Fannie Mae and Freddie Mac have released their first Equitable Housing Finance Plans for 2022-2024, which aim to address barriers experienced by renters, aspiring homeowners, and current homeowners—particularly in Black and Latino communities.
The plans were created in response to a 2021 request by the Federal Housing Finance Agency (FHFA).
“The Equitable Housing Finance Plans represent a commitment to sustainable approaches that will meaningfully address the racial and ethnic disparities in homeownership and wealth that have persisted for generations," said Sandra L. Thompson, who was recently confirmed as FHFA director. “We look forward to working with the enterprises, lenders, and other housing industry participants to further develop the ideas described in these plans."
Fannie Mae’s plan focuses on empowering Black renters and homeowners in three key areas:
- Housing preparation: Helping Black consumers prepare early for sustainable homeownership and access to quality rental housing through credit building and financial education;
- Buying or renting: Removing unnecessary obstacles Black people face in shopping for, acquiring, renting, or mortgaging a home; and
- Moving in and maintaining: Enhancing sustainable homeownership so that renters and homeowners can withstand disruptions or temporary hardships and remain stably housed.
The government-sponsored enterprise (GSE) plans to take several steps, including launching pilot programs to help Black renters to establish or improve their credit scores. The pilot will look at having multifamily landlords report rental payment data to the credit bureaus. Another pilot program will look at options to defray or decrease the cost of security deposits for renters.
The report reveals that Fannie Mae’s research has found that 31% of Black renters have had a rental application turned down, compared with 18% of white renters. In addition, 20% of Black and 24% of Hispanic renters cite difficulty finding information on rental listings, compared with 14% of white renters.
On the homeownership side, a central component of Fannie Mae’s plan is to deploy Special Purpose Credit Programs (SPCPs) aimed at enabling access to credit and encouraging sustainable homeownership for Black consumers. Additionally, SPCPs will be focused on people residing in formerly redlined and other underserved areas with majority Black populations. The company plans to execute SPCP pilots to help expand homeownership eligibility and the down payment assistance. Fannie Mae also wants to execute a SPCP pilot to reduce borrower closing costs for home buyers by testing the use of appraisal reimbursements or title products in certain geographic markets.
In another move, Fannie Mae proposes expanding Future Housing Leaders, a recruiting service that helps companies create a more diverse workforce.
Freddie Mac’s plan proposes actions in five key areas:
- Addressing the homeownership gap. Freddie Mac also plans to fully explore the use of the SPCP framework to purchase loans originated through new or existing lender SPCPs. Under federal law, lenders may offer special underwriting or pricing for traditionally disadvantaged groups as part of a SPCP;
- Strengthening investment within formerly redlined areas. The plan includes efforts to increase support for underserved renters and multifamily borrowers; expand financing for affordable housing developers; and help Community Development Financial Institutions, minority depository institutions, and smaller banks with improved access to capital;
- Financing the creation and preservation of affordable housing. Freddie Mac seeks to leverage public and private investments to create and preserve single-family and multifamily housing. The company plans to expand utilization of its renovation products to preserve the aging stock of affordable single-family homes, which are particularly prevalent in communities of color;
- Increasing opportunities for renters. Under the plan, the GSE will expand on the company’s multifamily tenant credit-building initiative with new tools aimed at encouraging financial empowerment and wealth building. The company will also build on its efforts to leverage market-based incentives to preserve affordable rents and promote social services. This can help narrow the gaps in social and economic mobility that often impact renters, particularly Black and Latino households; and
- Helping to eliminate disparities among Black and Latino communities. The plan introduces several new initiatives aimed at improving access to capital for emerging diverse multifamily developers to increase wealth-building opportunities and enhance the ability for people to invest in and grow their communities.
More specifically, Freddie Mac also plans to purchase loans originated through SPCPs in an effort to reduce the homeownership gap.
“There is a growing interest among lenders in originating loans under an SPCP and selling the loans to Freddie Mac,” says the company’s plan. “We plan to purchase loans originated through lenders’ SPCPs. If necessary, we will review lender SPCPs and establish terms of business that will permit lenders to sell us loans originated under their SPCPs.”
The firm notes that it is continuing to research how to best structure and implement an SPCP for the most impact, including exploring geo-targeting strategies, targeting individuals instead of geographies, and leveraging new trustworthy channels to better reach Black and Latino communities.
On the affordable multifamily housing side, Freddie Mac plans to analyze the magnitude of low-income housing tax credit properties at risk of losing their affordability. In another move, the GSE says it intends to work with more states and localities to address homelessness and explore ways to finance more permanent supportive housing.
In addition, Freddie Mac calls for increasing access to capital for diverse multifamily borrowers through outreach efforts and exploring modifying pooling practices for loans to enable it to develop capital markets executions and improve the liquidity need to better serve more borrowers.
Freddie Mac also plans to expand its Develop the Developer program, which has focused on single-family properties, to include small multifamily properties. This will help increase redevelopment activity as well as financing opportunities for emerging developers.
