Single-Family Green Mortgage-Backed Securities Blossom in First Year

This Earth Day we celebrate the one-year anniversary of our Single-Family Green Mortgage-Backed Securities (MBS), which have flourished thanks to builder-affiliated lender participation in the program and growing investor interest in bonds backed by mortgages on newly constructed, energy-efficient homes.

Total issuance of Fannie Mae bonds pooling single-family home loans for newly built, energy-efficient homes has hit $167 million, and the regular cadence of issuance demonstrates to lenders and investors our commitment to the program.

External recognition of our efforts has come as well. The U.S. Environmental Protection Agency and U.S. Department of Energy awarded Fannie Mae the 2021 ENERGY STAR® Partner of the Year – Sustained Excellence Award, the first time this recognition also includes our Single-Family business. The Sustained Excellence Award (ENERGY STAR's highest honor) makes Fannie Mae part of a distinguished group dedicated to fighting climate change and protecting public health through energy efficiency. The organizations in this group are among the nation's leaders in driving value for the environment, the economy, and people in the United States.

While the volume of these bonds is small compared with the daily trading activity in the To-Be-Announced MBS market, we also recognize that we are still in the early stages. Our history with Green Financing shows that starting small doesn't mean staying small, and the program's demonstrable benefits shows how Fannie Mae's scale and capacity can be a powerful accelerant of positive and measurable Environmental, Social, and Governance (ESG) outcomes.

Since the launch a year ago, 25 transactions have been completed, ranging in size from $1.3 million to $18.2 million. Most of the issuances have included 30-year fixed-rate mortgages, but recent offerings have pooled 15-year fixed-rate mortgages. We partnered with several lenders, including DHI, the mortgage finance arm of home builder D.R. Horton Inc.; Lennar Mortgage, the mortgage finance arm of home builder Lennar Corp.; and NVR Mortgage Finance Inc., a wholly owned subsidiary of NVR, Inc. We are actively working on expansion with additional lenders.

An increase in the number of lenders since our first transaction in April 2020 has helped to broaden the geographic diversity of loans pooled in these transactions. The underlying properties are located in Arizona, Texas, Colorado, North Carolina, Maryland, Pennsylvania, New York, and New Jersey. In addition to that regular monthly cadence of issuance, investors welcome the greater variety of geographic diversity for homes in these MBS issuances. Also, we have found that investors are drawn to the program because of its transparency; specifics about the underlying loans and related resources are readily available on our website, and quantified detail about the environmental, social, and economic benefits of these securities will be published in our forthcoming 2020 Green Bond Impact Report.

The home loans in these securities finance the purchase and the refinance of single-family residential homes with ENERGY STAR certifications that meet or exceed the national program requirements for ENERGY STAR 3.0 Certified Homes. ENERGY STAR 3.0 Certified Homes are on average 20% more efficient than single-family homes built to code. Fannie Mae partnered with PEG, LLC to ensure that all properties underlying the MBS received the ENERGY STAR certification. This third-party verification only serves to increase the program’s integrity and build investor confidence.

Since its introduction to the market a year ago, our Single-Family Green MBS program has sparked interest from a variety of investors including insurers, banks, and money managers. We believe investors also are drawn to the program because of its third-party validation. Last year, our Single-Family Green Bond Framework received a "Light Green" Second Opinion from CICERO Shades of Green, a leading global provider of green ratings for bonds. This Second Opinion is important because it is an independent, research-based evaluation that determines the environmental value of green bonds and offers investors insight into the environmental quality of green bonds. CICERO recognized that Fannie Mae's Single-Family Green MBS business aligns with the International Capital Markets Association's Green Bond Principles, establishing our Green MBS as credible green investments.

Fannie Mae's Single-Family Green MBS transactions are part of our broader ESG efforts. Just over a decade ago we started our Multifamily Green Financing business, which has since issued more than $90 billion of Green MBS, making us one of the largest green bond issuers worldwide.

Our Green Bond business, composed of the established multifamily offerings and its newer single-family sibling, is part of our ongoing effort to promote and expand the growth of an active green bond market. As models of positive impact and transparency, these programs are an important part of our corporate ESG framework.

Arthur Johnson
Vice President, Single-Family Capital Markets

April 22, 2021