Daily Rules, Proposed Rules, and Notices of the Federal Government
FHFA invites comments on all aspects of the Advance Notice of Proposed Rulemaking. Copies of all comments will be posted without change, including any personal information you provide, such as your name and address, on the FHFA Web site at
Effective July 30, 2008, Division A of HERA, Public Law 110-289, 122 Stat. 2654 (2008), amended the Safety and Soundness Act, 12 U.S.C. 4501
Section 1302 of HERA provides, in part, that all regulations, orders and determinations issued by the Secretary of HUD (Secretary) with respect to the Secretary's authority under the Safety and Soundness Act, the Federal National Mortgage Association Charter Act, 12 U.S.C. 1716
The Enterprises are government-sponsored enterprises (GSEs) chartered by Congress for the purpose of establishing secondary market facilities for residential mortgages.
The Safety and Soundness Act provides that the Enterprises “have an affirmative obligation to facilitate the financing of affordable housing for low- and moderate-income families.” 12 U.S.C. 4501(7). Section 1129 of HERA amended section 1335 of the Safety and Soundness Act to establish a duty for the Enterprises to serve three specified underserved markets, in order to increase the liquidity of mortgage investments and improve the distribution of investment capital available for mortgage financing for certain categories of borrowers in those markets. 12 U.S.C. 4565. Specifically, the Enterprises are required to provide leadership to the market in developing loan products and flexible underwriting guidelines to facilitate a secondary market for mortgages on housing for very low-, low-, and moderate-income families with respect to manufactured housing, affordable housing preservation, and rural markets.
The duty to serve underserved markets is separate from and additional to the Enterprises' affordable housing goals. Mortgage purchases that contribute to the affordable housing goals may, under appropriate circumstances, also be considered for the duty to serve underserved markets. In addition, an activity or transaction may be considered for more than one underserved market. The rules for determining which types of mortgage purchases receive credit for purposes of the affordable housing goals could also be used to determine which types of mortgage purchases would be considered for purposes of the duty to serve underserved markets. FHFA seeks comment on whether there are any categories of mortgage purchase transactions for which the Enterprises receive housing goals credit that should not be considered for the duty to serve.
The affordable housing goals regulation applicable to the Enterprises prohibits housing goals credit for “HOEPA mortgages”
The duty to serve underserved markets is not an independent source of program authority for the Enterprise, and activities or transactions conducted in furtherance of this duty must be consistent with the Enterprise's Charter Act powers and limitations. In addition, any activity undertaken pursuant to the duty to serve must be consistent with the Safety and Soundness Act, as amended, the safe and sound operation of the Enterprise, and the public interest.
FHFA invites comment on the issues discussed above.
Section 1335 of the Safety and Soundness Act, as amended, requires the Enterprises to “develop loan products and flexible underwriting guidelines to facilitate a secondary
FHFA requests comment on the relative advantages and disadvantages to borrowers of personal property loans, land-home loans, and real estate loans and on appropriate definitions for these terms. FHFA also seeks comment on the safety and soundness considerations of Enterprise purchase or guarantee of these various loan types, and on how Enterprise leadership under the duty to serve requirements may provide greater standardization and liquidity to the market and protection to borrowers.
Under the Safety and Soundness Act, as amended, the Enterprises are required to develop loan products and flexible underwriting guidelines to facilitate a secondary market to preserve housing affordable to very low-, low-, and moderate-income borrowers, including housing projects subsidized under:
(i) Section 8 of the Housing Act of 1937 (project-based and tenant-based rental assistance housing programs) (42 U.S.C. 1437f);
(ii) Section 236 of the National Housing Act (rental and cooperative housing for lower income families) (12 U.S.C. 1715z-1);
(iii) Section 221(d)(4) of the National Housing Act (housing for moderate-income and displaced families) (12 U.S.C. 1715l);
(iv) Section 202 of the Housing Act of 1959 (supportive housing program for the elderly) (12 U.S.C. 1701q);
(v) Section 811 of the Cranston-Gonzalez National Affordable Housing Act (supportive housing program for persons with disabilities) (42 U.S.C. 8013);
(vi) Title IV of the McKinney-Vento Homeless Assistance Act (only permanent supportive housing projects subsidized under such programs) (42 U.S.C. 11301
(vii) Section 515 of the Housing Act of 1949 (rural rental housing program) (42 U.S.C. 1485);
(viii) Low-income housing tax credits under section 42 of the Internal Revenue Code of 1986 (26 U.S.C. 42); and
(ix) Comparable State and local affordable housing programs. 12 U.S.C. 4565(a)(1)(B).
Some of the housing preservation programs listed above are voucher, capital advance or grant programs rather than mortgage origination programs, and the Enterprises' assistance may fall outside of their traditional role of purchasing, securitizing and guaranteeing mortgage loans. Moreover, compliance with the duty to assist with affordable housing preservation is not dependent on whether the Enterprise assists each enumerated program each year, because the needs and opportunities in some programs might change from year to year. FHFA seeks comment on how the Enterprises could assist these programs in meaningful and measurable ways.
The housing programs enumerated above are not exhaustive, and the Enterprises are not limited to assisting these programs as their sole means of fulfilling their duty to serve the affordable housing preservation market. For example, HUD's Neighborhood Stabilization Program provides grants to State and local governments to acquire and redevelop foreclosed properties for the purpose of stabilizing communities that have suffered from home foreclosures and abandonment. FHFA requests comment on whether Enterprise assistance in connection with this program should be considered for the duty to serve the affordable housing preservation market and how the Enterprises might render assistance. FHFA also seeks comment on other State and local affordable housing programs, including foreclosure prevention programs, that could be considered for the duty to serve the affordable housing preservation market.
The Safety and Soundness Act, as amended, requires the Enterprises to “develop loan products and flexible underwriting guidelines to facilitate a secondary market for mortgages on housing for very low-, low-, and moderate-income families in rural areas.” 12 U.S.C. 4565(a)(1)(C).
The first definition would be based on classifications used by the U.S. Census Bureau for the 2000 census and would distinguish between urban and rural areas.
The second definition would define “rural areas” as all counties assigned a U.S. Department of Agriculture (USDA) Rural-Urban Continuum code
The third definition would combine two different designations, one used by the U.S. Census Bureau and one used by the USDA. Under this two-pronged definition, all census tracts designated by the U.S. Census Bureau as “nonmetropolitan” would be considered rural areas, as would all census tracts outside of urbanized areas and urban clusters, as designated by USDA's Rural-Urban Commuting Area
Using this definition, 29 percent of the census tracts in the 50 States would be rural areas. It would also capture 27 percent of the census tracts regarded as “underserved areas” under the affordable housing goals regulation applicable to the Enterprises.
The definitions discussed above would cover most, but not all, Tribal lands. Accordingly, FHFA seeks comment on whether the definition of “rural areas” should include all Tribal lands.
In determining whether the Enterprises have complied with the duty to serve underserved markets, the Safety and Soundness Act, as amended, requires FHFA to separately evaluate and rate the Enterprise's performance for each of the three underserved markets based on four specific criteria, which are discussed below. 12 U.S.C. 4565(d). The Enterprises' performance under the three underserved markets may vary significantly from year to year because the needs and opportunities of one market may require more attention and resources than the needs of another market. Accordingly, the method for evaluating the Enterprises' performance of the duty to serve underserved markets should be sufficiently flexible to account for these variations in market needs and opportunities.
The Purchase Test requires that the volume of loans purchased in each underserved market be evaluated “relative to the market opportunities available to the [E]nterprise.” 12 U.S.C. 4565(d)(2)(C). FHFA invites comment on how to estimate the size of the manufactured housing, affordable housing preservation, and rural markets. FHFA further invites comment on whether there are categories of mortgages that should be excluded from the market size because the mortgages are unavailable for purchase.
If market size estimation is not possible, the Enterprises' performance in the specific underserved market could be evaluated based on their purchases in that market in recent previous years, although this approach would not be available for the 2010 evaluation year. FHFA seeks comment on this approach.
In order to evaluate the Enterprises' performance under the duty to serve underserved markets, FHFA is considering developing a rating method similar to the method used to determine whether a financial institution has met the requirements under the Community Reinvestment Act of 1977 (CRA).
One way to implement this approach would be to devise a rating scheme in which achievements or receipt of a certain number of points would result in a particular rating.
The four Tests need not be given equal consideration. For example, the Outreach Test might be weighted less than the Loan Product or Purchase Tests, because it results in less tangible benefits to the markets served and may require less effort and devotion of resources by the Enterprise. Furthermore, FHFA could weigh the four Tests differently across the three underserved markets. For example, the Purchase Test might receive more consideration for the manufactured housing market than for the affordable housing preservation market. The ratings would also take into consideration the overall effort and effectiveness of the Enterprise's service to the underserved market, its capital and portfolio positions, and the condition of the particular underserved market, which could vary from year to year.
FHFA seeks comment on the evaluation methodology discussed above and invites descriptions of other types of evaluation or rating methodologies that may be feasible.
FHFA would require annual reports from the Enterprises on their performance of the duty to serve underserved markets. FHFA anticipates that part of the report would be narrative and part would be summary statistical information, supported by submission of appropriate transaction-level data. The narrative portion would likely include discussions of the Enterprise's performance in each of the three underserved markets. Except for purchases of single-family mortgages, a complete listing and summary of each transaction for which the Enterprise seeks credit would likely be required. In addition, the Enterprise would certify to the accuracy of the information submitted. FHFA invites comment on specific requirements for the contents of the report.
FHFA invites comment on all of the issues discussed above, and will consider all comments received in developing a proposed rule to implement the duty to serve underserved markets.