Enterprise Duty To Serve Underserved Markets, 32099-32117 [2010-13411]
Download as PDF
<![CDATA[
32099
Proposed Rules
Federal Register
Vol. 75, No. 108
Monday, June 7, 2010
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
FEDERAL HOUSING FINANCE
AGENCY
12 CFR Part 1282
RIN 2590–AA27
Enterprise Duty To Serve Underserved
Markets
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
AGENCY: Federal Housing Finance
Agency.
ACTION: Notice of proposed rulemaking;
request for comments.
SUMMARY: Section 1129 of the Housing
and Economic Recovery Act of 2008
(HERA) amended section 1335 of the
Federal Housing Enterprises Financial
Safety and Soundness Act of 1992
(Safety and Soundness Act) to establish
a duty for the Federal National Mortgage
Association (Fannie Mae) and the
Federal Home Loan Mortgage
Corporation (Freddie Mac) (collectively,
the Enterprises) to serve three specified
underserved markets—manufactured
housing, affordable housing
preservation, and rural markets—in
order to increase the liquidity of
mortgage investments and improve the
distribution of investment capital
available for mortgage financing for very
low-, low- and moderate-income
families in those markets. The Federal
Housing Finance Agency (FHFA) is
issuing and seeking comments on a
proposed rule that would establish a
method for evaluating and rating the
Enterprises’ performance in each
underserved market for 2010 and each
subsequent year. In addition, the
proposed rule would set forth Enterprise
transactions and activities that would be
considered for the duty to serve.
The proposed rule would, among
other things: Consider only
manufactured homes titled as real
property for purposes of the duty to
serve the manufactured housing market;
give the Enterprises latitude to
concentrate on assisting particular
affordable housing preservation
programs that would benefit very
low-, low- and moderate-income
families; and define rural areas
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
generally in accordance with the
definition set forth in the Housing Act
of 1949.
DATES: Written comments must be
received on or before July 22, 2010.
ADDRESSES: You may submit your
comments, identified by regulatory
information number (RIN) 2590–AA27,
by any of the following methods:
• E-mail: Comments to Alfred M.
Pollard, General Counsel, may be sent
by e-mail to RegComments@fhfa.gov.
Please include ‘‘RIN 2590–AA27’’ 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–AA27’’ in the subject
line of the message.
• Hand Delivered/Courier: The hand
delivery address is: Alfred M. Pollard,
General Counsel, Attention: Comments/
RIN 2590–AA27, 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.
• U.S. Mail, United Parcel Service,
Federal Express, or Other Mail Service:
The mailing address for comments is:
Alfred M. Pollard, General Counsel,
Attention: Comments/RIN 2590–AA27,
Federal Housing Finance Agency,
Fourth Floor, 1700 G Street, NW.,
Washington, DC 20552.
FOR FURTHER INFORMATION CONTACT:
Nelson Hernandez, Senior Associate
Director, Office of Housing and
Community Investment, (202) 408–
2993, Brian Doherty, Manager, Office of
Housing and Community Investment,
(202) 408–2991, or Mike Price, Senior
Policy Analyst, Office of Housing and
Community Investment, (202) 408–
2941. For legal questions, contact: Lyn
Abrams, Attorney, (202) 414–8951,
Kevin Sheehan, Attorney, (202) 414–
8952, or Sharon Like, Associate General
Counsel, (202) 414–8950. 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
PO 00000
Frm 00001
Fmt 4702
Sfmt 4702
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 may revise the
language of the proposed rule as
appropriate after taking all comments
into consideration. Copies of all
comments will be posted on FHFA’s
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) 414–6924.
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
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
1 See Division A, titled the ‘‘Federal Housing
Finance Regulatory Reform Act of 2008,’’ Title I,
section 1101, Public Law No. 110–289, 122 Stat.
2654 (2008), codified at 12 U.S.C. 4501 et seq.
2 See 12 U.S.C. 4513.
E:\FR\FM\07JNP1.SGM
07JNP1
32100
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
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 governmentsponsored enterprises 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 Background
The Safety and Soundness Act
provides that the Enterprises ‘‘have an
affirmative obligation to facilitate the
financing of affordable housing for lowand moderate-income families.’’ 12
U.S.C. 4501(7). Section 1129 of HERA
amended section 1335 of the Safety and
Soundness Act to establish a duty for
the Enterprises to serve three specified
underserved markets, in order to
increase the liquidity of mortgage
investments and improve the
distribution of investment capital
available for mortgage financing for
certain categories of borrowers in those
markets. 12 U.S.C. 4565. Specifically,
the Enterprises are required to provide
leadership to the market in developing
loan products and flexible underwriting
guidelines to facilitate a secondary
market for mortgages on housing for
very low-, low- and moderate-income
families with respect to manufactured
housing, affordable housing
preservation and rural markets.6 Id. sec.
4565(a). In addition, section 1335(d)(1)
requires FHFA to establish, by
regulation effective for 2010 and each
subsequent year, a method for
evaluating and rating the Enterprises’
performance of the duty to serve
underserved markets. Id. sec. 4565(d)(1).
FHFA is required to separately evaluate
each Enterprise’s performance with
3 See HERA at section 1302, 122 Stat. 2795; 12
U.S.C. 4603.
4 See 12 U.S.C. 1716 et seq.; 12 U.S.C. 1451 et
seq.
5 Id.
6 The terms ‘‘very low-income’’, ‘‘low-income’’ and
‘‘moderate-income’’ are defined in 12 U.S.C. 4502.
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
respect to each underserved market,
taking into consideration the following:
(i) The Enterprise’s development of
loan products, more flexible
underwriting guidelines, and other
innovative approaches to providing
financing to each of the underserved
markets (hereafter, the ‘‘loan product
assessment factor’’);
(ii) The extent of the Enterprise’s
outreach to qualified loan sellers and
other market participants in each of the
underserved markets (hereafter, the
‘‘outreach assessment factor’’);
(iii) The volume of loans purchased
by the Enterprise in each underserved
market relative to the market
opportunities available to the
Enterprise, except that the Director shall
not establish specific quantitative
targets or evaluate the Enterprise based
solely on the volume of loans purchased
(hereafter, the ‘‘loan purchase
assessment factor’’); and
(iv) The amount of investments and
grants by the Enterprise in projects
which assist in meeting the needs of the
underserved markets (hereafter, the
‘‘investments and grants assessment
factor’’).
Id. sec. 4565(d)(2).
The duty to serve provisions and
issues for consideration are discussed
further below.
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 to
maintain the Enterprises in a safe and
sound financial condition and to help
assure performance of their public
mission. The Enterprises remain under
conservatorship at this time.
Because Congress enacted the duty to
serve provisions in the Safety and
Soundness Act before the Enterprises
were placed in conservatorship,
Congress developed the duty to serve
requirements for normal Enterprise
operating conditions, not
conservatorship. While the Enterprises
are in conservatorship, FHFA expects
them to continue to fulfill their core
statutory purposes which include their
support for affordable housing. One set
of measures of the Enterprises’ support
for affordable housing comes from the
housing goals and another comes from
the duty to serve. At the same time, all
Enterprise activities, including those in
support of affordable housing, must be
consistent with the requirements of
conservatorship.
Since the establishment of the
conservatorships, the combined losses
at the two Enterprises depleted all of
PO 00000
Frm 00002
Fmt 4702
Sfmt 4702
their capital and required them to draw
about $145 billion from the Department
of the Treasury (Treasury) under the
Senior Preferred Stock Purchase
Agreements with Treasury. By letter
dated February 2, 2010, FHFA’s Acting
Director reported to Congress that
having the Enterprises engage in new
products would be inconsistent with the
goals of conservatorship and,
consequently, that the Enterprises
would be limited to continuing their
existing core business activities and
taking actions necessary to advance the
goals of the conservatorship (Letter to
Congress).7
Under the terms of the Senior
Preferred Stock Purchase Agreements,
the Enterprises will be shrinking their
retained mortgage portfolios by ten
percent per year. The Administration
has announced its intention to develop
and present to Congress a plan for the
future of the nation’s housing finance
system that will include a proposal for
the ultimate resolution of the
Enterprises in conservatorship.
Administration and congressional
leadership have each pointed to the
coming year as likely to see substantial
legislative action affecting the
Enterprises’ future form and function.
FHFA intends to continue operating the
conservatorships as set forth in the
Letter to Congress in anticipation of
congressional action on the future of the
Enterprises. In recognition of the
foregoing facts and circumstances,
FHFA’s approach to implementing
section 1335 of the Safety and
Soundness Act is to limit the proposed
rule to existing core business activities
at the Enterprises and not to require that
they engage in new lines of business as
a result of the duty to serve proposed
rule.
III. Duty To Serve Underserved
Markets
A. Implementation of the Duty To Serve
The Enterprises’ public purposes
include a broad obligation to serve
moderate- and lower-income borrowers.
Through HERA, Congress created a duty
for the Enterprises to serve three
specific underserved markets. The duty
to serve is a new obligation for the
Enterprises and a new oversight
responsibility for FHFA. The proposed
rule would set forth standards for
compliance with the duty to serve,
methods for evaluating and rating the
Enterprises and requirements for the
7 See Letter from Acting Director Edward J.
DeMarco to the Honorable Christopher Dodd,
Honorable Richard C. Shelby, Honorable Barney
Frank, and Honorable Spencer Bachus (Feb. 2,
2010).
E:\FR\FM\07JNP1.SGM
07JNP1
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
Enterprises to provide reports and data
on their performance under the duty to
serve.
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
B. Overview of Comments
The formal rulemaking for the duty to
serve commenced with FHFA’s
publication of an Advance Notice of
Proposed Rulemaking (ANPR), 74 FR
38572 (Aug. 4, 2009).8 FHFA received
100 comment letters in response. The
majority of the commenters addressed
manufactured housing. Twenty-six
individuals, 18 nonprofit organizations,
11 trade associations, 11 corporations,
seven policy advocacy organizations
and one government entity addressed
this issue. FHFA also received
comments on other issues from one
individual, nine nonprofit
organizations, six trade associations,
one corporation, five policy advocacy
organizations, one government agency,
one professional association and both
Enterprises.
In addition to the comment letters,
FHFA held five in-person meetings and
one teleconference with manufactured
housing industry representatives. These
discussions covered current secondary
mortgage market support for
manufactured housing, the practices
and operations of the industry and the
consumer protections afforded
manufactured housing borrowers. On
December 3, 2009, FHFA hosted a forum
on affordable housing, which was
attended by members of the Affordable
Housing Advisory Councils of the 12
Federal Home Loan Banks. The forum
focused on manufactured housing and
rural housing issues. Summaries of the
forum, the meetings and the
teleconference are available on FHFA’s
Web site.
Commenters on the duty to serve the
manufactured housing market focused
primarily on personal property (chattel)
loans for manufactured homes and
manufactured home community 9
financing. Fifty-seven commenters,
including most of the individuals and
nonprofit organizations, opposed
consideration for chattel loans, or would
limit consideration of such loans to
instances in which they were backed by
rigorous consumer protections.
With regard to manufactured home
communities, individuals, nonprofit
organizations, and policy advocacy
groups expressed concern about the lack
of tenant protections in communities
owned by investors. Although some
commenters favored consideration for
8 74
FR 38572 (Aug. 4, 2009).
this rulemaking FHFA is using the term
‘‘manufactured home communities’’ to mean
‘‘manufactured home parks.’’
9 In
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
loans made in support of these
communities, this support was
conditioned upon FHFA’s establishing
significant protections for residents. The
manufactured housing corporations and
trade associations generally favored
duty to serve consideration for
purchases of mortgages on investorowned and resident-owned
manufactured home communities. They
commented that a dearth of new
manufactured home communities are
being developed, there is a shortage of
financing for such communities, many
communities need to refinance over the
next several years, and there are harmful
effects on residents when a community
cannot obtain financing and must
convert to a different use.
FHFA received sixteen comments
regarding the affordable housing
preservation market. The commenters,
who included one trade association,
four policy advocacy organizations,
seven nonprofit organizations, one
government agency and both
Enterprises, addressed a range of issues.
Most commenters supported
consideration under the affordable
housing preservation market for
Enterprise assistance to HUD’s
Neighborhood Stabilization Program
(NSP) and state and local foreclosure
prevention programs. However, other
commenters opposed consideration for
assistance to NSP, but did favor
consideration for state and local
foreclosure prevention programs. A few
commenters suggested consideration for
assisting with Treasury’s loan
modification programs. Most of the
affordable housing advocate
commenters wanted less rigorous
underwriting assumptions for properties
receiving Section 8 payments or other
property-based HUD subsidies. There
was also strong support for more
interaction between the Enterprises and
state and local Housing Finance
Agencies (HFAs).
The majority of comments on rural
markets addressed the definition of
‘‘rural area.’’ In the ANPR, FHFA
requested comment on three definitions
of ‘‘rural area.’’ While some commenters
supported at least one of those three
definitions, more than half of the
commenters on this issue supported
adoption of the definition of ‘‘rural area’’
from the Housing Act of 1949, which
was not one of the definitions identified
in the ANPR. These commenters, all of
whom are involved in rural housing
mortgage lending or development, are
familiar with this definition and use it
within their organizations. The
comments received and the merits of the
different definitions are analyzed in
PO 00000
Frm 00003
Fmt 4702
Sfmt 4702
32101
detail below under the discussion of the
duty to serve rural markets.
Several commenters supported
evaluating the Enterprises’ performance
by using an evaluation methodology
similar to that used to evaluate
compliance with the Community
Reinvestment Act (CRA). Other
commenters stated that the four tests for
evaluation set forth in the ANPR should
not necessarily be given equal weight in
evaluating the Enterprises’ performance.
C. Underserved Markets
The duty to serve provisions in the
Safety and Soundness Act indicate that
the markets for manufactured housing,
affordable housing preservation and
rural areas are underserved and in need
of particular assistance by the
Enterprises. The extent of the lack of
service and some of the factors
underlying it are discussed below.
1. Manufactured Housing
According to Home Mortgage
Disclosure Act (HMDA) data for 2008,
home purchase applications for
manufactured homes are denied at three
times the rate that applications for sitebuilt homes are denied. Further, of
those mortgages that are originated, 60
percent are ‘‘higher-cost mortgages’’
under HMDA 10, whereas only 8 percent
of originations for site-built homes are
higher-cost mortgages. Manufactured
housing borrowers may have few
refinancing options even if interest rates
decrease.11
A number of other factors combine to
make the manufactured housing market
underserved. In recent times, mortgage
insurance has been generally
unavailable for manufactured homes.
Moreover, comparable properties,
particularly in rural areas, can be
difficult to identify, which makes
appraisals more difficult. Also, unlike
site-built housing, many manufactured
homes have been financed as personal
property, which many commenters
viewed as offering terms less favorable
to borrowers.12
10 For the 2008 reporting year, lenders reported
the difference between the loan’s annual percentage
rate (APR) and the yield on Treasury securities
having comparable periods of maturity, if that
difference is equal to or greater than 3 percentage
points for loans secured by a first lien on a
dwelling, or equal to or greater than 5 percentage
points for loans secured by a subordinate lien on
a dwelling. See 67 FR 43218 (June 27, 2002).
11 Jon Thompson, ‘‘Manufactured housing: An
expected beneficiary from subprime mortgage
disruption,’’ p. 3. (Advantus Capital Management,
4th Qtr. 2007), available at https://
www.advantuscapital.com/adv/pdf/F67229.pdf.
12 Manufactured housing industry commenters
asserted there could be advantages to personal
property mortgages. The Manufactured Housing
E:\FR\FM\07JNP1.SGM
Continued
07JNP1
32102
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
2. Affordable Housing Preservation
Affordable housing is preserved when
an owner acts to keep rents affordable
for low- and moderate-income
households while ensuring that the
property remains in good physical and
financial condition for an extended
period.13 While affordable housing
preservation is often associated with
programs to help existing subsidized
properties remain financially viable, it
also encompasses efforts to keep
unsubsidized properties in good
condition while maintaining
affordability for low- and moderateincome households. Many owners of
subsidized properties face the need to
refinance the loans on their properties,
either because the original financing is
nearing maturity or because they need
to obtain equity from the property to
perform major upgrades and repairs.
Congressional hearings have highlighted
the problems in this area.14
A variety of factors make the
affordable housing preservation market
difficult to serve. For example, the
disruptions in the financial markets and
the general lowering in value of Low
Income Housing Tax Credits (LIHTCs)
affect some of the programs that the
Enterprises are required to assist.
Transactions in many of the enumerated
programs are generally project specific,
involving multiple sources for debt and
equity. Structuring is often complex,
and the transaction process is often
difficult and lengthy.
Units lacking rental assistance, which
are often in older and/or small
multifamily properties, provide a
significant share of housing affordable
to low- and moderate-income families.
Institute, for example, suggested: (1) The overall
principal loan amount is more affordable due to the
absence of land in the transaction; (2) no appraisal,
survey or private mortgage insurance is necessary,
which lowers closing costs; (3) the customer does
not encumber any real property; (4) tax, titling fees,
homeowners insurance and service warranties can
be financed; and (5) the transaction is generally
faster.
13 See ‘‘Window of Opportunity—Preserving
Affordable Housing’’ p. 6 (MacArthur Foundation,
Nov. 2007), available at https://www.macfound.org/
atf/cf/%7BB0386CE3-8B29-4162-8098E466FB856794%7D/MAC_1107_Singles.pdf.
14 See e.g., ‘‘Affordable Housing Preservation,’’
Hearing before the Subcomm. on Housing and
Transportation of the Senate Comm. on Banking,
Housing, and Urban Affairs, 107th Cong., 2nd Sess.
(Oct. 9, 2002) (S. Hearing 107–1014), available at
https://www.gpo.gov/congress/senate/pdf/107hrg/
90543.pdf; ‘‘Legislative Options for Preserving
Federally- and State-assisted Affordable Housing
and Preventing Displacement of Low-Income,
Elderly, and Disabled Tenants,’’ Hearing Before the
Subcomm. on Housing & Community Opportunities
of the House Comm. on Financial Services, 111th
Cong., 1st Sess. (July 15, 2009) (Serial No. 111–59),
available at https://frwebgate.access.gpo.gov/cgi-bin/
getdoc.cgi?dbname=111_house_hearings&
docid=f:53239.wais.
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
Keeping these units in the housing stock
at reasonable rents can be more costeffective than building new subsidized
units.15 One way to achieve this is to
make financing for affordable housing
preservation available on better terms.
3. Rural Areas
Practitioners and researchers have
identified a number of long-standing
impediments to affordable housing in
rural areas. One impediment is the
lower population density, which may
prevent developers and operators from
taking advantage of economies of scale
in developing affordable housing in
rural areas.16 In addition, rural areas
often have fewer nonprofit housing
development corporations with the
capacity to handle complicated
government subsidy programs and the
long and difficult housing development
process.17 Many smaller communities
and governments have difficulty
funding public utilities essential to
constructing housing. Moreover, there
are fewer lenders in rural areas than in
metropolitan areas, and rural lenders
may lack the back office capacity and
the necessary scale of volume to
effectively sell mortgages in the
secondary market.
In 2007, the Housing Assistance
Council (HAC) testified that ‘‘[n]early
3.6 million rural households are cost
burdened, paying more than 30 percent
of their monthly income for housing
costs.’’ 18 HAC further testified that less
than 16 percent of the rural population
is minority; however, this population
was disproportionately affected by poor
housing conditions, as rural minorities
are more likely than rural whites to live
in substandard housing.19
15 See National Housing Trust, ‘‘Affordable
Housing Preservation FAQs’’ (2010), available at
https://www.nhtinc.org/preservation_faq.php.
16 See generally National Rural Housing Coalition,
‘‘Preserving Rural America’s Affordable Rental
Housing’’ (Oct. 2004), available at https://
www.nrhcweb.org/news/515PreservationReport.pdf;
E. Bolda, et al., ‘‘Creating Affordable Rural Housing
with Services: Options and Strategies,’’ Working
Paper #19 (Apr. 2000), available at https://
muskie.usm.maine.edu/Publications/rural/
WP%2319.pdf.
17 See Joe Myer, ‘‘Developing Rural Housing
Despite the Obstacles—Why It is Hard to Build
Affordable Housing in Rural Delaware’’ (Winter
2002), available at https://www.housingforall.org/
housing_in_rural_de.htm.
18 Statement of Moises Loza, Housing Assistance
Council, before the Subcomm. on Housing and
Community Development, U.S. House of
Representatives (May 8, 2007), available at https://
financialservices.house.gov/hearing110/
htloza050807.pdf.
19 ‘‘Rural Housing Programs: Review of Fiscal
Year 2008 Budget and Pending Rural Housing
Legislation,’’ Hearing Before the Subcomm. on
Housing & Community Opportunities of the House
Comm. on Financial Services, 110th Cong., 1st Sess.
28 (May 8, 2007) (Serial No. 110–27), available at
PO 00000
Frm 00004
Fmt 4702
Sfmt 4702
D. Market-by-Market Considerations
1. Manufactured Housing Market—
Proposed § 1282.32
Section 1335 of the Safety and
Soundness Act requires the Enterprises
to ‘‘develop loan products and flexible
underwriting guidelines to facilitate a
secondary market for mortgages on
manufactured homes for very low-,
low-, and moderate-income families.’’ 12
U.S.C. 4565(a)(1)(A). Manufactured
housing could be an important housing
option for lower-income families.
Nearly half of all loans originated on
manufactured homes from 2004 to 2008
were for families with incomes at or
below 80 percent of area median income
(AMI).20 Manufactured housing also
costs less initially than site-built
housing. Manufactured homes tend to
be much smaller, which significantly
reduces the price of the home.21 In
addition, the average price per square
foot of a new site-built home in 2008,
exclusive of the cost of the land, was
more than double that of a double-wide
manufactured home.22
Investors have been cautious about
manufactured housing in the wake of
market disruptions at the end of the
1990s and the beginning of this decade,
particularly in light of the demise of
some of the larger specialized
manufactured housing lenders. More
recently, shortages of warehouse lines of
credit, downgrades of existing assetbacked securities 23 and difficulties with
bond insurance 24 have added to
concerns.25
https://frwebgate.access.gpo.gov/cgi-bin/
getdoc.cgi?dbname=110_house_
hearings&docid=f:37205.pdf.
20 This assessment is based on HMDA data from
2004–2008, exclusive of HOEPA mortgages and
mortgages lacking borrower income information.
21 The average size of a site-built house in 2008
was 2,459 square feet, whereas the average square
footage of a single-wide manufactured home was
1,105 square feet and the average square footage of
a double-wide manufactured home was 1,775
square feet. See U.S. Bureau of the Census, ‘‘Cost
& Size Comparisons for New Manufactured Homes
and New Single Family Site Built Homes’’ (2004–
2008), available at https://www.census.gov/const/
mhs/sitebuiltvsmh.pdf.
22 In 2008, the average price per square foot for
a new site-built home was $88.55 and for a new
double-wide manufactured home was $42.87. See
id.
23 See generally Standard & Poor’s, ‘‘Ratings
Roundup: Monoline and Financial Institution
Rating Volatility Drive Fourth-Quarter U.S. ABS
Downgrades’’ (Jan. 28, 2009), available at https://
www.ambac.com/pdfs/RA/
Volatility%20Drive%20FourthQuarter%20U.S.%20ABS%20Downgrades%20(0128-09).pdf.
24 See generally Standard & Poor’s, ‘‘S&P various
actions on 182 U.S. rtgs after Ambac downgrade’’
(July 8, 2009), available at https://www.reuters.com/
article/idUSWNA860120090708.
25 As an illustration of the recent market,
according to Origen Financial Services, the lack of
E:\FR\FM\07JNP1.SGM
07JNP1
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
a reliable source for a loan warehouse facility and
the uncertainty of the availability of an exit in the
securitization market caused it to stop originating
loans for its own account and sell its portfolio of
unsecuritized loans at a substantial loss. See Origen
Financial, Inc., Annual Report on Form 10–K, as
Amended, For the Fiscal Year Ended December 31,
2008, p. 2, available at https://
www.origenfinancial.com/sites/default/files/
as_printed_Origen_10-K.pdf.
Enterprises, even though manufactured
housing has historically represented
approximately 10 to 15 percent of the
single-family housing market. The fact
that the majority of manufactured home
loans were not financed as real property
helps to explain why manufactured
home loans constitute a small share of
the Enterprises’ business.
HMDA data do not specify the portion
of these manufactured home loans that
are financed as chattel, but the U.S.
Census Bureau reported that in 2008, 63
percent of new manufactured homes
placed for residential use were titled as
personal property.27
In the ANPR, FHFA invited comment
on the appropriate treatment under the
duty to serve the manufactured housing
market for personal property loans,
land-home loans, real estate loans and
loans for manufactured home
communities. The comments are
discussed in the relevant sections
below.
Personal Property Loans. Section
1335(d)(3) of the Safety and Soundness
Act provides that in determining
whether the Enterprises have complied
with the duty to serve the manufactured
housing market, ‘‘the Director may
consider loans secured by both real and
personal property.’’ 12 U.S.C. 4565(d)(3).
FHFA is proposing that only loans titled
as real property be considered towards
the Enterprise’s duty to serve.
Neither Enterprise has an ongoing
business activity of purchasing chattel
loans, although at least one of them has
made limited bulk purchases of such
loans in the past. Purchasing or
guaranteeing chattel loans would
require each Enterprise to develop
operational capacities and risk
management processes not currently in
place. Moreover, to ensure that such
lending was done responsibly would
require each Enterprise to develop an
extensive set of consumer protection
requirements. Thus, FHFA proposes
that chattel loans on manufactured
homes not be considered towards the
duty to serve the manufactured housing
market as these loans are inconsistent
with Enterprise conservatorship and
would require substantial new efforts by
the Enterprises to ensure safe and sound
operations and sustainable
homeownership for families.
The following paragraphs describe the
widely divergent views FHFA received
on this topic in response to the ANPR
and the bases for the proposed
exclusion of chattel loans.
26 Neighborhood Reinvestment Corporation, ‘‘An
Examination of Manufactured Housing as a
Community-and Asset-Building Strategy,’’ p. 6
(Sept. 2002), available at https://
www.jchs.harvard.edu/publications/
communitydevelopment/W02–11_apgar_et_al.pdf.
27 See U.S. Bureau of the Census, ‘‘Cost & Size
Comparisons For New Manufactured Homes and
New Single Family Site Built Homes (2004–2008),’’
available at https://www.census.gov/const/mhs/
sitebuiltvsmh.pdf.
Manufactured housing could be an
option for very low- and low-income
families who reside in rural areas.
HMDA data for 2008 show that 15
percent of all loan originations on
manufactured homes in rural areas were
for families with incomes at or below 50
percent of AMI, and another 29 percent
were for families with incomes greater
than 50 percent but at or below 80
percent of AMI. From 2004 through
2008, loan originations on manufactured
homes in rural areas were more than
double loan originations on
manufactured homes in non-rural areas.
Nearly half of all manufactured housing
loans in rural areas during that time
period were for families whose incomes
were 80 percent or less of AMI.
One study explained the importance
of manufactured housing to rural areas
this way:
The prevalence of manufactured housing
in rural areas is in part a reflection of the
costs and logistical challenges of site-built
construction on relatively remote and
scattered sites. It is also due to rural
residents’ generally lower incomes, and to
the challenge of arranging standard mortgage
financing for lots and land uses that do not
conform to customary mortgage-underwriting
criteria. Part of manufactured housing’s
appeal, in fact, lies in the ease with which
units can be sited, a characteristic that is
particularly important in areas lacking well
developed construction and trade sectors.
Manufactured housing’s popularity in rural
areas also results from a lack of affordable
housing options, such as multifamily rental
units, which are rarely developed at a costeffective scale in low-density settings.26
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
The Enterprises have not been major
investors in manufactured housing
mortgages in recent years. Some
industry commenters observed that
manufactured housing loans are
significantly under-represented in the
Enterprises’ mortgage portfolios in
comparison with site-built homes. In
particular, the Manufactured Housing
Association for Regulatory Reform
(MHARR) commented that
manufactured housing loans now
constitute less than one percent of the
total business portfolios of both
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
PO 00000
Frm 00005
Fmt 4702
Sfmt 4702
32103
Seventy-six commenters addressed
the appropriateness of Enterprise
support for personal property (chattel)
loans on manufactured homes.
Organizations representing consumers
and manufactured home community
residents expressed serious reservations
about chattel lending. CFED, for
example, stated that chattel loans
provide low-income families with
higher rates, less optimal terms and
reduced consumer protections, as
compared to a mortgage loan, and this
was echoed in other comment letters.
Manufactured housing industry
commenters asserted that manufactured
housing financed as chattel provides a
low cost housing option for lowerincome borrowers, and that the
secondary market for these loans is
limited. These industry commenters
largely supported providing duty to
serve consideration for Enterprise
purchase of chattel loans and suggested
that the Enterprises purchase them on a
flow basis and in significant
quantities.28
In proposing that only loans titled as
real property be considered towards the
duty to serve, FHFA recognizes that
manufactured housing financing often
differs from financing for site-built
homes. Interest rates charged for chattel
loans are typically higher than those for
real estate-secured loans.29 Normally,
chattel loans have shorter maturities
and offer fewer consumer protections
than real property loans. In several
states, manufactured homes cannot be
titled as real property 30 and, as a result,
28 The Enterprises generally acquire single-family
mortgage loans for securitization or for portfolio
through either ‘‘flow’’ or ‘‘bulk’’ transaction
channels. In the flow business, which represents
the majority of their mortgage acquisitions, the
Enterprises typically enter into agreements that
generally set agreed-upon guaranty fee prices for a
lender’s future delivery of individual loans over a
specified time period. Bulk business involves
transactions in which a defined set of loans is to
be delivered in bulk, a process which allows the
Enterprises to review the loans for eligibility and
pricing prior to delivery in accordance with the
terms of the applicable contracts. Guaranty fees and
other contract terms for bulk mortgage acquisitions
are negotiated on an individual transaction basis,
thereby enabling the Enterprises to adjust pricing
more rapidly than in a flow transaction to reflect
changes in market conditions and the credit risk of
the specific transactions.
29 See Ronald A. Wirtz, ‘‘Home, sweet
(manufactured?) home’’ Fedgazette (July 2005),
available at https://www.minneapolisfed.org/pubs/
fedgaz/05-07/cover.cfm. Annual percentage rates
may also be higher. For example, in 2007 one
lender advertised an average annual percentage rate
of 10.14 percent for its chattel loans and an average
annual percentage rate of 7.54 percent for its real
estate-secured loans. See ‘‘Tammac Manufactured
Housing Advantage’’ (2007), available at https://
www.cdscreative.com/images/portfolio/tammacholdings.pdf.
30 More than 40 states reportedly provide for
conversion to real estate titles for manufactured
E:\FR\FM\07JNP1.SGM
Continued
07JNP1
32104
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
are not afforded certain borrower
protections that apply when loans are
secured by real property. Delinquencies
and defaults on chattel loans typically
exceed rates on mortgage loans.31
Sustainable homeownership results,
in part, from the enforcement of
appropriate consumer protections.
Consumer organizations and some
manufactured home resident
organizations were particularly
concerned that the Real Estate
Settlement Procedures Act (RESPA),
which requires that consumers receive
an estimate of costs prior to closing and
which prohibits payment of referral fees
among settlement providers, does not
apply to chattel loans. The National
Consumer Law Center commented that
the distinction between real property
and personal property is especially
important upon default because if a
home is personal property rather than
real property, the rights of the creditor
are governed by Article 9 of the Uniform
Commercial Code and the home may be
subject to self-help repossession.32
Further, the National Consumer Law
Center commented that if the home is
real property, upon default most states
require that the creditor use the
foreclosure process.
Commenters suggested that if FHFA
determines that manufactured homes
secured by chattel loans be considered,
FHFA should require borrower
protections such as: (i) Capping the
annual percentage rate (APR) at 3.5
points above the prime rate; (ii) banning
prepayment penalties; (iii) banning
yield spread premiums; and (iv)
homes. See Cathy Adkins, ‘‘Manufactured Housing:
Not What You Think’’ (National Conference of State
Legislatures, Apr. 2007), available at https://
www.ncsl.org/default.aspx?tabid=12742.
31 See generally Michael Koss, ‘‘Manufactured
Housing ABS—Valuation in a Troubled Sector,’’ p.
22 (Feb. 9, 2005) (Lehman Brothers Fixed-Income
Research) (regarding the performance of different
types of manufactured housing collateral). Origen
Financial Services, LLC, commented that the
Enterprises frequently object to purchasing chattel
loans because of their high default rates and that
about 30 percent of chattel loans fail during the life
of the loan.
32 For information on consumer protections under
repossession, see Government Accountability
Office, ‘‘Federal Housing Administration—Agency
Should Assess the Effects of Proposed Changes to
the Manufactured Home Loan Program,’’ GAO–07–
879, 26–27 (Aug. 2007), available at https://
www.gao.gov/new.items/d07879.pdf. See generally
A. Schmitz, ‘‘Promoting the Promise Manufactured
Homes Provide for Affordable Housing,’’ 13 Journal
of Affordable Housing 394–395 (No. 3) (Spring
2004), available at https://lawweb.colorado.edu/
profiles/pubpdfs/schmitz/SchmitzAHCDL.pdf;
Consumers Union, ‘‘Manufactured housing: A home
that the law still treats like a car’’ (Feb. 2005),
available at https://www.consumersunion.org/mh/
docs/Feb2005.pdf.
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
requiring that lease terms extend five
years beyond the term of the loan.33
Commenters also emphasized the
importance of RESPA-like protections
for chattel loans. However, developing
such protections may require legislative
and regulatory changes beyond the
scope of the duty to serve.
The Enterprises have minimal
experience with chattel financing, and
the high level of defaults related to such
financing creates significant credit and
operational risks.34 The depreciation in
the value of the manufactured home
could result in greater loss to the
Enterprise in the event of default on the
loan.35 Manufactured homes are
generally regarded as depreciating
assets, even in a strong market
environment.36 A 2005 report by
33 For a discussion of consumer concerns about
the origination and servicing of manufactured
housing mortgages, see generally S. West,
‘‘Manufactured Housing Finance and the Secondary
Market,’’ Vol. 2, Issue 1, Community Development
Investment Review 39 (2006) (Federal Reserve Bank
of San Francisco), available at https://www.frbsf.org/
publications/community/review/062006/west.pdf
(Current financing of manufactured housing is
expensive; the secondary market for manufactured
housing mortgages must include the Enterprises
and strategies to reduce investor risk.); A. Schmitz,
‘‘Promoting the Promise Manufactured Homes
Provide for Affordable Housing,’’ 13 Journal of
Affordable Housing 384 (No. 3) (Spring 2004),
available at https://lawweb.colorado.edu/profiles/
pubpdfs/schmitz/SchmitzAHCDL.pdf (State laws
differ with respect to real and personal property
financing and with respect to corresponding
consumer protection provisions; the relatively small
number of manufactured housing lenders allows
them to garner bargaining power over consumers
and has led to predatory financing.).
34 By letter dated February 2, 2010, FHFA advised
Congress of its concerns about new Enterprise
initiatives that could require entry into new
business lines with little prior experience or the
dedication of Enterprise personnel already
operating in a stressed environment. See Letter to
Congress at 7.
35 One manufactured housing lender observed:
‘‘The value of manufactured houses has tended to
depreciate over time * * * rapid depreciation may
cause the fair market value of borrowers’
manufactured houses to be less than the
outstanding balance of their loans. In cases where
borrowers have negative equity in their houses, they
may not be able to resell their manufactured houses
for enough money to repay their loans and may
have less incentive to continue to repay their loans,
which may lead to increased delinquencies and
defaults.’’ Origen Financial, Inc., Annual Report on
Form 10–K, as Amended, for the Fiscal Year Ended
December 31, 2008, p. 7, available at https://
www.origenfinancial.com/sites/default/files/as_
printed_Origen_10-K.pdf.
36 See S. Nelson & G. Bailey, ‘‘Manufactured
Housing RMBS Performance Update,’’ p. 1 (Nov. 17,
2009) (Fitch Ratings). See also Consumer
Federation of America, ‘‘The Promise and Pitfalls of
Building Wealth through Manufactured Housing,’’
p. 2–3 (https://content.knowledgeplex.org/kp2/
cache/documents/1895/189501.pdf; April 2006),
available at Dominion Bond Rating Service,
‘‘Methodology—Rating U.S. Residential MortgageBacked Securities Transactions,’’ p. 22 (Apr. 2009),
available at https://www.dbrs.com/research/227912/
rating-u-s-residential-mortgage-backed-securitiestransactions.pdf (‘‘Historically, chattel paper posed
PO 00000
Frm 00006
Fmt 4702
Sfmt 4702
Lehman Brothers estimated the
expected annual depreciation rate at
three to four percent annually.37
Likewise, Abt Associates noted that
‘‘[m]anufactured housing where the
household does not own the lot is not
an investment in any sense * * * [i]t
should be thought of as a type of
consumer durable.’’ 38 The Office of
Thrift Supervision cautioned lenders
engaged in manufactured housing
finance to carefully manage the risk of
collateral depreciation for the homes.39
Upon consideration of the risks facing
the borrowers and the Enterprises,
FHFA proposes that only Enterprise
purchases of mortgages on
manufactured homes titled as real
property and activities related to such
mortgages be considered toward the
duty to serve the manufactured housing
market. Enterprise purchases of chattel
mortgages or other mortgages not titled
as real estate, and any activity related to
such mortgages, would not be
considered. The proposed rule would
define ‘‘manufactured home’’ in
accordance with the definition of
‘‘manufactured home’’ used by HUD
under section 603(6) of the
Manufactured Home Construction and
Safety Standards Act of 1974, as
amended, 42 U.S.C. 5402(6), and
implementing regulations.40
FHFA has determined that very
low-, low- and moderate-income
families can be best served through
manufactured housing titled as real
property and that the Enterprises, as
part of their mission to increase the
liquidity of mortgages to low- and
moderate-income families, can play a
significant role in serving this segment
of the market. In addition, the safe and
sound operations of the Enterprises in
conservatorship are better protected
difficulties for investors of RMBS since the greatest
recovery value is in the land, not the structure.’’).
37 See Michael Koss, ‘‘Manufactured Housing
ABS—Valuation in a Troubled Sector,’’ p. 13 (Feb.
9, 2005) (Lehman Brothers Fixed-Income Research).
Advantus Capital views manufactured homes as
depreciating like a car depreciates. See Jon
Thomson, ‘‘Manufactured housing: An expected
beneficiary from subprime mortgage disruption’’ 3
(Advantus Capital Management, 4th Qtr. 2007),
available at https://www.advantuscapital.com/adv/
pdf/F67229.pdf.
38 T. Boehm & A. Schlottmann, ‘‘Is Manufactured
Housing a Good Alternative for Low-Income
Families? Evidence from the American Housing
Survey,’’ p. 50 (December 2004), available at
https://www.huduser.org/Publications/pdf/
IsManufacturedHousingAGoodAlternativeForLowIncomeFamiliesEvidence
FromTheAmericanHousingSurvey.pdf
39 See Office of Thrift Supervision, Examination
Handbook, 212.25 (Sept. 2008), available at
https://files.ots.treas.gov/422320.pdf.
40 This definition is consistent with the definition
of ‘‘manufactured housing’’ in FHFA’s regulation
governing Federal Home Loan Bank advances to
members, at 12 CFR 950.1.
E:\FR\FM\07JNP1.SGM
07JNP1
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
when real estate is pledged as collateral
for the mortgage loan.
Other Types of Manufactured Home
Loans. In the ANPR, FHFA requested
comment on definitions for land-home
loans. FHFA has reviewed the
comments received and literature on
land-home loans and found no universal
agreement on terminology or
definitions. Fannie Mae commented that
it ‘‘has many years of experience
purchasing loans secured by real
property manufactured housing,
sometimes called ‘land home’
mortgages.’’ The Manufactured Housing
Institute (MHI) described ‘‘land-home
non-conforming mortgage loans’’ as
including both the acquisition of the
home and the land as part of the loan
transaction, but as not conforming to
one or more of the Enterprises’
underwriting requirements. According
to MHI, there is a separate classification
of ‘‘real property conforming mortgage
loans,’’ which includes both the
acquisition of the home and the land as
part of the loan transaction and meets
the Enterprises’ underwriting
requirements.
With some manufactured housing
financing transactions, a single loan is
secured by separate liens against the
home and against the real estate on
which the home is sited. In the event of
a default, this arrangement provides the
lender with the option of proceeding
against either the home or the real
estate, whichever is most advantageous.
These types of transactions would not
be considered under the proposed rule,
but FHFA welcomes further comment as
to their relative merits in serving very
low-, low- and moderate-income
families in the manufactured housing
market.
Manufactured Home Communities.
Enterprise assistance to manufactured
home communities would not be
considered for purposes of the duty to
serve the manufactured housing market
in the proposed rule.
Although some manufactured home
communities may include units owned
by the community that are rented to
tenants, manufactured home
communities generally provide siting
for chattel financed homes, and for the
reasons discussed previously, the
proposed rule would not allow for
consideration for assistance to
manufactured homes not titled as real
property. Advocacy organizations
representing tenants highlighted
significant concerns about the
vulnerability of tenants in investorowned communities. In their view,
short-term leases, in combination with
the expense and difficulty involved in
relocating a manufactured home, made
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
tenants vulnerable to a variety of
difficulties, including unexpectedly
high rental increases and conversions of
communities to other uses with the
resulting displacement of tenants.
Enterprise support for housing under
these circumstances would not be
consistent with the intent of the duty to
serve.
The ANPR solicited comments on
whether and how Enterprise assistance
for manufactured home communities
should be considered for purposes of
the duty to serve the manufactured
housing market and whether there
should be differences in how residentowned and investor-owned
communities are treated. Eighty-four
commenters addressed this issue. There
was support from most commenters for
considering assistance to residentowned communities. Commenters did
not cite resident protection issues in
connection with these types of
communities. To the contrary,
community, resident and consumer
advocacy organizations suggested that
Enterprise assistance with residentowned communities would support
affordable housing for lower-income
families. ROC USA commented that
after 25 years and over $150 million in
originations for resident-owned
communities, it had ‘‘not had a single
loan lost or charged off.’’
Several commenters stated that this
market faces significant difficulties. The
commenters indicated that there is a
shortage of financing for manufactured
home communities, many communities
need to refinance over the next several
years, few new communities are being
developed and residents face
dislocation when a community cannot
obtain financing and must convert to a
different use.41 In addition, commenters
stated that manufactured home
communities are analogous to
multifamily properties in providing
affordable housing and that multifamily
properties receive significant support
from the Enterprises.
However, many resident and
consumer advocacy commenters
identified certain tenant protections that
would be necessary in conjunction with
providing assistance to manufactured
home communities including
requirements that:
(i) The term of the lease on the lot
where the home is sited is tied to the
term of the mortgage on the
manufactured home;
41 A different view was expressed by Hometown
American Communities, who commented that
financing for manufactured home communities is
generally available including from various life
insurance companies.
PO 00000
Frm 00007
Fmt 4702
Sfmt 4702
32105
(ii) Rental increases on the lot where
the home is sited would be governed by
formulas based on published, third
party indices;
(iii) Residents would be notified
significantly in advance of any sale of
the community by the owner and would
have a collective right of first refusal to
purchase the community;
(iv) Residents would have the right to
sell their homes in place to persons of
their choosing; and
(v) Residents would have the right to
form resident associations and conduct
resident meetings.
In light of the potential for
manufactured home communities to
provide affordable housing to very
low-, low- and moderate-income
families, FHFA solicits comment on
whether assistance to manufactured
home communities should be
considered for purposes of the duty to
serve the manufactured housing market.
FHFA particularly encourages
comments on the safety and soundness
of financing, distinctions between
investor-owned and resident-owned
communities, and the potential to
ensure appropriate consumer
protections in conjunction with such
assistance.
2. Affordable Housing Preservation
Market—Proposed § 1282.33
Affordable housing preservation
focuses primarily on ‘‘at risk properties.’’
A property becomes ‘‘at risk’’ ‘‘either
when its rent affordability restrictions
expire, or because mismanagement or
disinvestment cause [sic] the property to
deteriorate and become unsafe or
uninhabitable.’’ 42 Across the country,
thousands of multifamily properties
with federal, state or local subsidies or
financing are at risk of conversion to
market rate rents, obsolescence, or
foreclosure, if owners are unable to
refinance loans. The Enterprises can
play an important role in preserving
affordable multifamily properties by
offering owners refinancing alternatives
to Federal Housing Administration
(FHA), state and local financing
programs.
Section 1335(a)(1)(B) of the Safety and
Soundness Act requires the Enterprises
to ‘‘develop loan products and flexible
underwriting guidelines to facilitate a
secondary market to preserve housing
affordable to very low-, low-, and
42 Stewards of Affordable Housing for the Future,
‘‘Housing at Risk’’, available at https://
www.poah.org/about/at-risk.htm. According to
HUD, the general definition of ‘‘affordability’’ is for
a household to pay no more than 30 percent of its
annual income on housing. See https://
www.hud.gov/offices/cpd/affordablehousing/
index.cfm.
E:\FR\FM\07JNP1.SGM
07JNP1
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
32106
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
moderate-income families,’’ including
assistance to housing projects under the
following programs:
i. The project-based and tenant-based
rental assistance programs under
Section 8 of the United States Housing
Act of 1937 (42 U.S.C. 1437f);
ii. The program under Section 236 of
the National Housing Act (rental and
cooperative housing for lower income
families) (12 U.S.C. 1715z-1);
iii. The below-market interest rate
mortgage program under Section
221(d)(4) of the National Housing Act
(housing for moderate-income and
displaced families) (12 U.S.C. 1715l);
iv. The supportive housing for the
elderly program under Section 202 of
the Housing Act of 1959 (12 U.S.C.
1701q);
v. The supportive housing program
for persons with disabilities under
Section 811 of the Cranston-Gonzalez
National Affordable Housing Act (42
U.S.C. 8013);
vi. The programs under title IV of the
McKinney-Vento Homeless Assistance
Act (42 U.S.C. 11361 et seq.), but only
permanent supportive housing projects
subsidized under such programs;
vii. The rural rental housing program
under Section 515 of the Housing Act of
1949 (42 U.S.C. 1485);
viii. The low-income housing tax
credit (LIHTC) under Section 42 of the
Internal Revenue Code of 1986 (26
U.S.C. 42); and
ix. Comparable state and local
affordable housing programs.
12 U.S.C. 4565(a)(1)(B).
Under the proposed rule, Enterprise
assistance to housing projects under
these programs would be considered
under the duty to serve the affordable
housing preservation market. FHFA will
pay particular attention to the volume of
existing loans that are maturing and
may need refinancing in the affordable
housing preservation market. The
Enterprises would not be required to
assist each program every year, but
could take a step-by-step, concentrated
approach. For example, an Enterprise
might initially focus on the HUD
Section 8, Section 236 and Section 202
programs. Several commenters asserted
that the Enterprises should do more to
support small multifamily properties.
The Enterprises have existing loan
products that may meet the need of
some owners seeking to refinance
subsidized properties eligible to be
considered under the affordable housing
preservation market. The Enterprises
offer subsidized property owners
options not available under FHA
programs, such as shorter terms and
amortization periods, although these
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
may not be as competitive as some FHA
programs. The Enterprises have several
loan products already in place for
refinancing loans on Section 8
properties and Sections 236 and 202
loans. The properties refinanced under
these programs are more numerous than
properties refinanced pursuant to other
enumerated programs, and their
financing structure is more immediately
suited to the Enterprises’ existing
operations. Other enumerated programs
may require additional time for the
Enterprise to tailor financing and other
assistance, in particular, Section
221(d)(4), Section 811 and Section 515
programs, the McKinney-Vento
Homeless Assistance Act and LIHTCs.
In some or all of these cases, developing
or implementing new loan products
may be inconsistent with the
requirements of conservatorship, but
Enterprise outreach, such as providing
technical assistance, or other support
may be possible and appropriate.
The status of the enumerated
programs and the role that the
Enterprises could play in assisting them
are discussed below.
Section 8. Both Enterprises currently
purchase refinance mortgages on
properties with HUD Section 8 contracts
known as Housing Assistance Payments
(HAP) contracts. Under this program,
property owners receive rent payment
subsidies from HUD and, in return, the
property owner agrees to maintain
affordable rents and maintain housing
quality standards. Several commenters,
including the Consumer Federation of
America, Center for Responsible
Lending, National Consumer Law
Center, and Local Initiatives Support
Corporation (LISC), stated that the
Enterprises’ underwriting guidelines are
unnecessarily strict. For example, the
Enterprises do not count all of the
Section 8 payments as rental income
and require additional reserves to
protect against appropriations risk.43 In
the commenters’ view, this may make
refinancing a property infeasible or
result in a lower loan amount and,
therefore, fewer funds for repairs and
replacement.
LISC commented in detail about the
need for changes in Enterprise Section
8 financing. According to this comment
letter, the Enterprises should modify
their underwriting guidelines to allow
the debt service coverage ratios to be
based upon the full amount of the
Section 8 rent levels, provided these
rents were not above market levels. In
43 ‘‘Appropriations risk’’ is the possibility that
Congress will not appropriate any funds for a
program, or appropriate less funds than requested
by the executive branch.
PO 00000
Frm 00008
Fmt 4702
Sfmt 4702
addition, the letter suggested that the
Enterprises may give better treatment for
the debt service coverage ratios and the
loan-to-value ratios for non-subsidized
or LIHTC-only projects than they do for
projects subsidized under Section 8,
which may be a disincentive for
financing of Section 8 projects.
Section 236. Both Enterprises
currently have programs for purchasing
refinance mortgages on Section 236
below-market interest rate (BMIR) loans.
HUD’s Section 236 program, also known
as Section 236 Decoupling, permits an
owner to refinance into a conventional
multifamily mortgage while maintaining
the interest rate subsidy provided by
HUD. The HUD subsidy is referred to as
Interest Reduction Payments (IRPs), and
they are made directly to the lender.
The amount HUD pays is the difference
between the note rate and one percent.
The Section 236 programs of both
Enterprises use a bifurcated loan
structure where the real estate loan and
IRP payments amortize separately. The
loan must be structured to ensure that
the IRP payments are liquidated prior to
the maturing of the real estate loan.
HUD data indicate that there are over
1,300 outstanding Section 236 BMIR
loans, and that about 200 of these loans
will mature in 2010 and 2011.44
Section 221(d)(4). The Section
221(d)(4) program provides financing
for the construction or major
rehabilitation of multifamily rental
properties and for permanent financing
when construction is completed. The
program is not subsidized, and there are
no income restrictions on tenants.
Therefore, the program may provide
housing for other than very low-, lowand moderate-income households.
Section 221(d)(4) loans purchased by
the Enterprise may be considered as
long as the units financed serve the
income groups targeted by the duty to
serve.
While the Safety and Soundness Act
does not specifically mention the HUD
Section 221(d)(3) program, this program,
which is for nonprofit sponsors, can
have a BMIR loan component. FHFA
solicits comments on whether
Enterprise purchases of Section
221(d)(3) loans should be considered
under the duty to serve the affordable
housing preservation market.
Section 202. Opportunities for the
Enterprises to purchase refinanced
Section 202 loans for the low-income
elderly could grow due to legislative
and HUD program changes and the
increasing number of Section 202
44 HUD Insured Multifamily Mortgages Database,
available at https://www.hud.gov/offices/hsg/comp/
rpts/mfh/mf_f47.cfm.
E:\FR\FM\07JNP1.SGM
07JNP1
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
properties in need of funding for
rehabilitation. Established by the
National Housing Act of 1959, Section
202 was a loan program without rental
subsidies from 1959 to 1974. In 1974,
HUD began to provide rental subsidies,
but replaced subsidized loans with
direct financing at prevailing market
interest rates. As a result of the National
Housing Act of 1990, HUD discontinued
financing Section 202 properties, and
instead, the Section 202 program
became a capital advance program
under which HUD provided
construction or rehabilitation funds to
sponsors, and after construction, rental
subsidies. In return, sponsors were
required to keep rents affordable to
elderly households for a period of 40
years.
Most loans financed under Section
202 from 1959 to 1974 have 50-year
terms, and most sponsors with such
loans have already refinanced or sold
their properties for redevelopment. The
remaining Section 202 properties are at
risk of deteriorating or being sold for
redevelopment but not as affordable
properties.45 Section 202 properties that
were financed from 1969 to 1974 are
most in need of new financing.46 Many
properties financed from 1974 to 1990
have loans with interest rates exceeding
nine percent and might also benefit
from legislative changes. Refinancing
would allow owners to acquire
additional funds for rehabilitation,
which could then be used to repair or
rehabilitate Section 202 properties.47
HUD data show that over 2,800
outstanding Section 202 loans are
eligible for refinancing.48
Most Section 202 properties are
refinanced through FHA-insured
programs. FHA programs offer financing
45 See generally ‘‘The American Association of
Homes and Services for the Aging’’, House Financial
Services Comm., Subcomm. on Housing and
Community Opportunity, ‘‘Legislative Options for
Preserving Federally- and State-Assisted Affordable
Housing and Preventing Displacement of LowIncome, Elderly and Disabled Tenants,’’ 111th
Cong., 1st Sess. (July 15, 2009) (Statement for the
Record), available at https://www.house.gov/apps/
list/hearing/financialsvcs_dem/aahsa_statement_
for_the_record.pdf.
46 Id.
47 See Vincent F. O’Donnell, ‘‘Prepayment and
Refinancing of Section 202 Direct Loans—A
Summary of HUD Notices H 2002–16 and H 2004–
21’’ (Feb. 25, 2005), available at https://docs.google.
com/viewer?a=v&q=cache:OS9fkvDzizwJ:
www.lisc.org/files/896_file_asset_upload_file62_
6015.pdf+.org+h+2004–21+lisc+February+25&hl=
en&gl=us&pid=bl&srcid=ADGEESjfLlsfyFT-bDHQ8QSySzpNFYC5VTDHxWlM74Ji4PmkCWW2a
FM9bzzQOeXlu7iwS8Tzpo6jShgeYz
BOBsEdxcMAaFM-pR2WpxlKvtWL1XZmcoS_
F9fsbV8cUbyqcmouUB8Hycy&sig=
AHIEtbR0BncO3GAlI_rSAfSyljUDOH_Y9g.
48 HUD Insured Multifamily Mortgages Database,
available at https://www.hud.gov/offices/hsg/comp/
rpts/mfh/mf_f47.cfm.
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
terms such as lower debt service
coverage ratios and higher loan-to-value
ratios than conventional mortgage
lenders. More importantly, sponsors can
refinance properties using contract rents
rather than lower market rents, which
usually results in a larger loan amount
and more cash available to the sponsor
for rehabilitation and reserves.
By actively pursuing Section 202
refinancing opportunities, the
Enterprises would be able to provide
more refinancing options for sponsors.
Conventional financing through the
Enterprises would allow sponsors
access to adjustable rate mortgages with
shorter maturities and amortization
periods. Legislative changes to further
facilitate refinancing of Section 202
loans have been introduced in
Congress.49 If these changes are enacted
into law, the Enterprises would have
increased opportunities to purchase
refinanced mortgages and preserve
Section 202 housing. Given the growing
need for Section 202 sponsors to have
available refinancing options other than
FHA and state and local programs,
Enterprise assistance in this area is
particularly useful.
Section 811. The Section 811 program
is a capital advance and rental
assistance program for low-income
disabled persons, and was created by
the Cranston-Gonzalez National
Housing Act of 1990. Under current law,
Section 811 properties carry no debt,
and HUD rental subsidies cover the
difference between HUD-determined
operating expenses and rental income.50
There are no provisions under current
law for refinancing Section 811
properties, and nonprofit organizations
could not qualify for financing because
excess cash flows produced by the
properties under the program are
minimal. Further, owners participating
in the Section 811 program are required
to maintain the property as housing for
the disabled for a period of 40 years,
and it will be at least 20 more years
before low-income use restrictions on
owners expire. However, the President’s
2011 budget proposes changes to the
Section 811 program and will introduce
Project Rental Assistance Contracts
(PRACs) as part of the program.51 This
would open up new opportunities for
the Enterprises to provide long-term
49 See S. 118—111th Cong.: ‘‘Section 202
Supportive Housing for the Elderly Act of 2009,’’
available at https://thomas.loc.gov/cgi-bin/query/
z?c111:S.118:.
50 For a description of the Section 811 program,
see https://www.hud.gov/offices/hsg/mfh/progdesc/
disab811.cfm.
51 For a description of the PRAC initiative, see
https://www.hud.gov/offices/cfo/reports/2011/cjs/
Housing_For_Persons_Disabilities_2011.pdf.
PO 00000
Frm 00009
Fmt 4702
Sfmt 4702
32107
funding for properties receiving Section
811 PRACs.
McKinney-Vento Homeless Assistance
Act. Programs under title IV of the
McKinney-Vento Homeless Assistance
Act (42 U.S.C. 11361 et seq.) provide
supportive housing grants to help the
homeless, especially homeless families
with children, transition to independent
living. Nonprofits that develop such
supportive housing can use a
combination of equity and financing
sources, but such projects typically do
not involve mortgages, which effectively
limits Enterprise duty to serve activity
under these programs. FHFA solicits
comments on how the Enterprises could
provide assistance to properties
subsidized pursuant to the McKinneyVento Homeless Assistance Act for
purposes of the duty to serve the
affordable housing preservation market.
Sections 515 and 538. Both
Enterprises currently have programs to
help owners of properties with the U.S.
Department of Agriculture’s (USDA)
Section 515 direct loans to support lowincome housing in rural areas. The
Enterprises could also purchase eligible
Section 538 loans that refinance Section
515 properties. Section 538 is the
primary program used by USDA to
preserve affordable rural rental housing.
Low-Income Housing Tax Credits
(LIHTCs). LIHTCs, which are an
important source of equity for new lowincome rental housing, face significant
challenges in today’s market.
Traditionally, the Enterprises have been
among the largest investors in LIHTCs.
Now in conservatorship, the Enterprises
have no business reasons to purchase
LIHTCs and are not currently
purchasing them.
Neighborhood Stabilization Program.
The proposed rule would add the
Neighborhood Stabilization Program
(NSP) administered by state and local
governments with funds provided by
HUD, as an eligible state and local
affordable housing program for purposes
of the duty to serve the affordable
housing preservation market. The NSP
is designed to enable communities to
address problems related to mortgage
foreclosure and abandonment through
the purchase of foreclosed or abandoned
homes. Under the NSP, at least 25
percent of NSP funds must be used to
purchase and redevelop abandoned or
foreclosed homes that will be used to
house families with incomes that do not
exceed 50 percent of AMI.
Some commenters, including the
National Association of Home Builders
and several consumer advocacy
organizations, suggested that Enterprise
assistance with foreclosure prevention
efforts done in conjunction with
E:\FR\FM\07JNP1.SGM
07JNP1
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
32108
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
nonprofit organizations and state and
local governments that receive NSP
funds should be considered towards the
duty to serve. The consumer
commenters also encouraged greater
Enterprise involvement in helping
community development financial
institutions (CDFIs) finance foreclosed
properties that have been acquired by
nonprofits through debt and equity
investments.
Comparable State and Local
Affordable Housing Programs. The
Enterprises’ support of state and local
affordable housing programs has been
primarily through purchases of LIHTCs
and mortgage revenue bonds (MRBs)
from state and local HFAs. The National
Council of State Housing Agencies
(NCSHA) has made increased
cooperation between HFAs and the
Enterprises a top legislative and
regulatory goal for 2010.52
As a result of the liquidity crisis
facing HFAs, on October 19, 2009,
FHFA, in conjunction with Treasury
and HUD, announced an initiative to
support state and local 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 HFAs to
liquidity for outstanding HFA bonds.53
Fannie Mae and Freddie Mac both
played a role in this program, which,
through its support of HFA liquidity,
could expand resources for low- and
moderate-income borrowers who want
to purchase or rent homes that are
affordable over the long term. On
January 13, 2010, Treasury, FHFA and
HUD announced the completion of all
transactions under the initiative, which
involved more than 90 HFAs. Two
commenters noted that there needs to be
a closer partnership between state and
local HFAs and the Enterprises in order
to expand affordable housing
preservation opportunities. However,
commenters did not suggest any specific
programs or activities where the
Enterprises could assist.
Several commenters suggested other
potential sources of affordable housing
units that should be preserved such as:
(i) Subsidized or non-subsidized
affordable housing where there is and/
or will be a local, state or federal longterm affordable use restriction in place
for at least 20 percent of the units;
52 See ‘‘NCSHA 2010 Legislative and Regulatory
Priorities,’’ (Oct. 14, 2009), available at https://
www.ncsha.org/resource/ncsha-2010-legislativeand-regulatory-priorities.
53 U.S. Department of the Treasury,
‘‘Administration Announces Initiatives for State and
Local Housing Finance Agencies,’’ Press Release
(Oct. 19, 2009), available at https://www.ustreas.gov/
press/releases/tg323.htm.
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
(ii) State mortgage subsidy programs;
(iii) State low-income housing tax
credit programs;
(iv) Tax-exempt bond-financed
housing;
(v) Public housing and state public
housing involving mixed-finance
redevelopment; and
(vi) Affordable, sustainable
communities and healthy housing
programs.
FHFA invites further comments on
the merit of considering any of these
other potential sources of affordable
housing as part of the Enterprises’ duty
to serve, consistent with the
requirements of conservatorship
described earlier.
3. Rural Markets—Proposed §§ 1282.1,
1282.34
Section 1335(a)(1)(C) of the Safety and
Soundness Act requires the Enterprises
to ‘‘develop loan products and flexible
underwriting guidelines to facilitate a
secondary market for mortgages on
housing for very low-, low-, and
moderate-income families in rural
areas.’’ 12 U.S.C. 4565(a)(1)(C). An
appropriate definition for ‘‘rural area’’
and the types of Enterprise activities
that should be considered are discussed
below.
Definition of ‘‘Rural Area.’’ In the
ANPR, FHFA suggested three
definitions of ‘‘rural area.’’ The first
definition is based on classifications
used by the U.S. Census Bureau for the
2000 census and distinguishes between
urban and rural areas. Urban areas are
classified as all territory, population,
and housing units located within
urbanized areas and urban clusters. In
general, urbanized areas must have a
core with a population density of 1,000
persons per square mile and may
contain adjoining territory with at least
500 persons per square mile. Urban
clusters have at least 2,500 but less than
50,000 persons. Rural areas are
classified as all territory located outside
of urbanized areas and urban clusters.
Three commenters favored this
definition.
The second definition defines ‘‘rural
areas’’ as all counties assigned a USDA
Rural-Urban Continuum code (RUC
code), which the USDA uses to classify
rural areas. These codes are available for
all U.S. counties and for municipios
(county equivalents) in Puerto Rico.
Because data on other U.S. territories,
including Guam and the Virgin Islands,
are lacking, FHFA suggested treating
these territories as ‘‘rural areas.’’ A
disadvantage of using the RUC code is
that designations based on RUC codes
are county-based. Consequently, these
designations could encompass both
PO 00000
Frm 00010
Fmt 4702
Sfmt 4702
urban and rural areas, as occurs with
very large counties, particularly west of
the Mississippi River. Commenters
recognized this disadvantage and were
generally not in favor of this definition.
The third definition would combine
two different designations, one used by
the U.S. Census Bureau and one used by
the USDA. Under this two-pronged
definition, all census tracts designated
by the U.S. Census Bureau as
nonmetropolitan, i.e., outside
metropolitan statistical areas (MSAs)
designated by the Office of Management
and Budget (OMB), would be
considered rural areas, as would all
census tracts outside of urbanized areas
and urban clusters, as designated by
USDA’s Rural-Urban Commuting Area
(RUCA) code. Because it would be
census tract-based, it would be more
granular than county-based or MSAbased definitions and should better
distinguish between rural areas and
non-rural areas. Furthermore, this
definition would be easily implemented
by the Enterprises’ existing geocoding
systems. Freddie Mac and two other
commenters supported this definition.
One disadvantage of the third
definition, as some commenters pointed
out, is that a census tract could be
excluded if a small portion is also
included within an ‘‘Urbanized Area’’ or
an ‘‘Urban Cluster.’’ Also, as with the
other definitions, this definition is
based upon aging 2000 census data, and
updated information is not expected to
be available until 2012 or 2013. Another
disadvantage of the third definition is
that USDA does not plan to extend the
RUCA code to Puerto Rico until at least
2012, and RUCA codes are not currently
assigned to census tracts in the other
U.S. territories. In the ANPR, FHFA
suggested filling this gap by using the
RUC code described above to augment
the RUCA code in Puerto Rico and other
U.S. territories or by creating an
estimate of the RUCA code for these
areas.
FHFA solicits further comment on the
three definitions discussed in the ANPR
and how to address the operational
concerns involved.
A number of commenters, including
USDA and Fannie Mae, recommended
that FHFA adopt the definition of ‘‘rural
area’’ from the Housing Act of 1949, as
implemented by USDA. Under this
definition, ‘‘rural area’’ means any open
country or any town, village, city, or
place that is not part of or associated
with an urban area, and that ‘‘(1) has a
population not in excess of 2,500
inhabitants, or (2) has a population in
excess of 2, 500 but not in excess of
10,000 if it is rural in character, or (3)
has a population in excess of 10,000 but
E:\FR\FM\07JNP1.SGM
07JNP1
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
not in excess of 20,000 and (A) is not
contained within a standard
metropolitan statistical area, and (B) has
a serious lack of mortgage credit for
lower and moderate income families.’’
42 U.S.C. 1490.
The proposed rule would define
‘‘rural area’’ for purposes of the duty to
serve consistent with the above
definition. Because rural housing
practitioners and USDA use this
definition, its adoption would obviate
the need for practitioners to adapt their
practices and systems to fit a new
definition. In addition, since the
definition is maintained by USDA, it
would not need to be updated by FHFA
with successive censuses.
The proposed definition may present
operational concerns to FHFA and to
the Enterprises. The Government
Accountability Office (GAO) has found
that because MSAs contain both urban
and rural areas and have increased
substantially in both size and number in
recent decades, the use of MSAs may no
longer be a good way to distinguish
urban territory from rural territory.54 In
addition, it would be necessary for the
Enterprises to automate the coding of a
rural/urban designation based on
information currently available only
through the USDA Web site. The USDA
Web site is designed for loan
underwriters and originators with much
smaller transaction volume, who must
enter property addresses individually
into the Web site to determine which
addresses are located in rural areas. The
volume of the Enterprises’ transactions
is much larger, and they will need the
capability to automate the rural/urban
designation for large numbers of
properties.
FHFA suggests two approaches for
addressing the coding problem. First,
USDA’s RUCA code could be used until
USDA implements an automated system
for coding multiple properties. A second
approach is for originators of loans
purchased on a flow basis to manually
enter the property addresses in USDA’s
Web site and provide the resulting
classification data to the Enterprise. For
loans purchased in bulk transactions,
the Enterprise would be allowed to use
the RUCA code definition for
determining ‘‘rural area’’ rather than the
Housing Act of 1949 definition.
The definition proposed for ‘‘rural
area’’ may not encompass all tribal lands
and colonias.55 Very low-, low- and
54 See United States Government Accountability
Office, GAO–05–110, ‘‘Rural Housing—Changing
the Definition of Rural Could Improve Eligibility
Determinations’’ (Dec. 2004), available at https://
www.gao.gov/new.items/d05110.pdf.
55 For purposes of HUD’s Colonia Set-Aside
Program, a ‘‘colonia’’ is any identifiable community
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
moderate-income families in these areas
face unique housing challenges. In
comments received in response to the
ANPR, two nonprofit organizations and
one policy advocacy organization stated
that tribal lands should be automatically
included in the definition of ‘‘rural
area’’; one trade association opposed
this.
FHFA requests further comments on
whether tribal lands and colonias
should be included in the definition of
‘‘rural area’’ and how to define colonias.
Inclusion of Rural Housing Service
(RHS) Programs. Under the RHS’s
Section 538 program, the federal
government guarantees loans made
through approved lenders to build or
acquire apartments for moderate-income
tenants in rural areas. USDA and HAC
commented on the need for secondary
market support for Section 538
mortgages, emphasizing that Section
538 multifamily properties provide
housing for lower-income families. HAC
also recommended duty to serve
consideration for Enterprise assistance
to the RHS Section 514 program, which
finances housing for farm workers in
rural areas.
Section 514 loans cannot be
supported by the Enterprises in the
same way as Section 538 loans, because
Section 514 loans are made directly by
USDA, which holds them in its
portfolio. FHFA solicits comments on
what type of assistance the Enterprises
could provide for residential lending to
farm workers in rural areas and under
the Section 514 program in particular.
A number of commenters sought
express FHFA authorization for
particular RHS loan programs under the
duty to serve rural markets. For
purposes of the duty to serve, it is not
necessary that FHFA specifically
determine the eligibility of individual
federal, state or local programs that
support rural housing. As a general
matter, where: (1) An Enterprise’s
mortgage purchase, or other activity
related to such mortgage, is authorized
under the Charter Act; (2) the property
financed is residential real estate
located within a rural area; and (3) the
income of the residents falls within the
duty to serve income limits, the units
financed may be considered.
in the U.S.-Mexico border regions of Arizona,
California, New Mexico and Texas that is
determined to be a colonia on the basis of objective
criteria, including lack of a potable water supply,
inadequate sewage systems, and a shortage of
decent, safe and sanitary housing. The border
region is the area within 150 miles of the U.S.Mexico border excluding MSAs with populations
exceeding one million. See https://www.hud.gov/
offices/cpd/communitydevelopment/programs/
colonias/cdbgcolonias.cfm.
PO 00000
Frm 00011
Fmt 4702
Sfmt 4702
32109
Enterprise Activities in Rural Markets.
The Safety and Soundness Act
enumerates specific housing programs
for the Enterprises to assist to fulfill
their duty to serve the affordable
housing preservation market but does
not prescribe specific programs for
purposes of the Enterprises’ duty to
serve rural markets. The Enterprises
have latitude to address the needs in
rural markets. FHFA expects each
Enterprise to evaluate its current
activities in rural areas and
opportunities to increase those activities
to address liquidity needs. For example,
an Enterprise may market its products to
lenders in rural areas in an effort to
increase the number of approved
lenders in those areas. An Enterprise
may also purchase or otherwise assist
with loans guaranteed under USDA
programs and any other residential
mortgage to the extent such mortgage
otherwise qualifies for consideration.
FHFA expects the Enterprises to
thoroughly review their underwriting
guidelines to ensure they are
appropriate for rural markets.
Some rural areas with very high
median incomes may lack affordable
multifamily housing for lower-income
workers employed there. FHFA seeks
comment on what assistance the
Enterprises might be able to provide in
these areas for purposes of the duty to
serve rural markets.
E. Evaluating and Rating Performance
1. Overview of Evaluation
Section 1335(d) of the Safety and
Soundness Act requires FHFA to
separately evaluate whether each
Enterprise has complied with the duty
to serve each underserved market and
annually ‘‘rate the performance of each
Enterprise as to the extent of
compliance.’’ 12 U.S.C. 4565(d). Both
Enterprises and most other commenters
suggested a flexible approach to
evaluation. Commenters generally
supported an evaluation methodology
similar to that used by regulators to
determine compliance with the CRA,
and FHFA has incorporated certain
CRA-like features into the proposed
rule. See 12 U.S.C. 2901 et seq.; 12 CFR
parts 25, 228, 345, and 563e.
The proposed rule would require each
Enterprise to submit an underserved
markets plan under which its
performance would be evaluated and
rated. FHFA would consider four factors
in determining whether an Enterprise
has complied with the duty to serve.
These four factors were described as
four ‘‘tests’’ in the ANPR, but have been
renamed ‘‘assessment factors’’ in the
E:\FR\FM\07JNP1.SGM
07JNP1
32110
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
proposed rule.56 FHFA would evaluate
each Enterprise’s performance on each
assessment factor and assign a rating of
satisfactory or unsatisfactory to each
assessment factor in each underserved
market. Based on the assessment factor
ratings, FHFA would assign a rating to
the Enterprise of ‘‘in compliance’’ or
‘‘noncompliance’’ with the duty to serve
each underserved market.
Enterprise new products and new
activities are subject to the prior
approval and prior notice requirements
FHFA established pursuant to section
1321 of the Safety and Soundness Act.
See 12 U.S.C. 4541, 12 CFR Part 1253.
However, innovation in the provision of
services to underserved markets is not
necessarily the same as the concept of
new products requiring FHFA approval
under section 1321 of the Safety and
Soundness Act. In the Letter to
Congress, FHFA advised Congress that
permitting the Enterprises to engage in
new products is inconsistent with the
goals of conservatorship and further
instructed them not to submit such
requests under the new products rule.57
This guidance does not prohibit the
Enterprises from engaging in new
activities that are substantially similar
to existing activities previously
approved by FHFA, or from modifying
underwriting guidelines for existing
loan products, consistent with safety
and soundness and the requirements of
conservatorship. FHFA will consider
this guidance when evaluating the
Enterprise’s plan and performance of its
duty to serve underserved markets.
2. Underserved Markets Plan—Proposed
§ 1282.35
FHFA proposes that each Enterprise
provide an underserved markets plan
against which the Enterprise would be
evaluated and rated. The plan would be
similar to a ‘‘strategic plan’’ under the
CRA, but the plan would be mandatory
rather than optional.58 In its plan, the
Enterprise would establish benchmarks
and objectives upon which FHFA would
evaluate and rate its performance. The
plan would specify the actions the
Enterprise would take and results it
expects to achieve under each
assessment factor for each underserved
market. The Enterprise would be
required to specify benchmarks and
objectives to achieve a rating of
satisfactory for each assessment factor in
each underserved market. Although the
56 For stylistic simplicity, where a commenter
speaks of the four ‘‘tests’’ as set forth in the ANPR,
the preamble will describe them as ‘‘assessment
factors.’’
57 See Letter to Congress at 6.
58 For information on strategic plans under CRA
regulations, see generally 12 CFR 228.27.
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
plan may include non-quantitative
considerations, it must include objective
measurements with sufficient specificity
to enable FHFA to evaluate and rate the
Enterprise’s performance against those
measures. All benchmarks and
objectives must have a timeframe for
completion.
The proposed rule would identify
benchmarks and objectives for each
assessment factor that the Enterprise
must address in its plan. These are
discussed in more detail below.
Loan Product Assessment Factor. The
loan product assessment factor requires
evaluation of the Enterprise’s
‘‘development of loan products, more
flexible underwriting guidelines, and
other innovative approaches to
providing financing to each’’
underserved market. Id. sec.
4565(d)(2)(A).
FHFA received several comments
addressing the loan product assessment
factor. Fannie Mae suggested that FHFA
give appropriate consideration to
research and development activities that
may not show results in their initial
phase, but which are necessary for longterm planning and development. CFED
commented that loan products for
previously owned manufactured homes
and energy-efficient single-wide
manufactured homes serve the most
underserved segments of the
manufactured housing industry and
should be considered under the loan
product assessment factor. FHFA agrees
with these comments and will consider
these activities, provided they meet the
other requirements set forth in the
proposed rule.
To comply with this assessment
factor, the proposed rule would require
the Enterprise to evaluate its
underwriting guidelines, which could
include empirical testing of different
parameters and modification of loan
products in an effort to increase the
availability of loans to families in each
income group targeted by the duty to
serve, consistent with prudent lending
practices. FHFA expects the Enterprise
to identify underwriting obstacles that
could prevent service to underserved
families. Enterprise modification of
underwriting guidelines, particularly in
the manufactured housing and rural
markets, could also be considered. In its
plan, the Enterprise would be permitted
to establish additional benchmarks and
objectives that could be considered
under the loan product assessment
factor.
Outreach Assessment Factor. The
outreach assessment factor requires
evaluation of ‘‘the extent of outreach [by
the Enterprises] to qualified loan sellers
and other market participants’’ in each
PO 00000
Frm 00012
Fmt 4702
Sfmt 4702
of the three underserved markets. Id.
sec. 4565(d)(2)(B). For this assessment
factor, the Enterprises are expected to
engage market participants and pursue
relationships that result in enhanced
service to each underserved market.
These market participants could include
nontraditional issuers, such as CDFIs
and consortia sponsored by banks, local
and state governments or others.
USDA indicated that one way to
assess outreach in rural markets would
be to consider the number of approved
Fannie Mae or Freddie Mac lenders in
a state that are active in lending in rural
areas. USDA suggested, as an example,
a goal for each state to have at least
three active approved lenders and for
each lender to have financed three
different properties within that state
over a two-year period. In the example,
the Enterprise would be evaluated on its
performance relative to such a
quantitative benchmark and objective in
its plan.
Other examples include actions such
as simplifying the procedures for
approving new seller-servicers that
specialize in a particular underserved
market, conducting relevant market
surveys and forums to gather
information on how to better serve the
particular market and marketing
existing products targeted towards an
underserved market. In response to
commenters, Enterprise training in its
products and processes to market
participants would also be considered.
This could include training for
specialized participants in an
underserved market, such as USDA field
staff, nonprofit and for-profit lenders
and state and local HFAs.
The proposed rule would require the
Enterprise to specify new relationships
it would develop with qualified loan
sellers, its outreach to market
participants that serve families in each
income group targeted by the duty to
serve and technical support it would
provide. The Enterprise could also
specify other outreach activities in its
plan.
Loan Purchase Assessment Factor.
The loan purchase assessment factor
requires FHFA to consider ‘‘the volume
of loans purchased in each of such
underserved markets relative to the
market opportunities available to the
[E]nterprise.’’ Id. sec. 4565(d)(2)(C). The
Safety and Soundness Act further states
that FHFA ‘‘shall not establish specific
quantitative targets nor evaluate the
[E]nterprises based solely on the volume
of loans purchased.’’ Id.
FHFA received specific suggestions
from commenters regarding
implementation of the loan purchase
assessment factor. USDA suggested that
E:\FR\FM\07JNP1.SGM
07JNP1
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
the Enterprises buy at least five percent
of the total new construction loans
guaranteed by the Guaranteed Rural
Rental Housing Program. Under USDA’s
proposal, this would escalate to 10
percent in the second year and 15
percent in the third year. Similarly, the
Center for Responsible Lending, CFED
and the National Consumer Law Center
recommended requiring that Enterprise
participation in affordable housing
preservation be proportional to its
service to the larger multifamily market.
The proposed rule would set forth
benchmarks and objectives for the loan
purchase assessment factor that the
Enterprise must establish in its plan.
Although FHFA is not establishing
quantitative targets, FHFA would
consider the Enterprise’s past
performance on the volume of loans
purchased in a particular underserved
market relative to the volume of loans
the Enterprise purchases in that
underserved market in a given year.
The Enterprise’s plan would provide
FHFA with assessments and analyses of
the market opportunities available for
each underserved market and describe
the Enterprise’s expected volume of
loan purchases for a given year. The
plan would be subject to FHFA review,
which would normally take into
account difficulties in forecasting future
performance and the need for flexibility
in dealing with unexpected market
changes.
Investments and Grants Assessment
Factor. The investments and grants
assessment factor requires evaluation of
‘‘the amount of investments and grants
in projects which assist in meeting the
needs of such underserved markets.’’ 12
U.S.C. 4565(d)(2)(D).
CFED provided several suggestions for
grants in connection with manufactured
housing, such as grants that promote
peer-learning and industry knowledge
on innovative and promising practices
on the development of new products
and activities. Under appropriate
circumstances, these may be considered.
The proposed rule would require the
Enterprise to specify in its plan the
benchmarks and objectives it would
establish for the investments and grants
assessment factor. The plan would
describe the Enterprise’s projected
investments and grants in a given year
and any other benchmark and objective
the Enterprise deems relevant.
Other Considerations. The Enterprises
would have the option, in their plans,
of selecting within each underserved
market particular programs to
emphasize in a particular year. As
discussed previously, for example, the
Enterprises would not be required to
assist each enumerated program in the
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
affordable housing preservation market
every year. Rather, the Enterprises could
target certain programs in a given year.
Likewise, for rural markets an
Enterprise may choose to emphasize
assistance with particular RHS
programs. The plan should articulate
the reasons for choosing particular
programs.
Although the Enterprises are in
conservatorship, FHFA expects them to
show tangible results in each
underserved market and to be a catalyst
for mortgage lending to very low-, lowand moderate-income families in each
underserved market. The Enterprises
should expect mortgage purchases and
activities pursuant to the duty to serve
to be profitable, even though they may
be less so than activities that do not
serve these underserved markets.
Submission and Review of Plan. The
proposed rule would set forth
procedures for submission and review
of the plan. The Enterprise would be
required to submit the plan to FHFA at
least 90 days before the plan’s effective
date of January 1st of a particular year.
The term of the plan must be for two
years.
Within 60 days of receipt of the plan,
FHFA would inform the Enterprise of
any concerns with or objections to the
plan and, if necessary, would direct the
Enterprise to amend the plan to FHFA’s
satisfaction.
For the 2010 evaluation year, FHFA
would expect the Enterprises to submit
a plan as soon as practical after
publication of the final rule, and with
the earliest feasible effective date.
Assigned Ratings. The proposed rule
would require that the Enterprise
establish benchmarks and objectives in
its plan to achieve an assigned rating of
satisfactory on each assessment factor in
each underserved market. The proposed
rule would specify appropriate
benchmarks and objectives that may
result in a rating of satisfactory.
Satisfactory performance would mean
that an Enterprise has diligently and
with a degree of success pursued
opportunities and acted on the
opportunities to serve the market in a
given year. Satisfactory performance
would include attention to families in
each income group targeted by the duty
to serve and responsiveness to the needs
of the particular underserved market.
Unsatisfactory performance would
mean that the results were poor and the
Enterprise did not meet the benchmarks
and objectives in its plan for a rating of
satisfactory.
FHFA solicits comments on whether
the assigned ratings for each assessment
factor should be limited to satisfactory
or unsatisfactory or have additional
PO 00000
Frm 00013
Fmt 4702
Sfmt 4702
32111
possible ratings such as outstanding or
marginal.
3. Determination of Compliance—
Proposed § 1282.36
FHFA would evaluate an Enterprise’s
performance annually, as required by
the Safety and Soundness Act. 12 U.S.C.
4565(d)(1). In rating the Enterprise,
FHFA would determine whether the
Enterprise has substantially achieved its
benchmarks and objectives for the
desired rating as set forth in its plan. In
determining substantial achievement,
FHFA would consider the specific
needs and conditions of each
underserved market and the financial
condition of the Enterprise. If market
conditions or the financial condition of
the Enterprise change markedly during
an evaluation year, FHFA would take
this into consideration. FHFA would
also consider input from the Enterprise,
market participants and others, such as
housing and financial researchers, as to
the Enterprise’s performance, financial
condition and the needs and
opportunities in the underserved
markets.
Evaluation of Assessment Factors.
When evaluating an Enterprise’s
compliance with the duty to serve,
FHFA would not mechanically tally an
Enterprise’s performance on each
assessment factor into a total score for
that market. Rather, FHFA would
evaluate and weight each assessment
factor based on the needs of the
particular underserved market, overall
market conditions and the financial
condition of the Enterprise.
Some commenters suggested a
mathematical weighting of the four
assessment factors to generate overall
scores for the individual underserved
markets. FHFA has considered these
comments and has determined that a
rigid mathematical weighting of the
assessment factors would not provide
FHFA with sufficient flexibility when
evaluating an Enterprise’s compliance
with the duty to serve during
conservatorship.
ROC USA suggested that the
assessment factors for loan products,
outreach and investments and grants
should initially count more than loan
purchases, but FHFA has not adopted
this approach in the proposed rule.
Loan purchases are the core business of
the Enterprises and result in a tangible
and immediate benefit to the families
targeted for assistance. Accordingly, the
loan purchase assessment factor, along
with the outreach assessment factor,
would receive significant weight in
FHFA’s evaluation. Although FHFA
would also consider the Enterprises’
performance under the loan product
E:\FR\FM\07JNP1.SGM
07JNP1
32112
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
assessment factor, this would not
include any requirement that the
Enterprises enter new lines of business.
Because the Enterprises are in
conservatorship and are obligated to pay
dividends to the Treasury for preferred
shares of Enterprise stock that Treasury
holds, the investments and grants
assessment factor would receive little to
no weight.
Evaluation and Rating for 2010. For
the 2010 evaluation year, FHFA would
consider the administrative and
operational effects on the Enterprises of
not having final guidance in place for
the entire year, and the Enterprises
would only be rated for the portion of
2010 for which the rule is effective.
4. Requirements for Transactions or
Activities—Proposed §§ 1282.37
Through 1282.39
The proposed rule would establish
requirements for how transactions or
activities would be treated. With some
exceptions, the counting rules and other
requirements would be similar to those
established for the housing goals. For
example, under appropriate
circumstances, a single transaction
could count towards the achievement of
multiple housing goals, and in the same
way one transaction could be
considered towards more than one
underserved market. Also, specialized
transactions such as guarantees of MRBs
and purchases of participations in
mortgages would be treated in the same
manner as under the Enterprises’
housing goals regulation. Consistent
with the comments received, FHFA
proposes to measure performance in
terms of units rather than mortgages or
unpaid principal balance for the loan
purchase assessment factor.
Under the proposed rule, Enterprise
purchases of HOEPA mortgages and
mortgages with unacceptable terms or
conditions, as defined by FHFA in
existing 12 CFR 1282.1, would not be
considered under the duty to serve
underserved markets. Thus, for
example, purchase money mortgages
exceeding the thresholds in 12 CFR
1282.1 would not be considered. In
addition, Enterprise purchase of
mortgages where the sale or financing of
prepaid single-premium credit life
insurance products occurs in
connection with the origination would
not be considered.
The proposed rule would provide that
Enterprise purchases of mortgages that
do not conform to the interagency
Statement on Subprime Mortgage
Lending 59 and the Interagency
59 Office of the Comptroller of the Currency,
Federal Reserve Board, Federal Deposit Insurance
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
Guidance on Nontraditional Mortgage
Product Risks 60 would not be
considered under the duty to serve. To
receive consideration under the duty to
serve, all single-family loans purchased
by the Enterprises must meet the
standards in the Statement and
Guidance. The Enterprises are expected
to review the operations of loan sellers
to ensure that the loans being sold to the
Enterprises meet the standards in the
Statement and Guidance.
The proposed rule would require that
the Enterprise use actual income or rent
of the borrower or tenant when this is
available. When this is not available for
rental properties, the Enterprise could
estimate affordability by using the
median income level of the census tract
where the property is located, relative to
AMI. FHFA seeks comment on whether
an alternative basis for estimating
affordability would be more effective.
For example, the affordability of rental
units in a census tract could be
estimated based on the affordable
proportion of all rental units securing
new mortgages in that census tract.
The proposed rule would not limit the
number of units with missing data for
which an Enterprise could estimate
affordability. Comments as to whether
and how FHFA should impose a limit
are invited.
F. Enforcement of Duty to Serve—
Proposed §§ 1282.40, 1282.41
Section 1336(a)(4) of the Safety and
Soundness Act provides that the duty to
serve underserved markets is
enforceable to the same extent and
under the same enforcement provisions
as are applicable to the Enterprise
housing goals, except as otherwise
provided. See 12 U.S.C. 4566(a)(4).
Accordingly, if an Enterprise fails to
comply with, or there is a substantial
probability that the Enterprise will not
comply with, its duty to serve a
particular underserved market in a
given year, FHFA would determine
whether the benchmarks and objectives
in the Enterprise’s plan are or were
feasible.
In determining feasibility, FHFA
would consider factors such as market
conditions and the financial condition
of the Enterprise. The proposed rule
would provide that if FHFA determines
that such compliance is or was feasible,
Corporation, Office of Thrift Supervision, National
Credit Union Administration, ‘‘Statement on
Subprime Mortgage Lending,’’ 72 FR 37569–575
(July 10, 2007).
60 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 58609–618 (Oct. 4, 2006).
PO 00000
Frm 00014
Fmt 4702
Sfmt 4702
FHFA would follow the procedures in
12 U.S.C. 4566(b). The proposed rule
would also include provisions for
submitting a housing plan in the
Director’s discretion, if the Director
determines that the Enterprise did not
comply with its duty to serve a
particular underserved market.
G. Reports and Data Submission—
Proposed § 1282.66
The ANPR solicited comment on
appropriate reporting and data
submission requirements. The
comments received were not extensive.
The Center for Responsible Lending,
Consumer Federation of America and
National Consumer Law Center
commented that FHFA should consider
requiring each Enterprise to annually
publish a comprehensive report that
describes the Enterprise’s activities in
each underserved market. Freddie Mac
commented that the reporting
requirements should be flexible and that
FHFA should utilize existing Enterprise
systems and processes. LISC
commented that requiring the
Enterprises to provide a complete listing
of transactions would be valuable as
long as confidentiality concerns are
appropriately addressed.
FHFA proposes to require the
Enterprise to provide three quarterly
reports and one annual report on its
performance and progress towards
meeting its duty to serve each
underserved market. The reports would
contain both narrative and summary
statistical information, supported by
submission of appropriate transactionlevel data. The annual report would
include a description of the Enterprise’s
market opportunities for loan purchases
that year that were available in each
underserved market, to the extent data
is available, the volume of qualifying
loans purchased that year, a comparison
of the Enterprise’s loan purchases in
that year with its loan purchases in past
years, and a comparison of market
opportunities with the size of the
relevant markets in the past, to the
extent data are available. The annual
reports would also include discussion of
the factors affecting the availability of
loans for purchase that meet the
requirements of the regulation. These
factors could include market or
accounting requirements for lenders to
retain loans in portfolio or to sell them,
the availability and pricing of credit
enhancements from third parties and
competition from other secondary
market participants.
IV. Paperwork Reduction Act
The proposed rule does not contain
any information collection requirement
E:\FR\FM\07JNP1.SGM
07JNP1
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
that requires the approval of the Office
of Management and Budget under the
Paperwork Reduction Act (44 U.S.C.
3501 et seq.).
V. 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 in 12 CFR Part 1282
Mortgages, Reporting and
recordkeeping requirements.
Accordingly, for the reasons stated in
the preamble, FHFA proposes to further
amend part 1282 of subchapter E of 12
CFR chapter XII, as proposed to be
revised at 75 FR 9061 (February 26,
2010), as follows:
SUBCHAPTER E—HOUSING GOALS AND
MISSION
PART 1282—ENTERPRISE HOUSING
GOALS AND MISSION
1. The authority citation for part 1282
is revised to read as follows:
Authority: 12 U.S.C. 4501, 4502, 4511,
4513, 4526, 4561–4566, 4603.
2. In § 1282.1, add the following
definitions in alphabetical order:
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
§ 1282.1
Definitions.
*
*
*
*
*
Manufactured home, for purposes of
subpart C of this part, means a
manufactured home as defined in
section 603(6) of the Manufactured
Home Construction and Safety
Standards Act of 1974, as amended, 42
U.S.C. 5402(6), and implementing
regulations.
*
*
*
*
*
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
Rural area, for purposes of subpart C
of this part, shall have the same
meaning as provided in 42 U.S.C. 1490.
*
*
*
*
*
3. Add subpart C to read as follows:
Subpart C—Duty to Serve
Sec.
1282.31 General.
1282.32 Manufactured housing market.
1282.33 Affordable housing preservation
market.
1282.34 Rural markets.
1282.35 Underserved markets plan.
1282.36 Evaluations and assigned ratings.
1282.37 Consideration of transactions or
activities.
1282.38 General requirements for loan
purchases.
1282.39 Special requirements for loan
purchases.
1282.40 Failure to comply.
1282.41 Housing plans.
Subpart C—Duty to Serve
§ 1282.31
General.
(a) This subpart sets forth the
Enterprises’ duty to serve three
underserved markets as required by
section 1335 of the Safety and
Soundness Act, 12 U.S.C. 4565. This
subpart also establishes for 2010 and
subsequent years, standards and
procedures for evaluating and rating
each Enterprise’s compliance with the
duty to serve underserved markets.
(b) Nothing in this subpart shall
permit or require an Enterprise to
engage in any activity that would
otherwise be inconsistent with its
Charter Act or the Safety and Soundness
Act.
§ 1282.32
Manufactured housing market.
(a) Duty in general. Each Enterprise
shall develop loan products and flexible
underwriting guidelines to facilitate a
secondary market for eligible mortgages
on manufactured homes for very low-,
low- and moderate-income families. The
Enterprise’s activities under this section
shall serve each such income group in
the year for which the Enterprise is
evaluated and rated.
(b) Eligible activities. Mortgages on
manufactured homes and activities
related to such mortgages shall be
eligible for consideration under the duty
to serve the manufactured housing
market provided that:
(1) The home is titled as real property;
and
(2) The loan does not provide for
mandatory arbitration of disputes.
§ 1282.33
market.
Affordable housing preservation
(a) Duty in general. Each Enterprise
shall develop loan products and flexible
PO 00000
Frm 00015
Fmt 4702
Sfmt 4702
32113
underwriting guidelines to facilitate a
secondary market to preserve housing
affordable to very low-, low- and
moderate-income families under eligible
housing programs. The Enterprise’s
activities under this section shall serve
each such income group in the year for
which the Enterprise is evaluated and
rated.
(b) Eligible housing programs.
Enterprise activities related to housing
projects under the following programs
shall be eligible for consideration under
the affordable housing preservation
market:
(1) The project-based and tenantbased rental assistance housing
programs under section 8 of the U.S.
Housing Act of 1937, 42 U.S.C. 1437f;
(2) The rental and cooperative
housing for lower income families
under section 236 of the National
Housing Act, 12 U.S.C. 1715z–1;
(3) The housing program for
moderate-income and displaced families
under section 221(d)(4) of the National
Housing Act, 12 U.S.C. 1715l;
(4) The supportive housing program
for the elderly under section 202 of the
Housing Act of 1959, 12 U.S.C. 1701q;
(5) The supportive housing program
for persons with disabilities under
section 811 of the Cranston-Gonzalez
National Affordable Housing Act, 42
U.S.C. 8013;
(6) The permanent supportive housing
projects subsidized under Title IV of the
McKinney-Vento Homeless Assistance
Act, 42 U.S.C. 11361 et seq.;
(7) The rural rental housing program
under section 515 of the Housing Act of
1949, 42 U.S.C. 1485;
(8) Low-income housing tax credits
under section 42 of the Internal Revenue
Code of 1986, 26 U.S.C. 42;
(9) The Neighborhood Stabilization
Program; and
(10) Other comparable affordable
housing programs administered by a
state or local government that preserve
housing affordable to very low-, lowand moderate-income families, as may
be determined by FHFA in its
discretion.
(c) Level of assistance. An Enterprise
shall not be required to assist every
program enumerated in paragraphs
(b)(1) through (b)(9) of this section in a
particular year.
§ 1282.34
Rural markets.
Each Enterprise shall develop loan
products and flexible underwriting
guidelines to facilitate a secondary
market for mortgages on housing for
very low-, low- and moderate-income
families in rural areas. The Enterprise’s
activities under this section shall serve
each such income group in the year for
E:\FR\FM\07JNP1.SGM
07JNP1
32114
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
which the Enterprise is evaluated and
rated.
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
§ 1282.35
Underserved markets plan.
(a) General. Each Enterprise shall
submit an underserved markets plan
describing the steps it will take to serve
each underserved market. FHFA will
annually evaluate the Enterprise on its
performance in all three underserved
markets pursuant to the plan.
(b) Term of plan. The plan shall cover
a period of two years.
(c) Plan content.—(1) The plan shall
specify measurable benchmarks and
objectives designed to achieve a rating
of satisfactory for each assessment factor
in each underserved market. For each
underserved market, the plan shall
address each benchmark and objective
set forth in paragraphs (c)(2) through
(c)(5) of this section and describe with
sufficient specificity the steps the
Enterprise will take to accomplish such
benchmark and objective. The plan shall
include annual measurable benchmarks
and objectives and a timeframe for
meeting them.
(2) Benchmarks and objectives for
loan product assessment factor.—(i)
Loan features or products the Enterprise
will evaluate or develop to increase the
number of loans available to very
low-, low- and moderate-income
families in a particular underserved
market;
(ii) The Enterprise’s evaluation of and
changes to its underwriting guidelines
for existing loan products for the
purpose of increasing the number of
very low-, low- and moderate-income
families that would qualify for such
products. Any changes must be
consistent with the Safety and
Soundness Act and the safe and sound
operation of the Enterprise;
(iii) The degree to which such loan
features, products or evaluation of or
changes to underwriting guidelines
serve families in each income group
targeted by the duty to serve; and
(iv) Any other benchmark and
objective the Enterprise deems relevant.
(3) Benchmarks and objectives for
outreach assessment factor.—(i) New
relationships the Enterprise will
develop with qualified loan sellers that
serve the needs of very low-, low- and
moderate-income families in a
particular underserved market;
(ii) Enterprise outreach to market
participants, such as community
organizations, community development
financial institutions, and organizations
or market participants that serve
families in each income group targeted
by the duty to serve;
(iii) Technical support the Enterprise
will provide to qualified loan sellers
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
and market participants. Technical
support may include seminars, training
and literature on the Enterprise’s loan
products and processes, and any other
support that would assist qualified loan
sellers and market participants gain a
better understanding of the Enterprise’s
products; and
(iv) Any other benchmark and
objective the Enterprise deems relevant.
(4) Benchmarks and objectives for
loan purchase assessment factor.—(i)
The volume of loans the Enterprise will
purchase that serves the particular
underserved market;
(ii) The market opportunities for
Enterprise mortgage purchases in the
underserved area. Descriptions of
market opportunities shall be supported
by market size estimations;
(iii) The Enterprise’s past performance
on the volume of loans purchased in a
particular underserved market relative
to the volume of loans the Enterprise
will purchase in such underserved
market in a given year;
(iv) The extent to which the loans
purchased will serve each income group
targeted by the duty to serve; and
(v) Any other benchmark and
objective the Enterprise deems relevant.
(5) Benchmarks and objectives for
investments and grants assessment
factor.—(i) Investments and grants the
Enterprise intends to make in a
particular year; and
(ii) Any other benchmark and
objective the Enterprise deems relevant.
(d) Procedures.—(1) An Enterprise
shall submit the plan to FHFA at least
90 days before the effective date of the
plan.
(2) The effective date of the plan shall
be January 1st of that evaluation year.
(3) Within 60 days of receipt of an
Enterprise’s plan, FHFA will review the
plan and inform the Enterprise of any
concerns with or objections to the plan.
(4) If FHFA objects to a plan
submitted by the Enterprise, the
Enterprise shall submit an amended
plan to FHFA not later than 15 days
following notification from FHFA.
(e) Criteria for evaluating plan
content. FHFA will evaluate a plan
using the following criteria:
(1) The extent to which the plan
addresses each assessment factor and
describes the steps the Enterprise will
take to implement each benchmark and
objective for each assessment factor in
each underserved market;
(2) The extent to which the plan
establishes measurable benchmarks and
objectives to achieve a rating of
satisfactory and to serve a particular
underserved market;
(3) The innovativeness and
effectiveness of the steps the Enterprise
PO 00000
Frm 00016
Fmt 4702
Sfmt 4702
will take to accomplish the benchmarks
and objectives and whether those steps
will be responsive to the needs of a
particular underserved market; and
(4) The extent to which the plan
serves families in each targeted income
group in a particular underserved
market.
(f) Satisfactory rating. Benchmarks
and objectives appropriate for a rating of
satisfactory for a particular assessment
factor may include:
(1) Use of innovative products,
practices and services;
(2) Improvement in performance from
year to year;
(3) Responsiveness to the needs of a
particular underserved market;
(4) Assistance with products and
programs for first-time homebuyers;
(5) Assistance to insured depository
institutions in meeting their CRA
requirements;
(6) Attention to families in each
income group targeted by the duty to
serve; and
(7) For the loan purchase assessment
factor, improvement in loan purchases
over prior years.
(g) Unsatisfactory rating. Failure to
substantially achieve the benchmarks
and objectives for a rating of satisfactory
on a particular assessment factor shall
result in a rating of unsatisfactory for
that assessment factor.
§ 1282.36
ratings.
Evaluations and assigned
(a) Assessment factors.—(1) FHFA
will separately evaluate an Enterprise’s
performance on each of the four
assessment factors, as provided in
paragraphs (a)(2) through (a)(5) of this
section, in each underserved market.
FHFA will evaluate and rate each
Enterprise’s performance in each
underserved market on an annual basis.
(2) Loan product assessment factor.
FHFA will evaluate each Enterprise on
its development of loan products, more
flexible underwriting guidelines, and
other innovative approaches to
providing financing to each underserved
market.
(3) Outreach assessment factor. FHFA
will evaluate each Enterprise on the
extent of its outreach to qualified loan
sellers and other market participants in
each underserved market.
(4) Loan purchase assessment factor.
FHFA will evaluate each Enterprise on
the volume of loans it purchases in each
underserved market relative to the
market opportunities available to the
Enterprise.
(5) Investments and grants assessment
factor. FHFA will evaluate each
Enterprise on the amount of its
investments and grants in projects that
E:\FR\FM\07JNP1.SGM
07JNP1
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
assist in meeting the needs of each
underserved market, taking into
consideration the safe and sound
operation of the Enterprise and the
requirements of conservatorship.
(b) Evaluation of assessment factors.
In determining whether an Enterprise
has complied with the duty to serve
each underserved market, FHFA will
annually evaluate the Enterprise under
its underserved markets plan and assign
a rating as follows:
(1) FHFA will assign a rating of
satisfactory or unsatisfactory to each
assessment factor in each underserved
market based on FHFA’s determination
of whether the Enterprise has
substantially achieved its benchmarks
and objectives under its underserved
markets plan;
(2) In determining whether the
Enterprise has substantially achieved its
benchmarks and objectives, FHFA will
consider market factors and other
circumstances beyond the Enterprise’s
control that affected the Enterprise’s
ability to fully achieve its benchmarks
and objectives.
(c) Determination of compliance. For
each underserved market, FHFA will
assign a rating of ‘‘in compliance’’ or
‘‘noncompliance’’ with the duty to serve
that market.
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
§ 1282.37 Consideration of transactions or
activities.
(a) General. FHFA shall determine
whether an Enterprise transaction or
activity shall be considered for purposes
of the duty to serve underserved
markets. In this determination, FHFA
will consider whether the transaction or
activity facilitates a secondary market
for mortgages: On manufactured homes
for very low-, low- and moderateincome families; to preserve housing
affordable to very low-, low- and
moderate-income families under eligible
housing programs; and on housing for
very low-, low- and moderate-income
families in rural areas. If FHFA
determines that a transaction or activity
will be considered for purposes of the
duty to serve underserved markets, such
transaction or activity will be
considered under the relevant
assessment factor for each underserved
market it serves.
(b) Not considered. The following
transactions or activities shall not be
considered for purposes of the duty to
serve underserved markets and shall not
be considered for any assessment factor,
even if the transaction or activity would
otherwise be considered under
§ 1282.39:
(1) Enterprise contributions to the
Housing Trust Fund, 12 U.S.C. 4568,
and the Capital Magnet Fund, 12 U.S.C.
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
4569, and mortgage purchases funded
with such grant amounts;
(2) HOEPA mortgages and mortgages
with unacceptable terms and
conditions;
(3) Mortgages that do not conform to
the interagency Statement on Subprime
Mortgage Lending, 72 FR 37569–575
(July 10, 2007), and the Interagency
Guidance on Nontraditional Mortgage
Product Risks, 71 FR 58609–618 (Oct. 4,
2006);
(4) Mortgages on manufactured homes
not titled as real property or that
provide for mandatory arbitration of
disputes, or any activity related to such
mortgages;
(5) Mortgages on manufactured home
communities or any activity related to
such mortgages;
(6) Purchases of single-family private
label securities;
(7) Commitments to buy mortgages at
a later date or time;
(8) Options to acquire mortgages;
(9) Rights of first refusal to acquire
mortgages;
(10) Mortgage purchases to the extent
they finance any dwelling units that are
secondary residences;
(11) 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;
(12) Purchases of subordinate lien
mortgages (second mortgages);
(13) Transactions or activities for
which either Enterprise previously
received consideration under the duty
to serve underserved markets within the
five years immediately preceding the
current performance year;
(14) Purchases of mortgages where the
property has not been approved for
occupancy;
(15) Any interests in mortgages that
the Director determines, in writing,
shall not be treated as interests in
mortgages;
(16) Purchases of State and local
government housing bonds except as
provided in § 1282.39(g); and
(17) Any combination of factors in
paragraphs (b)(1) through (b)(16) of this
section.
(c) FHFA review of transactions or
activities. FHFA may determine whether
and how any transaction or activity will
be considered for purposes of the duty
to serve underserved markets, including
treatment of missing data. FHFA will
notify each Enterprise in writing of any
determination regarding the treatment of
any transaction or activity.
(d) The year in which a transaction or
activity will be considered. A
transaction or activity will be
PO 00000
Frm 00017
Fmt 4702
Sfmt 4702
32115
considered for purposes of the duty to
serve underserved markets in the year in
which the transaction or activity is
completed. FHFA may determine that
partial consideration is appropriate for a
transaction or activity that begins in a
particular year but is not completed
until a subsequent year, except that
transactions that count toward the loan
purchase assessment factor shall be
considered in the year in which the
Enterprise purchased the mortgage.
(e) Consideration under one
assessment factor. A transaction or
activity will only be considered under
one assessment factor in a particular
underserved market.
(f) Consideration toward multiple
underserved markets. A transaction or
activity, including dwelling units
financed by an Enterprise’s mortgage
purchase, shall be considered for each
underserved market for which such
transaction or activity qualifies in that
year.
§ 1282.38 General requirements for loan
purchases.
(a) General. This section shall apply
to Enterprise mortgage purchases that
will be considered under the loan
purchase assessment factor for a
particular underserved market. Only
dwelling units that are financed by
mortgage purchases eligible to be
considered under the duty to serve a
particular underserved market, and that
are not specifically excluded as
ineligible under § 1282.37(b), may be
considered.
(b) Rental units. For purposes of
counting rental units toward the loan
purchase assessment factor, 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,
E:\FR\FM\07JNP1.SGM
07JNP1
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
32116
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
except as provided in paragraph
(b)(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, but such
tenant income shall not exceed 100
percent of area median income. 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
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 will be evaluated based on
rent and whether the rent is affordable
to the income group targeted by the
underserved market. 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 may be
counted towards the loan purchase
assessment factor only if an Enterprise
determines that the number of such
units is reasonable and minimal
considering the size of the property.
(4) Timeliness of information. When
counting dwelling units, each Enterprise
shall use tenant and rental information
as of the time of mortgage acquisition.
(c) Missing data or information—(1)
When an Enterprise lacks sufficient
information to determine whether an
owner-occupied unit in a property
securing a mortgage purchased by an
Enterprise counts toward the loan
purchase assessment factor for a
particular underserved market because
the income of the mortgagor is not
available, the Enterprise may not count
such unit.
(2) When an Enterprise lacks
sufficient information to determine
whether a rental unit in a property
securing a mortgage purchased by an
Enterprise counts toward the loan
purchase assessment factor for a
particular underserved market because
neither the income of prospective or
actual tenants, nor the actual or average
rental data, are available, an Enterprise
may estimate affordability with respect
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
to such unit by using the median
income level of the census tract where
the property is located, as determined
by FHFA based on the most recent
decennial census.
(d) 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’’).
(e) Sampling not permitted.
Performance under the loan purchase
assessment factor for each underserved
market for each year shall be based on
a complete tabulation of dwelling units
for that year; a sampling of such
dwelling units is not acceptable.
(f) Newly available data. When an
Enterprise uses data to determine
whether a dwelling unit counts toward
the loan purchase assessment factor for
a particular underserved market 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.
§ 1282.39 Special requirements for loan
purchases.
(a) General. Subject to FHFA’s
determination of whether a transaction
or activity shall be considered for
purposes of the duty to serve
underserved markets, the transactions
and activities identified in this section
shall be treated as mortgage purchases
as described, and be considered under
the loan purchase assessment factor. A
transaction or activity that is covered by
more than one paragraph below must
PO 00000
Frm 00018
Fmt 4702
Sfmt 4702
satisfy the requirements of each such
paragraph.
(b) Credit enhancements—(1)
Dwelling units financed under a credit
enhancement entered into by an
Enterprise shall be treated as mortgage
purchases only when:
(i) 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
(ii) 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.
(2) 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 transactions to
count under the loan purchase
assessment factor for a particular
underserved market.
(c) 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.
(d) Participations. Participations
purchased by an Enterprise shall be
treated as mortgage purchases only
when the Enterprise’s participation in
the mortgage is 50 percent or more.
(e) Cooperative housing and
condominiums—(1) 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.
(2) 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.
(3) 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. 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.
E:\FR\FM\07JNP1.SGM
07JNP1
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules
(f) Seasoned mortgages. An
Enterprise’s purchase of a seasoned
mortgage shall be treated as a mortgage
purchase.
(g) Purchase of refinancing mortgages.
The purchase of a refinancing mortgage
by an Enterprise shall be treated as a
mortgage purchase only if the
refinancing is an arms-length
transaction that is borrower-driven.
(h) Mortgage revenue bonds. The
purchase or guarantee of a mortgage
revenue bond issued by a State or local
housing finance agency shall be treated
as a purchase of the underlying
mortgages only to the extent the
Enterprise has sufficient information to
determine whether the underlying
mortgages or mortgage-backed securities
serve very low-, low- or moderateincome families in a particular
underserved market.
(i) 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.
(j) Seller dissolution option—(1)
Mortgages acquired through transactions
involving seller dissolution options
shall be treated as mortgage purchases
only when:
(i) 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
(ii) The transaction is not dissolved
during the one-year minimum lockout
period.
(2) FHFA may grant an exception to
the one-year minimum lockout period
described in paragraphs (j)(1)(i) and
(j)(1)(ii) of this section, in response to a
written request from an Enterprise, if
FHFA determines that the transaction
furthers the purposes of the Enterprise’s
Charter Act and the Safety and
Soundness Act.
(3) For purposes of paragraph (j) of
this section, ‘‘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.
§ 1282.40
Failure to comply.
If the Director determines that an
Enterprise has not complied with, or
there is a substantial probability that the
Enterprise will not comply with, the
duty to serve a particular underserved
market in a given year and the Director
VerDate Mar<15>2010
15:25 Jun 04, 2010
Jkt 220001
determines that such compliance is or
was feasible, the Director will follow the
procedures in 12 U.S.C. 4566(b).
§ 1282.41
Housing plans.
(a) General. If the Director determines
that an Enterprise did not comply with
the duty to serve a particular
underserved market in a given year, the
Director may require the Enterprise to
submit a housing plan for approval by
the Director.
(b) Nature of housing 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 comply with the duty to serve
a particular underserved market for the
next calendar year; or
(ii) To make such improvements and
changes in its operations as are
reasonable in the remainder of the year,
if the Director determines that there is
a substantial probability that the
Enterprise will fail to comply with the
duty to serve a particular underserved
market in such year; and
(4) Address any additional matters
relevant to the housing 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 housing 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
housing plan acceptable to the Director
not later than 15 days after the
Director’s disapproval of the initial
housing plan; the Director may extend
the deadline if the Director determines
an extension is in the public interest. If
the amended housing plan is not
acceptable to the Director, the Director
may afford the Enterprise 15 days to
submit a new housing plan.
4. Add § 1282.66 in subpart D to read
as follows:
§ 1282.66
serve.
Enterprise reports on duty to
(a) Quarterly reports. Each Enterprise
shall submit to the Director a quarterly
PO 00000
Frm 00019
Fmt 4702
Sfmt 4702
32117
report on its transactions and activities
undertaken pursuant to its underserved
markets plan, which shall include
detailed information on the Enterprise’s
progress towards meeting the
benchmarks and objectives in its plan.
(b) Annual report. To comply with the
requirements in sections 309(n) of the
Fannie Mae Charter Act and 307(f) of
the Freddie Mac Act and for purposes
of FHFA’s Annual Housing Report to
Congress, each Enterprise shall submit
to the Director an annual report on its
transactions and activities undertaken
pursuant to its underserved markets
plan no later than 60 days after the end
of each calendar year. For each
underserved market, the annual report
shall include: a description of the
Enterprise’s market opportunities for
loan purchases during the evaluation
year to the extent data is available; the
volume of qualifying loans purchased
by the Enterprise; a comparison of the
Enterprise’s loan purchases with its loan
purchases in prior years; and a
comparison of market opportunities
with the size of the relevant markets in
the past, to the extent data are available.
Dated: May 28, 2010.
Edward J. DeMarco,
Acting Director, Federal Housing Finance
Agency.
[FR Doc. 2010–13411 Filed 6–4–10; 8:45 am]
BILLING CODE 8070–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 71
[Docket No. FAA–2010–0365; Airspace
Docket No. 10–AAL–12]
RIN 2120–AA66
Proposed Amendment of Colored
Federal Airway B–38; Alaska
AGENCY: Federal Aviation
Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking
(NPRM).
SUMMARY: This action proposes to
amend Colored Federal Airway Blue 38
(B–38), in Alaska. Specifically this
action would remove a segment of B–38
from Haines Non-directional Beacon
(NDB) to the Whitehorse, Yukon
Territories Canada (XY NDB). The FAA
is proposing this action in preparation
of the eventual decommissioning of XY
NDB by the Canadian Air Authority
NAV CANADA.
DATES: Comments must be received on
or before July 22, 2010.
E:\FR\FM\07JNP1.SGM
07JNP1
]]>Agencies
[Federal Register Volume 75, Number 108 (Monday, June 7, 2010)]
[Proposed Rules]
[Pages 32099-32117]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-13411]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed
Rules
[[Page 32099]]
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1282
RIN 2590-AA27
Enterprise Duty To Serve Underserved Markets
AGENCY: Federal Housing Finance Agency.
ACTION: Notice of proposed rulemaking; request for comments.
-----------------------------------------------------------------------
SUMMARY: Section 1129 of the Housing and Economic Recovery Act of 2008
(HERA) amended section 1335 of the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992 (Safety and Soundness Act)
to establish a duty for the Federal National Mortgage Association
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie
Mac) (collectively, the Enterprises) to serve three specified
underserved markets--manufactured housing, affordable housing
preservation, and rural markets--in order to increase the liquidity of
mortgage investments and improve the distribution of investment capital
available for mortgage financing for very low-, low- and moderate-
income families in those markets. The Federal Housing Finance Agency
(FHFA) is issuing and seeking comments on a proposed rule that would
establish a method for evaluating and rating the Enterprises'
performance in each underserved market for 2010 and each subsequent
year. In addition, the proposed rule would set forth Enterprise
transactions and activities that would be considered for the duty to
serve.
The proposed rule would, among other things: Consider only
manufactured homes titled as real property for purposes of the duty to
serve the manufactured housing market; give the Enterprises latitude to
concentrate on assisting particular affordable housing preservation
programs that would benefit very low-, low- and moderate-income
families; and define rural areas generally in accordance with the
definition set forth in the Housing Act of 1949.
DATES: Written comments must be received on or before July 22, 2010.
ADDRESSES: You may submit your comments, identified by regulatory
information number (RIN) 2590-AA27, by any of the following methods:
E-mail: Comments to Alfred M. Pollard, General Counsel,
may be sent by e-mail to RegComments@fhfa.gov. Please include ``RIN
2590-AA27'' 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-AA27'' in the subject line of the
message.
Hand Delivered/Courier: The hand delivery address is:
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA27,
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.
U.S. Mail, United Parcel Service, Federal Express, or
Other Mail Service: The mailing address for comments is: Alfred M.
Pollard, General Counsel, Attention: Comments/RIN 2590-AA27, Federal
Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington,
DC 20552.
FOR FURTHER INFORMATION CONTACT: Nelson Hernandez, Senior Associate
Director, Office of Housing and Community Investment, (202) 408-2993,
Brian Doherty, Manager, Office of Housing and Community Investment,
(202) 408-2991, or Mike Price, Senior Policy Analyst, Office of Housing
and Community Investment, (202) 408-2941. For legal questions, contact:
Lyn Abrams, Attorney, (202) 414-8951, Kevin Sheehan, Attorney, (202)
414-8952, or Sharon Like, Associate General Counsel, (202) 414-8950.
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 may
revise the language of the proposed rule as appropriate after taking
all comments into consideration. Copies of all comments will be posted
on FHFA's 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) 414-6924.
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 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\
---------------------------------------------------------------------------
\1\ See Division A, titled the ``Federal Housing Finance
Regulatory Reform Act of 2008,'' Title I, section 1101, Public Law
No. 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
[[Page 32100]]
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\
---------------------------------------------------------------------------
\3\ See HERA at section 1302, 122 Stat. 2795; 12 U.S.C. 4603.
---------------------------------------------------------------------------
The Enterprises are government-sponsored enterprises 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\
---------------------------------------------------------------------------
\4\ See 12 U.S.C. 1716 et seq.; 12 U.S.C. 1451 et seq.
\5\ Id.
---------------------------------------------------------------------------
B. Statutory Background
The Safety and Soundness Act provides that the Enterprises ``have
an affirmative obligation to facilitate the financing of affordable
housing for low- and moderate-income families.'' 12 U.S.C. 4501(7).
Section 1129 of HERA amended section 1335 of the Safety and Soundness
Act to establish a duty for the Enterprises to serve three specified
underserved markets, in order to increase the liquidity of mortgage
investments and improve the distribution of investment capital
available for mortgage financing for certain categories of borrowers in
those markets. 12 U.S.C. 4565. Specifically, the Enterprises are
required to provide leadership to the market in developing loan
products and flexible underwriting guidelines to facilitate a secondary
market for mortgages on housing for very low-, low- and moderate-income
families with respect to manufactured housing, affordable housing
preservation and rural markets.\6\ Id. sec. 4565(a). In addition,
section 1335(d)(1) requires FHFA to establish, by regulation effective
for 2010 and each subsequent year, a method for evaluating and rating
the Enterprises' performance of the duty to serve underserved markets.
Id. sec. 4565(d)(1). FHFA is required to separately evaluate each
Enterprise's performance with respect to each underserved market,
taking into consideration the following:
---------------------------------------------------------------------------
\6\ The terms ``very low-income'', ``low-income'' and
``moderate-income'' are defined in 12 U.S.C. 4502.
---------------------------------------------------------------------------
(i) The Enterprise's development of loan products, more flexible
underwriting guidelines, and other innovative approaches to providing
financing to each of the underserved markets (hereafter, the ``loan
product assessment factor'');
(ii) The extent of the Enterprise's outreach to qualified loan
sellers and other market participants in each of the underserved
markets (hereafter, the ``outreach assessment factor'');
(iii) The volume of loans purchased by the Enterprise in each
underserved market relative to the market opportunities available to
the Enterprise, except that the Director shall not establish specific
quantitative targets or evaluate the Enterprise based solely on the
volume of loans purchased (hereafter, the ``loan purchase assessment
factor''); and
(iv) The amount of investments and grants by the Enterprise in
projects which assist in meeting the needs of the underserved markets
(hereafter, the ``investments and grants assessment factor'').
Id. sec. 4565(d)(2).
The duty to serve provisions and issues for consideration are
discussed further below.
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 to maintain the Enterprises in a safe and sound financial
condition and to help assure performance of their public mission. The
Enterprises remain under conservatorship at this time.
Because Congress enacted the duty to serve provisions in the Safety
and Soundness Act before the Enterprises were placed in
conservatorship, Congress developed the duty to serve requirements for
normal Enterprise operating conditions, not conservatorship. While the
Enterprises are in conservatorship, FHFA expects them to continue to
fulfill their core statutory purposes which include their support for
affordable housing. One set of measures of the Enterprises' support for
affordable housing comes from the housing goals and another comes from
the duty to serve. At the same time, all Enterprise activities,
including those in support of affordable housing, must be consistent
with the requirements of conservatorship.
Since the establishment of the conservatorships, the combined
losses at the two Enterprises depleted all of their capital and
required them to draw about $145 billion from the Department of the
Treasury (Treasury) under the Senior Preferred Stock Purchase
Agreements with Treasury. By letter dated February 2, 2010, FHFA's
Acting Director reported to Congress that having the Enterprises engage
in new products would be inconsistent with the goals of conservatorship
and, consequently, that the Enterprises would be limited to continuing
their existing core business activities and taking actions necessary to
advance the goals of the conservatorship (Letter to Congress).\7\
---------------------------------------------------------------------------
\7\ See Letter from Acting Director Edward J. DeMarco to the
Honorable Christopher Dodd, Honorable Richard C. Shelby, Honorable
Barney Frank, and Honorable Spencer Bachus (Feb. 2, 2010).
---------------------------------------------------------------------------
Under the terms of the Senior Preferred Stock Purchase Agreements,
the Enterprises will be shrinking their retained mortgage portfolios by
ten percent per year. The Administration has announced its intention to
develop and present to Congress a plan for the future of the nation's
housing finance system that will include a proposal for the ultimate
resolution of the Enterprises in conservatorship. Administration and
congressional leadership have each pointed to the coming year as likely
to see substantial legislative action affecting the Enterprises' future
form and function. FHFA intends to continue operating the
conservatorships as set forth in the Letter to Congress in anticipation
of congressional action on the future of the Enterprises. In
recognition of the foregoing facts and circumstances, FHFA's approach
to implementing section 1335 of the Safety and Soundness Act is to
limit the proposed rule to existing core business activities at the
Enterprises and not to require that they engage in new lines of
business as a result of the duty to serve proposed rule.
III. Duty To Serve Underserved Markets
A. Implementation of the Duty To Serve
The Enterprises' public purposes include a broad obligation to
serve moderate- and lower-income borrowers. Through HERA, Congress
created a duty for the Enterprises to serve three specific underserved
markets. The duty to serve is a new obligation for the Enterprises and
a new oversight responsibility for FHFA. The proposed rule would set
forth standards for compliance with the duty to serve, methods for
evaluating and rating the Enterprises and requirements for the
[[Page 32101]]
Enterprises to provide reports and data on their performance under the
duty to serve.
B. Overview of Comments
The formal rulemaking for the duty to serve commenced with FHFA's
publication of an Advance Notice of Proposed Rulemaking (ANPR), 74 FR
38572 (Aug. 4, 2009).\8\ FHFA received 100 comment letters in response.
The majority of the commenters addressed manufactured housing. Twenty-
six individuals, 18 nonprofit organizations, 11 trade associations, 11
corporations, seven policy advocacy organizations and one government
entity addressed this issue. FHFA also received comments on other
issues from one individual, nine nonprofit organizations, six trade
associations, one corporation, five policy advocacy organizations, one
government agency, one professional association and both Enterprises.
---------------------------------------------------------------------------
\8\ 74 FR 38572 (Aug. 4, 2009).
---------------------------------------------------------------------------
In addition to the comment letters, FHFA held five in-person
meetings and one teleconference with manufactured housing industry
representatives. These discussions covered current secondary mortgage
market support for manufactured housing, the practices and operations
of the industry and the consumer protections afforded manufactured
housing borrowers. On December 3, 2009, FHFA hosted a forum on
affordable housing, which was attended by members of the Affordable
Housing Advisory Councils of the 12 Federal Home Loan Banks. The forum
focused on manufactured housing and rural housing issues. Summaries of
the forum, the meetings and the teleconference are available on FHFA's
Web site.
Commenters on the duty to serve the manufactured housing market
focused primarily on personal property (chattel) loans for manufactured
homes and manufactured home community \9\ financing. Fifty-seven
commenters, including most of the individuals and nonprofit
organizations, opposed consideration for chattel loans, or would limit
consideration of such loans to instances in which they were backed by
rigorous consumer protections.
---------------------------------------------------------------------------
\9\ In this rulemaking FHFA is using the term ``manufactured
home communities'' to mean ``manufactured home parks.''
---------------------------------------------------------------------------
With regard to manufactured home communities, individuals,
nonprofit organizations, and policy advocacy groups expressed concern
about the lack of tenant protections in communities owned by investors.
Although some commenters favored consideration for loans made in
support of these communities, this support was conditioned upon FHFA's
establishing significant protections for residents. The manufactured
housing corporations and trade associations generally favored duty to
serve consideration for purchases of mortgages on investor-owned and
resident-owned manufactured home communities. They commented that a
dearth of new manufactured home communities are being developed, there
is a shortage of financing for such communities, many communities need
to refinance over the next several years, and there are harmful effects
on residents when a community cannot obtain financing and must convert
to a different use.
FHFA received sixteen comments regarding the affordable housing
preservation market. The commenters, who included one trade
association, four policy advocacy organizations, seven nonprofit
organizations, one government agency and both Enterprises, addressed a
range of issues. Most commenters supported consideration under the
affordable housing preservation market for Enterprise assistance to
HUD's Neighborhood Stabilization Program (NSP) and state and local
foreclosure prevention programs. However, other commenters opposed
consideration for assistance to NSP, but did favor consideration for
state and local foreclosure prevention programs. A few commenters
suggested consideration for assisting with Treasury's loan modification
programs. Most of the affordable housing advocate commenters wanted
less rigorous underwriting assumptions for properties receiving Section
8 payments or other property-based HUD subsidies. There was also strong
support for more interaction between the Enterprises and state and
local Housing Finance Agencies (HFAs).
The majority of comments on rural markets addressed the definition
of ``rural area.'' In the ANPR, FHFA requested comment on three
definitions of ``rural area.'' While some commenters supported at least
one of those three definitions, more than half of the commenters on
this issue supported adoption of the definition of ``rural area'' from
the Housing Act of 1949, which was not one of the definitions
identified in the ANPR. These commenters, all of whom are involved in
rural housing mortgage lending or development, are familiar with this
definition and use it within their organizations. The comments received
and the merits of the different definitions are analyzed in detail
below under the discussion of the duty to serve rural markets.
Several commenters supported evaluating the Enterprises'
performance by using an evaluation methodology similar to that used to
evaluate compliance with the Community Reinvestment Act (CRA). Other
commenters stated that the four tests for evaluation set forth in the
ANPR should not necessarily be given equal weight in evaluating the
Enterprises' performance.
C. Underserved Markets
The duty to serve provisions in the Safety and Soundness Act
indicate that the markets for manufactured housing, affordable housing
preservation and rural areas are underserved and in need of particular
assistance by the Enterprises. The extent of the lack of service and
some of the factors underlying it are discussed below.
1. Manufactured Housing
According to Home Mortgage Disclosure Act (HMDA) data for 2008,
home purchase applications for manufactured homes are denied at three
times the rate that applications for site-built homes are denied.
Further, of those mortgages that are originated, 60 percent are
``higher-cost mortgages'' under HMDA \10\, whereas only 8 percent of
originations for site-built homes are higher-cost mortgages.
Manufactured housing borrowers may have few refinancing options even if
interest rates decrease.\11\
---------------------------------------------------------------------------
\10\ For the 2008 reporting year, lenders reported the
difference between the loan's annual percentage rate (APR) and the
yield on Treasury securities having comparable periods of maturity,
if that difference is equal to or greater than 3 percentage points
for loans secured by a first lien on a dwelling, or equal to or
greater than 5 percentage points for loans secured by a subordinate
lien on a dwelling. See 67 FR 43218 (June 27, 2002).
\11\ Jon Thompson, ``Manufactured housing: An expected
beneficiary from subprime mortgage disruption,'' p. 3. (Advantus
Capital Management, 4th Qtr. 2007), available at https://www.advantuscapital.com/adv/pdf/F67229.pdf.
---------------------------------------------------------------------------
A number of other factors combine to make the manufactured housing
market underserved. In recent times, mortgage insurance has been
generally unavailable for manufactured homes. Moreover, comparable
properties, particularly in rural areas, can be difficult to identify,
which makes appraisals more difficult. Also, unlike site-built housing,
many manufactured homes have been financed as personal property, which
many commenters viewed as offering terms less favorable to
borrowers.\12\
---------------------------------------------------------------------------
\12\ Manufactured housing industry commenters asserted there
could be advantages to personal property mortgages. The Manufactured
Housing Institute, for example, suggested: (1) The overall principal
loan amount is more affordable due to the absence of land in the
transaction; (2) no appraisal, survey or private mortgage insurance
is necessary, which lowers closing costs; (3) the customer does not
encumber any real property; (4) tax, titling fees, homeowners
insurance and service warranties can be financed; and (5) the
transaction is generally faster.
---------------------------------------------------------------------------
[[Page 32102]]
2. Affordable Housing Preservation
Affordable housing is preserved when an owner acts to keep rents
affordable for low- and moderate-income households while ensuring that
the property remains in good physical and financial condition for an
extended period.\13\ While affordable housing preservation is often
associated with programs to help existing subsidized properties remain
financially viable, it also encompasses efforts to keep unsubsidized
properties in good condition while maintaining affordability for low-
and moderate-income households. Many owners of subsidized properties
face the need to refinance the loans on their properties, either
because the original financing is nearing maturity or because they need
to obtain equity from the property to perform major upgrades and
repairs. Congressional hearings have highlighted the problems in this
area.\14\
---------------------------------------------------------------------------
\13\ See ``Window of Opportunity--Preserving Affordable
Housing'' p. 6 (MacArthur Foundation, Nov. 2007), available at
https://www.macfound.org/atf/cf/%7BB0386CE3-8B29-4162-8098-E466FB856794%7D/MAC_1107_Singles.pdf.
\14\ See e.g., ``Affordable Housing Preservation,'' Hearing
before the Subcomm. on Housing and Transportation of the Senate
Comm. on Banking, Housing, and Urban Affairs, 107th Cong., 2nd Sess.
(Oct. 9, 2002) (S. Hearing 107-1014), available at https://www.gpo.gov/congress/senate/pdf/107hrg/90543.pdf; ``Legislative
Options for Preserving Federally- and State-assisted Affordable
Housing and Preventing Displacement of Low-Income, Elderly, and
Disabled Tenants,'' Hearing Before the Subcomm. on Housing &
Community Opportunities of the House Comm. on Financial Services,
111th Cong., 1st Sess. (July 15, 2009) (Serial No. 111-59),
available at https://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_house_hearings&docid=f:53239.wais.
---------------------------------------------------------------------------
A variety of factors make the affordable housing preservation
market difficult to serve. For example, the disruptions in the
financial markets and the general lowering in value of Low Income
Housing Tax Credits (LIHTCs) affect some of the programs that the
Enterprises are required to assist. Transactions in many of the
enumerated programs are generally project specific, involving multiple
sources for debt and equity. Structuring is often complex, and the
transaction process is often difficult and lengthy.
Units lacking rental assistance, which are often in older and/or
small multifamily properties, provide a significant share of housing
affordable to low- and moderate-income families. Keeping these units in
the housing stock at reasonable rents can be more cost-effective than
building new subsidized units.\15\ One way to achieve this is to make
financing for affordable housing preservation available on better
terms.
---------------------------------------------------------------------------
\15\ See National Housing Trust, ``Affordable Housing
Preservation FAQs'' (2010), available at https://www.nhtinc.org/preservation_faq.php.
---------------------------------------------------------------------------
3. Rural Areas
Practitioners and researchers have identified a number of long-
standing impediments to affordable housing in rural areas. One
impediment is the lower population density, which may prevent
developers and operators from taking advantage of economies of scale in
developing affordable housing in rural areas.\16\ In addition, rural
areas often have fewer nonprofit housing development corporations with
the capacity to handle complicated government subsidy programs and the
long and difficult housing development process.\17\ Many smaller
communities and governments have difficulty funding public utilities
essential to constructing housing. Moreover, there are fewer lenders in
rural areas than in metropolitan areas, and rural lenders may lack the
back office capacity and the necessary scale of volume to effectively
sell mortgages in the secondary market.
---------------------------------------------------------------------------
\16\ See generally National Rural Housing Coalition,
``Preserving Rural America's Affordable Rental Housing'' (Oct.
2004), available at https://www.nrhcweb.org/news/515PreservationReport.pdf; E. Bolda, et al., ``Creating Affordable
Rural Housing with Services: Options and Strategies,'' Working Paper
19 (Apr. 2000), available at https://muskie.usm.maine.edu/Publications/rural/WP%2319.pdf.
\17\ See Joe Myer, ``Developing Rural Housing Despite the
Obstacles--Why It is Hard to Build Affordable Housing in Rural
Delaware'' (Winter 2002), available at https://www.housingforall.org/housing_in_rural_de.htm.
---------------------------------------------------------------------------
In 2007, the Housing Assistance Council (HAC) testified that
``[n]early 3.6 million rural households are cost burdened, paying more
than 30 percent of their monthly income for housing costs.'' \18\ HAC
further testified that less than 16 percent of the rural population is
minority; however, this population was disproportionately affected by
poor housing conditions, as rural minorities are more likely than rural
whites to live in substandard housing.\19\
---------------------------------------------------------------------------
\18\ Statement of Moises Loza, Housing Assistance Council,
before the Subcomm. on Housing and Community Development, U.S. House
of Representatives (May 8, 2007), available at https://financialservices.house.gov/hearing110/htloza050807.pdf.
\19\ ``Rural Housing Programs: Review of Fiscal Year 2008 Budget
and Pending Rural Housing Legislation,'' Hearing Before the Subcomm.
on Housing & Community Opportunities of the House Comm. on Financial
Services, 110th Cong., 1st Sess. 28 (May 8, 2007) (Serial No. 110-
27), available at https://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_house_hearings&docid=f:37205.pdf.
---------------------------------------------------------------------------
D. Market-by-Market Considerations
1. Manufactured Housing Market--Proposed Sec. 1282.32
Section 1335 of the Safety and Soundness Act requires the
Enterprises to ``develop loan products and flexible underwriting
guidelines to facilitate a secondary market for mortgages on
manufactured homes for very low-, low-, and moderate-income families.''
12 U.S.C. 4565(a)(1)(A). Manufactured housing could be an important
housing option for lower-income families. Nearly half of all loans
originated on manufactured homes from 2004 to 2008 were for families
with incomes at or below 80 percent of area median income (AMI).\20\
Manufactured housing also costs less initially than site-built housing.
Manufactured homes tend to be much smaller, which significantly reduces
the price of the home.\21\ In addition, the average price per square
foot of a new site-built home in 2008, exclusive of the cost of the
land, was more than double that of a double-wide manufactured home.\22\
---------------------------------------------------------------------------
\20\ This assessment is based on HMDA data from 2004-2008,
exclusive of HOEPA mortgages and mortgages lacking borrower income
information.
\21\ The average size of a site-built house in 2008 was 2,459
square feet, whereas the average square footage of a single-wide
manufactured home was 1,105 square feet and the average square
footage of a double-wide manufactured home was 1,775 square feet.
See U.S. Bureau of the Census, ``Cost & Size Comparisons for New
Manufactured Homes and New Single Family Site Built Homes'' (2004-
2008), available at https://www.census.gov/const/mhs/sitebuiltvsmh.pdf.
\22\ In 2008, the average price per square foot for a new site-
built home was $88.55 and for a new double-wide manufactured home
was $42.87. See id.
---------------------------------------------------------------------------
Investors have been cautious about manufactured housing in the wake
of market disruptions at the end of the 1990s and the beginning of this
decade, particularly in light of the demise of some of the larger
specialized manufactured housing lenders. More recently, shortages of
warehouse lines of credit, downgrades of existing asset-backed
securities \23\ and difficulties with bond insurance \24\ have added to
concerns.\25\
---------------------------------------------------------------------------
\23\ See generally Standard & Poor's, ``Ratings Roundup:
Monoline and Financial Institution Rating Volatility Drive Fourth-
Quarter U.S. ABS Downgrades'' (Jan. 28, 2009), available at https://www.ambac.com/pdfs/RA/Volatility%20Drive%20Fourth-Quarter%20U.S.%20ABS%20Downgrades%20(01-28-09).pdf.
\24\ See generally Standard & Poor's, ``S&P various actions on
182 U.S. rtgs after Ambac downgrade'' (July 8, 2009), available at
https://www.reuters.com/article/idUSWNA860120090708.
\25\ As an illustration of the recent market, according to
Origen Financial Services, the lack of a reliable source for a loan
warehouse facility and the uncertainty of the availability of an
exit in the securitization market caused it to stop originating
loans for its own account and sell its portfolio of unsecuritized
loans at a substantial loss. See Origen Financial, Inc., Annual
Report on Form 10-K, as Amended, For the Fiscal Year Ended December
31, 2008, p. 2, available at https://www.origenfinancial.com/sites/default/files/as_printed_Origen_10-K.pdf.
---------------------------------------------------------------------------
[[Page 32103]]
Manufactured housing could be an option for very low- and low-
income families who reside in rural areas. HMDA data for 2008 show that
15 percent of all loan originations on manufactured homes in rural
areas were for families with incomes at or below 50 percent of AMI, and
another 29 percent were for families with incomes greater than 50
percent but at or below 80 percent of AMI. From 2004 through 2008, loan
originations on manufactured homes in rural areas were more than double
loan originations on manufactured homes in non-rural areas. Nearly half
of all manufactured housing loans in rural areas during that time
period were for families whose incomes were 80 percent or less of AMI.
One study explained the importance of manufactured housing to rural
areas this way:
The prevalence of manufactured housing in rural areas is in part
a reflection of the costs and logistical challenges of site-built
construction on relatively remote and scattered sites. It is also
due to rural residents' generally lower incomes, and to the
challenge of arranging standard mortgage financing for lots and land
uses that do not conform to customary mortgage-underwriting
criteria. Part of manufactured housing's appeal, in fact, lies in
the ease with which units can be sited, a characteristic that is
particularly important in areas lacking well developed construction
and trade sectors. Manufactured housing's popularity in rural areas
also results from a lack of affordable housing options, such as
multifamily rental units, which are rarely developed at a cost-
effective scale in low-density settings.\26\
\26\ Neighborhood Reinvestment Corporation, ``An Examination of
Manufactured Housing as a Community-and Asset-Building Strategy,''
p. 6 (Sept. 2002), available at https://www.jchs.harvard.edu/publications/communitydevelopment/W02-11_apgar_et_al.pdf.
The Enterprises have not been major investors in manufactured
housing mortgages in recent years. Some industry commenters observed
that manufactured housing loans are significantly under-represented in
the Enterprises' mortgage portfolios in comparison with site-built
homes. In particular, the Manufactured Housing Association for
Regulatory Reform (MHARR) commented that manufactured housing loans now
constitute less than one percent of the total business portfolios of
both Enterprises, even though manufactured housing has historically
represented approximately 10 to 15 percent of the single-family housing
market. The fact that the majority of manufactured home loans were not
financed as real property helps to explain why manufactured home loans
constitute a small share of the Enterprises' business.
HMDA data do not specify the portion of these manufactured home
loans that are financed as chattel, but the U.S. Census Bureau reported
that in 2008, 63 percent of new manufactured homes placed for
residential use were titled as personal property.\27\
---------------------------------------------------------------------------
\27\ See U.S. Bureau of the Census, ``Cost & Size Comparisons
For New Manufactured Homes and New Single Family Site Built Homes
(2004-2008),'' available at https://www.census.gov/const/mhs/sitebuiltvsmh.pdf.
---------------------------------------------------------------------------
In the ANPR, FHFA invited comment on the appropriate treatment
under the duty to serve the manufactured housing market for personal
property loans, land-home loans, real estate loans and loans for
manufactured home communities. The comments are discussed in the
relevant sections below.
Personal Property Loans. Section 1335(d)(3) of the Safety and
Soundness Act provides that in determining whether the Enterprises have
complied with the duty to serve the manufactured housing market, ``the
Director may consider loans secured by both real and personal
property.'' 12 U.S.C. 4565(d)(3). FHFA is proposing that only loans
titled as real property be considered towards the Enterprise's duty to
serve.
Neither Enterprise has an ongoing business activity of purchasing
chattel loans, although at least one of them has made limited bulk
purchases of such loans in the past. Purchasing or guaranteeing chattel
loans would require each Enterprise to develop operational capacities
and risk management processes not currently in place. Moreover, to
ensure that such lending was done responsibly would require each
Enterprise to develop an extensive set of consumer protection
requirements. Thus, FHFA proposes that chattel loans on manufactured
homes not be considered towards the duty to serve the manufactured
housing market as these loans are inconsistent with Enterprise
conservatorship and would require substantial new efforts by the
Enterprises to ensure safe and sound operations and sustainable
homeownership for families.
The following paragraphs describe the widely divergent views FHFA
received on this topic in response to the ANPR and the bases for the
proposed exclusion of chattel loans.
Seventy-six commenters addressed the appropriateness of Enterprise
support for personal property (chattel) loans on manufactured homes.
Organizations representing consumers and manufactured home community
residents expressed serious reservations about chattel lending. CFED,
for example, stated that chattel loans provide low-income families with
higher rates, less optimal terms and reduced consumer protections, as
compared to a mortgage loan, and this was echoed in other comment
letters.
Manufactured housing industry commenters asserted that manufactured
housing financed as chattel provides a low cost housing option for
lower-income borrowers, and that the secondary market for these loans
is limited. These industry commenters largely supported providing duty
to serve consideration for Enterprise purchase of chattel loans and
suggested that the Enterprises purchase them on a flow basis and in
significant quantities.\28\
---------------------------------------------------------------------------
\28\ The Enterprises generally acquire single-family mortgage
loans for securitization or for portfolio through either ``flow'' or
``bulk'' transaction channels. In the flow business, which
represents the majority of their mortgage acquisitions, the
Enterprises typically enter into agreements that generally set
agreed-upon guaranty fee prices for a lender's future delivery of
individual loans over a specified time period. Bulk business
involves transactions in which a defined set of loans is to be
delivered in bulk, a process which allows the Enterprises to review
the loans for eligibility and pricing prior to delivery in
accordance with the terms of the applicable contracts. Guaranty fees
and other contract terms for bulk mortgage acquisitions are
negotiated on an individual transaction basis, thereby enabling the
Enterprises to adjust pricing more rapidly than in a flow
transaction to reflect changes in market conditions and the credit
risk of the specific transactions.
---------------------------------------------------------------------------
In proposing that only loans titled as real property be considered
towards the duty to serve, FHFA recognizes that manufactured housing
financing often differs from financing for site-built homes. Interest
rates charged for chattel loans are typically higher than those for
real estate-secured loans.\29\ Normally, chattel loans have shorter
maturities and offer fewer consumer protections than real property
loans. In several states, manufactured homes cannot be titled as real
property \30\ and, as a result,
[[Page 32104]]
are not afforded certain borrower protections that apply when loans are
secured by real property. Delinquencies and defaults on chattel loans
typically exceed rates on mortgage loans.\31\
---------------------------------------------------------------------------
\29\ See Ronald A. Wirtz, ``Home, sweet (manufactured?) home''
Fedgazette (July 2005), available at https://www.minneapolisfed.org/pubs/fedgaz/05-07/cover.cfm. Annual percentage rates may also be
higher. For example, in 2007 one lender advertised an average annual
percentage rate of 10.14 percent for its chattel loans and an
average annual percentage rate of 7.54 percent for its real estate-
secured loans. See ``Tammac Manufactured Housing Advantage'' (2007),
available at https://www.cdscreative.com/images/portfolio/tammac-holdings.pdf.
\30\ More than 40 states reportedly provide for conversion to
real estate titles for manufactured homes. See Cathy Adkins,
``Manufactured Housing: Not What You Think'' (National Conference of
State Legislatures, Apr. 2007), available at https://www.ncsl.org/default.aspx?tabid=12742.
\31\ See generally Michael Koss, ``Manufactured Housing ABS--
Valuation in a Troubled Sector,'' p. 22 (Feb. 9, 2005) (Lehman
Brothers Fixed-Income Research) (regarding the performance of
different types of manufactured housing collateral). Origen
Financial Services, LLC, commented that the Enterprises frequently
object to purchasing chattel loans because of their high default
rates and that about 30 percent of chattel loans fail during the
life of the loan.
---------------------------------------------------------------------------
Sustainable homeownership results, in part, from the enforcement of
appropriate consumer protections. Consumer organizations and some
manufactured home resident organizations were particularly concerned
that the Real Estate Settlement Procedures Act (RESPA), which requires
that consumers receive an estimate of costs prior to closing and which
prohibits payment of referral fees among settlement providers, does not
apply to chattel loans. The National Consumer Law Center commented that
the distinction between real property and personal property is
especially important upon default because if a home is personal
property rather than real property, the rights of the creditor are
governed by Article 9 of the Uniform Commercial Code and the home may
be subject to self-help repossession.\32\ Further, the National
Consumer Law Center commented that if the home is real property, upon
default most states require that the creditor use the foreclosure
process.
---------------------------------------------------------------------------
\32\ For information on consumer protections under repossession,
see Government Accountability Office, ``Federal Housing
Administration--Agency Should Assess the Effects of Proposed Changes
to the Manufactured Home Loan Program,'' GAO-07-879, 26-27 (Aug.
2007), available at https://www.gao.gov/new.items/d07879.pdf. See
generally A. Schmitz, ``Promoting the Promise Manufactured Homes
Provide for Affordable Housing,'' 13 Journal of Affordable Housing
394-395 (No. 3) (Spring 2004), available at https://lawweb.colorado.edu/profiles/pubpdfs/schmitz/SchmitzAHCDL.pdf;
Consumers Union, ``Manufactured housing: A home that the law still
treats like a car'' (Feb. 2005), available at https://www.consumersunion.org/mh/docs/Feb2005.pdf.
---------------------------------------------------------------------------
Commenters suggested that if FHFA determines that manufactured
homes secured by chattel loans be considered, FHFA should require
borrower protections such as: (i) Capping the annual percentage rate
(APR) at 3.5 points above the prime rate; (ii) banning prepayment
penalties; (iii) banning yield spread premiums; and (iv) requiring that
lease terms extend five years beyond the term of the loan.\33\
---------------------------------------------------------------------------
\33\ For a discussion of consumer concerns about the origination
and servicing of manufactured housing mortgages, see generally S.
West, ``Manufactured Housing Finance and the Secondary Market,''
Vol. 2, Issue 1, Community Development Investment Review 39 (2006)
(Federal Reserve Bank of San Francisco), available at https://www.frbsf.org/publications/community/review/062006/west.pdf (Current
financing of manufactured housing is expensive; the secondary market
for manufactured housing mortgages must include the Enterprises and
strategies to reduce investor risk.); A. Schmitz, ``Promoting the
Promise Manufactured Homes Provide for Affordable Housing,'' 13
Journal of Affordable Housing 384 (No. 3) (Spring 2004), available
at https://lawweb.colorado.edu/profiles/pubpdfs/schmitz/SchmitzAHCDL.pdf (State laws differ with respect to real and
personal property financing and with respect to corresponding
consumer protection provisions; the relatively small number of
manufactured housing lenders allows them to garner bargaining power
over consumers and has led to predatory financing.).
---------------------------------------------------------------------------
Commenters also emphasized the importance of RESPA-like protections
for chattel loans. However, developing such protections may require
legislative and regulatory changes beyond the scope of the duty to
serve.
The Enterprises have minimal experience with chattel financing, and
the high level of defaults related to such financing creates
significant credit and operational risks.\34\ The depreciation in the
value of the manufactured home could result in greater loss to the
Enterprise in the event of default on the loan.\35\ Manufactured homes
are generally regarded as depreciating assets, even in a strong market
environment.\36\ A 2005 report by Lehman Brothers estimated the
expected annual depreciation rate at three to four percent
annually.\37\ Likewise, Abt Associates noted that ``[m]anufactured
housing where the household does not own the lot is not an investment
in any sense * * * [i]t should be thought of as a type of consumer
durable.'' \38\ The Office of Thrift Supervision cautioned lenders
engaged in manufactured housing finance to carefully manage the risk of
collateral depreciation for the homes.\39\
---------------------------------------------------------------------------
\34\ By letter dated February 2, 2010, FHFA advised Congress of
its concerns about new Enterprise initiatives that could require
entry into new business lines with little prior experience or the
dedication of Enterprise personnel already operating in a stressed
environment. See Letter to Congress at 7.
\35\ One manufactured housing lender observed: ``The value of
manufactured houses has tended to depreciate over time * * * rapid
depreciation may cause the fair market value of borrowers'
manufactured houses to be less than the outstanding balance of their
loans. In cases where borrowers have negative equity in their
houses, they may not be able to resell their manufactured houses for
enough money to repay their loans and may have less incentive to
continue to repay their loans, which may lead to increased
delinquencies and defaults.'' Origen Financial, Inc., Annual Report
on Form 10-K, as Amended, for the Fiscal Year Ended December 31,
2008, p. 7, available at https://www.origenfinancial.com/sites/default/files/as_printed_Origen_10-K.pdf.
\36\ See S. Nelson & G. Bailey, ``Manufactured Housing RMBS
Performance Update,'' p. 1 (Nov. 17, 2009) (Fitch Ratings). See also
Consumer Federation of America, ``The Promise and Pitfalls of
Building Wealth through Manufactured Housing,'' p. 2-3 (https://content.knowledgeplex.org/kp2/cache/documents/1895/189501.pdf; April
2006), available at Dominion Bond Rating Service, ``Methodology--
Rating U.S. Residential Mortgage-Backed Securities Transactions,''
p. 22 (Apr. 2009), available at https://www.dbrs.com/research/227912/rating-u-s-residential-mortgage-backed-securities-transactions.pdf
(``Historically, chattel paper posed difficulties for investors of
RMBS since the greatest recovery value is in the land, not the
structure.'').
\37\ See Michael Koss, ``Manufactured Housing ABS--Valuation in
a Troubled Sector,'' p. 13 (Feb. 9, 2005) (Lehman Brothers Fixed-
Income Research). Advantus Capital views manufactured homes as
depreciating like a car depreciates. See Jon Thomson, ``Manufactured
housing: An expected beneficiary from subprime mortgage disruption''
3 (Advantus Capital Management, 4th Qtr. 2007), available at https://www.advantuscapital.com/adv/pdf/F67229.pdf.
\38\ T. Boehm & A. Schlottmann, ``Is Manufactured Housing a Good
Alternative for Low-Income Families? Evidence from the American
Housing Survey,'' p. 50 (December 2004), available at https://www.huduser.org/Publications/pdf/IsManufacturedHousingAGoodAlternativeForLow-IncomeFamiliesEvidenceFromTheAmericanHousingSurvey.pdf
\39\ See Office of Thrift Supervision, Examination Handbook,
212.25 (Sept. 2008), available at https://files.ots.treas.gov/422320.pdf.
---------------------------------------------------------------------------
Upon consideration of the risks facing the borrowers and the
Enterprises, FHFA proposes that only Enterprise purchases of mortgages
on manufactured homes titled as real property and activities related to
such mortgages be considered toward the duty to serve the manufactured
housing market. Enterprise purchases of chattel mortgages or other
mortgages not titled as real estate, and any activity related to such
mortgages, would not be considered. The proposed rule would define
``manufactured home'' in accordance with the definition of
``manufactured home'' used by HUD under section 603(6) of the
Manufactured Home Construction and Safety Standards Act of 1974, as
amended, 42 U.S.C. 5402(6), and implementing regulations.\40\
---------------------------------------------------------------------------
\40\ This definition is consistent with the definition of
``manufactured housing'' in FHFA's regulation governing Federal Home
Loan Bank advances to members, at 12 CFR 950.1.
---------------------------------------------------------------------------
FHFA has determined that very low-, low- and moderate-income
families can be best served through manufactured housing titled as real
property and that the Enterprises, as part of their mission to increase
the liquidity of mortgages to low- and moderate-income families, can
play a significant role in serving this segment of the market. In
addition, the safe and sound operations of the Enterprises in
conservatorship are better protected
[[Page 32105]]
when real estate is pledged as collateral for the mortgage loan.
Other Types of Manufactured Home Loans. In the ANPR, FHFA requested
comment on definitions for land-home loans. FHFA has reviewed the
comments received and literature on land-home loans and found no
universal agreement on terminology or definitions. Fannie Mae commented
that it ``has many years of experience purchasing loans secured by real
property manufactured housing, sometimes called `land home'
mortgages.'' The Manufactured Housing Institute (MHI) described ``land-
home non-conforming mortgage loans'' as including both the acquisition
of the home and the land as part of the loan transaction, but as not
conforming to one or more of the Enterprises' underwriting
requirements. According to MHI, there is a separate classification of
``real property conforming mortgage loans,'' which includes both the
acquisition of the home and the land as part of the loan transaction
and meets the Enterprises' underwriting requirements.
With some manufactured housing financing transactions, a single
loan is secured by separate liens against the home and against the real
estate on which the home is sited. In the event of a default, this
arrangement provides the lender with the option of proceeding against
either the home or the real estate, whichever is most advantageous.
These types of transactions would not be considered under the proposed
rule, but FHFA welcomes further comment as to their relative merits in
serving very low-, low- and moderate-income families in the
manufactured housing market.
Manufactured Home Communities. Enterprise assistance to
manufactured home communities would not be considered for purposes of
the duty to serve the manufactured housing market in the proposed rule.
Although some manufactured home communities may include units owned
by the community that are rented to tenants, manufactured home
communities generally provide siting for chattel financed homes, and
for the reasons discussed previously, the proposed rule would not allow
for consideration for assistance to manufactured homes not titled as
real property. Advocacy organizations representing tenants highlighted
significant concerns about the vulnerability of tenants in investor-
owned communities. In their view, short-term leases, in combination
with the expense and difficulty involved in relocating a manufactured
home, made tenants vulnerable to a variety of difficulties, including
unexpectedly high rental increases and conversions of communities to
other uses with the resulting displacement of tenants. Enterprise
support for housing under these circumstances would not be consistent
with the intent of the duty to serve.
The ANPR solicited comments on whether and how Enterprise
assistance for manufactured home communities should be considered for
purposes of the duty to serve the manufactured housing market and
whether there should be differences in how resident-owned and investor-
owned communities are treated. Eighty-four commenters addressed this
issue. There was support from most commenters for considering
assistance to resident-owned communities. Commenters did not cite
resident protection issues in connection with these types of
communities. To the contrary, community, resident and consumer advocacy
organizations suggested that Enterprise assistance with resident-owned
communities would support affordable housing for lower-income families.
ROC USA commented that after 25 years and over $150 million in
originations for resident-owned communities, it had ``not had a single
loan lost or charged off.''
Several commenters stated that this market faces significant
difficulties. The commenters indicated that there is a shortage of
financing for manufactured home communities, many communities need to
refinance over the next several years, few new communities are being
developed and residents face dislocation when a community cannot obtain
financing and must convert to a different use.\41\ In addition,
commenters stated that manufactured home communities are analogous to
multifamily properties in providing affordable housing and that
multifamily properties receive significant support from the
Enterprises.
---------------------------------------------------------------------------
\41\ A different view was expressed by Hometown American
Communities, who commented that financing for manufactured home
communities is generally available including from various life
insurance companies.
---------------------------------------------------------------------------
However, many resident and consumer advocacy commenters identified
certain tenant protections that would be necessary in conjunction with
providing assistance to manufactured home communities including
requirements that:
(i) The term of the lease on the lot where the home is sited is
tied to the term of the mortgage on the manufactured home;
(ii) Rental increases on the lot where the home is sited would be
governed by formulas based on published, third party indices;
(iii) Residents would be notified significantly in advance of any
sale of the community by the owner and would have a collective right of
first refusal to purchase the community;
(iv) Residents would have the right to sell their homes in place to
persons of their choosing; and
(v) Residents would have the right to form resident associations
and conduct resident meetings.
In light of the potential for manufactured home communities to
provide affordable housing to very low-, low- and moderate-income
families, FHFA solicits comment on whether assistance to manufactured
home communities should be considered for purposes of the duty to serve
the manufactured housing market. FHFA particularly encourages comments
on the safety and soundness of financing, distinctions between
investor-owned and resident-owned communities, and the potential to
ensure appropriate consumer protections in conjunction with such
assistance.
2. Affordable Housing Preservation Market--Proposed Sec. 1282.33
Affordable housing preservation focuses primarily on ``at risk
properties.'' A property becomes ``at risk'' ``either when its rent
affordability restrictions expire, or because mismanagement or
disinvestment cause [sic] the property to deteriorate and become unsafe
or uninhabitable.'' \42\ Across the country, thousands of multifamily
properties with federal, state or local subsidies or financing are at
risk of conversion to market rate rents, obsolescence, or foreclosure,
if owners are unable to refinance loans. The Enterprises can play an
important role in preserving affordable multifamily properties by
offering owners refinancing alternatives to Federal Housing
Administration (FHA), state and local financing programs.
---------------------------------------------------------------------------
\42\ Stewards of Affordable Housing for the Future, ``Housing at
Risk'', available at https://www.poah.org/about/at-risk.htm.
According to HUD, the general definition of ``affordability'' is for
a household to pay no more than 30 percent of its annual income on
housing. See https://www.hud.gov/offices/cpd/affordablehousing/index.cfm.
---------------------------------------------------------------------------
Section 1335(a)(1)(B) of the Safety and Soundness Act requires the
Enterprises to ``develop loan products and flexible underwriting
guidelines to facilitate a secondary market to preserve housing
affordable to very low-, low-, and
[[Page 32106]]
moderate-income families,'' including assistance to housing projects
under the following programs:
i. The project-based and tenant-based rental assistance programs
under Section 8 of the United States Housing Act of 1937 (42 U.S.C.
1437f);
ii. The program under Section 236 of the National Housing Act
(rental and cooperative housing for lower income families) (12 U.S.C.
1715z-1);
iii. The below-market interest rate mortgage program under Section
221(d)(4) of the National Housing Act (housing for moderate-income and
displaced families) (12 U.S.C. 1715l);
iv. The supportive housing for the elderly program under Section
202 of the Housing Act of 1959 (12 U.S.C. 1701q);
v. The supportive housing program for persons with disabilities
under Section 811 of the Cranston-Gonzalez National Affordable Housing
Act (42 U.S.C. 8013);
vi. The programs under title IV of the McKinney-Vento Homeless
Assistance Act (42 U.S.C. 11361 et seq.), but only permanent supportive
housing projects subsidized under such programs;
vii. The rural rental housing program under Section 515 of the
Housing Act of 1949 (42 U.S.C. 1485);
viii. The low-income housing tax credit (LIHTC) under Section 42 of
the Internal Revenue Code of 1986 (26 U.S.C. 42); and
ix. Comparable state and local affordable housing programs.
12 U.S.C. 4565(a)(1)(B).
Under the proposed rule, Enterprise assistance to housing projects
under these programs would be considered under the duty to serve the
affordable housing preservation market. FHFA will pay particular
attention to the volume of existing loans that are maturing and may
need refinancing in the affordable housing preservation market. The
Enterprises would not be required to assist each program every year,
but could take a step-by-step, concentrated approach. For example, an
Enterprise might initially focus on the HUD Section 8, Section 236 and
Section 202 programs. Several commenters asserted that the Enterprises
should do more to support small multifamily properties.
The Enterprises have existing loan products that may meet the need
of some owners seeking to refinance subsidized properties eligible to
be considered under the affordable housing preservation market. The
Enterprises offer subsidized property owners options not available
under FHA programs, such as shorter terms and amortization periods,
although these may not be as competitive as some FHA programs. The
Enterprises have several loan products already in place for refinancing
loans on Section 8 properties and Sections 236 and 202 loans. The
properties refinanced under these programs are more numerous than
properties refinanced pursuant to other enumerated programs, and their
financing structure is more immediately suited to the Enterprises'
existing operations. Other enumerated programs may require additional
time for the Enterprise to tailor financing and other assistance, in
particular, Section 221(d)(4), Section 811 and Section 515 programs,
the McKinney-Vento Homeless Assistanc
