Federal Housing Finance Agency Duty to Serve Request for Information: 2022-2024 Underserved Market Plans

July 30th, 2021

Thank you for the opportunity to share comments in response to the Federal Housing Finance Agency (FHFA) Request for Information on the 2022-2024 Underserved Market Plans for Fannie Mae and Freddie Mac.

Hope Credit Union / Hope Enterprise Corporation / Hope Policy Institute (HOPE) is a Black- and Women-owned credit union, a nonprofit loan fund, and a policy and advocacy organization that was established to ensure that all people regardless of where they live, their gender, race or place of birth have the opportunity to support their families and realize the American Dream. Since inception, HOPE has generated or leveraged more than $3.1 billion in financing that has benefitted nearly 2 million people in Alabama, Arkansas, Louisiana, Mississippi, and Tennessee. Nearly one-third of HOPE’s branches (30%) are located in rural persistently poor counties and over the last 20 years, the organization has originated over 3,300 mortgages totaling $285 million.

HOPE is also a steering committee member of the Partners for Rural Transformation. Led by CDFIs serving three-quarters of the country’s persistent poverty counties the Partners draw on its collective voice and shared experiences, to work toward a reimagined future for rural America and the people who call it home.

HOPE’s comments focus on three areas of opportunity:

Down Payment Assistance;
Expansion of the types of mortgages eligible for and purchased by the Government Sponsored Enterprises (GSEs);
Capitalizing Community Development Financial Institutions.

Each recommendation is grounded in the lessons learned from making performing mortgages in the Deep South region over two decades – largely to people of color and most of which would never garner a second look from a Government Sponsored Enterprise (GSE) because of the perceived risk and eligibility criteria that remains far too narrow.

Down Payment Assistance

The effects of the racial wealth gap are perhaps most acute in the Deep South region where nearly 2 out of 5 residents are Black, in Mississippi, and 1 out of 3 in Louisiana. In Mississippi and Louisiana:

For every dollar of income earned by white households, Black Households earn between $0.50 and $0.55;[1]
Approximately, 7 out of 10 Black households do not have the liquid assets available to cover three months of expenses;[2]
Finally, in Mississippi, where HOPE is headquartered, the net worth of Black households is $15,900 – in contrast to over $100,000 for white households.[3]

Given the low levels of income and assets in Black households, due to a history of exclusionary and discriminatory policies, the presence or absence of down payment assistance is often the difference between becoming a first time homebuyer – or not.

Notably, the Fannie Mae Duty to Serve plan includes the deployment of a Down Payment Assistance initiative to expand homeownership. While it appears to be singular in nature, a robust down payment assistance initiative should be rolled out in every High Needs Region including Appalachia, the Lower Mississippi Delta, U.S. / Mexico border and in Native communities.

Down Payment Assistance expands homeownership in rural communities. Between 2019 and 2020, through a NeighborWorks funded down payment assistance program conducted in partnership with Wells Fargo and several other local banks, HOPE provided down payment assistance grants of up to $10,000 to 257 Mississippians, a quarter of which were in rural communities. Of the 63 loans directly originated by HOPE through the program:

90% were to Black households;
63% were Women headed households;
All but one borrower assisted was a first time homebuyer;
The median purchase price was $81,000.

Importantly, the down payment assistance program under consideration by Fannie Mae should be crafted to compliment a 100% LTV product. In our experience, borrowers with credit histories to qualify for a mortgage are frequently hampered by the lack of assets that would facilitate having the ability to make a down payment and cover closing costs.

As one example, one of HOPE’s members, who participated in the Down Payment Assistance Program described above, had a solid credit history and stable employment. However, due to a divorce, the borrower neither had the resources needed for a down payment nor the savings to cover the mortgage closing costs. Fortunately, HOPE has a portfolio product that allows a borrower to finance up to 100% of the loan to value of the mortgage. With this product, combined with flexible down payment assistance to cover closing costs, the borrower was able to move from an applicant to a homeowner.

The borrower’s story, combined with the sobering statistics on the racial wealth gap underscore the critical importance of the GSE’s standing up and committing to the ongoing funding and management of a down payment assistance program in Duty to Serve Regions.

Product Expansion
Over the last five years, HOPE has closed 970 mortgages for $116 million. Of those mortgages, 77% by number and 76% by dollar were mortgages originated through HOPE’s Affordable Housing Program (AHP). The AHP is one of the single most effective tools available to HOPE to build wealth in the Black community. Of the 749 AHP mortgages originated from 2016-2020:

78% were to Black borrowers;
57% were to women headed households;
89% were to first time homebuyers.

The program’s impact is deep because it addresses many of the structural impediments created by the mortgage market:

Borrowers may finance up to 100% of the value of the home (100% LTV);
Credit Scores as low as 580 are considered;
Non Traditional sources of are eligible for underwriting;
No mortgage insurance is required.

The success of this product is reinforced by low charge off rates. Over the last five years, the annual net charge off rate has never gotten higher than 67 basis points.

Despite the product’s impact and performance – there was one other consistent feature. Neither Fannie Mae nor Freddie Mac could purchase HOPE Affordable Housing Product Loans. While this matters for HOPE and could have played a role in expanding the organization’s ability to serve more households – it matters most because there is no single more powerful engine in the American economy to close the Black / white homeownership gap than the GSEs. So long as Fannie Mae and Freddie Mac are systemically overlooking the purchase of mortgages to Black households, relegating originations like the ones described above to the community development sector, then regardless of whether or not Duty to Serve benchmarks are met, FHFA and the GSEs are simply preserving gaps and supporting the status quo.

Beyond Duty to Serve – the GSE purchases of mortgages made to Black households hovers around 4 percent annually – below the total originations to Black households nationwide and well below levels needed to close the gaps.[4] [5] [6] Efforts must be taken across the GSE system to meaningfully improve the level of lending to Black households supported.

CDFI Capitalization
The region remains plagued by historic and systemic racism in our financial system. Two statistics illustrate this point:

In Mississippi, in 2019, Black borrowers earning over $150,000 experienced a denial rate (34%) that was higher than the denial rate for white borrowers earning between $31,000 and $50,0000 at 28%;[7]
Disparities exist even among CDFI Banks:
- Using 2019 HMDA data, HOPE found that among the 27 CDFI banks in Mississippi engaged in mortgage lending in the state, 71% of mortgage loans went to white borrowers while only 13% went to Black borrowers. This is lower than the statewide rate of mortgage originations in 2019 to Black borrowers at 17%.[8]

In light of these disparities, simply creating a channel to buy mortgages that address the challenges of the wealth gap does not go far enough. The Duty to Serve plans should also include provisions to provide capital and operating support to minority serving CDFIs – CDFIs led by people of color and/or with long track records of providing mortgages to households of color at significant and meaningful levels – well beyond existing lending rates among mortgage originators in the Deep South.

The ability to make this happen rests on the authority and willingness of FHFA to bring this recommendation to fruition. Over the last several years, staff from multiple CDFIs met numerous times with Duty to Serve leaders from both Fannie Mae and Freddie Mac. On every occasion, GSE Duty to Serve leaders delivered the same response “the FHFA Office of General Counsel has said that is not allowed.”

FHFA must empower a more proactive response by the GSEs to reach the people and the regions facing the highest hurdles to homeownership.

Again, thank you for the opportunity to comment on the 2022-2024 Underserved Market Plans. Should you have any questions, please do not hesitate to contact me at ed.sivak@hopecu.org.

Sincerely,

Ed Sivak
Executive Vice President Policy & Communications

1 Kent, Ana Hernandez. Examining U.S. Racial Inequality by State. Federal Reserve Bank of Saint Louis. August 17, 2020. https://www.stlouisfed.org/publications/bridges/volume-3-2020/examining-us-economic-racial-inequality-by-state. Accessed 7/16/2021

2 Prosperity Now Scorecard Mississippi: Outcome Financial Assets & Income; Liquid Asset Poverty Rate. https://scorecard.prosperitynow.org/data-by-location#state/ms. Accessed 7/16/2021.

3 Prosperity Now Scorecard Mississippi: Outcome Net Worth. https://scorecard.prosperitynow.org/data-by-location#state/ms. Accessed 7/16/2021.

4 Annual Housing Activities Report Annual Mortgage Report 2019. https://www.fanniemae.com/media/33501/display. Accessed 7/16/2021.

5 2019 Annual Housing Activities Report Freddie Mac. https://www.fhfa.gov/PolicyProgramsResearch/Programs/AffordableHousing/Documents/Fred_M_Goals/2019/2019_Freddie_Mac_AHAR.pdf. Accessed 7/16/2021.

6 Data Point: 2019 Mortgage Market Activity and Trends A First Look at the 2019 Data. Consumer Financial Protection Bureau. June 2020. https://files.consumerfinance.gov/f/documents/cfpb_2019-mortgage-market-activity-trends_report.pdf. Accessed 7/16/2021.

7 State of Mississippi 2019 Analysis of Impediments to Fair Housing Choice. https://mississippi.org/manage/wp-content/uploads/2.-State-of-Mississippi-Analysis-Of-Impediments-to-Fair-Housing-Choice-2019-Draft.pdf. Mississippi Home Corporation. April 19, 2029. Accessed 7/16/2021.

8 Testimony of William J. (Bill) Bynum Before the United States Senate Committee on Banking, Housing and Urban Affairs “An Economy that Works For Everyone: Investing in Rural Communities.” Hope Enterprise Corporation / Hope Credit Union / Hope Policy Institute. April 20,2021. http://hopepolicy.org/manage/wp-content/uploads/Senate-Banking-Committee-Bynum-Written-Testimony-042021.pdf. Accessed 7/16/2021.