Community organizations have a key opportunity to influence an obscure but consequential piece of the federal government’s fair lending work.
The Federal Housing Finance Agency (FHFA) recently codified equitable housing finance plans (EHFPs) that Fannie Mae and Freddie Mac are required to produce and report on annually. The FHFA had required Fannie Mae and Freddie Mac to report plans and updates to plans since 2022 but the agency finally codified this requirement in regulations published in late April of this year. On June 5, the FHFA will be holding a hearing on the new regulations and Fannie Mae’s and Freddie Mac’s 2024 plan updates.
This requirement aims to increase affordable housing finance for traditionally underserved neighborhoods and to promote partnerships between Fannie Mae, Freddie Mac and community-based organizations. FHFA’s process for developing the plans includes dialog with community organizations, who may offer their views concerning affordable housing finance to the regulator itself and to the two Government Sponsored Entities (GSEs) who implement the plans.
Partnership Building Spurred by Planning Requirement
Under a partnership between Fannie Mae and Southside Community Development and Housing Corporation based in Richmond, Virginia, Fannie Mae will support the development of affordable ownership and rental housing in a rural area with concentrations of African Americans. Southside will provide counseling to residents and will produce resource guides that will help other rural communities engage in affordable housing development.
In the absence of the equitable plan requirements, it is likely that there would be fewer partnerships like this one. However, the precise amount and form of Fannie Mae financial support for the Virginia partnership or other efforts is not readily apparent from its update to its equitable housing plan.
The plans also provide relatively little information on selection criteria which might help community groups figure out whether Fannie Mae is targeting underserved communities. It would also help nonprofit organizations devise strategies for best approaching Fannie Mae about potential partnerships.
What the Plans Are and How Community Organizations Can Offer Input
Under the FHFA regulations, the equitable housing plan is a three-year plan for each GSE that identifies barriers to affordable housing for underserved communities and establishes how each GSE will help overcome those barriers. The plans adopt measurable goals for financing housing in underserved communities. The GSEs update their plans and report on goal attainment annually. FHFA makes the plans and updates available to the public; the GSEs also post them on their websites.
Each year, the FHFA holds a hearing before June 15 to solicit public input on the plans. GSEs are required to engage with community stakeholders as they develop plans. NCRC members should participate in the FHFA hearings and should also share their views directly with the GSEs about their plans.
This year, the FHFA’s hearing is on June 5. You can sign up using this link. You can submit comments on a related FHFA request for information on June 7, using this link.
Examples of Barriers the Plans Address – A Good Start but Improvements Needed
One barrier that Fannie Mae chose to address in its equitable housing plan was reliance on credit history reporting in underwriting loans. A reliance on credit history poses difficulty for populations with a lack of traditional credit history to qualify for loans. Fannie Mae has recently tried to lower that barrier by providing subsidies to owners of multifamily housing to report positive rental payment to the credit bureaus. This effort assisted 117,000 borrowers, but the pilot program will end in 2024. Fannie Mae should report on the success of the program: Did it result in loan approvals for applicants that may have otherwise been rejected due to a lack of traditional credit history? More information about the degree of success would enable community groups to offer specific recommendations about whether this effort should be renewed and how it can be improved.
Another strategy used to address barriers to credit for underserved communities is the use of Special Purpose Credit Programs (SPCP). Lenders and GSEs have designed SPCPs to serve traditionally underserved populations and communities, including people and communities of color, identified through data analysis. SPCPs are also eligible for CRA credit in the 2023 final CRA rule. The new EHFPs note that each GSE now finances about 10,000 SPCP loans annually, but it is hard to tell whether this figure represents an increase from past years. It is also unclear whether the SPCP loan volume will increase the number or percentage of home purchase loans for people of color nationally or in certain geographic areas.
Even though Fannie Mae and Freddie Mac have significant market share in purchasing loans, it is unlikely that Fannie’s and Freddie’s combined 20,000 SPCP purchases will increase the percentage of home purchase loans that people and communities of color received nationally. The GSE SPCP purchase volume of 20,000 loans is only about 3% of the 604,000 total home purchase loans to Black and Latino borrowers in 2022, the most recent year for which data is available. Three percent seems too low to move the needle nationally. It is also probably an overestimate because the GSEs do not report precise numbers of loans for each racial and ethnic group, and broadly refer to African Americans and Hispanics in their equitable plans.
To make the reporting in the Equitable Plans more meaningful, the GSEs should report a few key indicators about their SPCP activity. First, they should document how their SPCP loan purchases compare with previous years. Second, they should estimate whether their annual SPCP purchases will make a difference in increasing access to credit for underserved borrowers at state, metropolitan or county levels. Third, they should report whether they are working with banks to focus on specific metropolitan areas or rural counties.
A final example of incomplete reporting in the equitable housing plans is Freddie Mac’s pledge to finance climate resiliency improvements for 10,000 affordable housing units annually. While this is commendable, the same lack of contextual information in the new EHFPs raises the same types of unanswered questions: Is this 10,000-unit pledge an improvement from past years? In which geographical areas will the financing occur? Is Freddie Mac working with lenders to target geographical areas in greatest needs for climate resiliency or areas with needs for different types of climate resiliency ranging from protections against floods to increases in efficiency in heating and cooling homes?
The Rigor of Equitable Plans May Depend on Community Input
These are the kinds of defects in a policy mechanism that can be easily put right – oversights that the planners should want to fix. It will help if community leaders can call attention to these issues.
The rigor and effectiveness of the equitable housing finance plans may depend on community input. Community groups should therefore ask hard questions at the upcoming June 5 hearing – in particular about whether each action has meaningful quantifiable goals that are improvements from past GSE purchasing volume and whether they increase lending to underserved populations in specific geographical areas. Goals in terms of numbers of housing counseling clients supported and numbers of affordable housing units financed should also be rigorous.
While the FHFA regulation does not state clearly whether the FHFA will mandate improvements in submitted plans when improvements are warranted, the final regulation indicates that FHFA will provide “feedback” on draft plans. The feedback they provide to the GSEs may depend in no small part on what they hear from community advocates at the June 5 hearing and via the comment portal that closes June 7.
Josh Silver is a Senior Fellow at NCRC.
