Fannie Mae planning affordable-housing initiatives

The first pilot program is aimed to make it cheaper to obtain loans for new-home construction

Fannie Mae planning affordable-housing initiatives

Fannie Mae is considering a set of initiatives that would address the lack of affordable homes in the US real estate market, Bloomberg reported.

Fannie’s first planned pilot program aims to help prospective homebuyers obtain loans to construct new homes by eliminating barriers borrowers face in the process.

Usually, a borrower would take out a temporary bank loan upon hiring a builder. It is only when construction is completed that the bank or another lender would refinance the loan into a mortgage, according to the report.

Meanwhile, lenders take on risks with new constructions as they may find themselves holding a loan on their books for a long period. Although they can make a mortgage and sell it to Fannie, they cannot do so until construction is finished, Bloomberg said.

Under Fannie’s pilot under consideration, the lender can sell the loan to Fannie on the first day of construction. The loan would then be mixed with traditional mortgages into mortgage-backed securities that would make the construction loans cheaper and easier to get without securitization. Fannie’s plan would see the borrower make payment only upon moving in.

The Federal Housing Finance Agency still needs to finally approve the pilot, according to the report, citing Jon Lawless, Fannie’s vice president for product development and affordable housing.

“Everything is about supply right now,” Lawless said. “With these activities that we’re undertaking, we hope we can find something that finds a fast path to more supply.”

Lawless said Fannie is also looking into how it can help borrowers rehabilitate dilapidated homes at lower costs, the report said.

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