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92 | TH E M R EP O RT SECONDARY MARKET THE LATEST 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 Serving the Underserved Stakeholders weigh in on the new Duty to Serve rule that Fannie and Freddie will soon have to abide by. T he question of how the Government-Sponsored Enterprises could serve underserved markets, such as very low-income, low-income, and moderate-income families, could recently have come that much closer to finding an answer, according to a report by the Urban Institute. Next year, the GSEs will have to begin abiding by the new Duty to Serve (DTS) rule, which mandates that Fannie Mae and Freddie Mac improve their role in supporting low-income households, specifically in three areas: manufac- tured housing, affordable housing preservation, and rural housing. But how do the enterprises go about living up to that mandate? Certain stakehold- ers have been brainstorming. The first way Fannie and Freddie can serve the underserved is by providing standardization guidelines to lending for manufactured homes, which make up 9 percent of new single-family starts. Currently, legal, regulatory, and financial concerns make it difficult for GSEs to lend in this area, but standard- ization could lead to lower costs. The second way—particularly im- portant to rural demographics—is to bring existing loan programs, such as the Low-Income Housing Tax Credit and other loan programs from the U.S. Department of Agriculture, to ar- eas outside of an urban environment. Further, the GSEs could partner with nonprofit organizations and put more investment into community de- velopment financial institutions, which historically have a better understand- ing of the markets that Fannie and Freddie are trying to reach out to. The enterprises could help these organiza- tions secure more capital to invest in their communities. The biggest thing the GSEs can do, however, once the DTS Rule kicks in is to collect data on the programs put in place so that researchers and policymakers can study its results and continue to brainstorm solutions in order to fill in the gaps. Without research and constant tinkering, the program could have trouble scaling or remaining sustainable. Other underserved communities that weren't immediately addressed in the plan include assistance for farm-workers, single-family rentals, and small-dollar loans. Dropping Delinquencies The number of seriously delinquent loans is on the decline at both Government-Sponsored Enterprises. S erious delinquency rates are down for both Fan- nie Mae and Freddie Mac, according to the two Enterprises' most recent summary reports. In June, Fan- nie's serious delinquency rate dropped three basis points— down to 1.01 percent—while Freddie's rate fell to 0.85 per- cent—its lowest point since 2008. Overall, Fannie Mae's book of business has increased 2.9 percent over the year. Its mort- gage portfolio balance ticked up nearly $10 million, clocking in at $316 billion by the end of June. The GSE completed 7,587 loan modifications for the month. Freddie's guarantee portfolio experienced solid growth as well, rising 6 percent for the year, while its total investments portfolio and mortgage-related investments portfolio dropped, declining 11 percent and 12 per- cent from June 2016, respectively. Of its total guarantee portfolio, 75 percent is comprised of mort- gage loans, marking an increased share of 6 percentage points from one year prior. Purchase volume is down, however, dropping 20 percent in the last 12 months due to declining refinance activity. Donald H. Layton, CEO of Freddie Mac, said he is proud of the work his team is doing—and the success Freddie has had in improving the nation's housing finance system. "Our continued, very solid financial results and strong busi- ness fundamentals reflect the company's transformation into a well-run commercial enterprise," Layton said. "This transforma- tion is enabling us to better deliver on the mission that is our purpose: to provide liquid- ity, stability, and affordability to the American primary mort- gage market. We're doing that by helping lenders of all sizes compete which, in turn, expands affordable housing opportuni- ties for borrowers and renters nationwide." Freddie's recent focus on transfer- ring credit risk has also helped the enterprise better serve American homebuyers, Layton said. "Through our award-winning credit-risk transfer programs, we're fulfilling our mission with much less risk to taxpayers than in the past," he said. The GSE has transferred risk on $105 billion in loans to date, accounting for about 33 percent of its total outstanding single- family guarantee portfolio—a seven-percentage-point jump from June 2016.