Don’t look (up) now, but the nation’s largest mortgage buyers just added climate change as a “priority concern” for the upcoming year.
The Federal Housing Finance Agency (FHFA), which oversees the government-sponsored enterprises Freddie Mac and Fannie Mae, announced in a press release that “climate changes poses a serious threat to the U.S. housing finance system” and that it would become a “priority concern” in the 2022 Conservatorship Scorecard.
The primary purpose of Freddie Mac and Fannie Mae, which currently provide more than $7.3 trillion in funding to the mortgage market, is to purchase mortgages from lenders, package them, and sell them to investors as mortgage-backed securities. This keeps money flowing to mortgage lenders, allowing them to service more home loans.
The FHFA’s annual Conservatorship Scorecard establishes goals by which to assess Freddie and Fannie during the year. While the 2021 scorecard does not contain a single mention of climate change, it is built into 2022’s criteria for the enterprises to “conduct business in a safe and sound manner.”
Specifically, the scorecard requires Freddie and Fannie to “ensure a government structure exists to prioritize the effects of climate change throughout Enterprise decision making.”
It’s not immediately clear what that means for homebuyers. However, it does mark a monumental shift in FHFA policy and seems to foreshadow a greater emphasis on climate risk in the mortgage industry moving forward.
Acting Director Sandra L. Thompson followed up with a statement regarding the agency’s new focus.
”The Federal Housing Finance Agency (FHFA) recognizes that climate change poses a serious threat to the U.S. housing finance system. As a member of the Financial Stability Oversight Council (FSOC), FHFA is committed to working collaboratively with other federal agencies to make tangible progress toward addressing climate change and its consequences.”
The 2022 scorecard also established criteria for financing energy and water efficient improvements on multi-family properties through Fannie Mae Green Rewards and Freddie Mac Green Up and Green Up Plus. Renovations financed under these programs can only be classified as “mission-driven” if they achieve:
- 15% reduction in annual energy consumption for the whole property, and
- 15% reduction in annual water and/or energy consumption
For example, a 20% reduction in energy and 10% reduction in water would qualify, as would a 30% reduction in energy.
While these early goals seem vague and small, it’s important to remember the size and influence Freddie and Fannie have as the nation’s top mortgage buyers. Guidelines set by the FHFA influence which mortgages Freddie and Fannie will buy, and by extension which mortgages lenders will service.
If Freddie and Fannie are paying more attention to climate risks, perhaps it’s time for homebuyers to pay attention too.
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Fairway is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.