GSEs’ affordable housing goals should include single-family rentals

Brett - stock.adobe.com

The Housing and Economic Recovery Act of 2008 modified government-sponsored enterprise housing goals, which had been in effect since 1993, but in doing so it omitted an important source of affordable housing.

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 required the Department of Housing and Urban Development, to establish affordable housing goals for Fannie Mae and Freddie Mac, the government-sponsored enterprises in the secondary mortgage market regulated by HUD. The goals included:

• A low- and moderate-income goal, for mortgages on owner-occupied homes and rental units affordable to families, with incomes no greater than 100 percent of area median income
• Geographic goal, for mortgages on properties located in central cities goal, as defined by the Office of Management and Budget; and
• Special affordable goal, for mortgages on homes and rental properties affordable to very low-income families (incomes no greater than 60 percent of AMI) and low-income families (incomes no greater than 80 percent of AMI) living in low-income neighborhoods.

The first two goals were established as minimum percentages of all units financed for units in the targeted categories. The special affordable goal was expressed as a minimum dollar volume of mortgages on units in the specified categories. The goals applied to both purchase and refinance mortgages and to units in all property types combined — for single-family owner-occupied properties, multifamily properties, and single-family rental properties. The latter includes investor-owned properties with 1-4 rental units, and properties with 1 owner-occupied unit and 1-3 rental units.
The first goals, for 1993-95, followed this framework, but research by Freddie Mac and HUD found that many areas in central cities were not underserved by the mortgage market, and many areas outside central cities were underserved, so HUD shifted the geographic goal to low-income and high-minority census tracts in metropolitan areas and low-income and high-minority counties outside of metro areas. Subsequently HUD also changed the special affordable goal to a percentage of business basis, like the other two goals.

This framework continued for successive goals established for two- or three-year periods through 2008, when the Housing and Economic Recovery Act of 2008 transferred all regulation of the GSEs to the newly-created Federal Housing Finance Agency. HERA also modified the GSEs’ housing goals in a number of ways:

• The single-family goals were separated by loan purpose — three of the goals applied to home purchase mortgages and one to refinance mortgages, reflecting the increased focus on home ownership;
• Goals were established for units in multifamily properties, separate from those for mortgages on single-family owner-occupied properties, and
• Mortgages on single-family rental properties were not included in any of the goals.

Goal performance for owner-occupied properties is based on the income of the parties taking out the mortgage. Performance on rental units in multifamily properties is based on the rent for the unit, adjusted for unit size. This data is submitted to FHFA by Fannie Mae and Freddie Mac, and FHFA determines official performance on the housing goals based on analysis of this data.
Single-family rentals comprise a significant portion of the total rental stock — nearly half of all rental units. They comprise a smaller proportion of units financed by the GSEs than mortgages on owner-occupied 1-unit properties and units in multifamily properties, but they do provide affordable housing and they contributed to goal performance for the 1993-2009 period.

Specifically, in 2020 Fannie Mae financed 356,000 units in single-family rental properties, of which 155,000 (44 percent) were affordable to low-income families and 36,000 (10 percent) were affordable to very low-income families. And Freddie Mac financed 261,000 units in such properties, of which 119,000 (46 percent) were affordable to low-income families and 24,000(9 percent) were affordable to very low-income families. Also, sizable shares of each GSE’s single-family rental mortgages were for properties in neighborhoods where the minority percentage was at least 50 percent.

Yet none of these results were reflected in the affordable housing goal calculations, and none were mentioned in FHFA’s 2020 Annual Housing Report, which discusses only mortgages on single-family owner-occupied properties and mortgages on multifamily properties. Even though SFR units are not subject to the goals, it would be useful if FHFA included information on them in their Annual Housing Reports, to give a fuller picture of the GSEs’ financing of affordable housing.

Congress often publishes reports to explain the rationale for provisions in enacted legislation, but that was not the case for HERA, so no rationale was given for the exclusion of mortgages on SFR properties from the housing goal structure. Perhaps this will be reconsidered if such matters are taken up by Congress in the future. One possibility would be to convert the multifamily goals to “all rental goals,” covering mortgages on both multifamily and single-family rental properties.