In 2020, Fannie Mae and Freddie Mac purchased a respective $1.4 trillion and $1.1 trillion in loans, providing important liquidity to the U.S. housing market. Of the loans purchased, the vast majority went to white borrowers (65.6% for Fannie and 64.6% for Freddie), according to the National Housing Resource Center.
By comparison, only a fraction of the loans purchased by the government-sponsored enterprises (GSEs) went to Black and Hispanic borrowers. Only 3% of Fannie’s loans went to Black borrowers and 8% went to Hispanic borrowers. Freddie Mac had similar numbers, with Blacks and Hispanics accounting for 3.3% and 6.8% of all borrowers.
“Embarrassingly low,” says David Dworkin, president and CEO of the National Housing Conference. “I think that’s a real indication of how far the GSEs have come and how much more they have to achieve.”
If you don’t confront the issue, you’re not going to make progress.
— James Wylie, associate director of fair lending, Federal Housing Finance Agency
This past June — at the urging of their regulator, the Federal Housing Finance Agency (FHFA) — the GSEs jointly announced equitable housing plans to address the racial and ethnic disparities in homeownership. Nationally, the Black and Hispanic homeownership rates hover around 45% and 49%, respectively, while the rate for white households is about 74%.
“The racial homeownership gap is pretty stark,” says James Wylie, FHFA’s associate director of fair lending. “Even today the racial homeownership gap for Black Americans is still basically where it was before the Fair Housing Act was passed in 1968. … If you don’t confront the issue, you’re not going to make progress.”
The GSEs’ plans contain a host of initiatives that look at “all stages of the housing life cycle” from mortgage origination through servicing, Wylie says. The plans have aspects that look to lower closing costs, offer downpayment assistance and consider new ways to measure creditworthiness.
A central idea is the use of special purpose credit programs (SPCPs) to expand mortgage funding access in formerly redlined and underserved areas. This credit assistance has been used for such things as small-business lending in the past but hadn’t been used in residential mortgage lending. Buy-in from the mortgage industry will be key, Wylie says, noting that these programs won’t be successful if mortgage lenders can’t find a way to make loans through them.
Count Edward Pinto as a skeptic. The director of the American Enteprise Institute (AEI) Housing Center calls the initiatives “the same failed set of policies the U.S. government has had in place for some 70-plus years.”
“We have a housing-finance system that’s basically run by the government,” Pinto says. “And it doesn’t have much to show for it, except we now have the fastest home-price inflation ever … and we have a Black homeownership rate that hasn’t budged.”
Pinto says the federal government has repeatedly created plans and each involve the same premise: to make housing more affordable by making it easier to borrow. But he thinks the new initiatives will have the same ineffective results.
So, what’s AEI’s solution? A 20-year mortgage rather than the standard 30-year mortgage, which Pinto argues is a driver of home-price increases. And the GSEs and the government could offer subsidies for first-time or first-generation homebuyers. (He claims that subsidies exclusively for minority borrowers would probably be unconstitutional.)
Gary Acosta, CEO of the National Association of Hispanic Real Estate Professionals, welcomed the GSEs’ new plans, saying that the agencies have enormous influence in the marketplace. He particularly liked the idea of attacking supply by providing funding to diverse homebuilders.
“Fannie and Freddie have a number of levers that they can pull to help advance homeownership,” Acosta says. “That’s a critical component to wealth building in America. I like to call it ‘the gateway to the middle class.’”
He cautioned against a one-size-fits-all approach to every minority group, or what he termed a failing of previous efforts. And he said that these plans need more details. “It is going to come down to resources and capital,” Acosta says. “This is all just a bunch of good ideas until there’s real capital attached to these (plans).”
The day after the equitable housing plans were announced, Fannie and Freddie reached out to the Black Homeownership Collaborative. This group includes housing, mortgage and civil rights leaders who aim to increase the net number of homes owned by African Americans by 3 million in 2030.
Fostering affordable-housing efforts was a particular strength for Fannie and Freddie in the past, says Dworkin, who is part of the Black Homeownership Collaborative. But the GSEs have lost an enormous amount of experience over the years and they’ll need rebuild that, he adds.
There are headwinds for all borrowers at the moment due to rising interest rates, higher home prices and a lack of inventory. Still, Dworkin points to Freddie Mac research which shows that 1.7 million Black millennials in the 31 largest U.S. cities would qualify for a mortgage.“ I think, for them, the issue is convincing them to become homeowners — not the cost,” Dworkin says. ●
