Freddie and Fannie take heat from lobby group

Tom Wanamaker
2/26/02

WASHINGTON, D.C. ? A lobbying group claims that Freddie Mac and Fannie Mae continue to fail in their mission to provide affordable housing for moderate- and low-income families. Both Fannie and Freddie, however, point to a slew of home loan assistance programs for residents of Indian country they have established over the past few years.

In a Feb. 6 report prepared under the auspices of Washington D.C.-based FM Watch, a self-described "watchdog" organization, home-purchase data from some 200 locations throughout the United States were analyzed. The group concluded that both Freddie and Fannie actually lag behind the private sector in providing affordable home finance to traditionally under-served groups.

According to the study, titled Fannie Mae and Freddie Mac: Failing the American Dream in the Nation's Cities, the GSEs "dramatically" under-served Native American borrowers in all 21 of the metropolitan areas and all nine states included in the report; they also lagged behind the private lenders serving these markets, the report said.

"FM Watch is not up front and not honest," Bob McCarson, spokesman for Fannie Mae, told ICT. "They are a lobbying and smear campaign formed by the larger private lenders who want our market share." McCarson pointed to a host of Fannie's initiatives to boost lending across Indian country, including lending programs in Montana, North Dakota, New Mexico, Oklahoma, Wyoming and elsewhere.

Freddie Mac and Fannie Mae are known as government-sponsored enterprises, or GSEs. They are privately owned by their shareholders, but have the public mission, mandated by Congress, to make home loans available and affordable to potential homebuyers at the lower end of the income spectrum.

According to FM Watch's study, Native American borrowers received only 0.36 percent of the GSEs' subsidies in the form of loans, despite comprising 0.67 percent of the country's total population. By way of comparison, white borrowers, whose ethnicity makes up 69.6 percent of the population, received 82.7 percent of the GSEs' total subsidy, and Asians, 3.9 percent of the population, garnered 5.9 percent of the subsidies, the group's report said.

In addition, while Native American borrowers received only 0.36 percent of available GSE money, the received slightly more, or 0.55 percent, of loan funds made available by private lenders, according to FM Watch. White borrowers received 82.7 percent of available GSE funds, while also receiving 80.8 percent of loans originated by private lenders. Asians got 5.9 percent of Freddie and Fannie's available loan funds and 5.4 percent of private lenders' loan originations.

Fannie Mae spokesman McCarson took exception to the group's numbers, saying that they include the private sector's subprime and manufactured housing lending statistics, two areas in which his organization does not lend. He also refuted FM Watch's claim that the GSEs receive a governmental subsidy.

"No tax money flows to Fannie Mae," McCarson said. "If our charter were revoked tomorrow, the government would not gain $10.6 billion." McCarson added that over the past four years, Fannie Mae has provided over six billion dollars in housing finance for over 50,000 Native American families. In 2001 alone, he said, Fannie invested some $70 million for housing on reservation and trust lands across the country.

In a brief press-time interview with ICT, Freddie Mac spokeswoman Sharon McHale echoed her counterpart's sentiments. "An apples-to-apples comparison shows that Freddie Mac actually exceeds the market in providing affordable housing loans to minority families," she said.

Founded in 1968, Fannie Mae "operates under a congressional charter that directs us to channel our efforts into increasing the availability and affordability of homeownership for low-, moderate-, and middle-income Americans," according to its Web site. This corporation operates in a manner similar to Freddie Mac. The GSEs tout competition between them as ensuring that the benefits of the secondary market are conveyed to both homebuyers and renters in the form of lower housing costs.

Freddie Mac, founded in 1970, aims to "increase the supply of funds that mortgage lenders such as commercial banks, mortgage bankers, savings institutions and credit unions, can make available to homebuyers and multifamily investors." This is accomplished by purchasing mortgages from lenders, packaging them into securities, and selling these fully guaranteed securities to investors on what is called the "secondary market." Mortgage lenders then use their sale proceeds to fund new mortgages. This cyclical process replenishes the pool of funds available for future lending.

"Just as stock and bond markets have put investor capital to work for corporations," says a statement on Freddie's Web site, "The secondary mortgage market puts private investor capital to work for homebuyers and apartment owners, providing a continuous flow of affordable funds for home financing."

On Feb. 18, Fannie Mae announced a $5,000 grant to the Salish and Kootenai Tribal Housing Authority in Polson, Mont. to assist in creating a Montana-Wyoming Lending Consortium. In addition, Fannie provided over $480,000 in equity in exchange for low-income housing tax credits for the Elmo Elder Living Center on the Flathead Indian Reservation.

"Most Native American tribal members want to stay on the reservation land they have called home all their lives, but have had difficulty finding affordable mortgage financing to make it possible to become homeowners," Ted Chandler, Fannie Mae's vice president of housing and community development, said in a press release. "Fannie Mae is delighted to work with the Salish and Kootenai Housing Authority, and other tribal housing leaders, to make affordable housing a reality for families living on the reservation."

Freddie Mac has initiated several programs over the past three years allowing tribal members to make low-dollar down payments on home mortgages. Revolving loan funds have also been established to assist with closing costs and refinancing. Such programs are in place with tribal housing authorities of the Cherokee, Potawatomi, Choctaw and Chickasaw tribes. The GSE has worked in conjunction with various private sector banks and mortgage financiers to establish these initiatives.

In January, Fannie announced a lease agreement on the Wind River Reservation in Wyoming, enabling local housing lenders to originate loans to members of the Eastern Shoshone and Northern Arapaho tribes under HUD's Section 184 Loan Guarantee Program. Both Fannie Mae and the Wyoming Community Development Authority agreed to purchase any loans originated.

Freddie and Fannie are both regulated by two federal agencies. One of these is the Department of Housing and Urban Development, which is responsible for the GSEs' housing mission. Toward this end, HUD in 1996 set goals requiring that a certain percentage of mortgages purchased by the GSEs support housing finance for low- and moderate-income families. The other regulator is the Office of Federal Housing Enterprise Oversight, which, although a part of HUD, operates independently of its parent to implement and enforce capital standards to ensure the GSEs' fiscal soundness.

FM Watch's membership contains various financial trade and lobbying groups, including: American Financial Services Association, Appraisal Institute, Association of Financial Guaranty Insurers, Consumer Bankers Association, Consumer Mortgage Coalition, Financial Services Roundtable, Home Equity Lender Leadership Organization, Mortgage Insurance Companies of America and the National Home Equity Mortgage Association. The group's aim, according to a statement on its Web site, is to "work with consumer and taxpayer groups, affordable housing advocates and financial institutions dedicated to ensuring that Fannie Mae and Freddie Mac keep the interests of homebuyers and taxpayers above the interests of their investors." More information about the group is available online at www.fmwatch.org.

Freddie Mac's Web site can be viewed at www.freddiemac.com, while Fannie Mae's can be accessed at www.fanniemae.com.

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