Mortgage giants Fannie Mae and Freddie Mac have been ordered to submit equitable housing finance plans by the end of year, laying out a roadmap for reducing racial or ethnic homeownership gaps over the next three years.

The plans — which will take effect on Jan. 1 — must identify and address barriers to sustainable housing opportunities, and Fannie and Freddie will be required to submit annual progress reports documenting actions taken to implement the plans.

Sandra Thompson

“For generations, discriminatory practices like redlining have prevented communities of color from building wealth through homeownership,” said Sandra L. Thompson, the acting director of Fannie and Freddie’s regulator, the Federal Housing Finance Agency, in a statement. “By identifying the barriers to equitable and sustainable housing finance opportunities and setting goals for addressing those barriers, [Fannie and Freddie], consistent with safety and ​soundness, can responsibly reduce the racial and ethnic disparities in homeownership and wealth that still exist today.”

The FHFA will host a public listening session on Sept. 28, and will accept public input until Oct. 25.

Bob Broeksmit, the president of the Mortgage Bankers Association, said the group has “championed efforts to reduce the racial homeownership gap, and we will be releasing our policy recommendations in the coming weeks, including areas where [Fannie and Freddie] can play a critical role.”

Hugh Frater | Photo credit: Fannie Mae

Fannie Mae CEO Hugh Frater called reversing the legacy of discriminatory housing policies and practices “one of the great challenges of our time,” and said the company welcomes the opportunity to create an equitable housing finance plan.

“This plan will add momentum and focus to actions we are already taking, and will take in the years to come, to promote diversity in the housing workforce; expand affordable homeownership and rental opportunities for underserved communities; and responsibly and sustainably improve access to mortgage credit, such as our recent action enabling lenders to consider positive rent payment history in mortgage underwriting,” Frater said in a statement. “Barriers to homeownership remain for people of color and other minorities. With FHFA’s support, we will continue working on addressing these issues and engaging with industry partners to take concrete steps to remove them.”

Freddie Mac CEO Michael DeVito issued a similar statement, saying the company “is committed to working with FHFA to create additional opportunities for all families to access quality housing.”

In a 10-page document outlining what input it hopes to receive from the public, the FHFA said questions include:

  1. How should measurable goals be selected and set by the Enterprises? For example, is pursuing a small set of focused goals or a wide portfolio of goals better?
  2. What data, information, or analyses would be helpful for the Enterprises to consider or use to support their plans?
  3. How should the Enterprises undertake setting objectives, measurable goals, and meaningful actions to sustainably address the racial and ethnic homeownership gap?
  4. How should the Enterprises undertake setting objectives, measurable goals, and meaningful actions for formerly redlined areas? How should such areas be defined?
  5. What other objectives and measurable goals should the Enterprises pursue in their plans?
  6. What constitutes a “meaningful” action, and what kinds of meaningful actions should be taken by the Enterprises under their plans?
  7. How can the Enterprises and FHFA ensure that actions taken under the plans provide sustainable housing opportunities and are consistent with safety and soundness?
  8. What should FHFA consider in overseeing the Enterprises’ plans? Should FHFA provide a rating or some other public assessment? If so, how should the plans be assessed?
  9. How should the plans interact with Duty to Serve, Housing Goals, or other requirements?
  10. Could special purpose credit programs (as defined in 12 CFR 1002.8) be included in the Enterprises’ plans? How should such programs be structured?
  11. Are there additional or different required objectives and goals that FHFA should consider for future Enterprise plans?
  12. What communities and stakeholders should the Enterprises consult with in developing their plans?

In a separate process, the FHFA is accepting comments through Oct. 25 on its housing goals for Fannie Mae and Freddie Mac for 2022 through 2024. The agency announced in August that it wants the mortgage giants to buy more mortgages that are made to low- and very low-income homebuyers, and also meet new goals that support lending within minority census tracts.

The FHFA wants at least 35 percent of the purchase mortgages backed by Fannie and Freddie to be taken out by low- and very-low income borrowers, up from 30 percent today.

FHFA’s proposed housing goals for Fannie Mae and Freddie Mac

Having put the brakes on the Trump administration’s plans to reprivatize Fannie and Freddie, Democrats have been pushing for the “government sponsored enterprises,” or GSEs, to provide more home loans for underserved borrowers.

On Jan. 20 — the day he was inaugurated — President Biden issued an executive order, “Advancing Racial Equity and Support for Underserved Communities Through the Federal Government,” decreeing that “the Federal Government should pursue a comprehensive approach to advancing equity for all, including people of color and others who have been historically underserved, marginalized, and adversely affected by persistent poverty and inequality.”

A recent analysis of 2.4 million purchase loan applications by The Markup, a nonprofit newsroom, concluded that Black applicants were 80 percent more likely to be denied conventional mortgages eligible for backing by Fannie Mae and Freddie Mac, compared to similarly qualified white applicants.

The analysis found that Latino homebuyers were 40 percent more likely to be rejected, and Asian/Pacific Islanders were turned down 50 percent more often than whites. The chances that Native American homebuyers would be turned down were 70 percent higher than for whites.

Lending industry groups were critical of the analysis, saying it failed to take into account borrowers’ credit scores, or analyze applications for government-backed FHA, VA and USDA mortgages.

In another recent development, the Department of Housing and Urban Development plans to reinstate disparate impact rules put in place by the Obama administration in 2013 for addressing discriminatory practices that may be inadvertent, but are nevertheless unjustified. The Trump administration had rolled those rules back, shielding lenders from lawsuits, critics said.

Email Matt Carter

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