The Biden administration’s campaign promises to expand affordable housing took a significant step forward when President Joe Biden last week replaced Mark Calabria, the Federal Housing Finance Agency (FHFA) director—a move that housing experts say will significantly impact the mortgage and housing market.

The FHFA, which stands as a gateway to housing for low- and middle-income buyers, controls more than $6.3 trillion in the U.S. mortgage markets. The White House appointed Sandra Thompson as acting director of the FHFA, which oversees the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

“There is a widespread lack of affordable housing and access to credit, especially in communities of color,” said  Thompson in a statement, alluding to the GSE’s role as a facilitator of equal and affordable housing. “It is FHFA’s duty through our regulated entities to ensure that all Americans have equal access to safe, decent, and affordable housing.”

The move came last week, hours after the U.S. Supreme Court ruled that the president has the authority to remove the FHFA director in a case known as Collins vs. Yellen. Calabria, who was appointed by former president Donald Trump to lead the FHFA, was vigorously pushing to end Fannie and Freddie’s conservatorship that was meant to protect the GSE’s assets after the last financial crisis.

With Calabria gone, it’s expected that the FHFA will refocus its priorities from exiting conservatorship to addressing the rising issues of inequities in housing and a significant lack of affordable housing in the U.S.

GSEs Must Turn to Affordable Housing

The goals of the FHFA and GSEs have evolved since the FHFA was created in 2008.

As the housing market found its footing, the FHFA and the GSEs served to provide liquidity to the housing market and support affordable housing for both buyers and renters. The goal was for the GSEs to eventually exit conservatorship—a goal that was pushed heavily by Trump and Calabria.

However, when Covid-19 struck, the GSEs played a major part in helping homeowners and renters retain their housing as businesses shuttered and the economy began to crack. Forbearance and eviction policies were swiftly implemented to help keep people in their homes.

The GSEs Covid-19 response was significant, which is why many housing experts prefer the administration not rush the enterprises out of conservatorship. This is especially true since there’s no alternative in place that can meaningfully address the current housing affordability issues as home prices have skyrocketed.

“I would expect to see more emphasis on affordable housing and workforce housing, and less of a focus on ending conservatorship now that Calabria is gone,” says Evan Blau, a partner at Cassin & Cassin LLP’s agency lending and affordable housing practice.

David Dworkin, president and chief executive officer of the National Housing Conference, agreed, saying that the GSEs are the best entities equipped to handle the multitude of problems the housing market is facing. This includes the declining homeownership rate and racial wealth gap, which is intrinsically connected to old discriminatory housing policies. Dworkin points out that without the GSEs, the mortgage borrowers would be dependent on a private-label securities market that isn’t prepared to handle these problems.

“The principal problem with the private-label securities market is the legal structure and the difficulty in responsibly managing loans that fail,” Dworkin says. “Nothing has been done to resolve that.”

Credit Standards Will Likely Loosen

Credit requirements have loosened since lenders clamped down on borrower requirements due to the 2008 housing crisis, according to the Housing Credit Availability Index (HCAI) which measures the percentage of mortgages that are at risk of defaulting (loans more than 90 days past due). A lower HCAI means lenders have tightened their credit requirements, a higher HCAI is indicative of looser lending standards.

When Covid struck, however, the credit box shrank once again. The HCAI for mortgages through the GSEs fell to 2.5% in the fourth quarter of 2020. This is excessively modest, says Laurie Goodman, vice president for housing finance policy and the founder of the Housing Finance Policy Center at the Urban Institute. Goodman says that when the FHFA was under Calabria, “credit became excessively tight, which shut out otherwise responsible borrowers from getting a home.”

However, Goodman expects the FHFA, now under Thompson as interim director, will loosen credit standards, helping to widen the pool of those who can qualify for a mortgage.

Options for First-time Homebuyers

Although the new FHFA leadership might signal broader access to affordable housing down the road, today’s homebuyers don’t necessarily have to wait. There are state programs, government-backed and private programs designed to help first-time and low-income homebuyers.

Federal Housing Administration (FHA) and U.S. Department of Agriculture (USDA) loans are two popular programs for people who don’t have a big down payment or might have a lower credit score. U.S. Department of Veterans Affairs (VA) loans are also a popular option because there’s no down payment requirement; however, you must be an eligible service member or a relative of a service member.

Borrowers should also explore down payment assistance programs (DPAs). There are thousands available throughout the country, many of which do not require the recipient to repay the loan. However, there are often contingencies with DPAs, such as the homebuyer must stay in the home for a certain period of time before the assistance can be forgiven.

Here are a handful of first-time homebuyer programs:

  1. FHA loan
  2. USDA loan
  3. VA loan
  4. HUD’s Good Neighbor Next Door
  5. Fannie Mae’s HomePath Ready Buyer Program
  6. FHA Section 203(k)

An experienced, helpful lender can walk you through your options based on your salary, credit profile and goals.