Did Pulte Pull the Plug on SPCP?

Did FHFA Director Pulte pull the plug on SPCP this morning ? No.

"Special purpose credit" as defined in Reg B, the regulation implementing the Equal Credit Opportunity Act of 1974, is between a creditor and an applicant.

Of the three vectors for eligibility, the one that has seen a lot of activity since late-2020 (when the CFPB issued an advisory opinion that succeeded in its goal of resolving regulatory uncertainty: https://files.consumerfinance.gov/f/documents/cfpb_advisory-opinion_special-purpose-credit-program_2020-12.pdf) is for-profit organizations - i.e. mortgage lenders.

The lenders who launch an SPCP (or participate in someone else's) have to create a written plan in which they establish the need for the program and identify the "class of persons" the program is for, monitor and measure the results, and, implicitly, at some point end the "special" program.

The mechanisms used by lenders to extend special purpose credit boil down to either reducing the overall debt burden of the loan by subsidizing fees or contributing to a down payment, or to change their underwriting standards. The latter might limit whether there will be a buyer for the loan, forcing the lender to keep the loan in portfolio - there is no implicit or explicit counterparty in an SPCP who is obligated to buy that loan.

What Fannie Mae and Freddie Mac respectively did with their HomeReady® First (https://www.fanniemae.com/about-us/what-we-do/pilot-transparency) and BorrowSmart (https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-mac-delivers-2024-equitable-housing-finance-plan/) programs was a mixture of launching their own SPCP initiatives and buying loans that came through lender SPCPs - possibly including, in the latter case, loans otherwise outside of their purchase criteria. But they are not for-profit organizations right now, and perhaps this is what Director Pulte had in mind when he wrote "the current level of support for SPCP's is inappropriate for regulated entities in conservatorship".

We commend the efforts of lenders who seek to correct "special social needs" (more language from Reg B) in our society through an effective SPCP. I also commend the GSEs for wanting to do the same. But if there is to be an SPCP round 2 from the GSE's at some point, it needs to start with clear logic for how it ties to Reg B, include a written plan, and produce clear metrics.