Since March, the government-sponsored enterprise has been selling agency MBS that are scored according to a set of revamped criteria that gives extra weight to mortgages with certain characteristics, such as whether they're used for affordable rental housing or are to borrowers in rural areas with high poverty levels.

The goal is to give investors who buy MBS more visibility into the underlying mortgages. Greater availability of data can make it more attractive to buy MBS with loans to underserved borrowers, translating into lower interest rates to borrowers with those types of mortgages.

"It costs money to originate one of these mortgages," Fannie Mae Chief Executive Officer Priscilla Almodovar said in an interview, referring to the costs that lenders incur when they make mortgages to underserved borrowers. "This is the way for us to incentivize them." 

The new program is an updated version of the "social" index first rolled out in late 2022. 

Change is needed, Almodovar said, because the agency MBS market is transitioning to a new era in which two of its biggest investor groups no longer hold the dominant roles in the market that they used to, or are missing in action altogether. Domestic banks have lessened participation and the Federal Reserve is letting MBS roll off its balance sheet.

It's hard to overstate how important those two players have been in the market the past 15 years, according to Devang Doshi, a senior vice president at Fannie Mae. Fannie Mae and sister groups Freddie Mac and Ginnie Mae have issued around $4 trillion of MBS over that period — which Doshi said is nearly all accounted for by the Federal Reserve and domestic banks' added holdings.  

"Mortgage rates are going to be dictated by asset managers and no longer the Fed's portfolio," he said, adding this is why Fannie Mae must take steps to ensure MBS are attractive to investors.

Fannie Mae first auctioned mortgage bonds with Mission scores in March, with a second sale held earlier this month. Freddie Mac will begin applying the new Mission Index criteria to its own bonds starting in June. 

"It's still too early to tell how effective the mission index will be in creating demand for underserved borrowers," said Erica Adelberg, MBS strategist for Bloomberg Intelligence. "But there currently aren't a lot of [MBS] pools that score high on the Mission rankings, so it seems like there's room for upside."

Pools with high scores may not only appeal to investors looking to satisfy social mandates, Adelberg added, but also funds looking for more-favorable prepayment behavior.