• In a historic move, Fannie Mae and Freddie Mac announced changes to address systemic racism that has kept people of color out of homeownership.
  • Fannie Mae and Freddie Mac are rolling out a credit scoring system that factors rent payment into the credit score.
  • Other measures include down payment assistance, improved underwriting guidelines, reserve funding for emergencies and reduced mortgage insurance premiums.

Fannie Mae and Freddie Mac are implementing major reforms aimed at helping disadvantaged communities become owners and ensure that home buyers of color remain owners.

The initiative of the two federally backed mortgage lenders announced Wednesday is the most sweeping overhaul since the housing crash of 2008. Some of the costliest items exclusively reviewed by USA TODAY include down payment assistance, standby funding for homeowner emergencies and lower mortgage insurance premiums.

Fannie Mae and Freddie Mac are also rolling out a new credit-reporting system that factors rent payments into credit scores, one of the biggest systemic barriers experts say is keeping renters of color from being able to buy a home.

“It’s really powerful, almost like the government owns the problem,” said Naa Awaa Tagoe, acting deputy director of the Housing Mission and Purposes Division at the Federal Housing Finance Agency, the regulatory agency which oversees the secondary mortgage market, including Fannie Mae and Freddie Mac. “It’s Fannie Mae and Freddie Mac saying, ‘Yes, there is an equity problem in housing finance, and here are the steps we need to take to fix it.'”

The three-year strategy also defined plans to increase fairness in the underwriting process, address valuation disparities in multifamily housing, and fund permanent supportive housing programs primarily intended to provide housing for homeless people.

As part of that effort, Freddie Mac is expected to issue $3 billion in affordable housing bonds this year.

By 2024, Freddie Mac wants to fund the construction of 30,000 new multi-family units that build tenant credit, accept housing choice vouchers and are designed to be inclusive for people with disabilities. They want to make the credit building program accessible to 300,000 units.

The lender also wants to fund loan offers in underinvested communities and neighborhoods at risk of losing affordability.

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By 2024, Fannie Mae aims for 140,000 consumers to complete the first home buying process with any provider and 90,000 to complete the Fannie Mae course.

Some of the measures have already been tested. From September 2021 through May, approximately 2,000 applicants have benefited from Fannie Mae’s credit scoring system which factors in positive rental payment history to build creditworthiness. About 50% of the candidates belonged to racial minorities.

Even as home prices have soared in 2021, the American dream of owning a home of their own has become a reality for many Americans, including first-time home buyers.  Fueled by pandemic-induced low interest rates and low foreclosure rates, the 2021 housing market saw its highest number of home sales in 15 years.

Discrimination kicks people out of the home buying process

In collaboration with the Federal Housing Administration and Department of Veterans Affairs, Fannie Mae and Freddie Mac guarantee directly or indirectly 70% of the single-family mortgage creation.

Neither Fannie Mae nor Freddie Mac do loans. Instead, the two organizations purchase mortgages from lenders to hold, sell, or repackage as securities. This helps generate more loans and increase the stable supply of mortgage dollars.

Before the housing crash of 2008, Fannie Mae and Freddie Mac pumped more money into the housing finance system and bought an inordinate number of mortgages, which helped inflate house prices. After the Great Recession of the late 2000s, the two were placed in conservatorship.

In the United States, home ownership has long been considered the most important vehicle for wealth accumulation.

The median net worth of white homeowner families was $300,000, of which $130,000 was attributed to housing, according to the 2019 Survey of Consumer Finances, the most recent available. That number drops to $113,000 for black homeowner families, of which $67,000 comes from home equity. And for Latino families, about $95,000 of their median net worth of $165,000 is tied to owning a home.

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Homeownership has historically remained out of reach for people of color due to decades of divestment and racist practices such as redlining, which have allowed banks to limit lending, mortgages and insurance in geographic areas. based on race and ethnicity.

As a result, the gap in homeownership rates between black and white families is greater today than when segregation was legal, according to a study by the Urban Institute. About 71% of white Americans own homes, compared to 41% of black Americans.

Just as black Americans have lost jobs and health at a higher rate than whites during the COVID-19 pandemic, black homeowners have also had a harder time keeping their homes.  Now, Fannie Mae and Freddie Mac are implementing major reforms aimed at helping disadvantaged communities become homeowners.

“The depth of racism involved in past housing regulation is deep and persistent and is embedded in the fabric of the US housing market to this day,” said David Clunie, executive director of the Black Economic Alliance, a coalition of business leaders. business and non-partisan advocates committed to the economic advancement of the black community. “Our entire economy will benefit from increased access to affordable homeownership.”

For Tagoe, this is all the more why the initiatives are unprecedented.

“That’s a big number, when you think about the gap. But how do you get to this gap?” Tagoe said. “So there are multiple points along the way. These are complex issues. And that’s why, you know, we need these plans; we need really thoughtful and comprehensive approaches to solving the problem because it’s a difficult problem.”

Real estate prices are soaring across the country

Fannie Mae and Freddie Mac’s announcement comes as median home prices and rents across the country soar.

In the first quarter of this year, the median price of a home hit a record high of $428,000, according to the Federal Reserve Economic Data Databasesaid Fred.

Year-over-year rent increases have soared 90% nationwide, most recent analysis from Rent.com found. In some markets, like Austin and Oklahoma City, rents have soared more than 112%, two years after a pandemic recession put nearly 40 million people at risk of eviction.

A majority of Americans also believe it is a bad time to buy a house for the first time since 1978.

Only 30% of American adults said now was a good time to buy a home, according to a new Gallup poll, due to an annual inflation rate that accelerated to 8.5% in March. and 30-year fixed rate mortgage interest rates that exceeded 5%, up 3% in 2020.

Taken together, ordinary Americans are seeking relief in an overpriced housing market that has exacerbated inequality.

“Let me keep it for the record because it was about time,” said James Carras, assistant lecturer at public policy at Harvard University’s Kennedy School of Government in Cambridge, Massachusetts. “That’s what they should have done from the start. And it’s a good first step.”

Follow national correspondent @RominaAdi on Twitter