The Federal National Mortgage Association of the United States, popularly known as Fannie Mae, has announced that it will now start purchasing mortgage loans with lender-funded grants in addition to payment assistance, closing costs, and monetary reserves. The modification might provide nonbank lenders with a defense against claims of redlining. The government-sponsored business will begin taking such loans right away. Fannie Mae’s guidelines state that the lender must have a well-documented program that offers grants for low- to moderate-income borrowers, community development, equitable housing efforts, or related projects. Also, this bill fits into special purpose-focused programs by lenders to benefit underserved communities.

Making customized initiatives could be advantageous for banks. Depending on how the significant rewriting of that statute turns out, they could receive credit for passing their tests for the community reinvestment act. However, nonbanks are exempt from the law. GSE incentives may entice nonbank lenders to develop programs for specialized credit. However, there is another, perhaps more pressing, need to create special-purpose loan programs: doing so could prevent nonbank lenders from being classified as red liners.

Regulators have stated that they are investigating nonbank mortgage lenders to see if they are engaging in redlining. Despite this, a survey released in February by the Urban Institute indicated that nonbank lenders provided more loans for purchasing owner-occupied homes to borrowers of color than banks did. However, regulators’ claims of redlining are increasingly much more than just hollow threats. The Consumer Financial Protection Bureau and the Department of Justice recently reached a $24 million settlement with Berkshire Hathaway HomeServices subsidiary Trident Mortgage, a nonbank mortgage lender. In the history of the DOJ, that represented the second-largest redlining settlement. To read more on this and how lenders are impacted across the board, click here.

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