Final GSE Duty to Serve Plans Include Increased Housing Credit Investments; Collaborations with HFAs

The government-sponsored enterprises Fannie Mae and Freddie Mac (the GSEs) earlier this week released their final Underserved Market Plans (the Plans) for years 2018-2020. The Plans outline how each firm intends to fulfill their obligations under the Federal Housing Finance Agency’s (FHFA) Enterprise Duty to Serve rule. Both Plans include GSE commitments to make Housing Credit investments in underserved areas and to partner with HFAs to fulfill the GSEs’ Duty to Serve obligations.

The Duty to Serve Rule

As NCSHA previously reported, the Duty to Serve rule, which implements provisions contained in the Housing and Economic Recovery Act of 2008, requires the GSEs to support lending for housing for low- and moderate-income families in three underserved segments of the housing finance market: manufactured housing, affordable housing preservation, and rural areas. For each underserved market segment, the Rule outlines a number of activities that the GSEs may support to fulfill their Duty to Serve obligations.

The Plans outline the Duty to Serve activities the GSEs intend to pursue over the next three years (2018-2020) to support housing in the specified markets. Both Plans are available on the FHFA’s Duty to Serve website.

The GSEs initially released their proposed Plans in May for public comment. NCSHA submitted public comments on the proposed Plans based on input we received from HFAs and our advocacy partners. The Plans take effect at the beginning of next year.

Below is a summary of key provisions impacting HFAs in each Plan.

Housing Credit Investments and Support for Housing Credit Properties

The Duty to Serve Rule allows the GSEs to receive Duty to Serve credit for Housing Credit equity investments in rural areas. Both GSEs include Housing Credit investments in their Plans.

Fannie Mae’s Plan says it intends to research the Housing Credit market in 2018, including outreach to at least ten HFAs with rural areas. Fannie Mae will make at least five Housing Credit investments on rural developments in 2019 and at least ten such investments in 2020. This is the same level of investment Fannie Mae included in its proposed Plan, though the final Plan does not provide any information on whether Fannie Mae will pursue Housing Credit investments not eligible for Duty to Serve credit. Fannie Mae’s Plan also says it intends to develop and implement plans for making Housing Credit investments that support housing in "high-needs rural regions" (including Middle Appalachia, the Lower Mississippi Delta, and colonias) and housing for "high-needs rural populations," defined in the Rule as Native Americans and seasonal migrant workers.

The Rule defines "rural areas" as census tracts outside of Metropolitan Statistical Areas (MSA), as designated by the Office of Management and Budget, or census tracts in an MSA, but outside of the MSA’s Urbanized Areas and Urban Clusters, that have a housing density of 64 housing units per square mile or less.

Freddie Mac’s Plan says it will make six Housing Credit investments on rural developments, including affordable housing located in high-needs rural regions and developments for high-needs rural populations. In its proposed Plan, Freddie Mac did not intend to resume Housing Credit investments until 2019 and did not specific how many investments it would make.

Both GSE Plans say they also intend to increase purchases of mortgages secured by Housing Credit properties. Fannie Mae’s Plan pledges to purchase 85 such mortgages in 2018, 89 in 2019, and 95 in 2020. This would represent a 26 percent increase in Fannie Mae’s support for such purchases. Freddie Mac says it plans to purchase mortgages for the lesser of 150 properties or 20,500 Housing Credit units in 2018. For 2019 and 2020 the targets are 160 properties or 21,500 units and 173,000 properties or 23,000 units, respectively.

Both GSEs’ Housing Credit loan purchase targets are substantially higher than what the GSEs proposed in their original Plans. In our comments on the proposed Plans, NCSHA argued that the GSEs should set higher targets, since the purpose of the Rule is to incentivize the GSEs to engage in affordable housing activities they might otherwise not support.

Working with HFAs

Both Plans say the GSEs intend to work directly with HFAs to help the GSEs meet their Duty to Serve obligations. Fannie Mae proposes to engage state HFAs to research and identify opportunities to better support shared-equity homeownership loans, affordable multifamily and single-family housing in high-needs rural regions, and financing for energy and water efficiency improvements in affordable single-family and multifamily housing. Fannie Mae also intends to engage with HFAs to determine how it can better support the market for properties involved in HUD’s Rental Assistance Demonstration (RAD) program and USDA’s Section 515 rural rental housing program.

Freddie Mac plans to work with HFAs in its efforts to increase manufactured housing lending, partially by expanding homebuyer counseling and education to more prospective manufactured housing borrowers. Freddie Mac’s Plan also notes that HFAs have already been involved in its Manufactured Housing Industry Taskforce.

Like Fannie Mae, Freddie Mac also plans to collaborate with HFAs to support shared-equity homeownership loans and housing opportunities in high-needs rural regions.

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