What is Fannie Mae’s “Duty to Serve” Initiative?
We sat down with Ben Navarro this week to discuss Fannie Mae’s “Duty to Serve” initiative which is how Fannie Mae is fulfilling Congress’s mandate for Fannie Mae to participate in helping three underserved markets.
Supporting these three markets should help create the availability of more affordable housing without government subsidies. As you listen to the podcast, you can learn how sustainable affordable housing availability can be affected by many things, things as simple as standards written for lenders for particular loan types.
Enjoy the podcast (or the transcript below)!
The transcript has been lightly edited for clarity purposes.
Mauricio Chacra: All right. All right. Welcome back to another episode of the Doublewide Dudes. Today our guest is Mr. Ben Navarro. Thanks for joining us, Ben.
Ben Navarro: Thank you guys for having me, it’s a pleasure to be here.
Alberto Pina: We’re excited to have you here. And for our listeners, to give you a little bit of Ben’s background. He manages Fannie Mae’s activities related to their single-family manufactured housing “Duty to Serve” plan, which we’ll get into more here in a bit.
He received his undergraduate degree from the University of Virginia and a Master of Public Policy from Georgetown. Ben has been in the financial services industry for a while now, since 2006, working for various organizations, including Capital One and the FDIC, so a lot of experience there.
He has been in his current role at Fannie Mae since 2018, working on things like the launch of the MH Advantage loan product, which we’ll talk about more in depth here in a bit. And the modification of several of Fannie Mae’s manufactured home policies on the outreach and research about manufactured homes and how they can possibly play a role in solving some of the affordable housing issues.
He focuses on loans made to manufactured home buyers to purchase manufactured homes titled as real estate. So, we’re really excited to have you, Ben. I think this just goes hand in hand with what we’ve been talking about on here. For our audience, I know many of them may have heard about Fannie Mae on the news or something like that. But just to kick us off, what is Fannie Mae and how do they play a role here?
Ben Navarro: Yeah, it’s a question that I didn’t totally know how to answer until I joined, so I totally get that. Let me start off by being really humble and saying that Fannie Mae is the leading source of financing for mortgages in the United States.
So, for example, earlier this year, we issued a report that stated that Fannie Mae has financed approximately one in four single family mortgages in the U.S. So obviously, a big player, but what does that mean? We often refer to our role as providing liquidity to lenders, which frees them up to make more loans to credit worthy borrowers than they would otherwise be able to do.
As you mentioned, we operate both a single-family business and a multifamily business, and I work on the single-family side. So, our single-family business helps lenders originate mortgages in a safe and sound manner. Using our funding, it allows them to originate loans such as the 30-year fixed rate mortgage.
It provides homeowners with a stable, predictable mortgage payment over the life of the loan. And as folks are aware, it remains the single most popular loan choice among home buyers. Also, under our single-family business though, we develop products aimed at specific markets and specific types of homeowners, manufactured housing being one submarket. So, I’m sure we’ll talk a little bit more about that today.
Mauricio Chacra: This is the first time I’ve known what Fannie Mae actually means, and I’ve heard it so many times, right?
I know your role in Fannie Mae deals with the Duty to Serve Initiative. Can you tell us a little bit about the Duty to Serve Initiative and how it came about?
Ben Navarro: Yeah, absolutely. Duty to Serve is a really important part of what Fannie Mae does. So, I’ll give you a little history. Back in 2008, coming out of the great recession, congress passed the Housing and Economic Recovery Act of 2009. Sometimes people call it HERA. This law guides all sorts of activities across Fannie Mae, but notable for this conversation, it specifically mandated that we address three underserved housing markets where access to affordable mortgage financing has faced persistent challenges. So those three markets are manufactured housing, affordable housing preservation, and rural housing. So that’s the way back in 2008.
In December of 2016, Fannie Mae’s regulator, Federal Housing Finance Agency, published regulations that implemented this law. So, the following year in 2017, Fannie Mae developed a Duty to Serve Underserved Markets Plan, which was formed with input from across all of the three impacted industries, as well as the public. There was significant public feedback gathered, and ultimately the plan put forth specific actions that Fannie Mae would take over a three-year timeframe in 2018, 2019, and 2020.
Our regulator FHFA, oversees our implementation of this plan and issues regular evaluations of our performance on its public webpage. I’ll just note quickly that beyond 2020, since we’re getting towards the end of the year, Fannie Mae will continue to address its Duty to Serve obligations through subsequent plans and activities. And we’ll talk a little bit more about some of the information that’s coming down the pipe that the public can take a look at soon.
Mauricio Chacra: In 2008, when the housing crisis came about, the main conversation or focus point, they went into those three topics that you talked about, manufactured housing and the other two.
So, the point of Duty to Serve is to essentially put focus on those, to say, “Hey, let’s not let these areas become disaster areas again,” right? Where they can so negatively impact people and families.
Ben Navarro: Yeah. That’s right. And I would also say there’s, there’s a long history where these, these markets have been underserved.
That’s why it’s referred to as the underserved market plan. So, I’m getting Fannie Mae more involved with a specific focus on each of these new markets. We think it only helps.
Mauricio Chacra: Yeah. I agree. I know Fannie Mae’s not actually set up to make loans directly to consumers. You guys just purchase loans off the hands of banks and other lenders that make the initial loans. How does buying loans help borrowers in an underserved market?
Ben Navarro: Yeah. Great question. So, as I mentioned a moment ago, one of our key roles at Fannie Mae is to provide liquidity to lenders, enabling them to use their market expertise to make more loans than they otherwise would be able to. So, to do this Fannie Mae purchases loans from lenders, packages those loans into mortgage backed securities, and then sells those securities to investors.
We refer to this as operating the secondary market for conventional mortgages. In practice, what this means for a borrower is that they have more options for more lenders at competitive interest rates. One other underrated benefit that I think we should mention is we only buy loans that meet the standards published in our selling and servicing guides.
And these are public documents that anybody can take a look at. What that means is we promote standardization across the entire conventional mortgage lending industry. Which again, can be helpful for the consumer, but can also be helpful for lenders wanting to do this business.
Alberto Pina: Affordable housing is definitely something we’ve we talked about at length on this podcast, but right now, you know, it’s not a problem that affects everybody. From your perspective, why should the average American care about what is going on in the affordable housing conversation?
Ben Navarro: Well, I would start by looking at some of the broader trends in the housing market. They really shine a light on the challenges with regard to affordable housing.
So, home production has been historically low since the great recession. So even though it’s been 11-12 years, home production still hasn’t rebounded fully. We’ve also noticed that the homes that are being built tend to be concentrated towards the higher end of the market.
So, for example, if you take a look at the share of new single-family homes that sold for less than $250,000 today, it’s a very small segment of the market. But as recently as 2012, it made up about half. So, we’re seeing as time goes on, there are fewer and fewer newly constructed homes that are truly affordable for a lot of first-time home buyers.
I’ll note that Fannie Mae does have several products such as the Home Ready Mortgage, that address first time home buyers and low-income home buyers. But we also want to be thoughtful about the limitations to what lending products can do, so we can make an impact on the lending side. But if there are no affordable homes for a person to purchase, then our impact ultimately is going to be limited.
So, we believe that a critical part of the affordable housing solution is influencing more affordable supply. Now, as we talked about earlier, Fannie Mae can’t make loans, so, we certainly can’t build homes, but we think that supporting [Manufactured Housing], because of its advantages in the cost of its production, can be a big driver in this effort.
So, we’ll talk about some more specifics about what we’ve done and what we’re looking to do. Let me just briefly mention a couple of recent policy innovations that we think will make MH more accessible to Fannie Mae. So, one thing to note is that, we just recently about a month ago, allowed MH to be used as an accessory dwelling unit.
That doesn’t work everywhere. There are lots of places that have tried accessory dwelling units and it can be challenging, but in, in markets where it can work, I think MH has an obvious solution there.
Another thing that I’ll just preview since we’re hopefully gonna talk about it a bit more later is a product called MH Advantage, which we think can bring a new potential buyer to this market and expand the use case for MH from where it is today.
So, ultimately, we know that these are still small steps, but we think these are meaningful steps towards driving more affordable housing supply. If we succeed, we think not only do more people become homeowners, but as research has indicated that other people have done, those homeowners gain access to a key wealth building tool in the form of home equity. So, definitely a worthwhile endeavor here.
Alberto Pina: And the supply is a big part of the equation of solving that problem. The Duties to Serve particularly focuses on three areas, manufactured housing, affordable housing preservation, and then rural housing. Are these the areas where y’all feel that supply is needed the most, or why are those three areas singled out as the opportunities for Duty to Serve?
Ben Navarro: Yeah, I would say that affordable supply is an enterprise wide goal that folks across our organization are thinking about, and not necessarily tied to these three markets. The reason that we’re talking about these three markets is that the Duty to Serve regulation addresses a specific legal mandate that Congress has put forth in 2008 that we talked about earlier.
Congress selected these three markets, because they were important underserved housing markets that faced persistent challenges. I won’t speak for Congress’ reasoning for that, but here’s what I’ll say. I’ll affirmed that Fannie Mae agrees that focusing on these markets is the right thing to do.
Just to back that up, let me share a couple of statistics that you can see in our public Duty to Serve plans, to illustrate some of the unique problems facing these markets. So, the first number is 9.6%. That’s the percentage of income that homeowners spend on utilities, fuel and public services, who were making under $20,000 annually.
This is a metric that we keep a close eye on in our affordable housing preservation plan, because one part of affordable housing is ensuring that the borrower can continue to live in the home in a sustainable way. And energy costs are important.
Another statistic I’ll point out is 96 out of 100. So that’s the number of the poorest US counties that are located in rural areas. 96, out of 100. There’s clearly a reason to be thoughtful about rural lending. Finally, 22%. 22% of manufactured housing residents have incomes at or below the federal poverty line. This makes the need for affordable, responsible lending, all the more obvious and critical for manufactured housing.
So, these are just some high-level numbers, but I think really it does hammer home that it makes sense that Congress selected these markets. So, Fannie Mae’s pleased to pursue the Duty to Serve.
Mauricio Chacra: Last episode we were talking with Ms. Stacy and we were talking about that. It’s interesting to listen to it because when you’re looking at this in scope, we always talk about how the big city is going to have the affordable housing crisis as an issue. But if 96 out of 100 poorest counties are rural, it’s worth bringing up.
I know with the whole COVID thing going on, it’s affecting everything, right? Our business as well. Has COVID-19 affected the implementation of Duty to Serve, or how has that been going?
Ben Navarro: Unfortunately, yes, you can’t avoid COVID in 2020, and it really has changed the way we we’ve pursued some of our activities and our Duty to Serve. So, as mentioned, there are three separate markets each with their own Duty to Serve plan, and I work on the manufactured housing portion. So, I think what I’ll do to give you some color on how it’s affecting us is to speak to one of our key projects, which is MH Advantage. So, we’ll talk about MH Advantage in a little bit more detail, but for now, what listeners need to know is that MH Advantage is a relatively new product that Fannie Mae introduced to the market in mid 2018.
And it requires a great deal of interaction with the broader MH industry. In general, not being able to travel and promote MH Advantage has really slowed down its adoption, we believe. Normally we’d be introducing folks to it and answering questions about MH Advantage, with retailers, developers, lenders, appraisers, and others.
But today, we can only do these things virtually. We also believe that limited capacity has limited what our partners in the field can do. So, for example, the COVID-19 pandemic has produced unexpected impacts such as diminished lender capacity to roll out product changes or introduce new products. Rather, we see them focus on lines of business that are more straightforward and familiar, rather than things like MH Advantage.
We’ve also observed some limited capacity among our community partners, who are critical to the success of many of the Duty to Serve projects in that they advocate for our programs within their communities.
These partners might be community organizations, nonprofits, housing counselors, and folks in our longstanding networks out there in the field. But I also think that it includes MH retailers and dealers who we’d love to work with in person to bring the products to market, that ultimately, we might finance.
You know, in the past, we’ve attended multiple housing shows a year in addition to several state and national MH conferences. And it’s really been a boon to the presence of MH Advantage in the market. But obviously our ability to continue to build that network has been limited this year.
So, long way of saying, thanks for the opportunity to connect with you guys virtually, because I think this is the next best thing. And hopefully sooner, rather than later, we can meet up in person.
Alberto Pina: Yeah. I think in a lot of ways, this podcast is almost become kind of a sampling of history across the country. And (we’re) finding out how organizations like yourself or some of the others we’ve talked to are adjusting. Everybody’s impacted, like you said, and Zoom calls aren’t necessarily better than in person, but it’s definitely the next best thing, you know, and podcasts like we’re doing now are a good way to continue that education component there too.
Your bread and butter is manufactured housing, and that of course is our sandbox as well. Specifically, to MH in this industry, what is Fannie Mae doing to affect lending in this space as part of the Duty to Serve?
Ben Navarro: So ultimately, what Fannie Mae’s metric for success is, is increasing the number of MH loans that we finance.
As we described earlier, that allows MH lenders to free up capital and lend on more MH, which ultimately increases supply of this kind of affordable home. But we look to do that in a number of different ways, some of which deal with lenders directly, but some of them with the broader MH ecosystem.
So, some examples are our work we’re doing on the research side. We’re also looking to promote MH in new settings where it’s not typically used today, and then as alluded to a little bit earlier, we’re looking to update our policies to make us more competitive in the MH space, so that we can ultimately finance more of those loans as they become originated.
So, I’ll share an example of one of each of those things, but folks can see in our public Duty to Serve plan, plenty more examples of the kind of work we’re doing in these three areas. So, on research, I’ll just note that we recently published a comprehensive overview of state titling requirements for MH that covers all 50 States and the District of Columbia, which lenders unfamiliar with MH can reference. Along with their own legal experts, we think this can overcome the most common risks, one of the most common risks that that lenders mentioned to us which is the concern that the home will not be properly titled as real estate and thus not eligible for delivery to Fannie Mae.
Now I know folks listening to this who do this business every day, might think that this is a strange topic to be spending so much time on. But again, think about Fannie Mae’s role. We have a large group of lenders that we work with and not very many of them do MH. So the more that we can make that population more familiar and comfortable with this product, in this case, by highlighting the key differences and giving them tools to overcome those differences on a titling side, we think that can help improve our competitiveness in the MH space.
On promoting MH in new settings, we recently completed an analysis of geographic markets across the U.S. and the cost of both site-built and MH housing. We identified several markets where MH and specifically MH Advantage offers meaningful savings as compared to site built construction. And we’ve used this research as the basis for a number of outreach efforts where Fannie Mae’s looking to connect with developers and lenders to begin adopting MH in developing new subdivisions. We’re hopeful that this can introduce a new group of consumers MH and expand affordable housing supply to new locations where it doesn’t exist today.
And now on policy updates, there are several. We’ve introduced a number of policy updates since the Duty to Serve began, but one recent update I’ll mention again is the permissibility of an accessory dwelling unit or AGU in several markets.
We think this can be a meaningful solution to housing shortages, and MH now qualifies as an eligible ADU property type. Moving off of ADUs now, one of the more successful policy changes from last year was allowing MH borrowers to use construction to permanent financing structures in order to acquire a new home from retail.
Previously, borrowers had to use a fully amortizing loan to purchase a new home, which can be challenging for some people, especially those with cashflow constraints. Cause, when you think about it, if you have a fully amortizing loan at the same time, you’re paying rent while you’re waiting for that home to be completed, it’s gonna filter out a lot of people, especially those in the affordable segment that we want to focus on. So, this construction to permanent structure can make that a little bit easier. So those are just a few examples of the kind of work we’re doing. just to give you a little bit more color on how we’re going to get to that ultimate goal of purchasing more loans.
Mauricio Chacra: The more and more we talk about financing, MH has just been a conversation brought up this year with us. People are just more and more listening to what’s available and what can be done. But how do these changes to lending in the manufactured home space, as far as when you guys are doing impact the manufactured housing industry?
Ben Navarro: I mentioned this a little bit before, but we think if we can get more lenders more comfortable with lending on MH, we think that we can meaningfully expand the number of loans that they purchase, which would inject more liquidity into the market.
We’ve seen in the early years of Duty to Serve that more lenders are doing this business. So, we think that whatever we’re doing, whether it’s the outreach, whether it’s providing resources like the titling resource I just mentioned, it is in fact attracting more lenders into this space. And we’ve seen a general upward trend in our MH business, which has been really promising.
But beyond this, we think Fannie Mae will play a role in attracting more lending to the MH market. Even if we don’t ultimately purchase the loans as more lenders become comfortable with this housing type, say, by familiarizing themselves with titling, the more chance there is for maybe some lenders generating loans that they keep on their own portfolio, or for government loans or for even loans to our competitor, Freddie Mac. While we clearly prefer to be the ones doing this business, we can’t deny that it’s beneficial for affordable housing supply for everybody to increase their presence in this space, which benefits everybody. So, it’s incremental and ultimately every year, Duty to Serve kind of builds a little bit on the year before it, but so far, we’ve seen some modest progress and we’re looking forward to continuing to build on that.
Alberto Pina: And I think MH Advantage (homes) or CrossMods, this program as a whole, it’s probably one of the biggest things I’ve seen come across our industry from a lending standpoint in the 11 years that I’ve been doing this. You know, having things, like you talked about the importance of utilities on the impact of someone’s budget in the income brackets we tend to serve. So, having things in place from your standpoint where it standardizes energy efficiency, standardizes certain components of the construction here to make sure that these homes are establishing long-term equity, in exchange for these homes being treated more like a modular or traditional stick-built home, I think is going to be huge for this industry.
And it’s definitely something we talked a lot about internally as a company, but it doesn’t seem, in looking at the market, like these types of homes are getting the traction we expected. We expected to just see this take off across the country. What are you seeing or what do you suppose needs to happen here to see a greater market acceptance of this product?
Ben Navarro: It’s a tough question, but it’s a fair question. And it’s something that we’ve spent a long, long time thinking about. Since MH Advantage, by the way, is the loan product that Fannie Mae’s developed to finance these types of homes. Other people have different terms they’ll use to refer to the homes, cross mod being one of them.
But MH Advantage is the term I’ll use since that’s the Fannie Mae product. And we believe that MH Advantage really is an important component of our broader affordable housing supply strategy. So, let me speak a little bit to the challenges in two parts. So first I’ll talk about some of the process challenges that we’re facing in terms of working a little bit outside of our status quo.
And then second, I’ll talk about some substantive barriers that we’ve identified in talking to the industry and some of the steps that we’re actively trying to overcome. So, on process, as I discussed a little bit earlier, Fannie’s in the business of purchasing and securitizing loans that meet our eligibility standards.
But MH advantage, if you think about it is the first time that we’ve ever moved upstream in the value chain to try to generate interest in a specific type of housing stock. We don’t really have any experience in marketing our loan products to anybody other than lenders. So, we’re still figuring out what works when we communicate with non-lenders, retailers, subdivision developers, manufacturers, and others.
And then on top of that, you have to note that historically manufactured home lending of any kind has constituted a very small portion of our business. And most of that has been the purchase of existing homes or the refinancing of existing mortgage loans. So, financing newly constructed homes in the form of an MH Advantage loan is brand new to us and something that we’re working through, on what’s ultimately a pretty challenging learning curve.
Also on the process side, I’ll note that MH Advantage assumes that all parties will come together, such as consumers who are interested in that kind of an MH product, and are interested in conventional financing, retailers and dealers who are familiar with and amenable to the requirements of MH Advantage, and the lender that can offer a financing product that is approved to do business with Fannie Mae.
All of these things have to align for the loan to get done. And for any given transaction, none of these things are guaranteed. So, a consumer who purchases a manufactured home today, statistically is less likely to qualify for conventional mortgage at all, or maybe they’re uncomfortable with some of the loan terms that are offered.
Well, if that consumer chooses not to pursue a conventional loan, then it doesn’t become an MH Advantage loan with all of the beneficial loan terms that come with it. So, all that to say, we’re learning how to work through this ecosystem that’s not familiar to us. But it is a learning curve and it has kind of slowed down some of that initial adoption.
Beyond those general process challenges, we’ve also heard three consistent themes through the MH advantage rollout process, that we’ve heard need to be addressed. So, those are appraisals, titling and zoning. So, on appraisals, we’ve heard concern from folks within the MH ecosystem that an improper appraisal can jeopardize a deal and it’s a risk that people are wary of.
We’ve done a great deal to clarify how MH Advantage homes should be appraised. We’ve issued clear guidance on this topic. But to make sure that information is received by the people who need it, we’ve recently launched a continuing education course for appraisers on this topic. We did that in partnership with one of the leading providers of appraiser education, McKissick, and we hope that by getting the information out there on what is and is not expected of an MH advantage appraisal, we can clarify some of that perceived risk.
So, listeners to this podcast who want to learn more about this continuing education for appraisers can check this out by going to fanniemae.com/mhappraiser. As we’ve mentioned a couple of times now, some lenders have noted that the reason we don’t see loans on new homes is that there’s a lack of familiarity by lenders on how to convert title from personal property to real property. Or in some cases, maybe you have lenders that are familiar with that in some of the states where they operate, but not all of the states where they operate. So, to address this, we issued a resource for lenders, clarifying their requirements for titling MHS and real estate in all 50 states and the District of Columbia. Again, listeners who are interested, can check out what I’m referring to by going to fanniemae.com/mhtitling.
And then on the zoning front, I’ll be straight forward. Fannie Mae is not active in this space. It’s not our role to promote local government zoning policies, and we’re not permitted to do lobbying, but we believe that our work to encourage the adoption of MH in subdivision settings, which would occur in places where existing zoning regulations allow MH, could be a proof of concept for the way that these homes can be used and is the information that we think other governments might pay attention to.
So, in sum, I’d say that we would agree MH Advantage isn’t where we want it to be yet, but we have a good idea of where we need to help promote adoption. And we’re committed to taking the steps to do that. Additionally, we’ve developed great relationships with key stakeholders across the MH industry, and we’ve tapped them for guidance as we continue to grow the program. So, I’ll assert that Fannie Mae remains committed to growing MH advantage. Because we believe it really is a readily available high quality un-subsidized source of affordable housing to consumers, which as I mentioned earlier, is an important challenge that we’re trying to, overcome.
So that’s where we are with MH Advantage and we’re looking forward to working with folks like you to get it done.
Alberto Pina: Yeah, I know internally that’s just a product both on the lending and the factory side, we’re just super excited about it. Just like anything worthwhile, it’s going to take some time before we really see the full impact.
Mauricio Chacra: Yeah, I hundred percent agree. Ben, one of the focuses in the areas for the Duty to Serve initiative is rural housing, even though most folks think affordable housing is a big city problem. Could you share with us your thinking about that, and why it’s not only a big city problem, but what’s actually going on in rural America as well?
Ben Navarro: Yeah, absolutely. I should preface this by saying my focus really is on manufactured housing and we have another lead in our rural housing work. But I spoke to her a little bit about this and I’ll share a little bit at a high level about rural housing being an important focus for affordable.
So, in rural areas, housing options are affected by persistent and pervasive poverty, more so than non-rural areas. One thing you’ll note is that rural residents are often older, for example. Consequently, there’s a lower demand for new housing and a limited ability to finance new home ownership.
In the last 10 years, on average, about 30% of rural loans fit the definition of affordable loans, which is based on the share of loans originated by borrowers with incomes of 80% or less of the area median income.
So, the share of affordable loans in rural markets has increased slightly since 2013 and rural markets have a greater share of borrowers with incomes less than or equal to 80% of AMI than urban markets in recent years. When you look at the kinds of housing in rural areas, multifamily units make up a relatively small amount of about 6%. Site built single family units account for about 80%. And then manufactured housing accounts for about 14%.
So, what the data tells us is what we might Intuit ourselves, which is that rural and MH are overlapping markets. And as such, we’re always looking for ways to address the needs of both markets at the same time with targeted actions.
Mauricio Chacra: Another aspect is the affordable housing preservation. It turns out to be a pretty broad topic, but what kind of things fall under the umbrella of affordable housing preservation that our listeners can understand that a little more?
Ben Navarro: Again, I’ll preface this by saying I am not the lead in our affordable housing preservation work, but as we’ll talk about and admit it, there is some overlap in the work that I lead in MH.
So, if you look at the plan, there were three sets of single-family activities that fall under the affordable housing preservation plan. The first is energy and water efficiency. The second is shared equity programs, and the third is distressed properties. These are each pretty significant topics with a lot of complexity.
So, I’ll just try to give a high-level overview of each. So, addressing energy in water efficiency is particularly important for very low, low- and moderate-income consumers because utility bills would make up a greater percentage of their monthly expenditures relative to a higher income household.
According to the U.S. Bureau of Labor Statistics, those earning less than $20,000 spend 9.6% of their income on utilities, fuels and public services, compared to just 5.8% spent by those with incomes above $70,000. Significant barriers exist though for very low, low, and even moderate-income households to make energy or water efficiency improvements that will yield them savings.
Home energy repairs and improvements may require a large amount of upfront capital, and many of these populations don’t typically have that. So, a lot of our work in this space is to try to come up with cost effective ways for these families to potentially address energy and water efficiency in their homes.
The second topic I mentioned is shared equity. So, shared equity home ownership programs would enable eligible individuals and families to purchase homes at below market rate prices. And in return for that subsidy, the programs require that any capital gains are restricted on the home, or that the share of the appreciation of the home be shared with the nonprofit that operates the program. Shared equity home ownership programs with resale restrictions are often recognized for preserving affordability and can include deed restricted home ownership or a structure you might be familiar with called community land trusts.
And then the third topic is distressed properties, which, by definition in our plan is homes that are eligible for a short sale eligible for foreclosure sale or are acquired through a foreclosure and are known as REO, or real estate owned. Often properties entering REO inventory need some sort of repair or improvement to bring them up to code or to make them marketable.
Some properties need extensive repairs. Other properties may benefit from upgrades and retrofits to increase energy efficiency, which would reduce housing expenses for very low, low, and moderate-income homeowners. However, they may have challenges in purchasing properties that need repairs for a number of reasons.
So, that’s affordable housing preservation at a high level. You can see that across each of these three areas, there are a number of challenges, but as you can also tell, MH can overlap with each of these three submarkets, energy and water efficient MH. MH located in shared equity structures like community land trusts and distressed MH properties are all opportunities for us to work with our counterparts in the affordable housing preservation space. And it’s actually something we’ve done on several occasions and we’ll continue to do so.
Alberto Pina: That’s awesome. Y’all definitely have a lot going on there, and y’all are about to wrap up, what’s been a three year period for this initiative. Between your team and the other teams you mentioned, what does the future look like for Fannie Mae’s tenured work, helping to solve these underserved groups?
Ben Navarro: Well, I gotta say the timing for this podcast is great. So, a few weeks ago, our regulator FHFA posted our proposed plan for 2021 on its webpage for public feedback. And for the next few weeks are encouraging the public to share any thoughts they might have on our proposal. I’d encourage anybody listening to check out our proposed plan and to share that feedback with FHSA.
As the plan isn’t yet final, again, this is open for discussion, I won’t comment on the specifics of what’s in that plan, but I think you’ll see that our hope is to continue the work that we began to be at in the first three years of the plan by expanding our loan purchase work and increasing our footprint in this market.
So next year we think it’s going to really be an extension of some of the good work we’ve done in the first three years.
Alberto Pina: That’s awesome. I know we have an active audience that really looks to get involved in how they can continue these conversations in their cities. And it sounds like this is a plan that’s being proposed for the public to weigh in and really have an active say in what the future looks like for affordable housing.
Where can our audience learn more about what y’all are doing in your Duty to Serve initiatives and in the plan you just mentioned?
Ben Navarro: Please check out our team’s webpage at fanniemae.com/dutytoserve. There you’ll find the written plans against which our regulator holds us accountable.
You’ll find also a number of resources like, some of the research that I mentioned earlier, and some summaries of the work that we’ve done in the past, and you’ll also find contact information for our Duty to Serve mailbox, if you have any questions or comments for us.
Also, on that page, you’ll find a link to our regulator FHFA’s Duty to Serve webpage. And there you’ll find a lot of detail on the, on both GSE’s plans; so, both Fannie Mae and Freddie Mac. And, you’ll see links to our proposed plans beyond 2020, as well as some evaluations of our past work. So, I would really encourage folks interested to check out the resources that we have on our page, which can then direct you to some other places as well.
Alberto Pina: Awesome. Well, I know I definitely learned a lot. I hope our audience did. And thank you so much for coming to join us on the podcast. And hopefully one of these days we’ll see you at one of these home shows and Mauri and I can record a live podcast with you and catch everybody up to speed on what’s happened since we last talked.
Ben Navarro: I would very much enjoy that, looking forward to it. And thanks again for having me guys.
Mauricio Chacra: Thank you, Ben. Thanks for jumping on and sharing all your knowledge. That does it for this episode, guys. Thanks for tuning in and we’ll catch you guys in the next one.