The American Bankers Association today filed comments in response to the Federal Housing Finance Agency’s recent request for input on a single-family social bond policy for Fannie Mae and Freddie Mac, with the association offering considerations should the agency further pursue the policy. In 2021, the two government-sponsored enterprises began multi-family affordable bonds under the framework of environmental, social and governance securities. ABA noted in its comment that while ESG investing has existed in different forms for a long time, the topic remains controversial. “Therefore, we believe it is important that FHFA proceed cautiously when considering developing any single-family social bond program,” the association said.
Pointing to the reactions to the agency’s loan-level pricing adjustments, ABA said that any government-directed efforts to achieve social outcomes can be controversial, especially if they are not well articulated or well understood. “A single-family social bond program could elicit the same (or greater) levels of controversy unless it is developed transparently and with broad public input that is provided through notice and comment, as well as public hearings,” the association said. “We would encourage FHFA to undertake a rigorous development and vetting process not unlike the effort that went into the creation of the uniform mortgage-backed security (UMBS).”
ABA also noted that the payments received by the GSEs from the sale of UMBS establish a broad, stable and liquid secondary market that vastly expands the availability of mortgage credit for low- and moderate-income borrowers. “Social bonds could undermine the functioning of the secondary market if they incentivize the GSEs or other market participants to purchase or price certain loans over others based upon their attractiveness for a social bond,” the association said. “Disruption to the fungibility of UMBS or to the functioning of the broader ‘to be announced’ market would undermine the entire secondary mortgage market. That must be avoided.”
