Every three years, the Federal Housing Finance Agency (FHFA) sets affordable housing goals for the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. These goals are meant to ensure the GSEs support access to mortgage credit for underserved families and communities rather than focus only on the more profitable sectors of the market.
The goals for 2026–28 require each GSE to acquire a specified share of owner-occupied single-family mortgages made to borrowers below designated area median income (AMI) thresholds for both home purchase and refinance loans. An additional goal measures purchase activities in low-income geographic areas, which is also based on AMI.
As such, the definition of AMI is central to the GSEs’ progress toward these goals. But recent changes to the AMI calculation implemented by the US Department of Housing and Urban Development (HUD) and another change proposed by the FHFA will make the goals substantially easier to hit, and therefore less binding. As a result, the GSEs could satisfy the same statutory benchmarks while serving a less economically disadvantaged population than under the previous definition.
Implemented and proposed changes to the calculation of AMI
Historically, HUD has calculated AMI using income data from the American Community Survey, which lags by two years. To correct for the lag, HUD incorporated an inflation forecast from the Congressional Budget Office.
Starting in fiscal year 2025, HUD changed the lag correction (PDF), basing it on changes in per capita wage growth rather than on inflation. In the 2025 AMI data, the wage growth was 8.06 percent, compared with the inflation forecast of 5.32 percent, increasing the AMI by 2.6 percent in all areas.
Then, in June 2026, the FHFA released a proposal that made substantial changes to its Duty to Serve framework for underserved markets. This proposal, which would go into effect in 2028, also included changes to the geography used to calculate AMI. Currently, metro areas use the AMI for the entire metro area and nonmetro areas use the higher value of the county median income and the state nonmetro median income. The proposal would revise the geography used for AMI as follows:
- A metro area would use the highest value of the AMI for the metro area, the state median income including metros, and the national median income including metros.
- A nonmetro area would use the highest value of the county median income, the state nonmetro median income, and the national nonmetro median income.
Which counties are affected most by the FHFA’s proposed AMI change?
The HUD changes affect AMI for all US counties, but the FHFA’s proposed change would affect it for just half. The FHFA change would similarly affect close to half of the US population and households, although the distribution is different.
Because large metros often have the highest costs in a state (usually higher than the national median) and have a greater share of the population, fewer people in those areas would experience the AMI change than a county count would indicate. Nonmetro areas, which make up 62 percent of counties, constitute only 19 percent of the population.
Across all counties, the average AMI will increase by about $5,400 (6.6 percent). Among affected counties, those in metro areas would experience a much larger average change than those in nonmetro areas.
The largest AMI increases would occur primarily in lower-income metropolitan counties, particularly in the South and Southwest. In these areas, the local AMIs currently fall well below state or national medians.
How changes in the AMI calculation will affect affordable housing goals
These implemented and proposed changes to the AMI calculation will increase the share of the population whose mortgages would count as meeting the GSEs’ affordable housing goals. Using 2025 Home Mortgage Disclosure Act data for loans designated as GSE loans, we can determine what percentages of the population would qualify under the old AMI calculation, under the calculation with the HUD changes, and under the calculation with the HUD changes and the proposed FHFA changes. We focus on the GSEs’ four single-family affordability goals:
- low-income borrower purchase loans (less than or equal to 80 percent AMI)
- low-income borrower refinance loans (less than or equal to 80 percent AMI)
- very low-income borrower purchase loans (less than or equal to 50 percent AMI)
- low-income area purchase loans (qualifying borrowers are those in census tracts whose median AMI is less than or equal to 80 percent of AMI, and those with incomes less than 100 percent AMI residing in designated disaster areas or census tracts whose median AMI is less than or equal to 100 percent AMI and where 30 percent of people in the tract are people of color)
For the low-income borrower purchase goal, the share of qualifying GSE borrowers increases by 4.7 percentage points after both changes, with the FHFA change alone accounting for 3.0 percentage points. Looked at differently, the changes increase the number of qualifying GSE borrowers by 16.5 percent, with the FHFA change accounting for 9.9 percent. A similar increase occurs among low-income refinance loans.
For the very low-income purchase goal, the share of qualifying GSE borrowers is much smaller than for the low-income goal, but the effect of the FHFA’s proposal on the number of qualifying borrowers is much larger—an increase of almost 24 percent. The low-income area goal experiences the smallest changes, but again, the FHFA proposal has a greater effect than the HUD changes to the AMI calculation.
What do these changes mean for federal housing policy?
The HUD changes have made it easier for Fannie Mae and Freddie Mac to reach their affordable housing goals, and the FHFA’s proposed change will make it even easier by allowing borrowers at higher incomes to “count” toward the goals. The concern is not that these borrowers do not need assistance, but that broader eligibility gives the GSEs greater flexibility to meet the goals by counting more higher-income borrowers who likely would have received mortgages anyway, thereby weakening the incentive to serve lower-income borrowers for whom homeownership remains a greater challenge.
Further research by the FHFA is needed to examine who is likely to benefit from these changes. For example, in 2025 Home Mortgage Disclosure Act data, we found that the share of newly added loans would disproportionately come from metro areas, which indicates that the change could affect the geographical distribution of loans purchased by GSEs in addition to the income distribution. These findings also have implications for the proposed Duty to Serve framework, as expanded eligibility could dilute the rule's intended focus on serving rural communities and lower-income families.
If its proposal is adopted, the FHFA should consider changing the benchmarks for the current affordable housing goals and reevaluate where to set benchmarks when creating the 2029–31 affordable housing goals. A failure to account for the revised definition of AMI would dilute the intent of the housing goals and compromise one of the prime justifications for a government presence in the affordable housing market.
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