Treasury Sets New Affordability Requirements for GSEs

Written by: Steve Cook   Wed, April 29, 2009 Crisis Watch

Many observers of the housing crisis lay at least some blame at the feet of housing affordability targets for Fannie Mae and Freddie Mac mandated by Congress and administered by the executive branch—first the Department of Housing and Urban Development and now the Treasury Department.

A cursory reading of news releases and news coverage from five to eight years ago reveals the pressure the GSEs were under to meet their targets. Some blame the affordability targets for creating an environment where numbers of subprime and loans lacking proper documentation were bought by the two companies and securitized.

The law mandating annual affordability goals is still in effect. James B. Lockhart, director of the Treasury agency that now has the unfortunate responsibility for implementing them, made some interesting remarks last Friday to an organization of Asian real estate professionals.

The GSEs have been charged with meeting the very ambitious goals set by HUD in 2004, a year in which the mortgage marketplace looked far, far different than it does today, he said, noting that they missed two of the affordable housing sub goals in 2007. And for 2008, it now looks like they missed almost all of the goals set by HUD in 2004.

“Although these goals may not have been feasible in 2008 given market conditions, I can assure you that I expect each Enterprise to develop and implement ambitious plans to support the borrowers and markets targeted by the goals,” he said.

“As we set the annual housing goals for 2009 based on current market conditions, it seems likely that the income-based affordable housing goals for 2009 will look more like the goals HUD set in 2004 and 2005 when subprime and nontraditional mortgages were not major factors in the home purchase mortgage marketplace,” Lockhart told the Asian-American real estate agents.

The operative words here are “current market conditions.” Affordability has improved dramatically since 2004, near the crest of the boom. However, will the GSEs be able to meet them any better than they did last year? If they are set too low, will the Administration listen to those who claim, with some justice, that prices are still too high and the GSE’s must do more to help lower income families finance purchases?

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