NAR Responds to FHFA’s RFI on Social Bonds

NAR wrote the Federal Housing Finance Agency (FHFA) regarding its request for input (RFI) on social bonds.

While supportive of their effort, NAR pointed to several problems.  In the RFI, NAR notes that:

• This structure has several flaws that could undermine a lower cost benefit for mission duties,
• It creates a data sharing issue that could undermine privacy, and
• There is a better means of achieving this goal.

The idea behind social bonds is for the Fannie Mae and Freddie Mac (the GSEs) to sell bonds or pools of loans that target specific borrowers that meet their charter duties.  These pools may be of more interest to investors who focus on environmental, social, or governance (ESG) goals or charitable funds.  Assuming that there is strong demand from these investors, this sales technique might result in more profits (lower costs) for the GSEs that they can use for mission duties.  It also makes them more accountable to private market oversight for mission duties.

This RFI is a subtle but important step in GSE reform. For years, critics have argued that private investors won't fund the lower return targets needed to support the GSEs' mission duties and that "mission creep", the perceived extension of the GSEs duties into new areas that are costly, would prevent investors from buying into the GSEs.  This RFI is looks at a financing structure to draw in these types of investors.