Written By: Joel Palmer, Op-Ed Writer
Freddie Mac and Fannie Mae intend to increase loan purchases from rural areas over the next three years as a key part of their Duty to Serve plans.
Affordable housing is essential to the economic stability of rural regions, yet the GSEs note that “significant challenges exist to supporting affordable rural housing.” Those challenges include limited access to financial services, challenging appraisals, poor infrastructure, home overcrowding, a prevalence of substandard housing, and higher-than-average poverty rates.
FHFA identified four regulatory activities for the rural housing market, including housing in high-needs rural regions and for high-needs rural populations. Regions were identified as Middle Appalachia, the Lower Mississippi Delta, rural persistent poverty counties, and colonias, defined as semi-rural subdivisions of substandard housing. High-needs populations include Native Americans and agricultural workers.
The rural market initiatives also cover financing by small financial institutions and small multifamily rental properties in rural areas.
One of the issues surrounding rural housing lending is mortgage liquidity. According to Fannie, lenders retain more loans in rural areas (35 percent in 2015), especially in high-needs markets (46 to 50 percent), compared with national rates (26 percent). That means rural lenders are not replenishing capital as quickly as those serving more populated markets. It also has resulted in higher rates of loan denial in rural areas.
To address this challenge, Fannie Mae will increase purchase volume of single-family loans in high-needs rural regions by an additional 3,569 to 4,869 loans over the next three years, to between10,700 and 13,500 annually.This would result in an estimated additional $555 million to $758 million of liquidity.
The Freddie Mac plan sets an objective of increasing the purchase of loans for very low-, low-, and moderate- income homebuyers in high-needs rural regions. Freddie purchased just over 20,000 of such loans in 2014, and just under 24,000 in both 2015 and 2016. Its Duty to Serve plan sets a purchase target of between 24,000 and 24,500 in 2018, between 24,500 and 25,000 in 2019, and between 25,500 and 26,000 in 2020.
Freddie said meeting this objective would provide $9 billion in liquidity per year to financial institutions that serve high-needs rural regions.
Freddie and Fannie also intend to increase the purchase of rural housing loans made by small financial institutions, defined as those with assets of less than $304 million.
Over the next three years, Freddie has set a goal of purchasing between 4,500 and 6,000 loans for very low-, low-, and moderate- income homebuyers from small institutions, compared to a current three-year average of 3,900. Fannie will attempt to purchase an additional 4,873 to 6,623 rural single-family loans from small financial institutions over three years.
Freddie said this objective would provide $460 million in liquidity per year to small financial institutions that serve high-needs rural regions. Fannie said its efforts, if successful, would equate to an estimated additional $848 million to $1.2 billion of liquidity.
The challenges of meeting this objective include varied operational systems used by small financial institutions, different missions and levels of financing, distinct financial products offered, and the large number of geographic areas served.
Duty to Serve Underserved Markets plans were released in December, as required by the Housing and Economic Recovery Act of 2008.
Each of the plans contains a list of initiatives to be implemented over the next three years aimed at three areas identified as key to making housing more accessible: affordable housing preservation, rural housing, and manufactured housing.
The overall goal of the Duty to Serve plans is to increase liquidity and provide long-term stability in the threeunderserved markets. Objectives focus on research, product development and increasing loan purchases, as well as standardization and educational efforts.
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.