MBA Offers Recommendations on FHFA GSE Equitable Housing Finance Plans

The Mortgage Bankers Association this week sent a letter to the Federal Housing Finance Agency, offering recommendation to improve Fannie Mae and Freddie Mac’s efforts to address long-standing challenges related to housing equity and the racial homeownership gap.

The government-sponsored enterprises’ Equitable Housing Finance Plans is part of an effort by FHFA (through a Request for Information) to address these gaps; MBA noted creation and implementation of these plans is a “clear indication of FHFA’s commitment and proactive approach to these issues.” The letter noted MBA’s efforts, particularly the 2020 Joint Task Force to: 1) promote policies that support sustainable homeownership for communities of color and 2) promote access to fair, equitable and responsible lending for minority borrowers.

(Based on the Task Force’s recommendations, MBA recently announced its new initiative on Building Generational Wealth through Homeownership. The goal of this initiative is to reduce the racial homeownership gap and provide African American and Hispanic families with opportunities to benefit from the wealth-building potential of sustained homeownership.)

MBA developed the following list of policy recommendations to be included in the Enterprise Equitable Housing Finance Plans. “By taking meaningful steps to implement the actions below, the Enterprises should be able to facilitate better opportunities for minority households to obtain access to affordable housing and, for those who are seeking homeownership and are mortgage-ready, opportunities to obtain access to affordable credit,” MBA said:

• The Enterprise plans should include steps to expand the pool of minority borrowers eligible for Enterprise-backed financing. This could be achieved by increasing the income thresholds on the Enterprises’ affordable housing products, particularly in high-cost areas. MBA said the Enterprises also could remove unnecessary pricing adjustments on rate and term refinances that lower monthly payments for consumers.

• The Enterprises should evaluate options (potentially in partnership with the Treasury Department) to expand secondary market pools and programs that would benefit minority borrowers and communities. This could include expanding disclosures and modifying pooling practices for loans to minority and lower-income borrowers in order to attract investors with environmental, social, and governance goals.

• MBA said Special Purpose Credit Programs are a potentially valuable tool that could help lenders extend Enterprise-backed financing to certain historically underserved populations, including minority households. The letter noted, however, that increased industry usage of SPCPs is dependent on improved regulatory clarity issued by HUD with respect to their permissibility under the Fair Housing Act. “The plans could affirm the Enterprises’ support for SPCPs and serve as a starting point for developing scalable, replicable, Enterprise-based SPCPs,” MBA said.

• The Enterprises should engage, as appropriate, with stakeholders that are taking steps to lower or eliminate down payment barriers for minority borrowers through forgivable grants, savings incentives and other funding sources. “These initiatives have the potential to improve access and affordability without compromising Enterprise or lender safety and soundness,” MBA said.

• The Enterprises should partner, as appropriate, with organizations that raise awareness with minority homeowners of the resources available to improve affordability and maintain sustainable homeownership.

• The RFI addresses the Enterprises’ multifamily businesses by including two optional objectives related to tenants. In their roles as liquidity providers in the secondary market for multifamily mortgages, however, the Enterprises are multiple levels removed from tenants. Tenant screening and other conduct identified in the rental-related objectives is not caused by Enterprise actions and is outside of the direct ability of the Enterprises to influence. “We therefore believe the plans should not include direct interventions by the Enterprises to address those objectives,” MBA said. Additionally, with respect to advancing housing equity by helping renters with little traditional credit history become homeowners, the Enterprises should explore options to allow these renters to leverage a record of on-time rental payments to qualify for a single-family mortgage loan.

Additionally, MBA said it is important that FHFA begin considering how it can ensure the Enterprises continue this work post-conservatorship. “We do not want the eventual conclusion of the conservatorships to mean the end of formalized efforts by the Enterprises to advance equity in housing finance,” MBA said. “Similarly, we do not want this ongoing work to serve as a reason to keep the Enterprises in conservatorship longer than is necessary.”