Firms: Fannie Mae
20 February 2023
Meg Parker Younger and Devang Doshi define the pondering behind Fannie Mae’s first annual ESG Report and the brand new Single-Household Social Index
Environmental Finance: What steps is Fannie Mae taking to assist create extra equitable and sustainable entry to homeownership and inexpensive rental housing?
Meg Parker Younger: As one of many nation’s main sources of mortgage finance, Fannie Mae helps help the creation of housing with the properties we finance. We prudently allow entry to inexpensive housing for households of modest means and for underserved communities, with a robust concentrate on driving equitable and sustainable outcomes throughout the housing finance lifecycle.
We all know shoppers of various backgrounds face varied obstacles at totally different factors of their housing journeys, from early monetary schooling, to renting or making ready to purchase a house, in addition to a family’s capability to remain of their dwelling for the long term. We’re targeted on bettering equitable outcomes and accessibility at every of those factors alongside the best way.
Some examples of this work embody merchandise and programmes designed to help first-time homebuyers and really low- to moderate-income debtors, equivalent to by way of our flagship HomeReady® product which has an a variety of benefits, together with the flexibleness of a low down cost, decreased mortgage insurance coverage protection prices, and decrease prices of borrowing.
Within the US, on-time rental funds aren’t persistently included in a borrower’s credit score rating, which may impede entry to homeownership. To fight this impediment, we launched using optimistic lease cost historical past within the underwriting evaluation course of to assist debtors who’ve restricted credit score histories entry homeownership.
We have a look at methods to assist forestall foreclosures, together with sustaining sustainable credit score requirements and educating shoppers on renting and steady homeownership, particularly throughout financial downturns.
EF: Might you define the work you may have completed in your Single-Household Social Index? What do you hope to realize with it?
Devang Doshi: As an issuer of mortgage-backed securities (MBS), we take the ‘G’ in ESG very significantly. On this context, borrower privateness is a key part of our governance concerns.
In lots of securitised product sectors, the loans comprising a safety are made to particular person debtors. This dynamic presents a singular problem, as data desired by buyers to judge their funding could be mixed with different publicly out there information and tied to a selected particular person. That is additionally the case for single-family residential mortgages.
Against this, in multifamily residential financing, a lender underwrites a rental property. Any insights about tenants are aggregated on the constructing degree, and never particular to the people within the items.
The Social Index goals to steadiness offering buyers insights from the information behind our single-family residential MBS issued whereas nonetheless sustaining the privateness of the borrower within the underlying mortgage pool. Social investing can think about many delicate information components, equivalent to revenue, race, ethnicity, and property location, that shouldn’t be explicitly disclosed in an atmosphere the place borrower re-identification is an inexpensive threat.
By the Social Index (and different deliberate disclosures), we hope to have the ability to give buyers consolation that their MBS purchases are exerting a optimistic mixture affect on entry to credit score and the financial circumstances of all debtors assembly the Social Index standards. That is achieved by influencing lenders to concentrate on all debtors who meet these standards.
With the Single-Household Social Index, we now have designed an answer that helps shield borrower privateness, whereas championing socially oriented lending and giving buyers salient information insights in a marketable, consumable style.
EF: How can buyers use your Single-Household Social Index?
DD: In alignment with our mission, we included eight standards which mirror socially oriented lending actions that help inexpensive housing and entry to credit score. These standards additionally mirror the curiosity we have acquired from buyers searching for social funding alternatives.
We offer two disclosure measures per pool to supply buyers with data relating to what number of loans meet the socially oriented lending standards outlined within the index, and what number of of these loans could meet a number of standards.
The Social Standards Share (SCS) is the share of loans throughout the pool that meet any of the eight social standards. If it meets a number of standards, the mortgage is taken into account socially oriented
for functions of this disclosure.
The Social Density Rating (SDS) is the typical loan-level rating throughout the pool, which signifies concentrations of socially oriented lending actions by acknowledging some loans meet a number of standards throughout the three dimensions of revenue, borrower, and property-type.
Whereas these disclosures are supposed to supply additional transparency into socially oriented lending in line with Fannie Mae’s mission, in addition they present insights into how loans could prepay, which is the biggest measure of securities efficiency in Company MBS.
The SCS and SDS scores are actually displayed on the primary Bloomberg display screen for all typical MBS swimming pools – we hope this means that these scores will develop into business customary measures of social concentrations inside MBS swimming pools as buyers ponder social impression as a routine part of safety analysis on this market phase.
It is essential to notice that whereas these pool-level disclosures could help buyers in figuring out which swimming pools could meet their socially minded funding standards, we aren’t labelling any swimming pools as Single-Household Social Bonds. We proceed to think about suggestions from buyers, second-party opinion suppliers, and different market contributors to find out how you can strategy potential labelled issuance.
EF: What knowledgeable your choice making?
DD: Before everything, our goal was to steadiness buyers’ want for incrementally extra data to information funding choices, whereas contemplating the chance of exposing private (and probably delicate) data of debtors within the mortgages underlying our securities.
Second, we felt chargeable for the pivotal position Fannie Mae performs in US housing. We recognise that our disclosures typically set requirements available in the market, and we wish to be sure that our strategy is enduring and solves the goals we’re searching for. That final result, over time, is to extend entry to mortgage credit score for underserved households and people.
Whereas it’s early days, we’re hopeful that we have launched a accountable answer that meets these standards.
EF: What has been the market reception to this point?
DD: Fannie Mae has acquired an excessive amount of optimistic suggestions for being brave sufficient to take step one to suggest an answer. Past affordability, there isn’t any consensus on what ‘social’ seems like for the mortgage market – and little standardisation for securitised merchandise extra broadly past the MBS market.
Once we first launched these information disclosures, we went again and scored almost each Single-Household MBS since January 2010. Instantly, we generated an abundance of knowledge that may very well be made out there for socially oriented buyers. In each subsequent public sale of newly securitised swimming pools with a excessive share of mission-oriented lending, we now have seen a rise in investor participation. We consider we’re demonstrating that there’s appreciable non-public, socially pushed capital out there to the mortgage market within the US.
We respect that the Social Index could not present the granularity that some buyers could search. Nevertheless, the buying and selling and execution of those securities is suggesting that the strategy is working: the market is voting with its {dollars}.
We additionally proceed to hunt methods to additional help market adoption, together with probably offering further reporting and insights into socially oriented lending utilizing the Social
Index.
EF: What has been Fannie Mae’s strategy to ESG reporting?
MPY: That is an thrilling time at Fannie Mae in relation to reporting. Our ESG report builds on Fannie Mae’s ongoing dedication to transparency and data-driven disclosures.
Our 2021 report was the primary that explicitly demonstrated how our mission drives the best way that we prioritise and execute on environmental, social, and governance points – and the way it pertains to our stakeholders – whereas offering sturdy information that align to world and worldwide frameworks the place attainable.
We report in alignment with SASB [Sustainability Accounting Standards Board] requirements and the Job Pressure on Local weather-Associated Monetary Disclosures (TCFD) framework, and we look ahead to persevering with to innovate in our reporting to drive a deeper understanding of Fannie Mae’s mission and impacts over time.
EF: How has your impression reporting strategy advanced?
MPY: We have been proud to be an early mover and an enormous innovator within the inexperienced bond house and we have been disclosing projected impacts from Fannie Mae inexperienced bonds that date again to 2012.
We offer transparency into the estimated environmental, social and financial advantages of these inexperienced bonds.
Now we have seen rising curiosity from buyers to know the impacts for our Multifamily Social Bonds – labelled bonds we first launched in 2021. And, by way of the disclosure of the Social Index correlated information, we’re wanting ahead to with the ability to give rising visibility on Social Index parameters on the single-family facet as nicely.
For Fannie Mae, social impression is our bread and butter. We’ll proceed our work to extend visibility into the social impacts of our work and hope to spark larger business dialog and understanding of the shoppers and their housing journeys throughout the US that this work helps.
EF: What are your plans for 2023?
DD: We stay targeted on how to make sure that the Index or labelled Single-Household Social Bonds can enhance borrowing prices and liquidity for underserved debtors. We have additionally had requests from buyers to supply a ‘equity rating’ for our mortgages. They wish to know if loans have been made on equitable phrases and if the mortgage price is in line with the market prevailing price. We’re engaged on how to herald that dimension.
MPY: Now we have taken the time to actually perceive the problems which are of the best significance to Fannie Mae, our stakeholders, and the broader housing market – and the way we are able to drive impression by way of these. So, this yr is all about execution. Particularly, we’re digging into the intersecting problems with housing stability, racial fairness, local weather threat, and different elements affecting housing and the atmosphere, and the precise position that we are able to play to create environment friendly and efficient market situations that help equitable outcomes.
These points cross geographies, generations, and socioeconomic standing, and would require ongoing engagement, partnership and transparency of goals and outcomes. We’re excited to proceed shifting ahead on this essential work.
Meg Parker Younger is vice chairman, ESG technique, and Devang Doshi is senior vice chairman, capital markets – Single-Household Merchandise at Fannie Mae.
For extra data, see: www.fanniemae.com/about-us/esg
