No one should be surprised that the secondary-mortgage giant Fannie Mae has announced an explicitly race-conscious approach to its business. What might be termed affirmative action for housing — including support for low-down-payment mortgages — clearly has advocates in the Biden administration. Fannie’s regulator, the Federal Housing Finance Agency, has explicitly pushed for such an approach, urging Fannie and its bond-market cousin Freddie Mac to “promote sustainable homeownership and rental housing opportunities for traditionally underserved Black and Latino communities nationwide.” The Federal Reserve governor responsible for bank regulation, Lael Brainerd, has set the same tone, stressing that regulated banks “must address systemic inequities in access to credit and financial services for (low-and moderate income), minority individuals and communities.” Or, as Fannie has put it, “the initial focus of our Plan will be on the needs of Black homeowners and renters.”
The potential for taxpayer exposure to loans made for less-than-financially sound reasons was made clear by the $187 billion federal bailout of Fannie Mae and Freddie Mac in the wake of the 2008 financial crisis, which the two lending giants’ tolerance for lax credit standards helped to cause. But beyond such risk lies another question: Is race-conscious lending good for those it’s meant to benefit? There is good reason to believe that it’s not — and no good reason to believe that it is.
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