Banking and Finance Law Daily Wrap Up, GOVERNMENT SPONSORED ENTERPRISES—NCRC voices support for FHFA’s social bond program proposal, (Apr 25, 2023)
Organizations Mentioned:Fannie Mae | Federal Housing Finance Agency | Freddie Mac | National Community Reinvestment Coalition
The organization said the proposed program “would be most useful if it is used to push the private market even further to underserved populations than the current legal mandates and GSE programs.”
The National Community Reinvestment Coalition (NCRC) has submitted written comments to the Federal Housing Finance Agency (FHFA) in response to the agency’s Request for Input (RFI) regarding single-family social bonds. The FHFA issued the RFI in February seeking public feedback on Fannie Mae and Freddie Mac’s single-family social bond policy and program design (see Banking and Finance Law Daily, Feb. 17, 2023).
In the comment letter, the NCRC said it “believe[s] that the social bond designation will fulfill a valuable purpose if it is reserved for loan purchases that are more deeply targeted than the affordable housing goals and the special affordable homeownership programs of the Government Sponsored Enterprises (GSEs).” However, the organization recommended more “stringent targeting requirements for social bonds because the private sector must be encouraged to reach populations that are currently underserved.” The NCRC noted that, according to the RFI, “investors are willing to pay a premium for single family Uniform Mortgage Backed Securities (UMBS) targeted to low- and moderate-income (LMI) households because these households do not ‘prepay’ or refinance their loans as often as affluent borrowers.” Accordingly, “[s]ince the private sector is willing to pay a premium, the premium should be more deeply targeted than currently under the UMBS that consist of loans qualifying for the affordable housing goals and are made under Fannie’s HomeReady or Freddie’s Home Possible programs.”
The NCRC believes that the ideal outcome would result in social bonds financing a large percentage of the GSE’s UMBS market since it would lessen the private subsidy and would not target it to the most underserved populations. “We believe it is most efficient and equitable to employ Social Bond financing for populations that are being underserved to a great extent by the private market,” the NCRC said. “In order to qualify for the affordable housing goals, a loan must be a home purchase loan for a low-income or very low-income borrower, a home purchase loan in a minority census tract to borrowers with no more than 100 percent of area median income, home purchase loans in low-income census tracts, and refinance loans for low-income borrowers.”
The NCRC also wants the social bond data to be made publicly available. While the organization prefers that the data be available on a loan level, data compiled on an aggregate basis by census tract and county would be minimally acceptable. However, if the data is compiled by tract or county, the data should also contain summarized borrower demographic information, such as the number of first-time homebuyers of loans in a geographical area, the comment letter said.
The NCRC further recommended that the social bond program contain an option for Special Purpose Credit Programs (SPCP), which lending institutions develop to target underserved populations or areas. The organization also said that the federal banking agencies should provide CRA points for the SPCP programs in their revisions to the CRA regulations.
Companies: Fannie Mae; Freddie Mac; National Community Reinvestment Coalition
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