2010-2011 Enterprise Affordable Housing Goals; Enterprise Book-Entry Procedures, 9034-9072 [2010-3310]
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Federal Register / Vol. 75, No. 38 / Friday, February 26, 2010 / Proposed Rules
FEDERAL HOUSING FINANCE
AGENCY
12 CFR Parts 1249 and 1282
RIN 2590–AA26
2010–2011 Enterprise Affordable
Housing Goals; Enterprise Book-Entry
Procedures
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AGENCY: Federal Housing Finance
Agency.
ACTION: Proposed rule.
SUMMARY: Section 1128(b) of the
Housing and Economic Recovery Act of
2008 (HERA) amended the Federal
Housing Enterprises Financial Safety
and Soundness Act of 1992 (Safety and
Soundness Act) to provide for the
establishment, monitoring and
enforcement of new affordable housing
goals effective for 2010 and 2011 for the
Federal National Mortgage Association
(Fannie Mae) and the Federal Home
Loan Mortgage Corporation (Freddie
Mac) (collectively, the Enterprises).
Section 1332(a) of the Safety and
Soundness Act, as amended by HERA,
requires the Federal Housing Finance
Agency (FHFA) to establish three singlefamily owner-occupied purchase money
mortgage goals and a single-family
refinancing mortgage goal. Section
1333(a) of the Safety and Soundness Act
requires FHFA to establish a
multifamily special affordable housing
goal, as well as providing for a
multifamily special affordable housing
subgoal. FHFA is issuing and seeking
comments on a proposed rule that
would establish new affordable housing
goals for 2010 and 2011, consistent with
the Safety and Soundness Act, as
amended. The proposed rule would also
revise and update the rules for counting
mortgages for purposes of the affordable
housing goals to ensure clarity and
consistency with the new goals.
DATES: Written comments must be
received on or before April 12, 2010.
ADDRESSES: You may submit your
comments, identified by regulatory
information number (RIN) 2590–AA26,
by any one 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–AA26,
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–AA26, Federal Housing
Finance Agency, Fourth Floor, 1700 G
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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–AA26’’ 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–AA26’’ in the subject
line of the message.
FOR FURTHER INFORMATION CONTACT:
Nelson Hernandez, Senior Associate
Director, Housing Mission and Goals,
(202) 408–2993, Brian Doherty,
Manager, Housing Mission and Goals,
(202) 408–2991, Paul Manchester,
Principal Economist, Housing Mission
and Goals—Quantitative Analysis, (202)
408–2946, Sharon Like, Associate
General Counsel, (202) 414–8950, Lyn
Abrams, Attorney, (202) 414–8951, or
Kevin Sheehan, Attorney, (202) 414–
8952. These are not toll-free numbers.
The mailing address for each contact is:
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 without
change, including any personal
information you provide, such as your
name and address, 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,
please call the Office of General Counsel
at (202) 414–3751.
II. Background
A. Establishment of FHFA
Effective July 30, 2008, HERA
amended the Safety and Soundness Act
to create FHFA as an independent
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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 the Department of
Housing and Urban Development (HUD)
to FHFA. 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.2
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 and the Federal Home Loan
Mortgage Corporation Act (together, the
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.3 The Enterprises are
government-sponsored enterprises
(GSEs) chartered by Congress for the
purpose of establishing secondary
market facilities for residential
mortgages.4 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.5
B. Statutory and Regulatory Background
Prior to HERA, the Safety and
Soundness Act provided the Secretary
of HUD with the authority to establish,
monitor and enforce affordable housing
1 See Division A, titled the ‘‘Federal Housing
Finance Regulatory Reform Act of 2008,’’ Title I,
§ 1101, Public Law 110–289, 122 Stat. 2654 (2008),
codified at 12 U.S.C. 4501 et seq.
2 See 12 U.S.C. 4513.
3 See HERA at section 1302, 122 Stat. 2795.
4 See 12 U.S.C. 1716 et seq.; 12 U.S.C. 1451 et seq.
5 Id.
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goals for the Enterprises.6 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 2008.7 HUD’s regulations
provided for the housing goal levels for
2008 to continue in effect in 2009 and
each year thereafter until replaced by
new annual housing goals established
by HUD.8 In August 2009, FHFA issued
a final rule that adopted many of the
existing housing goals provisions in a
new part 1282 of title 12 of the Code of
Federal Regulations. As authorized by
section 1331(c) of the Safety and
Soundness Act, the final rule also
revised the levels of the existing
affordable housing goals in light of
current market conditions.9
The Safety and Soundness Act, as
amended by HERA, requires the
Director of FHFA to establish new
affordable housing goals effective for
2010 and beyond. The new housing
goals include four goals for singlefamily, owner-occupied housing, one
multifamily special affordable housing
goal, and one multifamily special
affordable housing subgoal.10 The
single-family housing goals target
purchase money mortgages for lowincome families, families that reside in
low-income areas, and very low-income
families, and refinancing mortgages for
low-income families.11 The multifamily
special affordable housing goal targets
multifamily housing affordable to lowincome families, and the multifamily
special affordable housing subgoal
targets multifamily housing affordable
to very low-income families.12
C. Conservatorship
On September 6, 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.
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III. Prospective and Market-Based
Goals
Following passage of the Safety and
Soundness Act, HUD established
housing goals for Fannie Mae and
Freddie Mac in October 1993,13 and
6 See
12 U.S.C. 4561 et seq. (2008).
24 CFR part 81 (2008).
8 See 24 CFR 81.12 through 81.14 (2008).
9 See 74 FR 39873 (Aug. 10, 2009).
10 See 12 U.S.C. 4561 and 4563(a)(2).
11 See 12 U.S.C. 4562.
12 See 12 U.S.C. 4563.
13 See 58 FR 53048 (Oct. 13, 1993) and 58 FR
53072 (Oct. 13, 1993).
7 See
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revised and expanded those goals in
1995,14 2000,15 and 2004.16 Multi-year
goals were set in the 1993 housing goals
rule for 1993–94 (subsequently
extended to 1995), in the 1994 housing
goals rule for 1996–99 (with the goal
levels for 1999 continuing in effect for
2000), in the 2000 housing goals rule for
2001–03 (with the goal levels for 2003
continuing in effect for 2004), and in the
2004 housing goals rule for 2005–08.
In each case, the numerical goals were
established up to four years in advance.
The goals were set as specific minimum
goal-qualifying percentages of all
dwelling units financed by mortgages
acquired by each Enterprise in a given
year, except for the special affordable
multifamily subgoal, which was set as a
minimum dollar volume of this type of
business. In the 2004 final rule, HUD
added three single-family home
purchase subgoals, which were
similarly set as specific minimum goalqualifying percentages of all home
purchase mortgages financed by the
Enterprises on owner-occupied
properties in metropolitan statistical
areas (MSAs).
HUD set the goals for 1993–2008
based on the six factors as specified in
the Safety and Soundness Act. The most
important such factors were past
performance on the goals and,
especially, for the home purchase
subgoals, HUD’s estimates of the goalqualifying shares of home purchase
mortgages in the primary mortgage
market on properties in MSAs. For the
overall goals, HUD’s estimates of the
goal-qualifying shares of all dwelling
units financed in the primary market by
the Enterprises in each year were also
important. For example, HUD estimated
that low- and moderate-income units
would account for 50–55 percent of all
units financed in the primary mortgage
market for 2003–04, and 51–56 percent
of all units financed in 2005–08. The
low- and moderate-income goal was set
at 50 percent for 2003–04, and was later
established to increase in accordance
with the market range over the 2005–08
period—specifically, 52 percent for
2005, 53 percent for 2006, 55 percent for
2007, and 56 percent for 2008. A similar
approach was followed with regard to
the overall underserved areas and
special affordable goals for 2005–08.
As recent market developments show,
it can be difficult to forecast the goalsqualifying shares of the primary
mortgage market several years in
advance. The forecasts developed by
HUD were based on the assumption of
14 See
60 FR 61846 (Dec. 1, 1995).
65 FR 65044 (Oct. 31, 2000).
16 See 69 FR 63580 (Nov. 2, 2004).
15 See
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a ‘‘home purchase market environment,’’
a market environment in which
purchase mortgages dominate over
refinancing mortgages. However, when
market conditions result in higher than
average refinance activity, the actual
market goals-qualifying shares can be
significantly different from the forecast
because the actual refinance share
would dominate. A second reason for
the divergence between forecasted and
actual shares of goals-qualifying units in
the primary mortgage market is the
variation in the affordability of housing,
such as measured by the National
Association of Realtors (NAR) housing
affordability index. If the price of a
product or service declines, it is more
affordable to the consumer. In this
respect, housing is no different from any
other product. A third reason for
divergence is the variance in the size of
the multifamily mortgage market over
time. Under the previous goals counting
regime, multifamily units played a
significant role in whether an Enterprise
met the goals. A fourth reason for the
divergence is the change in the size of
the share of the mortgage market
accounted for by Federal Housing
Administration (FHA) and Department
of Veterans Affairs (VA) mortgages. As
discussed below, the market share of
mortgages insured by FHA increased
dramatically in recent years, from a
monthly low of 2.5 percent in October
2005 to 32 percent in December 2008.
As measured after the fact, HUD’s
market estimates often differed
significantly from the actual goalsqualifying shares of the primary market.
Specifically, the actual low- and
moderate-income share of the primary
market in 2003 was 53 percent, which
was within HUD’s 2001–2003 forecasted
range of 50–55 percent, but when the
share increased to 58 percent for 2004,
it exceeded the upper end of the range.
The low- and moderate-income share of
the primary market remained high, at 57
percent for 2005, above HUD’s 2005–
2008 forecasted range of 51–56 percent,
but then decreased to 55 percent for
2006 and 52 percent for 2007. Thus,
over the 2005–2007 period, the low- and
moderate-income goals increased
steadily, while the low- and moderateincome share of the primary mortgage
market decreased steadily.
While the Enterprises are in
conservatorship, FHFA expects the
Enterprises to continue to fulfill their
core statutory purposes, including their
support for affordable housing. The
affordable housing goals are one set of
measures of that support. FHFA does
not intend for the Enterprises to
undertake uneconomic or high-risk
activities in support of the goals.
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Further, the fact that the Enterprises are
in conservatorship should not be a
justification for withdrawing support
from these market segments. While in
conservatorship the Enterprises have
tightened their underwriting standards
to avoid poor quality mortgages that
have contributed substantially to their
losses. Maintaining sound underwriting
discipline going forward is important
for conserving the Enterprises’ assets
and for supporting their mission in a
manner in which the achievement of
housing goals directly relates to actual
market conditions. In light of these
circumstances and the difficulties in
anticipating market deviations from the
normal home purchase environment in
the traditional approach to goal-setting,
FHFA proposes in this rule to measure
the Enterprises’ single-family goal
performance relative to benchmark
levels for the goals-qualifying shares of
the Enterprises’ mortgage purchases, as
well as relative to the actual goalsqualifying shares of the primary
mortgage market. A dual approach
prevents exclusive reliance on multiyear mortgage market forecasts. The
primary disadvantage of this approach
is that information on the goalsqualifying shares of the current singlefamily primary market is not available
until the release of Home Mortgage
Disclosure Act (HMDA) data in late
summer of the following year,
approximately nine months after the
rating period. However, FHFA believes
that the market-based approach
proposed in this rule is an appropriate
measure of mission achievement under
the housing goals for the Enterprises,
especially while they are operating in
conservatorship, and that the overall
advantages of this approach outweigh
the disadvantages.
In 2010, FHFA expects to begin to
conduct a monthly survey of singlefamily mortgage originations pursuant
to section 1324(c) of the Safety and
Soundness Act, as amended by HERA,
and make data collected under that
survey available to the public.17 Release
of that data is likely to provide detailed
information on home mortgage lending
activity more frequently and in a
timelier manner than does the public
release of the data collected under
HMDA. FHFA will use the survey data
in its monitoring of Enterprise
affordable housing goals performance in
2010 and subsequent years.
This proposed rule would establish
single-family housing goals that include
(1) an assessment of Enterprise
performance as compared to the actual
share of the market that meets the
17 12
U.S.C. 4544(c).
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criteria for each goal, and (2) a
benchmark level to measure Enterprise
performance. The benchmark levels for
performance are intended to provide
greater certainty for the Enterprises in
establishing strategies for meeting the
affordable housing goals. An Enterprise
would be found to have failed to meet
a housing goal if its annual performance
falls below both the benchmark level
and the actual share of the market that
meets the criteria for a particular
housing goal for that year. An Enterprise
would not be found to have failed to
meet a goal if it achieves the benchmark
level for that goal, even if the actual
market size for the year is higher than
the benchmark level, because for
planning purposes the Enterprises need
to be able to rely on the benchmarks that
FHFA has set.18
The proposed approach to setting
goals, involving both the setting of a
prospective target and an assessment of
actual market opportunity, is a
departure from past practice at HUD, as
well as in the transitional housing goals
established by FHFA for 2009. FHFA
has determined that this approach is
appropriate in light of the difficulties of
predicting the market, especially in light
of recent market turmoil, but also in
view of the difficulty in making those
projections accurately even in more
stable economic environments. FHFA
views this approach as fully consistent
with Congressional intent in granting
goal-setting power to the regulator, in
light of the many provisions that
Congress inserted into the statute to
enable the goals to be adjusted to reflect
changing market conditions or
otherwise suggesting that the goals
should be set in light of market
conditions. Those provisions include:
The requirement that the agency
calculate the preceding three-year
average percentages of goal-eligible
originations for each goal category, and
take that information into account in
setting the single-family goals; 19 the
authority to adjust goals, when they
have been set for more than one year,
based on market conditions; 20 the
discretionary authority to adjust a goal
in response to a petition, partly in
response to market conditions and the
risk of ‘‘over-investment’’; 21 and
provisions for relief from enforcement if
18 See 12 U.S.C. 4561(b), acknowledging ‘‘the
need for the enterprises to reasonably and
sufficiently plan their operations and activities in
advance, including operations and activities
necessary to meet such annual goals.’’
19 12 U.S.C. 4562(e)(2)(A).
20 12 U.S.C. 4562(e)(3).
21 12 U.S.C. 4564(b)(1), (2).
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goals are determined not to have been
feasible.22
IV. Changes in Structure of Housing
Goals for 2010–2011
The proposed rule would modify the
structure of the housing goals
established by HUD for 2005–2008, and
subsequently extended and modified for
2009 by FHFA, in a number of ways for
2010–2011. There would be no overall
goals for 2010–2011 covering all of each
Enterprise’s mortgage purchases, as in
the past. Rather, there would be four
separate goals for purchases of singlefamily mortgages and two goals for
purchases of multifamily mortgages.
These changes, many of which are
required by changes made by HERA in
the governing statute, are described in
more detail below.
Enterprise goal performance under
each of the single-family housing goals
is measured using a fraction of
qualifying mortgage purchases as a
percent of total mortgage purchases.
Neither the numerator nor the
denominator includes Enterprise
transactions or activities that are not
mortgage purchases as defined by FHFA
or that would be specifically excluded
as ineligible under proposed
§ 1282.16(b). The 2010–2011 singlefamily goals, as proposed, would
establish separate goals for home
purchase mortgages and refinancing
mortgages. This differs from past
treatment, which combined such
purchases for the overall goals.
In addition, the proposed rule would
count only conventional loans for
purposes of the housing goals. This
means that certain FHA loans that
previously counted toward the goals,
such as Home Equity Conversion
Mortgages (HECMs), will no longer be
counted. Second liens, which also
counted toward the goals in the past,
would be excluded from counting for
purposes of the housing goals in the
future. The Enterprises have purchased
very few second liens in the past.
Under the 2010–2011 goals, mortgages
financing rental units in single-family
properties, which were previously
included in the goals, would no longer
be counted. However, FHFA will
continue to monitor the Enterprises’
purchases of such mortgages with regard
to rental units in both 2–4 unit owneroccupied housing and investor-owned
1–4 unit rental housing.
The 2010–2011 multifamily goals
would be based on the numbers of
affordable dwelling units financed,
rather than being specified in minimum
dollar terms. The special affordable
22 12
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multifamily subgoal in effect prior to
2010 applied to purchases of mortgages
on housing for families with incomes
below 60 percent of area median income
(AMI) and for families with incomes
between 60 percent and 80 percent of
AMI living in low-income areas. The
overall multifamily goal for 2010–2011
is somewhat broader in its coverage
than the previous special affordable
multifamily goal, applying to mortgages
on housing for families with incomes no
greater than 80 percent of AMI,
regardless of location. However, the
2010–2011 very low-income
multifamily subgoal would be targeted
to households with slightly lower
incomes. The qualifying household
income for purposes of the 2010–2011
multifamily subgoal would be at or
below 50 percent of AMI.
The 2010–2011 low-income home
purchase and refinancing goals in the
proposed rule would target households
with lower incomes than the past lowand moderate-income goals. The past
low- and moderate-income goals
included families with incomes up to
100 percent of AMI. Under the proposed
rule, the low-income home purchase
and refinancing goals would include
only families with incomes no greater
than 80 percent of AMI.
The 2010–2011 low-income areas
home purchase goal would be somewhat
more targeted than the past underserved
areas home purchase subgoal. For
example, the new low-income areas
housing goal includes families in census
tracts with incomes up to 80 percent of
AMI, while the underserved areas home
purchase subgoal included families in
census tracts with incomes up to 90
percent of AMI. The narrower scope of
the low-income areas housing goal may
be seen by comparing performance on
the underserved areas home purchase
subgoal in 2008 (approximately 30
percent for both Enterprises) with what
their performance would have been on
the low-income areas home purchase
goal in 2008 (approximately 15 percent
for both Enterprises).
V. Analysis of Single-Family Housing
Goals
Section 1332(e)(2) of the Safety and
Soundness Act, as amended by HERA,
requires FHFA to consider the following
seven factors in setting single-family
housing goals:
(1) National housing needs;
(2) Economic, housing, and
demographic conditions, including
expected market developments;
(3) The performance and effort of the
Enterprises toward achieving the
housing goals under this section in
previous years;
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(4) The ability of the Enterprise to
lead the industry in making mortgage
credit available;
(5) Such other reliable mortgage data
as may be available;
(6) The size of the purchase money
conventional mortgage market, or
refinance conventional mortgage
market, as applicable, serving each of
the types of families described, relative
to the size of the overall purchase
money mortgage market or the overall
refinance mortgage market, respectively;
and
(7) The need to maintain the sound
financial condition of the Enterprises.23
FHFA’s consideration of the size of
the market for each housing goal
includes consideration of the percentage
of goals-qualifying mortgages under
each housing goal, as calculated based
on HMDA data for the three most recent
years for which data is available.24
A. Analysis of Factors for Single-Family
Housing Goals
FHFA’s analysis of each of the factors
is set forth below.
1. National Housing Needs
With the collapse of subprime and
Alt-A lending, tighter credit conditions,
and stricter underwriting standards,
single-family mortgage originations fell
38 percent in 2008. The Enterprises’
share of single-family mortgage-backed
securities (MBS) issuance rose to over
73 percent in that year, however, and
the credit risk characteristics of their
purchases began to improve. Falling
house prices caused equity in homes to
decline sharply. The resetting of interest
rates on poorly underwritten adjustable
rate mortgages (ARMs) originated in
recent years, deteriorating household
balance sheets, rising unemployment,
continued credit tightening, and the
deepening recession contributed to
increases in mortgage delinquency and
home foreclosure rates as well as
sharply lower housing starts and sales.
The decline in home prices that began
in 2007 accelerated sharply in 2008.
Continued tightening in lender credit
policies, large inventories of unsold
homes, significant volumes of homes in
foreclosure, rising unemployment, and
increasing pessimism among potential
homebuyers combined to drive home
prices down further.
Despite improving housing
affordability, the U.S. homeownership
rate declined since peaking at 69
percent in 2004. In the third quarter of
2009, the homeownership rate was 67.6
percent, down from the 67.9 percent in
23 12
U.S.C. 4562(e)(2).
12 U.S.C. 4562(e)(2)(A).
24 See
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the third quarter of 2008.25 The
homeownership rate for married
couples with children declined from
78.8 percent in the third quarter of 2008
to 77.9 percent in the third quarter of
2009.26 The homeownership rate for
Black households declined markedly
from 48.2 percent in the third quarter of
2008 to 46.8 percent in the third quarter
of 2009.27 Between 2000 and 2005, the
homeowner vacancy rate—the
proportion of the homeowner inventory
that is vacant for sale—averaged about
1.7 percent. However, that rate
increased 70 basis points in 2006 alone,
to 2.7 percent in the fourth quarter, and
has inched up generally every year
since, reaching 2.9 percent in the first
and fourth quarters of 2008. That was
the highest rate since the Census Bureau
began collecting that statistic in 1956.
The persistently high rate reflects both
the high level of foreclosures and
declining home sales.
A recent NAR study of homebuyers
and sellers between July 2008 and June
2009 shows the number of first-time
homebuyers rose to 47 percent of all
homebuyers, from 41 percent in the
prior year’s study. The median age for
first-time homebuyers was 30 years and
the median income was $61,600. The
typical first-time homebuyer purchased
a home costing $156,000, down from
$165,000 in the prior year’s study. The
study found that 55 percent of entry
level buyers financed their purchase
with an FHA loan, and another 8
percent used the VA loan program.28
According to FHFA’s Monthly Interest
Rate Survey (MIRS), the average loan-tovalue ratio (LTV ratio) of single-family,
conventional, purchase money
mortgages, which increased rapidly
from 73.6 percent in 2003 to 79.3
percent in 2007, fell to 76.7 percent in
2008. The proportion of such loans with
LTV ratios greater than 90 percent
dropped sharply from 2007’s level of 29
percent—the highest level recorded—to
18 percent in 2008.
HMDA data for 2008 indicated that
applications from Black borrowers fell
by 48 percent, and applications from
Hispanic borrowers fell by 55 percent.29
25 U.S. Housing Market Conditions, 3rd Quarter
2009. Department of Housing and Urban
Development at 87.
26 U.S. Housing Market Conditions, 3rd Quarter
2009. Department of Housing and Urban
Development at 89.
27 U.S. Housing Market Conditions, 3rd Quarter
2009. Department of Housing and Urban
Development at 88.
28 ‘‘NAR Survey Shows First-Time Home Buyers
Set Record in Past Year.’’ Press Release. National
Association of Realtors. Nov. 13, 2009.
29 ‘‘HMDA Data Show Huge Decline in 2008
Mortgage Activity—Except at Government Insured
Programs.’’ Inside Mortgage Finance. Oct. 2, 2009 at
8.
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Originations rose somewhat in the first
two quarters of 2009 over the last two
quarters of 2008, but the $410 billion in
mortgage originations in the third
quarter of 2009 showed a decline of
more than 25 percent over the second
quarter’s $550 billion.30
One of the key catalysts of the current
economic crisis was falling housing
prices after the substantial increase that
began in 2000. From January 2000
through the May 2006 peak, the S&P/
Case-Shiller housing price index rose by
approximately 105 percent, only to fall
by more than 30 percent since then. The
less volatile FHFA housing price index,
which reflects the book of business of
the Enterprises, peaked later and has
since declined about 11 percent.
Changes in mortgage underwriting,
particularly for affordable products, had
a direct impact on the national housing
market. During the boom, as house price
appreciation reduced affordability, low
documentation Alt-A loans, interestonly loans and ARMs proliferated.
Subprime market share tripled to more
than 20 percent of the market. Lenders
accepted more loans with higher LTV
ratios and lower borrower credit scores.
The Joint Center for Housing Studies
report, ‘‘State of the Nation’s Housing
2009,’’ describes the effect of loosened
mortgage underwriting standards on the
housing market. In 2005, a household
with median owner income of about
$57,000 and spending 28 percent of
income on mortgage principal and
interest could qualify for a 30-year,
fixed-rate loan of $225,000. If the same
borrower took out an ARM loan at a
discounted interest rate, the maximum
loan amount increased to $265,000. By
adding an interest-only feature to that
ARM and qualifying the household
based on the initial interest-only
payments, the potential loan size grew
to $356,000. Allowing the borrower to
spend 38 percent of income on mortgage
costs meant that the mortgage loan
could total approximately $482,000.
Interagency regulatory guidance on
nontraditional and subprime loans
issued in 2006 and 2007, including
guidance to the Enterprises by OFHEO,
contributed to limiting the numbers of
such loans as underwriting standards
were subsequently strengthened.31
30 ‘‘Mortgage Origination Volume Dropped
Sharply in 3Q09, But 2009 May End on a Rising
Trend.’’ Inside Mortgage Finance. Oct. 30, 2009 at
3–4.
31 See Office of Federal Housing Enterprise
Oversight, ‘‘OFHEO Director James B. Lockhart
Commends Enterprises on Implementation of
Subprime Mortgage Lending Guidance,’’ News
Release (Sept. 10, 2007), available at https://www.
fhfa.gov/webfiles/1608/Lockhartcommends
ENTERPRISEsreSubprime91007.pdf. See also Office
of the Comptroller of the Currency, Federal Reserve
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A result of the crisis is that the
mortgage market has returned to more
traditional and prudent lending
standards. Mortgage underwriting
standards in the near term can be
expected to continue to be more
conservative than earlier in the decade.
The decline in housing prices has
made housing more affordable. A
composite index of housing affordability
for the third quarter of 2009 showed that
families earning the median income had
159.2 percent of the income needed to
purchase a median-priced existing
single-family home, a figure 24 percent
higher than the 128.6 percent reported
for the third quarter of 2008, although
down from the 169.2 percent
affordability level of the prior quarter.32
Housing price declines have brought
standard affordability ratios closer to or
even above historical levels. In one
national survey of 122 metropolitan
areas, the number of areas where the
home price is less than three times the
median household income has declined
to the same level as in 2003.33 While the
unemployment rate may decline in 2010
and 2011, or at a minimum the rate of
unemployment may level off, there are
concerns as to whether jobs will return
in areas where excess single-family
housing units are located.34
From April 2008 through December
2008, eligible first-time homebuyers
received a $7,500 tax credit. From
January 2009 through the end of
November 2009, the tax credit was
revised to include an $8,000 nonrefundable tax credit. On November 5,
2009, the Congress enacted H.R. 3548,
the Unemployment Compensation
Extension Act, which extended and
expanded the $8,000 non-refundable
homebuyer tax credit. Under the
legislation, qualifying first-time
homebuyers receive the $8,000 tax
credit if they sign a contract by April 30,
2010, and close by June 30, 2010. To
encourage ‘‘move up’’ homebuyers, the
legislation allows homebuyers who
purchase a new primary residence to
Board, Federal Deposit Insurance Corporation,
Office of Thrift Supervision, National Credit Union
Administration, Statement on Subprime Mortgage
Lending, 72 FR 37569–37575 (July 10, 2007); and
Office of the Comptroller of the Currency, Federal
Reserve Board, Federal Deposit Insurance
Corporation, Office of Thrift Supervision, National
Credit Union Administration, Interagency Guidance
on Nontraditional Mortgage Product Risks, 71 FR
58609–58618 (Oct. 4, 2006).
32 U.S. Housing Market Conditions, 3rd Quarter
2009. Department of Housing and Urban
Development at 17.
33 ‘‘State of the Nation’s Housing 2009.’’ Joint
Center for Housing Studies of Harvard University at
9.
34 Emile J. Brinkmann, Mortgage Bankers
Association. Senate Banking, Housing and Urban
Affairs Committee. Oct. 20, 2009 at 3.
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qualify for a $6,500 tax credit, provided
they owned their current home for at
least five consecutive years in the
previous eight years.35
2. Economic, Housing and Demographic
Conditions
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 include: (1)
Tightened credit underwriting practices;
(2) sharply increased standards of
private mortgage insurance (MI)
companies; (3) increased role of FHA in
the marketplace; (4) collapse of the
private label mortgage-backed securities
(PLS) market; and (5) increasing
unemployment. These developments
contribute to a decrease in the overall
number of single-family loans likely to
qualify for affordable housing goals
credit.
Tightened credit underwriting
practices. In general, more conservative
underwriting standards in the mortgage
market will likely result in fewer goalsqualifying loans and a lower percentage
of goal-qualifying loans in the market.
Underwriting standards in the mortgage
market generally, and at Fannie Mae
and Freddie Mac, tightened
considerably in 2008 and 2009 in
response to declining market conditions
and early payment defaults, among
other factors, and such standards can be
expected to remain in place in the near
future. In May 2008, responding to
changes in private MI underwriting,
Fannie Mae revised its down payment
policy to lower the maximum allowable
LTV ratio for loans underwritten by
Desktop Underwriter (DU) and for
manually underwritten loans. The
implementation of Fannie Mae’s
updated DU Version 8.0, effective in
December 2009, generally reduces the
allowable ‘‘back-end’’ borrower debt-toincome ratio—the portion of a
borrower’s income that goes toward
paying debts—to 45 percent. In
addition, it eliminates DU
recommendations for Expanded
Approval II and Expanded Approval III
loans, loans which historically counted
heavily toward the housing goals.36 If
the DU 8.0 revisions had been in effect
35 ‘‘House Clears Extension of Jobless Benefits,
Homebuyer’s Tax Credit.’’ Congressional Quarterly
Today Online News. Nov. 5, 2009.
36 Desktop Originator/Desktop Underwriter
Release Notes. DU Version 8.0. DODU 0909. Fannie
Mae. Sept. 22, 2009. DU 8.0 will allow a back-end
ratio of up to 50 percent for case files with strong
compensating factors.
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for all of 2009, substantially fewer goalsqualifying loans would have been
underwritten. The changes to DU will
likely have a similar effect in 2010 and
2011. Freddie Mac has similarly
tightened its underwriting standards.
Sharply increased standards of
private mortgage insurers. Much like
tighter credit underwriting standards
generally, higher underwriting
standards of private MI providers have
resulted in fewer goal-qualifying loans
and a lower percentage of goalqualifying loans in the market. As a
result of stress in the mortgage markets,
beginning in late 2007, MI providers
implemented major changes in the types
of risk they were able to insure. MI
providers that had experienced
substantial ratings downgrades acted to
minimize losses by imposing stricter
underwriting standards on loans with
high LTVs. In October 2009, Standard
and Poor’s put five MI providers on
credit watch for potential downgrades,
citing economic developments that were
having a negative effect on the MI
providers’ book of business.37 For the
first nine months of 2009, private MI
activity was down more than 60 percent
from the previous year. MGIC, the
largest mortgage insurer, reported a
$517.8 million net loss for the third
quarter of 2009, an amount equal to
more than half of the MI industry’s loss
for the period.38 In addition, MI
providers have implemented measures
in ‘‘declining markets’’ that have sharply
limited the insurability of certain
higher-LTV mortgage loans.
As a result of these conditions, the
availability of MI for high-LTV or low
credit score loans is much reduced
relative to what it was a few years ago.
These developments limit the ability of
MI providers to write new business and
reduce the overall mortgage lending
volume, particularly for higher-LTV
mortgages, which historically have
tended to be more likely to count for
purposes of the housing goals.
Increased role of FHA in the
marketplace. Another factor that has
had substantial marketplace impact is
the increase in the share of mortgages
insured by FHA and mortgages
guaranteed by the VA. These loans
generally are pooled into mortgagebacked securities guaranteed by the
Government National Mortgage
Association (GNMA). Purchases of
mortgages insured by FHA and
37 ‘‘FHA Ends 2009 Fiscal Year With a Bang,
Topping $100 Billion in Quarterly Originations for
the First Time.’’ Inside Mortgage Finance. Oct. 30,
2009 at 8.
38 ‘‘Private MIs Continue to Take a Beating as FHA
Rockets to New Record Market Share.’’ Inside
Mortgage Finance. Nov. 13, 2009 at 3–4.
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mortgages guaranteed by the VA
ordinarily do not receive goals credit. In
general, the impact of the FHA market
on the percentage of loans in the
conventional market that qualify for a
particular goal depends on: (1) The goalqualifying size of the overall market; (2)
the share of the market accounted for by
FHA mortgages; and (3) the extent to
which FHA mortgages have goals
qualifying characteristics.
The market share of mortgages
insured by FHA and mortgages
guaranteed by the VA has risen
dramatically. In the third quarter of
2009, FHA endorsed a record $104.2
billion in mortgages, which brought the
agency’s total production to $360.7
billion for the government’s fiscal year,
or nearly a billion dollars a day.39 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. Nearly
80 percent of FHA’s purchase-loan
borrowers in 2009 were first-time
homebuyers, and in the second quarter
of 2009, nearly half of all first-time
buyers in the housing market used FHAinsured loans.40 To ensure long-term
actuarial soundness, FHA announced
several policy changes on January 20,
2010 that could have the effect of
limiting its role in the mortgage market,
including: (1) Reducing the maximum
permissible seller concession from the
current 6 percent to 3 percent, which is
in line with marketplace norms; (2)
requiring a minimum credit score of 580
for new borrowers seeking to qualify for
the 3.5 percent downpayment program;
and (3) increasing the up-front mortgage
insurance premium by 50 basis points,
to 2.25 percent. In addition, FHA asked
for a change in the law to allow it the
ability to increase the maximum annual
mortgage insurance premium.41
Collapse of private label securities
market. In the middle part of the
decade—the period covered by the prior
HUD rule on affordable housing goals—
Fannie Mae and Freddie Mac were
major purchasers of the AAA-rated
tranches of PLS that contained
39 ‘‘FHA Ends 2009 Fiscal Year With a Bang,
Topping $100 Billion in Quarterly Originations for
the First Time.’’ Inside Mortgage Finance. Oct. 30,
2009 at 8.
40 ‘‘HUD Secretary, FHA Commissioner Report on
FHA’s Finances.’’ HUD Press Release No. 09–214.
Nov. 12, 2009.
41 ‘‘FHA Announces Policy Changes to Address
Risk and Strengthen Finances.’’ HUD Press Release
No. 10–001. Jan. 20, 2010.
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substantial amounts of subprime
mortgages. While the size and nature of
the Enterprises’ subprime holdings
differed, these 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 or 2009. OFHEO
provided guidance to the Enterprises in
2007 incorporating interagency policy
guidance from the Federal Deposit
Insurance Corporation, the Office of the
Comptroller of the Currency, the Federal
Reserve Board and the National Credit
Union Administration. The guidance
restricted the purchase of such
securities by the Enterprises when
certain terms of mortgages backing those
securities are harmful to the borrower.42
Increasing unemployment.
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. According to
the Bureau of Labor Statistics of the U.S.
Department of Labor, the
unemployment rate rose from 9.8
percent to 10.1 percent in October 2009,
as nonfarm payroll employment
continued to decline. Construction
employment decreased by 62,000 jobs in
October.43 The unemployment rate
declined to 10.0 percent in November
2009,44 and it remained at that level in
December 2009.45 The average duration
of unemployment has also increased
significantly over the last year.
NeighborWorks, a national network of
community-based organizations actively
involved in foreclosure mitigation
42 On August 10, 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
conformed 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.
OFHEO News Release (Sept. 10, 2007).
43 ‘‘The Employment Situation—October 2009.’’
Economic News Release USDL–09–1331. Bureau of
Labor Statistics. U.S. Department of Labor. Nov. 6,
2009.
44 ‘‘The Employment Situation—November 2009.’’
Economic News Release USDL–09–1479. Bureau of
Labor Statistics. U.S. Department of Labor. Dec. 4,
2009.
45 ‘‘The Employment Situation—December 2009.’’
Economic News Release USDL–09–1583. Bureau of
Labor Statistics. U.S. Department of Labor. Jan. 18,
2010.
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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).46 The high rates of
unemployment and underemployment
are likely to continue to have a
significant impact on the size of the
mortgage market going forward.
Refinancings. In 2009, Fannie Mae
and Freddie Mac refinanced 4 million
mortgage loans through November.
Refinancing volumes are strongly
influenced by mortgage interest rates
and LTV ratios on existing mortgages.
Under the umbrella of the
Administration’s Making Home
Affordable program, the Home
Affordable Refinance Program (HARP) is
an effort by the Enterprises to enhance
the opportunity for owners to refinance.
Under this program, homeowners whose
mortgages are owned or guaranteed by
Fannie Mae or Freddie Mae who are
current on their mortgages have the
opportunity to reduce their monthly
mortgage payments to take advantage of
low monthly mortgage interest rates,
which Freddie Mac’s January 21, 2010
weekly report indicated had fallen to
4.99 percent for a 30-year, fixed-rate
mortgage. For homeowners with a
current LTV ratio between 80 and 125
percent, the Enterprises will refinance
mortgages without requiring additional
mortgage insurance.
Demographic conditions. In
establishing the 2010 goals, FHFA
analyzed current demographic trends
for their possible effect on housing
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46 NeighborWorks, National Foreclosure
Mitigation Counseling Program Update, Jan. 23,
2009.
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demand. Analysis of current trends
reveals that by 2008, household
formation rates were already on the
decline. In addition, the recession and
unemployment have reduced
immigration, which in the past has been
a driver of housing demand. It is still
too early to assess the impact of the
current economic downturn on housing
demand, particularly given regional
variations in impact and mitigating
factors, such as increased affordability
of housing ownership. In the long-term,
housing demand is likely to increase as
a result of population growth,
immigration, and future household
formation by the generation born
between 1981 and 2000.47 However, the
impact of long-term demographic
conditions on short-term goals
performance would be minimal.
3. The Performance and Effort of the
Enterprises Toward Achieving the
Housing Goals in Previous Years
Section 1332(a) of the Safety and
Soundness Act, as amended by section
1128 of HERA, requires FHFA to
establish three single-family home
purchase mortgage goals for the
Enterprises: A goal for low-income
families; a goal for families that reside
in low-income areas; and a goal for very
low-income families. Revised section
1332(a) also requires FHFA to establish
a goal for single-family refinancing
mortgages for low-income families. The
following section reviews what
performance would have been on these
four single-family goals if they had been
in effect over the 2001–08 period.
Low-Income Families Housing Goal.
The affordable housing goals in the
Safety and Soundness Act, as amended,
apply to the Enterprises’ acquisitions of
‘‘conventional, conforming, singlefamily, purchase money mortgages
financing owner-occupied housing’’ for
the targeted groups. Accordingly, they
are similar in structure to the home
purchase subgoals established by HUD
for Fannie Mae and Freddie Mac for
2005–08, and subsequently extended
and modified for 2009 by FHFA. One
difference is that the subgoals
established by HUD applied only to
mortgages on properties in metropolitan
areas, while the new goals apply to
mortgages on properties in all locations.
The low-income families housing goal
applies to mortgages made to ‘‘lowincome families,’’ defined as families
with incomes no greater than 80 percent
of AMI.48 Past performance on this goal,
if it had been in effect in previous years,
is shown in Table 1. As indicated,
Fannie Mae’s performance would have
risen markedly between 2001 and 2003,
and then, with the exception of 2006,
would have fallen steadily between
2003 and 2008. Its performance last
year, at 23.2 percent, would have been
the lowest of the period. Freddie Mac’s
performance generally would have risen
between 2001 and 2005, and then
declined between 2005 and 2008. Its
performance last year would have been
24.5 percent, also the lowest of the
period.
BILLING CODE P
of the Nation’s Housing 2009.’’ Joint
Center for Housing Studies of Harvard University.
47 ‘‘State
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49 12
Past performance on this goal, if it had
been in effect in previous years, is
shown in Table 2. As indicated, Fannie
Mae’s performance would have risen
from 6.8 percent in 2001 to 9.0 percent
in 2003 and 2004, and then, with the
exception of 2006, generally decreased,
to 5.6 percent in 2008, the lowest in the
period. Freddie Mac’s performance on
this goal would have changed little over
the 2001–08 period, remaining in the
range of 6.2 percent to 7.0 percent.
U.S.C. 4502(24).
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Very Low-Income Families Housing
Goal. The Safety and Soundness Act, as
revised by HERA, defines a ‘‘very lowincome’’ owner-occupied property as
one occupied by a family with income
no greater than 50 percent of AMI.49
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Low-Income Areas Housing Goal. The
low-income areas housing goal targets
the Enterprises’ purchases of mortgages
in specified geographic areas, in a
manner similar to the previous
underserved areas goal. The Safety and
Soundness Act, as revised by HERA,
now defines a ‘‘low-income area’’ as a
census tract or block numbering area in
which the median income does not
exceed 80 percent of AMI, including
families with incomes not greater than
100 percent of AMI who reside in
minority census tracts and in designated
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disaster areas.50 It defines a ‘‘minority
census tract’’ as a census tract that has
a minority population of at least 30
percent and a median family income of
less than 100 percent of AMI.51
According to the 2000 census, of the
66,144 unique census tracts, there were
18,613 low-income tracts. There were
25,254 tracts with a minority population
of at least 30 percent, of which 5,711
had a tract income greater than 80
50 12
51 12
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U.S.C. 4502(29).
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percent of AMI but less than or equal to
100 percent of AMI. Accordingly, based
on the 2000 census, there were 24,324
tracts that would be targeted by this
goal, excluding tracts in designated
disaster areas, but only families with
incomes no greater than AMI would be
included in the 5,711 high-minority,
moderate-income tracts.
Past performance on the low-income
areas housing goal, if it had been in
effect in previous years, excluding
designated disaster areas, is shown in
Table 3. As indicated, Fannie Mae’s
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lowest level, 15.1 percent, in 2008.
Freddie Mac’s performance would have
peaked at 19.3 percent in 2002, then
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and would have been 15.2 percent in
2008.
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performance would have varied over
time. It would have reached its highest
level, 19.3 percent, in 2002, and its
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prepay an existing loan secured by the
same property.’’ Thus, the goal would
not apply to home equity loans.
Past performance on this goal, if it
had been in effect in previous years, is
shown in Table 4. As indicated, Fannie
Mae’s performance would have peaked
in 2004, following the 2001–03
refinance boom, and declined thereafter,
to a low of 23.1 percent last year.
Freddie Mac’s performance would have
peaked in 2005, and then also declined,
to 23.9 percent in 2008.
BILLING CODE C
This subsection briefly discusses the
role of the purchase of PLS in achieving
past performance, and the possible
effects of changes in underwriting
guidelines recently adopted by the
Enterprises. Also, FHFA has partial-year
data which allow calculation of each
Enterprise’s performance in the first
three quarters of 2009 relative to the
proposed 2010–2011 goals. Such data
are proprietary, but preliminary full-
Interpreting Past Goal Performance
Data. Past performance is not
necessarily a good indicator of future
goal performance, due to changes in
mortgage interest rates, home prices,
credit availability, and other factors.
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Refinancing Housing Goal. Under the
Safety and Soundness Act, as revised by
HERA, the refinancing housing goal is
targeted to low-income families, i.e.,
families with incomes no greater than
80 percent of AMI. It applies to
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year data will be included in the final
rule for the 2010–2011 goals.
The Enterprises purchased PLS in
recent years primarily due to
anticipated profitability, to maintain
market share, and because some PLS,
especially those containing subprime
mortgages, helped achieve the housing
goals. The performance data in Tables
1–4 include the effects of these PLS
purchases. Elsewhere in the proposed
rule is a discussion regarding counting
mortgages included in PLS toward the
affordable housing goals in 2010–2011.
In response to the housing crisis and
their financial difficulties, including the
performance of PLS, the Enterprises
have adopted more conservative
underwriting guidelines. As previously
discussed, those changes will affect goal
performance.
4. The Ability of the Enterprises To
Lead the Industry in Making Mortgage
Credit Available
As background for the statutory
requirement to consider the Enterprises’
‘‘ability * * * to lead the industry in
making mortgage credit available,’’ a
Senate committee report on legislation
leading to the enactment of the Safety
and Soundness Act in 1992 expressed
concern that Enterprise purchases had
not kept pace with market originations
of mortgages to low- and moderateincome borrowers.52 FHFA shares that
concern and has defined the proposed
Enterprise housing goals in part against
that history. FHFA believes that, in fact,
the Enterprises have played a leading
role in sustaining the mortgage market
during the recent crisis.
Leading the industry in making
mortgage credit available includes
making mortgage credit available to
primary market borrowers at differing
income levels. It also includes the
ability of the Enterprises to respond to
pressing mortgage needs in the current
market, such as the threat of a loss of a
home by the borrower, for example, by
implementing the loan modification and
refinance programs under the
Administration’s Making Home
Affordable Program, and by supporting
State and local housing finance
agencies. The Enterprises’ ability to
respond is reflected through the
introduction of safe and sound
innovative products, technology and
process improvements.
In the current market environment,
the Enterprises, along with FHA and
VA, now lead the market. From 1997–
2003, the Enterprises’ share of mortgage
originations grew to almost 55 percent.
From 2004–2006, the private mortgage
52 S.
Rep. No. 102–282, at 10–11 (1992).
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market predominated, and the
Enterprises’ market share dropped to
below 35 percent. After the private
mortgage market began to deteriorate in
2007, the Enterprises’ share of the
single-family mortgage market grew to
about 75 percent, with FHA and VA
accounting for the bulk of the balance.53
At the same time, the Enterprises have
been severely stressed by the financial
crisis. As described below, they have
suffered losses that have depleted their
capital and resulted in their being
sustained only by multi-billion-dollar
infusions of capital from the U.S.
Treasury under the Senior Preferred
Stock Purchase Agreements. In this
environment, in which FHFA as
conservator is also exercising a statutory
mandate to conserve and preserve the
Enterprises’ assets, it is especially
important that the Enterprises not take
on undue additional credit risk by
purchasing mortgages in any defined
segment in quantities beyond what
market originations reasonably provide.
FHFA has taken into account all of
the foregoing considerations in
assessing the Enterprises’ ability to lead
the industry.
5. Other Mortgage Data
The primary source of reliable
mortgage data for establishing the
affordable housing goals is the HMDA
data reported by originators. Enterprise
mortgage purchase data are compared to
HMDA data to evaluate the Enterprises’
performance with respect to leading or
lagging the housing market under
specific goals.
FHFA also uses other reliable data
sources including the American
Housing Survey (AHS), Census
demographics, commercial sources such
as Moody’s,54 and other industry and
trade research sources, e.g., Mortgage
Bankers Association (MBA),55 Inside
Mortgage Finance Publications,56
NAR,57 National Association of Home
Builders (NAHB),58 and the Commercial
Mortgage Securities Association.59 The
FHFA MIRS,60 previously administered
by the Federal Housing Finance Board,
a predecessor agency to FHFA, is used
to complement forecast models for
home purchase loan originations by
53 Address by Edward DeMarco, Acting Director
of the Federal Housing Finance Agency, New
England Mortgage Bankers 22nd Annual
Conference, Oct. 1, 2009 at 5.
54 https://www.moodys.com/.
55 https://www.mbaa.org/.
56 https://www.imfpubs.com/.
57 https://www.realtor.org/.
58 https://www.nahb.org/.
59 https://www.cmsaglobal.org/CMSA_Resources/
Research/Market_Statistics/Market_Statistics/.
60 https://www.fhfa.gov/Default.aspx?Page=250.
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making intra-annual adjustments prior
to the public release of HMDA mortgage
data. In the development of economic
forecasts, FHFA uses data and
information from Wells Fargo, PNC,
Fannie Mae, Freddie Mac, The Wall
Street Journal Survey and Forcast.org. In
addition, FHFA uses market and
economic data from the Bureau of Labor
Statistics, the Federal Reserve Board,
the Department of Commerce Bureau of
Economic Analysis, and FedStats.61
6. Market Size
In general, the single-family mortgage
market environment of 2009 is expected
to extend to 2010, with modest
improvements in 2011. Much of FHFA’s
estimates of the mortgage market rely on
the Federal Reserve continuing to
support low interest rates.62 Other
quantifiable factors influencing FHFA’s
outlook for the mortgage market include
general growth in the economy,
employment and inflation. Other factors
that are less easily quantified include
the effect of the extension and
expansion of the homebuyer tax credit
on the mortgage market. Activity in the
subprime market is expected to be
minimal through 2011.
The composition of the mortgage
market will be influenced by FHA’s
market share, which rose significantly
in 2008–2009 and continues to be high,
and by the rate of refinancing. Given
that underwriting standards are
expected to be tight in 2010 and 2011,
FHA will most likely continue to have
a much larger presence in the mortgage
market. In addition, rising interest rates
or a combination of depressed housing
prices and high LTV ratios could push
down the number of homeowners
refinancing their mortgages, lowering
the refinance rate.
The outlook for the housing and
mortgage markets over the 2010–2011
period remains guarded. Both of these
markets will be heavily influenced by
general economic factors as well as
internal market forces. In developing its
Economic and Mortgage Outlook (see
Table 5, below) FHFA uses an average
of forecasted values for key economic
indicators drawn from several industry
61 https://www.fedstats.gov/other.html.
62 ‘‘The [Federal Open Market] Committee will
maintain the target range for the Federal funds rate
at 0 to 1⁄4 percent and continues to anticipate that
economic conditions, including low rates of
resource utilization, subdued inflation trends, and
stable inflation expectations, are likely to warrant
exceptionally low levels of the Federal funds rate
for an extended period.’’ Board of Governors of the
Federal Reserve System, Press Release, Nov. 4,
2009.
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sources.63 On average, industry
forecasters project the economy to
rebound in 2010 and 2011, with real
Gross Domestic Product (GDP) growing
at a rate of 2.6 and 2.8 percent,
respectively. Industry assessments on
housing markets are generally reserved.
If unemployment remains high, at
approximately 10 percent, it would have
a negative impact on the housing
market. There are also concerns over the
impact of the overall economy on
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63 These forecasts include those by the Mortgage
Bankers Association, Fannie Mae, Freddie Mac, the
National Association of Realtors, Wells Fargo, Wall
Street Journal Forecast Survey, PNC Financial and
forecast.org.
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housing markets. According to the
MBA, ‘‘[h]ousing markets are beginning
to slowly recover from the worst
recession in decades, but are vulnerable
to additional macroeconomic shocks.’’ 64
Industry forecasters expect that inflation
will remain low, and the minutes of the
November 2009 meeting of the Federal
Open Market Committee (FOMC)
indicate that the FOMC expects core
inflation to slow somewhat further over
the next two years and inflation to be
subdued for some time. The FOMC has
also concluded that ‘‘economic
64 Mortgage Bankers Association, Mortgage
Finance Commentary, Nov. 10, 2009.
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conditions were likely to warrant
exceptionally low [Federal funds rates]
for an extended period.’’ 65 Mortgage
interest rates are currently dependent on
Federal policies and somewhat
independent of the Federal funds rate,
but for the period between 2010 and
2011, FHFA is not assuming a
substantial increase in mortgage interest
rates.
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65 See Federal Open Market Committee of the
Federal Reserve System, Minutes of the Federal
Open Market Committee, Nov. 3–4, 2009. Accessed
at https://www.federalreserve.gov/monetarypolicy/
fomcminutes20091104.htm.
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Mortgages insured by FHA are likely
to continue to represent a significant
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share of the mortgage market in 2010
and 2011. These loans generally are
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pooled into mortgage-backed securities
guaranteed by GNMA. Purchases of
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mortgages insured by FHA and VA
ordinarily do not receive affordable
housing goals credit.
As shown in Figure 1, the market
share of all mortgages insured by FHA
increased dramatically, from a low of
2.5 percent in 2005 to a high of 32
percent in December 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
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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. Since FHA’s
market share increase appears to
coincide with the demise of the
subprime market, it would be easy to
conclude that for high-risk borrowers,
FHA loans are replacing loans from
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subprime lenders. However, FHA’s
internal data indicate that the average
riskiness of the loans they insure has
actually decreased, i.e., credit risk
scores increased, since late 2007.66
66 See FHA Outlook, a monthly statistical
summary of application insurance endorsement,
delinquency and claim information on FHA single
family programs. Available at https://www.hud.gov/
offices/hsg/comp/rpts/ooe/olmenu.cfm.
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With the increase in the FHA loan
limit in 2008, FHA is able to endorse
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larger mortgages. These mortgages
would otherwise have been originated
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as conventional mortgages. In 2008,
nearly 80 percent of FHA’s
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borrowers. While the share of FHA
loans for lower-income borrowers
decreased, the share of lower-income
borrower loans increased in the
conventional conforming market
between 2007 and 2008 (see Table 6).
The experience for the low-income
areas goal is different. While FHA
endorsed more loans on properties
located in low-income areas, it endorsed
an even larger number of loans in
higher-income areas. As a result, the
low-income areas share of FHA’s
mortgages decreased. However, unlike
the borrower-income based goals, the
low-income area share of the
conventional market also decreased.
While the volume of conventional
conforming mortgages in 2008 was 50
percent of that in 2007, the volume of
conventional conforming mortgages
from low-income areas in 2008 was only
40 percent of the level in 2007. The lowincome area share of the conventional
conforming market fell by 240 basis
points between 2007 and 2008. As
shown in Table 5, FHA market share is
expected to be 30 percent in 2009, 2010
and 2011.
The impact from the first-time
homebuyer tax credit is unclear.
Additional first-time homebuyers taking
advantage of the $8,000 tax credit will
likely have a positive impact on the
housing goals. The additional repeat
homebuyers who qualify for the $6,500
tax credit (there is a five-year occupancy
requirement) will likely have a negative
impact on the housing goals. For the
proposed rule, FHFA has assumed that
the homebuyer tax credit will have no
significant impact on the share of
conventional loans to low- and
moderate-income borrowers or on the
share of conventional loans that support
housing purchases in lower-income
areas.
FHFA’s estimates of the market
performance for the three single-family
owner-occupied property purchase
money mortgage housing goals and the
refinancing mortgage housing goal are
provided in Table 6. FHFA estimates
that the low-income and very lowincome borrower mortgage shares of the
home purchase mortgage market will be
24 percent to 30 percent and 6 percent
to 9 percent, respectively, in 2010 and
2011. The share of goal-qualifying
mortgages in low-income areas in the
home purchase mortgage market is
estimated to be 11 percent to 15 percent
in 2010 and 2011. With a projected
refinance rate of 46 percent in 2010
(down from 67 percent in 2009), FHFA
estimates that 19 percent to 30 percent
of refinance mortgages will be made to
low-income borrowers. The refinance
rate is expected to fall to 37 percent in
2011, resulting in an estimate that the
low-income borrower mortgage share of
the refinance mortgage market will be
19 percent to 33 percent in that year. To
arrive at these estimates, FHFA used
econometric methods to extend the
trends of the market performance for
each goal, based on a monthly time
series database provided by the Federal
Financial Institutions Examination
Council (FFIEC) and the Federal Reserve
Board.
A detailed description of FHFA’s
analysis of the mortgage market for 2010
and 2011 market model methodology, is
contained in a document entitled
‘‘Market Estimates for the 2010 and 2011
Enterprise Single-Family Housing
Goals,’’ which is available at https://
www.fhfa.gov.
67 Id. 2008 was the first year FHA reported
refinance endorsements by whether they were a
refinance of a conventional mortgage or an FHA
mortgage.
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December 2008. The share of FHA
endorsed refinancing loans increased
from 4 percent in 2007 to 15 percent of
the conforming market in 2008. As
expected, these additional mortgages
reduced the share of FHA mortgages
that were for low- and very low-income
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endorsements of refinancing mortgages
came from mortgages that were
previously conventional mortgages, and
this share increased throughout the
year.67 FHA’s market share for home
purchase mortgages increased from 3.8
percent in January 2007 to 32 percent in
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Sustainable Mortgages
An alternative to defining the market
for determining whether a mortgage is
eligible to count toward the housing
goals would be to focus on the
sustainability of the mortgage. Under
this approach, the housing goals would
be defined in such a way that only
mortgages that support sustainable
home ownership would count toward
the goals. This would require a standard
to differentiate between mortgages that
are sustainable and mortgages that are
likely not to be sustainable.
One approach would be to use
historical data on the cumulative default
rates (CDRs) of mortgages acquired by
the Enterprises and make a
determination, based on statistical
models that predict CDR, whether
mortgages with specific characteristics
promote sustainable homeownership.
The higher the predicted CDR of a
mortgage with specific characteristics,
the higher the probability the mortgage
will default sometime within its life.
FHFA would determine that mortgages
with expected CDRs above some point
did not promote sustainable
homeownership. It might also be
possible to establish a statistical
correlation between a mortgage’s
expected CDR and the spread between
the yield on the loan and some
benchmark interest rate. If so, it might
be possible to use that spread as a basis
for determining whether mortgages
promoted sustainable homeownership.
Both Enterprises use statistical
models to calculate expected CDR as
part of their business decision strategy.
FHFA could rely on Enterprise
statistical models or develop its own
models to estimate CDRs for the purpose
of determining whether mortgages
acquired by the Enterprises had
estimated CDRs above a specified
threshold. FHFA would also have to
develop estimates of the share of singlefamily mortgages originated each year
that had estimated CDRs above and
below that threshold. To develop its
own statistical models, FHFA could use
loan-level mortgage data obtained from
the Enterprises and leased from private
vendors. Data obtained through the
mortgage market survey required by
section 1324(c) of the Safety and
Soundness Act, as amended by HERA,
might also be useful.
FHFA invites comments on this
alternative to estimating the market and
counting single-family mortgages
toward the housing goals.
7. Financial Condition of the Enterprises
In the first two full years of the
current housing crisis—from July 2007
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through the first half of 2009—
combined losses at the Enterprises
totaled $165 billion. In the first half of
2009, the Enterprises reported combined
losses of $47 billion. The financial
performance of both Enterprises is
dominated by credit-related expenses
and losses that stem principally from
purchases of PLS and purchases and
guarantees of mortgages originated in
2006 and 2007. Since the establishment
of the conservatorship for the
Enterprises in September 2008, the
combined losses of the two Enterprises
depleted their capital and required them
to draw from the U.S. Treasury under
the Senior Preferred Stock Purchase
Agreements.
FHFA’s duties as conservator require
the conservation and preservation of the
assets of the two Enterprises. Given the
importance of the Enterprises to the
housing market, any goal-setting must
be closely linked to putting the
Enterprises in sound and solvent
condition. Over the long term, such
actions will assist homeowners and
neighborhoods while saving the
Enterprises money. In 2009, FHFA
attempted to align the Enterprises’
affordable housing goals with safe and
sound practices and market reality, and
the housing goals requirements for 2010
and 2011 must be similarly aligned.
B. Single-Family Housing Goal Levels
Based on the factors described above,
proposed § 1282.12 would establish the
benchmark levels for the single-family
housing goals for 2010 and 2011 as
follows:
Housing goals for low-income
families. The benchmark level of the
annual goal for each Enterprise’s
purchases of purchase money mortgages
on owner-occupied single-family
housing for low-income families would
be 27 percent of the total number of
such mortgages purchased by that
Enterprise.
Housing goals for families in lowincome areas. The benchmark level of
the annual goal for each Enterprise’s
purchases of purchase money mortgages
on owner-occupied single-family
housing for families in low-income
areas would be 13 percent of the total
number of such mortgages purchased by
that Enterprise.
Housing goals for very low-income
families. The benchmark level of the
annual goal for each Enterprise’s
purchases of purchase money mortgages
on owner-occupied single-family
housing for very low-income families
would be 8 percent of the total number
of such mortgages purchased by that
Enterprise.
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Housing goals for refinancing
mortgages. The benchmark level of the
annual goal for each Enterprise’s
purchases of refinancing mortgages on
owner-occupied single-family housing
for low-income families would be 25
percent of the total number of such
mortgages purchased by that Enterprise.
VI. Analysis of Multifamily Housing
Goals
Section 1333(a)(4) of the Safety and
Soundness Act, as amended by HERA,
requires FHFA to consider the following
six factors in setting multifamily special
affordable housing goals:
(1) National multifamily mortgage
credit needs and the ability of the
Enterprise to provide additional
liquidity and stability for the
multifamily mortgage market;
(2) The performance and effort of the
Enterprise in making mortgage credit
available for multifamily housing in
previous years;
(3) The size of the multifamily
mortgage market for housing affordable
to low-income and very low-income
families, including the size of the
multifamily markets for housing of a
smaller or limited size;
(4) The ability of the Enterprise to
lead the market in making multifamily
mortgage credit available, especially for
multifamily housing affordable to lowincome and very low-income families;
(5) The availability of public
subsidies;
(6) The need to maintain the sound
financial condition of the Enterprise.68
A. Analysis of Factors for Multifamily
Housing Goals
FHFA’s analysis of each of the factors
is set forth below.
1. National Multifamily Mortgage Credit
Needs
Due to the credit crisis, traditional
sources of multifamily credit, primarily
commercial mortgage-backed securities
(CMBS), life insurance companies,
commercial banks, and thrifts, have
significantly reduced lending or stopped
lending completely. This has left
Freddie Mac and Fannie Mae as the
principal sources of financing for most
multifamily mortgages. FHA, another
active source of multifamily credit, has
capacity constraints that limit its ability
to significantly expand lending through
its insured programs.
With multifamily property prices
having fallen by almost 34 percent from
the third quarter of 2008 to the third
quarter of 2009,69 many properties that
68 12
U.S.C. 4563(a)(4).
CPPI Report, Jan. 2010.
69 Moody’s/Real
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would have been eligible for refinance
through Enterprise programs lack
enough equity to meet Enterprise loan
underwriting standards. Declining
multifamily property prices will
adversely affect owners who financed
with interest-only loans over the past
decade. As these loans become due,
properties with non-amortizing loans
will not have accumulated sufficient
additional equity over the term of the
loan to counter the effects of declining
property values.
While obtaining multifamily credit is
difficult for most owners, demand for
new multifamily housing credit has also
waned. According to the U.S. Census
Bureau, multifamily housing starts
plummeted by 47 percent from
September 2008 to December 2009.70
Sales of multifamily properties are far
below normal levels in part because
property owners are waiting for
property values to stabilize. Many other
multifamily property owners, unable to
refinance, have been granted extensions
by lenders, or in the case of loans
securitized through CMBS, by the
servicer. On the positive side, the
maturations of multifamily loans
acquired by the Enterprises and backing
CMBS issuances are unlikely to begin to
increase significantly until after 2010.
While the Enterprises have primarily
purchased the highest-rated CMBS
tranches, they may be indirectly affected
by increasing CMBS delinquency rates.
According to a March 2009 report by
Deutsche Bank, delinquencies on CMBS
issuances began to accelerate in late
2008, and should peak at 6 to 7 percent
in late 2010.71 According to December
2009 data released by the MBA,72
delinquencies on CMBS issuances rose
slightly from 3.89 percent to 4.06
percent in the third quarter of 2009. The
CMBS delinquency rate in the third
quarter of 2008 was 0.63 percent. As
properties collateralizing CMBS
issuances become delinquent,
foreclosures and workouts will increase,
further depressing prices of all
commercial properties, including
multifamily properties. This will make
70 ‘‘New Residential Construction in December
2009.’’ U.S. Census Bureau, Joint Release, U.S.
Department of Housing and Urban Development,
Jan. 20, 2009.
71 Commercial Real Estate Outlook Q1 2009,
Deutsche Bank, Mar. 2009.
72 MBA Commercial/Multifamily Mortgage
Delinquency Report, Dec. 7, 2009.
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refinancing maturing multifamily loans
more challenging for the Enterprises.
While multifamily delinquencies
remain relatively low for both Fannie
Mae73 and Freddie Mac,74 0.062 percent
and 0.014 percent respectively, there is
growing concern among multifamily
property owners and investors about
properties that are overleveraged or
generating negative cashflows.
Depending on the magnitude of
distressed properties requiring
restructuring, both Fannie Mae’s and
Freddie Mac’s multifamily activity
could exceed FHFA forecasts.
2. Past Performance
HUD established dollar-based
multifamily subgoals for the Enterprises
for the years 1996 through 2008. HERA
extended the 2008 subgoals through
2009, subject to review by FHFA, and in
its August 10, 2009 final rule on the
housing goals, FHFA increased these
2009 subgoals modestly, from $5.49
billion to $6.56 billion for Fannie Mae,
and from $3.92 billion to $4.60 billion
for Freddie Mac.
HERA changed the structure of the
multifamily housing goal for 2010 and
beyond. The multifamily housing goal
for 2009 is set in terms of units for very
low-income families and low-income
families in low-income areas. The scope
of the goal is broader for 2010–2011,
covering units affordable to all lowincome families (those with incomes no
greater than 80 percent of AMI)
regardless of property location.
Section 1333(a)(2) of the Safety and
Soundness Act, as revised by HERA,
requires the Director to establish
‘‘additional requirements for the
purchase by each enterprise of
mortgages on multifamily housing that
finance dwelling units affordable to very
low-income families,’’ with ‘‘very lowincome’’ families defined as those with
incomes no greater than 50 percent of
AMI.75 To implement this provision,
FHFA is proposing to establish a
multifamily housing subgoal for very
low-income families. FHFA invites
comment on this proposed requirement.
Section 1333(a)(3) of the Safety and
Soundness Act, as revised by HERA,
provides that the Director shall require
73 Fannie Mae: Monthly Summary, November
2009, Table 9.
74 Freddie Mac: Monthly Volume Summary:
November 2009, Table 6.
75 12 U.S.C. 4563(a)(2).
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each Enterprise to report on its
purchases of mortgages on multifamily
housing ‘‘of a smaller or limited size that
is affordable to low-income families.’’
The provision defines small multifamily
projects as those containing 5 to 50
units or as those with mortgages of up
to $5,000,000. The Director may adjust
the definition to include projects
containing different numbers of units or
with mortgages of different amounts.
The provision further states that the
Director may establish additional
requirements related to such units by
regulation.76
FHFA proposes to define such small
multifamily properties as those
containing 5 to 50 units, which is
consistent with industry standards.
FHFA already requires reporting by the
Enterprises for purchases of mortgages
secured by such properties. FHFA
invites comments on whether additional
requirements for small multifamily
properties should be considered.
Multifamily special affordable
housing goal. Both Enterprises played
major roles in funding multifamily units
for low-income families between 2001
and 2008, as shown in Table 7. Fannie
Mae financed an average of 417,000
such units over this period, peaking at
538,000 units in 2003, while Freddie
Mac financed an average of 364,000
units, peaking at 492,000 units in 2007.
However, as discussed elsewhere in the
proposed rule, the Enterprises followed
different approaches to the multifamily
market, with Freddie Mac relying to a
significant extent on the purchase of
CMBS, while Fannie Mae depended to
a greater extent on the direct purchase
of multifamily loans originated by its
Delegated Underwriting and Servicing
(DUS) lenders.
As indicated in Table 7, Fannie Mae’s
financing of low-income multifamily
units fell by 16 percent, from 532,000
units in 2007 to 448,000 in 2008 units.
Financing fell more sharply at Freddie
Mac, by 44 percent, from 492,000 units
in 2007 to 276,000 units in 2008. This
difference reflects the drop in CMBS
purchases by Freddie Mac. As a result,
Freddie Mac’s financing of such units
was 62 percent of Fannie Mae’s
financing, the lowest ratio of the 2001–
08 period.
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refer to borrowers with incomes no
greater than 50 percent of AMI, or for
rental units, to units affordable to
families with incomes in this range,
with adjustments for family size.77 The
new definition of ‘‘very low-income’’
families is consistent with that used in
some other housing programs.
Enterprise financing of rental units for
very low-income families over the
2001–08 period is reported in Table 8.
On average, Fannie Mae funded 94,000
such units each year, and Freddie Mae
funded 86,000 such units. The same
general pattern prevailed over time as
that shown in Table 7, with a modest
drop in funding by Fannie Mae and a
substantial drop (55 percent) by Freddie
Mac. As a result, the number of such
units financed by Freddie Mac in 2008
was 49 percent of the number financed
by Fannie Mae, the lowest ratio of this
period.
U.S.C. 4502(24).
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Very low-income multifamily subgoal.
HERA revised the definition of ‘‘very
low-income’’ families as it pertains to
the Enterprises’ housing goals. Under
the housing goals established by HUD
for 1993–2008, ‘‘very low-income’’
referred to borrowers with incomes no
greater than 60 percent of AMI, or for
rental units, to units affordable to
families with incomes in this range,
with adjustments for family size. This
definition was changed by HERA to
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Financing of low-income units in
small multifamily properties. As
discussed above, HERA recognizes the
important role played by small
multifamily housing as a source of
affordable rental housing. According to
the 2007 AHS, multifamily properties
containing 5–49 units (a slightly
different definition than the 5–50 unit
definition in HERA) constituted 77
percent of all multifamily units and 74
percent of multifamily units constructed
in the previous 4 years. Table 9 reports
additional information on small
multifamily properties affordable to
low-income families.
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Both Enterprises increased their
financing of low-income multifamily
units between 2001 and 2003, from
24,000 units to 155,000 units for Fannie
Mae, and from 44,000 units to 138,000
units for Freddie Mac. This increase was
motivated at least in part by the
favorable counting treatment that HUD
allowed for financing goal-qualifying
units in small multifamily properties
over the 2001–03 period. Under this
counting treatment, each goal-qualifying
unit counted twice in the numerator and
once in the denominator in calculating
goal performance.
As indicated in Table 9, both
Enterprises decreased their roles in the
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small multifamily market after the
expiration of the favorable HUD
counting treatment—for Fannie Mae, an
average of 49,000 units for 2004–07, and
for Freddie Mac, an average of 24,000
such units. Fannie Mae financed 44,000
low-income small multifamily units in
2008, approximately equal to the
average for 2004–07, while Freddie Mac
financed only 2,078 such units in 2008,
a decrease of 91 percent from its 2004–
07 average. FHFA is concerned about
Freddie Mac’s virtual exit from this
business and seeks comment on
whether small multifamily low-income
housing subgoals should be established
for future years.
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3. Market Size
The multifamily mortgage market is
likely to remain relatively unchanged in
2010 as compared to 2009, and the
dollar amount of multifamily loans
financed in 2010 will likely be similar
to that of 2009, approximately $40–45
billion. Poor property fundamentals,
especially declines in property value,
will affect the type of properties and
owners that can access multifamily
credit. If the multifamily market begins
to recover in 2011, multifamily
originations may increase. Projections of
such activity, however, are uncertain.
Accordingly, for purposes of this
rulemaking, the multifamily goals for
both 2010 and 2011 are based on the
overall multifamily market for 2009 and
Enterprise multifamily performance in
the years 2004–2008, taking into
account the average percent of very lowincome and low-income purchases by
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the Enterprises in those years. As in
prior years, the multifamily goals are set
separately for each Enterprise. Unlike
prior years, the multifamily goals are
measured in units rather than dollar
volume.
The proportion of multifamily
affordable units available for financing
in 2010 and 2011 will likely be below
historical levels due to weakness in the
multifamily housing market. Steep
declines in multifamily property prices
since mid-2007 have caused a
significant loss of equity for owners,
many of whom can no longer qualify for
Enterprise financing without placing
substantial cash into the property. The
loss of equity for most owners has
meant that only financially strong
properties and borrowers will qualify
for Enterprise financing. These
properties often have a much lower
proportion of affordable units.
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Another factor that will likely
constrain Enterprise multifamily loan
production in 2010 and 2011 will be the
relatively small dollar amount of loans
maturing in the Enterprise portfolios in
2010 and 2011. The MBA expects only
$26 billion in total maturing
multifamily mortgages in 2010.
However, the volume of maturing loans
is expected to increase from 2011
onward.78
For well over a decade, Freddie Mac
relied upon purchases of CMBS and
structured deals involving large
portfolios of affordable multifamily
loans to meet applicable affordable
housing goals. Beginning in 2006 and
2007, CMBS made up a significant
portion of Fannie Mae’s affordable
multifamily purchases. These sources of
affordable units are now either
78 Multifamily Housing News: MBA Says Large
Amounts of Multifamily Loans Will Mature in 2011
and After, Feb. 11, 2009.
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unavailable or do not meet Enterprise
standards. Therefore, based on the
factors discussed above, multifamily
affordable purchases in the very lowincome category are likely to be near
historical lows in 2009 overall. The
effect, though, will be more pronounced
at Freddie Mac. The percentage of very
low-income multifamily purchases in
2010 for Freddie Mac will be below its
average for 2004 to 2008. Fannie Mae is
expected to have a very low-income
purchase volume near its average for the
past several years.
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4. Ability of the Enterprise To Lead the
Market in Making Multifamily Mortgage
Credit Available
As described above in the context of
the single-family goals, Congress in
enacting the Safety and Soundness Act
was concerned that the Enterprises were
lagging behind market originations of
mortgages for the benefit of low- and
moderate-income households. FHFA
has been cognizant of that concern in
setting goals for the Enterprises.
With the current credit crisis
negatively affecting the commercial real
estate market, the Enterprises have
become market leaders by default. The
disciplined underwriting and credit
standards they bring to the industry
have contributed to relatively low
delinquency rates. Compared to the
industry, the Enterprises have relatively
conservative multifamily underwriting
parameters. With the fundamentals of
multifamily real estate very weak (e.g.,
high vacancy rates, stagnant rents and
falling property values), the Enterprises
have enhanced their credit standards to
reduce risk exposure, which has meant
that owners of the strongest performing
properties are more likely to obtain
credit from lenders selling to the
Enterprises. As noted previously,
Fannie Mae and Freddie Mac comprise
a large portion of the multifamily
market. As a result, in 2009 they not
only led the multifamily market, they
effectively were the market.
5. Availability of Public Subsidies
Public subsidies for multifamily
housing have been affected by the
mortgage credit crisis. Low-income
housing tax credits (LIHTCs), an
important source of equity for new lowincome housing, have fallen in value.
However, on October 19, 2009, FHFA
announced, in conjunction with the
Treasury Department and HUD, an
initiative to support State and local
housing finance agencies (HFAs)
through a new bond purchase program
that will support new lending by HFAs,
and a temporary credit and liquidity
program that will improve the access of
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HFAs to liquidity for outstanding HFA
bonds. Fannie Mae and Freddie Mac
each played critical roles in this
program, which helped support low
mortgage rates and expand resources for
low- and middle-income borrowers who
want to purchase or rent homes that are
affordable over the long term. On
January 13, 2010, the Treasury
Department, FHFA and HUD announced
the completion of all transactions under
the initiative, which involved more than
90 HFAs.
The Enterprises actively purchase
mortgages on properties with HUD
Housing Assistance Plan (HAP)
contracts. Newly constructed or
rehabilitated properties usually receive
forward commitments from the
Enterprises with part of the new equity
coming from LIHTCs. The remaining
Section 8 properties are refinancings
where the property owners sign longterm use agreements with HUD and
receive a HAP contract in return. The
Enterprises can also assist State and
local HFAs by credit enhancing HFA
bonds, and by offering permanent
financing for properties rehabilitated
through the Neighborhood Stabilization
Program and other HUD grants.
6. Financial Condition of Enterprises
As previously discussed, in the first
two full years of the current housing
crisis—from July 2007 through the first
half of 2009—combined losses at the
Enterprises totaled $165 billion. In the
first half of 2009, the Enterprises
reported combined losses of $47 billion.
The financial performance of both
Enterprises is dominated by creditrelated expenses and losses stemming
principally from purchases of PLS and
purchases and guarantees of mortgages
originated in 2006 and 2007. Since the
establishment of the conservatorship for
the Enterprises in September 2008, the
combined losses of the two Enterprises
depleted their capital and required them
to draw from the U.S. Treasury under
the Senior Preferred Stock Purchase
Agreements.
FHFA’s duties as conservator require
the conservation and preservation of the
assets of the two Enterprises. Given the
importance of the Enterprises to the
housing market, any goal setting must
be closely linked to putting the
Enterprises in sound and solvent
condition. Over the long term, such
actions will assist homeowners and
neighborhoods while saving the
Enterprises money. In 2009, FHFA
attempted to align the Enterprises’
affordable housing goals with safe and
sound practices and market reality, and
the housing goals requirements for 2010
and 2011 must be similarly aligned.
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B. Multifamily Housing Goal Levels
As a result of the changes in HERA,
the proposed rule would establish the
multifamily affordable housing goals for
each Enterprise separately from the
single-family housing goals beginning in
2010. Qualifying multifamily units
previously had been included with
single-family affordable purchases in
the overall goals. Additional
requirements for multifamily housing
were imposed under a multifamily
special affordable subgoal. The
multifamily affordable goals for each
Enterprise in 2010 and 2011 would be
established in terms of low-income and
very low-income units financed
annually.
Estimates of Enterprise multifamily
purchase volume in 2009 were used by
FHFA as a proxy for 2010 volumes.
With uncertainty as to the path of the
economy’s recovery, FHFA’s estimation
for 2011 origination volume is
unchanged from 2010.
The proposed rule would set the
multifamily goal levels using the
average percentage of very low-income
and low-income purchases in 2008 for
both Enterprises. The year 2008 was
chosen, rather than the average for
2004–2008, because 2008 performance
more closely reflects current market
conditions. Multifamily loan purchase
volumes for 2010 were estimated using
2009 part-year volumes. The average
low- and very low-income origination
rates were multiplied by the expected
origination volumes for 2010 and 2011
to derive low- and very low-income unit
volumes for the Enterprises.
Freddie Mac multifamily volume has
not kept pace with Fannie Mae’s volume
since the beginning of the credit crisis
in 2008, especially for very low-income
units, due in part to Freddie Mac’s
reliance on CMBS and structured
purchases from banks and thrifts. Those
sources of mortgages are not now
readily available and are likely to
reappear in only limited volumes in the
near term.
Fannie Mae, on the other hand, is
better positioned than Freddie Mac to
purchase affordable units through its
flow business. For example, Fannie Mae
has a group dedicated to purchasing
mortgages on small multifamily
properties (5 to 50 units). Smaller
properties, in general, have higher
percentages of affordable units than
larger properties. Furthermore, Fannie
Mae’s DUS program allows it to share
credit losses with lenders. Mortgages on
small multifamily properties, however,
are often more at risk of delinquency
and default than other multifamily
mortgage property types. Perhaps more
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importantly, mortgages on small
properties are usually more expensive to
originate and underwrite than mortgages
on large properties because the costs,
mostly fixed, are spread over fewer
units.79 The DUS program helps Fannie
Mae mitigate some of that credit risk of
purchasing affordable multifamily units.
Since Fannie Mae will likely purchase
significantly more multifamily units in
2010 than Freddie Mac, based on 2009
data, the proposed rule would set
different goals for each of the
Enterprises, as was done in previous
years. Based on 2008 Enterprise
affordable housing performance, FHFA
anticipates that for low-income units
and very low-income units, multifamily
mortgages acquired by Freddie Mac will
finance fewer units than multifamily
mortgages acquired by Fannie Mae in
2010 and 2011. The disparity will be
even greater for very low-income units.
Freddie Mac will likely purchase
multifamily loans that finance about
half as many very low-income units as
will be financed by multifamily loans
acquired by Fannie Mae in 2010 and
2011. While in conservatorship, FHFA
expects Freddie Mac’s board of directors
and new senior management team to
assess Freddie Mac’s business model
with respect to multifamily housing.
Proposed § 1282.13 would establish
the multifamily special affordable
housing goals and subgoals as follows.
Unlike with the single-family goals
described above, FHFA has not defined
these goals as prospective targets, with
compliance to be assessed by reference
to actual market data. Rather, because
the availability of the necessary market
data is less certain for the multifamily
market, FHFA has set goals in the
traditional prospective manner, but
these goals remain subject to the
statutory provisions enabling them to be
adjusted, or providing relief from
enforcement, if market conditions so
require.
Multifamily low-income housing
goals. The annual goal for Fannie Mae’s
purchases of mortgages on multifamily
residential housing affordable to lowincome families would be at least
237,000 dwelling units for each of 2010
and 2011. The annual goal for Freddie
Mac’s purchases of mortgages on
multifamily residential housing
affordable to low-income families would
be at least 215,000 such dwelling units
for each of 2010 and 2011.
Multifamily very low-income housing
subgoals. The annual subgoal for Fannie
79 ‘‘Why do Small Multifamily Properties Bedevil
Us?’’ Shekar Narasimhan, The Brookings Institution,
Nov. 2001, https://www.brookings.edu/articles/2001/
11metropolitanpolicy_narasihan.aspx.
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Mae’s purchases of mortgages on
multifamily residential housing
affordable to very low-income families
would be at least 57,000 dwelling units
for each of 2010 and 2011. The annual
subgoal for Freddie Mac’s purchases of
mortgages on multifamily residential
housing affordable to very low-income
families would be at least 28,000 such
dwelling units for each of 2010 and
2011.
These proposed multifamily goals
reflect the financial and operational
condition of the Enterprises in
conservatorship.
VII. Section-by-Section Analysis
A. Definitions—Proposed § 1282.1
Proposed § 1282.1 would set forth
definitions applicable to the housing
goals provisions. The proposed rule
includes a number of technical
amendments to conform the definitions
to the statutory definitions in the Safety
and Soundness Act, as amended by
HERA.
The proposed rule would remove a
number of definitions that were used in
regulatory provisions that have been
revised or eliminated based on HERA’s
amendments of the Safety and
Soundness Act. Proposed § 1282.1
would no longer include definitions for
‘‘central city,’’ ‘‘ECOA,’’ ‘‘governmentsponsored enterprise, or GSE,’’ ‘‘home
purchase mortgage,’’ ‘‘New England,’’
‘‘ongoing program,’’ ‘‘other underserved
area,’’ ‘‘owner-occupied unit,’’ ‘‘portfolio
of loans,’’ ‘‘real estate mortgage
investment conduit (REMIC),’’ ‘‘rural
area,’’ ‘‘underserved area,’’ and
‘‘wholesale exchange.’’
Proposed § 1282.1 would add new
definitions of ‘‘extremely low-income,’’
‘‘low-income,’’ and ‘‘moderate-income,’’
and it would revise the income levels in
the definition of ‘‘very low-income.’’ The
proposed rule would also replace the
definition of ‘‘low-income area’’ with a
new definition for ‘‘families in lowincome areas.’’ Each of these definitions
is revised to be substantially the same
as the corresponding definition in
section 1303 of the Safety and
Soundness Act, as amended by HERA.80
Proposed § 1282.1 would add new
definitions for ‘‘borrower income,’’
‘‘FEMA,’’ ‘‘HMDA,’’ ‘‘minority census
tract,’’ ‘‘mortgage revenue bond,’’ ‘‘nonmetropolitan area,’’ ‘‘owner-occupied
housing,’’ ‘‘private label security,’’ and
‘‘purchase money mortgage.’’ The new
definitions are intended to reflect
common usage and provide certainty in
interpreting the terms as used in new
and existing regulatory provisions.
80 12
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Proposed § 1282.1 would also make
minor conforming revisions to several
definitions. The definition of ‘‘contract
rent’’ would be revised to make clear
that the market rent for similar units in
the neighborhood, as used by the lender
or appraiser in underwriting a property,
may be used as the anticipated rent for
unoccupied units. The proposed rule
would add language to the definition of
‘‘utilities’’ clarifying that charges for
cable or telephone service shall not be
included. Proposed § 1282.1 would
clarify that Metropolitan Divisions are
included in the definition of
‘‘metropolitan area’’ to facilitate
comparisons with census and HMDA
information. Unnecessary references to
the form of payment would be
eliminated from the definition of
‘‘mortgage purchase.’’ Proposed § 1282.1
would remove the definition of
‘‘refinancing’’ and incorporate those
provisions in a new definition of
‘‘refinancing mortgage.’’ In order to
avoid confusion about whether a
transaction should be treated as a loan
modification or a refinancing, proposed
§ 1282.1 would exclude workout
agreements from the definition. The
definition of ‘‘mortgage’’ in proposed
§ 1282.1 would not include references to
personal property manufactured
housing loans pending further review of
the appropriate treatment of such loans
under the Enterprise and Bank housing
goals.
The definitions for ‘‘mortgages
contrary to good lending practices’’ and
‘‘mortgages with unacceptable terms or
conditions or resulting from
unacceptable practices’’ would be
deleted, with their substantive
provisions revised and consolidated
into a single new definition of ‘‘mortgage
with unacceptable terms or conditions.’’
The definition of ‘‘HOEPA mortgage’’
would be revised to conform FHFA’s
definition to the coverage in HOEPA
itself. The definition of ‘‘mortgage with
unacceptable terms or conditions’’ in
proposed § 1282.1 would include a new
provision regarding mortgages with
annual percentage rates (APRs) above a
certain level. The new provision is
intended to cover mortgages that were
formerly included in the definition of
‘‘HOEPA mortgage.’’ The provision in
the definition of ‘‘mortgage with
unacceptable terms or conditions’’
relating to a borrower’s ability to pay
would be replaced with a provision
incorporating interagency guidance on
nontraditional and subprime mortgages.
This change is intended to cover similar
types of mortgages while providing
greater consistency between the
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provisions of the housing goals and
other regulatory provisions.
Designated disaster areas. The new
definition of ‘‘families in low-income
areas’’ includes families with incomes at
or below 100 percent of AMI who reside
in ‘‘designated disaster areas.’’ The
proposed rule would define ‘‘designated
disaster areas’’ as areas at the census
tract level and include only census
tracts in counties approved for
individual assistance within the
declared major disaster area where the
average real property damage severity,
as reported by the Federal Emergency
Management Agency (FEMA), exceeds
$1,000 per household for that census
tract.
Disaster areas are declared when an
area is adversely affected by some
unforeseen event. However, not all
disasters impact housing to the same
degree, and the severity of the impact
varies within the declared area.
Presidential Major Disaster Declarations
are defined by FEMA at the county level
in the area affected by the major disaster
and can be declared to be eligible for
public assistance, individual assistance
or both. Public assistance is available to
local governments for the repair,
replacement or clean-up of public
infrastructure. Individual assistance is
broken down further into two
categories, housing needs and ‘‘other
than housing needs.’’ 81 Housing needs
include repair, replacement and
construction of homeowner residences.
The proposed rule would limit the
definition of ‘‘designated disaster areas’’
to those counties eligible for individual
assistance, and it would establish a
minimum average real property damage
severity.
For purposes of complying with the
Community Reinvestment Act (CRA),
regulators have made the determination
that ‘‘[e]xaminers will consider
institution activities related to disaster
recovery that revitalize or stabilize a
designated disaster area for 36 months
following the date of designation. Where
there is a demonstrable community
need to extend the period for
recognizing revitalization or
stabilization activities in a particular
disaster area to assist in long-term
recovery efforts, this time period may be
extended.’’ 82 To accommodate the
Enterprises’ business planning
81 Federally declared disaster areas are managed
by FEMA and can be tracked at FEMA’s Web site.
See https://www.fema.gov/news/disasters.fema.
82 The Department of the Treasury, the Federal
Reserve Board and the Federal Deposit Insurance
Corporation, Community Reinvestment Act;
Interagency Questions and Answers Regarding
Community Reinvestment; Notice, 74 FR 509 (Jan.
6, 2009).
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requirements, for purposes of the lowincome areas housing goal, the proposed
rule would treat a designated disaster
area as effective beginning no later than
January 1 of the year following the
FEMA designation and continuing
through December 31 of the third full
calendar year following the FEMA
designation. If data is available in a
particular case to support treatment as
a designated disaster area from an
earlier date, FHFA may provide for such
treatment.
FHFA welcomes comments on the
proposed changes to the definitions
under § 1282.1.
B. Housing Goals—Proposed §§ 1282.11
Through 1282.13
As required by sections 1331(a) and
1333(a)(2) of the Safety and Soundness
Act, as amended by HERA, this subpart
establishes four single-family housing
goals and one multifamily special
affordable housing goal for 2010 and
2011. The subpart would also establish
one multifamily special affordable
housing subgoal for 2010 and 2011. The
single-family housing goals would be
based both on the proposed benchmark
levels and on an evaluation of the
Enterprise’s performance relative to the
market for each housing goal in each
year. Proposed § 1282.11(b) would
require the Director to establish housing
goals for a particular year by December
1 of the previous year.83 Although the
initial final rule establishing the new
housing goals under the Safety and
Soundness Act, as amended by HERA,
will not be published for effect until
early 2010, FHFA will evaluate
performance under the housing goals
established for 2010 on a calendar year
basis.
Proposed § 1282.12(b) would establish
criteria for determining the size of the
market based on HMDA data. The
criteria for establishing the size of the
market reflect the types of mortgages
that would be counted for purposes of
the housing goals and that would
typically be eligible for purchase by an
Enterprise. Additional details regarding
the housing goals are discussed above,
along with the factors considered by
FHFA in establishing the proposed
housing goals.
C. Discretionary Adjustment of Housing
Goals—Proposed § 1282.14
Consistent with the requirements of
section 1334 of the Safety and
Soundness Act, as amended by HERA,
proposed § 1282.14 would provide for
an Enterprise to petition the Director to
reduce the level of any goal or
83 See
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subgoal.84 Proposed § 1282.14 would set
forth the standards and procedures for
consideration by the Director in
determining whether to reduce a goal or
subgoal level.
D. General Counting Requirements—
Proposed § 1282.15
Proposed § 1282.15 would set forth
general requirements for the counting of
Enterprise mortgage purchases toward
the achievement of the housing goals.
Performance under the single-family
housing goals would be evaluated based
on the percentage of all single-family,
owner-occupied mortgages purchased
by an Enterprise that meet a particular
goal. Performance under the multifamily
housing goals would be evaluated based
on the total number of units that meet
a particular goal and are financed by
mortgages purchased by an Enterprise.
The data estimation methodologies in
this section would be revised to reflect
changes in the affordable housing goals
for 2010. The methodology for
estimating affordability for single-family
rental properties would be eliminated as
unnecessary because the single-family
housing goals are measured in terms of
mortgages rather than units. The option
to exclude single-family owneroccupied units with missing data up to
one percent of the total number of
single-family owner-occupied units
backing mortgages purchased by an
Enterprise would also be removed
because it is no longer in use by either
Enterprise. The option to request
approval of alternative methodologies
would also be removed. In light of the
shorter time period for which the
affordable housing goals are being
established, it should not be necessary
to make changes to the rules for missing
data prior to FHFA’s proposal of new
housing goals for later years.
E. Special Counting Requirements—
Proposed § 1282.16
Proposed § 1282.16 would set forth
special counting requirements for the
receipt of full, partial or no credit for a
transaction toward achievement of the
housing goals. A number of clarifying
and conforming changes would be made
to this section to ensure consistent
application of the counting rules among
the Enterprises. Proposed § 1282.16(b)
would make clear that where a mortgage
falls within one of the categories
excluded from consideration under the
housing goals, the mortgage should be
excluded even if it otherwise would fall
within one of the special counting rules
in proposed § 1282.16(c). For example,
a non-conventional mortgage that would
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be excluded from consideration
pursuant to proposed § 1282.16(b)(3)
could not be counted even if it
otherwise would be counted as a
seasoned mortgage under proposed
§ 1282.16(c)(6). Proposed § 1282.16(c)
would also make clear that where a
transaction falls under more than one of
the special counting rules in
§ 1282.16(c), all of the applicable
requirements must be satisfied in order
for the loan to be counted for purposes
of the affordable housing goals.
Proposed § 1282.16(b) would
eliminate the current exclusion of
jumbo conforming loans from
consideration for purposes of the
affordable housing goals.85 These loans
had been excluded from consideration
in the past because the goals had been
established based on market estimates
that preceded the increases in the
conforming loan limits. Because the
higher loan limits have been considered
in the evaluation of the market for this
proposed rule, it is no longer necessary
to exclude such loans from
consideration for purposes of the
affordable housing goals.
Proposed § 1282.16(b)(1) would be
revised to refer more specifically to
equity investments in low-income
housing tax credits, which are
consistent with the Charter Acts of the
Enterprises. Proposed § 1282.16(b)(11)
would make explicit the existing
prohibition on counting mortgages
toward performance under the
affordable housing goals if the mortgage
has previously been counted for
purposes of the performance of either
Enterprise under the housing goals. In
order to limit excessively burdensome
recordkeeping that could result, the rule
would make clear that this limitation
only extends back for five years.
Proposed § 1282.16(b)(12) would
exclude purchases of mortgages secured
by properties that have not been
certified as ready for occupancy from
consideration for purposes of the
affordable housing goals. Proposed
§ 1282.16(b)(14) would reflect the
statutory limitation on housing goals
credit for mortgages receiving assistance
under the Housing Trust Fund and the
Capital Magnet Fund established by
HERA.86
Proposed § 1282.16(c) would no
longer include real estate mortgage
investment conduits (REMICs) as
mortgage purchases for purposes of the
housing goals, consistent with the
general exclusion of PLS under
proposed § 1282.16(b)(13). Proposed
§ 1282.16(c) would also eliminate
85 See
86 See
12 CFR 1282.16(b)(10).
12 U.S.C. 4568, 4569.
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consideration of expiring assistance
contracts, reflecting the changes under
HERA to the former special affordable
housing goal. Proposed § 1282.16(c)(5)
would amend the provisions regarding
cooperative housing and condominiums
to reflect HERA’s treatment of singlefamily housing and multifamily housing
under separate goals. Proposed
§ 1282.16(c)(8) would remove current
limitations on counting mortgage
revenue bonds related to the source of
funds for repayment and the presence of
additional credit enhancements. The
proposed rule would require that an
Enterprise have sufficient information
available to determine the eligibility of
any underlying mortgages before
counting such mortgages or units for
purposes of the housing goals. Proposed
§ 1282.16(c)(10) would reflect the
accepted terminology for the
Administration’s Making Home
Affordable program.
Proposed § 1282.16(d) would relocate
existing provisions regarding HOEPA
mortgages and mortgages with
unacceptable terms or conditions from
current § 1282.16(c). Placing these
provisions in a separate paragraph
reflects the fact that unlike other types
of mortgage purchases, HOEPA
mortgages and mortgages with
unacceptable terms and conditions must
be counted in the denominator as
mortgage purchases but can never be
counted in the numerator, regardless of
whether the mortgages would otherwise
qualify based on the affordability and
other counting criteria. The proposed
treatment is consistent with past
practice and with section 1332(i) of the
Safety and Soundness Act, as amended
by HERA, which provides that no credit
may be given for mortgages that FHFA
determines are ‘‘unacceptable or
contrary to good lending practices.’’ 87
Proposed § 1282.16(e) would clarify
that FHFA may provide guidance on the
treatment of any transactions under the
affordable housing goals. Such guidance
may be provided in response to a
request from one or both Enterprises, or
it may be provided at the initiation of
FHFA.
Private Label Securities. Proposed
§ 1282.16(b)(13) would exclude PLS
from counting for purposes of the
affordable housing goals. Historically,
the Enterprises—particularly Freddie
Mac—relied on PLS purchases to help
them achieve certain affordable housing
goals. Freddie Mac met the 2005 and
2006 affordable housing goals and
subgoals in part through its purchases of
AAA-rated tranches of PLS backed by
subprime mortgages that were targeted
87 12
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to satisfy goals and subgoals. As house
price appreciation and rising interest
rates reduced housing affordability, PLS
proliferated as the subprime share of the
market grew to more than 20 percent.
Fannie Mae and Freddie Mac began to
follow suit in response to declining
market share and in pursuit of higher
profits. The Enterprises not only
modified their own underwriting
standards, but they also bought
hundreds of billions of dollars’ worth of
AAA-rated tranches of subprime and
Alt-A PLS for the yield and, in certain
instances, to satisfy specific housing
goals and subgoals.
The results of providing large-scale
funding for such loans were adverse for
borrowers who entered into mortgages
that did not sustain homeownership and
for the Enterprises themselves.
Although Fannie Mae and Freddie Mac
have a combined 57 percent share of
mortgages outstanding in their
guaranteed portfolio, the mortgages in
that portfolio account for only 25
percent of serious delinquencies.
However, while PLS account for 12
percent of all mortgages outstanding,
PLS account for 34 percent of serious
delinquencies. As delinquencies in PLS
portfolios triggered downgrades, 90
percent of the PLS holdings of the
Enterprises experienced a downgrade.
In light of that record, FHFA proposes
to exclude PLS from consideration
under the housing goals.
In addition to the recent dismal
performance of PLS, it is reasonable to
separate any future growth of the PLS
market from the Enterprises’ housing
goals. The housing goals reflect
Congress’ concern that the Enterprises’
charter mission to support the stability,
liquidity and affordability of the
secondary market not be managed to the
detriment or neglect of goal-eligible
mortgages. In this way the goals may be
seen as a mechanism to ensure that each
Enterprise serves all segments of the
mortgage market available to it. Even to
the extent that a non-GSE secondary
mortgage market returns, loans backing
new or seasoned PLS would not count
in either the numerator or the
denominator for purposes of assessing
housing goals.
FHFA invites comment on the
proposed exclusion of PLS and on
alternatives to not counting PLS
mortgages in meeting the housing goals.
For example, mortgages backing such
securities could be counted if an
appropriate senior Enterprise officer
certified that the mortgages are
compliant with all existing regulations
regarding good mortgage practices, and
with the interagency guidance on
subprime lending and non-traditional
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loans. Such certification, for example,
could be required to include a
description of the methods used to
determine that loans included in such
PLS met those conditions. The
certification could also require regular
and ongoing review of PLS purchases to
ensure that they meet existing
requirements regarding good mortgage
practices and recent interagency
regulatory guidance on non-traditional
and subprime loans.
Commercial Mortgage Backed
Securities (CMBS) would also be
excluded from counting toward the
affordable housing goals under the
proposed rule. FHFA invites comment
on whether CMBS should be treated
differently than other PLS for purposes
of the affordable housing goals.
Home Equity Conversion Mortgages
and Subordinate Liens. Proposed
§ 1282.16(b)(3) would exclude the
purchases of all non-conventional
single-family mortgages, including
HECMs, from counting towards the
Enterprises’ housing goals. Certain nonconventional mortgages, including
HECMs, have been counted toward the
goals in the past. HERA, however,
amended section 1332(a) of the Safety
and Soundness Act to restrict the singlefamily housing goals to include only
conventional mortgages.88 This
restriction does not preclude the
Enterprises’ purchase of Chartercompliant non-conventional singlefamily mortgages, including HECMs, but
such purchases would not count toward
the housing goals—that is, such
purchases would be excluded from both
the numerator and denominator in
calculating goal performance.
Proposed § 1282.16(b)(10) would also
exclude the purchases of subordinate
lien mortgages (second mortgages) from
counting towards the Enterprises’
housing goals. This exclusion would
reflect the fact that, under section 1331
of the Safety and Soundness Act, as
amended, the single-family housing
goals are limited to purchase money or
refinancing mortgages. This would
exclude ‘‘piggy-back’’ liens that may be
acquired by an Enterprise along with the
corresponding first lien mortgage and
subordinate lien mortgages, such as
home equity loans, acquired separately
by an Enterprise where the Enterprise
does not also acquire the corresponding
first lien mortgage. This provision
would not preclude the Enterprises’
purchase of Charter-compliant
subordinate lien mortgages, but as with
HECMs, such purchases would not
count toward the housing goals. FHFA
seeks comments on this provision.
88 12
U.S.C. 4562(a).
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F. Affordability Definitions—Proposed
§§ 1282.17 Through 1282.19
Proposed § 1282.17 would set forth
definitions and establish cutoff points or
boundaries for the statutory and
traditionally defined levels of
affordability based on area median
income for owners and tenants of rental
units where the family size and income
are known to the Enterprise. In addition
to the levels of affordability that
currently appear at § 1282.17, this
section would include an additional
paragraph (e) for extremely low-income
borrowers and tenants with income at or
below 30 percent of AMI with
adjustments for family size. Although
the Enterprise housing goals do not
specifically target extremely low-income
borrowers or tenants, the proposed rule
would establish cutoffs for determining
such affordability to facilitate any
reporting or analysis of such data that is
required.
Proposed § 1282.18 would set forth
definitions and establish cutoff points or
boundaries for the statutory and
traditionally defined levels of
affordability based on AMI for tenants of
rental units where the family size is not
known to the Enterprise. In addition to
the levels of affordability that currently
appear at § 1282.18, this section would
include an additional paragraph (e) for
extremely low-income tenants with
income at or below 30 percent of AMI
with adjustments for unit size.
Proposed § 1282.19 would set forth
definitions and establish cutoff points or
boundaries for the statutory and
traditionally defined levels of
affordability based on AMI for tenants of
rental units where tenant income is not
known to the Enterprise. In addition to
the levels of affordability that currently
appear at § 1282.19, this section would
include an additional paragraph (e) for
extremely low-income tenants with
income at or below 30 percent of AMI
with adjustments for unit size.
G. Housing Goals Enforcement—
Proposed §§ 1282.20 and 1282.21
Proposed § 1282.20 would provide
that the Director shall determine
whether an Enterprise has met the
affordable housing goals, in accordance
with the standards established under
the Safety and Soundness Act, as
amended by HERA. If the Director
determines that an Enterprise has failed
to meet any housing goal, the Director
shall provide notice to the Enterprise in
accordance with 12 U.S.C. 4566(b). The
determination of compliance with the
single-family housing goals would be
based both on the size of the market for
that year and the benchmark levels
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established in this subpart. The
provision formerly found at § 1282.20
referenced the obligation of the
Enterprises under the Safety and
Soundness Act to engage in certain
kinds of activities in meeting the
affordable housing goals. The regulatory
provision did not add to or expand the
requirements of the statute and would
be removed as unnecessary, but the
statutory obligation remains in effect.89
Proposed § 1282.21 would include
requirements for submission of a
housing plan by an Enterprise for failure
or substantial probability of failure to
meet any housing goal that was or is
feasible. The requirement to submit a
housing plan would be at the discretion
of the Director.
H. Reporting Requirements—Proposed
Subpart D
Proposed subpart D would relocate
existing reporting requirements from
part 81, subpart E of title 24 of the Code
of Federal Regulations. Proposed
§ 1282.65 would relocate an existing
regulatory provision on data
certification from 24 CFR 81.102. These
provisions have continued in effect
pursuant to section 1302 of HERA.
Upon the effective date of the final
housing goals rule, the reporting
requirement and Enterprise data
integrity provisions in 24 CFR part 81
will no longer be in effect.
The proposed rule would make
various conforming changes throughout
subpart D. Proposed § 1282.62(b) would
require the Enterprises to submit loanlevel mortgage data on a quarterly basis.
Previously such submissions were
required only semi-annually. Advances
in technology limit the burden of more
frequent submissions, and the
additional data provided will facilitate
FHFA’s monitoring of performance
under the housing goals. Proposed
§§ 1282.62(c) and 1282.63 would revise
the time periods for submission to
FHFA of the required Mortgage Reports
and Annual Housing Activities Reports
(AHARs), respectively. The shorter time
periods will permit FHFA to evaluate
the performance of the Enterprises on a
more timely basis. Proposed § 1282.63
would also require that the Enterprises
make their AHARs available to the
public online. FHFA does not expect
that the requirement to make available
online information that is already
publicly available will be burdensome
to the Enterprises. Proposed § 1282.64
would eliminate the requirement for the
Enterprises to submit information that is
typically made publicly available by
each Enterprise. The Director may
89 See
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continue to request such reports,
information and data as the Director
deems necessary. Proposed subpart D
would not include the provisions
regarding submission of additional data
or reports and the addresses for
submission of information that were
formerly found at 24 CFR 81.65 and
81.66. Proposed § 1282.64 is sufficiently
broad to encompass any requests for
additional data or reports that the
Director deems necessary.
Proposed § 1282.65 would simplify
the detailed procedures laid out in the
previous data integrity provision found
at 24 CFR 81.102. FHFA will implement
the data integrity process pursuant to its
general regulatory authority over the
Enterprises. FHFA expects that the
Enterprises will continue to work
cooperatively with FHFA to identify
and resolve any discrepancies or errors
in the housing goals data reported to
FHFA. The proposed provision would
maintain the most important aspects of
the data integrity process in the
regulation, including the requirement
that the Enterprises certify the accuracy
of their submissions.
I. Book-Entry Procedures—Proposed
Part 1249
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Proposed part 1249 would relocate
existing regulatory provisions on bookentry procedures from part 81, subpart
H of title 24 of the Code of Federal
Regulations. These provisions have
continued in effect pursuant to section
1302 of HERA. Upon the effective date
of the final housing goals rule, the bookentry procedures in 24 CFR part 81 will
no longer be in effect. The proposed rule
would also relocate definitions that are
currently found in § 1282.2 and that are
applicable only to the book-entry
procedures in proposed part 1249 to a
new section 1249.10 in that part. The
proposed rule would make conforming
changes throughout the part, including
a clarification that the waiver provision
in proposed § 1249.17 applies only to
the book-entry provisions in part 1249.
Section 1249.15 would be amended to
reflect the transfer of authority from the
Secretary of HUD to the Director. The
proposed rule would not make any
changes to the substance of the bookentry provisions.
VIII. Paperwork Reduction Act
The proposed rule does not contain
any information collection requirement
that requires the approval of the Office
of Management and Budget under the
Paperwork Reduction Act (44 U.S.C.
3501 et seq.).
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IX. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) requires that a
regulation that has a significant
economic impact on a substantial
number of small entities, small
businesses, or small organizations must
include an initial regulatory flexibility
analysis describing the regulation’s
impact on small entities. Such an
analysis need not be undertaken if the
agency has certified that the regulation
will not have a significant economic
impact on a substantial number of small
entities. 5 U.S.C. 605(b). FHFA has
considered the impact of the proposed
rule under the Regulatory Flexibility
Act. The General Counsel of FHFA
certifies that the proposed rule, if
adopted as a final rule, is not likely to
have a significant economic impact on
a substantial number of small business
entities because the regulation is
applicable only to the Enterprises,
which are not small entities for
purposes of the Regulatory Flexibility
Act.
List of Subjects
12 CFR Part 1249
Federal Reserve System, Securities.
12 CFR Part 1282
Mortgages, Reporting and
recordkeeping requirements.
Accordingly, for the reasons stated in
the preamble, under the authority of 12
U.S.C. 4511, 4513, 4526, FHFA proposes
to amend chapter XII of title 12 of the
Code of Federal Regulations by adding
part 1249 and revising part 1282 to read
as follows:
CHAPTER XII—FEDERAL HOUSING
FINANCE AGENCY
SUBCHAPTER C—ENTERPRISES
PART 1249—BOOK-ENTRY
PROCEDURES
Sec.
1249.10 Definitions.
1249.11 Maintenance of Enterprise
Securities.
1249.12 Law governing rights and
obligations of United States, Federal
Reserve Banks, and Enterprises; rights of
any person against United States, Federal
Reserve Banks, and Enterprises; law
governing other interests.
1249.13 Creation of Participant’s Security
Entitlement; security interests.
1249.14 Obligations of Enterprises; no
adverse claims.
1249.15 Authority of Federal Reserve
Banks.
1249.16 Withdrawal of Eligible Book-entry
Enterprise Securities for conversion to
definitive form.
1249.17 Waiver of regulations.
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1249.18 Liability of Enterprises and Federal
Reserve Banks.
1249.19 Additional provisions.
Authority: 12 U.S.C. 4501, 4502, 4511,
4513, 4526.
§ 1249.10
Definitions.
(a) General. Unless the context
requires otherwise, terms used in this
part that are not defined in this part,
have the meanings as set forth in 31 CFR
357.2. Definitions and terms used in 31
CFR part 357 should read as though
modified to effectuate their application
to the Enterprises.
(b) Other terms. As used in this part,
the term:
Book-entry Enterprise Security means
an Enterprise Security issued or
maintained in the Book-entry System.
Book-entry Enterprise Security also
means the separate interest and
principal components of a Book-entry
Enterprise Security if such security has
been designated by the Enterprise as
eligible for division into such
components and the components are
maintained separately on the books of
one or more Federal Reserve Banks.
Book-entry System means the
automated book-entry system operated
by the Federal Reserve Banks acting as
the fiscal agent for the Enterprises, on
which Book-entry Enterprise Securities
are issued, recorded, transferred and
maintained in book-entry form.
Definitive Enterprise Security means
an Enterprise Security in engraved or
printed form, or that is otherwise
represented by a certificate.
Eligible Book-entry Enterprise
Security means a Book-entry Enterprise
Security issued or maintained in the
Book-entry System which by the terms
of its Security Documentation is eligible
to be converted from book-entry form
into definitive form.
Enterprise Security means any
security or obligation of Fannie Mae or
Freddie Mac issued under its respective
Charter Act in the form of a Definitive
Enterprise Security or a Book-entry
Enterprise Security.
Entitlement Holder means a Person or
an Enterprise to whose account an
interest in a Book-entry Enterprise
Security is credited on the records of a
Securities Intermediary.
Federal Reserve Bank Operating
Circular means the publication issued
by each Federal Reserve Bank that sets
forth the terms and conditions under
which the Reserve Bank maintains
book-entry Securities accounts
(including Book-entry Enterprise
Securities) and transfers book-entry
Securities (including Book-entry
Enterprise Securities).
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Participant means a Person or
Enterprise that maintains a Participant’s
Securities Account with a Federal
Reserve Bank.
Person, as used in this part, means
and includes an individual, corporation,
company, governmental entity,
association, firm, partnership, trust,
estate, representative, and any other
similar organization, but does not mean
or include the United States, an
Enterprise, or a Federal Reserve Bank.
Revised Article 8 has the same
meaning as in 31 CFR 357.2.
Securities Documentation means the
applicable statement of terms, trust
indenture, securities agreement or other
documents establishing the terms of a
Book-entry Enterprise Security.
Security means any mortgage
participation certificate, note, bond,
debenture, evidence of indebtedness,
collateral-trust certificate, transferable
share, certificate of deposit for a
security, or, in general, any interest or
instrument commonly known as a
‘‘security’’.
Transfer message means an
instruction of a Participant to a Federal
Reserve Bank to effect a transfer of a
Book-entry Security (including a Bookentry Enterprise Security) maintained in
the Book-entry System, as set forth in
Federal Reserve Bank Operating
Circulars.
§ 1249.11 Maintenance of Enterprise
Securities.
An Enterprise Security may be
maintained in the form of a Definitive
Enterprise Security or a Book-entry
Enterprise Security. A Book-entry
Enterprise Security shall be maintained
in the Book-entry System.
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§ 1249.12 Law governing rights and
obligations of United States, Federal
Reserve Banks, and Enterprises; rights of
any person against United States, Federal
Reserve Banks, and Enterprises; law
governing other interests.
(a) Except as provided in paragraph
(b) of this section, the following rights
and obligations are governed solely by
the book-entry regulations contained in
this part, the Securities Documentation,
and Federal Reserve Bank Operating
Circulars (but not including any choice
of law provisions in the Securities
Documentation to the extent such
provisions conflict with the Book-entry
regulations contained in this part):
(1) The rights and obligations of an
Enterprise and the Federal Reserve
Banks with respect to:
(i) A Book-entry Enterprise Security
or Security Entitlement; and
(ii) The operation of the Book-entry
System as it applies to Enterprise
Securities; and
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(2) The rights of any Person, including
a Participant, against an Enterprise and
the Federal Reserve Banks with respect
to:
(i) A Book-entry Enterprise Security
or Security Entitlement; and
(ii) The operation of the Book-entry
System as it applies to Enterprise
Securities;
(b) A security interest in a Security
Entitlement that is in favor of a Federal
Reserve Bank from a Participant and
that is not recorded on the books of a
Federal Reserve Bank pursuant to
§ 1249.13(c)(1), is governed by the law
(not including the conflict-of-law rules)
of the jurisdiction where the head office
of the Federal Reserve Bank maintaining
the Participant’s Securities Account is
located. A security interest in a Security
Entitlement that is in favor of a Federal
Reserve Bank from a Person that is not
a Participant, and that is not recorded
on the books of a Federal Reserve Bank
pursuant to § 1249.13(c)(1), is governed
by the law determined in the manner
specified in paragraph (d) of this
section.
(c) If the jurisdiction specified in the
first sentence of paragraph (b) of this
section is a State that has not adopted
Revised Article 8, then the law specified
in paragraph (b) of this section shall be
the law of that State as though Revised
Article 8 had been adopted by that
State.
(d) To the extent not otherwise
inconsistent with this part, and
notwithstanding any provision in the
Securities Documentation setting forth a
choice of law, the provisions set forth in
31 CFR 357.11 regarding law governing
other interests apply and shall be read
as though modified to effectuate the
application of 31 CFR 357.11 to the
Enterprises.
§ 1249.13 Creation of Participant’s
Security Entitlement; security interests.
(a) A Participant’s Security
Entitlement is created when a Federal
Reserve Bank indicates by book-entry
that a Book-entry Enterprise Security
has been credited to a Participant’s
Securities Account.
(b) A security interest in a Security
Entitlement of a Participant in favor of
the United States to secure deposits of
public money, including without
limitation deposits to the Treasury tax
and loan accounts, or other security
interest in favor of the United States that
is required by Federal statute,
regulation, or agreement, and that is
marked on the books of a Federal
Reserve Bank is thereby effected and
perfected, and has priority over any
other interest in the securities. Where a
security interest in favor of the United
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States in a Security Entitlement of a
Participant is marked on the books of a
Federal Reserve Bank, such Federal
Reserve Bank may rely, and is protected
in relying, exclusively on the order of an
authorized representative of the United
States directing the transfer of the
security. For purposes of this paragraph,
an ‘‘authorized representative of the
United States’’ is the official designated
in the applicable regulations or
agreement to which a Federal Reserve
Bank is a party, governing the security
interest.
(c)(1) An Enterprise and the Federal
Reserve Banks have no obligation to
agree to act on behalf of any Person or
to recognize the interest of any
transferee of a security interest or other
limited interest in favor of any Person
except to the extent of any specific
requirement of Federal law or regulation
or to the extent set forth in any specific
agreement with the Federal Reserve
Bank on whose books the interest of the
Participant is recorded. To the extent
required by such law or regulation or set
forth in an agreement with a Federal
Reserve Bank, or the Federal Reserve
Bank Operating Circular, a security
interest in a Security Entitlement that is
in favor of a Federal Reserve Bank, an
Enterprise, or a Person may be created
and perfected by a Federal Reserve Bank
marking its books to record the security
interest. Except as provided in
paragraph (b) of this section, a security
interest in a Security Entitlement
marked on the books of a Federal
Reserve Bank shall have priority over
any other interest in the securities.
(2) In addition to the method
provided in paragraph (c)(1) of this
section, a security interest, including a
security interest in favor of a Federal
Reserve Bank, may be perfected by any
method by which a security interest
may be perfected under applicable law
as described in § 1249.12(b) or (d). The
perfection, effect of perfection or nonperfection and priority of a security
interest are governed by such applicable
law. A security interest in favor of a
Federal Reserve Bank shall be treated as
a security interest in favor of a clearing
corporation in all respects under such
law, including with respect to the effect
of perfection and priority of such
security interest. A Federal Reserve
Bank Operating Circular shall be treated
as a rule adopted by a clearing
corporation for such purposes.
§ 1249.14 Obligations of Enterprises; no
adverse claims.
(a) Except in the case of a security
interest in favor of the United States or
a Federal Reserve Bank or otherwise as
provided in § 1249.13(c)(1), for the
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purposes of this part, the Enterprise and
the Federal Reserve Banks shall treat the
Participant to whose Securities Account
an interest in a Book-entry Enterprise
Security has been credited as the person
exclusively entitled to issue a Transfer
Message, to receive interest and other
payments with respect thereof and
otherwise to exercise all the rights and
powers with respect to such Security,
notwithstanding any information or
notice to the contrary. Neither the
Federal Reserve Banks nor an Enterprise
is liable to a Person asserting or having
an adverse claim to a Security
Entitlement or to a Book-entry
Enterprise Security in a Participant’s
Securities Account, including any such
claim arising as a result of the transfer
or disposition of a Book-entry Enterprise
Security by a Federal Reserve Bank
pursuant to a Transfer Message that the
Federal Reserve Bank reasonably
believes to be genuine.
(b) The obligation of the Enterprise to
make payments (including payments of
interest and principal) with respect to
Book-entry Enterprise Securities is
discharged at the time payment in the
appropriate amount is made as follows:
(1) Interest or other payments on
Book-entry Enterprise Securities is
either credited by a Federal Reserve
Bank to a Funds Account maintained at
such Federal Reserve Bank or otherwise
paid as directed by the Participant.
(2) Book-entry Enterprise Securities
are redeemed in accordance with their
terms by a Federal Reserve Bank
withdrawing the securities from the
Participant’s Securities Account in
which they are maintained and by either
crediting the amount of the redemption
proceeds, including both redemption
proceeds, where applicable, to a Funds
Account at such Federal Reserve Bank
or otherwise paying such redemption
proceeds as directed by the Participant.
No action by the Participant ordinarily
is required in connection with the
redemption of a Book-entry Enterprise
Security.
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§ 1249.15
Banks.
Authority of Federal Reserve
(a) Each Federal Reserve Bank is
hereby authorized as fiscal agent of the
Enterprises to perform the following
functions with respect to the issuance of
Book-entry Enterprise Securities offered
and sold by an Enterprise to which this
part applies, in accordance with the
Securities Documentation, Federal
Reserve Bank Operating Circulars, this
part, and any procedures established by
the Director consistent with these
authorities:
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(1) To service and maintain Bookentry Enterprise Securities in accounts
established for such purposes;
(2) To make payments with respect to
such securities, as directed by the
Enterprise;
(3) To effect transfer of Book-entry
Enterprise Securities between
Participants’ Securities Accounts as
directed by the Participants;
(4) To effect conversions between
Book-entry Enterprise Securities and
Definitive Enterprise Securities with
respect to those securities as to which
conversion rights are available pursuant
to the applicable Securities
Documentation; and
(5) To perform such other duties as
fiscal agent as may be requested by the
Enterprise.
(b) Each Federal Reserve Bank may
issue Federal Reserve Bank Operating
Circulars not inconsistent with this part,
governing the details of its handling of
Book-entry Enterprise Securities,
Security Entitlements, and the operation
of the Book-entry System under this
part.
§ 1249.16 Withdrawal of Eligible Bookentry Enterprise Securities for conversion
to definitive form.
(a) Eligible Book-entry Enterprise
Securities may be withdrawn from the
Book-entry System by requesting
delivery of like Definitive Enterprise
Securities.
(b) A Federal Reserve Bank shall,
upon receipt of appropriate instructions
to withdraw Eligible Book-entry
Enterprise Securities from book-entry in
the Book-entry System, convert such
securities into Definitive Enterprise
Securities and deliver them in
accordance with such instructions. No
such conversion shall affect existing
interests in such Enterprise Securities.
(c) All requests for withdrawal of
Eligible Book-entry Enterprise Securities
must be made prior to the maturity or
date of call of the securities.
(d) Enterprise Securities which are to
be delivered upon withdrawal may be
issued in either registered or bearer
form, to the extent permitted by the
applicable Securities Documentation.
§ 1249.17
Waiver of regulations.
The Director reserves the right, in the
Director’s discretion, to waive any
provision(s) of this part in any case or
class of cases for the convenience of an
Enterprise, the United States, or in order
to relieve any person(s) of unnecessary
hardship, if such action is not
inconsistent with law, does not
adversely affect any substantial existing
rights, and the Director is satisfied that
such action will not subject an
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Enterprise or the United States to any
substantial expense or liability.
§ 1249.18 Liability of Enterprises and
Federal Reserve Banks.
An Enterprise and the Federal Reserve
Banks may rely on the information
provided in a Transfer Message, and are
not required to verify the information.
An Enterprise and the Federal Reserve
Banks shall not be liable for any action
taken in accordance with the
information set out in a Transfer
Message, or evidence submitted in
support thereof.
§ 1249.19
Additional provisions.
(a) Additional requirements. In any
case or any class of cases arising under
these regulations, an Enterprise may
require such additional evidence and a
bond of indemnity, with or without
surety, as may in the judgment of the
Enterprise be necessary for the
protection of the interests of the
Enterprise.
(b) Notice of attachment for Enterprise
Securities in Book-entry System. The
interest of a debtor in a Security
Entitlement may be reached by a
creditor only by legal process upon the
Securities Intermediary with whom the
debtor’s securities account is
maintained, except where a Security
Entitlement is maintained in the name
of a secured party, in which case the
debtor’s interest may be reached by legal
process upon the secured party. These
regulations do not purport to establish
whether a Federal Reserve Bank is
required to honor an order or other
notice of attachment in any particular
case or class of cases.
*
*
*
*
*
SUBCHAPTER E—HOUSING GOALS AND
MISSION
PART 1282—ENTERPRISE HOUSING
GOALS AND MISSION
Sec.
Subpart A—General
1282.1 Definitions.
Subpart B—Housing Goals
1282.11 General.
1282.12 Single-family housing goals.
1282.13 Multifamily special affordable
housing goal and subgoal.
1282.14 Discretionary adjustment of
housing goals.
1282.15 General counting requirements.
1282.16 Special counting requirements.
1282.17 Affordability—Income level
definitions—family size and income
known (owner-occupied units, actual
tenants, and prospective tenants).
1282.18 Affordability—Income level
definitions—family size not known
(actual or prospective tenants).
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1282.19 Affordability—Rent level
definitions—tenant income is not
known.
1282.20 Determination of compliance with
housing goals; notice of determination.
1282.21 Housing plans.
Subpart C—[Reserved]
Subpart D—Reporting Requirements
1282.61 General.
1282.62 Mortgage reports.
1282.63 Annual Housing Activities Report.
1282.64 Periodic reports.
1282.65 Enterprise data integrity.
Authority: 12 U.S.C. 4501, 4502, 4511,
4513, 4526, 4561–4566, 4603.
Subpart A—General
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§ 1282.1
Definitions.
(a) Statutory terms. All terms defined
in the Safety and Soundness Act are
used in accordance with their statutory
meaning unless otherwise defined in
paragraph (b) of this section.
(b) Other terms. As used in this part,
the term:
AHAR means the Annual Housing
Activities Report that an Enterprise
submits to the Director under section
309(n) of the Fannie Mae Charter Act or
section 307(f) of the Freddie Mac Act.
AHAR information means data or
information contained in the AHAR.
AHS means the American Housing
Survey published by HUD and the
Department of Commerce.
Balloon mortgage means a mortgage
providing for payments at regular
intervals, with a final payment (‘‘balloon
payment’’) that is at least 5 percent more
than the periodic payments. The
periodic payments may cover some or
all of the periodic principal or interest.
Typically, the periodic payments are
level monthly payments that would
fully amortize the mortgage over a stated
term and the balloon payment is a single
payment due after a specified period
(but before the mortgage would fully
amortize) and pays off or satisfies the
outstanding balance of the mortgage.
Borrower income means the total
gross income relied on in making the
credit decision.
Charter Act means the Fannie Mae
Charter Act, as amended, or the Freddie
Mac Act, as amended.
Contract rent means the total rent that
is, or is anticipated to be, specified in
the rental contract as payable by the
tenant to the owner for rental of a
dwelling unit, including fees or charges
for management and maintenance
services and those utility charges that
are included in the rental contract. In
determining contract rent, rent
concessions shall not be considered, i.e.,
contract rent is not decreased by any
rent concessions. Contract rent is rent
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net of rental subsidies. Anticipated rent
for unoccupied units may be the market
rent for similar units in the
neighborhood as determined by the
lender or appraiser for underwriting
purposes.
Conventional mortgage means a
mortgage other than a mortgage as to
which an Enterprise has the benefit of
any guaranty, insurance or other
obligation by the United States or any of
its agencies or instrumentalities.
Day means a calendar day.
Designated disaster area means any
census tract (1) that is located in a
county designated by FEMA as
adversely affected by a declared major
disaster, (2) where individual assistance
payments were authorized by FEMA,
and (3) where average damage severity,
as reported by FEMA, exceeds $1,000
per household in the census tract. A
census tract shall be treated as a
‘‘designated disaster area’’ for purposes
of this part beginning on the January 1
after the FEMA designation of the
county, or such earlier date as
determined by FHFA, and continuing
through December 31 of the third full
calendar year following the FEMA
designation.
Director means the Director of FHFA
or his or her designee.
Dwelling unit means a room or unified
combination of rooms intended for use,
in whole or in part, as a dwelling by one
or more persons, and includes a
dwelling unit in a single-family
property, multifamily property, or other
residential or mixed-use property.
Enterprise means Fannie Mae or
Freddie Mac (Enterprises means,
collectively, Fannie Mae and Freddie
Mac).
Extremely low-income means:
(i) In the case of owner-occupied
units, income not in excess of 30
percent of area median income; and
(ii) In the case of rental units, income
not in excess of 30 percent of area
median income, with adjustments for
smaller and larger families in
accordance with this part.
Families in low-income areas means:
(i) Any family that resides in a census
tract or block numbering area in which
the median income does not exceed 80
percent of the area median income;
(ii) Any family with an income that
does not exceed area median income
that resides in a minority census tract;
and
(iii) Any family with an income that
does not exceed area median income
that resides in a designated disaster
area.
Family means one or more
individuals who occupy the same
dwelling unit.
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Fannie Mae means the Federal
National Mortgage Association and any
affiliate thereof.
Fannie Mae Charter Act means the
Federal National Mortgage Association
Charter Act, as amended (12 U.S.C. 1715
et seq.).
FEMA means the Federal Emergency
Management Agency.
FHFA means the Federal Housing
Finance Agency.
FOIA means the Freedom of
Information Act, as amended (5 U.S.C.
552).
Freddie Mac means the Federal Home
Loan Mortgage Corporation and any
affiliate thereof.
Freddie Mac Act means the Federal
Home Loan Mortgage Corporation Act,
as amended (12 U.S.C. 1451 et seq.).
Ginnie Mae means the Government
National Mortgage Association.
HMDA means the Home Mortgage
Disclosure Act (12 U.S.C. 2801 et seq.).
HOEPA mortgage means a mortgage
covered by section 103(aa) of the Home
Ownership Equity Protection Act
(HOEPA) (15 U.S.C. 1602(aa)), as
implemented by the Board of Governors
of the Federal Reserve System.
HUD means the United States
Department of Housing and Urban
Development.
Lender means any entity that makes,
originates, sells, or services mortgages,
and includes the secured creditors
named in the debt obligation and
document creating the mortgage.
Low-income means:
(i) In the case of owner-occupied
units, income not in excess of 80
percent of area median income; and
(ii) In the case of rental units, income
not in excess of 80 percent of area
median income, with adjustments for
smaller and larger families in
accordance with this part.
Median income means, with respect
to an area, the unadjusted median
family income for the area as most
recently determined by HUD. FHFA will
provide the Enterprises annually with
information specifying how the median
family income estimates for
metropolitan areas are to be applied for
the purposes of determining median
family income.
Metropolitan area means a
metropolitan statistical area (MSA), or a
portion of such an area, including
Metropolitan Divisions, for which
median family income estimates are
determined by HUD.
Minority means any individual who is
included within any one or more of the
following racial and ethnic categories:
(i) American Indian or Alaskan
Native—a person having origins in any
of the original peoples of North and
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South America (including Central
America), and who maintains Tribal
affiliation or community attachment;
(ii) Asian—a person having origins in
any of the original peoples of the Far
East, Southeast Asia, or the Indian
subcontinent, including, for example,
Cambodia, China, India, Japan, Korea,
Malaysia, Pakistan, the Philippine
Islands, Thailand, and Vietnam;
(iii) Black or African American—a
person having origins in any of the
black racial groups of Africa;
(iv) Hispanic or Latino—a person of
Cuban, Mexican, Puerto Rican, South or
Central American, or other Spanish
culture or origin, regardless of race; and
(v) Native Hawaiian or Other Pacific
Islander—a person having origins in any
of the original peoples of Hawaii, Guam,
Samoa, or other Pacific Islands.
Minority census tract means a census
tract that has a minority population of
at least 30 percent and a median income
of less than 100 percent of the area
median income.
Moderate-income means:
(i) In the case of owner-occupied
units, income not in excess of area
median income; and
(ii) In the case of rental units, income
not in excess of area median income,
with adjustments for smaller and larger
families in accordance with this part.
Mortgage means a member of such
classes of liens, including subordinate
liens, as are commonly given or are
legally effective to secure advances on,
or the unpaid purchase price of, real
estate under the laws of the State in
which the real estate is located, together
with the credit instruments, if any,
secured thereby, and includes interests
in mortgages. ‘‘Mortgage’’ includes a
mortgage, lien, including a subordinate
lien, or other security interest on the
stock or membership certificate issued
to a tenant-stockholder or residentmember by a cooperative housing
corporation, as defined in section 216 of
the Internal Revenue Code of 1986, and
on the proprietary lease, occupancy
agreement, or right of tenancy in the
dwelling unit of the tenant-stockholder
or resident-member in such cooperative
housing corporation.
Mortgage data means data obtained by
the Director from the Enterprises under
section 309(m) of the Fannie Mae
Charter Act and section 307(e) of the
Freddie Mac Act.
Mortgage purchase means a
transaction in which an Enterprise
bought or otherwise acquired a mortgage
or an interest in a mortgage for portfolio,
resale, or securitization.
Mortgage revenue bond means a taxexempt bond or taxable bond issued by
a State or local government or agency
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where the proceeds from the bond issue
are used to finance residential housing.
Mortgage with unacceptable terms or
conditions means a single-family
mortgage, including a reverse mortgage,
or a group or category of such
mortgages, with one or more of the
following terms or conditions:
(i) Excessive fees, where the total
points and fees charged to a borrower
exceed the greater of 5 percent of the
loan amount or a maximum dollar
amount of $1,000, or an alternative
amount requested by an Enterprise and
determined by the Director as
appropriate for small mortgages.
(A) For purposes of this definition,
points and fees include:
(1) Origination fees;
(2) Underwriting fees;
(3) Broker fees;
(4) Finder’s fees; and
(5) Charges that the lender imposes as
a condition of making the loan, whether
they are paid to the lender or a third
party;
(B) For purposes of this definition,
points and fees do not include:
(1) Bona fide discount points;
(2) Fees paid for actual services
rendered in connection with the
origination of the mortgage, such as
attorneys’ fees, notary’s fees, and fees
paid for property appraisals, credit
reports, surveys, title examinations and
extracts, flood and tax certifications,
and home inspections;
(3) The cost of mortgage insurance or
credit-risk price adjustments;
(4) The costs of title, hazard, and
flood insurance policies;
(5) State and local transfer taxes or
fees;
(6) Escrow deposits for the future
payment of taxes and insurance
premiums; and
(7) Other miscellaneous fees and
charges that, in total, do not exceed 0.25
percent of the loan amount;
(ii) An annual percentage rate that
exceeds by more than 8 percentage
points the yield on Treasury securities
with comparable maturities as of the
fifteenth day of the month immediately
preceding the month in which the
application for the extension of credit
was received;
(iii) Prepayment penalties, except
where:
(A) The mortgage provides some
benefit to the borrower (e.g., a rate or fee
reduction for accepting the prepayment
premium);
(B) The borrower is offered the choice
of another mortgage that does not
contain payment of such a premium;
(C) The terms of the mortgage
provision containing the prepayment
penalty are adequately disclosed to the
borrower; and
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(D) The prepayment penalty is not
charged when the mortgage debt is
accelerated as the result of the
borrower’s default in making his or her
mortgage payments;
(iv) The sale or financing of prepaid
single-premium credit life insurance
products in connection with the
origination of the mortgage;
(v) Underwriting practices contrary to
the Interagency Guidance on
Nontraditional Mortgage Product Risks
(71 FR 58609) (Oct. 4, 2006), the
Interagency Statement on Subprime
Mortgage Lending (72 FR 37569) (July
10, 2007), or similar guidance
subsequently issued by Federal banking
agencies;
(vi) Failure to comply with fair
lending requirements; or
(vii) Other terms or conditions that
are determined by the Director to be an
unacceptable term or condition of a
mortgage.
Multifamily housing means a
residence consisting of more than four
dwelling units. The term includes
cooperative buildings and
condominium projects.
Non-metropolitan area means a
county, or a portion of a county,
including those counties that comprise
Micropolitan Statistical Areas, located
outside any metropolitan area for which
median family income estimates are
published annually by HUD.
Owner-occupied housing means
single-family housing in which a
mortgagor resides, including two- to
four-unit owner-occupied properties
where one or more units are used for
rental purposes.
Participation means a fractional
interest in the principal amount of a
mortgage.
Private label security means any
mortgage-backed security that is neither
issued nor guaranteed by Fannie Mae,
Freddie Mac, Ginnie Mae, or any other
government agency.
Proprietary information means all
mortgage data and all AHAR
information that the Enterprises submit
to the Director in the AHARs that
contain trade secrets or privileged or
confidential, commercial, or financial
information that, if released, would be
likely to cause substantial competitive
harm.
Public data means all mortgage data
and all AHAR information that the
Enterprises submit to the Director in the
AHARs that the Director determines are
not proprietary and may appropriately
be disclosed consistent with other
applicable laws and regulations.
Purchase money mortgage means a
mortgage given to secure a loan used for
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the purchase of a single-family
residential property.
Refinancing mortgage means a
mortgage undertaken by a borrower that
satisfies or replaces an existing mortgage
of such borrower. The term does not
include:
(i) A renewal of a single payment
obligation with no change in the
original terms;
(ii) A reduction in the annual
percentage rate of the mortgage as
computed under the Truth in Lending
Act (15 U.S.C. 1601 et seq.), with a
corresponding change in the payment
schedule;
(iii) An agreement involving a court
proceeding;
(iv) The renewal of optional insurance
purchased by the mortgagor and added
to an existing mortgage;
(v) A renegotiated balloon mortgage
on a multifamily property where the
balloon payment was due within 1 year
after the date of the closing of the
renegotiated mortgage; and
(vi) A conversion of a balloon
mortgage note on a single-family
property to a fully amortizing mortgage
note where the Enterprise already owns
or has an interest in the balloon note at
the time of the conversion.
Rent means, for a dwelling unit:
(i) When the contract rent includes all
utilities, the contract rent; or
(ii) When the contract rent does not
include all utilities, the contract rent
plus:
(A) The actual cost of utilities not
included in the contract rent; or
(B) A utility allowance.
Rental housing means dwelling units
in multifamily housing and dwelling
units that are not owner-occupied in
single-family housing.
Rental unit means a dwelling unit that
is not owner-occupied and is rented or
available to rent.
Residence means a property where
one or more families reside.
Residential mortgage means a
mortgage on single-family or
multifamily housing.
Safety and Soundness Act means the
Federal Housing Enterprises Financial
Safety and Soundness Act of 1992, as
amended (12 U.S.C. 4501 et seq.).
Seasoned mortgage means a mortgage
on which the date of the mortgage note
is more than 1 year before the Enterprise
purchased the mortgage.
Second mortgage means any mortgage
that has a lien position subordinate only
to the lien of the first mortgage.
Secondary residence means a
dwelling where the mortgagor maintains
(or will maintain) a part-time place of
abode and typically spends (or will
spend) less than the majority of the
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calendar year. A person may have more
than one secondary residence at a time.
Single-family housing means a
residence consisting of one to four
dwelling units. Single-family housing
includes condominium dwelling units
and dwelling units in cooperative
housing projects.
Utilities means charges for electricity,
piped or bottled gas, water, sewage
disposal, fuel (oil, coal, kerosene, wood,
solar energy, or other), and garbage and
trash collection. Utilities do not include
charges for cable or telephone service.
Utility allowance means either:
(i) The amount to be added to contract
rent when utilities are not included in
contract rent (also referred to as the
‘‘AHS-derived utility allowance’’), as
issued periodically by FHFA; or
(ii) The utility allowance established
under the HUD Section 8 Program (42
U.S.C. 1437f) for the area where the
property is located.
Very low-income means:
(i) In the case of owner-occupied
units, income not in excess of 50
percent of area median income; and
(ii) In the case of rental units, income
not in excess of 50 percent of area
median income, with adjustments for
smaller and larger families in
accordance with this part.
Working day means a day when FHFA
is officially open for business.
Subpart B—Housing Goals
§ 1282.11
General.
(a) General. Pursuant to the
requirements of the Safety and
Soundness Act (12 U.S.C. 4561 through
4566), this subpart establishes:
(1) Three single-family owneroccupied purchase money mortgage
housing goals, a single-family
refinancing mortgage housing goal, a
multifamily special affordable housing
goal and a multifamily special
affordable housing subgoal;
(2) Requirements for measuring
performance under the goals; and
(3) Procedures for monitoring and
enforcing the goals.
(b) Annual goals. Each housing goal
shall be established by regulation no
later than December 1 of the preceding
year, except that any housing goal may
be adjusted by regulation to reflect
subsequent available data and market
developments.
§ 1282.12
Single-family housing goals.
(a) Single-family housing goals. An
Enterprise shall be in compliance with
a single-family housing goal if its
performance under the housing goal
meets or exceeds either:
(1) The share of the market that
qualifies for the goal, or
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(2) The benchmark level for the goal.
(b) Size of market. The size of the
market for each goal shall be established
annually by FHFA based on data
reported pursuant to the Home Mortgage
Disclosure Act for a given year. Unless
otherwise adjusted by FHFA, the size of
the market shall be determined based on
the following criteria:
(1) Only owner-occupied,
conventional loans shall be considered;
(2) Purchase money mortgages and
refinancing mortgages shall only be
counted for the applicable goal or goals;
(3) All mortgages flagged as HOEPA
loans or subordinate lien loans shall be
excluded;
(4) All mortgages with original
principal balances above the conforming
loan limits for single unit properties for
the year being evaluated (rounded to the
nearest $1,000) shall be excluded;
(5) All mortgages with rate spreads of
300 basis points or more above the
applicable average prime offer rate as
reported in the Home Mortgage
Disclosure Act data shall be excluded;
and
(6) All mortgages that are missing
information necessary to determine
appropriate counting under the housing
goals shall be excluded.
(c) Low-income Families Housing
Goal. The percentage share of each
Enterprise’s total purchases of purchase
money mortgages on owner-occupied
single-family housing that consists of
mortgages for low-income families shall
meet or exceed either:
(1) The share of such mortgages in the
market as defined in paragraph (b) of
this section in each year; or
(2) The benchmark level, which for
2010 and 2011 shall be 27 percent of the
total number of purchase money
mortgages purchased by that Enterprise
in each year that finance owneroccupied single-family properties.
(d) Very Low-income Families
Housing Goal. The percentage share of
each Enterprise’s total purchases of
purchase money mortgages on owneroccupied single-family housing that
consists of mortgages for very lowincome families shall meet or exceed
either:
(1) The share of such mortgages in the
market as defined in paragraph (b) of
this section in each year; or
(2) The benchmark level, which for
2010 and 2011 shall be 8 percent of the
total number of purchase money
mortgages purchased by that Enterprise
in each year that finance owneroccupied single-family properties.
(e) Low-income Areas Housing Goal.
The percentage share of each
Enterprise’s total purchases of purchase
money mortgages on owner-occupied
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single-family housing that consists of
mortgages for families in low-income
areas shall meet or exceed either:
(1) The share of such mortgages in the
market as defined in paragraph (b) of
this section in each year; or
(2) The benchmark level, which for
2010 and 2011 shall be 13 percent of the
total number of purchase money
mortgages purchased by that Enterprise
in each year that finance owneroccupied single-family properties.
(f) Refinancing Housing Goal. The
percentage share of each Enterprise’s
total purchases of refinancing mortgages
on owner-occupied single-family
housing that consists of refinancing
mortgages for low-income families shall
meet or exceed either:
(1) The share of such mortgages in the
market as defined in paragraph (b) of
this section in each year; or
(2) The benchmark level, which for
2010 and 2011 shall be 25 percent of the
total number of refinancing mortgages
purchased by that Enterprise in each
year that finance owner-occupied
single-family properties.
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§ 1282.13 Multifamily special affordable
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(a) An Enterprise may petition the
Director in writing during any year to
reduce any goal or subgoal for that year.
(b) The Director shall seek public
comment on any such petition for a
period of 30 days.
(c) The Director shall make a
determination regarding the petition
within 30 days after the end of the
public comment period. If the Director
requests additional information from the
Enterprise after the end of the public
comment period, the Director may
extend the period for a final
determination for a single additional 15day period.
(d) The Director may reduce a goal or
subgoal pursuant to a petition for
reduction only if:
(1) Market and economic conditions
or the financial condition of the
Enterprise require such a reduction; or
(2) Efforts to meet the goal or subgoal
would result in the constraint of
liquidity, over-investment in certain
market segments, or other consequences
contrary to the intent of the Safety and
Soundness Act or the purposes of the
Charter Acts (12 U.S.C. 1716; 12 U.S.C.
1451 note).
§ 1282.15
(a) Multifamily housing goal and
subgoal. An Enterprise shall be in
compliance with a multifamily housing
goal or subgoal if its performance under
the housing goal or subgoal meets or
exceeds the benchmark level for the
goal.
(b) Multifamily Low-income Housing
Goal. For the years 2010 and 2011, the
goal for each Enterprise’s purchases of
mortgages on multifamily residential
housing affordable to low-income
families shall be, for Fannie Mae, at
least 237,000 dwelling units affordable
to low-income families in multifamily
residential housing financed by
mortgages purchased by that Enterprise
in each year, and for Freddie Mac, at
least 215,000 such dwelling units in
each year.
(c) Multifamily Very low-income
Housing Subgoal. For the years 2010
and 2011, the subgoal for each
Enterprise’s purchases of mortgages on
multifamily residential housing
affordable to very low-income families
shall be, for Fannie Mae, at least 57,000
dwelling units affordable to very lowincome families in multifamily
residential housing financed by
mortgages purchased by that Enterprise
in each year, and for Freddie Mac, at
least 28,000 such dwelling units in each
year.
VerDate Nov<24>2008
§ 1282.14 Discretionary adjustment of
housing goals.
General counting requirements.
(a) Calculating the numerator and
denominator for single-family housing
goals. Performance under each of the
single-family housing goals shall be
measured using a fraction that is
converted into a percentage. Neither the
numerator nor the denominator shall
include Enterprise transactions or
activities that are not mortgage
purchases as defined by FHFA or that
are specifically excluded as ineligible
under § 1282.16(b).
(1) The numerator. The numerator of
each fraction is the number of mortgage
purchases of an Enterprise in a
particular year that finance owneroccupied single-family properties that
count toward achievement of a
particular single-family housing goal.
(2) The denominator. The
denominator of each fraction is the total
number of mortgage purchases of an
Enterprise in a particular year that
finance owner-occupied single-family
properties. A separate denominator
shall be calculated for purchase money
mortgages and for refinancing
mortgages.
(b) Missing data or information for
single-family housing goals. When an
Enterprise lacks sufficient data or
information to determine whether the
purchase of a mortgage originated after
1992 counts toward achievement of a
particular single-family housing goal,
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that mortgage purchase shall be
included in the denominator for that
housing goal, except under the
circumstances described in this
paragraph (b).
(1) Mortgage purchases financing
owner-occupied single-family properties
shall be evaluated based on the income
of the mortgagors and the area median
income at the time the mortgage was
originated. To determine whether
mortgages may be counted under a
particular family income level, i.e., lowor very low-income, the income of the
mortgagors is compared to the median
income for the area at the time of the
mortgage application, using the
appropriate percentage factor provided
under § 1282.17.
(2) When the income of the
mortgagor(s) is not available to
determine whether a mortgage purchase
counts toward achievement of a
particular single-family housing goal, an
Enterprise’s performance with respect to
such mortgage purchase may be
evaluated using estimated affordability
information by multiplying the number
of mortgage purchases with missing
borrower income information in each
census tract by the percentage of all
single-family owner-occupied mortgage
originations in the respective tracts that
would count toward achievement of
each goal, as determined by FHFA based
on the most recent Home Mortgage
Disclosure Act data available.
(3) The estimation methodology in
paragraph (b)(2) of this section may be
used up to a nationwide maximum that
shall be calculated by multiplying, for
each census tract, the percentage of all
single-family owner-occupied mortgage
originations with missing borrower
incomes (as determined by FHFA based
on the most recent Home Mortgage
Disclosure Act data available for home
purchase and refinance mortgages,
respectively) by the number of
Enterprise mortgage purchases secured
by single-family owner-occupied
properties for each census tract,
summed up over all census tracts.
Separate nationwide maximums shall be
calculated for purchase money
mortgages and for refinancing
mortgages. If the nationwide maximum
is exceeded, then the estimated number
of goal-qualifying mortgages will be
adjusted by the ratio of the applicable
nationwide maximum to the total
number of mortgage purchases secured
by single-family owner-occupied
properties for the Enterprise in that
year. Mortgage purchases in excess of
the nationwide maximum, and any
units for which estimation information
is not available, shall remain in the
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denominator of the respective goal
calculation.
(c) Counting dwelling units for
multifamily housing goal and subgoal.
Performance under the multifamily
housing goal and subgoal shall be
measured by counting the number of
dwelling units that count toward
achievement of a particular housing goal
or subgoal in all multifamily properties
financed by mortgages purchased by an
Enterprise in a particular year. Only
dwelling units that are financed by
mortgage purchases, as defined by
FHFA, and that are not specifically
excluded as ineligible under
§ 1282.16(b), may be counted for
purposes of the multifamily housing
goal and subgoal.
(d) Counting rental units. For
purposes of counting rental units
toward achievement of the multifamily
housing goal and subgoal, mortgage
purchases financing such units shall be
evaluated based on the income of actual
or prospective tenants where such data
is available, i.e., known to a lender.
(1) Use of income. Each Enterprise
shall require lenders to provide to the
Enterprise tenant income information,
but only when such information is
known to the lender. When the income
of actual tenants is available, the income
of the tenant shall be compared to the
median income for the area, adjusted for
family size as provided in § 1282.17, or
as provided in § 1282.18 if family size
is not known.
(i) When such tenant income
information is available for all occupied
units, the Enterprise’s performance shall
be based on the income of the tenants
in the occupied units. For unoccupied
units that are vacant and available for
rent and for unoccupied units that are
under repair or renovation and not
available for rent, the Enterprise shall
use rent levels for comparable units in
the property to determine affordability,
except as provided in paragraph
(d)(1)(ii) of this section.
(ii) When income for tenants is
available to a lender because a project
is subject to a Federal housing program
that establishes the maximum income
for a tenant or a prospective tenant in
rental units, the income of prospective
tenants may be counted at the maximum
income level established under such
housing program for that unit. In
determining the income of prospective
tenants, the income shall be projected
based on the types of units and market
area involved. Where the income of
prospective tenants is projected, each
Enterprise must determine that the
income figures are reasonable
considering the rents (if any) on the
same units in the past and considering
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current rents on comparable units in the
same market area.
(2) Use of rent. When the income of
the prospective or actual tenants of a
dwelling unit is not available,
performance under the multifamily
housing goal and subgoal will be
evaluated based on rent and whether the
rent is affordable to the income group
targeted by the housing goal and
subgoal. A rent is affordable if the rent
does not exceed the maximum income
levels as provided in § 1282.19. In
determining contract rent for a dwelling
unit, the actual rent or average rent by
unit type shall be used.
(3) Model units and rental offices. A
model unit or rental office in a
multifamily property may be counted
for purposes of the multifamily housing
goal and subgoal only if an Enterprise
determines that the number of such
units is reasonable and minimal
considering the size of the multifamily
property.
(4) Timeliness of information. In
evaluating affordability under the
multifamily housing goal and subgoal,
each Enterprise shall use tenant and
rental information as of the time of
mortgage acquisition.
(e) Missing data or information for
multifamily housing goal and subgoal.
(1) When an Enterprise lacks sufficient
information to determine whether a
rental unit in a property securing a
multifamily mortgage purchased by an
Enterprise counts toward achievement
of the multifamily housing goal or
subgoal because neither the income of
prospective or actual tenants, nor the
actual or average rental data, are
available, an Enterprise’s performance
with respect to such unit may be
evaluated using estimated affordability
information by multiplying the number
of rental units with missing affordability
information in properties securing
multifamily mortgages purchased by the
Enterprise in each census tract by the
percentage of all rental dwelling units in
the respective tracts that would count
toward achievement of each goal and
subgoal, as determined by FHFA based
on the most recent decennial census.
(2) The estimation methodology in
paragraph (e)(1) of this section may be
used up to a nationwide maximum of
ten percent of the total number of rental
units in properties securing multifamily
mortgages purchased by the Enterprise
in the current year. Multifamily rental
units in excess of this maximum, and
any units for which estimation
information is not available, shall not be
counted for purposes of the multifamily
housing goal and subgoal.
(f) Credit toward multiple goals. A
mortgage purchase (or dwelling unit
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financed by such purchase) by an
Enterprise in a particular year shall
count toward the achievement of each
housing goal for which such purchase
(or dwelling unit) qualifies in that year.
(g) Application of median income. (1)
For purposes of determining an area’s
median income under §§ 1282.17
through 1282.19 and the definitions in
§ 1282.1, the area is:
(i) The metropolitan area, if the
property which is the subject of the
mortgage is in a metropolitan area; and
(ii) In all other areas, the county in
which the property is located, except
that where the State non-metropolitan
median income is higher than the
county’s median income, the area is the
State non-metropolitan area.
(2) When an Enterprise cannot
precisely determine whether a mortgage
is on dwelling unit(s) located in one
area, the Enterprise shall determine the
median income for the split area in the
manner prescribed by the Federal
Financial Institutions Examination
Council for reporting under the Home
Mortgage Disclosure Act, if the
Enterprise can determine that the
mortgage is on dwelling unit(s) located
in:
(i) A census tract;
(ii) A census place code;
(iii) A block-group enumeration
district;
(iv) A nine-digit zip code; or
(v) Another appropriate geographic
segment that is partially located in more
than one area (‘‘split area’’).
(h) Sampling not permitted.
Performance under the housing goals for
each year shall be based on a complete
tabulation of mortgage purchases (or
dwelling units) for that year; a sampling
of such purchases (or dwelling units) is
not acceptable.
(i) Newly available data. When an
Enterprise uses data to determine
whether a mortgage purchase (or
dwelling unit) counts toward
achievement of any goal and new data
is released after the start of a calendar
quarter, the Enterprise need not use the
new data until the start of the following
quarter.
§ 1282.16
Special counting requirements.
(a) General. FHFA shall determine
whether an Enterprise shall receive full,
partial, or no credit toward achievement
of any of the housing goals for a
transaction that otherwise qualifies
under this part. In this determination,
FHFA will consider whether a
transaction or activity of the Enterprise
is substantially equivalent to a mortgage
purchase and either creates a new
market or adds liquidity to an existing
market, provided however that such
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mortgage purchase actually fulfills the
Enterprise’s purposes and is in
accordance with its Charter Act.
(b) Not counted. The following
transactions or activities shall not be
counted for purposes of the housing
goals and shall not be included in the
numerator or the denominator in
calculating either Enterprise’s
performance under the housing goals,
even if the transaction or activity would
otherwise be counted pursuant to
paragraph (c) of this section:
(1) Equity investments in low-income
housing tax credits;
(2) Purchases of State and local
government housing bonds except as
provided in paragraph (c)(8) of this
section;
(3) Purchases of non-conventional
single-family mortgages;
(4) Commitments to buy mortgages at
a later date or time;
(5) Options to acquire mortgages;
(6) Rights of first refusal to acquire
mortgages;
(7) Any interests in mortgages that the
Director determines, in writing, shall
not be treated as interests in mortgages;
(8) Mortgage purchases to the extent
they finance any dwelling units that are
secondary residences;
(9) Single-family refinancing
mortgages that result from conversion of
balloon notes to fully amortizing notes,
if the Enterprise already owns or has an
interest in the balloon note at the time
conversion occurs;
(10) Purchases of subordinate lien
mortgages (second mortgages);
(11) Purchases of mortgages or
interests in mortgages that were
previously counted by either Enterprise
under any current or previous housing
goal within the five years immediately
preceding the current performance year;
(12) Purchases of mortgages where the
property has not been approved for
occupancy;
(13) Purchases of private label
securities;
(14) Enterprise contributions to the
Housing Trust Fund (12 U.S.C. 4568)
and the Capital Magnet Fund (12 U.S.C.
4569), and mortgage purchases funded
with such grant amounts; and
(15) Any combination of factors in
paragraphs (b)(1) through (b)(14) of this
section.
(c) Other special rules. Subject to
FHFA’s determination of whether an
Enterprise shall receive full, partial, or
no credit for a transaction toward
achievement of any of the housing goals
as provided in paragraph (a) of this
section, the transactions and activities
identified in this paragraph (c) shall be
treated as mortgage purchases as
described. A transaction or activity that
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is covered by more than one paragraph
below must satisfy the requirements of
each such paragraph. The mortgages (or
dwelling units, for the multifamily
housing goals) from each such
transaction or activity shall be included
in the denominator in calculating the
Enterprise’s performance under the
housing goals, and shall be included in
the numerator, as appropriate.
(1) Credit enhancements. (i)
Mortgages (or dwelling units) financed
under a credit enhancement entered
into by an Enterprise shall be treated as
mortgage purchases for purposes of the
housing goals only when:
(A) The Enterprise provides a specific
contractual obligation to ensure timely
payment of amounts due under a
mortgage or mortgages financed by the
issuance of housing bonds (such bonds
may be issued by any entity, including
a State or local housing finance agency);
and
(B) The Enterprise assumes a credit
risk in the transaction substantially
equivalent to the risk that would have
been assumed by the Enterprise if it had
securitized the mortgages financed by
such bonds.
(ii) When an Enterprise provides a
specific contractual obligation to ensure
timely payment of amounts due under
any mortgage originally insured by a
public purpose mortgage insurance
entity or fund, the Enterprise may, on a
case-by-case basis, seek approval from
the Director for such activities to count
toward achievement of the housing
goals.
(2) [Reserved.]
(3) Risk-sharing. Mortgages purchased
under risk-sharing arrangements
between an Enterprise and any Federal
agency under which the Enterprise is
responsible for a substantial amount (50
percent or more) of the risk shall be
treated as mortgage purchases for
purposes of the housing goals.
(4) Participations. Participations
purchased by an Enterprise shall be
treated as mortgage purchases for
purposes of the housing goals only
when the Enterprise’s participation in
the mortgage is 50 percent or more.
(5) Cooperative housing and
condominiums. (i) The purchase of a
mortgage on a cooperative housing unit
(‘‘a share loan’’) or a mortgage on a
condominium unit shall be treated as a
mortgage purchase for purposes of the
housing goals. Such a purchase shall be
counted in the same manner as a
mortgage purchase of single-family
owner-occupied units.
(ii) The purchase of a mortgage on a
cooperative building (‘‘a blanket loan’’)
or a mortgage on a condominium project
shall be treated as a mortgage purchase
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9069
for purposes of the housing goals. The
purchase of a blanket loan or a
condominium project mortgage shall be
counted in the same manner as a
mortgage purchase of a multifamily
rental property.
(iii) Where an Enterprise purchases
both a blanket loan on a cooperative
building and share loans for units in the
same building, both the blanket loan
and the share loan(s) shall be treated as
mortgage purchases for purposes of the
housing goals. Where an Enterprise
purchases both a condominium project
mortgage and mortgages on
condominium dwelling units in the
same project, both the condominium
project mortgages and the mortgages on
condominium dwelling units shall be
treated as mortgage purchases for
purposes of the housing goals.
(6) Seasoned mortgages. An
Enterprise’s purchase of a seasoned
mortgage shall be treated as a mortgage
purchase for purposes of the housing
goals, except where the Enterprise has
already counted the mortgage under any
current or previous housing goal within
the five years immediately preceding
the current performance year.
(7) Purchase of refinancing mortgages.
The purchase of a refinancing mortgage
by an Enterprise shall be treated as a
mortgage purchase for purposes of the
housing goals only if the refinancing is
an arms-length transaction that is
borrower-driven.
(8) Mortgage revenue bonds. The
purchase or guarantee by an Enterprise
of a mortgage revenue bond issued by a
State or local housing finance agency
shall be treated as a purchase of the
underlying mortgages for purposes of
the housing goals only to the extent the
Enterprise has sufficient information to
determine whether the underlying
mortgages or mortgage-backed securities
qualify for inclusion in the numerator
for one or more housing goal.
(9) [Reserved.]
(10) Loan modifications. An
Enterprise’s modification of a loan in
accordance with the Making Home
Affordable program announced on
March 4, 2009, that is held in the
Enterprise’s portfolio or that is in a pool
backing a security guaranteed by the
Enterprise, shall be treated as a
mortgage purchase for purposes of the
housing goals.
(11) [Reserved.]
(12) [Reserved.]
(13) [Reserved.]
(14) Seller dissolution option. (i)
Mortgages acquired through transactions
involving seller dissolution options
shall be treated as mortgage purchases
for purposes of the housing goals, only
when:
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(A) The terms of the transaction
provide for a lockout period that
prohibits the exercise of the dissolution
option for at least one year from the date
on which the transaction was entered
into by the Enterprise and the seller of
the mortgages; and
(B) The transaction is not dissolved
during the one-year minimum lockout
period.
(ii) The Director may grant an
exception to the one-year minimum
lockout period described in paragraphs
(c)(14)(i)(A) and (B) of this section, in
response to a written request from an
Enterprise, if the Director determines
that the transaction furthers the
purposes of the Safety and Soundness
Act and the Enterprise’s Charter Act;
(iii) For purposes of this paragraph
(c)(14), ‘‘seller dissolution option’’
means an option for a seller of
mortgages to the Enterprises to dissolve
or otherwise cancel a mortgage purchase
agreement or loan sale.
(d) HOEPA mortgages and mortgages
with unacceptable terms or conditions.
HOEPA mortgages and mortgages with
unacceptable terms or conditions, as
defined in § 1282.1, shall be treated as
mortgage purchases for purposes of the
housing goals and shall be included in
the denominator for each applicable
single-family housing goal, but such
mortgages shall not be counted in the
numerator for any housing goal.
(e) FHFA review of transactions.
FHFA may determine whether and how
any transaction or class of transactions
shall be counted for purposes of the
housing goals, including treatment of
missing data. FHFA will notify each
Enterprise in writing of any
determination regarding the treatment of
any transaction or class of transactions
under the housing goals.
sroberts on DSKD5P82C1PROD with PROPOSALS
§ 1282.17 Affordability—Income level
definitions—family size and income known
(owner-occupied units, actual tenants, and
prospective tenants).
In determining whether a dwelling
unit is affordable where income
information (and family size, for rental
housing) is known to the Enterprise, the
affordability of the unit shall be
determined as follows:
(a) Moderate-income means:
(1) In the case of owner-occupied
units, income not in excess of 100
percent of area median income; and
(2) In the case of rental units, where
the income of actual or prospective
tenants is available, income not in
excess of the following percentages of
area median income corresponding to
the following family sizes:
VerDate Nov<24>2008
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Jkt 220001
Percentage of
area median
income
Number of persons
in family
1
2
3
4
5
..........................................
..........................................
..........................................
..........................................
or more ............................
70
80
90
100
*
* 100% plus (8% multiplied by the number of
persons in excess of 4).
(b) Low-income (80%) means:
(1) In the case of owner-occupied
units, income not in excess of 80
percent of area median income; and
(2) In the case of rental units, where
the income of actual or prospective
tenants is available, income not in
excess of the following percentages of
area median income corresponding to
the following family sizes:
2
3
4
5
..........................................
..........................................
..........................................
..........................................
or more ............................
56
64
72
80
*
Percentage of
area median
income
..........................................
..........................................
..........................................
or more ............................
40
45
50
*
* 50% plus (4% multiplied by the number of
persons in excess of 4).
(e) Extremely low-income means:
(1) In the case of owner-occupied
units, income not in excess of 30
percent of area median income; and
(2) In the case of rental units, where
the income of actual or prospective
tenants is available, income not in
excess of the following percentages of
area median income corresponding to
the following family sizes:
Percentage of
area median
income
Number of persons
in family
1
2
3
4
5
Number of persons
in family
Number of persons
in family
1
2
3
4
5
Percentage of
area median
income
..........................................
..........................................
..........................................
..........................................
or more ............................
21
24
27
30
*
* 80% plus (6.4% multiplied by the number
of persons in excess of 4).
* 30% plus (2.4% multiplied by the number
of persons in excess of 4).
(c) Low-income (60%) means:
(1) In the case of owner-occupied
units, income not in excess of 60
percent of area median income; and
(2) In the case of rental units, where
the income of actual or prospective
tenants is available, income not in
excess of the following percentages of
area median income corresponding to
the following family sizes:
§ 1282.18 Affordability—Income level
definitions—family size not known (actual
or prospective tenants).
Percentage of
area median
income
Number of persons
in family
1
2
3
4
5
..........................................
..........................................
..........................................
..........................................
or more ............................
42
48
54
60
*
* 60% plus (4.8% multiplied by the number
of persons in excess of 4).
(d) Very low-income means:
(1) In the case of owner-occupied
units, income not in excess of 50
percent of area median income; and
(2) In the case of rental units, where
the income of actual or prospective
tenants is available, income not in
excess of the following percentages of
area median income corresponding to
the following family sizes:
In determining whether a rental unit
is affordable where family size is not
known to the Enterprise, income will be
adjusted using unit size, and
affordability determined as follows:
(a) For moderate-income, the income
of prospective tenants shall not exceed
the following percentages of area
median income with adjustments,
depending on unit size:
Unit size
Efficiency ............................
1 bedroom ..........................
2 bedrooms .........................
3 bedrooms or more ...........
(b) For low-income (80%), income of
prospective tenants shall not exceed the
following percentages of area median
income with adjustments, depending on
unit size:
Percentage of
area median
income
1 ..........................................
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70
75
90
*
* 104% plus (12% multiplied by the number
of bedrooms in excess of 3).
Unit size
Number of persons
in family
Percentage of
area median
income
35
Efficiency ............................
1 bedroom ..........................
2 bedrooms .........................
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area median
income
56
60
72
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Unit size
Percentage of
area median
income
3 bedrooms or more ...........
*
* 83.2% plus (9.6% multiplied by the number
of bedrooms in excess of 3).
(c) For low-income (60%), income of
prospective tenants shall not exceed the
following percentages of area median
income with adjustments, depending on
unit size:
Unit size
Percentage of
area median
income
Efficiency ............................
1 bedroom ..........................
2 bedrooms .........................
3 bedrooms or more ...........
Efficiency ............................
1 bedroom ..........................
2 bedrooms .........................
3 bedrooms or more ...........
(d) For very low-income, income of
prospective tenants shall not exceed the
following percentages of area median
income with adjustments, depending on
unit size:
(b) For low-income (80%), maximum
affordable rents to count as housing for
low-income (80%) families shall not
exceed the following percentages of area
median income with adjustments,
depending on unit size:
Efficiency ............................
1 bedroom ..........................
2 bedrooms .........................
3 bedrooms or more ...........
(c) For low-income (60%), maximum
affordable rents to count as housing for
low-income (60%) families shall not
exceed the following percentages of area
35 median income with adjustments,
37.5 depending on unit size:
45
*
(e) For extremely low-income, income
of prospective tenants shall not exceed
the following percentages of area
median income with adjustments,
depending on unit size:
Efficiency ............................
1 bedroom ..........................
2 bedrooms .........................
3 bedrooms or more ...........
12.6
13.5
16.2
*
* 18.72% plus (2.16% multiplied by the number of bedrooms in excess of 3).
(d) For very low-income, maximum
affordable rents to count as housing for
very low-income families shall not
21
exceed the following percentages of area
22.5
27 median income with adjustments,
* depending on unit size:
* 31.2% plus (3.6% multiplied by the number
of bedrooms in excess of 3).
§ 1282.19 Affordability—Rent level
definitions—tenant income is not known.
sroberts on DSKD5P82C1PROD with PROPOSALS
Percentage of
area median
income
Unit size
Percentage of
area median
income
Efficiency ............................
1 bedroom ..........................
2 bedrooms .........................
3 bedrooms or more ...........
For purposes of determining whether
a rental unit is affordable where the
income of the family in the dwelling
unit is not known to the Enterprise, the
affordability of the unit is determined
based on unit size as follows:
(a) For moderate-income, maximum
affordable rents to count as housing for
moderate-income families shall not
exceed the following percentages of area
median income with adjustments,
depending on unit size:
16:43 Feb 25, 2010
16.8
18
21.6
*
* 24.96% plus (2.88% multiplied by the number of bedrooms in excess of 3).
* 52% plus (6.0% multiplied by the number
of bedrooms in excess of 3).
VerDate Nov<24>2008
Percentage of
area median
income
Unit size
Percentage of
area median
income
Efficiency ............................
1 bedroom ..........................
2 bedrooms .........................
3 bedrooms or more ...........
Unit size
21
22.5
27
*
* 31.2% plus (3.6% multiplied by the number
of bedrooms in excess of 3).
42
45
54
*
* 62.4% plus (7.2% multiplied by the number
of bedrooms in excess of 3).
Unit size
Percentage of
area median
income
Unit size
Jkt 220001
Percentage of
area median
income
Unit size
Efficiency ............................
1 bedroom ..........................
2 bedrooms .........................
3 bedrooms or more ...........
10.5
11.25
13.5
*
* 15.6% plus (1.8% multiplied by the number
of bedrooms in excess of 3).
(e) For extremely low-income,
maximum affordable rents to count as
housing for extremely low-income
families shall not exceed the following
percentages of area median income with
adjustments, depending on unit size:
PO 00000
Frm 00039
Fmt 4701
Sfmt 4702
Unit size
Efficiency ............................
1 bedroom ..........................
2 bedrooms .........................
3 bedrooms or more ...........
9071
Percentage of
area median income
6.3
6.75
8.1
*
* 9.36% plus (1.08% multiplied by the number of bedrooms in excess of 3).
(f) Missing Information. Each
Enterprise shall make every effort to
obtain the information necessary to
make the calculations in this section. If
an Enterprise makes such efforts but
cannot obtain data on the number of
bedrooms in particular units, in making
the calculations on such units, the units
shall be assumed to be efficiencies
except as provided in § 1282.15(e)(1).
§ 1282.20 Determination of compliance
with housing goals; notice of determination.
(a) Single-family housing goals. The
Director shall evaluate each Enterprise’s
performance under the Low-income
Families Housing Goal, the Very Lowincome Families Housing Goal, the
Low-income Areas Housing Goal, and
the Refinancing Mortgages Housing Goal
on an annual basis. If the Director
determines that an Enterprise has failed,
or there is a substantial probability that
an Enterprise will fail to meet a singlefamily housing goal established by this
subpart, the Director shall notify the
Enterprise in writing of such
preliminary determination.
(b) Multifamily housing goal and
subgoal. The Director shall evaluate
each Enterprise’s performance under the
Multifamily Low-income Housing Goal
and the Multifamily Very Low-income
Housing Subgoal on an annual basis. If
the Director determines that an
Enterprise has failed, or there is a
substantial probability that an
Enterprise will fail to meet a
multifamily housing goal or subgoal
established by this subpart, the Director
shall notify the Enterprise in writing of
such preliminary determination.
(c) Any notification to an Enterprise
of a preliminary determination under
this section shall provide the Enterprise
with an opportunity to respond in
writing in accordance with the
procedures at 12 U.S.C. 4566(b).
§ 1282.21
Housing plans.
(a) General. If the Director determines
that an Enterprise has failed, or there is
a substantial probability that an
Enterprise will fail, to meet any housing
goal and that the achievement of the
housing goal was or is feasible, the
Director may require the Enterprise to
submit a housing plan for approval by
the Director.
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Federal Register / Vol. 75, No. 38 / Friday, February 26, 2010 / Proposed Rules
(b) Nature of plan. If the Director
requires a housing plan, the housing
plan shall:
(1) Be feasible;
(2) Be sufficiently specific to enable
the Director to monitor compliance
periodically;
(3) Describe the specific actions that
the Enterprise will take:
(i) To achieve the goal for the next
calendar year; and
(ii) If the Director determines that
there is a substantial probability that the
Enterprise will fail to meet a housing
goal in the current year, to make such
improvements and changes in its
operations as are reasonable in the
remainder of the year; and
(4) Address any additional matters
relevant to the plan as required, in
writing, by the Director.
(c) Deadline for submission. The
Enterprise shall submit the housing plan
to the Director within 45 days after
issuance of a notice requiring the
Enterprise to submit a housing plan.
The Director may extend the deadline
for submission of a plan, in writing and
for a time certain, to the extent the
Director determines an extension is
necessary.
(d) Review of housing plans. The
Director shall review and approve or
disapprove housing plans in accordance
with 12 U.S.C. 4566(c)(4) and (c)(5).
(e) Resubmission. If the Director
disapproves an initial housing plan
submitted by an Enterprise, the
Enterprise shall submit an amended
plan acceptable to the Director not later
than 15 days after the Director’s
disapproval of the initial plan; the
Director may extend the deadline if the
Director determines an extension is in
the public interest. If the amended plan
is not acceptable to the Director, the
Director may afford the Enterprise 15
days to submit a new plan.
Subpart C—[Reserved]
Subpart D—Reporting Requirements
§ 1282.61
General.
This subpart establishes data
submission and reporting requirements
to carry out the requirements of the
Enterprises’ Charter Acts and the Safety
and Soundness Act.
sroberts on DSKD5P82C1PROD with PROPOSALS
§ 1282.62
Mortgage reports.
(a) Loan-level data elements. To
implement the data collection and
submission requirements for mortgage
data, and to assist the Director in
monitoring the Enterprises’ housing goal
VerDate Nov<24>2008
16:43 Feb 25, 2010
Jkt 220001
activities, each Enterprise shall collect
and compile computerized loan-level
data on each mortgage purchased in
accordance with 12 U.S.C. 1456(e) and
1723a(m). The Director may, from time
to time, issue a list entitled ‘‘Required
Loan-level Data Elements’’ specifying
the loan-level data elements to be
collected and maintained by the
Enterprises and provided to the
Director. The Director may revise the
list by written notice to the Enterprises.
(b) Quarterly Mortgage Reports. Each
Enterprise shall submit to the Director a
quarterly Mortgage Report. The fourth
quarter Mortgage Report shall serve as
the Annual Mortgage Report and shall
be designated as such. Each Mortgage
Report shall include:
(1) Aggregations of the loan-level
mortgage data compiled by the
Enterprise under paragraph (a) of this
section for year-to-date mortgage
purchases, in the format specified in
writing by the Director;
(2) Year-to-date dollar volume,
number of units, and number of
mortgages on owner-occupied and
rental properties purchased by the
Enterprise that do, and do not, qualify
under each housing goal as set forth in
this part; and
(3) Year-to-date computerized loanlevel data consisting of the data
elements required under paragraph (a)
of this section.
(c) Timing of Reports. The Enterprises
shall submit the Mortgage Report for
each of the first 3 quarters of each year
within 45 days of the end of the quarter.
Each Enterprise shall submit its Annual
Mortgage Report within 60 days after
the end of the calendar year.
(d) Revisions to Reports. At any time
before submission of its Annual
Mortgage Report, an Enterprise may
revise any of its quarterly reports for
that year.
(e) Format. The Enterprises shall
submit to the Director computerized
loan-level data with the Mortgage
Report, in the format specified in
writing by the Director.
§ 1282.63
Report.
Annual Housing Activities
To comply with the requirements in
sections 309(n) of the Fannie Mae
Charter Act and 307(f) of the Freddie
Mac Act and assist the Director in
preparing the Director’s Annual Report
to Congress, each Enterprise shall
submit to the Director an AHAR
including the information listed in those
sections of the Charter Acts. Each
Enterprise shall submit such report
PO 00000
Frm 00040
Fmt 4701
Sfmt 9990
within 60 days after the end of each
calendar year, to the Director, the
Committee on Financial Services of the
House of Representatives, and the
Committee on Banking, Housing, and
Urban Affairs of the Senate. Each
Enterprise shall make its AHAR
available to the public online and at its
principal and regional offices. Before
making any such report available to the
public, the Enterprise may exclude from
the report any information that the
Director has deemed proprietary.
§ 1282.64
Periodic reports.
Each Enterprise shall provide to the
Director such reports, information and
data as the Director may request from
time to time.
§ 1282.65
Enterprise data integrity.
(a) Certification. (1) The senior officer
of each Enterprise who is responsible
for submitting the fourth quarter Annual
Mortgage Report and the AHAR under
sections 309(m) and (n) of the Fannie
Mae Charter Act or sections 307(e) and
(f) of the Freddie Mac Act, as applicable,
or for submitting any other report(s),
data or information for which
certification is requested in writing by
the Director, shall certify such report(s),
data or information.
(2) The certification shall state as
follows: ‘‘To the best of my knowledge
and belief, the information provided
herein is true, correct and complete.’’
(b) Adjustment to correct errors,
omissions or discrepancies in AHAR
data. FHFA shall determine the official
housing goal performance figure for
each Enterprise under the housing goals
on an annual basis. FHFA may resolve
any error, omission or discrepancy by
adjusting the Enterprise’s official
housing goal performance figure. If the
Director determines that the year-end
data reported by an Enterprise for a year
preceding the latest year for which data
on housing goals performance was
reported to FHFA contained a material
error, omission or discrepancy, the
Director may increase the corresponding
housing goal for the current year by the
number of mortgages (or dwelling units)
that the Director determines were
overstated in the prior year’s goal
performance.
Dated: February 16, 2010.
Edward J. DeMarco,
Acting Director, Federal Housing Finance
Agency.
[FR Doc. 2010–3310 Filed 2–25–10; 8:45 am]
BILLING CODE P
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Agencies
[Federal Register Volume 75, Number 38 (Friday, February 26, 2010)]
[Proposed Rules]
[Pages 9034-9072]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-3310]
[[Page 9033]]
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Part II
Federal Housing Finance Agency
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12 CFR Parts 1249 and 1282
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2010-2011 Enterprise Affordable Housing Goals; Enterprise Book-Entry
Procedures; Proposed Rule
Federal Register / Vol. 75 , No. 38 / Friday, February 26, 2010 /
Proposed Rules
[[Page 9034]]
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FEDERAL HOUSING FINANCE AGENCY
12 CFR Parts 1249 and 1282
RIN 2590-AA26
2010-2011 Enterprise Affordable Housing Goals; Enterprise Book-
Entry Procedures
AGENCY: Federal Housing Finance Agency.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: Section 1128(b) of the Housing and Economic Recovery Act of
2008 (HERA) amended the Federal Housing Enterprises Financial Safety
and Soundness Act of 1992 (Safety and Soundness Act) to provide for the
establishment, monitoring and enforcement of new affordable housing
goals effective for 2010 and 2011 for the Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
(Freddie Mac) (collectively, the Enterprises). Section 1332(a) of the
Safety and Soundness Act, as amended by HERA, requires the Federal
Housing Finance Agency (FHFA) to establish three single-family owner-
occupied purchase money mortgage goals and a single-family refinancing
mortgage goal. Section 1333(a) of the Safety and Soundness Act requires
FHFA to establish a multifamily special affordable housing goal, as
well as providing for a multifamily special affordable housing subgoal.
FHFA is issuing and seeking comments on a proposed rule that would
establish new affordable housing goals for 2010 and 2011, consistent
with the Safety and Soundness Act, as amended. The proposed rule would
also revise and update the rules for counting mortgages for purposes of
the affordable housing goals to ensure clarity and consistency with the
new goals.
DATES: Written comments must be received on or before April 12, 2010.
ADDRESSES: You may submit your comments, identified by regulatory
information number (RIN) 2590-AA26, by any one 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-AA26, 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-AA26,
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-AA26'' 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-AA26'' in the subject line of the
message.
FOR FURTHER INFORMATION CONTACT: Nelson Hernandez, Senior Associate
Director, Housing Mission and Goals, (202) 408-2993, Brian Doherty,
Manager, Housing Mission and Goals, (202) 408-2991, Paul Manchester,
Principal Economist, Housing Mission and Goals--Quantitative Analysis,
(202) 408-2946, Sharon Like, Associate General Counsel, (202) 414-8950,
Lyn Abrams, Attorney, (202) 414-8951, or Kevin Sheehan, Attorney, (202)
414-8952. These are not toll-free numbers. The mailing address for each
contact is: 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
without change, including any personal information you provide, such as
your name and address, 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, please call the Office of General
Counsel at (202) 414-3751.
II. Background
A. Establishment of FHFA
Effective July 30, 2008, HERA amended the Safety and Soundness Act
to create 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 the
Department of Housing and Urban Development (HUD) to FHFA. 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.\2\
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\1\ See Division A, titled the ``Federal Housing Finance
Regulatory Reform Act of 2008,'' Title I, Sec. 1101, Public Law
110-289, 122 Stat. 2654 (2008), codified at 12 U.S.C. 4501 et seq.
\2\ See 12 U.S.C. 4513.
---------------------------------------------------------------------------
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
and the Federal Home Loan Mortgage Corporation Act (together, the
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.\3\ The Enterprises are government-sponsored
enterprises (GSEs) chartered by Congress for the purpose of
establishing secondary market facilities for residential mortgages.\4\
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.\5\
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\3\ See HERA at section 1302, 122 Stat. 2795.
\4\ See 12 U.S.C. 1716 et seq.; 12 U.S.C. 1451 et seq.
\5\ Id.
---------------------------------------------------------------------------
B. Statutory and Regulatory Background
Prior to HERA, the Safety and Soundness Act provided the Secretary
of HUD with the authority to establish, monitor and enforce affordable
housing
[[Page 9035]]
goals for the Enterprises.\6\ 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.\7\ HUD's regulations provided for the
housing goal levels for 2008 to continue in effect in 2009 and each
year thereafter until replaced by new annual housing goals established
by HUD.\8\ In August 2009, FHFA issued a final rule that adopted many
of the existing housing goals provisions in a new part 1282 of title 12
of the Code of Federal Regulations. As authorized by section 1331(c) of
the Safety and Soundness Act, the final rule also revised the levels of
the existing affordable housing goals in light of current market
conditions.\9\
---------------------------------------------------------------------------
\6\ See 12 U.S.C. 4561 et seq. (2008).
\7\ See 24 CFR part 81 (2008).
\8\ See 24 CFR 81.12 through 81.14 (2008).
\9\ See 74 FR 39873 (Aug. 10, 2009).
---------------------------------------------------------------------------
The Safety and Soundness Act, as amended by HERA, requires the
Director of FHFA to establish new affordable housing goals effective
for 2010 and beyond. The new housing goals include four goals for
single-family, owner-occupied housing, one multifamily special
affordable housing goal, and one multifamily special affordable housing
subgoal.\10\ The single-family housing goals target purchase money
mortgages for low-income families, families that reside in low-income
areas, and very low-income families, and refinancing mortgages for low-
income families.\11\ The multifamily special affordable housing goal
targets multifamily housing affordable to low-income families, and the
multifamily special affordable housing subgoal targets multifamily
housing affordable to very low-income families.\12\
---------------------------------------------------------------------------
\10\ See 12 U.S.C. 4561 and 4563(a)(2).
\11\ See 12 U.S.C. 4562.
\12\ See 12 U.S.C. 4563.
---------------------------------------------------------------------------
C. Conservatorship
On September 6, 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. Prospective and Market-Based Goals
Following passage of the Safety and Soundness Act, HUD established
housing goals for Fannie Mae and Freddie Mac in October 1993,\13\ and
revised and expanded those goals in 1995,\14\ 2000,\15\ and 2004.\16\
Multi-year goals were set in the 1993 housing goals rule for 1993-94
(subsequently extended to 1995), in the 1994 housing goals rule for
1996-99 (with the goal levels for 1999 continuing in effect for 2000),
in the 2000 housing goals rule for 2001-03 (with the goal levels for
2003 continuing in effect for 2004), and in the 2004 housing goals rule
for 2005-08.
---------------------------------------------------------------------------
\13\ See 58 FR 53048 (Oct. 13, 1993) and 58 FR 53072 (Oct. 13,
1993).
\14\ See 60 FR 61846 (Dec. 1, 1995).
\15\ See 65 FR 65044 (Oct. 31, 2000).
\16\ See 69 FR 63580 (Nov. 2, 2004).
---------------------------------------------------------------------------
In each case, the numerical goals were established up to four years
in advance. The goals were set as specific minimum goal-qualifying
percentages of all dwelling units financed by mortgages acquired by
each Enterprise in a given year, except for the special affordable
multifamily subgoal, which was set as a minimum dollar volume of this
type of business. In the 2004 final rule, HUD added three single-family
home purchase subgoals, which were similarly set as specific minimum
goal-qualifying percentages of all home purchase mortgages financed by
the Enterprises on owner-occupied properties in metropolitan
statistical areas (MSAs).
HUD set the goals for 1993-2008 based on the six factors as
specified in the Safety and Soundness Act. The most important such
factors were past performance on the goals and, especially, for the
home purchase subgoals, HUD's estimates of the goal-qualifying shares
of home purchase mortgages in the primary mortgage market on properties
in MSAs. For the overall goals, HUD's estimates of the goal-qualifying
shares of all dwelling units financed in the primary market by the
Enterprises in each year were also important. For example, HUD
estimated that low- and moderate-income units would account for 50-55
percent of all units financed in the primary mortgage market for 2003-
04, and 51-56 percent of all units financed in 2005-08. The low- and
moderate-income goal was set at 50 percent for 2003-04, and was later
established to increase in accordance with the market range over the
2005-08 period--specifically, 52 percent for 2005, 53 percent for 2006,
55 percent for 2007, and 56 percent for 2008. A similar approach was
followed with regard to the overall underserved areas and special
affordable goals for 2005-08.
As recent market developments show, it can be difficult to forecast
the goals-qualifying shares of the primary mortgage market several
years in advance. The forecasts developed by HUD were based on the
assumption of a ``home purchase market environment,'' a market
environment in which purchase mortgages dominate over refinancing
mortgages. However, when market conditions result in higher than
average refinance activity, the actual market goals-qualifying shares
can be significantly different from the forecast because the actual
refinance share would dominate. A second reason for the divergence
between forecasted and actual shares of goals-qualifying units in the
primary mortgage market is the variation in the affordability of
housing, such as measured by the National Association of Realtors (NAR)
housing affordability index. If the price of a product or service
declines, it is more affordable to the consumer. In this respect,
housing is no different from any other product. A third reason for
divergence is the variance in the size of the multifamily mortgage
market over time. Under the previous goals counting regime, multifamily
units played a significant role in whether an Enterprise met the goals.
A fourth reason for the divergence is the change in the size of the
share of the mortgage market accounted for by Federal Housing
Administration (FHA) and Department of Veterans Affairs (VA) mortgages.
As discussed below, the market share of mortgages insured by FHA
increased dramatically in recent years, from a monthly low of 2.5
percent in October 2005 to 32 percent in December 2008.
As measured after the fact, HUD's market estimates often differed
significantly from the actual goals-qualifying shares of the primary
market. Specifically, the actual low- and moderate-income share of the
primary market in 2003 was 53 percent, which was within HUD's 2001-2003
forecasted range of 50-55 percent, but when the share increased to 58
percent for 2004, it exceeded the upper end of the range. The low- and
moderate-income share of the primary market remained high, at 57
percent for 2005, above HUD's 2005-2008 forecasted range of 51-56
percent, but then decreased to 55 percent for 2006 and 52 percent for
2007. Thus, over the 2005-2007 period, the low- and moderate-income
goals increased steadily, while the low- and moderate-income share of
the primary mortgage market decreased steadily.
While the Enterprises are in conservatorship, FHFA expects the
Enterprises to continue to fulfill their core statutory purposes,
including their support for affordable housing. The affordable housing
goals are one set of measures of that support. FHFA does not intend for
the Enterprises to undertake uneconomic or high-risk activities in
support of the goals.
[[Page 9036]]
Further, the fact that the Enterprises are in conservatorship should
not be a justification for withdrawing support from these market
segments. While in conservatorship the Enterprises have tightened their
underwriting standards to avoid poor quality mortgages that have
contributed substantially to their losses. Maintaining sound
underwriting discipline going forward is important for conserving the
Enterprises' assets and for supporting their mission in a manner in
which the achievement of housing goals directly relates to actual
market conditions. In light of these circumstances and the difficulties
in anticipating market deviations from the normal home purchase
environment in the traditional approach to goal-setting, FHFA proposes
in this rule to measure the Enterprises' single-family goal performance
relative to benchmark levels for the goals-qualifying shares of the
Enterprises' mortgage purchases, as well as relative to the actual
goals-qualifying shares of the primary mortgage market. A dual approach
prevents exclusive reliance on multi-year mortgage market forecasts.
The primary disadvantage of this approach is that information on the
goals-qualifying shares of the current single-family primary market is
not available until the release of Home Mortgage Disclosure Act (HMDA)
data in late summer of the following year, approximately nine months
after the rating period. However, FHFA believes that the market-based
approach proposed in this rule is an appropriate measure of mission
achievement under the housing goals for the Enterprises, especially
while they are operating in conservatorship, and that the overall
advantages of this approach outweigh the disadvantages.
In 2010, FHFA expects to begin to conduct a monthly survey of
single-family mortgage originations pursuant to section 1324(c) of the
Safety and Soundness Act, as amended by HERA, and make data collected
under that survey available to the public.\17\ Release of that data is
likely to provide detailed information on home mortgage lending
activity more frequently and in a timelier manner than does the public
release of the data collected under HMDA. FHFA will use the survey data
in its monitoring of Enterprise affordable housing goals performance in
2010 and subsequent years.
---------------------------------------------------------------------------
\17\ 12 U.S.C. 4544(c).
---------------------------------------------------------------------------
This proposed rule would establish single-family housing goals that
include (1) an assessment of Enterprise performance as compared to the
actual share of the market that meets the criteria for each goal, and
(2) a benchmark level to measure Enterprise performance. The benchmark
levels for performance are intended to provide greater certainty for
the Enterprises in establishing strategies for meeting the affordable
housing goals. An Enterprise would be found to have failed to meet a
housing goal if its annual performance falls below both the benchmark
level and the actual share of the market that meets the criteria for a
particular housing goal for that year. An Enterprise would not be found
to have failed to meet a goal if it achieves the benchmark level for
that goal, even if the actual market size for the year is higher than
the benchmark level, because for planning purposes the Enterprises need
to be able to rely on the benchmarks that FHFA has set.\18\
---------------------------------------------------------------------------
\18\ See 12 U.S.C. 4561(b), acknowledging ``the need for the
enterprises to reasonably and sufficiently plan their operations and
activities in advance, including operations and activities necessary
to meet such annual goals.''
---------------------------------------------------------------------------
The proposed approach to setting goals, involving both the setting
of a prospective target and an assessment of actual market opportunity,
is a departure from past practice at HUD, as well as in the
transitional housing goals established by FHFA for 2009. FHFA has
determined that this approach is appropriate in light of the
difficulties of predicting the market, especially in light of recent
market turmoil, but also in view of the difficulty in making those
projections accurately even in more stable economic environments. FHFA
views this approach as fully consistent with Congressional intent in
granting goal-setting power to the regulator, in light of the many
provisions that Congress inserted into the statute to enable the goals
to be adjusted to reflect changing market conditions or otherwise
suggesting that the goals should be set in light of market conditions.
Those provisions include: The requirement that the agency calculate the
preceding three-year average percentages of goal-eligible originations
for each goal category, and take that information into account in
setting the single-family goals; \19\ the authority to adjust goals,
when they have been set for more than one year, based on market
conditions; \20\ the discretionary authority to adjust a goal in
response to a petition, partly in response to market conditions and the
risk of ``over-investment''; \21\ and provisions for relief from
enforcement if goals are determined not to have been feasible.\22\
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\19\ 12 U.S.C. 4562(e)(2)(A).
\20\ 12 U.S.C. 4562(e)(3).
\21\ 12 U.S.C. 4564(b)(1), (2).
\22\ 12 U.S.C. 4566(b).
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IV. Changes in Structure of Housing Goals for 2010-2011
The proposed rule would modify the structure of the housing goals
established by HUD for 2005-2008, and subsequently extended and
modified for 2009 by FHFA, in a number of ways for 2010-2011. There
would be no overall goals for 2010-2011 covering all of each
Enterprise's mortgage purchases, as in the past. Rather, there would be
four separate goals for purchases of single-family mortgages and two
goals for purchases of multifamily mortgages. These changes, many of
which are required by changes made by HERA in the governing statute,
are described in more detail below.
Enterprise goal performance under each of the single-family housing
goals is measured using a fraction of qualifying mortgage purchases as
a percent of total mortgage purchases. Neither the numerator nor the
denominator includes Enterprise transactions or activities that are not
mortgage purchases as defined by FHFA or that would be specifically
excluded as ineligible under proposed Sec. 1282.16(b). The 2010-2011
single-family goals, as proposed, would establish separate goals for
home purchase mortgages and refinancing mortgages. This differs from
past treatment, which combined such purchases for the overall goals.
In addition, the proposed rule would count only conventional loans
for purposes of the housing goals. This means that certain FHA loans
that previously counted toward the goals, such as Home Equity
Conversion Mortgages (HECMs), will no longer be counted. Second liens,
which also counted toward the goals in the past, would be excluded from
counting for purposes of the housing goals in the future. The
Enterprises have purchased very few second liens in the past.
Under the 2010-2011 goals, mortgages financing rental units in
single-family properties, which were previously included in the goals,
would no longer be counted. However, FHFA will continue to monitor the
Enterprises' purchases of such mortgages with regard to rental units in
both 2-4 unit owner-occupied housing and investor-owned 1-4 unit rental
housing.
The 2010-2011 multifamily goals would be based on the numbers of
affordable dwelling units financed, rather than being specified in
minimum dollar terms. The special affordable
[[Page 9037]]
multifamily subgoal in effect prior to 2010 applied to purchases of
mortgages on housing for families with incomes below 60 percent of area
median income (AMI) and for families with incomes between 60 percent
and 80 percent of AMI living in low-income areas. The overall
multifamily goal for 2010-2011 is somewhat broader in its coverage than
the previous special affordable multifamily goal, applying to mortgages
on housing for families with incomes no greater than 80 percent of AMI,
regardless of location. However, the 2010-2011 very low-income
multifamily subgoal would be targeted to households with slightly lower
incomes. The qualifying household income for purposes of the 2010-2011
multifamily subgoal would be at or below 50 percent of AMI.
The 2010-2011 low-income home purchase and refinancing goals in the
proposed rule would target households with lower incomes than the past
low- and moderate-income goals. The past low- and moderate-income goals
included families with incomes up to 100 percent of AMI. Under the
proposed rule, the low-income home purchase and refinancing goals would
include only families with incomes no greater than 80 percent of AMI.
The 2010-2011 low-income areas home purchase goal would be somewhat
more targeted than the past underserved areas home purchase subgoal.
For example, the new low-income areas housing goal includes families in
census tracts with incomes up to 80 percent of AMI, while the
underserved areas home purchase subgoal included families in census
tracts with incomes up to 90 percent of AMI. The narrower scope of the
low-income areas housing goal may be seen by comparing performance on
the underserved areas home purchase subgoal in 2008 (approximately 30
percent for both Enterprises) with what their performance would have
been on the low-income areas home purchase goal in 2008 (approximately
15 percent for both Enterprises).
V. Analysis of Single-Family Housing Goals
Section 1332(e)(2) of the Safety and Soundness Act, as amended by
HERA, requires FHFA to consider the following seven factors in setting
single-family housing goals:
(1) National housing needs;
(2) Economic, housing, and demographic conditions, including
expected market developments;
(3) The performance and effort of the Enterprises toward achieving
the housing goals under this section in previous years;
(4) The ability of the Enterprise to lead the industry in making
mortgage credit available;
(5) Such other reliable mortgage data as may be available;
(6) The size of the purchase money conventional mortgage market, or
refinance conventional mortgage market, as applicable, serving each of
the types of families described, relative to the size of the overall
purchase money mortgage market or the overall refinance mortgage
market, respectively; and
(7) The need to maintain the sound financial condition of the
Enterprises.\23\
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\23\ 12 U.S.C. 4562(e)(2).
---------------------------------------------------------------------------
FHFA's consideration of the size of the market for each housing
goal includes consideration of the percentage of goals-qualifying
mortgages under each housing goal, as calculated based on HMDA data for
the three most recent years for which data is available.\24\
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\24\ See 12 U.S.C. 4562(e)(2)(A).
---------------------------------------------------------------------------
A. Analysis of Factors for Single-Family Housing Goals
FHFA's analysis of each of the factors is set forth below.
1. National Housing Needs
With the collapse of subprime and Alt-A lending, tighter credit
conditions, and stricter underwriting standards, single-family mortgage
originations fell 38 percent in 2008. The Enterprises' share of single-
family mortgage-backed securities (MBS) issuance rose to over 73
percent in that year, however, and the credit risk characteristics of
their purchases began to improve. Falling house prices caused equity in
homes to decline sharply. The resetting of interest rates on poorly
underwritten adjustable rate mortgages (ARMs) originated in recent
years, deteriorating household balance sheets, rising unemployment,
continued credit tightening, and the deepening recession contributed to
increases in mortgage delinquency and home foreclosure rates as well as
sharply lower housing starts and sales.
The decline in home prices that began in 2007 accelerated sharply
in 2008. Continued tightening in lender credit policies, large
inventories of unsold homes, significant volumes of homes in
foreclosure, rising unemployment, and increasing pessimism among
potential homebuyers combined to drive home prices down further.
Despite improving housing affordability, the U.S. homeownership
rate declined since peaking at 69 percent in 2004. In the third quarter
of 2009, the homeownership rate was 67.6 percent, down from the 67.9
percent in the third quarter of 2008.\25\ The homeownership rate for
married couples with children declined from 78.8 percent in the third
quarter of 2008 to 77.9 percent in the third quarter of 2009.\26\ The
homeownership rate for Black households declined markedly from 48.2
percent in the third quarter of 2008 to 46.8 percent in the third
quarter of 2009.\27\ Between 2000 and 2005, the homeowner vacancy
rate--the proportion of the homeowner inventory that is vacant for
sale--averaged about 1.7 percent. However, that rate increased 70 basis
points in 2006 alone, to 2.7 percent in the fourth quarter, and has
inched up generally every year since, reaching 2.9 percent in the first
and fourth quarters of 2008. That was the highest rate since the Census
Bureau began collecting that statistic in 1956. The persistently high
rate reflects both the high level of foreclosures and declining home
sales.
---------------------------------------------------------------------------
\25\ U.S. Housing Market Conditions, 3rd Quarter 2009.
Department of Housing and Urban Development at 87.
\26\ U.S. Housing Market Conditions, 3rd Quarter 2009.
Department of Housing and Urban Development at 89.
\27\ U.S. Housing Market Conditions, 3rd Quarter 2009.
Department of Housing and Urban Development at 88.
---------------------------------------------------------------------------
A recent NAR study of homebuyers and sellers between July 2008 and
June 2009 shows the number of first-time homebuyers rose to 47 percent
of all homebuyers, from 41 percent in the prior year's study. The
median age for first-time homebuyers was 30 years and the median income
was $61,600. The typical first-time homebuyer purchased a home costing
$156,000, down from $165,000 in the prior year's study. The study found
that 55 percent of entry level buyers financed their purchase with an
FHA loan, and another 8 percent used the VA loan program.\28\
---------------------------------------------------------------------------
\28\ ``NAR Survey Shows First-Time Home Buyers Set Record in
Past Year.'' Press Release. National Association of Realtors. Nov.
13, 2009.
\29\ ``HMDA Data Show Huge Decline in 2008 Mortgage Activity--
Except at Government Insured Programs.'' Inside Mortgage Finance.
Oct. 2, 2009 at 8.
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According to FHFA's Monthly Interest Rate Survey (MIRS), the
average loan-to-value ratio (LTV ratio) of single-family, conventional,
purchase money mortgages, which increased rapidly from 73.6 percent in
2003 to 79.3 percent in 2007, fell to 76.7 percent in 2008. The
proportion of such loans with LTV ratios greater than 90 percent
dropped sharply from 2007's level of 29 percent--the highest level
recorded--to 18 percent in 2008.
HMDA data for 2008 indicated that applications from Black borrowers
fell by 48 percent, and applications from Hispanic borrowers fell by 55
percent.\29\
[[Page 9038]]
Originations rose somewhat in the first two quarters of 2009 over the
last two quarters of 2008, but the $410 billion in mortgage
originations in the third quarter of 2009 showed a decline of more than
25 percent over the second quarter's $550 billion.\30\
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\30\ ``Mortgage Origination Volume Dropped Sharply in 3Q09, But
2009 May End on a Rising Trend.'' Inside Mortgage Finance. Oct. 30,
2009 at 3-4.
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One of the key catalysts of the current economic crisis was falling
housing prices after the substantial increase that began in 2000. From
January 2000 through the May 2006 peak, the S&P/Case-Shiller housing
price index rose by approximately 105 percent, only to fall by more
than 30 percent since then. The less volatile FHFA housing price index,
which reflects the book of business of the Enterprises, peaked later
and has since declined about 11 percent.
Changes in mortgage underwriting, particularly for affordable
products, had a direct impact on the national housing market. During
the boom, as house price appreciation reduced affordability, low
documentation Alt-A loans, interest-only loans and ARMs proliferated.
Subprime market share tripled to more than 20 percent of the market.
Lenders accepted more loans with higher LTV ratios and lower borrower
credit scores. The Joint Center for Housing Studies report, ``State of
the Nation's Housing 2009,'' describes the effect of loosened mortgage
underwriting standards on the housing market. In 2005, a household with
median owner income of about $57,000 and spending 28 percent of income
on mortgage principal and interest could qualify for a 30-year, fixed-
rate loan of $225,000. If the same borrower took out an ARM loan at a
discounted interest rate, the maximum loan amount increased to
$265,000. By adding an interest-only feature to that ARM and qualifying
the household based on the initial interest-only payments, the
potential loan size grew to $356,000. Allowing the borrower to spend 38
percent of income on mortgage costs meant that the mortgage loan could
total approximately $482,000. Interagency regulatory guidance on
nontraditional and subprime loans issued in 2006 and 2007, including
guidance to the Enterprises by OFHEO, contributed to limiting the
numbers of such loans as underwriting standards were subsequently
strengthened.\31\
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\31\ See Office of Federal Housing Enterprise Oversight, ``OFHEO
Director James B. Lockhart Commends Enterprises on Implementation of
Subprime Mortgage Lending Guidance,'' News Release (Sept. 10, 2007),
available at https://www.fhfa.gov/webfiles/1608/LockhartcommendsENTERPRISEsreSubprime91007.pdf. See also Office of
the Comptroller of the Currency, Federal Reserve Board, Federal
Deposit Insurance Corporation, Office of Thrift Supervision,
National Credit Union Administration, Statement on Subprime Mortgage
Lending, 72 FR 37569-37575 (July 10, 2007); and Office of the
Comptroller of the Currency, Federal Reserve Board, Federal Deposit
Insurance Corporation, Office of Thrift Supervision, National Credit
Union Administration, Interagency Guidance on Nontraditional
Mortgage Product Risks, 71 FR 58609-58618 (Oct. 4, 2006).
---------------------------------------------------------------------------
A result of the crisis is that the mortgage market has returned to
more traditional and prudent lending standards. Mortgage underwriting
standards in the near term can be expected to continue to be more
conservative than earlier in the decade.
The decline in housing prices has made housing more affordable. A
composite index of housing affordability for the third quarter of 2009
showed that families earning the median income had 159.2 percent of the
income needed to purchase a median-priced existing single-family home,
a figure 24 percent higher than the 128.6 percent reported for the
third quarter of 2008, although down from the 169.2 percent
affordability level of the prior quarter.\32\ Housing price declines
have brought standard affordability ratios closer to or even above
historical levels. In one national survey of 122 metropolitan areas,
the number of areas where the home price is less than three times the
median household income has declined to the same level as in 2003.\33\
While the unemployment rate may decline in 2010 and 2011, or at a
minimum the rate of unemployment may level off, there are concerns as
to whether jobs will return in areas where excess single-family housing
units are located.\34\
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\32\ U.S. Housing Market Conditions, 3rd Quarter 2009.
Department of Housing and Urban Development at 17.
\33\ ``State of the Nation's Housing 2009.'' Joint Center for
Housing Studies of Harvard University at 9.
\34\ Emile J. Brinkmann, Mortgage Bankers Association. Senate
Banking, Housing and Urban Affairs Committee. Oct. 20, 2009 at 3.
---------------------------------------------------------------------------
From April 2008 through December 2008, eligible first-time
homebuyers received a $7,500 tax credit. From January 2009 through the
end of November 2009, the tax credit was revised to include an $8,000
non-refundable tax credit. On November 5, 2009, the Congress enacted
H.R. 3548, the Unemployment Compensation Extension Act, which extended
and expanded the $8,000 non-refundable homebuyer tax credit. Under the
legislation, qualifying first-time homebuyers receive the $8,000 tax
credit if they sign a contract by April 30, 2010, and close by June 30,
2010. To encourage ``move up'' homebuyers, the legislation allows
homebuyers who purchase a new primary residence to qualify for a $6,500
tax credit, provided they owned their current home for at least five
consecutive years in the previous eight years.\35\
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\35\ ``House Clears Extension of Jobless Benefits, Homebuyer's
Tax Credit.'' Congressional Quarterly Today Online News. Nov. 5,
2009.
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2. Economic, Housing and Demographic Conditions
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 include:
(1) Tightened credit underwriting practices; (2) sharply increased
standards of private mortgage insurance (MI) companies; (3) increased
role of FHA in the marketplace; (4) collapse of the private label
mortgage-backed securities (PLS) market; and (5) increasing
unemployment. These developments contribute to a decrease in the
overall number of single-family loans likely to qualify for affordable
housing goals credit.
Tightened credit underwriting practices. In general, more
conservative underwriting standards in the mortgage market will likely
result in fewer goals-qualifying loans and a lower percentage of goal-
qualifying loans in the market. Underwriting standards in the mortgage
market generally, and at Fannie Mae and Freddie Mac, tightened
considerably in 2008 and 2009 in response to declining market
conditions and early payment defaults, among other factors, and such
standards can be expected to remain in place in the near future. In May
2008, responding to changes in private MI underwriting, Fannie Mae
revised its down payment policy to lower the maximum allowable LTV
ratio for loans underwritten by Desktop Underwriter (DU) and for
manually underwritten loans. The implementation of Fannie Mae's updated
DU Version 8.0, effective in December 2009, generally reduces the
allowable ``back-end'' borrower debt-to-income ratio--the portion of a
borrower's income that goes toward paying debts--to 45 percent. In
addition, it eliminates DU recommendations for Expanded Approval II and
Expanded Approval III loans, loans which historically counted heavily
toward the housing goals.\36\ If the DU 8.0 revisions had been in
effect
[[Page 9039]]
for all of 2009, substantially fewer goals-qualifying loans would have
been underwritten. The changes to DU will likely have a similar effect
in 2010 and 2011. Freddie Mac has similarly tightened its underwriting
standards.
---------------------------------------------------------------------------
\36\ Desktop Originator/Desktop Underwriter Release Notes. DU
Version 8.0. DODU 0909. Fannie Mae. Sept. 22, 2009. DU 8.0 will
allow a back-end ratio of up to 50 percent for case files with
strong compensating factors.
---------------------------------------------------------------------------
Sharply increased standards of private mortgage insurers. Much like
tighter credit underwriting standards generally, higher underwriting
standards of private MI providers have resulted in fewer goal-
qualifying loans and a lower percentage of goal-qualifying loans in the
market. As a result of stress in the mortgage markets, beginning in
late 2007, MI providers implemented major changes in the types of risk
they were able to insure. MI providers that had experienced substantial
ratings downgrades acted to minimize losses by imposing stricter
underwriting standards on loans with high LTVs. In October 2009,
Standard and Poor's put five MI providers on credit watch for potential
downgrades, citing economic developments that were having a negative
effect on the MI providers' book of business.\37\ For the first nine
months of 2009, private MI activity was down more than 60 percent from
the previous year. MGIC, the largest mortgage insurer, reported a
$517.8 million net loss for the third quarter of 2009, an amount equal
to more than half of the MI industry's loss for the period.\38\ In
addition, MI providers have implemented measures in ``declining
markets'' that have sharply limited the insurability of certain higher-
LTV mortgage loans.
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\37\ ``FHA Ends 2009 Fiscal Year With a Bang, Topping $100
Billion in Quarterly Originations for the First Time.'' Inside
Mortgage Finance. Oct. 30, 2009 at 8.
\38\ ``Private MIs Continue to Take a Beating as FHA Rockets to
New Record Market Share.'' Inside Mortgage Finance. Nov. 13, 2009 at
3-4.
---------------------------------------------------------------------------
As a result of these conditions, the availability of MI for high-
LTV or low credit score loans is much reduced relative to what it was a
few years ago. These developments limit the ability of MI providers to
write new business and reduce the overall mortgage lending volume,
particularly for higher-LTV mortgages, which historically have tended
to be more likely to count for purposes of the housing goals.
Increased role of FHA in the marketplace. Another factor that has
had substantial marketplace impact is the increase in the share of
mortgages insured by FHA and mortgages guaranteed by the VA. These
loans generally are pooled into mortgage-backed securities guaranteed
by the Government National Mortgage Association (GNMA). Purchases of
mortgages insured by FHA and mortgages guaranteed by the VA ordinarily
do not receive goals credit. In general, the impact of the FHA market
on the percentage of loans in the conventional market that qualify for
a particular goal depends on: (1) The goal-qualifying size of the
overall market; (2) the share of the market accounted for by FHA
mortgages; and (3) the extent to which FHA mortgages have goals
qualifying characteristics.
The market share of mortgages insured by FHA and mortgages
guaranteed by the VA has risen dramatically. In the third quarter of
2009, FHA endorsed a record $104.2 billion in mortgages, which brought
the agency's total production to $360.7 billion for the government's
fiscal year, or nearly a billion dollars a day.\39\ 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. Nearly 80 percent of FHA's
purchase-loan borrowers in 2009 were first-time homebuyers, and in the
second quarter of 2009, nearly half of all first-time buyers in the
housing market used FHA-insured loans.\40\ To ensure long-term
actuarial soundness, FHA announced several policy changes on January
20, 2010 that could have the effect of limiting its role in the
mortgage market, including: (1) Reducing the maximum permissible seller
concession from the current 6 percent to 3 percent, which is in line
with marketplace norms; (2) requiring a minimum credit score of 580 for
new borrowers seeking to qualify for the 3.5 percent downpayment
program; and (3) increasing the up-front mortgage insurance premium by
50 basis points, to 2.25 percent. In addition, FHA asked for a change
in the law to allow it the ability to increase the maximum annual
mortgage insurance premium.\41\
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\39\ ``FHA Ends 2009 Fiscal Year With a Bang, Topping $100
Billion in Quarterly Originations for the First Time.'' Inside
Mortgage Finance. Oct. 30, 2009 at 8.
\40\ ``HUD Secretary, FHA Commissioner Report on FHA's
Finances.'' HUD Press Release No. 09-214. Nov. 12, 2009.
\41\ ``FHA Announces Policy Changes to Address Risk and
Strengthen Finances.'' HUD Press Release No. 10-001. Jan. 20, 2010.
---------------------------------------------------------------------------
Collapse of private label securities market. In the middle part of
the decade--the period covered by the prior HUD rule on affordable
housing goals--Fannie Mae and Freddie Mac were major purchasers of the
AAA-rated tranches of PLS that contained substantial amounts of
subprime mortgages. While the size and nature of the Enterprises'
subprime holdings differed, these 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 or 2009. OFHEO provided guidance to the
Enterprises in 2007 incorporating interagency policy guidance from the
Federal Deposit Insurance Corporation, the Office of the Comptroller of
the Currency, the Federal Reserve Board and the National Credit Union
Administration. The guidance restricted the purchase of such securities
by the Enterprises when certain terms of mortgages backing those
securities are harmful to the borrower.\42\
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\42\ On August 10, 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 conformed 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. OFHEO News Release (Sept. 10, 2007).
---------------------------------------------------------------------------
Increasing unemployment. 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.
According to the Bureau of Labor Statistics of the U.S. Department of
Labor, the unemployment rate rose from 9.8 percent to 10.1 percent in
October 2009, as nonfarm payroll employment continued to decline.
Construction employment decreased by 62,000 jobs in October.\43\ The
unemployment rate declined to 10.0 percent in November 2009,\44\ and it
remained at that level in December 2009.\45\ The average duration of
unemployment has also increased significantly over the last year.
---------------------------------------------------------------------------
\43\ ``The Employment Situation--October 2009.'' Economic News
Release USDL-09-1331. Bureau of Labor Statistics. U.S. Department of
Labor. Nov. 6, 2009.
\44\ ``The Employment Situation--November 2009.'' Economic News
Release USDL-09-1479. Bureau of Labor Statistics. U.S. Department of
Labor. Dec. 4, 2009.
\45\ ``The Employment Situation--December 2009.'' Economic News
Release USDL-09-1583. Bureau of Labor Statistics. U.S. Department of
Labor. Jan. 18, 2010.
---------------------------------------------------------------------------
NeighborWorks, a national network of community-based organizations
actively involved in foreclosure mitigation
[[Page 9040]]
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).\46\ The high rates of
unemployment and underemployment are likely to continue to have a
significant impact on the size of the mortgage market going forward.
---------------------------------------------------------------------------
\46\ NeighborWorks, National Foreclosure Mitigation Counseling
Program Update, Jan. 23, 2009.
---------------------------------------------------------------------------
Refinancings. In 2009, Fannie Mae and Freddie Mac refinanced 4
million mortgage loans through November. Refinancing volumes are
strongly influenced by mortgage interest rates and LTV ratios on
existing mortgages.
Under the umbrella of the Administration's Making Home Affordable
program, the Home Affordable Refinance Program (HARP) is an effort by
the Enterprises to enhance the opportunity for owners to refinance.
Under this program, homeowners whose mortgages are owned or guaranteed
by Fannie Mae or Freddie Mae who are current on their mortgages have
the opportunity to reduce their monthly mortgage payments to take
advantage of low monthly mortgage interest rates, which Freddie Mac's
January 21, 2010 weekly report indicated had fallen to 4.99 percent for
a 30-year, fixed-rate mortgage. For homeowners with a current LTV ratio
between 80 and 125 percent, the Enterprises will refinance mortgages
without requiring additional mortgage insurance.
Demographic conditions. In establishing the 2010 goals, FHFA
analyzed current demographic trends for their possible effect on
housing demand. Analysis of current trends reveals that by 2008,
household formation rates were already on the decline. In addition, the
recession and unemployment have reduced immigration, which in the past
has been a driver of housing demand. It is still too early to assess
the impact of the current economic downturn on housing demand,
particularly given regional variations in impact and mitigating
factors, such as increased affordability of housing ownership. In the
long-term, housing demand is likely to increase as a result of
population growth, immigration, and future household formation by the
generation born between 1981 and 2000.\47\ However, the impact of long-
term demographic conditions on short-term goals performance would be
minimal.
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\47\ ``State of the Nation's Housing 2009.'' Joint Center for
Housing Studies of Harvard University.
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3. The Performance and Effort of the Enterprises Toward Achieving the
Housing Goals in Previous Years
Section 1332(a) of the Safety and Soundness Act, as amended by
section 1128 of HERA, requires FHFA to establish three single-family
home purchase mortgage goals for the Enterprises: A goal for low-income
families; a goal for families that reside in low-income areas; and a
goal for very low-income families. Revised section 1332(a) also
requires FHFA to establish a goal for single-family refinancing
mortgages for low-income families. The following section reviews what
performance would have been on these four single-family goals if they
had been in effect over the 2001-08 period.
Low-Income Families Housing Goal. The affordable housing goals in
the Safety and Soundness Act, as amended, apply to the Enterprises'
acquisitions of ``conventional, conforming, single-family, purchase
money mortgages financing owner-occupied housing'' for the targeted
groups. Accordingly, they are similar in structure to the home purchase
subgoals established by HUD for Fannie Mae and Freddie Mac for 2005-08,
and subsequently extended and modified for 2009 by FHFA. One difference
is that the subgoals established by HUD applied only to mortgages on
properties in metropolitan areas, while the new goals apply to
mortgages on properties in all locations.
The low-income families housing goal applies to mortgages made to
``low-income families,'' defined as families with incomes no greater
than 80 percent of AMI.\48\ Past performance on this goal, if it had
been in effect in previous years, is shown in Table 1. As indicated,
Fannie Mae's performance would have risen markedly between 2001 and
2003, and then, with the exception of 2006, would have fallen steadily
between 2003 and 2008. Its performance last year, at 23.2 percent,
would have been the lowest of the period. Freddie Mac's performance
generally would have risen between 2001 and 2005, and then declined
between 2005 and 2008. Its performance last year would have been 24.5
percent, also the lowest of the period.
---------------------------------------------------------------------------
\48\ 12 U.S.C. 4502(14).
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BILLING CODE P
[[Page 9041]]
[GRAPHIC] [TIFF OMITTED] TP26FE10.000
Very Low-Income Families Housing Goal. The Safety and Soundness
Act, as revised by HERA, defines a ``very low-income'' owner-occupied
property as one occupied by a family with income no greater than 50
percent of AMI.\49\ Past performance on this goal, if it had been in
effect in previous years, is shown in Table 2. As indicated, Fannie
Mae's performance would have risen from 6.8 percent in 2001 to 9.0
percent in 2003 and 2004, and then, with the exception of 2006,
generally decreased, to 5.6 percent in 2008, the lowest in the period.
Freddie Mac's performance on this goal would have changed little over
the 2001-08 period, remaining in the range of 6.2 percent to 7.0
percent.
---------------------------------------------------------------------------
\49\ 12 U.S.C. 4502(24).
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[[Page 9042]]
[GRAPHIC] [TIFF OMITTED] TP26FE10.001
Low-Income Areas Housing Goal. The low-income areas housing goal
targets the Enterprises' purchases of mortgages in specified geographic
areas, in a manner similar to the previous underserved areas goal. The
Safety and Soundness Act, as revised by HERA, now defines a ``low-
income area'' as a census tract or block numbering area in which the
median income does not exceed 80 percent of AMI, including families
with incomes not greater than 100 percent of AMI who reside in minority
census tracts and in designated disaster areas.\50\ It defines a
``minority census tract'' as a census tract that has a minority
population of at least 30 percent and a median family income of less
than 100 percent of AMI.\51\
---------------------------------------------------------------------------
\50\ 12 U.S.C. 4502(28).
\51\ 12 U.S.C. 4502(29).
---------------------------------------------------------------------------
According to the 2000 census, of the 66,144 unique census tracts,
there were 18,613 low-income tracts. There were 25,254 tracts with a
minority population of at least 30 percent, of which 5,711 had a tract
income greater than 80 percent of AMI but less than or equal to 100
percent of AMI. Accordingly, based on the 2000 census, there were
24,324 tracts that would be targeted by this goal, excluding tracts in
designated disaster areas, but only families with incomes no greater
than AMI would be included in the 5,711 high-minority, moderate-income
tracts.
Past performance on the low-income areas housing goal, if it had
been in effect in previous years, excluding designated disaster areas,
is shown in Table 3. As indicated, Fannie Mae's
[[Page 9043]]
performance would have varied over time. It would have reached its
highest level, 19.3 percent, in 2002, and its lowest level, 15.1
percent, in 2008. Freddie Mac's performance would have peaked at 19.3
percent in 2002, then fallen sharply to 13.3 percent in 2003, and would
have been 15.2 percent in 2008.
[GRAPHIC] [TIFF OMITTED] TP26FE10.002
[[Page 9044]]
Refinancing Housing Goal. Under the Safety and Soundness Act, as
revised by HERA, the refinancing housing goal is targeted to low-income
families, i.e., families with incomes no greater than 80 percent of
AMI. It applies to mortgages that are ``given to pay off or prepay an
existing loan secured by the same property.'' Thus, the goal would not
apply to home equity loans.
Past performance on this goal, if it had been in effect in previous
years, is shown in Table 4. As indicated, Fannie Mae's performance
would have peaked in 2004, following the 2001-03 refinance boom, and
declined thereafter, to a low of 23.1 percent last year. Freddie Mac's
performance would have peaked in 2005, and then also declined, to 23.9
percent in 2008.
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BILLING CODE C
Interpreting Past Goal Performance Data. Past performance is not
necessarily a good indicator of future goal performance, due to changes
in mortgage interest rates, home prices, credit availability, and other
factors. This subsection briefly discusses the role of the purchase of
PLS in achieving past performance, and the possible effects of changes
in underwriting guidelines recently adopted by the Enterprises. Also,
FHFA has partial-year data which allow calculation of each Enterprise's
performance in the first three quarters of 2009 relative to the
proposed 2010-2011 goals. Such data are proprietary, but preliminary
full-
[[Page 9045]]
year data will be included in the final rule for the 2010-2011 goals.
The Enterprises purchased PLS in recent years primarily due to
anticipated profitability, to maintain market share, and because some
PLS, especially those containing subprime mortgages, helped achieve the
housing goals. The performance data in Tables 1-4 include the effects
of these PLS purchases. Elsewhere in the proposed rule is a discussion
regarding counting mortgages included in PLS toward the affordable
housing goals in 2010-2011.
In response to the housing crisis and their financial difficulties,
including the performance of PLS, the Enterprises have adopted more
conservative underwriting guidelines. As previously discussed, those
changes will affect goal performance.
4. The Ability of the Enterprises To Lead the Industry in Making
Mortgage Credit Available
As background for the statutory requirement to consider the
Enterprises' ``ability * * * to lead the industry in making mortgage
credit available,'' a Senate committee report on legislation leading to
the enactment of the Safety and Soundness Act in 1992 expressed concern
that Enterprise purchases had not kept pace with market originations of
mortgages to low- and moderate-income borrowers.\52\ FHFA shares that
concern and has defined the proposed Enterprise housing goals in part
against that history. FHFA believes that, in fact, the Enterprises have
played a leading role in sustaining the mortgage market during the
recent crisis.
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\52\ S. Rep. No. 102-282, at 10-11 (1992).
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Leading the industry in making mortgage credit available includes
making mortgage credit available to primary market borrowers at
differing income levels. It also includes the ability of the
Enterprises to respond to pressing mortgage needs in the current
market, such as the threat of a loss of a home by the borrower, for
example, by implementing the loan modification and refinance programs
under the Administration's Making Home Affordable Program, and by
supporting State and local housing finance agencies. The Enterprises'
ability to respond is reflected through the introduction of safe and
sound innovative products, technology and process improvements.
In the current market environment, the Enterprises, along with FHA
and VA, now lead the market. From 1997-2003, the Enterprises' share of
mortgage originations grew to almost 55 percent. From 2004-2006, the
private mortgage market predominated, and the Enterprises' market share
dropped to below 35 percent. After the private mortgage market began to
deteriorate in 2007, the Enterprises' share of the single-family
mortgage market grew to about 75 percent, with FHA and VA accounting
for the bulk of the balance.\53\
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\53\ Address by Edward DeMarco, Acting Director of the Federal
Housing Finance Agency, New England Mortgage Bankers 22nd Annual
Conference, Oct. 1, 2009 at 5.
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At the same time, the Enterprises have been severely stressed by
the financial crisis. As described below, they have suffered losses
that have depleted their capital and resulted in their being sustained
only by multi-billion-dollar infusions of capital from the U.S.
Treasury under the Senior Preferred Stock Purchase Agreements. In this
environment, in which FHFA as conservator is also exercising a
statutory mandate to conserve and preserve the Enterprises' assets, it
is especially important that the Enterprises not take on undue
additional credit risk by purchasing mortgages in any defined segment
in quantities beyond what market originations reasonably provide.
FHFA has taken into account all of the foregoing considerations in
assessing the Enterprises' ability to lead the industry.
5. Other Mortgage Data
The primary source of reliable mortgage data for establishing the
affordable housing goals is the HMDA data reported by originators.
Enterprise mortgage purchase data are compared to HMDA data to evaluate
the Enterprises' performance with respect to leading or lagging the
housing market under specific goals.
FHFA also uses other reliable data sources including the American
Housing Survey (AHS), Census demographics, commercial sources such as
Moody's,\54\ and other industry and trade research sources, e.g.,
Mortgage Bankers Association (MBA),\55\ Inside Mortgage Finance
Publications,\56\ NAR,\57\ National Association of Home Builders
(NAHB),\58\ and the Commercial Mortgage Securities Association.\59\ The
FHFA MIRS,\60\ previously administered by the Federal Housing Finance
Board, a predecessor agency to FHFA, is used to complement forecast
models for home purchase loan originations by making intra-annual
adjustments prior to the public release of HMDA mortgage data. In the
development of economic forecasts, FHFA uses data and information from
Wells Fargo, PNC, Fannie Mae, Freddie Mac, The Wall Street Journal
Survey and Forcast.org. In addition, FHFA uses market and economic data
from the Bureau of Labor Statistics, the Federal Reserve Board, the
Department of Commerce Bureau of Economic Analysis, and FedStats.\61\
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