Unpacking the FHFA's zig-zag on multifamily housing goals

On December 21, the Federal Housing Finance Agency published a final rule on multifamily housing goals for Fannie Mae and Freddie Mac for 2023 and 2024.  There are three categories of multifamily goals: low-income units, very low-income units, and, since 2015, low-income units in small (5-50 unit) properties.  This final rule incorporates comments on a proposed rule, published on August 18.  However, in something of a zig-zag, in the final rule FHFA went on to state that there was little need for the third goal at this time, an unusual statement for a financial regulator in a regulation.

The Housing and Recovery Act of 2008 established FHFA as the regulator of Fannie Mae and Freddie Mac, as well as the Federal Home Loan Bank System. One of FHFA's responsibilities under HERA is the establishment of certain affordable housing goals for the enterprises' funding of mortgages on both single-family (1-4 unit) and multifamily (5 or more unit) properties. Specifically, on the multifamily side, HERA called for goals for low-income families (income no greater than 80 percent of area median income or AMI) and very low-income families (income no greater than 50 percent of AMI.) 

FHFA's first multifamily goals, for 2010 to 2011, were expressed as minimum numbers of low-income units and very low-income units financed in each year.  The annual low income and very low-income goals for Fannie Mae exceeded those for Freddie Mac. Parity was established in 2015, when the low-income goal was 300,000 units for each enterprise for 2015 to 2017, rising to 315,000 each for 2018 to 2021, before jumping to 415,000 for 2022. Similar patterns prevailed for Fannie Mae's very low-income goal and Freddie Mac's goals.

FHFA was very aggressive in setting the housing goals for 2022, increasing the low-income goal for Fannie Mae by 32 percent, to 415,000 units; the very low-income goal by 47 percent, to 88,000 units; the low-income small multifamily goal for Fannie Mae by 70 percent, from 10,000 units in 2021 to 17,000 units in 2022. For Freddie Mac, the low-income small multifamily goal was raised 130 percent, from 10,000 units in 2021 to 23,000 units in 2022. This disparity in the 2022 goals was despite the fact that both enterprises are active in the same market.

Goals for 2023 to 2024 vs. goals for previous years
After setting very aggressive goals for 2022, FHFA backed off considerably in setting the multifamily goals for 2023 to 2024. One major change was a switch from unit-based goals to percentage-of-business goals. For example, the low-income goal, 415,000 units for 2022, will be 61 percent of all units financed for 2023 to 2024, with similar changes in the other goals.  One advantage of this approach is that the goals expand or contract with changes in the market, and the majority of commenters supported this change.

An important question is how the 2023 to 2024 goals compare with those in effect for 2022 and prior years. FHFA does not explicitly address this question, given that the 2023 to 2024 goals are expressed in percentage terms while those for 2022 and prior years were expressed in numbers of goal-qualifying units. But, as expected, there is clearly a strong relation between these two measures, and FHFA includes tables showing performance under both metrics. For example, in 2016, Fannie Mae financed 352,000 low-income multifamily units, 63.7 percent of all its multifamily units. By 2020, low-income volume was up to 442,000 units, or 70.9 percent of all multifamily units. The figures for Freddie Mac and the other two goals for Fannie Mae are similar.

Of course, enterprise multifamily volume is impacted by many factors besides FHFA's housing goals. And the fact that both enterprises' performance have generally exceeded the goals by wide margins implies that the goals have played a minor role in the enterprises' multifamily business. The reductions in the multifamily goals for 2023 to 2024 suggest that these goals will have little, if any, impact on the GSEs' multifamily operations in future years.