MReport July 2022

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TH E M R EP O RT | 61 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST GOVERNMENT Equitable Opportunities, the GSEs, and Gauging Success Don Layton, former CEO of Freddie Mac and current Senior Industry Fellow at the Joint Center for Housing Studies, lays out four benchmarks against which to grade the GSEs as their plans are implemented. D on Layton, the current Senior Industry Fellow at the Joint Center for Housing Studies at Harvard University—and former CEO of Freddie Mac—penned a new blog post on the public release of the inaugural Equitable Hous- ing Finance Plan, which outlines a range of specific actions Fannie Mae will take over the next three years to knock down barriers faced by Black homeowners and renters throughout their housing journey. As a refresher, the plan includes efforts to enhance homebuyer education, pilot programs to improve credit scores, and to explore security deposit alterna- tives as well as the creation of Special Purpose Credit Programs. This Plan is just one segment of an evolving strategy for Fannie Mae and Freddie Mac to address inequalities in the housing finance system and extend the wealth- building benefits of homeowner- ship. The plans, independently released by Fannie Mae and Freddie Mac (the GSEs), revealed that Freddie Mac would try to in- crease sustainable homeownership and rental opportunities tradition- ally underserved Black and Latino communities, Fannie Mae would "knock down barriers standing in the way of greater equity in housing." Knowing all this, Layton brings up four major issues that industry and other observers should watch in the coming years to see how the plans strategically evolve, including whether or not the programs survive at all: 1. The Political Durability of the EHF Plans The GSE's housing goals and their respective Duty to Serve so- cial programs have been codified by congressional legislation, mean- ing they are legal requirements placed upon two companies. The EHF plan stems wholly from the Federal Housing Finance Agency (FHFA) whose funding can be dropped by a republican-backed congress, should that party regain control in future elections. "The first time that a Republican-appointed FHFA director takes charge (which could be as soon as January 2025), the EHF program is very much at risk. The program could be cancelled, with some plausible justification, or it could be shrunk back to have very limited scope," Layton wrote. "Or perhaps, at that point, it could have enough bipartisan political support that a core program could continue to operate in a manner acceptable to both parties. We will, unfor- tunately, only find this out as the party in the White House (and thus the FHFA) changes, perhaps even through several political cycles, which makes this a very long-range issue to watch." 2. The Political Durability and Impact of SPCSs Until recently, "special purpose credit programs" (SPCPs) were a rarely employed mechanism created by the 1974 Equal Credit Opportunity Act. Today, it's a core concept of the new EHF plans. Freddie Mac has committed to "exploring the use of the SPCP framework in order to expand access to mortgage funding for traditionally underserved minority communities." On the other hand, Fannie Mae said it plans to launch no fewer than five SPCP pilot programs to assist the same communities. "Obviously, given the con- troversial nature of this type of program, it is a real possibility that the HUD general counsel ruling or specific SPCP programs will generate lawsuits challenging them on the grounds they do, in fact, violate anti-discrimination laws," Layton said. Layton continued, "Similar to the political durability of the plans described above, as soon as a Republican president enters office and appoints new leader- ship at HUD, the recent SPCP ruling could also easily be revised to reduce or effectively eliminate its impact. So, the focus on SPCPs may or may not get very far depending on the outcome of the next presidential election." 3. Will Focusing on Selected Races Generate Pushback? The Fannie Mae EHF plan has been specifically worded to ad- dress the plight felt by solely black homeowners; while the Freddie Mac plan is broader, its plan leaves out all but two demograph- ics: Black and Latino. According to recent data, the homeownership rate among Black households is 45.3%. The rate among Hispanics is 49.1%, Asian is 59.4%, and Native Americans are about 56%. Concurrently, the rate among white households is at 74%, leading one to believe that a tar- geted plan enveloping all house- holds of color is fully justifiable. "Therefore, advocates for the excluded racial groups now face a dilemma: to let the two EHF plans stand unchallenged or fight to expand them to include all non-white households as equal priorities." Layton said. "The most important such case will be whether Hispanic advocacy groups challenge the Fannie Mae program, as they represent the largest ethnic group in America, accounting for about 19% of the population. Objections by such advocacy groups or by politi- cians on their behalf can be made noisily (e.g. holding press confer- ences, threatening lawsuits) or quietly (e.g. visiting the FHFA to complain that excluding or treat- ing them on a second-class basis is unfair and, in its own way, discriminatory)." The timeframe for this issue to play out is nearly immediate and bears being closely watched.

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