HUD Releases Proposed Rule to Provide $2.4 Trillion in Mortgages For Affordable Housing for 28.1 Million Families
March 3, 2000
WASHINGTON, -- The U.S. Department of Housing and Urban Development today issued a proposed HUD rule that would require the nation's two largest housing finance companies to buy $2.4 trillion in mortgages over the next 10 years to provide affordable housing for about 28.1 million low- and moderate-income families.
The historic action by HUD raises the required percentage of mortgage loans for low- and moderate-income families that finance companies Fannie Mae and Freddie Mac must buy from the current 42 percent of their total purchases to a new high of 50 percent -- a 19 percent increase -- in the year 2001. The percentage will first increase to 48 percent in 2000.
"This rule will greatly expand the supply of affordable housing across the country, giving millions of families the opportunity to buy homes or to move into apartments with rents that they can afford," Secretary Cuomo said.
The public comment period for the proposed rule is 60 days. Following that, HUD will review comments received, make any revisions deemed appropriate based on those comments and publish a final rule by the fall of this year. The proposed rule has been posted at www.hud.gov/gse/
The mortgage purchase requirement for Fannie Mae and Freddie Mac -- known as the Affordable Housing Goals - was last set by HUD in 1995, under a requirement mandated by Congress. The goals came up for renewal this year, and HUD had the choice of leaving them unchanged, lowering them, or raising them. In addition to helping low- and moderate-income families, the new initiative will also increase the affordable housing goals for loans made to underserved areas and will raise the goal for mortgages to benefit families with very low incomes.
Under the higher goals, Fannie Mae and Freddie Mac will buy an additional $488.3 billion in mortgages that will be used to provide affordable housing for 7 million more low- and moderate-income families, many of them minorities, over the next 10 years. Those new mortgages and families are over and above the $1.9 trillion in mortgages for 21.1 million families that would have been generated if the current goals had been retained.
Fannie Mae and Freddie Mac buy mortgages for both individual homes and for apartment buildings.
Congress gave HUD the responsibility of regulating Fannie Mae and Freddie Mac because the two companies are Government Sponsored Enterprises (GSEs) that were chartered by Congress. The policy announced today will be implemented by HUD regulations. Such regulations go into effect after review by Congress and the Office of Management and Budget, along with a period of full public comment.
The GSEs buy mortgages issued by banks, thrift institutions and other mortgage lenders, and then package the loans and sell them to investors as mortgage-backed securities. When Fannie Mae and Freddie Mac buy the mortgages from lenders, they provide the lenders with the cash needed to issue new mortgages.
Congress has given GSEs special advantages -- such an exemption from all state and local taxes except property taxes, and an exemption from Securities and Exchange Commission registration requirements. In addition, the ties of the GSEs to government has helped them get the highest credit rating to reduce their borrowing costs, and has boosted investor confidence in the two companies, thereby helping to increase their earnings. The Treasury Department reports that the benefits of federal sponsorship are worth almost $6 billion annually to the GSEs.
The GSEs are publicly chartered to provide broad public benefits. Congress, through Fannie Mae's and Freddie Mac's Charter Acts and the 1992 GSE Act, required that the two GSEs, in return for their publicly provided benefits, extend the benefits of the secondary mortgage market to a broad range of Americans. These include low- and moderate-income families, first- time homebuyers, and residents of communities underserved by mortgage credit.
If Fannie Mae and Freddie Mac fail to make a good faith effort to achieve the Affordable Housing Goals set by HUD, the Secretary of HUD has the authority to impose civil money penalties of up to $10,000 for each day the failure occurs.
Families are considered as having low and moderate incomes if they make no more than the area median income, which varies by community. The national average for the median income is $47,800.
In addition to raising the low- and moderate-income goal from 42 percent to 50 percent, HUD acted to raise two other Congressionally mandated goals. A special affordable housing goal for families with very low incomes and low incomes (those with less than 60 percent and 80 percent of area median) jumps from the current 14 percent to 20 percent (a 43 percent increase). In addition, a geographically targeted goal for underserved areas (central cities, rural areas, and underserved communities based on income and minority concentration) goes from 24 percent to 31 percent (a 29 percent increase).
The proposed rule is among a series of actions HUD has taken to increase homeownership in under-served areas, particularly among minority Americans. Though America's homeownership rate is at a record high level, there is a disparity between the rate for whites and others. The homeownership rate for whites is 73 percent while it is 45 percent for Hispanics, 46 percent for blacks and 51 percent for Asian-Americans.
Source: U.S. Department of Housing and Urban Development
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