Fannie Mae and Freddie Mac Meet 2006 Affordable Housing Goals

FULL TEXT: Download complete issue (*.pdf, 1.55 MB) Order a printed copy of the whole text

An examination of the recent goals and activities of the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac reveals their significant impact on Americans’ housing opportunities. In 2005, Fannie Mae’s mortgage purchases of $582 billion financed 3.9 million housing units, while Freddie Mac’s mortgage purchases of $563 billion financed 3.8 million units. Of all the housing units the GSEs financed in that year, 88 percent of the total dollar volume and 77 percent of all units were in one-family, owner-occupied properties. Single- and multifamily rental properties accounted for the remaining housing units financed.

About Fannie Mae and Freddie Mac

Counted among the largest corporations in the United States, Fannie Mae and Freddie Mac are in the business of providing a secondary market for conventional residential mortgage loans. These privately owned entities sell stock on the public exchanges, but also carry out some activities under the GSE designation. Congress chartered the two GSEs to provide stability and liquidity in the secondary mortgage market and to promote access to mortgage credit throughout the nation, but especially in underserved areas to benefit low- and moderate-income families. The GSEs accomplish this by purchasing conventional mortgage loans from original lenders, pooling them, and creating mortgage-backed securities (MBS). They retain some of these MBS in their own portfolios, but sell the majority to investors in the private capital markets. This process reduces lenders’ credit and interest rate risk and increases their available cash supply, allowing them to make new mortgage loans to other borrowers. In exchange for these services, the GSEs receive benefits such as exemptions from state and local taxes (except property taxes), conditional access to a line of credit from the U.S. Treasury Department, low borrowing rates, and lower capital requirements than those applicable to other comparable financial institutions.

Housing Goals

The HUD Secretary and the Office of Federal Housing Enterprise Oversight (OFHEO) share regulatory responsibility for overseeing Fannie Mae and Freddie Mac. OFHEO ensures that the GSEs have adequate capital and follow financially sound business practices. The HUD Secretary sets and enforces affordable housing goals, reviews new program requests, monitors compliance with fair lending requirements, and has general regulatory authority over the GSEs.

The affordable housing goals established by HUD are minimum percentage targets for the types of mortgage purchases Fannie Mae and Freddie Mac make each year. For example, in 2006, at least 53 percent of the dwelling units financed by each GSE’s mortgage purchases had to be for low- and moderate-income buyers; 38 percent had to be in underserved areas, defined as low-income and high-minority census tracts; and 23 percent were to target dwelling units in housing for “special affordable” borrowers (very low-income and low-income families living in low-income neighborhoods). On September 18, HUD announced that both GSEs exceeded these goals, as shown below:

In 2006, both GSEs also met or exceeded the affordable housing subgoals that HUD established in 2004 to promote homeownership among targeted groups and in targeted areas.

Performance Updates

Two recent additions to a working paper series on housing finance written and published by HUD’s Office of Policy Development and Research examine how these GSEs are fulfilling their legislative intent, from both short- and long-term perspectives. The first, Goal Performance and Characteristics of Mortgages Purchased by Fannie Mae and Freddie Mac, 2001–2005 (Working Paper HF-017), analyzes how well the two major GSEs have performed over time in meeting HUD’s affordable housing goals. The paper also contains information on borrower, location, and loan characteristics of single-family mortgages purchased by the GSEs. The second, The GSEs’ Funding of Affordable Loans: A 2004–05 Update (Working Paper HF-018), compares the borrower and neighborhood characteristics of single-family mortgages purchased by Fannie Mae and Freddie Mac in recent years with the characteristics of loans originated in the primary market during the same period. This study documents recent improvements that Fannie Mae and Freddie Mac have made in purchasing home loans for lower-income families.

Both working papers are available to our readers as free downloads at www.huduser.org/publications/hsgfin/workpapr.html. Lenders, planners, researchers, and housing advocates studying the flow of mortgage credit and capital in America’s communities will find extensive data about mortgage purchases by Fannie Mae and Freddie Mac at www.huduser.org/datasets/gse/overview.html. Additional mortgage-based studies are also the focus of two past issues of Cityscape (volume 5, number 3; volume 6, number 1), available for download at www.huduser.org/periodicals/cityscape.html; printed copies of these volumes can be purchased for a small fee by calling 800.245.2691, option 1.