FHFA Proposes New Benchmarks for Measuring GSEs’ Multifamily Goals

The Federal Housing Finance Agency is proposing a change to the benchmarks by which Freddie Mac and Fannie Mae measure their multifamily goals.  A rule proposed this week would see a move from using the number to the percentage of units in multifamily properties the institutions finance.

Historically, the FHFA set numerical targets for multifamily units.  The proposed rule would instead evaluate what percentage of Fannie and Freddie’s annual multifamily loan acquisitions are affordable within three different categories: a low-income goal of 61%, a very-low-income subgoal of 12% and a low-income small multifamily subgoal of 2%. The proposed rule would take effect for 2023 and 2024 benchmarks, and comments will be accepted through October 17.

“In proposing the multifamily housing goal benchmark levels for 2023 and 2024, FHFA has considered the ability of the Enterprises to lead the market in making multifamily mortgage credit available,” the agency writes in a supplement to the rule. “The share of the overall multifamily mortgage origination market that is purchased by the Enterprises increased in the years immediately following the financial crisis, but their share has declined more recently in response to growing private sector participation. FHFA expects the Enterprises to continue to demonstrate leadership in multifamily affordable housing lending by providing liquidity and supporting housing for tenants at different income levels in various geographic markets and in various market segments. This support should continue throughout the economic cycle, with the Enterprises providing steady support even as the overall volume of the multifamily mortgage market fluctuates.”

With respect to the low-income benchmark, FHFA uses the following example: if Fannie or Freddie acquires 100,000 goal-eligible multifamily units in 2023, 61 percent of those goal-eligible units (or 61,000 units) must be for low-income households in order to meet the goal. It goes ono note its calculation of what the GSEs’ performance would have been in previous years if the multifamily housing goals had been based on this percentage-based approach: “The historic performance average for the pre-pandemic years of 2017-2019 would have been 65.1 percent for Fannie Mae and 67.3 percent for Freddie Mac,” the supplementary information to the proposed rule states. “FHFA believes the proposed benchmark level of 61 percent is appropriate to ensure a strong focus on affordability by the Enterprises in 2023-2024 while recognizing the increased competitive pressures described above. The proposed benchmark level of 61 percent would take into account the rising interest rate environment and the additional challenges the Enterprises currently face in the competitive market, without diminishing the Enterprises’ focus on affordability.”

With respect to the very low income category, which is defined as families with incomes less than or equal to 50 percent of AMI, the proposed rule would set the annual benchmark level at 12% of goal-eligible units acquired. 

“The average performance of the Enterprises under this subgoal during the pre-pandemic years of 2017-2019 would have been 13.1 percent for Fannie Mae and 15.6 percent for Freddie Mac,” the supplementary information states. “FHFA believes that the proposed benchmark level of 12 percent is appropriate to ensure that the Enterprises continue to adequately serve very low-income families while accounting for the challenges associated with increasing interest rates and uncertain economic conditions.”

And as for the proposed small multifamily low-income housing subgoal, it would be based on the percentage of rental units in all multifamily properties financed by mortgages purchased by Fannie and Freddie that are units in small multifamily properties affordable to low-income families, which is in turn defined as families with incomes less than or equal to 80 percent of AMI. Small multifamily properties are defined as those with between 5 to 50 units.

“This subgoal was created in the 2015-2017 housing goals rulemaking to position the Enterprises to respond quickly to potential need in this segment,” FHFA states in the supplementary information to the rule. “Due to increased private sector financing and current market conditions in the small multifamily market, FHFA is interested in ensuring that the Enterprises remain positioned to support this market when needed without crowding out other sources of financing for small multifamily properties. The proposed benchmark level would be set as a share of total goal-eligible units and not the affordable share of units in small multifamily properties to ensure that the Enterprises maintain a minimum level of engagement in the small multifamily segment of the market.”

FHFA also notes that the small low-income multifamily housing market “historically has been challenging to size and monitor,” adding that it “is aware that conditions in the small multifamily market may have changed recently in part due to the return of private sector financing since its pandemic-related slowdown in 2020. As a result, the need for a significant presence by the Enterprises in this market may no longer be necessary.”