Daily Rules, Proposed Rules, and Notices of the Federal Government
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.
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.
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.
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.
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 making
On June 11, 2012, FHFA published in the
FHFA received a total of 23 comments on the proposed rule; all are available on FHFA's Web site,
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.
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.
The final rule establishes new benchmark levels for the single-family housing goals for 2012, 2013 and 2014.
Specifically, the proposed and final goals are:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
(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.
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).
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 of
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,
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.
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.
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.
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's
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.
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 to
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.
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.
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.
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.
FHFA's analysis of each of the factors is set forth below.
In 2011, total multifamily mortgage originations increased by 60 percent as
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.