8-K: FHFA Releases Revised 2025 Scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions

The Federal Housing Finance Agency (FHFA) has released a revised 2025 scorecard outlining corporate performance objectives for Fannie Mae, Freddie Mac, and Common Securitization Solutions, focusing on equitable access to housing and safe business operations.

Summary

• The Federal Housing Finance Agency (FHFA) released a 2025 scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions (CSS) on December 20, 2024, and subsequently revised it on January 31, 2025.
• The scorecard establishes corporate performance objectives for these entities.
• A key element of Fannie Mae's 2025 executive compensation program involves deferred salary, with a portion at-risk based on performance against the 2025 Scorecard and additional FHFA objectives.
• Half of the at-risk deferred salary for participating executives will be subject to reduction based on the company's performance against the scorecard.
• The scorecard assesses the entities based on criteria such as fostering liquid, competitive, efficient, and resilient housing finance markets, operating in a safe and sound manner, meeting FHFA requirements, and prudent stewardship of resources.
• The scorecard emphasizes promoting equitable access to affordable and sustainable housing, accounting for 50% of the assessment.
• This includes actions to improve affordability, housing supply, mortgage process efficiency, housing stock resiliency, and sustainability in housing outcomes.
• The other 50% focuses on operating the business in a safe and sound manner, ensuring resilience to various risks, maintaining effective risk management systems, and transferring credit risk to private investors.
• The 2025 Scorecard establishes a $73 billion cap on the multifamily purchase volume of each Enterprise, for a combined total of $146 billion applicable for calendar year 2025.
• A minimum of 50 percent of an Enterprises multifamily loan purchases must be mission-driven in accordance with the definitions provided.
• FHFA will continue to review its estimates of market size and mission-driven minimum requirements throughout the year.
• FHFA will not reduce the caps if it determines that the actual size of the 2025 market is smaller than initially projected.

Sentiment

Score: 7

Explanation: The document is generally neutral, outlining objectives and priorities. The focus on risk management and affordable housing initiatives suggests a positive intent, but the lack of specific financial performance data limits a stronger positive sentiment.

Positives

• The scorecard emphasizes equitable access to affordable and sustainable housing.
• There is a focus on improving efficiency in mortgage processes through technology and innovation.
• The scorecard promotes research and dissemination of knowledge regarding natural disaster/climate risk in housing.
• The scorecard encourages the transfer of credit risk to private investors, reducing risk to taxpayers.
• The scorecard encourages tenant protections at Enterprise-backed multifamily properties.

Negatives

• The document does not explicitly state any negatives, but the emphasis on risk management and resilience suggests potential underlying concerns about market stability and operational risks.

Risks

• The scorecard highlights the need to manage operational, market, credit, counterparty, economic, legal/litigation, and climate risks.
• Maintaining liquidity at required levels during severe stress events is a key concern.
• There is a risk of non-compliance with applicable laws and regulations.
• The scorecard mentions the need to address risk exposure and enhance counterparty risk controls.
• The scorecard mentions the need to mitigate risk stemming from declining accessibility, availability, and affordability of property insurance.

Future Outlook

The FHFA will continue to review its estimates of market size and mission-driven minimum requirements throughout the year, and will not reduce the caps if it determines that the actual size of the 2025 market is smaller than initially projected.

Industry Context

This announcement is relevant to the housing finance industry, particularly lenders, investors, and stakeholders involved with Fannie Mae and Freddie Mac. The scorecard provides insight into the FHFA's priorities and expectations for these entities, which play a significant role in the mortgage market.

Comparison to Industry Standards

• The $146 billion multifamily cap can be compared to the overall size of the multifamily mortgage market, which is influenced by factors like interest rates, economic growth, and housing demand.
• The 50% mission-driven requirement can be compared to the historical levels of affordable housing financing by Fannie Mae and Freddie Mac.
• The focus on climate risk management aligns with increasing industry attention to ESG (Environmental, Social, and Governance) factors and the potential impact of climate change on mortgage portfolios.
• The focus on tenant protections aligns with increasing industry attention to ESG (Environmental, Social, and Governance) factors and the potential impact on renters.

Stakeholder Impact

• Shareholders: The scorecard's objectives can influence the financial performance and stability of Fannie Mae and Freddie Mac, impacting shareholder value.
• Employees: Executive compensation is tied to scorecard performance, potentially affecting employee motivation and performance.
• Homeowners and Renters: The focus on affordable housing and sustainable homeownership can benefit borrowers and renters.
• Lenders: The scorecard's requirements can influence lending practices and product offerings.
• Taxpayers: The emphasis on risk management and credit risk transfer aims to protect taxpayers from potential losses.

Next Steps

• Fannie Mae and Freddie Mac will need to implement strategies to meet the objectives outlined in the 2025 Scorecard.
• FHFA will monitor the Enterprises' performance against the scorecard throughout the year.
• FHFA will require specific data elements on all transactions where energy or water efficiency improvements are made for both Enterprises to determine the effectiveness of the programs in achieving policy outcomes, on an annual basis.

Key Dates