2009 Enterprise Transition Affordable Housing Goals, 20236-20263 [E9-9994]

Agencies

• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 74, Number 83 (Friday, May 1, 2009)]
[Proposed Rules]
[Pages 20236-20263]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-9994]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1282

RIN 2590-AA25


2009 Enterprise Transition Affordable Housing Goals

AGENCY: Federal Housing Finance Agency.

ACTION: Proposed rule.

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SUMMARY: Section 1128(b) of the Housing and Economic Recovery Act of 
2008 (HERA) transferred the authority to establish, monitor and enforce 
the affordable housing goals for the Federal National Mortgage 
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation 
(Freddie Mac) (collectively, Enterprises) from the Department of 
Housing and Urban Development (HUD) to the Federal Housing Finance 
Agency (FHFA). Section 1128(b) further provides that the annual housing 
goals in effect for 2008 as established by HUD shall remain in effect 
for 2009, except that the Director of FHFA shall review such goals to 
determine their feasibility given current market conditions, and make 
appropriate adjustments consistent with such market conditions. 
Pursuant to this directive, FHFA has analyzed current market conditions 
and is issuing and seeking comments on a proposed rule that would 
adjust the affordable housing goal and home purchase subgoal levels for 
the Enterprises for 2009. The proposed rule would also permit loans 
owned or guaranteed by an Enterprise that are modified in accordance 
with the Administration's Homeowner Affordability and Stability Plan 
announced on March 4, 2009, to be treated as mortgage purchases and 
count for purposes of the housing goals. In addition, the proposed rule 
would exclude purchases of jumbo conforming loans from counting towards 
the 2009 housing goals. FHFA's housing goals regulation would be set 
forth in new part 1282 of FHFA's regulations, and would be generally 
consistent with the housing goals provisions previously established by 
HUD in 24 CFR part 81, except as modified herein. Pursuant to section 
1302 of HERA and 12 U.S.C. 4603, to the extent FHFA is adopting 
provisions from part 81 in new part 1282, those provisions in part 81 
will no longer be in effect.

DATES: Written comments must be received on or before May 22, 2009.

ADDRESSES: You may submit your comments, identified by regulatory 
information number (RIN) 2590-AA25, by any of the following methods:
     U.S. Mail, United Parcel Post, Federal Express, or Other 
Mail Service: The mailing address for comments is: Alfred M. Pollard, 
General Counsel, Attention: Comments/RIN 2590-AA25, Federal Housing 
Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552.
     Hand Delivered/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA25, 
Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., 
Washington, DC 20552. The package should be logged at the Guard Desk, 
First Floor, on business days between 9 a.m. and 5 p.m.
     E-mail: Comments to Alfred M. Pollard, General Counsel may 
be sent by e-mail to RegComments@fhfa.gov. Please include ``RIN 2590-
AA25'' in the subject line of the message.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comment to the Federal eRulemaking Portal, please also send it by e-
mail to FHFA at RegComments@fhfa.gov to ensure timely receipt by the 
Agency. Please include ``RIN 2590-AA25'' in the subject line of the 
message.

FOR FURTHER INFORMATION CONTACT: Brian Doherty, Acting Manager, Housing 
Mission and Goals--Policy, (202) 408-2991, or Paul Manchester, Acting 
Manager, Housing Mission and Goals--Quantitative Analysis, (202) 408-
2946 (these are not toll-free numbers); Sharon Like, Associate General 
Counsel, (202) 414-8950, Lyn Abrams, Attorney-Advisor, (202) 414-8951, 
or Kevin Sheehan, Attorney-Advisor, (202) 414-8952 (these are not toll-
free numbers), Office of General Counsel, Federal Housing Finance 
Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The 
telephone number for the Telecommunications Device for the Hearing 
Impaired is (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Comments

    FHFA invites comments on all aspects of the proposed rule, and will 
revise the language of the proposed rule as appropriate after taking 
all comments into consideration. Copies of all comments will be posted 
on the FHFA Internet Web site at https://www.fhfa.gov. In addition, 
copies of all comments received will be available for examination by 
the public on business days between the hours of 10 a.m. and 3 p.m., at 
the Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., 
Washington, DC 20552. To make an appointment to inspect comments,

[[Page 20237]]

please call the Office of General Counsel at (202) 414-3751.

II. Background

A. Establishment of FHFA

    Effective July 30, 2008, Division A of HERA, Public Law 110-289, 
122 Stat. 2654 (2008), amended the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (Safety and Soundness Act), 
12 U.S.C. 4501 et seq., and created the FHFA as an independent agency 
of the Federal government.\1\ HERA transferred the safety and soundness 
supervisory and oversight responsibilities over the Enterprises from 
the Office of Federal Housing Enterprise Oversight (OFHEO) to FHFA. 
HERA also transferred the charter compliance authority and 
responsibility to establish, monitor and enforce the affordable housing 
goals for the Enterprises from HUD to FHFA. HERA provides for the 
abolishment of OFHEO one year after the date of enactment. FHFA is 
responsible for ensuring that the Enterprises operate in a safe and 
sound manner, including maintenance of adequate capital and internal 
controls, that their operations and activities foster liquid, 
efficient, competitive, and resilient national housing finance markets, 
and that they carry out their public policy missions through authorized 
activities. See 12 U.S.C. 4513.
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    \1\ See Division A, titled the ``Federal Housing Finance 
Regulatory Reform Act of 2008,'' Title I, Section 1101 of HERA.
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    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 et seq., and the Federal Home Loan Mortgage Corporation 
Act, 12 U.S.C. 1451 et seq., (Charter Acts), shall remain in effect and 
be enforceable by the Secretary or the Director of FHFA, as the case 
may be, until modified, terminated, set aside or superseded by the 
Secretary or the Director, any court, or operation of law. The 
Enterprises continue to operate under regulations promulgated by OFHEO 
and HUD until FHFA issues its own regulations. See HERA at section 
1302, 122 Stat. 2795; 12 U.S.C. 4603. The Enterprises are government-
sponsored enterprises (GSEs) chartered by Congress for the purpose of 
establishing secondary market facilities for residential mortgages. See 
12 U.S.C. 1716 et seq.; 12 U.S.C. 1451 et seq. Specifically, Congress 
established the Enterprises to provide stability in the secondary 
market for residential mortgages, respond appropriately to the private 
capital market, provide ongoing assistance to the secondary market for 
residential mortgages, and promote access to mortgage credit throughout 
the nation. Id.

B. Statutory and Regulatory Background

    Prior to HERA, the Safety and Soundness Act provided the Secretary 
with the authority to establish, monitor and enforce affordable housing 
goals for the Enterprises. See 12 U.S.C. 4561 et seq. (2008). HUD 
issued regulations establishing affordable housing goals for the 
Enterprises, which were periodically updated, most recently in 2004 
when HUD established new housing goal levels for 2005 through 2008. See 
24 CFR part 81. HUD's regulations provide that the housing goal levels 
for 2008 continue in effect in 2009 and each year thereafter until 
replaced by new annual housing goals established by HUD. See 24 CFR 
81.12 through 81.14.
    Section 1331(c) of the Safety and Soundness Act, as amended by 
section 1128(b) of HERA, provides that the housing goal levels 
established by HUD for 2008 ``shall remain in effect for 2009, except 
that not later than the expiration of the 270-day period beginning on 
the date of the enactment of [HERA], the Director shall review such 
goals applicable for 2009 to determine the feasibility of such goals 
given the market conditions current at such time and, after seeking 
public comment for a period not to exceed 30 days, may make appropriate 
adjustments consistent with such market conditions.'' See 12 U.S.C. 
4561(c). Under section 1336 of the Safety and Soundness Act, as amended 
by section 1130 of HERA, the Director of FHFA has authority to monitor 
and enforce compliance with the 2009 housing goals, as well as the 
housing goals established by FHFA for subsequent years. See 12 U.S.C. 
4566.\2\
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    \2\ Sections 1331 through 1335 of the Safety and Soundness Act, 
as amended by HERA, also contain new housing goal and other 
requirements for the Enterprises effective for 2010 and each year 
thereafter. FHFA will implement these requirements pursuant to a 
separate rulemaking. See 12 U.S.C. 4561 through 4565.
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C. Conservatorship

    On September 7, 2008, the Director of FHFA appointed FHFA as 
conservator of the Enterprises in accordance with the Safety and 
Soundness Act, as amended by HERA, to maintain the Enterprises in a 
safe and sound financial condition. The Enterprises remain under 
conservatorship at this time.

III. Summary of Proposed Amendments

A. Adoption of Housing Goals Provisions in New 12 CFR Part 1282

    HUD's regulations on establishing, monitoring and enforcing the 
housing goals for the Enterprises are set forth in 24 CFR part 81, 
Subparts A and B. Under section 1302 of HERA, part 81 continues in 
effect and is enforceable by the Director of FHFA until modified, 
terminated, set aside or superseded by the Secretary or the Director, 
any court, or operation of law. The proposed rule would establish 
housing goals requirements for the Enterprises for 2009 in new part 
1282 of title 12 of FHFA's regulations. The housing goals requirements 
would be generally consistent with the HUD housing goals provisions in 
Subparts A and B, except as modified herein. Upon FHFA's adoption of 
the final rule for the 2009 housing goals, the related housing goals 
provisions adopted by FHFA in chapter XII from 24 CFR part 81 will no 
longer be in effect pursuant to section 1302 of HERA.

B. Adjustment of Housing Goal and Home Purchase Subgoal Levels

    Section 1128(b) of HERA authorizes the Director of FHFA to adjust 
the housing goal levels established by HUD for 2009 based on current 
market conditions. FHFA has reviewed the current market conditions and 
has determined that the 2009 housing goal and home purchase subgoal 
levels established in 24 CFR part 81 are not feasible unless they are 
adjusted.\3\ Adverse market conditions, such as stricter underwriting 
standards, the increased standards of private mortgage insurers, and 
the high rate of unemployment will result in the origination of fewer 
goals-qualifying loans. Moreover, the increase in the share of the 
mortgage market of mortgages insured by the government and the decline 
in private label securities backed by mortgages are two of several 
factors that contribute to fewer goals-qualifying mortgages available 
for purchase by the

[[Page 20238]]

Enterprises. Consequently, FHFA is proposing to lower the 2009 housing 
goal and home purchase subgoal levels, based on current market 
conditions, to the following:
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    \3\ Performance under each of the housing goals is measured 
using a fraction that is converted into a percentage. See proposed 
Sec.  1282.15(a); 24 CFR 81.15(a). The numerator of each fraction is 
the number of dwelling units financed by an Enterprise's mortgage 
purchases in a particular year that count toward achievement of the 
housing goal. The denominator of each fraction is, for all mortgages 
purchased, the number of dwelling units that could count toward 
achievement of the goal under appropriate circumstances. The 
denominator may not include Enterprise transactions or activities 
that are not mortgages or mortgage purchases as defined by the FHFA 
or transactions that are specifically excluded as ineligible under 
the rule. See id.

--Low- and moderate-income housing goal: 51 percent;
--Special affordable housing goal: 23 percent;
--Underserved areas housing goal: 37 percent;
--Low- and moderate-income home purchase subgoal: 40 percent;
--Special affordable home purchase subgoal: 14 percent;
--Underserved areas home purchase subgoal: 30 percent.

    No adjustments would be made to the Enterprises' 2009 minimum 
dollar-based special affordable multifamily housing subgoals, which 
would remain at $5.49 billion for Fannie Mae, and $3.92 billion for 
Freddie Mac.
    FHFA's analysis that serves as the basis for these determinations 
is set forth in section IV. Analysis of Proposed Rule below.

C. New Counting Requirements

    Exclusion of jumbo conforming loans. The proposed rule would 
exclude the Enterprises' purchases of jumbo conforming loans from 
counting towards the 2009 housing goals.
    HASP loan modifications. The proposed rule would permit loans owned 
or guaranteed by an Enterprise that are modified in accordance with the 
Administration's Homeowner Affordability and Stability Plan announced 
on March 4, 2009 (HASP), to be treated as mortgage purchases and count 
for purposes of the housing goals.

IV. Analysis of Proposed Rule

A. Scope of Part--Proposed Sec.  1282.1

    Proposed Sec.  1282.1 would set forth the scope of new part 1282. 
Section 81.1 of HUD's regulations describes the scope with regard to 
the respective duties of HUD and OFHEO in relation to the Enterprises. 
24 CFR 81.1. Proposed Sec.  1282.1 would describe the scope with 
reference to the Director of FHFA's regulatory authority, since HUD's 
housing goals authority and OFHEO's safety and soundness supervisory 
authority were transferred to FHFA by HERA.

B. Definitions--Proposed Sec.  1282.2

    Proposed Sec.  1282.2 would set forth definitions of terms used in 
the proposed rule that would be generally consistent with the 
definitions in Sec.  81.2 of HUD's regulations, except for minor 
technical and clarifying changes and the addition of several new 
definitions in light of the transfer of the housing goals authority 
from HUD to FHFA and other changes made by HERA. See 24 CFR 81.2.

C. Housing Goal and Subgoal Levels for 2009--Proposed Sec. Sec.  
1282.12 Through 1282.14

    In 2004, HUD established by regulation new housing goal levels for 
years 2005 through 2008, with the 2008 levels applicable in 2009 
pending establishment by HUD of goals for 2009 (2004 Rule). See 69 FR 
63639 (Nov. 2, 2004) (codified at 24 CFR 81.12 through 81.14). The 2004 
Rule also implemented home purchase subgoals under each housing goal 
and established target levels for each subgoal. Id. These levels rose 
in yearly increments, capping out at the highest levels in 2008. HUD 
had not established new goal levels for 2009 before HERA was enacted 
and HUD's housing goals authority was transferred to FHFA.
1. Adjustment of Housing Goal and Home Purchase Subgoal Levels
    Section 1128(b) of HERA provides that the housing goals established 
by HUD for the Enterprises shall continue in effect for 2009 at their 
2008 levels, unless the Director of FHFA adjusts the levels based on 
current market conditions. FHFA has reviewed the feasibility of the 
2009 housing goal and subgoal levels established by HUD in light of 
current market conditions, and has determined that the current goal and 
home purchase subgoal levels are not feasible given current market 
conditions.
    Accordingly, FHFA proposes the following downward adjustments to 
the housing goal levels for 2009 consistent with current market 
conditions:
     Low- and moderate-income housing goal--The low- and 
moderate-income housing goal level for 2008 and 2009 was 56 percent. 
For calendar year 2009, FHFA proposes to lower this goal level to 51 
percent. That is, under proposed Sec.  1282.12, the 2009 goal for each 
Enterprise's purchases of mortgages on housing for low- and moderate-
income families would be 51 percent of the total number of dwelling 
units financed by that Enterprise's mortgage purchases.
     Underserved areas housing goal--The underserved areas 
housing goal level for 2008 and 2009 was 39 percent. For calendar year 
2009, FHFA proposes to lower this goal level to 37 percent. That is, 
under proposed Sec.  1282.13, the 2009 goal for each Enterprise's 
purchases of mortgages on housing located in central cities, rural 
areas, and other underserved areas would be 37 percent of the total 
number of dwelling units financed by that Enterprise's mortgage 
purchases.
     Special affordable housing goal--The special affordable 
housing goal level for 2008 and 2009 was 27 percent. For calendar year 
2009, FHFA proposes to lower this goal level to 23 percent. That is, 
under proposed Sec.  1282.14, the 2009 goal for each Enterprise's 
purchases of mortgages on rental and owner-occupied housing meeting the 
then-existing, unaddressed needs of and affordable to low-income 
families in low-income areas and very low-income families would be 23 
percent of the total number of dwelling units financed by that 
Enterprise's mortgage purchases.
    In addition, FHFA proposes the following downward adjustments to 
the home purchase subgoal levels for 2009 consistent with current 
market conditions:
     Low- and moderate-income home purchase subgoal--The low- 
and moderate-income home purchase subgoal level for 2008 and 2009 was 
47 percent. FHFA proposes to lower this subgoal level to 40 percent for 
calendar year 2009. That is, under proposed Sec.  1282.12, 40 percent 
of the total number of home purchase mortgages in metropolitan areas 
financed by the Enterprise's mortgage purchases shall be home purchase 
mortgages in metropolitan areas which count toward the low- and 
moderate-income housing goal for 2009.
     Underserved areas home purchase subgoal--The underserved 
areas home purchase subgoal level for 2008 and 2009 was 34 percent. 
FHFA proposes to lower this subgoal level to 30 percent for calendar 
year 2009. That is, under proposed Sec.  1282.13, 30 percent of the 
total number of home purchase mortgages in metropolitan areas financed 
by the Enterprise's mortgage purchases shall be home purchase mortgages 
in metropolitan areas which count toward the underserved areas housing 
goal for 2009.
     Special affordable home purchase subgoal--The special 
affordable home purchase subgoal level for 2008 and 2009 was 18 
percent. FHFA proposes to lower this subgoal level to 14 percent for 
calendar year 2009. That is, under proposed Sec.  1282.14, 14 percent 
of the total number of home purchase mortgages in metropolitan areas 
financed by the Enterprise's mortgage purchases shall be home purchase 
mortgages in metropolitan areas which count toward the special 
affordable housing goal for 2009.
    The proposed overall housing goals, while generally below those set 
by HUD for calendar years 2006 through 2008, are higher than the goals 
for calendar

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year 2004 and almost identical to the 2005 goals. In 2005, the low- and 
moderate-income housing goal was 52 percent, the underserved areas 
housing goal was 37 percent, and the special affordable housing goal 
was 22 percent. The proposed goals are well in excess of those in 
effect in 2000, when the low- and moderate-income housing goal was 42 
percent, the underserved areas housing goal was 24 percent,\4\ and the 
special affordable housing goal was 14 percent.
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    \4\ The underserved areas housing goal in 2001-2004 was based on 
the 1990 Census. The underserved areas housing goal for 2005-2008 
was based on the 2000 Census. This switch from the 1990 to 2000 
Census had the effect of adding several percentage points to the 
goal.
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    At the time the 2004 Rule was implemented, mortgage markets were 
still evidencing significant expansion. However, as discussed further 
below, based on current market conditions, FHFA estimates that market 
shares for certain goals and home purchase subgoals have declined 
significantly. Adjusting the 2009 housing goals and home purchase 
subgoals to levels that reflect market conditions consistent with 
current projections is necessary to ensure that the Enterprises 
continue to serve their secondary market purposes at feasible and 
appropriate levels that reflect their capacity to lead the market. Even 
so, as described below, the proposed 2009 goals are generally at the 
upper end of FHFA's market estimates for 2009.
    Notably, this proposed rule, for the first time, would allow 
housing goals credit for certain loan modifications, which would tend 
to improve the Enterprises' performance on the housing goals. By 
adjusting the goals and home purchase subgoals to challenging levels 
for 2009, and by allowing housing goals credit for important activities 
that directly affect the 2009 housing market, FHFA seeks to ensure that 
the Enterprises place a high priority on the achievement of their 
affordable housing mission based on performance standards that align 
with current market conditions.
2. Special Affordable Multifamily Subgoals--Proposed Sec.  1282.14
    The 2004 Rule also established minimum dollar-based special 
affordable multifamily subgoals for each Enterprise. 24 CFR 81.14. 
These were established as a percentage of the aggregate dollar volume 
of total mortgage purchases by each Enterprise in a base period (2000, 
2001 and 2002). The subgoal applicable to 2009 is $5.49 billion for 
Fannie Mae and $3.92 billion for Freddie Mac. FHFA is not proposing to 
adjust these levels downward for 2009 because both Enterprises have 
exceeded their respective multifamily subgoals by wide margins in 
recent years, especially in 2007. FHFA also is not proposing to 
increase the subgoal levels for 2009 because the prospects for 
multifamily mortgage market volume in 2009 are significantly less 
favorable than in recent years. Accordingly, proposed Sec.  1282.14 
would retain these subgoal levels for 2009.
    FHFA will monitor the size of the refinance market closely in 2009. 
Refinances may be a very large part of the market in 2009, with the 
likely effect of a lower percentage of goals-qualifying loans available 
for purchase by the Enterprises, thus making it more difficult to 
achieve the goals proposed in this rule. FHFA will consider the size of 
the refinance market in any determination as to the feasibility of any 
goal an Enterprise fails to achieve in 2009.
3. Market Conditions
a. Market Conditions Do Not Support the Current Goal and Home Purchase 
Subgoal Levels
    FHFA has determined that the current turmoil in the housing and 
mortgage markets has created less than favorable conditions for 
expansions in credit to borrowers on the margins of homeownership. The 
adverse market conditions considered in setting the proposed goal 
levels for 2009 include: (1) Tightened credit underwriting practices; 
(2) the sharply increased standards of private mortgage insurance 
companies; (3) the increased role of the Federal Housing Administration 
(FHA) in the marketplace; (4) the collapse of the mortgage private 
label securities (PLS) market; (5) increasing unemployment; (6) 
multifamily market volatility; and (7) the prospect of a refinancing 
surge in 2009. FHFA finds that while the existence of lower home prices 
and lower mortgage interest rates has increased affordability, there is 
ample evidence to support a conclusion that the housing goal and home 
purchase subgoal levels for 2009 that were set in 2004 are not 
attainable.
    Tightened underwriting practices. In general, tighter underwriting 
standards result in fewer goals-qualifying loans and a lower percentage 
of goals-qualifying loans in the market. Underwriting standards in the 
mortgage market generally, and at Fannie Mae and Freddie Mac, tightened 
considerably in 2008 in response to declining market conditions and 
early payment defaults, among other factors. For example, in May 2008, 
responding to private mortgage insurance underwriting changes, Fannie 
Mae revised its down payment policy to lower the maximum loan-to-value 
(LTV) for loans underwritten by Desktop Underwriter and for manually 
underwritten loans. Freddie Mac similarly tightened its underwriting 
standards. These industry-wide underwriting standards are expected to 
remain in place for 2009.
    Sharply increased standards of private mortgage insurers. Much like 
tighter underwriting standards generally, higher underwriting standards 
of private mortgage insurance (MI) result in fewer goals-qualifying 
loans and a lower percentage of goals-qualifying loans in the market. 
Beginning in late 2007, MI providers implemented profound and sweeping 
changes in the types of risk they were willing to insure. Most MI 
providers faced substantial ratings downgrades and acted to minimize 
losses by imposing stricter underwriting standards on loans with high 
LTVs. For example, on February 12, 2009, Moody's downgraded the 
internal strength rating of the Mortgage Guaranty Insurance Corporation 
(MGIC) to Ba1 from A1, and downgraded the ratings of other mortgage 
insurers. These actions may limit the ability of MI providers to write 
new business in 2009 and reduce the overall mortgage lending volume, 
particularly for higher LTV mortgages, which tend to be more goals-
rich. By increasing the cost of borrowing and the difficulty in 
obtaining loan approval, the tighter underwriting standards limit the 
number of goals-qualifying mortgages. This has an adverse effect on 
high-LTV loan purchases by the Enterprises, which generally require 
some form of credit enhancement.
    MI providers have implemented measures in ``declining markets'' 
that have sharply limited the insurability of certain higher LTV 
mortgage loans. Generally, the availability of MI for high LTV or low 
FICO loans is much reduced relative to a few years ago. The proportion 
of goals-qualifying loans in the market is thereby reduced as it 
becomes more difficult and more expensive for borrowers requiring 
mortgages with lower down payments to qualify for mortgages eligible 
for purchase by the Enterprises.
    Increased role of FHA in the marketplace. Another factor having a 
much greater impact on the Enterprises' housing goals in 2009 than in 
recent years is the increase in the share of the mortgage market of 
mortgages insured by FHA and guaranteed by the Veterans Administration 
(VA). These loans generally are pooled into mortgage-

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backed securities issued by the Government National Mortgage 
Association (GNMA). Purchases of mortgages insured by FHA and VA 
ordinarily do not receive goals credit. In general, the impact of the 
FHA market on the goal-richness of the conventional market depends on: 
(1) The goal-richness of the overall market (conventional plus FHA); 
(2) the share of the market accounted for by FHA mortgages; and (3) the 
goal-richness of FHA mortgages.
    The market share of mortgages insured by FHA and VA has risen 
dramatically from 3 percent in 2006 to 35 percent in the fourth quarter 
of 2008. A key reason for this growth is that Fannie Mae and Freddie 
Mac generally cannot buy loans with original LTV ratios greater than 80 
percent without some form of credit enhancement. With the stresses on 
private mortgage insurers, borrowers without substantial down payments 
are increasingly dependent on government insurance programs.
    In order to assess the impact that the increased FHA share is 
likely to have on the housing goals for 2009, FHFA analyzed mortgages 
originated in 2007 with loan amounts no greater than the conforming 
loan limit for Fannie Mae and Freddie Mac for 1-unit properties in that 
year--$417,000 for most areas, but 50 percent higher in Alaska, Hawaii, 
Guam, and the Virgin Islands. Loans guaranteed by VA or the Rural 
Housing Service were excluded from this analysis, as were loans with 
missing information necessary to determine whether they qualified for 
the housing goals. The remaining loans included both conventional and 
FHA loans with information about whether they qualified for the housing 
goals, resulting in a total of 2.7 million home purchase mortgages and 
3.3 million refinance mortgages.
    The shares of FHA mortgages that would have qualified for the 
Enterprises' housing goals were much higher than the goal-qualifying 
shares of conventional mortgages, especially for the two income-based 
goals (low- and moderate-income housing and special affordable 
housing). Specifically, 60 percent of FHA home purchase mortgages 
qualified for the low- and moderate-income housing goal in 2007, but 
only 40 percent of conventional home purchase mortgages so qualified. 
Similarly, 23 percent of FHA home purchase mortgages qualified for the 
special affordable housing goal, but only 15 percent of conventional 
home purchase mortgages so qualified. The discrepancy was comparable 
for underserved areas, where 46 percent of FHA home purchase mortgages 
qualified for the underserved areas housing goal versus 34 percent of 
conventional home purchase mortgages.
    The discrepancies between the goal-qualifying shares of FHA 
refinance mortgages and conventional refinance mortgages were similar 
to those for home purchase mortgages. For example, 56 percent of FHA 
refinance mortgages qualified for the low- and moderate-income housing 
goal, but only 42 percent of conventional refinance mortgages so 
qualified.
    This analysis measures the degree to which FHA mortgages ``siphon 
off'' goal-rich mortgages from the overall mortgage market. That is, in 
2007, 42 percent of all home purchase mortgages were for low- and 
moderate-income families, but because 60 percent of FHA home purchase 
mortgages were for such families, only 40 percent of conventional 
conforming mortgages were in this category. While in 2007 the goal-
qualifying shares of FHA mortgages were much higher than the 
corresponding shares of conventional mortgages, the impact on the goal-
qualifying shares of conventional mortgages was mitigated by the fact 
that in 2007, FHA accounted for only 9.9 percent of home purchase 
mortgages and only 4.7 percent of refinance mortgages. Although Home 
Mortgage Disclosure Act (HMDA) data for 2008 is not yet available, this 
data will likely show a much larger impact of FHA mortgages because 
FHA's share of the mortgage market was much higher in 2008 than it was 
in 2007.
    Based on FHA's estimated market share in late 2008, its shares of 
both the home purchase mortgage and refinance mortgage markets may be 
significantly higher in 2009 than they were for 2008. The impact of 
these higher shares may again be mitigated to some extent by reduced 
goal-richness of FHA mortgages as higher-income borrowers obtain FHA 
loans. The net impact of the FHA market on the goal-richness of the 
conventional mortgage market in 2009, however, is likely to be greater 
than it was in either 2007 or 2008. Accordingly, the projected increase 
in the size of the FHA market was a major factor taken into account in 
adjusting the Enterprises' housing goals for 2009.
    Collapse of PLS market. The lack of PLS backed by mortgages will 
make it more difficult for the Enterprises to achieve the existing 
housing goals in 2009. Future rulemaking will determine whether, and if 
so, under what conditions PLS investment may contribute to meeting 
housing goals.
    Between 2005 and 2008, the period covered by the 2004 Rule, Fannie 
Mae and Freddie Mac were major purchasers of the AAA-rated tranches of 
PLS that included substantial amounts of subprime mortgages. These 
purchases were due in part to the goal-richness of the securities and, 
particularly, their subgoal-richness.
    While the size and nature of the Enterprises' subprime holdings 
differed, such purchases had an impact on the achievement of the 
housing goals for each Enterprise, particularly for the home purchase 
subgoals. Such loans were not a large factor in the mortgage 
marketplace in 2008, and are unlikely to be a major factor in 2009. 
FHFA guidance incorporating interagency policy guidance from the 
Federal Deposit Insurance Corporation, the Office of the Comptroller of 
the Currency, the Board of Governors of the Federal Reserve System and 
the National Credit Union Administration now restricts the purchase of 
such securities by the Enterprises when certain terms of mortgages 
backing those securities are harmful to the borrower.\5\
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    \5\ In 2007, OFHEO issued letters directing the Enterprises to 
apply the principles and practices of the interagency Statement on 
Subprime Mortgage Lending to their purchases of subprime loans in 
the regular flow of business, including bulk purchases. OFHEO 
directed that, not later than September 13, 2007, nontraditional and 
subprime loans purchased by Fannie Mae and Freddie Mac as part of 
PLS transactions comply with the Interagency Guidance on 
Nontraditional Mortgage Product Risks and the Statement on Subprime 
Mortgage Lending. This application to PLS conforms to the 
underwriting provisions of the guidance. Further, OFHEO directed 
that the Enterprises adopt such business practices and take such 
quality control steps as necessary to ensure the orderly and 
effective implementation of the guidance with respect to the 
purchase of PLS.
---------------------------------------------------------------------------

    Increasing unemployment. Unemployment increased significantly 
during 2008 and in early 2009, which added to demands on mortgage 
servicers to address increasing delinquencies and foreclosures. 
Unemployment and underemployment have an effect on mortgage default 
rates and on the number of borrowers seeking and obtaining a purchase 
money mortgage or a refinance.
    NeighborWorks, a national network of approximately 230 community-
based organizations actively involved in foreclosure mitigation 
counseling, has estimated that as of January 14, 2009, the two leading 
causes of mortgage default rates were a reduction in income (28 percent 
of defaults) and loss of income (17 percent of defaults).\6\ While a 
reduction in income by itself does not necessarily lead to a mortgage 
default, with falling home prices it is difficult for the home owner 
with little or no

[[Page 20241]]

home equity to either sell the home or refinance into an affordable 
mortgage. The high rates of unemployment and underemployment are likely 
to continue to have a significant impact on the size of the mortgage 
market in 2009.
---------------------------------------------------------------------------

    \6\ NeighborWorks, National Foreclosure Mitigation Counseling 
Program Update, January 23, 2009.
---------------------------------------------------------------------------

    Multifamily market volatility. The multifamily housing market faces 
great uncertainty in 2009. Recent housing data suggests that 
multifamily housing activity (new construction and refinances) will 
continue to decline in 2009 after slowing significantly in 2008. 
Because multifamily housing tends to have high percentages of units 
that qualify for one or more housing goals, declines in multifamily 
housing activity make it more difficult for the Enterprises to achieve 
the housing goals.
    As a result of the financial crisis and ensuing credit crunch, 
important sources of affordable multifamily financing have all but 
disappeared or have been severely diminished, including Commercial 
Mortgage-Backed Securities (CMBS) and Low-Income Housing Tax Credits 
(LIHTC). Other traditional providers of financing for multifamily 
housing, including thrifts, commercial banks and life insurance 
companies, have drastically reduced their multifamily financing 
activities. The Enterprises, FHA and GNMA are the principal sources of 
multifamily financing now.
    New multifamily construction will not provide a significant source 
of goals-eligible units in 2009. In February 2009, the U.S. Census 
Bureau released preliminary data showing that multifamily starts 
plunged from 404,000 units annualized in June 2008 to 114,000 units 
annualized in November 2008.\7\ Some markets, such as New York City, 
Los Angeles, and Miami, have seen rents fall substantially as vacancy 
rates have risen sharply. Declining rents, increasing vacancy rates and 
decreasing multifamily property values in many markets will be 
significant obstacles confronting Enterprise multifamily activity in 
2009. Additional fees and tighter underwriting standards may make it 
difficult for many multifamily investors to qualify for financing. 
Declining multifamily prices will especially impact owners who financed 
with interest only loans over the past decade. As these loans come due, 
properties with interest only loans will not have accumulated 
additional equity over the term of the loan to counter the effects of 
declining property values. The lack of new CMBS issuances will also 
significantly affect the number of multifamily units financed by the 
Enterprises, thereby making the housing goals more difficult to 
achieve.
---------------------------------------------------------------------------

    \7\ New Residential Construction in January 2009, Joint Release 
of Census Bureau and Department of Housing and Urban Development, 
February 18, 2009.
---------------------------------------------------------------------------

    Prospect of a refinancing surge in 2009. A significant increase in 
the volume of refinancings of single-family mortgages would make it 
more difficult for the Enterprises to achieve the housing goals. Higher 
income borrowers are more likely to take advantage of falling interest 
rates and refinance. Furthermore, when single-family owner-occupied 
refinance loans dominate both the market and the Enterprises' 
purchases, the share of goals-rich multifamily mortgages declines, 
which hampers the ability of the Enterprises to meet goal targets. The 
extent to which these historical effects of high refinance rates might 
repeat in 2009 is uncertain, and numerous variables may affect these 
historical patterns. Unlike in previous years, borrowers experiencing 
payment difficulties may have fewer refinancing options because falling 
house prices reduce the amount of homeowner equity, while tighter 
lending standards limit the range of mortgages available, particularly 
for nonprime borrowers.
    Many forecasters expect significantly high rates of refinancing in 
2009. The Mortgage Bankers Association, for example, forecasts a 
single-family refinance rate of 69 percent.\8\ Fannie Mae also 
forecasts a single-family refinance rate of 69 percent.\9\ Freddie Mac 
estimates a refinance rate for 2009 of 67%.\10\ In addition, HASP 
includes an initiative to allow more borrowers with loans owned or 
guaranteed by Fannie Mae or Freddie Mac to refinance into a new 
mortgage that will be held or guaranteed by Fannie Mae or Freddie Mac.
---------------------------------------------------------------------------

    \8\ MBA Mortgage Finance Forecast, March 24, 2009.
    \9\ Fannie Mae Economics and Mortgage Market Analysis, March 10, 
2009.
    \10\ Freddie Mac Economic and Housing Market Outlook, March 10, 
2009.
---------------------------------------------------------------------------

    b. Size of the Mortgage Market that Qualifies for the Housing Goals
    FHFA's estimates of the size of the conventional mortgage market 
for the income-based housing goals and subgoals are lower than HUD's 
estimates for the 2004 Rule. As noted by HUD in prior rules, FHFA 
recognizes that there still is no single, comprehensive data set for 
estimating the size of the affordable lending market, and that 
available databases on different sectors of the market must be combined 
in order to implement FHFA's market share model. The major public data 
sources from which these market estimates were developed are: (1) 
Market originations data submitted by lenders in accordance with HMDA 
for the years 2003 through 2007; (2) the 2000 Decennial Census; (3) the 
American Community Survey (ACS) for years 2005 and 2006; (4) the 
American Housing Survey (AHS); and (5) the 2001 Residential Finance 
Survey (RFS). To a lesser extent, other privately available data and 
information, including market forecasts, were also used. Sources 
included the Mortgage Bankers Association,\11\ Inside Mortgage Finance 
Publications, Inc.,\12\ First American Loan Performance,\13\ Global 
Insight,\14\ Fannie Mae, and Freddie Mac.
---------------------------------------------------------------------------

    \11\ The Mortgage Bankers Association (MBA) is a national 
association representing the real estate finance industry.
    \12\ Inside Mortgage Finance Publications, Inc. is a company 
providing business-to-business news and statistics on the 
residential mortgage market.
    \13\ First American Loan Performance databases track the 
delinquency and prepayment performance of 50 million active 
individual mortgage payments per month, and provide loan-level 
information on more than $2.0 trillion in non-agency mortgage-backed 
and asset-backed securities.
    \14\ Global Insight is a privately-held company formed from two 
former economic and financial information and forecasting companies: 
DRI (Data Resources, Inc.) and WEFA (Wharton Econometric Forecasting 
Associates).
---------------------------------------------------------------------------

    FHFA's market size estimates for the three housing goal categories 
for 2009 are as follows:
     43-51 percent of units financed in the conventional 
conforming primary mortgage market will qualify for the low- and 
moderate-income housing goal;
     32-37 percent of units will qualify for the underserved 
areas housing goal;
     16-23 percent of units will qualify for the special 
affordable housing goal.

These market estimates are lower than those estimated by HUD for 2005 
through 2008. Specifically, the low- and moderate-income share was 
estimated at 51-56 percent, the underserved areas share was estimated 
at 35-39 percent, and the special affordable share was estimated at 23-
27 percent.
    For each home purchase subgoal category, FHFA's market size 
estimates for 2009 are:
     35-41 percent of single-family home purchase mortgages on 
properties in metropolitan areas will qualify for the low- and 
moderate-income home purchase subgoal;
     27-31 percent of such mortgages will qualify for the 
underserved areas home purchase subgoal;
     10-15 percent of such mortgages will qualify for the 
special affordable home purchase subgoal.
    The Economic Stimulus Act of 2008 (Stimulus Act) temporarily 
increased the conforming loan limits for certain high-cost areas for 
loans originated between July 1, 2007 and December 31,

[[Page 20242]]

2008. Public Law 110-185, section 201, 122 Stat. 618, 619. The Stimulus 
Act also excluded purchases of jumbo conforming loans (those which 
exceed the nationwide conforming loan limits in certain high-cost areas 
and exceed 150% of the nationwide conforming loan limits in Alaska, 
Guam, Hawaii and the Virgin Islands) from counting towards the housing 
goals for 2008. The limit for each high-cost area was set at 125% of 
the area median price of a residence, up to a limit of $729,750 for 
one-unit properties (175% of the overall conforming loan limit for 
2008). HERA established the 2009 conforming loan limit at $417,000 for 
one-unit properties and correspondingly higher for two- to four-unit 
properties. Public Law 110-289, section 1124, 122 Stat. 2654, 2691 
(2008) (to be codified at 12 U.S.C. 1717, 1454). HERA also established 
permanent increases in the loan limit for certain high-cost areas, at 
115% of the area median price of a residence, up to a limit of $625,500 
for one-unit properties in 2009 (150% of the overall conforming loan 
limit for 2009). The American Recovery and Reinvestment Act of 2009 
(Recovery Act), signed into law by the President on February 17, 2009, 
generally established the limits that were in place in 2008 as a floor 
for the 2009 limits. Public Law 111-5, section 1203, 123 Stat. 115.
    FHFA has determined that the treatment of jumbo conforming loans in 
2008 should remain in effect for 2009, i.e., that purchases of such 
loans should not be counted toward the housing goals in 2009. This 
treatment is consistent with section 1336(a)(2) of the Safety and 
Soundness Act, which provides FHFA with authority to exclude certain 
categories of mortgage purchases from counting towards the housing 
goals. See 12 U.S.C. 4566(a)(2). Accordingly, in determining the market 
share estimates for the three housing goal categories for 2009, FHFA 
has excluded all jumbo conforming loans on one- to four-unit 
properties.
4. Past Performance of the Enterprises on the Housing Goals
    This section describes the Enterprises' past performance on the 
three overall housing goals, the three home purchase subgoals, and the 
special affordable multifamily subgoals as determined by HUD for 2005 
and 2006 and by FHFA for 2007. In addition, performance for 2008, as 
preliminarily reported by the Enterprises, is discussed.\15\ Although 
HERA does not explicitly require consideration of the Enterprises' past 
performance on the housing goals in determining whether to adjust the 
2009 goals, FHFA believes that the Enterprises' past performance is 
relevant to this determination. Consideration of past performance was 
required in establishing the goals for 2008 and prior years, and is 
required in establishing the goals for 2010 and thereafter. See 12 
U.S.C. 4562(e)(2)(B)(iii). Current market conditions depend in part on 
the Enterprises' loan purchase activities, including their goal 
performance, in previous years. For example, if the Enterprises 
purchased a substantial volume of a certain type of loan to meet the 
housing goals in 2008, lenders might be induced to originate more loans 
of that type in 2009. In addition, in 2008, the Enterprises' combined 
shares of the single-family conventional conforming market and the 
multifamily market were likely at record levels. Given these high 
levels and the collapse of the subprime market, combined Enterprise 
past performance on the goals is likely a good measure of the goal-
qualifying shares of the primary market. Thus, FHFA has analyzed 
combined Enterprise past performance, and finds that it approximates 
FHFA's estimates of the goal-qualifying shares of the 2008 market.
---------------------------------------------------------------------------

    \15\ The Enterprises submitted their Annual Housing Activities 
Reports (AHARs), tables on 2008 goals performance, and loan-level 
data on mortgages purchased to FHFA on March 16, 2009. FHFA will 
make its official determination on their 2008 goals performance 
later this year based on review of loan-level data.
---------------------------------------------------------------------------

a. Housing Goals
    The goal levels for 2005 through 2008 were set to increase each 
year so that by 2008 the goal levels would correspond with the top end 
of the range of estimates for the goal-qualifying shares of units 
financed in the primary mortgage market. Analysis of loan-level data 
for 2005 through 2007 and preliminary results for 2008, as reported by 
the Enterprises, indicates the following results for overall goal 
performance:
     Low- and moderate-income housing goal--This goal level was 
set at 52 percent for 2005, 53 percent for 2006, 55 percent for 2007, 
and 56 percent for 2008. Fannie Mae's performance was 55.1 percent in 
2005, 56.9 percent in 2006, and 55.1 percent in 2007. Freddie Mac's 
performance was 54.0 percent in 2005, 55.9 percent in 2006, and 56.1 
percent in 2007. Both Enterprises' performance exceeded the low- and 
moderate-income housing goal levels from 2005 through 2007. In 2008, 
preliminary results indicate that both Enterprises fell significantly 
short of meeting the goal level, with Fannie Mae at 53.6 percent and 
Freddie Mac at 51.5 percent. In letters to Fannie Mae and Freddie Mac, 
dated March 16, 2009, FHFA notified the Enterprises of its final 
determination that there is a substantial probability of failure by the 
Enterprises to meet this goal level, and that achievement of the goal 
was not feasible for each Enterprise.\16\
---------------------------------------------------------------------------

    \16\ See Letter from Edward J. DeMarco, Chief Operating Officer 
& Senior Deputy Director for Housing Mission and Goals, FHFA, to 
Herb Allison, Chief Executive Officer, Fannie Mae, dated March 16, 
2009; Letter from Edward J. DeMarco, Chief Operating Officer & 
Senior Deputy Director for Housing Mission and Goals, FHFA, to John 
Koskinen, Interim Chief Executive Officer, Freddie Mac, dated March 
16, 2009 (2008 Goals Feasibility Letters).
---------------------------------------------------------------------------

     Underserved areas housing goal--This goal level was set at 
37 percent for 2005, 38 percent for 2006 and 2007, and 39 percent for 
2008. Fannie Mae's performance was 41.4 percent in 2005, 43.6 percent 
in 2006, and fell slightly to 43.4 percent in 2007. Freddie Mac's 
performance was 42.3 percent in 2005, 42.7 percent in 2006, and 43.1 
percent in 2007. Both Enterprises' performance exceeded the underserved 
areas housing goal levels from 2005 through 2007. In 2008, preliminary 
results indicate that Fannie Mae barely exceeded the goal level at 39.4 
percent, and Freddie Mac fell short at 37.7 percent. In the 2008 Goals 
Feasibility Letter to Freddie Mac, FHFA notified the Enterprise of its 
final determination that there is a substantial probability of failure 
by Freddie Mac to meet this goal level, and that achievement of the 
goal was feasible but challenging.
     Special affordable housing goal--This goal level was set 
at 22 percent for 2005, 23 percent for 2006, 25 percent for 2007, and 
27 percent for 2008. Fannie Mae's performance was 26.3 percent in 2005, 
27.8 percent in 2006, and 26.8 percent in 2007. Freddie Mac's 
performance was 24.3 percent in 2005, 26.4 percent in 2006, and 25.8 
percent in 2007. Both Enterprises surpassed this goal level from 2005 
through 2007. In 2008, preliminary results indicate that Fannie Mae's 
performance fell slightly to 26.0 percent, and Freddie Mac's 
performance fell sharply to 23.0 percent. In the 2008 Goals Feasibility 
Letters, FHFA notified the Enterprises of its final determination that 
there is a substantial probability of failure by the Enterprises to 
meet this goal level, and that achievement of the goal was not feasible 
for each Enterprise.
    These results are shown in Table 1.

[[Page 20243]]

b. Special Affordable Multifamily Subgoals
    In order to encourage the Enterprises to play a significant role in 
the multifamily mortgage market, HUD established minimum dollar-based 
special affordable multifamily subgoals. These were established based 
on a percentage of the aggregate dollar volume of total mortgage 
purchases by each Enterprise in a base period. Unlike the overall 
goals, these subgoals differ between the Enterprises. Specifically, for 
2005 through 2008, the subgoal was established at $5.49 billion per 
year for Fannie Mae, and $3.92 billion per year for Freddie Mac.
    Results for these dollar-based special affordable multifamily 
subgoals are also presented in Table 1. As indicated, the Enterprises 
surpassed these subgoals by wide margins in each year through 2008. In 
2008, Fannie Mae's performance was 244 percent of its subgoal ($13.42 
billion compared with its subgoal of $5.49 billion), and Freddie Mac's 
performance was 196 percent of its subgoal ($7.68 billion compared with 
its subgoal of $3.92 billion).
c. Home Purchase Subgoals
    In the 2004 Rule, HUD established home purchase subgoals for the 
first time. The overall housing goals are expressed in terms of minimum 
qualifying shares of all dwelling units financed by the Enterprises, 
combining mortgages on both single-family and multifamily, owner-
occupied and rental housing. They include all mortgages, whether for 
home purchase, refinancing, or some other purpose. The home purchase 
subgoals are expressed in terms of minimum qualifying shares of each 
Enterprise's acquisitions of single-family home purchase mortgages in 
metropolitan areas. The subgoals specify minimum shares of home 
purchase mortgages that the Enterprises must purchase under each 
category of the housing goals. The home purchase subgoals are expressed 
in terms of mortgages, rather than dwelling units.
    Analysis of loan-level data for 2005 through 2007 and preliminary 
results for 2008, as reported by the Enterprises, indicate the 
following results for home purchase subgoal performance:
     Low- and moderate-income home purchase subgoal--This 
subgoal level was set at 45 percent for 2005, 46 percent for 2006, and 
47 percent for 2007 and 2008. Fannie Mae's performance was 44.6 percent 
in 2005, 46.9 percent in 2006, and 42.1 percent in 2007. Freddie Mac's 
performance was 46.8 percent in 2005, 47.0 percent in 2006, and 43.5 
percent in 2007. Neither Enterprise met this subgoal level in 2007, but 
in letters to the Enterprises dated April 24, 2008, HUD declared that 
the subgoal level for 2007 was not feasible. In 2008, Fannie Mae's 
performance was 38.9 percent, and Freddie Mac's performance was 39.4 
percent. In the 2008 Goals Feasibility Letters, FHFA notified the 
Enterprises of its final determination that there is a substantial 
probability of failure by the Enterprises to meet this subgoal level, 
and that achievement of the subgoal was not feasible for each 
Enterprise.
     Underserved areas home purchase subgoal--This subgoal 
level was set at 32 percent for 2005, 33 percent for 2006 and 2007, and 
34 percent for 2008. Fannie Mae's performance was 32.6 percent in 2005, 
34.5 percent in 2006, and decreased to 33.4 percent in 2007, slightly 
exceeding the subgoal level in that year. Freddie Mac's performance was 
35.5 percent in 2005, exceeding both Fannie Mae's performance and the 
32 percent subgoal level by wide margins. In 2006 and 2007, Freddie Mac 
exceeded this subgoal level by narrow margins at 33.6 percent and 33.8 
percent, respectively. In 2008, both Enterprises fell short of the 
subgoal level, at 30.4 percent and 30.2 percent for Fannie Mae and 
Freddie Mac, respectively. In the 2008 Goals Feasibility Letters, FHFA 
notified the Enterprises of its final determination that there is a 
substantial probability of failure by the Enterprises to meet this 
subgoal level, and that achievement of the subgoal was not feasible for 
each Enterprise.
     Special affordable home purchase subgoal--This subgoal 
level was set at 17 percent for 2005 and 2006, and 18 percent for 2007 
and 2008. Fannie Mae's performance was 17.0 percent in 2005, and 17.9 
percent in 2006, and decreased to 15.5 percent in 2007. Freddie Mac's 
performance was 17.7 percent in 2005, and 17.0 percent in 2006, and 
decreased further to 15.9 percent in 2007. Thus, Freddie Mac surpassed 
this goal level in 2005, and barely met it in 2006. Conversely, Fannie 
Mae barely met the goal level in 2005, and surpassed it in 2006. Both 
Enterprises fell short on this subgoal level in 2007, but in letters to 
the Enterprises dated April 24, 2008, HUD declared that the subgoal 
level for 2007 was not feasible. In 2008, Fannie Mae's performance was 
13.6 percent, and Freddie Mac's performance was 15.1 percent. In the 
2008 Goals Feasibility Letters, FHFA notified the Enterprises of its 
final determination that there is a substantial probability of failure 
by the Enterprises to meet this subgoal level, and that achievement of 
the subgoal was not feasible for each Enterprise.
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d. Estimating the Size of the Conventional Conforming Market for Each 
Housing Goal in 2009
    Since 2005, the market's goal-qualifying share for the two borrower 
income-based goals has decreased, as shown in Table 3, and the market's 
goal-qualifying share for the underserved areas housing goal has 
decreased in 2007 and most likely also in 2008. Following the 
methodology HUD used in 2004 and prior rulemakings, there are three 
steps involved in sizing the market. The first step is to estimate the 
number of conventional conforming units expected to be financed with 
new mortgages in the overall market each year, broken out by property-
type, loan purpose, and owner-type. The second step is to estimate the 
percentage ranges of goal- and subgoal-qualifying units among the 
number of conventional conforming units expected to be financed for 
each property-type, loan purpose and owner-type. The third step is to 
multiply the estimates from the first step by the percentage ranges in 
the second step and sum the result, giving FHFA's goal-qualifying 
shares of the overall market. This process is repeated for each goal.
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    Several issues need to be taken into account when producing the 
market estimates for 2009. The temporary increase in the FHA loan 
limits will affect the share of the government-backed market in 2009. A 
corresponding reduction in the conventional share is expected, 
affecting the goal-qualifying proportion of the conforming conventional 
market as FHA serves more of the goal-qualifying market than it has in 
the recent past. In addition, FHFA is projecting that refinance loans 
will account for 59 percent of the single-family conventional 
conforming market.
    To accomplish the first step noted above, FHFA analyzed the single-
family and multifamily mortgage markets separately. Single-family 
refers to 1- to 4-unit properties, and multifamily refers to 5- or more 
unit properties. The process began by estimating the total dollar 
volume of the single-family mortgage origination market, and separating 
out the estimated portion that is expected to comprise conforming, 
conventional loans.
    FHFA then broke out the conforming conventional loan volumes by 
loan purpose (home purchase or refinance), after which FHFA converted 
the home purchase and refinance dollar volumes to mortgage volumes 
using data and trend information on average loan sizes for home 
purchase and refinance loans. FHFA separated the mortgages into three 
property-type groups (for both home purchase and refinance loans): (1) 
Owner-occupied 1-unit; (2) owner-occupied 2-4 unit; and (3) investor-
owned 1-4 unit properties. Using historical patterns from HMDA data and 
expected market conditions, the mortgages were divided between the 
owner-occupied and investor-owned properties. Based on the 2001 RFS 
data, the owner-occupied units were divided between 1-unit and 2-4 unit 
properties. Finally, using information from the 2001 RFS, the mortgages 
by property type were converted to units, and units from single-family 
owner-occupied 2-4 unit properties were divided between the owner-
occupied and rental units. The unit counts were converted into owner-
occupied unit and rental unit shares of the conventional conforming 
mortgage market.
    FHFA then projected the multifamily unit share, or ``multifamily 
mix,'' of the total (single-family and multifamily) mortgage market. 
The multifamily mix is an important parameter in FHFA's model because 
the multifamily segment of the mortgage market has a disproportionate 
importance for the housing goals, given that most multifamily rental 
units are occupied by households with low or moderate incomes. FHFA 
arrived at the multifamily mix estimate through an analysis of 
historical trends in multifamily dollar volumes and average mortgage 
amount per unit to calculate historical multifamily mixes. The 
multifamily mortgage volume was then projected for 2009 based on 
expected market conditions and then converted to the multifamily mix. 
The multifamily market was then combined with the single-family market 
to obtain single-family owner-occupied unit, single-family rental unit 
and multifamily unit shares of the total mortgage market (not including 
jumbo and government-insured mortgages).
    Later in the process, FHFA removed non-investment grade loans (B- 
or C-grade subprime loans) to further refine the conforming market 
estimates. In the economic environment for this proposed rule, the 
exclusion of the B and C (B&C) subprime segment of the market is 
especially important because subprime and other non-conforming loans 
were an increasing share of the total single-family market between 2004 
and mid-2007, but are expected to be greatly reduced in volume for the 
foreseeable future.
    The second major step in FHFA's market model, estimating the goal- 
and subgoal-qualifying performance of the market for all three goal 
categories, was accomplished as follows: FHFA first projected the 
expected goal-qualifying shares for single-family rental and 
multifamily units. FHFA then estimated expected ranges of single-family 
owner-occupied units that would qualify for the housing goals for home 
purchase and refinance mortgages, including B&C loans.\17\ FHFA 
proceeded to project the overall goals performance by combining the 
single-family owner-occupied segment with the projected goal 
performances of single-family rental and the multifamily segments.
---------------------------------------------------------------------------

    \17\ In a high refinance activity environment, as FHFA expects 
for 2009, it is anticipated that refinance goal-qualifying shares 
will be significantly lower than home purchase goal-qualifying 
shares.
---------------------------------------------------------------------------

    As described above, the market model required estimates to be made 
of the investor mortgage share (i.e., 7-9 percent of the overall 
single-family market), and the multifamily mix (i.e., 9-13 percent of 
the total conventional market). Also, in this step, units associated 
with B&C-grade loans (single-family owner-occupied and investor-owned) 
were removed from the overall goals- and subgoals-qualifying estimates. 
The results of the market model for 2009 are presented in Table 4. The 
market and subgoal-qualifying ranges in Table 4 reflect the uncertainty 
in projecting single-family owner-occupied goal richness, investor-
owned property mortgage volume and multifamily mortgage volume, given 
the anticipated economic environment in 2009. Also, there is 
considerable uncertainty in the refinance rate for 2009. As noted 
above, the market estimates in Table 4 are based on the expectation 
that refinance loans will be 59 percent of the single-family 
conventional conforming market. Table 5 provides the following three 
scenarios of alternative refinance activity assumptions:

Scenario A--low- and moderate-income share for home purchase units of 
36 percent and 32 percent for refinance loans, and a refinance rate of 
50 percent;
Scenario B--low- and moderate-income share for home purchase units of 
36 percent and 32 percent for refinance loans, and a refinance rate of 
70 percent; and
Scenario C--low- a