The Federal Housing Finance Agency (FHFA), conservator of Freddie Mac and Fannie Mae (the Enterprises), has established its final housing goals for the Enterprises in 2010-2011.  FHFA is required by the Housing and Economic Recovery Act of 2008 (HERA) to set such goals for targeted segments of the mortgage market.  

As noted by MND last week: “The new rules establish three goals for single-family, owner-occupied home purchases; one for low-income families, another for very low-income families, and a third for families living in geographical areas with lower-income populations, areas with high concentrations of minority residents, or federal declared disaster areas.  The goal for disaster areas contains a sub-goal to ensure that the needs of lower-income and minority areas are addressed.  A goal has also been established for those low-income families who are refinancing single-family, owner-occupied mortgages.”

All of the recent reporting begs the question, as a matter of public policy, whether maintaining Fannie Mae and Freddie Mac as instruments of public policy with a role to promote housing among the housing goals’ target populations – still makes sense at this moment in time when they continue to recover from the impacts of the housing crisis and their future remains so uncertain.

The statutory nature of the housing goals and FHFA’s regulatory obligations notwithstanding, it seems that a strong argument can be made that perhaps given that both GSEs are in conservatorship – operating effectively as wards of the state – that the larger issues of the GSEs future structure and their role in promoting housing generally (among all borrowers) should be resolved before saddling them with the substantial burdens of housing initiative compliance. To do otherwise ignores the very real impacts that the GSE’s past goal compliance efforts played in both entities current financial circumstances. 

Make no mistake, the public policy objectives manifest in FHFA’s housing goals are valuable and important objectives – worthy of the support of the federal government and this great nation. That said, if there are any lessons to be taken from the current housing crisis certainly one is that the goal of homeownership merely for the sake of homeownership is misplaced and that sustainable homeownership is, by contrast, an objective most worthy of public support.  And by sustainable homeownership we mean ensuring that all borrowers (including low and very low income families covered by the housing goals) have the highest possible likelihood of a successful home ownership experience.  Only when every possible measure has been taken to ensure sustainable homeownership, are the objectives of GSE housing goals truly being met.

However, the experience of the housing crisis has also taught us that promoting sustainable homeownership requires that Fannie and Freddie have in place business and technology systems and processes that enable them to get back to basics and ensure - with the highest degree of certainty possible - that the loans being purchased by them in support of their housing goals also support the “3-Cs” of mortgage lending:

  1. Collateral with a value that is both accurate and stable;
  2. Credit characteristics on the part of the borrower(s) that justify a home loan, and;
  3. Capacity on the part of the borrower(s) to repay their mortgage debt – the latter being especially critical in a period such as this with high and, unfortunately, rising unemployment.

Given the burdens both organizations face as they continue to work their way through the demands of the current crisis, it is highly doubtful that the required systems and processes are yet in place and fully functional. (By the way, this is a challenge shared by Fannie and Freddie with most lenders whose lending practices during the past boom sadly departed from the basics  of the “3-Cs”). 

Thus, we fear that enforcing the housing goals now may be putting the cart before the horse.