The country’s largest backers of home loans, Freddie Mac and Fannie Mae, are launching new Equitable Housing Finance Plans for 2022-2024 aimed at fostering sustainable and equitable access to housing, especially for underserved homebuying groups.
The Federal Housing Finance Agency (FHFA), which oversees Freddie Mac and Fannie Mae and backs more than $7.5 trillion in mortgages, announced the plans on Wednesday, June 8. The plans were created after a request for input and public listening sessions in September 2021 and will be updated annually to “address barriers experienced by renters, aspiring homeowners, and current homeowners – particularly in Black and Latino communities.”
The Equitable Housing Finance Plans are centered on five pillars:
- Consumer education initiatives for renters and homeowners;
- Credit reporting to help tenants build credit profiles and enable better access to financial services;
- Expanding counseling services to support housing stability;
- Deploying technology to improve access to sustainable credit and fair home appraisals; and
- Special Purpose Credit Programs to address barriers to sustainable homeownership.
The plans take the form of dozens of pilot programs and initiatives that Freddie and Fannie will deploy, monitor, and refine from 2022-2024.
“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 FHFA Acting Director Sandra L. Thompson. “We look forward to working with the Enterprises, lenders, and other housing industry participants to further develop the ideas described in these plans.”
Let’s take a closer look to see what’s in the pipeline for underserved homebuyers.
Fannie Mae Equitable Housing Finance Plan highlights
The mission of Fannie Mae’s three-year plan is to “Knock down barriers faced by Black homeowners
and renters through piloted solutions that remove unnecessary obstacles to first-time homeownership and access to affordable, quality rental housing.”
Those obstacles include renters being unable to create savings; lack of money for down payment and closing costs; smaller savings for post-purchase maintenance; and lower credit scores and credit invisibility.
To address these obstacles, Fannie Mae has 17 action items ranging from pilot programs for expanding rental payment reporting as a means of building credit to building a closing cost calculator tool.
Chief among these initiatives is creating Special Purpose Credit Programs (SPCPs), which include down payment and closing cost assistance programs directly target to homebuyers in “formerly redlined and other underserved areas with majority Black populations.”
Special Purpose Credit Programs, which were created by the Equal Credit Opportunity Act, allow lenders to offer special credit assistance programs and favorable loan terms for economically and socially disadvantaged homebuyer groups.
Fannie Mae’s SPCP initiatives include:
- Expanding homeownership eligibility through new loan programs
- Expanding sources of down payment assistance funds
- Reduce closing and appraisal costs
- Providing ongoing homeowner education resources
- Helping homeowners deal with unexpected expenses or income disruptions
Additional action items include:
- Building and launching a first-time homebuyer education curriculum
- Expanding access for credit-invisible borrowers through changes in automated underwriting and rental reporting as a means of building credit
- Modernizing the appraisal process to create more equity in the home valuations
- Expanding the appraiser diversity initiative (ADI) to attract new, diverse entrants to the profession and reduce appraisal bias
- Testing an ongoing education program to strengthen borrower stability
- Expanding Future Housing Leaders (HFL) program to bring more Black people into the housing industry
It’s important to note that many of these initiatives are pilot programs and ongoing testing. That means they likely won’t be widely available in the near future and will take time to develop and have measurable impact.
However, the plan has potential to expand access to homeownership for Black people and reduce the 30 percentage point housing gap between Black homeownership (42% rates) and white homeownership rates (72%).
Freddie Mac’s Equitable Housing Finance Plan highlights
Freddie Mac’s plan is designed to “promote sustainable homeownership and rental opportunities for traditionally underserved Black and Latino communities nationwide.”
Like Fannie Mae’s plan, it is centered on Special Purpose Credit Programs. However, whereas Fannie Mae’s plan focused primary on Black people, Freddie Mac also identifies initiatives for Latino and Native American communities, and “borrowers in census tracts with a non-white population greater than 50%.”
Freddie Mac’s SPCPs include:
- Reducing single-family loan-level price adjustments (LLPAs)
- Creating a program to reduce mortgage insurance costs
- Lowering the cost of title insurance
- Modernizing appraisals for SPCP-eligible borrowers
- Creating reserve funds and service plans for homeowners
- Increasing access to capital for diverse multifamily borrowers
The early stages of the three-year plan focus on developing and piloting these programs, so the details for these SPCP initiatives are still vague.
In addition to SPCPs, Freddie Mac is implementing a series of targeted outreach actions to support specific homebuying groups and a series of broad interventions to address systemic barriers to equitable housing.
The targeted initiatives include various types of assistance for:
- Black and Latino borrowers
- People with intellectual and/or development disabilities
- People that have experienced homelessness,
- Renovating single-family homes in underserved communities
- Developing multifamily properties
Broad initiatives include improving fairness in credit scoring, underwriting, appraisal and a dozen or so action items geared toward increasing affordable housing.
Major steps for equitable housing
Both plans cite wide and stubborn homeownership gap between Black, Latino, and white Americans as evidence of persistent inequitable housing policies. While no single SPCP or initiative will provide a silver-bullet solution to this problem, the quantity and variety of efforts put for the Freddie and Fannie’s plans are a major step for equitable housing.
Most initiatives will take a year or more to get off the ground. But in time, the two biggest mortgage backers in the country will have several new resources for lenders to better serve traditionally underserved homebuyers.