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2023 FHFA Mission Report Finds that the GSEs and FHLBanks Accomplished their Goals for Supporting Rental Housing and Homeownership in 2023

Published by Peter Lawrence on Wednesday, May 1, 2024 - 12:17PM

Each year, the Federal Housing Finance Agency (FHFA) releases a Mission Report detailing how well the housing government sponsored enterprises (GSEs) Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBanks) have been meeting their goals of expanding "access to financing for affordable, sustainable, and equitable housing and targeted economic development." 

The 2023 Housing Mission Report released April 17 looks at mission-related activities for 2023 and shows that the FHFA was able to fulfill its goal of ensuring that its entities operate in a safe manner and serving as a reliable source of liquidity for equitable and sustainable housing finance and community investment throughout the economic cycle. 

A previous Notes from Novogradac blog that looked at the inaugural report released in 2022 detailed how the GSEs were still able to follow through on their mission despite challenges from the COVID-19 pandemic. The 2022 Mission Report showed a multitude of missions completed in the face of uncertain market conditions. 

How does the FHFA Measure Success?

The GSEs and FHLBanks each manage different programs, with their own criteria for measuring success, relating to affordable housing. FHFA is required to assess the GSEs and FHLBanks.

Blog Graphic: Mission Programs and Initiatives Assessed by FHFA through 2023

The 2023 Conservatorship Scorecard set a $75 billion cap on each GSE's multifamily loan purchase volume. The scorecard mandated that 50% of multifamily loan purchases should be mission-driven. In 2023, both GSEs adhered to the multifamily volume cap and exceeded the mission-driven requirements. Mission-driven loans typically include those secured by properties that are affordable to tenants with incomes at or below 80% of the area median income (AMI) (and up to 120% of AMI in certain areas), as well as properties in rural areas, subsidized housing properties, manufactured housing communities and properties with energy/water efficiency improvements. 

In addition, a November 2023 FHFA announcement dictated that in 2024, 50% of all GSE multifamily loan purchases must be mission-driven affordable housing. Loans that support workforce housing properties will be exempt from multifamily volume caps to promote the GSE's commitment to preserving affordable rental housing.

Blog Graphic: 2023 GSE Multifamily Mission-Driven Activities

FHLBanks' Criteria

The FHFA mission report notes that initiatives taken this year also reflect the FHFA's November 2023 Federal Home Loan Banks System at 100: Focusing on the Future Report, which acknowledged FHLBanks' 100-year anniversary by proposing changes to housing and community development activities. The goals for advancing housing and community development activities mentioned in the report are as follows:

  • Increase statutorily required minimum funding for Affordable Housing Programs (AHP),
  • Increase financing for Community Investment Programs (CIP) and Community Investment Cash Advance (CICA) Programs, 
  • Streamline AHP regulatory requirements, 
  • Establish mission-oriented collateral Programs,
  • Grant authority for CDFI and credit union members to pledge Community Financial Institution (CFI) collateral,
  • Increased mission-focused advances,
  • Enhance support for prudently structured voluntary and pilot programs,
  • Enhance support for multifamily housing,
  • Enhance member community support requirements (CSRs), and 
  • Enhance AMA Programs and expand affordable housing goals.

What Did the GSEs Achieve in 2023? 

The GSEs invested more than $1.7 billion in low-income housing tax credit (LIHTC) equity in 2023, supporting housing in Duty to Serve-designated rural areas, preserving affordable housing and promoting mixed-income and supportive housing. GSEs also exceeded the mission-driven requirements in the 2023 scorecard and implemented multiple other initiatives to support rental housing.

LIHTC Investments 

In 2023, the GSEs were granted authorization to invest up to $850 million each in the LIHTC market as equity investors. At least 50% of LIHTC equity investments were required to be directed toward areas identified by the FHFA as having difficulty attracting investors. These mission-driven investments served various purposes, including supporting housing in Duty to Serve-designated rural areas, preserving affordable housing, promoting mixed-income housing, providing supportive housing and fulfilling other affordable housing objectives. 

During 2023, the GSEs collectively invested more than $1.7 billion in LIHTC equity. Notably, more than 90% (equivalent to $1.6 billion) of their LIHTC investments were strategically allocated to targeted transactions. These targeted investments either supported housing in Duty to Serve-designated rural areas or aligned with other FHFA-defined affordable housing objectives. In December 2023, the FHFA released its plans to raise the annual LIHTC investment cap for each GSE. Starting in 2024, Fannie Mae and Freddie Mac will now be permitted to invest up to $1 billion annually in the LIHTC market as equity investors. This increase in investment capacity is particularly significant for areas that struggle to attract investors. By allowing the GSEs to allocate more funds, FHFA aims to expand the availability of affordable housing nationwide.

Blog Graphic: 2023 GSE LIHTC Investments

Other Initiatives

The GSEs have also made several other efforts to support rental housing initiatives. For example, they have helped renters establish or improve their credit scores by partnering with vendors who are responsible for collecting positive rent payment data and formatting the data for dissemination to credit bureaus. They also support workforce housing–defined by Fannie Mae as affordable to households earning 80% to 120% of AMI–through Fannie Mae's Sponsor Dedicated Workforce (SDW) program and Sponsor Initiated Affordability (SIA) program and through Freddie Mac's Workforce Housing Preservation. Furthermore, Fannie Mae developed an initiative to expand rental housing options for Housing Choice Voucher (HCV) holders. Additionally, FHFA improved its oversight of property conditions of GSE-backed multifamily properties and increased their resident-centered practices in multifamily housing properties in 2023. 

What Did the FHLBanks Achieve in 2023?  

The FHLBanks have made numerous investments in the AHP and CIP programs, among others. The AHP program is used to finance the purchase, construction, or rehabilitation of owner-occupied and rental housing and is a common source of gap financing for LIHTC properties. CIP offers low-cost advances for different income levels to finance housing and community development.

AHP  

FHLBanks continued to invest in the AHP, where LIHTC properties represented more than 43% of their total General Fund developments and 55% of their total General Fund rental developments. The AHP was awarded $446.9 million and supported 33,000 homes in 2023, which was almost $180 million more in funding than 2022. The funds for the AHP are derived from 10% of a FHLBank's prior year net earnings.

Blog Graphic: Number of AHP Assissted Homes Over 2018-2023

While the homeownership set-aside programs are primarily aimed at low- or moderate-income households (with incomes at or below 80% of AMI), the FHLBanks often extend AHP set-aside grants to households with incomes significantly below this threshold. In 2023, the average income of households assisted by the set-aside programs (excluding rehabilitation assistance) stood at approximately $51,000 per year, equivalent to 61% of the AMI. It is also worth noting that rental units funded by AHP tend to fund lower-income households than ownership units funded by AHP.

Blog Graphic: Total AHP Rental and Ownership Units by Income Level (2018-2023)

Since its establishment, the AHP General Fund 1990 (previously known as the competitive application program before 2018) has provided approximately $6.3 billion in funding across roughly 19,800 developments, supporting more than 800,000 units. Over the years, the proportion of rental units within the FHLBanks’ AHP General Funds has fluctuated, ranging from 78% in 2008 to 94% in 2016. In 2023, the FHLBanks allocated around $319 million through their General Funds, with rental units comprising 87% of the total units under the General Funds–up from 86% in 2022 as displayed in the graphic below. Notably, the FHLBank of San Francisco’s Nevada only supported rental homes.

Blog Graphic: AHP General Funds Percentage of Rental Units (2007-2023)

CIP Housing and Advances

The report states that FHLBanks also funded approximately $4.2 billion in CIP housing advances in 2023, supporting almost 32,000 homes, which is 11,000 more than in 2022. CIP mandates that each FHLBank provides advances to its members at a cost no higher than that of consolidated FHLBank obligations with similar maturities. These advances are aimed at financing housing for households with incomes at or below 115% of AMI. The graphic illustrates the CIP advances that supported rental housing from 2018 through 2023. Notably, in 2023, the FHLBanks' CIP housing advances surged by nearly $1 billion compared to 2022, resulting in a 58% increase in the number of total assisted homes.

Blog Graphic: CIP Rentals Rebounds, Though Still Far Below Prior Years

Other Initiatives

Other initiatives that the FHFA have taken to support homeownership are informing consumers about the legacy of discriminatory restrictive covenants and increasing access to homeownership and housing opportunities for Native American communities. The GSEs collectively purchased approximately 15,000 Special Purpose Credit Program (SPCP) loans, supporting homeownership for non-traditional borrowers in underserved communities. FHFA has also been focused on helping the needs of rural communities. The report details how GSEs purchased more than 136,000 single-family mortgages for low- and moderate-income borrowers through their core affordable housing SPCPs, HomeReady and Home Possible. Enhancements were introduced, including a $2,500 credit for very low-income borrowers, which lenders must pass through to borrowers by applying it to the down payment or closing costs. To pursue their Equitable Housing Finance Plans, the GSEs partnered with vendors to collect rent payment data from participating multifamily housing property owners and format it for dissemination to credit bureaus. 

In April 2023, the FHFA issued a final rule, effective starting July 1, 2023, allowing Fannie Mae and Freddie Mac to engage in activities within all census tracts containing colonias (referred to as colonia census tracts). These tracts are now considered “high-needs rural regions” and are eligible for Duty to Serve credit in the rural housing market. Colonias are low-income communities near the United States-Mexico border in Texas, California, Arizona and New Mexico. They face challenges due to high poverty rates, low housing density and little to no infrastructure (water/e.g., sewer service), resulting in limited credit access for households. Additionally, FHFA had implemented increased support for homeowners facing financial hardship, supported the expansion of innovation for sustainable homeownership, and protected consumers by providing climate risk information.

Moving Forward

Though 2023 was a challenging year for the housing market due to rising interest rates and supply issues, the various initiatives of the GSEs and FHLBanks helped to finance affordable housing, promote targeted economic development and assist underserved households. Both homeowners and renters facing difficulties in accessing quality and affordable housing were able to receive support from the GSEs and FHLBanks in 2023. The recent release of the 2024 Conservatorship Scorecard and the FHLBank System at 100: Focusing on the Future report by the FHFA set ambitious mission-oriented priorities for the current year. With the GSEs' increased expected investments in 2024, the LIHTC will be even more significant in the generation of more affordable rental housing. 

Those interested in learning more intricacies of using the LIHTC should consider joining Novogradac's LIHTC Working Group. The group works to resolve technical and administrative LIHTC program issues that are experienced by the members of the group. 

For anyone seeking an opportunity to network with LIHTC stakeholders, the Novogradac 2024 Housing Tax Credit and Bonds Conference will be held Sept. 26-27 in New Orleans. Here, attendees will be able to connect with hundreds of professionals, policymakers and stakeholders and learn from industry leaders on the latest trends, regulations and innovative strategies shaping affordable housing industry.

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