Fannie Mae's and Freddie Mac's regulator won't push the mortgage companies to direct additional lending resources to low-income borrowers, a blow to affordable housing advocates.
On Wednesday, the Federal Housing Finance Agency announced new target goals for the percentage of the mortgage companies' business that must go to less well-off borrowers. Under the new goals, which are effective from this year to 2017, 24% of Fannie's and Freddie's mortgages to buy homes will be expected to go to families with incomes no higher than 80% of their areas' median income, up one percentage point from 2014.
Fannie and Freddie will also have the goal of directing 6% of their home purchase loans to families with incomes that are no more than half of their areas' median, down one percentage point from 2014.
Overall, the goals were little changed from 2014 and from what was proposed a year ago, apart from adjustments reflecting changes in the overall mortgage market. After an unexpected boomlet in mortgage refinances, for example, the FHFA dropped sharply the percentage of refinance loans that Fannie and Freddie must direct to low-income borrowers from last year's proposal, although the goal did increase one percentage point from 2014 to 21%.
The goals are closely watched by affordable housing advocates, who see them as a means of guaranteeing that Fannie and Freddie further mortgage access for low-income borrowers. Some critics, on the other hand, hold the goals partly responsible for leading to the risky lending practices that precipitated the financial crisis.
Some housing advocates said they were disappointed with the final rule. "I would have to say that Mel Watt has raised the bar for entry into homeownership for working poor people. It's not a good thing," said John Taylor, president of the National Community Reinvestment Coalition.
Julia Gordon, senior director for housing and consumer finance at the Center for American Progress, said, "On first impression, it strikes me that they've probably lost an opportunity to push Fannie and Freddie to do more work in underserved areas."
In a statement on Wednesday, FHFA Director Mel Watt said, "These goals establish a solid foundation for affordable and sustainable homeownership and rental opportunities in this country."
Fannie and Freddie don't make loans. They buy them from lenders, wrap them into securities and provide guarantees to make investors whole if the loans default.
Federal law requires a certain percentage of Fannie's and Freddie's mortgage purchases to be for loans to certain kinds of borrowers, such as to families who have an income no greater than 80% of their area's median income. Policy makers meant the law to ensure that Fannie and Freddie promoted mortgage access for worse-off borrowers as part of their mission.
Since the financial crisis, some researchers have said the goals encouraged the sort of risky lending to marginal borrowers that led to the housing bust. However, other researchers have said that the goals had little impact on overall mortgage availability.
Mark Calabria, director of financial-regulation studies at the libertarian Cato Institute, said he thought having housing goals wasn't appropriate because Fannie and Freddie are under government control. But Mr. Calabria added, "It could have been worse. What they've come out with is in the ballpark of reasonable."
After Mr. Watt, a former Democratic congressman, in January 2014 took the helm of the FHFA from acting director Ed DeMarco, many affordable housing advocates were optimistic that he would sharply increase Fannie's and Freddie's affordable housing benchmarks and take other initiatives to increase mortgage access for less-creditworthy borrowers.
However, since taking the reins, Mr. Watt has taken a more measured approach, upsetting some advocates.
The FHFA also released goals for the number of Fannie- and Freddie-backed multifamily units. Fannie and Freddie for the next few years will each be expected to back about 300,000 units affordable to low-income renters, up from 250,000 for Fannie and 200,000 for Freddie in 2014. Ms. Gordon said the new goal should help create more affordable inventory at a time when apartment construction has been more geared to well-heeled renters.
Write to Joe Light at email@example.com