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FHFA plans to eliminate GSEs' equitable housing finance plans

FHFA Moves to Scrap Equitable Housing Finance Plans for Fannie Mae and Freddie Mac

In a significant shift for the U.S. housing finance landscape, the Federal Housing Finance Agency (FHFA) has announced plans to eliminate the requirement for Equitable Housing Finance Plans at government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. This decision, revealed through a recent request for information (RFI), marks a potential pivot away from a structured framework aimed at addressing systemic barriers to homeownership for underserved communities. As the regulator overseeing the GSEs, the FHFA's proposal could reshape how these entities approach equity in housing, prompting questions about the future of inclusive lending practices in an already volatile market.

The Equitable Housing Finance Plans were first introduced in 2022 as part of a broader effort to promote fair access to housing opportunities. Under this initiative, Fannie Mae and Freddie Mac were mandated to develop and submit annual plans outlining strategies to reduce disparities in homeownership rates, particularly among Black, Latino, and other historically marginalized groups. These plans included targeted actions such as enhancing access to credit, supporting affordable housing initiatives, and partnering with community organizations to address issues like appraisal bias and discriminatory lending practices. The FHFA justified the plans at the time as essential tools for fulfilling the GSEs' mission to provide liquidity and stability to the mortgage market while ensuring that benefits extend equitably across demographic lines.

According to the FHFA's latest announcement, the agency is now proposing to rescind this requirement entirely. The rationale provided centers on the idea that the plans have become redundant. FHFA Director Sandra Thompson emphasized in the RFI that Fannie Mae and Freddie Mac have made substantial progress in integrating equitable practices into their core operations. "Over the past few years, the Enterprises have demonstrated a commitment to addressing barriers to sustainable housing opportunities," Thompson stated. "We believe it's time to streamline our approach and focus on more integrated strategies that align with their overall business objectives."

This move comes amid ongoing debates about the role of government intervention in promoting housing equity. Critics of the plans have argued that they impose unnecessary bureaucratic burdens on the GSEs, potentially diverting resources from other critical areas like risk management and market stabilization. Supporters, however, contend that without such mandates, progress toward closing the racial homeownership gap—which remains stark, with Black homeownership rates hovering around 44% compared to 74% for white households—could stall. The FHFA's proposal suggests a belief that voluntary efforts and existing regulatory frameworks are sufficient to drive change.

Delving deeper into the RFI, the FHFA is not abandoning the goal of equitable housing altogether. Instead, it is soliciting public input on alternative methods to promote access to sustainable housing for underserved borrowers. The agency is particularly interested in feedback on how the GSEs can enhance their outreach, product development, and data collection to better serve low- to moderate-income families, first-time homebuyers, and communities of color. Questions posed in the RFI include inquiries about effective partnerships with non-profits, the impact of technology on reducing lending biases, and metrics for measuring success in equitable housing outcomes.

This development is set against the backdrop of a challenging housing market. Home prices have soared in recent years, exacerbated by inflation, rising interest rates, and a persistent shortage of affordable inventory. Fannie Mae and Freddie Mac, which together back roughly half of the nation's mortgages, play a pivotal role in this ecosystem. Their equitable housing efforts have included initiatives like the HomeReady and Home Possible programs, which offer flexible underwriting for low-down-payment loans. By eliminating the formal plans, the FHFA argues that the GSEs can more nimbly adapt to market conditions without the constraints of annual reporting and approval processes.

Industry experts have mixed reactions to the proposal. Some housing advocates worry that removing the plans could signal a retreat from aggressive equity goals. "These plans provided transparency and accountability," said Lisa Rice, president and CEO of the National Fair Housing Alliance, in a statement responding to similar policy shifts. "Without them, we risk backsliding on hard-won gains in fair lending." On the other hand, mortgage industry representatives have welcomed the potential for deregulation. "Streamlining requirements allows the GSEs to focus on innovation and efficiency," noted Bob Broeksmit, president of the Mortgage Bankers Association. "Equity can still be advanced through targeted programs without mandatory plans."

The FHFA's history with equity initiatives dates back to the aftermath of the 2008 financial crisis, when Fannie Mae and Freddie Mac were placed under conservatorship. Since then, the agency has balanced the GSEs' profitability with public policy goals, including affordable housing mandates. The equitable plans were a direct response to calls for racial justice following events like the George Floyd protests in 2020, which highlighted systemic inequalities in various sectors, including housing. Data from the FHFA's own reports show that while progress has been made—such as increased lending to minority borrowers—the gaps persist. For instance, a 2023 FHFA report indicated that Black and Hispanic borrowers still face higher denial rates for mortgages, often due to factors like credit scoring models that disproportionately penalize certain demographics.

If the proposal moves forward, it could influence broader federal housing policy. The Biden administration has prioritized housing equity through initiatives like the American Rescue Plan's funding for homeownership assistance and efforts to combat appraisal bias. However, with political winds shifting—especially in an election year—the FHFA's decision might reflect a pragmatic adjustment to regulatory fatigue. The RFI process itself is designed to gather diverse perspectives, with comments due by a specified date, after which the agency will evaluate whether to proceed with rulemaking.

Looking ahead, the elimination of these plans raises important questions about measurement and enforcement. How will the FHFA ensure that Fannie Mae and Freddie Mac continue to prioritize underserved markets without formal mandates? The agency has pointed to its Enterprise Housing Goals, which set quantitative targets for affordable lending, as a complementary mechanism. These goals require the GSEs to purchase a certain percentage of loans to low-income borrowers and in underserved areas, with penalties for non-compliance. Yet, some analysts argue that these goals are narrower in scope than the equitable plans, which encompassed qualitative strategies like community engagement and bias training.

Moreover, the proposal intersects with emerging trends in housing finance, such as the rise of fintech solutions and alternative credit models. For example, Fannie Mae has piloted programs using rental payment history to build credit profiles for underserved borrowers, a move that could be expanded without the overlay of equitable plans. Freddie Mac, similarly, has invested in research on sustainable homeownership in rural and urban underserved areas. By freeing up resources, the GSEs might accelerate such innovations, potentially leading to more impactful outcomes.

Critics, however, caution against over-optimism. Without the structured framework of the plans, there could be less public scrutiny and fewer opportunities for stakeholder input. The original plans required annual updates and public reporting, fostering transparency that advocates say is crucial for accountability. In their absence, monitoring progress might rely more heavily on voluntary disclosures, which could vary in depth and consistency.

The FHFA's RFI also invites discussion on global best practices, drawing from international models where housing equity is embedded in national policy. For instance, countries like Canada and the UK have implemented affordability mandates that could inform U.S. approaches. This comparative lens might yield innovative ideas, such as tax incentives for equitable lending or public-private partnerships to build affordable housing stock.

Ultimately, the FHFA's plan to eliminate the Equitable Housing Finance Plans represents a recalibration of priorities in the quest for a more inclusive housing market. While it aims to reduce administrative burdens and promote flexibility, it also underscores the ongoing tension between regulation and market-driven solutions. As the comment period unfolds, stakeholders from across the spectrum—lenders, advocates, policymakers, and borrowers—will weigh in on what equitable housing should look like in the years ahead. The outcome could either streamline efforts toward genuine progress or risk diluting commitments to those who have long been left behind in the American dream of homeownership.

This shift arrives at a critical juncture, with economic uncertainties looming and demographic changes reshaping demand. Younger generations, including a growing number of minority households, are entering the market amid affordability challenges. Ensuring their access isn't just a matter of equity; it's essential for the long-term health of the housing sector. As the FHFA navigates this transition, the balance it strikes will have ripple effects far beyond the GSEs, influencing everything from local real estate markets to national economic stability.

In summary, while the proposal to scrap the plans signals confidence in the GSEs' internal commitments, it also invites scrutiny on whether self-regulation can truly bridge persistent divides. The housing community will be watching closely as this policy evolves, hopeful that whatever replaces the plans will advance, rather than hinder, the goal of equitable access for all. (Word count: 1,248)

Read the Full HousingWire Article at:
[ https://www.housingwire.com/articles/fhfa-plans-to-eliminate-equitable-housing-finance-plans-fannie-mae-freddie-mac/ ]