MBA Calls on Fannie Mae and Freddie Mac to Modernize Construction Lending to Tackle Housing Shortage

As the U.S. grapples with a persistent housing supply crunch, the Mortgage Bankers Association (MBA) has stepped forward with a call to action. In a detailed letter submitted to Fannie Mae and Freddie Mac, the MBA is urging both government-sponsored enterprises (GSEs) to revamp their approach to construction and renovation lending arguing that modernization is key to unlocking more housing inventory and easing affordability concerns across the country.

Targeted Policy Overhaul Proposed by MBA

In the letter dated July 15 and addressed to the heads of the GSEs’ single-family business divisions, the MBA outlined three specific policy changes that could have a significant impact:

1. Launch a pilot program allowing securitization of single-close construction-to-permanent loans at closing
2. Extend the allowable age of credit documentation from 12 to 18 months
3. Reduce HomeStyle Renovation loan completion threshold from 90% to 50%

According to the MBA, these changes would not only improve lender participation and reduce operational burdens but also play a pivotal role in increasing access to affordable housing in underserved communities.

Bridging the Construction Financing Gap

Pete Mills, MBA’s Senior Vice President of Residential Policy and Strategic Industry Engagement, emphasized the urgency of this initiative. “The MBA recognizes the value of current GSE programs like the Single-Close Construction-to-Permanent loan, which supports new housing development,” said Mills. “However, we believe these offerings can be improved to help both lenders and borrowers navigate today’s complex construction landscape.”

Why Upfront Securitization Matters

Currently, lenders must wait until construction is fully completed before they can sell these loans to the secondary market. This delay can be financially straining, especially for independent mortgage banks (IMBs) that often operate on thinner capital lines.

The MBA’s proposed solution? Allow lenders to securitize loans right at the time of closing. This change, modeled after existing renovation loan programs, would free up liquidity sooner, reduce carrying costs, and encourage broader lender involvement in new construction financing.

“Providing upfront securitization is a strategic way to lower financial barriers and fulfill the GSEs’ mission of ensuring liquidity in the housing market,” the letter noted.

Updating Outdated Credit Timelines

Another major point of concern is the expiration of credit documentation during prolonged construction phases. The MBA is asking the GSEs to extend the validity of income, employment, and credit checks from 12 to 18 months a change that better reflects the realities of today’s building timelines, which are often delayed by supply chain issues, permitting backlogs, and labor shortages.

Revalidating credit late in the construction process not only delays closings but increases costs for both lenders and borrowers.

“Modernizing credit documentation rules would streamline the entire construction-to-permanent process and create a smoother, more efficient experience for everyone involved,” MBA argued.

Reinstating Flexibility in Renovation Lending

The MBA is also calling on Fannie Mae to revise its HomeStyle Renovation Mortgage criteria by lowering the required project completion threshold from 90% to 50%. This would make it easier to finance partially completed homes particularly important for rehabilitating distressed or abandoned properties.

With safeguards in place such as draw inspections and holdbacks, the MBA says this approach is not only feasible but has been used successfully in the past.

“Fannie Mae has allowed 50% completion financing before,” the letter states. “It’s time to bring this flexibility back to meet the urgent demand for renovation-ready homes.”

Moving Forward

These proposed updates represent a broader push from the MBA’s Residential Board of Governors (RESBOG), which has identified construction loan reform as a top policy priority for 2025. As housing affordability continues to be a key issue for policymakers and families alike, the MBA hopes its recommendations will prompt meaningful action from the GSEs.

Bottom Line: With housing supply and affordability under strain, the MBA believes these targeted policy enhancements could act as a catalyst to stimulate new home construction, revive half-finished projects, and ultimately bring relief to both lenders and homebuyers. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.