Fannie Mae Outlines New Groundwork for Single-Family Social MBS

Fannie Mae has announced the launch of its Single-Family Social Bond Framework, and has provided updates to disclosures for the company's Single-Family mortgage-backed securities (MBS), aimed to further support access to credit and affordable housing as part of its mission and goals.

The updated Social Bond Framework describes the Fannie Mae mortgage collateral eligible to be pooled, issued, and labeled as Single-Family "Social MBS." The MBS that will receive the “Social” label will be based on certain scores using an updated version of the current Mission Index disclosure used by Fannie Mae and Freddie Mac.

According to Fannie Mae, its Mission Index seeks to balance investors’ desire for information with the need to protect the privacy of the mortgage consumer’s personal information, focusing on three key outcomes:

• Prioritize the borrower.
• Allow investors to identify pools with high concentrations of loans that meet certain social criteria.
• Propose a solution for the industry.

The GSEs will rebrand the Social Index as the "Mission Index" and update its formulation as further described in the Framework. The Mission Index will begin to apply to pools issued by Fannie Mae beginning in March 2024 and for Freddie Mac beginning in June 2024. The Enterprises expect to assign the Social label to Single-Family MBS meeting the Social Bond criteria beginning in June 2024. Fannie Mae plans to provide impact reporting annually beginning in 2025, which will help the market understand the associated impact of the loans underlying their investments.

In a Perspectives Blog titled "Enhanced Disclosures Lay the Groundwork for Single-Family Social MBS," co-authors Nick Sapirie, Fannie Mae VP, Capital Markets–Single-Family Products, and Barbara Pak, Freddie Mac VP, Single-Family Securitization, explain, "While the Mission Index name is new, the underlying concept is not. Rather, it's an evolution of the Social Index enhanced with the help of market feedback and includes many of the same criteria as the previous version. Our focus on our mission and Duty to Serve goals through the Mission Index is intended to promote access to financing for the communities we were chartered to serve. The new name, the ‘Mission Index,’ reflects direct feedback from investors, highlights that this is an Enterprise-specific disclosure, and helps investors better understand how our mission activities support U.S. housing. The corresponding pool-level disclosures will be renamed as the Mission Criteria Share (MCS) and Mission Density Score (MDS)."

The Fannie Mae Single-Family Social Bond Framework is being rolled out in alignment with Freddie Mac and in cooperation with the Federal Housing Finance Agency (FHFA). Fannie Mae obtained a second party opinion from the ratings and data firm Sustainalytics. This opinion letter acknowledges that the Social Bond Framework is credible and impactful, and aligns with the four core components of the International Capital Market Association's Social Bond Principles 2023.

"Fannie Mae is continuously working to identify new and better ways to draw capital to markets that tie directly to our mission. While supporting mortgage lenders and investors, we also are committed to addressing the many housing challenges facing consumers – including those that disproportionately burden lower- and moderate-income borrowers and renters," said Devang Doshi, Fannie Mae SVP of Capital Markets. "By providing investors with greater insight into the mission-oriented lending activities underlying our mortgage-backed securities through our Mission Index disclosures, more capital may be allocated in support of affordable housing so that over time more people have better access to credit."

Sapirie and Pak closed their Perspectives blog, " We know there is much more to be done in supporting homeownership and access to affordable rental housing. The evolved Mission Index and the creation of a Single-Family Social Bond program are aimed to advance these efforts and attract new sources of capital. We appreciate our partners in the capital markets who have contributed to the design, and we look forward to continued feedback on this important work.”