The government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, provide access to affordable mortgage financing throughout the United States, making sustainable homeownership and workforce rental housing a reality for millions of Americans.
The new Duty to Serve (DTS) rule, which the GSEs must implement in 2018, seeks to improve the GSEs’ role in supporting low-income households. At a recent event at the Urban Institute, cosponsored by CoreLogic, leaders in housing finance discussed the drafts of the plans and shared six ideas about how the GSEs could maximize the new rule’s impact.
The DTS rule focuses on expanding opportunities for very low–, low-, and moderate-income families. The rule directs the GSEs to enhance their activities in three areas that will most affect these income groups: manufactured housing, affordable housing preservation, and rural housing.
Although the comment period on the GSEs’ draft DTS plans has ended, stakeholders remain focused on how the entities can improve their success with this rule.
1. Provide standardization for manufactured lending
Manufactured homes make up 9 percent of new single-family starts, but financial, legal, and regulatory concerns pose barriers to lending for this sector. Ann Kossachev of the National Association of Federally-Insured Credit Unions pointed out that chattel lending for manufactured housing carries special risks arising from the lack of consumer protections and the difficultly collecting reliable data on which to base loan pricing.
By expanding their involvement in manufactured housing, including chattel lending, the GSEs can bring standardization to the manufactured housing market, leading to lower costs and increased consumer protections for borrowers.
2. Incorporate existing federal loan programs to support rural housing
Corianne Scally argued that the GSEs’ draft DTS plans underline the importance of federal programs such as the Low-Income Housing Tax Credit and existing US Department of Agriculture loan programs. But Fannie Mae and Freddie Mac could better incorporate these programs into their plans, as the programs are a key source of affordable housing in rural areas that often struggle to compete with urban areas for funding.
The GSEs must also improve relationships with small lenders to tap into small lenders’ deep market knowledge to help extend credit to these areas.
3. Invest in CDFIs
In many communities, preserving existing affordable housing stock is as critical as building new housing in helping underserved markets. The GSEs could partner more with nonprofits and invest in community development financial institutions (CDFIs) doing this work.
Often, CDFIs serve the markets the DTS rule was designed to protect and have specialized knowledge in local markets. According to Doug Ryan from Prosperity Now, CDFIs have been successful in community preservation, and the GSEs can help secure better access to capital for these organizations.
4. Monitor progress through accessible reporting
Ethan Handelman of the National Housing Conference noted that the DTS plans are representative of the GSEs’ goals and objectives for the year, but the length* of the plans is a barrier to fostering continued involvement and accessibility of potential GSE partners.
As the GSEs move forward with their final plans and their implementation, panelists expressed hope that administrative transparency will translate to similar transparency in program implementation, monitoring, and evaluation.
5. Collect and make available data
Publishing the data from the DTS programs will allow researchers and policymakers to analyze the programs and devise solutions for communities that have been underserved by the housing finance system. Effective data collection and dissemination is key to understanding risks and making programs scalable and sustainable.
6. Fill in gaps in the plan
The DTS plans could also be improved by including underserved markets that were not sufficiently addressed in the plans, including single-family rentals, small-dollar loans, and farm worker assistance.