5 ways Fannie Mae and Freddie Mac are addressing equitable housing

August 22, 2022 11:01 AM

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The wide racial homeownership gap, particularly between Black households and their white counterparts, continues to cause concerns for the Biden administration as well as Fannie Mae and Freddie Mac.

The two GSEs are responding to the challenges of equitable housing with a number of measures, including automating rent-based underwriting for single-family loans and offering incentives for multifamily borrowers to accept housing vouchers.

Read more about their initiatives in our roundup.

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Freddie Mac automates underwriting based on on-time rental payments

First-time buyers with poor credit histories could be the beneficiaries of a Freddie Mac initiative that will allow a loan to be submitted for automated underwriting after one year of on-time rental payments.

"By factoring in a borrower's responsible rent payment history into our automated underwriting system, we can help make home possible for more qualified renters, particularly in underserved communities," said Freddie Mac CEO Michael DeVito.

The new system could open up the possibility of homeownership to borrowers who may previously have been denied because of their lack of credit history.

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Freddie Mac automating rent-based underwriting for single-family loans

Agencies release 3-year plans exploring new underwriting strategies

Government–sponsored enterprises Fannie Mae and Freddie Mac took a major step forward in their efforts to close the homeownership gap between white and minority buyers with the recent release of their three-year plans for driving equitable housing.

Fannie and Freddie regulator the FHFA will thoroughly review the plans, which include proposals for new underwriting strategies and special purpose credit programs, but indications already suggest that success will depend much on the participation of mortgage companies.

"The enterprises cannot achieve our shared goal of creating an equitable housing finance system without the willingness, cooperation and commitment of the entire mortgage industry," the agency said.

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Fannie Mae, Freddie Mac launch plans to close racial homeownership gap

Fannie Mae housing voucher initiative to aid underserved renters

Lower rates of 10 to 15 basis points on apartment building mortgages are being offered to multifamily borrowers as an incentive to accept Housing Choice vouchers from tenants in a new Fannie Mae program.

The incentives for eligible property owners will be available for 12 months on multifamily homes in North Carolina and Texas only, but could be expanded to other states.

"We want to make sure renters with vouchers benefit from this [initiative]," said Michele Evans, head of multifamily at Fannie Mae. The GSE also hopes to "get a greater understanding of some of the pain points that the landlord or property owner has and the renters have as well."

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Fannie Mae incentivizes voucher acceptance by multifamily borrower

Fannie Mae analyzes disparities in appraisal values for Black and white borrowers

The potential for racial discrimination exists in the appraisal process when Black borrowers apply to refinance, said the authors of a Fannie Mae research paper, Jake Williamson, senior vice president of single-family collateral risk management, and Mark Palim, deputy chief economist and vice president.

Williamson and Palim analyzed 1.8 million appraisals from 2019 and 2020 and found gaps between two proprietary automated valuation models and appraisals for Black and white borrowers. The results were statistically significant enough to reaffirm the importance of initiatives in progress to address the issue.

"There are many possible reasons why an appraisal would be either overvalued or undervalued. Fannie Mae and its industry partners should continue to take concrete actions to minimize the chances that the race of a borrower or homeowner is one of those reasons," Williamson and Palim said in the report.

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Appraisals undervalue refis for Black borrowers: Fannie Mae

Freddie Mac and Esusu partner to help renters improve credit history

A partnership between Freddie Mac and fintech Esusu Financial is helping renters get recognition for their rent payments and as a result improve their credit history, in a program that benefits both property-owning borrower and renter.

The initiative between the GSE and the high-profile start-up, which received funding from tennis great Serena Williams' venture capital firm, provides information about property owners' rental payments to the big three credit bureaus, Experian, Equifax and TransUnion.

"The borrowers working with Esusu are seeing better rent collection," said Alexis Sofyanos, Freddie's senior director of equity in multifamily housing. For renters, "These services inherently incentivize [them] to pay on time and in full every month because they know that they're getting credit for doing so."

Read more:

Freddie Mac, Serena Williams-linked fintech help renters build credit