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Daily Rules, Proposed Rules, and Notices of the Federal Government

FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1282

RIN 2590-AA49

2012-2014 Enterprise Housing Goals

AGENCY: Federal Housing Finance Agency.
ACTION: Final rule.
SUMMARY: The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (Safety and Soundness Act) requires the Federal Housing Finance Agency (FHFA) to establish annual housing goals for mortgages purchased by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the Enterprises). FHFA previously established housing goals for the Enterprises through 2011. This final rule establishes new levels for the housing goals for 2012 through 2014, consistent with the requirements of the Safety and Soundness Act.
DATES: This rule is effective December 13, 2012.
FOR FURTHER INFORMATION CONTACT: Paul Manchester, Principal Economist, (202) 649-3115; Ian Keith, Senior Program Analyst, (202) 649-3114; Office of Housing and Regulatory Policy; Jay Schultz, Senior Economist, (202) 649-3117, Office of National Mortgage Database; Kevin Sheehan, Assistant General Counsel, (202) 649-3086, Office of General Counsel. These are not toll-free numbers. The mailing address for each contact is: Office of General Counsel, Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., Washington, DC 20024. The telephone number for the Telecommunications Device for the Hearing Impaired is (800) 877-8339.
SUPPLEMENTARY INFORMATION: I. Background A. Statutory and Regulatory Background

The Safety and Soundness Act, as amended by the Housing and Economic Recovery Act of 2008 (HERA), provides for the establishment, monitoring and enforcement of housing goals for Fannie Mae and Freddie Mac.1 FHFA previously established housing goals for the Enterprises for 2010 and 2011 through a final rule published on September 14, 2010.2

1 See12 U.S.C. 4561-4566.

2 See75 FR 55892 (September 14, 2010).

Section 1332(a) of the Safety and Soundness Act requires FHFA to establish three single-family owner-occupied purchase money mortgage goals, one subgoal, and one single-family refinancing mortgage goal. The single-family housing goals target:

• Home purchase mortgages for

○ Low-income families,

○ Families that reside in low-income areas (goal and subgoal), and

○ Very low-income families; and

• Refinancing mortgages for low-income families.3

3 See12 CFR 1282.12.

Section 1333(a) of the Safety and Soundness Act requires FHFA to establish one multifamily special affordable housing goal, as well as providing for a multifamily special affordable housing subgoal. These target multifamily housing affordable to:

• Low-income families, and

• Very low-income families.4

4 See12 CFR 1282.13.

B. Conservatorship

On September 6, 2008, the Director of FHFA appointed FHFA as conservator of the Enterprises to maintain the Enterprises in a safe and sound financial condition and to help assure performance of their public mission. The Enterprises remain under conservatorship at this time.

Although the Enterprises' substantial market presence has been key to retaining market stability, neither company is capable of serving the mortgage market today without the ongoing financial support provided by the U.S. Department of the Treasury (Treasury) under their respective Senior Preferred Stock Purchase Agreements (Agreements). FHFA has projected a range of substantial cumulative draws in Treasury support under the Agreements through 2014. While reliance on the Treasury Department will continue until legislation produces a final resolution to the Enterprises' future, FHFA is monitoring the activities of the Enterprises to: (a) Minimize losses on the mortgages already on their books; (b) ensure profitability in the new book of business without deterring market participation or hindering market recovery; and (c) limit their risk exposure by avoiding new products and lines of business.

While the Enterprises are in conservatorship, all Enterprise activities, including those in support of affordable housing, must be consistent with the requirements of conservatorship under the Safety and Soundness Act, as amended by HERA. If FHFA determines that the Enterprise housing goals cannot be achieved consistent with the goals and requirements of conservatorship or in light of market conditions, FHFA, as conservator for each Enterprise, may take additional action, including suspension of the Enterprise housing goals until they can be achieved and in a manner consistent with the conservatorships. In the meantime, FHFA is continuing with the existing structure of the housing goals, including the market-based approach that was adopted for 2010 and 2011, with new benchmark levels in place through 2014.

C. Prospective and Market-Based Approach

The current housing goals regulation sets forth single-family housing goals for 2010-2011 that include: (1) An assessment of Enterprise performance, as compared to the actual share of the market that meets the criteria for each goal; and (2) a benchmark level to measure Enterprise performance. For the single-family housing goals, an Enterprise has met a goal if it achieves the benchmark level for that goal, even if the actual market size for the year is higher than the benchmark level. An Enterprise has failed to meet a goal if its annual performance falls below both the benchmark level and the actual share of the market that meets the criteria for a particular goal for that year. FHFA determined that this approach is appropriate in light of recent market turmoil, especially while the Enterprises are operating in conservatorship, and in light of the difficulty of makingprojections accurately even in more stable economic environments. For those reasons too, and because the correspondence between available market data and the Enterprises' actual goals-qualifying activity is not exact, FHFA reserves some flexibility in determining whether an Enterprise has substantially complied with one or more goals.

II. Proposed Rule

On June 11, 2012, FHFA published in theFederal Registera proposed rule to establish new levels for the Enterprise housing goals for 2012 through 2014. The 45-day comment period closed July 26, 2012.5

5 See77 FR 34263 (June 11, 2012).

A. Summary of Comments

FHFA received a total of 23 comments on the proposed rule; all are available on FHFA's Web site,http://www.fhfa.gov.Comments were received from six trade associations, ten housing or other advocacy organizations, five individuals, and both Enterprises. A number of the comments addressed issues specific to this rulemaking, including comments on the proposed benchmark levels for the single-family housing goals, comments on the proposed levels for the multifamily housing goals, and comments on the treatment of certain multifamily properties under the housing goals. These comments are discussed in more detail in the sections below pertaining to each of these issues.

FHFA also received comments on issues that were outside the scope of this rulemaking. For example, FHFA received comments recommending, among other things: (1) That chattel (personal property) mortgages on manufactured housing should count toward the housing goals; (2) that FHFA should award goals credit to the Enterprises for “prioritizing their relationship” with housing finance agencies; (3) that FHFA should establish a subgoal to the low-income refinance goal for low-income loan modifications; and (4) that FHFA should take into account forthcoming regulations with regard to “qualified mortgages” and “qualified residential mortgages.” In addition, FHFA received comments addressing issues not related to the Enterprise housing goals. FHFA has reviewed all comments received in response to the proposed rule, but comments that raised issues beyond the scope of the proposed rule are not addressed in this final rule.

B. Use of Term “Minority”

FHFA received one comment letter from an advocacy organization questioning the use of the term “minority” in the proposed rule. FHFA has determined that the consideration of race in establishing the housing goals is appropriate and necessary to address specific provisions in the Safety and Soundness Act.

Specifically, section 1332(a) of the Safety and Soundness Act requires the Director to establish a single-family housing goal for families that reside in low-income areas, which are defined in section 1303 of the Safety and Soundness Act to include low- and moderate-income families in census tracts where at least 30 percent of the population consists of minorities. In order for FHFA to establish the housing goal for families that reside in low-income areas, it is necessary for FHFA to consider the distribution of minorities among different census tracts.

III. Summary of Final Rule

The final rule establishes new benchmark levels for the single-family housing goals for 2012, 2013 and 2014.6 The final rule lowers the benchmark levels for these goals from those in effect for 2010 and 2011, but raises the low-income home purchase goal level above the level in the proposed rule, and lowers the low-income refinance goal level from that in the proposed rule. The final rule also establishes new levels for the multifamily housing goals for 2012-2014. Both Enterprises exceeded the multifamily housing goal levels for 2011, and the final rule increases those goal levels above the 2010-2011 levels. However, in light of uncertainty about the multifamily market, and the Enterprises' role in that market, the goal levels for 2013 are set below the 2012 level, and are further decreased for 2014. The final rule does not make any other changes to the housing goals that have been in effect since 2010.

6The low-income areas goal in a given year includes Federally-declared disaster areas from the previous three years, thus this goal will not be determined for 2013 until January 2013 and for 2014 until January 2014.

Specifically, the proposed and final goals are:

2012 2013 2014 Low-income home purchase goal: Proposed rule 20% Final rule 23% Very-low income home purchase goal: Proposed rule 7% Final rule 7% Low-income areas home purchase subgoal: Proposed rule 11% Final rule 11% Low-income areas home purchase goal: Proposed rule 20% NA NA Final rule 20% NA NA Low-income refinance goal: Proposed rule 21% Final rule 20%

Multifamily special affordable goals (low-income units):

2012 2013 2014 Fannie Mae: Proposed rule 251,000 245,000 223,000 Final rule 285,000 265,000 250,000 Freddie Mac: Proposed rule 191,000 203,000 181,000 Final rule 225,000 215,000 200,000

Multifamily special affordable subgoals (very low-income units):

2012 2013 2014 Fannie Mae: Proposed rule 60,000 59,000 53,000 Final rule 80,000 70,000 60,000 Freddie Mac: Proposed rule 32,000 31,000 27,000 Final rule 59,000 50,000 40,000 IV. Single-Family Housing Goals A. Analysis of Factors for Single-Family Housing Goals

Section 1332(e)(2) of the Safety and Soundness Act requires FHFA to consider the following seven factors in setting the single-family housing goals:

(1) National housing needs;

(2) Economic, housing, and demographic conditions, including expected market developments;

(3) The performance and effort of the Enterprises toward achieving the housing goals under this section in previous years;

(4) The ability of the Enterprise to lead the industry in making mortgage credit available;

(5) Such other reliable mortgage data as may be available;

(6) The size of the purchase money conventional mortgage market, or refinance conventional mortgage market, as applicable, serving each of the types of families described, relative to the size of the overall purchase money mortgage market or the overall refinance mortgage market, respectively; and

(7) The need to maintain the sound financial condition of the Enterprises.7

712 U.S.C. 4562(e)(2).

FHFA's consideration of the size of the market for each housing goal includes consideration of the percentage of goal-qualifying mortgages under each housing goal, as calculated based on Home Mortgage Disclosure Act (HMDA) data for the three most recent years for which data is available.8 FHFA's analysis of each of the factors, which has been updated since the proposed rulemaking, is set forth below.

8 See12 U.S.C. 4562(e)(2)(A).

1. National Housing Needs

The recent single-family housing market has been characterized by falling homeownership rates, high vacancy rates, weak sales, lower home prices, high foreclosure rates, and stricter underwriting. These trends are likely to continue in the near term. In many instances, they have had differing impacts for homeowners and home seekers of different ethnicities. Despite demand spurred by the “First Time” and “Move Up Home Buyer” tax credits in 2009 and 2010, the seasonally adjusted overall U.S. homeownership rate was 65.6 percent in the second quarter of 2012, after peaking at 69.1 percent in 2004. The homeownership rate for non-Hispanic whites declined from a peak of 76 percent in 2004 to 73.5 percent in the second quarter of 2012. For black households, the decline was more pronounced, going from a peak of 49.1 percent in 2004 to 43.8 percent in the second quarter of 2012. The homeownership rate for Hispanic households also had a noticeable decline, going from a peak of 49.7 percent in 2006 and 2007 to 46.5 percent in the second quarter of 2012.

The homeowner vacancy rate—the proportion of housing inventory for homeowners that is vacant and for sale—dropped slightly to 2.1 percent in the second quarter of 2012, from a record high of 2.9 percent in 2008. But the vacancy rate may not fully capture the inventory of distressed and at-risk homes that have not yet completed the foreclosure process, but will add to the housing supply.9

9 See generally,Daniel Indiviglio, “The `Shadow' Foreclosure Inventory,” The Atlantic (Sept. 23, 2009), available athttp://www.theatlantic.com/business/archive/2009/09/the-shadow-foreclosure-inventory/27093/.

First-time homebuyers have experienced lower-priced housing. According to the 2011 National Association of Realtors (NAR) survey of homebuyers and sellers, the median age for first-time homebuyers was 31 years, and the median income was $62,400. The typical first-time homebuyer purchased a $155,000 home, up from $152,000 in the 2010 survey. Fifty-four percent of entry-level buyers financed their purchase with a Federal Housing Administration (FHA) loan, and 6 percent used the Veterans Administration (VA) loan program.

For 2011, NAR reported that existing home sales were up by 1.7 percent from 2010, and sales through August 2012 are running an additional 7.4 percent above the 2011 level. New home sales for 2011, as reported by the Census Bureau, were down by 5.3 percent from 2010, but sales through August 2012 are running at a rate of 18.1 percent above the 2011 level. A composite index of housing affordability for July 2012 showed that families earning the median income had 182.0 percent of the income needed to purchase a median-priced existing single-family home, which is very high by historical standards.

HMDA data for 2011, the most recent year for which such data are available, indicated that in comparison with 2010, applications for conventional home purchase loans from black borrowers fell by 1 percent, following a 31 percent decrease in 2010. Applications by Hispanic borrowers increased by 2 percent in 2011, following a 34 percent decrease in 2010. Applications from white borrowers were unchanged in 2011, following a 23 percent decrease in 2010.

Denial rates for black and Hispanic applicants, however, decreased from 2009 to 2011. For black applicants, the denial rate dropped from 32.3 percent in 2009 to 30.9 percent in 2010 and 2011, while the denial rate for Hispanics dropped from 25.6 percent in 2009 to 22.9 percent in 2010 and 21.7 percent in 2011.10

10 SeeBoard of Governors of the Federal Reserve, “The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress,” Federal Reserve Bulletin, available athttp://www.federalreserve.gov/pubs/bulletin/2010/pdf/2009_HMDA_final.pdf;“The Mortgage Market in 2010: Highlights from the Data Reported under the Home Mortgage Disclosure Act,” available athttp://www.federalreserve.gov/pubs/bulletin/2011/pdf/2010_HMDA_final.pdf;and “The Mortgage Market in 2011: Highlights from the Data Reported under the Home Mortgage Disclosure Act,” available athttp://www.federalreserve.gov/pubs/bulletin/2012/pdf/2011_HMDA.pdf.

Low housing prices impacted existing homeowners as the number of foreclosures and underwater mortgages—where a homeowner owes more than the value of the home—remained at elevated levels. Although the number of homes with foreclosure filings fell 34 percent relative to 2010, 1.9 million homes were foreclosed on in 2011.11 Foreclosure figures likely would have been higher in 2011 had it not been for processing slowdowns as a result of concerns about foreclosure practices and documentation, including some state foreclosure rules that significantly lengthen foreclosure times. Some housing analysts project higher foreclosure rates in 2012, with a downward trend beginning in 2013. As of the second quarter of 2012, the share of underwater mortgages was at a near-record high of 22.3 percent, and 4.7 percent of mortgaged homes had less than 5 percent equity.12 The concentration of underwater borrowers is even higher for non-Enterprise loans. FHFA has estimated that less than 10 percent of borrowers with Enterprise loans had negative equity in their homes (9.9 percent in June 2011), whereas loans backing private label securities were more than three times more likely to have negative equity (35.5 percent in June 2011).13

11 See“2011 Year-End Foreclosure Report: Foreclosures on the Retreat (January 9, 2012), available athttp://www.realtytrac.com/content/foreclosure-market-report/2011-year-end-foreclosure-market-report-6984.

12 SeeCoreLogic “Q22012 Negative Equity Report,” available at:http://www.corelogic.com/about-us/researchtrends/asset_upload_file486_16724.pdf.

13 See http://www.fhfa.gov/webfiles/23056/PrincipalForgivenessltr12312.pdf.

According to the Mortgage Bankers Association (MBA), single-family mortgage activity totaled $363 billion in the first quarter of 2012, compared to $302 billion in the first quarter of 2011. Total originations in 2011 were $1,262 billion, with 68 percent of the total being refinancings.14

14 See http://www.mbaa.org/ResearchandForecasts/ForecastsandCommentary.

One result of the mortgage crisis is that the mortgage market now has stricter and less flexible lending standards. According to the Board of Governors of the Federal Reserve System's Senior Loan Officer Opinion Survey, underwriting standards tightened beginning in late 2006 and have not significantly eased since that time.15 In the near term, underwriting standards can be expected to continue to be conservative. In addition, high vacancy rates, foreclosures and unemployment may continue to dampen the housing recovery.

15Board of Governors of the Federal Reserve System,Senior Loan Officer Opinion Survey(November 7, 2011).

FHFA has considered the above data in assessing national housing needs as required by the Safety and Soundness Act. FHFA has concluded that it is not necessary to adjust the benchmark levels based specifically on this factor.

2. Economic, Housing and Demographic Conditions

Increased role of FHA in the marketplace.The composition of the affordable conventional mortgage market is also influenced by FHA's market share. FHA loans generally are pooled into mortgage-backed securities (MBS) guaranteed by the Government National Mortgage Association (GNMA). Enterprise purchases of mortgages insured by FHA and mortgages guaranteed by VA generally do not receive housing goals credit. As a result, a higher FHA share of the market results in a smaller proportion of affordable loans among loans that can be counted for purposes of the housing goals. FHA's share of the market rose significantly during 2008 through 2010, reaching a share of the home purchase mortgage market of nearly 40 percent in 2010 before falling to 30 percent in 2011, as measured by HMDA data. FHA announced last year an annual mortgage insurance (MI) premium increase of 25 basis points, effective April 18, 2011.16

16 SeeU.S. Dept. of Housing and Urban Development., Mortgagee Letter 11-10 (Feb. 14, 2011), available athttp://portal.hud.gov/hudportal/documents/huddoc?id=11-10ml.pdf.

High unemployment.In addition to being an indicator of the health of the economy in general, labor market conditions affect the housing market more directly because buying a house is considered a large investment and a long-term commitment that requires stable employment. Nonfarm payroll employment increased by 114,000 in September 2012, following increases of 181,000 in July and 142,000 in August. The unemployment rate has steadily fallen from 9.1 percent in August 2011 to 7.8 percent in September 2012. NeighborWorks, a national network of community-based organizations actively involved in foreclosure mitigation counseling, has estimated that the two leading causes of mortgage default rates were a reduction in income (37 percent of defaults) and loss of income (21 percent of defaults).17 To the extent that high unemployment rates impact lower-income wage earners more than higher-income wage earners, there could be fewer mortgage originations for goal-qualifying borrowers and, therefore, fewer such mortgages available for purchase by the Enterprises.

17 SeeNeighborWorks, “National Foreclosure Mitigation Counseling Program—Congressional Update—Activity Through January 31, 2010” p. 41 (May 28, 2010), available athttp://www.nw.org/network/nfmcp/documents/CongressionalReportandAppendices.pdf.

State of the refinance market.The size of the refinance mortgage market has an impact on the share of affordable refinance mortgages. Historically, refinance mortgage volume increases when the refinancing of mortgages is motivated by low interest rates,i.e.,“rate and term refinances,” and this increased volume is dominated by higher-income borrowers. As a result, in periods of low interest rates, the share of lower-income borrowers will decrease. Likewise, refinancings that occurred when interest rates were high tended to have a higher proportion of lower-income homeowners who were consolidating their debts or who were drawing equity out of their homes for other uses. While there are fewer mortgage refinancings for both lower-income and higher-income borrowers during high interest rate periods, the decrease is larger for higher-income borrowers.

In the current economic environment, lower-income homeowners tend to have less equity—or negative equity—in their homes because the prices of lower-valued homes have fallen more than the prices of higher-valued homes.18 At the same time, lenders have tightened underwriting requirements, requiring higher down payments and higher credit scores. As a result, fewer lower-income homeowners may be able to refinance in 2012 and 2013. In addition,programs established in the wake of the financial crisis have affected refinancings. The Home Affordable Refinance Program (HARP), which became effective in March 2009 and was expanded in 2011, is an effort to enhance the opportunity for owners to refinance. Homeowners whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac and who are current on their mortgages have the opportunity to reduce their monthly mortgage payments to take advantage of historically low mortgage interest rates. An essential element of this program is the permission to carry forward into the new loan any existing MI from prior mortgages or, if no MI existed, none would be required for the refinanced mortgage. Even under favorable interest rate conditions, however, refinancings may not mirror previous years, thus FHFA is reducing the low-income refinance goal from 21 percent in the proposed rule to 20 percent in this final rule.

18 SeeThe Joint Center for Housing Studies of Harvard University, “The State of the Nation's Housing, 2011,” p. 40 (2011) (Table A-8), available athttp://www.jchs.harvard.edu/research/publications/state-nation%E2%80%99s-housing-2011.

3. The Performance and Effort of the Enterprises Toward Achieving the Single-Family Housing Goals in Previous Years

Section 1332(a) of the Safety and Soundness Act, as amended by section 1128(b) of HERA, requires FHFA to establish three single-family owner-occupied home purchase mortgage goals for the Enterprises: A goal for low-income families; a goal for families that reside in low-income areas; and a goal for very low-income families. Section 1332(a) also requires FHFA to establish a goal for single-family refinancing mortgages for low-income families. The following section discusses the Enterprises' performance on these single-family goals in 2010-2011 and, to provide perspective, reviews what performance would have been on these four single-family goals had they been in effect from 2006 through 2009.

The figures shown in Tables 1-4 for 2010 and 2011 are official performance results as determined by FHFA, based on loan-level information submitted by the Enterprises. The housing goals in the Safety and Soundness Act, as amended, apply to the Enterprises' acquisitions of “conventional, conforming, single-family, purchase money mortgages financing owner-occupied housing” for the targeted groups. The figures exclude units financed by Enterprise purchases of private label securities (PLS), since such units were not counted toward the goals in 2010 or 2011.

Low-Income Families Home Purchase Goal.The low-income families home purchase goal applies to mortgages made to “low-income families,” defined as families with incomes no greater than 80 percent of area median income (AMI).19 As indicated in Table 1, Fannie Mae's performance in 2011 (25.8 percent) was comparable to its performance in 2010 (25.1 percent) and to what it would have been in 2009 (25.5 percent), somewhat higher than it would have been in 2008 (23.1 percent), and somewhat lower than it would have been in 2006 and 2007 (27.7 percent and 26.0 percent). Freddie Mac's performance in 2011 (23.3 percent) was below its performance in 2010 (26.8 percent) but comparable with what it would have been in any year from 2006-2009 (22.1 percent-25.4 percent).

19 See12 U.S.C. 4502(14).

Very Low-Income Families Home Purchase Goal.The very low-income families home purchase goal applies to mortgages made to “very low-income families,” defined as families with incomes no greater than 50 percent of AMI. In essence, this operates as a subgoal of the low-income families housing goal, which applies to families with incomes no greater than 80 percent of AMI.

As indicated in Table 2, Fannie Mae's performance in 2011 (7.6 percent) was comparable to its performance in 2010 (7.2 percent) and to what it would have been in 2009 (7.3 percent), higher than it would have been in 2007 and 2008 (6.4 percent and 5.5 percent), and lower than it would have been in 2006 (7.7 percent). Freddie Mac's performance in 2011 (6.6 percent was below its performance in 2010 (7.9 percent), but comparable with what it would have been in the 2006-2009 period (5.3 percent-7.2 percent).

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Low-Income Areas Home Purchase Goal and Subgoal.Three categories of mortgages qualify for the low-income areas housing goal:

(1) Home purchase mortgages for families in low-income census tracts, defined as tracts with median family income no greater than 80 percent of AMI;

(2) Home purchase mortgages for families with incomes no greater than 100 percent of AMI who reside in minority census tracts, defined as tracts with minority population of at least 30 percent and a median family income less than 100 percent of AMI; and

(3) Home purchase mortgages for families with incomes no greater than 100 percent of AMI who reside in Federally-declared disaster areas (regardless of the minority share of the population in the tract or the ratio of tract median family income to AMI).

FHFA established an overall goal for this category of home purchase mortgages of 24 percent for 2010-2011. As indicated in Table 3, Fannie Mae's performance in 2011 (22.4 percent) was below its performance in 2010 (24.0 percent) and also lower than it would have been in 2009 (26.9 percent) and in 2008 (25.5 percent). Freddie Mac's performance in 2011 (19.2 percent) was much lower than in 2010 (23.0 percent) and also much lower than it would have been in 2009 (25.0 percent) and in 2008 (25.5 percent).

The 2010-2011 final rule also established a subgoal for the low-income and high-minority census tracts components of the goal. For 2010 and 2011, FHFA set the benchmark level for this subgoal at 13 percent.20 As indicated in Table 3, Fannie Mae's performance on the subgoal in 2011 (11.6 percent) was somewhat lower than in 2010 (12.4 percent) and also lower than it would have been in 2009 (13.3 percent) and in 2008 (15.1 percent). Freddie Mac's performance on the subgoal in 2011 (9.2 percent) was lower than in 2010 (10.4 percent) and also lower than it would have been in 2009 (11.6 percent) and in 2008 (15.2 percent).

20Affordability levels in low-income and high-minority areas, but not for disaster areas, can be adequately modeled using econometric time series forecast models.

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Low-Income Families Refinancing Housing Goal.The refinancing housing goal is targeted to low-income families,i.e.,families with incomes no greater than 80 percent of AMI, and applies to mortgages that are given to pay off or prepay an existing loan secured by the same property. Thus, the goal does not apply to home equity or home purchase loans.

Qualifying permanent modifications of loans for low-income families under the Administration's Home Affordable Modification Program (HAMP) are counted toward the refinancing housing goal. The impact of such modifications on goal performance is shown in Table 4.

Table 4 shows the Enterprises' performance on this goal for 2010-11, as well as what performance would have been if the goal had been in effect for the preceding four years. Performance shown for all years excludes units financed by Enterprise purchases of PLS, because such units were not counted toward the goals in 2010 or 2011.

As indicated in Table 4, Fannie Mae's performance in 2011 (23.1 percent) was higher than in 2010 (20.9 percent) and comparable with what it would have been in 2006-2009 (23.0 percent-26.6 percent). Freddie Mac's performance in 2011 (23.4 percent) was higher than in 2010 (22.0 percent) and in 2009 (21.7 percent), but comparable with what it would have been in 2006-2008 (23.2 percent-26.0 percent).

ER13NO12.003 4. The Ability of the Enterprises To Lead the Industry in Making Mortgage Credit Available

Leading the industry in making mortgage credit available includes making mortgage credit available to primary market borrowers at differing income levels with varying credit profiles living in various markets. Leadership also relates to the Enterprises' loss mitigation efforts, implementation of loan modification and refinance programs and support for state and local housing finance agencies.

The Enterprises, along with FHA and VA, now lead the market in making mortgage credit available. In 2011, the Enterprises remained the largest issuers of MBS, guaranteeing 72 percent of single-family MBS. Policymakers have expressed concern with the extent ofgovernment support for housing. The Enterprises' losses have depleted their capital and resulted in their being sustained only by infusions of capital from the U.S. Treasury under the Senior Preferred Stock Purchase Agreements. FHFA as conservator exercises statutory authority to conserve and preserve the Enterprises' assets, and to place the Enterprises in a sound and stable condition. Consistent with those responsibilities, FHFA has announced a number of steps to encourage more private participation in the mortgage market. FHFA has taken into account all of the foregoing considerations in assessing the Enterprises' ability to lead the industry in making mortgage credit available as required by the Safety and Soundness Act. FHFA has concluded that it is not necessary to adjust the benchmark levels based specifically on this factor.

5. Other Mortgage Data

HMDA data reported by loan originators is the primary source of reliable mortgage data for establishing the single-family housing goals. In setting the housing goal benchmark levels, FHFA evaluates the Enterprises' performance with respect to leading or lagging the housing market under specific goals and compares HMDA data with mortgage purchase data provided by the Enterprises. FHFA also uses other reliable data sources including: The American Housing Survey (AHS); U.S. Census Bureau demographics; commercial sources such as Moody's; and other industry and trade research sources,e.g.,MBA, Inside Mortgage Finance Publications, NAR, National Association of Home Builders (NAHB), and the Commercial Mortgage Securities Association. The FHFA Monthly Interest Rate Survey (MIRS) is used to complement forecast models for home purchase loan originations by making intra-annual adjustments prior to the public release of HMDA mortgage data.

In the development of economic forecasts, FHFA uses data and information from Wells Fargo, PNC, Fannie Mae, Freddie Mac, and The Wall Street Journal Survey. In addition, FHFA uses market and economic data from the Bureau of Labor Statistics, the Federal Reserve Board, the Department of Commerce Bureau of Economic Analysis, and FedStats.

6. Market Size

Expectations for the 2012 and 2013 single-family mortgage market are for slow growth. Quantifiable factors influencing FHFA's outlook for the mortgage market include general growth in the economy, employment, inflation, and the interest rate environment. Industry observers expect subprime mortgage market activity to remain minimal through 2013. The FHA-insured mortgage market share is expected by industry observers to continue to be a major factor in the affordability levels in the conventional market as FHA loans will continue to be an attractive option for low-income homebuyers.21 The effects of unemployment, FHA market share, and refinancing have been discussed previously (seeSection 2). The effects of interest rates, house prices, the overall housing market, manufactured housing, and the market outlook are discussed below.

21FHFA monitors the economic, housing and mortgage market forecasts of 12 industry and government entities. These entities are referred to as “industry observers.” For more information, and specifically which economic indicators each entity forecasts,see“Market Estimation Model for the 2012-2014 Enterprise Single-Family Housing Goals” published at FHFA's Web site,www.fhfa.gov.

Market outlook.Industry observers' economic and mortgage market forecasts are presented in Tables 5 and 6. On average, industry forecasters project the economy to continue to grow in 2012 and 2013, with Real Gross Domestic Product (GDP) growing at rates of just over 2.0 percent over the period. These industry observers also expect the unemployment rate to remain just above 8.0 percent during the remainder of 2012, and falling to 7.8 percent in the fourth quarter of 2013.

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Interest rates.Affordability in the mortgage market depends in part on the interest rate environment. Mortgage interest rates are impacted by many factors. Interest rates on longer term financial instruments such as mortgages typically follow the fluctuations of the 10-Year Treasury note yield, with approximately a 190 basis point spread reflecting the differences in liquidity and credit risk in 2012 and 180 basis point spread expected in 2013. With uncertainty in the financial markets of the European Union, the U.S. financial markets have seen increased demand as financial instruments here are seen as a “safe haven.” Overall, interest rates in the United States are heavily influenced by the monetary policies of the Federal Reserve Board's Federal Open Market Committee (FOMC). During the current economic environment, since mid-2008, the FOMC has maintained an accommodative monetary policy in support of its dual mandate of fostering maximum employment and price stability. In its September 12-13, 2012 meeting, the FOMC stated that it is committed to a low federal funds rate policy (at 0 to 0.25 percent) through mid-2015: “[t]o support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time afterthe economic recovery strengthens.”22 This monetary policy, combined with the international demand for U.S. financial instruments, has led to historically low interest rates in the mortgage market. The longer term 30-year fixed-rate mortgage interest rate has fallen from 4.9 percent at the beginning of 2011 to 3.49 percent in Freddie Mac's September 20, 2012 Primary Mortgage Market Survey. Shorter term fixed- and adjustable-rate mortgage interest rates remain at historical lows, for example, on September 20, 2012, Freddie Mac reported that the average one-year adjustable-rate mortgage rate was 2.61 percent. As a major contributor to the cost of mortgage financing, lower interest rates directly affect the affordability of buying a home or refinancing a mortgage. As the economic recovery strengthens in the near future and if the European situation stabilizes, it is expected that interest rates, particularly longer term interest rates, will rise. For the 2012-2013 period, as shown in Table 6, forecasts show that all interest rates are expected to remain at historical lows, including the interest rate on a 30-year fixed-rate mortgage, which is expected to remain near 3.6 percent in the fourth quarter of 2012 and to only reach 3.9 percent by the fourth quarter of 2013.

22Federal Open Market Committee,Press Release,September 13, 2012.

House prices.Trends in house prices influence the housing and mortgage markets. In periods of house price appreciation, home sales and mortgage originations increase as the expected return on investment rises. In periods of price depreciation or price uncertainty, home sales and mortgage originations decrease as risk-averse homebuyers are reluctant to enter the market. House prices fell during 2009 through 2011, but are expected to end 2012 up slightly from the fourth quarter 2011. House prices are expected to continue with modest increases through 2013 (seeTable 6).

Housing market.An active housing market is generally good for the affordable home market. When there are more homes for sale, potential home buyers have more options, prices tend to be more competitive and the search costs to find affordable housing decrease. Historical volumes for sales of both new and existing houses are shown in Table 6, along with forecasts for 2012-2013. Total home sales reached a 10-year annual low in 2010 at 4.5 million units. Home sales increased slightly in 2011 to 4.6 million units, and industry observers expect that home sales will increase to 4.9 million units in 2012 and to 5.3 million units in 2013—well below 2004-2006 levels.

During 2009 and early 2010, special homebuyers tax credits were available for first-time and repeat homebuyers. Mortgages to first-time homebuyers tend to be more likely to qualify for housing goals than those for repeat homebuyers, who tend to be older and have higher incomes. Many first-time homebuyers whose mortgages might otherwise have been available to receive goal-qualifying loans for home purchases in 2012-2014 instead bought their homes in 2009 or 2010 to take advantage of the first-time homebuyers tax credit.

Manufactured housing loans.Between 2009 and 2011, 63 percent of manufactured housing loans were higher priced, according to HMDA data. Because chattel-financed loans do not count towards achievement of the housing goals, it was necessary to adjust the HMDA figures with respect to market estimates to account for this part of the manufactured housing market. Accordingly, FHFA down-weighted the average 2009 to 2011 manufactured housing contribution to the goals market estimates by 80 percent for the home purchase mortgage goals and 40 percent for the refinance mortgage goal. This resulted in the market estimate for the low-income home purchase housing goal being reduced by 1.4 percent, the very low-income home purchase housing goal and the low-income areas home purchase housing goal by 0.6 percent, and the low-income borrower refinance housing goal by 0.2 percent. The projected market estimates in Table 5 reflect these adjustments.

Housing goal outlook.FHFA's estimates of the market performance for the two single-family owner-occupied home purchase housing goals and one subgoal, and the refinancing mortgage housing goal, are provided in Table 5. For 2012 and 2013, FHFA estimates that the low-income borrower shares of the home purchase mortgage market will be 27.0 percent and 26.3 percent, respectively. FHFA estimates that the very low-income borrower share of the home purchase mortgage market will be 8.3 percent for 2012 and 8.2 percent for 2013. FHFA estimates that the share of subgoal-qualifying mortgages in low-income areas in the home purchase mortgage market, excluding designated disaster areas, will be 11.8 percent in 2012 and 11.9 percent in 2013.

The refinance share of the market, as measured by the MBA, averaged 68 percent in 2011. With interest rates projected to rise during 2012-2013, industry observers expect the refinance share of total originations to decrease. Generally speaking, decreasing refinance share leads to a higher percentage of refinance originations made up of lower-income borrowers. Accordingly, with a projected refinance share of 72 percent in 2012 and 52 percent in 2013, FHFA's market model estimates that 19.9 percent of refinance mortgages will be made to low-income borrowers in 2012 and 22.6 percent in 2013. These estimates are reflective of historical lending patterns and trends. However, as evidenced by the Federal Reserve Bank of Philadelphia'sCommunity Outlook Survey,the tightening of underwriting standards will impact the access to credit of lower-income borrowers. In this survey of organizations servicing low- and moderate-income populations (those with incomes less than 80 percent of AMI), only 2 percent of the respondents saw an increase in the access to credit in the second quarter of 2012, and only 4 percent of the respondents saw an increase in the access to credit in the first quarter of 2012.23

23Federal Reserve Bank of Philadelphia,Second Quarter 2012 Community Outlook Survey,August 2012.

To arrive at the market estimates, FHFA used an econometric state space methodology to extend the trends of the market performance for each goal, based on a monthly time series database provided by the Federal Financial Institutions Examination Council (FFIEC) and the Federal Reserve Board. For the low-income areas goal, this model produced the market estimates for only the subgoal. The remainder of the market estimates for this goal relates to the designated disaster areas. FHFA will provide the 2012-14 estimates of the share of home purchase mortgages that will qualify for the designated disaster areas portion of the low-income areas goal to the Enterprises in January of each year.

7. Need To Maintain the Sound Financial Condition of the Enterprises

FHFA's duties as conservator require the conservation and preservation of the Enterprises' assets. While reliance on the Treasury's backing will continue until legislation produces a final resolution to the Enterprises' future, FHFA is monitoring the activities of the Enterprises to: (a) Limit their risk exposure by avoiding new lines of business; (b) ensure profitability in the new book of business without deterring market participation or hindering market recovery; and (c) minimize losses on the mortgages already on their books. Given the importance of the Enterprises to the housing market, any goal-setting must be closely linked toputting the Enterprises in sound and solvent condition.

B. Single-Family Housing Goal Benchmark Levels

FHFA used all relevant information when determining the benchmark levels for the 2012 and 2013 housing goals. While the tightening of underwriting standards is not included in the market estimates calculation, it was considered in the determination of the benchmark levels. FHFA attempts to use the most current data possible when estimating market size, including information from FHFA's MIRS and combined Fannie Mae and Freddie Mac refinance goal performance data to extend HMDA performance data. FHFA used estimated market series of goal-qualifying shares provided by Freddie Mac that are based on MIRS data from January 2004 to May 2012. In addition, FHFA used the combined Enterprise performance data from January 2001 to July 2012 to inform the market estimates for the refinance goal. Guidance for calculating market size using historical HMDA data is provided in the “Market Estimation Model for the 2012-2014 Enterprise Single-Family Housing Goals” published by FHFA on its Web site.24

24 See http://www.fhfa.gov/Default.aspx?Page=72.

Summary of comments.FHFA received a number of comments on the benchmark levels of the single-family housing goals that were in the proposed rule. Three housing advocacy groups and one trade association stated that the proposed level for the low-income home purchase goal benchmark (20 percent) was too low. They pointed out that it was considerably below actual performance by both Enterprises in 2010 and 2011, which ranged from 23.3 percent to 26.8 percent. One of the advocacy groups said that a low level of this benchmark could become a “self-fulfilling prophecy.”

One advocacy organization argued that FHFA should not use the lower end of the projected range of market estimates in setting this goal, and that it should “supplement its econometric state space model with other forecasting techniques.” A trade association stated that its forecast of the housing market is more positive than that projected by FHFA at the time of the proposed rule. An advocacy group noted that FHA's market share had declined between 2009 and 2011, and felt that this could lead to more goal-qualifying mortgages in the conventional market. Also, a trade association stated that the proposed low-income refinance goal (21 percent) was low relative to FHFA's market forecast for 2013.

FHFA determination.FHFA has updated its forecasts of the goal-qualifying shares of conventional conforming mortgages in 2012-2014, as explained elsewhere in this final rule. Based on new housing data, more recent forecasts from outside experts, and the factors described above, § 1282.12 of the final rule establishes the benchmark levels for the single-family housing goals for 2012, 2013, and 2014 as follows:

Housing goal for low-income families.The benchmark level of the annual goal for each Enterprise's purchases of purchase money mortgages on owner-occupied single-family housing for low-income families is 23 percent of the total number of such mortgages purchased by that Enterprise, an increase from the 20 percent level in the proposed rule. This increase is supported by the fact that one of the statutory factors to be used in setting goals is past performance, which, as shown in Table 1, significantly exceeded the proposed goal level of 20 percent in 2010-2011.

Housing goal for very low-income families.The benchmark level of the annual goal for each Enterprise's purchases of purchase money mortgages on owner-occupied single-family housing for low-income families is 7 percent of the total number of such mortgages purchased by that Enterprise, as in the proposed rule.

Housing subgoal for families in low-income areas.The 2012-2014 benchmark level of the annual subgoal for each Enterprise's purchases of purchase money mortgages on owner-occupied single-family housing for families in low-income census tracts and for low- and moderate-income families in minority census tracts is 11 percent of the total number of such mortgages purchased by that Enterprise, as in the proposed rule.

Housing goal for families in low-income areas.The benchmark level of the annual goal for each Enterprise's purchases of purchase money mortgages on owner-occupied single-family housing for families in low-income areas is set annually by notice from FHFA. The benchmark level is based on the benchmark level for the low-income areas subgoal, plus an adjustment factor that reflects the incremental percentage share that mortgages for low- and moderate-income families in designated disaster areas had in the most recent year for which data is available. For 2012, this adjustment factor is 9 percentage points.

Impact of 2010 Census. This subgoal and goal were established for 2010-2011 based on data from the 2000 census. FHFA has also used 2000 census data in its modeling for forecasting the benchmark levels for the single-family housing goals. However, the Enterprises are in the process of transitioning from 2000 census data to 2010 census data as the basis for reporting performance on this goal and subgoal. Due to inadequate data, FHFA has not formulated this goal and subgoal in terms of 2010 census data, but FHFA notes that there was an increase in the number of low-income tracts and, especially, high-minority tracts between 2000 and 2010. Thus, FHFA anticipates that this transition will increase performance on this goal and subgoal.

Housing goal for refinancing mortgages.The benchmark level of the annual goal for each Enterprise's purchases of refinancing mortgages on owner-occupied single-family housing for low-income families is 20 percent of the total number of such mortgages purchased by that Enterprise, a slight reduction from the 21 percent level in the proposed rule.

V. Multifamily Housing Goals A. Analysis of Factors for Multifamily Housing Goals

Section 1333(a)(4) of the Safety and Soundness Act requires FHFA to consider the following six factors in setting the multifamily special affordable housing goals:

(1) National multifamily mortgage credit needs and the ability of the Enterprise to provide additional liquidity and stability for the multifamily mortgage market;

(2) The performance and effort of the Enterprise in making mortgage credit available for multifamily housing in previous years;

(3) The size of the multifamily mortgage market for housing affordable to low-income and very low-income families, including the size of the multifamily markets for housing of a smaller or limited size;

(4) The ability of the Enterprise to lead the market in making multifamily mortgage credit available, especially for multifamily housing affordable to low-income and very low-income families;

(5) The availability of public subsidies; and

(6) The need to maintain the sound financial condition of the Enterprise.25

2512 U.S.C. 4563(a)(4).

FHFA's analysis of each of the factors is set forth below.

1. National Multifamily Mortgage Credit Needs

In 2011, total multifamily mortgage originations increased by 60 percent ascommercial banks and thrifts significantly increased their multifamily lending, according to MBA survey data.26 This trend has continued in the first half of 2012. Life insurance companies, and to a limited extent, commercial mortgage-backed securities (CMBS) issuers, increased their lending volumes in the first half of 2012 compared to the first half of 2011. As a result of traditional multifamily lenders re-entering the market, the Enterprises' market share in terms of dollars returned to pre-2008 levels.27

26MBA Analysis Pegs 2011 Multifamily Lending at $110.1 Billion, Up 60% from 2010, MBA October 4, 2012,http://www.mortgagebankers.org/NewsandMedia/PressCenter/82273.htm.

27Mortgage Bankers' Commercial/Multifamily Originations up 55 Percent to $184.3 Billion in 2011, MBA April 11, 2012,http://www.mortgagebankers.org/NewsandMedia/PressCenter/80430.htm.

Record low interest rates and robust performance by the multifamily market have attracted banks and thrifts back to multifamily lending. Banks and thrifts have helped to fill in the void left by the exit of conduit lenders from multifamily lending in 2008. FHFA expects that in 2012 the Enterprises will likely see a decrease in their market share of originations, based on second quarter 2012 loan origination data provided by the MBA.28 Freddie Mac's first half 2012 multifamily production was about $12 billion in financing, which is about 67 percent higher than in the first half of 2011. Likewise, Fannie Mae has seen a sharp increase in first half 2012 multifamily production volume. Through June 30, 2012, Fannie Mae had purchased around $14 billion in multifamily loans, compared to $10.5 billion in the first half of 2011. The Enterprises' market share should continue to decline over the 2013-2014 period, although the overall multifamily mortgage market should slowly grow as the economy recovers. In arriving at this conclusion, FHFA considered, among other factors, vacancy rates, demand for multifamily housing, interest rates, property values, and new multifamily starts.

28Second Quarter Commercial/Multifamily Mortgage Originations Up 25 Percent from Q2 2011, MBA July 31, 2012,http://www.mortgagebankers.org/NewsandMedia/PressCenter/81459.htm.

Vacancy rates and demand for multifamily housing.Declining vacancy rates are usually associated with increased rents and greater investor interest in multifamily properties. According to the U.S. Census Bureau, rental vacancy rates fell from 9.2 percent in the second quarter of 2011 to 8.6 percent in the second quarter of 2012. “Effective rents,” which are the rents that tenants actually pay, increased at an annual rate of over 4 percent in markets tracked by Axiometrics, a provider of commercial real estate data.29 Although vacancy rates decreased and property values and rents increased, multifamily construction permits were issued at an annualized rate of 274,000 in July 2012, which is still well below historical levels. Continued low interest rates and increased demand for multifamily housing should spur further increases in new multifamily construction. Likewise, the lack of new units coming onto the market and the prevailing low interest rates should continue to encourage multifamily property owners to refinance. However, a rise in interest rates would likely temper any increase in multifamily mortgage activity in 2013-2014.

29“Axiometrics: National Effective Rents Up Slightly In July,”MortgageOrb.com(August 28, 2012), available athttp://www.mortgageorb.com/e107_plugins/content/content.php?content.12282.

Property values.As of the end of June 2012, multifamily property values were up over 24 percent from their low point in the third quarter of 2009.30 However, multifamily property value