- In a historic move, Fannie Mae and Freddie Mac announced changes to address systemic racism that has kept people of color from homeowning.
- Fannie Mae and Freddie Mac introduce a credit reporting system that incorporates paying rent into a credit score.
- Other measures include down payment assistance, improved underwriting guidelines, contingency funding and reductions in mortgage insurance premiums.
Fannie Mae and Freddie Mac are enacting major reforms aimed at helping underprivileged communities become homeowners and ensuring that homebuyers of color stay home.
The initiative announced Wednesday by the two state-backed home mortgage lenders is the most sweeping overhaul since the housing crash of 2008. Some of the key items, reviewed exclusively by USA TODAY, include down payment assistance, back-up financing for homeowners’ emergencies, and lower mortgage insurance premiums.
Fannie Mae and Freddie Mac are A new credit reporting system will also be introduced that will include rental payments in credit scores. Experts say one of the biggest systemic barriers is keeping people of color from buying a home.
“It’s really powerful, almost like the government owns the problem,” said Naa Awaa Tagoe, deputy director of the department of housing mission and goals at the Federal Housing Finance Agency, the independent regulator that oversees the secondary mortgage market. including Fannie Mae and Freddie Mac. “Here’s Fannie Mae and Freddie Mac saying, ‘Yes, there is an equity ratio issue in home finance, and these are the steps we need to take to address it.'”
The three-year strategy was also established plans to increase fairness in the underwriting process, eliminate multifamily valuation discrepancies, and fund permanent assisted living programs primarily focused on providing housing for people affected by homelessness.
As part of the effort, Freddie Mac is expected to issue $3 billion worth of affordable housing bonds this year.
By 2024, Freddie Mac plans to fund the construction of 30,000 new multi-family homes that allow tenant credit, accept housing vouchers, and are designed for people with disabilities inclusive. she 300,000 units want to make the credit building program available.
The lender also wants to fund lending offerings in underinvested communities and neighborhoods that are at risk of losing affordability.
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By 2024, Fannie Mae has set a goal for 140,000 consumers to complete the first-time home buyer process with any provider and 90,000 to complete the Fannie Mae course.
Some of the measures have already been piloted. From September 2021 through May, approximately 2,000 applicants have benefited from Fannie Mae’s credit reporting system, which considers positive rent payment histories to build credit scores. About 50% of the applicants were ethnic minorities.
Discrimination throws people out of the buying process
Together with the federal housing administration and Department of Veterans Affairs, Fannie Mae and Freddie Mac directly or indirectly guarantee 70% of single-family home mortgage origination.
Neither Fannie Mae nor Freddie Mac service loans. Instead, both organizations buy mortgages from lenders to hold, sell, or repackage as securities. That helps encourage more lending and increases the stable supply of mortgage dollars.
Before the housing market crash of 2008, Fannie Mae and Freddie Mac pumped more money into the home finance system and bought an outsized number of mortgage loans, which helped drive house prices higher. After the Great Recession of the late 2000s, both were placed in conservatories.
In the United States, home ownership has long been viewed as that most important vehicle for wealth creation.
The median net worth of white homeowning families was $300,000, of which $130,000 was attributed to home construction, according to the most recently available 2019 Survey of Consumer Finance. That number drops to $113,000 for black families, who are homeowners of whom $67,000 has come from home equity. And for Latino families, approximately $95,000 of their median net worth of $165,000 is tied to home ownership.
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Historically, home ownership has been unattainable for people of color due to decades of divestment and racist practices such as redlining, which have allowed banks to restrict lending, mortgages, and insurance in geographic areas based on race and ethnicity.
As a result, the gap in homeownership rates between black and white families is wider today than it was when segregation was legal, according to a study by the Urban Institute. About 71% of white Americans own their own home, compared to 41% of black Americans.
“The depth of racism associated with past housing regulation is deep and persistent, and remains embedded in the fabric of America’s housing market to this day,” said David Clunie, executive director of the Black Economic Alliance, a coalition of bipartisan business leaders and advocates who advocate for economic progress in the black community. “Our entire economy will benefit from increasing access to affordable home ownership.”
The initiatives for Tagoe are all the more groundbreaking.
“It’s a big number when you think about the gap. But how do you get that gap?” Said Tagoe. “So there are several points on the way. These are complex problems. And that’s why we need these plans; we need really thoughtful, comprehensive approaches to solving the problem because it’s a difficult problem.”
Real estate prices are rising nationwide
The announcement of Fannie Mae and Freddie Mac comes as median house prices and rents soar across the country.
In the first quarter of this year, the average home price hit a record $428,000, according to the Federal Reserve Economic Data Database, known as FRED.
Annual rent increases are up 90% nationwide, according to Rent.com’s latest analysis. In some markets like Austin and Oklahoma City, rents are up more than 112% two years after a pandemic recession put nearly 40 million people under evictions.
A majority of Americans also believe it’s a bad time to buy a home for the first time since 1978.
Just 30% of American adults said it was a good time to buy a home, according to a new Gallup poll, amid annual inflation that accelerated to 8.5% in March and the Interest rates on 30-year fixed-rate mortgages climbed above 5% from 3% in 2020.
In summary, everyday Americans are looking for relief in an overpriced housing market that has exacerbated inequalities.
“Let me leave it on the record because it’s about time,” said James Carras, associate professor public order at the Kennedy School of Government at Harvard University in Cambridge, Massachusetts. “They should have done that all along. And it’s a good first step.”
Follow national correspondent @RominaAdi on Twitter