Among the financial institutions bailed out by the government after the great recession circa 2008, only Fannie Mae and Freddie Mac (the “GSEs”) are still in conservatorship under the supervision of the Federal Housing Finance Agency (FHFA). In exchange for the government sponsored assistance, i.e., ownership; Fannie Mae and Freddie Mac are expected to meet affordable housing goals. Without discrediting merits of the affordable housing tradeoff, one wonders whether the concept of federal “affordable housing” should be inextricably connected to fair lending. For the reasons below, the relationship appears to be tenuous at best.
The three pillars of the federally mandated affordable housing goals are:
- 1. affordable rental housing
- 2. rural housing
- 3. manufactured housing
Historically, the GSEs have easily met these goals with the blessings of the FHFA. However, the three pillars of the lending and housing goals do not target goals to improve minority home ownership. Let me give some examples of the disconnect based on the three pillars. First, affordable rental housing is just that, it’s about rental properties; it’s not about homeownership. Second, people of color primarily live in urban areas not rural communities, so this GSE goal is unlikely to be impactful to minority homeownership. Third, given the dominant presence of people of color in the cities, the demand for manufactured housing units is not expected to be great.
The absence of an equal credit access component to the affordable housing goals limits the role lenders can play to make credit available to all on a fair and equal basis. Under the status quo, the GSEs can buy loans from lenders and meet their goals without being impactful or intentional about fair lending. But is that the kind of system we want? Or do we want a system where every hard-working citizen can have access to the American Dream?
Based on the 14-year average share of loans purchased by the GSEs by race they have not contributed much in terms of access to credit for people of color. By a wide margin the GSEs predominately serve the mortgage lending needs of non-Hispanic White Americans:
Fortunately, LendingPatterns™ allows users to determine if both affordable housing and fair lending are being met since reports can be run by, income, race, and property types. Reports can also be run by investor, loan type, loan purpose and other slices to isolate the various types of loans purchased by the GSEs in majority-minority versus majority-majority census tracts. LendingPatterns™ is a tool to set goals, measure performance and take action. I am proud to say, many lenders use LendingPatterns™ to manage their CRA and fair lending program