When addressing federal housing finance agencies, there’s no way you can’t talk about the biggest one of all: The Federal Housing Finance Agency, aka the FHFA. It’s an independent federal agency that was born under the Housing and Economic Recovery Act back in 2008.
First, the FHFA is different from the FHA, which stands for the Federal Housing Administration. The FHA provides mortgage insurance whereas the FHFA is responsible for the work that was once done by the Office of Federal Housing Enterprise Oversight as well as the Federal Housing Finance Board. They’re now combined under one entity, and that certainly makes things simpler to follow. You’ll see the FHA behind FHA loans, which are loans designed to provide assistance to lower-income families so they can afford housing.
The FHFA is responsible for overseeing Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) designed to stimulate homeownership and create more liquidity for lenders. They keep the United States housing market affordable, allowing middle-class Americans to borrow with 30-year mortgages and banks the ability to lend them out. Along with the two GSEs, the FHFA is also responsible for the oversight of 11 Federal Home Loan (FHL) banks.
The FHFA’s missions can be boiled down into three main goals:
They aim to prevent foreclosures by expanding credit availability.
The FHFA strives to protect taxpayers by raising the role within the mortgage market of private capital.
They spurn a new securitization infrastructure for single-family homes through the two GSEs, Fannie Mae and Freddie Mac, which can be later used in the secondary market.
The FHFA is made up of these combined staffs: the former Office of Federal Housing Enterprise Oversight (OFHEO), the former board of Federal Housing Finance (FHFB), and the GSE office at the Department of Housing and Urban Development (HUD).
The Secondary Mortgage Market and the FHFA
The secondary mortgage market is expansive and extremely liquid. It’s the market where mortgage loans are purchased and sold between mortgage originators, lenders, and investors. This market’s existence allows borrowers equal access to credit no matter where they’re looking at buying a house. The secondary market has a big chunk of newly originated mortgages bundled as mortgage-backed securities, where they’re then sold off to investors.
The FHFA plays an essential role in the secondary market. The Federal Home Loan (FHL) banking system offers trillions upon trillions of dollars to help fund our financial institutions like credit unions and commercial banks and the mortgage market -approximately $5.9 trillion. Aside from providing funding that keeps the mortgage market and financial institutions alive and the FHL supports its members by offering asset-liability management and funding for community development.
The FHL is so integrated into our financial system that nearly 80% of lenders rely on it. Where does the FHFA come in? Oversight is the major purpose of the FHFA and its involvement with the FHL is no exception. The FHFA is a part of the Financial Stability Oversight Council, which works to eliminate any foreseen risks to the United States’ financial security, and one of the FHFA’s systems that it oversees is the FHL banking system. Ultimately, the FHFA acts as the watchdog for the $5.9 trillion dollars moving through the FHL banking system, a task that affects the secondary mortgage market, the U.S. financial institutions, and millions of Americans.
Additional Government Housing Agencies
There are quite a few government housing agencies and they do all work together in some capacity or another. The FHFA offers oversight on the broader scale, ensuring that something like the 2008 recession doesn’t happen again, offering checks and balances on the 14 housing-related GSEs to promote a healthy and sound mortgage market. Other government housing agencies work to make housing affordable for all Americans, offering specialized loans, making rentals safe, and affordable.
As mentioned previously, there’s the FHA - the Federal Housing Administration. If you’re beginning to look at different mortgage types, then there’s a good chance that you’ve heard of the FHA. FHA loans provide borrowers with poor credit or low income the opportunity to buy a home. These loans have less stringent qualifications for the application process as well as minimal down payment requirements. Although it’s easy to mix up the acronyms, the FHA and FHFA are strikingly different in their missions - the former being an administration primarily for mortgage insurance and the latter being an agency of oversight.
The Department of Housing and Urban Development, better known as HUD, is another government agency responsible for supporting the United States’ housing market and homeownership. HUD works to make housing and renting affordable, providing housing opportunities to combat homelessness and discrimination against vulnerable populations.
HUD offers multiple assistance programs for homebuyers in need of financial assistance. There’s the Community Development Block Grant program, which allocates federal grant funding to implement low and middle-income affordable housing opportunities in developing neighborhoods. HUD also has the Housing Choice Voucher program, known as Section 8. This program allows low-income, elderly or disabled Americans to choose housing even if the property isn’t listed as subsidized housing.
What does the United States Department of Agriculture (USDA) have to do with federal housing? The USDA’s Rural Housing Service has a few programs designed to help Americans find and afford rural housing and community facilities.
In its Single-Family Housing Program, the USDA invests direct loans and loan guarantees to stimulate rural communities by aiding low- and moderate-income homebuyers afford housing in these rural areas. Its Multi-Family Housing Program is directed towards very-low, low- and moderate-income citizens, as well as the elderly and disabled, buy and improve land. Finally, the USDA’s Community Facilities Programs issues grants, loans, and loan guarantees for community projects like hospitals, clinics, and emergency services.
The Department of Veterans Affairs collaborates with HUD to offer veterans affordable and permanent housing. The VA and HUD program is called HUD-VASH - U.S. Department of Housing and Urban Development-VA Supportive Housing Program. Similar to USDA and FHA loans, housing loans issued through the VA are less strict in their credit requirements and down payments. In this program, HUD provides rental assistance vouchers for housing that’s privately owned to eligible veterans. HUD-VASH aims to reduce the number of homeless veterans, offering services to veterans and their families with not just affordable housing option, but with recovery, mental health, and employment.
Know Your Federal Housing Agencies
There are a lot of acronyms to wade through when learning about the different government agencies for housing. Although they do all sound similar after a while, their purposes are different. Many federal housing agencies are designed to make housing affordable by issuing loans and loan guarantees like HUD, the FHA, and through special programs offered by the VA and the USDA.
When you’re talking about the federal housing finance agency, there’s only one name in the game: The FHFA - The Federal Housing Finance Agency. It’s the top watchdog and this agency has got eyes on the biggest government-sponsored enterprises in the mortgage market, Fannie Mae and Freddie Mac. Oversight is needed because trillions of dollars are at stake, which is why the FHFA was created in the first place—the 2008 housing crisis.
Still, it’s important to know all of your acronyms if you’re thinking about becoming a homeowner or you’re already one. Knowing how the housing market operates, what happens to your mortgage, and how the government is involved can keep you all the wiser - just in case.