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June 9, 2023

FHFA Commissioner Testifies Before House Committee on Financial Services

The House Committee on Financial Services recently held a hearing examining threats to homeownership and American taxpayers. Federal Housing Finance Agency (FHFA) Director Sondra Thompson provided updates to the Committee on various ways to responsibly reduce costs, harness technology and innovation to improve underwriting, and support efforts to increase housing supply.

Multifamily Market

Director Thompson highlighted how the multifamily market experienced volatility in 2022 and the first half of 2023, but that the fundamentals have remained strong. Throughout this period, the Enterprises (Fannie Mae and Freddie Mac) have continued to serve as a consistent source of liquidity without compromising credit standards. She stated that this year, FHFA instructed the Enterprises to develop and implement strategies to support and advance the multifamily market by identifying ways to facilitate greater affordable housing supply, exploring options to expand energy efficiency and resiliency, exploring the feasibility of expanding tenant protections at Enterprise-backed properties, and increasing Enterprise support for workforce housing. Specifically, she made the following comments:

  • Low-Income Housing Tax Credit (LIHTC) program. One of the primary mechanisms for the Enterprises to create incentives for production and investment in affordable housing is through the LIHTC program. These investments can also support housing in Duty to Serve-designated rural areas, preserve affordable housing, support mixed-income housing, provide supportive housing, or meet other affordable housing objectives. In September 2021, FHFA increased the Fannie Mae and Freddie Mac LIHTC investment caps to $850 million annually. Previously, each Enterprise was limited to $500 million of investments annually. Within this $850 million annual cap, any investments above $425 million in a given year are required to be in areas that have been identified by FHFA as markets that have difficulty attracting investors. LIHTC investments are a meaningful way for the Enterprises to support affordable housing supply. In 2022, both Enterprises were able to fully deploy all allowable LIHTC investment dollars, the majority of which supported transactions that traditionally have difficulty attracting investors.
  • ​Multifamily tenant protections. FHFA announced that the Agency would conduct a public stakeholder engagement process to identify tangible solutions for addressing the challenges renters are facing nationwide, particularly among underserved communities. FHFA’s determination to evaluate the Enterprises’ tenant standards is based on lessons learned from the COVID-19 pandemic, rising rents, and a shortage of safe and affordable housing. The Agency has committed to a transparent stakeholder engagement process that includes broad participation from diverse voices. Additionally, FHFA instructed the Enterprises to explore the feasibility of expanding multifamily tenant protections for properties they finance and to identify strategies and activities that could facilitate a greater amount of affordable rental housing supply. FHFA expects to issue an RFI on multifamily tenant protections by the end of this month.
  • Multifamily loan purchase caps. In November 2022, FHFA also made several changes to the Enterprises’ multifamily housing loan purchase caps for 2023, which are set at $75 billion, for a combined total of $150 billion, to support the multifamily market. To ensure a strong focus on affordable housing and traditionally underserved markets, FHFA requires that at least 50 percent of the Enterprises’ multifamily business be mission-driven affordable housing as defined in the Conservatorship Scorecard’s Appendix A. FHFA added a new mission-driven category for workforce housing properties to increase Enterprise support of the “missing middle” by providing incentives for multifamily borrowers to voluntarily ensure rents are affordable for those renters at or below 120 percent of AMI. In addition, FHFA will allow loans to finance energy or water efficiency improvements with units affordable at or below 80 percent of AMI to be classified as mission-driven, up from 60 percent of AMI in 2022. This increase will allow the Enterprises to expand their efforts related to energy and water conservation measures at workforce housing properties.
  • Increased multifamily radon testing requirements. FHFA has also adopted more robust radon testing requirements for multifamily properties backed by the Enterprises. This policy enhancement ensures that properties financed by the Enterprises continue to provide safe and sustainable housing for tenants across the country.

Equitable Housing Finance Plans and Duty to Serve Update

Director Thompson also announced updates to the Enterprises’ Equitable Housing Finance Plans for 2023. The updates build upon the inaugural plans first announced in 2022 and include adjustments based on initial research and findings. The Equitable Housing Finance Plans are designed to complement the initiatives outlined in FHFA’s strategic plan that promote the Enterprises’ safety and soundness and foster housing finance markets that provide equitable access to affordable and sustainable housing.

FHFA’s reason for requiring the Enterprises to develop Equitable Housing Finance Plans is based on the racial homeownership gap, with homeownership rates for households of color more than 24 percentage points lower than the rate among white households. Accordingly, the Enterprises developed and published plans to identify and address barriers to sustainable housing opportunities, as well as the Enterprises’ goals and actions to advance equity in housing finance, for the next three years.

Updates to the Enterprises’ 2022-2024 Plans include, but are not limited to:

  • The inclusion of the Latino Housing Journey and actions to remove barriers experienced by Latino renters and homeowners in Fannie Mae’s plan;
  • An enhanced focus on ensuring existing borrowers receive fair loss mitigation support and outcomes through monitoring and developing strategies to close any gaps;
  • The provision of financial capabilities coaching to build credit and savings;
  • Support for locally-owned modular construction facilities in communities of color; and
  • Increases to the reach of Enterprise Special Purpose Credit Programs to support homeownership attainment and housing sustainability in underserved communities.

To view the full hearing, click here.

Bipartisan Legislation Introduced to Help Working Families Afford First Home

This week, Senators Catherine Cortez Masto (D-NV) and Bill Cassidy (R-LA) introduced the Affordable Housing Bond Enhancement Act. This bill, if voted into law, would expand the Housing Finance Agency’s ability to provide affordable homeownership and rental housing and use tax-exempt bond authority more efficiently by strengthening the Mortgage Revenue Bond (MRB) and Mortgage Credit Certificate (MCC) programs.

The bill includes several measures to improve housing bonds, including:

  • Increasing the MRB home improvement loan limit and indexing it for inflation;
  • Allowing MRBs to be used for refinancing loans;
  • Providing HFAs additional flexibility in how they utilize housing bond authority;
  • Simplifying how a borrower’s MCC benefit is calculated;
  • Reducing the time period for the MRB and MCC recapture tax from nine years to five;
  • Extending the amount of time HFAs can use converted MCC authority from two years to four;
  • Allowing HFAs to reconvert MCC authority back into MRBs two years after the conversion, rather than one;
  • Eliminating lenders’ MCC reporting requirements;
  • Reducing the required MCC public comment period; and
  • Requiring the Internal Revenue Service to report to Congress annually on states’ use of private activity bond authority.

In her press release, Sen. Cortez Masto declared, “The opportunity to own a home is an important piece of the American Dream.” She said the bill would help her constituents buy or renovate their homes. Senator Cassidy added that the bill “helps families achieve that dream of homeownership.” The Affordable Housing Bond Enhancement Act has been referred to the Senate Finance Committee for further consideration.

Rep. Water’s Requests Report for Congress Following Exit of Insurance Companies from California 

This week, Rep. Maxine Waters (D-CA), the Ranking Member of the House Financial Services Committee, sent a letter to the Department of the Treasury and the Federal Insurance Office (FIO), following the recent wave of insurance companies reducing or eliminating coverage options in the State of California. In the letter, Ranking Member Waters called on FIO to provide a report to Congress on the availability and affordability of insurance, along with recommendations to address this coverage crisis that is limiting insurance availability for millions of people.

To view the letter, click here.

 

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