FR 2024-30793

The document released by the Federal Housing Finance Agency (FHFA) outlines the final rules concerning housing goals for Fannie Mae and Freddie Mac, two key players in the U.S. housing finance market, for the years 2025 through 2027. The rule focuses on establishing benchmarks for purchasing single-family and multifamily mortgage loans to support low-income and very low-income families, and families residing in designated minority and low-income census tracts. Additionally, the document sets specific benchmark levels for housing goals and introduces measurement buffers to help determine when new housing plans should be required.

General Summary

The FHFA's final rule introduces new targets for Fannie Mae and Freddie Mac—often referred to as the Enterprises—aimed at promoting affordable housing. These targets are described in terms of percentages of mortgage purchases that should support demographic groups and areas broadly recognized as underserved. The rule also describes the factors taken into account when setting these benchmarks, including indicators like national housing needs and current economic conditions. Furthermore, the document indicates that the FHFA will apply certain adjustments known as "measurement buffers" when evaluating the Enterprises' performance against these goals.

Significant Issues and Concerns

One significant concern with this document is its complexity. The use of specialized terminology, detailed statistical models, and regulatory language can make it challenging for non-experts to fully grasp the implications. The text is rife with references to past data and forecasting models, but it does not always simplify these for laypersons, potentially making it less accessible to a general audience.

Moreover, the rationale behind specific benchmark levels, especially when controversial public comments were raised, lacks transparent justification. This could lead to perceptions of bias or an uneven playing field among stakeholders in the housing market. Concerns are also raised about the FHFA's regulatory strategy, which seems to rely heavily on existing models without clear plans to incorporate or adapt to innovative solutions within the evolving housing market landscape.

Impact on the Public

For the broader public, this rule demonstrates an attempt to prioritize affordability in housing, which is a pressing issue for millions of Americans. By setting clear goals for the purchase of affordable housing loans, the FHFA encourages the Enterprises to foster a more inclusive housing market. However, given the technical nature of the document, there may be limitations in how well the public can understand how these goals will directly translate into action and tangible improvements in housing affordability.

Impact on Specific Stakeholders

Positive Impacts:

• Low-Income Families: This rule could enhance access to affordable housing options as Fannie Mae and Freddie Mac work towards meeting these benchmarks.
• Minority Groups: The focus on minority census tracts aims to address racial disparities in home ownership and mortgage accessibility.

Negative Impacts:

• Enterprises and Financial Institutions: Fannie Mae and Freddie Mac may experience heightened pressure to meet these new goals, potentially at the cost of sound financial practices if the benchmarks prove overly aggressive.
• Private Sector Developers and Lenders: There is a risk that these stakeholders might find themselves edged out as Enterprises focus more intently on meeting federally mandated affordable housing goals, possibly leading to reduced private sector involvement in certain areas.

In conclusion, while the document sets ambitious objectives intended to support more equitable housing opportunities, its complexity and reliance on established models without clear adaptation strategies may hinder broader understanding and effectiveness. As these regulations take effect, careful monitoring and potential adjustments may be necessary to ensure positive outcomes for all stakeholders.

The Federal Register document outlines a final rule by the Federal Housing Finance Agency (FHFA) concerning the housing goals for Fannie Mae and Freddie Mac from 2025 through 2027. Financial considerations form a critical component of this rule, as they involve substantial monetary projections and allocations within the housing markets.

Housing Market Decline: The document references a significant reduction in home loan originations over recent years. Specifically, in 2022, there was a 51% decrease in closed-end home loans compared to 2021. Further declines occurred in 2023, with a 34.5% reduction from the previous year, resulting in $1.33 trillion in single-family purchase mortgage originations, down from $1.86 trillion in 2021. This downturn in originations highlights the challenges facing the housing market, particularly in access to affordable housing.

Multifamily Lending Forecast: The Mortgage Bankers Association (MBA) predicts a sharp increase in multifamily mortgage originations, projecting an ascent from $246 billion in 2023 to $297 billion in 2024, and further to $390 billion in 2025. This anticipated rise is attributed to expected moderation in interest rates and the large volume of loans reaching maturity. However, the timing of this increase remains uncertain, reflecting potential volatility and the need for careful market monitoring.

Cost-Burdened Renters: The document notes a 3.2 percentage point increase in cost-burdened renters from 2019 to 2022. More significantly impacted are renters earning between $45,000 and $74,999, whose cost burden increased by 5.4 percentage points. These figures indicate worsening affordability conditions in the rental market, likely driven by escalating rents and insufficient wage growth.

Rental Supply and Price Trends: In 2023, 449,900 new rental units were added—the highest in over thirty years, representing a 22% increase from the previous year. Despite this growth, the majority of new units target higher-end markets, with a median asking rent of $1,710 as of the third quarter of 2023, compared to $1,440 in 2014. This disparity suggests that the added supply is not effectively alleviating the affordability challenges for lower-income renters.

Cap on Multifamily Loan Purchases: The 2024 Scorecard imposes a $70 billion cap on multifamily loan purchases by each Enterprise, mandating that at least half must be "mission-driven." This allocation reflects the FHFA's strategy to balance liquidity provision with the mission to support affordable housing markets.

Broader Implications and Challenges: The financial allocations and forecasts discussed in the document highlight ongoing issues. There is a concern about how current financial strategies address the housing affordability crisis amidst fluctuating market conditions. With the benchmark levels heavily reliant on historical data, there is a risk they may not fully accommodate future economic changes or volatility. Moreover, while allocations are made to support affordable housing, the broader legislative and regulatory context must ensure these funds are efficiently utilized to genuinely resolve affordability issues without endangering the financial stability of the Enterprises involved.

Overall, the financial references in the document underscore the complexity of managing and forecasting housing market trends and the importance of maintaining a balance between affordability initiatives and the financial health of housing finance entities.