2010-2011 Enterprise Housing Goals; Enterprise Book-entry Procedures, 55892-55939 [2010-22361]
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55892
Federal Register / Vol. 75, No. 177 / Tuesday, September 14, 2010 / Rules and Regulations
12 CFR Parts 1249, 1282
RIN 2590–AA26
2010–2011 Enterprise Housing Goals;
Enterprise Book-entry Procedures
Federal Housing Finance
Agency.
ACTION: Final rule.
AGENCY:
Section 1128(b) of the
Housing and Economic Recovery Act of
2008 (HERA) amended the Federal
Housing Enterprises Financial Safety
and Soundness Act of 1992 (Safety and
Soundness Act) to provide for the
establishment, monitoring and
enforcement of new housing goals
effective for 2010 and 2011 for the
Federal National Mortgage Association
(Fannie Mae) and the Federal Home
Loan Mortgage Corporation (Freddie
Mac) (collectively, the Enterprises).
Section 1332(a) of the Safety and
Soundness Act, as amended by HERA,
requires the Federal Housing Finance
Agency (FHFA) to establish three singlefamily owner-occupied purchase money
mortgage goals and one single-family
refinancing mortgage goal. Section
1333(a) of the Safety and Soundness Act
requires FHFA to establish one
multifamily special affordable housing
goal, as well as providing for a
multifamily special affordable housing
subgoal. This final rule establishes new
housing goals for 2010 and 2011,
consistent with the Safety and
Soundness Act, as amended. The final
rule also revises and updates the rules
for counting mortgages for purposes of
the housing goals to ensure clarity and
consistency with the new goals. In
addition, the final rule includes
provisions regarding reporting
requirements and book-entry
procedures.
SUMMARY:
DATES:
This rule is effective October 14,
2010.
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FOR FURTHER INFORMATION CONTACT:
Nelson Hernandez, Senior Associate
Director, Housing Mission and Goals,
Office of Housing and Community
Investment, (202) 408–2819, Brian
Doherty, Manager, Housing Mission and
Goals, Office of Housing and
Community Investment, (202) 408–
2991, Paul Manchester, Principal
Economist, Housing Mission and Goals,
Office of Housing and Community
Investment, (202) 408–2946, Sharon
Like, Managing Associate General
Counsel, Office of General Counsel,
(202) 414–8950, Kevin Sheehan,
Attorney, Office of General Counsel,
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(202) 414–8952 or Lyn Abrams,
Attorney, Office of General Counsel,
(202) 414–8951. These are not toll-free
numbers. The mailing address for each
contact is: 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:
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
I. Background
FEDERAL HOUSING FINANCE
AGENCY
Prior to HERA, the Safety and
Soundness Act provided the Secretary
of HUD with specific authority to
establish, monitor and enforce
affordable housing goals for the
Enterprises.6 HUD issued regulations
establishing affordable housing goals for
the Enterprises, which were periodically
updated, most recently in 2004, when
HUD established new housing goal
levels for 2005 through 2008.7 HUD’s
regulations provided for the housing
goal levels for 2008 to continue in effect
in 2009 and each year thereafter until
replaced by new annual housing goals
established by HUD.8 In August 2009,
FHFA issued a final rule that adopted
many of the existing housing goals
provisions in a new part 1282 of title 12
of the Code of Federal Regulations. As
authorized by section 1331(c) of the
Safety and Soundness Act, as amended,
the final rule also revised the levels of
the existing affordable housing goals in
light of current market conditions.9
The Safety and Soundness Act, as
amended by HERA, requires the
Director of FHFA to establish new
housing goals effective for 2010 and
beyond. The new housing goals include
four goals for single-family, owneroccupied housing, one multifamily
special affordable housing goal, and one
multifamily special affordable housing
subgoal.10 The single-family housing
goals target purchase money mortgages
for low-income families, families that
reside in low-income areas, and very
low-income families, and refinancing
mortgages for low-income families.11
The multifamily special affordable
housing goal targets multifamily
housing affordable to low-income
families, and the multifamily special
affordable housing subgoal targets
multifamily housing affordable to very
low-income families.12
A. Establishment of FHFA
Effective July 30, 2008, HERA
amended the Safety and Soundness Act
to create FHFA as an independent
agency of the federal government.1
HERA transferred the safety and
soundness supervisory and oversight
responsibilities over the Enterprises
from the Office of Federal Housing
Enterprise Oversight (OFHEO) to FHFA.
HERA also transferred the charter
compliance authority and responsibility
to establish, monitor and enforce the
affordable housing goals for the
Enterprises from the Department of
Housing and Urban Development (HUD)
to FHFA. FHFA is responsible for
ensuring that the Enterprises operate in
a safe and sound manner, including
maintenance of adequate capital and
internal controls, that their operations
and activities foster liquid, efficient,
competitive, and resilient national
housing finance markets, and that they
carry out their public policy missions
through authorized activities.2
Section 1302 of HERA provides, in
part, that all regulations, orders and
determinations issued by the Secretary
of HUD (Secretary) with respect to the
Secretary’s authority under the Safety
and Soundness Act, the Federal
National Mortgage Association Charter
Act and the Federal Home Loan
Mortgage Corporation Act (together, the
Charter Acts), shall remain in effect and
be enforceable by the Secretary or the
Director of FHFA, as the case may be,
until modified, terminated, set aside or
superseded by the Secretary or the
Director, any court, or operation of law.
The Enterprises continue to operate
under regulations promulgated by
OFHEO and HUD until FHFA issues its
own regulations.3 The Enterprises are
government-sponsored enterprises
(GSEs) chartered by Congress for the
purpose of establishing secondary
market facilities for residential
1 See
Division A, titled the ‘‘Federal Housing
Finance Regulatory Reform Act of 2008,’’ Title I,
§ 1101, Public Law 110–289, 122 Stat. 2654 (2008),
codified at 12 U.S.C. 4501 et seq.
2 See 12 U.S.C. 4513.
3 See HERA at section 1302, 122 Stat. 2795.
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B. Statutory and Regulatory Background
4 See
12 U.S.C. 1716 et seq.; 12 U.S.C. 1451 et seq.
5 Id.
6 See
12 U.S.C. 4561 et seq. (2008).
24 CFR part 81 (2008).
8 See 24 CFR 81.12 through 81.14 (2008).
9 See 74 FR 39873 (Aug. 10, 2009).
10 See 12 U.S.C. 4561 and 4563(a)(2).
11 See 12 U.S.C. 4562.
12 See 12 U.S.C. 4563.
7 See
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Federal Register / Vol. 75, No. 177 / Tuesday, September 14, 2010 / Rules and Regulations
C. Conservatorship
On September 6, 2008, the Director of
FHFA appointed FHFA as conservator
of the Enterprises in accordance with
the Safety and Soundness Act, as
amended by HERA, to maintain the
Enterprises in a safe and sound financial
condition. The Enterprises remain
under conservatorship at this time.
Although the Enterprises’ substantial
market presence has been a key step to
restoring market stability, neither
company would be capable of serving
the mortgage market today without the
ongoing financial support provided by
the U.S. Department of Treasury. Fannie
Mae has drawn $85.1 billion and
Freddie Mac has drawn $63.1 billion in
Treasury support under the Senior
Preferred Stock Purchase Agreements,
over $148 billion in total. Under the
terms of the Senior Preferred Stock
Purchase Agreements, the Enterprises
will be shrinking their retained
mortgage portfolio 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 action affecting the Enterprises’
future form and function. While reliance
on the Treasury Department’s backing
will continue until legislation produces
a final resolution to the Enterprises’
future, FHFA is monitoring the
activities of the Enterprises to: (a) Limit
their risk and exposure by avoiding new
lines of business; (b) ensure profitability
in the new book of business without
deterring market participation or
hindering market recovery; and (c)
minimize losses on the mortgages
already on their books.
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II. Proposed Rule
On February 26, 2010, FHFA
published in the Federal Register a
proposed rule to establish new housing
goals for the Enterprises. The 45-day
comment period closed April 12, 2010.
See 75 FR 9034 (Feb. 26, 2010). FHFA
received a total of 29 comment letters on
the proposed rule. Eight of the comment
letters were from real estate
professionals and addressed seller
concessions in real estate transactions,
an issue that is not applicable to this
rulemaking. The remaining 21 comment
letters were from 11 trade associations,
two not-for-profit organizations, two
policy advocacy groups, one
corporation, one government entity, one
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financial research organization, one
individual, and both Enterprises.
In the proposed rule, FHFA proposed
measuring the Enterprises’ single-family
performance against specified
benchmark levels and against the
primary mortgage market. FHFA
received 11 comment letters on this
proposal, all in support of the two-part
approach. Most of the trade
associations, as well as the Enterprises,
recognized the difficulty of forecasting
the mortgage market in the current
economic environment and were
receptive to the alternative
measurements.
Seven commenters supported the
proposed benchmark levels for the
single-family home purchase goals.
These commenters also supported the
new separate low-income families
refinancing goal. The Enterprises did
not object to the mortgage purchase goal
levels, but were concerned that the lowincome refinancing goal was set too
high. One trade association stated that
the mortgage purchase goal levels were
set at only 50 to 60 percent of Enterprise
purchases in 2008 and should be higher.
The multifamily housing goal levels
were supported generally by four
commenters, although two commenters
noted that the multifamily market may
be difficult to measure. Eight
commenters did not support the
multifamily housing goal levels. Six
commenters stated that the goal levels
were too low, and that the Enterprises
should be required to provide more
assistance to the multifamily market. On
the other hand, the Enterprises
commented that demand for
multifamily financing is too weak to
support the proposed goal levels, and
that they should be set lower.
The proposed rule invited comment
on whether there should be housing
goals established for mortgages secured
by small multifamily properties, in
addition to reporting requirements. Five
commenters supported the proposed
reporting requirements, and urged
FHFA to also establish small
multifamily housing goals. The
commenters stated that the small
multifamily market is an underserved
market segment, and assistance is
needed in smaller communities. Three
commenters, including both Enterprises,
stated that reporting on small
multifamily properties was appropriate,
but they discouraged a small
multifamily housing goal at this time
given the state of the multifamily market
and the financial condition of the
Enterprises.
Eight commenters addressed the
proposed standards for exclusion of
certain mortgage purchases from
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counting toward achievement of the
housing goals. Five commenters were in
favor of excluding private label
securities from the housing goals,
although Freddie Mac favored inclusion
if due diligence is conducted. A few
other commenters suggested the use of
Regulation Z and the Home Ownership
and Equity Protection Act (HOEPA)
rather than interagency guidance to
determine goals eligibility. Commenters
also suggested that FHFA explicitly
exclude from the housing goals
mortgages with other characteristics
such as low teaser rates, interest-only
options, negative amortization, reduced
documentation, and second liens. One
commenter expressed support for the
provision that allows FHFA discretion
to enumerate additional unacceptable
terms and conditions that constitute
unacceptable mortgages.
FHFA has considered all of the
comments on the proposed rule and has
determined to adopt a final rule that
makes certain revisions to the proposed
rule, as described in detail below.
Comments that raised issues beyond the
scope of the proposed rule are not
addressed in this final rule, but may be
considered by FHFA at a future date.
III. Summary of Final Rule
A. Modification of Housing Goal
Structure
The final rule modifies the structure
of the housing goals in accordance with
HERA’s revisions to the Safety and
Soundness Act. HUD established overall
housing goals for 2005–2008 that
combined an Enterprise’s purchases of
mortgages on single-family housing,
multifamily housing, purchase money
mortgages, and refinancing mortgages.
FHFA adjusted the levels of these
overall goals for 2009. These goals are
revised for 2010 and 2011 to include
four separate goals and one subgoal for
purchases of single-family mortgages
and one goal and one subgoal for
purchases of multifamily mortgages. To
carry out the requirements of HERA
regarding designated disaster areas
while continuing to provide a focus on
low-income and high minority
concentration census tracts, the final
rule establishes both a low-income areas
home purchase goal and subgoal. As in
the proposed rule, the final rule
provides for a retrospective, marketbased assessment of the achievement by
the Enterprises of their housing goals as
well as the traditional prospective,
benchmark goals approach. These
changes are described in more detail
below.
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Federal Register / Vol. 75, No. 177 / Tuesday, September 14, 2010 / Rules and Regulations
B. Adjustment of Home Purchase and
Refinancing Goal Levels, and
Multifamily Goal and Subgoal Levels
Consistent with the proposed rule, the
final rule provides that Enterprise goal
performance under each of the singlefamily housing goals shall be measured
using a fraction of qualifying mortgage
purchases as a percent of total mortgage
purchases. Neither the numerator nor
the denominator includes Enterprise
transactions or activities that are not
mortgage purchases as defined by FHFA
or that are specifically excluded as
ineligible under § 1282.16(b). The final
rule establishes separate single-family
goals for home purchase mortgages and
refinancing mortgages. This differs from
previous treatment, which combined
Enterprise purchases of home purchase
and refinancing mortgages for the
overall goals.
Consistent with the proposed rule, the
final rule bases the 2010–2011
multifamily goals on the numbers of
affordable dwelling units financed,
rather than specifying such goals in
minimum dollar terms. The special
affordable multifamily subgoal in effect
prior to 2010 applied to purchases of
mortgages on housing for families with
incomes below 60 percent of area
median income (AMI) and for families
with incomes between 60 percent and
80 percent of AMI living in low-income
areas. The overall multifamily goal for
2010–2011 is somewhat broader in its
coverage than the previous special
affordable multifamily goal, applying to
mortgages on housing for families with
incomes no greater than 80 percent of
AMI, regardless of location. However,
the 2010–2011 very low-income
multifamily subgoal is targeted to
households with significantly lower
incomes. The qualifying household
income for purposes of the 2010–2011
multifamily subgoal is at or below 50
percent of AMI.
Consistent with the proposed rule, the
final rule provides that the 2010–2011
low-income home purchase and
refinancing goals target households with
lower incomes than the previous lowand moderate-income goal. The
previous low- and moderate-income
goal included families with incomes at
or below 100 percent of AMI. Under the
final rule, the low-income home
purchase goal and refinancing goal
include only families with incomes no
greater than 80 percent of AMI.
Consistent with the proposed rule, the
final rule provides that the 2010–2011
low-income areas home purchase goal
includes families in census tracts with
incomes up to 80 percent of AMI, while
the previous underserved areas home
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purchase subgoal included families in
census tracts with incomes up to 90
percent of AMI.
Although this final rule establishing
the new housing goals is effective in
mid-2010, FHFA will evaluate
performance under the housing goals
established for 2010 on a calendar year
basis.
C. New Counting Requirements
In accordance with HERA, and
consistent with the proposed rule, the
final rule counts only conventional
loans for purposes of the single-family
housing goals. This means that certain
Federal Housing Administration (FHA)
loans that previously counted toward
the goals, such as Home Equity
Conversion Mortgages (HECMs), will no
longer be counted. Second liens, which
also counted toward the goals in the
past, will now be excluded from
counting for purposes of the singlefamily and multifamily housing goals.
Consistent with the proposed rule, the
final rule provides that mortgages
financing rental units in investor-owned
single-family properties, which were
previously included in the goals, are no
longer counted for purposes of the
housing goals. Rental units in 2–4 unit
owner-occupied single-family properties
will continue to be counted. However,
FHFA will continue to monitor the
Enterprises’ purchases of such
mortgages with regard to rental units in
both 2–4 unit owner-occupied housing
and investor-owned 1–4 unit rental
housing.
IV. Analysis of Final Rule
A. Definitions—§ 1282.1
As in the proposed rule, the final rule
includes a number of technical
amendments to conform the definitions
to the statutory definitions in the Safety
and Soundness Act, as amended by
HERA.
Consistent with the proposed rule,
§ 1282.1 of the final rule removes a
number of definitions that were used in
regulatory provisions that were revised
or eliminated based on HERA’s
amendments of the Safety and
Soundness Act. Specifically, § 1282.1 of
the final rule no longer includes
definitions for ‘‘central city,’’ ‘‘ECOA,’’
‘‘government-sponsored enterprise, or
GSE,’’ ‘‘home purchase mortgage,’’ ‘‘New
England,’’ ‘‘ongoing program,’’ ‘‘other
underserved area,’’ ‘‘owner-occupied
unit,’’ ‘‘portfolio of loans,’’ ‘‘real estate
mortgage investment conduit (REMIC),’’
‘‘rural area,’’ ‘‘underserved area,’’ and
‘‘wholesale exchange.’’
As in the proposed rule, § 1282.1 of
the final rule adds new definitions of
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‘‘extremely low-income,’’ ‘‘low-income,’’
and ‘‘moderate-income,’’ and revises the
income levels in the definition of ‘‘very
low-income.’’ The final rule also
replaces the definition of ‘‘low-income
area’’ with a new definition for ‘‘families
in low-income areas.’’ Each of these
definitions is revised to be substantially
the same as the corresponding
definition in section 1303 of the Safety
and Soundness Act, as amended by
HERA.13
Consistent with the proposed rule,
§ 1282.1 of the final rule adds new
definitions for ‘‘borrower income,’’
‘‘FEMA,’’ ‘‘HMDA,’’ ‘‘minority census
tract,’’ ‘‘mortgage revenue bond,’’ ‘‘nonmetropolitan area,’’ ‘‘owner-occupied
housing,’’ ‘‘private label security,’’ and
‘‘purchase money mortgage.’’ The new
definitions are intended to reflect
common usage and provide certainty in
interpreting the terms as used in new
and existing regulatory provisions.
The definition of ‘‘contract rent,’’
consistent with the proposed rule, is
revised to make clear that the market
rent for similar units in the
neighborhood, as used by the lender or
appraiser in underwriting a property,
may be used as the anticipated rent for
unoccupied units. As in the proposed
rule, the final rule adds language to the
definition of ‘‘utilities’’ clarifying that
charges for cable or telephone service
shall not be included. In addition, the
final rule adopts the proposed
clarification that Metropolitan Divisions
are included in the definition of
‘‘metropolitan area’’ to facilitate
comparisons with census and HMDA
information. As in the proposed rule,
the final rule removes unnecessary
references to the form of payment from
the definition of ‘‘mortgage purchase.’’
Consistent with the proposed rule, the
final rule removes the definition of
‘‘refinancing’’ and incorporates those
provisions in a new definition of
‘‘refinancing mortgage.’’ The final rule
also provides for the exclusion of most
workout agreements from the definition
of ‘‘refinancing.’’ The proposed rule
omitted this provision to avoid
confusion over whether a transaction
should be treated as a loan modification
or a refinancing. The final rule includes
the provision to maintain consistency
with the prior definition of
‘‘refinancing’’ under the housing goals.
Mortgage. Consistent with the
proposed rule, the final rule removes
personal property (chattel) loans on
manufactured housing from the
definition of ‘‘mortgage,’’ with the result
that such purchases would not qualify
for credit under the housing goals.
13 12
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Two trade associations, both for the
manufactured housing industry,
maintained that the Enterprises should
be more active in the area of personal
property loans. One commented that
Enterprise purchases of these loans
provide much-needed liquidity to
lenders, lower borrowing costs, and
ensure the continued availability of this
form of affordable housing. The other
commented that the unavailability of
purchase-money financing effectively
discriminates against manufactured
homes and consumers, and also
contravenes federal housing policy
contained in the Manufactured Housing
Improvement Act of 2000.
The final rule does not revise the
proposed definition of ‘‘mortgage’’ to
include personal property loans on
manufactured housing. The Enterprises
have minimal experience with chattel
financing, and the high level of defaults
related to such financing creates
significant credit and operational risks.
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. The role of
the Enterprises in the market for
personal property loans on
manufactured housing is the subject of
FHFA final rulemaking on the duty to
serve requirements of HERA. FHFA may
revise the definition of ‘‘mortgage’’ in
future rulemaking to ensure
conformance with the final regulation
on duty to serve. Until that time,
purchases of personal property loans on
manufactured housing will not be
counted as mortgage purchases for
purposes of the housing goals.
Mortgage with unacceptable terms or
conditions. Consistent with the
proposed rule, the final rule removes
the definitions for ‘‘mortgages contrary
to good lending practices’’ and
‘‘mortgages with unacceptable terms or
conditions or resulting from
unacceptable practices,’’ and revises and
consolidates their substantive
provisions into a single new definition
of ‘‘mortgage with unacceptable terms or
conditions.’’ The definition of ‘‘mortgage
with unacceptable terms or conditions’’
includes a new provision regarding
mortgages with annual percentage rates
(APRs) above a certain level. The new
provision is intended to cover mortgages
that were formerly included in the
definition of ‘‘HOEPA mortgage.’’ The
definition of ‘‘HOEPA mortgage’’ is
revised to conform FHFA’s definition to
the coverage in HOEPA itself. The
provision in the definition of ‘‘mortgage
with unacceptable terms or conditions’’
relating to a borrower’s ability to pay is
replaced with a provision incorporating
interagency guidance on nontraditional
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and subprime mortgages. This change is
intended to cover similar types of
mortgages while providing greater
consistency between the provisions of
the housing goals and other regulatory
provisions.
FHFA received several comments on
the proposed definition of ‘‘mortgages
with unacceptable terms or conditions,’’
both supporting and opposing particular
terms or conditions. One commenter
noted that the definition does not
explicitly exclude subprime loans. One
trade association objected to the
inclusion of prepaid single-premium
credit life insurance products, and
recommended that the rule specifically
allow mortgages where the insurance
premiums are calculated and paid on a
monthly basis and are not financed by
the lender. Another trade association
commented that FHFA should
strengthen the terms and conditions that
constitute unacceptable mortgages, and
recommended the use of Regulation Z
and HOEPA rather than interagency
guidance. A policy advocacy group
supported requiring the Enterprises to
follow interagency guidance, but noted
that the current regulatory guidance
may not be sufficient. This commenter
cautioned that FHFA should not
surrender its independent authority to
restrict the Enterprises from engaging in
abusive and unsafe lending practices.
One trade association supported the
provision that allows FHFA to
determine other additional unacceptable
terms and conditions because markets
and abusive practices evolve. Fannie
Mae noted that its single-family
underwriting guidelines are already
consistent with the interagency
guidance.
In the final rule, the definition of
‘‘mortgages with unacceptable terms or
conditions’’ does not explicitly exclude
all subprime loans, but loans with any
of the listed terms or conditions are
excluded from counting towards the
goals. Mortgages with prepaid singlepremium credit life insurance products,
for example, which have adverse effects
on borrowers, continue to be excluded
from counting, as they have in the past.
While the final rule specifically
references interagency guidance on
subprime and nontraditional loans,
FHFA expects the Enterprises to ensure
that mortgage loans they acquire comply
with Regulation Z and HOEPA, as well
as any federal law related to minimum
standards for mortgages and predatory
lending. While compliance with these
and other applicable laws is expected,
FHFA retains its independent authority
to restrict the Enterprises from engaging
in abusive and unsafe lending practices.
Accordingly, as markets and abusive
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55895
practices evolve, FHFA may determine
additional terms and conditions to be
unacceptable.
Families in low-income areas.
Consistent with the proposed rule, the
new definition of ‘‘families in lowincome areas’’ in the final rule includes
families with incomes at or below 100
percent of AMI who reside in
‘‘designated disaster areas.’’ The
proposed rule defined ‘‘designated
disaster areas’’ as areas at the census
tract level and included only census
tracts in counties approved for
individual assistance within the
declared major disaster area where the
average real property damage severity,
as reported by the Federal Emergency
Management Agency (FEMA), exceeds
$1,000 per household for that census
tract.
Fannie Mae commented that the rule
language should reflect the Community
Reinvestment Act (CRA) criteria for
designated disaster areas. For purposes
of complying with the CRA, regulators
have determined that ‘‘[e]xaminers will
consider institution activities related to
disaster recovery that revitalize or
stabilize a designated disaster area for
36 months following the date of
designation. Where there is a
demonstrable community need to
extend the period for recognizing
revitalization or stabilization activities
in a particular disaster area to assist in
long-term recovery efforts, this time
period may be extended.’’ 14
In response to this comment and to
ensure efficiency in implementation, the
final rule draws on the CRA criteria for
designated disaster areas. Section
1282.1 of the final rule provides that a
designated disaster area will include (1)
any county designated by the federal
government as adversely affected by a
declared major disaster under FEMA’s
administration, (2) where individual
assistance payments were authorized by
FEMA. Section 1282.12(e) of the final
rule establishes an overall low-income
areas goal that includes families in lowincome census tracts, moderate-income
families in minority census tracts, and
moderate-income families in designated
disaster areas. Section 1282.12(f) of the
final rule also establishes a low-income
areas subgoal that includes only families
in low-income census tracts and
moderate-income families in minority
census tracts. Both the overall goal and
the subgoal include a benchmark level
and a market-based assessment. The
14 The Department of the Treasury, the Federal
Reserve Board and the Federal Deposit Insurance
Corporation, Community Reinvestment Act;
Interagency Questions and Answers Regarding
Community Reinvestment; Notice, 74 FR 509 (Jan.
6, 2009).
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benchmark levels for both the overall
goal and the subgoal are set based on a
market analysis that is similar to the
analysis that was used for the proposed
rule. The benchmark level for the
subgoal is set at 13 percent. The
benchmark level for the overall goal will
be set annually by FHFA notice based
on the subgoal benchmark level plus an
amount that reflects the impact of
designated disaster areas in the most
recent year for which data is available.
The market-based assessment for both
the overall goal and the subgoal will use
the designated disaster areas from the
year for which performance is
measured, as will the measurement of
the Enterprises’ performance each year.
To accommodate the Enterprises’
business planning requirements, for
purposes of the low-income areas
housing goal, the final rule, consistent
with the proposed rule, treats a
designated disaster area as effective
beginning on the January 1 after the
FEMA designation of the county and
continuing through December 31 of the
third full calendar year following the
FEMA designation. If data is available in
a particular case to support treatment as
a designated disaster area from an
earlier date or for a longer period of
time, FHFA may provide for such
treatment by notice to the Enterprises.
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B. Housing Goals—§§ 1282.11 through
1282.13
As required by sections 1331(a) and
1333(a)(2) of the Safety and Soundness
Act, as amended by HERA, and
consistent with the proposed rule, this
subpart of the final rule establishes, for
2010 and 2011, four single-family
housing goals, one single-family
housing subgoal, one multifamily
special affordable housing goal, and one
multifamily special affordable housing
subgoal. As under the proposed rule, the
single-family housing goals in the final
rule are based both on the benchmark
levels and on an evaluation of the
Enterprise’s performance relative to the
market for each housing goal in each
year. Section 1282.11(b) requires the
Director to establish housing goals for a
particular year by December 1st of the
previous year.15
1. Prospective and Market-Based
Approach
As discussed in the proposed rule,
following passage of the Safety and
Soundness Act, HUD established
housing goals for Fannie Mae and
Freddie Mac in October 1993,16 and
revised and expanded those goals in
1995,17 2000,18 and 2004.19 Multi-year
goals were established in the 1993
housing goals rule for 1993–94
(subsequently extended to 1995), in the
1994 housing goals rule for 1996–99
(with the goal levels for 1999 continuing
in effect for 2000), in the 2000 housing
goals rule for 2001–03 (with the goal
levels for 2003 continuing in effect for
2004), and in the 2004 housing goals
rule for 2005–08.20
In each case, the numerical goals were
established up to four years in advance.
The goals were set as specific minimum
goal-qualifying percentages of all
dwelling units financed by mortgages
acquired by each Enterprise in a given
year, except for the special affordable
multifamily subgoal, which was set as a
minimum dollar volume for purchases
of goal-qualifying loans. In the 2004
final rule, HUD added three singlefamily home purchase subgoals, which
were similarly established as specific
minimum goal-qualifying percentages of
all home purchase mortgages financed
by the Enterprises on owner-occupied
properties in metropolitan statistical
areas (MSAs).
HUD set the goals for 1993–2008
based on the six factors as specified in
the Safety and Soundness Act. The most
important factors were past performance
on the goals and, especially for the
home purchase subgoals, HUD’s
estimates of the goal-qualifying shares of
home purchase mortgages in the
primary mortgage market on properties
in MSAs. For the overall goals, HUD’s
estimates of the goal-qualifying shares of
all dwelling units financed in the
primary market by the Enterprises in
each year were also important. For
example, HUD estimated that low- and
moderate-income units would account
for 50–55 percent of all units financed
in the primary mortgage market for
2003–04, and 51–56 percent of all units
financed in 2005–08. The low- and
moderate-income goal was set at 50
percent for 2003–04, and was later
established to increase in accordance
with the market range over the 2005–08
period—specifically, 52 percent for
2005, 53 percent for 2006, 55 percent for
2007, and 56 percent for 2008. A similar
approach was followed with regard to
the overall underserved areas and
special affordable goals for 2005–08.
As recent market developments show,
it can be difficult to forecast the goalqualifying shares of the primary
mortgage market several years in
17 See
15 See
12 U.S.C. 4561(b).
16 See 58 FR 53048 (Oct. 13, 1993) and 58 FR
53072 (Oct. 13, 1993).
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60 FR 61846 (Dec. 1, 1995).
65 FR 65044 (Oct. 31, 2000).
19 See 69 FR 63580 (Nov. 2, 2004).
20 See 75 FR 9034–9036 (Feb. 26, 2010).
18 See
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advance. The forecasts developed by
HUD were based on the assumption of
a ‘‘home purchase market environment,’’
a market environment in which
purchase mortgages dominate over
refinancing mortgages. However, when
market conditions result in higher than
average refinance activity, the actual
market goal-qualifying shares can be
significantly different from the forecast
because the actual refinance share
would dominate. A second reason for
the divergence between forecasted and
actual shares of goal-qualifying units in
the primary mortgage market is the
variation in the affordability of housing,
such as measured by the National
Association of Realtors (NAR) housing
affordability index. If the price of a
product or service declines, it is more
affordable to the consumer. In this
respect, housing is no different from any
other product. A third reason for
divergence is the variance in the size of
the multifamily mortgage market over
time. Under the previous goals counting
regime, multifamily units played a
significant role in whether an Enterprise
met the goals. A fourth reason for the
divergence is the change in the size of
the share of the mortgage market
accounted for by Federal Housing
Administration (FHA) and Department
of Veterans Affairs (VA) mortgages. As
discussed below, the market share of
mortgages insured by FHA increased
dramatically in recent years.
As measured after the fact, HUD’s
market estimates often differed
significantly from the actual goalqualifying shares of the primary market.
Specifically, the actual low- and
moderate-income share of the primary
market in 2003 was 53 percent, which
was within HUD’s 2001–2003 forecasted
range of 50–55 percent, but when the
share increased to 58 percent for 2004,
it exceeded the upper end of the range.
The low- and moderate-income share of
the primary market remained high, at 57
percent for 2005, above HUD’s 2005–
2008 forecasted range of 51–56 percent,
but then decreased to 55 percent for
2006 and 52 percent for 2007. Thus,
over the 2005–2007 period, the low- and
moderate-income goals increased
steadily, while the low- and moderateincome share of the primary mortgage
market decreased steadily.
While the Enterprises are in
conservatorship, FHFA expects the
Enterprises to continue to fulfill their
core statutory purposes, including their
support for affordable housing. The
housing goals are one set of measures of
that support. FHFA does not intend for
the Enterprises to undertake
uneconomic or high-risk activities in
support of the goals. However, the fact
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that the Enterprises are in
conservatorship should not be a
justification for withdrawing support
from these market segments. While in
conservatorship the Enterprises have
tightened their underwriting standards
to avoid poor quality mortgages that
may have contributed to their losses.
Maintaining sound underwriting
discipline going forward is important
for conserving the Enterprises’ assets
and for supporting their mission in a
manner in which the achievement of
housing goals directly relates to actual
market conditions.
In light of these circumstances and
the difficulties in anticipating market
deviations from the normal home
purchase environment in the traditional
approach to goal-setting, the final rule
adopts the approach in the proposed
rule to measure the Enterprises’ singlefamily goal performance relative to
benchmark levels for the goal-qualifying
shares of the Enterprises’ mortgage
purchases, as well as relative to the
actual goal-qualifying shares of the
primary mortgage market. A dual
approach prevents exclusive reliance on
multi-year mortgage market forecasts.
The primary disadvantage of this
approach is that information on the
goal-qualifying shares of the current
single-family primary market is not
available until the release of HMDA data
in late summer of the following year,
approximately nine months after the
rating period. However, FHFA believes
that this market-based approach is an
appropriate measure of mission
achievement under the housing goals,
especially while the Enterprises are
operating in conservatorship, and that
the overall advantages of this approach
outweigh the disadvantages.
FHFA received 11 comments on the
proposal to calculate goals performance
based on the eligible market share and
the benchmark level. All 11 commenters
supported this approach. One trade
association cautioned that FHFA should
carefully reassess this approach for
accuracy after actual data is available to
compare with forecasts. A policy
advocacy group agreed with the
proposed approach, and stated that it
would help FHFA more effectively
match Enterprise performance to actual
market conditions. This commenter
added that the benchmark should be
considered the floor. Fannie Mae
supported the proposed approach, but
expressed concern about the time delay
between submission of goals
performance data and the availability of
HMDA data, which could cause
regulatory uncertainty. Regarding
§ 1282.11(b), one commenter stated that
setting the housing goals annually,
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based upon the most recent data, would
be an improvement over the HUD
projection of five or so years into the
future.
Nine commenters supported the
proposed single-family housing goal
benchmark levels. One policy advocacy
group commented that the goals are an
improvement over previous years
because they target the same
populations as the CRA. This
commenter also supported the inclusion
of minorities in the low-income areas
housing goal. Both Enterprises
commented that the proposed purchase
money mortgage goal benchmark levels
were reasonable. One trade association
opposed the proposed single-family
housing goal benchmark levels, stating
that the proposed levels would be 50 to
60 percent of Enterprise purchases in
2008, which the commenter believed is
too low to realize HERA’s objectives.
Two commenters specifically
supported the separate refinancing
housing goal. One trade association
commented that a separate refinancing
goal is important because of the cyclical
nature of refinancing. The other
commenter stated that refinance volume
can vary, from less than the volume of
home purchase mortgages to over three
times the volume of home purchase
mortgages, depending upon interest
rates, which makes a combined goal
unworkable. The Enterprises did not
oppose the separate refinancing housing
goal, but stated that the proposed
refinancing housing goal benchmark
level was too high. Fannie Mae noted
that non-HAMP (Home Affordable
Modification Program) loan
modifications are not goal-eligible, and
there is also a reluctance to refinance
when the labor market is weak. Freddie
Mac commented that the current low
interest rate environment is not
favorable for a high share of low-income
qualifying refinance mortgages.
As in the proposed rule, the final rule
establishes single-family housing goals
that include (1) an assessment of
Enterprise performance as compared to
the actual share of the market that meets
the criteria for each goal, and (2) a
benchmark level to measure Enterprise
performance. The benchmark levels for
performance are intended to provide
greater certainty for the Enterprises in
establishing strategies for meeting the
housing goals. An Enterprise would fail
to meet a housing goal if its annual
performance fell below both the
benchmark level and the actual share of
the market that met the criteria for a
particular housing goal for that year. An
Enterprise would not fail to meet a goal
if it achieved the benchmark level for
that goal, even if the actual market size
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55897
for the year was higher than the
benchmark level. In order to plan their
operations, the Enterprises must be able
to rely on the benchmark levels that
FHFA has set.21
This approach to setting the goals,
involving both the setting of a
prospective target and an assessment of
actual market opportunity, is a
departure from the approach used by
HUD and FHFA in the past. FHFA has
determined that this approach is
appropriate because of the difficulties of
predicting the market, especially in light
of recent market turmoil and the
difficulty of making accurate projections
even in more stable economic
environments. This approach is
consistent with Congressional intent, as
Congress authorized FHFA to establish
the goal levels for the Enterprises. In
addition, several provisions of the
Safety and Soundness Act, as amended,
authorize the Director to set or adjust
the goal levels in light of changing
market conditions. These provisions
include: the requirement that FHFA
calculate the preceding three-year
average percentages of goal-eligible
originations for each goal category, and
take that information into account in
setting the single-family goals; 22 the
authority to adjust previously
established goal levels based on current
market conditions; 23 the authority to
adjust goal levels in response to a
petition by an Enterprise based, in part,
on market conditions and the risk of
‘‘over-investment’’; 24 and relief from
enforcement if the goal levels are
determined to be infeasible.25
FHFA will carefully assess the
approach of using both prospective
targets and assessments of actual market
opportunity for accuracy after actual
data is available to compare with
forecasts. The benchmark level,
however, will not be considered the
floor in assessing whether an Enterprise
achieved a particular housing goal. The
time delay between submission of goals
performance data and the availability of
HMDA data, while not optimal, is also
unavoidable for this market-based
approach.
FHFA notes that because HERA
mandates separate single-family home
purchase and refinance low-income
goals, each goal level is set individually,
based on projected market conditions.
21 See 12 U.S.C. 4561(b), acknowledging ‘‘the
need for the enterprises to reasonably and
sufficiently plan their operations and activities in
advance, including operations and activities
necessary to meet such annual goals.’’
22 12 U.S.C. 4562(e)(2)(A).
23 12 U.S.C. 4562(e)(3).
24 12 U.S.C. 4564(b)(1), (2).
25 12 U.S.C. 4566(b).
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Prior to HERA, the home purchase and
refinance components of the incomebased goals (both the low- and
moderate-income and the special
affordable goals) provided cumulative
effects toward the overall goal,
including a cumulative impact from the
Enterprises’ multifamily acquisitions.
This is no longer the case under the
separate HERA single-family home
purchase and refinance low-income
goals.
2. Retrospective Measurement of the
Market
Consistent with the proposed rule,
§ 1282.12(b) of the final rule sets forth
specific criteria for determining the size
of the market based on HMDA data.
This retrospective measurement of the
size of the market will be used to
evaluate the performance of each
Enterprise on each single-family
housing goal. The specific criteria for
establishing the size of the market
reflect the types of mortgages that are
counted for purposes of the housing
goals and that are typically eligible for
purchase by an Enterprise. The
retrospective measurement of the size of
the market is defined under the
limitations of HMDA data. The market
includes only originations of
conventional conforming first-lien nonHOEPA single-family mortgages on
owner-occupied properties. Only home
purchase mortgages are included in the
market estimates for the three home
purchase mortgage goals and the home
purchase mortgage subgoal, and only
refinance mortgages are included in the
market estimates for the refinance
mortgage goal. Mortgages with rate
spreads of 150 basis points or more
above the applicable Average Prime
Offer Rate (APOR) reported in HMDA
would be excluded, as would mortgages
that are missing information that would
be necessary to determine the
appropriate counting treatment under
the housing goals. Additional details
regarding the housing goals are
discussed above, along with the factors
considered by FHFA in establishing the
housing goals.
FHFA received five comments on the
proposed criteria for establishing the
size of the market. One commenter from
the manufactured housing sector noted
that many manufactured housing loans
are personal property loans for
affordable housing, and questioned the
prudence of excluding higher interest
rate loans (300 basis points over prime)
from the market size. One trade
association urged FHFA to make public
its goal calculation methodology as
technical guidance, and expressed
concerns that excluding FHA and other
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government loans from the market
calculation would distort the market
measurement. Another trade association
was concerned that tighter underwriting
standards and lower loan-to-value
requirements were not fully factored
into the market size. Another
commenter stated that FHFA’s monthly
survey of single-family mortgage
originations will provide a more timely
and in-depth addition to HMDA data.
Freddie Mac recommended that the
definition of higher-priced loan used to
establish market size conform to the
definition set by the Federal Reserve
Board, which is 150 basis points or
more above APOR for first loans.
To the extent possible, the market
estimates are based on the universe of
goal-eligible mortgages. Manufactured
housing loans that are not higher-cost
loans are included in the market
estimates, to the extent that they are
included in the HMDA data.
Manufactured housing loans make up
two percent of the single-family
originations reported in the HMDA data,
and approximately 60 percent of those
manufactured housing loans are highercost loans, which FHFA is using as a
proxy for personal property loans, not
eligible for goals credit under this rule.
FHFA also determined that subprime
loans should not be included in the
market estimates. Therefore, the final
rule excludes higher-priced loans (150
basis points or more above APOR) as a
proxy for subprime loans. Because most
government-insured mortgages are
ineligible under HERA to qualify for the
housing goals, FHA and other
government loans are not included in
the market estimates.
3. Sustainable Mortgages
The proposed rule requested
comments on an alternative to defining
the market for determining whether a
mortgage is eligible to count toward the
housing goals that would focus on the
sustainability of the mortgage. Under
this approach, the housing goals would
be defined in such a way that only
mortgages that support sustainable
homeownership would count toward
the goals. This would require a standard
to differentiate between mortgages that
are sustainable and mortgages that are
not likely to be sustainable.
Four commenters supported an
alternative discussed in the proposed
rule that would use historical data on
the cumulative default rate (CDR) of
mortgages acquired by the Enterprises
for defining the sustainable mortgage
market, while one commenter opposed
this approach. A trade association urged
deferral of the use of CDR until final
Congressional and regulatory action on
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risk retention and the exemption of
certain qualified mortgages from the risk
retention requirements. A policy
advocacy group favored the use of CDR
to define the market, but cautioned that
the use of particular features to define
a market would be useful only to the
extent the models are reliable and
reflect likely market conditions over
some length of time. A trade association
favored the use of CDR. Both Enterprises
supported the use of CDR to define the
market, but expressed reservations.
Fannie Mae stated that its systems
already filter out loans with the most
risk, and given the considerations that
must go into determining whether a
loan is sustainable, it stated that it
would be difficult to develop a system
that appropriately removes
unsustainable loans from the market
sizing analysis. Freddie Mac stated that
the use of CDR should help FHFA and
the Enterprises align and maintain
appropriate balance between
affordability, sustainability, and safety
and soundness, but cautioned that any
methodology to develop market share
estimates must be aligned with the
proprietary models used by the
Enterprises so that inconsistency can be
avoided.
FHFA has considered the comments
on this alternative approach to
determining whether a mortgage is
eligible to count toward the housing
goals. Because the sustainable mortgage
approach raises multiple policy and
technical issues that require further
consideration, the final rule does not
implement this approach. FHFA may
solicit further public comments
regarding a sustainable mortgage
approach toward the housing goals in
the future.
4. Monthly Mortgage Survey
As described in the proposed
rulemaking, FHFA is conducting a
monthly survey of single-family
mortgage originations pursuant to
section 1324(c) of the Safety and
Soundness Act, as amended by HERA,
and will make data collected under that
survey available to the public. Release
of that data will provide additional
information on home mortgage lending
activity. FHFA will use the survey data
in its monitoring of Enterprise housing
goals performance.
C. Analysis of Factors for Single-Family
Housing Goals
Section 1332(e)(2) of the Safety and
Soundness Act, as amended by HERA,
requires FHFA to consider the following
seven factors in setting the single-family
housing goals:
(1) National housing needs;
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(2) Economic, housing, and
demographic conditions, including
expected market developments;
(3) The performance and effort of the
Enterprises toward achieving the
housing goals under this section in
previous years;
(4) The ability of the Enterprise to
lead the industry in making mortgage
credit available;
(5) Such other reliable mortgage data
as may be available;
(6) The size of the purchase money
conventional mortgage market, or
refinance conventional mortgage
market, as applicable, serving each of
the types of families described, relative
to the size of the overall purchase
money mortgage market or the overall
refinance mortgage market, respectively;
and
(7) The need to maintain the sound
financial condition of the Enterprises.26
FHFA’s consideration of the size of
the market for each housing goal
includes consideration of the percentage
of goal-qualifying mortgages under each
housing goal, as calculated based on
HMDA data for the three most recent
years for which data is available.27
FHFA’s analysis of each of the factors,
which has been updated since the
proposed rulemaking, is set forth below.
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1. National Housing Needs
With the collapse of subprime and
Alt-A lending, tighter credit conditions,
and stricter underwriting standards,
single-family mortgage originations fell
38 percent in 2008. The Enterprises’
share of single-family mortgage-backed
securities (MBS) issuance rose to over
73 percent in that year, however, and
the credit risk characteristics of their
purchases began to improve. In 2009,
the Enterprises’ mortgage purchase and
guarantee activity represented more
than 76 percent of conforming singlefamily originations. Falling house prices
caused equity in homes to decline
sharply. The resetting of interest rates
on poorly underwritten adjustable rate
mortgages (ARMs) originated in recent
years, deteriorating household balance
sheets, rising unemployment, continued
credit tightening, and the deepening
recession contributed to increases in
mortgage delinquency and home
foreclosure rates as well as sharply
lower housing starts and sales.
Continued tightening in lender credit
policies, large inventories of unsold
homes, significant volumes of homes in
foreclosure, rising unemployment, and
increasing pessimism among potential
26 12
U.S.C. 4562(e)(2).
12 U.S.C. 4562(e)(2)(A).
27 See
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homebuyers combined to drive home
prices down further.
Despite improving housing
affordability, the U.S. homeownership
rate declined since peaking at an
average rate of 69 percent in 2004. In the
second quarter of 2010, the
homeownership rate was 66.9 percent,
down from 67.4 percent in the second
quarter of 2009. The homeownership
rate for Black households in the second
quarter of 2010 was 46.2 percent, down
from 46.5 percent in the second quarter
of 2009. The homeownership rate for
Hispanic households in the second
quarter of 2010 was 47.8 percent, down
from 48.1 percent in the second quarter
of 2009.28
In 2008, the most recent year in which
HMDA data is publicly available,
applications from Black borrowers fell
by 48 percent, and applications from
Hispanic borrowers fell by 55 percent.29
One of the key catalysts of the current
economic crisis was falling housing
prices after the substantial increase that
began in 2000. From January 2000
through the May 2006 peak, the S&P/
Case-Shiller Home Price Index rose by
approximately 105 percent, only to fall
dramatically since then. The less
volatile FHFA House Price Index, which
reflects the book of business of the
Enterprises, peaked later and also
showed a decline.
Changes in mortgage underwriting,
particularly for affordable products, had
a direct impact on the national housing
market. During the boom, as house price
appreciation reduced affordability, low
documentation Alt-A loans, interestonly loans and ARMs proliferated.
Subprime market share tripled to more
than 20 percent of the market. Lenders
accepted more loans with higher loanto-value (LTV) ratios and lower
borrower credit scores. The Joint Center
for Housing Studies report, ‘‘State of the
Nation’s Housing 2009,’’ describes the
effect of loosened mortgage
underwriting standards on the housing
market. According to that report, in
2005, a household with median owner
income of about $57,000 and spending
28 percent of income on mortgage
principal and interest could qualify for
a 30-year, fixed-rate loan of $225,000. If
the same borrower took out an ARM
loan at a discounted interest rate, the
maximum loan amount increased to
$265,000. By adding an interest-only
feature to that ARM and qualifying the
28 U.S. Census Bureau, ‘‘Residential Vacancies
and Homeownership in the Second Quarter 2010,’’
tables 4 and 7, July 27, 2010.
29 ‘‘HMDA Data Show Huge Decline in 2008
Mortgage Activity—Except at Government Insured
Programs.’’ Inside Mortgage Finance. Oct. 2, 2009 at
8.
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household based on the initial interestonly payments, the potential loan size
grew to $356,000. Allowing the
borrower to spend 38 percent of income
on mortgage costs meant that the
mortgage loan could total approximately
$482,000. Interagency regulatory
guidance on nontraditional and
subprime loans issued in 2006 and
2007, including guidance to the
Enterprises by OFHEO, contributed to
limiting the numbers of such loans as
underwriting standards were
subsequently strengthened.30
With the decline in house prices over
the 2007–2009 period and historically
low mortgage interest rates, new
homebuyers encountered a much more
affordable housing market in 2009 and
continue to do so in 2010. As measured
by the National Association of Realtors’
composite housing affordability index,
which reports the ratio of median
household income to the income that
would be required to buy a medianpriced home (where 100 indicates the
exact amount of income required to buy
a median-priced home), affordability
continued to increase in 2009. That
index rose from 166.3 in December 2008
to 171.5 one year later. The higher value
of the index mainly reflected the decline
in the median price of existing singlefamily homes and lower mortgage
interest rates. The index dipped to 158.9
in June 2010 as a result of an increase
in the median price of existing singlefamily homes between December 2009
and June 2010, but affordability is still
at a very high level by historical
standards.
2. Economic, Housing and Demographic
Conditions
The current turmoil in the housing
and mortgage markets has created less
than favorable conditions for
expansions in credit to borrowers on the
margins of homeownership. The adverse
market conditions include: (1)
Tightened credit underwriting practices;
(2) sharply increased standards of
private mortgage insurance (MI)
30 See Office of Federal Housing Enterprise
Oversight, ‘‘OFHEO Director James B. Lockhart
Commends Enterprises on Implementation of
Subprime Mortgage Lending Guidance,’’ News
Release (Sept. 10, 2007), available at https://www.
fhfa.gov/webfiles/1608/Lockhartcommends
ENTERPRISEsreSubprime91007.pdf. See also Office
of the Comptroller of the Currency, Federal Reserve
Board, Federal Deposit Insurance Corporation,
Office of Thrift Supervision, National Credit Union
Administration, Statement on Subprime Mortgage
Lending, 72 FR 37569–37575 (July 10, 2007); and
Office of the Comptroller of the Currency, Federal
Reserve Board, Federal Deposit Insurance
Corporation, Office of Thrift Supervision, National
Credit Union Administration, Interagency Guidance
on Nontraditional Mortgage Product Risks, 71 FR
58609–58618 (Oct. 4, 2006).
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companies; (3) increased role of FHA in
the marketplace; (4) collapse of the
private label mortgage-backed securities
(PLS) market; and (5) high
unemployment. These developments
contribute to a decrease in the overall
number of single-family loans likely to
qualify for housing goals credit.
Tightened credit underwriting
practices. In general, more conservative
underwriting standards in the mortgage
market will likely result in fewer goalqualifying loans and a lower percentage
of goal-qualifying loans in the market.
Underwriting standards in the mortgage
market generally, and at Fannie Mae
and Freddie Mac, have tightened
considerably in response to declining
market conditions and early payment
defaults, among other factors, and such
standards can be expected to remain in
place in the near future. In May 2008,
responding to changes in private MI
underwriting, Fannie Mae revised its
down payment policy to lower the
maximum allowable LTV ratio for loans
underwritten by Desktop Underwriter
(DU) and for manually underwritten
loans. The implementation of Fannie
Mae’s updated DU Version 8.0, effective
in December 2009, generally reduces the
allowable ‘‘back-end’’ borrower debt-toincome ratio—the portion of a
borrower’s income that goes toward
paying debts—to 45 percent. In
addition, it eliminates DU
recommendations for Expanded
Approval II and Expanded Approval III
loans, loans which historically counted
heavily toward the housing goals.31 If
the DU 8.0 revisions had been in effect
for all of 2009, substantially fewer goalqualifying loans would have been
underwritten. The changes to DU will
likely have a similar effect in 2010 and
2011. Freddie Mac has similarly
tightened its underwriting standards.
Mortgage underwriting standards in
the near term at the Enterprises will be
decidedly more conservative than
earlier in the decade. During the first
quarter of 2010, for example, less than
two percent of Fannie Mae’s purchases
were interest-only loans, and Freddie
Mac purchased none. Similarly, Alt-A
loans were less than one percent of
acquisitions for both Enterprises. This is
significant because interest-only loans
previously purchased by the Enterprises
have serious delinquency rates of more
than 18 percent, and Alt-A loans have
serious delinquency rates of more than
12 percent. During the first quarter of
2010, Alt-A loans already on the books
were responsible for 37 percent of
Fannie Mae’s losses for the quarter and
42 percent of Freddie Mac’s losses for
the quarter. Due to the Enterprises’
focus on improved purchase quality and
underwriting standards, the loans that
the Enterprises have purchased since
conservatorship in late 2008 have had
much lower rates of serious
delinquency. Serious delinquencies for
2009 were a fraction of the serious
delinquency rates for the 2006–2008
vintages for comparable periods after
origination.32
Sharply increased standards of
private mortgage insurers. Much like
tighter credit underwriting standards
generally, higher underwriting
standards of private MI providers have
resulted in fewer goal-qualifying loans
and a lower percentage of goalqualifying loans in the market. As a
result of stress in the mortgage markets,
beginning in late 2007, private MI
providers implemented major changes
in the types of risk they were able to
insure. Insurers that had experienced
substantial ratings downgrades acted to
minimize losses by imposing stricter
underwriting standards on loans with
high LTVs and implementing measures
in ‘‘declining markets’’ that have sharply
limited the insurability of certain
higher-LTV mortgage loans.
As with the Enterprises, the steps
taken by mortgage insurers to strengthen
their financial condition, while
necessary to improving mortgage
sustainability, may reduce the overall
mortgage lending volume, particularly
for higher-LTV mortgages, which
historically have tended to be more
likely to count for purposes of the
housing goals.
Increased role of FHA in the
marketplace. Another factor that has
had substantial marketplace impact is
the increase in the share of mortgages
insured by FHA and mortgages
guaranteed by the VA. These loans
generally are pooled into mortgagebacked securities guaranteed by the
Government National Mortgage
Association (GNMA). Purchases of
mortgages insured by FHA and
mortgages guaranteed by the VA
ordinarily have not received goals credit
in the past and will not generally
receive credit going forward. In general,
the impact of the FHA market on the
percentage of loans in the conventional
market that qualify for a particular goal
depends on: (1) The goal-qualifying size
of the overall market; (2) the share of the
31 Desktop Originator/Desktop Underwriter
Release Notes. DU Version 8.0. DODU 0909. Fannie
Mae. Sept. 22, 2009. DU 8.0 will allow a back-end
ratio of up to 50 percent for case files with strong
compensating factors.
32 Statement of Edward J. DeMarco, Acting
Director, Federal Housing Finance Agency, House
Financial Services Subcommittee on Capital
Markets, Insurance and Government Sponsored
Enterprises. May 26, 2010 at 3.
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market accounted for by FHA
mortgages; and (3) the extent to which
FHA mortgages have goal-qualifying
characteristics.
The market share of mortgages
insured by FHA and mortgages
guaranteed by the VA has risen
dramatically. Loans insured by FHA
increased to 21 percent of single-family
mortgages insured in 2009, up from 17
percent in 2008, spurred by the
continuation of favorable lending
programs. VA’s share of originations
also increased, rising to 4 percent in
2009. Both types of mortgages backed by
the federal government accounted for a
combined 25 percent of single-family
originations in 2009, up from just 4
percent two years earlier.33 A key reason
for this growth is that Fannie Mae and
Freddie Mac generally cannot buy loans
with original LTV ratios greater than 80
percent without some form of credit
enhancement. Borrowers without
substantial down payments are
increasingly utilizing government
insurance and guaranty programs.
Nearly 80 percent of FHA’s purchaseloan borrowers in 2009 were first-time
homebuyers.34 To ensure long-term
actuarial soundness, FHA announced
several policy changes on January 20,
2010 that could reduce borrower
eligibility for FHA, including: (1)
Reducing the maximum permissible
seller concession from the current six
percent to three percent, which is in
line with marketplace norms; (2)
requiring a minimum credit score of 580
for new borrowers seeking to qualify for
the 3.5 percent down payment program;
and (3) increasing the up-front mortgage
insurance premium by 50 basis points,
to 2.25 percent. In addition, FHA asked
for a change in the law to allow it the
ability to increase the maximum annual
mortgage insurance premium.35
Legislative changes which exempt
FHA, VA and Rural Housing Service
loans from certain risk retention
requirements could have the effect of
increasing the loan volume for these
federally-insured and guaranteed
mortgages.36
Collapse of private label securities
market. In the middle part of the
decade—the period covered by the prior
HUD rule on the housing goals—Fannie
Mae and Freddie Mac were major
33 ‘‘Report to Congress 2009.’’ Federal Housing
Finance Agency at 10.
34 ‘‘HUD Secretary, FHA Commissioner Report on
FHA’s Finances.’’ HUD Press Release No. 09–214.
Nov. 12, 2009.
35 ‘‘FHA Announces Policy Changes to Address
Risk and Strengthen Finances.’’ HUD Press Release
No. 10–016. Jan. 20, 2010.
36 ‘‘Free Pass on Risk Retention Could Boost FHA
Loan Volume.’’ American Banker, June 28, 2010.
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purchasers of the AAA-rated tranches of
PLS that contained substantial amounts
of subprime mortgages. While the size
and nature of the Enterprises’ subprime
holdings differed, these purchases had
an impact on the achievement of the
housing goals for each Enterprise,
particularly for the home purchase
subgoals. Such loans were not a large
factor in the mortgage marketplace in
2008 or 2009. OFHEO provided
guidance to the Enterprises in 2007
incorporating interagency policy
guidance from the Federal Deposit
Insurance Corporation, the Office of the
Comptroller of the Currency, the Federal
Reserve Board and the National Credit
Union Administration. The guidance
restricted the purchase of such
securities by the Enterprises when
certain terms of mortgages backing those
securities are harmful to the borrower.37
At year-end 2009, Freddie Mac’s
$175.6 billion private label MBS and
commercial MBS portfolio reflected
deteriorating credit performance.
Although substantially all of these
securities were rated triple-A at
purchase, $84.2 billion were rated
below investment grade at year-end
2009. In the same year, Fannie Mae’s
$89.8 billion private label MBS,
commercial MBS and mortgage revenue
bond portfolios also reflected
deteriorating credit performance.
Although almost all of these securities
were rated triple-A at purchase, $42.2
billion were rated below investment
grade at year-end 2009.
Unemployment. Unemployment and
underemployment have an effect on
mortgage default rates, and on the
number of borrowers seeking and
obtaining a purchase money mortgage or
a refinance mortgage. The civilian
unemployment rate was 9.5 percent in
June and July 2010, down from 9.7
percent in May 2010 and a high of 10.1
percent in October 2009.38 However, the
unemployment rate is still historically
high and will likely remain above eight
37 On August 10, 2007, OFHEO issued letters
directing the Enterprises to apply the principles and
practices of the interagency Statement on Subprime
Mortgage Lending to their purchases of subprime
loans in the regular flow of business, including bulk
purchases. OFHEO directed that, not later than
September 13, 2007, nontraditional and subprime
loans purchased by Fannie Mae and Freddie Mac
as part of PLS transactions comply with the
Interagency Guidance on Nontraditional Mortgage
Product Risks and the Statement on Subprime
Mortgage Lending. This application to PLS
conformed to the underwriting provisions of the
guidance. Further, OFHEO directed that the
Enterprises adopt such business practices and take
such quality control steps as necessary to ensure the
orderly and effective implementation of the
guidance with respect to the purchase of PLS.
OFHEO News Release (Sept. 10, 2007).
38 Bureau of Labor Statistics, News Release: The
Employment Situation—July 2010. August 6, 2010.
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percent in the 2010 to 2011 period. To
the extent that lower-income jobs are
affected more by unemployment than
higher-income jobs, the affordable home
purchase market is affected.
NeighborWorks, a national network of
community-based organizations actively
involved in foreclosure mitigation
counseling, has estimated that the two
leading causes of mortgage default rates
as of January 31, 2010 were a reduction
in income (37 percent of defaults) and
loss of income (21 percent of defaults).39
The high rates of unemployment and
underemployment are likely to continue
to have a significant impact on the size
of the mortgage market going forward.
Refinancings. Refinancing volumes
are strongly influenced by mortgage
interest rates and LTV ratios on existing
mortgages. Under the umbrella of the
Administration’s Making Home
Affordable program, the Home
Affordable Refinance Program (HARP) is
an effort by the Enterprises to enhance
the opportunity for owners to refinance.
Under this program, homeowners whose
mortgages are owned or guaranteed by
Fannie Mae or Freddie Mae who are
current on their mortgages have the
opportunity to reduce their monthly
mortgage payments to take advantage of
low monthly mortgage interest rates,
which Freddie Mac’s July 1, 2010
Primary Mortgage Market Survey
indicated had fallen to 4.58 percent for
a 30-year, fixed-rate mortgage. Even
under favorable interest rate conditions,
however, refinancings may not mirror
previous years.
For homeowners with a current LTV
ratio between 80 and 125 percent, the
Enterprises will refinance mortgages
without requiring additional mortgage
insurance. Of the 2.5 million borrowers
who refinanced their mortgages with
Fannie Mae financing in 2009, 329,000
refinanced through Fannie Mae’s
streamlined process, including 105,000
Fannie Mae borrowers who refinanced
through HARP. Of the 1.7 million
borrowers who refinanced their
mortgages with Freddie Mac financing
in 2009, 169,000 refinanced through
Freddie Mac’s streamlined process,
including 86,000 Freddie Mac
borrowers who refinanced through
HARP.
Demographic conditions. In
establishing the 2010 goals, FHFA
analyzed current demographic trends
for their possible effect on housing
demand. Analysis of current trends
reveals that by 2008, household
39 NeighborWorks, National Foreclosure
Mitigation Counseling Program, Congressional
Update, Activity Through January 31, 2010. May 28,
2010.
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formation rates were already on the
decline. In addition, the recession and
unemployment have reduced
immigration, which in the past has been
a driver of housing demand. It is still
too early to assess the impact of the
current economic downturn on housing
demand, particularly given regional
variations in impact and mitigating
factors, such as increased affordability
of housing ownership. In the long-term,
housing demand is likely to increase as
a result of population growth,
immigration, and future household
formation by the generation born
between 1981 and 2000.40 However, the
impact of long-term demographic
conditions on short-term goals
performance would be minimal.
3. The Performance and Effort of the
Enterprises Toward Achieving the
Housing Goals in Previous Years
Section 1332(a) of the Safety and
Soundness Act, as amended by section
1128 of HERA, requires FHFA to
establish three single-family home
purchase mortgage goals for the
Enterprises: A goal for low-income
families; a goal for families that reside
in low-income areas; and a goal for very
low-income families. Section 1332(a)
also requires FHFA to establish a goal
for single-family refinancing mortgages
for low-income families. The following
section reviews what performance
would have been on these four singlefamily goals if they had been in effect
over the 2001–09 period.
Low-Income Families Housing Goal.
The housing goals in the Safety and
Soundness Act, as amended, apply to
the Enterprises’ acquisitions of
‘‘conventional, conforming, singlefamily, purchase money mortgages
financing owner-occupied housing’’ for
the targeted groups. Accordingly, they
are similar in structure to the home
purchase subgoals established by HUD
for Fannie Mae and Freddie Mac for
2005–08, and subsequently adjusted for
2009 by FHFA. One difference is that
the subgoals established by HUD
applied only to mortgages on properties
in metropolitan areas, while the new
goals apply to mortgages on properties
in all locations.
The low-income families home
purchase goal applies to mortgages
made to ‘‘low-income families,’’ defined
as families with incomes no greater than
80 percent of AMI.41 Past performance
on this goal, if it had been in effect in
previous years, is shown in Table 1.
Performance is shown excluding units
40 ‘‘State of the Nation’s Housing 2009.’’ Joint
Center for Housing Studies of Harvard University.
41 12 U.S.C. 4502(14).
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financed by Enterprise purchases of
PLS; as discussed elsewhere in this final
rule, FHFA has decided to exclude such
units from the numerator and the
denominator in calculating goal
performance for 2010 and 2011,
although the PLS market has declined
markedly. As indicated, Fannie Mae’s
performance (excluding PLS) would
have risen markedly between 2001 and
2003, and then, with the exception of
2006, would have fallen steadily
between 2003 and 2008. Its performance
in 2008, at 23.1 percent, would have
been the lowest of the period. Freddie
Mac’s performance generally would
have risen between 2001 and 2005, and
then declined between 2005 and 2008.
Its performance in 2008 would have
been 24.3 percent, also the lowest of the
period.
Total Enterprise home purchase loan
volume fell sharply in 2008 and 2009—
for Fannie Mae, from 1.5 million
mortgages in 2007 to 978,000 in 2008
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and 723,000 in 2009, and for Freddie
Mac, from 1.0 million mortgages in 2007
to 655,000 in 2008 and 482,000 in 2009,
due to the turmoil and tightened
underwriting standards in the mortgage
market. However, the low-income share
of home purchase loans rose for both
Enterprises, from 23.1 percent in 2008
to 25.5 percent in 2009 for Fannie Mae,
and from 24.3 percent in 2008 to 25.4
percent in 2009 for Freddie Mac.
Possible explanations for this include
the greater affordability of housing and
a decrease in the role of investors in the
home purchase market.
In setting the goals for the Enterprises
for 2010 and 2011, FHFA recognizes the
impact that counting loan modifications
of home purchase mortgages would
have had on the home purchase goals in
prior years. Data on the volume and
shares of loan modifications counting
toward the low-income home purchase
goal in 2009 are also shown in Table 1.
As indicated, 67.2 percent of Fannie
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Mae’s modifications of home purchase
mortgages and 65.3 percent of Freddie
Mac’s modifications were for lowerincome families. Combined performance
on this goal, including both home
purchase mortgages and modifications,
would have been 33.5 percent for
Fannie Mae and 30.9 percent for
Freddie Mac in 2009, as shown in Table
1. However, as discussed elsewhere in
this final rule, modifications of
mortgages will be treated differently for
purposes of the housing goals in 2010–
2011. Specifically, modifications of
mortgages will be counted only under
the refinancing housing goal, not under
the housing goals for home purchase
mortgages. This means that, in order to
be comparable, the 2009 low-income
home purchase goal performance figure
in Table 1 reflects performance
excluding loan modifications.
BILLING CODE 8070–01–P
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Very Low-Income Families Housing
Goal. The Safety and Soundness Act, as
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amended by HERA, defines a ‘‘very lowincome’’ owner-occupied property as
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one occupied by a family with income
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no greater than 50 percent of AMI.42
Past performance on this home purchase
goal, if it had been in effect in previous
years, is shown in Table 2. As indicated,
Fannie Mae’s performance would have
risen from 6.1 percent in 2001 to 7.9
percent in 2003, and then generally
decreased, to 5.5 percent in 2008, the
lowest in the period. With the exception
of 2006, Freddie Mac’s performance on
this goal would have changed little over
the 2001–08 period, remaining in the
range of 6.0 percent to 6.7 percent.
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42 12
U.S.C. 4502(24).
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The very low-income share of home
purchase loans rose for both Enterprises,
from 5.5 percent in 2008 to 7.3 percent
in 2009 for Fannie Mae, and from 6.1
percent in 2008 to 7.2 percent in 2009
for Freddie Mac.
Data on the volume and shares of
modifications counting toward the very
low-income home purchase goal are also
shown in Table 2. As indicated, 27.5
percent of Fannie Mae’s modifications
of home purchase mortgages and 26.0
percent of Freddie Mac’s modifications
were for very low-income families.
Thus, combined performance on this
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goal, including both home purchase
mortgages and modifications, would
have been 11.2 percent for Fannie Mae
and 9.8 percent for Freddie Mac in
2009, as shown in Table 2. However, as
discussed above, modifications of
mortgages will be counted only under
the refinancing housing goal, not under
the housing goals for home purchase
mortgages. This means that, in order to
be comparable, the 2009 very lowincome home purchase goal
performance figure in Table 2 reflects
performance excluding loan
modifications.
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Low-Income Areas Housing Goal and
Subgoal. The low-income areas housing
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goal targets the Enterprises’ purchases of
mortgages in specified geographic areas,
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in a manner similar to the previous
underserved areas goal. The Safety and
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least 30 percent, of which 5,710 had a
tract income greater than 80 percent of
AMI but less than 100 percent of AMI.
Accordingly, based on the 2000 census,
there were 24,325 tracts that would be
targeted by this goal, excluding tracts in
designated disaster areas, but only
families with incomes no greater than
100 percent of AMI would be included
in the 5,710 high-minority, moderateincome tracts.
Past performance on the low-income
areas housing goal, if it had been in
effect in previous years, including
designated disaster areas, is shown in
Table 3A. This measurement
corresponds to the overall low-income
areas housing goal. The inclusion of
designated disaster areas would have
had a significant impact on the
performance of each Enterprise under
this goal. The impact of the designated
disaster areas would also have changed
significantly from year to year. As
discussed above, modifications of
mortgages will be counted only under
the refinancing housing goal, not under
the housing goals for home purchase
mortgages. This means that, in order to
be comparable, the 2009 low-income
areas home purchase goal performance
figure in Table 3A reflects performance
excluding loan modifications.
Past performance on the new lowincome areas housing subgoal if it had
been in effect in previous years,
excluding designated disaster areas, is
shown in Table 3B. The exclusion of
designated disaster areas corresponds to
the new low-income areas housing
subgoal. As indicated, Fannie Mae’s
performance would have varied over
43 12
U.S.C. 4502(28).
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44 12
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PO 00000
U.S.C. 4502(29).
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Soundness Act, as amended by HERA,
now defines a ‘‘low-income area’’ as a
census tract or block numbering area in
which the median income does not
exceed 80 percent of AMI, and it
includes families with incomes not
greater than 100 percent of AMI who
reside in minority census tracts or in
designated disaster areas.43 It defines a
‘‘minority census tract’’ as a census tract
that has a minority population of at least
30 percent and a median family income
of less than 100 percent of AMI.44
According to the 2000 census, of the
66,145 census tracts, there were 18,615
low-income tracts. There were 25,254
tracts with a minority population of at
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time. It would have reached its highest
level, 19.1 percent, in 2002, and its
lowest level, 15.1 percent, in 2008.
Freddie Mac’s performance would have
peaked at 18.6 percent in 2002, then
fallen sharply to 12.1 percent in 2003,
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and would have been 15.2 percent in
2008. As discussed above, modifications
of mortgages will be counted only under
the refinancing housing goal, not under
the housing goals for home purchase
mortgages. This means that, in order to
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be comparable, the 2009 low-income
areas home purchase goal performance
figure in Table 3B reflects performance
excluding loan modifications.
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Refinancing Housing Goal. Under the
Safety and Soundness Act, as amended
by HERA, the refinancing housing goal
is targeted to low-income families, i.e.,
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families with incomes no greater than
80 percent of AMI. It applies to
mortgages that are given to pay off or
prepay an existing loan secured by the
PO 00000
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same property. Thus, the goal would not
apply to home equity or home purchase
loans.
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Past performance on this goal, if it
had been in effect in previous years, is
shown in Table 4. As indicated, Fannie
Mae’s performance (again, excluding
units financed by purchases of PLS)
would have peaked in 2005 at 28.4
percent, following the 2001–03
refinance boom, and declined thereafter
over the 2006–08 period to a low of 23.1
percent in 2008. Freddie Mac’s
performance would also have peaked in
2005 at 26.3 percent, and then also
declined to 26.0 percent in 2006, 25.2
percent in 2007, and 23.2 percent in
2008.
Performance on the refinancing goal is
also shown in Table 4 for 2009. As
indicated, performance exclusive of
loan modifications fell to the lowest
levels of this period—19.9 percent for
Fannie Mae and 19.1 percent for
Freddie Mac. However, 67.9 percent of
Fannie Mae’s modifications of refinance
mortgages pursuant to HAMP and 67.7
percent of Freddie Mac’s modifications
of refinance mortgages pursuant to
HAMP were for low-income families. As
a result, total performance on the goal,
including modifications pursuant to
HAMP, would have been 23.0 percent
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for Fannie Mae and 21.7 percent for
Freddie Mac.
However, as discussed elsewhere in
this rule, the treatment of loan
modifications for purposes of the
housing goals will be different in 2010–
2011 than it was in 2009, in two
respects. First, only permanent
modifications of mortgages will be
counted as mortgage purchases—that is,
for 2010, only modifications initiated
and made permanent in 2010 will be
counted, and for 2011, only
modifications made permanent in 2011
will be counted. Second, loan
modifications will be counted only
under the refinancing housing goal, not
under the housing goals for home
purchase mortgages. This differs from
the treatment of loan modifications in
2009, when loan modifications were
treated as either refinancing loans or
home purchase loans, depending on the
original purpose of the loan that was
modified. The data in Table 4 indicate
what performance under the lowincome refinancing housing goal would
have been in 2009 under the 2009
provisions for counting loan
modifications. Performance excluding
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all loan modifications would have been
19.9 percent for Fannie Mae and 19.1
percent for Freddie Mac. Performance
including initial loan modifications of
low-income refinancing mortgages
would have been 23.0 percent for
Fannie Mae and 21.7 percent for
Freddie Mac. FHFA estimates that
approximately 25 percent of all loan
modifications initiated by the
Enterprises in 2009 were actually made
permanent in 2009. Thus, 2009
performance under the low-income
refinancing housing goal, based on the
2010 provisions for counting loan
modifications, would have been less
than the performance figures including
initial loan modifications, but greater
than the performance figures excluding
all loan modifications. Assuming that
the low-income shares of permanent
modifications in 2009 were the same as
the low-income shares of initial
modifications in 2009, FHFA estimates
that performance on the low-income
refinancing housing goal in 2009 would
have been approximately 21.3 percent
for Fannie Mae and 20.2 percent for
Freddie Mac.
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Interpreting Past Goal Performance
Data. Past performance is not
necessarily a good indicator of future
goal performance, due to changes in
mortgage interest rates, home prices,
credit availability, and other factors. In
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recent years, for example, the
Enterprises purchased PLS primarily
due to anticipated profitability, to
maintain market share, and because
some PLS, especially those containing
subprime mortgages, helped achieve the
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housing goals. Elsewhere in this final
rule is a more detailed discussion
regarding the exclusion of mortgages
included in PLS from counting toward
the housing goals in 2010–2011. The
performance data in Tables 1–4 show
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performance excluding the effects of
these PLS purchases.
In response to the housing crisis and
their financial difficulties, including the
performance of PLS, the Enterprises
have adopted more conservative
underwriting guidelines. As previously
discussed, those changes in
underwriting standards will affect goal
performance as compared to the past
goal performance of the Enterprises.
4. The Ability of the Enterprises To
Lead the Industry in Making Mortgage
Credit Available
As background for the statutory
requirement to consider the Enterprises’
‘‘ability * * * to lead the industry in
making mortgage credit available,’’ a
Senate committee report on legislation
leading to the enactment of the Safety
and Soundness Act in 1992 expressed
concern that Enterprise purchases had
not kept pace with market originations
of mortgages to low- and moderateincome borrowers.45 FHFA shares that
concern and has defined the Enterprise
housing goals in part against that
history. FHFA believes that, in fact, the
Enterprises, directly supported by the
Treasury Department, have played a
leading role in sustaining the mortgage
market during the recent crisis.
Leading the industry in making
mortgage credit available includes
making mortgage credit available to
primary market borrowers at different
income levels. It also includes the
ability of the Enterprises to respond to
pressing mortgage needs in the current
market, such as the threat of a loss of a
home by the borrower, for example, by
implementing the loan modification and
refinance programs under the
Administration’s Making Home
Affordable (MHA) Program, and by
supporting state and local housing
finance agencies. The Enterprises’
ability to respond is reflected through
the introduction of safe and sound
innovative products, technology and
process improvements.
In the current market environment,
the Enterprises, along with FHA and
VA, lead the market. In the first quarter
of 2010, they had a combined purchase
market share of nearly 100 percent.46
From 1997–2003, the Enterprises’
share of purchases of mortgage
originations grew to almost 55 percent.
From 2004–2006, the private mortgage
market predominated, and the
Enterprises’ market share dropped to
45 S.
Rep. No. 102–282, at 10–11 (1992).
combined purchase market share of Fannie
Mae, Freddie Mac and Ginnie Mae was 98 percent,
down slightly from 99 percent in the prior year.
‘‘Fannie, Freddie GNMA At Nearly 100% Share.’’
National Mortgage News, May 31, 2010.
46 The
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below 35 percent. After the private
mortgage market began to deteriorate in
2007, the Enterprises’ share of the
mortgage purchase and guarantee
activity represented more than 76
percent of total conforming singlefamily originations in 2009.47
At the same time, the Enterprises have
been severely stressed by the financial
crisis. As described below, they have
suffered losses that have depleted their
capital, and they have been sustained
only by multi-billion dollar infusions of
capital from the U.S. Treasury under the
Senior Preferred Stock Purchase
Agreements. In this environment, with
FHFA as conservator exercising a
statutory mandate to conserve and
preserve the Enterprises’ assets, it is
especially important that the Enterprises
not take on undue additional credit risk
by purchasing mortgages in any defined
segment in quantities beyond what
market originations reasonably provide.
FHFA has taken into account all of
the foregoing considerations in
assessing the Enterprises’ ability to lead
the industry.
5. Other Mortgage Data
The primary source of reliable
mortgage data for establishing the
housing goals is the HMDA data
reported by originators. Enterprise
mortgage purchase data are compared to
HMDA data to evaluate the Enterprises’
performance with respect to leading or
lagging the housing market under
specific housing goals.
FHFA also uses other reliable data
sources including the American
Housing Survey (AHS), Census
demographics, commercial sources such
as Moody’s,48 and other industry and
trade research sources, e.g., Mortgage
Bankers Association (MBA),49 Inside
Mortgage Finance Publications,50
NAR,51 National Association of Home
Builders (NAHB),52 and the CRE
Finance Council.53 The FHFA MIRS,54
previously administered by the Federal
Housing Finance Board, a predecessor
agency to FHFA, is used to complement
forecast models for home purchase loan
originations by making intra-annual
adjustments prior to the public release
of HMDA mortgage data. In the
47 Statement of Edward DeMarco, Acting Director
of the Federal Housing Finance Agency, U.S. House
of Representatives House Financial Services
Subcommittee on Capital Markets, Insurance and
Government Sponsored Enterprises.’’ May 26, 2010.
48 https://www.moodys.com/.
49 https://www.mbaa.org/.
50 https://www.imfpubs.com/.
51 https://www.realtor.org/.
52 https://www.nahb.org/.
53 https://www.cmsaglobal.org/CMSA_Resources/
Research/Market_Statistics/Market_Statistics/.
54 https://www.fhfa.gov/Default.aspx?Page=250.
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development of economic forecasts,
FHFA uses data and information from
Wells Fargo, PNC, Fannie Mae, Freddie
Mac, The Wall Street Journal Survey,
Standard and Poor’s, The Conference
Board and the Federal Open Market
Committee. In addition, FHFA uses
market and economic data from the
Bureau of Labor Statistics, the Federal
Reserve Board, the Department of
Commerce Bureau of Economic
Analysis, and FedStats.55
6. Market Size
In general, the single-family mortgage
market environment of 2009 is expected
to extend to 2010, with modest
improvements in 2011. Quantifiable
factors influencing FHFA’s outlook for
the mortgage market include general
growth in the economy, employment
and inflation. Other factors that are less
easily quantified include the effect of
the homebuyer tax credit on the
mortgage market. Also, activity in the
subprime market is expected to be
minimal through 2011.
In particular, the following factors
have a direct or indirect impact on the
affordability of home purchases or the
refinancing of mortgages:
Interest Rates. To a large extent,
FHFA’s estimates of affordability in the
mortgage market rely on a continuing
low interest rate environment. Interest
rates are expected to remain low in the
near future and possibly through 2011
as the Federal Reserve expects to
continue its low interest rate policy.56
Mortgage interest rates reached an alltime low in August 2010, with the
national average interest rate on a 30year fixed-rate mortgage reaching 4.42
percent.57 Lower interest rates directly
affect the affordability of buying a home
or refinancing a mortgage.
Unemployment. In addition to being
an indicator of the health of the
economy in general, the employment
situation impacts the housing market
more directly in that buying a house is
a large investment and a long-term
commitment of mortgage payments.
Private-sector payroll employment
edged up by 71,000 and the
unemployment rate remained at 9.5
55 https://www.fedstats.gov/other.html.
56 ‘‘The Federal Open Market Committee seeks
monetary and financial conditions that will foster
price stability and promote sustainable growth in
output. To further its long-run objectives, the
Committee seeks conditions in reserve markets
consistent with federal funds trading in a range
from 0 to 1⁄4 percent.’’ Minutes of the Federal Open
Market Committee, June 22–23, 2010, p. 10.
57 Freddie Mac. Primary Mortgage Market Survey.
August 19, 2010.
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percent in July.58 The unemployment
rate is still historically high and will
likely remain above eight percent in the
2010 to 2011 period. To the extent that
lower-income jobs are affected more by
the employment situation, the
affordable home purchase market is
affected.
House Prices. The price of housing
has a direct impact on the affordability
of home mortgages. The housing and
mortgage markets are also influenced by
trends in house prices. In periods of
house price appreciation, home sales
and mortgage originations increase as
the expected return on investment rises.
In periods of price depreciation or price
uncertainty, home sales and mortgage
originations decrease as risk-adverse
homebuyers are reluctant to enter the
market. Between May 2009 and May
2010, FHFA’s purchase-only House
Price Index shows prices down 1.2
percent, compared to a 5.8 percent price
decline between May 2008 and May
2009. While price declines appear to be
moderating, and while the S&P/Case
Shiller Home Price Index actually
shows prices increased 5.4 percent over
the May 2009 to May 2010 period,
prices are expected to decline further
during the third quarter of 2010.59 An
analysis by Wells Fargo Securities
Economics Group states that ‘‘[t]he
combination of high inventories and
declining home sales means prices
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58 Bureau of Labor Statistics, News Release: The
Employment Situation—July 2010. August 8, 2010.
59 S&P/Case Shiller. Press Release, July 27, 2010.
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should turn down again this
summer.’’ 60
Housing Market. A robust housing
market is generally good for the
affordable home market. Home sales,
after increasing 8.4 percent in March
and 8.2 percent in April, have decreased
4.6 percent in June and another 3.8
percent in July. Both the increase and
the subsequent decrease in home sales
may be attributed to the homebuyers’
tax credit program and its expiration.
Many industry observers expect that
home sales will remain near recent lows
during the remainder of 2010.
According to an analysis by Wells Fargo
Securities Economics Group, ‘‘[s]ales of
existing homes fell 5.1 percent in June
to a still relatively robust 5.37 millionunit pace. Sales continue to be
supported by tax credits. Delays in the
closing process have led to an extension
of the closing deadline which will likely
smooth the adjustment to the post-tax
credit environment.’’ 61
The additional first-time homebuyers
taking advantage of the $8,000 tax credit
will likely have a positive impact on the
housing goals. The additional repeat
homebuyers who qualify for the $6,500
tax credit (there is a five-year occupancy
requirement) will likely have a negative
impact on the housing goals. The repeat
homebuyers who qualify for the tax
credit include a greater proportion of
older and thus higher income
borrowers.
60 Wells Fargo Securities Economics Group.
Existing Home Sales Slip in June, July 22, 2010,
p. 1.
61 Wells Fargo Securities Economics Group.
Existing Home Sales Slip in June. July 22, 2010,
p. 1.
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FHA Market Share. The composition
of the affordable conventional mortgage
market is also influenced by FHA’s
market share, which rose significantly
in 2008–2009 and continues to be high.
Mortgages insured by FHA are likely to
continue to represent a significant share
of the mortgage market in 2010 and
2011. These loans generally are pooled
into mortgage-backed securities
guaranteed by GNMA. Purchases of
mortgages insured by FHA and VA
ordinarily do not receive housing goals
credit.
As shown in Figure 1, the market
share of all mortgages insured by FHA
has increased dramatically. A key
reason for this growth is that Fannie
Mae and Freddie Mac generally cannot
buy loans with original LTV ratios
greater than 80 percent without some
form of credit enhancement. Borrowers
without substantial down payments are
increasingly utilizing government
insurance programs. Since FHA’s
market share increase appears to
coincide with the demise of the
subprime market, it would be easy to
conclude that FHA loans are now
assisting the types of borrowers who
previously were served by subprime
products. However, FHA’s internal data
indicate that the average riskiness of the
loans they insure has actually
decreased, i.e., credit scores increased,
since late 2007.62
62 See FHA Outlook, a monthly statistical
summary of application insurance endorsement,
delinquency and claim information on FHA single
family programs. Available at https://www.hud.gov/
offices/hsg/comp/rpts/ooe/olmenu.cfm.
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Refinance Rate. The share of the
mortgage market that is from refinancing
existing mortgages has an impact on the
share of affordable refinance mortgages.
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Specifically, when the refinancing of
mortgages is motivated by low interest
rates, the market is dominated by higher
income borrowers. In addition, a
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55913
combination of depressed housing
prices and high LTV ratios could
disproportionately decrease the number
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income areas home purchase housing
goal by ¥0.4 percent, and the lowincome borrower refinance housing goal
by ¥0.3 percent. The projected market
estimates in Table 6 reflect these
adjustments.
Given all of the influences on the
housing and mortgage markets, the
outlook for the 2010–2011 period
remains guarded. In developing its
Economic and Mortgage Outlook (see
Table 5, below), FHFA uses an average
of forecasted values for key economic
indicators drawn from several industry
sources.63 On average, industry
forecasters project the economy to
rebound in 2010 and 2011, with real
Gross Domestic Product (GDP) growing
at a rate of 3.0 and 2.7 percent,
respectively. Industry assessments of
housing markets generally are
conservative. The unemployment rate is
expected to remain above eight percent
during 2010 and 2011. As uncertainty in
the job market remains, it will continue
to have a negative impact on the
housing market. ‘‘Employment stability
and job growth are keys to a housing
recovery. In addition to alleviating
worker’s fears about their next
paycheck, improving employment
measures help boost the confidence of
households that are considering buying
a home.’’ 64 Mortgage interest rates are
currently dependent on federal policies,
somewhat independent of the federal
funds rate and influenced by the
economic situation in Europe. The
Federal Open Market Committee is
committed to a low federal funds rate
policy (at 0 to 0.25 percent) as it
‘‘continues to anticipate that economic
conditions, including low rates of
resource utilization, subdued inflation
trends, and stable inflation expectations,
are likely to warrant exceptionally low
levels of the federal funds rate for an
extended period.’’ 65 For the 2010 and
2011 period, the forecasts polled by
FHFA show that interests rates will
remain near recent levels.
63 These forecasts include those by the Mortgage
Bankers Association, Fannie Mae, Freddie Mac, the
National Association of Realtors, Wells Fargo, Wall
Street Journal Forecast Survey, PNC Financial,
National Association of Home Builders, Standard
and Poor’s, The Conference Board and The Federal
Reserve Board’s Federal Open Market Committee.
64 National Association of Home Builders. Eye on
the Economy—Private Sector Job Growth Slows in
May, June 10, 2010.
65 Board of Governors of the Federal Reserve
System. Press Release of the Federal Open Market
Committee, June 23, 2010.
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of low-income homeowners refinancing
their mortgages.
Manufactured Housing Loans. During
2004 to 2008, 57 percent of
manufactured housing loans were
higher cost, according to the HMDA
data. Only 8.5 percent of manufactured
housing loans, with most being
refinance loans, were from lenders who
specialized in serving riskier borrowers.
To adjust the market estimates of the
housing goals to account for the effect
from chattel loans on manufactured
housing, FHFA weighted the average
2004 to 2008 manufactured housing
contribution to the goals market
estimates by 60 percent for the home
purchase mortgage goals and 50 percent
for the refinance mortgage goal. The
market estimates were adjusted
downward by that amount. This
resulted in the market estimate for the
low-income home purchase housing
goal being adjusted by ¥0.9 percent, the
very low-income home purchase
housing goal by ¥0.3 percent, the low-
Federal Register / Vol. 75, No. 177 / Tuesday, September 14, 2010 / Rules and Regulations
55915
corresponding estimates in Table 6 of
the proposed rule shows that the
estimates have not changed. The
estimated share of goal-qualifying
mortgages in low-income areas in the
home purchase mortgage market,
excluding designated disaster areas, in
2010 and 2011, remained at the 13
percent of home purchase mortgages
estimate that was published in the
proposed rule. While changes in
expected economic conditions had an
impact on the market for these three
housing goals, that impact is
insignificant. The market for the lowincome areas housing goal is influenced
by the level of home sales. During
periods when home sales are increasing,
a smaller share of the additional home
sales take place in low-income areas.
Home sales are expected to fall slightly
in 2010 and then rebound in 2011.66
The refinance share of the market, as
measured by the Mortgage Bankers
Association, was 65 percent during the
first quarter of 2010. With interest rates
projected to be at historical lows during
the remainder of 2010, there is real
potential for refinance rates to be higher
than currently anticipated. With a
projected refinance rate of 62 percent in
2010 (down from 65 percent in 2009),
FHFA estimates that 18 percent of
refinance mortgages will be made to
low-income borrowers in 2010. The
refinance rate is expected to fall to 40
percent in 2011, resulting in an estimate
that the low-income borrower mortgage
share of the refinance mortgage market
will be 20 percent in 2011.
To arrive at these estimates, FHFA
used econometric methods to extend the
trends of the market performance for
each goal, based on a monthly time
series database provided by the Federal
Financial Institutions Examination
Council (FFIEC) and the Federal Reserve
Board. For the low-income areas goal,
this model produced only the market
estimates for the subgoal. The remainder
of the market estimates for this goal
relates to the designated disaster areas.
FHFA estimates that 11 percent of home
purchase mortgages originated in 2010
will qualify for the low-income areas
goal because the properties associated
with these mortgages are located in
designated disaster areas that are not
already classified as low-income or high
minority. The methodology used in
FHFA’s analysis of the mortgage market
for 2010 and 2011 is contained in a
document entitled ‘‘Market Estimation
Model for the 2010 and 2011 Enterprise
Single-Family Housing Goals,’’ which is
available at https://www.fhfa.gov.
FHFA used all relevant information
when determining the benchmark levels
for the 2010 and 2011 housing goals.
While the tightening of underwriting
standards is not included in the market
estimates calculation, it was considered
in the determination of the benchmark
levels. FHFA attempts to use the most
current data possible when estimating
market size, including information from
the Monthly Interest Rate Survey (MIRS)
to extend HMDA goal performance data.
To extend the series for the three singlefamily home purchase goals through
2009, FHFA supplements the HMDA
series with estimated market series of
goal-qualifying shares provided by
Freddie Mac that are based on MIRS
data. Guidance for calculating market
66 The average industry January forecast for home
sales during 2010 and 2011 was 5.9 and 6.5 million
units respectively. This is compared to the 5.5 and
6.0 million units from Table 5.
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FHFA’s estimates of the market
performance for the two single-family
owner-occupied home purchase housing
goals and one subgoal, and the
refinancing mortgage housing goal, are
provided in Table 6. For 2010 and 2011,
FHFA estimates that the low-income
and very low-income borrower shares of
the home purchase mortgage market
will be 27 percent and 8 percent,
respectively. Comparing these market
estimates in Table 6 with the
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size using historical HMDA data is
provided in the ‘‘Market Estimation
Model for the 2010 and 2011 Enterprise
Single-Family Housing Goals’’ published
by FHFA. The market estimation
methodology for estimating current and
future market size is provided in that
market estimation model document. As
noted above, FHFA will use the Federal
Reserve Board’s new guidelines of 150
basis points or more above APOR to
identify higher-cost loans.
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7. Financial Condition of the Enterprises
The financial performance of both
Enterprises is dominated by creditrelated expenses and losses stemming
principally from purchases of PLS and
purchases and guarantees of mortgages
originated in 2006 and 2007. Since the
establishment of the conservatorship for
the Enterprises in September 2008, the
combined losses of the two Enterprises
depleted their capital and required them
to draw from the U.S. Treasury under
the Senior Preferred Stock Purchase
Agreements. Fannie Mae has drawn
$85.1 billion and Freddie Mac has
drawn $63.1 billion in Treasury support
under the Senior Preferred Stock
Purchase Agreements, over $148 billion
in total.
As discussed above, FHFA’s duties as
conservator require the conservation
and preservation of the assets of the two
Enterprises. While reliance on the
Treasury Department’s backing will
continue until legislation produces a
final resolution to the Enterprises’
future, FHFA is monitoring the
activities of the Enterprises to: (a) Limit
their risk exposure by avoiding new
lines of business; (b) ensure profitability
in the new book of business without
deterring market participation or
hindering market recovery; and (c)
minimize losses on the mortgages
already on the books. Given the
importance of the Enterprises to the
housing market, any goal-setting must
be closely linked to putting the
Enterprises in sound and solvent
condition. Over the long term, such
actions will assist homeowners and
neighborhoods while saving the
Enterprises money. In 2009, FHFA
adjusted the Enterprises’ housing goal
levels to align them with safe and sound
practices and market reality, and the
housing goals requirements for 2010 and
2011 must be similarly aligned.
D. Single-Family Housing Goal Levels
Based on the factors described above,
§ 1282.12 of the final rule establishes
the benchmark levels for the singlefamily housing goals for 2010 and 2011
as follows:
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Housing goal for low-income families.
The benchmark level of the annual goal
for each Enterprise’s purchases of
purchase money mortgages on owneroccupied single-family housing for lowincome families is 27 percent of the
total number of such mortgages
purchased by that Enterprise, as in the
proposed rule.
Housing goal and subgoal for families
in low-income areas. The benchmark
level of the annual goal for each
Enterprise’s purchases of purchase
money mortgages on owner-occupied
single-family housing for families in
low-income areas will be set annually
by notice from FHFA. The benchmark
level will be based on the benchmark
level for the low-income areas subgoal,
plus an adjustment factor that reflects
the incremental percentage share that
mortgages for low- and moderateincome families in designated disaster
areas had in the most recent year for
which data is available. The benchmark
level of the annual subgoal for each
Enterprise’s purchases of purchase
money mortgages on owner-occupied
single-family housing for families in
low-income census tracts and for lowand moderate-income families in
minority census tracts is 13 percent of
the total number of such mortgages
purchased by that Enterprise.
Housing goal for very low-income
families. The benchmark level of the
annual goal for each Enterprise’s
purchases of purchase money mortgages
on owner-occupied single-family
housing for very low-income families is
8 percent of the total number of such
mortgages purchased by that Enterprise,
as in the proposed rule.
Housing goal for refinancing
mortgages. The benchmark level of the
annual goal for each Enterprise’s
purchases of refinancing mortgages on
owner-occupied single-family housing
for low-income families is 21 percent of
the total number of such mortgages
purchased by that Enterprise, an
adjustment downward from the 25
percent level in the proposed rule to
reflect current market conditions.
E. Analysis of Factors for Multifamily
Housing Goals
Section 1333(a)(4) of the Safety and
Soundness Act, as amended by HERA,
requires FHFA to consider the following
six factors in setting multifamily special
affordable housing goals:
(1) National multifamily mortgage
credit needs and the ability of the
Enterprise to provide additional
liquidity and stability for the
multifamily mortgage market;
(2) The performance and effort of the
Enterprise in making mortgage credit
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available for multifamily housing in
previous years;
(3) The size of the multifamily
mortgage market for housing affordable
to low-income and very low-income
families, including the size of the
multifamily markets for housing of a
smaller or limited size;
(4) The ability of the Enterprise to
lead the market in making multifamily
mortgage credit available, especially for
multifamily housing affordable to lowincome and very low-income families;
(5) The availability of public
subsidies; and
(6) The need to maintain the sound
financial condition of the Enterprise.67
FHFA’s analysis of each of the factors,
which has been updated since the
proposed rulemaking, is set forth below.
1. National Multifamily Mortgage Credit
Needs
At the onset of the mortgage credit
crisis, traditional sources of multifamily
credit, primarily commercial mortgagebacked securities (CMBS), life insurance
companies, commercial banks, and
thrifts, significantly reduced lending or
stopped lending completely. This
contraction left Freddie Mac and Fannie
Mae as the principal sources of
financing for most multifamily owners
and investors. Although FHA has
increased significantly its nonhealthcare, non-new construction
endorsements in fiscal year 2010 as
compared to fiscal year 2009, it remains
a relatively small player in the
multifamily refinance market. Data on
initial endorsements for the first eight
months of fiscal year 2010 show more
than a four-fold increase in initial FHA
endorsements of non-healthcare, nonnew construction multifamily loans to
over $3.7 billion.68 While this number is
much less than Enterprise purchases
over the same period, FHA has managed
to increase its business, in part, because
its underwriting parameters are less
stringent than those of the Enterprises.69
Life insurance companies appear to be
returning to the multifamily market.
According to data from the MBA, life
insurance companies have increased
originations of commercial property
loans, including multifamily loans, by
67 12
U.S.C. 4563(a)(4).
FHA Multifamily Data Base available
at: https://www.hud.gov/offices/hsg/mfh/fhamie/
iecompiled10.pdf.
69 FHA permits LTVs up to 85 percent and DSCR
ratios as low as 1.176 on its primary market rent
refinance program Section 223(f). This compares to
Enterprise maximum LTVs of 80 percent and a
minimum DSCR of 1.25. Earlier in 2010, FHA
announced plans to raise the DSCR for Section
223(f) loans to 1.2 from 1.176.
68 Source:
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131 percent in the first quarter of 2010,
compared to the same period in 2009.70
With multifamily property prices
having fallen by almost 31 percent from
the third quarter of 2008 to the first
quarter of 2010,71 many properties that
would have been eligible for refinance
through Enterprise programs lack
enough equity to meet Enterprise loan
underwriting standards. The decline in
multifamily property prices will
adversely affect owners who financed
with interest-only loans over the past
decade. As these loans become due,
properties with non-amortizing loans
may not have sufficient equity to
counter the effects of declining property
values.
Demand for new multifamily housing
credit has also waned due to the credit
crunch and the existing oversupply of
multifamily units. According to the U.S.
Census Bureau, multifamily housing
starts plummeted by two-thirds from
April 2008 to April 2010.72 Sales of
multifamily properties are far below
normal levels in part because owners
are waiting for property values to
stabilize. Many other multifamily
property owners, unable to refinance,
have been granted extensions by
lenders, or in the case of loans
securitized through CMBS, by the
servicer. On the positive side, the
maturations of multifamily loans
acquired by the Enterprises and backing
CMBS issuances are unlikely to begin to
increase significantly until after 2010.
In the CMBS portion of the
multifamily market, while the
Enterprises have primarily purchased
the highest-rated CMBS tranches, they
may be indirectly affected by increasing
CMBS delinquency rates. According to
May 2010 data released by TREPP,73
delinquencies on multifamily properties
financed by CMBS issuances rose to
68 Source: FHA Multifamily Data Base available
at: https://www.hud.gov/offices/hsg/mfh/fhamie/
iecompiled10.pdf.
69 FHA permits LTVs up to 85 percent and DSCR
ratios as low as 1.176 on its primary market rent
refinance program Section 223(f). This compares to
Enterprise maximum LTVs of 80 percent and a
minimum DSCR of 1.25. Earlier in 2010, FHA
announced plans to raise the DSCR for Section
223(f) loans to 1.2 from 1.176.
70 ‘‘MBA Study: First Quarter 2010 Commercial/
Multifamily Mortgage Originations Increase from
Year Earlier, Though Levels Remain Low, 5/18/
2010’’, available at: https://www.mbaa.org/
NewsandMedia/PressCenter/72890.htm.
71 Moody’s/Real CPPI Report May 2010, available
at: https://web.mit.edu/cre/research/credl/rca.html.
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13.34 percent from 5.17 percent a year
earlier. As properties collateralizing
CMBS issuances become delinquent,
foreclosures and workouts will increase,
further depressing prices of all
commercial properties, including
multifamily properties. This will make
refinancing maturing multifamily loans
more challenging for the Enterprises.
While multifamily delinquencies
remain relatively low for both Fannie
Mae 74 and Freddie Mac,75 there is
growing concern among multifamily
property owners and investors about
properties that are overleveraged or
generating negative cash flows.
2. Past Performance
HUD established dollar-based
multifamily housing subgoals for the
Enterprises for the years 1996 through
2008. HERA extended the 2008 subgoals
through 2009, subject to review by
FHFA, and FHFA increased these 2009
subgoals modestly, from $5.49 billion to
$6.56 billion for Fannie Mae, and from
$3.92 billion to $4.60 billion for Freddie
Mac.
HERA changed the structure of the
multifamily goals for 2010 and beyond.
The multifamily housing subgoals for
2009 were set in terms of units for very
low-income families and low-income
families in low-income areas. The scope
of the goals is broader for 2010–11,
covering units affordable to all lowincome families (those with incomes no
greater than 80 percent of AMI),
regardless of property location.
Section 1333(a)(2) of the Safety and
Soundness Act, as amended by HERA,
requires the Director to establish
‘‘additional requirements for the
purchase by each enterprise of
mortgages on multifamily housing that
finance dwelling units affordable to very
low-income families,’’ with ‘‘very lowincome families’’ defined as those with
incomes no greater than 50 percent of
AMI. To implement this provision,
consistent with the proposed rule,
FHFA is establishing a multifamily
subgoal for very low-income families.
Section 1333(a)(3) of the Safety and
Soundness Act, as amended by HERA,
provides that the Director shall require
each Enterprise to report on its
74 Fannie Mae: Monthly Summary, April 2010,
Table 9.
75 Freddie Mac: Monthly Volume Summary: April
2010, Table 6.
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purchases of mortgages on multifamily
housing ‘‘of a smaller or limited size that
is affordable to low-income families.’’
The provision defines small multifamily
projects as those containing 5 to 50
units or as those with mortgages of up
to $5,000,000. The Director may adjust
the definition to include projects
containing different numbers of units or
with mortgages of different amounts.
The provision further states that the
Director may establish additional
requirements related to such units by
regulation.
As in the proposed rule, FHFA is
defining smaller multifamily properties
as those containing 5 to 50 units, which
is consistent with industry standards.
FHFA already requires reporting by the
Enterprises on purchases of mortgages
on such properties.
Multifamily special affordable
housing goals. Both Enterprises played
major roles in funding multifamily units
for low-income families between 2001
and 2009, as shown in Table 7. Fannie
Mae financed an average of 410,000
such units over this period, peaking at
599,000 units in 2003, while Freddie
Mac financed an average of 331,000
units, peaking at 493,000 units in 2007.
However, as discussed elsewhere in the
final rule, the Enterprises followed
different approaches to the multifamily
market, with Freddie Mac relying to a
significant extent on the purchase of
CMBS, while Fannie Mae depended to
a greater extent on the direct purchase
of multifamily loans originated by its
Delegated Underwriting and Servicing
(DUS) lenders. Data on low-income
multifamily units financed, excluding
CMBS purchases, are shown in the last
two columns of Table 7.
As indicated in Table 7, Fannie Mae’s
financing of low-income multifamily
units fell by 16 percent in 2008, from
542,000 units in 2007 to 456,000 units
in 2008, and by an additional 46 percent
in 2009, to 235,000 units. Such
financing fell more sharply at Freddie
Mac, by 44 percent, from 493,000 units
in 2007 to 276,000 units in 2008, and by
an additional 40 percent in 2009, to
167,000 units. This difference reflects
the drop in CMBS purchases by Freddie
Mac. As a result, Freddie Mac’s
financing of such units was 61 percent
of Fannie Mae’s financing in 2008, the
lowest ratio of the period.
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Very low-income multifamily
subgoals. HERA revised the definition
of ‘‘very low-income’’ families as it
pertains to the Enterprises’ housing
goals. Under the housing goals
established by HUD for 1993–2008 and
as revised by FHFA for 2009, ‘‘very lowincome’’ referred to borrowers with
incomes no greater than 60 percent of
AMI, or for rental units, to units
affordable to families with incomes in
this range, with adjustments for family
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size. This definition was changed by
HERA to refer to borrowers with
incomes no greater than 50 percent of
AMI, or for rental units, to units
affordable to families with incomes in
this range, with adjustments for family
size. The new definition of ‘‘very lowincome families’’ is consistent with that
used in some other housing programs.
Enterprise financing of rental units for
very low-income families over the
2001–09 period is reported in Table 8.
On average, Fannie Mae funded 92,000
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such units each year and Freddie Mac
funded 74,000 such units. The same
general pattern prevailed over time as
that shown in Table 7 between 2007 and
2009, with a significant drop in funding
by Fannie Mae (49 percent) and a
substantial drop by Freddie Mac (80
percent). As a result, the number of such
units financed by Freddie Mac in 2009
was only 33 percent of the number
financed by Fannie Mae, the lowest
ratio of this period.
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Financing of low-income units in
small multifamily properties. As
discussed above, HERA recognizes the
important role played by small
multifamily housing as a source of
affordable rental housing. According to
the 2007 American Housing Survey
(AHS), multifamily properties
containing 5–49 units constituted 77
percent of all multifamily units and 74
percent of multifamily units constructed
in the previous 4 years. Other sources
indicate that a smaller, but still
significant, share of multifamily units
are located in small multifamily
properties.76 HERA requires reporting of
the Enterprises’ role in this market with
regard to units affordable to low-income
76 American Housing Survey for the United
States: 2007, U.S. Department of Housing and
Urban Development and U.S. Department of
Commerce, Bureau of the Census, September 2008,
Table 1A–1, page 1.
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families, and such data is reported in
Table 9.
Both Enterprises increased their
financing of low-income small
multifamily units between 2001 and
2003, from 24,000 units to 155,000 units
for Fannie Mae, and from 44,000 units
to 139,000 units for Freddie Mac. This
increase was motivated at least in part
by the ‘‘bonus points’’ that HUD gave for
financing goal-qualifying units in small
multifamily properties over the 2001–03
period. Under these ‘‘bonus points,’’
each goal-qualifying unit counted twice
in the numerator and once in the
denominator in calculating goal
performance.
As indicated in Table 9, both
Enterprises decreased their roles in the
small multifamily market after the
expiration of HUD’s ‘‘bonus points’’ in
2004. Fannie Mae financed an average
of 49,000 units for 2004–07, while the
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55919
comparable average for Freddie Mac
was 24,000 such units.
Since 2007, both Enterprises’ roles in
this market have fallen significantly.
Fannie Mae’s purchases of mortgages
financing low-income units in small
multifamily properties fell from 65,000
units in 2007 to 44,000 units in 2008
and 13,000 units in 2009, a combined
decrease of 79 percent. The decline was
even sharper for Freddie Mac, from
24,000 units in 2007 to 2,100 units in
2008 and only 528 units in 2009, a
combined decrease of 98 percent.
Although the Safety and Soundness
Act requires FHFA to consider the past
performance of the Enterprises in
establishing the multifamily housing
goals, current market conditions suggest
that many fewer units are likely to be
readily available for purchase in a safe
and sound manner in 2010 and 2011.
Measuring the multifamily goals as was
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done previously would ignore the steep
fall in multifamily property values and
high vacancy rates, among other factors.
BILLING CODE 8070–01–P
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3. Market size
The size of the overall multifamily
mortgage market is likely to remain
relatively unchanged in 2010 as
compared to 2009, and the dollar
amount of multifamily loans financed in
2010 will likely be similar to that of
2009, approximately $40–45 billion.
Poor property fundamentals, especially
declines in property value, will affect
the type of properties and owners that
can access multifamily credit. If the
multifamily market begins to recover in
2011, multifamily originations may
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increase. Projections of such activity,
however, are uncertain. For purposes of
this rulemaking, the multifamily goals
for both 2010 and 2011 are based on the
overall multifamily market for 2009 and
Enterprise multifamily performance in
recent years, and on current multifamily
market conditions. As in prior years, the
multifamily goals are set separately for
each Enterprise. Unlike prior years, the
multifamily goals are measured in units
rather than dollar volume.
The proportion of multifamily
affordable units available for financing
in 2010 and 2011 will likely be below
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historical levels due to weakness in the
multifamily housing market. Steep
declines in multifamily property prices
since mid-2007 have caused a
significant loss of equity for owners,
many of whom can no longer qualify for
Enterprise financing without placing
substantial cash into the property. The
loss of equity for most owners has
meant that only financially strong
properties and borrowers will qualify
for Enterprise financing. These
properties often have a much lower
proportion of affordable units.
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Another factor that will likely
constrain Enterprise multifamily loan
production in 2010 and 2011 will be the
relatively small dollar amount of loans
maturing in the Enterprise portfolios in
2010 and 2011. The MBA expects only
$26 billion in total maturing
multifamily mortgages in 2010.
However, the volume of maturing loans
is expected to increase from 2011
onward.77
For well over a decade, Freddie Mac
relied upon purchases of CMBS and
structured deals involving large
portfolios of affordable multifamily
loans to meet applicable affordable
housing goals. Beginning in 2006 and
2007, CMBS made up a significant
portion of Fannie Mae’s affordable
multifamily purchases. These sources of
affordable units are now either
unavailable or do not meet Enterprise
standards. Therefore, based on the
factors discussed above, multifamily
affordable purchases in the very lowincome category are near historical lows
in 2009 overall. The effect, though, will
be more pronounced at Freddie Mac.
The percentage of very low-income
multifamily purchases in 2010 for
Freddie Mac will likely be below its
average for 2004 to 2008, while Fannie
Mae will likely have a very low-income
purchase volume near its average for the
past several years. As discussed
elsewhere in this final rule, CMBS units
will no longer receive credit towards the
housing goals.
4. Ability of the Enterprise To Lead the
Market in Making Multifamily Mortgage
Credit Available
As described above in the context of
the single-family goals, Congress in
enacting the Safety and Soundness Act
was concerned that the Enterprises were
lagging behind market originations of
mortgages for the benefit of low- and
moderate-income households. FHFA
has been cognizant of that concern in
setting goals for the Enterprises.
With the current credit crisis
negatively affecting the commercial real
estate market, the Enterprises became
market leaders by default. The
disciplined underwriting and credit
standards they bring to the industry
have contributed to relatively low
delinquency rates. Compared to the
industry, the Enterprises have relatively
conservative multifamily underwriting
parameters. Although showing signs of
improvement, the fundamentals of the
multifamily real estate market are still
weak (e.g., high vacancy rates, stagnant
77 Multifamily Housing News: Special Report:
MBA Says Large Amounts of Multifamily Loans Will
Mature in 2011 and After, Feb. 11, 2009.
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rents and falling property values). As a
result, the Enterprises have enhanced
their credit standards to reduce risk
exposure, which has meant that owners
of the strongest performing properties
are more likely to obtain credit from
lenders selling to the Enterprises. As
noted previously, Fannie Mae and
Freddie Mac have recently composed a
larger than usual portion of the
multifamily market. For example, while
Fannie Mae estimates that its share of
the multifamily market ranged from 21–
28 percent in the period from 2004 to
2007, its multifamily market share was
47 percent in 2009. In the years 2010–
2011, the Enterprises’ share of the
market will likely not be as large
because of renewed competition from
other multifamily market players,
including life insurance companies and
banks, and declining multifamily
market fundamentals.
5. Availability of Public Subsidies
Public subsidies for multifamily
housing have been affected by the
mortgage credit crisis. Low-income
housing tax credits (LIHTCs), an
important source of equity for new lowincome housing, have fallen in value.
However, on October 19, 2009, FHFA
announced, in conjunction with the
Treasury Department and HUD, an
initiative to support state and local
housing finance agencies (HFAs)
through a new bond purchase program
to support new lending by HFAs, and a
temporary credit and liquidity program
to improve the access of HFAs to
liquidity for outstanding HFA bonds.
Fannie Mae and Freddie Mac each
played critical roles in this program,
which helped support low mortgage
rates and expand resources for low- and
middle-income borrowers who want to
purchase or rent homes that are
affordable over the long term.
The Enterprises actively purchase
mortgages on properties with HUD
Section 8 Housing Assistance Plan
(HAP) contracts. Newly constructed or
rehabilitated properties usually receive
forward commitments from the
Enterprises with part of the new equity
coming from LIHTCs. The remaining
properties are refinancings where the
property owners sign long-term use
agreements with HUD and receive a
HAP contract in return. The Enterprises
can also assist state and local HFAs by
credit enhancing HFA bonds, and by
offering permanent financing for
properties rehabilitated through the
Neighborhood Stabilization Program
and other HUD grants.
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55921
6. Financial Condition of Enterprises
The financial performance of both
Enterprises, including the establishment
of the conservatorship for the
Enterprises in September 2008, is
discussed in more detail above. FHFA
has considered the multifamily housing
goals in light of the importance of the
Enterprises to the housing market and in
light of FHFA’s duties as conservator to
conserve and preserve the assets of the
Enterprises. FHFA has aligned the
multifamily housing goal levels for 2010
and 2011 with safe and sound practices
and market reality.
F. Multifamily Housing Goal Levels
As a result of the changes in HERA,
the final rule establishes the multifamily
affordable housing goals for each
Enterprise separately from the singlefamily housing goals beginning in 2010.
Qualifying multifamily units previously
had been included with single-family
affordable purchases in the overall
goals. Additional requirements for
multifamily housing were imposed
under a multifamily special affordable
subgoal. Consistent with the proposed
rule, the multifamily affordable goals for
each Enterprise in the final rule are
established in terms of low-income and
very low-income units financed
annually.
Regarding the setting of multifamily
goals, one commenter noted that there
does not appear to be a convenient
measure of the market, particularly for
very-low income families. The
commenter suggested using HMDA data
to calculate the size of the small
multifamily property market, and
estimating the size of the large
multifamily property market. The
overall size of the market could then be
estimated in dollars. FHFA received
four comments generally supporting the
multifamily housing goal levels in the
proposed rule. One policy advocacy
group supported the goal levels, but
cautioned that increasing the
Enterprises’ performance for very-low
income families may be difficult
without a significant increase in the
availability of housing subsidies
through which rents can be made
affordable to such families.
Eight commenters opposed the
proposed multifamily goal levels. Two
not-for-profit organizations stated that
rather than focus on multifamily goal
targets, the Enterprises should address
the unmet demand for affordable
multifamily financing by focusing on
the overall quality and effectiveness of
project-specific efforts, prototypes and
market-wide coverage. One trade
association commented that the
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multifamily goals should continue to be
measured as previously, stating that the
proposed goals were too precise for
these uncertain times. Two other trade
associations commented that the
proposed goal levels were too low,
based on previous Enterprise
performance. One trade association
added that the Enterprises are now the
principal source of financing for
affordable rental housing, and FHFA
should push them to remain as market
leaders. Both Enterprises stated that the
multifamily goal levels were too high,
and that the demand for multifamily
financing is too weak to support such
levels.
The final rule lowers the multifamily
goal levels by approximately 25 percent
from those in the proposed rule. The
lower goal levels reflect the uncertain
state of the overall multifamily market,
the anticipation that the Enterprises will
play a less dominant role in that market
through 2011 as competition for market
share increases from such traditional
players as life insurance companies and
banks, the decrease in properties
qualifying for Enterprise multifamily
financing as a result of steep declines in
multifamily property prices and
declining fundamentals in the market
(e.g. debt service ratios and LTV ratios,
deteriorating property conditions), and
the adverse impact on multifamily
production as a result of decreased
LIHTC investment.
As noted earlier, Freddie Mac’s
multifamily volume has not kept pace
with Fannie Mae’s multifamily volume
since the beginning of the credit crisis
in 2008, especially for very low-income
units, due in part to Freddie Mac’s
reliance on CMBS and structured
purchases from banks and thrifts.
Structured purchases are not readily
available and are likely to reappear in
only limited volumes in the near term.
Pursuant to this final rule, CMBS units
will no longer count toward the housing
goals.
Fannie Mae, on the other hand, is
better positioned than Freddie Mac to
finance affordable units through its flow
business. For example, Fannie Mae has
a division dedicated to purchasing
mortgages on small multifamily
properties (5 to 50 units). Smaller
properties, in general, have higher
percentages of affordable units than
larger properties. Furthermore, Fannie
Mae’s DUS program allows it to share
credit losses with lenders. Mortgages on
small multifamily properties, however,
are often more at risk of delinquency
and default than other multifamily
mortgage property types. Mortgages on
small multifamily properties are usually
more expensive to originate and
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underwrite than mortgages on large
properties because the costs, mostly
fixed, are spread over fewer units.78 The
DUS program helps Fannie Mae mitigate
some of the credit risk of financing
affordable multifamily units.
Since Fannie Mae will likely finance
significantly more multifamily units in
2010 than Freddie Mac, consistent with
the proposed rule, the final rule sets
distinct goals for each of the Enterprises,
as was done in previous years. FHFA
anticipates that for low-income units
and very low-income units, multifamily
mortgages acquired by Freddie Mac will
finance fewer units than multifamily
mortgages acquired by Fannie Mae in
2010 and 2011. The disparity will be
even greater for very low-income units.
Freddie Mac will likely purchase
multifamily loans that finance about
half as many very low-income units as
will be financed by multifamily loans
acquired by Fannie Mae in 2010 and
2011.
Unlike with the dual approach for the
single-family goals described above,
FHFA has not defined the multifamily
goals as prospective market-based
targets, with a provision to be measured
retrospectively against actual market
data. The availability of the necessary
market data to measure affordability of
rents in the multifamily market,
prospectively or retrospectively, is less
certain. As a result, consistent with the
proposed rule, the final rule sets the
multifamily goals in the traditional
prospective volume of business manner.
However, these goals remain subject to
the statutory provisions enabling them
to be adjusted, or providing relief from
enforcement, if multifamily market
conditions so require.
FHFA considered previous
multifamily performance and the
current market in setting the
multifamily goals in the final rule as
well as revisions in the final rule which
disallow counting CMBS toward
multifamily goals in setting these
revised goals.
Multifamily low-income housing goal.
Under the final rule, the annual goal for
Fannie Mae’s purchases of mortgages on
multifamily residential housing
affordable to low-income families is at
least 177,750 dwelling units for each of
2010 and 2011, a decrease from the
237,000 units set in the proposed rule.
The annual goal for Freddie Mac’s
purchases of mortgages on multifamily
residential housing affordable to lowincome families is at least 161,250 such
78 ‘‘Why do Small Multifamily Properties Bedevil
Us?’’ Shekar Narasimhan, The Brookings Institution,
Nov. 2001, https://www.brookings.edu/articles/2001/
11metropolitanpolicy_narasimhan.aspx.
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dwelling units for each of 2010 and
2011, a decrease from the 215,000 units
set in the proposed rule.
Multifamily very low-income housing
subgoal. Under the final rule, the annual
subgoal for Fannie Mae’s purchases of
mortgages on multifamily residential
housing affordable to very low-income
families is at least 42,750 dwelling units
for each of 2010 and 2011, a decrease
from the 57,000 units set in the
proposed rule. The annual subgoal for
Freddie Mac’s purchases of mortgages
on multifamily residential housing
affordable to very low-income families
is at least 21,000 such dwelling units for
each of 2010 and 2011, a decrease from
the 28,000 units set in the proposed
rule.
G. Small Multifamily Properties
HERA requires the Enterprises to
report on purchases of mortgages
secured by small multifamily properties.
In the proposed rule, FHFA invited
comment on whether additional
requirements for small multifamily
properties should be considered.
Five commenters supported the
establishment of small multifamily
housing goals. They stated that this is an
underserved market segment and should
be a focus for the Enterprises. One
policy advocacy group stated that a
small multifamily housing goal would
recognize the vast majority of renters
who live in small multifamily
properties. However, the commenter
added that this still would not address
the significant number of single-family
rentals. A governmental entity stated
that the goal should be expanded to
include mixed-use residential properties
that include one- to four-family
buildings with ground floor commercial
space.
Three commenters opposed
establishing a small multifamily
housing goal. One trade association
supported reporting requirements for
small multifamily properties rather than
establishing a goal, and recommended
that FHFA meet with industry and
banking representatives to explore small
multifamily options. Both Enterprises
stated that small multifamily housing
requirements were not necessary at this
time, citing the current state of the
multifamily market and the financial
condition of the Enterprises.
FHFA has considered these comments
and determined that the Enterprises
should not be subject to small
multifamily housing subgoals while in
conservatorship. Such new subgoals
could be viewed as encouraging
substantial new activity in an area in
which the Enterprises have limited
operational capacity. Accordingly, the
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final rule does not establish such
subgoals but, as provided by HERA, the
Enterprises will be required to continue
to report on their activity in this area.
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H. Discretionary Adjustment of Housing
Goals—§ 1282.14
Consistent with the requirements of
section 1334 of the Safety and
Soundness Act, as amended by HERA,
and the proposed rule, § 1282.14 of the
final rule provides for an Enterprise to
petition the Director to reduce the level
of any goal or subgoal,79 and sets forth
the standards and procedures for
consideration by the Director in
determining whether to reduce a goal or
subgoal level.
One trade association supported the
discretionary authority of the Director to
adjust the housing goals upon petition
by the Enterprises. However, this
commenter requested that any such
petitions and adjustments be made
public to ensure transparent
consideration of the full implications of
any such request.
FHFA considered this comment and
determined that the final rule should
not make any changes to this section of
the proposed rule, because it already
provides for public comment on such
adjustments, consistent with the process
required under section 1334 of the
Safety and Soundness Act, as amended
by HERA.
I. General Counting Requirements—
§ 1282.15
In the final rule, § 1282.15 sets forth
general requirements for the counting of
Enterprise mortgage purchases toward
the achievement of the housing goals.
Except as described below, these
requirements are unchanged from the
general requirements set forth in the
proposed rule. Performance under the
single-family housing goals will be
evaluated based on the percentage of all
single-family, owner-occupied
mortgages purchased by an Enterprise
that meet a particular goal. Performance
under the multifamily housing goals
will be evaluated based on the total
number of units that meet a particular
goal and are financed by mortgages
purchased by an Enterprise.
The data estimation methodologies in
this section have been revised to reflect
changes in the housing goals for 2010
and 2011. The methodology for
estimating affordability for single-family
rental properties has been eliminated as
unnecessary because the single-family
housing goals are measured in terms of
mortgages rather than units. The option
to exclude single-family owner79 12
U.S.C. 4564.
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occupied units with missing data up to
one percent of the total number of
single-family owner-occupied units
backing mortgages purchased by an
Enterprise has been removed because it
is no longer in use by either Enterprise.
The option to request approval of
alternative methodologies has also been
removed. In light of the shorter time
period for which the housing goals are
being established, it should not be
necessary to make changes to the rules
for missing data prior to FHFA’s
proposal of new housing goals for later
years.
Contract rent. Under the proposed
rule, the definition of ‘‘contract rent’’
would clarify that market rent would be
used as the anticipated rent for
unoccupied units.
Freddie Mac recommended that
effective rent, not market rent, be used
to determine affordability. Freddie Mac
and other industry participants use
effective rent, which averages nearly six
percent below market rent, when
underwriting multifamily loans and
determining property value. The use of
effective rent would align goals
qualification rules with these market
standards.
FHFA understands that it is industry
practice when estimating cash flow for
underwriting purposes to use rents net
of rent concessions. FHFA also
understands that when rent concessions
are given, the tenants pay less than the
contract rent for that given period of
time. However, since FHFA does not
have sufficient information to project
when and where rent concessions will
be available to tenants or prospective
tenants, FHFA uses contract rents as the
basis for establishing affordability and
the multifamily housing goal and
subgoal targets. Since the affordability
of units in properties associated with
the Enterprises’ mortgage acquisitions
will be scored against a housing goal
based on contract rents, § 1282.15(d) of
the final rule continues to require the
Enterprises to use contract rents when
calculating affordability.
J. Special Counting Requirements—
§ 1282.16
Section 1282.16 of the final rule sets
forth special counting requirements for
the receipt of full, partial or no credit for
a transaction toward achievement of the
housing goals. A number of clarifying
and conforming changes were proposed
for this section to ensure consistent
application of the counting rules among
the Enterprises. The final rule adopts
most of the changes from the proposed
rule, except as described in more detail
below.
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As in the proposed rule, § 1282.16(b)
of the final rule makes clear that where
a mortgage falls within one of the
categories excluded from consideration
under the housing goals, the mortgage is
excluded even if it otherwise falls
within one of the special counting rules
in § 1282.16(c). For example, a nonconventional mortgage that is excluded
from consideration pursuant to
§ 1282.16(b)(3) could not be counted
even if it otherwise would be counted
as a seasoned mortgage under
§ 1282.16(c)(6). Section 1282.16(c) also
makes clear that where a transaction
falls under more than one of the special
counting rules in § 1282.16(c), all of the
applicable requirements must be
satisfied in order for the loan to be
counted for purposes of the housing
goals.
Consistent with the proposed rule,
§ 1282.16(b) of the final rule does not
include the provision that excluded
jumbo conforming loans from
consideration for purposes of the
housing goals.80 These loans had been
excluded from consideration in the past
because the goals had been established
based on market estimates that preceded
the increases in the conforming loan
limits. Because the higher loan limits
have been considered in the evaluation
of the market for this final rule, it is no
longer necessary to exclude such loans
from consideration for purposes of the
housing goals.
Equity investments in low-income
housing tax credits. Consistent with the
proposed rule, § 1282.16(b)(1) of the
final rule clarifies the existing rule to
refer more specifically to equity
investments in LIHTCs as being
excluded from counting toward the
housing goals.
Four commenters supported the
exclusion of Enterprise equity
investments in LIHTCs from counting
for purposes of the housing goals, and
one commenter opposed such
exclusion. One policy advocacy group
commented that the lack of LIHTC
investments is one reason for the short
supply of affordable housing for very
low-, low- and moderate-income
families. Another policy advocacy group
commented that the Enterprises should
invest in LIHTCs but refrain from selling
these investments in a manner that
would destabilize the market. One trade
association agreed that investments in
LIHTCs should be a non-qualifying
activity, but recommended that
subordinate debt be allowed to fill the
financing gap.
FHFA recognizes that LIHTCs are an
important component of the affordable
80 See
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housing financing structure. However,
investments in LIHTCs have never been
counted for purposes of the housing
goals, and the final rule does not make
any changes to that policy.
Home Equity Conversion Mortgages.
Consistent with the proposed rule,
§ 1282.16(b)(3) of the final rule excludes
all purchases of non-conventional
single-family mortgages, including
mortgages insured under HUD’s HECM
insurance program, from counting for
purposes of the housing goals. Certain
non-conventional mortgages, including
HECMs, have been counted for purposes
of the goals in the past. HERA, however,
amended section 1332(a) of the Safety
and Soundness Act to restrict the singlefamily housing goals to include only
conventional mortgages.81 This
restriction does not preclude the
Enterprises’ purchase of Chartercompliant non-conventional singlefamily mortgages, including HECMs, but
such purchases will not count toward
the housing goals—that is, such
purchases are excluded from both the
numerator and denominator in
calculating goal performance. The final
rule also clarifies that the existing
exception that permitted certain nonconventional multifamily mortgages to
count, continues to apply.
Subordinate liens. Proposed
§ 1282.16(b)(10) would have excluded
purchases of subordinate lien mortgages
(second mortgages) from counting for
purposes of the housing goals, as does
the final rule. This excludes ‘‘piggyback’’ liens that may be acquired by an
Enterprise along with the corresponding
first lien mortgage and subordinate lien
mortgages, such as home equity loans,
acquired separately by an Enterprise
where the Enterprise does not also
acquire the corresponding first lien
mortgage. The proceeds of a home
equity loan are not used for the
purchase price of a property, and the
mortgage does not satisfy or replace an
existing mortgage and so does not count
toward the housing goals. FHFA
excluded piggy-back loans from
counting toward the housing goals
because such loans are not easily
distinguishable from home equity loans.
One trade association supported the
general exclusion of subordinate or
second lien mortgages, as well as first
lien mortgages accompanied by
simultaneous second lien mortgages,
from counting for purposes of the
housing goals. Four commenters
supported providing housing goals
credit for purchases of subordinate lien
mortgages on multifamily properties. A
trade association and a policy advocacy
81 12
U.S.C. 4562(a).
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group stated that the Enterprises should
be allowed to count subordinate liens
on multifamily mortgages because it
would help make low-cost capital
available to support affordable lending.
Fannie Mae commented that
subordinate liens allow multifamily
owners to tap additional equity for
property rehabilitation without
requiring refinancing or payment of a
lockout waiver fee. Fannie Mae noted
that subordinate liens could comprise
five to ten percent of low- and very lowincome multifamily units. Freddie Mac
commented that subordinate financing
is an efficient and standard industry
practice that is beneficial to both owners
and residents of multifamily rental
housing. Freddie Mac stated that the
exclusion of subordinate multifamily
loans from housing goal-eligibility
would reduce the availability of capital
for multifamily properties, including for
property repairs, improvements and
upgrades.
Section 1282.16(b)(10) of the final
rule excludes both single-family and
multifamily subordinate liens from
counting for purposes of the housing
goals. This provision does not preclude
the Enterprises’ purchase of Chartercompliant subordinate lien mortgages,
but as with HECMs, such purchases do
not count for purposes of the housing
goals. Although multifamily mortgages
that finance dwelling units affordable to
low-income families generally count
toward the housing goals, it is not clear
whether all subordinate lien
multifamily mortgages are for the
purpose of financing dwelling units
affordable to low-income families.
Accordingly, the final rule does not
allow credit for subordinate lien
multifamily mortgages. FHFA may
solicit further public comment on
whether such mortgages, entered into in
a manner that is safe and sound, and
which finance repairs, upgrades and
rehabilitation that benefit low-income
residents, should be counted for
purposes of the housing goals.
Mortgages previously counted.
Proposed § 1282.16(b)(11) would have
made explicit the existing prohibition
on counting mortgages for purposes of
the housing goals if the mortgages had
previously been counted for purposes of
the performance of either Enterprise
under the housing goals for a previous
year. To limit excessively burdensome
recordkeeping that could result, the
proposed rule would have made clear
that this limitation only extends back
for five years.
The Enterprises opposed this
provision, commenting that compliance
would be burdensome and operationally
challenging. They stated that only a
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small number of loans would be
identified, but the cost of compliance
would be very high and inter-Enterprise
cooperation in data sharing could
impact the competitive structure
between the Enterprises.
In response to these comments and in
view of the operational concerns
expressed, the final rule retains the
restriction on counting an Enterprise’s
own mortgages more than once, which
shall only extend back for five years.
The final rule does not extend this
general restriction to mortgages the
other Enterprise may have counted in a
previous year.
Certificate of occupancy. Proposed
§ 1282.16(b)(12) would have excluded
purchases of mortgages secured by
properties that have not been certified
as ready for occupancy from
consideration for purposes of the
housing goals.
Fannie Mae requested clarification on
this counting issue for large multifamily
properties that may be completed and
certified for occupancy in stages. In
particular, Fannie Mae stated that the
rule should clarify whether the entire
project is excluded if any part is not yet
certified, or if the certified units may be
counted. Fannie Mae also stated that the
rule should clarify whether housing
goals credit would be received in the
year of certification or in the year of
purchase.
In the final rule, to avoid splitting
mortgage acquisitions across calendar
reporting years, mortgages will be
reported by an Enterprise, and receive
housing goals credit where applicable,
in the calendar year that all units are
certified for occupancy. This may result
in a delay in the reporting of a mortgage
where not all units are certified for
occupancy at the time of mortgage
acquisition by the Enterprise. Mortgages
with a reporting delay due to lack of full
certification for occupancy will be
excluded from both the numerator and
denominator of the multifamily housing
goals calculations for the year of
acquisition.
Private Label Securities. As in the
proposed rule, § 1282.16(b)(13) of the
final rule excludes PLS from counting
for purposes of the housing goals.
As discussed in the proposed
rulemaking, historically, the
Enterprises—particularly Freddie Mac—
relied on PLS purchases to help them
achieve certain affordable housing goals.
Freddie Mac met the 2005 and 2006
affordable housing goals and subgoals in
part through its purchases of AAA-rated
tranches of PLS backed by subprime
mortgages that were targeted to satisfy
goals and subgoals. As house price
appreciation and rising interest rates
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reduced housing affordability, PLS
proliferated as the subprime share of the
market grew to more than 20 percent.
Fannie Mae and Freddie Mac began to
follow suit in response to declining
market share and in pursuit of higher
profits. The Enterprises not only
modified their own underwriting
standards, but also bought hundreds of
billions of dollars’ worth of AAA-rated
tranches of subprime and Alt-A PLS for
the yield and, in certain instances, to
satisfy specific housing goals and
subgoals.
The results of providing large-scale
funding for such loans were adverse for
borrowers who entered into mortgages
that did not sustain homeownership and
for the Enterprises themselves.
Although Fannie Mae and Freddie Mac
have a combined 57 percent share of
mortgages outstanding in their
guaranteed portfolio, the mortgages in
that portfolio account for only 25
percent of serious delinquencies.
However, while PLS account for 12
percent of all mortgages outstanding,
PLS account for 34 percent of serious
delinquencies. As delinquencies in PLS
portfolios triggered downgrades, 90
percent of the PLS holdings of the
Enterprises experienced a downgrade.
In light of that record, the final rule, like
the proposed rule, excludes PLS from
consideration under the housing goals.
In addition to the recent dismal
performance of PLS, it is reasonable to
separate any future growth of the PLS
market from the Enterprises’ housing
goals. The housing goals reflect
Congress’ concern that the Enterprises’
charter mission to support the stability,
liquidity and affordability of the
secondary market not be managed to the
detriment or neglect of goal-eligible
mortgages. In this way the goals may be
seen as a mechanism to ensure that each
Enterprise serves all segments of the
mortgage market available to it.
Accordingly, even to the extent that a
non-GSE secondary mortgage market
returns, loans backing new or seasoned
PLS will not count in either the
numerator or the denominator for
purposes of the housing goals.
As in the proposed rule, the final rule
also excludes CMBS from counting
towards the housing goals.
FHFA invited comments in the
proposed rulemaking on the proposed
exclusion of PLS, and on alternatives to
not counting PLS mortgages for
purposes of the housing goals. One
alternative discussed was to allow PLS
mortgages to be counted if an
appropriate senior Enterprise official
certified that the mortgages are
compliant with all existing regulations
regarding good mortgage practices, and
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with the interagency guidance on
subprime lending and non-traditional
loans. FHFA also requested comments
on whether CMBS should be treated
differently from other PLS for purposes
of the housing goals.
Five commenters supported excluding
PLS, while Freddie Mac favored
inclusion of PLS in the housing goals if
due diligence on the characteristics of
the loans backing the securities is
conducted. The MBA supported
excluding CMBS for goals credit, while
three other commenters favored
including CMBS. One trade association
commented that Enterprise participation
in the market has expanded liquidity to
the apartment sector, and supported
housing goals credit for the purchase of
CMBS for multifamily properties. The
commenter recommended that a
reduced percentage of units be allocated
to CMBS. Both Enterprises opposed the
exclusion of purchases of CMBS for
housing goals purposes. Fannie Mae
stated that maturing loans in CMBS
securities are being extended by special
servicers, reducing the number of loans
available for refinancing or for sale.
Freddie Mac commented that it has
accomplished small multifamily
financing through structured pool deals
and CMBS purchases to mitigate the
higher risk of small multifamily finance.
Freddie Mac also commented that these
avenues of finance are not available in
the current market, but they bring
liquidity to the CMBS market and
should receive goals credit.
Consistent with the exclusion of
single-family PLS from the housing
goals, the final rule does not count
CMBS for purposes of the housing goals.
While CMBS historically have helped
the Enterprises to meet multifamily
housing goals, purchases of CMBS do
not add liquidity to the multifamily
market in the same way as the direct
purchase and securitization of
multifamily mortgages by the
Enterprises.
Housing Trust Fund and Capital
Magnet Fund. As in the proposed rule,
and pursuant to HERA, § 1282.16(b)(14)
of the final rule provides that Enterprise
contributions to the Housing Trust Fund
and the Capital Magnet Fund and
mortgage purchases funded with such
grant amounts shall not be counted for
purposes of the housing goals.82
REMICs. Consistent with the proposed
rule, § 1282.16(c) of the final rule no
longer includes real estate mortgage
investment conduits (REMICs) as
mortgage purchases for purposes of the
housing goals, consistent with the
general exclusion of PLS under
82 See
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§ 1282.16(b)(13). In addition,
§ 1282.16(c) eliminates consideration of
expiring assistance contracts, reflecting
the changes under HERA to the former
special affordable housing goal.
Risk-sharing. The proposed rule
would not have changed existing
§ 1282.16(c)(3), which provides that a
mortgage purchase under a risk-sharing
arrangement between an Enterprise and
a Federal agency counts for purposes of
the housing goals if the Enterprise was
responsible for a substantial amount of
the risk, specified as at least 50 percent
of the risk. Section 1282.16(c)(3) of the
final rule does not include a specific
percent that would constitute a
‘‘substantial amount.’’ The change is not
intended to affect the substantive
requirement that an Enterprise hold a
substantial portion of the risk in order
for units to be counted for purposes of
the housing goals, but is intended to
provide more flexibility in determining
on a case-by-case basis whether a
particular risk-sharing program meets
that requirement.
Cooperative housing and
condominiums. Section 1282.16(c)(5) is
unchanged from the proposed rule and
amends the existing provisions
regarding cooperative housing and
condominiums to reflect HERA’s
treatment of single-family housing and
multifamily housing under separate
goals.
Mortgage revenue bonds. As in the
proposed rule, § 1282.16(c)(8) of the
final rule removes current limitations on
counting mortgage revenue bonds
related to the source of funds for
repayment and the presence of
additional credit enhancements. An
Enterprise is required to have sufficient
information available to determine the
eligibility of any underlying mortgages
before counting such mortgages or units
for purposes of the housing goals.
Two policy advocacy groups and the
Enterprises supported these proposed
changes to the counting rules. One
policy advocacy group supported
Enterprise investment in housing bonds
as a means to stabilize and improve
pricing in the market. The other policy
advocacy group commented that the
inclusion of eligible mortgage revenue
bonds is important and helpful, because
these bonds are often a major source of
lower-cost capital for the preservation
and construction of affordable rental
housing units. Fannie Mae supported
the inclusion of mortgage revenue
bonds, and recommended that the rule
be modified to provide full credit for
dwellings financed by tax exempt or
taxable bonds issued by state and local
HFAs. Freddie Mac commented that the
proposed provision will encourage the
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Enterprises to continue to support state
and local HFAs through the purchase of
single-family and multifamily mortgage
revenue bonds.
FHFA does not believe that a further
broadening of the mortgage revenue
bond counting rules is appropriate
while the Enterprises are in
conservatorship.
Loan modifications. Proposed
§ 1282.16(c)(10) would have treated
certain modifications of single-family
loans held in an Enterprise’s portfolio or
in a pool backing a security guaranteed
by an Enterprise as mortgage purchases
for purposes of the housing goals. Only
modifications undertaken under the
Making Home Affordable (MHA)
program would have been eligible for
inclusion.
Two commenters recommended that
this counting treatment be expanded to
include non-MHA single-family loan
modifications and multifamily loan
modifications. One trade association
recommended the inclusion of
multifamily loan modifications, and
stated that as a result of falling property
values and stress on rental income due
to the extreme economic and
employment issues faced by multifamily
property owners, many owners will not
be able to refinance their loans. Freddie
Mac recommended that multifamily
loan modifications, as well as singlefamily loan modifications outside of
MHA, be eligible to count toward the
housing goals.
The final rule adjusting the levels of
the housing goals for 2009, which
generally lowered the housing goal
levels, allowed credit for MHA
modifications. See 74 FR 39873, 39898
(Aug. 10, 2009). Proposed
§ 1282.16(c)(10) would have retained
this provision. Loan modifications,
however, are not readily incorporated
into market estimates, which makes it
difficult to set housing goals that reflect
the actual market. Accordingly, the final
rule provides that only permanent MHA
loan modifications will be counted as
mortgage purchases for purposes of the
housing goals. For 2010, only
modifications that were both initiated
and made permanent in 2010 will be
counted for purposes of the housing
goals. For 2011, only modifications that
were initiated in 2010 or 2011 and made
permanent in 2011 will be counted for
purposes of the housing goals.
Modifications that were opened on a
trial basis but not made permanent in
2010 or 2011 will not be given credit
toward the goals.
In addition, all such permanent MHA
loan modifications will be treated as
refinance mortgages in 2010 and 2011,
rather than being treated in accordance
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with the original purpose of the loan.
Loan modifications are more similar to
refinancing mortgages than to purchase
money mortgages. A loan modification
changes the terms of the loan but
involves the same property and the
same borrower. A loan modification
does not involve a new home purchase.
Thus, it is more appropriate to treat loan
modifications as refinancing mortgages
than as home purchase mortgages.
Accordingly, a modification of a lowincome home purchase mortgage will
not be counted toward the low-income
home purchase goal, as it was in 2009.
Rather, it will be counted in calculating
performance on the low-income
refinance goal. As a result, performance
on the three home purchase goals for
2010–11 will not be affected by loan
modifications, but performance on the
low-income refinance goal will be
affected. That is, all permanent MHA
loan modifications will be included in
the denominator, and all permanent
MHA loan modifications for low-income
families will be included in the
numerator in calculating performance
on the low-income refinance goal in
2010 and 2011.
FHFA will consider providing credit
for MHA loan modifications in the final
rulemaking on the Duty to Serve
requirements of HERA.
HOEPA mortgages and mortgages
with unacceptable terms or conditions.
Consistent with the proposed rule,
§ 1282.16(d) of the final rule relocates
existing provisions regarding HOEPA
mortgages and mortgages with
unacceptable terms or conditions from
current § 1282.16(c). Placing these
provisions in a separate paragraph
reflects the fact that unlike other types
of mortgage purchases, HOEPA
mortgages and mortgages with
unacceptable terms and conditions must
be counted in the denominator as
mortgage purchases but can never be
counted in the numerator, regardless of
whether the mortgages would otherwise
qualify based on the affordability and
other counting criteria.
Multifamily property conversion.
Some commenters suggested that FHFA
revise the counting rules to deny
housing goal credit for multifamily
loans that aid the conversion of
properties from being affordable to
market rate properties, at which point
the units, although initially scored as
affordable, would no longer be
affordable. FHFA expects to address this
issue in a separate rulemaking following
the implementation of this final rule.
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K. Affordability Definitions—§§ 1282.17
Through 1282.19
Consistent with the proposed rule,
§ 1282.17 of the final rule sets forth
definitions and establishes cutoff points
or boundaries for the statutory and
traditionally defined levels of
affordability based on AMI for owners
and tenants of rental units where the
family size and income are known to the
Enterprise. In addition to the levels of
affordability that currently appear at
§ 1282.17, this section includes an
additional paragraph (e) for extremely
low-income borrowers and tenants with
income at or below 30 percent of AMI
with adjustments for family size.
Although the Enterprise housing goals
do not specifically target extremely lowincome borrowers or tenants, the final
rule establishes cutoffs for determining
such affordability to facilitate any
reporting or analysis of such data that is
required.
As in the proposed rule, § 1282.18 of
the final rule sets forth definitions and
establishes cutoff points or boundaries
for the statutory and traditionally
defined levels of affordability based on
AMI for tenants of rental units where
the family size is not known to the
Enterprise. In addition to the levels of
affordability that currently appear at
§ 1282.18, this section includes an
additional paragraph (e) for extremely
low-income tenants with income at or
below 30 percent of AMI with
adjustments for unit size.
As in the proposed rule, § 1282.19 of
the final rule sets forth definitions and
establishes cutoff points or boundaries
for the statutory and traditionally
defined levels of affordability based on
AMI for tenants of rental units where
tenant income is not known to the
Enterprise. In addition to the levels of
affordability that currently appear at
§ 1282.19, this section includes an
additional paragraph (e) for extremely
low-income tenants with income at or
below 30 percent of AMI with
adjustments for unit size.
L. Housing Goals Enforcement—
§§ 1282.20 and 1282.21
Consistent with the proposed rule,
§ 1282.20 of the final rule provides that
the Director shall determine whether an
Enterprise has met the housing goals, in
accordance with the standards
established under the Safety and
Soundness Act, as amended by HERA
and this final rule. If the Director
determines that an Enterprise has failed,
or there is a substantial probability that
an Enterprise will fail, to meet any
housing goal, the Director shall provide
notice, in writing, to the Enterprise of
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such preliminary determination in
accordance with 12 U.S.C. 4566(b).
As in the proposed rule, § 1282.21 of
the final rule includes requirements for
submission of a housing plan by an
Enterprise for failure or substantial
probability of failure to meet any
housing goal that was or is feasible. The
requirement to submit a housing plan is
at the discretion of the Director.
M. Reporting Requirements—Subpart D
As in the proposed rule, subpart D of
the final rule relocates existing
Enterprise reporting requirements from
part 81, subpart E of title 24 of the Code
of Federal Regulations. Section 1282.65
relocates an existing regulatory
provision on data certification from 24
CFR 81.102. These provisions have
continued in effect pursuant to section
1302 of HERA. Upon the effective date
of the final housing goals rule, the
reporting requirement and Enterprise
data integrity provisions in 24 CFR part
81 will no longer be in effect.
The proposed rule included various
conforming changes throughout subpart
D. Proposed § 1282.62(b) would have
included a requirement for the
Enterprises to submit loan-level
mortgage data on a quarterly basis.
Previously, such submissions were
required only semi-annually. Proposed
§ 1282.62(c) would have revised the due
date for submission to FHFA of the
required quarterly Mortgage Reports
from 60 days after the end of the quarter
to 45 days. Proposed § 1282.63 would
have revised the due date for fourth
quarter Annual Mortgage Report and the
Annual Housing Activities Reports
(AHARs) from 75 days after the end of
the calendar year to 60 days.
In its comment letter, Fannie Mae
requested that the due dates for the
quarterly and Annual Mortgage Reports
and loan-level data submissions remain
unchanged. Fannie Mae stated that
shortening the time period would
adversely impact its quarterly data
quality reviews and prevent
reconciliation with its annual Form 10–
K, which is due within 60 days of the
end of the calendar year.
FHFA acknowledges Fannie Mae’s
concerns and, accordingly, the final rule
retains the current due dates for the
quarterly and Annual Mortgage Reports
and AHARs. Consistent with the
proposed rule, the final rule requires
that the loan-level data be submitted on
a quarterly basis.
As in the proposed rule, § 1282.63 of
the final rule requires that the
Enterprises make their AHARs available
to the public online. FHFA does not
expect that the requirement to make
available online information that is
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already publicly available will be
burdensome to the Enterprises. As in
the proposed rule, § 1282.64 of the final
rule eliminates the requirement for the
Enterprises to submit information that is
typically made available to the public
by each Enterprise. The Director may
continue to request such reports,
information and data as the Director
deems necessary. Consistent with the
proposed rule, subpart D of the final
rule does not include the provisions
regarding submission of additional data
or reports and the addresses for
submission of information that were
formerly found at 24 CFR 81.65 and
81.66. Section 1282.64 is sufficiently
broad to encompass any requests for
additional data or reports that the
Director deems necessary.
Consistent with the proposed rule,
§ 1282.65 of the final rule simplifies the
detailed procedures laid out in the
previous data integrity provision found
at 24 CFR 81.102. FHFA will implement
the data integrity process pursuant to its
general regulatory authority over the
Enterprises. FHFA expects that the
Enterprises will continue to work
cooperatively with FHFA to identify
and resolve any discrepancies or errors
in the housing goals data reported to
FHFA. Section 1282.65 maintains the
most important aspects of the data
integrity process in the regulation,
including the requirement that the
Enterprises certify the accuracy of their
submissions.
One trade association requested that
FHFA consider clarifying the
procedures for certification of
submissions, and recommended that
measures should be established to
ensure the Enterprises submit accurate,
truthful and complete information.
FHFA currently requires data submitted
for the calendar year housing goals to be
certified as true, correct and complete
by a corporate officer with the authority
to sign for the Enterprise. This
certification was required beginning
with the submission of 2005 mortgage
data to align with the customary
practice of regulators of financial
institutions, which require certification
as a means of ensuring corporate
accuracy in, and accountability for, the
financial information provided by a
corporation to its regulators.
N. Book-Entry Procedures—Part 1249
As in the proposed rule, part 1249 of
the final rule relocates existing
regulatory provisions on book-entry
procedures from part 81, subpart H of
title 24 of the Code of Federal
Regulations. These provisions have
continued in effect pursuant to section
1302 of HERA. Upon the effective date
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of the final housing goals rule, the bookentry procedures in 24 CFR part 81 will
no longer be in effect.
As in the proposed rule, the final rule
also relocates definitions that are
currently found in § 1282.2 and that are
applicable only to the book-entry
procedures in part 1249 to a new section
1249.10 in that part. The final rule
makes conforming changes throughout
the part, including a clarification that
the waiver provision in § 1249.17
applies only to the book-entry
provisions in part 1249. Section 1249.15
has been amended to reflect the transfer
of authority from the Secretary of HUD
to the Director. The final rule also
corrects several typographical errors
that were present in the proposed rule.
The final rule does not make any
changes to the substance of the bookentry provisions.
V. Paperwork Reduction Act
The final rule does not contain any
information collection requirement that
requires the approval of the Office of
Management and Budget under the
Paperwork Reduction Act (44 U.S.C.
3501 et seq.).
VI. 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 final rule
under the Regulatory Flexibility Act.
The General Counsel of FHFA certifies
that the final rule is not likely to have
a significant economic impact on a
substantial number of small entities
because the regulation is applicable
only to the Enterprises, which are not
small entities for purposes of the
Regulatory Flexibility Act.
List of Subjects
12 CFR Part 1249
Federal Reserve System, Securities.
12 CFR Part 1282
Mortgages, Reporting and
recordkeeping requirements.
■ Accordingly, for the reasons stated in
the preamble, under the authority of 12
U.S.C. 4511, 4513, 4526, FHFA amends
chapter XII of title 12 of the Code of
Federal Regulations as follows:
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1. Part 1249 is added to subchapter C
to read as follows:
■
CHAPTER XII—FEDERAL HOUSING
FINANCE AGENCY
SUBCHAPTER C—ENTERPRISES
PART 1249—BOOK–ENTRY
PROCEDURES
Sec.
1249.10 Definitions.
1249.11 Maintenance of Enterprise
Securities.
1249.12 Law governing rights and
obligations of United States, Federal
Reserve Banks, and Enterprises; rights of
any person against United States, Federal
Reserve Banks, and Enterprises; law
governing other interests.
1249.13 Creation of Participant’s Security
Entitlement; security interests.
1249.14 Obligations of Enterprises; no
adverse claims.
1249.15 Authority of Federal Reserve
Banks.
1249.16 Withdrawal of Eligible Book-entry
Enterprise Securities for conversion to
definitive form.
1249.17 Waiver of regulations.
1249.18 Liability of Enterprises and Federal
Reserve Banks.
1249.19 Additional provisions.
Authority: 12 U.S.C. 4501, 4502, 4511,
4513, 4526.
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§ 1249.10
Definitions.
(a) General. Unless the context
requires otherwise, terms used in this
part that are not defined in this part,
have the meanings as set forth in 31 CFR
357.2 and in 12 CFR 1282.1. Definitions
and terms used in 31 CFR part 357
should read as though modified to
effectuate their application to the
Enterprises.
(b) Other terms. As used in this part,
the term:
Book-entry Enterprise Security means
an Enterprise Security issued or
maintained in the Book-entry System.
Book-entry Enterprise Security also
means the separate interest and
principal components of a Book-entry
Enterprise Security if such security has
been designated by the Enterprise as
eligible for division into such
components and the components are
maintained separately on the books of
one or more Federal Reserve Banks.
Book-entry System means the
automated book-entry system operated
by the Federal Reserve Banks acting as
the fiscal agent for the Enterprises, on
which Book-entry Enterprise Securities
are issued, recorded, transferred and
maintained in book-entry form.
Definitive Enterprise Security means
an Enterprise Security in engraved or
printed form, or that is otherwise
represented by a certificate.
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Eligible Book-entry Enterprise
Security means a Book-entry Enterprise
Security issued or maintained in the
Book-entry System which by the terms
of its Securities Documentation is
eligible to be converted from book-entry
form into definitive form.
Enterprise Security means any
security or obligation of Fannie Mae or
Freddie Mac issued under its respective
Charter Act in the form of a Definitive
Enterprise Security or a Book-entry
Enterprise Security.
Entitlement Holder means a Person or
an Enterprise to whose account an
interest in a Book-entry Enterprise
Security is credited on the records of a
Securities Intermediary.
Federal Reserve Bank Operating
Circular means the publication issued
by each Federal Reserve Bank that sets
forth the terms and conditions under
which the Reserve Bank maintains
Book-entry Securities accounts
(including Book-entry Enterprise
Securities) and transfers Book-entry
Securities (including Book-entry
Enterprise Securities).
Participant means a Person or
Enterprise that maintains a Participant’s
Securities Account with a Federal
Reserve Bank.
Person, as used in this part, means
and includes an individual, corporation,
company, governmental entity,
association, firm, partnership, trust,
estate, representative, and any other
similar organization, but does not mean
or include the United States, an
Enterprise, or a Federal Reserve Bank.
Revised Article 8 has the same
meaning as in 31 CFR 357.2.
Securities Documentation means the
applicable statement of terms, trust
indenture, securities agreement or other
documents establishing the terms of a
Book-entry Enterprise Security.
Security means any mortgage
participation certificate, note, bond,
debenture, evidence of indebtedness,
collateral-trust certificate, transferable
share, certificate of deposit for a
security, or, in general, any interest or
instrument commonly known as a
‘‘security’’.
Transfer message means an
instruction of a Participant to a Federal
Reserve Bank to effect a transfer of a
Book-entry Security (including a Bookentry Enterprise Security) maintained in
the Book-entry System, as set forth in
Federal Reserve Bank Operating
Circulars.
§ 1249.11 Maintenance of Enterprise
Securities.
An Enterprise Security may be
maintained in the form of a Definitive
Enterprise Security or a Book-entry
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Enterprise Security. A Book-entry
Enterprise Security shall be maintained
in the Book-entry System.
§ 1249.12 Law governing rights and
obligations of United States, Federal
Reserve Banks, and Enterprises; rights of
any person against United States, Federal
Reserve Banks, and Enterprises; law
governing other interests.
(a) Except as provided in paragraph
(b) of this section, the following rights
and obligations are governed solely by
the book-entry regulations contained in
this part, the Securities Documentation,
and Federal Reserve Bank Operating
Circulars (but not including any choice
of law provisions in the Securities
Documentation to the extent such
provisions conflict with the Book-entry
regulations contained in this part):
(1) The rights and obligations of an
Enterprise and the Federal Reserve
Banks with respect to:
(i) A Book-entry Enterprise Security
or Security Entitlement; and
(ii) The operation of the Book-entry
System as it applies to Enterprise
Securities; and
(2) The rights of any Person, including
a Participant, against an Enterprise and
the Federal Reserve Banks with respect
to:
(i) A Book-entry Enterprise Security
or Security Entitlement; and
(ii) The operation of the Book-entry
System as it applies to Enterprise
Securities;
(b) A security interest in a Security
Entitlement that is in favor of a Federal
Reserve Bank from a Participant and
that is not recorded on the books of a
Federal Reserve Bank pursuant to
§ 1249.13(c)(1), is governed by the law
(not including the conflict-of-law rules)
of the jurisdiction where the head office
of the Federal Reserve Bank maintaining
the Participant’s Securities Account is
located. A security interest in a Security
Entitlement that is in favor of a Federal
Reserve Bank from a Person that is not
a Participant, and that is not recorded
on the books of a Federal Reserve Bank
pursuant to § 1249.13(c)(1), is governed
by the law determined in the manner
specified in paragraph (d) of this
section.
(c) If the jurisdiction specified in the
first sentence of paragraph (b) of this
section is a State that has not adopted
Revised Article 8, then the law specified
in paragraph (b) of this section shall be
the law of that State as though Revised
Article 8 had been adopted by that
State.
(d) To the extent not otherwise
inconsistent with this part, and
notwithstanding any provision in the
Securities Documentation setting forth a
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choice of law, the provisions set forth in
31 CFR 357.11 regarding law governing
other interests apply and shall be read
as though modified to effectuate the
application of 31 CFR 357.11 to the
Enterprises.
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§ 1249.13 Creation of Participant’s
Security Entitlement; security interests.
(a) A Participant’s Security
Entitlement is created when a Federal
Reserve Bank indicates by book-entry
that a Book-entry Enterprise Security
has been credited to a Participant’s
Securities Account.
(b) A security interest in a Security
Entitlement of a Participant in favor of
the United States to secure deposits of
public money, including without
limitation deposits to the Treasury tax
and loan accounts, or other security
interest in favor of the United States that
is required by Federal statute,
regulation, or agreement, and that is
marked on the books of a Federal
Reserve Bank is thereby effected and
perfected, and has priority over any
other interest in the securities. Where a
security interest in favor of the United
States in a Security Entitlement of a
Participant is marked on the books of a
Federal Reserve Bank, such Federal
Reserve Bank may rely, and is protected
in relying, exclusively on the order of an
authorized representative of the United
States directing the transfer of the
security. For purposes of this paragraph,
an ‘‘authorized representative of the
United States’’ is the official designated
in the applicable regulations or
agreement to which a Federal Reserve
Bank is a party, governing the security
interest.
(c)(1) An Enterprise and the Federal
Reserve Banks have no obligation to
agree to act on behalf of any Person or
to recognize the interest of any
transferee of a security interest or other
limited interest in favor of any Person
except to the extent of any specific
requirement of Federal law or regulation
or to the extent set forth in any specific
agreement with the Federal Reserve
Bank on whose books the interest of the
Participant is recorded. To the extent
required by such law or regulation or set
forth in an agreement with a Federal
Reserve Bank, or the Federal Reserve
Bank Operating Circular, a security
interest in a Security Entitlement that is
in favor of a Federal Reserve Bank, an
Enterprise, or a Person may be created
and perfected by a Federal Reserve Bank
marking its books to record the security
interest. Except as provided in
paragraph (b) of this section, a security
interest in a Security Entitlement
marked on the books of a Federal
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Reserve Bank shall have priority over
any other interest in the securities.
(2) In addition to the method
provided in paragraph (c)(1) of this
section, a security interest, including a
security interest in favor of a Federal
Reserve Bank, may be perfected by any
method by which a security interest
may be perfected under applicable law
as described in § 1249.12(b) or (d). The
perfection, effect of perfection or nonperfection and priority of a security
interest are governed by such applicable
law. A security interest in favor of a
Federal Reserve Bank shall be treated as
a security interest in favor of a clearing
corporation in all respects under such
law, including with respect to the effect
of perfection and priority of such
security interest. A Federal Reserve
Bank Operating Circular shall be treated
as a rule adopted by a clearing
corporation for such purposes.
§ 1249.14 Obligations of Enterprises; no
adverse claims.
(a) Except in the case of a security
interest in favor of the United States or
a Federal Reserve Bank or otherwise as
provided in § 1249.13(c)(1), for the
purposes of this part, each Enterprise
and the Federal Reserve Banks shall
treat the Participant to whose Securities
Account an interest in a Book-entry
Enterprise Security has been credited as
the person exclusively entitled to issue
a Transfer Message, to receive interest
and other payments with respect thereof
and otherwise to exercise all the rights
and powers with respect to such
Security, notwithstanding any
information or notice to the contrary.
Neither the Federal Reserve Banks nor
an Enterprise shall be liable to a Person
asserting or having an adverse claim to
a Security Entitlement or to a Bookentry Enterprise Security in a
Participant’s Securities Account,
including any such claim arising as a
result of the transfer or disposition of a
Book-entry Enterprise Security by a
Federal Reserve Bank pursuant to a
Transfer Message that the Federal
Reserve Bank reasonably believes to be
genuine.
(b) The obligation of the Enterprise to
make payments (including payments of
interest and principal) with respect to
Book-entry Enterprise Securities is
discharged at the time payment in the
appropriate amount is made as follows:
(1) Interest or other payments on
Book-entry Enterprise Securities is
either credited by a Federal Reserve
Bank to a Funds Account maintained at
such Federal Reserve Bank or otherwise
paid as directed by the Participant.
(2) Book-entry Enterprise Securities
are redeemed in accordance with their
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terms by a Federal Reserve Bank
withdrawing the securities from the
Participant’s Securities Account in
which they are maintained and by either
crediting the amount of the redemption
proceeds, including both redemption
proceeds, where applicable, to a Funds
Account at such Federal Reserve Bank
or otherwise paying such redemption
proceeds as directed by the Participant.
No action by the Participant ordinarily
is required in connection with the
redemption of a Book-entry Enterprise
Security.
§ 1249.15
Banks.
Authority of Federal Reserve
(a) Each Federal Reserve Bank is
hereby authorized as fiscal agent of the
Enterprises to perform the following
functions with respect to the issuance of
Book-entry Enterprise Securities offered
and sold by an Enterprise to which this
part applies, in accordance with the
Securities Documentation, Federal
Reserve Bank Operating Circulars, this
part, and any procedures established by
the Director consistent with these
authorities:
(1) To service and maintain Bookentry Enterprise Securities in accounts
established for such purposes;
(2) To make payments with respect to
such securities, as directed by the
Enterprise;
(3) To effect transfer of Book-entry
Enterprise Securities between
Participants’ Securities Accounts as
directed by the Participants;
(4) To effect conversions between
Book-entry Enterprise Securities and
Definitive Enterprise Securities with
respect to those securities as to which
conversion rights are available pursuant
to the applicable Securities
Documentation; and
(5) To perform such other duties as
fiscal agent as may be requested by the
Enterprise.
(b) Each Federal Reserve Bank may
issue Federal Reserve Bank Operating
Circulars not inconsistent with this part,
governing the details of its handling of
Book-entry Enterprise Securities,
Security Entitlements, and the operation
of the Book-entry System under this
part.
§ 1249.16 Withdrawal of Eligible Bookentry Enterprise Securities for conversion
to definitive form.
(a) Eligible Book-entry Enterprise
Securities may be withdrawn from the
Book-entry System by requesting
delivery of like Definitive Enterprise
Securities.
(b) A Federal Reserve Bank shall,
upon receipt of appropriate instructions
to withdraw Eligible Book-entry
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Enterprise Securities from book-entry in
the Book-entry System, convert such
securities into Definitive Enterprise
Securities and deliver them in
accordance with such instructions. No
such conversion shall affect existing
interests in such Enterprise Securities.
(c) All requests for withdrawal of
Eligible Book-entry Enterprise Securities
must be made prior to the maturity or
date of call of the securities.
(d) Enterprise Securities which are to
be delivered upon withdrawal may be
issued in either registered or bearer
form, to the extent permitted by the
applicable Securities Documentation.
§ 1249.17
Waiver of regulations.
The Director reserves the right, in the
Director’s discretion, to waive any
provision(s) of this part in any case or
class of cases for the convenience of an
Enterprise, the United States, or in order
to relieve any person(s) of unnecessary
hardship, if such action is not
inconsistent with law, does not
adversely affect any substantial existing
rights, and the Director is satisfied that
such action will not subject an
Enterprise or the United States to any
substantial expense or liability.
§ 1249.18 Liability of Enterprises and
Federal Reserve Banks.
An Enterprise and the Federal Reserve
Banks may rely on the information
provided in a Transfer Message, and are
not required to verify the information.
An Enterprise and the Federal Reserve
Banks shall not be liable for any action
taken in accordance with the
information set out in a Transfer
Message, or evidence submitted in
support thereof.
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§ 1249.19
Additional provisions.
(a) Additional requirements. In any
case or any class of cases arising under
this part, an Enterprise may require
such additional evidence and a bond of
indemnity, with or without surety, as
may in the judgment of the Enterprise
be necessary for the protection of the
interests of the Enterprise.
(b) Notice of attachment for Enterprise
Securities in Book-entry System. The
interest of a debtor in a Security
Entitlement may be reached by a
creditor only by legal process upon the
Securities Intermediary with whom the
debtor’s securities account is
maintained, except where a Security
Entitlement is maintained in the name
of a secured party, in which case the
debtor’s interest may be reached by legal
process upon the secured party. These
regulations do not purport to establish
whether a Federal Reserve Bank is
required to honor an order or other
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notice of attachment in any particular
case or class of cases.
■ 2. Part 1282 is revised to read as
follows:
SUBCHAPTER E—HOUSING GOALS AND
MISSION
PART 1282—ENTERPRISE HOUSING
GOALS AND MISSION
Sec.
Subpart A—General
1282.1 Definitions.
Subpart B—Housing Goals
1282.11 General.
1282.12 Single-family housing goals.
1282.13 Multifamily special affordable
housing goal and subgoal.
1282.14 Discretionary adjustment of
housing goals.
1282.15 General counting requirements.
1282.16 Special counting requirements.
1282.17 Affordability—Income level
definitions—family size and income
known (owner-occupied units, actual
tenants, and prospective tenants).
1282.18 Affordability—Income level
definitions—family size not known
(actual or prospective tenants).
1282.19 Affordability—Rent level
definitions—tenant income is not
known.
1282.20 Determination of compliance with
housing goals; notice of determination.
1282.21 Housing plans.
Subpart C—[Reserved]
Subpart D—Reporting Requirements
1282.61 General.
1282.62 Mortgage reports.
1282.63 Annual Housing Activities Report.
1282.64 Periodic reports.
1282.65 Enterprise data integrity.
Authority: 12 U.S.C. 4501, 4502, 4511,
4513, 4526, 4561–4566, 4603.
Subpart A—General
§ 1282.1
Definitions.
(a) Statutory terms. All terms defined
in the Safety and Soundness Act are
used in accordance with their statutory
meaning unless otherwise defined in
paragraph (b) of this section.
(b) Other terms. As used in this part,
the term:
AHAR means the Annual Housing
Activities Report that an Enterprise
submits to the Director under section
309(n) of the Fannie Mae Charter Act or
section 307(f) of the Freddie Mac Act.
AHAR information means data or
information contained in the AHAR.
AHS means the American Housing
Survey published by HUD and the
Department of Commerce.
Balloon mortgage means a mortgage
providing for payments at regular
intervals, with a final payment (‘‘balloon
payment’’) that is at least 5 percent more
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than the periodic payments. The
periodic payments may cover some or
all of the periodic principal or interest.
Typically, the periodic payments are
level monthly payments that would
fully amortize the mortgage over a stated
term and the balloon payment is a single
payment due after a specified period
(but before the mortgage would fully
amortize) and pays off or satisfies the
outstanding balance of the mortgage.
Borrower income means the total
gross income relied on in making the
credit decision.
Charter Act means the Fannie Mae
Charter Act, as amended, or the Freddie
Mac Act, as amended.
Contract rent means the total rent that
is, or is anticipated to be, specified in
the rental contract as payable by the
tenant to the owner for rental of a
dwelling unit, including fees or charges
for management and maintenance
services and those utility charges that
are included in the rental contract. In
determining contract rent, rent
concessions shall not be considered, i.e.,
contract rent is not decreased by any
rent concessions. Contract rent is rent
net of rental subsidies. Anticipated rent
for unoccupied units may be the market
rent for similar units in the
neighborhood as determined by the
lender or appraiser for underwriting
purposes.
Conventional mortgage means a
mortgage other than a mortgage as to
which an Enterprise has the benefit of
any guaranty, insurance or other
obligation by the United States or any of
its agencies or instrumentalities.
Day means a calendar day.
Designated disaster area means any
census tract that is located in a county
designated by the federal government as
adversely affected by a declared major
disaster administered by FEMA, where
individual assistance payments were
authorized by FEMA. A census tract
shall be treated as a ‘‘designated disaster
area’’ for purposes of this part beginning
on the January 1 after the FEMA
designation of the county, or such
earlier date as determined by FHFA, and
continuing through December 31 of the
third full calendar year following the
FEMA designation. This time period
may be adjusted for a particular disaster
area by notice from FHFA to the
Enterprises.
Director means the Director of FHFA
or his or her designee.
Dwelling unit means a room or unified
combination of rooms intended for use,
in whole or in part, as a dwelling by one
or more persons, and includes a
dwelling unit in a single-family
property, multifamily property, or other
residential or mixed-use property.
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Enterprise means Fannie Mae or
Freddie Mac (Enterprises means,
collectively, Fannie Mae and Freddie
Mac).
Extremely low-income means:
(i) In the case of owner-occupied
units, income not in excess of 30
percent of area median income; and
(ii) In the case of rental units, income
not in excess of 30 percent of area
median income, with adjustments for
smaller and larger families in
accordance with this part.
Families in low-income areas means:
(i) Any family that resides in a census
tract or block numbering area in which
the median income does not exceed 80
percent of the area median income;
(ii) Any family with an income that
does not exceed area median income
that resides in a minority census tract;
and
(iii) Any family with an income that
does not exceed area median income
that resides in a designated disaster
area.
Family means one or more
individuals who occupy the same
dwelling unit.
Fannie Mae means the Federal
National Mortgage Association and any
affiliate thereof.
Fannie Mae Charter Act means the
Federal National Mortgage Association
Charter Act, as amended (12 U.S.C. 1715
et seq.).
FEMA means the Federal Emergency
Management Agency.
FHFA means the Federal Housing
Finance Agency.
FOIA means the Freedom of
Information Act, as amended (5 U.S.C.
552).
Freddie Mac means the Federal Home
Loan Mortgage Corporation and any
affiliate thereof.
Freddie Mac Act means the Federal
Home Loan Mortgage Corporation Act,
as amended (12 U.S.C. 1451 et seq.).
Ginnie Mae means the Government
National Mortgage Association.
HMDA means the Home Mortgage
Disclosure Act (12 U.S.C. 2801 et seq.).
HOEPA mortgage means a mortgage
covered by section 103(aa) of the Home
Ownership and Equity Protection Act
(HOEPA) (15 U.S.C. 1602(aa)), as
implemented by the Board of Governors
of the Federal Reserve System.
HUD means the United States
Department of Housing and Urban
Development.
Lender means any entity that makes,
originates, sells, or services mortgages,
and includes the secured creditors
named in the debt obligation and
document creating the mortgage.
Low-income means:
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(i) In the case of owner-occupied
units, income not in excess of 80
percent of area median income; and
(ii) In the case of rental units, income
not in excess of 80 percent of area
median income, with adjustments for
smaller and larger families in
accordance with this part.
Median income means, with respect
to an area, the unadjusted median
family income for the area as most
recently determined by HUD. FHFA will
provide the Enterprises annually with
information specifying how the median
family income estimates for
metropolitan areas are to be applied for
the purposes of determining median
family income.
Metropolitan area means a
metropolitan statistical area (MSA), or a
portion of such an area, including
Metropolitan Divisions, for which
median family income estimates are
determined by HUD.
Minority means any individual who is
included within any one or more of the
following racial and ethnic categories:
(i) American Indian or Alaskan
Native—a person having origins in any
of the original peoples of North and
South America (including Central
America), and who maintains Tribal
affiliation or community attachment;
(ii) Asian—a person having origins in
any of the original peoples of the Far
East, Southeast Asia, or the Indian
subcontinent, including, for example,
Cambodia, China, India, Japan, Korea,
Malaysia, Pakistan, the Philippine
Islands, Thailand, and Vietnam;
(iii) Black or African American—a
person having origins in any of the
black racial groups of Africa;
(iv) Hispanic or Latino—a person of
Cuban, Mexican, Puerto Rican, South or
Central American, or other Spanish
culture or origin, regardless of race; and
(v) Native Hawaiian or Other Pacific
Islander—a person having origins in any
of the original peoples of Hawaii, Guam,
Samoa, or other Pacific Islands.
Minority census tract means a census
tract that has a minority population of
at least 30 percent and a median income
of less than 100 percent of the area
median income.
Moderate-income means:
(i) In the case of owner-occupied
units, income not in excess of area
median income; and
(ii) In the case of rental units, income
not in excess of area median income,
with adjustments for smaller and larger
families in accordance with this part.
Mortgage means a member of such
classes of liens, including subordinate
liens, as are commonly given or are
legally effective to secure advances on,
or the unpaid purchase price of, real
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estate under the laws of the State in
which the real estate is located, together
with the credit instruments, if any,
secured thereby, and includes interests
in mortgages. ‘‘Mortgage’’ includes a
mortgage, lien, including a subordinate
lien, or other security interest on the
stock or membership certificate issued
to a tenant-stockholder or residentmember by a cooperative housing
corporation, as defined in section 216 of
the Internal Revenue Code of 1986, and
on the proprietary lease, occupancy
agreement, or right of tenancy in the
dwelling unit of the tenant-stockholder
or resident-member in such cooperative
housing corporation.
Mortgage data means data obtained by
the Director from the Enterprises under
section 309(m) of the Fannie Mae
Charter Act and section 307(e) of the
Freddie Mac Act.
Mortgage purchase means a
transaction in which an Enterprise
bought or otherwise acquired a mortgage
or an interest in a mortgage for portfolio,
resale, or securitization.
Mortgage revenue bond means a taxexempt bond or taxable bond issued by
a State or local government or agency
where the proceeds from the bond issue
are used to finance residential housing.
Mortgage with unacceptable terms or
conditions means a single-family
mortgage, including a reverse mortgage,
or a group or category of such
mortgages, with one or more of the
following terms or conditions:
(i) Excessive fees, where the total
points and fees charged to a borrower
exceed the greater of 5 percent of the
loan amount or a maximum dollar
amount of $1000, or an alternative
amount requested by an Enterprise and
determined by the Director as
appropriate for small mortgages.
(A) For purposes of this definition,
points and fees include:
(1) Origination fees;
(2) Underwriting fees;
(3) Broker fees;
(4) Finder’s fees; and
(5) Charges that the lender imposes as
a condition of making the loan, whether
they are paid to the lender or a third
party;
(B) For purposes of this definition,
points and fees do not include:
(1) Bona fide discount points;
(2) Fees paid for actual services
rendered in connection with the
origination of the mortgage, such as
attorneys’ fees, notary’s fees, and fees
paid for property appraisals, credit
reports, surveys, title examinations and
extracts, flood and tax certifications,
and home inspections;
(3) The cost of mortgage insurance or
credit-risk price adjustments;
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(4) The costs of title, hazard, and
flood insurance policies;
(5) State and local transfer taxes or
fees;
(6) Escrow deposits for the future
payment of taxes and insurance
premiums; and
(7) Other miscellaneous fees and
charges that, in total, do not exceed 0.25
percent of the loan amount;
(ii) An annual percentage rate that
exceeds by more than 8 percentage
points the yield on Treasury securities
with comparable maturities as of the
fifteenth day of the month immediately
preceding the month in which the
application for the extension of credit
was received;
(iii) Prepayment penalties, except
where:
(A) The mortgage provides some
benefit to the borrower (e.g., a rate or fee
reduction for accepting the prepayment
premium);
(B) The borrower is offered the choice
of another mortgage that does not
contain payment of such a premium;
(C) The terms of the mortgage
provision containing the prepayment
penalty are adequately disclosed to the
borrower; and
(D) The prepayment penalty is not
charged when the mortgage debt is
accelerated as the result of the
borrower’s default in making his or her
mortgage payments;
(iv) The sale or financing of prepaid
single-premium credit life insurance
products in connection with the
origination of the mortgage;
(v) Underwriting practices contrary to
the Interagency Guidance on
Nontraditional Mortgage Product Risks
(71 FR 58609) (Oct. 4, 2006), the
Interagency Statement on Subprime
Mortgage Lending (72 FR 37569) (July
10, 2007), or similar guidance
subsequently issued by Federal banking
agencies;
(vi) Failure to comply with fair
lending requirements; or
(vii) Other terms or conditions that
are determined by the Director to be an
unacceptable term or condition of a
mortgage.
Multifamily housing means a
residence consisting of more than four
dwelling units. The term includes
cooperative buildings and
condominium projects.
Non-metropolitan area means a
county, or a portion of a county,
including those counties that comprise
Micropolitan Statistical Areas, located
outside any metropolitan area for which
median family income estimates are
published annually by HUD.
Owner-occupied housing means
single-family housing in which a
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mortgagor resides, including two- to
four-unit owner-occupied properties
where one or more units are used for
rental purposes.
Participation means a fractional
interest in the principal amount of a
mortgage.
Private label security means any
mortgage-backed security that is neither
issued nor guaranteed by Fannie Mae,
Freddie Mac, Ginnie Mae, or any other
government agency.
Proprietary information means all
mortgage data and all AHAR
information that the Enterprises submit
to the Director in the AHARs that
contain trade secrets or privileged or
confidential, commercial, or financial
information that, if released, would be
likely to cause substantial competitive
harm.
Public data means all mortgage data
and all AHAR information that the
Enterprises submit to the Director in the
AHARs that the Director determines are
not proprietary and may appropriately
be disclosed consistent with other
applicable laws and regulations.
Purchase money mortgage means a
mortgage given to secure a loan used for
the purchase of a single-family
residential property.
Refinancing mortgage means a
mortgage undertaken by a borrower that
satisfies or replaces an existing mortgage
of such borrower. The term does not
include:
(i) A renewal of a single payment
obligation with no change in the
original terms;
(ii) A reduction in the annual
percentage rate of the mortgage as
computed under the Truth in Lending
Act (15 U.S.C. 1601 et seq.), with a
corresponding change in the payment
schedule;
(iii) An agreement involving a court
proceeding;
(iv) A workout agreement, in which a
change in the payment schedule or
collateral requirements is agreed to as a
result of the mortgagor’s default or
delinquency, unless the rate is increased
or the new amount financed exceeds the
unpaid balance plus earned finance
charges and premiums for the
continuation of insurance;
(v) The renewal of optional insurance
purchased by the mortgagor and added
to an existing mortgage;
(vi) A renegotiated balloon mortgage
on a multifamily property where the
balloon payment was due within 1 year
after the date of the closing of the
renegotiated mortgage; and
(vii) A conversion of a balloon
mortgage note on a single-family
property to a fully amortizing mortgage
note where the Enterprise already owns
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or has an interest in the balloon note at
the time of the conversion.
Rent means, for a dwelling unit:
(i) When the contract rent includes all
utilities, the contract rent; or
(ii) When the contract rent does not
include all utilities, the contract rent
plus:
(A) The actual cost of utilities not
included in the contract rent; or
(B) A utility allowance.
Rental housing means dwelling units
in multifamily housing and dwelling
units that are not owner-occupied in
single-family housing.
Rental unit means a dwelling unit that
is not owner-occupied and is rented or
available to rent.
Residence means a property where
one or more families reside.
Residential mortgage means a
mortgage on single-family or
multifamily housing.
Safety and Soundness Act means the
Federal Housing Enterprises Financial
Safety and Soundness Act of 1992, as
amended (12 U.S.C. 4501 et seq.).
Seasoned mortgage means a mortgage
on which the date of the mortgage note
is more than 1 year before the Enterprise
purchased the mortgage.
Second mortgage means any mortgage
that has a lien position subordinate only
to the lien of the first mortgage.
Secondary residence means a
dwelling where the mortgagor maintains
(or will maintain) a part-time place of
abode and typically spends (or will
spend) less than the majority of the
calendar year. A person may have more
than one secondary residence at a time.
Single-family housing means a
residence consisting of one to four
dwelling units. Single-family housing
includes condominium dwelling units
and dwelling units in cooperative
housing projects.
Utilities means charges for electricity,
piped or bottled gas, water, sewage
disposal, fuel (oil, coal, kerosene, wood,
solar energy, or other), and garbage and
trash collection. Utilities do not include
charges for cable or telephone service.
Utility allowance means either:
(i) The amount to be added to contract
rent when utilities are not included in
contract rent (also referred to as the
‘‘AHS-derived utility allowance’’), as
issued periodically by FHFA; or
(ii) The utility allowance established
under the HUD Section 8 Program (42
U.S.C. 1437f) for the area where the
property is located.
Very low-income means:
(i) In the case of owner-occupied
units, income not in excess of 50
percent of area median income; and
(ii) In the case of rental units, income
not in excess of 50 percent of area
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median income, with adjustments for
smaller and larger families in
accordance with this part.
Working day means a day when FHFA
is officially open for business.
Subpart B—Housing Goals
§ 1282.11
General.
(a) General. Pursuant to the
requirements of the Safety and
Soundness Act (12 U.S.C. 4561–4564,
4566), this subpart establishes:
(1) Three single-family owneroccupied purchase money mortgage
housing goals, a single-family owneroccupied purchase money mortgage
housing subgoal, a single-family
refinancing mortgage housing goal, a
multifamily special affordable housing
goal and a multifamily special
affordable housing subgoal;
(2) Requirements for measuring
performance under the goals; and
(3) Procedures for monitoring and
enforcing the goals.
(b) Annual goals. Each housing goal
shall be established by regulation no
later than December 1 of the preceding
year, except that any housing goal may
be adjusted by regulation to reflect
subsequent available data and market
developments.
jdjones on DSK8KYBLC1PROD with RULES_2
§ 1282.12
Single-family housing goals.
(a) Single-family housing goals. An
Enterprise shall be in compliance with
a single-family housing goal if its
performance under the housing goal
meets or exceeds either:
(1) The share of the market that
qualifies for the goal; or
(2) The benchmark level for the goal.
(b) Size of market. The size of the
market for each goal shall be established
annually by FHFA based on data
reported pursuant to the Home Mortgage
Disclosure Act for a given year. Unless
otherwise adjusted by FHFA, the size of
the market shall be determined based on
the following criteria:
(1) Only owner-occupied,
conventional loans shall be considered;
(2) Purchase money mortgages and
refinancing mortgages shall only be
counted for the applicable goal or goals;
(3) All mortgages flagged as HOEPA
loans or subordinate lien loans shall be
excluded;
(4) All mortgages with original
principal balances above the conforming
loan limits for single unit properties for
the year being evaluated (rounded to the
nearest $1,000) shall be excluded;
(5) All mortgages with rate spreads of
150 basis points or more above the
applicable average prime offer rate as
reported in the Home Mortgage
Disclosure Act data shall be excluded;
and
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(6) All mortgages that are missing
information necessary to determine
appropriate counting under the housing
goals shall be excluded.
(c) Low-income families housing goal.
The percentage share of each
Enterprise’s total purchases of purchase
money mortgages on owner-occupied
single-family housing that consists of
mortgages for low-income families shall
meet or exceed either:
(1) The share of such mortgages in the
market as defined in paragraph (b) of
this section in each year; or
(2) The benchmark level, which for
2010 and 2011 shall be 27 percent of the
total number of purchase money
mortgages purchased by that Enterprise
in each year that finance owneroccupied single-family properties.
(d) Very low-income families housing
goal. The percentage share of each
Enterprise’s total purchases of purchase
money mortgages on owner-occupied
single-family housing that consists of
mortgages for very low-income families
shall meet or exceed either:
(1) The share of such mortgages in the
market as defined in paragraph (b) of
this section in each year; or
(2) The benchmark level, which for
2010 and 2011 shall be 8 percent of the
total number of purchase money
mortgages purchased by that Enterprise
in each year that finance owneroccupied single-family properties.
(e) Low-income areas housing goal.
The percentage share of each
Enterprise’s total purchases of purchase
money mortgages on owner-occupied
single-family housing that consists of
mortgages for families in low-income
areas shall meet or exceed either:
(1) The share of such mortgages in the
market as defined in paragraph (b) of
this section in each year; or
(2) A benchmark level which shall be
set annually by FHFA notice based on
the benchmark level for the low-income
areas housing subgoal, plus an
adjustment factor reflecting the
additional incremental share of
mortgages for moderate-income families
in designated disaster areas in the most
recent year for which such data is
available.
(f) Low-income areas housing subgoal.
The percentage share of each
Enterprise’s total purchases of purchase
money mortgages on owner-occupied
single-family housing that consists of
mortgages for families in low-income
census tracts or for moderate-income
families in minority census tracts shall
meet or exceed either:
(1) The share of such mortgages in the
market as defined in paragraph (b) of
this section in each year; or
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55933
(2) The benchmark level, which for
2010 and 2011 shall be 13 percent of the
total number of purchase money
mortgages purchased by that Enterprise
in each year that finance owneroccupied single-family properties.
(g) Refinancing housing goal. The
percentage share of each Enterprise’s
total purchases of refinancing mortgages
on owner-occupied single-family
housing that consists of refinancing
mortgages for low-income families shall
meet or exceed either:
(1) The share of such mortgages in the
market as defined in paragraph (b) of
this section in each year; or
(2) The benchmark level, which for
2010 and 2011 shall be 21 percent of the
total number of refinancing mortgages
purchased by that Enterprise in each
year that finance owner-occupied
single-family properties.
§ 1282.13 Multifamily special affordable
housing goal and subgoal.
(a) Multifamily housing goal and
subgoal. An Enterprise shall be in
compliance with a multifamily housing
goal or subgoal if its performance under
the housing goal or subgoal meets or
exceeds the benchmark level for the
goal.
(b) Multifamily low-income housing
goal. For the years 2010 and 2011, the
goal for each Enterprise’s purchases of
mortgages on multifamily residential
housing affordable to low-income
families shall be, for Fannie Mae, at
least 177,750 dwelling units affordable
to low-income families in multifamily
residential housing financed by
mortgages purchased by that Enterprise
in each year, and for Freddie Mac, at
least 161,250 such dwelling units in
each year.
(c) Multifamily very low-income
housing subgoal. For the years 2010 and
2011, the subgoal for each Enterprise’s
purchases of mortgages on multifamily
residential housing affordable to very
low-income families shall be, for Fannie
Mae, at least 42,750 dwelling units
affordable to very low-income families
in multifamily residential housing
financed by mortgages purchased by
that Enterprise in each year, and for
Freddie Mac, at least 21,000 such
dwelling units in each year.
§ 1282.14 Discretionary adjustment of
housing goals.
(a) An Enterprise may petition the
Director in writing during any year to
reduce any goal or subgoal for that year.
(b) The Director shall seek public
comment on any such petition for a
period of 30 days.
(c) The Director shall make a
determination regarding the petition
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within 30 days after the end of the
public comment period. If the Director
requests additional information from the
Enterprise after the end of the public
comment period, the Director may
extend the period for a final
determination for a single additional 15day period.
(d) The Director may reduce a goal or
subgoal pursuant to a petition for
reduction only if:
(1) Market and economic conditions
or the financial condition of the
Enterprise require such a reduction; or
(2) Efforts to meet the goal or subgoal
would result in the constraint of
liquidity, over-investment in certain
market segments, or other consequences
contrary to the intent of the Safety and
Soundness Act or the purposes of the
Charter Acts (12 U.S.C. 1716; 12 U.S.C.
1451 note).
jdjones on DSK8KYBLC1PROD with RULES_2
§ 1282.15
General counting requirements.
(a) Calculating the numerator and
denominator for single-family housing
goals. Performance under each of the
single-family housing goals shall be
measured using a fraction that is
converted into a percentage. Neither the
numerator nor the denominator shall
include Enterprise transactions or
activities that are not mortgage
purchases as defined by FHFA or that
are specifically excluded as ineligible
under § 1282.16(b).
(1) The numerator. The numerator of
each fraction is the number of mortgage
purchases of an Enterprise in a
particular year that finance owneroccupied single-family properties that
count toward achievement of a
particular single-family housing goal.
(2) The denominator. The
denominator of each fraction is the total
number of mortgage purchases of an
Enterprise in a particular year that
finance owner-occupied single-family
properties. A separate denominator
shall be calculated for purchase money
mortgages and for refinancing
mortgages.
(b) Missing data or information for
single-family housing goals. When an
Enterprise lacks sufficient data or
information to determine whether the
purchase of a mortgage originated after
1992 counts toward achievement of a
particular single-family housing goal,
that mortgage purchase shall be
included in the denominator for that
housing goal, except under the
circumstances described in this
paragraph (b).
(1) Mortgage purchases financing
owner-occupied single-family properties
shall be evaluated based on the income
of the mortgagors and the area median
income at the time the mortgage was
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originated. To determine whether
mortgages may be counted under a
particular family income level, i.e., lowor very low-income, the income of the
mortgagors is compared to the median
income for the area at the time of the
mortgage application, using the
appropriate percentage factor provided
under § 1282.17.
(2) When the income of the
mortgagor(s) is not available to
determine whether a mortgage purchase
counts toward achievement of a
particular single-family housing goal, an
Enterprise’s performance with respect to
such mortgage purchase may be
evaluated using estimated affordability
information by multiplying the number
of mortgage purchases with missing
borrower income information in each
census tract by the percentage of all
single-family owner-occupied mortgage
originations in the respective tracts that
would count toward achievement of
each goal, as determined by FHFA based
on the most recent Home Mortgage
Disclosure Act data available.
(3) The estimation methodology in
paragraph (b)(2) of this section may be
used up to a nationwide maximum that
shall be calculated by multiplying, for
each census tract, the percentage of all
single-family owner-occupied mortgage
originations with missing borrower
incomes (as determined by FHFA based
on the most recent Home Mortgage
Disclosure Act data available for home
purchase and refinance mortgages,
respectively) by the number of
Enterprise mortgage purchases secured
by single-family owner-occupied
properties for each census tract,
summed up over all census tracts.
Separate nationwide maximums shall be
calculated for purchase money
mortgages and for refinancing
mortgages. If the nationwide maximum
is exceeded, then the estimated number
of goal-qualifying mortgages will be
adjusted by the ratio of the applicable
nationwide maximum to the total
number of mortgage purchases secured
by single-family owner-occupied
properties for the Enterprise in that
year. Mortgage purchases in excess of
the nationwide maximum, and any
units for which estimation information
is not available, shall remain in the
denominator of the respective goal
calculation.
(c) Counting dwelling units for
multifamily housing goal and subgoal.
Performance under the multifamily
housing goal and subgoal shall be
measured by counting the number of
dwelling units that count toward
achievement of a particular housing goal
or subgoal in all multifamily properties
financed by mortgages purchased by an
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Enterprise in a particular year. Only
dwelling units that are financed by
mortgage purchases, as defined by
FHFA, and that are not specifically
excluded as ineligible under
§ 1282.16(b), may be counted for
purposes of the multifamily housing
goal and subgoal.
(d) Counting rental units. For
purposes of counting rental units
toward achievement of the multifamily
housing goal and subgoal, mortgage
purchases financing such units shall be
evaluated based on the income of actual
or prospective tenants where such data
is available, i.e., known to a lender, and
the area median income at the time the
mortgage was acquired.
(1) Use of income. Each Enterprise
shall require lenders to provide to the
Enterprise tenant income information,
but only when such information is
known to the lender. When the income
of actual tenants is available, the income
of the tenant shall be compared to the
median income for the area, adjusted for
family size as provided in § 1282.17, or
as provided in § 1282.18 if family size
is not known.
(i) When such tenant income
information is available for all occupied
units, the Enterprise’s performance shall
be based on the income of the tenants
in the occupied units. For unoccupied
units that are vacant and available for
rent and for unoccupied units that are
under repair or renovation and not
available for rent, the Enterprise shall
use rent levels for comparable units in
the property to determine affordability,
except as provided in paragraph
(d)(1)(ii) of this section.
(ii) When income for tenants is
available to a lender because a project
is subject to a Federal housing program
that establishes the maximum income
for a tenant or a prospective tenant in
rental units, the income of prospective
tenants may be counted at the maximum
income level established under such
housing program for that unit. In
determining the income of prospective
tenants, the income shall be projected
based on the types of units and market
area involved. Where the income of
prospective tenants is projected, each
Enterprise must determine that the
income figures are reasonable
considering the rents (if any) on the
same units in the past and considering
current rents on comparable units in the
same market area.
(2) Use of rent. When the income of
the prospective or actual tenants of a
dwelling unit is not available,
performance under the multifamily
housing goal and subgoal will be
evaluated based on rent and whether the
rent is affordable to the income group
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targeted by the housing goal and
subgoal. A rent is affordable if the rent
does not exceed the maximum income
levels as provided in § 1282.19. In
determining contract rent for a dwelling
unit, the actual rent or average rent by
unit type shall be used.
(3) Model units and rental offices. A
model unit or rental office in a
multifamily property may be counted
for purposes of the multifamily housing
goal and subgoal only if an Enterprise
determines that the number of such
units is reasonable and minimal
considering the size of the multifamily
property.
(4) Timeliness of information. In
evaluating affordability under the
multifamily housing goal and subgoal,
each Enterprise shall use tenant and
rental information as of the time of
mortgage acquisition.
(e) Missing data or information for
multifamily housing goal and subgoal.—
(1) When an Enterprise lacks sufficient
information to determine whether a
rental unit in a property securing a
multifamily mortgage purchased by an
Enterprise counts toward achievement
of the multifamily housing goal or
subgoal because neither the income of
prospective or actual tenants, nor the
actual or average rental data, are
available, an Enterprise’s performance
with respect to such unit may be
evaluated using estimated affordability
information by multiplying the number
of rental units with missing affordability
information in properties securing
multifamily mortgages purchased by the
Enterprise in each census tract by the
percentage of all rental dwelling units in
the respective tracts that would count
toward achievement of each goal and
subgoal, as determined by FHFA based
on the most recent decennial census.
(2) The estimation methodology in
paragraph (e)(1) of this section may be
used up to a nationwide maximum of
ten percent of the total number of rental
units in properties securing multifamily
mortgages purchased by the Enterprise
in the current year. Multifamily rental
units in excess of this maximum, and
any units for which estimation
information is not available, shall not be
counted for purposes of the multifamily
housing goal and subgoal.
(f) Credit toward multiple goals. A
mortgage purchase (or dwelling unit
financed by such purchase) by an
Enterprise in a particular year shall
count toward the achievement of each
housing goal for which such purchase
(or dwelling unit) qualifies in that year.
(g) Application of median income.—
(1) For purposes of determining an
area’s median income under §§ 1282.17
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through 1282.19 and the definitions in
§ 1282.1, the area is:
(i) The metropolitan area, if the
property which is the subject of the
mortgage is in a metropolitan area; and
(ii) In all other areas, the county in
which the property is located, except
that where the State non-metropolitan
median income is higher than the
county’s median income, the area is the
State non-metropolitan area.
(2) When an Enterprise cannot
precisely determine whether a mortgage
is on dwelling unit(s) located in one
area, the Enterprise shall determine the
median income for the split area in the
manner prescribed by the Federal
Financial Institutions Examination
Council for reporting under the Home
Mortgage Disclosure Act, if the
Enterprise can determine that the
mortgage is on dwelling unit(s) located
in:
(i) A census tract;
(ii) A census place code;
(iii) A block-group enumeration
district;
(iv) A nine-digit zip code; or
(v) Another appropriate geographic
segment that is partially located in more
than one area (‘‘split area’’).
(h) Sampling not permitted.
Performance under the housing goals for
each year shall be based on a complete
tabulation of mortgage purchases (or
dwelling units) for that year; a sampling
of such purchases (or dwelling units) is
not acceptable.
(i) Newly available data. When an
Enterprise uses data to determine
whether a mortgage purchase (or
dwelling unit) counts toward
achievement of any goal and new data
is released after the start of a calendar
quarter, the Enterprise need not use the
new data until the start of the following
quarter.
§ 1282.16
Special counting requirements.
(a) General. FHFA shall determine
whether an Enterprise shall receive full,
partial, or no credit toward achievement
of any of the housing goals for a
transaction that otherwise qualifies
under this part. In this determination,
FHFA will consider whether a
transaction or activity of the Enterprise
is substantially equivalent to a mortgage
purchase and either creates a new
market or adds liquidity to an existing
market, provided however that such
mortgage purchase actually fulfills the
Enterprise’s purposes and is in
accordance with its Charter Act.
(b) Not counted. The following
transactions or activities shall not be
counted for purposes of the housing
goals and shall not be included in the
numerator or the denominator in
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55935
calculating either Enterprise’s
performance under the housing goals,
even if the transaction or activity would
otherwise be counted pursuant to
paragraph (c) of this section:
(1) Equity investments in low-income
housing tax credits;
(2) Purchases of State and local
government housing bonds except as
provided in paragraph (c)(8) of this
section;
(3) Purchases of single-family nonconventional mortgages and multifamily
non-conventional mortgages, except:
(i) Multifamily mortgages acquired
under a risk-sharing arrangement with a
Federal agency;
(ii) Multifamily mortgages under other
multifamily mortgage programs
involving Federal guarantees, insurance
or other Federal obligation where FHFA
determines in writing that the financing
needs addressed by the particular
mortgage program are not well served
and that the mortgage purchases under
such program should count under the
housing goals;
(4) Commitments to buy mortgages at
a later date or time;
(5) Options to acquire mortgages;
(6) Rights of first refusal to acquire
mortgages;
(7) Any interests in mortgages that the
Director determines, in writing, shall
not be treated as interests in mortgages;
(8) Mortgage purchases to the extent
they finance any dwelling units that are
secondary residences;
(9) Single-family refinancing
mortgages that result from conversion of
balloon notes to fully amortizing notes,
if the Enterprise already owns or has an
interest in the balloon note at the time
conversion occurs;
(10) Purchases of subordinate lien
mortgages (second mortgages);
(11) Purchases of mortgages or
interests in mortgages that were
previously counted by the Enterprise
under any current or previous housing
goal within the five years immediately
preceding the current performance year;
(12) Purchases of mortgages where the
property, or any units within the
property, have not been approved for
occupancy;
(13) Purchases of private label
securities;
(14) Enterprise contributions to the
Housing Trust Fund (12 U.S.C. 4568) or
the Capital Magnet Fund (12 U.S.C.
4569), and mortgage purchases funded
with such grant amounts; and
(15) Any combination of factors in
paragraphs (b)(1) through (b)(14) of this
section.
(c) Other special rules. Subject to
FHFA’s determination of whether an
Enterprise shall receive full, partial, or
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no credit for a transaction toward
achievement of any of the housing goals
as provided in paragraph (a) of this
section, the transactions and activities
identified in this paragraph (c) shall be
treated as mortgage purchases as
described. A transaction or activity that
is covered by more than one paragraph
below must satisfy the requirements of
each such paragraph. The mortgages (or
dwelling units, for the multifamily
housing goals) from each such
transaction or activity shall be included
in the denominator in calculating the
Enterprise’s performance under the
housing goals, and shall be included in
the numerator, as appropriate.
(1) Credit enhancements.—(i)
Mortgages (or dwelling units) financed
under a credit enhancement entered
into by an Enterprise shall be treated as
mortgage purchases for purposes of the
housing goals only when:
(A) The Enterprise provides a specific
contractual obligation to ensure timely
payment of amounts due under a
mortgage or mortgages financed by the
issuance of housing bonds (such bonds
may be issued by any entity, including
a State or local housing finance agency);
and
(B) The Enterprise assumes a credit
risk in the transaction substantially
equivalent to the risk that would have
been assumed by the Enterprise if it had
securitized the mortgages financed by
such bonds.
(ii) When an Enterprise provides a
specific contractual obligation to ensure
timely payment of amounts due under
any mortgage originally insured by a
public purpose mortgage insurance
entity or fund, the Enterprise may, on a
case-by-case basis, seek approval from
the Director for such activities to count
toward achievement of the housing
goals.
(2) [Reserved.]
(3) Risk-sharing. Mortgages purchased
under risk-sharing arrangements
between an Enterprise and any Federal
agency under which the Enterprise is
responsible for a substantial amount of
the risk shall be treated as mortgage
purchases for purposes of the housing
goals.
(4) Participations. Participations
purchased by an Enterprise shall be
treated as mortgage purchases for
purposes of the housing goals only
when the Enterprise’s participation in
the mortgage is 50 percent or more.
(5) Cooperative housing and
condominiums.—(i) The purchase of a
mortgage on a cooperative housing unit
(‘‘a share loan’’) or a mortgage on a
condominium unit shall be treated as a
mortgage purchase for purposes of the
housing goals. Such a purchase shall be
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counted in the same manner as a
mortgage purchase of single-family
owner-occupied units.
(ii) The purchase of a mortgage on a
cooperative building (‘‘a blanket loan’’)
or a mortgage on a condominium project
shall be treated as a mortgage purchase
for purposes of the housing goals. The
purchase of a blanket loan or a
condominium project mortgage shall be
counted in the same manner as a
mortgage purchase of a multifamily
rental property.
(iii) Where an Enterprise purchases
both a blanket loan on a cooperative
building and share loans for units in the
same building, both the blanket loan
and the share loan(s) shall be treated as
mortgage purchases for purposes of the
housing goals. Where an Enterprise
purchases both a condominium project
mortgage and mortgages on
condominium dwelling units in the
same project, both the condominium
project mortgages and the mortgages on
condominium dwelling units shall be
treated as mortgage purchases for
purposes of the housing goals.
(6) Seasoned mortgages. An
Enterprise’s purchase of a seasoned
mortgage shall be treated as a mortgage
purchase for purposes of the housing
goals, except where the Enterprise has
already counted the mortgage under any
current or previous housing goal within
the five years immediately preceding
the current performance year.
(7) Purchase of refinancing mortgages.
The purchase of a refinancing mortgage
by an Enterprise shall be treated as a
mortgage purchase for purposes of the
housing goals only if the refinancing is
an arms-length transaction that is
borrower-driven.
(8) Mortgage revenue bonds. The
purchase or guarantee by an Enterprise
of a mortgage revenue bond issued by a
State or local housing finance agency
shall be treated as a purchase of the
underlying mortgages for purposes of
the housing goals only to the extent the
Enterprise has sufficient information to
determine whether the underlying
mortgages or mortgage-backed securities
qualify for inclusion in the numerator
for one or more housing goal.
(9) [Reserved.]
(10) Loan modifications. An
Enterprise’s permanent modification, in
accordance with the Making Home
Affordable program announced on
March 4, 2009, of a loan that is held in
the Enterprise’s portfolio or that is in a
pool backing a security guaranteed by
the Enterprise, shall be treated as a
mortgage purchase for purposes of the
housing goals. Each such permanent
loan modification shall be counted in
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the same manner as a purchase of a
refinancing mortgage.
(11) [Reserved.]
(12) [Reserved.]
(13) [Reserved.]
(14) Seller dissolution option.—(i)
Mortgages acquired through transactions
involving seller dissolution options
shall be treated as mortgage purchases
for purposes of the housing goals, only
when:
(A) The terms of the transaction
provide for a lockout period that
prohibits the exercise of the dissolution
option for at least one year from the date
on which the transaction was entered
into by the Enterprise and the seller of
the mortgages; and
(B) The transaction is not dissolved
during the one-year minimum lockout
period.
(ii) The Director may grant an
exception to the one-year minimum
lockout period described in paragraphs
(c)(14)(i)(A) and (B) of this section, in
response to a written request from an
Enterprise, if the Director determines
that the transaction furthers the
purposes of the Safety and Soundness
Act and the Enterprise’s Charter Act.
(iii) For purposes of this paragraph
(c)(14), ‘‘seller dissolution option’’
means an option for a seller of
mortgages to the Enterprises to dissolve
or otherwise cancel a mortgage purchase
agreement or loan sale.
(d) HOEPA mortgages and mortgages
with unacceptable terms or conditions.
HOEPA mortgages and mortgages with
unacceptable terms or conditions, as
defined in § 1282.1, shall be treated as
mortgage purchases for purposes of the
housing goals and shall be included in
the denominator for each applicable
single-family housing goal, but such
mortgages shall not be counted in the
numerator for any housing goal.
(e) FHFA review of transactions.
FHFA may determine whether and how
any transaction or class of transactions
shall be counted for purposes of the
housing goals, including treatment of
missing data. FHFA will notify each
Enterprise in writing of any
determination regarding the treatment of
any transaction or class of transactions
under the housing goals.
§ 1282.17 Affordability—Income level
definitions—family size and income known
(owner-occupied units, actual tenants, and
prospective tenants).
In determining whether a dwelling
unit is affordable where income
information (and family size, for rental
housing) is known to the Enterprise, the
affordability of the unit shall be
determined as follows:
(a) Moderate-income means:
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(1) In the case of owner-occupied
units, income not in excess of 100
percent of area median income; and
(2) In the case of rental units, where
the income of actual or prospective
tenants is available, income not in
excess of the following percentages of
area median income corresponding to
the following family sizes:
Number of persons in family
1
2
3
4
5
............................................
............................................
............................................
............................................
or more ..............................
(b) For low-income (80%), income of
prospective tenants shall not exceed the
following percentages of area median
income with adjustments, depending on
unit size:
(1) In the case of owner-occupied
units, income not in excess of 50
percent of area median income; and
(2) In the case of rental units, where
the income of actual or prospective
tenants is available, income not in
excess of the following percentages of
area median income corresponding to
the following family sizes:
Percentage of
area
median income
70
80
90
100
*
Number of persons in family
1
2
3
4
5
Unit size
Percentage of
area
median income
............................................
............................................
............................................
............................................
or more ..............................
35
40
45
50
*
*100% plus (8% multiplied by the number of
persons in excess of 4).
*50% plus (4.0% multiplied by the number
of persons in excess of 4).
(b) Low-income (80%) means:
(1) In the case of owner-occupied
units, income not in excess of 80
percent of area median income; and
(2) In the case of rental units, where
the income of actual or prospective
tenants is available, income not in
excess of the following percentages of
area median income corresponding to
the following family sizes:
(e) Extremely low-income means:
(1) In the case of owner-occupied
units, income not in excess of 30
percent of area median income; and
(2) In the case of rental units, where
the income of actual or prospective
tenants is available, income not in
excess of the following percentages of
area median income corresponding to
the following family sizes:
Number of persons in family
1
2
3
4
5
Percentage of
area
median income
............................................
............................................
............................................
............................................
or more ..............................
56
64
72
80
*
Number of persons in family
1
2
3
4
5
21
24
27
30
*
(c) Low-income (60%) means:
(1) In the case of owner-occupied
units, income not in excess of 60
percent of area median income; and
(2) In the case of rental units, where
the income of actual or prospective
tenants is available, income not in
excess of the following percentages of
area median income corresponding to
the following family sizes:
§ 1282.18 Affordability—Income level
definitions—family size not known (actual
or prospective tenants).
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1
2
3
4
5
............................................
............................................
............................................
............................................
or more ..............................
42
48
54
60
*
*60% plus (4.8% multiplied by the number
of persons in excess of 4).
(d) Very low-income means:
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Percentage of
area median
income
Efficiency ..............................
1 bedroom ............................
2 bedrooms ...........................
3 bedrooms or more .............
70
75
90
*
*104% plus (12% multiplied by the number
of bedrooms in excess of 3).
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(c) For low-income (60%), income of
prospective tenants shall not exceed the
following percentages of area median
income with adjustments, depending on
unit size:
Percentage of
area median
income
42
45
54
*
(d) For very low-income, income of
prospective tenants shall not exceed the
following percentages of area median
income with adjustments, depending on
unit size:
Unit size
Efficiency ............................
1 bedroom ..........................
2 bedrooms .........................
3 bedrooms or more ...........
Percentage of
area median income
35
37.5
45
*
*52% plus (6.0% multiplied by the number
of bedrooms in excess of 3).
In determining whether a rental unit
is affordable where family size is not
known to the Enterprise, income will be
adjusted using unit size, and
affordability determined as follows:
(a) For moderate-income, the income
of prospective tenants shall not exceed
the following percentages of area
median income with adjustments,
depending on unit size:
Unit size
*83.2% plus (9.6% multiplied by the number
of bedrooms in excess of 3).
*62.4% plus (7.2% multiplied by the number
of bedrooms in excess of 3).
*30% plus (2.4% multiplied by the number
of persons in excess of 4).
Percentage of
area
median income
56
60
72
*
Efficiency ..............................
1 bedroom ............................
2 bedrooms ...........................
3 bedrooms or more .............
*80% plus (6.4% multiplied by the number
of persons in excess of 4).
Number of persons in family
Percentage of
area median
income
Efficiency ..............................
1 bedroom ............................
2 bedrooms ...........................
3 bedrooms or more .............
Unit size
Percentage of
area
median income
............................................
............................................
............................................
............................................
or more ..............................
55937
(e) For extremely low-income, income
of prospective tenants shall not exceed
the following percentages of area
median income with adjustments,
depending on unit size:
Unit size
Efficiency ............................
1 bedroom ..........................
2 bedrooms .........................
3 bedrooms or more ...........
Percentage of
area median income
21
22.5
27
*
*31.2% plus (3.6% multiplied by the number
of bedrooms in excess of 3).
§ 1282.19 Affordability—Rent level
definitions—tenant income is not known.
For purposes of determining whether
a rental unit is affordable where the
income of the family in the dwelling
unit is not known to the Enterprise, the
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affordability of the unit is determined
based on unit size as follows:
(a) For moderate-income, maximum
affordable rents to count as housing for
moderate-income families shall not
exceed the following percentages of area
median income with adjustments,
depending on unit size:
(e) For extremely low-income,
maximum affordable rents to count as
housing for extremely low-income
families shall not exceed the following
percentages of area median income with
adjustments, depending on unit size:
3 bedrooms or more .........
§ 1282.21
a substantial probability that an
Enterprise will fail, to meet any housing
goal and that the achievement of the
housing goal was or is feasible, the
Director may require the Enterprise to
submit a housing plan for approval by
the Director.
Percentage of
(b) Nature of plan. If the Director
Unit size
area
requires a housing plan, the housing
median income
plan shall:
Percentage of
Unit size
area median in(1) Be feasible;
Efficiency ............................
6.3
come
(2) Be sufficiently specific to enable
1 bedroom ..........................
6.75
the Director to monitor compliance
2 bedrooms .........................
8.1
Efficiency ............................
21
periodically;
*
1 bedroom ..........................
22.5 3 bedrooms or more ...........
(3) Describe the specific actions that
2 bedrooms .........................
27
* 9.36% plus (1.08% multiplied by the num- the Enterprise will take:
3 bedrooms or more ...........
*
ber of bedrooms in excess of 3).
(i) To achieve the goal for the next
(f) Missing Information. Each
*31.2% plus (3.6% multiplied by the number
calendar year; and
of bedrooms in excess of 3).
Enterprise shall make every effort to
(ii) If the Director determines that
obtain the information necessary to
there is a substantial probability that the
(b) For low-income (80%), maximum
make the calculations in this section. If
Enterprise will fail to meet a housing
affordable rents to count as housing for
an Enterprise makes such efforts but
goal in the current year, to make such
low-income (80%) families shall not
improvements and changes in its
exceed the following percentages of area cannot obtain data on the number of
bedrooms in particular units, in making operations as are reasonable in the
median income with adjustments,
the calculations on such units, the units remainder of the year; and
depending on unit size:
shall be assumed to be efficiencies
(4) Address any additional matters
except as provided in § 1282.15(e)(1).
relevant to the plan as required, in
Percentage of
writing, by the Director.
Unit size
area median in§ 1282.20 Determination of compliance
come
(c) Deadline for submission. The
with housing goals; notice of determination.
Enterprise shall submit the housing plan
Efficiency ............................
16.8
(a) Single-family housing goals. The
to the Director within 45 days after
1 bedroom ..........................
18
Director shall evaluate each Enterprise’s issuance of a notice requiring the
2 bedrooms .........................
21.6 performance under the low-income
Enterprise to submit a housing plan.
3 bedrooms or more ...........
*
families housing goal, the very lowThe Director may extend the deadline
*24.96% plus (2.88% multiplied by the num- income families housing goal, the lowfor submission of a plan, in writing and
income areas housing goal, the lowber of bedrooms in excess of 3).
for a time certain, to the extent the
income areas housing subgoal, and the
Director determines an extension is
(c) For low-income (60%), maximum
refinancing mortgages housing goal on
necessary.
affordable rents to count as housing for
an annual basis. If the Director
(d) Review of housing plans. The
low-income (60%) families shall not
determines that an Enterprise has failed, Director shall review and approve or
exceed the following percentages of area
or there is a substantial probability that
disapprove housing plans in accordance
median income with adjustments,
an Enterprise will fail, to meet a singlewith 12 U.S.C. 4566(c)(4) and (c)(5).
depending on unit size:
family housing goal established by this
(e) Resubmission. If the Director
subpart, the Director shall notify the
disapproves an initial housing plan
Percentage of
Unit size
area median in- Enterprise in writing of such
submitted by an Enterprise, the
preliminary determination.
come
Enterprise shall submit an amended
(b) Multifamily housing goal and
plan acceptable to the Director not later
Efficiency ............................
12.6 subgoal. The Director shall evaluate
1 bedroom ..........................
13.5 each Enterprise’s performance under the than 15 days after the Director’s
disapproval of the initial plan; the
2 bedrooms .........................
16.2 multifamily low-income housing goal
Director may extend the deadline if the
3 bedrooms or more ...........
*
and the multifamily very low-income
Director determines an extension is in
*18.72% plus (2.16% multiplied by the num- housing subgoal on an annual basis. If
the public interest. If the amended plan
ber of bedrooms in excess of 3).
the Director determines that an
is not acceptable to the Director, the
Enterprise has failed, or there is a
(d) For very low-income, maximum
Director may afford the Enterprise 15
substantial probability that an
affordable rents to count as housing for
days to submit a new plan.
Enterprise will fail, to meet a
very low-income families shall not
Subpart C—[Reserved]
exceed the following percentages of area multifamily housing goal or subgoal
established by this subpart, the Director
median income with adjustments,
shall notify the Enterprise in writing of
Subpart D—Reporting Requirements
depending on unit size:
such preliminary determination.
§ 1282.61 General.
(c) Any notification to an Enterprise
Percentage of
of a preliminary determination under
This subpart establishes data
Unit size
area median income
this section shall provide the Enterprise submission and reporting requirements
with an opportunity to respond in
to carry out the requirements of the
Efficiency ..........................
10.5
writing in accordance with the
Enterprises’ Charter Acts and the Safety
1 bedroom ........................
11.25
procedures at 12 U.S.C. 4566(b).
and Soundness Act.
2 bedrooms .......................
13.5
*
*15.6% plus (1.8% multiplied by the number
of bedrooms in excess of 3).
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Housing plans.
§ 1282.62
(a) General. If the Director determines
that an Enterprise has failed, or there is
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Mortgage reports.
(a) Loan-level data elements. To
implement the data collection and
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submission requirements for mortgage
data, and to assist the Director in
monitoring the Enterprises’ housing goal
activities, each Enterprise shall collect
and compile computerized loan-level
data on each mortgage purchased in
accordance with 12 U.S.C. 1456(e) and
1723a(m). The Director may, from time
to time, issue a list entitled ‘‘Required
Loan-level Data Elements’’ specifying
the loan-level data elements to be
collected and maintained by the
Enterprises and provided to the
Director. The Director may revise the
list by written notice to the Enterprises.
(b) Quarterly Mortgage Reports. Each
Enterprise shall submit to the Director a
quarterly Mortgage Report. The fourth
quarter Mortgage Report shall serve as
the Annual Mortgage Report and shall
be designated as such. Each Mortgage
Report shall include:
(1) Aggregations of the loan-level
mortgage data compiled by the
Enterprise under paragraph (a) of this
section for year-to-date mortgage
purchases, in the format specified in
writing by the Director;
(2) Year-to-date dollar volume,
number of units, and number of
mortgages on owner-occupied and
rental properties purchased by the
Enterprise that do, and do not, qualify
under each housing goal as set forth in
this part; and
(3) Year-to-date computerized loanlevel data consisting of the data
elements required under paragraph (a)
of this section.
(c) Timing of Reports. The Enterprises
shall submit the Mortgage Report for
each of the first 3 quarters of each year
within 60 days of the end of the quarter.
Each Enterprise shall submit its Annual
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Mortgage Report within 75 days after
the end of the calendar year.
(d) Revisions to Reports. At any time
before submission of its Annual
Mortgage Report, an Enterprise may
revise any of its quarterly reports for
that year.
(e) Format. The Enterprises shall
submit to the Director computerized
loan-level data with the Mortgage
Report, in the format specified in
writing by the Director.
§ 1282.63
Report.
Annual Housing Activities
To comply with the requirements in
sections 309(n) of the Fannie Mae
Charter Act and 307(f) of the Freddie
Mac Act and assist the Director in
preparing the Director’s Annual Report
to Congress, each Enterprise shall
submit to the Director an AHAR
including the information listed in those
sections of the Charter Acts. Each
Enterprise shall submit such report
within 75 days after the end of each
calendar year, to the Director, the
Committee on Financial Services of the
House of Representatives, and the
Committee on Banking, Housing, and
Urban Affairs of the Senate. Each
Enterprise shall make its AHAR
available to the public online and at its
principal and regional offices. Before
making any such report available to the
public, the Enterprise may exclude from
the report any information that the
Director has deemed proprietary.
§ 1282.64
Periodic reports.
Each Enterprise shall provide to the
Director such reports, information and
data as the Director may request from
time to time.
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§ 1282.65
55939
Enterprise data integrity.
(a) Certification.—(1) The senior
officer of each Enterprise who is
responsible for submitting the fourth
quarter Annual Mortgage Report and the
AHAR under sections 309(m) and (n) of
the Fannie Mae Charter Act or sections
307(e) and (f) of the Freddie Mac Act,
as applicable, or for submitting any
other report(s), data or information for
which certification is requested in
writing by the Director, shall certify
such report(s), data or information.
(2) The certification shall state as
follows: ‘‘To the best of my knowledge
and belief, the information provided
herein is true, correct and complete.’’
(b) Adjustment to correct errors,
omissions or discrepancies in AHAR
data. FHFA shall determine the official
housing goal performance figure for
each Enterprise under the housing goals
on an annual basis. FHFA may resolve
any error, omission or discrepancy by
adjusting the Enterprise’s official
housing goal performance figure. If the
Director determines that the year-end
data reported by an Enterprise for a year
preceding the latest year for which data
on housing goals performance was
reported to FHFA contained a material
error, omission or discrepancy, the
Director may increase the corresponding
housing goal for the current year by the
number of mortgages (or dwelling units)
that the Director determines were
overstated in the prior year’s goal
performance.
Dated: September 1, 2010.
Edward J. DeMarco,
Acting Director, Federal Housing Finance
Agency.
[FR Doc. 2010–22361 Filed 9–13–10; 8:45 am]
BILLING CODE 8070–01–P
E:\FR\FM\14SER2.SGM
14SER2
Agencies
[Federal Register Volume 75, Number 177 (Tuesday, September 14, 2010)]
[Rules and Regulations]
[Pages 55892-55939]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-22361]
[[Page 55891]]
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Part III
Federal Housing Finance Agency
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12 CFR Parts 1249 and 1282
2010-2011 Enterprise Housing Goals; Enterprise Book-entry Procedures;
Final Rule
Federal Register / Vol. 75 , No. 177 / Tuesday, September 14, 2010 /
Rules and Regulations
[[Page 55892]]
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FEDERAL HOUSING FINANCE AGENCY
12 CFR Parts 1249, 1282
RIN 2590-AA26
2010-2011 Enterprise Housing Goals; Enterprise Book-entry
Procedures
AGENCY: Federal Housing Finance Agency.
ACTION: Final rule.
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SUMMARY: Section 1128(b) of the Housing and Economic Recovery Act of
2008 (HERA) amended the Federal Housing Enterprises Financial Safety
and Soundness Act of 1992 (Safety and Soundness Act) to provide for the
establishment, monitoring and enforcement of new housing goals
effective for 2010 and 2011 for the Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
(Freddie Mac) (collectively, the Enterprises). Section 1332(a) of the
Safety and Soundness Act, as amended by HERA, requires the Federal
Housing Finance Agency (FHFA) to establish three single-family owner-
occupied purchase money mortgage goals and one single-family
refinancing mortgage goal. Section 1333(a) of the Safety and Soundness
Act requires FHFA to establish one multifamily special affordable
housing goal, as well as providing for a multifamily special affordable
housing subgoal. This final rule establishes new housing goals for 2010
and 2011, consistent with the Safety and Soundness Act, as amended. The
final rule also revises and updates the rules for counting mortgages
for purposes of the housing goals to ensure clarity and consistency
with the new goals. In addition, the final rule includes provisions
regarding reporting requirements and book-entry procedures.
DATES: This rule is effective October 14, 2010.
FOR FURTHER INFORMATION CONTACT: Nelson Hernandez, Senior Associate
Director, Housing Mission and Goals, Office of Housing and Community
Investment, (202) 408-2819, Brian Doherty, Manager, Housing Mission and
Goals, Office of Housing and Community Investment, (202) 408-2991, Paul
Manchester, Principal Economist, Housing Mission and Goals, Office of
Housing and Community Investment, (202) 408-2946, Sharon Like, Managing
Associate General Counsel, Office of General Counsel, (202) 414-8950,
Kevin Sheehan, Attorney, Office of General Counsel, (202) 414-8952 or
Lyn Abrams, Attorney, Office of General Counsel, (202) 414-8951. These
are not toll-free numbers. The mailing address for each contact is:
Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW.,
Washington, DC 20552. The telephone number for the Telecommunications
Device for the Hearing Impaired is (800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
A. Establishment of FHFA
Effective July 30, 2008, HERA amended the Safety and Soundness Act
to create FHFA as an independent agency of the federal government.\1\
HERA transferred the safety and soundness supervisory and oversight
responsibilities over the Enterprises from the Office of Federal
Housing Enterprise Oversight (OFHEO) to FHFA. HERA also transferred the
charter compliance authority and responsibility to establish, monitor
and enforce the affordable housing goals for the Enterprises from the
Department of Housing and Urban Development (HUD) to FHFA. FHFA is
responsible for ensuring that the Enterprises operate in a safe and
sound manner, including maintenance of adequate capital and internal
controls, that their operations and activities foster liquid,
efficient, competitive, and resilient national housing finance markets,
and that they carry out their public policy missions through authorized
activities.\2\
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\1\ See Division A, titled the ``Federal Housing Finance
Regulatory Reform Act of 2008,'' Title I, Sec. 1101, Public Law
110-289, 122 Stat. 2654 (2008), codified at 12 U.S.C. 4501 et seq.
\2\ See 12 U.S.C. 4513.
---------------------------------------------------------------------------
Section 1302 of HERA provides, in part, that all regulations,
orders and determinations issued by the Secretary of HUD (Secretary)
with respect to the Secretary's authority under the Safety and
Soundness Act, the Federal National Mortgage Association Charter Act
and the Federal Home Loan Mortgage Corporation Act (together, the
Charter Acts), shall remain in effect and be enforceable by the
Secretary or the Director of FHFA, as the case may be, until modified,
terminated, set aside or superseded by the Secretary or the Director,
any court, or operation of law. The Enterprises continue to operate
under regulations promulgated by OFHEO and HUD until FHFA issues its
own regulations.\3\ The Enterprises are government-sponsored
enterprises (GSEs) chartered by Congress for the purpose of
establishing secondary market facilities for residential mortgages.\4\
Specifically, Congress established the Enterprises to provide stability
in the secondary market for residential mortgages, respond
appropriately to the private capital market, provide ongoing assistance
to the secondary market for residential mortgages, and promote access
to mortgage credit throughout the nation.\5\
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\3\ See HERA at section 1302, 122 Stat. 2795.
\4\ See 12 U.S.C. 1716 et seq.; 12 U.S.C. 1451 et seq.
\5\ Id.
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B. Statutory and Regulatory Background
Prior to HERA, the Safety and Soundness Act provided the Secretary
of HUD with specific authority to establish, monitor and enforce
affordable housing goals for the Enterprises.\6\ HUD issued regulations
establishing affordable housing goals for the Enterprises, which were
periodically updated, most recently in 2004, when HUD established new
housing goal levels for 2005 through 2008.\7\ HUD's regulations
provided for the housing goal levels for 2008 to continue in effect in
2009 and each year thereafter until replaced by new annual housing
goals established by HUD.\8\ In August 2009, FHFA issued a final rule
that adopted many of the existing housing goals provisions in a new
part 1282 of title 12 of the Code of Federal Regulations. As authorized
by section 1331(c) of the Safety and Soundness Act, as amended, the
final rule also revised the levels of the existing affordable housing
goals in light of current market conditions.\9\
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\6\ See 12 U.S.C. 4561 et seq. (2008).
\7\ See 24 CFR part 81 (2008).
\8\ See 24 CFR 81.12 through 81.14 (2008).
\9\ See 74 FR 39873 (Aug. 10, 2009).
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The Safety and Soundness Act, as amended by HERA, requires the
Director of FHFA to establish new housing goals effective for 2010 and
beyond. The new housing goals include four goals for single-family,
owner-occupied housing, one multifamily special affordable housing
goal, and one multifamily special affordable housing subgoal.\10\ The
single-family housing goals target purchase money mortgages for low-
income families, families that reside in low-income areas, and very
low-income families, and refinancing mortgages for low-income
families.\11\ The multifamily special affordable housing goal targets
multifamily housing affordable to low-income families, and the
multifamily special affordable housing subgoal targets multifamily
housing affordable to very low-income families.\12\
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\10\ See 12 U.S.C. 4561 and 4563(a)(2).
\11\ See 12 U.S.C. 4562.
\12\ See 12 U.S.C. 4563.
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[[Page 55893]]
C. Conservatorship
On September 6, 2008, the Director of FHFA appointed FHFA as
conservator of the Enterprises in accordance with the Safety and
Soundness Act, as amended by HERA, to maintain the Enterprises in a
safe and sound financial condition. The Enterprises remain under
conservatorship at this time.
Although the Enterprises' substantial market presence has been a
key step to restoring market stability, neither company would be
capable of serving the mortgage market today without the ongoing
financial support provided by the U.S. Department of Treasury. Fannie
Mae has drawn $85.1 billion and Freddie Mac has drawn $63.1 billion in
Treasury support under the Senior Preferred Stock Purchase Agreements,
over $148 billion in total. Under the terms of the Senior Preferred
Stock Purchase Agreements, the Enterprises will be shrinking their
retained mortgage portfolio 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 action affecting the
Enterprises' future form and function. While reliance on the Treasury
Department's backing will continue until legislation produces a final
resolution to the Enterprises' future, FHFA is monitoring the
activities of the Enterprises to: (a) Limit their risk and exposure by
avoiding new lines of business; (b) ensure profitability in the new
book of business without deterring market participation or hindering
market recovery; and (c) minimize losses on the mortgages already on
their books.
II. Proposed Rule
On February 26, 2010, FHFA published in the Federal Register a
proposed rule to establish new housing goals for the Enterprises. The
45-day comment period closed April 12, 2010. See 75 FR 9034 (Feb. 26,
2010). FHFA received a total of 29 comment letters on the proposed
rule. Eight of the comment letters were from real estate professionals
and addressed seller concessions in real estate transactions, an issue
that is not applicable to this rulemaking. The remaining 21 comment
letters were from 11 trade associations, two not-for-profit
organizations, two policy advocacy groups, one corporation, one
government entity, one financial research organization, one individual,
and both Enterprises.
In the proposed rule, FHFA proposed measuring the Enterprises'
single-family performance against specified benchmark levels and
against the primary mortgage market. FHFA received 11 comment letters
on this proposal, all in support of the two-part approach. Most of the
trade associations, as well as the Enterprises, recognized the
difficulty of forecasting the mortgage market in the current economic
environment and were receptive to the alternative measurements.
Seven commenters supported the proposed benchmark levels for the
single-family home purchase goals. These commenters also supported the
new separate low-income families refinancing goal. The Enterprises did
not object to the mortgage purchase goal levels, but were concerned
that the low-income refinancing goal was set too high. One trade
association stated that the mortgage purchase goal levels were set at
only 50 to 60 percent of Enterprise purchases in 2008 and should be
higher.
The multifamily housing goal levels were supported generally by
four commenters, although two commenters noted that the multifamily
market may be difficult to measure. Eight commenters did not support
the multifamily housing goal levels. Six commenters stated that the
goal levels were too low, and that the Enterprises should be required
to provide more assistance to the multifamily market. On the other
hand, the Enterprises commented that demand for multifamily financing
is too weak to support the proposed goal levels, and that they should
be set lower.
The proposed rule invited comment on whether there should be
housing goals established for mortgages secured by small multifamily
properties, in addition to reporting requirements. Five commenters
supported the proposed reporting requirements, and urged FHFA to also
establish small multifamily housing goals. The commenters stated that
the small multifamily market is an underserved market segment, and
assistance is needed in smaller communities. Three commenters,
including both Enterprises, stated that reporting on small multifamily
properties was appropriate, but they discouraged a small multifamily
housing goal at this time given the state of the multifamily market and
the financial condition of the Enterprises.
Eight commenters addressed the proposed standards for exclusion of
certain mortgage purchases from counting toward achievement of the
housing goals. Five commenters were in favor of excluding private label
securities from the housing goals, although Freddie Mac favored
inclusion if due diligence is conducted. A few other commenters
suggested the use of Regulation Z and the Home Ownership and Equity
Protection Act (HOEPA) rather than interagency guidance to determine
goals eligibility. Commenters also suggested that FHFA explicitly
exclude from the housing goals mortgages with other characteristics
such as low teaser rates, interest-only options, negative amortization,
reduced documentation, and second liens. One commenter expressed
support for the provision that allows FHFA discretion to enumerate
additional unacceptable terms and conditions that constitute
unacceptable mortgages.
FHFA has considered all of the comments on the proposed rule and
has determined to adopt a final rule that makes certain revisions to
the proposed rule, as described in detail below. Comments that raised
issues beyond the scope of the proposed rule are not addressed in this
final rule, but may be considered by FHFA at a future date.
III. Summary of Final Rule
A. Modification of Housing Goal Structure
The final rule modifies the structure of the housing goals in
accordance with HERA's revisions to the Safety and Soundness Act. HUD
established overall housing goals for 2005-2008 that combined an
Enterprise's purchases of mortgages on single-family housing,
multifamily housing, purchase money mortgages, and refinancing
mortgages. FHFA adjusted the levels of these overall goals for 2009.
These goals are revised for 2010 and 2011 to include four separate
goals and one subgoal for purchases of single-family mortgages and one
goal and one subgoal for purchases of multifamily mortgages. To carry
out the requirements of HERA regarding designated disaster areas while
continuing to provide a focus on low-income and high minority
concentration census tracts, the final rule establishes both a low-
income areas home purchase goal and subgoal. As in the proposed rule,
the final rule provides for a retrospective, market-based assessment of
the achievement by the Enterprises of their housing goals as well as
the traditional prospective, benchmark goals approach. These changes
are described in more detail below.
[[Page 55894]]
B. Adjustment of Home Purchase and Refinancing Goal Levels, and
Multifamily Goal and Subgoal Levels
Consistent with the proposed rule, the final rule provides that
Enterprise goal performance under each of the single-family housing
goals shall be measured using a fraction of qualifying mortgage
purchases as a percent of total mortgage purchases. Neither the
numerator nor the denominator includes Enterprise transactions or
activities that are not mortgage purchases as defined by FHFA or that
are specifically excluded as ineligible under Sec. 1282.16(b). The
final rule establishes separate single-family goals for home purchase
mortgages and refinancing mortgages. This differs from previous
treatment, which combined Enterprise purchases of home purchase and
refinancing mortgages for the overall goals.
Consistent with the proposed rule, the final rule bases the 2010-
2011 multifamily goals on the numbers of affordable dwelling units
financed, rather than specifying such goals in minimum dollar terms.
The special affordable multifamily subgoal in effect prior to 2010
applied to purchases of mortgages on housing for families with incomes
below 60 percent of area median income (AMI) and for families with
incomes between 60 percent and 80 percent of AMI living in low-income
areas. The overall multifamily goal for 2010-2011 is somewhat broader
in its coverage than the previous special affordable multifamily goal,
applying to mortgages on housing for families with incomes no greater
than 80 percent of AMI, regardless of location. However, the 2010-2011
very low-income multifamily subgoal is targeted to households with
significantly lower incomes. The qualifying household income for
purposes of the 2010-2011 multifamily subgoal is at or below 50 percent
of AMI.
Consistent with the proposed rule, the final rule provides that the
2010-2011 low-income home purchase and refinancing goals target
households with lower incomes than the previous low- and moderate-
income goal. The previous low- and moderate-income goal included
families with incomes at or below 100 percent of AMI. Under the final
rule, the low-income home purchase goal and refinancing goal include
only families with incomes no greater than 80 percent of AMI.
Consistent with the proposed rule, the final rule provides that the
2010-2011 low-income areas home purchase goal includes families in
census tracts with incomes up to 80 percent of AMI, while the previous
underserved areas home purchase subgoal included families in census
tracts with incomes up to 90 percent of AMI.
Although this final rule establishing the new housing goals is
effective in mid-2010, FHFA will evaluate performance under the housing
goals established for 2010 on a calendar year basis.
C. New Counting Requirements
In accordance with HERA, and consistent with the proposed rule, the
final rule counts only conventional loans for purposes of the single-
family housing goals. This means that certain Federal Housing
Administration (FHA) loans that previously counted toward the goals,
such as Home Equity Conversion Mortgages (HECMs), will no longer be
counted. Second liens, which also counted toward the goals in the past,
will now be excluded from counting for purposes of the single-family
and multifamily housing goals.
Consistent with the proposed rule, the final rule provides that
mortgages financing rental units in investor-owned single-family
properties, which were previously included in the goals, are no longer
counted for purposes of the housing goals. Rental units in 2-4 unit
owner-occupied single-family properties will continue to be counted.
However, FHFA will continue to monitor the Enterprises' purchases of
such mortgages with regard to rental units in both 2-4 unit owner-
occupied housing and investor-owned 1-4 unit rental housing.
IV. Analysis of Final Rule
A. Definitions--Sec. 1282.1
As in the proposed rule, the final rule includes a number of
technical amendments to conform the definitions to the statutory
definitions in the Safety and Soundness Act, as amended by HERA.
Consistent with the proposed rule, Sec. 1282.1 of the final rule
removes a number of definitions that were used in regulatory provisions
that were revised or eliminated based on HERA's amendments of the
Safety and Soundness Act. Specifically, Sec. 1282.1 of the final rule
no longer includes definitions for ``central city,'' ``ECOA,''
``government-sponsored enterprise, or GSE,'' ``home purchase
mortgage,'' ``New England,'' ``ongoing program,'' ``other underserved
area,'' ``owner-occupied unit,'' ``portfolio of loans,'' ``real estate
mortgage investment conduit (REMIC),'' ``rural area,'' ``underserved
area,'' and ``wholesale exchange.''
As in the proposed rule, Sec. 1282.1 of the final rule adds new
definitions of ``extremely low-income,'' ``low-income,'' and
``moderate-income,'' and revises the income levels in the definition of
``very low-income.'' The final rule also replaces the definition of
``low-income area'' with a new definition for ``families in low-income
areas.'' Each of these definitions is revised to be substantially the
same as the corresponding definition in section 1303 of the Safety and
Soundness Act, as amended by HERA.\13\
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\13\ 12 U.S.C. 4502.
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Consistent with the proposed rule, Sec. 1282.1 of the final rule
adds new definitions for ``borrower income,'' ``FEMA,'' ``HMDA,''
``minority census tract,'' ``mortgage revenue bond,'' ``non-
metropolitan area,'' ``owner-occupied housing,'' ``private label
security,'' and ``purchase money mortgage.'' The new definitions are
intended to reflect common usage and provide certainty in interpreting
the terms as used in new and existing regulatory provisions.
The definition of ``contract rent,'' consistent with the proposed
rule, is revised to make clear that the market rent for similar units
in the neighborhood, as used by the lender or appraiser in underwriting
a property, may be used as the anticipated rent for unoccupied units.
As in the proposed rule, the final rule adds language to the definition
of ``utilities'' clarifying that charges for cable or telephone service
shall not be included. In addition, the final rule adopts the proposed
clarification that Metropolitan Divisions are included in the
definition of ``metropolitan area'' to facilitate comparisons with
census and HMDA information. As in the proposed rule, the final rule
removes unnecessary references to the form of payment from the
definition of ``mortgage purchase.''
Consistent with the proposed rule, the final rule removes the
definition of ``refinancing'' and incorporates those provisions in a
new definition of ``refinancing mortgage.'' The final rule also
provides for the exclusion of most workout agreements from the
definition of ``refinancing.'' The proposed rule omitted this provision
to avoid confusion over whether a transaction should be treated as a
loan modification or a refinancing. The final rule includes the
provision to maintain consistency with the prior definition of
``refinancing'' under the housing goals.
Mortgage. Consistent with the proposed rule, the final rule removes
personal property (chattel) loans on manufactured housing from the
definition of ``mortgage,'' with the result that such purchases would
not qualify for credit under the housing goals.
[[Page 55895]]
Two trade associations, both for the manufactured housing industry,
maintained that the Enterprises should be more active in the area of
personal property loans. One commented that Enterprise purchases of
these loans provide much-needed liquidity to lenders, lower borrowing
costs, and ensure the continued availability of this form of affordable
housing. The other commented that the unavailability of purchase-money
financing effectively discriminates against manufactured homes and
consumers, and also contravenes federal housing policy contained in the
Manufactured Housing Improvement Act of 2000.
The final rule does not revise the proposed definition of
``mortgage'' to include personal property loans on manufactured
housing. The Enterprises have minimal experience with chattel
financing, and the high level of defaults related to such financing
creates significant credit and operational risks. 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. The role of the
Enterprises in the market for personal property loans on manufactured
housing is the subject of FHFA final rulemaking on the duty to serve
requirements of HERA. FHFA may revise the definition of ``mortgage'' in
future rulemaking to ensure conformance with the final regulation on
duty to serve. Until that time, purchases of personal property loans on
manufactured housing will not be counted as mortgage purchases for
purposes of the housing goals.
Mortgage with unacceptable terms or conditions. Consistent with the
proposed rule, the final rule removes the definitions for ``mortgages
contrary to good lending practices'' and ``mortgages with unacceptable
terms or conditions or resulting from unacceptable practices,'' and
revises and consolidates their substantive provisions into a single new
definition of ``mortgage with unacceptable terms or conditions.'' The
definition of ``mortgage with unacceptable terms or conditions''
includes a new provision regarding mortgages with annual percentage
rates (APRs) above a certain level. The new provision is intended to
cover mortgages that were formerly included in the definition of
``HOEPA mortgage.'' The definition of ``HOEPA mortgage'' is revised to
conform FHFA's definition to the coverage in HOEPA itself. The
provision in the definition of ``mortgage with unacceptable terms or
conditions'' relating to a borrower's ability to pay is replaced with a
provision incorporating interagency guidance on nontraditional and
subprime mortgages. This change is intended to cover similar types of
mortgages while providing greater consistency between the provisions of
the housing goals and other regulatory provisions.
FHFA received several comments on the proposed definition of
``mortgages with unacceptable terms or conditions,'' both supporting
and opposing particular terms or conditions. One commenter noted that
the definition does not explicitly exclude subprime loans. One trade
association objected to the inclusion of prepaid single-premium credit
life insurance products, and recommended that the rule specifically
allow mortgages where the insurance premiums are calculated and paid on
a monthly basis and are not financed by the lender. Another trade
association commented that FHFA should strengthen the terms and
conditions that constitute unacceptable mortgages, and recommended the
use of Regulation Z and HOEPA rather than interagency guidance. A
policy advocacy group supported requiring the Enterprises to follow
interagency guidance, but noted that the current regulatory guidance
may not be sufficient. This commenter cautioned that FHFA should not
surrender its independent authority to restrict the Enterprises from
engaging in abusive and unsafe lending practices. One trade association
supported the provision that allows FHFA to determine other additional
unacceptable terms and conditions because markets and abusive practices
evolve. Fannie Mae noted that its single-family underwriting guidelines
are already consistent with the interagency guidance.
In the final rule, the definition of ``mortgages with unacceptable
terms or conditions'' does not explicitly exclude all subprime loans,
but loans with any of the listed terms or conditions are excluded from
counting towards the goals. Mortgages with prepaid single-premium
credit life insurance products, for example, which have adverse effects
on borrowers, continue to be excluded from counting, as they have in
the past. While the final rule specifically references interagency
guidance on subprime and nontraditional loans, FHFA expects the
Enterprises to ensure that mortgage loans they acquire comply with
Regulation Z and HOEPA, as well as any federal law related to minimum
standards for mortgages and predatory lending. While compliance with
these and other applicable laws is expected, FHFA retains its
independent authority to restrict the Enterprises from engaging in
abusive and unsafe lending practices. Accordingly, as markets and
abusive practices evolve, FHFA may determine additional terms and
conditions to be unacceptable.
Families in low-income areas. Consistent with the proposed rule,
the new definition of ``families in low-income areas'' in the final
rule includes families with incomes at or below 100 percent of AMI who
reside in ``designated disaster areas.'' The proposed rule defined
``designated disaster areas'' as areas at the census tract level and
included only census tracts in counties approved for individual
assistance within the declared major disaster area where the average
real property damage severity, as reported by the Federal Emergency
Management Agency (FEMA), exceeds $1,000 per household for that census
tract.
Fannie Mae commented that the rule language should reflect the
Community Reinvestment Act (CRA) criteria for designated disaster
areas. For purposes of complying with the CRA, regulators have
determined that ``[e]xaminers will consider institution activities
related to disaster recovery that revitalize or stabilize a designated
disaster area for 36 months following the date of designation. Where
there is a demonstrable community need to extend the period for
recognizing revitalization or stabilization activities in a particular
disaster area to assist in long-term recovery efforts, this time period
may be extended.'' \14\
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\14\ The Department of the Treasury, the Federal Reserve Board
and the Federal Deposit Insurance Corporation, Community
Reinvestment Act; Interagency Questions and Answers Regarding
Community Reinvestment; Notice, 74 FR 509 (Jan. 6, 2009).
---------------------------------------------------------------------------
In response to this comment and to ensure efficiency in
implementation, the final rule draws on the CRA criteria for designated
disaster areas. Section 1282.1 of the final rule provides that a
designated disaster area will include (1) any county designated by the
federal government as adversely affected by a declared major disaster
under FEMA's administration, (2) where individual assistance payments
were authorized by FEMA. Section 1282.12(e) of the final rule
establishes an overall low-income areas goal that includes families in
low-income census tracts, moderate-income families in minority census
tracts, and moderate-income families in designated disaster areas.
Section 1282.12(f) of the final rule also establishes a low-income
areas subgoal that includes only families in low-income census tracts
and moderate-income families in minority census tracts. Both the
overall goal and the subgoal include a benchmark level and a market-
based assessment. The
[[Page 55896]]
benchmark levels for both the overall goal and the subgoal are set
based on a market analysis that is similar to the analysis that was
used for the proposed rule. The benchmark level for the subgoal is set
at 13 percent. The benchmark level for the overall goal will be set
annually by FHFA notice based on the subgoal benchmark level plus an
amount that reflects the impact of designated disaster areas in the
most recent year for which data is available. The market-based
assessment for both the overall goal and the subgoal will use the
designated disaster areas from the year for which performance is
measured, as will the measurement of the Enterprises' performance each
year.
To accommodate the Enterprises' business planning requirements, for
purposes of the low-income areas housing goal, the final rule,
consistent with the proposed rule, treats a designated disaster area as
effective beginning on the January 1 after the FEMA designation of the
county and continuing through December 31 of the third full calendar
year following the FEMA designation. If data is available in a
particular case to support treatment as a designated disaster area from
an earlier date or for a longer period of time, FHFA may provide for
such treatment by notice to the Enterprises.
B. Housing Goals--Sec. Sec. 1282.11 through 1282.13
As required by sections 1331(a) and 1333(a)(2) of the Safety and
Soundness Act, as amended by HERA, and consistent with the proposed
rule, this subpart of the final rule establishes, for 2010 and 2011,
four single-family housing goals, one single-family housing subgoal,
one multifamily special affordable housing goal, and one multifamily
special affordable housing subgoal. As under the proposed rule, the
single-family housing goals in the final rule are based both on the
benchmark levels and on an evaluation of the Enterprise's performance
relative to the market for each housing goal in each year. Section
1282.11(b) requires the Director to establish housing goals for a
particular year by December 1st of the previous year.\15\
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\15\ See 12 U.S.C. 4561(b).
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1. Prospective and Market-Based Approach
As discussed in the proposed rule, following passage of the Safety
and Soundness Act, HUD established housing goals for Fannie Mae and
Freddie Mac in October 1993,\16\ and revised and expanded those goals
in 1995,\17\ 2000,\18\ and 2004.\19\ Multi-year goals were established
in the 1993 housing goals rule for 1993-94 (subsequently extended to
1995), in the 1994 housing goals rule for 1996-99 (with the goal levels
for 1999 continuing in effect for 2000), in the 2000 housing goals rule
for 2001-03 (with the goal levels for 2003 continuing in effect for
2004), and in the 2004 housing goals rule for 2005-08.\20\
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\16\ See 58 FR 53048 (Oct. 13, 1993) and 58 FR 53072 (Oct. 13,
1993).
\17\ See 60 FR 61846 (Dec. 1, 1995).
\18\ See 65 FR 65044 (Oct. 31, 2000).
\19\ See 69 FR 63580 (Nov. 2, 2004).
\20\ See 75 FR 9034-9036 (Feb. 26, 2010).
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In each case, the numerical goals were established up to four years
in advance. The goals were set as specific minimum goal-qualifying
percentages of all dwelling units financed by mortgages acquired by
each Enterprise in a given year, except for the special affordable
multifamily subgoal, which was set as a minimum dollar volume for
purchases of goal-qualifying loans. In the 2004 final rule, HUD added
three single-family home purchase subgoals, which were similarly
established as specific minimum goal-qualifying percentages of all home
purchase mortgages financed by the Enterprises on owner-occupied
properties in metropolitan statistical areas (MSAs).
HUD set the goals for 1993-2008 based on the six factors as
specified in the Safety and Soundness Act. The most important factors
were past performance on the goals and, especially for the home
purchase subgoals, HUD's estimates of the goal-qualifying shares of
home purchase mortgages in the primary mortgage market on properties in
MSAs. For the overall goals, HUD's estimates of the goal-qualifying
shares of all dwelling units financed in the primary market by the
Enterprises in each year were also important. For example, HUD
estimated that low- and moderate-income units would account for 50-55
percent of all units financed in the primary mortgage market for 2003-
04, and 51-56 percent of all units financed in 2005-08. The low- and
moderate-income goal was set at 50 percent for 2003-04, and was later
established to increase in accordance with the market range over the
2005-08 period--specifically, 52 percent for 2005, 53 percent for 2006,
55 percent for 2007, and 56 percent for 2008. A similar approach was
followed with regard to the overall underserved areas and special
affordable goals for 2005-08.
As recent market developments show, it can be difficult to forecast
the goal-qualifying shares of the primary mortgage market several years
in advance. The forecasts developed by HUD were based on the assumption
of a ``home purchase market environment,'' a market environment in
which purchase mortgages dominate over refinancing mortgages. However,
when market conditions result in higher than average refinance
activity, the actual market goal-qualifying shares can be significantly
different from the forecast because the actual refinance share would
dominate. A second reason for the divergence between forecasted and
actual shares of goal-qualifying units in the primary mortgage market
is the variation in the affordability of housing, such as measured by
the National Association of Realtors (NAR) housing affordability index.
If the price of a product or service declines, it is more affordable to
the consumer. In this respect, housing is no different from any other
product. A third reason for divergence is the variance in the size of
the multifamily mortgage market over time. Under the previous goals
counting regime, multifamily units played a significant role in whether
an Enterprise met the goals. A fourth reason for the divergence is the
change in the size of the share of the mortgage market accounted for by
Federal Housing Administration (FHA) and Department of Veterans Affairs
(VA) mortgages. As discussed below, the market share of mortgages
insured by FHA increased dramatically in recent years.
As measured after the fact, HUD's market estimates often differed
significantly from the actual goal-qualifying shares of the primary
market. Specifically, the actual low- and moderate-income share of the
primary market in 2003 was 53 percent, which was within HUD's 2001-2003
forecasted range of 50-55 percent, but when the share increased to 58
percent for 2004, it exceeded the upper end of the range. The low- and
moderate-income share of the primary market remained high, at 57
percent for 2005, above HUD's 2005-2008 forecasted range of 51-56
percent, but then decreased to 55 percent for 2006 and 52 percent for
2007. Thus, over the 2005-2007 period, the low- and moderate-income
goals increased steadily, while the low- and moderate-income share of
the primary mortgage market decreased steadily.
While the Enterprises are in conservatorship, FHFA expects the
Enterprises to continue to fulfill their core statutory purposes,
including their support for affordable housing. The housing goals are
one set of measures of that support. FHFA does not intend for the
Enterprises to undertake uneconomic or high-risk activities in support
of the goals. However, the fact
[[Page 55897]]
that the Enterprises are in conservatorship should not be a
justification for withdrawing support from these market segments. While
in conservatorship the Enterprises have tightened their underwriting
standards to avoid poor quality mortgages that may have contributed to
their losses. Maintaining sound underwriting discipline going forward
is important for conserving the Enterprises' assets and for supporting
their mission in a manner in which the achievement of housing goals
directly relates to actual market conditions.
In light of these circumstances and the difficulties in
anticipating market deviations from the normal home purchase
environment in the traditional approach to goal-setting, the final rule
adopts the approach in the proposed rule to measure the Enterprises'
single-family goal performance relative to benchmark levels for the
goal-qualifying shares of the Enterprises' mortgage purchases, as well
as relative to the actual goal-qualifying shares of the primary
mortgage market. A dual approach prevents exclusive reliance on multi-
year mortgage market forecasts. The primary disadvantage of this
approach is that information on the goal-qualifying shares of the
current single-family primary market is not available until the release
of HMDA data in late summer of the following year, approximately nine
months after the rating period. However, FHFA believes that this
market-based approach is an appropriate measure of mission achievement
under the housing goals, especially while the Enterprises are operating
in conservatorship, and that the overall advantages of this approach
outweigh the disadvantages.
FHFA received 11 comments on the proposal to calculate goals
performance based on the eligible market share and the benchmark level.
All 11 commenters supported this approach. One trade association
cautioned that FHFA should carefully reassess this approach for
accuracy after actual data is available to compare with forecasts. A
policy advocacy group agreed with the proposed approach, and stated
that it would help FHFA more effectively match Enterprise performance
to actual market conditions. This commenter added that the benchmark
should be considered the floor. Fannie Mae supported the proposed
approach, but expressed concern about the time delay between submission
of goals performance data and the availability of HMDA data, which
could cause regulatory uncertainty. Regarding Sec. 1282.11(b), one
commenter stated that setting the housing goals annually, based upon
the most recent data, would be an improvement over the HUD projection
of five or so years into the future.
Nine commenters supported the proposed single-family housing goal
benchmark levels. One policy advocacy group commented that the goals
are an improvement over previous years because they target the same
populations as the CRA. This commenter also supported the inclusion of
minorities in the low-income areas housing goal. Both Enterprises
commented that the proposed purchase money mortgage goal benchmark
levels were reasonable. One trade association opposed the proposed
single-family housing goal benchmark levels, stating that the proposed
levels would be 50 to 60 percent of Enterprise purchases in 2008, which
the commenter believed is too low to realize HERA's objectives.
Two commenters specifically supported the separate refinancing
housing goal. One trade association commented that a separate
refinancing goal is important because of the cyclical nature of
refinancing. The other commenter stated that refinance volume can vary,
from less than the volume of home purchase mortgages to over three
times the volume of home purchase mortgages, depending upon interest
rates, which makes a combined goal unworkable. The Enterprises did not
oppose the separate refinancing housing goal, but stated that the
proposed refinancing housing goal benchmark level was too high. Fannie
Mae noted that non-HAMP (Home Affordable Modification Program) loan
modifications are not goal-eligible, and there is also a reluctance to
refinance when the labor market is weak. Freddie Mac commented that the
current low interest rate environment is not favorable for a high share
of low-income qualifying refinance mortgages.
As in the proposed rule, the final rule establishes single-family
housing goals that include (1) an assessment of Enterprise performance
as compared to the actual share of the market that meets the criteria
for each goal, and (2) a benchmark level to measure Enterprise
performance. The benchmark levels for performance are intended to
provide greater certainty for the Enterprises in establishing
strategies for meeting the housing goals. An Enterprise would fail to
meet a housing goal if its annual performance fell below both the
benchmark level and the actual share of the market that met the
criteria for a particular housing goal for that year. An Enterprise
would not fail to meet a goal if it achieved the benchmark level for
that goal, even if the actual market size for the year was higher than
the benchmark level. In order to plan their operations, the Enterprises
must be able to rely on the benchmark levels that FHFA has set.\21\
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\21\ See 12 U.S.C. 4561(b), acknowledging ``the need for the
enterprises to reasonably and sufficiently plan their operations and
activities in advance, including operations and activities necessary
to meet such annual goals.''
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This approach to setting the goals, involving both the setting of a
prospective target and an assessment of actual market opportunity, is a
departure from the approach used by HUD and FHFA in the past. FHFA has
determined that this approach is appropriate because of the
difficulties of predicting the market, especially in light of recent
market turmoil and the difficulty of making accurate projections even
in more stable economic environments. This approach is consistent with
Congressional intent, as Congress authorized FHFA to establish the goal
levels for the Enterprises. In addition, several provisions of the
Safety and Soundness Act, as amended, authorize the Director to set or
adjust the goal levels in light of changing market conditions. These
provisions include: the requirement that FHFA calculate the preceding
three-year average percentages of goal-eligible originations for each
goal category, and take that information into account in setting the
single-family goals; \22\ the authority to adjust previously
established goal levels based on current market conditions; \23\ the
authority to adjust goal levels in response to a petition by an
Enterprise based, in part, on market conditions and the risk of ``over-
investment''; \24\ and relief from enforcement if the goal levels are
determined to be infeasible.\25\
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\22\ 12 U.S.C. 4562(e)(2)(A).
\23\ 12 U.S.C. 4562(e)(3).
\24\ 12 U.S.C. 4564(b)(1), (2).
\25\ 12 U.S.C. 4566(b).
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FHFA will carefully assess the approach of using both prospective
targets and assessments of actual market opportunity for accuracy after
actual data is available to compare with forecasts. The benchmark
level, however, will not be considered the floor in assessing whether
an Enterprise achieved a particular housing goal. The time delay
between submission of goals performance data and the availability of
HMDA data, while not optimal, is also unavoidable for this market-based
approach.
FHFA notes that because HERA mandates separate single-family home
purchase and refinance low-income goals, each goal level is set
individually, based on projected market conditions.
[[Page 55898]]
Prior to HERA, the home purchase and refinance components of the
income-based goals (both the low- and moderate-income and the special
affordable goals) provided cumulative effects toward the overall goal,
including a cumulative impact from the Enterprises' multifamily
acquisitions. This is no longer the case under the separate HERA
single-family home purchase and refinance low-income goals.
2. Retrospective Measurement of the Market
Consistent with the proposed rule, Sec. 1282.12(b) of the final
rule sets forth specific criteria for determining the size of the
market based on HMDA data. This retrospective measurement of the size
of the market will be used to evaluate the performance of each
Enterprise on each single-family housing goal. The specific criteria
for establishing the size of the market reflect the types of mortgages
that are counted for purposes of the housing goals and that are
typically eligible for purchase by an Enterprise. The retrospective
measurement of the size of the market is defined under the limitations
of HMDA data. The market includes only originations of conventional
conforming first-lien non-HOEPA single-family mortgages on owner-
occupied properties. Only home purchase mortgages are included in the
market estimates for the three home purchase mortgage goals and the
home purchase mortgage subgoal, and only refinance mortgages are
included in the market estimates for the refinance mortgage goal.
Mortgages with rate spreads of 150 basis points or more above the
applicable Average Prime Offer Rate (APOR) reported in HMDA would be
excluded, as would mortgages that are missing information that would be
necessary to determine the appropriate counting treatment under the
housing goals. Additional details regarding the housing goals are
discussed above, along with the factors considered by FHFA in
establishing the housing goals.
FHFA received five comments on the proposed criteria for
establishing the size of the market. One commenter from the
manufactured housing sector noted that many manufactured housing loans
are personal property loans for affordable housing, and questioned the
prudence of excluding higher interest rate loans (300 basis points over
prime) from the market size. One trade association urged FHFA to make
public its goal calculation methodology as technical guidance, and
expressed concerns that excluding FHA and other government loans from
the market calculation would distort the market measurement. Another
trade association was concerned that tighter underwriting standards and
lower loan-to-value requirements were not fully factored into the
market size. Another commenter stated that FHFA's monthly survey of
single-family mortgage originations will provide a more timely and in-
depth addition to HMDA data. Freddie Mac recommended that the
definition of higher-priced loan used to establish market size conform
to the definition set by the Federal Reserve Board, which is 150 basis
points or more above APOR for first loans.
To the extent possible, the market estimates are based on the
universe of goal-eligible mortgages. Manufactured housing loans that
are not higher-cost loans are included in the market estimates, to the
extent that they are included in the HMDA data. Manufactured housing
loans make up two percent of the single-family originations reported in
the HMDA data, and approximately 60 percent of those manufactured
housing loans are higher-cost loans, which FHFA is using as a proxy for
personal property loans, not eligible for goals credit under this rule.
FHFA also determined that subprime loans should not be included in the
market estimates. Therefore, the final rule excludes higher-priced
loans (150 basis points or more above APOR) as a proxy for subprime
loans. Because most government-insured mortgages are ineligible under
HERA to qualify for the housing goals, FHA and other government loans
are not included in the market estimates.
3. Sustainable Mortgages
The proposed rule requested comments on an alternative to defining
the market for determining whether a mortgage is eligible to count
toward the housing goals that would focus on the sustainability of the
mortgage. Under this approach, the housing goals would be defined in
such a way that only mortgages that support sustainable homeownership
would count toward the goals. This would require a standard to
differentiate between mortgages that are sustainable and mortgages that
are not likely to be sustainable.
Four commenters supported an alternative discussed in the proposed
rule that would use historical data on the cumulative default rate
(CDR) of mortgages acquired by the Enterprises for defining the
sustainable mortgage market, while one commenter opposed this approach.
A trade association urged deferral of the use of CDR until final
Congressional and regulatory action on risk retention and the exemption
of certain qualified mortgages from the risk retention requirements. A
policy advocacy group favored the use of CDR to define the market, but
cautioned that the use of particular features to define a market would
be useful only to the extent the models are reliable and reflect likely
market conditions over some length of time. A trade association favored
the use of CDR. Both Enterprises supported the use of CDR to define the
market, but expressed reservations. Fannie Mae stated that its systems
already filter out loans with the most risk, and given the
considerations that must go into determining whether a loan is
sustainable, it stated that it would be difficult to develop a system
that appropriately removes unsustainable loans from the market sizing
analysis. Freddie Mac stated that the use of CDR should help FHFA and
the Enterprises align and maintain appropriate balance between
affordability, sustainability, and safety and soundness, but cautioned
that any methodology to develop market share estimates must be aligned
with the proprietary models used by the Enterprises so that
inconsistency can be avoided.
FHFA has considered the comments on this alternative approach to
determining whether a mortgage is eligible to count toward the housing
goals. Because the sustainable mortgage approach raises multiple policy
and technical issues that require further consideration, the final rule
does not implement this approach. FHFA may solicit further public
comments regarding a sustainable mortgage approach toward the housing
goals in the future.
4. Monthly Mortgage Survey
As described in the proposed rulemaking, FHFA is conducting a
monthly survey of single-family mortgage originations pursuant to
section 1324(c) of the Safety and Soundness Act, as amended by HERA,
and will make data collected under that survey available to the public.
Release of that data will provide additional information on home
mortgage lending activity. FHFA will use the survey data in its
monitoring of Enterprise housing goals performance.
C. Analysis of Factors for Single-Family Housing Goals
Section 1332(e)(2) of the Safety and Soundness Act, as amended by
HERA, requires FHFA to consider the following seven factors in setting
the single-family housing goals:
(1) National housing needs;
[[Page 55899]]
(2) Economic, housing, and demographic conditions, including
expected market developments;
(3) The performance and effort of the Enterprises toward achieving
the housing goals under this section in previous years;
(4) The ability of the Enterprise to lead the industry in making
mortgage credit available;
(5) Such other reliable mortgage data as may be available;
(6) The size of the purchase money conventional mortgage market, or
refinance conventional mortgage market, as applicable, serving each of
the types of families described, relative to the size of the overall
purchase money mortgage market or the overall refinance mortgage
market, respectively; and
(7) The need to maintain the sound financial condition of the
Enterprises.\26\
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\26\ 12 U.S.C. 4562(e)(2).
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FHFA's consideration of the size of the market for each housing
goal includes consideration of the percentage of goal-qualifying
mortgages under each housing goal, as calculated based on HMDA data for
the three most recent years for which data is available.\27\ FHFA's
analysis of each of the factors, which has been updated since the
proposed rulemaking, is set forth below.
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\27\ See 12 U.S.C. 4562(e)(2)(A).
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1. National Housing Needs
With the collapse of subprime and Alt-A lending, tighter credit
conditions, and stricter underwriting standards, single-family mortgage
originations fell 38 percent in 2008. The Enterprises' share of single-
family mortgage-backed securities (MBS) issuance rose to over 73
percent in that year, however, and the credit risk characteristics of
their purchases began to improve. In 2009, the Enterprises' mortgage
purchase and guarantee activity represented more than 76 percent of
conforming single-family originations. Falling house prices caused
equity in homes to decline sharply. The resetting of interest rates on
poorly underwritten adjustable rate mortgages (ARMs) originated in
recent years, deteriorating household balance sheets, rising
unemployment, continued credit tightening, and the deepening recession
contributed to increases in mortgage delinquency and home foreclosure
rates as well as sharply lower housing starts and sales. Continued
tightening in lender credit policies, large inventories of unsold
homes, significant volumes of homes in foreclosure, rising
unemployment, and increasing pessimism among potential homebuyers
combined to drive home prices down further.
Despite improving housing affordability, the U.S. homeownership
rate declined since peaking at an average rate of 69 percent in 2004.
In the second quarter of 2010, the homeownership rate was 66.9 percent,
down from 67.4 percent in the second quarter of 2009. The homeownership
rate for Black households in the second quarter of 2010 was 46.2
percent, down from 46.5 percent in the second quarter of 2009. The
homeownership rate for Hispanic households in the second quarter of
2010 was 47.8 percent, down from 48.1 percent in the second quarter of
2009.\28\
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\28\ U.S. Census Bureau, ``Residential Vacancies and
Homeownership in the Second Quarter 2010,'' tables 4 and 7, July 27,
2010.
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In 2008, the most recent year in which HMDA data is publicly
available, applications from Black borrowers fell by 48 percent, and
applications from Hispanic borrowers fell by 55 percent.\29\ One of the
key catalysts of the current economic crisis was falling housing prices
after the substantial increase that began in 2000. From January 2000
through the May 2006 peak, the S&P/Case-Shiller Home Price Index rose
by approximately 105 percent, only to fall dramatically since then. The
less volatile FHFA House Price Index, which reflects the book of
business of the Enterprises, peaked later and also showed a decline.
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\29\ ``HMDA Data Show Huge Decline in 2008 Mortgage Activity--
Except at Government Insured Programs.'' Inside Mortgage Finance.
Oct. 2, 2009 at 8.
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Changes in mortgage underwriting, particularly for affordable
products, had a direct impact on the national housing market. During
the boom, as house price appreciation reduced affordability, low
documentation Alt-A loans, interest-only loans and ARMs proliferated.
Subprime market share tripled to more than 20 percent of the market.
Lenders accepted more loans with higher loan-to-value (LTV) ratios and
lower borrower credit scores. The Joint Center for Housing Studies
report, ``State of the Nation's Housing 2009,'' describes the effect of
loosened mortgage underwriting standards on the housing market.
According to that report, in 2005, a household with median owner income
of about $57,000 and spending 28 percent of income on mortgage
principal and interest could qualify for a 30-year, fixed-rate loan of
$225,000. If the same borrower took out an ARM loan at a discounted
interest rate, the maximum loan amount increased to $265,000. By adding
an interest-only feature to that ARM and qualifying the household based
on the initial interest-only payments, the potential loan size grew to
$356,000. Allowing the borrower to spend 38 percent of income on
mortgage costs meant that the mortgage loan could total approximately
$482,000. Interagency regulatory guidance on nontraditional and
subprime loans issued in 2006 and 2007, including guidance to the
Enterprises by OFHEO, contributed to limiting the numbers of such loans
as underwriting standards were subsequently strengthened.\30\
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\30\ See Office of Federal Housing Enterprise Oversight, ``OFHEO
Director James B. Lockhart Commends Enterprises on Implementation of
Subprime Mortgage Lending Guidance,'' News Release (Sept. 10, 2007),
available at https://www.fhfa.gov/webfiles/1608/LockhartcommendsENTERPRISEsreSubprime91007.pdf. See also Office of
the Comptroller of the Currency, Federal Reserve Board, Federal
Deposit Insurance Corporation, Office of Thrift Supervision,
National Credit Union Administration, Statement on Subprime Mortgage
Lending, 72 FR 37569-37575 (July 10, 2007); and Office of the
Comptroller of the Currency, Federal Reserve Board, Federal Deposit
Insurance Corporation, Office of Thrift Supervision, National Credit
Union Administration, Interagency Guidance on Nontraditional
Mortgage Product Risks, 71 FR 58609-58618 (Oct. 4, 2006).
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With the decline in house prices over the 2007-2009 period and
historically low mortgage interest rates, new homebuyers encountered a
much more affordable housing market in 2009 and continue to do so in
2010. As measured by the National Association of Realtors' composite
housing affordability index, which reports the ratio of median
household income to the income that would be required to buy a median-
priced home (where 100 indicates the exact amount of income required to
buy a median-priced home), affordability continued to increase in 2009.
That index rose from 166.3 in December 2008 to 171.5 one year later.
The higher value of the index mainly reflected the decline in the
median price of existing single-family homes and lower mortgage
interest rates. The index dipped to 158.9 in June 2010 as a result of
an increase in the median price of existing single-family homes between
December 2009 and June 2010, but affordability is still at a very high
level by historical standards.
2. Economic, Housing and Demographic Conditions
The current turmoil in the housing and mortgage markets has created
less than favorable conditions for expansions in credit to borrowers on
the margins of homeownership. The adverse market conditions include:
(1) Tightened credit underwriting practices; (2) sharply increased
standards of private mortgage insurance (MI)
[[Page 55900]]
companies; (3) increased role of FHA in the marketplace; (4) collapse
of the private label mortgage-backed securities (PLS) market; and (5)
high unemployment. These developments contribute to a decrease in the
overall number of single-family loans likely to qualify for housing
goals credit.
Tightened credit underwriting practices. In general, more
conservative underwriting standards in the mortgage market will likely
result in fewer goal-qualifying loans and a lower percentage of goal-
qualifying loans in the market. Underwriting standards in the mortgage
market generally, and at Fannie Mae and Freddie Mac, have tightened
considerably in response to declining market conditions and early
payment defaults, among other factors, and such standards can be
expected to remain in place in the near future. In May 2008, responding
to changes in private MI underwriting, Fannie Mae revised its down
payment policy to lower the maximum allowable LTV ratio for loans
underwritten by Desktop Underwriter (DU) and for manually underwritten
loans. The implementation of Fannie Mae's updated DU Version 8.0,
effective in December 2009, generally reduces the allowable ``back-
end'' borrower debt-to-income ratio--the portion of a borrower's income
that goes toward paying debts--to 45 percent. In addition, it
eliminates DU recommendations for Expanded Approval II and Expanded
Approval III loans, loans which historically counted heavily toward the
housing goals.\31\ If the DU 8.0 revisions had been in effect for all
of 2009, substantially fewer goal-qualifying loans would have been
underwritten. The changes to DU will likely have a similar effect in
2010 and 2011. Freddie Mac has similarly tightened its underwriting
standards.
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\31\ Desktop Originator/Desktop Underwriter Release Notes. DU
Version 8.0. DODU 0909. Fannie Mae. Sept. 22, 2009. DU 8.0 will
allow a back-end ratio of up to 50 percent for case files with
strong compensating factors.
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Mortga