Duty to serve proposals draw mixed reviews as they get back on track

The Federal Housing Finance Agency has released the first long-term Duty to Serve proposals submitted by Fannie Mae and Freddie Mac since the pandemic, and initial reactions largely reflect disappointment that the plans don’t do more to increase financial support for underserved borrowers.

The tentative low-income and rural market goals for 2022 generally show Fannie and Freddie plan to aim lower in some niches but higher in others as the economy opens up.

For example, Low-Income Housing Tax Credits that are used to encourage investment in multifamily properties have annual goals that rise from 45,000 to 46,000 units, down from an average of 51,496 during the previous plan period. In contrast, annual goals for certain manufactured housing communities are rising from the 12,000 to 13,000 lease-pads to up to 27,000. However, the thinking behind the small increase in low-income housing tax credit goals may stem from the fact that the tax credits have had mixed prospects due to changing tax policy.

Some advocates suggested that regardless of the DTS goals call for, it might be tough to advance them given recent changes to the GSEs’ preferred stock purchase agreements, which cap the number of loans with higher loan-to-value and debt-to-income ratios the GSEs will buy.

“It is incongruous for Fannie and Freddie to be submitting Duty to Serve Underserved Markets plans at the same time the January PSPA loan restrictions require them to serve fewer underserved borrowers,” said Scott Olson, executive director of the Community Home Lenders Association, in an email. “The most impactful Duty to Serve action that could take place right now is for Treasury and the FHFA to immediately suspend these PSPA restrictions."

However, others said aspects of Duty to Serve could be helpful even with the PSPA constraints, given that goals focus on the creation of inventory with lower price points as well as financing for those with low to moderate incomes.

The increased manufactured home communities goals, for example, could generate more affordable supply, advocates in that area acknowledged, but they noted they were a little disappointed the GSEs remain noncommittal when it comes to a step that could really open up inventory in the market: chattel lending. Freddie’s plan indicated it has suspended a pilot involving these manufactured housing loans, which lack the security of real property most mortgages have, due to “safety and soundness considerations.” Fannie said, "We continue to work with our regulator to understand safety and soundness considerations and the viability of a chattel loan pilot program."

“With the shortage of affordable housing supply in the country, this is unacceptable,” said Lesli Gooch, CEO of the Manufactured Housing Institute, in an email. “It is more important than ever for the FHFA to require the Enterprises to redouble their efforts on the ultimate goal of developing a flow program for purchase and securitization of chattel loans.”

The FHFA is accepting feedback like this on the DTS proposals through its request for input and listening sessions scheduled for July. The goals are typically issued to cover two- or three-year periods but were limited to a single year in 2021 due to coronavirus-related uncertainties.