Inaugural FHFA Mission Report Finds GSEs, Federal Home Loan Banks are Meeting their Affordable Housing Goals

Published by Peter Lawrence on Thursday, June 23, 2022 - 12:00am

Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBanks) accomplished their missions despite the challenges of navigating through the COVID-19 pandemic, according to the Federal Housing Finance Agency’s (FHFA’s) inaugural 2021 Mission Report: Affordable Housing Activities of the Regulated Entities.

FHFA is charged with supervising, regulating and overseeing the housing government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, and the FHLBanks.

Blog Graphic: Mission Programs and Initiatives Assessed by FHFA through 2021

 

How the GSEs Met their Renter-Driven Missions

The conservatorship Scorecard is FHFA’s mechanism for communicating its priorities and expectations for the GSEs and providing transparency to the public about these expectations. In February 2021, while still under the leadership of former director Mark Calabria, the FHFA released the Scorecard outlining conservatorship priorities along with their joint venture, Common Securitization Solutions LLC (CSS).

The FHFA used the following guidelines to assess the GSEs and CSS:

  • Each GSE's activities foster  competitive, liquid, efficient and resilient national housing finance markets that support homeowners and renters with responsible and sustainable products and programs.
  • Each GSE conducts business in a safe and sound manner, anticipates and mitigates emerging risk issues and remediates identified risk concerns on a timely basis.
  • Each GSE meets expectations under all of FHFA’s requirements, including capital, liquidity and resolution planning requirements.
  • Each GSE conducts initiatives with consideration for diversity and inclusion under statutory requirements consistent with FHFA's expectations.
  • Each GSE cooperates and collaborates with each other, the industry, and other stakeholders, in consultation with FHFA.
  • Each GSE delivers work products that are high quality, thorough, creative, effective, and timely.

Per the FHFA’s missions, as stated in the Glossary of the 2021 FHFA Missions Report, multifamily loan purchases by the GSEs had to be 50% mission-driven, and 20% had to be affordable to households earning at or below 60% of area median income (AMI). FHFA classified as mission-driven, “a proportionate amount of the loan for properties in the targeted affordable category, depending on the percentage of units that are restricted by a regulatory agreement or recorded use restriction.” FHFA will classify as mission-driven: 50% of the loan amount if the percentage of restricted units is less than 50% of the total units in a development, and 100% of the loan amount if the percentage of restricted units is equal to or more than 50%. The conservatorship Scorecard capped each GSEs multifamily loan purchase volume at $70 billion. FHFA found that the GSEs met the Scorecard multifamily volume and mission-driven requirements for 2021.

Blog Graphic: GSEs' 2021 Mission Driven Activity

 

The GSEs also met or exceeded the multifamily benchmark levels from 2016 through 2021. Both GSEs’ collective annual loan acquisitions ranged from 750,00 to 900,000 low-income homes and 140,000 to 200,000 very low-income homes, which means that more than 65% and approximately 15% of their goals-eligible financed rental homes, respectively, have been affordable to low-income and very low-income renters. According to the FHFA, low-income households are defined as those with a household income of 80% or less of the AMI. Also, very low-income households are those with incomes no greater than 50% of AMI. Further, the GSEs have financed about 50,000 small low-income multifamily homes (homes in five- to 50-unit properties) annually since 2017.

The most significant growth in rental home loans purchased in the first Duty to Serve (DTS) Plan cycle was in the manufactured housing market, where the GSEs significantly expanded support for financing for manufactured housing communities that adopted the DTS tenant pad lease protections. Research is needed to explain the significant decrease in the affordable housing preservation, to continue to meet the needs of U.S citizens.

Blog Graphic: Number of Duty to Serve Rental Homes Over 2018-2021

 

A June 3 Notes from Novogradac post detailed the $850 million each GSE was permitted to invest in the LIHTC market as equity investors, an increase of $350 million each over previous levels. Following the funding cap increase, the GSEs invested $1.1 billion in LIHTC equity in 2021. Of this amount, DTS rural areas received $287 million and $718 million were in low investment transactions, targeted LIHTC investments made by the GSEs that preserve affordable housing, support mixed-income housing, provide supportive housing, or meet other affordable housing objectives. That same Notes from Novogradac post details the GSEs’ 2022-2024 DTS plans as it relates to LIHTC transactions. Notably, the 2022-2024 plans include an increase in LIHTC loans and equity investment in LIHTC properties, with a focus on rural areas.

The mission report also includes state LIHTC volume data. The states with the highest GSE LIHTC volume in 2021 were California, Washington and Texas.

Blog Graphic: California, Washington, Texas Have Highest Volume of GSE LIHTC Volume in 2021

 

FHLBanks, Renters and COVID-19

Member financial institutions are provided financial products and services from the FHLBanks that are used to assist in the financing of activities in service of households of all incomes. FHFA has preliminarily found that FHLBanks have met their goals–mortgage purchase housing goal and small member participation housing goal–in 2021; the agency plans to release a final ruling on the FHLBanks’ success for 2021 later this year.

In 2018, the Affordable Housing Program (AHP) assisted more than 27,000 rental homes, but there was a drastic decrease to less than 18,000 homes in 2021. A similar, but proportionally smaller decrease was observed in the homeownership category. Pandemic-related declines in FHLBanks’ net income contributed to the reductions in AHP funds. They were provided by the FHLBanks in 2020 and 2021 as required contributions to AHP are 10% of a bank’s prior year net earnings.

Blog Graphic: Number of AHP Assisted Homes Over 2018-2021

 

The Community Investment Program (CIP) requires FHLBanks to offer advances to its member financial institutions priced at the cost of consolidated FHLBank obligations of comparable maturities, accounting for reasonable administrative costs, for the financing of housing for households with incomes at or below 115% of AMI. The number of CIP rental homes significantly decreased over 2018 to 2021 by approximately 12,000 units. No explanation was provided regarding what may have correlated with the decline in the housing rental homes.

Blog Graphic: CIP Rental Homes Over 2018-2021 Decreases

 

Pushing through the Pandemic and Beyond

In 2021, the United States grappled with recovering from the economic fallout caused by the COVID-19 pandemic. Despite the challenges, the GSEs and FHLBanks moved forward with their missions to expand access for low-income households to obtain affordable housing. More research is needed to understand the effects of the COVID-19 pandemic and the decreases reported in the FHFA mission report over 2018-2021. The GSEs and FHLBanks serve an important role in addressing the nation’s affordable housing crisis and analysis such as the FHFA mission report helps to provide an understanding of how well they are meeting their goals.   

FHFA, in its oversight role as a regulator and conservator also, “plays a vital role in supporting equitable and sustainable access to mortgage credit nationwide, promoting the housing finance system’s stability and liquidity, and protecting the safety and soundness of the housing finance system” as detailed in its recent report to Congress. The administration also realizes how integral FHFA and the GSEs are to plans to address the country’s affordable housing needs. In its recently released Housing Supply Action Plan, the administration will take steps to work with FHFA to strengthen the GSEs’ financing of affordable multifamily housing development and rehabilitation. More details of the plan can be found in this recent Notes from Novogradac post.

To stay up-to-date on affordable housing trends, register for the Novogradac 2022 Affordable Housing Tax Credit and Bonds Conference in Nashville, Tennessee, and online Sept. 29-30.