2009 Enterprise Transition Affordable Housing Goals, 39873-39900 [E9-18517]

Agencies

• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 74, Number 152 (Monday, August 10, 2009)]
[Rules and Regulations]
[Pages 39873-39900]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-18517]



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Federal Register / Vol. 74, No. 152 / Monday, August 10, 2009 / Rules 
and Regulations

[[Page 39873]]



FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1282

RIN 2590-AA25


2009 Enterprise Transition Affordable Housing Goals

AGENCY: Federal Housing Finance Agency.

ACTION: Final 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 adopting a final rule that adjusts the housing goal, home 
purchase subgoal and special affordable multifamily housing subgoal 
levels for the Enterprises for 2009. The final rule also permits loans 
owned or guaranteed by an Enterprise that are modified in accordance 
with the Administration's Making Home Affordable Program (also known as 
the 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 final rule excludes purchases of jumbo 
conforming loans from counting towards the 2009 housing goals. FHFA's 
housing goals regulation is set forth in a new part of FHFA's 
regulations, and is generally consistent with the housing goals 
provisions previously established by HUD, except as modified herein. 
Pursuant to section 1302 of HERA and 12 U.S.C. 4603, to the extent FHFA 
is adopting provisions from HUD regulations in new FHFA regulations, 
those provisions in the HUD regulations are no longer in effect.

DATES: The final rule is effective on August 10, 2009.

FOR FURTHER INFORMATION CONTACT: Nelson Hernandez, Senior Associate 
Director, Housing Mission and Goals, (202) 408-2993, 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); Kevin 
Sheehan, Attorney-Advisor, (202) 414-8952 (these are not toll-free 
numbers), Lyn Abrams, Attorney-Advisor, (202) 414-8951, or Sharon Like, 
Associate General Counsel, (202) 414-8950, 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. 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

[[Page 39874]]

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 requirements for 
the Enterprises effective for 2010 and thereafter, as well as duty 
to serve underserved markets requirements. FHFA will implement these 
requirements pursuant to 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.

II. Proposed Rule

    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 reviewed the current market conditions and 
determined that the 2009 housing goal and home purchase subgoal levels 
established in 24 CFR part 81 are not feasible unless they are 
adjusted. Accordingly, on May 1, 2009, FHFA published proposed 
adjustments to the housing goal and home purchase subgoal levels in the 
Federal Register for a 21-day comment period, which closed on May 22, 
2009. See 74 FR 20236 (May 1, 2009). FHFA received a total of 25 
comment letters on the proposed rule, representing 26 commenters.\3\ 
Commenters included: Fannie Mae; Freddie Mac; twelve trade 
associations; seven not-for-profit lenders or lending consortia; one 
credit risk scoring corporation; one credit risk reporting corporation; 
a not-for-profit mortgage lending policy advocacy organization; one 
labor union; and one Member of Congress. FHFA has considered all of the 
comments it received on the proposed rule, and has determined to adopt 
a final rule adjusting the 2009 housing goal, home purchase subgoal, 
and special affordable multifamily housing subgoal levels, and to make 
certain other revisions, as further discussed below. Comments that 
raised issues beyond the scope of the proposed rule are not addressed 
in this final rule, but may be considered by FHFA at a future date.
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    \3\ One of the letters contained joint comments from two trade 
associations.
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III. Summary of Final Rule

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. Consistent with the proposed rule, the 
final rule establishes housing goal requirements for the Enterprises 
for 2009 in new part 1282 of title 12 of FHFA's regulations. The 
housing goal requirements are generally consistent with the HUD housing 
goal provisions in Subparts A and B, except as modified herein. Upon 
the effective date of this final rule, the related housing goal 
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, Home Purchase Subgoal, and Special 
Affordable Multifamily Housing 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 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.\4\ 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, as will a surge in refinancing. 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 will contribute to fewer 
goals-qualifying mortgages available for purchase by the Enterprises.
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    \4\ Performance under each of the housing goals is measured 
using a fraction that is converted into a percentage. See 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.
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    Based on FHFA's review of the public comments on the proposed rule 
and a revised and updated assessment of current market conditions, FHFA 
has determined that the overall housing goal levels in the proposed 
rule should be adjusted downward, the three home purchase subgoal 
levels should remain as proposed, and the dollar-based special 
affordable multifamily housing subgoal levels in the proposed rule 
should be adjusted upward for each Enterprise as indicated below. 
Specifically, the final rule sets the goal and subgoal levels as 
follows:

--Low- and moderate-income housing goal: 43 percent;
--Special affordable housing goal: 18 percent;
--Underserved areas housing goal: 32 percent;
--Low- and moderate-income home purchase subgoal: 40 percent;
--Special affordable home purchase subgoal: 14 percent;
--Underserved areas home purchase subgoal: 30 percent;
--Special affordable multifamily housing subgoal for Fannie Mae: $6.56 
billion;
--Special affordable multifamily housing subgoal for Freddie Mac: $4.60 
billion.

    FHFA's market analysis that serves as the basis for these 
determinations is set forth in section IV. Analysis of Final Rule 
below.

C. New Counting Requirements

    Exclusion of jumbo conforming loans. Consistent with the proposed 
rule, the final rule excludes the Enterprises' purchases of jumbo 
conforming loans from counting towards the 2009 housing goals.
    MHA loan modifications. Consistent with the proposed rule, the 
final rule

[[Page 39875]]

permits loans owned or guaranteed by an Enterprise that are modified in 
accordance with the Administration's Making Home Affordable Program, 
announced on March 4, 2009 (MHA), to be treated as mortgage purchases 
and count for purposes of the housing goals.

IV. Analysis of Final Rule

A. Scope of Part--Sec.  1282.1

    Consistent with the proposed rule, Sec.  1282.1 of the final rule 
sets 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. Section 
1282.1 describes 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--Sec.  1282.2

    Consistent with the proposed rule, Sec.  1282.2 sets forth 
definitions of terms used in the final rule that are 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--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 reviewed the feasibility of the 2009 
housing goal and subgoal levels established by HUD, and determined that 
the current goal and home purchase subgoal levels are not feasible 
given current market conditions. The proposed rule would have adjusted 
downward the housing goal levels for 2009, as follows:
     Low- and moderate-income housing goal--51 percent (down 
from the 56 percent level set by HUD for 2008 and 2009).
     Underserved areas housing goal--37 percent (down from the 
39 percent level set by HUD for 2008 and 2009).
     Special affordable housing goal--23 percent (down from the 
27 percent level set by HUD for 2008 and 2009).
     Low- and moderate-income home purchase subgoal--40 percent 
(down from the 47 percent level set by HUD for 2008 and 2009).
     Underserved areas home purchase subgoal--30 percent (down 
from the 34 percent level set by HUD for 2008 and 2009).
     Special affordable home purchase subgoal--14 percent (down 
from the 18 percent level set by HUD for 2008 and 2009).
    The majority of commenters on the proposed housing goal levels 
either supported the proposed levels or recommended higher levels than 
those proposed. Four trade associations supported the proposed levels 
but expressed caution about the potential for increased risk of default 
that could result from inappropriate or overly ambitious housing goals. 
Two other trade associations stated that overly stringent goals have 
not supported affordable housing, as shown by foreclosures, 
neighborhood blight and the Enterprises' serious financial problems. 
One mortgage lending policy advocacy organization, the Center for 
Responsible Lending, stated that the goals must be responsibly 
attainable under current market conditions. The commenter expressed 
concern that the goal levels in the proposed rule may not be low 
enough, given the extreme impairment of the credit and housing markets, 
and the economic hardships for low- and moderate-income families in 
particular. The commenter stated that the goal levels in the proposed 
rule could be lowered still further, and urged that they be applied 
flexibly in 2009 to ensure that they can be responsibly met.
    One trade association recommended higher levels than those proposed 
for the special affordable and underserved area housing goals, stating 
that the past performance of the Enterprises and the current primary 
mortgage market levels indicate that higher levels should be 
achievable. Another trade association recommended higher levels than 
those proposed for the low- and moderate-income housing goal and home 
purchase subgoals, stating that the manufactured housing industry is in 
an unprecedented decline largely because of the unavailability of 
private financing fueled by Enterprise policy, and that reduction of 
these levels would allow the Enterprises to retreat from their mission 
of providing liquidity for low- and moderate-income home purchasers.
    Fannie Mae and Freddie Mac both recommended further lowering the 
proposed goal levels. Freddie Mac stated that the proposed levels are 
five percentage points or more above the highest level of expected 
primary mortgage market origination levels, and that the refinance 
wave, contraction in the multifamily mortgage sector, and increasingly 
important role of the Federal Housing Administration (FHA) in the low- 
and moderate-income segment of the housing market could make it 
infeasible for the Enterprises to meet the goals. Fannie Mae was 
concerned that the proposed levels might be higher than current 
economic conditions support and might ultimately prove to be 
infeasible.
    One trade association expressed concerns about the profound 
negative impact of lower housing goal levels on low- and moderate-
income communities, and the brief comment period of the proposed rule, 
and urged withdrawal of the proposed rule for reconsideration.
    After review of the current market conditions and the comments 
received on the proposed rule, FHFA has determined that the three 
overall housing goal levels should be further adjusted downward from 
the levels set by HUD for 2008 and 2009 and the levels in the proposed 
rule. Based on the most recent conventional mortgage market size 
estimates and consistent with current market conditions, the final rule 
establishes goals for 2009 as follows:
     Low- and moderate-income housing goal--43 percent (down 
from the 56 percent level set by HUD for 2008 and 2009 and the 51 
percent level in the proposed rule). That is, under Sec.  1282.12, the 
2009 goal for each Enterprise's purchases of mortgages on housing for 
low- and moderate-income families is 43 percent of the total number of 
dwelling units financed by that Enterprise's mortgage purchases.
     Underserved areas housing goal--32 percent (down from the 
39 percent level set by HUD for 2008 and 2009 and the 37 percent level 
in the proposed rule). That is, under 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 is 32 percent of the

[[Page 39876]]

total number of dwelling units financed by that Enterprise's mortgage 
purchases.
     Special affordable housing goal--18 percent (down from the 
27 percent level set by HUD for 2008 and 2009 and the 23 percent level 
in the proposed rule). That is, under 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 
is 18 percent of the total number of dwelling units financed by that 
Enterprise's mortgage purchases.
    In addition, based on review of current market conditions and the 
comments received on the proposed rule, FHFA has determined that the 
three home purchase subgoal levels for 2009 should be adjusted downward 
from the levels set by HUD for 2008 and 2009 and remain at the levels 
in the proposed rule, as follows:
     Low- and moderate-income home purchase subgoal--40 percent 
(down from the 47 percent level set by HUD for 2008 and 2009 and the 
same as the level in the proposed rule). That is, under 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. This level 
is slightly above the upper end of the market estimate (39 percent) in 
light of the significant improvements in the affordability of housing, 
as reflected in data published by the National Association of Realtors.
     Underserved areas home purchase subgoal--30 percent (down 
from the 34 percent level set by HUD for 2008 and 2009 and the same as 
the level in the proposed rule). That is, under 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--14 percent (down 
from the 18 percent level set by HUD for 2008 and 2009 and the same as 
the level in the proposed rule). That is, under 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.
    At the time the 2008 and 2009 housing goal levels were established 
in HUD's 2004 Rule, mortgage markets were still evidencing significant 
expansion. However, as discussed further below, based on current market 
conditions, FHFA estimates that the 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.
    Notably, this rule, for the first time, allows housing goal credit 
for certain loan modifications, which will tend to improve the 
Enterprises' performance on the housing goals. By adjusting the housing 
goal and home purchase subgoal levels to challenging levels for 2009, 
and by allowing housing goal credit for loan modifications that 
directly affect the 2009 housing market through the prevention of 
foreclosures, 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 Housing Subgoals--Sec.  1282.14
    The final rule increases the 2009 minimum dollar-based special 
affordable multifamily housing subgoal levels to $6.56 billion for 
Fannie Mae, and $4.60 billion for Freddie Mac. In the 2004 Rule, these 
subgoal levels were established at 1.0 percent of the average aggregate 
dollar volume of total mortgage purchases by each Enterprise in a base 
period (2000, 2001 and 2002), and were set at $5.49 billion for Fannie 
Mae and $3.92 billion for Freddie Mac for 2008 and 2009. 24 CFR 81.14. 
In the proposed rule, FHFA did not propose 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 did not propose to increase these levels 
for 2009 because the prospects for multifamily mortgage market volume 
in 2009 are significantly less favorable than in recent years.
    Most commenters on the special affordable multifamily housing 
subgoals, including nonprofit organizations and trade associations, 
recommended raising the subgoal levels. Many of the nonprofit 
organizations stated that maintaining the existing goals levels for 
2009 would exacerbate lenders' liquidity crises, limit the ability to 
meet the housing needs of a growing number of families, and undermine 
economic recovery. These commenters urged that the Enterprises purchase 
performing seasoned multifamily mortgages that are held in the 
portfolios of conventional lenders, which they stated would help 
stabilize communities.
    One trade association stated that the Enterprises are the main 
sources for multifamily rental development, and with multifamily 
originations projected at $43 to $65 billion in 2009, the Enterprises 
should be expected to surpass the existing subgoal levels for 2009. The 
commenter noted that the Enterprises have restricted credit for 
multifamily loans by tightening underwriting standards and increasing 
risk-based delivery fees, resulting in higher mortgage rates for 
borrowers and impairing their ability to obtain credit.
    Two trade associations cautioned that meeting the existing special 
affordable multifamily housing subgoals levels may be challenging. The 
commenters stated that, with increased risk of default and the impact 
of deteriorating market conditions, there will be limited property 
acquisitions, declining reinvestment and fewer loan originations and 
refinancing opportunities for the Enterprises. These commenters also 
anticipated that the Enterprises' portfolio of maturing loans would 
present challenges in meeting capital requirements and loan terms for 
new debt, and expected that 2009 multifamily loan and transaction 
volume will be less than 2008 volume.
    A Member of Congress urged higher multifamily special affordable 
housing subgoal levels that would be commensurate with the Enterprises' 
historical performance levels and purchase opportunities, and that 
would send a clear message to the Enterprises about their critical role 
in providing liquidity in light of current multifamily mortgage market 
dislocations.
    FHFA review of the Enterprises' special affordable multifamily 
mortgages goals performance through May 2009 suggests that the 
Enterprises will not have the high performance level in this area in 
2009 that they experienced in recent years. Based on the comments 
received and FHFA's review of current market conditions, FHFA has set 
``stretch'' special affordable multifamily housing subgoal levels by 
changing the base for these subgoals from 2000-2002 in the 2004 Rule 
and the proposed rule to 1999-2008, which includes years with very high 
mortgage volume such as 2003 and years with lower volume such as 2000.

[[Page 39877]]

FHFA is applying the same 1.0 percent of average total mortgage 
purchases factor to this base period in setting these subgoal levels. 
Total mortgage purchases averaged $656 billion for Fannie Mae and $460 
billion for Freddie Mac over the 1999-2008 period. Thus, FHFA is 
setting the subgoal levels at 1.0 percent of these amounts--$6.56 
billion for Fannie Mae (an increase of 19 percent over the 2008 and 
proposed 2009 subgoal level of $5.49 billion), and $4.60 billion for 
Freddie Mac (an increase of 17 percent over the 2008 and proposed 2009 
subgoal level of $3.92 billion).
    Several nonprofit organizations and a trade association commented 
that the Enterprises should be more active in the purchase of seasoned 
multifamily loans held by portfolio lenders, many of which purchased 
such loans as a result of Community Reinvestment Act (CRA) 
responsibilities. FHFA expects each Enterprise to actively purchase 
CRA-related multifamily loans from portfolio lenders, among other 
avenues, in meeting the special affordable multifamily housing 
subgoals.
3. Market Conditions
a. Market Conditions Do Not Support the Current Housing Goals and Home 
Purchase Subgoals 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 and final 
housing goal and subgoal levels for 2009 include: (1) Tightened credit 
underwriting practices; (2) the sharply increased standards of private 
mortgage insurance companies; (3) the increased role of FHA in the 
marketplace; (4) the collapse of the mortgage private label securities 
(PLS) market; (5) increasing unemployment; (6) multifamily market 
volatility; and (7) 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 the balance of 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 
credit score loans is much reduced relative to a few years ago. The 
goals-qualifying portion of 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 the FHA and guaranteed by the Veterans 
Administration (VA). These loans generally are pooled into mortgage-
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. 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.
    As discussed in the proposed rule, 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. 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

[[Page 39878]]

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 in 2008. The impact of 
these higher shares may 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 goal levels 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. FHFA will determine, in its upcoming rulemaking 
for the 2010 housing goals, 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\
---------------------------------------------------------------------------

    \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 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 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 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 been 
diminished, including Commercial Mortgage-Backed Securities (CMBS) and 
Low-Income Housing Tax Credits (LIHTCs). Other traditional providers of 
financing for multifamily housing, including thrifts, commercial banks 
and life insurance companies, have significantly reduced their 
multifamily financing activities. The Enterprises, FHA and GNMA are the 
principal sources of multifamily financing now.
    New multifamily construction is not expected to provide a 
significant source of goals-eligible units in 2009. Multifamily housing 
starts amounted to 277,300 units in 2007 and 266,000 units in 2008, but 
have fallen to an average annual rate of 129,000 units for the first 
six months of 2009.\7\ Some traditionally strong markets, such as New 
York City, San Francisco and San Jose, have seen apartment rents fall 
and vacancy rates rise from the fourth quarter of 2008 to the first 
quarter of 2009. During the same period, multifamily vacancy rates were 
highest in the Southeast, Arizona and Nevada, according to recent 
commercial real estate data. Declining rents, increasing vacancy rates 
and decreasing multifamily property values in many markets are 
significant obstacles confronting Enterprise multifamily activity in 
2009.\8\ 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

[[Page 39879]]

come due, properties with interest only loans may 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\ U.S. Census Bureau press release, July 17, 2009.
    \8\ ``Landlords See a Jump in Vacancy Rates Even as Rents 
Drop,'' Wall Street Journal, April 8, 2009.
---------------------------------------------------------------------------

    Refinancing surge in 2009. A significant increase in the volume of 
refinancings of single-family mortgages makes 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.
    Many forecasters expect 2009 to be a high refinancing year. 
Projections of the 2009 refinance rate have been up to around 70 
percent since March of this year, with the Mortgage Bankers Association 
(MBA) projecting 66 percent in its July 10, 2009 forecast,\9\ Fannie 
Mae projecting 70 percent in its June 11, 2009 forecast,\10\ and 
Freddie Mac projecting 67 percent in its July 8, 2009 forecast.\11\ In 
addition, the Administration's MHA Program 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.
---------------------------------------------------------------------------

    \9\ MBA Mortgage Finance Forecast, June 22, 2009.
    \10\ Fannie Mae Economics and Mortgage Market Analysis, June 11, 
2009.
    \11\ Freddie Mac Economic and Housing Market Outlook, June 11, 
2009.
---------------------------------------------------------------------------

    FHFA will continue to monitor the size of the refinance market 
closely in 2009. Refinances may continue to 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. 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.
b. Size of the Mortgage Market That Qualifies for the Housing Goals
    FHFA recognizes that there is no single, comprehensive data set for 
estimating the size of the affordable lending market, and that the 
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 MBA,\12\ Inside Mortgage Finance Publications, Inc.,\13\ 
First American Loan Performance,\14\ Global Insight,\15\ Fannie Mae, 
and Freddie Mac.
---------------------------------------------------------------------------

    \12\ The MBA is a national association representing the real 
estate finance industry.
    \13\ Inside Mortgage Finance Publications, Inc. is a company 
providing business-to-business news and statistics on the 
residential mortgage market.
    \14\ 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.
    \15\ 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).
---------------------------------------------------------------------------

    Refinance Activity. The 2009 refinancing surge has a major impact 
on the size of the mortgage market that qualifies for the housing 
goals. Refinances in the early part of 2009 may have accounted for more 
than 70 percent of all single-family mortgage originations. This rate 
has increased from the anticipated 59 percent refinance rate used by 
FHFA as the basis for the market estimates in the proposed rule.
    Table 1 contains FHFA's housing goals market estimates, using a 70 
percent refinance volume and share of the single-family conventional 
conforming market, which is derived from the forecasts of the MBA, 
Fannie Mae and Freddie Mac cited above.
BILLING CODE C

[[Page 39880]]

[GRAPHIC] [TIFF OMITTED] TR10AU09.016


[[Page 39881]]


    The Multifamily Market. In the first quarter of 2009, multifamily 
mortgage acquisitions by the Enterprises accounted for less than half 
of the average first quarter acquisitions in the previous three years. 
Under current economic conditions, it is estimated that the Enterprises 
and FHA represent at least 90 percent of the entire multifamily 
mortgage market, which results in total estimated multifamily mortgage 
originations of $8.3 billion in the first quarter of 2009.
    Using the monthly HMDA time series data of multifamily mortgage 
origination volume provided by the Federal Reserve Board, FHFA has 
projected the quarterly share of multifamily mortgage originations for 
2009. The distributions of quarterly shares for each quarter were 
normally and independently distributed. The first quarter share was 
significantly lower than the other three quarters, and the fourth 
quarter share was significantly higher. These shares are shown in Table 
2, along with the ranges associated with a 95 percent confidence level.

[[Page 39882]]

[GRAPHIC] [TIFF OMITTED] TR10AU09.017


[[Page 39883]]


    Based on the historical patterns, FHFA made quarterly estimates of 
the multifamily mortgage origination volume, as well as estimates based 
on the upper and lower limits of the confidence intervals. Given 
current economic conditions, it is likely that the ``end of the year'' 
spike in multifamily mortgage originations that has occurred in prior 
years will not occur in 2009. Therefore, FHFA made a second set of 
estimates with the fourth quarter multifamily mortgage origination 
volume equal to the average of the three prior quarters. From these 
estimates, FHFA derived scenarios B through E. Scenario A, which is the 
``bottom end of the market'' estimate, includes only loans maturing in 
2009. To the extent that these loans are able to qualify for 
refinancing, new mortgages will be originated to replace them as these 
mortgages mature. Scenarios A, C and E were used to derive the market 
estimations in Table 1, with scenario C estimates based on historical 
averages with no fourth quarter spike, as the most likely to occur.
    As indicated in scenarios A through E, FHFA estimates that the size 
of the multifamily mortgage origination market will be between $30 
billion and $40 billion in 2009. This is lower than FHFA's estimate of 
$43 billion to $65 billion used to project the 9 to 13 percent 
multifamily mix in the proposed rule.\16\ Under FHFA's revised 
estimate, which reflects a higher rate of refinance and a lesser amount 
of goal-rich multifamily activity than assumed in the proposed rule, 
FHFA's estimates of the size of the conventional mortgage market for 
the income-based housing goals and subgoals are lower than those in the 
proposed rule or in the 2004 Rule. FHFA's revised market size estimates 
for the three overall housing goals categories for 2009 are as follows:
---------------------------------------------------------------------------

    \16\ See 74 FR 20236, 20248 (May 1, 2009).
---------------------------------------------------------------------------

     39-45 percent of units financed in the conventional 
conforming primary mortgage market will qualify for the low- and 
moderate-income housing goal. This is a downward adjustment from the 
estimate in the proposed rule that 43-51 percent of units financed in 
the conventional conforming primary mortgage market would qualify for 
the low- and moderate-income housing goal;
     30-35 percent of units will qualify for the underserved 
areas housing goal. This is a downward adjustment from the estimate in 
the proposed rule that 32-37 percent of units would qualify for the 
underserved areas housing goal;
     15-19 percent of units will qualify for the special 
affordable housing goal. This is a downward adjustment from the 
estimate in the proposed rule that 16-23 percent of units would qualify 
for the special affordable housing goal.
    FHFA's revised market size estimates for the three home purchase 
subgoal categories for 2009 are close to those in the proposed rule, as 
follows:
     34-39 percent of owner-occupied single-family home 
purchase mortgages on properties in metropolitan areas will qualify for 
the low- and moderate-income home purchase subgoal. This is a slight 
downward adjustment from the 35-41 percent market size estimate in the 
proposed rule;
     27-31 percent of such mortgages will qualify for the 
underserved areas home purchase subgoal. This is identical to the 
market size estimate in the proposed rule;
     10-14 percent of such mortgages will qualify for the 
special affordable home purchase subgoal. This is a slight downward 
adjustment from the 10-15 percent market size estimate in the proposed 
rule.
    As discussed in the proposed rule, 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, 2008. Public Law 110-185, Sec.  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, Sec.  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, Sec.  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.
    FHFA's revised analysis of the mortgage market for 2009, which 
includes a detailed description of FHFA's market model, is contained in 
a document entitled ``Estimating the Size of the Conventional 
Conforming Market for each Housing Goal in 2009: Final Rule,'' of June 
2009, which is available at https://www.fhfa.gov.
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 housing subgoals as determined by HUD 
for 2005 and 2006, and by FHFA for 2007 and 2008.\17\ As discussed in 
the proposed rule, although HERA does not explicitly require 
consideration of the Enterprises' past performance on the housing goals 
in determining whether to adjust the 2009 goal levels, FHFA believes 
that the Enterprises' past performance is relevant to this 
determination. Consideration of past performance was required in 
establishing the goal levels for 2008 and prior years, and is required 
in establishing the goal levels 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, the Enterprises' combined shares of 
the single-family conventional conforming

[[Page 39884]]

market and the multifamily market were likely at record levels in 2008. 
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 goals-qualifying shares of the primary market. Thus, 
FHFA has analyzed combined Enterprise past performance, and finds that 
it is of the same magnitude as FHFA's estimates of the 2008 mortgage 
market goal-qualifying shares.
---------------------------------------------------------------------------

    \17\ The Enterprises submitted to FHFA their Annual Housing 
Activities Reports (AHARs), tables on 2008 goals performance, and 
loan-level data on mortgages purchased on March 16, 2009. FHFA 
notified the Enterprises of the official performance figures for the 
2008 goals and subgoals in letters dated June 11, 2009, and these 
results are posted on FHFA's Web site.
---------------------------------------------------------------------------

a. Housing Goals
    The three overall goal levels for 2005 through 2008 were set to 
increase each year so that by 2008, the levels would correspond with 
the top end of the range of estimates for the goals-qualifying shares 
of units financed in the primary mortgage market. Analysis of loan-
level data for 2005 through 2008 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 55.5 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, 
both Enterprises fell significantly short of meeting the 56 percent 
goal level, with Fannie Mae at 53.7 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 was a substantial probability of failure by the Enterprises to 
meet this 2008 goal level, and that achievement of the goal was not 
feasible for each Enterprise.\18\
---------------------------------------------------------------------------

    \18\ 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, Fannie Mae 
exceeded the 39 percent 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 was a substantial probability of failure by Freddie Mac to 
meet this 2008 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, Fannie Mae's performance fell slightly to 26.4 
percent, below the 27 percent goal level, and Freddie Mac's performance 
fell sharply to 23.1 percent. In the 2008 Goals Feasibility Letters, 
FHFA notified the Enterprises of its final determination that there was 
a substantial probability of failure by the Enterprises to meet this 
2008 goal level, and that achievement of the goal was not feasible for 
each Enterprise.
    These results are shown in Table 3.
b. Special Affordable Multifamily Housing 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 housing subgoals. These subgoals were 
established at 1.0 percent of the average aggregate dollar volume of 
total mortgage purchases by each Enterprise in a base period (2000, 
2001 and 2002). Unlike the overall goal levels, these subgoal levels 
differ between the Enterprises. Specifically, for 2005 through 2008, 
the subgoal level was