While it is quite natural to see pullbacks in housing demand because of increases in mortgage interest rates, there are some positive factors for the housing market outlook:

• ​Many homeowners took advantage of the low interest rates in 2020-2021 and refinanced their homes using fixed rate mortgages, thus lowering their monthly mortgage payments while protecting themselves against rate increases.
• Those who were able to purchase a home or refinance their home are now saving hundreds of dollars each month, which may be helpful to families coping with the broader inflationary pressures they are currently confronting.
• Most homeowners have increased their equity position due to the rise in home prices in recent years. Thus, modest declines in the rate of home price increases, or even home price declines, should not increase default risk among these homeowners.

However, if economic conditions deteriorate, there will likely be negative implications for homeowners. We will, of course, continue to monitor the health of the economy and stand ready to assist borrowers through the Enterprises' loan modification programs.

Safety and Soundness of the Enterprises

As a seasoned financial regulator, I have always believed that safety and soundness and sustainable access to credit work together to strengthen financial institutions, families, and the economy. Indeed, sustainable access to credit requires prudent lending standards. FHFA's five-year Strategic Plan, released this spring, underscores the Agency's responsibility to ensure the regulated entities fulfill their mission by operating in a safe and sound manner to serve as a reliable source of liquidity.

FHFA promotes safe and sound operations at the regulated entities through the Agency's supervisory program and housing mission functions. FHFA conducts supervision using a risk-based approach to identify existing and emerging risks to the regulated entities, to evaluate overall effectiveness of each regulated entity's risk management systems and controls, and to assess compliance with applicable laws and regulations. The housing mission functions establish policies affecting a broad range of areas, including credit underwriting standards, capital standards, loan pricing, mortgage insurer standards, and servicer eligibility standards.

The Enterprises continue to manage their portfolio risks. Credit risk management remains a priority for both Enterprises given the effects of the COVID-19 pandemic on borrowers, partially mitigated by many borrowers successfully exiting forbearance programs. Market risk exposures are low because of shrinking retained portfolios and effective funding and hedging strategies for the single-family and multifamily business lines. Both Enterprises exceed FHFA guidance and expectations for liquidity by maintaining a large volume of high-quality liquid assets.

FHFA is continuing to take steps to strengthen the capital positions of the Enterprises so they can fulfill their responsibilities throughout the economic cycle. Following the publication of a proposed rule in 2021, FHFA finalized important enhancements to the Enterprise Regulatory Capital Framework in February 2022. These enhancements provide the Enterprises with the necessary incentives to transfer credit risk to private investors, which will help protect taxpayers from unexpected credit losses. Furthermore, in the Spring of 2022, FHFA finalized additional capital planning requirements to ensure the Enterprises properly assess their risks and maintain the appropriate level of capital, and disclosure requirements to provide market participants with more information to assess an Enterprise's risks and capital adequacy.

As conservator, FHFA has taken actions to improve the condition of the Enterprises. Since 2008, FHFA has directed reforms to their practices and standards, management and transfer of risks, underwriting and loss mitigation policies, and the Enterprises' securitization infrastructure:

• As mentioned above, the credit quality of mortgages purchased by the Enterprises is fundamentally stronger than prior to the onset of the 2008 crisis.
• Notably, the Enterprises have substantially transitioned away from the business models they used prior to the financial crisis of 2008.
• FHFA has overseen an unwinding of the Enterprises' retained portfolio holdings. It was those holdings, particularly investments in subprime and Alt-A securities, that helped to make the Enterprises vulnerable to economic shocks.
• We also have worked to ensure the Enterprises syndicate risk to the capital markets by creating and operating credit risk transfer (CRT) programs to ensure the private sector bears much of the credit risks the Enterprises previously assumed. During the past year, we have worked to ensure that the CRT programs remained a viable option by assuring adequate capital relief for the CRT issuances.

Because of changes in the Senior Preferred Stock Purchase Agreements (PSPAs) between FHFA and the Treasury Department, the Enterprises are retaining more of their earnings and building capital. These PSPA changes, coupled with robust comprehensive income, have significantly boosted net worth for both Enterprises, although there is still a long way to go to meet regulatory capital requirements. Fannie Mae's stockholders' equity or capital reserves increased from $14.6 billion at year-end 2019 to $51.8 billion by March 31, 2022. In the same period, Freddie Mac's stockholders' equity increased from $9.1 billion to $31.7 billion.

Providing Liquidity in Underserved Areas

We continue to strengthen our core statutory mission programs such as Duty to Serve and the Housing Goals for the Enterprises, and the affordable housing and community investment programs of the FHLBanks. We will ensure that the FHLBanks serve each state in their district under the Affordable Housing Program (AHP) and that the FHLBanks' Community Lending Plans identify and seek to fulfill the needs of communities throughout their district, including tribal communities.

Through Duty to Serve, the Enterprises are required by law to serve three specific underserved markets: manufactured housing, affordable housing preservation, and rural housing.

They do this by increasing the liquidity of mortgage financing for low- and moderate-income families and creating new markets where the financing system is not meeting housing needs.

Under their Duty to Serve Plans for manufactured housing, the Enterprises are enhancing existing programs to expand financing and provide liquidity for new manufactured housing, and to help protect families living in manufactured housing communities (MHCs), such as only purchasing blanket loans on MHCs that provide all eight protections in the Duty to Serve regulation for 100 percent of residents. Fannie Mae is also enhancing an existing program to support MHCs with rental flexibilities to increase affordable, unsubsidized rental options in communities.

Both Enterprises also set higher targets for purchases of manufactured homes titled as real estate, which will foster greater liquidity for manufactured housing and could help increase delivery of manufactured homes throughout the country. The Enterprises set targets to purchase 47,000 of these loans between 2022 and 2024, including 15,800 loans in 2022.

The Duty to Serve Plan for the rural housing market focuses the Enterprises in part on support for rural areas with the greatest need. Last year, the Enterprises purchased more than 50,000 single-family loans in persistent poverty areas, one-third more than the year before and 145 percent more than the volume they were buying before Duty to Serve began.

Both Enterprises also made Low-Income Housing Tax Credit (LIHTC) investments in these same regions. And last November, Freddie Mac held its third annual rural research symposium, which focused on providing insights on the rural macroeconomy, community housing development, manufactured housing, sustainability, health and housing, and environmental justice. The fourth symposium is scheduled for this November.

Fannie Mae has committed to purchasing loans on small, 5- to 50-unit rental properties and is making improvements to its current product offering for high-needs rural regions. Freddie Mac has committed to developing a capacity building program for emerging rural developers and is planning to expand its Credit Building program to LIHTC properties in rural areas. The program provides incentives for multifamily borrowers to report on-time rent payments to credit bureaus.

Both Enterprises will continue to work closely with Native American Community Development Financial Institutions and statewide coalitions to support increased homeownership opportunities for tribal communities, including through technical assistance, homeownership education, and enhancing secondary market liquidity.

We also continue to strengthen our fair lending oversight. FHFA published a policy statement and advisory bulletin to communicate the Agency's positions, supervisory expectations, and guidance on fair lending compliance. In addition, FHFA completed targeted fair lending examinations of certain business areas of both Enterprises, and we will continue to build out our examination program. We have also made data about the Enterprises' fair lending performance available on our website. We have implemented a statutory requirement to analyze pricing disparities and notify our regulatory partners of lenders whose data may indicate fair lending pricing issues. We will fulfill this requirement annually as required in our statute.

With a historic Memorandum of Understanding on fair lending now in place between FHFA and the Department of Housing and Urban Development (HUD), our Agency will continue to collaborate with HUD and our other interagency partners to provide clear guidance and comprehensive fair lending oversight of the mortgage market.

The Enterprises are also taking steps to expand access to quality, affordable housing for minority and underserved communities. Years ago, many families were unable to purchase a home due to redlining, which often divided neighborhoods along racial lines. The racial homeownership gap between Black and White families is higher today than when the Fair Housing Act was passed. Last month, FHFA announced the release of the Enterprises' Equitable Housing Finance Plans for 2022-2024 to help narrow the homeownership gap in minority populations.