Freddie Mac plans for 2023 rollout of special-purpose credit program

Heightened recognition of the need for greater racial inclusion and a narrowing of the homeownership gap will likely lead to an increase of special-purpose credit programs over the next 12 months, housing industry leaders said this week.

One of those could be coming from Freddie Mac. During a panel at the Housing Finance Strategies on Tuesday, the government-sponsored enterprise said it had taken the first steps toward creating its own SPCP. The announcement comes after other lenders of various sizes, including Bank of America and Legacy Home Loans, unveiled their own pilot programs over the summer.

“We are hoping in 2023 to be in the market with special purpose credit programs, under which banks and nonbank lenders can originate special-purpose credit program loans to benefit black and Latino borrowers for sale to Freddie Mac,” said Pam Perry, the GSE’s vice president, single-family equitable housing.

Although SPCPs have been available for lenders to implement as a tool to address homeownership disparities since the 1970s, focus on them as an equitable housing solution has grown considerably in 2022, thanks to the support of federal agencies and the backing of both Fannie Mae and Freddie Mac. 

A convergence of societal awareness and business interests helped bring about renewed attention toward the programs this year, said Brad Blower, general counsel of the National Community Reinvestment Coalition. 

“It’s kind of an aligning of the stars. Even though this vehicle to do it has been around for decades, it’s been underutilized, and now we have some momentum,” he said. 

But despite growing industry support, many lenders still eye SPCPs with some hesitation and caution. Lenders remain confused about how to implement the programs, said Laird Nossuli, CEO of iEmergent, a data intelligence provider serving the mortgage industry.

“They understand what they are, but they don’t necessarily understand the nitty-gritty, the nuts and bolts of how to get started on the ground,” she said. 

Lenders have long held back from offering SPCPs over fears that they would run afoul of laws and invite a lawsuit or regulatory action for violating the Equal Credit Opportunity Act or the Fair Housing Act, Blower said. 

“This is a special exception that’s allowed under the Equal Credit Opportunity Act,” he said, adding that the government also states it does not violate the Fair Housing Act.

But apprehension still has some mortgage companies keeping SPCPs at arm’s length, discouraging them from even designing the framework for a plan. 

“They’re worried they’ll put a target on their back by saying ‘we’re underserving these communities,'” Blower said. “But again, this is a special election where the regulators are expecting you to do this.”

The development of SPCPs, though, will turn out to be more than just about “doing the right thing” and helping improve neighborhoods, according to Nossuli. It is also a sound business decision in an industry where growth over the next 20 years is expected to come largely from minority borrowers, according to the Urban Institute. 

“When lenders are thinking about growth and sales, this needs to be central to their strategies,” Nossuli said.

In addition to plans for Freddie Mac to offer SPCPs, the GSE also said a down payment assistance portal was in development to help bring together the thousands of programs currently available, but which many are still unfamiliar with.

“Freddie Mac is trying to solve for that massive inefficiency in the system by developing this portal that ultimately will be available to borrowers themselves, but currently it is in beta testing with a number of housing counselors,” Perry said. Broad implementation of the tool is also expected to occur in 2023.