FHFA’s Inaugural Mission Report Finds GSEs and Federal Home Lending Banks Meeting Affordable Housing Goals

Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBanks) have accomplished their missions despite the challenges of navigating through the COVID-19 pandemic, according to the inaugural report from the Federal Housing Finance Agency (FHFA). 2021 Mission Report: Affordable Housing Activities of Regulated Entities.

The FHFA is responsible for overseeing, regulating and supervising the Government Sponsored Housing Enterprises (GSEs), Fannie Mae and Freddie Mac, and the FHLBanks.

How GSEs Fulfilled Their Tenant-Focused Missions

The Stewardship Dashboard is FHFA’s mechanism for communicating its priorities and expectations for GSEs and providing transparency to the public about those expectations. In February 2021, while still under former director Mark Calabria, the FHFA released the Scorecard outlining the priorities of guardianship with their joint venture, Common Securitization Solutions LLC (CSS).

The FHFA used the following guidelines to evaluate GSEs and CSS:

  • The activities of each GSE promote competitive, liquid, efficient and resilient national housing finance markets that support landlords and tenants with responsible and sustainable products and programs.
  • Each GSE operates in a safe and sound manner, anticipates and mitigates emerging risk issues, and remediates identified risk issues in a timely manner.
  • Each GSE meets the expectations of all FHFA requirements, including capital, liquidity and resolution planning requirements.
  • Each GSE conducts initiatives with consideration for diversity and inclusion in accordance with legal requirements consistent with FHFA expectations.
  • Each GSE cooperates and collaborates with each other, industry and other stakeholders, in consultation with the FHFA.
  • Each GSE delivers high quality, thorough, creative, efficient and timely work products.

According to the missions of the FHFA, as indicated in the glossary of the FHFA Missions Report 2021multi-family loan purchases by GSEs had to be 50% mission-driven and 20% had to be affordable to households earning 60% or less of the area median income (AMI). FHFA classified as mission-oriented, “a prorated loan amount for properties in the targeted affordable class, based on the percentage of units that are restricted by regulatory agreement or registered use restriction.” FHFA will classify as mission-driven: 50% of the loan amount if the percentage of restricted units is less than 50% of the total number of units in a development, and 100% of the loan amount if the percentage of units restricted is equal to or greater than 50%. The guardianship dashboard capped each GSE’s multi-family loan purchase volume at $70 billion. The FHFA found that the GSEs met the scorecard multifamily volume and mission-focused requirements for 2021.

Graphic Blog: GSE Mission Driven Activity in 2021

The GSEs also met or exceeded multi-family benchmarks from 2016 to 2021. The collective annual loan acquisitions of the two GSEs ranged from 750,000 to 900,000 low-income homes and 140,000 to 200,000 very low-income homes, meaning that more than 65% and about 15% of their target-eligible funded rental units, respectively, have been affordable to low- and very-low-income tenants. According to the FHFA, low-income households are defined as those whose household income is at or below 80% of the AMI. Also, very low-income households are those whose income does not exceed 50% of the AMI. Additionally, GSEs have funded approximately 50,000 low-income multi-family small homes (homes in five- to 50-unit properties) each year since 2017.

The most significant growth in rental property loans purchased during the first cycle of the Duty to Serve (DTS) plan occurred in the prefabricated housing market, where GSEs significantly expanded financing support for prefabricated housing communities that have adopted DTS tenant lease protections. Research is needed to explain the significant decline in the preservation of affordable housing, in order to continue to meet the needs of American citizens.

Blog graph: Number of rental units with obligation to serve between 2018 and 2021

A June 3 memo from Novogradac detailed the $850 million each GSE was allowed to invest in the LIHTC market as equity investors, an increase of $350 million each from previous levels. Following the funding cap increase, GSEs invested $1.1 billion in LIHTC equity in 2021. Of this amount, SDR rural areas received $287 million and $718 million in low-investment transactions, targeted LIHTC investments made by GSEs that preserve affordable housing, support income-generating housing, provide supportive housing, or meet other affordable housing objectives. This same Novogradac memo post details GSE’s 2022-2024 DTS plans with respect to LIHTC transactions. Notably, the 2022-2024 plans include increased LIHTC loans and equity investments in LIHTC properties, with a focus on rural areas.

The mission report also includes state LIHTC volume data. The states with the highest GSE LIHTC volume in 2021 were California, Washington and Texas.

Blog Graphic: California, Washington and Texas have the highest volume of GSE LIHTC volume in 2021

FHLBanks, Tenants and COVID-19

Member financial institutions receive financial products and services from FHLBanks which are used to help fund activities serving households of all incomes. The FHFA has found preliminary evidence that the FHLBanks have met their targets – mortgage home purchase target and housing target for small member participation – in 2021; the agency expects to issue a final decision on the success of FHLBanks for 2021 later this year.

In 2018, the Affordable Housing Program (ALP) assisted over 27,000 rental units, but there was a drastic decrease to less than 18,000 units in 2021. A similar, but proportionally smaller decrease was seen in the category of owners. FHLBanks’ pandemic-related decline in net income contributed to the reduction in AHP funds. They were provided by the FHLBanks in 2020 and 2021, as the required AHP contributions are 10% of a bank’s previous year’s net profit.

Blog graph: Number of AHP assisted households over the period 2018-2021

The Community Investment Program (CIP) requires FHLBanks to provide advances to its member financial institutions at the price of FHLBank’s consolidated bonds of comparable maturities, representing reasonable administrative costs, for housing finance for households with incomes equal to or less than 115% of AM I. The number of CIP rental units decreased significantly from 2018 to 2021 by approximately 12,000 units. No explanation was provided as to what might have been correlated with the decline in rental housing.

Blog Graphic: CIP Rental Homes Over 2018-2021 Decreases

Getting through the pandemic and beyond

In 2021, the United States struggled to recover from the economic fallout caused by the COVID-19 pandemic. Despite the challenges, the GSEs and FHLBanks have continued their missions to expand low-income households’ access to affordable housing. Further research is needed to understand the effects of the COVID-19 pandemic and the decreases reported in FHFA’s 2018-2021 mission report. GSEs and FHLBanks play an important role in solving the national affordable housing crisis, and analyzes such as the FHFA mission report help understand how well they are achieving their goals.

The FHFA, in its oversight role as a regulator and custodian, “also plays a critical role in supporting equitable and sustainable access to mortgage credit nationwide, promoting the stability and liquidity of the housing finance system and the protection of the security and soundness of the housing finance system”. as detailed in his recent report to Congress. The administration also realizes how integral the FHFA and GSEs are to plans to meet the nation’s affordable housing needs. In its recently released housing supply action plan, the administration will take steps to work with the FHFA to strengthen GSE funding for the development and rehabilitation of affordable multifamily housing. More details on the plan can be found in this recent Novogradac Notes article.

To stay up-to-date on affordable housing trends, register for the 2022 Novogradac Affordable Housing Tax Credit and Bond Conference in Nashville, Tennessee, and online September 29-30.

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