On August 25 the Federal Housing Finance Agency published a proposed rule establishing affordable housing goals for Fannie Mae and Freddie Mac for 2022-24. These goals were originally established by statute in 1992, with revisions in 2008. They call for the FHFA Director to set annual goals for the minimum percentages of the GSEs’ single-family mortgage acquisitions for home purchase mortgages for (1) low-income families, (2) very low-income families, (3) families in low-income areas, and (4) refinance mortgages for (4) low-income families.
This column focuses on (3), the goal which includes home purchase mortgages for families (regardless of income) in low-income areas, defined as census tracts for which the median tract income is less than or equal to 80 percent of area median income and for families in census tracts in which minority families are at least 30 percent of total tract population and median tract income is less than 100 percent of AMI. In general, the proposed rule would increase the goals for home purchase mortgages for low-income families and very low-income families and for refinance mortgages for low-income families. But the goals would be reduced from recent performance levels for non-minority low-income census tracts, reducing the incentive for the GSEs to purchase mortgages for families in these areas.
FHFA proposes to split the existing low-income areas home purchase goal into two subgoals: a minority census tracts subgoal, for families in tracts with minority population of at least 30 percent and family median incomes no greater than 100 percent of AMI and a low-income census tracts subgoal, for families, regardless of income, in low-income tracts that are not minority census tracts and families with incomes greater than 100 percent of AMI in low-income census tracts that are also minority census tracts.
FHFA cites the statutory factors that are to be considered in establishing housing goals and subgoals, including past performance on the housing goal and the share of the conventional, conforming market serving families subject to the goal (“market performance”). However, it appears that FHFA has not adequately considered these two factors for the proposed low-income census tracts subgoal, and as a result FHFA is proposing a subgoal of 4 percent of total home purchase mortgages, which is far too low.
FHFA has calculated what Enterprise and market performance would have been if the minority census tracts subgoal and the low-income census tracts subgoal had been in effect for 2018-20. The sums of performance on these two goals equaled performance under the overall low-income areas subgoal in effect in those years.
Fannie Mae’s performance on the low-income tracts subgoal would have been 9.1 percent in 2018, 8.8 percent in 2019, and 8.3 percent in 2020. Freddie Mac’s performance on this subgoal would have been 8.3 percent in 2018, 8.5 percent in 2019 and 8.0 percent in 2020. Thus all past performance figures were at least twice the proposed goal of 4 percent, despite the statutory provision that past performance should be taken into account in setting a goal.
FHFA has also calculated what market performance on this subgoal would have been if it had been in effect in recent years. This would have been 9.1 percent in 2018, 8.9 percent in 2019, and 8.5 percent in 2020, again more than twice the proposed goal of 4 percent, and there is no forecast that there will be a sudden, precipitous decline in market performance in future years. Thus the proposed subgoal is not consistent with the statutory provision that market performance should be taken into account in setting a goal.
FHFA’s reason for setting this subgoal at such a low level is apparently “concerns about incentivizing purchases of loans to higher-income borrowers in low-income areas,” but no evidence is presented that a higher subgoal would do this. Performance has exceeded 4 percent without this subgoal in the past, and is likely to do so in the future, so the proposed subgoal would be unlikely to have any effect on the mortgage market.
