GSEs Seek Input on Duty to Serve Plans

The Federal Housing Finance Agency (FHFA) has issued a Request for Input (RFI) on the proposed 2025-2027 Underserved Markets Plans submitted by Fannie Mae and Freddie Mac (the GSEs) under the Duty to Serve (DTS) program. The proposed Plans cover the period from January 1, 2025, to December 31, 2027.

“Providing sustainable liquidity for affordable housing preservation, rural housing, and manufactured housing in a safe and sound manner is a key component of the Enterprises’ statutory responsibility to serve underserved markets,” said FHFA Director Sandra L. Thompson. “I look forward to hearing the public’s input and feedback on the plans the Enterprises have proposed.”

History of the DTS program

FHFA issued a final rule in 2016 that implemented the DTS provisions of the Housing and Economic Recovery Act of 2008 (HERA). Under HERA, the GSEs have a Duty to Serve three underserved markets—manufactured housing, affordable housing preservation, and rural housing—in a safe and sound manner for residential properties that serve very low-income families with incomes no greater than 50% of the area median income (AMI), low-income families with incomes no greater than 80% of AMI, and moderate-income families with incomes no greater than 100% of AMI.

Keeping stock of manufactured home supply

According to 2021 American Housing Survey (AHS), compiled by the U.S. Department of Housing & Urban Development (HUD) and U.S. Census Bureau, the nation’s manufactured housing market provides affordable housing to nearly 6.7 million households, of which approximately 3.1 million households own the land and unit, 1.8 million own the unit only, and 1.3 million rent both the home and the land. In comparing the total housing costs of manufactured housing residents to residents of site-built homes, manufactured homes remain an affordable option that generally cater to those with low- and moderate-incomes. Median monthly total housing costs are roughly $658 for homeowners in manufactured homes, compared to $1,240 for residents of single-family, site-built homes. For homeowners, the median cost to own a manufactured home with land is only $491 per month, compared to $1,252 for site-built homes. Manufactured homeowners who rent the land pay $743 per month at the median, and renters of both the home and land pay a median cost of $760, while renters of site-built homes pay $1,200 at the median.

Despite the advantages of manufactured housing, supply issues linger as Fannie Mae reported that fewer than 90,000 new manufactured homes were produced in 2023, the fewest number of homes shipped since 2016. The production of manufactured homes is limited by the number and capacity of factories capable of producing homes that meet HUD Code. In many markets, there are fewer factories operating than at earlier peak periods of production, and many factories do not operate at full capacity due to several factors, including limited labor supply.

In its DTS proposal, Freddie Mac noted that it has collaborated with Next Step and eHome America to develop and deliver a homebuyer education curriculum to help focus the ecosystem on helping potential homebuyers become owners of manufactured homes, facilitating the creation of a collaborative network of housing counselors, lenders, and manufactured housing retailers.

Additional initiatives that Freddie Mac noted included the financing of more than 46,000 manufactured homes titled as real property from 2018-2023, providing more than $6.7 billion in market liquidity, and the introduction of 25 policy updates to enhance existing offerings and launch new offerings to help increase affordable lending and access to credit for manufactured homes titled as real property.

Populating the nation’s rural areas

FHFA’s current Duty to Serve regulation defines a “rural area” as a census tract outside of a metropolitan statistical area (MSA), as designated by the Office of Management and Budget (OMB); or a census tract in an MSA that is outside of the MSA’s Urbanized Areas as designated by the U.S. Department of Agriculture’s (USDA) Rural-Urban Commuting Area (RUCA) Code #1 and outside of tracts with a housing density of more than 64 housing units per square mile for USDA’s RUCA Code #2. Effective July 1, 2023, amendments to the Duty to Serve regulation modify the definition of “rural area” to include all “colonia census tracts” that would not otherwise satisfy the definition. The rural housing market includes an estimated 82 million people nationwide, or 25% of the U.S. population.

According to Fannie Mae, from 2018-2023, the GSE purchased more than 6,800 loans in the region currently defined as the colonia census tracts, with loan purchases made every month.

From the start of Duty to Serve in 2018 through 2023, Freddie Mac reportedly provided more than $174 billion in liquidity to finance more than 990,000 rural single-family homes. In addition, the GSE introduced numerous enhancements to other offerings to facilitate affordable lending and responsibly expand access to credit in rural areas.

Meeting affordability issues head-on

The Joint Center for Housing Studies of Harvard University’s “The State of the Nation’s Housing 2023” report states that nearly one-third of all U.S. households were cost-burdened in 2021, defined as paying more than 30% of their incomes for housing, and housing affordability has declined since. The National Association of Realtors (NAR) November 2023 Housing Affordability Index was the lowest reported since July 1985.

Other factors playing into affordability issues for today’s buyer includes:

  • Mortgage interest rates tripled from May 2020 to October 2023, and remain steadily around the 7%-mark.
  • Supply constraints remain, as of the end of September 2023, about 1% of existing homes were for sale. Total home sales were at their lowest since 2011, and the lock-in effect has pushed sales of existing homes to their lowest level since 1995.
  • The number of entry-level homes represent less than 10% of all newly constructed homes, compared to about 35% in the 1970s.
  • Entry-level home prices have risen 62% faster than higher-end home prices since 2000, largely driven by millennials reaching the home buying age.

Among Freddie Mac’s actions to preserve affordable housing from 2018-2023 include:

  • Purchased more than 500 loans on shared equity homes since launching offerings in 2019.
  • Established the Single-Family Green Bond in 2021; issued a total of more than $2 billion in bonds backed by more than 6,400 energy-efficiency mortgages in 2021 and 2022.
  • Provided $58 billion in liquidity to support the creation and preservation of affordable housing through Duty to Serve Plan objectives, among others.

FHFA invites interested parties to provide written input, feedback, and information on all aspects of the proposed Plans by August 12, 2024. The public can review the RFI and submit responses through the DTS page on FHFA’s website. FHFA will also hold three listening sessions to review the proposed Plans on July 15, 16, and 17. Interested participants can register here.

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Picture of Eric C. Peck

Eric C. Peck

Eric C. Peck has 25-plus years’ experience covering the mortgage industry, most recently serving as Editor-in-Chief for National Mortgage Professional Magazine. He graduated from the New York Institute of Technology, where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books, and has served as Copy Editor for Entrepreneur.com.
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