CEOs Hugh Frater and Michael DeVito of Fannie Mae and Freddie Mac, respectively, sat down to chat at the Mortgage Bankers Association’s 2021 Annual Convention & Expo. Much of their conversation revolved around making progress on racial equity in the housing market.
It’s not a new issue, of course, but moving forward on equity in housing has been a stated goal of the current leadership of the Federal Housing Finance Agency (FHFA), which counts among its roles the supervision of the government-sponsored enterprises (GSEs). Recent events have been significant impetus for change and the GSEs have been proactive in making sure that such moments don’t go unheeded.
One such occurrence, Frater said, was the murder of George Floyd.
“We sat around at Fannie and we said, ‘You know, something’s really changed,’” Frater said. “What can we do with our products and services, and with our convening power, to make the housing-finance system more fair, to make our housing industry more diverse, and to make our society more just? I said to most of our people, we’ll be remembered for what we actually did rather than what we talked about doing.”
Changes initiated since then include the June 2021 debut of RefiNow — and in Freddie Mac’s case, the launch of Refi Possible this past August — which are refinance programs aimed at lower-income borrowers who historically have refinanced at lower levels than other borrowers and have missed out on chances to save on their housing costs. Both Frater and DeVito highlighted their companies’ respective programs, timely mentions that coincided with the FHFA’s announcement that RefiNow and Refi Possible will be expanded to include borrowers making at or below 100% of the area median income, up from the previous cap of 80%.
“Working with our lender clients and the Federal Housing Finance Agency, we are now able to help even more lower-income households reduce their interest rate and their monthly mortgage payment through our Refi Possible solution,” said Donna Corley, executive vice president and head of Freddie Mac Single-Family. “Our priority is to create more equitable opportunities that responsibly support sustainable homeownership.”
Other recent shifts noted by the CEOs include the use of average FICO scores on multiple-borrower applications, “which actually makes a bigger difference than you’d think,” Frater said. Additionally, Fannie Mae is incorporating rental data into its Desktop Underwriter program.
“I predict that in 10 years’ time — maybe even in five, but in 10 years’ time — rental data will be incorporated into every credit score in the system, whereas today it’s less than 5%,” Frater said.
Another component of these efforts is the GSEs’ commitment to expanding affordable housing and finding novel ideas to tackle a legacy problem. DeVito asked the audience at the convention for input about their own experiences and ways to reframe the thinking, because the current models could use refreshing.
“I go back to the fundamentals of lending that many of us learned long ago. How well do you understand the borrower, or the customer in my terms? And the customer or borrower of today looks very different than they did in 1975,” DeVito said.
“You have to study that and understand it. You have to understand that households are formed differently today. The demographics look different. There are more people living in that house. There are more people contributing to the home.
“We have to understand how to think about that and work our way through each dimension. Not try to overcomplicate the problem but just think about it in terms of, ‘How well do we understand their income? Do our credit models work the way they’re intended for the people who we’re trying to evaluate through that?’ I think there’s broadening to be done in the way credit works.”