The Affordable Housing Goals for Fannie Mae and Freddie Mac: What Are They and How is CFA Advocating for Consumers’ Mortgages and Housing

The Affordable Housing Goalsare a way by which the Federal Housing Finance Agency (FHFA) and the broader public can hold Fannie Mae and Freddie Mac accountable to their public purpose. New Housing Goals are set every three years, and they serve as broad parameters of how well Fannie Mae and Freddie Mac are serving the nation's underserved markets: including lower-income and minority homebuyers and neighborhoods.

Both of the Enterprises are government-sponsored enterprises (GSEs). This means that they receive unique tax exemptions and government benefits (including an implied government guarantee for investors) in exchange for helping make housing finance more broadly available, including for low- and moderate-income households. Since the 2008 financial crisis they have been under conservatorship, which has made the U.S. government guarantee of their issued debt explicit.

In 2023 Fannie Mae and Freddie Mac bought and packaged59 percent of the nation's conforming mortgages. Given that they dominate the secondary market, the Enterprises help set the underwriting standards, credit availability, and risk appetite of the U.S. mortgage market at large. As a result, the Enterprises not only "lead the industry" in making mortgage credit available, but their practices in turn shape what kinds of mortgages are available to consumers today at large.

The 2025-2027 Affordable Housing Goals are articulated at a time of deep housing distress for millions of U.S. families: research has estimated a national housing shortage of anywhere between 1.5 and 5.5 million units. Supply shortages are especially felt in our nation's most affordable housing markets. For first-time homebuyers in particular, the lack of inventory and high home prices have been aggravated by higher interest rates. While long-standing racial homeownership gaps slightly narrowed during the pandemic, today many Black and Hispanic would-be-homebuyers struggle to afford even a moderately-priced home in their area.

CFA's Main Recommendations on 2025-2027 Affordable Housing Goals

CFA offered a range of recommendations to strengthen the 2025-2027 Affordable Housing Goals. Our most important ones are:

• FHFA Should Continue to Pursue Policies and Pilots on Credit Scores and Risk-Based Pricing That Can Help Fannie Mae and Freddie Mac Reach Their Goals

While FHFA is setting these goals for Fannie Mae and Freddie Mac, weencourage FHFA to continue to lead in policy and program innovation too, to help these GSEs truly reach their potential and mission. For example, new credit score policiesadopted by FHFA can help expand mortgage credit availability. Similarly, Freddie Mac and Fannie Mae piloted new programs to include rent reporting in credit histories, which may help their ability to reach underserved consumers with weak credit histories.

In addition, FHFA should do more to account for the reduced risk to Fannie Mae and Freddie Mac offered through mandatory private mortgage insurance (PMI) and credit protection through Credit Risk Transfers in the capital market. In FHFA's risk-based pricing models (also known as loan-level pricing adjustment or LLPA models), we need to ensure that consumers are not penalized and charged twicewhen they provide a low down payment and pay for private mortgage insurance as well as a risk-based mortgage origination fee.

• CFA Urges FHFA to Set Ambitious Housing Goals that Drive Fannie Mae and Freddie Mac to Lead the Market

FHFA downwardly adjusted the single-family low-income home purchase goal from a goal of 28 percent in 2022-2024 to 25 percent over the next three years. CFA thinks this goal is not ambitious enough: for example, given the Fed's recent 50-basis point interest-rate cut, which has not yet been incorporated in FHFA's current forecasts, we recommend setting the goal at 26 or 27 percent. Similarly, if the goal of the Enterprises is to lead the market, the single-family minority census tracts home purchase subgoal should be set at 13 percent rather than 12 percent, given thegrowing diversity of the nation's population.

• FHFA Should Pursue Additional Tract Criteria to Keep the Single-Family Low-Income Census Tracts Home Purchase Subgoal Useful

FHFA is currently not pursuing the "single-family low-income census tract home purchase" goal, by setting the benchmark goal at only 4 percent (well below the current share at which Fannie and Freddie are serving this market). FHFA justified this decision by explaining they were worried about unintentionally encouraging gentrification and displacement.

However, CFA suggests a few ways that FHFA could still pursue this goal, while addressing gentrification concerns. For example, we suggest specifying additional census tract criteria, to ensure that mortgage credit is indeed made available in underserved, disinvested marketslike rural areas, smaller post-industrial legacy cities, and poor urban neighborhoods. Another option to better tailor this subgoal would be to limit borrower income levelsin some low-income tracts.

You can read CFA's full letter and all recommendations in our comment letter to FHFA.

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