Letter to FHFA on Fannie and Freddie Single Family Social Bonds

Dear Director Thompson:

The American Bankers Association is pleased to offer comments in response to the Federal Housing Finance Agency's (FHFA) Request for Input (RFI) on an Enterprise Single-Family Social Bond policy.

With the growing interest among investors and others in Environmental, Social and Governance (ESG) related issues, it is reasonable for FHFA to consider the development of a single-family social bond policy for Fannie Mae and Freddie Mac (the Enterprises or GSEs). We appreciate FHFA's attention to this matter and the issuance of an RFI as an important initial step. However, at this early stage, providing detailed input from the primary market perspective is difficult. Input from affordable housing advocates and investor groups will be essential to help frame the outline of any potential social bond program and we would be pleased to provide further comment on such an outline once set forth. Our comments here, therefore, are directed more generally toward considerations that FHFA should take if it chooses to proceed further.

Even though ESG investing has existed in one form or another for some time, it remains controversial due to a lack of agreed upon taxonomy and metrics as well as a limited understanding and agreement about the goals and motivations driving ESG efforts. The result has been a highly charged political environment around ESG-related issues that has intensified in recent years. Therefore, we believe it is important that FHFA proceed cautiously when considering developing any single-family social bond program.

As recent reactions to the Loan Level Pricing Adjustments have shown, government-directed efforts to achieve social outcomes can be very controversial, especially if they are not well articulated or well understood. And they can be misconstrued. A single-family social bond program could elicit the same (or greater) levels of controversy unless it is developed transparently and with broad public input that is provided through notice and comment, as well as public hearings. We would encourage FHFA to undertake a rigorous development and vetting process not unlike the effort that went into the creation of the Uniform Mortgage-Backed Security (UMBS).

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