Magazine article Mortgage Banking

Constructing New Affordable Goals: In the Spring, the Department of Housing and Urban Development Proposed an Ambitious Set of New Affordable-Housing Goals for Fannie and Freddie. the Steep Hike in the Goals Has Sparked Protests-Particularly from the GSEs

Magazine article Mortgage Banking

Constructing New Affordable Goals: In the Spring, the Department of Housing and Urban Development Proposed an Ambitious Set of New Affordable-Housing Goals for Fannie and Freddie. the Steep Hike in the Goals Has Sparked Protests-Particularly from the GSEs

Article excerpt

FANNIE MAE AND FREDDIE MAC WILL HAVE TO SIGNIFICANTLY BOOST the affordable-housing portion of their business, meet three new home purchase subgoals targeting minority and first-time buyers, and nearly double the billions of dollars in affordable multifamily financing if the Department of Housing and Urban Development (HUD) has its way. * HUD issued a proposed rule on May 3, 2004, to reset the government-sponsored enterprises' (GSEs') affordable-housing goals (AHG) for 2005 through 2008. The rule increases the low- and moderate-income (LMI) goal from the current 50 percent to 57 percent by 2008, the underserved areas goal from 31 percent to 40 percent and the special affordable-housing goal from 20 percent to 28 percent. Fannie Mae's special affordable multifamily subgoal would increase to $5.49 billion a year, up from $2.84 billion, while Freddie Mac's would go to $3.92 billion, up from $1.81 billion (see sidebar, "HUD's Proposed Affordable-Housing Goals: The Details"). * And, for the first time, HUD is seeking to impose a subgoal in each of the three categories for home-purchase mortgages for single-family, owner-occupied homes located in metropolitan areas, the focus of which, HUD says, is to "help address the racial and income disparities in homeownership that exist today ... and [which] will also increase the GSEs' support of first-time homebuyers, a market segment where they have lagged primary lenders." * HUD last issued a rule on Oct. 31, 2000, setting the affordable-housing goals for 2001-2003. Those goals have remained in effect for 2004, excluding bonus incentives for two- to four-family, owner-occupied and affordable multifamily properties that expired Dec. 31, 2003. HUD has been widely criticized for taking more than a year to issue this proposed rule, which has met strong opposition.

The proposed rule will have to be finalized and published in the Federal Register by Nov. 1, 2004--just three days before the presidential election--in order to become effective Jan. 1, 2005. John C. Weicher, HUD Assistant Secretary for Housing-Federal Housing Commissioner, says that, while the few months between the July 16, 2004, deadline for comments and the Nov. 1 date are expected to be "fairly intense, I certainly expect we will be meeting" that deadline.

Bush administration determined

HUD's proposal reflects the Bush administration's goal to leverage the GSEs to boost first-time and minority homebuyers, an intention it outlined in its 2004 budget analysis (see my article, "Goal-Oriented," in the September 2003 issue of Mortgage Banking). HUD, in the proposed rule, stated the new subgoals will support President Bush's initiative to create 5.5 million new minority homeowners by the year 2010.

In establishing the home-purchase subgoals, HUD determined there are ample opportunities for the GSEs to improve their performance in the home-purchase market: "The affordable-lending market has shown an underlying strength over the past few years that is likely to continue. For example, since 1999, 44.2 percent of the home-purchase market met HUD's definition for low- and moderate-income. Data show that over half of the newly originated loans that qualify for the housing goals are not purchased by the GSEs."

The Bush administration has supported recent efforts to impose greater oversight on the GSEs and, observers say, this regulation is one way to proceed in that direction since that legislation stalled on Capitol Hill last year.

The administration's determination to drive the GSEs to do more in terms of affordable housing was underscored in the regulatory review process when the White House Office of Management and Budget (OMB) increased the AHGs well beyond levels submitted by HUD. For example, the low-and-moderate-income goal in the original document was set at 52 percent for 2005 through 2008, and the subgoals also were set at the lower end. Also, no step increases were proposed. …

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