GSE affordable housing goals
Under their respective charters, Fannie Mae and Freddie Mac are vested with unique, governmentally-derived competitive advantages worth at least $8 billion a year (probably more). For that money, the GSE’s are expected to extend the frontiers of affordable housing, facilitating the flow of capital at the margins, including these public purposes:
- Providing stability and liquidity in the secondary mortgage market;
- Providing secondary market assistance relating to mortgages for low-and moderate-income families;
- Promoting access to mortgage credit throughout the nation, including underserved areas.
To oversee GSE affordable housing performance, Congress has granted supervisory authority to HUD, which also sets affordable housing goals. (GSE financial soundness is currently regulated by HUD’s Office of Federal Housing Enterprise Oversight (OFHEO), in a mechanism that is now under scrutiny in light of recent embarrassing asset writedowns and the auditors’ firing) And since market frontiers and opportunities change, HUD changes the goals every four years, via advance rulemaking whereby proposals are published in the Federal Register, and inviting comments http://www.nhc.org/gse.htm, of which they usually receive many, especially from trade associations. The rules that have just expired (2000-2003) established three principal goals:
- Low-Mod goal. At least 50% of all homes financed by GSEs must be for families whose incomes are no greater than Area Median Income (AMI). This goal is up 8% from the 1997-2000 goal of 42%.
- Affordable. At least 20% must be for tax credit eligible (60% of AMI), up 8% from 14% in 1997-2000.
- Geographically targeted. At least 31% of homes must be in underserved areas, up 7% from 24% in the previous cycle.
The goals are separate, so one investment may count against 1, 2, or 3 goals. Investing in Low Income Housing Tax Credit properties counts against this goal, which helps explain some of Fannie Mae’s interest in LIHTC investments, $3.1 billion in 2003 alone, more than enough to satisfy HUD’s $2.85 billion target. Both Fannie Mae and HUD publish extensive performance data on the GSE’s. For the four years just completed, the GSEs met their goals:
|Housing Goal||2003 Goal Target||HUD’s Official Freddie Mac Performance – 2003||HUD’s Official Fannie Mae Performance – 2003|
|Low- and Moderate-income||50%||51.2%||52.3%|
|Special Affordable Multifamily Subgoal||$2.11 billion||$8.79 billion||—|
|$2.85 billion||—||$12.23 billion|
Which goes some ways toward explaining that HUD is proposing to raise the GSE goals for 2005-2008:
|Housing Goal||Current Goal Levels||Proposed Housing Goals Levels||HUD’s Estimate of Market Share|
|Low- and Moderate-income||50%||52%||53%||55%||57%||57%|
|Special Affordable Housing||20%||22%||24%||26%||28%||28%|
“Although the nation is experiencing a record high homeownership rate of 68.6 percent, there is still more to be done,” said HUD Secretary Alphonso Jackson. “These government sponsored enterprises can and must further use their power in the marketplace to ensure that more low-income and minority families get on the path to homeownership.”