Banking and Finance Law Daily Wrap Up, FINANCIAL STABILITY—AFR: FHFA’s climate risk, equitable housing policy changes ignore impact on homeowners, (Mar 28, 2025)

By A. Bryan Gerepka

Climate risk jeopardizes the nation’s affordable housing supply, particularly for those most susceptible to and least able to recover from natural disasters, the group said.

Abandoning policies to address climate-related risks will have far-reaching negative impacts on housing affordability and ultimately the stability of the housing finance sector, warned Kelsey Condon, policy counsel for climate finance at Americans for Financial Reform Education Fund. Condon was responding to climate-related risk management and equitable housing policy changes issued by Federal Housing Finance Agency (FHFA) Director William Pulte. Pulte revoked requirements for Fannie Mae and Freddie Mac (the Enterprises) to incorporate climate-related financial risks under Advisory Bulletin 2024-01 Climate-Related Risk Management (Climate Risk AB) and issued a Regulatory Waiver of Enterprise Equitable Housing Finance Planning in 12 C.F.R. § 1293, Subpart C (EHFP).

“The increasing frequency and severity of climate change-driven disasters compounded by the climate-driven insurance crisis pose significant financial risks to homeowners, the stability of nation’s housing and mortgage markets, and the safety and soundness of Fannie and Freddie,” Condon said. “Unaddressed, climate risk jeopardizes the nation’s affordable housing supply, particularly for those most susceptible to and least able to recover from natural disasters.”

According to Condon, Climate Risk AB, which was issued in May 2024 (see Banking and Finance Law Daily, May 28, 2024), provided high-level guidance for the Enterprises to incorporate climate-related risk into their existing risk management frameworks. While the rescission order acknowledged the existence of climate risk to the housing market, Condon noted that the order removes any guidance for how the Enterprises should address these challenges.

The EHFP regulations, which were issued in April 2024 (see Banking and Finance Law Daily, April 30, 2024), required the Enterprises to develop EHFPs to identify and address barriers to sustainable housing opportunities and incorporate the impacts of climate on housing affordability, Condon said. However, “Tuesday’s order removes EHFP mandates indefinitely, meaning the Enterprises are no longer required to conduct public engagement and adopt transparent frameworks to overcome obstacles to affordable housing for underserved communities,” according to Condon. The FHFA’s neglect of supervision in both of these areas will likely have a chilling effect on the way the Enterprises incorporate climate risk, resilience, and equity into their risk management, strategy, and operations, Condon added.

“We cannot ignore the risks climate change poses to our homes, our ability to obtain insurance, and ultimately the safety and soundness of our housing finance system,” said Caroline Nagy, the group’s associate director for housing. “Rescinding this guidance and waiving Equitable Housing Finance Plan requirements sends a signal to the Enterprises and the market that the FHFA will no longer support climate resilience, leaving homeowners to fend for themselves in an already historically challenging housing market.” Moreover, ignoring climate-related vulnerabilities at a time when new housing supply is limited and existing housing stock is increasingly unsafe due to climate change will only increase housing costs and instability in the market, hurting homeowners and renters across the country while threatening the U.S. economy, Nagy added.

Companies: Americans Financial Reform Education Fund; Fannie Mae; Freddie Mac

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