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Federal Housing Finance Agency's Rule Setting Affordable Housing Goals

Wednesday, August 19, 2015
Michael Calhoun

Today, the Federal Housing Finance Agency (FHFA) issued a final rule setting affordable housing goals for Fannie Mae and Freddie Mac (the GSEs). Affordable housing goals are meant to ensure that people in lower-wealth communities have access to homeownership and affordable rental housing.[1] FHFA announced that its single-family, low-income home purchase goal for 2015-2017 would be set at a conservative 24 percent, and that the dual-part market and benchmark test that determines if goals are met would remain unchanged. This allows the GSEs to meet the goal even if they fall below the target percentage, as long as their lending matches the overall market.

Regarding FHFA's decision, Center for Responsible Lending President Mike Calhoun commented:

At 24 percent, the affordable housing goals fall short of what can and should be expected of Fannie Mae and Freddie Mac. These companies have the capacity to reach a greater percentage of lower-wealth, creditworthy households, allowing borrowers to build wealth through homeownership.

In comments last fall, CRL recommended this goal be set at 27 percent. A higher goal is appropriate in light of strong new rules put in place which eliminate the predatory and reckless lending practices that caused the housing crash and ensure that borrowers have the ability to repay their mortgage loans. As mortgage rates and prices in many markets are near historic lows, many creditworthy low- income families can become successful homeowners if given responsible mortgages.

FHFA maintained the dual-market and benchmark tests. This approach does not effectively encourage lending to underserved households. The purchase goal and the market comparison components should work together to carry out FHFA's duty to serve low- and moderate-income families. If the GSEs only need to meet one goal or another to pass this test, the test itself will have considerably less strength as a measurement of success. In particular, since the GSEs dominate today's market, meeting the market test is all but assured no matter what actions the GSEs take.

FHFA must revisit and raise the home purchase goals well before 2017 because the GSEs have the capacity in this recovering market to reach more credit worthy, lower-wealth households. This is particularly appropriate given the many flaws that exist in the model used by FHFA in setting the goals.

As Director Watt has rightfully noted, under the Housing and Economic Recovery Act of 2008, FHFA and the GSEs have a responsibility to ensure that borrowers from traditionally underserved and/or excluded communities will have access to the mortgage market. FHFA should continue to invest as much effort as possible to ensuring access to responsible credit. Meeting a more robust benchmark goal must be part of FHFA's oversight of the GSEs.

Such an improvement will be good for the families who have more access to affordable and responsible credit, and will also further the more general housing recovery.

[1] The goals include separate categories for single-family and multifamily mortgages on housing that is affordable to low-income and very low-income families, among other categories.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Andrew High at Andrew.High@responsiblelending.org or 919-313-8533.