More than a quarter of purchase-money mortgages acquired by Fannie Mae or Freddie Mac must be to low-income borrowers under a new rule established by the two companies’ regulator. The duo cannot purchase private-label securities to reach new housing goals.
A final rule from the Federal Housing Finance Agency outlines new housing goals for the two government-controlled enterprises for 2010-2011. The goals are required under the Housing and Economic Recovery Act of 2008.
“FHFA does not intend for the enterprises to undertake economically adverse or high-risk activities in support of the goals, nor does it intend for the enterprises’ state of conservatorship to be a justification for withdrawing support from these important market segments,” the statement said.
On purchase transactions, the minimum goal for low-income loans is 27 percent. In addition, 8 percent of Fannie’s and Freddie’s acquisitions must be for “very low-income family” homes.
On refinances, at least 21 percent of the transactions need to be for low-income borrowers. The requirement was eased because of recent market conditions.
FHFA said it will establish a home-purchase goal annually for disaster areas that have low-income, high minority populations “with a sub-goal of 13 percent to measure acquisitions in low-income/high minority areas only.”
On multifamily properties, Fannie’s goal has been set at acquiring mortgages that finance at least 177,750 low-income rental units and 42,750 very low-income rental units. Freddie’s low-income goal was established at 161,250, while it is expected to finance 21,000 very low-income rental units.
At some point, FHFA expects to address the treatment of purchase mortgages that helped in the conversion of a multifamily property to less affordable rents.
“In previous years, the Department of Housing and Urban Development set overall goals that measured the combined performance of single-family and multifamily mortgages,” FHFA stated. “In contrast, the new goals required by HERA target specific segments of those markets.”
Results will be considered achieved if a GSE either meets a retrospective market-based measure, or it meets a prospective or a benchmark measure, FHFA said. Only prospective measurement was utilized in the past.
The regulator noted, however, that Fannie and Freddie cannot purchase private-label securities to meet their housing goals.
Such practices led to GSE investments in higher-tier subprime securities earlier in the decade and provided more capital to fuel the subprime bubble.
But the two companies will receive credit for low-income modifications completed under the Home Affordable Modification Program.