On Tuesday, March 25, Federal Housing Finance Agency (FHFA) Director Bill Pulte released a directive eliminating the GSEs’ participation in Special Purpose Credit Programs (SPCPs).

SPCPs are targeted lending products designed to specifically advantage groups historically denied credit due to discrimination. While broader adoption of SPCPs didn’t occur until recently, the programs have been legal and allowable since 1974 due to a provision in the Equal Credit Opportunity Act to reverse centuries of unfair laws and practices. The programs can take many forms, but the most common products included downpayment assistance, closing-cost assistance, and rate buydowns.

While Director Pulte’s announcement puts an end to SPCPs that would be available for purchase at the GSEs, it does not eliminate SPCPs entirely. In fact, the FHFA Director has no authority to eliminate SPCP loans that are not presented to the GSEs for purchase—lenders can still offer SPCPs on their own and fund them through their own portfolios. However, not all lenders have the capital to execute the programs in this manner. The majority of mortgages secured in the country today are originated by non-bank lenders without deposits to fund their own loans. Therefore, although lenders may continue to offer SPCP loans, the recent action by FHFA significantly dries up capital available for them.

According to FHFA, In 2023, the GSEs acquired 14,968 mortgages originated through SPCPs. While the number of loans originated by banks and non-banks and held on portfolio is hard to estimate, the programs have shown great potential with little downside or enhanced risk to lenders or the GSEs. SPCPs still go through traditional underwriting and must comply with Ability to Repay standards set by the Dodd-Frank Act.

The growth of the programs has been limited in the last few years for a number of reasons. First, the high-interest rate environment has added another high hurdle for potential buyers to clear. While downpayment and closing costs assistance can help borrowers at the closing table, the high interest rates, a whole 3-4% higher than rates were in 2021, proved a barrier too large for many. Additionally, higher taxes and insurance costs have added more impediments to communities already struggling to qualify for a mortgage.

Recently, NAR passed policy promoting the use of SPCPs, either purchased by the GSEs or run by lenders themselves. NAR will continue to advocate for policies and solutions that help on both the supply and demand side of housing.