Enterprises Update and Rename its Socially Conscious MBS Investment Index
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae and Freddie Mac have updated their two-year-old Single-Family Social Index and given it a new identity: The Mission Index.
The Social Index was launched in 2022 as a way to help socially conscious investors who wanted to support affordable housing and credit access to underserved individuals. It was created as a scoring system to measure how loan pools address eight housing challenges:
Low-income borrowers
Underserved minorities
First-time homebuyers
Low-income areas
Minority tracts
High needs rural areas
Designated disaster areas
Manufactured housing
“Since then, we collected market feedback, refined the methodology, and are now introducing updates to the disclosure, including a refreshed name, the Mission Index,” wrote Fannie and Freddie Vice Presidents Nick Sapirie and Barbara Pak in a joint column.
In addition to the name change, the Mission Index adds two more criteria. In addition to the original eight criteria, the new index will also score pools based on creating affordable rental housing and serving borrowers who are eligible for a Special Purpose Credit Program.
“Our focus on our mission and Duty to Serve goals through the Mission Index is intended to promote access to financing for the communities we were chartered to serve,” wrote the enterprise vice presidents. “The new name reflects direct feedback from investors, highlights that this is an enterprise-specific disclosure, and helps investors better understand how our mission activities support U.S. housing.”
According to their description, the Mission Index:
Allows investors to identify Mortgage-Backed Securities (MBS) with high concentrations of loans that align with the enterprises' mission objectives.
Seeks to preserve the liquidity and efficiency of the single-family UMBS to-be-announced (TBA) mortgage market for Fannie Mae and Freddie Mac issued securities.
Helps to mitigate potential harm to borrower privacy by aggregating potentially sensitive data elements about a loan into rolled-up metrics.
Fannie and Freddie also announced Single-Family Social Bonds programs.
The enterprises said their respective programs will offer single-family mortgage-backed securities featuring high concentrations of loans that meet their missions and Duty to Serve objectives.
“In turn, investor demand for these MBS may result in lenders focusing more on lending to these populations, with loans underwritten to the enterprises' strong credit standards.”
Fannie and Freddie worked with the Federal Housing Finance Agency (FHFA) to design a durable solution that address International Capital Markets Association Social Bond Principles. They are also each validated by an independent second party opinion.
The enterprises said they will provide annual impact reporting to help the market understand the social impact of the loans underlying their investments.
The new Mission Index name will apply to all pools, outstanding and new issue, beginning with March 2024 issuances.
In a separate announcement last week, Fannie Mae introduced a temporary enhancement to its HomeReady product. The enhancement includes a $2,500 loan-level price adjustment credit for very low-income purchase borrowers that can be used for down payment and closing costs.
This credit will be effective for whole loans purchased on or after March 1, 2024 to February 28, 2025, and for loans delivered into MBS with issue dates on or after Mar.ch 1, 2024 to February 1, 2025.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
