Fannie Mae, Freddie Mac to incorporate social disclosures in MBS issuances

Government-sponsored enterprises Fannie Mae and Freddie Mac both announced plans this week to provide social disclosure scores for their pools of mortgage-backed securities.  

The inclusion of the information results from investor feedback, while also underscoring efforts at both GSEs to develop more responsible business practices through environmental, social and governance initiatives. Disclosures will help investors determine the concentration of loans with specific characteristics in MBS pools. Reporting from Fannie Mae and Freddie Mac will include two components, a social criteria share and social density score, assigned at the time of MBS issuance. 

“Investors are eager to know whether their investments in Freddie Mac MBS pools are supporting minority borrowers, first-time homebuyers, low-income buyers and low-income neighborhoods,” said Mark Hanson, senior vice president for securitization at the McLean, Virginia-based GSE, about the incentive to create a score index. 

Its social criteria share indicates the portion of loans in a pool with any of eight different attributes, which also include minority tract, high-needs rural, designated disaster area or manufactured housing, according to Freddie Mac. The social density score assigns a value to loans based on the criteria satisfied.

“We view the index as a good step in the evolution of social MBS issuance, and look forward to working with the market to drive further developments,” Hanson said in a press release.

Scores will be assigned to all active, inactive and paid MBS pools formed since early 2010, according to both GSEs. Beginning on Dec. 2, they will disclose scores of new pools at the time of issuance. Historical data for previous issuances will also be released by Freddie Mac on that date, while Fannie Mae published its scores for past pools this week. 

“We’re excited to release the new social disclosures after receiving positive feedback on the proposal over the last several months,” said Devang Doshi, senior vice president of single-family capital markets at Fannie Mae, in a press release. 

The latest announcements come as both Fannie Mae and Freddie Mac have made concerted efforts to address ESG issues over the past few years. Both companies introduced new chief diversity and inclusion officers this year and also have also been instrumental toward the inclusion of rent-payment history in mortgage underwriting decisions — a move that is expected to benefit minority borrowers. Earlier this summer, both also released three-year equitable housing plans. 

In 2020, Fannie Mae introduced green single-family securities consisting of mortgages used for the purchase of energy-efficient homes. Freddie Mac followed suit in 2021 with a similar MBS issuance, consisting of more than 2,000 green refinance loans. 

Fannie Mae’s incoming CEO, Priscilla Almodovar, is also widely respected as an affordable housing expert. She takes over the helm at the Washington-based agency on Dec. 5. 

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