How Fannie Mae’s Duty to Serve efforts are evolving as we test and learn
As renters faced with rising utility bills, and with two young daughters growing fast, Robert and Chasity Woody of Asheville, North Carolina, felt it was time to buy their first home. However, the couple soon realized they’d been priced out of their local housing market.
The Woodys worked with Next Step Network, a nonprofit engaged in consumer education for affordable manufactured housing, eventually purchasing a new manufactured home in Mars Hill, about 20 minutes north of Asheville. The move is paying off. Their utility bills have dropped from $300-$400 per month in their old home to about $80, and the mortgage payment is significantly less than their previous rent. They are saving money and putting savings aside for family trips and their daughters’ education.
The choice to buy manufactured housing is a sustainable start to homeownership for many young buyers like the Woodys, particularly in rural America. “Manufactured housing is a practical, sustainable solution to the housing affordability crisis facing many rural Americans,” says Next Step president and founder Stacey Epperson, who hails from Appalachia.
Fannie Mae has served the housing needs of America for 80 years, and we agree there is a real need to support the affordable housing needs of underserved markets and populations. We’re looking forward to the challenge under the Federal Housing Finance Agency’s (FHFA) Duty to Serve (DTS) Underserved Markets rule. Under the rule we are taking specific steps to address three focus areas:
- Manufactured housing – Exploring innovative financing options for one of the largest affordable housing opportunities.
- Affordable housing preservation – Helping keep established properties available as low-cost housing.
- Rural housing – Supporting the financing of housing for targeted high-needs rural regions and populations.
We view these efforts as an extension of the mission-oriented work we do every day to ensure access to sustainable, affordable housing.
Manufactured Housing Is Affordable Housing
Today’s manufactured housing is still built in factories, but the homes are placed on a foundation — so they are not easy to move. They offer amenities homebuyers crave – spacious living areas, state-of-the-art kitchens, and luxurious bathrooms. Plus, they have the safety and energy efficiency features they need. And all at prices they can afford. The average price per square foot of a manufactured home (including land) is $49 versus $107 for a site-built home. At that entry point, factory-built housing could help ease the affordable housing crisis, providing reasonably-priced homes for low- and moderate-income buyers, and those buyers can start building equity.
However, there are challenges for lenders, including differing lending standards depending on whether the home is treated as real estate or personal property, a lack of accessible financial and performance data, a higher cost of borrowing for many consumers, and an overall negative perception.
Under DTS, we are making some policy updates so we can purchase more loans on manufactured homes built to certain specifications and titled as real property and have taken the first step with our regulator, the FHFA, toward establishing a pilot test for chattel (personal property) loans.
In Multifamily, we are reviewing current products to consider financing strategies for government, nonprofit, and resident-owned manufactured housing communities, and we’re researching and evaluating FHFA’s proposed minimum tenant pad lease protections in manufactured housing communities.
The Need to Preserve Affordable Housing
Low rental vacancy rates have pushed purchase prices higher. From the third quarter of 2012 to the third quarter of 2017, housing prices increased 23 percent. Rents are also on the rise. More than 11 million renter households pay at least half of their monthly income for housing.
It’s hardly surprising then that homeownership rates have dropped from a peak of 69.2 percent in 2004 to 64.2 percent in 2017. This is particularly true for younger households, whose homeownership rate dropped from 43.6 percent in 2004 to just 34.7 percent in 2017.
Under DTS, Fannie Mae is working to increase the supply of affordable housing through shared equity models such as community land trusts and resale-restricted properties, as well as through distressed properties that can be purchased and rehabilitated. At the same time, many very low- to moderate-income people live in older homes where they face high utility bills. To help these families, we are working on financing options for energy and water efficiency improvements to lower costs, which will help them to continue to afford housing and other payments.
On the Multifamily side, we are exploring preservation strategies and plan to make additional loan purchases under a number of existing federal programs. We are increasing our support for state and local workforce housing initiatives, providing financing for energy and water efficiency improvements, and helping the industry develop standards for multifamily energy-efficient lending.
Serving Rural Markets
Under DTS, Fannie Mae is working to bring more conventional lending into underserved rural markets, including Middle-Appalachia, Lower Mississippi Delta, and colonias located along the US-Mexico border region; rural tracts in persistent poverty counties; housing on Native American lands; and improving housing options for agricultural workers.
Our plan is to increase the number of loans purchased in high-needs rural regions, including purchases from small financial institutions, and increase collaboration with lenders, non-profit, and government entities that support affordable housing in rural areas.
Additionally we’ve re-entered the Low Income Housing Tax Credit (LIHTC) equity market and will increase purchases of loans secured by multifamily housing for specific high-needs populations and regions.
Each underserved market in the rural category presents unique challenges. For example, in Indian Country there are complexities involving land held in trust on the behalf of tribes by the federal government. To ease concerns, Fannie Mae will work with tribes to review their ordinances as they relate to mortgage lending and work to execute a memorandum of understanding (MOU), which is an agreement to do business and evidence approval that the tribe’s laws and ordinances are acceptable for conventional lending. Plus, we’ve committed to foundational research in 2018 to better understand the home buying nuances among the Native American population. Armed with this information, it is our goal to develop a mortgage product specific to their needs. That’s where we feel we can be competitive for this high-need population.
Working Together to Effect Change
As a secondary market participant, we look for opportunities to spur the primary market to provide more capital in areas of the country that are too often neglected. We work with the necessary stakeholders to make needed changes and develop innovative products to attract investors. Most of all, we want to be sure new financing for high-needs housing populations is safe and sustainable.
Fannie Mae’s focus is to work with the housing finance system to turn an underserved market into a well-served market. It will take strong partnerships and a high degree of collaboration among a wide range of stakeholders to make a difference in all three DTS markets.
For more information and updates, visit our website.