Realty World - Sierra PropertiesLicense #: 00319644

Realty World - Sierra PropertiesLicense #: 00319644

The Equity Housing Agenda

Homeownership is good for America. The housing industry accounts for 15% of the country’s GNP. Mortgage financing is the fuel for a healthy real estate market. Maintaining a consistent flow of dollars into mortgages has been the primary responsibility of the Federal National Mortgage Association, Fannie Mae, since it was created in 1938. The availability of low-down payment loans, less than 20% and 30-year financing, has enabled millions of Americans to create wealth through homeownership. Fannie Mae provides liquidity to lenders, loan integrity to investors and stability to the housing market.

Fannie Mae was not created to implement political agendas or correct past social injustices. It has been and should remain a colorblind vehicle for financing homes for all who qualify. The Biden Administration recently announced that Fannie Mae and its brother Freddie Mac will be advancing an equity housing agenda by offering “special purpose credit programs to Black consumers.”

Offering zero-down payment loans, reduced closing costs and eliminating traditional credit underwriting standards jeopardizes the integrity of not only Fannie Mae but the entire secondary mortgage market. When lending incentives and taxpayer subsidies are only offered to a specific race, it is divisive. We have seen the political manipulation of Fannie Mae before with disastrous results.

In 1977 Jimmy Carter was president. Democrats controlled both the House and Senate. It was the year the U.S. gave up the Panama Canal, the president pardoned draft dodgers, inflation was 6.7% and Congress decided to correct discrimination in housing by passing the Community Reinvestment Act.

Despite the passage of the 1968 Fair Housing Act, there was evidence of continued racial discrimination, called redlining, an illegal practice by mortgage lenders refusing to finance homes and borrowers in certain neighborhoods. The Community Reinvestment Act empowered regulators to punish banks that “failed to meet the credit needs of low-income and minority borrowers who lived in ‘distressed neighborhoods.’” Lenders responded by lowering their credit and underwriting standards for minority homebuyers living in underserved communities. Congress proved it could achieve its social agenda, if not by legislation, then through other vehicles it either controlled or had influence over such as Fannie Mae.

During the 1990s Congress and federal regulators continued to push lenders to further relax their credit and income standards for minority borrowers. The Federal Reserve Bank of Boston advised lenders: “Lack of credit should not be seen as a negative factor.” Lenders were directed to accept welfare payments and unemployment benefits as “valid sources” to qualify for a mortgage. Congress and U.S. Department of Housing and Urban Development pressured the Federal Housing Administration and Veterans Affairs to “reach out to the underserved.” Fannie Mae was pressured to be more inclusive with its underwriting requirements and open to creative financing.

Responding to Congressional mandates, Fannie Mae opened its doors to subprime mortgages. By 2000 Fannie Mae was offering no-down payment loans and within two years had purchased more than $1 trillion in subprime mortgages. Between 2005 and 2007, 62% of their loan acquisitions were negative amortization loans. Using the Community Reinvestment Act as their hammer, Congress and federal regulators insisted FHA and the VA join the party. By 2008 there were 27 million subprime loans in the U.S. financial system with 70% (19.2 million) on the books of government agencies like Fannie Mae.

Too late, Congress recognized its mistake. In 2008 Fannie Mae collapsed in debt and filed bankruptcy. Too big to fail, it was taken over by the federal government, costing taxpayers about $200 billion. Democrat Congressman Barney Frank, who had been chairman of the House Finance Committee and the most outspoken advocate for Fannie Mae’s expansion into subprime loans, had this to say in an interview in 2010: “ I hope we abolish Fannie Mae … it was a grave mistake to push lower-income people into housing they couldn’t afford and couldn’t really handle once they had it.”

The Biden Administration is about to make the same mistake. They want to push woke social policies by forcing Fannie Mae to make loans to folks who don’t have the credit history or financial ability. Worse, the administration’s Equitable Housing Plan for Fannie Mae is race-specific. It does not extend to other minority groups and low-income white borrowers are also excluded.

Black people, however, will have access to federal assistance in cleaning up credit issues, down payment assistance, closing costs reimbursement and in the event a borrower is unable to make their house payment or the home needs major repairs, no problem, taxpayers pick up the tab. All these housing incentives and welfare ideas were detailed in Fannie Mae’s Equitable Housing Plan that was released in June.

These racially targeted subsidies are likely unconstitutional. That won’t deter the Biden Administration. Making homeownership more affordable is worthy but not when it benefits only one race and not when it jeopardizes the financial integrity of a government agency that has about $4 trillion dollars in loans on its books.

Article by: Ken Calhoon is a real estate broker in El Dorado County. He can be reached for questions and comments at ken@kencalhoon.com.

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