the GSEs hit their targets—by June 30, 2008, 57 percent of the 55 million mortgages in the financial system were non-traditional, meaning either subprime or otherwise of low quality.”
But others say private lenders should bear most of the blame for the subprime mortgage meltdown, with Fannie and Freddie playing only a minor role.
“A recent study from the Federal Reserve Bank of St. Louis found that the affordable housing goals had no observable impact on the volume, price, or default rates of subprime loans during the crisis, even after controlling for the loan size, loan type, borrower characteristics, and other factors,” John Griffith wrote in a 2012 post mortem for the Center for American Progress.
The mortgage giants did end up in government conservatorship in 2008 as their paper losses mounted. But since then, Fannie and Freddie have repaid the $191 billion taxpayer bailout, plus interest, leading to a push by the Trump administration to reprivatize them. The Congressional Budget Office last year analyzed scenarios for recapitalizing Fannie and Freddie and returning them to private ownership as early as 2023.
Democrats have put the brakes on those plans, seeing an opportunity to use Fannie and Freddie to provide better access to home loans for underserved borrowers. The Biden administration replaced Trump’s FHFA director, Mark Calabria, with Thompson, who got rid of a 50-basis point refinancing fee instituted last year to help Fannie and Freddie cover anticipated pandemic losses.
That fee amounted to about $1,400 for a borrower refinancing a typical $280,240 mortgage. Now, some Democrats want to extend another smaller, 10-basis point guarantee fee that’s set to expire on Oct. 1, and use the money to help pay for the bipartisan infrastructure bill passed by the Senate last week.
The Infrastructure and Jobs Act, which would fund investments in bridges, roads, railways and broadband, would pay for some of those projects by extending the fee through 2032, raising an estimated $21 billion. The Mortgage Bankers Association and other industry groups are opposed to extending the fee.
