WASHINGTON — Freddie Mac is bolstering its relationships with housing finance agencies after it fell short of reaching two critical affordable housing goals last year.

The government-sponsored enterprise dropped out of the housing finance market during the financial crisis, and didn't return to it until spring of 2015, when it hired Danny Gardner, then a vice president at Capital One Home Loans, to jump-start its business.

Now Gardner is under pressure to deliver results. In an interview, he touts significant strides, including releasing HFA Advantage, a new product that purchases loans with a 30-year fixed interest rate and a 3% down payment that can come from a variety of sources, including family, employer-assistance programs or secondary filing.

"Around 40 state and local housing finance agencies are using our HFA Advantage product," Gardner said.

Danny Gardner of Freddie Mac
"A lot of the work over the past two years has been geared at getting the HFAs to approve Freddie's product," said Danny Gardner, an executive vice president at Freddie Mac.

But he acknowledged that loan growth "has been incremental."

"A lot of the work over the past two years has been geared at getting the HFAs to approve Freddie's product," he said.

The boost to housing finance agencies comes after Freddie failed to meet its low-income and very-low-income housing purchase goals in 2013, 2014 and 2015. Although both Fannie Mae and Freddie fell short of those goals in 2015, it was the first time Fannie failed to meet its goals since 2013.

The FHFA put Freddie on a multiyear housing plan through 2018, requiring it to submit quarterly reports on its progress. The FHFA set Fannie and Freddie's 2015 low-income home purchase goal at 24% of acquisitions of purchase money loans, but Freddie only hit 22.3%. (In contrast, Fannie came closer, at 23.5%.)

State and local housing finance agencies serve low-income and first-time homebuyers, and they often underwrite mortgages with down payment assistance. This makes housing finance agencies an ideal source for the GSEs' purchase mortgages that meet the FHFA's affordable housing goals.

Freddie has won some in the industry to its side, including MassHousing, a longtime partner with Fannie and the Boston-based Housing Finance Agency.

"MassHousing has a long history of financial innovation in service of our mission, and we hope to work with both Fannie and Freddie to continue developing lending solutions for the housing challenges faced by low and moderate income homebuyers in Massachusetts," said the firm's spokesman.

Freddie and Fannie allow housing finance agencies to establish their own income limits on loans with a loan-to-value ratio up to 97%. Fannie also allows nonoccupant borrowers, such as relatives, to sign onto housing finance agency loan, while Freddie does not.

"The nonoccupant borrower income flexibility allows a parent, or anyone else willing and financially able, to be a borrower on the loan," according to Fannie.

Freddie's housing finance agency loan program is a "little less flexible than Fannie's," Laurie Goodman, co-director of the Housing Financial Policy Center at the Urban Institute, said in an interview.

Currently, Gardner and his teams are focused on getting mortgage lenders "versed in the product and getting originations going as a result," he said.

Erin Quinn, who was the program director for the Treasury Department's Hardest Hit Fund, works with Gardner. Her teams assist housing finance agencies so they can pool loans purchased from lenders and sell them directly to Freddie.

"We have streamlined the onboarding process by which they can become a direct seller," Quinn said in an interview. "It has cut down on the amount of time it took and simplified the process overall."

Each HFA is assigned a Freddie contact who can help them with "engagement, operations, technology issues, whatever it is they need," Quinn said. Freddie also has a sales organization that works with housing finance agencies and their lending partners to build new relationships in local markets so they can source HFA Advantage loans and grow their production.

"We are still in the foundation building phase of this business," Gardner said. "For the HFAs that joined us earlier, we are starting to see the seeds of that effort through the production we are getting."

Freddie's fourth-quarter securities filing shows the GSE purchased 34,000 Home Possible and HFA Advantage mortgages in 2016. But the company did not disclose the number of HFA Advantage loans purchased in 2016.

Gardner said he expects the housing finance agencies to experience increased demand for purchase mortgages because of rising mortgage rates and tight inventories of homes for sale.

"With consumers more constrained in their buying power, the assistance that HFA programs provide will be more important and helpful to them," Gardner said.

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