HUD Gives Fannie, Freddie Pass on Affordable Housing Quotas

The Department of Housing and Urban Development last week said that it had waived certain federal affordable housing quotas at Fannie Mae (FNM: 1.02 -0.97%) and Freddie Mac (FRE: 1.14 -1.72%), after determining that market conditions had rendered the quotas “unattainable.”

Both GSEs had failed to meet prescribed affordable housing goals tied to their mortgage purchasing activity in 2007, and had warned HUD for months that they would be unlikely to do so; the Washington Post reported Friday that the decision comes as government officials are softening their stance to Fannie and Freddie in the wake of historic upheaval in the U.S. housing and mortgage credit markets.

The quotas in question were originally imposed in 2004, when HUD’s stance was decidedly different, and the agency was looking to ensure that each GSE was fulfilling its affordable housing mission. Both GSEs have an advantage in the market due to their quasi-government status, and are required to devote a certain percentage of their business to three affordable housing goals.

The 2004 HUD regulations established a set of subgoals tied to the total number of mortgages purchased by each GSE. In 2007, both Fannie and Freddie were to allocate 47 percent of their respective purchase activity to low and moderate income housing, 18 percent to so-called special affordable housing, and 33 percent to so-called underserved areas (a purchase can span multiple categories).

Both GSEs have criticized the subgoals in recent months, with the Post quoting Fannie CEO Richard Syron’s remarks last month:

“It is not good public policy to have mission goals that encourage [Freddie Mac and Fannie Mae] to put people in homes that they end up losing,” he told Wall Street analysts. “We have to do things that make sense and will help the economy of the United States,” not hurt it by pursuing “what could be unrealistic goals,” he said.

Disclosure: The author held no positions in FNM or FRE when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.