Fannie Mae and Freddie Mac, colloquially known as the Government Sponsored Entities (GSEs), have been collaborating with the Federal Housing Finance Agency since 2022 exploring the intersection of climate change, housing finance, housing policy, and community development among the most vulnerable cross sections of the population.
Through enormous efforts consisting of community engagements and outreach efforts, the three agencies and their respective experts (and their specialists on the ground), and through the help of consumers themselves, they developed a comprehensive risk management program, and opposing opportunities for mitigation, on the topic of climate risk challenges specific to housing finance.
Their information gathering process has made clear that vulnerable populations are disproportionately impacted by climate change, and that housing finance policy should seek to avoid creating or exacerbating obvious, unfair burdens in these communities.
It is still too soon to give a definitive answer if climate change is having a profound impact on home valuation and household wealth, especially in the case of energy usage—the cost to heat, cool, and sustain the temperature inside one’s home. Underserved communities are at a distinct disadvantage due to existing wealth and income disparities that limit their ability to adapt, recover, and move. Additionally, historical patterns of resource allocation and infrastructure development have hampered segregated neighborhoods’ ability to be prepared for natural disasters and the impacts of climate change.
Housing policy choices that impact communities differently due to climate change or to the likelihood and severity of natural disasters should be closely assessed to ensure that implementation does not reproduce or intensify existing disparities. This is of special importance to the Enterprises and other national organizations that serve a broad market as part of their mission.
The FHFA has created a holistic policy when it comes to development and assessment processes, such as the climate assessment framework which brings an additional perspective, while complementing longstanding analysis focused on credit risk, capital policy, fair lending, and affordability.
While carefully considering policy alternatives and the identification of opportunities the agencies can take to address this unique challenge, they also took into account existing disproportionate impacts can provide critical openings to redress disparities by ensuring that all consumers have equitable access to sustainable housing opportunities. Well-designed programs can provide new opportunities for consumers to maintain or increase their home’s value, develop resiliency to natural disasters, and improve energy efficiency. These actions can promote and support increased borrower sustainability, leading to stronger safety and soundness outcomes.
When designing policies or interventions, special attention should be paid to ensure that communications are transparent and accessible for those most likely to face adverse impacts. Thought should also be given to the need for technical knowledge, the availability of community expertise, and whether upfront costs are involved to determine whether a targeted education or affirmative marketing strategy is needed.
In short, the FHFA’s Strategic Plan for 2022-2026 includes objectives to advance equity in housing finance in light of their research for fair lending and equity impacts related to climate change. Furthermore, they have incorporated climate change considerations into its fair lending and equity policy analysis.
Click here to read a summary of the research from the FHFA.
