Fannie and Freddie must submit fair housing finance plans
Mortgage giants Fannie Mae and Freddie Mac have been ordered to submit equitable housing finance plans by the end of the year, setting out a roadmap to reduce racial or ethnic property gaps over the three coming years.
The plans – which take effect Jan. 1 – are to identify and remove barriers to sustainable housing opportunities, and Fannie and Freddie will be required to submit annual progress reports documenting steps taken to implement the plans.
“For generations, discriminatory practices such as redlining have prevented communities of color from creating wealth through home ownership,” said Sandra L. Thompson, acting director of the regulatory body of Fannie and Freddie, the Federal Housing Finance Agency, in a statement. “By identifying the obstacles to equitable and sustainable housing finance opportunities and setting targets to overcome these obstacles, [Fannie and Freddie], compatible with security and soundness, can responsibly reduce the racial and ethnic disparities in home ownership and wealth that still exist today.
The FHFA will host a public listening session on September 28 and will accept comments from the public until October 25.
Bob Broeksmit, president of the Mortgage Bankers Association, said the group has “championed efforts to narrow the racial gap in homeownership, and we will be releasing our policy recommendations in the coming weeks, including the areas where [Fannie and Freddie] can play an essential role.
Fannie Mae CEO Hugh Frater called reversing the legacy of discriminatory housing policies and practices “one of the great challenges of our time,” and said the company looked forward to the opportunity to create an equitable housing finance plan.
“This plan will build momentum and focus on the actions we are already taking, and will take in the years to come, to promote diversity in the housing workforce; expand affordable homeownership and rental opportunities for underserved communities; and responsibly and sustainably improve access to mortgage credit, such as our recent move to allow lenders to factor a positive rent payment history into underwriting mortgages, ”Frater said in a statement. “Barriers to home ownership remain for people of color and other minorities. With the support of the FHFA, we will continue to work on these issues and engage with industry partners to take concrete steps to eliminate them.
Freddie Mac CEO Michael DeVito issued a similar statement, saying the company “is committed to working with the FHFA to create additional opportunities for all families to access quality housing.”
In a 10-page document outlining the comments it hopes to receive from the public, the FHFA said the questions include:
- How should companies select and set measurable goals? For example, is it better to pursue a small set of focused goals or a large portfolio of goals?
- What data, information or analysis would be useful for companies to consider or use to support their plans?
- How should companies undertake to set goals, measurable goals and meaningful actions to sustainably close the racial and ethnic gap in homeownership?
- How should companies go about setting goals, measurable goals and meaningful actions for areas formerly marked in red? How to define these areas?
- What other measurable goals and objectives should companies pursue in their plans?
- What constitutes “meaningful” action and what kinds of meaningful actions should companies take as part of their plans?
- How can companies and the FHFA ensure that the measures taken under the plans provide opportunities for sustainable housing and are compatible with safety and soundness?
- What should the FHFA take into account when overseeing business plans? Should the FHFA provide a rating or other public assessment? If so, how do you assess the plans?
- How should plans interact with duty to serve, housing goals, or other requirements?
- Could special credit programs (as defined in 12 CFR 1002.8) be included in company plans? How should such programs be structured?
- Are there additional or different objectives and goals that the FHFA should consider for future business plans?
- Which communities and stakeholders should businesses consult in developing their plans?
In a separate process, the FHFA is accepting comments until October 25 on its housing targets for Fannie Mae and Freddie Mac for 2022 to 2024. The agency announced in August that it wanted the credit giants to buy more cheap mortgages. and very low income homebuyers, and are also achieving new goals that support lending in minority census tracts.
The FHFA wants at least 35% of the purchase mortgages guaranteed by Fannie and Freddie to be taken out by low- and very low-income borrowers, compared to 30% today.
Housing objectives proposed by the FHFA for Fannie Mae and Freddie Mac
After curbing the Trump administration’s plans to reprivatize Fannie and Freddie, Democrats lobbied for “government-sponsored companies,” or GSEs, to provide more home loans to underserved borrowers.
On January 20 – the day of his inauguration – President Biden issued an executive order, “Advancing racial equity and support for underserved communities through the federal government,” decreeing that “the federal government should pursue a comprehensive approach to advance equity for all, including people of color and others who have been historically underserved, marginalized and affected by poverty and persistent inequalities.
A recent analysis of 2.4 million purchase loan applications by The Markup, a nonprofit newsroom, found that black applicants were 80% more likely to be denied conventional mortgages eligible for the support from Fannie Mae and Freddie Mac, compared to white applicants of similar qualification.
The analysis found that Latino homebuyers were 40% more likely to be rejected, and residents of Asia / Pacific islands were turned down 50% more often than whites. The odds of Native American home buyers being turned down were 70% higher than for whites.
Lending industry groups criticized the analysis, saying it did not take into account borrowers’ credit scores or analyze applications for government-backed FHA, VA and USDA mortgages.
In another recent development, the Department of Housing and Urban Development plans to reinstate the disparate impact rules put in place by the Obama administration in 2013 to address discriminatory practices that may be unintentional, but nonetheless unjustified. The Trump administration had overturned those rules, protecting lenders from lawsuits, critics said.
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