FHFA Proposes New Methodology, Benchmark Levels for Fannie, Freddie Multifamily Housing Goals in 2023-2024
The Federal Housing Finance Agency (FHFA) this week published new methodology and benchmark levels for multifamily housing goals for Fannie Mae and Freddie Mac for 2023 and 2024.
The proposed rule would set a percentage of each government-sponsored enterprises’ (GSEs’) annual multifamily loan acquisitions to be affordable to each of three different categories:
- The low-income goal would be 61%,
- the very-low-income subgoal would be 12% and
- the low-income small multifamily subgoal would be 2%.
FHFA is not proposing any changes to the underlying criteria that determine which multifamily homes qualify for credit under the housing goals in this proposed rule.
How Does This Differ from the GSE’s 2022 Goals?
In December 2021, FHFA set one-year multifamily housing goals for 2022 based on the total number of affordable homes in multifamily properties financed by mortgage loans purchased by the GSEs each year. This was done in response to market uncertainty resulting from the COVID-19 pandemic. In 2022, the GSE’s low-income goal is 415,000 homes (compared to 315,000 in 2021); 88,000 very low-income subgoal (compared to 60,000 in 2021); and 23,000 small multifamily low-income subgoal for Freddie Mac and 17,000 for Fannie Mae (compared to 10,000 for both GSEs in 2021).
By limiting the multifamily goals to only 2022, FHFA can now use the most recent data available when setting its 2023-2024 goals—data that should incorporate any significant changes caused by the COVID-19 pandemic and account for potentially changing market dynamics.
Benefits of the Proposed Rule
Under the proposed rule, the GSEs would continue to report on the number of multifamily homes acquired each year, including data on homes in each of the three income categories mentioned above. To meet these goals, each GSE would be required to ensure that the percentage of homes that are affordable meets or exceeds the benchmark level.
Changing to a percentage is beneficial because the existing methodology for measuring the multifamily housing goals does not incentivize or require that the GSEs continue to acquire mortgages backed by goal-qualifying homes after the GSEs have purchased enough mortgages to meet the minimum numeric benchmark levels. The proposed percentage-based benchmark levels would require the GSEs to continue to support the affordable housing market as their mortgage acquisitions increase, rather than potentially reducing their focus on supporting affordable multifamily properties once the minimum numeric benchmark levels are achieved, according to FHFA.
However, the GSEs’ 2023-2024 benchmark percentages are all lower than the 2021 performance levels, as show in the above graphic. The GSE’s 2023-2024 low-income goal would be 61%, the very-low-income subgoal would be 12% and the low-income small multifamily subgoal would be 2%. By comparison, the 2021 levels for Fannie Mae were 69% for low-income, 15% for very low-income and 2.6% for small multifamily low-income–all above the 2023-2024 benchmarks. The same is true for Freddie Mac in 2021 when it achieved 68.7% for low-income, 16.2% for very low-income and 5.9% for small multifamily low-income.
As outlined in the proposed rule, FHFA set lower benchmarks as compared to 2021 performance due to, “the rising interest rate environment and the additional challenges the Enterprises currently face in the competitive market, without diminishing the Enterprises’ focus on affordability.”
Comment Period, Staying informed
The FHFA opened a 60-day comment period that closes Oct. 17 during which interested parties can submit comments on this proposed rule. Comments should be submitted via the FHFA’s website or to the FHFA’s Division of Housing Mission and Goals.
Novogradac has several resources to stay informed on affordable housing, from the Low-Income Housing Tax Credit Handbook to the Novogradac Journal of Tax Credits. Or reach out to a Novogradac professional for specific questions.