FHFA unveils GSE duty to serve plans

Freddie Mac sets chattel loan purchase target, Fannie Mae still working out details with FHFA

The Federal Housing Finance Agency today released Fannie Mae and Freddie Mac’s long-awaited duty to serve underserved markets plans.

In the plans, both government-sponsored enterprises explain how they will provide financing for manufactured and rural housing, and support affordable housing preservation.

Although the lesser of the two government-sponsored enterprises by size, Freddie Mac was alone in committing to purchasing manufactured homes not titled as real property, or chattel loans, a key item affordable housing advocates had sought.

Chattel loans, which make up 42% of the manufactured housing market, have higher interest rates and fewer consumer protections than mortgages. They are also disproportionately used by minorities, a Consumer Financial Protection Bureau report found. Freddie Mac also recently preempted its larger counterpart on targeted lending programs.

According to Fannie Mae’s duty to serve plan, talks to develop pilot programs for purchasing chattel loans are ongoing with FHFA. But it has not yet committed to purchasing them.

“We continue to work with our regulator to understand safety and soundness considerations and the viability of a chattel loan pilot program,” Fannie Mae’s plan reads.

Freddie Mac said it plans to purchase at least 1,500 loans titled as personal property in 2024, although it does not yet have a product to do so, and any product would need approval from FHFA.

“Purchasing 1,500-2,500 loans will be a challenge, given that we are new to the market and will have to establish a risk structure and operational processes to support the loan volume,” the plan states.

Freddie Mac also plans to purchase 6,300-7,500 manufactured housing loans titled as real property in its duty to serve plan.

By 2024, Fannie Mae plans to increase its yearly purchase of conventional manufactured home loans to 10,000, a 16% increase over its current baseline of 8,196.

Fannie Mae plans to reduce its purchases of Section 8 loans from 2020 levels, which it says were abnormally high because of market distortions. Its Section 8 loan target purchase will be 159, although it said it “would embrace purchasing additional Section 8 loans if subsidy resources increase during this plan cycle.”

Fannie Mae’s initial targets for its rural multifamily loans will also be lower than 2020 levels. By 2024, Fannie Mae plans to purchase 52 loans annually on multifamily properties in high-needs rural regions. That’s a 21% increase over the baseline of 43, but little more than the 50 such loans it purchased in 2020.

“Fannie Mae’s commitment to serve the needs of homeowners and renters in underserved markets has never been stronger,” Fannie Mae chief administrative officer Jeffery Hayward said. He added that he looks forward to working with the FHFA, industry stakeholders, and business partners to “knock down barriers in these underserved markets across the country and help more families have an affordable place to call home.”

In a statement, Mike Hutchins, president of Freddie Mac, said the GSE’s plan expands upon past efforts.

“This comprehensive and sustainable plan is in large part possible due to the long-term commitment and partnership of organizations nationwide,” Hutchins said. “We welcome the opportunity to do more.”

Jim Gray, a nonresident senior fellow at the Lincoln Institute, said that the Lincoln Institute would in the coming weeks evaluate the duty to serve plans and issue a blueprint scorecard of how these plans measure up to the plans the Underserved Mortgage Markets Coalition suggested in January.

“We also continue to seek the release of the Equitable Housing Finance plans,” Gray said, which have been delayed since their planned release at the beginning of the year.

Earlier this year, the FHFA sent Fannie Mae and Freddie Mac back to the drawing board on their duty to serve plans. The two mortgage finance giants submitted the initial plans to the FHFA while it was still under Mark Calabria’s leadership, before the Biden administration removed him and appointed Sandra Thompson acting director.

Affordable housing trade groups, under the umbrella of the Underserved Mortgage Markets Coalition, spearheaded by the Lincoln Institute, had earlier urged FHFA to reject the initial plans. 

The coalition said the initial plans fell short, in part because they did not allow for equity investments targeted to underserved markets, and they did not encourage pilot programs for underserved markets.

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