Federal home lenders seek to close equity gap
Fannie Mae and Freddie Mac are implementing big reforms aimed at helping disadvantaged communities become homeowners and making sure homebuyers of color stay owners.
The initiative from the two federally backed home mortgage companies announced Wednesday is the most sweeping overhaul since the housing crash in 2008. Some of the big-ticket items exclusively reviewed by USA TODAY include assistance with down payments, reserve funding for homeowners’ emergencies and lower mortgage insurance premiums.
Fannie Mae and Freddie Mac are also rolling out anew credit reporting system that factors rent payments into creditworthiness scores, one of the biggest barriers experts say keep renters of color from being able to purchase a home.
‘It’s really powerful, almost like the government is owning the problem,’ said Naa Awaa Tagoe, acting deputy director for the Division of Housing Mission and Goals at the Federal Housing Finance Agency, the independent regulatory agency that oversees the secondary mortgage market, including Fannie Mae and Freddie Mac.
‘This is Fannie Mae and Freddie Mac saying, ‘Yes, there is an issue with equity in housing finance, and these are the steps we need to take to address them.’’
The three-year strategy also laid out plans to increase fairness in the underwriting process, address appraisal disparities in multifamily housing, and finance permanent supportive housing programs primarily geared at housing for people experiencing homelessness.
As part of the effort, Freddie Mac is expected to issue $3billion in affordable housing bonds this year.
By 2024, Freddie Mac wants to fund the construction of 30,000 new multifamily units that allow credit-building for renters, accept housing choice vouchers and are designed inclusively for people with disabilities. They want to make the credit-building program available to 300,000units. The lender also wants to finance loan offerings in underinvested communities and neighborhoods at risk of losing affordability.
By 2024, Fannie Mae has a target of 140,000consumers completing the first-time homebuyer process with any provider and 90,000 completing Fannie Mae’s course.
Some of the measures already have been piloted. From September 2021 to May, about 2,000applicants have benefited from Fannie Mae’s credit reporting system that takes positive rental payment history into account for building creditworthiness. About 50% of applicants were racial minorities.
Decades of discrimination
Together with the Federal Housing Administration and Department of Veterans Affairs, Fannie Mae and Freddie Mac directly or indirectly guarantee 70% of single-family mortgage origination.
Neither Fannie Mae nor Freddie Mac services loans. Instead, they purchase mortgages from lenders to hold, sell or repackage as securities. That helps originate more loans and increase the supply of mortgage dollars.
Leading up to the 2008 housing market crash, Fannie Mae and Freddie Mac pumped more money into the housing financing system and bought an outsized number of mortgage loans, which helped inflate home prices. After the Great Recession of the late 2000s, both were placed into conservatorships.
In the U.S., homeownership has long been viewed as the single most important vehicle for wealth accumulation.
The median net worth of white families who are homeowners was $300,000, of which $130,000was attributed to housing, according to the 2019 Survey of Consumer Finance, the most recently available. That number decreases to $113,000 for Black families who are homeowners, of which $67,000 is derived from home equity. And for Latino families, roughly $95,000 of their median net worth of $165,000 is tied to owning a home.
Homeownership has remained out of reach for people of color because of decades of disinvestment and racist practices such as redlining, which allowed banks to limit loans, mortgages and insurance in geographic areas based on race and ethnicity.