Fannie Mae Launched Single-Family Social Disclosures

Fannie Mae announced two new social disclosures last month for its single-family mortgage-backed securities (MBS).

The Social Criteria Share (SCS) and Social Density Score (SDS) “are designed to respond to investor feedback and aim to provide single-family MBS investors with insights into socially oriented lending activities while helping to preserve the confidentiality of mortgage consumers’ personal information,” as the press release stated.

Friday, December 2 is the date Fannie Mae starts publishing the SCS and SDS for new single-family MBSs. In mid-November, the agency started “providing the market with the SCS and the SDS, assigned at issuance, for active and inactive MBS pools issued between January 2010 and October 2022.”

“This is a significant step forward in terms of providing insights for market participants while working to protect borrower privacy, and we remain committed to continued engagement with the investor community for further developments in socially conscious investments,” Devang Doshi, Senior Vice President of Single-Family Capital Markets at Fannie Mae, had said.

As Fannie Mae had previously noted, socially conscious investors want to put money into such areas as affordable housing and providing credit access to underserved parts of society.

“And, as part of their analysis, investors seek additional information to guide their investment decisions,” the agency wrote. “However, mortgage-related disclosures may present data privacy concerns; specifically, a potential risk that certain disclosed information may be combined with other publicly available data leading to the ability to identify individuals – in our case, individual borrowers.”

The SCS is a number that indicates how much of the pool of mortgages in an MBS, by loan count, meet any of the social criteria, whether income (low-income borrowers), the type of borrower (underserved or first-time homebuyer), or type of property (low-income, minority tract, high needs rural, designed disaster area, or manufactured housing).

The SDS is “an aggregate average of the loan-level scores, capturing layering of social attributes and, thus, concentration of socially oriented lending activities.”

But all this, which might sound good, raises two questions that are currently impossible to answer: how well will the markets take to these and for how long?

A potential warning sign comes from another aspect of ESG ratings: sustainability. Sustainability-linked. Bloomberg recently reported that so-called sustainability-linked bonds face a slowdown because of fear they might carry legal risk and that markets tired of them.