The Congressional Budget Office (CBO) this week published a report assessing the performance of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac in reaching their single-family housing goals. The CBO found that the GSEs “met or exceeded” nearly all goals over a four-year period from 2018 to 2022.
The CBO analyzed data from the Federal Housing Finance Agency (FHFA) data in its report. It noted that the GSEs were chartered to “ensure a stable supply of credit for mortgages nationwide, including those for low- and moderate-income households.” Fannie and Freddie are also legally mandated to follow housing goals that “serve as benchmarks for measuring how the GSEs facilitate the financing of affordable housing for low-income families,” the report stated.
There are three key housing goals and two “subgoals” that the GSEs must meet. These including a certain number of purchase loans for low-income households (defined as households with an income at or below 80% of the area median income (AMI). They also must purchase a number of loans intended for “very low income households,” whose income is at or below 50% of the AMI, as well as refinance loans for low-income households.
One of the subgoals covers two types of purchase loans. One is tied to ”households at any level of income that live in a low-income census tract that is not a minority census tract,” while the other is for ”households whose income is greater than 100% of the AMI and that live in a low-income census tract that is also a minority census tract.”
An additional subgoal covers purchase loans for households living in minority census tracts whose income is at or below 100% of the AMI.
The GSEs meet these goals by shifting “their purchases toward mortgages that meet the goals’ requirements,” according to the CBO. They also “charge lower fees than they otherwise would without the goals for lenders who sell them mortgages that are eligible in meeting their goals,“ which act as “an implicit subsidy.”
“Benchmark” and “market” levels are used to determine success rates in meeting these goals. The benchmark level reflects “FHFA’s forecast of the share of loans that meet the goals’ requirements.” The market level is based on data “showing the share of loans, by all lenders, that fell within the targets for the respective goals using the Home Mortgage Disclosure Act (HMDA) database.“
The percentage of goal-eligible mortgages purchased by the GSEs “must meet or exceed at least one of those levels,” the report stated. In looking at FHFA data over the four-year period ending in 2022, the CBO said that the majority of the GSEs’ housing goals were either met or exceeded. But in the final year of the dataset, Fannie Mae came up short on benchmark levels for purchase loans from low- and very low-income households.
That is “partly because those levels had increased since 2021,” the report explained. “The increase was largely attributable to the way that FHFA developed its market forecast.”
Due to the variables FHFA uses to set its benchmark level, which includes “actual market levels in recent years,” the benchmarks increased by 4 percentage points in 2022 to target 28% of purchase loans to low-income households. They also grew by 1 percentage point for very low-income households. Fannie Mae, however, met market levels for both goals that year.
If the GSEs fail to meet their housing goals, this comes with repercussions that include being subject to FHFA’s authority for creating a plan to fulfill the goals. Executive compensation at the agencies is also impacted by fulfilling the goals, the report said.
