Fannie Mae, Freddie Mac unveil coordinated social bond framework

Fannie Mae and Freddie Mac announced a coordinated update to their single-family social bond policies, including the introduction of a new mortgage-backed securities label aimed at better serving their missions.

As part of the update to pertinent frameworks, the two enterprises, with the cooperation of the Federal Housing Finance Agency, will rename existing social indexes as well as adjust the criteria behind their formulation. The renamed Mission Index will put renewed focus on factors related to income, borrower and property attributes, and give investors more information about MBS tied to enterprise goals around opening up affordable housing opportunities through financing.

"By providing investors with greater insight into the mission-oriented lending activities underlying our mortgage-backed securities through our Mission Index disclosures, more capital may be allocated in support of affordable housing so that over time more people have better access to credit," said Devang Doshi, Fannie Mae's senior vice president, capital markets, in a press release.   

The net effect of reformulation would modestly reduce the qualifying borrower population for the new index compared to the previous one but better align the standards with market feedback, both government-sponsored enterprises said. New criteria that will help determine the Mission Index score include whether borrowers are residing in underserved markets or use special-purpose credit programs. 

The two enterprises, both overseen by the FHFA, will also update mortgage-backed securities disclosures within their single-family social bond framework. These will specify the collateral eligible to be pooled, issued and labeled as "Social MBS" based on the new index's scores. 

Fannie Mae will begin applying the new Mission Index to securitized pools beginning in March, with Freddie Mac following in June. The Social MBS label is set to appear on collateral of both enterprises in June. 

However, outstanding pools assigned scores through previous indexes will retain those values and not have the new policy applied.

Both Fannie Mae and Freddie Mac also plan to issue annual reports beginning in 2025 on the performance of their Social MBS labeling and policies to help markets understand the impact of loans underlying those particular investments. A review and second-party opinion of their new frameworks came from ratings and data firm Sustainalytics, which stated they were "credible and impactful."

"The framework is an evolution of our effort to provide MBS investors with actionable information and mission-driven investment opportunities," said Barbara Pak, Freddie Mac vice president and head of single-family securitization.

While the GSEs have launched bond programs focused on environmental, social and governance initiatives over the past several years, they accelerated efforts to build out the single-family segment between 2020 and 2023. The latest development adds further momentum and greater alignment to social investment efforts unveiled this past fall, when they provided disclosures for certain repooled securitizations, after Ginnie Mae's launch of a single-family social label and bond framework. 

Both Fannie Mae and Freddie Mac announced they would add social disclosure scores to single-family MBS pools in late 2022 in response to investor feedback. Purchasers of loans have looked for some of the features inherent within designated social MBS pools to help them meet fair lending requirements, housing industry leaders have noted.