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Three Strategies for Embedding Equity in the Federal Housing Finance System

The central tenet of Fannie Mae and Freddie Mac’s missions is to make housing affordable to families with low and moderate incomes and other underserved people. In its latest effort to fulfill this mission, the Federal Housing Finance Agency (FHFA), which regulates the two government-sponsored enterprises (GSEs), established a new Equitable Housing Finance Plan (EHFP) requirement. It stipulates the GSEs must identify and address barriers to sustainable housing opportunities, with a focus on reducing racial homeownership gaps and underinvestment in formerly redlined areas.  

This requirement was developed in response to the long history of racism in access to mortgage credit, including on the part of the federal government, that has led to sizeable disparities in homeownership, investment, and home valuation between white households and households of color.  

Rooting out systemic racism and reducing racial disparities will require a sustained commitment to equity. But if equity isn’t embedded into all the GSEs’ policies and practices—in what Urban Institute researchers call an equity overlay—the EHFP risks becoming just one additional GSE planning requirement among many.  

Here are three strategies for the GSEs to effectively implement an equity overlay, based on the Urban Institute’s response to the FHFA’s request for input. They are grounded in research and evidence on reducing racial homeownership and wealth gaps and uprooting institutional racism. Though the strategies are specific to the GSEs, the underlying framework can be a model for other housing finance stakeholders to advance racial equity within their own organizations. 

1. Establish a clear vision and goal for “equitable housing finance” 

The first step in prioritizing equity is to clearly define what an equitable housing finance system would look like. Policymakers setting their desired racial equity outcomes can consider the following guiding questions: 

  • Are the outcomes focused? 
  • Are the outcomes measurable? 
  • Do the outcomes directly address legacies of race- and place-based housing discrimination? 
  • Do the outcomes align with the organization’s role in the housing finance system, with their statutory purposes, and with their business and policy motivations? 

So far, the FHFA has set two outcomes as the key goals of an equitable housing finance system: reducing the racial or ethnic homeownership gap and reducing underinvestment or undervaluation in formerly redlined areas that remain underserved or undervalued. We recommend it considers adding a third objective: improving the equitable supply of high-quality affordable rental housing for historically excluded households and areas. Renters are more likely to be people of color, so ensuring renters have quality, affordable options that allow them to save is another key step to achieving racial equity in housing.  

2. Operationalize equitable housing finance with clear and quantifiable goals 

After setting their equity objectives, the GSEs will need to grapple with what the overarching objectives will entail for business and regulatory practices. 


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