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In a presentation in the REALTOR® University Speaker Series held recently, Dr. Paul Manchester presented the affordable housing goals for the government-sponsored enterprises, Fannie Mae and Freddie Mac, for 2015-2017.[1] FHFA’s housing goals for the GSEs pertain to increasing credit to low-income borrowers and areas for single-family homes and increasing financing for multi-family units that are affordable to low-income renters, while maintaining the financial safety and soundness of the GSEs.[2] Dr. Manchester is the Federal Housing Finance Agency’s lead economist for the preparation of FHFA’s Annual Housing Reports, submitted to Congress in October each year.[3] The webinar can be accessed here.
Some highlights of the single-family home purchase/refinance and multi-family unit financing goals:
1) Share of single family loans to low income borrowers: pre-set benchmark. For 2015-2017, the GSEs have a pre-set benchmark that 24 percent of their single-family home purchase mortgages in each year should be for low-income borrowers, defined as borrowers with incomes of 80 percent or less of the area median income[4]. This is slightly higher than the 2012-2014 target of 23 percent. Although representing only a slight increase, this will improve the access to credit for low-income borrowers.
2) Share of single-family loans to low-income borrowers: retrospective market comparison. A GSE meets this goal if its performance equals or exceeds this benchmark of 24 percent or if its performance equals or exceeds the low-income share of conventional home purchase mortgages originated in the primary mortgage market during the year. This latter figure is based on FHFA analysis of Home Mortgage Disclosure Act (HMDA) data. However, this HMDA data is not released until September of the subsequent year. Thus in addition to comparing performance with the pre-set benchmark, FHFA employs this “look back” procedure in determining goal compliance. An Enterprise fails a goal only if its performance falls short of both the pre-set benchmark level and the retrospective market goal-qualifying share of the primary market. In 2013-2014, Fannie Mae met its goals to provide financing for single-family home mortgages made to low-income borrowers (highlighted in green in Chart 1). Freddie Mac missed its goal (highlighted in red), since its performance (21.8 percent in 2013 and 21.0 percent in 2014) fell short of both the benchmark level (23 percent for both years) and the market level (24.0 percent in 2013 and 22.8 percent in 2014). Based on its shortfall on this goal and the very low-income goal in 2014, FHFA is requiring Freddie Mac to submit a housing plan that will enable it to meet targets for 2016 and 2017. [5]
REALTOR® University provides on-line education on real estate and other topics at the MBA and undergraduate levels. The REALTOR® University Speaker Series provides a venue to learn about and stimulate discussion of economic and real estate issues in support of NAR’s mission as the Voice of Real Estate. The Speaker Series presentations can be accessed on this webpage.
[1] The REALTOR® University Speaker Series on “Overview of the Final Enterprise Housing Goals in 2015-2017” was held on January 28, 2016 at the NAR Washington Office.
[2] Under the 2008 Housing and Economic Recovery Act, all regulation of the Enterprises, except fair housing, was transferred from HUD and OFHEO to the Federal Housing Finance Agency. FHFA is also the regulator for the Federal Home Loan Banks.
[4] FHFA sets the prospective target based on six factors: specified in Housing Economic and Recovery Act which transferred all regulation, except on fair housing, from HUD to FHFA: (1) national housing needs; (2) economic, housing, & demographic conditions; (3) past goal performance and effort; (4) ability of Enterprises to lead the industry in making mortgage credit available; (5) projected size of relevant primary conventional, conforming market; and (6) the need to maintain the sound financial condition of the Enterprises.
[5] For more information about the GSEs’ performance, see FHFA’s 2015 Annual Housing Report at http://www.fhfa.gov/AboutUs/Reports/ReportDocuments/Annual_Housing_Report_2015.pdf).
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