Enterprise Duty To Serve Underserved Markets, 79181-79222 [2015-31811]

Agencies

• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 80, Number 243 (Friday, December 18, 2015)]
[Proposed Rules]
[Pages 79181-79222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-31811]



[[Page 79181]]

Vol. 80

Friday,

No. 243

December 18, 2015

Part III





Federal Housing Finance Agency





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12 CFR Part 1282





Enterprise Duty To Serve Underserved Markets; Proposed Rule

Federal Register / Vol. 80, No. 243 / Friday, December 18, 2015 / 
Proposed Rules

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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1282

RIN 2590-AA27


Enterprise Duty To Serve Underserved Markets

AGENCY: Federal Housing Finance Agency.

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: 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 establish a duty for the Federal 
National Mortgage Association (Fannie Mae) and the Federal Home Loan 
Mortgage Corporation (Freddie Mac) (collectively, the Enterprises) to 
serve three specified underserved markets--manufactured housing, 
affordable housing preservation, and rural markets--to increase the 
liquidity of mortgage investments and improve the distribution of 
investment capital available for mortgage financing for very low-, low-
, and moderate-income families in those markets. The Federal Housing 
Finance Agency (FHFA) is issuing and seeking comments on a proposed 
rule that would provide Duty to Serve credit for eligible Enterprise 
activities that facilitate a secondary market for mortgages related to: 
Manufactured homes titled as real property; blanket loans for certain 
categories of manufactured housing communities; preserving the 
affordability of housing for renters and homebuyers; and housing in 
rural markets. The proposed rule would establish a method for 
evaluating and rating the Enterprises' compliance with the Duty to 
Serve each underserved market.

DATES: Written comments must be received on or before March 17, 2016.

ADDRESSES: You may submit your comments, identified by regulatory 
information number (RIN) 2590-AA27, by any of the following methods:
     Agency Web site: www.fhfa.gov/open-for-comment-or-input.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comment to the Federal eRulemaking Portal, please also send it by email 
to FHFA at RegComments@fhfa.gov to ensure timely receipt by FHFA. 
Please include ``Comments/RIN 2590-AA27'' in the subject line of the 
submission.
     Hand Delivered/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA27, 
Federal Housing Finance Agency, Eighth Floor, 400 7th Street SW., 
Washington, DC 20219. The package should be delivered at the 7th Street 
entrance Guard Desk, First Floor, on business days between 9 a.m. and 5 
p.m.
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel, Attention: Comments/RIN 2590-AA27, Federal 
Housing Finance Agency, Eighth Floor, 400 7th Street SW., Washington, 
DC 20219. Please note that all mail sent to FHFA via U.S. Mail is 
routed through a national irradiation facility, a process that may 
delay delivery by approximately two weeks.

FOR FURTHER INFORMATION CONTACT: Jim Gray, Manager, Office of Housing 
and Regulatory Policy, (202) 649-3124, or Mike Price, Senior Policy 
Analyst, Office of Housing and Regulatory Policy, (202) 649-3134. These 
are not toll-free numbers. The mailing address for each contact is: 
Federal Housing Finance Agency, 400 7th Street SW., Washington, DC 
20219. The telephone number for the Telecommunications Device for the 
Hearing Impaired is (800) 877-8339.

SUPPLEMENTARY INFORMATION: 

I. Comments

    FHFA invites comments on all aspects of this proposed rule, in 
addition to specific questions provided throughout, and will take all 
comments into consideration before issuing the final rule. Commenters 
do not need to answer each question. While FHFA has considered the 
views commenters submitted on the Duty to Serve proposed rule issued in 
2010 in preparing this proposed rule, in view of the significant 
differences between this proposed rule and the 2010 Duty to Serve 
proposed rule, commenters on the previous proposed rule must submit a 
new comment letter on this new proposed rule for their comments to be 
further considered. Copies of all comments received will be posted 
without change, including any personal information you provide, such as 
your name, address, email address and telephone number, on FHFA's Web 
site at https://www.fhfa.gov. In addition, copies of all comments 
received will be available for examination by the public on business 
days between the hours of 10 a.m. and 3 p.m., at the Federal Housing 
Finance Agency, Eighth Floor, 400 7th Street, SW., Washington, DC 
20219. To make an appointment to inspect comments, please call the 
Office of General Counsel at (202) 649-3804.

II. Background

A. Statutory Background

    The Safety and Soundness Act provides that the Enterprises ``have 
an affirmative obligation to facilitate the financing of affordable 
housing for low- and moderate-income families.'' \1\ Section 1129 of 
HERA amended section 1335 of the Safety and Soundness Act to establish 
a duty for the Enterprises to serve three specified underserved 
markets, to increase the liquidity of mortgage investments and improve 
the distribution of investment capital available for mortgage financing 
for certain categories of borrowers in those markets.\2\ Specifically, 
the Enterprises are required to provide leadership in developing loan 
products and flexible underwriting guidelines to facilitate a secondary 
market for mortgages on housing for very low-, low-, and moderate-
income families for manufactured housing, affordable housing 
preservation, and rural markets.\3\ In addition, section 1335(d)(1) 
requires FHFA to establish, by regulation, a method for evaluating and 
rating the Enterprises' compliance with the Duty to Serve underserved 
markets.\4\ FHFA is required to separately evaluate each Enterprise's 
compliance with respect to each underserved market, taking into 
consideration the following:
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    \1\ 12 U.S.C. 4501(7).
    \2\ 12 U.S.C. 4565.
    \3\ 12 U.S.C. 4565(a). The terms ``very low-income,'' ``low-
income,'' and ``moderate-income'' are defined in 12 U.S.C. 4502.
    \4\ 12 U.S.C. 4565(d)(1).
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    (i) The Enterprise's development of loan products, more flexible 
underwriting guidelines, and other innovative approaches to providing 
financing to each of the underserved markets (hereafter, the ``loan 
product assessment factor'');
    (ii) The extent of the Enterprise's outreach to qualified loan 
sellers and other market participants in each of the underserved 
markets (hereafter, the ``outreach assessment factor'');
    (iii) The volume of loans purchased by the Enterprise in each 
underserved market relative to the market opportunities available to 
the Enterprise, except that the Director shall not establish specific 
quantitative targets or evaluate the Enterprise based solely on the 
volume of loans purchased (hereafter, the ``loan purchase assessment 
factor''); and
    (iv) The amount of investments and grants by the Enterprise in 
projects

[[Page 79183]]

which assist in meeting the needs of the underserved markets 
(hereafter, the ``investments and grants assessment factor'').\5\
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    \5\ 12 U.S.C. 4565(d)(2).
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    The Duty to Serve provisions and issues for consideration are 
discussed further below.

B. Conservatorship

    On September 6, 2008, the Director of FHFA appointed FHFA as 
conservator of the Enterprises in accordance with the Safety and 
Soundness Act to maintain the Enterprises in a safe and sound financial 
condition and to help assure performance of their public mission. Since 
the establishment of FHFA as conservator, the Enterprises have returned 
to profitability. Through December 31, 2014, the Enterprises have paid 
a total of $225 billion in dividends payments to the U.S. Department of 
the Treasury on the senior preferred stock.\6\
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    \6\ See White House, ``Fiscal Year 2016 of the U.S. Government 
Analytical Perspectives,'' at 307 (2015), available at https://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/ap_20_credit.pdf.
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    While the Enterprises are in conservatorships, the law requires and 
FHFA expects them to continue to fulfill their core statutory purposes, 
which include their support for affordable housing. The Enterprise 
affordable housing goals have continued throughout the 
conservatorships, with modifications to the levels of the goals. FHFA 
now proposes a rule to implement the Enterprises' Duty to Serve 
underserved markets. Consistent with the conservatorships, Enterprise 
support for affordable housing must be accomplished within the confines 
of safety and soundness and the goals of conservatorship. The 
Enterprises' 2015 Conservatorship Scorecard requires the Enterprises to 
make progress in preparing to implement the Duty to Serve, prior to 
this rulemaking.

C. Regulatory History

1. Advance Notice of Proposed Rulemaking
    The rulemaking for the Duty to Serve commenced in August 2009 with 
FHFA's publication in the Federal Register of an Advance Notice of 
Proposed Rulemaking (ANPR) on the Enterprise Duty to Serve underserved 
markets.\7\ FHFA received 100 comment letters in response to the ANPR.
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    \7\ See 74 FR 38572 (Aug. 4, 2009).
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2. 2010 Duty To Serve Proposed Rule
    After reviewing the comment letters on the ANPR, FHFA published in 
the Federal Register on June 7, 2010, a proposed rule on the Duty to 
Serve.\8\ The 45-day comment period for the proposed rule closed on 
July 22, 2010.
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    \8\ See 75 FR 32099 (June 7, 2010).
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    FHFA received 4,019 comments on the proposed rule. Commenters 
included: Individuals, including owners of manufactured homes; trade 
associations, including manufactured housing trade groups and lender 
trade groups; policy and housing advocacy groups, including rural 
housing advocacy groups, organizations representing manufactured home 
residents, and national and state consumer law organizations; nonprofit 
organizations; corporations, including manufactured housing 
construction companies; federal, state, and local government entities, 
including state and local housing finance agencies; property services 
groups, including property management companies; manufactured home 
community homeowners' associations; affordable housing developers and 
preservation lenders; a legal services group; Members of Congress; and 
both Enterprises.
    FHFA has taken a new look at the issues for this new proposed rule, 
with the benefit of the comments received on the 2010 Duty to Serve 
proposed rule and subsequent input from diverse stakeholder groups. The 
comments and input received and the agency's intervening years of 
experience with the Enterprises and their operations in the underserved 
markets have suggested a different approach, sufficiently so that 
further notice and comment is necessary through this new proposed rule.
    As before, the new proposed rule would not itself authorize or 
prohibit the Enterprises from engaging in any activity. Instead, it 
would authorize Duty to Serve credit for certain Enterprise activities 
in furtherance of their Duty to Serve obligations and would propose a 
framework for evaluating the Enterprises' performance.

III. Duty To Serve Underserved Markets

A. Implementing the Duty To Serve

    The Enterprises' public purposes include a broad obligation to 
serve lower- and moderate-income borrowers. The Safety and Soundness 
Act establishes a duty for the Enterprises to serve very low-, low-, 
and moderate-income families in three specific underserved markets. All 
activities an Enterprise undertakes in furtherance of its Duty to Serve 
must be consistent with its Charter Act. Nothing in this rulemaking 
would permit or require an Enterprise to engage in any activity that 
would be otherwise inconsistent with its Charter Act or the Safety and 
Soundness Act.
    Although the Enterprises are in conservatorships, FHFA expects them 
to show tangible results in each underserved market and to be a 
catalyst for mortgage lending to very low-, low-, and moderate-income 
families in each underserved market consistent with their obligations 
for safety and soundness. The Enterprises should expect mortgage 
purchases and activities pursuant to the Duty to Serve to earn a 
reasonable economic return, which may be less than the return earned on 
activities that do not serve these underserved markets.\9\
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    \9\ See 12 U.S.C. 4513(a)(1)(B)(ii).
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B. Underserved Markets Plans

1. Requirement for Underserved Markets Plans--Proposed Sec.  1282.32
    Section 1282.32 of the proposed rule would require each Enterprise 
to prepare an Underserved Markets Plan identifying the activities and 
related objectives in each underserved market that it will pursue to 
serve that market.\10\ Each Plan would be mandatory and have a three-
year term. The extent to which the Enterprises comply with their Plan 
obligations would form the basis for FHFA's evaluation of each 
Enterprise's Duty to Serve performance.
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    \10\ The 2010 Duty to Serve proposed rule also would have 
required that the Enterprises identify their Duty to Serve 
activities in Underserved Markets Plans.
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2. Eligible Activities for Underserved Markets--Proposed Sec. Sec.  
1282.33(b), 1282.34(b), 1282.35(b), 1282.37
    Sections 1282.33(b), 1282.34(b), 1282.35(b), and 1282.37 of the 
proposed rule would specifically define the scope of the activities 
that could be included in an Underserved Markets Plan for an 
underserved market and, thus, be eligible for Duty to Serve credit as 
follows:
    Manufactured housing market--Activities that facilitate a secondary 
market for mortgages on residential properties for very low-, low-, and 
moderate-income families consisting of: (1) Manufactured homes titled 
as real estate; and (2) manufactured housing communities;
    Affordable housing preservation market--Activities that facilitate 
a secondary market for mortgages on residential properties for very 
low-, low-, and moderate-income families consisting of affordable 
rental housing preservation and affordable homeownership preservation; 
and

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    Rural market--Activities that facilitate a secondary market for 
mortgages on residential properties for very low-, low-, and moderate-
income families in a ``rural area,'' which would be defined to mean: 
(1) A census tract outside of a metropolitan statistical area (MSA), as 
designated by the Office of Management and Budget (OMB); or (2) a 
census tract that is in an MSA but outside of the MSA's Urbanized Areas 
and Urban Clusters, as designated by the U.S. Department of 
Agriculture's (USDA's) Rural Urban Commuting Area (RUCA) codes.
    Activities eligible for Duty to Serve credit that also promote 
residential economic diversity would be eligible for extra credit under 
Sec.  1282.37 of the proposed rule.
    Each of these activities must be in full compliance with applicable 
federal and state law. The underserved markets and related definitions 
are further discussed below.
3. Underserved Markets Plan Activities--Proposed Sec.  1282.32(c)(1)
    Under Sec.  1282.32(c)(1) of the proposed rule, each Underserved 
Markets Plan would include activities delineated under one of the 
following categories:
     Statutory Activities--Activities that assist affordable 
housing projects under the eight affordable housing programs 
specifically enumerated in the Safety and Soundness Act, and any 
comparable state and local affordable housing programs (a category that 
is also specified in the Safety and Soundness Act);
     Regulatory Activities--Activities in the underserved 
markets that are designated as Regulatory Activities in the proposed 
rule; and
     Additional Activities--Other activities identified by the 
Enterprises in their Plans that are determined by FHFA, in reviewing 
the proposed Plans, to be eligible for that underserved market.
    Proposed Additional Activities may include activities that support 
other federal, state and local programs not specifically enumerated in 
the proposed rule that would benefit from such support. Any such 
program must be eligible under one of the three specified underserved 
markets. If an Enterprise proposes activities to support other federal, 
state or local programs in its Underserved Markets Plan, the Enterprise 
must provide FHFA with clear information that defines the program and 
its eligibility under one of the three underserved markets consistent 
with the purpose and scope of this proposed rule. Such programs 
include, for example, state housing finance agency projects and local 
government initiatives that seek to provide affordable housing and for 
which Duty to Serve credit could be available.
     While overall the Enterprises must serve very low-, low-, 
and moderate-income families in each underserved market, any one 
activity may, but need not, serve more than one of the qualifying 
income categories. The Underserved Markets Plans must include a mix of 
activities serving all three income categories.
    Statutory Activities and Regulatory Activities are collectively 
referred to as ``Core Activities'' in this SUPPLEMENTARY INFORMATION.
    The proposed rule would not require an Enterprise to include every 
Core Activity in its Underserved Markets Plan, but the Plan must 
describe how the Enterprise considered each Core Activity. If an 
Enterprise elects not to include a Core Activity in its Plan, it must 
provide a detailed explanation for its decision in the Plan. There 
would be no restriction on the number of Additional Activities that an 
Enterprise may include in its Plan.
    FHFA believes that specifying Core Activities for the Enterprises 
to consider in developing their Underserved Markets Plans, as well as 
providing the Enterprises the option to designate Additional 
Activities, will provide the most efficient ways to increase the 
Enterprises' presence in the three underserved markets and encourage 
healthy competition between the Enterprises. When one Enterprise is 
able to marshal its resources to better serve an underserved market, 
this may encourage the other Enterprise and other institutions to also 
consider how they could assist that market, and would demonstrate that 
certain products and services can be reasonably provided in the market.
    Additionally, as described in this SUPPLEMENTARY INFORMATION and in 
proposed Sec.  1282.37, the proposed rule would include an opportunity 
for the Enterprises to earn extra Duty to Serve credit when a 
qualifying activity in an underserved market also serves to reduce the 
economic isolation of very low-, low-, and moderate-income households 
by promoting residential economic diversity.\11\ These activities would 
not be mandatory, but in order to qualify for the extra credit, the 
Enterprises would need to describe in their Plans the activities in the 
underserved markets they intend to undertake to promote residential 
economic diversity.
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    \11\ In a separate context, the Federal Home Loan Banks' 
Affordable Housing Program has long recognized the role of reducing 
economic isolation in housing affordability and provides incentives 
for the development of projects that promote economic diversity in 
the housing market. Under the applicable regulation, a Federal Home 
Loan Bank may award scoring points for projects that promote 
``economic diversity,'' defined as ``[t]he financing of housing that 
is part of a strategy to end isolation of very low-income households 
by providing economic diversity though mixed-income housing in low- 
or moderate-income neighborhoods, or providing very low- or low- or 
moderate-income households with housing opportunities in 
neighborhoods or cities where the median income equals or exceeds 
the median income for the larger surrounding area, such as the city, 
county, or Primary Metropolitan Statistical Area, in which the 
neighborhood or city is located.'' See 12 CFR 1291.5(d)(5)(vi)(H).
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Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    1. How much discretion should the Enterprises have in selecting 
activities--Core Activities and Additional Activities--to serve the 
underserved markets?
    2. Should FHFA establish specific Regulatory Activities for the 
underserved markets, or should the Enterprises have broad discretion to 
decide how to serve these markets?
    3. Are the proposed Regulatory Activities, as identified in the 
proposed rule for each of the underserved markets and described further 
below, appropriate for accomplishing the Duty to Serve objectives?
4. Objectives for Each Activity--Proposed Sec.  1282.32(c)(2)
    Under Sec.  1282.32(c)(2) of the proposed rule, for each activity 
set forth in the Underserved Markets Plan, the Plan would be required 
to describe one or more ``Objectives''--specific, measureable tasks to 
be accomplished by the Enterprise. Objectives would be central to 
FHFA's Duty to Serve evaluation and rating process.
    Examples of Objectives might include an Enterprise's plans and 
timetable for achieving certain goals for one of its existing 
activities in an underserved market, or an Enterprise's specific 
outreach plans for working with lenders to develop innovative programs 
under a particular activity. Objectives would largely take narrative 
form but, where appropriate, could include quantitative benchmarks. If 
quantitative benchmarks form part of an Objective, FHFA's evaluation 
criteria may include comparing the Objective's quantitative benchmark 
at the beginning of the evaluation period with a new quantitative 
benchmark for the

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Objective calculated at the end of the evaluation period. This 
comparison would not create specific quantitative targets or evaluate 
an Enterprise based solely on the volume of loans purchased, which are 
prohibited by the Safety and Soundness Act.\12\ Rather, quantitative 
benchmarks would be a measurement component of the evaluation process, 
authorized by the Safety and Soundness Act's establishment of the loan 
purchase assessment factor. Objectives may cover a single year or 
multiple years and must meet all of the following requirements:
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    \12\ 12 U.S.C. 4565(d)(2)(C).
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     Strategic. Directly or indirectly maintain or increase 
liquidity to an underserved market;
     Measurable. Provide measureable benchmarks, which may 
include numerical targets, that enable FHFA to determine whether the 
Enterprise has achieved the Objective;
     Realistic. Calibrated so that the Enterprise has a 
reasonable chance of meeting the Objective with appropriate effort;
     Time-bound. Subject to a specific timeframe for completion 
by being tied to Plan calendar year evaluation periods; and
     Tied to analysis of market opportunities. Based on 
assessments and analyses of market opportunities in each underserved 
market, taking into account safety and soundness considerations.
5. Assessment Factors Incorporated Into Objectives--Proposed Sec.  
1282.32(c)(3)
    Under Sec.  1282.32(c)(3) of the proposed rule, each Underserved 
Markets Plan Objective would be required to incorporate one or more of 
the following four statutory assessment factors:
     Outreach Assessment Factor. The outreach assessment factor 
requires evaluation of ``the extent of outreach [by the Enterprises] to 
qualified loan sellers and other market participants'' in each of the 
three underserved markets.\13\ A Plan Objective could describe how an 
Enterprise would engage market participants, such as through conducting 
meetings and conferences with current and prospective seller/servicers 
and providing technical support to seller/servicers, in order to 
accomplish a Plan activity. Market participants could include 
traditional participants in Enterprise programs, as well as non-
traditional participants such as consortia sponsored by banks, and 
local and state governments.
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    \13\ Id. at (d)(2)(B).
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     Loan Product Assessment Factor. The loan product 
assessment factor requires evaluation of an Enterprise's ``development 
of loan products, more flexible underwriting guidelines, and other 
innovative approaches to providing financing to each'' underserved 
market.\14\ A Plan Objective could describe, for example, how the 
Enterprise would reevaluate its underwriting guidelines, which could 
include empirical testing of different parameters and modification of 
loan products in an effort to increase the availability of loans to 
families targeted by the Duty to Serve, consistent with prudent lending 
practices. FHFA expects the Enterprise to identify underwriting 
obstacles that could prevent service to very low-, low-, and moderate-
income families.
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    \14\ Id. at (d)(2)(A).
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     Loan Purchase Assessment Factor. The loan purchase 
assessment factor requires FHFA to consider ``the volume of loans 
purchased in each of such underserved markets relative to the market 
opportunities available to the [E]nterprise.'' \15\ The Safety and 
Soundness Act further states that FHFA ``shall not establish specific 
quantitative targets nor evaluate the [E]nterprises based solely on the 
volume of loans purchased.'' \16\ A Plan Objective could include the 
Enterprise's plans for purchasing loans in particular underserved 
markets, including its assessments and analyses of the market 
opportunities available for each underserved market and its expected 
volume of loan purchases for a given year.
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    \15\ Id. at (d)(2)(C).
    \16\ Id.
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    Although the proposed rule would not establish quantitative 
targets, FHFA would consider the Enterprise's past performance on the 
volume of loans purchased in a particular underserved market relative 
to the volume of loans the Enterprise actually purchases in that 
underserved market in a given year pursuant to its Plan. In reviewing 
the Plan and the loan purchase assessment factor, FHFA would take into 
account difficulties in forecasting future performance and the need for 
flexibility in dealing with unexpected market changes.
     Investments and Grants Assessment Factor. The investments 
and grants assessment factor requires evaluation of ``the amount of 
investments and grants in projects which assist in meeting the needs of 
such underserved markets.'' \17\ A Plan Objective could include 
investments. As with all activities, the investments must comply with 
the Enterprise's Charter Act.\18\ FHFA has directed the Enterprises to 
refrain from making grants because they are in conservatorship. 
Accordingly, during the period of conservatorship, FHFA does not intend 
to provide credit to the Enterprises for making grants.
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    \17\ Id. at (d)(2)(D).
    \18\ 12 U.S.C. 1451 et seq. and 12 U.S.C. 1716 et seq.
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    In addition to the four statutory assessment factors, the proposed 
rule includes a non-mandatory criterion for evaluating the Enterprises' 
performance on qualifying activities (described in this SUPPLEMENTARY 
INFORMATION and in Sec.  1282.37 of the proposed rule), for which the 
Enterprises could earn additional Duty to Serve credit when they 
include qualifying activities that promote residential economic 
diversity in their Underserved Markets Plans. Under this criterion, 
FHFA would evaluate the Enterprises on the extent to which their 
qualifying activities promote residential economic diversity in an 
underserved market in connection with mortgages on: (1) Affordable 
housing in high opportunity areas; or (2) mixed-income housing in areas 
of concentrated poverty. This would be a criterion for which extra 
credit may be given for planned activities, but the activities 
associated with the criterion would not be mandatory activities for the 
Plans. FHFA specifically requests comments on all aspects of the 
proposed criterion, including how the residential economic diversity 
activities for extra credit should be defined and assessed.
    Activities in each of the underserved markets would be eligible for 
extra credit for residential economic diversity (``qualifying 
activities'') except for manufactured housing communities activities, 
energy efficiency improvement activities, and any Additional Activities 
determined by FHFA as ineligible. FHFA proposes excluding manufactured 
housing community activities because of the lack of information on 
tenants' total monthly housing costs, which would be necessary for FHFA 
to assess the affordability of the units. Nor is the proposed proxy for 
determining manufactured housing community affordability, which relies 
on the income level of the census tract instead of on monthly housing 
costs, useful for estimating whether a manufactured housing community 
contributes to residential economic diversity. FHFA also proposes to 
exclude activities related to energy efficiency improvements as they 
typically do not relate to the siting of housing and, thus, do not 
appear to further residential economic diversity.

[[Page 79186]]

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    4. Are the requirements for Objectives discussed above appropriate, 
and should there be any additional requirements?
    5. Should Duty to Serve credit be given under the loan products 
assessment factor for an Enterprise's research and development 
activities that may not show results in their initial phase, but which 
may be necessary for long-term product planning and development for 
underserved markets?
    6. Has FHFA adequately defined the scope of extra credit for the 
proposed residential economic diversity activities? Has FHFA chosen the 
correct activities that should be excluded from qualifying for extra 
credit for residential economic diversity activities? Also, see 
description of proposed Sec.  1282.37 and Requests for Comments.
6. Underserved Markets Plan Submission and FHFA Review--Proposed Sec.  
1282.32(d)(1)
    Section 1282.32(d)(1) of the proposed rule would require the 
Enterprises to submit their proposed Underserved Markets Plans to FHFA 
at least 180 days before the termination date of the Enterprise's 
existing Plan, except that the Enterprise's first proposed Plan after 
the effective date of this regulation must be submitted to FHFA 
pursuant to FHFA-established timeframes and procedures.
a. Posting of Proposed Underserved Markets Plans, Public Input and 
Enterprise Review--Proposed Sec.  1282.32(d)(2), 1282.32(d)(3)
    Section 1282.32(d)(2) of the proposed rule would provide a process 
for public input on the Enterprises' proposed Underserved Markets 
Plans. A number of commenters on the 2010 Duty to Serve proposed rule 
suggested that the Enterprises' proposed Plans be published for comment 
because doing so could improve the Enterprises' and FHFA's assessment 
of the adequacy of the Plans. Commenters stated that public comment 
could add to the innovation and impact of the Duty to Serve obligations 
on the underserved markets. Both Enterprises opposed publishing the 
proposed Plans for public comment on the basis that the Plans would 
contain proprietary and confidential data and other information. After 
taking into account the commenters' opposing views, FHFA has concluded 
that a public input process can be implemented that would promote 
transparency and increase the opportunity for productive stakeholder 
input in the Underserved Markets Plan process, while preserving the 
proprietary and confidential nature of Enterprise data and information. 
Soliciting public input could help the Enterprises to develop 
information about underserved market needs and how they might be met so 
that the Enterprises can make better judgments in formulating their 
Underserved Markets Plan Activities and Objectives.
    Accordingly, the proposed rule would provide that as soon as 
practical after an Enterprise submits its proposed Plan to FHFA for 
review, FHFA will post on FHFA's Web site a public version of the 
proposed Plan that omits proprietary and confidential data and 
information. The public would have 45 days to provide input on the 
public version of the proposed Plan. Seeking public input on the 
proposed Plans would encourage participation by stakeholders, including 
lenders, industry participants, local government, community groups, and 
the broader public. In its discretion, each Enterprise would make 
revisions to its proposed Plan based on the public input.
b. FHFA Plan Review Process--Proposed Sec. Sec.  1282.32(d)(4), 
1282.32(d)(5), 1282.32(e), 1282.32(f)
    The proposed rule would provide that within 60 days after the end 
of the public input period, FHFA will inform each Enterprise of any 
FHFA comments on its proposed Plan. The Enterprise would be required to 
address those comments, as appropriate, through revisions to its 
proposed Plan pursuant to timeframes and procedures established by 
FHFA.
    After FHFA is satisfied that all of its comments have been 
addressed, FHFA would issue a ``non-objection'' to the Plan. The 
effective date of the Plan would be January 1st of the first evaluation 
year for which the Plan is applicable, except for the Enterprise's 
first Plan after the effective date of the final rule, whose term and 
effective date would be determined by FHFA.
    After receiving FHFA's non-objection to its Plan, an Enterprise 
would post the final Plan on the Enterprise's Web site with 
confidential and proprietary information omitted. FHFA would also post 
the final Plan with confidential and proprietary information omitted on 
FHFA's Web site.
7. Modifying Final Underserved Markets Plans--Proposed Sec.  1282.32(g)
    Section 1282.32(g) of the proposed rule would permit modifications 
of final Underserved Markets Plans during the period of the Plans. The 
2010 Duty to Serve proposed rule would not have permitted 
modifications. In their comments on the 2010 proposed rule, both 
Enterprises stated that they should be able to modify their Plans, 
citing the uncertainty and volatility in the mortgage markets, and the 
Enterprises' need to determine whether their market estimates are 
accurate, assess performance against goals, and update business 
forecasting. FHFA finds these comments persuasive.
    Accordingly, the proposed rule would permit an Enterprise to modify 
its final Plan during its three-year term, subject to FHFA non-
objection. It would also permit FHFA, in its sole discretion, to 
require an Enterprise to modify a final Plan. Instances in which FHFA 
might permit or require an Enterprise to modify its Plan include 
changes in market conditions (including obstacles and opportunities) or 
significant safety and soundness concerns that arise after an 
Enterprise implements its Plan. FHFA and the Enterprises may seek 
public input on any proposed modifications to a final Plan if FHFA 
determines that public input would assist its consideration of the 
proposed modifications. Should a final Plan be modified, the modified 
Plan with confidential and proprietary information omitted would be 
posted on the Enterprise's and FHFA's Web sites.
8. Enterprise New Products and New Activities
    Enterprise new products and new activities are subject to the prior 
approval and prior notice requirements, respectively, that FHFA 
established by regulation pursuant to the Safety and Soundness Act.\19\ 
FHFA expects the Enterprises to meet the loan product assessment factor 
through activities that do not rise to the level of new products. For 
example, an Enterprise could modify its underwriting guidelines for 
existing loan products and develop innovative approaches to financing 
that do not constitute new products, consistent with safety and 
soundness and the requirements of conservatorship. However, if an 
Enterprise determines that a new product or activity would facilitate 
its duty to serve obligations and would be consistent with safety and 
soundness, it may propose such product or activity for FHFA 
consideration.
---------------------------------------------------------------------------

    \19\ See 12 U.S.C. 4541; 12 CFR part 1253.
---------------------------------------------------------------------------

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please

[[Page 79187]]

identify the question answered by the numbers assigned below):
    7. Is there an alternative mechanism to an Underserved Markets Plan 
that would better enable FHFA to evaluate the Enterprises' Duty to 
Serve obligations?
    8. Should the Enterprises be required to prepare Underserved 
Markets Plans for terms with a period other than three years?
    9. Should public input be sought on the Enterprises' proposed 
Underserved Markets Plans and, if so, is there a more effective 
approach than the proposed approach?

C. Underserved Markets

1. Manufactured Housing Market--Proposed Sec.  1282.33
a. Background
    Very low-, low-, and moderate-income households have significant 
housing needs in the current environment. Manufactured housing is 
widely recognized as a significant source of housing for such 
households. In the United States, as of 2013, 6.7 million households 
resided in manufactured housing, or 5.8 percent of all households, 
according to the 2013 American Community Survey.\20\ In many cases, 
manufactured housing may offer the only affordable homeownership 
opportunity for lower-income households.\21\ In 2013, the average sales 
price of a manufactured home was $64,000, while the average sales price 
of a site-built home, less the cost of the land, was $249,429.\22\ 
Adjusted for size, manufactured homes still have significantly lower 
average costs per square foot than site-built homes: $43.54 as compared 
with $93.70.\23\
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    \20\ Freddie Mac, ``2015 Multifamily Outlook--Executive Summary, 
Multifamily Research Perspectives,'' at 16 (Feb. 2015), available at 
https://www.freddiemac.com/multifamily/pdf/2015_outlook.pdf.
    \21\ Both Delaware and North Carolina have statutes that cite 
the importance of manufactured housing as the only affordable option 
for many low- and moderate-income households and the impetus for 
requiring various protections for owners of manufactured housing 
units. See 25 Del. C. Sec.  7040; N.C. Gen. Stat. 160A-383.1 (2001). 
See also, R.I. Gen. Laws 31-44.1-1. Congress has also found that 
manufactured homes provide a significant resource for affordable 
homeownership. See 42 U.S.C. 5401(a)(2).
    \22\ See U.S. Commerce Department, Census Bureau, ``Cost & Size 
Comparisons For New Manufactured Homes and New Single-Family Site-
Built Homes'' (2007-2013) [hereinafter ``Census Table''], available 
at https://www.census.gov/construction/mhs/pdf/sitebuiltvsmh.pdf. The 
figure for site-built homes was arrived at by subtracting the 
``Derived Average Land Price'' ($75,071) from the average sales 
price for a new single-family site built home ($324,500). See id.
    \23\ Id.
---------------------------------------------------------------------------

    In developing specific proposals for Enterprise support of 
activities for the manufactured housing market that would receive Duty 
to Serve credit, FHFA took into account the needs of very low-, low-, 
and moderate-income families, the particular importance of manufactured 
housing, and the availability of its financing for these households. In 
determining eligible activities for the manufactured housing market, 
FHFA considered the safety and soundness implications for the 
Enterprises.
b. Regulatory and Additional Activities--Proposed Sec. Sec.  
1282.33(c), 1282.33(d)
    The Safety and Soundness Act provides that the Enterprises ``shall 
develop loan products and flexible underwriting guidelines to 
facilitate a secondary market for mortgages on manufactured homes for 
very low-, low-, and moderate-income families.'' \24\ The statute does 
not enumerate specific activities or programs that the Enterprises must 
undertake in support of the manufactured housing market. Section 
1282.33(b) of the proposed rule would specify eligible activities for 
the underserved manufactured housing market as activities that 
facilitate a secondary market for mortgages on residential properties 
for very low-, low-, and moderate-income families consisting of: i. 
Manufactured homes titled as real property; and ii. manufactured 
housing communities. Manufactured homes titled as personal property are 
excluded from eligibility.
---------------------------------------------------------------------------

    \24\ 12 U.S.C. 4565(a)(1)(A).
---------------------------------------------------------------------------

    Section 1282.33(c) of the proposed rule would provide Duty to Serve 
credit for four specific types of activities, which would constitute 
Regulatory Activities that the Enterprises must address in their 
Underserved Markets Plans by either indicating how they choose to 
undertake the Regulatory Activity or the reasons why they will not 
undertake the Regulatory Activity. The proposed Regulatory Activities 
are:
    1. Mortgages on manufactured homes titled as real property under 
the laws of the state where the home is located; and
    2. Mortgages on manufactured housing communities provided that:
    i. The community has 150 pads or less;
    ii. The community is government-, nonprofit-, or resident-owned; or
    iii. The community has certain minimum specified pad lease 
protections for tenants.
    The Enterprises' Underserved Markets Plans may also include 
Additional Activities that facilitate a secondary market for mortgages 
on residential properties for very low-, low- and moderate-income 
families consisting of manufactured homes titled as real property and 
manufactured communities, subject to FHFA determination of whether such 
activities are eligible for Duty to Serve credit.
i. Manufactured Homes--Proposed Sec.  1282.33(c)(1)
    Under proposed Sec.  1282.1, ``manufactured home'' would mean a 
manufactured home as defined in section 603(6) of the National 
Manufactured Housing Construction and Safety Standards Act of 1974, and 
implementing regulations. Manufactured homes are built entirely in the 
factory, transported to the site, and installed under a federal 
building code administered by the U.S. Department of Housing and Urban 
Development (HUD).\25\ Activities related to homes manufactured before 
June 15, 1976, generally referred to as ``mobile homes,'' \26\ would 
not receive Duty to Serve credit.
---------------------------------------------------------------------------

    \25\ See 42 U.S.C. 5402(6), and implementing regulations.
    \26\ See Manufactured Housing Institute, ``Frequently Asked 
Questions'' (Web site), available at https://www.manufacturedhousing.org/lib/showtemp_detail.asp?id=208&cat.
---------------------------------------------------------------------------

    Different ownership, titling, and financing structures are 
available for manufactured housing, and this has a major impact on loan 
origination, servicing, and securitization requirements and practices. 
The unit may be titled and owned as personal property (chattel) or as 
real estate, depending on factors such as the property characteristics 
and state law. The borrower may or may not own the land underlying the 
unit. About three-fifths of manufactured housing residents who own 
their home also own the land on which it is sited.\27\ For example,

[[Page 79188]]

most new manufactured homes are sited on private land and not in 
manufactured housing communities.\28\ Loans financing manufactured 
homes may be secured by a lien solely on the unit, separate liens on 
the unit and the underlying land, or a single lien covering both the 
unit and the underlying land. The units themselves tend to depreciate 
in value.\29\ After about three years, the typical manufactured home 
has a wholesale value of about half its original price.\30\
---------------------------------------------------------------------------

    \27\ See CFPB, ``Manufactured-housing consumer finance in the 
United States,'' at 6 (Sept. 2014) [hereinafter ``CFPB White 
Paper''], available at https://files.consumerfinance.gov/f/201409_cfpb_report_manufactured-housing.pdf. See Foremost Insurance 
Group, ``2012 Mobile Home Market Facts'' at 8 (2012), available at 
https://www.foremost.com/mobile-home-market-facts/2012-Market-Facts.pdf. But see L.A. Kovach, ``CFPB Report alleges Manufactured 
Housing Lending is Expensive, sparks controversial comments from 
CFED, MHI and other MH industry professionals,'' available at https://www.mhmarketingsalesmanagement.com/home/industry-news/industry-in-focus/8460-cfpb-report-alleges-manufactured-housing-lending-is-expensive-sparks-controversial-comments-from-cfed-mhi-and-other-mh-industry-professionals. According to this article, the President of 
21st Mortgage Corporation disputes CFPB's figure for land ownership 
by manufactured housing borrowers, stating instead that about 26 
percent of its chattel loan borrowers reported owning their land. 
Id. Further, he states that some people report owning their land 
when the land is actually owned by a family member. Id.
    \28\ In 2013, 70 percent of new manufactured homes for 
residential use were placed on private land but only 30 percent were 
placed in manufactured housing communities. See Census Table, supra 
note 22.
    \29\ See Martin V. Lavin, Prologue to Saving Chattel Lending, 
Industry Voices--Letters to the Editor and OpEd by & for MH Industry 
Pros (June 23, 2011), available at https://www.mhmarketingsalesmanagement.com/blogs/industryvoices/tag/saving-chattel-lending/; Asset-Backed Certificates, Series 2006-OPT2, 
Registration Statement No. 333-127352 (Mar. 13, 2006) (Prospectus) 
(``Because manufactured homes generally depreciate in value, it is 
unlikely that repossession and resale of a manufactured home will 
result in the full recovery of the outstanding principal and unpaid 
interest on the related defaulted Manufactured Housing Contract.''), 
available at https://www.sec.gov/Archives/edgar/data/1356081/000088237706000772/d454063_fwp.htm.
    \30\ See Katherine MacTavish, Michelle Eley & Sonya Salamon, 
``Policy and Practitioner Perspective: Housing Vulnerability Among 
Rural Trailer-Park Households,'' 13 Georgetown J. Poverty Law & 
Policy at 95, 99 (Spring 2006) [hereinafter ``Rural Trailer-Park 
Households'']. See generally Ohio Department of Taxation, Property 
Taxation of Manufactured and Mobile Homes (Bulletin 11, Rev. Dec. 
2002), available at https://www.tax.ohio.gov/portals/0/government/dte_bulletin11rev.pdf.
---------------------------------------------------------------------------

    The Safety and Soundness Act provides that in determining whether 
an Enterprise has complied with the Duty to Serve the manufactured 
housing market, FHFA may consider loans secured by both real and 
personal property.\31\ As with the 2010 Duty to Serve proposed rule, 
Sec.  1282.33(c)(1) of this proposed rule would provide credit for 
Enterprise activities that facilitate a secondary market for 
manufactured homes titled as real property but not as chattel.
---------------------------------------------------------------------------

    \31\ See 12 U.S.C. 4565(d)(3).
---------------------------------------------------------------------------

    FHFA received comments on the 2010 Duty to Serve proposed rule 
favoring Enterprise support for chattel financing from the manufactured 
housing industry, Members of Congress, and some consumer advocates. 
Many of these commenters noted that chattel is the far greater part of 
the manufactured housing market and that most manufactured housing 
borrowers would not have received any assistance under the 2010 Duty to 
Serve proposed rule. In addition, more than 3,700 individuals commented 
in support of chattel financing by the Enterprises, generally via form 
letters. Many emphasized their inability to sell their homes due to a 
scarcity of chattel financing for potential buyers.
    The SUPPLEMENTARY INFORMATION for the 2010 Duty to Serve proposed 
rule highlighted performance concerns about chattel lending and also 
discussed their high interest rates, disadvantageous loan features, and 
relative paucity of borrower protections.\32\ These concerns remain, 
and some bear reiteration.
---------------------------------------------------------------------------

    \32\ See 75 FR 32099, 32103-32104 (June 7, 2010). For a 
discussion of borrower protections inapplicable to chattel 
borrowers, see generally CFPB, ``Manufactured-housing consumer 
finance in the United States,'' at 6 (Sept. 2014), available at 
https://files.consumerfinance.gov/f/201409_cfpb_report_manufactured-housing.pdf; Ann M. Burkhart, Bringing Manufactured Housing into the 
Real Estate Finance System, 37 Pepp. L. Rev. 427 (Mar. 2010). For a 
discussion of the benefits of chattel financing, see generally 
Letter from Manufactured Housing Association for Regulatory Reform 
to Cong. Johnson & Cong. Crapo (Oct. 28, 2013), available at https://www.mhmarketingsalesmanagement.com/blogs/daily-business-news/wp-content/uploads/2014/03/MHARRO1-sent-to-Ohio-Association-member-addressed-to-Senate-Banking-Committee-1.pdf.
---------------------------------------------------------------------------

    There is no current secondary market for recent-vintage, 
conventional chattel loans \33\ and the Enterprises do not buy 
them.\34\ Thus, analyzing performance data for conventional chattel 
loans is challenging. However, in Fannie Mae's limited experience with 
chattel loans, the loans performed poorly.\35\ Despite Fannie Mae's 
efforts, the chattel transactions revealed high levels of inconsistency 
in the quality and standardization of loan documentation. For example, 
something as basic as the value used in the loan-to-value calculation 
varied dramatically from dealer to dealer and made analysis and 
statistical modeling extremely challenging. In addition, the 
transactions also had much higher default rates and loss severities, 
which may be aggravated because the units depreciate substantially, and 
channels for reselling repossessed units can be limited.\36\ Moreover, 
chattel-titled units sited in manufactured housing communities may 
further lose value if they are subject to continuously increasing rents 
for the land on which the units are located.\37\
---------------------------------------------------------------------------

    \33\ See generally CFPB White Paper, supra note 27, at 38 (``It 
is likely that most of the loans held in portfolio are chattel 
loans, for which secondary market demand has been depressed over the 
last decade.''). But see Bloomberg, ``Manufactured Housing May Be a 
Key to Unraveling Affordability Puzzle,'' BloombergBrief/Real Estate 
(Mar. 6, 2015), available at https://newsletters.briefs.bloomberg.com/document/2lz149ood4qz14ihabp/qampa-stephen-wheeler-of-has-capital-?hootPostID=fcb6a370a97507fc986a2e855f0ecf76. A new market entrant, 
HAS Capital, has a goal of bringing new asset-backed securities 
collateralized by chattel-financed units to the capital markets 
within the next 12 to 18 months. See id.
    \34\ See Fannie Mae, ``Manufactured Housing Requirements, 
Clarifications, and New Forms,'' at 6 (June 15, 2007), available at 
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2007/0706.pdf; 
Freddie Mac, ``Manufactured Homes Underwriting Reminders,'' at 1 
(Dec. 2008), available at https://www.FreddieMac.com/learn/pdfs/uw/manuf_home.pdf.
    \35\ See Fannie Mae, ``Manufactured Housing Securities Status 
Report'' (Apr. 15, 2003) (This document is a part of the ``Resource 
Library'' of the Financial Crisis Inquiry Commission), available at 
https://fcic-static.law.stanford.edu/cdn_media/fcic-docs/2003-04-15%20Fannie%20Mae%20Manufactured%20Housing%20Securities%20Status%20Report.pdf.
    \36\ See Martin V. Lavin, ``Guerrilla Servicing, Manufactured 
Home Merchandiser,'' at 31-32 (Apr. 2001), available at https://www.martylavin.com/writings/4.01%20lavin%20guerilla.pdf. By 
contrast, the mortgages purchased by Freddie Mac on real estate-
financed manufactured housing units have performed within Freddie 
Mac's expectations. Fannie Mae reports that its mortgages on real 
estate-financed manufactured housing units, which meet different 
eligibility requirements than Fannie Mae's standard products, are 
performing similarly to single-family mortgages overall, although in 
the event of default, manufactured housing generally results in 
higher loss severity than other single-family property types.
    \37\ See Martin V. Lavin, ``Saving Chattel Lending, Manufactured 
Home Merchandiser,'' at 22 (Dec. 2007), available at https://www.martylavin.com/writings/saving-chattel-lending.pdf; Kevin 
Jewell, Consumers Union Southwest Regional Office, ``Manufactured 
Housing Appreciation: Stereotypes and Data'' (Apr. 2003), available 
at https://consumersunion.org/pdf/mh/Appreciation.pdf.
---------------------------------------------------------------------------

    A 2014 white paper by the Consumer Financial Protection Bureau 
(CFPB) found that chattel loans have had higher interest rates (range 
from 50 to 500 basis points higher) and ``APRs on chattel loans are 
about 150 basis points higher on average than for mortgages on 
manufactured homes,'' despite the lack of economically substantial 
differences in income, debt-to-income ratios, credit scores, and loan-
to-value ratios with real estate-titled borrowers.\38\ These 
disparities in rates might result in large measure from the significant 
depreciation in the value of chattel collateral, but the question 
remains whether this fully accounts for the differential in loan 
pricing. Chattel loans also lack the benefit of many federal laws and 
programs that assist real estate-titled borrowers, including in part or 
in whole, the Making Home Affordable Program of 2009, the Helping 
Families Save Their Homes Act of 2009, the Fraud Enforcement and 
Recovery Act of 2009, and the Real Estate Settlement Procedures Act 
(RESPA).\39\

[[Page 79189]]

Also, except in those states where the debtor must receive notice of 
the right to cure a default, a lender can repossess a chattel-titled 
unit immediately upon default, without prior notice.\40\ These 
repossessions have included circumstances in which units were towed 
with the residents still in them \41\ and of significant damage to the 
unit's porch, deck, air conditioner, plumbing and septic system.\42\
---------------------------------------------------------------------------

    \38\ See CFPB White Paper, supra note 27, at 6, 36.
    \39\ See Ann M. Burkhart, Bringing Manufactured Housing into the 
Real Estate Finance System, 37 Pepp. L. Rev. 427, 429-430 (Mar. 1, 
2010); CFPB White Paper, supra note 27, at 24. CFPB's revised 
borrower disclosures under the Truth in Lending Act and RESPA will 
not cover ``chattel-dwelling loans.'' See CFPB, TILA-RESPA 
Integrated Disclosure rule--Small entity compliance guide, at 19 
(Sept. 2014), available at https://files.consumerfinance.gov/f/201409_cfpb_tila-respa-integrated-disclosure-rule_compliance-guide.pdf.
    \40\ See Asset-Backed Certificates, Series 2006-OPT2, 
Registration Statement No. 333-127352 (Mar. 13, 2006) (Prospectus), 
available at https://www.sec.gov/Archives/edgar/data/1356081/000088237706000772/d454063_fwp.htm; Ann M. Burkhart, ``Bringing 
Manufactured Housing into the Real Estate Finance System,'' 37 Pepp. 
L. Rev. 427, 449-450 (Mar. 1, 2010). See also, Amy J. Schmitz, 
``Promoting the Promise Manufactured Homes Provide for Affordable 
Housing,'' at 393, 13 Journal of Affordable Housing 449 (No. 3) 
(Spring 2004), available at https://lawweb.colorado.edu/profiles/pubpdfs/schmitz/SchmitzAHCDL.pdf (``MH lenders may be especially 
eager to grab an MH as quickly after default as possible, in light 
of the perceived high risks of MH lending and fear that MHs decline 
in value while the loans that they secure go `underwater' '').
    \41\ In re Smith, 296 B.R. 46 (Bnkr. M.D. Ala. 2003); Consumers 
Union, ``Manufactured Housing: A Home That the Law Still Treats Like 
a Car,'' at 2-3 (2005). See also In re Daniel, 137 B.R. 884 (Mar. 
10, 1992).
    \42\ See Giese v. NCNB Tex. Forney Banking Ctr., 881 SW.2d 776, 
1994 Tex. App. LEXIS 2084 (Tex. App. Dallas 1994).
---------------------------------------------------------------------------

    There are also additional concerns about chattel loans from a 
secondary market perspective. The risks posed to secondary market 
investors by bankrupt chattel borrowers are greater than the risks 
posed by bankrupt real property borrowers. As discussed in a Fannie Mae 
prospectus:

    Under certain circumstances, the security interest assigned to 
the trust [for the chattel loan] may become subordinate to the 
interests of other parties or may be vulnerable to the creditors of 
[the loan seller] in a bankruptcy situation. Further, even if steps 
are taken initially to perfect the security interests in certain of 
the manufactured homes, if borrowers relocate or sell their 
manufactured homes, the related security interests could cease to be 
perfected. Certain other laws, including federal and state 
bankruptcy and insolvency laws and general equity principles may 
limit or delay a lender's ability to repossess and resell the 
collateral.\43\
---------------------------------------------------------------------------

    \43\ Fannie Mae, Prospectus Supplement, ``Guaranteed REMIC Pass-
Through Certificates Fannie Mae REMIC Trust 2000-14,'' at S-10 (Apr. 
10, 2000), available at https://www.fanniemae.com/syndicated/documents/mbs/remicsupp/2000-014.pdf.

Moreover, insurance comparable to private mortgage insurance protecting 
the lender, and therefore Freddie Mac and Fannie Mae, is generally 
---------------------------------------------------------------------------
unavailable for chattel loans.

    FHFA has considered the relative opportunities, needs, and risks in 
addressing affordable housing needs through the chattel and real estate 
financing channels and has concluded that, under the proposed rule, the 
Enterprises may only receive Duty to Serve credit for activities 
related to facilitating a secondary market for mortgages on individual 
manufactured homes titled as real estate. While chattel loans may have 
some benefits for a borrower, such as being easier for the borrower to 
qualify for financing and having lower closing costs \44\ than real 
estate loans, FHFA believes that the disadvantages to the borrower and 
the safety and soundness considerations for the Enterprises of 
currently available chattel loan programs outweigh benefits to the 
borrower in many instances.
---------------------------------------------------------------------------

    \44\ See CFPB White Paper, supra note 27, at 36.
---------------------------------------------------------------------------

    The Enterprises may be able to use their market presence to expand 
the use of real estate financing for manufactured homes. CFPB estimates 
that 65 percent of borrowers who own their land financed their units as 
chattel rather than as real estate,\45\ and the Manufactured Housing 
Institute states that growing numbers of buyers are opting to place 
their homes on land they are purchasing or already own.\46\ Currently, 
about three-quarters of the states have statutorily-defined processes 
for converting a manufactured home's title from chattel to real 
property.\47\ Improvements and changes in titling practices and laws 
could result in more manufactured homes financed as real estate and, 
therefore, being eligible for Duty to Serve credit under the rule as 
proposed. The National Conference of Commissioners on Uniform State 
Laws has adopted a model law for enactment by the states that would 
allow a purchaser to elect to title the manufactured home as real 
property and benefit from many of the same legal protections as owners 
of site-built homes.\48\ Providing secondary market support to the real 
estate-financed manufactured home market raises the potential for very 
low-, low-, and moderate-income families to benefit from the associated 
lower rates, APRs, federal loan modification and refinancing programs, 
and enhanced consumer protections.
---------------------------------------------------------------------------

    \45\ CFPB White Paper, supra note 27, at 6. The Foremost 
Insurance Group estimates that 46 percent of manufactured homes that 
they insure are titled and financed as chattel even though the 
borrower owns the underlying land. See Foremost Insurance Group, 
``2012 Mobile Home Market Facts'' 8 (2012), available at https://www.foremost.com/mobile-home-market-facts/2012-Market-Facts.pdf. But 
see L.A. Kovach, ``CFPB Report alleges Manufactured Housing Lending 
is Expensive, sparks controversial comments from CFED, MHI and other 
MH industry professionals,'' available at https://www.mhmarketingsalesmanagement.com/home/industry-news/industry-in-focus/8460-cfpb-report-alleges-manufactured-housing-lending-is-expensive-sparks-controversial-comments-from-cfed-mhi-and-other-mh-industry-professionals. According to this article, the President of 
21st Mortgage Corporation disputes CFPB's figure for land ownership 
by manufactured housing borrowers, stating instead that about 26 
percent of its chattel loan borrowers reported owning their land. 
Id. Further, he states that some people report owning their land 
when it is actually owned by a family member. Id.
    \46\ See Manufactured Housing Institute, ``2014 Quick Facts--
Trends and Information About the Manufactured Housing Industry'' 
(2014).
    \47\ CFPB White Paper, supra note 27, at 10. Generally, 
manufactured homes are treated as chattel by default. Id.
    \48\ See National Conference of Commissioners on Uniform State 
Laws (Uniform Law Commission), ``Uniform Manufactured Housing Act'' 
(Oct. 1, 2012), available at https://www.uniformlaws.org/shared/docs/manufactured_housing/2012_mha_final.pdf. The model act contains an 
anti-steering provision designed to prevent retailers from steering 
borrowers towards chattel or real estate titling. See id. at section 
3(b). For a critique of the model act, see Marc J. Lifset, 
``Proposed ULC Manufactured Home Titling Act'' (rev. Oct. 31, 2011), 
available at https://www.aba.com/aba/documents/GeneralCounsel/UniformLaws/LifsetReport.pdf.
---------------------------------------------------------------------------

    Despite these possibilities for real estate-financing of 
manufactured homes, FHFA is mindful that some chattel borrowers have 
significant financing needs now. Many current owners of chattel-
financed homes are in distress because of their inability to sell their 
homes or refinance into more affordable loans because chattel financing 
is unavailable.\49\ Moreover, the majority of the manufactured housing 
market is chattel-financed, with 78 percent of new manufactured housing 
units placed in 2013 titled as chattel.\50\ In view of the significant 
financing needs of chattel borrowers, the safety and soundness and 
borrower protection concerns discussed above, FHFA specifically 
requests comments on what improvements could be made in originating and 
servicing that would make chattel loans safer for purchase by the 
Enterprises.
---------------------------------------------------------------------------

    \49\ The unavailability of financing for chattel-titled units 
can, in turn, cause deterioration of manufactured housing 
communities and hinder their ability to obtain financing. See Tony 
Petosa, Nick Bertino & Creighton Weber, ``Wells Fargo Multifamily 
Capital, Manufactured Home Community Financing Handbook,'' at 5, 17 
(9th ed. Spring 2015).
    \50\ See Census Table, supra note 22.
---------------------------------------------------------------------------

    The Enterprises could pilot an initiative to purchase chattel 
loans, which could familiarize them with the risk and rewards of 
chattel financing and familiarize their counterparties with the types 
of origination, servicing, and consumer protection standards that would 
be required for any permanent

[[Page 79190]]

chattel financing initiative. However, there may be substantial 
difficulties with establishing the protections and disclosures 
necessary to make chattel loans appropriate for Enterprise support. For 
example, there may be substantial difficulties in developing 
disclosures for borrowers analogous to those required under RESPA, 
particularly the prohibition on unearned referral fees and the 
requirements for disclosures to borrowers of closing costs,\51\ and in 
institutionalizing these disclosures among market participants. Beyond 
these operational concerns, developing RESPA-like protections may 
require legislative and regulatory changes. The same may be true for 
mandating that chattel borrowers have protections and remedies 
analogous to those that state law affords real estate borrowers in 
foreclosure. Given the considerable challenges and considerable 
investment an Enterprise chattel pilot would entail, the overall 
benefits of a pilot may be uncertain.
---------------------------------------------------------------------------

    \51\ For an overview of RESPA and its protections and 
requirements, see generally CFPB Consumer Laws and Regulations--
RESPA (Aug. 2013), available at https://files.consumerfinance.gov/f/201308_cfpb_respa_narrative-exam-procedures.pdf. For information on 
payments that may be improper under RESPA, see generally ``Resolving 
RESPA's Sec.  8(b) Circuit Split,'' 73 U. Chi. L. Rev. 1487 (Fall 
2006). For information on required disclosures, see 12 U.S.C. 2603; 
Bureau of Consumer Financial Protection--Real Estate Settlement 
Procedures Act (Regulation X), 12 CFR 1024.1 et seq.
---------------------------------------------------------------------------

    Under Sec.  1282.38(b)(2) of the proposed rule, Duty to Serve 
credit would not be provided under any of the three underserved markets 
for Enterprise purchases of Home Ownership and Equity Protection Act 
(HOEPA) loans, which are not currently eligible for sale to the 
Enterprises in any event.\52\
---------------------------------------------------------------------------

    \52\ See FHFA, 2014 Annual Housing Report, at 15, Fn. 22 (Oct. 
30, 2014), available at https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/Annual_Housing_Report_2014.pdf.
---------------------------------------------------------------------------

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    10. What existing Enterprise criteria (contained in Freddie Mac's 
Manufactured Homes, Publication Number 387B and Fannie Mae's Selling 
Guide, B5-2 \53\) for support of manufactured home loans titled as real 
property could be modified to expand support for very low-, low-, and 
moderate-income families, consistent with Enterprise safety and 
soundness?
---------------------------------------------------------------------------

    \53\ See generally Freddie Mac, 1 Single-Family Seller/Servicer 
Guide H33 (Sept. 1, 2015); Fannie Mae, Selling Guide, B5-2 (Aug. 25, 
2015), available at https://www.fanniemae.com/content/guide/selling/b/.
---------------------------------------------------------------------------

    11. Should Enterprise support for manufactured home loans titled as 
real property be a Regulatory Activity?
    12. Should the Duty to Serve rule only give credit for support to 
manufactured home borrowers with specific needs, such as current 
borrowers with real estate mortgages with excessive coupon rates (and 
what should be considered ``excessive''), or current borrowers with 
chattel loans who could benefit from conversion to real estate 
financing? If so, what kinds of needs would be appropriate?
    13. Should the Enterprises receive credit for purchasing chattel 
loans, on an ongoing or pilot basis? If so what improvements should be 
made in the process for originating and servicing that would make 
chattel loans safer for purchase by the Enterprises and safer for 
borrowers?
    14. Should Duty to Serve credit be available for Enterprise support 
of chattel-titled manufactured homes where the units are sited in 
manufactured housing communities for which an Enterprise has purchased 
the blanket loan and the blanket loan purchase qualifies for Duty to 
Serve credit?
    15. If FHFA allows Duty to Serve credit for Enterprise support of 
chattel lending, should the tenant protections as described in 
``Manufactured Housing Communities with Tenant Protections--Proposed 
Sec.  1282.33(c)(2)(iii)'' below also be required? How could compliance 
with borrower and tenant protections be implemented and monitored 
within the operational systems and capacities of the Enterprises and 
those of their seller/servicers and other counterparties?
ii. Manufactured Housing Communities--Proposed Sec.  1282.33(c)(2)
    Section 1282.33(c)(2) of the proposed rule would provide Duty to 
Serve credit for Enterprise activities related to facilitating a 
secondary market for mortgages on certain categories of manufactured 
housing communities. Under the proposed rule, three specific types of 
activities would constitute Regulatory Activities that the Enterprises 
would have to address in their Underserved Markets Plans by indicating 
how they will undertake one or more of the activities or the reasons 
why they will not undertake each of the activities. These three 
Regulatory Activities are:
    a. Support for blanket mortgages on manufactured housing 
communities with 150 pads or less;
    b. Support for blanket mortgages on government-, nonprofit-, or 
resident-owned manufactured housing communities; and
    c. Support for blanket mortgages on manufactured housing 
communities that have certain specified minimum protections for tenants 
in the pad leases.

A single manufactured housing community that fits more than one of 
these categories would be eligible for additional Duty to Serve credit.
    Proposed Sec.  1282.1 would define ``manufactured housing 
community'' as a tract of land under unified ownership and developed 
for the purpose of providing individual rental spaces for the placement 
of manufactured homes within its boundaries. The homes, which may be 
owner-occupied, i.e., chattel-owned, or leased from the community 
owner, are sited on pads. A unit owner leases the pad on which the 
owner-occupied unit is located, adding this cost to monthly payments on 
the chattel loan for the unit. Leased units may include the pad in the 
rent, or may require a separate rent for the pad. The total housing 
costs for any manufactured housing community resident typically include 
monthly utility payments, which can be significant.\54\
---------------------------------------------------------------------------

    \54\ Rural Trailer-Park Households, supra note 30, at 95, 101.
---------------------------------------------------------------------------

    There are an estimated 50,000 to 60,000 manufactured home 
communities nationwide, and they typically have fewer than 200 
pads.\55\ Manufactured housing communities tend to be in rural and 
lower-income areas.\56\ More than 50 percent of rental manufactured 
homes are concentrated in eight states.\57\
---------------------------------------------------------------------------

    \55\ Rural Trailer-Park Households, supra note 30, at 95, 97. 
See also Manufactured Housing Association for Regulatory Reform, 
Letter to FHFA, 6-7 (Sept. 2, 2009) (comment letter on FHFA's Duty 
to Serve Advance Notice of Proposed Rulemaking). This trade 
association advised that 85 percent of manufactured housing 
communities have fewer than 100 units. Id.
    \56\ See Rural Trailer-Park Households, supra note 30, at 95; 
Housing Assistance Council, Rural Housing Research Note, Preserving 
Affordable Manufactured Home Communities in Rural America: A Case 
Study at 3 (Mar. 2011), available at https://www.ruralhome.org/storage/documents/rcbi_manufactured.pdf.
    \57\ Freddie Mac, ``2015 Multifamily Outlook--Executive 
Summary,'' Multifamily Research Perspectives, at 16-17 (Feb. 2015), 
available at https://www.freddiemac.com/multifamily/pdf/2015_outlook.pdf. The states, in order of highest number of rental 
manufactured housing units, are North Carolina, Texas, Florida, 
California, Georgia, South Carolina, Tennessee and Alabama. Id.
---------------------------------------------------------------------------

    The development of new affordable manufactured housing communities 
faces challenges, and the continued existence of many communities that 
are located closer to urban areas is threatened. Zoning constraints, 
permit requirements, and rising land values deter the development of 
new affordable communities, while providing

[[Page 79191]]

incentives for owners to convert existing communities to uses other 
than affordable housing.\58\ Rent controls on communities in some 
jurisdictions benefit households, but may also contribute to a 
community owner's decision to sell or convert affordable 
communities.\59\ At the same time, high-end communities are becoming 
more popular with investors,\60\ and the demand for the limited supply 
of high-end communities for sale has driven up community prices.\61\ 
Some types of manufactured housing communities have become highly 
desirable investments and have abundant financing options \62\ that may 
not be available to communities in secondary and tertiary markets, or 
those that use septic systems and wells.\63\
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    \58\ See generally Casey J. Dawkins, C. Theodore Koebel, Marilyn 
Cavell, Steve Hullibarger, David B. Hattis & Howard Weissman, 
``Regulatory Barriers to Manufactured Housing Placement in Urban 
Communities,'' at 107 (Jan. 2011) (Report to HUD), available at 
https://www.huduser.org/Publications/pdf/mfghsg_HUD_2011.pdf 
(``Manufactured housing placements, on the other hand, are 
influenced by a variety of regulatory barriers, including the lack 
of by-right zoning, burdensome fees, permits, snow load standards, 
fire codes, zoning codes, subdivision regulations, architectural 
design standards, and environmental regulations.''). See also Larry 
Harwood, ``Manufactured Success Today's land-lease communities 
provide an alternative niche for investment dollars,'' CIRE Magazine 
(Mar.-Apr. 2008), available at https://www.ccim.com/cire-magazine/articles/manufactured-success. This article describes incentives for 
investors to convert manufactured housing communities as follows:
    The other advantage of owning the land rather than the homes is 
that land potentially can be sold or developed for another, more 
profitable, purpose. If located in a developing area, an older 
mobile home community can become a very valuable infill location 
sought after by home builders or commercial property developers and 
easily can be repurposed with minimum demolition expense. An 
institutional owner may have the wherewithal to undertake a 
redevelopment of the land when the time is right. In fact, today's 
stable cash flows coupled with the possibility of a long-term land 
play is what motivates some institutional investors to acquire 
manufactured-home communities. Id.
    \59\ See Sandy Mazza, ``State Supreme Court rejects Carson 
mobile home park owner's rent-control challenge,'' Daily Breeze 
(Feb. 3, 2014), available at https://www.dailybreeze.com/general-news/20140202/state-supreme-court-rejects-carson-mobile-home-park-owners-rent-control-challenge; Matt Kettmann, ``California's 
Trailer-Parks War: Owners vs. Renters'' (Jan. 15, 2011), available 
at https://content.time.com/time/nation/article/0,8599,2042710,00.html.
    \60\ See Nancy Olmsted, Marcus & Millichap, ``Investor Demand 
Strong for Manufactured Housing Near Urban Areas,'' Second Half 
2015, Manufactured Housing Research Report, at 1 (2015).
    \61\ See Nancy Olmsted, Marcus & Millichap, ``Investors 
Competing for Limited Supply of Manufactured Home Communities,'' 
First Half 2015, Manufactured Housing Research Report, at 1 (2015).
    \62\ See Tony Petosa, Nick Bertino & Creighton Weber, ``Wells 
Fargo Multifamily Capital, Manufactured Home Community Financing 
Handbook,'' at 7 (9th ed. Spring 2015). For a discussion of the high 
desirability of manufactured housing communities as an investment, 
see generally, Nancy Olmsted, Marcus & Millichap, ``Investors 
Competing for Limited Supply of Manufactured Home Communities,'' 
First Half 2015, Manufactured Housing Research Report (2015). See 
also, Larry Harwood, ``Manufactured Success Today's land-lease 
communities provide an alternative niche for investment dollars,'' 
CIRE Magazine (Mar-Apr. 2008), available at https://www.ccim.com/cire-magazine/articles/manufactured-success.
    \63\ See Nancy Olmsted, Marcus & Millichap, ``Investor Demand 
Strong for Manufactured Housing Near Urban Areas,'' Second Half 
2015, Manufactured Housing Research Report, at 1 (2015).
---------------------------------------------------------------------------

    Fannie Mae has been purchasing blanket loans on manufactured 
housing communities for more than 15 years. The blanket mortgages 
purchased by Fannie Mae on manufactured housing communities have 
performed as well as other multifamily loans in its portfolio.
    Freddie Mac only recently entered the manufactured housing 
community market, but its blanket loan program is now fully 
operational. To date, the blanket mortgages purchased by Freddie Mac on 
manufactured housing communities have performed consistently with 
Freddie Mac's multifamily portfolio as a whole.
    Commenters on the 2010 Duty to Serve proposed rule were divided as 
to whether the Enterprises should receive Duty to Serve credit for 
supporting manufactured housing communities. Some commenters favored 
giving credit only for support of resident-owned manufactured housing 
communities, other commenters recommended giving credit for not-for-
profit-owned communities, while other commenters favored giving credit 
for both types of communities. FHFA has considered these comments, 
market changes since 2010, and the housing needs of very low-, low-, 
and moderate-income households in developing the proposed requirements 
for the Duty to Serve the manufactured housing market, as further 
discussed below.
(1) Small Manufactured Housing Communities--Proposed Sec.  
1282.33(c)(2)(i)
    Section 1282.33(c)(2)(i) of the proposed rule would provide Duty to 
Serve credit for Enterprise activities related to facilitating a 
secondary market for mortgages on blanket loans on small manufactured 
housing communities, defined as communities with 150 pads or less, 
which would constitute a Regulatory Activity. Duty to Serve credit 
would be available for these communities regardless of the type of 
ownership--for-profit, government, nonprofit or resident.
    Small manufactured housing communities compose the great bulk of 
the manufactured housing market, and are likely to be located in lower-
income or rural areas.\64\ Experience suggests that, much like small 
multifamily rental properties, small manufactured housing communities 
are more likely to have lower pad or unit rents and, therefore, may be 
more affordable to very low-, low-, and moderate-income families. Small 
manufactured housing communities often have fewer, if any, amenities, 
have less developed site infrastructure, and tend to have long-term 
residents.\65\ While these factors make smaller manufactured housing 
communities an important source of affordable housing, they can also 
make financing more difficult to obtain.
---------------------------------------------------------------------------

    \64\ See generally Rural Trailer-Park Households, supra note 30, 
at 95-97.
    \65\ See generally Larry Harwood, ``Manufactured Success Today's 
land-lease communities provide an alternative niche for investment 
dollars,'' CIRE Magazine (Mar.-Apr. 2008), available at https://www.ccim.com/cire-magazine/articles/manufactured-success.
---------------------------------------------------------------------------

    Industry observation also indicates that local banks or credit 
unions frequently originate the loans obtained by smaller manufactured 
housing communities and hold the loans in portfolio. Although permanent 
financing may be available on relatively favorable terms in the current 
market, including less expensive loans with fixed interest rates for 5-
year terms,\66\ this has not been the case in all market conditions and 
for all community owners. Similar to the financing options available to 
small multifamily property owners, the financing more commonly 
available to owners of small manufactured housing communities has not 
been fully amortizing and loan terms have often been short, at the end 
of which time a balloon payment is due. The interest rates for loans on 
small manufactured housing communities were more likely to be 
adjustable and may likely have been higher than the rates available to 
owners of larger communities.
---------------------------------------------------------------------------

    \66\ In steep yield curve environments, such as the current 
market, interest rates are higher for longer-term loans. Some buyers 
opt for shorter-term loans to take advantage of the lower interest 
rate.
---------------------------------------------------------------------------

    The manufactured housing community blanket loans that the 
Enterprises have purchased to date have tended to be loans on larger 
manufactured housing communities. Many of the blanket loans purchased 
are for age-restricted communities, and are for properties located in 
only a few states. Duty to Serve credit is not needed to provide an 
incentive for Enterprise support for blanket loans for well-served 
manufactured housing communities that are less likely to have very low-
, low-, or moderate-income

[[Page 79192]]

families. Although the Enterprises' underwriting guides do not exclude 
small manufactured housing communities, the Enterprises have not been 
significantly active in this market segment.
    FHFA understands that extra efforts by the Enterprises may be 
necessary to support small manufactured housing communities due to 
economies of scale and operational considerations.\67\ Nevertheless, 
the Enterprises could play a role in supporting fixed rate, longer-
term, fully amortizing financing than is currently available for some 
small manufactured housing communities.
---------------------------------------------------------------------------

    \67\ See George Allen, ``Manufactured-Home Communities Come of 
Age,'' CCIM Institute (Oct. 1996), available at https://www.ccim.com/cire-magazine/articles/manufactured-home-communities-come-age (``It 
takes 50 to 75--or even 100--rental home sites to generate an 
economy of scale that adequately rewards a passive investor, funds a 
centralized property management operation for a syndicator or real 
estate investment trust (REIT), and provides a satisfactory comfort 
factor for most lenders.'').
---------------------------------------------------------------------------

(2) Manufactured Housing Communities Owned by Governmental Units or 
Instrumentalities, Nonprofits, or Residents--Proposed Sec.  
1282.33(c)(2)(ii)
    Section 1282.33(c)(2)(ii) of the proposed rule would provide Duty 
to Serve credit for Enterprise activities related to facilitating a 
secondary market for mortgages on manufactured housing communities 
owned by governmental units or instrumentalities, nonprofits, or 
residents, which would constitute a Regulatory Activity.
    The purpose of these types of manufactured housing communities is 
usually to serve lower-income residents. These communities tend to 
preserve the continued existence of the community, promote fair 
treatment of tenants, and help preserve permanent affordability.\68\ 
However, these communities often have difficulty obtaining financing 
due to typically lower profitability relative to communities with 
higher-income residents.\69\ One study found that residents of 
resident-owned communities ``have consistent economic advantages over 
their counterparts in investor-owned communities, as evidenced by lower 
lot fees, higher average home sales prices, faster home sales, and 
access to fixed rate home financing.'' \70\ Although government-, 
nonprofit-, and resident-owned communities currently make up a very 
small portion of the overall manufactured housing community market, 
more active support by the Enterprises for these types of ownership may 
encourage more manufactured housing communities to convert to this form 
of ownership, with the attendant benefits for the residents.
---------------------------------------------------------------------------

    \68\ See generally Millennium Housing--Mission Statement, 
available at https://www.millenniumhousing.net/asp/Site/About/Mission/index.asp.
    \69\ See generally Millennium Housing--Our History, available at 
https://www.millenniumhousing.net/asp/Site/About/History/index.asp.
    \70\ Sally K. Ward, Charlie French & Kelly Giraud, ``Resident 
Ownership in New Hampshire's `Mobile Home Parks:' A Report on 
Economic Outcomes'' (rev. 2010), available at https://scholars.unh.edu/cgi/viewcontent.cgi?article=1009&context=carsey.
---------------------------------------------------------------------------

(3) Manufactured Housing Communities With Tenant Pad Lease 
Protections--Proposed Sec.  1282.33(c)(2)(iii)
    Section 1282.33(c)(2)(iii) of the proposed rule would provide Duty 
to Serve credit for Enterprise activities related to facilitating a 
secondary market for blanket loans on manufactured housing communities 
that have certain specified minimum pad lease protections for tenants, 
which would constitute a Regulatory Activity.
    Business practices of manufactured housing rental community owners 
with their tenants vary widely, as with all forms of rental housing. 
For example, some manufactured housing community owners have sharply 
raised pad rents or unexpectedly canceled leases, particularly where 
the land has appreciated in value due to urban sprawl.\71\ Some 
community owners have reportedly suppressed tenant complaints and 
organizing efforts for tenant associations. Tenants have been displaced 
as a result of sales of their communities or conversions of their 
communities to other uses.\72\ A nationwide scarcity of available sites 
for relocation of existing manufactured housing units has also allowed 
some manufactured housing community owners or managers to enforce 
restrictive community regulations.\73\ The Rhode Island Supreme Court 
has noted that ``special circumstances'' exist with manufactured 
housing communities, and unequal bargaining power may lead to 
``abuses'' by the manufactured housing community owner.\74\
---------------------------------------------------------------------------

    \71\ Rural Trailer-Park Households, supra note 30, at 95, 100. 
See generally Laura Flanders, ``Affordable Housing for Seniors in 
the Cross Hairs in Chicago,'' The Nation (May 15, 2012), available 
at https://www.thenation.com/article/affordable-housing-seniors-cross-hairs-chicago/.
    \72\ Regarding displacement of residents, see Shannon Sims, 
``The odd legal limbo for mobile home owners,'' USA Today (May 4, 
2015), available at https://www.usatoday.com/story/money/2015/05/04/ozy-odd-limbo-mobile-home-owners/26866693/. For a discussion of 
unequal bargaining power between manufactured community owners and 
tenants, and related legislative responses, see ``Validity, 
construction, and application of mobile home eviction statutes,'' 43 
A.L.R.5th 705 (1996); Bailey H. Kuklin, ``Housing and Technology: 
The Mobile Home Experience,'' 44 Tenn. L. Rev. 765 (Spring 1977).
    \73\ Rural Trailer-Park Households, supra note 30, at 95, 99-
100.
    \74\ See Kingston Mobile Home Park v. Strashnick, 774 A.2d 847, 
853 (R.I. 2001), noted in Brown v. Shumpert, 2003 R.I. Super. LEXIS 
125, Superior Court of Rhode Island, Providence (Oct. 2, 2003, Filed 
C.A. NO.: PC99-5926, C.A. NO.: PC02-2594).
---------------------------------------------------------------------------

    Manufactured housing community tenants face significant costs and 
difficulties in relocating their units.\75\ Relocation costs can total 
between $3,000\76\ and $5,000.\77\ Tenants are usually responsible for 
removing their own skirting, deck, steps, and landscaping prior to 
moving their units.\78\ The tenant may not be able to find a new 
manufactured housing community in which to live because many 
communities are full or will not accept used units.\79\ Zoning 
regulations in some counties and municipalities prevent the placement 
of older units.\80\ Currently, neither Enterprise will purchase a 
mortgage secured by a manufactured home that has been moved.\81\
---------------------------------------------------------------------------

    \75\ Frank Rolfe, ``Why Mobile Home Parks Have Such An Unfair 
Advantage in Commercial Real Estate,'' available at https://www.mobilehomeuniversity.com/articles/why-mobile-home-parks-have-an-unfair-advantage-in-commercial-real-restate.php. See also Drew 
Harwell, ``Mobile home park investors bet on older, poorer 
America,'' Tampa Bay Times (May 17, 2014), available at https://www.tampabay.com/news/business/realestate/mobile-home-park-investors-bet-on-older-poorer-america/2180277.
    \76\ William Apgar, Allegra Calder, Michael Collins & Mark Duda, 
Neighborhood Reinvestment Corporation, ``An Examination of 
Manufactured Housing as a Community--and Asset--Building Strategy,'' 
at 5 (Sept. 2002), available at https://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/w02-11_apgar_et_al.pdf.
    \77\ See Jessica Nicklos, ``Frank & Dave--Their Life in the 
Affordable Housing Industry and Predictions for the Future,'' at 9.
    \78\ See Tony Guerra, ``The Average Cost to Deliver and Set Up a 
Mobile Home,'' available at https://homeguides.sfgate.com/average-cost-deliver-set-up-mobile-home-96554.html.
    \79\ See Consumers Union, ``Manufactured Homeowners Who Rent 
Lots Lack Security of Basic Tenants Rights'' (Feb. 21, 2001), 
available at https://consumersunion.org/pdf/manhome.pdf. But see 
Harold D. Hunt, ``Keys to Successful Manufactured Housing 
Communities,'' Publication 2101, at 4 (June 4, 2015), available at 
https://recenter.tamu.edu/pdf/2101.pdf.
    \80\ See Schanzenbach v. Town of La Barge, 706 F.3d 1277 (10th 
Cir. 2013); Five C's, Inc. v. County of Pasquotank, 195 N.C. App. 
410, 672 SE.2d 737 (2009). See generally David W. Owens, 
``Manufactured Housing, Modular Housing, and Zoning'' (May 2014) 
(School of Government, The University of North Carolina at Chapel 
Hill), available at https://www.sog.unc.edu/resources/legal-summaries/manufactured-housing-modular-housing-and-zoning.
    \81\ See Fannie Mae, Selling Guide, ``B2-3-02: Special Property 
Eligibility and Underwriting Considerations: Factory-Built Housing 
(04/15/2014)'' (Apr. 15, 2014) (``The unit must not have been 
previously installed or occupied at any other site or location.''), 
available at https://www.fanniemae.com/content/guide/selling/b2/3/02.html; Freddie Mac, 1 Single-Family Seller/Servicer Guide H33.3(b) 
(Sept.1, 2015).

---------------------------------------------------------------------------

[[Page 79193]]

    Pad lease protections in manufactured housing communities are 
generally a matter of state or local law and, thus, these protections 
can vary widely.\82\ In light of concerns raised about the treatment of 
tenants in some manufactured housing communities,\83\ the proposed rule 
would include a list of pad lease protections that FHFA believes would 
be appropriate for Duty to Serve credit. Specifically, the proposed 
rule would provide that Enterprise support for a manufactured housing 
community that has, at a minimum, all of the following pad lease 
protections would receive Duty to Serve credit:
---------------------------------------------------------------------------

    \82\ See United States Government Accountability Office, Report 
to Congressional Requesters, ``Federal Housing Administration--
Agency Should Assess the Effects of Proposed Changes to the 
Manufactured Home Loan Program,'' GAO-07-879, at 5 (Aug. 2007), 
available at https://www.gao.gov/new.items/d07879.pdf. The National 
Consumer Law Center reports, for example, that only 16 states 
require that manufactured housing community pad leases have some 
minimum lease term, and only 33 states require grounds for evicting 
residents from a community. See National Consumer Law Center, 
``Manufactured Housing Resource Guide--Protecting Fundamental 
Freedoms in Communities,'' at 4-5 (Oct. 2010), available at https://cfed.org/assets/pdfs/groundwork.pdf.
    \83\ See United States Government Accountability Office, Report 
to Congressional Requesters, ``Federal Housing Administration--
Agency Should Assess the Effects of Proposed Changes to the 
Manufactured Home Loan Program,'' GAO-07-879, at 5 (Aug. 2007), 
available at https://www.gao.gov/new.items/d07879.pdf; National 
Consumer Law Center, ``Manufactured Housing Resource Guide--
Protecting Fundamental Freedoms in Communities,'' at 4-5 (Oct. 
2010), available at https://cfed.org/assets/pdfs/groundwork.pdf.
---------------------------------------------------------------------------

    a. The lease term must be for a minimum of one year and renewable 
absent good cause; \84\
---------------------------------------------------------------------------

    \84\ For a discussion of the effects of month-to-month and 
annual leases, see Rupert Neate, ``Trailer park king sued by 
residents in Texas for raising rents,'' theguardian (May 11, 2015), 
available at https://www.theguardian.com/us-news/2015/may/11/trailer-park-king-sued-by-residents-in-texas-for-raising-rents.
---------------------------------------------------------------------------

    b. There must be at least 30 days advance written notice of a rent 
increase;
    c. There must be at least a five-day grace period for rent 
payments, and tenants must have a right to cure defaults on rent 
payments;
    d. If the tenant defaults on rent payments, the tenant must have 
the right to:
    i. Sell the tenant's unit without having to first relocate it out 
of the community;
    ii. Sublease or assign the lease for the unexpired term to the new 
buyer of the tenant's unit without any unreasonable restraint;
    iii. Post ``For Sale'' signs; and
    iv. Have a reasonable period of time after an eviction to sell the 
unit; and,
    e. Tenants must receive at least 120 days advance notice of a 
planned sale or closure of the community within which time the tenants, 
or an organization acting on behalf of a group of tenants, may match 
any bona fide offer for sale. The community owner shall consider the 
tenants' offer and negotiate with them in good faith.
    FHFA recognizes that an individual tenant is unlikely to be able to 
purchase a community by himself or herself. For this reason, the pad 
lease protections would allow tenants 120 days to match any bona fide 
offer for sale, giving tenants time to form a homeowners' association 
or tenants' association to purchase the community.
    FHFA believes that the Enterprises can use their market influence 
in support of the pad lease protection standards described here 
becoming more of a norm in the industry. An Enterprise may verify that 
the pad leases in a manufactured housing community being served by the 
Enterprise contain, at a minimum, the specified tenant protections at 
the time the Enterprise purchases the blanket loan by obtaining a 
certification to this effect from the seller/servicer. Sellers and 
servicers would not be expected to oversee compliance by the 
manufactured housing community borrowers with these pad lease 
provisions. Likewise, FHFA would not require that the covenants in the 
blanket loan provide for default in the event of non-compliance with 
the tenant protections by the manufactured housing community borrower. 
The tenants, in their discretion, would be responsible for pursuing any 
private relief in those instances that may be available under state 
law.
    Some commenters on the 2010 Duty to Serve proposed rule favored 
tenant protections for any loan that receives Duty to Serve credit. 
Although the Enterprises are major participants in the manufactured 
housing community market and have some degree of influence, this is 
currently a highly competitive market. Requiring the tenant protections 
for the Duty to Serve eligibility of every manufactured housing 
community loan may simply incentivize community owners to seek funding 
elsewhere.
    Manufactured housing communities subject to federal, state or local 
laws providing pad lease protections equal to or greater than those 
listed above would meet the requirements of the proposed rule. As an 
alternative to obtaining a seller/servicer certification of the pad 
lease protections for a community securing a loan purchased by an 
Enterprise, the Enterprise may verify that such laws apply to the 
community.
c. Evaluating Affordability for Manufactured Housing Communities--
Proposed Sec.  1282.39(g)
    The Safety and Soundness Act provides that the Enterprises' Duty to 
Serve manufactured housing activities must be for very low-, low-, and 
moderate-income families.\85\ Under the statute, ``very low-income'' is 
defined as having an income of 50 percent or less of the area median 
income, adjusted for household size; ``low-income'' is defined as 
having an income of 80 percent or less of the area median income, 
adjusted for household size; and ``moderate-income'' is defined as 
having an income of 100 percent or less of the area median income, 
adjusted for household size.\86\
---------------------------------------------------------------------------

    \85\ 12 U.S.C. 4565(a)(1)(A).
    \86\ 12 U.S.C. 4502.
---------------------------------------------------------------------------

    Owners of manufactured housing communities are unlikely to know the 
incomes of all of their residents at the time a blanket loan for the 
community is originated or sold to an Enterprise. In order for an 
Enterprise's purchase of a blanket loan on a manufactured housing 
community to receive credit under the loan purchase assessment factor, 
an alternative to requiring the Enterprises to obtain the income of the 
tenants in the community is needed. FHFA has previously established a 
proxy methodology for determining affordability for the Enterprises' 
housing goals that uses total monthly housing costs (rents plus utility 
costs) instead of incomes.\87\ That methodology would be used for 
determining affordability of multifamily properties under this proposed 
rule. However, total monthly housing costs (unit owners' total monthly 
note payments plus pad rent payments adjusted for bedroom size) in 
manufactured housing communities are generally not known to the owners 
of the communities. Accordingly, to determine affordability for 
manufactured housing communities, Sec.  1282.39(g) of the proposed rule 
would set forth a methodology that would apply to manufactured housing 
communities, regardless of the type of ownership or size of the 
community. The methodology would compare the median income for the 
census tract in which the community is located with the median income 
for the entire metropolitan area in which the census tract is located.
---------------------------------------------------------------------------

    \87\ See 80 FR 53392, 53432 (Sept. 3, 2015), to be codified at 
12 CFR 1282.15(d)(1).
---------------------------------------------------------------------------

    For example, for a community located in a census tract where the 
median

[[Page 79194]]

income does not exceed 100 percent of the median income of the area in 
which the census tract is located, all residents of the community would 
be deemed to have incomes not exceeding 100 percent of the area median 
income and, thus, would meet the definition of ``moderate-income'' in 
the Safety and Soundness Act. In this case, the entire unpaid principal 
balance of the loan on such a community would receive credit, provided 
the loan meets all other requirements of the regulation.
    For a manufactured housing community located in a census tract 
where the median income exceeds the median income of the area in which 
the census tract is located, the area median income would be divided by 
the median income of the census tract to generate a percentage, which 
would then be multiplied by the unpaid principal balance of the blanket 
loan. For example, if the census tract's median income is $125,000, the 
area median income is $100,000, and the unpaid principal balance of the 
loan is $1,000,000, the Enterprise would receive partial Duty to Serve 
credit of $800,000, as calculated in the following manner:

Step 1: $100,000 / $125,000 = 80%
Step 2: 80% x $1,000,000 = $800,000

    FHFA recognizes that under this proposed methodology, the 
Enterprises could receive Duty to Serve credit for purchases of 
mortgages on manufactured housing communities that may have some 
residents with incomes exceeding the area median income. The proposed 
methodology takes this into account through the partial credit 
component of the methodology. FHFA believes that the proposed 
methodology is a reasonable approach that will result in Duty to Serve 
credit being provided for manufactured housing communities that largely 
serve income-eligible households.
    Home Mortgage Disclosure Act (HMDA) data for 2013 show that 64 
percent of originations of loans on manufactured housing units were for 
borrowers with incomes at or below 100 percent of area median income. 
Forty-eight percent of these borrowers were very low- or low-
income.\88\ Another data series, the American Housing Survey, shows 
that, as of 2013, the median income for ``manufactured housing/mobile 
home'' households was $28,400,\89\ while the estimated median income 
nationwide of all homeowners was $64,400.\90\ In 2009, 22 percent of 
manufactured housing residents had incomes at or below the federal 
poverty level.\91\ While the data do not indicate whether these 
borrowers reside in manufactured housing communities, they are 
indicative generally of the lower incomes of manufactured housing 
residents and suggest a higher likelihood that residents of 
manufactured housing communities have lower incomes.\92\ At the same 
time, giving Duty to Serve credit for a manufactured housing community 
that serves both lower-income and higher-income households may be 
desirable because it may contribute significant benefits to the low- 
and moderate-income households in the community and to the success and 
sustainability of the community. There is substantial research on the 
benefits of mixed-income housing.\93\
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    \88\ These percentages come from 2013 HMDA data on manufactured 
housing unit loan originations, including borrowers residing in 
manufactured housing communities as well as borrowers who owned the 
land on which their units were located. Borrower income was not 
reported in HMDA on 14 percent of originations. To arrive at the 
figures presented (64 percent at or below area median income and 36 
percent above area median income), this 14 percent figure was 
subtracted from the total and the remainder adjusted proportionately 
as between originations above and below the median. FHFA is unaware 
of any reason the 14 percent of borrowers would disproportionately 
have incomes over 100 percent of area median income. The figures 
presented include home purchase and refinance loans, but not 
rehabilitation loans.
    \89\ U.S. Census Bureau, American Housing Survey (2013, Last 
Revised: May 14, 2015), Table C-09A-AO, available at https://www.census.gov/programs-surveys/ahs/data/2013/national-summary-report-and-tables_mdash;ahs-2013.html.
    \90\ See U.S. Department of Housing and Urban Development, 
Notice PDR 2013-01, at 1 (Dec. 11, 2012), available at https://www.huduser.org/portal/datasets/il/il13/Medians2013.pdf.
    \91\ See Howard Banker & Robin LeBaron, Fair Mortgage 
Collaborative, ``Toward a Sustainable and Responsible Expansion of 
Affordable Mortgages for Manufactured Homes,'' at 9 (Mar. 2013), 
available at https://cfed.org/assets/pdfs/IM_HOME_Loan_Data_Collection_Project_Report.pdf.
    \92\ Some states have made legislative determinations finding 
that manufactured housing serves lower- and moderate-income 
households that might otherwise go without housing. See generally 
N.C. Gen. Stat. 160A-383.1 (2001). See also R.I. Gen. Laws section 
31-44.1-1; 25 Del. C. section 7040.
    \93\ See HUD Community Planning and Development, ``Mixed-Income 
Housing and the HOME Program'' (2003), available at https://portal.hud.gov/hudportal/documents/huddoc?id=19790_200315.pdf. See 
generally Diane K. Levy, Zach McDade & Kassie Dumlao, ``Effects from 
Living in Mixed-Income Communities for Low-Income Families--A Review 
of the Literature'' (Nov. 2010) (Urban Institute), available at 
https://www.urban.org/research/publication/effects-living-mixed-income-communities-low-income-families/view/full_report; Robert 
Chaskin & Mark Joseph, The University of Chicago School of Social 
Service Administration, ``Mixed-Income Development Study'' (Spring 
2009), available at https://ssascholars.uchicago.edu/mixed-income-development-study/content/overview-0. But see Robert C. Ellickson, 
``The False Promise of the Mixed-Income Housing Project,'' 57 UCLA 
L. Rev. 983 (2010) (concluding that many recent social-scientific 
studies weaken the case for government support of mixed-income 
projects).
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Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    16. Are there other segments of the manufactured housing market 
besides those discussed above that warrant Enterprise support under the 
Duty to Serve, such as communities located in lower-income or 
economically distressed areas?
    17. Is the proposed limit of 150 pads for an eligible small 
manufactured housing community appropriate? Is there a different 
threshold that could better achieve the purposes of the Duty to Serve?
    18. Are the proposed pad lease protections appropriate? Should any 
additional pad lease protections be required for an Enterprise to 
receive Duty to Serve credit?
    19. Should the proposed pad lease protections be required for any 
manufactured housing community, regardless of its ownership or size, to 
be eligible for Duty to Serve credit?
    20. Would the proposed methodology for determining affordability 
effectively approximate the incomes of the community's tenants? Are 
there other approaches that could effectively approximate the incomes 
of manufactured housing community tenants to comply with the Duty to 
Serve family income requirements, e.g., the size of the blanket loan on 
the community or the size of the community?
    21. Could governing or financing documents for the community 
provide a proxy for resident incomes? For communities owned by 
governmental units or instrumentalities, would regulations, handbooks 
or financing documents specifying income criteria for the residents be 
an appropriate indicator of tenant incomes? For nonprofit-owned and 
resident-owned communities, would the founding documents for the 
community, which describe its mission as serving lower-income families, 
or financing agreements or other documents from funding sources 
specifying the required income levels of intended beneficiaries, be 
appropriate indicators of tenant incomes? Is there any comparable 
documentation that could be applicable to communities with for-profit 
owners, e.g., where they have accepted income restrictions in order to 
accept Section 8 vouchers?
    22. Where the loan seller knows the incomes of the tenants of a 
manufactured housing community at the time an Enterprise purchases the

[[Page 79195]]

blanket loan on the community, should the incomes be used to determine 
affordability, and what operational concerns might be associated with 
transferring the income data to the Enterprises?
    23. Are there other loan programs, terms or lending criteria that, 
if adopted, could increase Enterprise purchases of blanket loans on 
manufactured housing communities?
    24. Should FHFA address geographic diversity of the Enterprises' 
assistance for manufactured housing as part of the Duty to Serve 
manufactured housing community financing needs, and if so, how?
    25. Since manufactured housing community acquisition loans may 
support large sales prices on existing communities which, in turn, may 
drive increases in pad rents and render the communities unaffordable to 
lower-income households, should acquisition loans be ineligible for 
Duty to Serve credit? Are there particular instances where acquisition 
loans benefit very low-, low-, and moderate-income households?
    26. Would Enterprise refinance loans be particularly helpful to 
residents because they are long-term, fixed rate and relatively low-
cost, which reduces the pressure on community owners to increase pad 
rents?
2. Affordable Housing Preservation Market--Proposed Sec.  1282.34
a. Background
    The Safety and Soundness Act provides that the Enterprises ``shall 
develop loan products and flexible underwriting guidelines to 
facilitate a secondary market to preserve housing affordable to very 
low-, low-, and moderate-income families,'' including housing projects 
subsidized under certain specified federal grant, subsidy and mortgage 
insurance programs enumerated in the Act.\94\ Section 1282.34(c) of the 
proposed rule would provide Duty to Serve credit for Enterprise 
activities related to facilitating a secondary market for mortgages on 
housing under any of these statutorily-enumerated programs.
---------------------------------------------------------------------------

    \94\ 12 U.S.C. 4565(a)(1)(B).
---------------------------------------------------------------------------

    In addition, Sec.  1282.34(d) of the proposed rule would provide 
Duty to Serve credit for Enterprise activities related to facilitating 
a secondary market for mortgages for: Existing small multifamily 
properties; energy efficiency improvements on existing multifamily 
rental properties; energy efficiency improvements on existing owner-
occupied single-family properties; affordable homeownership 
preservation through shared equity homeownership programs; HUD's Choice 
Neighborhoods Initiative; and HUD's Rental Assistance Demonstration 
program. Under the proposed rule, each of these activities would 
constitute a Regulatory Activity that the Enterprises must address in 
their Underserved Markets Plans by describing how they will undertake 
the activity or explaining the reasons why they will not undertake the 
activity. The Plans may also include Additional Activities that support 
housing for very low-, low-, or moderate-income families consisting of 
affordable rental housing preservation and affordable homeownership 
preservation, subject to FHFA determination of whether such activities 
are eligible for Duty to Serve credit.
b. Interpreting ``Preservation''
    The Safety and Soundness Act does not define the term 
``preservation'' for the affordable housing preservation market. 
Preservation strategies for affordable rental housing and homeownership 
differ.
i. Affordable Rental Housing
    For affordable rental housing, preservation is generally understood 
among affordable housing practitioners to mean preserving the 
affordability of the rents to tenants in existing properties, including 
preventing conversion of the properties to market rents at the end of 
the required long-term affordability retention periods, typically 15 
years, which is also the time at which major rehabilitation of the 
properties is usually needed.\95\ This is consistent with the plain 
meaning of the term ``preservation,'' which is maintaining something in 
its existing state.\96\ The concept of ``preservation'' in the rental 
housing context is not generally understood to include new construction 
of rental properties.
---------------------------------------------------------------------------

    \95\ This is the focus of HUD's Office of Affordable Housing 
Preservation (recently renamed the Office of Recapitalization).
    \96\ See Cambridge Dictionaries Online, definition of 
``preserve.''
---------------------------------------------------------------------------

    However, the population has been expanding while the stock of 
affordable rental housing has been shrinking.\97\ The rate of new 
construction of affordable rental housing has not kept pace with the 
demand.\98\ Further, more desirable markets face particular upward rent 
pressure.\99\ One way to preserve affordability is to give credit for 
newly constructed rental units where long-term affordability is 
required by regulatory agreements, such as for at least 15 years, the 
standard affordability retention period for rental housing. In 
addition, some of the specifically enumerated programs under the 
affordable housing preservation market in the Safety and Soundness Act 
involve new construction, arguably indicating congressional intent that 
support for new construction be included under this market, although 
Congress may have intended only that support for existing properties 
under these programs at the point of their expiring regulatory 
agreements be included in this market.
---------------------------------------------------------------------------

    \97\ See Evidence Matters, Policy Development and Research, 
Department of Housing and Urban Development, ``Preserving Affordable 
Rental Housing: A Snapshot of Growing Need, Current Threats, and 
Innovative Solutions,'' Summer 2013, available athttps://www.huduser.gov/portal/periodicals/em/em_newsletter_summer_2013_fnl.pdf.
    \98\ Id.
    \99\ Id.
---------------------------------------------------------------------------

    FHFA specifically requests comments on whether the term 
``preservation'' should be interpreted to allow Duty to Serve credit 
for Enterprise support for both the purchase of permanent construction 
take-out loans \100\ on rental properties with long-term affordability 
regulatory agreements and the purchase of refinanced mortgages on 
existing rental properties with long-term affordability regulatory 
agreements.
---------------------------------------------------------------------------

    \100\ The Enterprises purchase permanent construction take-out 
loans but not acquisition/development/construction loans.
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ii. Energy Efficiency Improvements on Existing Multifamily Rental 
Properties
    Lowering energy and water use in multifamily buildings will reduce 
the total amount that tenants spend for the energy and water that they 
do use, thus reducing their utility consumption. This can be considered 
``preservation'' under the affordable housing preservation market 
because housing costs are typically defined as rent plus utility costs. 
Thus, savings in utility consumption that reduce utility expenses may 
help maintain the overall affordability of rental housing for tenants. 
Accordingly, under the proposed rule, Enterprise support for energy and 
water efficiency improvements on existing multifamily properties 
affordable to very low-, low-, and moderate-income families would be a 
Regulatory Activity, provided there are verifiable, reliable 
projections or expectations that the improvements financed by the loan 
will reduce energy and water consumption by the tenant by at least 15 
percent. The reduced utility costs derived from the reduced consumption 
must not be offset by higher rents or other charges imposed by the 
property owner, and the reduced

[[Page 79196]]

utility costs must offset the upfront costs of the improvements within 
a reasonable time period.
iii. Energy Efficiency Improvements on Single-Family, First-Lien 
Properties
    As with multifamily rental properties, preservation of affordable 
single-family properties (homeownership or rental) may also encompass 
lowering home energy costs. Lowering energy costs can help a homeowner 
to continue to afford mortgage payments and other housing costs and 
remain in the home or help a tenant afford rent. Under the proposed 
rule, Enterprise support for energy efficiency improvements on existing 
single-family, first-lien properties would be a Regulatory Activity 
provided there are verifiable, reliable projections or expectations 
that the improvements financed by the loan will reduce utility 
consumption by the homeowner or tenant by at least 15 percent. The 
reduced utility costs derived from the reduced consumption must offset 
the upfront costs of the improvements within a reasonable time period, 
and in the case of a single-family rental property, the reduced utility 
costs must not be offset by higher rents or other charges imposed by 
the property owner.
iv. Shared Equity Programs
    For affordable homeownership, there are no regulatory agreements 
similar to those with affordable rental properties that expire at the 
15-year point, when preservation of the units as affordable units to 
lower-income tenants is in jeopardy and rehabilitation of the property 
is often needed. Rather, preservation for affordable homeownership 
entails ensuring that the price of the home is affordable over a long-
term period to initial and subsequent purchasers, whether purchasing a 
newly constructed home or an existing home. Shared equity programs 
offer this type of sustainable affordable homeownership. Under the 
proposed rule, Enterprise support of financing under shared equity 
programs that involve the creation of long-term affordable 
homeownership would be a Regulatory Activity, as further discussed 
below.
v. Choice Neighborhoods Initiative
    The proposed rule would establish as a Regulatory Activity 
Enterprise support for HUD's Choice Neighborhoods Initiative 
(CNI).\101\ Created after the enactment of HERA, CNI seeks to preserve 
and transform distressed, HUD-supported affordable housing. CNI focuses 
on creating mixed-income housing and investing in neighborhood 
improvements and upgrades. The proposed rule would provide Duty to 
Serve credit for Enterprise activities supporting permanent financing 
under CNI.
---------------------------------------------------------------------------

    \101\ 42 U.S.C. 1437v; see also https://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/programs/ph/cn.
---------------------------------------------------------------------------

vi. Rental Assistance Demonstration Program
    The proposed rule would establish as a Regulatory Activity 
Enterprise support for HUD's Rental Assistance Demonstration (RAD) 
program.\102\ Also created after the enactment of HERA, the RAD program 
seeks to improve and preserve distressed, HUD-supported affordable 
housing. The program enables public housing authorities to tap outside 
sources of capital to renovate and preserve housing affordable to very 
low-income households. The proposed rule would provide Duty to Serve 
credit for Enterprise activities supporting permanent financing under 
the RAD program.
---------------------------------------------------------------------------

    \102\ Consolidated and Further Continuing Appropriations Act of 
2012 (PL 112-55), as amended, 42 U.S.C. 1437f note; see also https://portal.hud.gov/hudportal/HUD?src=/RAD.
---------------------------------------------------------------------------

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    27. Are there other options on how to interpret preservation of 
multifamily or single-family affordable housing that FHFA should 
consider?
    28. Should FHFA require that preservation activities extend the 
property's regulatory agreement that restricts household incomes and 
rents for some minimum number of years, such as 10 years, beyond the 
date of the Enterprises' loan purchase? If so, what would be an 
appropriate minimum period of long-term affordability for the extended 
use regulatory agreement?
    29. Should Enterprise purchases of permanent construction takeout 
loans on new affordable multifamily rental properties with extended-use 
regulatory agreements that will keep rents affordable for a specified 
long-term period, such as 15 years or more, receive credit under the 
affordable housing preservation market? What would be an appropriate 
period of long-term affordability for the extended-use regulatory 
agreements?
c. Statutory Activities--Proposed Sec.  1282.34(c)
    The Safety and Soundness Act provides that the Enterprises ``shall 
develop loan products and flexible underwriting guidelines to 
facilitate a secondary market to preserve housing affordable to very 
low-, low-, and moderate-income families, including housing subsidized 
under'' the following government programs:
     The project-based and tenant-based rental assistance 
programs under Section 8 of the United States Housing Act of 1937 (42 
U.S.C. 1437f);
     The program under Section 236 of the National Housing Act 
(rental and cooperative housing for lower-income families) (12 U.S.C. 
1715z-1);
     The program under Section 221(d)(4) of the National 
Housing Act (housing for moderate-income and displaced families) (12 
U.S.C. 1715l);
     The supportive housing for the elderly program under 
Section 202 of the Housing Act of 1959 (12 U.S.C. 1701q);
     The supportive housing program for persons with 
disabilities under Section 811 of the Cranston-Gonzalez National 
Affordable Housing Act (42 U.S.C. 8013);
     The programs under title IV of the McKinney-Vento Homeless 
Assistance Act (42 U.S.C. 11361 et seq.), but only permanent supportive 
housing projects subsidized under such programs;
     The rural rental housing program under Section 515 of the 
Housing Act of 1949 (42 U.S.C. 1485);
     The low-income housing tax credit (LIHTC) under Section 42 
of the Internal Revenue Code of 1986 (26 U.S.C. 42); and
     Comparable state and local affordable housing 
programs.\103\
---------------------------------------------------------------------------

    \103\ 12 U.S.C. 4565(a)(1)(B).
---------------------------------------------------------------------------

    Under Sec.  1282.34(c) of the proposed rule, Duty to Serve credit 
would be provided for Enterprise activities related to facilitating a 
secondary market for mortgages on housing under these statutorily-
enumerated programs. The Enterprises would be required to address all 
of the statutory programs in their Underserved Markets Plans by either 
indicating how they choose to undertake activities under these programs 
or the reasons why they will not undertake activities under the 
programs.
    Almost all the subsidized rental units covered by the statutorily-
enumerated programs are targeted to very low- or low-income families. 
Across the country, thousands of multifamily properties with federal, 
state or local subsidies that serve very low- and low-income families 
are at risk of conversion to market rate rents.\104\ Properties

[[Page 79197]]

become at risk when rent affordability restrictions in the regulatory 
agreements or subsidies expire upon loan maturity or contract 
expiration, or upon early sale or refinancing of the property, or when 
properties have deteriorated and become unsafe or uninhabitable.\105\ 
The Enterprises play an important role in helping to preserve 
subsidized rental housing by purchasing first lien mortgages that 
combine refinancing of existing debt with additional financing for 
rehabilitation, which enables the subsidies and the regulatory 
agreements to be extended. FHFA will pay particular attention to the 
number of rental properties nationwide that are at risk of losing their 
subsidies and the extent of the Enterprises' support for helping to 
preserve this housing resource.
---------------------------------------------------------------------------

    \104\ See Joint Center for Housing Studies of Harvard 
University, ``The State of the Nation's Housing 2015,'' at 33-34 
(2015), available at https://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs-sonhr-2015-full.pdf.
    \105\ Stewards of Affordable Housing for the Future, ``Housing 
`at risk,''' available at https://www.poah.org/about/at-risk.htm.
---------------------------------------------------------------------------

    The Enterprises currently offer specialized loan purchase programs 
that are designed to provide permanent financing for several of the 
statutorily-enumerated programs and, in particular, the Section 8 
rental assistance and LIHTC programs, and they actively participate in 
the preservation of this housing stock. However, some of the other 
statutorily-enumerated programs are either grant programs or FHA full 
insurance programs for which there is no known role for the 
Enterprises' loan purchase programs and no history of their 
participation. The status of each program and the role that the 
Enterprises could play in assisting each is discussed below.
i. HUD Section 8 Rental Assistance Program
    Under HUD's Section 8 rental assistance program, property owners 
receive rent payment subsidies from HUD covering the difference between 
the market rent for a unit and the tenant's rent contribution. This 
program has a rent affordability requirement, which is that 30 percent 
of the tenant's adjusted gross income contribute to rent and utilities. 
HUD provides rental assistance in the form of vouchers or certificates 
that move with the individual household, or through contractual 
obligations with the property owner, known as Housing Assistance 
Payment (HAP) contracts.
    Both Enterprises purchase loans on properties with Section 8 HAP 
contracts or with units supported by Section 8 vouchers or 
certificates. Properties supported by Section 8 rental assistance 
represent a significant portion of the Enterprises' existing affordable 
housing loan purchases.
    Several commenters on the 2010 Duty to Serve proposed rule stated 
that the Enterprises' underwriting guidelines were unnecessarily strict 
and limit their ability to provide adequate support for financing of 
Section 8-assisted properties. That is because the Enterprises do not 
recognize all of the Section 8 rental income in their loan underwriting 
and also require high reserves to protect against annual appropriations 
risk on HAP contracts.\106\ In the commenters' view, the Enterprises' 
requirements make refinancing more difficult or infeasible, or result 
in smaller loan amounts with fewer funds available for property 
rehabilitation. Under the Request for Comments section below, FHFA 
specifically requests comments on whether there are ways the 
Enterprises can extend their support for Section 8-assisted properties, 
including potential changes to their underwriting and reserve 
requirements that are consistent with safety and soundness.
---------------------------------------------------------------------------

    \106\ ``Appropriations risk'' is the possibility that Congress 
will appropriate no or less funds for a program than requested by 
the executive branch.
---------------------------------------------------------------------------

ii. HUD Section 236 Interest Rate Subsidy Program
    Under the Section 236 program, HUD subsidizes the interest rate 
down to one percent on mortgages on multifamily properties, known as 
Interest Reduction Payments (IRP), in exchange for restrictions on the 
rents to affordable levels for the term of the mortgage, but no fewer 
than 20 years. HUD data indicate that approximately 110 properties have 
subsidized interest rate loans that will mature in 2015, 2016 and 
2017.\107\ HUD permits the optional continuation of IRP assistance when 
projects assisted under Section 236 are refinanced. Both Enterprises 
currently have specialized programs to purchase refinanced mortgages on 
Section 236 subsidized loans that maintain the interest rate subsidy in 
accordance with HUD requirements. Under the Request for Comments 
section below, FHFA specifically requests comments on whether there are 
ways the Enterprises can extend their support for the Section 236 
program.
---------------------------------------------------------------------------

    \107\ HUD Insured Multifamily Mortgages Database, available at 
https://www.hud.gov/offices/hsg/comp/rpts/mfh/mf_f47.cfm.
---------------------------------------------------------------------------

iii. HUD Section 221(d)(4) FHA Insurance Programs
    HUD's Section 221(d)(4) FHA insurance program provides financing 
for the new construction or substantial rehabilitation of multifamily 
properties, and for permanent financing when construction is completed. 
The program does not require affordability restrictions on the rents 
and there are no income limits for tenants, thus properties financed 
under this program may, and often do, provide market-rate housing.
    There is no obvious role for the Enterprises to support projects 
funded under the Section 221(d)(4) program other than to refinance the 
original loans and remove the properties from the FHA insurance 
program. In their comments on the 2010 Duty to Serve proposed rule, 
both Enterprises stated that activities related to refinancing Section 
221(d)(4) loans on affordable housing properties should count towards 
the Duty to Serve as preservation activities if the properties are 
affordable and if the use agreement is extended.
    Under the Requests for Comments section below, FHFA specifically 
requests comments on whether there are other ways the Enterprises can 
support properties currently funded under the Section 221(d)(4) 
program.
iv. HUD Section 202 Housing Program for Elderly Households
    HUD's Section 202 program for low-income elderly households is a 
capital advance program under which HUD provides construction or 
rehabilitation funds and rental subsidies. Properties financed under 
this program have long-term use agreements for the term of the loan, 
which can expire upon early sale or refinancing or at loan maturity and 
put the properties at risk of conversion to market-rate rents. 
Refinancing Section 202 properties allows the owners to obtain 
additional funds for rehabilitation and to extend the rental subsidies 
and use agreements.\108\
---------------------------------------------------------------------------

    \108\ See Vincent F. O'Donnell, ``Prepayment and Refinancing of 
Section 202 Direct Loans--A Summary of HUD Notices H 2002-16 and H 
2004-21'' (Feb. 25, 2005).
---------------------------------------------------------------------------

    Most Section 202 properties are refinanced through FHA insurance 
programs, which offer favorable financing terms, including lower debt 
service coverage ratios, more favorable underwriting treatment of the 
rental subsidy income, higher loan-to-value ratios, and longer loan 
terms than are offered by conventional mortgage lenders. Thus, 
refinancing under the FHA insurance programs usually results in a 
larger loan amount and more funds available to the owner for 
rehabilitation and reserves.
    By actively pursuing Section 202 refinancing opportunities, the

[[Page 79198]]

Enterprises would provide owners with more refinancing options and give 
owners access to adjustable-rate mortgages with lower interest rates 
and shorter maturities. In 2011, legislative changes to further 
facilitate refinancing of Section 202 properties were enacted into law. 
These changes could further increase Enterprise opportunities to 
support the recapitalization and preservation of Section 202 housing. 
Under the Requests for Comments section below, FHFA specifically 
requests comments on whether there are other ways the Enterprises can 
support properties currently funded under the Section 202 program.
v. HUD Section 811 Housing Program for Disabled Households
    HUD's Section 811 program is a capital advance and rental 
assistance program for low-income disabled persons. Section 811 
properties carry no debt, and HUD rental subsidies cover the difference 
between operating expenses and rental income; \109\ excess cash flow 
produced by the properties is minimal. There is no obvious role for the 
Enterprises to support projects funded under this program and the 
Enterprises have never supported mortgage financing under this program. 
However, under the Request for Comments section below, FHFA 
specifically requests comments on whether there are ways the 
Enterprises could support the Section 811 program.
---------------------------------------------------------------------------

    \109\ See HUD, ``Section 811 Supportive Housing for Persons with 
Disabilities'' (HUD Web site), available at https://www.hud.gov/offices/hsg/mfh/progdesc/disab811.cfm.
---------------------------------------------------------------------------

vi. McKinney-Vento Homeless Assistance Act Programs
    Programs under title IV of the McKinney-Vento Homeless Assistance 
Act provide supportive housing grants to help homeless persons, 
especially homeless families with children, transition to independent 
living. Not-for-profit organizations that develop this supportive 
housing use a combination of grant and financing sources, and the 
projects typically do not involve debt financing. There is no obvious 
role for the Enterprises to support projects funded under this program 
and the Enterprises have never supported mortgage financing under this 
program. However, under the Request for Comments section below, FHFA 
specifically requests comments on whether there are ways the 
Enterprises can support this program.
vii. USDA Sections 515 Rural Housing Programs
    Under USDA's Section 515 program, USDA provides direct loans and 
rental assistance to develop rental housing for low-income households 
in rural locations. Both Enterprises currently purchase loans 
originated under the Section 515 program. Under the Request for 
Comments section below, FHFA specifically requests comments on whether 
there are ways the Enterprises can extend their support for the Section 
515 program.
viii. Federal Low-Income Housing Tax Credits (LIHTC)
    Under the LIHTC program, investors purchase tax credits to provide 
equity to off-set the development costs of rental housing properties 
with long-term regulatory agreements that require the housing to remain 
affordable for very low- or low-income households. The Enterprises 
offer specialized loan purchase programs to refinance and rehabilitate 
existing LIHTC properties in conjunction with extension of their 
regulatory use agreements, and are an important source of financing for 
preservation of older LIHTC projects.
    The Enterprises were significant LIHTC equity investors from the 
inception of the LIHTC program until the mid-2000s, but ceased 
investing before entering conservatorship in 2008. To date, FHFA has 
not approved Enterprise resumption of this activity. The LIHTC equity 
investment market has also changed and is now highly liquid and 
dominated by bank and insurance company investors. The Safety and 
Soundness Act provides for an investment and grants assessment factor 
when evaluating compliance with the Duty to Serve, and permitting the 
Enterprises to resume equity investments in LIHTCs would be one way to 
meet that assessment factor. Under the Requests for Comments section 
below, FHFA specifically requests comments on whether the Enterprises 
should resume equity investments in LIHTC projects.
ix. Comparable State and Local Affordable Housing Programs
    In addition to the specifically enumerated programs in the Safety 
and Soundness Act, the Act provides that the Enterprises shall 
facilitate a secondary market for ``comparable state and local 
affordable housing programs.'' \110\ Under the proposed rule, an 
Enterprise may include such programs in its Underserved Markets Plan 
subject to FHFA determination of whether such programs are eligible for 
Duty to Serve credit. Examples of such comparable programs for 
multifamily housing that could receive Duty to Serve credit include 
support for properties that restrict all or a portion of their units 
for very low-, low-, or moderate-income families due to participation 
in density bonuses or property tax abatements, state or local 
affordable housing programs, state LIHTC programs, programs for 
redevelopment of government-owned land or buildings as affordable 
housing, and inclusionary zoning requirements.\111\
---------------------------------------------------------------------------

    \110\ See 12 U.S.C. 4565(a)(1)(B)(ix).
    \111\ Inclusionary zoning refers to local government planning 
ordinances that require a specified portion of the units in newly 
constructed housing to be reserved for and affordable to very low- 
to moderate-income households.
---------------------------------------------------------------------------

    Examples of comparable state and local programs for single-family 
affordable housing that could receive Duty to Serve credit include 
local neighborhood stabilization programs (NSP) that enable communities 
to address problems related to mortgage foreclosure and abandonment 
through the purchase and redevelopment of foreclosed or abandoned homes 
for very low-, low-, or moderate-income households. After the financial 
crisis, state and local government NSPs were partially funded by HUD. 
Most commenters on the 2010 Duty to Serve proposed rule that addressed 
the issue supported giving credit for Enterprise assistance to the HUD-
funded NSP, as well as for other state and local foreclosure and 
abandonment prevention programs. FHFA believes that any NSP or other 
state or local foreclosure and abandonment prevention programs that 
benefit very low-, low-, or moderate-income families could receive Duty 
to Serve credit.

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    30. Are there other ways the Enterprises can support the 
statutorily-enumerated programs in addition to those discussed above?
    31. In what ways, including potential responsible changes to their 
underwriting and reserve requirements, could the Enterprises prudently 
extend their support for Section 8-assisted properties?
    32. Are there ways in which the Enterprises could extend their 
support for the HUD Section 236 Interest Rate Subsidy Program?
    33. Are there additional ways in which the Enterprises could 
support properties currently funded under HUD

[[Page 79199]]

Section 221(d)(4) FHA Insurance Program?
    34. Are there other ways in which the Enterprises could support 
properties currently funded the HUD Section 202 Housing Program for 
Elderly Households?
    35. Are there ways in which the Enterprises could support the HUD 
Section 811 Housing Program for Disabled Households?
    36. Are there ways in which the Enterprises could support McKinney-
Vento Homeless Assistance Act programs?
    37. Are there other ways in which the Enterprises could extend 
their support for the USDA Section 515 Rural Housing Program?
    38. Are there other federal affordable housing programs that the 
Enterprises could support that should receive Duty to Serve credit but 
that are not enumerated in Sec.  1282.34(c) of the proposed rule?
    39. What safety and soundness concerns should be considered in 
determining Enterprise participation in any of the programs discussed 
above?
    40. Are there other state or local affordable housing programs for 
multifamily or single-family housing that the Enterprises could support 
that should be eligible to receive Duty to Serve credit in addition to 
those discussed above?
    41. Should FHFA allow the Enterprises to resume LIHTC equity 
investments? Would the resumption of LIHTC equity investments by the 
Enterprises benefit the financial feasibility of certain LIHTC projects 
or would it substitute Enterprise equity funding for private investment 
capital without materially benefiting the projects?
    42. If FHFA allows the Enterprises to resume LIHTC investments, 
should FHFA limit investments to support for difficult to develop 
projects in segments of the market with less investor demand, such as 
projects in markets outside of the assessment areas of large banks or 
in rural markets or for preservation of projects with expiring 
subsidies? Are there other issues that FHFA should consider if limiting 
the types of LIHTC projects appropriate for equity investment by the 
Enterprises?
    43. If FHFA permits the resumption of LIHTC equity investments, 
should Duty to Serve credit be provided only for LIHTC equity 
investments in projects with expiring subsidies or projects in need of 
refinancing, or should Duty to Serve credit also be given for LIHTC 
equity investments in new construction projects with regulatory 
agreements that assure long-term rental affordability?
    44. If FHFA allows the Enterprises to resume LIHTC investments, 
should FHFA limit such investments to those that promote residential 
economic diversity, for example, by investing in LIHTC properties 
located in high opportunity areas, as proposed to be defined in Sec.  
1282.1, to address concerns raised about the disproportionate siting of 
LIHTC housing (non-senior) in low-income areas and the effect on 
residential segregation?
    45. Should FHFA consider permitting the Enterprises to act as the 
guarantor of equity investments in projects by third-party investors 
provided any such guarantee is safe and sound and consistent with the 
Enterprise's Charter Act? If so, what types of guarantees should the 
Enterprises offer?
d. Regulatory and Additional Activities
    Section 1282.34(d) of the proposed rule identifies four additional 
affordable housing preservation activities that would receive Duty to 
Serve credit. Under the proposed rule, these activities would 
constitute Regulatory Activities which the Enterprises must address in 
their Underserved Markets Plans by indicating how they plan to 
undertake the activity or stating the reasons why they will not. Each 
proposed Regulatory Activity addresses market segments for which the 
Enterprises already provide some level of support. Proposed Sec.  
1282.34(e) would provide that the Enterprises may also propose 
Additional Activities that support the financing of mortgages on 
residential properties for very low-, low-, or moderate-income families 
consisting of affordable rental housing preservation or affordable 
homeownership, subject to FHFA determination of whether such activities 
are eligible for Duty to Serve credit.
i. Small Multifamily Rental Properties--Proposed Sec.  1282.34(d)(1)
    Section 1282.34(d)(1) of the proposed rule would provide Duty to 
Serve credit for Enterprise purchase and securitization of loan pools 
from smaller banks and community-based lenders, specifically, non-
depository community development financial institutions, community 
financial institutions, and federally insured credit unions meeting an 
asset cap applicable to community financial institutions, where the 
loan pools are backed by existing small multifamily rental properties 
consisting of five to not more than fifty units. This activity would 
constitute a Regulatory Activity that the Enterprises would have to 
address in their Underserved Markets Plans by indicating how they 
choose to undertake the activity or the reasons why they will not 
undertake the activity.
    Both Enterprises support financing for small multifamily properties 
through specialized retail loan programs offered through their lenders. 
The housing goals regulation publicly released in August 2015 
established, for the first time, a subgoal for Enterprise purchases of 
loans on small multifamily properties that are affordable to low-income 
households. FHFA expects the subgoal to be met through the Enterprises' 
retail loan purchase activities. However, several commenters on the 
2010 Duty to Serve proposed rule stated that the Enterprises should do 
more to support the financing needs of small multifamily properties.
    Small multifamily properties are often older than larger 
properties, have fewer, if any, amenities, and tend to have more 
affordable rents. These factors make small multifamily properties an 
important source of affordable rental housing and they can also make 
financing more difficult to obtain. As discussed in the Notice 
accompanying the final housing goals rule, much of the financing needs 
of small multifamily property owners are met through loans provided by 
smaller local and regional banks, and by community-based lenders. Most 
of these loans are originated for the lenders' own portfolios and the 
lenders may cease making small multifamily property loans when their 
portfolio capacity has been reached.
    To encourage the Enterprises to expand their support for this 
market segment, the proposed rule would provide Duty to Serve credit 
for Enterprise purchases and securitization of loan pools from non-
depository community development financial institutions, community 
financial institutions, and federally insured credit unions meeting an 
asset cap applicable to community financial institutions, where the 
loan pools are backed by existing small multifamily rental properties 
consisting of five to not more than fifty units.
    Section 1282.1 of the proposed rule would define ``community 
development financial institution'' and ``community financial 
institution'' in accordance with the definitions in FHFA's regulation 
on Federal Home Loan Bank membership. The membership regulation defines 
a ``community development financial institution'' as an institution 
that is certified as a community development financial institution by 
the Community Development Financial Institutions Fund under the 
Community Development Banking and Financial

[[Page 79200]]

Institutions Act of 1994, other than a bank or savings association 
insured under the Federal Deposit Insurance Act, a holding company for 
such a bank or savings association, or a credit union insured under the 
Federal Credit Union Act.\112\ The membership regulation defines a 
``community financial institution'' generally as an institution whose 
deposits are insured under the Federal Deposit Insurance Act,\113\ and 
whose total assets are less than $1 billion, as adjusted annually by 
FHFA for inflation, beginning in 2009, with total assets being 
calculated as an average over the previous three years.\114\ Based on 
FHFA's most recent inflation adjustment, the asset cap is now 
$1,123,000,000.\115\
---------------------------------------------------------------------------

    \112\ See 12 CFR 1263.1.
    \113\ Id.; 12 U.S.C. 1811 et seq.
    \114\ See 12 CFR 1263.1.
    \115\ See 80 FR 6712 (Feb 6, 2015).
---------------------------------------------------------------------------

    Section 1282.1 of the proposed rule would define a ``federally 
insured credit union'' in accordance with the definition of ``insured 
credit union'' in the Federal Credit Union Act.\116\ The Federal Credit 
Union Act defines an ``insured credit union'' as a credit union the 
member accounts of which are insured under the Federal Credit Union 
Act.\117\
---------------------------------------------------------------------------

    \116\ 12 U.S.C. 1752(7).
    \117\ Id.
---------------------------------------------------------------------------

    Over time, a reliable secondary market for loans on small 
multifamily properties could develop to provide these originating 
lenders with additional liquidity. Thus, the Duty to Serve regulation 
could complement the housing goals regulation by encouraging greater 
and more comprehensive Enterprise support for the liquidity needs of 
small multifamily properties.

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    46. Are there other affordable housing preservation activities for 
small multifamily properties beyond those discussed above that should 
receive Duty to Serve credit?
    47. Should an Enterprise's purchase and securitization of loan 
pools from non-depository community development financial institutions, 
community financial institutions, and federally insured credit unions 
subject to the asset cap, where the loan pools are backed by existing 
small multifamily properties, be a Regulatory Activity?
    48. How could the Enterprises provide further support for the 
financing or liquidity needs of small multifamily properties? Should 
another type of support for small multifamily properties be a specific 
Regulatory Activity?
    49. How could the Enterprises provide support for the liquidity 
needs of smaller banks and community-based lenders that finance small 
multifamily properties, for example by buying and securitizing loan 
pools these lenders have originated? What kind of Enterprise support 
would encourage these types of lenders to increase their financing of 
these properties?
    50. Do the proposed definitions of ``community development 
financial institution,'' ``community financial institution,'' and 
``federally insured credit union'' subject to the asset cap 
sufficiently capture smaller banks and community-based lenders for Duty 
to Serve purposes?
ii. Energy Efficiency Improvements on Multifamily Properties--Proposed 
Sec.  1282.34(d)(2)
    Section 1282.34(d)(2) of the proposed rule would provide Duty to 
Serve credit for Enterprise support for energy and water efficiency 
improvements on existing multifamily properties affordable to very low-
, low-, and moderate-income families, provided there are verifiable, 
reliable projections or expectations that the improvements financed by 
the loan will reduce energy and water consumption by the tenant by at 
least 15 percent, the reduced utility costs derived from reduced 
consumption must not be offset by higher rents or other charges imposed 
by the property owner, and the reduced utility costs will offset the 
upfront costs of the improvements within a reasonable time period. This 
activity would constitute a Regulatory Activity that the Enterprises 
would have to address in their Underserved Markets Plans by indicating 
how they choose to undertake the activity or the reasons why they will 
not undertake the activity.
    Improved energy efficiency and reduced energy consumption in 
multifamily housing is a broadly acknowledged public policy goal. 
Energy expenses, principally in the form of heating, cooling, water 
consumption and electricity use (collectively, utilities) consume a 
growing part of the incomes of very low-, low-, and moderate-income 
households. When these high utility costs are added to the cost of 
rent, multifamily housing becomes increasingly unaffordable. In recent 
years, energy cost increases in multifamily housing have outpaced rent 
increases (which have significantly exceeded the rate of inflation). A 
2011 HUD study found that while average rents increased by 7.6 percent 
from 2001 to 2009, energy costs to renters increased by almost 23 
percent during this same period.\118\
---------------------------------------------------------------------------

    \118\ See Evidence Matters, Policy Development and Research, 
Department of Housing and Urban Development, ``Quantifying Energy 
Efficiency in Multifamily Rental Housing,'' Summer 2011, available 
at https://www.huduser.gov/portal/periodicals/em/EM_Newsletter_Summer_2011_FNL.pdf.
---------------------------------------------------------------------------

    Lowering energy and water use in multifamily buildings will reduce 
the total amount that tenants spend for the energy and water that they 
do use, thus reducing their utility consumption. This can be considered 
``preservation'' under the affordable housing preservation market 
because housing costs are typically defined as rent plus utility costs. 
Thus, savings in utility consumption that reduce utility expenses may 
help maintain the overall affordability of rental housing for tenants. 
Owners of multifamily properties also benefit from energy efficiency 
improvements through reduced common area utility expenses, which could 
relieve pressure on owners to raise rents to cover increased utility 
costs. Owners also derive indirect benefits from unit-based energy 
efficiency improvements, including rendering a property more marketable 
to potential tenants.
    Enterprise support for energy efficiency improvements could include 
specialized loan programs or efforts to educate lenders about the 
benefits of energy improvements and conservation. Given the 
Enterprises' market reach, they could have a significant impact on 
promoting energy efficiency improvements and conservation in a broad 
range of multifamily properties if lenders were properly educated and 
incented.

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    51. Should Enterprise support for multifamily properties that 
include energy improvements resulting in a reduction in the tenant's 
energy and water consumption and utility costs be a Regulatory 
Activity?
    52. How can the Enterprises provide more outreach to lenders 
regarding the Enterprises' energy improvement products?
    53. Should the Enterprises require the lender to verify before the 
closing of an energy improvement loan that there are reliable and 
verifiable projections or expectations that the proposed energy

[[Page 79201]]

improvements will likely reduce the tenant's energy and water 
consumption and utility costs and, if so, what standards of 
reliability, verifiability and likelihood of reduced consumption and 
costs should be required?
    54. Should the Enterprises be required to verify, after the closing 
of an energy improvement loan, that the energy improvements financed 
actually reduced the tenant's energy and water consumption and utility 
costs and, if so, how can they verify this?
    55. What if any ongoing monitoring should be required to measure 
the effectiveness of financed energy improvements in reducing tenants' 
energy and water consumption and utility costs?
    56. For the proposed requirement that the reduced utility costs 
will offset the upfront costs of the improvements within a reasonable 
time period, should a reasonable time period be defined and, if so, 
how?
iii. Energy Efficiency Improvements on Single-Family, First-Lien 
Properties--Proposed Sec.  1282.34(d)(3)
    Section 1282.34(d)(3) of the proposed rule would provide Duty to 
Serve credit for Enterprise support of energy efficiency improvement 
loans on single-family (homeownership or rental), first-lien properties 
affordable to very low-, low-, or moderate-income households, provided 
that there are verifiable, reliable projections or expectations that 
the improvements financed by the loans will reduce energy and water 
consumption by the homeowner or tenant by at least 15 percent, the 
reduced utility costs derived from the reduced consumption will offset 
the upfront costs of the improvements within a reasonable time period, 
and in the case of a single-family rental property, the reduced utility 
costs must not be offset by higher rents or other charges imposed by 
the property owner. This activity would constitute a Regulatory 
Activity that the Enterprises would have to address in their 
Underserved Markets Plans by indicating how they choose to undertake 
the activity or the reasons why they will not undertake the activity.
    Studies have found that consumers earning below $20,000 a year 
spend 10 percent of their income on utilities compared to 6 percent 
spent by consumers with incomes above $70,000.\119\ The experience of 
homeowners at these income levels likely parallels those of the broader 
consumer category.
---------------------------------------------------------------------------

    \119\ See U.S. Bureau of Labor Statistics, ``Consumer 
Expenditure Survey,'' (July 2013-June 2014), available at https://www.bls.gov/cex/#tables_long. These percentages are for all 
consumers. Homeowners overall spend 7.5 percent of their income for 
utilities, fuels, and public services. See U.S. Bureau of Labor 
Statistics, ``Table 1202: Income before taxes: Annual expenditure 
means, shares, standard errors, and coefficients of variation, 
Consumer Expenditure Survey, 2014'' (Sept. 2015), available at 
https://www.bls.gov/cex/2014/combined/income.pdf.
---------------------------------------------------------------------------

    Enterprise support for single-family energy efficiency loans with 
resulting savings accruing to the homeowners or tenants may help lower 
their total housing costs and thereby help preserve affordable housing. 
In addition, savings from energy efficiency upgrades may be correlated 
with better borrower loan performance. A 2013 study found that, 
controlling for other loan determinants, default risks are on average 
32 percent lower in energy efficient homes; some of these lower default 
risks may benefit very low-, low-, and moderate-income borrowers. The 
study also found that borrowers in energy efficient homes are 25 
percent less likely to prepay their mortgages,\120\ a loan 
characteristic that investors generally find appealing.\121\
---------------------------------------------------------------------------

    \120\ See Institute for Market Transformation, ``Research 
Report: Home Energy Efficiency and Mortgage Risks,'' University of 
North Carolina Center for Community Capital (March 2013), available 
at https://www.imt.org/uploads/resources/files/IMT_UNC_HomeEEMortgageRisksfinal.pdf.
    \121\ For a discussion of the risks that prepayment poses to 
investors, see generally The Bond Market Association, ``An 
Investor's guide to Pass-Through and Collateralized Mortgage 
Securities,'' at 4-6, 13-14, available at https://www.freddiemac.com/mbs/docs/about_MBS.pdf.
---------------------------------------------------------------------------

    However, as comprehensive home energy improvements cost between 
$5,000 and $15,000, the upfront costs of energy efficiency improvements 
constitute a significant barrier to very low-, low-, and moderate-
income homeowners, who generally lack significant financial resources 
to pay for such improvements.\122\ Financing for single-family energy 
efficiency loans can be further hampered by lender reluctance to 
consider energy savings in their loan underwriting procedures.\123\ 
Finally, because identifying energy efficiency as the loan purpose can 
complicate automated underwriting, borrowers may choose not to specify 
that the home improvements are intended for energy efficiency purposes.
---------------------------------------------------------------------------

    \122\ See Mark Zimring, Ian Hoffman, Annika Todd, & Megan 
Billingsley, ``Delivering Energy Efficiency to Middle Income Single 
Family Households,'' Lawrence Berkeley National Laboratory (December 
11, 2011), available at https://emp.lbl.gov/publications/delivering-energy-efficiency-middle-income-single-family-households.
    \123\ See Institute for Market Transformation, ``Research 
Report: Home Energy Efficiency and Mortgage Risks,'' University of 
North Carolina Center for Community Capital (March 2013), available 
at https://www.imt.org/uploads/resources/files/IMT_UNC_HomeEEMortgageRisksfinal.pdf. Lenders may not want to put 
the additional time needed in in order to adjust underwriting for 
energy savings. See generally ``Green Housing for the 21st Century: 
Retrofitting the Past and Building an Energy-Efficient Future,'' 
Hearings Before the Subcomm. On Housing Transportation, and 
Community Development of the Committee on Banking Housing and Urban 
Affairs, 111th Cong., 2d Sess., at 23 (2010) (S. HRG. 111-6,93), 
available at https://www.gpo.gov/fdsys/pkg/CHRG-111shrg61989/pdf/CHRG-111shrg61989.pdf.
---------------------------------------------------------------------------

    Fannie Mae currently supports the financing of single-family energy 
efficiency improvements through its ``Energy Improvement Feature'' (EI 
Feature) and HomeStyle Renovation mortgage.\124\ EI Feature loans cover 
both purchase money loans and refinances of preexisting loans. 
Borrowers can use purchase or refinance proceeds, of up to 10% of the 
``as completed'' appraised value, to finance both the property and 
energy improvements, as long as certain conditions are met. In all 
cases, the EI Feature loan must be in first lien position. The EI 
Feature has seen limited borrower participation, which could be due to 
one or more of the factors described above or because financing for 
energy efficiency improvements is already occurring in Fannie Mae's 
standard business.
---------------------------------------------------------------------------

    \124\ Fannie Mae also participated in the FHA PowerSaver pilot 
program, which ended in 2013.
---------------------------------------------------------------------------

    The HomeStyle Renovation mortgage enables a borrower to obtain a 
purchase transaction or cash-out refinance mortgage to cover the costs 
of energy improvements to the property. Borrowers can use purchase or 
refinance proceeds, of up to 50% of the ``as completed'' appraised 
value, to finance both the property and the energy improvements, as 
long as certain conditions are met. In all cases, the HomeStyle 
Renovation mortgage must be in first lien position.
    Freddie Mac does not currently offer loan products specifically for 
single-family energy efficiency loans, but like Fannie Mae, likely 
purchases loans with energy efficiency components as part of its 
standard business.
    Given the difficulty of developing functional single-family energy 
efficiency mortgage products, possible Objectives that could be 
included in an Underserved Markets Plan might focus initially on 
developmental actions such as: (i) Working with lenders to develop 
education programs to encourage energy efficiency improvement loans, 
including conservation programs, for very low-, low-, or moderate-
income households in single-family properties; (ii) working with a 
wider range of locally-based lenders to encourage energy efficiency 
components in purchase money loans or limited cash-out refinances; and 
(iii) developing products that result in the

[[Page 79202]]

introduction of energy efficiency components into loans that meet the 
proposed rule's requirements.

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    57. How can the Enterprises work with potential lenders to 
facilitate financing for energy efficiency improvement loans on single-
family properties?
    58. What is a reasonable time period for the reduced utility costs 
from energy efficiency improvements to offset the upfront costs of the 
improvements?
    59. Should Enterprise support for single-family properties that 
include energy improvements resulting in a reduction in the homeowner's 
or tenant's energy and water consumption and utility costs be a 
Regulatory Activity?
    60. How can the Enterprises provide more outreach to lenders 
regarding the Enterprises' energy improvement loan products?
    61. Should the Enterprises require the lender to verify before the 
closing of a single-family energy improvement loan that there are 
reliable and verifiable projections or expectations that the proposed 
energy improvements will likely reduce energy and water consumption and 
utility costs and, if so, what standards of reliability, verifiability 
and likelihood of reduced consumption and costs should be required?
    62. Should the Enterprises be required to verify, after the closing 
of a single-family energy improvement loan, that the energy 
improvements financed actually reduced energy and water consumption and 
utility costs and, if so, how can they verify this?
    63. For the proposed requirement that the reduced utility costs 
will offset the upfront costs of the improvements within a reasonable 
time period, should a reasonable time period be defined and, if so, 
how?
iv. Preservation of Long-Term Affordable Homeownership Through Shared 
Equity Programs--Proposed Sec.  1282.34(d)(4)
    Section 1282.34(d)(4) of the proposed rule would provide Duty to 
Serve credit for Enterprise activities related to affordable 
homeownership preservation through shared equity homeownership 
programs. Shared equity programs include programs administered by 
community land trusts, other nonprofit organizations, or State or local 
governments that:
    (1) Ensure affordability for at least 30 years or as long as 
permitted under state law through a ground lease, deed restriction, 
subordinate loan or similar legal mechanism that makes residential real 
property affordable to very low-, low-, or moderate-income families. 
The legal instrument ensuring affordability must also stipulate a 
preemptive option to purchase the homeownership unit from the homeowner 
at resale to preserve the affordability of the unit for successive very 
low-, low-, or moderate-income families;
    (2) Monitor the homeownership unit to ensure affordability is 
preserved over resales; and
    (3) Support the homeowners to promote successful homeownership for 
very low-, low-, or moderate-income families.
    Under the proposed rule, this activity would constitute a 
Regulatory Activity that the Enterprises would have to address in their 
Underserved Markets Plans by indicating how they choose to undertake 
the activity or the reasons why they will not undertake the activity.
    Affordability of homeownership through shared equity programs is 
preserved either by:
    (1) Resale restrictions through deed restrictions or ground leases 
administered by governmental units or instrumentalities, or nonprofit 
entities and designed to keep the home affordable over resales; or
    (2) Subordinate loan programs, often called ``shared appreciation 
loan programs,'' that are administered by governmental units or 
instrumentalities, or nonprofit entities where second mortgage loans 
are due upon sale and typically structured with zero percent interest. 
Upon sale at market value, the homeowner repays the loan amount and a 
portion of the appreciation. The government or nonprofit entity uses 
its share of the appreciation to make the same home affordable to a 
subsequent income-eligible homebuyer. Shared equity programs utilize 
various legal mechanisms to preserve affordability, but all shared 
equity programs make home purchase affordable for a very low-, low-, or 
moderate-income buyer and limit the homeowner's proceeds upon resale to 
make the same home affordable to a subsequent income-eligible buyer.
    While much of the affordable housing preservation emphasis is on 
rental housing, homeownership preservation is also important. 
Homeownership can offer advantages over renting, such as the 
opportunity to accumulate wealth from tenure, including repaying 
principal through forced savings, and greater residential control and 
stability,\125\ although it also bears risks for lower-income 
households.\126\ Homeownership continues to be the primary source of 
wealth among lower-income households.\127\ A comprehensive approach to 
affordable housing preservation should include strategies that preserve 
not only

[[Page 79203]]

affordable rental housing, but also affordable homeownership.
---------------------------------------------------------------------------

    \125\ See Eric S. Belsky, Christopher E. Herbert, and Jennifer 
H. Molinksy (Eds), ``Homeownership Built to Last'' (2014), 
Cambridge, MA: Joint Center for Housing Studies, Harvard University 
& Washington, DC: Brookings Institution Press, available at https://
www.brookings.edu/research/books/2014/homeownership-built-to-last. 
See also Christopher E. Herbert & Eric S. Belsky, ``The 
Homeownership Experience of Low-Income and Minority Households: A 
Review and Synthesis of the Literature,'' Vol. 10, No. 2, Cityscape: 
A Journal of Policy Development and Research (2008), available at 
https://www.huduser.org/periodicals/cityscpe/vol10num2/ch1.pdf. 
Herbert and Belsky note that homeownership is a vehicle for wealth 
accumulation both through appreciation and the forced savings that 
come with paying down the principal on a loan. They note that 
homeownership is one of the few leveraged investments available to 
families with limited wealth. They list other financial advantages 
of ownership including: (1) Tax law provisions that shield most 
appreciation in home value from capital gains taxes; (2) insulating 
buyers from rapidly increasing housing costs; (3) deductibility of 
mortgage interest and property tax payments which lowers the after-
tax cost of homeownership; and (4) permitting secured lending 
against home equity. Homeownership also arguably offers a range of 
non-financial benefits, at 7-8.
    \126\ See, e.g., Carolina Katz Reid, Center for Studies in 
Demography and Ecology, University of Washington, ``Achieving the 
American Dream? A Longitudinal Analysis of the Homeownership 
Experiences of Low-Income Households,'' (CSDE Working Paper 04-04) 
(Apr. 2004), available at https://csde.washington.edu/downloads/04-04.pdf. Reid discusses the following risks of homeownership for low-
income households: (1) The risk of leaving homeownership, usually 
due to divorce or unemployment; (2) high mortgage payments in 
relation to income; and (3) low-income and minority homeowners have 
not benefitted as much from homeownership as wealthier, Caucasian 
buyers. Reid concludes that more emphasis is needed on supporting 
low-income households after they become homeowners. While Reid did 
not consider the non-financial benefits of homeownership, Reid notes 
that almost every person she interviewed expressed satisfaction with 
having become a homeowner, citing various non-financial benefits. 
Reid concludes that the challenge in homeownership is developing 
policies that make homeownership achievable and sustainable. See 
also Christopher E. Herbert, Daniel T. McCue & Rocio Sanchez-Moyano, 
Joint Center for Housing Studies, Harvard University, ``Is 
Homeownership Still an Effective Means of Building Wealth for Low-
income and Minority Households? (Was it Ever?),'' (Sept. 2013), 
available at https://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/hbtl-06.pdf.
    \127\ ``. . . home equity contributes a disproportionate share 
(81 percent) of net wealth among the typical owner in the lowest 
income quartile, compared with just under a quarter (24 percent) 
among those in the highest income quartile.'' Joint Center for 
Housing Studies, Harvard University, ``State of the Nation's Housing 
Report 2015'' (2015), at 17, available at https://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs-sonhr-2015-full.pdf.
---------------------------------------------------------------------------

    The 2010 Duty to Serve proposed rule focused primarily on 
preserving affordable rental housing and not affordable homeownership. 
One commenter, a nonprofit engaged in homeownership work, recommended 
crediting shared equity homeownership activities under the Duty to 
Serve, citing the importance of broadening the availability of 
homeownership. Another commenter, a nonprofit focused on rental 
housing, opposed giving preservation credit to homeownership programs 
on the basis that it might divert attention from rental housing.
    Without detracting from the importance of preserving affordable 
rental housing, FHFA seeks to encourage enhanced Enterprise support for 
a variety of shared equity options so that communities would have the 
flexibility to determine which, if any, shared equity approach best 
suits their needs and have that option eligible for Duty to Serve 
credit for the Enterprises. The Enterprises are uniquely positioned to 
help increase financing for the preservation of affordable 
homeownership units over the long-term by developing infrastructure 
that would make it easier for lenders to deliver mortgage loans on 
shared equity homes to the Enterprises for purchase.
    Shared equity homes remain affordable for very low-, low-, or 
moderate-income households for at least 30 years or as long as 
permitted under state law, for the initial purchaser as well as for any 
successive income-eligible owners of the home during that period. 
Shared equity homeownership programs are administered by either 
government or nonprofit entities. These entities make home purchase 
affordable to the initial low- or moderate-income household, and ensure 
the home remains affordable to subsequent lower- or moderate-income 
purchasers, sale after sale.\128\ In return for being able to purchase 
homes that are affordable, homeowners contractually agree to limit the 
proceeds they receive upon resale to keep their homes affordable for 
subsequent income-eligible purchasers.
---------------------------------------------------------------------------

    \128\ John Emmeus Davis, National Housing Institute, ``Shared 
Equity Homeownership--The Changing Landscape of Resale-Restricted, 
Owner-Occupied Housing'' (2006), available at https://www.nhi.org/pdf/SharedEquityHome.pdf.
---------------------------------------------------------------------------

    The affordability of the home is maintained for subsequent 
purchasers in one of two ways. One way is to restrict the resale price 
of the home through a deed restriction or a ground lease designed to 
keep the resale price below market value so the home remains affordable 
over resales. A second way is to use a shared appreciation loan 
agreement, in which the resale price remains at the market value, but 
the amount of subsidy increases in a self-sustaining way to keep pace 
with the gap between the market value and the lower price at which the 
home is affordable to low- and moderate-income households. Each time 
the home is sold, at market rate, the program's share of equity, in the 
form of the shared appreciation, is retained as ``public investment'', 
i.e., the subsidy, and passed along to the new buyer of the same home 
in the form of a second mortgage. This second mortgage is typically at 
zero percent interest and is fully due upon sale. While this subsidy 
retention vehicle is technically a second mortgage, it does not have 
many of the features commonly associated with mortgage debt.
    Shared equity programs usually have requirements that the buyer use 
the home as a primary residence and qualify for financing, and many 
allow the administering government or nonprofit entity to charge modest 
fees that cover the cost of operating the program. The government or 
nonprofit entity is sometimes referred to as a ``sponsor.'' Under the 
proposed rule, the government or nonprofit sponsor would have the 
ongoing responsibility to monitor the home to ensure that affordability 
is preserved over resales, and support the homeowner where possible. 
Having a sponsor may also have the effect of minimizing/mitigating 
potential foreclosures. The proposed rule would require the sponsor to 
stipulate a preemptive right to purchase the unit from the homeowner at 
resale for a price determined by a contractual formula that would 
preserve affordability of the unit.
    In contrast, downpayment or closing cost assistance programs, which 
represent another mechanism for making homeownership affordable to 
lower-income households, would not meet the purpose of long-term 
preservation of affordability under the Duty to Serve. In downpayment 
and closing cost assistance programs, the program sponsor provides a 
subsidy to the initial homebuyer as a grant, or sometimes as a 
forgivable loan that converts to a grant generally between five and 15 
years after purchase. This assistance helps to make the purchase of a 
home affordable by lowering the buyer's downpayment or closing costs, 
usually by a smaller amount than is available through shared equity 
programs. While the initial homebuyer benefits from any appreciation in 
the value of the home, this type of assistance does not preserve long-
term affordability of the home for subsequent purchasers, because these 
programs do not restrict the initial homebuyer's return from the sale 
of the property.\129\ Hence, under the traditional downpayment/closing 
cost assistance model, additional public subsidy would often be 
required to help subsequent lower-income homebuyers purchase homes.
---------------------------------------------------------------------------

    \129\ The initial homebuyer may be required to repay a portion 
of the subsidy under certain circumstances if the property is sold 
during a specified time period. The program may use that repaid 
subsidy to assist another eligible household with downpayment or 
closing cost assistance to purchase a home.
---------------------------------------------------------------------------

    The three most common contractual arrangements for achieving shared 
equity homeownership preservation are deed restricted covenants, ground 
leases, and shared appreciation loans, which are described below.
     Deed Restricted Covenants. A restricted covenant that is 
appended to an owner-occupied property's deed when a home is purchased 
at below-market value. The covenant stipulates resale restrictions to 
ensure the home is sold at an affordable price, usually below-market 
value, to another eligible household in the future. Restricted 
covenants are in effect for 30 years or longer, depending upon state 
law. Restricted covenants are frequently used for single-family units 
(e.g., condominium and cooperative units) in multifamily homeownership 
buildings,\130\ which would also be eligible for Duty to Serve credit. 
Restricted covenants are also frequently used by inclusionary housing 
programs.\131\
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    \130\ While many consumers, developers, realtors and other 
market participants think of condominiums and cooperatives as 
multifamily homeownership, loans for individual units are treated as 
part of the single-family business by lenders and the Enterprises.
    \131\ Robert Hickey, Lisa Sturvent & Emily Thaden, ``Achieving 
Lasting Affordability through Inclusionary Housing'' (Working Paper 
WP14RH1) (July 2014), Cambridge, MA: Lincoln Institute of Land 
Policy, available at https://www.lincolninst.edu/pubs/2428_Achieving-Lasting-Affordability-through-Inclusionary-Housing.
---------------------------------------------------------------------------

     Ground Leases. Ground leases are most frequently used by 
community land trusts, which are nonprofit organizations that provide 
shared equity homes. Land trusts retain ownership of the land, so the 
homeowner only needs to purchase the home on that land at an affordable 
price. A resale formula in the ground lease preserves affordability by 
stipulating a below-market value price for which the current owner may 
sell the home to an income-eligible buyer in the future. Leases 
typically run for 50 to 99 years, depending upon state law.

[[Page 79204]]

     Shared Appreciation Loans. Shared appreciation loan 
programs sell homes at fair market value to income-eligible purchasers, 
but to make the purchase affordable, the program provides a no-payment 
second mortgage loan that is fully due upon sale and typically at zero 
percent interest. The loan documents or an accompanying deed-restricted 
covenant stipulate the homeowner's share of appreciation upon resale 
and ensure the home will be sold to another eligible household. The 
share of the appreciation that goes to the program sponsor is used to 
increase the shared appreciation loan amount to make the purchase of 
the home affordable for the subsequent buyer. The mortgages typically 
have terms of 30 years or longer, depending upon state law. Proprietary 
shared appreciation loans, where an investor receives part of the 
equity in exchange for making the home affordable for a single buyer 
only, do not preserve affordability of the unit for subsequent buyers. 
Section 1282.38(b)(6) of the proposed rule would specifically provide 
that shared appreciation loans that fail to meet the requirements 
discussed above would not receive credit under the Duty to Serve 
underserved markets.
    Preserving homeownership through shared equity programs helps to 
address the growing gap between what people can afford to pay for 
housing given what they earn and what they must actually pay for 
housing given what it costs. A longitudinal study \132\ of 53 shared 
equity programs representing 3,678 homes found in 2014 that the 
programs:
---------------------------------------------------------------------------

    \132\ A ``longitudinal study'' is a research study that involves 
repeated observations of the same variables over long periods of 
time. In this study, the median age of the 53 programs was 15 years, 
and 15 of the 53 programs were at least 15 years old.
---------------------------------------------------------------------------

     Increased access to homeownership: The average household 
income at the time of purchase under the programs was 65 percent of the 
area median income and 82 percent were first-time homebuyers. On 
average, the homes sold for 25 percent below their fair market value to 
make the purchase affordable.
     Improved likelihood that homeownership would be sustained: 
Over 93 percent of households under the programs remained homeowners 
for at least five years. This contrasts with a more limited 
longitudinal study of households in non-shared equity purchases, which 
found that less than 50 percent of the first-time, low-income 
homebuyers in the study maintained ownership for five years.\133\
---------------------------------------------------------------------------

    \133\ Carolina Katz Reid, Center for Studies in Demography and 
Ecology, University of Washington, ``Achieving the American Dream?: 
A Longitudinal Analysis of the Homeownership Experiences of Low-
Income Households,'' (CSDE Working Paper 04-04) (Apr. 2004), at 20, 
available at https://csde.washington.edu/downloads/04-04.pdf.
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     Reduced likelihood of foreclosure: Shared equity 
homeowners, all of whom were lower-income, were one-tenth as likely to 
be in foreclosure as homeowners in the conventional market across all 
incomes.
     Built wealth for homeowners: The annual rate of return on 
the homeowners' downpayments was 7.97 percent. Approximately 62 percent 
of the households went on to buy a market-rate home in the conventional 
market.
     Preserved affordable homeownership: The programs retained 
the affordability of the homes to serve the same income levels, sale 
after sale.\134\
---------------------------------------------------------------------------

    \134\ Cornerstone Partnership, ``Social Impact Report'' (2014), 
available at https://myhomekeeper.org/socialimpact.
---------------------------------------------------------------------------

    Shared equity transactions also help to stabilize property values 
and communities. They can provide housing at affordable prices for 
long-standing homeowners in the area that help to counter price 
escalation in gentrifying communities. In addition, shared equity 
transactions often provide a loss buffer in the form of the difference 
between the market value and the amount the buyer pays, which can 
reduce foreclosures, while reducing the relative amount of loss in the 
value of the home if foreclosure does occur. By reducing foreclosures, 
shared equity transactions not only improve the outcomes for 
homebuyers, but also help maintain values of other homes in the 
neighborhood, thereby enhancing outcomes for the entire community. 
Shared equity transactions may also permit a household to afford a home 
in a neighborhood with better schools or other amenities that would 
otherwise be unaffordable for the household. In particular, shared 
equity programs can make it possible for teachers, firefighters, police 
and other modest-income workers to buy homes in the community where 
they work.
    One of the greatest challenges for expanding shared equity 
homeownership has been the difficulty of accessing conventional 
mortgage lending for first mortgages on homes purchased through shared 
equity mechanisms.\135\ For example, a nonprofit community land trust 
with extensive experience developing and preserving homeownership 
preservation units has reported that it is having increasing difficulty 
finding lenders to originate loans with shared equity features. 
According to the land trust, lenders have advised that shared equity 
loans are too difficult and expensive to originate because the loans 
are ineligible for Enterprise automated underwriting and often require 
the lenders to provide the Enterprises with additional representations 
and warranties. Shared equity programs across the country report 
similar experiences.\136\ Fannie Mae has recently made automated 
underwriting available for some shared equity loans.\137\
---------------------------------------------------------------------------

    \135\ Jeffrey Lubell, Bipartisan Policy Center, ``Housing More 
People More Effectively through a Dynamic Housing Policy'' (2015), 
at 10, available at https://bipartisanpolicy.org/library/housing-more-people-more-effectively-through-a-dynamic-housing-policy/.
    \136\ See Emily Thaden, ``Results of The 2011 Comprehensive CLT 
Survey'' (January, 2012). Portland, OR: National Community Land 
Trust Network, available at https://cltnetwork.org/wp-content/uploads/2014/01/2011-Comprehensive-CLT-Survey.pdf; Robert Hickey, 
Lisa Sturvent & Emily Thaden, ``Achieving Lasting Affordability 
through Inclusionary Housing'' (Working Paper WP14RH1) (July 2014), 
Cambridge, MA: Lincoln Institute of Land Policy, available at 
https://www.lincolninst.edu/pubs/2428_Achieving-Lasting-Affordability-through-Inclusionary-Housing.
    \137\ See Fannie Mae Desktop Underwriter Version 9.2 from Aug. 
15, 2015, available at https://www.fanniemae.com/content/release_notes/du-do-release-notes-08152015.pdf.
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    Both Enterprises have loan purchase products that can be used to 
varying degrees with shared equity mechanisms, including deed-
restricted housing and community land trusts. However, the Enterprises 
could simplify their requirements for these products and make a greater 
effort to ensure that the requirements are widely understood. 
Encouraging Enterprise support for shared equity homeownership could 
help spur this important market.

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question by the number assigned below):
    64. Are there additional ways that the Enterprises could support 
long-term affordable homeownership preservation?
    65. Should affordable homeownership be preserved for longer than 30 
years to qualify for Duty to Serve credit and, if so, for how long?
    66. Should Enterprise support for affordable homeownership 
preservation be a Regulatory Activity?
    67. How can the Enterprises provide further support for affordable 
homeownership preservation beyond those specified above or in the 
proposed rule?

[[Page 79205]]

v. Preservation of Affordable Housing Through the Choice Neighborhoods 
Initiative--Proposed Sec.  1282.34(d)(5)
    Section 1282.34(d)(5) of the proposed rule would provide Duty to 
Serve credit for Enterprise activities supporting financing for HUD's 
Choice Neighborhoods Initiative (CNI).\138\ This program seeks to 
preserve and transform distressed affordable housing by creating mixed-
income housing and investing in neighborhood improvements and upgrades, 
with the ultimate goal of deconcentrating poverty and creating higher-
opportunity neighborhoods. The program allows for the location of 
replacement housing offsite in lower-poverty neighborhoods and 
assistance to tenants in moving to such neighborhoods to promote the 
deconcentration of poverty. The Enterprises can support the CNI by 
purchasing mortgages that provide permanent financing on housing 
preservation activities that support very low-, low-, and moderate-
income households.
---------------------------------------------------------------------------

    \138\ 42 U.S.C. 1437v.
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vi. Preservation of Affordable Housing Through the Rental Assistance 
Demonstration Program--Proposed Sec.  1282.34(d)(6)
    Section 1282.34(d)(6) of the proposed rule would provide Duty to 
Serve credit for Enterprise activities supporting financing for HUD's 
Rental Assistance Demonstration (RAD) program.\139\ The program seeks 
to improve and preserve public housing and other affordable housing 
supported by older HUD programs by converting the properties' operating 
funds to project-based vouchers or Section 8 rental assistance 
contracts. By converting the funds, public housing authorities can 
access other sources of public and private capital for repair and 
preservation. While the RAD program is primarily a preservation program 
for housing affordable to very low-income tenants, the program can also 
support mixed-income housing as long as all affordable units are 
replaced. The program includes the use of tenant-based vouchers to 
support the deconcentration of poverty and movement of low-income 
tenants to high opportunity areas. The Enterprises can support the RAD 
program by supporting permanent financing on properties that take 
advantage of this program.
---------------------------------------------------------------------------

    \139\ 42 U.S.C. 1437f note.
---------------------------------------------------------------------------

3. Rural Markets--Proposed Sec.  1282.35
a. Background
i. Overview of Rural Housing
    According to the 2010 U.S. Census, 19.3 percent of the U.S. 
population lives in rural America.\140\ Although urban housing needs 
tend to draw more attention, the housing needs in rural areas are also 
significant. High rural poverty rates and a declining employment base 
have led to rural unemployment and underemployment. While the average 
homeownership rate in rural areas (73 percent) is higher than the 
national average homeownership rate (64 percent),\141\ housing in rural 
areas is more likely to be substandard. Rural housing stock, both 
owner-occupied and rental, exhibits two common characteristics: (1) It 
is comprised primarily of single-family homes (82 percent),\142\ 
excluding manufactured housing; and (2) a higher percentage of the 
stock is in substandard condition (6.3 percent) compared to 
metropolitan areas (5.3 percent).\143\ Substandard housing is likely 
due to aging homes, fewer housing code enforcement efforts, lower 
homeowner turnover rates, and less disposable income available for 
dwelling rehabilitation.
---------------------------------------------------------------------------

    \140\ See U.S. Census Bureau, Frequently Asked Questions, ``What 
percentage of the U.S. population is rural?,'' available at https://ask.census.gov/faq.php?id=5000&faqId=5971.
    \141\ See U.S. Census Bureau, ``American Housing Survey for the 
United States: 2011,'' at 2, Issued September 2013, available at 
https://www.census.gov/content/dam/Census/programs-surveys/ahs/data/2011/h150-1.pdf.
    \142\ Id. at 3.
    \143\ Id. at 15.
---------------------------------------------------------------------------

    Rural communities have more limited access to mortgage credit than 
urban areas,\144\ which severely limits options for decent, clean, and 
affordable rural housing. Interest rates on home mortgages tend to be 
higher in rural areas than in urban areas. Those differences may 
reflect varying expenses associated with mortgage lending and the 
competitiveness and efficiency of mortgage markets. The smaller 
population size and the remoteness of many rural areas can raise lender 
costs. Additionally, rural financial markets, including mortgage 
markets, generally have fewer competitors than urban markets, and rural 
communities may lack sufficient internet service that would allow 
households to access more competitive financing options online. Thus, 
lenders operating in rural markets may be apt to charge more, provide 
fewer products and services, or incur inefficiently high expenses.\145\
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    \144\ See Adam Wodka, ``Landscapes of Foreclosure: The 
Foreclosure Crisis in Rural America,'' NeighborWorks America and the 
Joint Center for Housing Studies of Harvard University, November 
2009, available at https://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/w10-2_wodka.pdf.
    \145\ See U.S. Department of Agriculture Economic Research 
Service, ``Can Federal Policy Changes Improve the Performance of 
Rural Mortgage Markets?,'' Agriculture Information Bulletin No. 724-
12, at 1 (Aug. 1998), available at https://www.ers.usda.gov/media/564761/aib72412_1_.pdf.
---------------------------------------------------------------------------

    Another obstacle for rural communities is the lack of local 
capacity to build new homes and renovate existing housing stock. There 
may be few or no local organizations in rural areas, especially in 
areas with the greatest needs that have the resources and expertise to 
undertake rural housing projects. Low density and the lack of volume in 
rural communities make it difficult for organizations to develop 
housing, particularly more cost-effective multifamily housing.
    Rural housing stock has unique features and challenges. Rural 
communities are widely scattered, as are individual housing units 
within those communities. Dwellings may be sited on large parcels and 
have unique construction and design characteristics. Rural housing 
markets also tend to have slower housing turnover, and many have 
seasonal housing needs. Because of the low density of rural markets, a 
general lack of homogeneity in housing quality and features, and slower 
or seasonal market turnover, appraisals can be difficult because 
suitable comparable sales may be few and far between.
    Manufactured housing continues to grow in importance as a rural 
housing choice. Most rural manufactured homes are financed as personal 
property (chattel), which often features higher interest rates with 
shorter repayment terms. However, chattel-financed manufactured homes 
offer an affordable option for many people in rural markets because the 
cost of a manufactured unit is typically lower than that of a site-
built unit and does not include the cost of the underlying land, which 
the household may rent or already own. A household may also save money 
because it does not pay real estate taxes on chattel property, although 
it may pay personal property taxes on the unit.
    USDA mortgage programs help fill some housing needs in rural 
areas,\146\

[[Page 79206]]

and benefit from having local agency administrative infrastructure to 
support the programs. The USDA Section 502 loan program provides very 
low- and low-income families in rural areas earning no more than 80 
percent of area median income up to 100 percent financing to purchase 
existing or newly constructed dwellings or to purchase sites and 
construct dwellings in rural areas.
---------------------------------------------------------------------------

    \146\ The Millennial Housing Commission concluded that rural 
areas are often neglected by major federal housing production 
programs such as HOME, CDBG, and the Low-Income Housing Tax Credit, 
and that as a result, USDA programs have been the primary source of 
rural housing assistance since 1949. See Millennial Housing 
Commission, ``Meeting Our Nation's Housing Challenges--Report of the 
Bipartisan Millennial Housing Commission Appointed by the Congress 
of the United States,'' at 78 (May 30, 2002), available at https://govinfo.library.unt.edu/mhc/MHCReport.pdf.
---------------------------------------------------------------------------

    The USDA Section 515 rental housing program provides funding to 
finance the construction of affordable multifamily rental housing in 
rural areas for very low-, low-, and moderate-income families, elderly 
persons, and persons with disabilities. An ongoing challenge is keeping 
these rental units in rural areas affordable and available for low-
income families for two reasons in particular. First, a number of 
building owners that received Section 515 loans prior to December 15, 
1989, are prepaying their mortgages and terminating the government 
affordability requirements before the end of the original loan term. 
(Loans made through contracts entered into on or after December 15, 
1989 cannot be prepaid).\147\ USDA offers incentives to owners not to 
prepay and continue to restrict the property to low-income occupancy. 
These incentives include equity loans, reduced interest rates, and 
additional rental assistance. Second, aging properties financed with 
Section 515 loans are physically deteriorating. USDA offers 
preservation assistance to owners or purchasers of Section 515 
properties through its Multifamily Housing Preservation and 
Revitalization (MPR) demonstration program, which provides no-interest 
loans, grants to non-profit owners, soft second loans, and debt 
deferral.\148\
---------------------------------------------------------------------------

    \147\ See Rural Rental Housing Loans (Section 515), September 
2002, available at https://portal.hud.gov/hudportal/documents/huddoc?id=19565_515_RuralRental.pdf.
    \148\ See Housing Preservation & Revitalization Demonstration 
Loans & Grants, available at https://www.rd.usda.gov/programs-services/housing-preservation-revitalization-demonstration-loans-grants.
---------------------------------------------------------------------------

ii. Enterprise Activities in Rural Areas
    Under the definition of ``rural area'' in this proposed rule, which 
is discussed below, as of the end of 2009, 12.7 percent of Enterprise 
total residential mortgage loan purchases were in rural areas. As of 
the end of 2014, 18.5 percent of loans purchased by the Enterprises 
were in rural areas, representing a 46 percent increase from 2009. Of 
these loans, 36 percent were for families with incomes at or below 100 
percent of area median income.
    Difficulties in underwriting loans for rural areas can arise from 
slower or seasonal market turnover, widely scattered home sites, large 
lot sizes, and a general lack of homogeneity in the housing stock.\149\ 
In response, the Enterprises have clarified and developed flexible 
collateral underwriting guidelines for rural markets in guidance 
released to creditors and appraisers in 2014.\150\ The Enterprise 
guidelines state that they provide clarifications and dispel common 
industry misconceptions about acceptable appraisal practices and 
property eligibility requirements for homes in small towns and rural 
areas.\151\ Consistent with HUD, U.S. Department of Veterans Affairs 
(VA), and USDA-Rural Development policies, the Enterprises' guidelines 
remain broad to allow appraisers to accurately observe, analyze and 
report actual rural market and property conditions. Further, the 
guidelines allow the appraisers discretion to select comparable sales 
that may be dated, distant, or dissimilar to a subject property but 
that best reflect the appraiser's conclusions and opinion of 
value.\152\ This approach recognizes the unique appraisal problems in 
rural markets discussed above. However, in all cases, the appraisal 
must contain adequate reasoning and justification for the analysis and 
conclusions to produce a credible and reliable result.
---------------------------------------------------------------------------

    \149\ See generally Kerry D. Vandell, ``Improving Secondary 
Markets in Rural America,'' Proceedings--Rural and Agricultural 
Conferences, Federal Reserve Bank of Kansas City, 85-120 (Apr. 
1997), available at https://www.kansascityfed.org/publicat/fra/fra97van.pdf.
    \150\ See Laurie Redmond, ``Freddie Mac Property and Appraisal 
Requirements for Properties Located in Rural Market Areas,'' Letter 
to Freddie Mac Sellers, Freddie Mac Bulletin (Apr. 1, 2014), 
available at https://www.freddiemac.com/singlefamily/guide/bulletins/pdf/bll1405.pdf. See also Carlos T. Perez, ``Property and Appraisal 
Requirements for Properties Located in Small Towns and Rural 
Areas,'' Lender Letter LL-2014-02, Letter to All Fannie Mae Single-
Family Sellers, Fannie Mae (Mar. 25, 2014), available at https://www.fanniemae.com/content/announcement/ll1402.pdf.
    \151\ See Laurie Redmond, ``Freddie Mac Property and Appraisal 
Requirements for Properties Located in Rural Market Areas,'' Letter 
to Freddie Mac Sellers, Freddie Mac Bulletin (Apr. 1, 2014), 
available at https://www.freddiemac.com/singlefamily/guide/bulletins/pdf/bll1405.pdf. See also, Carlos T. Perez, ``Lender Letter LL-2014-
02,'' Letter to All Fannie Mae Single-Family Sellers, Fannie Mae 
(Mar. 25, 2014), available at https://www.fanniemae.com/content/announcement/ll1402.pdf.
    \152\ See Laurie Redmond, ``Freddie Mac Property and Appraisal 
Requirements for Properties Located in Rural Market Areas,'' Letter 
to Freddie Mac Sellers, Freddie Mac Bulletin (Apr. 1, 2014), 
available at https://www.freddiemac.com/singlefamily/guide/bulletins/pdf/bll1405.pdf. See also, Carlos T. Perez, ``Lender Letter LL-2014-
02,'' Letter to All Fannie Mae Single-Family Sellers, Fannie Mae 
(Mar. 25, 2014), available at https://www.fanniemae.com/content/announcement/ll1402.pdf.
---------------------------------------------------------------------------

    As part of their Duty to Serve rural markets, the Enterprises would 
be required to evaluate their current activities in rural areas and 
identify opportunities to increase those activities. This evaluation 
could include the Enterprises' working through federal and state 
programs and with local stakeholders to address liquidity needs in 
rural markets. At the same time, FHFA recognizes that Enterprise Duty 
to Serve efforts will not be able to address all housing finance needs 
in rural markets because of safety and soundness, property eligibility 
requirements, and other constraints.
b. Regulatory and Additional Activities
    The Safety and Soundness Act provides that the Enterprises ``shall 
develop loan products and flexible underwriting guidelines to 
facilitate a secondary market for mortgages on housing for very low-, 
low-, and moderate-income families in rural areas.'' \153\ The 
statutory language is broad and does not enumerate specific activities 
or programs that the Enterprises must undertake in support of the rural 
market; as a result, FHFA has specified only one Core Activity for this 
market, as further described below.
---------------------------------------------------------------------------

    \153\ 12 U.S.C. 4565(a)(1)(C).
---------------------------------------------------------------------------

    Section 1282.35(b) of the proposed rule would define eligible 
activities for the rural market as Enterprise activities that 
facilitate a secondary market for mortgages on residential properties 
for very low-, low-, or moderate-income families in rural areas. 
Section 1282.1 of the proposed rule would define ``rural area'' as (1) 
a census tract outside of a metropolitan statistical area (MSA), as 
designated by OMB, or (2) a census tract that is in an MSA but outside 
of the MSA's Urbanized Areas (UAs) and Urban Clusters (UCs), as 
designated by USDA's RUCA codes. The proposed definition of ``rural 
area,'' which is further discussed below, is intended to give the 
Enterprises broad flexibility to undertake and receive Duty to Serve 
credit for activities in rural markets.
    The Enterprises are an important source of liquidity to rural 
markets. As noted above, the Enterprises have increased their purchases 
of mortgage loans in rural markets over the past five years and have 
expanded their outreach to community banks and other rural lenders over 
the past year. Nevertheless, there continues to be a need for outreach, 
support and capacity-building

[[Page 79207]]

for rural lenders to facilitate their origination of loans for housing 
in rural areas, which the Enterprises could purchase. Local lenders may 
lack expertise, volume, or resources to participate in Enterprise 
mortgage programs, while larger regional and national lenders that 
serve as aggregators for Enterprise-eligible loans purchased from 
smaller financial institutions are often not active in rural markets.
    The Enterprises' Underserved Markets Plan Activities could include, 
for example, modifying their underwriting of guidelines for rural loans 
eligible for purchase, increasing their rural loan purchases, and 
developing strategies for extending education, outreach and technical 
assistance to small and rural lenders and other entities, including 
nonprofit and for-profit organizations, serving rural markets. Plan 
Activities could also include Enterprise marketing of their products to 
lenders in rural areas in an effort to increase the number of approved 
lenders in those areas, or Enterprise purchases or other assistance 
with mortgages guaranteed under USDA programs or other residential 
mortgages in rural areas.
    The Enterprises' Underserved Markets Plans may also include 
Additional Activities that support the financing of residential 
properties for very low-, low-, or moderate-income families in rural 
areas, subject to FHFA determination of whether such activities are 
eligible for Duty to Serve credit.

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    68. What types of barriers exist to rural lending for housing and 
how can the Enterprises best address them?
    69. What types of Enterprise activities could help build 
institutional capacity and expertise among market participants serving 
rural areas?

Definition of ``Rural Area''

    A definition of ``rural area'' is necessary so that FHFA can 
evaluate the Enterprises' activities in rural markets and measure their 
performance under their Underserved Markets Plans. There is no single, 
universally accepted definition of ``rural area'' because varying 
definitions achieve different policy objectives.\154\ The ``rural 
area'' definitions identify people living in rural locations, but the 
methodologies for defining ``rural areas'' may be based on differing 
geographic units that are sometimes combined with population 
characteristics.
---------------------------------------------------------------------------

    \154\ See generally David A. Fahrenthold, ``What does rural 
mean? Uncle Sam has more than a dozen answers,'' Washington Post 
(June 8, 2013), available at https://www.washingtonpost.com/politics/what-does-rural-mean-uncle-sam-has-more-than-a-dozen-answers/2013/06/08/377469e8-ca26-11e2-9c79-a0917ed76189_story.html.
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    FHFA considered several criteria in developing a ``rural area'' 
definition. Many rural residents live in the outlying counties of 
metropolitan areas. Accordingly, FHFA's ``rural area'' definition for 
Duty to Serve purposes should be broad enough to include such counties. 
Additionally, because of the effect the definition would have on the 
Enterprises' three-year Underserved Markets Plans and activities 
creditable under those Plans, a ``rural area'' definition for the Duty 
to Serve must allow areas under the definition to remain stable over 
time. Other agencies' definitions of rural areas may be subject to 
annual or more frequent changes that may revise the definition and the 
areas included in the definition, based on policy objectives for 
particular programs. A ``rural area'' definition suitable for the Duty 
to Serve should also be census tract-based to allow for customization, 
ease of implementation and operational use by incorporating existing 
Enterprise geocoding systems, which use census tracts.
    In developing its definition of ``rural area,'' FHFA considered the 
criteria discussed above, other agency definitions of ``rural,'' and 
comments received on the 2010 Duty to Serve proposed rule, as discussed 
below.

USDA Definition of ``Rural''

    The Housing Act of 1949 defines ``rural'' and ``rural area'' 
generally as: Any open country, or any place, town, village, or city 
which is not part of or associated with an urban area and which: (1) 
Has a population not in excess of 2,500 inhabitants, or (2) has a 
population in excess of 2,500 but not in excess of 10,000 if it is 
rural in character, or (3) has a population in excess of 10,000 but not 
in excess of 20,000, and (A) is not contained within a standard MSA, 
and (B) has a serious lack of mortgage credit for lower and moderate-
income families, as determined by the Secretaries of Agriculture and 
HUD.\155\ Because this definition is implemented and updated by USDA, 
FHFA would not need to update the areas included in the definition with 
successive Censuses if the definition were used for the Duty to Serve.
---------------------------------------------------------------------------

    \155\ 42 U.S.C. 1490. The Agricultural Act of 2014 amended the 
Housing Act of 1949 definition of ``rural'' so that areas deemed 
rural between 2000 and 2010 would retain that designation until USDA 
receives data from the 2020 decennial Census. The amendments also 
raised the population threshold for eligibility from 25,000 to 
35,000 if the area is rural in nature and has a serious lack of 
mortgage credit for lower- and moderate-income families. See 
Agricultural Act of 2014, Public Law 113-79, Sec.  6208, 128 Stat. 
861 (2014), available at https://www.congress.gov/113/plaws/publ79/PLAW-113publ79.pdf.
---------------------------------------------------------------------------

    Commenters on the 2010 Duty to Serve proposed rule generally 
favored using the USDA definition for the Duty to Serve. Several 
nonprofit organizations stated that the USDA definition is sufficiently 
broad to cover almost all rural areas, and some stated that it should 
be used for the sake of consistency. However, one Enterprise commented 
that the USDA definition presents unacceptable operational risks and 
recommended consideration of other methodologies, possibly using a 
combination of classifications. The Enterprise stated that unless the 
USDA maintains accessible archives, the USDA definition would prohibit 
replication and verification of results once USDA data are updated.
    The Government Accountability Office (GAO) found that because MSAs 
contain both urban and rural areas and have increased substantially in 
both size and number in recent decades, they may not be good 
determinants of urban-rural distinctions.\156\ Adoption of the USDA 
definition would also pose significant implementation challenges for 
the Enterprises as the definition splits census tracts into rural and 
urban components, increasing the difficulty of use because the 
Enterprises' existing geocoding programs use whole census tracts. In 
addition, the Enterprises would have to automate the coding of urban-
rural designations based on information currently available only 
through the USDA Web site. The USDA Web site is designed for loan 
underwriters and originators, which deal in much smaller numbers of 
transactions than the Enterprises. Because of the significantly larger 
volume of the Enterprises' transactions, the Enterprises would need the 
capability to automate the rural-urban designations for large numbers 
of properties. This would be a costly and time-consuming process for 
the Enterprises. Moreover, USDA revises its rural-designated areas 
throughout the year at the state and local field office level, which 
would further complicate the use of USDA's definition in determining 
Duty to Serve-creditable

[[Page 79208]]

Enterprise activity in a given Underserved Markets Plan year.
---------------------------------------------------------------------------

    \156\ See United States Government Accountability Office, GAO-
05-110, ``Rural Housing--Changing the Definition of Rural Could 
Improve Eligibility Determinations'' (Dec. 2004), available at 
https://www.gao.gov/new.items/d05110.pdf.
---------------------------------------------------------------------------

    However, one USDA indicator of rurality was found to be 
particularly useful in constructing FHFA's definition of ``rural area'' 
in the proposed rule. This is USDA's RUCA codes designation.\157\ RUCA 
designations are census tract-based and classify census tracts using 
measures of population density, urbanization, and daily commuting. RUCA 
designations are clear, meaningful, and easy to operationalize. As 
further discussed below, FHFA has incorporated RUCA codes in its 
proposed definition of ``rural area.''
---------------------------------------------------------------------------

    \157\ https://www.ers.usda.gov/data-products/rural-urban-commuting-area-codes/documentation.aspx.
---------------------------------------------------------------------------

CFPB Definition of ``Rural''

    FHFA also considered CFPB's definition of ``rural'' used for escrow 
account requirements on higher-priced mortgage loans. CFPB defines 
``rural'' as counties outside of all MSAs and outside of all 
micropolitan statistical areas that are adjacent to MSAs, as those 
terms are defined by OMB and as they are currently applied under USDA 
``Urban Influence Codes'' (UICs) established by the USDA-Economic 
Research Service (ERS).\158\ Additionally, CFPB considers a rural area 
a census block that is designated as ``rural'' by the U.S. Census 
Bureau in the urban-rural classification it completes after each 
decennial Census.\159\
---------------------------------------------------------------------------

    \158\ See 80 FR 59944, 59968 (Oct. 2, 2015) to be codified at 12 
CFR 1026.35(b)(2)(iv)(A), effective January 1, 2016.
    \159\ Id.
---------------------------------------------------------------------------

    The first component of the CFPB definition for rural \160\ uses 
counties as the geographic unit. Counties are the most commonly used 
geographic component of definitions of ``rural.'' \161\ They are simple 
to understand and since county boundaries are stable over time, the 
definition of ``rural'' remains stable. CFPB maintains a list of 
counties eligible under its definition of ``rural'' on its Web site and 
updates the list annually.
---------------------------------------------------------------------------

    \160\ See 80 FR 59944, 59968 (Oct. 2, 2015) to be codified at 12 
CFR 1026.35(b)(2)(iv)(A)(1), effective January 1, 2016.
    \161\ See Andrew F. Coburn, A. Clinton MacKinney, Timothy D. 
McBride, Keith J. Mueller, Rebecca T. Slifkin, & Mary K. Wakefield, 
``Choosing Rural Definitions: Implications for Health Policy,'' at 2 
(Mar. 2007), available at https://www.rupri.org/Forms/RuralDefinitionsBrief.pdf.
---------------------------------------------------------------------------

    The second component of the CFPB definition for rural may pose 
implementation and operational issues for the Enterprises, as the 
Enterprises rely on geocoding using census tracts rather than census 
blocks.

U.S. Census Bureau Definition of ``Rural''

    FHFA also considered the U.S. Census Bureau's metropolitan/urban 
and non-metropolitan/rural areas designations. The U.S. Census Bureau's 
urban areas designations represent densely developed territory, 
encompassing residential, commercial and other non-residential urban 
land uses. The U.S. Census Bureau designates urban areas after each 
decennial Census by applying specified criteria to decennial Census and 
other data and identifies two types of urban areas: (i) UAs of 50,000 
or more people; and (ii) UCs of at least 2,500 and less than 50,000 
people. The U.S. Census Bureau designates rural areas as those areas 
encompassing all population, housing and territory not included within 
a UA or UC.\162\ The U.S. Census Bureau's designation of rural areas is 
stable over time, does not require reliance on external Web sites or 
published lists, and is census tract-based. Its designations of UAs and 
UCs allow for identification of rural census tracts even within 
counties located within MSAs, which are based on county information, 
and are appropriate for purposes of the Duty to Serve.
---------------------------------------------------------------------------

    \162\ See United States Census Bureau, ``Urban and Rural 
Classification,'' Web. 20 (Feb. 2015), available at https://www.census.gov/geo/reference/ua/urban-rural-2010.html.
---------------------------------------------------------------------------

FHFA Proposed Definition of ``Rural Area''--Proposed Sec.  1282.1

    After considering the various criteria, other agencies' definitions 
of ``rural,'' and the comments received on the 2010 Duty to Serve 
proposed rule, discussed above, FHFA is proposing to define ``rural 
area'' in Sec.  1282.1 by combining two different geographic 
designations that would incorporate nonmetropolitan areas. 
Specifically, the proposed rule would define ``rural area'' as (1) a 
census tract outside of an MSA, as designated by OMB, or (2) a census 
tract that is in an MSA but outside of the MSA's UAs and UCs, as 
designated by USDA's RUCA codes.\163\
---------------------------------------------------------------------------

    \163\ Primary RUCA code 1 indicates an UA, and primary RUCA 
codes 4 and 7 indicate UCs; census tracts with these codes would not 
be included in the Duty to Serve definition of ``rural area.'' A 
dataset based on this proposed definition is posted at www.fhfa.gov.
---------------------------------------------------------------------------

    FHFA's proposed definition would be census tract-based, which would 
be more specific than county-based or MSA-based definitions and should 
better distinguish between rural areas and non-rural areas without 
excluding outlying counties of metropolitan areas. As discussed above, 
USDA's RUCA codes classify census tracts using measures of population 
density, urbanization, and daily commuting, are clear and meaningful, 
and would be easy for the Enterprises to incorporate into their current 
operating infrastructures. In short, the Enterprises should be able to 
easily implement FHFA's proposed definition using their existing 
geocoding systems and the proposed definition should provide stability 
to support the multi-year Underserved Markets Plans.

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify each question by the number assigned below):
    70. Would one of the four definitions discussed above better serve 
Duty to Serve objectives, and if so, why?
    71. How could operational concerns about Enterprise implementation 
under each of the definitions be addressed?

High-Needs Rural Regions and High-Needs Rural Populations--Proposed 
Sec.  1282.35(c)

    Section 1282.35(c) of the proposed rule would provide Duty to Serve 
credit for Enterprise support of financing of income-eligible housing 
for high-needs rural regions and high-needs rural populations. Under 
the proposed rule, this activity would constitute a Regulatory Activity 
which the Enterprises would have to address in their Underserved 
Markets Plans by indicating how they choose to undertake the activity 
or the reasons why they will not undertake the activity.
    Section 1282.1 of the proposed rule would define a ``high-needs 
rural region'' as any of the following regions, provided it is located 
in a rural area as defined in the proposed rule: (i) Middle Appalachia; 
(ii) The Lower Mississippi Delta; or (iii) a colonia. Section 1282.1 
would define a ``high-needs rural population'' as any of the following 
populations, provided the population is located in a rural area as 
defined in the proposed rule: (i) members of a Federally recognized 
Indian tribe located in an Indian area; or (ii) migrant and seasonal 
agricultural workers. FHFA chose these rural regions and populations 
because they are characterized by a high concentration of poverty and 
substandard housing conditions.
    The economic distress experienced in these regions and by these 
populations is evident in their poor housing conditions and 
unaffordable housing.\164\

[[Page 79209]]

Manufactured housing is prevalent in these regions and is a significant 
option for affordable housing.
---------------------------------------------------------------------------

    \164\ See Housing Assistance Council, ``Taking Stock: Rural 
People, Poverty, and Housing at the Turn of the 21st Century,'' at 
37 (2002) [hereinafter ``HAC 2002 Study''], available at https://www.ruralhome.org/sct-information/mn-hac-research/mn-rrr/245-taking-stock-2000.
---------------------------------------------------------------------------

    While these regions and populations share common housing problems, 
unique challenges in some regions include: A scarcity of suitable 
building lots and high costs of site development and access in Middle 
Appalachia; particular affordability problems in the Lower Mississippi 
Delta; title issues with contract-for-deed (installment financing) for 
land purchases in colonias; and title issues on Native American lands, 
which are tribal-owned. These regions and populations are typically 
assisted by government agencies, local community development 
corporations, housing finance agencies, and nonprofit organizations, 
which have helped promote economic growth and improvements in housing 
conditions through various projects and programs. However, these 
regions and populations tend to lack the public-private development and 
financing infrastructure necessary to sustain improvements in housing 
conditions. Enterprise focus on these regions and populations could 
help provide increased financial infrastructure that facilitates 
improvements in housing conditions and affordability.
    The high-need regions in the proposed definition are discussed 
further below.
    a. Middle Appalachia. As defined by the Appalachian Regional 
Commission (ARC), the Appalachia region includes all of West Virginia, 
and parts of Alabama, Georgia, Kentucky, Maryland, Mississippi, New 
York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, 
and Virginia. The Appalachia region is home to more than 25 million 
people and covers 420 counties and almost 205,000 square miles.\165\ 
Middle Appalachia is a sub-region of Appalachia, which ARC defines as 
the 230 ARC-designated counties in Kentucky, North Carolina, Ohio, 
Tennessee, Virginia, and West Virginia.\166\ Middle Appalachia is 
predominantly rural, with over 80 percent of Middle Appalachia's 
counties being non-metropolitan.\167\
---------------------------------------------------------------------------

    \165\ See Appalachian Regional Commission, FINANCIAL 
STATEMENTS--As of And For The Years Ended September 30, 2013 and 
2012, Note 1 at 8 (Jan. 29, 2014), available at https://www.arc.gov/images/aboutarc/members/IG/Report14-09FiscalYear2013FinancialStatementAudit.pdf.
    \166\ See Appalachian Regional Commission, Subregions in 
Appalachia (Nov. 2009), available at https://www.arc.gov/research/MapsofAppalachia.asp?MAP_ID=31. Middle Appalachia comprises the 
North Central, Central and South Central subregions of Appalachia.
    \167\ See HAC 2002 Study, supra note 164, at 56.
---------------------------------------------------------------------------

    Substandard housing is a particularly prevalent problem in Middle 
Appalachia. Eighty percent of counties in the region have higher levels 
of housing units with inadequate plumbing than the national level.\168\ 
Manufactured housing (not on permanent foundations) is also very common 
in the region, accounting for 18 percent of all housing units. This is 
due to limited suitable land (e.g., to support foundations and provide 
wells or septic systems) for site-built homes as well as low incomes 
that make other types of housing unaffordable.\169\
---------------------------------------------------------------------------

    \168\ See HAC 2002 Study, supra note 164, at 60.
    \169\ See Id.
---------------------------------------------------------------------------

    b. The Lower Mississippi Delta. As defined by the Lower Mississippi 
Delta Development Act and the former Lower Mississippi Delta 
Development Commission, the Lower Mississippi Delta region is comprised 
of counties and parishes in portions of Arkansas, Louisiana, 
Mississippi, Missouri, Illinois, Tennessee, Kentucky, and Alabama.\170\ 
Technically, the region is not a delta but a 200-mile plain that covers 
more than 90,000 miles of rivers and streams and more than 3 million 
acres.\171\
---------------------------------------------------------------------------

    \170\ See Lower Mississippi Delta Development Act, Oct. 1, 1988, 
Public Law 100-460, Title II, Sec.  201; HAC 2002 Study, supra note 
164, at 87. The State of Alabama was added in 2000 as a provision of 
the Consolidated Appropriations Act of 2001, Public Law 106-554 (114 
Stat. 2763A-252). See generally Eugene Boyd, Congressional Research 
Service, Federal Regional Authorities and Commissions: Their 
Function and Design, at 15-25 (Order Code RL33076 (Sept. 21, 2006), 
available at https://www.hsdl.org/?view&did=467086. The Lower 
Mississippi Delta Commission's operations were terminated on 
September 30, 1990. See id. at 16.
    \171\ See HAC 2002 Study, supra note 164, at 84.
---------------------------------------------------------------------------

    In considering the Lower Mississippi Delta Development Act, the 
U.S. Senate found that the lower Mississippi River valley is the 
poorest, most underdeveloped region in the United States, ranking 
lowest by almost every economic and social indicator.\172\ It has an 
overwhelming need for the development of decent, affordable 
housing.\173\ Challenges in assisting this region have included 
insufficient local capacity to undertake development efforts, the 
absence of adequate resources and financing mechanisms, and the lack of 
collaboration among ongoing efforts in the region.\174\
---------------------------------------------------------------------------

    \172\ S. Rep. No. 557, 100th Cong., 2d Sess., at 2 (1988). See 
also The Economist, ``The Hellhound's Trail--A Delta town starts to 
make good,'' (May 4, 2013), available at https://www.economist.com/node/21577093/print.
    \173\ HAC 2002 Study, supra note 164, at 89. See generally Chico 
Harlan, ``An opportunity gamed away--For a county in the Deep South 
that reaped millions from casino business, poverty is still its spin 
of the wheel,'' The Washington Post (July 11, 2015), available at 
https://www.washingtonpost.com/sf/business/2015/07/11/an-opportunity-gamed-away/.
    \174\ See HAC 2002 Study, supra note 164, at 89. See generally 
Chico Harlan, ``An opportunity gamed away--For a county in the Deep 
South that reaped millions from casino business, poverty is still 
its spin of the wheel,'' The Washington Post (July 11, 2015), 
available at https://www.washingtonpost.com/sf/business/2015/07/11/an-opportunity-gamed-away/.
---------------------------------------------------------------------------

    c. Colonias. In Latin America, the word ``colonia'' means 
``neighborhood'' or ``community.'' The Cranston-Gonzalez National 
Affordable Housing Act (NAHA) has two definitions of a ``colonia'' 
depending on the applicable housing program. NAHA defines a ``colonia'' 
as an ``identifiable community'' that: (A) is in the State of Arizona, 
California, New Mexico, or Texas; (B) is in an area of the United 
States within 150 miles of the U.S.-Mexico border (not including any 
standard MSA with a population exceeding 1 million), or is in the 
United States-Mexico border region (the applicable criterion depends on 
the particular housing program); (C) is determined to be a colonia on 
the basis of objective criteria, including lack of potable water 
supply, lack of adequate sewage systems, and lack of decent, safe and 
sanitary housing; and (D) was in existence as a colonia before November 
28, 1990.\175\ Previous statutory definitions of ``colonia'' also 
included a requirement that the identifiable community be designated by 
the state or county in which it is located as a colonia.\176\ The 
definitions used in HUD and USDA programs include criteria from the 
previous and current statutory definitions, depending on the particular 
housing program.\177\ The NAHA definition as used by HUD and USDA 
programs also includes other types of colonia communities, such as 
dense settlements of modular or manufactured homes.\178\
---------------------------------------------------------------------------

    \175\ 42 U.S.C. 1479(f)(8); 42 U.S.C. 5306note.
    \176\ Public Law 101-625, 104 Stat. 4290, 4396.
    \177\ 24 CFR 570.411, 7 CFR 1777.4.
    \178\ 24 CFR 570.411, 7 CFR 1777.4. See ``Colonias History,'' 
available at https://www.hudexchange.info/cdbg-colonias/colonias-history/.
---------------------------------------------------------------------------

    In many cases, state and local jurisdictions play an important role 
in the level of public controls related to factors such as the initial 
designation of the colonias, their ongoing conditions, and the 
political initiative to improve their conditions. Some colonias are 
incorporated communities under the control of a city, some are 
unincorporated under the control of the county, and others may be in 
extra-jurisdictional territories of cities which

[[Page 79210]]

share some level of control with the county. The political motivation 
to improve conditions for colonia residents has led to an assortment of 
projects that combine funding from multiple federal and non-federal 
sources including local resources.\179\ Colonias typically have been 
formed in response to a need for affordable housing that gives people a 
sense of ownership.
---------------------------------------------------------------------------

    \179\ Id.
---------------------------------------------------------------------------

    Lack of decent, affordable single-family and rental housing 
continues to be a major problem in colonias. While homeownership rates 
in colonias are similar to national homeownership rates, the percentage 
of vacant properties in colonias (12 percent) is higher than the 
percentage of vacant properties nationally (8.4 percent). This may 
reflect a lack of affordability for acquiring or sustaining ownership 
by a population characterized by significant poverty, household 
migration for available farm work, and abandonment of substandard 
housing. Many colonia residents typically purchase unimproved land 
rather than improved property, and rely on financing methods such as a 
contract for deed rather than a traditional mortgage.\180\ This may be 
because traditional lenders are unwilling to make standard mortgages on 
land without certain infrastructure or on which the improvements may be 
self-built. Non-traditional lenders may not offer alternatives to 
contract-for-deed financing even when financing improvements to the 
land. A contract for deed is a form of installment sale in which the 
seller does not transfer legal title to the buyer until after the buyer 
has paid the entire purchase price.\181\ As with most installment 
financing, the homebuyer is usually responsible for maintenance of the 
property and payment of the taxes and insurance during the contract 
term and typically loses the right to recover the value of any 
improvements made to the property. Consequently, a contract for deed 
lacks some of the borrower protections that a mortgage provides through 
lengthier default and foreclosure processes and, in some cases, 
redemption periods. Contracts for deed are also more likely to carry 
interest rates applicable to consumer loans, such as 12 percent to 18 
percent, which are generally much higher than residential mortgage 
rates.
---------------------------------------------------------------------------

    \180\ See Housing Assistance Council, ``Housing in the Border 
Colonias'' (Aug. 2013), available at https://www.ruralhome.org/storage/documents/rpts_pubs/ts10_border_colonias.pdf.
    \181\ Peter M. Ward, Heather K. Way & Lucille Wood, ``The 
Contract for Deed Prevalence Project--A Final Report to the Texas 
Department of Housing and Community Affairs (TDHCA),'' at IV (Aug. 
2012), available at https://www.tdhca.state.tx.us/housing-center/docs/CFD-Prevalence-Project.pdf.
---------------------------------------------------------------------------

    If the full NAHA definition were applied for the Duty to Serve, the 
Enterprises would likely be able to receive little or no Duty to Serve 
credit for colonias. This is because to be eligible for purchase by the 
Enterprises, mortgages on residential properties must meet the 
Enterprises' property eligibility requirements, including project 
access and infrastructure, presence of site utilities, acceptable 
property condition, and marketability. The NAHA definition of colonia 
includes a requirement that the community lack a potable water supply 
and adequate sewage systems. The Enterprises' property eligibility 
requirements would not permit them to purchase mortgages on properties 
that lack potable water supplies and adequate sewage systems. A broader 
definition of ``colonia'' that incorporates some but not all of the 
elements of the NAHA definitions would provide the broadest scope for 
Duty to Serve credit for Enterprise purchases of mortgage loans and 
conducting of other activities in colonias.
    Accordingly, FHFA proposes to define ``colonia'' for Duty to Serve 
purposes as an identifiable community that (A) is designated by a State 
or county in which it is located as a colonia; (B) is located in the 
State of Arizona, California, New Mexico, or Texas; and (C) is located 
in a U.S. census tract with some portion of the tract within 150 miles 
of the U.S.-Mexico border.
    The high-needs populations in the proposed definition are discussed 
further below.
    a. Members of a Federally Recognized Indian Tribe Located in an 
Indian Area. The federal government now recognizes 337 Native American 
tribes, predominantly in the Plains region and the American Southwest, 
and 229 Alaska Native Villages.182 183 Approximately 70 
percent of homes on Native American lands are owner-occupied; however, 
Native American tribes and Alaska Native Villages generally own the 
underlying land to ensure the land is not sold to non-tribal members or 
non-Alaskan Natives. Consequently, the land and improvements may not 
have the same transfer rights and may function more like a leasehold 
estate, deterring traditional lenders from financing mortgages for home 
purchases because they cannot perfect the lien on the collateral. 
Despite the high rate of homeownership, there is a demand for rental 
housing on tribal and Alaska Native Villages Land. However, a shortage 
of decent, affordable rental properties on such land makes renting less 
common. This shortage is due in part to many villages being located on 
rivers or in coastal areas subject to erosion and flooding.\184\ 
Coastal area locations prone to flooding may contribute to a lack of 
incentive to develop rental housing due to higher costs and risks 
associated with building in such areas. In addition, housing project 
development may not be cost effective because costs are generally more 
expensive on tribal and Alaska Native Village lands due to increased 
costs to transport construction equipment, labor and materials to 
isolated, rural locations.\185\
---------------------------------------------------------------------------

    \182\ See U.S. Department of Interior Indian Affairs, ``Tribal 
Directory,'' available at https://www.bia.gov/WhoWeAre/BIA/OIS/TribalGovernmentServices/TribalDirectory/index.htm.
    \183\ See National Conference of State Legislators (NCSL) Web 
site (Updated Feb. 2015), available at https://www.ncsl.org/research/state-tribal-institute/list-of-federal-and-state-recognized-tribes.aspx.
    \184\ See GAO, Alaska Native Villages Report (Dec. 2003), 
available at https://www.gao.gov/products/A08981.
    \185\ See Housing Assistance Council, ``Housing on Native 
American Lands'' (Sept. 2013), available at https://www.ruralhome.org/storage/documents/rpts_pubs/ts10_native_lands.pdf.
---------------------------------------------------------------------------

    Under the proposed rule, Enterprise activities serving members of 
Native American tribes or Alaska Native Villages (hereafter referred to 
as Federally recognized Indian tribes to be consistent with the legal 
definition used by the Bureau of Indian Affairs (BIA)) in an Indian 
area that is located in a rural area would be a Regulatory Activity. 
Section 1282.1 would define a ``Federally recognized Indian tribe'' in 
accordance with the BIA definition. BIA defines a ``Federally 
recognized Indian tribe'' as ``an entity listed on the Department of 
Interior's list under the Federally Recognized Indian Tribe List Act of 
1994, which the Secretary currently acknowledges as an Indian tribe and 
with which the United States maintains a government-to-government 
relationship.'' \186\ Section 1282.1 would define ``Indian area'' in 
accordance with the HUD definition. HUD defines an ``Indian area'' as 
the area within which an Indian tribe operates affordable housing 
programs or the area in which a Tribally Designated Housing Entity is 
authorized by one or more Indian tribes to operate affordable housing 
programs.\187\
---------------------------------------------------------------------------

    \186\ See 25 CFR 83.1.
    \187\ See 24 CFR 1000.10.
---------------------------------------------------------------------------

    b. Migrant and Seasonal Agricultural Workers. The United States has 
an estimated 1.4 million agricultural

[[Page 79211]]

workers.\188\ Approximately 25 percent of agricultural workers have 
family incomes below the poverty line, which is roughly twice the 
national rate.\189\
---------------------------------------------------------------------------

    \188\ See Oxfam America & Farm Labor Organizing Committee, ``A 
state of fear: Human rights abuses in North Carolina's tobacco 
industry,'' at 17 (2011), available at https://www.oxfamamerica.org/static/oa3/files/a-state-of-fear.pdf.
    \189\ See Housing Assistance Council, ``Housing Conditions for 
Farmworkers,'' Research Report, at 1 (Sept. 2013) [hereinafter ``HAC 
Farmworker Report''], available at https://www.ruralhome.org/storage/documents/rpts_pubs/ts10-farmworkers.pdf.
---------------------------------------------------------------------------

    Because of instability in their work situation, many agricultural 
workers have atypical and significant housing needs.\190\ Migrant 
agricultural workers travel from place to place to work in agriculture 
and move into temporary housing while working.\191\ Seasonal 
agricultural workers typically live in a permanent community year-
round.\192\ Today, fewer agricultural workers follow traditional 
patterns of migration and instead stay in one place year- round.\193\ 
Nevertheless, inadequate and substandard housing conditions for many 
agricultural workers have remained unchanged over time.\194\
---------------------------------------------------------------------------

    \190\ For a discussion of housing difficulties facing migrant 
farmworkers, see, e.g., Lauren Mills, ``Poor Housing, Wage Cheats 
Still Plague Midwest Migrant Farm Workers,'' IowaWatch.org (Dec. 30, 
2013), available at https://iowawatch.org/2013/12/30/poor-housing-wage-hassles-still-plague-midwest-migrant-farm-workers/; Murrow, 
``Harvest of Shame'' (1960) (broadcast), available at https://www.youtube.com/watch?v=yJTVF_dya7E.
    \191\ See Student Action with Farmworkers, Home United States 
Farmworker Factsheet, at 1 (2007), available at https://saf-unite.org/sites/default/files/usfarmworkerfactsheet.pdf.
    \192\ Id.
    \193\ See HAC Farmworker Report, supra note 189, at 3.
    \194\ See HAC Farmworker Report, supra note 189, at 1.
---------------------------------------------------------------------------

    According to HAC, 85 percent of agricultural workers nationwide 
obtain their housing through the private market rather than through 
employers or public programs.\195\ More than 60 percent of agricultural 
worker-occupied housing units are rented, and approximately 35 percent 
are owner-occupied.\196\
---------------------------------------------------------------------------

    \195\ See HAC Farmworker Report, supra note 189, at 4.
    \196\ HAC Farmworker Report, supra note 189, at 4. This report 
does not specify the housing types for the remaining 5 percent of 
farmworkers who are not renters or owner-occupants.
---------------------------------------------------------------------------

    Housing arrangements for agricultural workers tend to vary by 
region, with the majority of East Coast agricultural workers living in 
employer-provided housing.\197\ The housing stock tends to be group 
quarters, individual homes or manufactured homes provided and 
controlled by the employer.\198\ The housing may be part of the 
worker's compensation.\199\ Concerns about some employer-provided 
housing have included overcrowding, inadequate or dysfunctional 
bathroom and shower facilities, leaky roofs, lack of heat or 
ventilation, inadequate or no laundry facilities, insect or rodent 
infestations, lack of security (locks), and inadequate cooking 
facilities.\200\ The proximity of the housing to insecticide-laced farm 
fields, and the exposure to mold and dirty drinking water, can raise 
health concerns.\201\
---------------------------------------------------------------------------

    \197\ See J. Keim-Malpass, C.R. Spears-Johnson, S.A. Quandt, & 
T.A. Arcury, ``Perceptions of housing conditions among migrant 
farmworkers and their families: implications for health, safety and 
social policy,'' Rural and Remote Health 15:3076, at 2 (Feb. 13, 
2015) [hereinafter ``Housing Health Study''], available at https://www.rrh.org.au/publishedarticles/article_print_3076.pdf.
    \198\ Id.
    \199\ Id.
    \200\ See Housing Health Study, supra note 197.
    \201\ See Housing Health Study, supra note 197, at 8-11.
---------------------------------------------------------------------------

    Unlike their East Coast counterparts, most agricultural workers in 
California find their own housing \202\ as employers offload the costs 
of their workers' housing.\203\ Increasingly, this housing is located 
in cities.\204\ The workers commute to farms, where they labor year 
round rather than seasonally.\205\ Their housing stock sometimes 
includes unfinished garages, work sheds, barns, vehicles and 
shacks.\206\ It can also include informal clusters of dwellings on a 
single lot, typically a main house and one or more ``back houses.'' 
\207\
---------------------------------------------------------------------------

    \202\ See Housing Health Study, supra note 197, at 2.
    \203\ See Don Villarejo, ``California's Hired Farm Workers Move 
to the Cities: The Outsourcing of Responsibility for Farm Labor 
Housing,'' at 1 (Jan. 24, 2014) [hereinafter ``Move to Cities 
Study''], available at https://www.crla.org/sites/all/files/u6/2014/rju0214/VillarejoFrmLbrHsngHlth_CRLA_012414.pdf.
    \204\ See generally Move to Cities Study, supra note 203.
    \205\ See Move to Cities Study, supra note 203, at 15, 17, 18, 
27.
    \206\ See Don Villarejo, ``The Status of Farm Labor Housing--And 
the Health of Workers,'' at 12 (Cal. Inst. For Rural Studies, Mar. 
6, 2015), available at https://www.cirsinc.org/phocadownload/userupload/housing-status_health_us_hired-farm-workers_2015.pdf.
    \207\ See Move to Cities Study, supra note 203, at 19.
---------------------------------------------------------------------------

    Section 1282.1 of the proposed rule would define ``migrant 
agricultural workers'' and ``seasonal agricultural workers'' in 
accordance with the U.S. Department of Labor's (DOL) definitions.\208\ 
DOL defines a ``migrant agricultural worker'' generally as an 
individual with agricultural employment of a seasonal or other 
temporary nature, who is required to be absent overnight from his 
permanent place of residence. DOL defines a ``seasonal agricultural 
worker'' generally as an individual with agricultural employment of a 
seasonal or other temporary nature, who is not required to be absent 
overnight from his permanent place of residence when employed on a farm 
or ranch performing certain specified types of agricultural work, and 
who is transported, or caused to be transported, to or from the place 
of employment by means of a day-haul operation.
---------------------------------------------------------------------------

    \208\ DOL's definitions are at 29 CFR 500.20(p) & (r).
---------------------------------------------------------------------------

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    72. Should Enterprise support for housing for high-needs rural 
regions and high-needs rural populations be a Regulatory Activity?
    73. What activities could the Enterprises undertake to provide 
liquidity and other support to high-needs rural regions and high-needs 
rural populations?
    74. How should FHFA define ``colonia'' for Duty to Serve purposes?
    75. How should FHFA define ``member of an Indian tribe,'' 
``Federally recognized Indian tribe,'' and ``Indian Area'' for Duty to 
Serve purposes?
    76. What specific actions could the Enterprises take to assist the 
needs of migrant and seasonal agricultural workers?
    77. Are there high-needs rural regions and/or high needs rural 
populations in addition to those identified above that should be 
included in this section, and, if so, how should they be defined to 
receive Duty to Serve credit?
    78. How might loan sellers and the Enterprises collect data 
establishing that housing to be financed would specifically benefit 
migrant and seasonal agricultural workers?
    79. Should FHFA define ``high-needs populations'' to include other 
categories of agricultural workers with high-needs housing issues in 
addition to seasonal and migrant agricultural workers? Should FHFA 
include agricultural workers in permanent annual employment in the 
definition?

IV. Evaluating and Rating Enterprise Duty To Serve Performance--
Proposed Sec.  1282.36

    The Safety and Soundness Act requires FHFA to separately evaluate 
whether each Enterprise has complied with its Duty to Serve each 
underserved market and to annually ``rate the performance of each 
[E]nterprise as to the extent of compliance.'' \209\
---------------------------------------------------------------------------

    \209\ 12 U.S.C. 4565(d).

---------------------------------------------------------------------------

[[Page 79212]]

    Under the proposed rule, FHFA's criteria for evaluating an 
Enterprise's annual Duty to Serve compliance would be set forth in an 
evaluation guide. FHFA would prepare a separate evaluation guide for 
each Enterprise for each evaluation year. FHFA would develop the 
evaluation guide using the contents of the Enterprise's Plan and the 
assessment factors. FHFA would provide the evaluation guide to the 
Enterprise at least 30 days before January 1st of the evaluation year 
for which the guide is applicable, except that the evaluation guide for 
the first evaluation year after the effective date of this regulation 
would be delivered on a date to be determined by FHFA. The evaluation 
guide would be required to be posted on the respective Enterprise's Web 
site and on FHFA's Web site.
    The evaluation guide would allocate a range of potential scoring 
points, e.g., a maximum of 10 and a minimum of 0, to each Plan 
activity. The evaluation guide would allocate a higher number of 
potential scoring points to Plan activities that are expected to 
require greater Enterprise resources and effort and to have a greater 
impact on the particular underserved market. The aggregate maximum 
number of scoring points that would be allocated to all of the Plan 
activities grouped under a particular underserved market would be 100 
points.
    At the end of the evaluation period, FHFA would compare the 
evaluation guide criteria to an Enterprise's actual performance under 
its Plan and assign a score to each Plan activity. The score could not 
exceed the number of potential scoring points allocated to the Plan 
activity in the evaluation guide. For example, for a Plan activity that 
had been allocated a maximum of 10 points in the evaluation guide, FHFA 
might award 4 points for modest performance and 8 points for good 
performance. After FHFA has awarded a score to each Plan activity, FHFA 
would sum the scoring points for all of the Plan activities that are 
grouped under each underserved market. The sum of those scores would 
produce an overall composite score ranging from 0 to 100 for each 
underserved market. Therefore, each Enterprise would have three overall 
composite scores, one for each underserved market.
    The evaluation guide would contain a table that assigns overall 
composite score numerical ranges for each underserved market to each of 
the following four overall ratings: ``Exceeds,'' ``High Satisfactory,'' 
``Low Satisfactory,'' and ``Fails.'' The four numerical ranges assigned 
to the overall ratings would include all whole numbers from 0 to 100 
with no overlap. An Enterprise's overall rating for each underserved 
market would be determined by the numerical range within which the 
Enterprise's overall composite score falls. For example, if the table 
provides that an overall composite score of between 90 and 100 
corresponds to an ``Exceeds'' rating, then an overall composite score 
of 93 for a particular underserved market would receive an ``Exceeds'' 
rating for that underserved market in that evaluation year. The same 
table range would apply to each underserved market. A rating of 
``Exceeds,'' ``High Satisfactory,'' or ``Low Satisfactory'' would 
constitute compliance with the Duty to Serve the underserved market. A 
rating of ``Fails'' would constitute noncompliance with the Duty to 
Serve the underserved market.
    The 2010 Duty to Serve proposed rule would have established a two-
tier evaluation system of ``In compliance'' or ``Noncompliance'' for 
Enterprise performance under each underserved market. In addition, it 
would have required FHFA to annually assign a rating of 
``Satisfactory'' or ``Unsatisfactory'' to Enterprise performance for 
each of the four statutory assessment factors in each of the 
underserved markets. The evaluation approach in this proposed rule 
differs from the approach in the 2010 proposed rule. The proposed 
rule's new approach to evaluations would enhance specificity by 
providing four distinct rating tiers instead of two, and would give 
FHFA the flexibility to make necessary refinements to the evaluation 
guide scoring process. This would enable the Enterprises to better 
focus their resources on areas of highest Duty to Serve value in a 
particular evaluation year and better understand FHFA's expectations.

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    80. Is there an alternative approach to evaluation of Enterprise 
Duty to Serve compliance that would enable FHFA to better measure the 
Enterprises' Duty to Serve compliance?
    81. Should FHFA consider a different rating structure (e.g., a 
rating structure with fewer or more ratings tiers)?

V. Extra Credit for Residential Economic Diversity Activities--Proposed 
Sec.  1282.37

    While FHFA would rely under the proposed rule on the statutory 
assessment factors for scoring the Enterprises' performance for each 
underserved market, FHFA would also grade qualifying activities within 
each of these markets on any activities the Enterprises planned under a 
non-mandatory residential economic diversity criterion. To qualify for 
extra credit, an activity first must be an eligible activity that 
contributes to an Enterprise's Duty to Serve an underserved market. 
Under this criterion, FHFA would evaluate the Enterprises on the extent 
to which their qualifying activities promote residential economic 
diversity in an underserved market in connection with mortgages on: (1) 
Affordable housing in a high opportunity area; or (2) mixed-income 
housing in an area of concentrated poverty.
    The scoring points awarded for these qualifying activities would be 
treated as extra credit for an underserved market (extra credit could 
not move the composite score within such a market above 100 points). 
FHFA specifically requests comments on how the extra credit should be 
applied.
    In Sec.  1282.1, FHFA proposes to define ``high opportunity area'' 
as an area designated by HUD as a ``Difficult Development Area'' 
(DDA).\210\ DDAs identify areas where it is difficult to create 
affordable housing due to high rents relative to area median income. 
The HUD DDAs are generally seen as a proxy for higher opportunity 
neighborhoods that offer good schools, access to transportation and 
labor markets, and other amenities. Beginning in 2016, HUD will define 
DDAs within metropolitan areas at the zip code level (also known as 
``Small Area Difficult Development Areas''), rather than the current 
practice which identifies them based on larger geographic areas. HUD's 
DDAs are updated annually and are publicly available on HUD's Web site.
---------------------------------------------------------------------------

    \210\ 26 U.S.C. 42(d)(5)(B)(iii). For the 2016 DDAs, see 80 FR 
73201 (Nov. 24, 2015).
---------------------------------------------------------------------------

    Outside of metropolitan areas, HUD designates DDAs at the county 
level, which in many instances follow single census tracts. Given the 
size of many counties and census tracts outside of metropolitan areas, 
these DDAs often would not be as useful as those in metropolitan areas 
for purposes of identifying high opportunity areas and are even less 
useful for counties comprised of multiple census tracts. FHFA 
specifically requests comments on how to define high opportunity areas 
outside of metropolitan areas. Analysts have proposed a number of 
possible definitions that FHFA could utilize, for example, suggesting 
it may be possible to measure higher opportunity census

[[Page 79213]]

tracts or block groups based on their rates of poverty, labor force 
participation, minority concentration and/or assisted housing 
concentration.\211\ In choosing a definition, FHFA would have to 
balance the comprehensiveness of a definition with its ease of 
Enterprise implementation, geographic depth, and ability to be updated 
regularly.
---------------------------------------------------------------------------

    \211\ For examples of definitions, see Margery Turner et al., 
``Helping Poor Families Gain and Sustain Access to High-Opportunity 
Neighborhoods,'' (Washington: The Urban Institute, 2011), available 
at https://www.urban.org/sites/default/files/alfresco/publication-pdfs/412455-Helping-Poor-Families-Gain-and-Sustain-Access-to-High-Opportunity-Neighborhoods.PDF; and Kirk McClure, ``Housing Choice 
Voucher Marketing Opportunity Index: Analysis of Data at the Tract 
and Block Group Level,'' (Washington: U.S. Department of Housing and 
Urban Development, 2011), available at https://www.huduser.gov/portal/publications/pdf/Housing_Choice_Voucher_Report.pdf.
---------------------------------------------------------------------------

    FHFA also wishes to explore whether the Enterprises can support 
state efforts to increase affordable housing in high opportunity areas. 
A number of states define such areas and provide incentives to locate 
housing in these areas in their Low-Income Housing Tax Credit Qualified 
Allocation Plans (QAPs),\212\ but definitions are not uniform, and 
incorporating them into an FHFA definition of ``high opportunity area'' 
may introduce operational challenges for the Enterprises.
---------------------------------------------------------------------------

    \212\ States create their plans pursuant to 26 U.S.C. 
42(m)(1)(B).
---------------------------------------------------------------------------

    In Sec.  1282.1, FHFA proposes to define ``area of concentrated 
poverty'' as a census tract designated by HUD as a ``Qualified Census 
Tract'' (QCT) pursuant to 26 U.S.C. 42(d)(5)(B)(ii), which is generally 
a tract in which 50 percent of households have incomes below 60 percent 
of the area median income or that has a poverty rate of 25 percent or 
more.\213\ FHFA proposes to consider activities in these areas that 
facilitate financing of mixed-income housing as addressing residential 
economic diversity.
---------------------------------------------------------------------------

    \213\ HUD designates QCTs on an annual basis. For the 2016 QCTs, 
see 80 FR 73201 (Nov. 24, 2015).
---------------------------------------------------------------------------

    In Sec.  1282.1, FHFA proposes to define ``mixed-income housing,'' 
for purposes of residential economic diversity activities for which 
extra credit may be available, as a multifamily property or development 
that may include or comprise single-family units and serves very low-, 
low-, or moderate-income households where at least 25 percent of the 
units are affordable only to households with incomes above moderate-
income levels.
    FHFA also recognizes the benefit of Enterprise support for 
financing of affordable housing that contributes to the revitalization 
of areas of concentrated poverty. States are required by the LIHTC 
statute to give preference to projects located in QCTs when their 
development ``contributes to a concerted community revitalization 
plan.'' \214\ FHFA considered providing credit for activities as 
supporting residential economic diversity if they are part of a 
concerted community revitalization plan in a state QAP. However, few 
states define such plans and it may be difficult to implement the 
diverse definitions set out by states.
---------------------------------------------------------------------------

    \214\ 26 U.S.C. 42(m)(1)(B)(ii)(III).
---------------------------------------------------------------------------

    It may be feasible to utilize other federal definitions or 
designations of areas with comprehensive revitalization plans. For 
example, FHFA could award credit for activities in areas that have 
received Choice Neighborhood Planning or Implementation grants, or in 
neighborhoods designated by HUD or USDA as Promise Zones, which denotes 
that they are undertaking comprehensive community revitalization.\215\
---------------------------------------------------------------------------

    \215\ See https://portal.hud.gov/hudportal/HUD?src=/program_offices/comm_planning/economicdevelopment/programs/pz/overview.
---------------------------------------------------------------------------

Requests for Comments

    82. Is FHFA's proposed definition of ``high opportunity area'' the 
most appropriate? Should the rule use DDAs to define high opportunity 
areas outside of metropolitan areas, or is there a better definition, 
such as a factor-based definition, that would be preferable for these 
areas?
    83. How could FHFA incorporate state-defined high opportunity areas 
(or similar terms) into its definition of high opportunity area? If 
such state-defined areas are included, how could this be implemented by 
the Enterprises?
    84. Should FHFA consider other or additional definitions of ``area 
of concentrated poverty?'' For example, should FHFA consider adopting a 
definition similar to HUD's proposed designation of census tracts by 
racial and ethnic concentrations of poverty (RCAPs and ECAPs), which 
are census tracts with a non-white population of 50 percent or more and 
a poverty rate that exceeds 40 percent or is three times the average 
tract poverty rate for the metro/micro area (whichever is lower)? \216\
---------------------------------------------------------------------------

    \216\ This proposed approach is laid out in U.S. Department of 
Housing and Urban Development, ``AFFH Data Documentation Draft'' 
(2013), available at https://www.huduser.gov/portal/publications/pdf/FR-5173-P-01_AFFH_data_documentation.pdf.
---------------------------------------------------------------------------

    85. Should FHFA consider an alternative definition of ``mixed-
income?'' For example, should FHFA incorporate minimum thresholds for 
the amount of housing affordable to very low-, low-, or moderate-income 
households in its definition?
    86. How should the extra credit activities be evaluated and weighed 
generally? How should FHFA evaluate and weigh activities related to 
mixed-income housing in areas of concentrated poverty to incentivize a 
good mix of such housing?
    87. How could FHFA determine whether Enterprise activities are part 
of or contribute to revitalization plans in areas of concentrated 
poverty? Are there consistent criteria FHFA could apply to determine 
what constitutes such a plan and whether such a plan is being 
implemented in an area of concentrated poverty? Are existing federal 
designations useful, such as the Promise Zones designation or 
neighborhoods that receive a CNI grant?
    88. Should FHFA incorporate Enterprise efforts supporting CNI as a 
residential economic diversity activity, rather than as a Regulatory 
Activity under the affordable housing preservation market?

VI. General Requirements for Credit and General Requirements for Loan 
Purchases--Proposed Sec. Sec.  1282.38, 1282.39

    Sections 1282.38 and 1282.39 of the proposed rule would set forth 
general counting requirements for whether and how activities will 
receive credit under the Duty to Serve regulation. With some 
exceptions, the counting rules and other requirements would be similar 
to those in FHFA's housing goals regulation. For example, under 
appropriate circumstances, a single loan purchase could count toward 
the achievement of multiple housing goals, and in the same way, a 
single loan purchase could receive credit under more than one 
underserved market for Duty to Serve purposes. Also, consistent with 
the comments received on the 2010 Duty to Serve proposed rule, in most 
instances, FHFA would measure performance under the loan purchase 
assessment factor by the number of units financed by the loan purchase.

A. No Credit Under Any Assessment Factor

    Enterprise activities under proposed Sec.  1282.38(b) would not 
receive credit under any assessment factor.
    Under proposed Sec.  1282.38(b)(1), contributions to the Housing 
Trust Fund \217\ and the Capital Magnet Fund,\218\ and mortgage 
purchases funded with such grant amounts, would

[[Page 79214]]

not receive credit under the Duty to Serve regulation.
---------------------------------------------------------------------------

    \217\ 12 U.S.C. 4568.
    \218\ 12 U.S.C. 4569.
---------------------------------------------------------------------------

    Under proposed Sec.  1282.38(b)(2), HOEPA mortgages \219\ would not 
receive credit under the Duty to Serve regulation.
---------------------------------------------------------------------------

    \219\ See 15 U.S.C. 1602(bb).
---------------------------------------------------------------------------

    Under proposed Sec.  1282.38(b)(3), mortgages on manufactured homes 
that are not titled as real property under the laws of the state where 
the property is located would not receive credit under the Duty to 
Serve regulation.
    The proposed rule is tailored to the unique features of certain 
specialized activities. As previously discussed, energy efficiency 
improvement loans for existing multifamily rental properties would be 
eligible for Duty to Serve credit where there are reliable and 
verifiable projections or expectations that the financed improvements 
will reduce energy and water consumption by the tenant by at least 15 
percent, the reduced utility costs derived from the reduced consumption 
are not offset by higher rents or other charges imposed by the property 
owner, and the reduced utility costs will offset the upfront costs of 
the improvements within a reasonable time period. Generally, 
subordinate liens on multifamily properties would not receive credit 
under the Duty to Serve regulation. However, because subordinate liens 
for energy efficiency improvements on existing multifamily properties 
address a specific need, under proposed Sec.  1282.38(b)(4), such liens 
would receive credit under the Duty to Serve regulation provided they 
meet all other requirements in the regulation.
    Under Sec.  1282.38(b)(5), subordinate liens on single-family 
properties would not receive credit under the Duty to Serve regulation. 
This exclusion applies to all single-family subordinate loans including 
energy efficiency improvement loans.
    As previously discussed, shared appreciation loans that meet the 
requirements of proposed Sec.  1282.34(d)(4) would be eligible for Duty 
to Serve credit. Proprietary shared appreciation loans, where an 
investor receives part of the equity in exchange for making the home 
affordable for a single buyer only, do not preserve affordability of 
the unit for subsequent buyers and, therefore, would not meet the 
requirements of proposed Sec.  1282.34(d)(4). Accordingly, under 
proposed Sec.  1282.38(b)(6), such loans would not receive credit under 
the Duty to Serve regulation.
    Government-insured and government-guaranteed mortgages that are 
otherwise eligible for inclusion would count towards the Duty to Serve, 
in light of the specificity of the needs targeted by the Duty to Serve 
and the desirability of providing the Enterprises with multiple tools 
to address those needs.

B. No Credit Under Loan Purchase Assessment Factor

    Enterprise activities under proposed Sec.  1282.38(c) would not 
receive credit under the loan purchase assessment factor.

C. General Requirements for Loan Purchases

    In order to receive credit for loan purchases, a loan must be on 
housing affordable to very low-, low-, or moderate income families, 
regardless of whether the property is owner-occupied or rental. 
Sections 1282.17, 1282.18 and 1282.19 of part 1282 define 
``affordability'' for owner occupied and rental units. The tables in 
these sections adjust the maximum percentage of area median income 
based on family size and the size of the dwelling unit, as measured by 
the number of bedrooms.
    Under Sec.  1282.39(c) of the proposed rule, Enterprise mortgage 
purchases financing owner-occupied, single-family properties would be 
evaluated based on the income of the mortgagor(s) and the area median 
income at the time the mortgage was originated. Where the income of the 
mortgagor(s) is not available, the mortgage purchase would not receive 
credit under the loan purchase assessment factor.
    Under proposed Sec.  1282.39(d)(1), mortgage purchases financing 
single-family rental units and multifamily rental units would be 
evaluated based on rent and whether the rent is affordable to the 
income groups targeted by the Duty to Serve.
    Under Sec.  1282.39(d)(2), where a multifamily property is subject 
to an affordability restriction that establishes the maximum permitted 
income level for a tenant or a prospective tenant or the maximum 
permitted rent, the affordability of units in the property may be 
determined based on the maximum permitted income level or maximum 
permitted rent established under such housing program for those units.
    Under proposed Sec.  1282.39(e), when an Enterprise lacks 
sufficient information on the rents, the Enterprise's performance 
regarding the rental units may be evaluated using estimated 
affordability information. The estimated affordability information 
would be calculated by multiplying the number of rental units with 
missing affordability information in properties securing the mortgages 
purchased by the Enterprise in each census tract by the percentage of 
all moderate-income rental dwelling units in the respective tracts, as 
determined by FHFA based on the most recent decennial census. The 
housing goals regulation \220\ applies a 5 percent limit on the number 
of rental units with missing data for which an Enterprise may estimate 
affordability of rents. Under the proposed rule, there would not be a 
limit on the number of rental units for which an Enterprise could 
estimate affordability each year.
---------------------------------------------------------------------------

    \220\ 12 CFR 1282.15(e)(3).
---------------------------------------------------------------------------

    Under proposed Sec.  1282.39(f), FHFA would evaluate an 
Enterprise's volume of loans purchased on manufactured housing 
communities using unpaid principal balance instead of the number of 
dwelling units. As previously discussed, due to the lack of data on 
manufactured housing community residents' incomes and monthly housing 
costs, under proposed Sec.  1282.39(f), the affordability of a 
manufactured housing community would be evaluated based on the median 
income of the census tract in which the manufactured housing community 
is located. An Enterprise would receive credit for either the total 
amount or a percentage of the unpaid principal balance of the mortgage 
financing the community.

VII. Special Requirements for Loan Purchases--Proposed Sec.  1282.40

    Under proposed Sec.  1282.40, activities such as Enterprise 
purchases or guarantees of mortgage revenue bonds and purchases of 
participations in mortgages would be treated as mortgage purchases in 
the same manner as they would be counted under the housing goals 
regulation.

Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    89. Under the proposed rule, when an Enterprise lacks sufficient 
information to determine whether a rental unit is affordable, the 
Enterprise may estimate affordability for the rental unit using the 
estimation methodology set forth in the proposed rule. Are better 
methods available for estimating affordability when rent information is 
missing?
    90. Unlike the housing goals regulation, the proposed rule would 
not limit the number of units with missing data for which an Enterprise 
could estimate affordability. Should FHFA impose a limit, and if so, 
what limit should be imposed?

[[Page 79215]]

VIII. Enforcement of Duty To Serve--Proposed Sec. Sec.  1282.41, 
1282.42

    The Safety and Soundness Act provides that the Duty to Serve 
underserved markets is enforceable to the same extent and under the 
same enforcement provisions as are applicable to the Enterprise housing 
goals, except as otherwise provided.\221\ Accordingly, under Sec.  
1282.41 of the proposed rule, if an Enterprise receives a ``Fails'' 
rating for a particular underserved market in a given year, or if there 
is a substantial probability that an Enterprise will receive a 
``Fails'' rating for a particular underserved market in a given year, 
FHFA would determine whether the activities in the Enterprise's 
Underserved Markets Plan are or were feasible. In determining 
feasibility, FHFA would consider factors such as market conditions and 
the financial condition of the Enterprise. If FHFA determines that 
compliance is or was feasible, FHFA would follow the procedures in 12 
U.S.C. 4566(b).
---------------------------------------------------------------------------

    \221\ 12 U.S.C. 4566(a)(4).
---------------------------------------------------------------------------

    Section 1282.42 of the proposed rule includes requirements for an 
Enterprise to submit to FHFA a housing plan, in the Director's 
discretion, if the Director determines that the Enterprise did not 
comply with its Duty to Serve a particular underserved market.

IX. Enterprise Duty To Serve Reporting to FHFA--Proposed Sec.  1282.66

    Section 1282.66 of the proposed rule would require each Enterprise 
to provide to FHFA two quarterly reports, one semi-annual report, and 
an annual report on its performance and progress toward meeting its 
Duty to Serve each undeserved market.
    Under the 2010 Duty to Serve proposed rule, each Enterprise would 
have been required to provide three quarterly reports and one annual 
report to FHFA on its Duty to Serve performance and progress, 
consistent with the reporting requirements for the Enterprise housing 
goals. One Enterprise commented that because reporting on progress 
toward meeting the Duty to Serve underserved markets will take more 
time than reporting on the housing goals and will require input from 
business units throughout the Enterprise, reporting should be limited 
to annual submissions and the proposed quarterly reporting requirements 
should be eliminated. The other Enterprise commented that semi-annual 
reporting on Duty to Serve progress would be appropriate. The 
Enterprise added that, coupled with the existing quarterly reporting 
under the housing goals, quarterly reporting under the Duty to Serve 
would pose significant additional burdens on the Enterprise and its 
resources.
    In consideration of these comments, the proposed rule would require 
each Enterprise to provide to FHFA two quarterly reports, one semi-
annual report, and an annual report. To lessen operational concerns, 
FHFA would require the quarterly reports to address only performance 
under the loan purchase assessment factor for each underserved market. 
The Enterprises already have experience providing similar reports for 
their performance under the housing goals.
    The proposed rule would require an Enterprise to report on its Duty 
to Serve performance for each underserved market in its semi-annual and 
annual reports. These two reports would be required to contain both 
narrative and summary statistical information for the Plan Objectives, 
supported by appropriate transaction-level data. In addition, an 
Enterprise's annual report would be required to describe the 
Enterprise's market opportunities for purchasing loans in each 
underserved market during the evaluation year, to the extent data is 
available. These opportunities could include market or regulatory 
factors that may affect lenders' decisions to retain loans in portfolio 
or sell them, the availability and pricing of credit enhancements from 
third parties, and competition from other secondary market 
participants.
    In their comments on the 2010 Duty to Serve proposed rule, both 
Enterprises requested that the due date for submission of their annual 
Duty to Serve report to FHFA be at least 30 days later than the due 
date for submission of their Annual Housing Activities Report for the 
housing goals to FHFA. One Enterprise commented that the 60-day 
deadline proposed for year-end reporting on Duty to Serve performance 
would impact its operations and end-of-year transactions, because the 
timeline for completing transactions and collecting data would not only 
be compressed, but would occur at the same time that housing goals 
reporting and financial reporting are taking place. The other 
Enterprise commented that a staggered schedule would allow the 
Enterprise to strengthen the controls and processes that govern both 
regulatory submissions and efficiently allocate resources between them.
    In recognition of these operational concerns, the proposed rule 
would set the due date for the annual Duty to Serve report as the date 
75 days after the end of the calendar year. Because it is important 
that FHFA monitor the Enterprises' Duty to Serve progress on a timely 
basis, the proposed rule would provide that the quarterly and semi-
annual reports would be due within 60 days of the end of the respective 
quarter.

X. Paperwork Reduction Act

    The proposed rule would not contain any information collection 
requirement that would require the approval of OMB under the Paperwork 
Reduction Act (44 U.S.C. 3501 et seq.). Therefore, FHFA has not 
submitted any information to OMB for review.

XI. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities, small businesses, or small organizations must 
include an initial regulatory flexibility analysis describing the 
regulation's impact on small entities. Such an analysis need not be 
undertaken if the agency has certified that the regulation will not 
have a significant economic impact on a substantial number of small 
entities. (5 U.S.C. 605(b)). FHFA has considered the impact of the 
proposed rule under the Regulatory Flexibility Act. The General Counsel 
of FHFA certifies that the proposed rule, if adopted as a final rule, 
is not likely to have a significant economic impact on a substantial 
number of small entities because the regulation applies to the 
Enterprises, which are not small entities for purposes of the 
Regulatory Flexibility Act.

List of Subjects in 12 CFR Part 1282

    Mortgages, Reporting and recordkeeping requirements.

Authority and Issuance

    For the reasons stated in the preamble, under the authority of 12 
U.S.C. 4501, 4502, 4511, 4513, 4526, and 4561-4566, FHFA proposes to 
amend part 1282 of subchapter E of 12 CFR chapter XII, as follows:

PART 1282--ENTERPRISE HOUSING GOALS AND MISSION

0
1. The authority citation for part 1282 continues to read as follows:

    Authority:  12 U.S.C. 4501, 4502, 4511, 4513, 4526, 4561-4566.

0
2. In Sec.  1282.1(b), add the definitions of ``Area of concentrated 
poverty'', ``Colonia'', ``Community development financial 
institution'', ``Community financial institution'', ``Federally insured 
credit union'', ``Federally recognized Indian tribe'', ``High-needs 
rural population'', ``High-needs rural

[[Page 79216]]

region'', ``High opportunity area'', ``Indian area'', ``Manufactured 
home'', ``Manufactured housing community'', ``Migrant agricultural 
workers'', ``Mixed-income housing'', ``Residential economic diversity 
activity'', ``Resident-owned manufactured housing community'', ``Rural 
area'', and ``Seasonal agricultural workers'' in alphabetical order to 
read as follows:


Sec.  1282.1  Definitions.

* * * * *
    (b) * * *
    Area of concentrated poverty, for purposes of subpart C of this 
part, means a census tract designated by HUD as a Qualified Census 
Tract pursuant to 26 U.S.C. 42(d)(5)(B)(ii).
* * * * *
    Colonia, for purposes of subpart C of this part, means any 
identifiable community that--
    (i) Is designated by the State or county in which it is located as 
a colonia;
    (ii) Is located in the State of Arizona, California, New Mexico, or 
Texas; and
    (iii) Is located in a U.S. census tract with some portion of the 
tract within 150 miles of the U.S.-Mexico border.
    Community development financial institution, for purposes of 
subpart C of this part, has the meaning in 12 CFR 1263.1.
    Community financial institution, for purposes of subpart C of this 
part, has the meaning in 12 CFR 1263.1.
* * * * *
    Federally insured credit union, for purposes of subpart C of this 
part, has the meaning in 12 U.S.C. 1752(7).
    Federally recognized Indian tribe, for purposes of subpart C of 
this part, has the meaning in 25 CFR 83.1.
* * * * *
    High-needs rural population, for purposes of subpart C of this 
part, means any of the following populations provided the population is 
located in a rural area:
    (i) Members of a Federally recognized Indian tribe located in an 
Indian area; or
    (ii) Migrant and seasonal agricultural workers.
    High-needs rural region, for purposes of subpart C of this part, 
means any of the following regions provided the region is located in a 
rural area:
    (i) Middle Appalachia;
    (ii) The Lower Mississippi Delta; or
    (iii) A colonia.
    High opportunity area, for purposes of subpart C of this part, 
means an area designated by HUD as a ``Difficult Development Area'' 
pursuant to 26 U.S.C. 42(d)(5)(B)(iii).
* * * * *
    Indian area, for purposes of subpart C of this part, has the 
meaning in 24 CFR 1000.10.
* * * * *
    Manufactured home, for purposes of subpart C of this part, means a 
manufactured home as defined in section 603(6) of the National 
Manufactured Housing Construction and Safety Standards Act of 1974, as 
amended, 42 U.S.C. 5401 et seq., and implementing regulations.
    Manufactured housing community, for purposes of subpart C of this 
part, means a tract of land under unified ownership and developed for 
the purposes of providing individual rental spaces for the placement of 
manufactured homes for residential purposes within its boundaries.
    Migrant agricultural workers, for purposes of subpart C of this 
part, has the meaning in 29 CFR 500.20(p).
    Mixed-income housing, for purposes of subpart C of this part, means 
a multifamily property or development that may include or comprise 
single-family units that serves very low-, low-, or moderate-income 
households where at least 25 percent of the units are affordable only 
to households with incomes above moderate-income levels.
* * * * *
    Residential economic diversity activity, for purposes of subpart C 
of this part, means an Enterprise activity in connection with mortgages 
on:
    (i) Affordable housing in a high opportunity area; or
    (ii) Mixed-income housing in an area of concentrated poverty.
* * * * *
    Resident-owned manufactured housing community, for purposes of 
subpart C of this part, means a manufactured housing community for 
which the terms and conditions of residency, policies, operations and 
management are controlled by at least 50 percent of the residents, 
either directly or through an entity formed under the laws of the 
state.
    Rural area, for purposes of subpart C of this part, means:
    (i) A census tract outside of a metropolitan statistical area as 
designated by the Office of Management and Budget; or
    (ii) A census tract in a metropolitan statistical area as 
designated by the Office of Management and Budget that is outside of 
the metropolitan statistical area's Urbanized Areas and Urban Clusters, 
as designated by the U.S. Department of Agriculture's Rural-Urban 
Commuting Area codes.
    Seasonal agricultural workers, for purposes of subpart C of this 
part, has the meaning in 29 CFR 500.20(r).
* * * * *
0
3. Add subpart C to read as follows:

Subpart C--Duty To Serve Underserved Markets

Sec.
1282.31 General.
1282.32 Underserved Markets Plan.
1282.33 Manufactured housing market.
1282.34 Affordable housing preservation market.
1282.35 Rural markets.
1282.36 Evaluations and assigned ratings.
1282.37 Extra credit for qualifying residential economic diversity 
activities.
1282.38 General requirements for credit.
1282.39 General requirements for loan purchases.
1282.40 Special requirements for loan purchases.
1282.41 Failure to comply.
1282.42 Housing plans.


Sec.  1282.31  General.

    (a) This subpart sets forth the Enterprise duty to serve three 
underserved markets as required by section 1335 of the Safety and 
Soundness Act, 12 U.S.C. 4565. This subpart also establishes standards 
and procedures for annually evaluating and rating Enterprise compliance 
with the duty to serve underserved markets.
    (b) Nothing in this subpart permits or requires an Enterprise to 
engage in any activity that would be otherwise inconsistent with its 
Charter Act or the Safety and Soundness Act.


Sec.  1282.32  Underserved Markets Plan.

    (a) General. Each Enterprise must submit to FHFA an Underserved 
Markets Plan describing the activities and objectives that it will 
undertake to meet its duty to serve each underserved market.
    (b) Term of Plan. The Plan must cover a period of three years 
except for the Enterprise's first Plan which shall have the term as 
provided for in paragraph (d)(1) of this section.
    (c) Plan content--(1) Activities. The Plan must address how the 
Enterprise will undertake each statutory and regulatory activity 
associated with each underserved market, as provided in Sec. Sec.  
1282.33, 1282.34 and 1282.35, or identify reasons for not undertaking 
the statutory or regulatory activity. Any residential economic 
diversity activities and objectives that the Enterprise will undertake 
for extra credit under Sec.  1282.37 must also be described in the 
Plan. Plans may also include additional eligible activities that serve 
an underserved market. Activities may cover a single year or multiple 
years.

[[Page 79217]]

    (2) Objectives. Plan activities must be comprised of objectives, 
which may cover a single year or multiple years. Objectives must meet 
all of the following requirements:
    (i) Strategic. Directly or indirectly maintain or increase 
liquidity to an underserved market;
    (ii) Measurable. Provide measureable benchmarks, which may include 
numerical targets, that enable FHFA to determine whether the Enterprise 
has achieved the objective;
    (iii) Realistic. Be calibrated so that the Enterprise has a 
reasonable chance of meeting the objective with appropriate effort;
    (iv) Time-bound. Be subject to a specific timeframe for completion 
by being tied to Plan calendar year evaluation periods; and
    (v) Tied to analysis of market opportunities. Be based on 
assessments and analyses of market opportunities in each underserved 
market, taking into account safety and soundness considerations.
    (3) Assessment Factors. Each Plan objective must meet one of the 
assessment factors set forth in Sec.  1282.36(b).
    (d) Plan Procedures--(1) Submission of proposed Plans. Each 
Enterprise must submit a proposed Plan to FHFA at least 180 days before 
the termination date of the Enterprise's existing Plan, except that the 
Enterprise's first proposed Plan must be submitted to FHFA pursuant to 
the timeframe and procedures established by FHFA after the effective 
date of this part.
    (2) Posting of proposed Plans and public input. As soon as 
practical after an Enterprise submits its proposed Plan to FHFA for 
review, FHFA will post on FHFA's Web site a public version of the 
proposed Plan that omits proprietary and confidential data and 
information. The public will have 45 calendar days from the date the 
proposed Plan is posted on FHFA's Web site to provide input to FHFA on 
the proposed Plan.
    (3) Enterprise review. In its discretion, each Enterprise may make 
revisions to its proposed Plan based on the public input.
    (4) FHFA review. FHFA will review each Enterprise's proposed Plan 
and within 60 days of the end of the public input period, will inform 
each Enterprise of any FHFA comments on the Enterprise's proposed Plan. 
The Enterprise must address those comments, as appropriate, through 
revisions to its proposed Plan pursuant to timeframes and procedures 
established by FHFA.
    (5) Non-objection to Plans. After FHFA is satisfied that all of its 
comments have been addressed, FHFA will issue a non-objection to the 
Plan.
    (e) Effective date of Plans. The effective date of the final Plan 
will be January 1st of the first evaluation year for which the Plan is 
applicable, except for the Enterprise's first Plan whose term and 
effective date will be determined by FHFA.
    (f) Posting of final Plans. Each Enterprise's final Plan will be 
posted on the respective Enterprise's Web site and on FHFA's Web site. 
Confidential and proprietary data and information will be omitted from 
the posted final Plans.
    (g) Modification of final Plans. At any time after implementation 
of a final Plan, an Enterprise may request to modify its final Plan, 
subject to FHFA non-objection, or FHFA may require an Enterprise to 
modify its final Plan. FHFA and the Enterprise may seek public input on 
any proposed modifications if FHFA determines that public input would 
assist its consideration of the proposed modifications. If a final Plan 
is modified, the modified Plan with confidential and proprietary 
information omitted will be posted on the Enterprise's and FHFA's Web 
sites.


Sec.  1282.33  Manufactured housing market.

    (a) Duty in general. Each Enterprise must develop loan products and 
flexible underwriting guidelines to facilitate a secondary market for 
eligible mortgages on manufactured homes for very low-, low-, and 
moderate-income families. Enterprise activities under this section must 
serve each such income group in the year for which the Enterprise is 
evaluated and rated.
    (b) Eligible activities. Enterprise activities eligible to be 
included in an Underserved Markets Plan for the manufactured housing 
market are activities that facilitate a secondary market for mortgages 
on residential properties for very low-, low-, or moderate-income 
families consisting of:
    (1) Manufactured homes titled as real property; and
    (2) Manufactured housing communities.
    (c) Regulatory activities. Enterprise activities related to the 
following will receive credit under the manufactured housing market:
    (1) Mortgages on manufactured homes titled as real property under 
the laws of the state where the home is located; and
    (2) Mortgages on manufactured housing communities provided that:
    (i) The community has 150 pads or less;
    (ii) The community is owned by a governmental unit or 
instrumentality, owned by a nonprofit, or resident-owned; or
    (iii) The community's pad leases have the following pad lease 
protections at a minimum:
    (A) Minimum one-year renewable lease term unless there is good 
cause for nonrenewal;
    (B) Minimum thirty-day written notice of rent increases;
    (C) Minimum five-day grace period for rent payments, and right to 
cure defaults on rent payments;
    (D) If a tenant defaults on rent payments, the tenant has the right 
to: Sell the manufactured home without having to first relocate it out 
of the community; sublease or assign the pad lease for the unexpired 
term to the new buyer of the tenant's manufactured home without any 
unreasonable restraint; post ``For Sale'' signs; and have a reasonable 
time period after eviction to sell the manufactured home;
    (E) Right for tenants to receive at least 120 days advance notice 
of a planned sale or closure of the community, within which time the 
tenants, or an organization acting on behalf of a group of tenants, may 
match any bona fide offer for sale. The community owner shall consider 
the tenants' offer and negotiate with them in good faith.
    (d) Additional activities. An Enterprise may include in its 
Underserved Markets Plan other activities to serve very low-, low-, or 
moderate-income families in the manufactured housing market consistent 
with paragraph (b) of this section, subject to FHFA determination of 
whether such activity is eligible to receive credit.


Sec.  1282.34  Affordable housing preservation market.

    (a) Duty in general. Each Enterprise must develop loan products and 
flexible underwriting guidelines to facilitate a secondary market to 
preserve housing affordable to very low-, low-, and moderate-income 
families under eligible housing programs or activities. Enterprise 
activities under this section must serve each such income group in the 
year for which the Enterprise is evaluated and rated.
    (b) Eligible activities. Enterprise activities eligible to be 
included in an Underserved Markets Plan for the affordable housing 
preservation market are activities that facilitate a secondary market 
for mortgages on residential properties for very low-, low-, or 
moderate-income families consisting of affordable rental housing 
preservation and affordable homeownership preservation.

[[Page 79218]]

    (c) Statutory activities. Enterprise activities related to housing 
projects under the following programs will receive credit under the 
affordable housing preservation market:
    (1) The project-based and tenant-based rental assistance housing 
programs under section 8 of the U.S. Housing Act of 1937, 42 U.S.C. 
1437f;
    (2) The rental and cooperative housing program for lower income 
families under section 236 of the National Housing Act, 12 U.S.C. 
1715z-1;
    (3) The housing program for moderate-income and displaced families 
under section 221(d)(4) of the National Housing Act, 12 U.S.C. 1715l;
    (4) The supportive housing program for the elderly under section 
202 of the Housing Act of 1959, 12 U.S.C. 1701q;
    (5) The supportive housing program for persons with disabilities 
under section 811 of the Cranston-Gonzalez National Affordable Housing 
Act, 42 U.S.C. 8013;
    (6) Permanent supportive housing projects subsidized under Title IV 
of the McKinney-Vento Homeless Assistance Act, 42 U.S.C. 11361, et 
seq.;
    (7) The rural rental housing program under section 515 of the 
Housing Act of 1949, 42 U.S.C. 1485;
    (8) Low-income housing tax credits under section 42 of the Internal 
Revenue Code of 1986, 26 U.S.C. 42; and
    (9) Other comparable affordable housing programs administered by a 
state or local government that preserve housing affordable to very low-
, low-, and moderate-income families. An Enterprise may include in its 
Underserved Markets Plan programs pursuant to this paragraph (c)(9), 
subject to FHFA determination of whether such programs are eligible to 
receive credit.
    (d) Regulatory activities. Enterprise activities related to the 
following will receive credit under the affordable housing preservation 
market:
    (1) Purchasing and securitizing loan pools from a community 
development financial institution, community financial institution, or 
federally insured credit union whose total assets are within the asset 
cap set forth in the definition of ``community financial institution'' 
in Sec.  1282.1, where the loan pools are backed by existing small 
multifamily rental properties consisting of five to not more than fifty 
units;
    (2) Energy efficiency improvements on existing multifamily rental 
properties provided there are verifiable, reliable projections or 
expectations that the improvements financed by the loan will reduce 
energy and water consumption by the tenant by at least 15 percent, the 
reduced utility costs derived from the reduced consumption must not be 
offset by higher rents or other charges imposed by the property owner, 
and the reduced utility costs will offset the upfront costs of the 
improvements within a reasonable time period;
    (3) Energy efficiency improvements on existing single-family, 
first-lien properties, provided that there are verifiable, reliable 
projections or expectations that the improvements financed by the loan 
will reduce energy and water consumption by the homeowner or tenant by 
at least 15 percent, the reduced utility costs derived from the reduced 
consumption will offset the upfront costs of the improvements within a 
reasonable time period, and in the case of a single-family rental 
property, the reduced utility costs must not be offset by higher rents 
or other charges imposed by the property owner;
    (4) Affordable homeownership preservation through shared equity 
homeownership programs. Shared equity programs include programs 
administered by community land trusts, other nonprofit organizations, 
or State or local governments or instrumentalities that:
    (i) Ensure affordability for at least 30 years or as long as 
permitted under state law through a ground lease, deed restriction, 
subordinate loan or similar legal mechanism that makes residential real 
property affordable to very low-, low-, or moderate-income families. 
The legal instrument ensuring affordability must also stipulate a 
preemptive option to purchase the homeownership unit from the homeowner 
at resale to preserve the affordability of the unit for successive very 
low-, low-, or moderate-income families;
    (ii) Monitor the homeownership unit to ensure affordability is 
preserved over resales; and
    (iii) Support the homeowners to promote successful homeownership 
for very low-, low-, or moderate-income families;
    (5) Choice Neighborhoods Initiative, as authorized by 42 U.S.C. 
1437v; and
    (6) HUD's Rental Assistance Demonstration program, as authorized by 
42 U.S.C.1437f note.
    (e) Additional activities. An Enterprise may include in its 
Underserved Markets Plan other activities to serve very low-, low-, or 
moderate-income families in the affordable housing preservation market 
consistent with paragraph (b) of this section, subject to FHFA 
determination of whether such activities are eligible to receive 
credit.


Sec.  1282.35  Rural markets.

    (a) Duty in general. Each Enterprise must develop loan products and 
flexible underwriting guidelines to facilitate a secondary market for 
eligible mortgages on housing for very low-, low-, and moderate-income 
families in rural areas. Enterprise activities under this section must 
serve each such income group in the year for which the Enterprise is 
evaluated and rated.
    (b) Eligible activities. Enterprise activities eligible to be 
included in an Underserved Markets Plan for the rural market are 
activities that facilitate a secondary market for mortgages on 
residential properties for very low-, low-, or moderate-income families 
in rural areas.
    (c) Regulatory activities. Enterprise activities serving high-needs 
rural regions or high-needs rural populations will receive credit under 
the rural market.
    (d) Additional activities. An Enterprise may include in its 
Underserved Markets Plan other activities to serve very low-, low-, or 
moderate-income families in rural areas consistent with paragraph (b) 
of this section, subject to FHFA determination of whether such 
activities are eligible to receive credit.


Sec.  1282.36  Evaluations and assigned ratings.

    (a) Evaluation of compliance. In determining whether an Enterprise 
has complied with the duty to serve each underserved market, FHFA will 
annually evaluate and rate the Enterprise's duty to serve performance 
based on the Enterprise's implementation of its Underserved Markets 
Plan during the relevant evaluation year. FHFA's evaluation will be in 
accordance with evaluation criteria set forth in a separate, FHFA-
prepared evaluation guide.
    (b) Assessment factors. (1) FHFA's evaluation of each Enterprise's 
performance will take into consideration four assessment factors, as 
provided in paragraphs (b)(2) through (5) of this section.
    (2) Outreach assessment factor. FHFA will evaluate the Enterprise 
on the extent of its outreach to qualified loan sellers and other 
market participants in each underserved market.
    (3) Loan product assessment factor. FHFA will evaluate the 
Enterprise on its development of loan products, more flexible 
underwriting guidelines and other innovative approaches to providing 
financing in each underserved market.
    (4) Loan purchase assessment factor. FHFA will evaluate the 
Enterprise on

[[Page 79219]]

the volume of loans it purchases in each underserved market relative to 
the market opportunities available to the Enterprise.
    (5) Investments and grants assessment factor. FHFA will evaluate 
the Enterprise on the amount of its investments and grants in projects 
that assist in meeting the needs of each underserved market.
    (c) Evaluation guide--(1) Annual evaluation guides. FHFA will 
prepare a separate evaluation guide for each Enterprise for each 
evaluation year. FHFA will develop the evaluation guide using the 
contents of the Enterprise's Plan and the assessment factors provided 
in paragraph (b) of this section. The evaluation guide will allocate a 
maximum number of potential scoring points to each Plan activity that 
an Enterprise will pursue during the evaluation year covered by the 
evaluation guide. Each evaluation guide will allocate a total of 100 
potential scoring points to all of the Plan activities grouped under a 
particular underserved market.
    (2) Determination of overall composite scores for each underserved 
market. At the end of the evaluation year covered by the evaluation 
guide, FHFA will award a score to each Plan activity covered by the 
evaluation guide. The score for each Plan activity will be based on 
FHFA's assessment of how well the Enterprise performed the Plan 
activity and associated objectives during the evaluation year. FHFA 
will also award any extra credit it determines is appropriate for 
qualifying residential economic diversity activities as provided for in 
Sec.  1282.37. The score cannot exceed the maximum number of potential 
scoring points allocated to the Plan activity in the evaluation guide. 
After FHFA has awarded a score to each Plan activity, FHFA will sum the 
scoring points for all of the Plan activities that are grouped under 
each underserved market. The sum of those scores will produce an 
overall composite score ranging from zero to 100 for each underserved 
market.
    (3) Determination of overall rating and compliance. The evaluation 
guide will contain a table that allocates overall composite score 
numerical ranges to each of the following four overall ratings: 
``Exceeds,'' ``High Satisfactory,'' ``Low Satisfactory,'' and 
``Fails.'' An Enterprise's overall rating for each underserved market 
will be determined by the numerical range within which the Enterprise's 
overall composite score falls. A rating of ``Exceeds,'' ``High 
Satisfactory'' or ``Low Satisfactory'' will constitute compliance with 
the duty to serve the underserved market. A rating of ``Fails'' will 
constitute noncompliance with the duty to serve the underserved market.
    (4) Delivery of evaluation guide. FHFA will provide the evaluation 
guide to the Enterprise at least 30 days before January 1st of the 
evaluation year for which the guide is applicable, except that the 
evaluation guide for the first evaluation year after the effective date 
of this part will be provided to the Enterprise on a date to be 
determined by FHFA.
    (5) Posting of evaluation guide. The evaluation guide will be 
posted on the respective Enterprise's Web site and on FHFA's Web site.


Sec.  1282.37  Extra credit for qualifying residential economic 
diversity activities.

    (a) Where an Enterprise includes a qualifying activity to promote 
residential economic diversity in its Underserved Markets Plan, FHFA 
will evaluate the extent to which the activity promotes residential 
economic diversity in an underserved market in connection with 
mortgages on: Affordable housing in a high opportunity area; or mixed-
income housing in an area of concentrated poverty. This criterion will 
be considered in connection with activities for which extra credit may 
be given, but the activities associated with this criterion are not 
mandatory. To qualify for extra credit, an activity first must be an 
eligible activity that contributes to an Enterprise's duty to serve an 
underserved market. Eligible activities in each of the underserved 
markets may qualify for extra credit for residential economic diversity 
except for manufactured housing communities activities, energy 
efficiency improvement activities, and any additional activities 
determined by FHFA to be ineligible.
    (b) FHFA's evaluation of residential economic diversity activities 
under this section will occur as part of its review under Sec.  
1282.36.


Sec.  1282.38  General requirements for credit.

    (a) General. FHFA will determine whether an activity will receive 
credit under the duty to serve underserved markets. In this 
determination, FHFA will consider whether the activity facilitates a 
secondary market for financing mortgages: on manufactured homes for 
very low-, low-, and moderate-income families; to preserve housing 
affordable to very low-, low-, and moderate-income families; and on 
housing for very low-, low-, and moderate-income families in rural 
areas. If FHFA determines that an activity will receive credit or extra 
credit under the duty to serve underserved markets, the activity will 
receive such credit under the relevant assessment factor for each 
underserved market it serves.
    (b) No credit under any assessment factor. Enterprise activities 
related to the following will not receive credit under the duty to 
serve underserved markets under any assessment factor, even if the 
activity otherwise would receive credit under any other section of this 
subpart:
    (1) Contributions to the Housing Trust Fund (12 U.S.C. 4568) and 
the Capital Magnet Fund (12 U.S.C. 4569), and mortgage purchases funded 
with such grant amounts;
    (2) HOEPA mortgages;
    (3) Mortgages on manufactured homes not titled as real property 
under the laws of the state where the property is located;
    (4) Subordinate liens on multifamily properties, except for 
subordinate liens originated for energy efficiency improvements on 
existing multifamily rental properties that meet the requirements in 
Sec.  1282.34(d)(2);
    (5) Subordinate liens on single-family properties;
    (6) Shared appreciation loans that do not satisfy all of the 
requirements in Sec.  1282.34(d)(4) of this part; and
    (7) Any combination of factors in paragraphs (b)(1) through (b)(6) 
of this section.
    (c) No credit under loan purchase assessment factor. The following 
activities will not receive credit under the loan purchase assessment 
factor, even if the activity otherwise would receive credit under Sec.  
1282.40:
    (1) Purchases of mortgages to the extent they finance any dwelling 
units that are secondary residences;
    (2) 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;
    (3) Purchases of mortgages or interests in mortgages that 
previously received credit under any underserved market within the five 
years immediately preceding the current performance year;
    (4) Purchases of mortgages where the property or any units within 
the property have not been approved for occupancy;
    (5) Any interests in mortgages that the Director determines, in 
writing, will not be treated as interests in mortgages;
    (6) Purchases of State and local government housing bonds except as 
provided in Sec.  1282.40(h); and
    (7) Any combination of factors in paragraphs (c)(1) through (6) of 
this section.
    (d) FHFA review of activities. FHFA may determine whether and how 
any

[[Page 79220]]

activity will receive credit under the duty to serve underserved 
markets, including treatment of missing data. FHFA will notify each 
Enterprise in writing of any determination regarding the treatment of 
any activity.
    (e) The year in which an activity will receive credit. An activity 
will receive credit under the duty to serve underserved markets in the 
year in which the activity is completed. FHFA may determine that 
partial credit is appropriate for an activity that begins in a 
particular year but is not completed until a subsequent year, except 
that activities under the loan purchase assessment factor will receive 
credit in the year in which the Enterprise purchased the mortgage.
    (f) Credit under one assessment factor. An activity or objective 
will receive credit only under one assessment factor in a particular 
underserved market.
    (g) Credit under multiple underserved markets. An activity, 
including dwelling units financed by an Enterprise's mortgage purchase, 
will receive credit for each underserved market for which such activity 
qualifies in that year.


Sec.  1282.39  General requirements for loan purchases.

    (a) General. This section applies to Enterprise mortgage purchases 
that may receive credit under the loan purchase assessment factor for a 
particular underserved market. Only dwelling units securing a mortgage 
purchased by the Enterprise in that year and not specifically excluded 
under Sec.  1282.38(b) and (c), may receive credit.
    (b) Counting dwelling units. Except as provided in paragraph (f) of 
this section, performance under the loan purchase assessment factor 
will be measured by counting dwelling units affordable to very low-, 
low-, and moderate-income families.
    (c) Credit for owner-occupied units. (1) Mortgage purchases 
financing owner-occupied single-family properties will be evaluated 
based on the income of the mortgagor(s) and the area median income at 
the time the mortgage was originated. To determine whether mortgages 
may receive credit under a particular family income level, i.e., very 
low-, low-, or moderate-income, the income of the mortgagor(s) is 
compared to the median income for the area at the time the mortgage was 
originated, using the appropriate percentage factor provided under 
Sec.  1282.17.
    (2) Mortgage purchases financing owner-occupied single-family 
properties for which the income of the mortgagor(s) is not available 
will not receive credit under the loan purchase assessment factor.
    (d) Credit for rental units--(1) Use of rent. Except as provided in 
paragraph (g) of this section, mortgage purchases financing single-
family rental units and multifamily rental units will be evaluated 
based on rent and whether the rent is affordable to the income groups 
targeted by the duty to serve. A rent is affordable if the rent does 
not exceed the maximum levels as provided in Sec.  1282.19.
    (2) Affordability of rents based on housing program requirements. 
Where a multifamily property is subject to an affordability restriction 
under a housing program that establishes the maximum permitted income 
level for a tenant or a prospective tenant or the maximum permitted 
rent, the affordability of units in the property may be determined 
based on the maximum permitted income level or maximum permitted rent 
established under such housing program for those units. If using 
income, the maximum income level must be no greater than the maximum 
income level for each income group targeted by the duty to serve, 
adjusted for family or unit size as provided in Sec.  1282.17 or Sec.  
1282.18, as appropriate. If using rent, the maximum rent level must be 
no greater than the maximum rent level for each income group targeted 
by the duty to serve, adjusted for unit size as provided in Sec.  
1282.19.
    (3) Unoccupied units. 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. A unit in a 
multifamily property that is unoccupied because it is being used as a 
model unit or rental office may receive credit only if the 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 for 
single-family rental properties, an Enterprise must use tenant income 
and area median income available at the time the mortgage was 
originated. For multifamily rental properties, the Enterprise must use 
tenant income and area median income available at the time the mortgage 
was acquired.
    (e) Missing data or information for rental units. (1) When 
calculating unit affordability, rental units for which bedroom data are 
missing will be considered efficiencies.
    (2) When an Enterprise lacks sufficient information to determine 
whether a rental unit in a single-family or multifamily property 
securing a mortgage purchased by the Enterprise receives credit under 
the loan purchase assessment factor because rental data are not 
available, the Enterprise's performance with respect to such unit may 
be evaluated using estimated affordability information. The estimated 
affordability information is calculated by multiplying the number of 
rental units with missing affordability information in properties 
securing the mortgages purchased by the Enterprise in each census tract 
by the percentage of all moderate-income rental dwelling units in the 
respective tracts, as determined by FHFA based on the most recent 
decennial census.
    (f) Credit for manufactured housing communities. Performance under 
the loan purchase assessment factor for manufactured housing 
communities will be measured based on the unpaid principal balance of 
the mortgage at the time of acquisition.
    (g) Determining affordability for manufactured housing communities. 
Affordability for a manufactured housing community will be evaluated 
based on the median income of the census tract in which the 
manufactured housing community is located as provided below.
    (1) If the median income of the census tract in which the 
manufactured housing community is located is less than or equal to area 
median income, the Enterprise will receive credit for the full unpaid 
principal balance of the loan.
    (2) If the median income of the census tract in which the 
manufactured housing community is located exceeds the area median 
income, the Enterprise will receive partial credit for the loan 
purchase. The percentage of the unpaid principal balance of the loan 
that will receive credit will be determined by dividing the area median 
income by the median income of the census tract and multiplying the 
quotient by the unpaid principal balance of the loan.
    (h) Application of median income. (1) To determine an area's median 
income under Sec. Sec.  1282.17 through 1282.19 and the definitions in 
Sec.  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 
must determine the median income for the split area in the

[[Page 79221]]

manner prescribed by the Federal Financial Institutions Examination 
Council for reporting under the Home Mortgage Disclosure Act (12 U.S.C. 
2801 et seq.), if the Enterprise can determine that the mortgage is on 
dwelling unit(s) located in:
    (i) A census tract; or
    (ii) A census place code.
    (i) Newly available data. When an Enterprise uses data to determine 
whether a dwelling unit receives credit under the loan purchase 
assessment factor 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.


Sec.  1282.40  Special requirements for loan purchases.

    (a) General. Subject to FHFA's determination of whether an activity 
will receive credit under a particular underserved market, the 
activities identified in this section will be treated as mortgage 
purchases as described and receive credit under the loan purchase 
assessment factor. An activity that is covered by more than one 
paragraph below must satisfy the requirements of each such paragraph.
    (b) Credit enhancements. (1) Dwelling units financed under a credit 
enhancement entered into by an Enterprise will be treated as mortgage 
purchases only when:
    (i) The Enterprise provides a specific contractual obligation to 
ensure timely payment of amounts due under a mortgage or mortgages 
financed by the issuance of housing bonds (such bonds may be issued by 
any entity, including a State or local housing finance agency); and
    (ii) The Enterprise assumes a credit risk in the transaction 
substantially equivalent to the risk that would have been assumed by 
the Enterprise if it had securitized the mortgages financed by such 
bonds.
    (2) When an Enterprise provides a specific contractual obligation 
to ensure timely payment of amounts due under any mortgage originally 
insured by a public purpose mortgage insurance entity or fund, the 
Enterprise may, on a case-by-case basis, seek approval from the 
Director for such transactions to receive credit under the loan 
purchase assessment factor for a particular underserved market.
    (c) Risk-sharing. Mortgages purchased under risk-sharing 
arrangements between an Enterprise and any federal agency under which 
the Enterprise is responsible for a substantial amount of the risk will 
be treated as mortgage purchases.
    (d) Participations. Participations purchased by an Enterprise will 
be treated as mortgage purchases only when the Enterprise's 
participation in the mortgage is 50 percent or more.
    (e) Cooperative housing and condominiums. (1) The purchase of a 
mortgage on a cooperative housing unit (``a share loan'') or a mortgage 
on a condominium unit will be treated as a mortgage purchase. Such a 
purchase will receive credit in the same manner as a mortgage purchase 
of single-family owner-occupied units, i.e., affordability is based on 
the income of the mortgagor(s).
    (2) The purchase of a blanket mortgage on a cooperative building or 
a mortgage on a condominium project will be treated as a mortgage 
purchase. The purchase of a blanket mortgage on a cooperative building 
will receive credit in the same manner as a mortgage purchase of a 
multifamily rental property, except that affordability must be 
determined based solely on the comparable market rents used in 
underwriting the blanket loan. If the underwriting rents are not 
available, the loan will not be treated as a mortgage purchase. The 
purchase of a mortgage on a condominium project will receive credit in 
the same manner as a mortgage purchase of a multifamily rental 
property.
    (3) Where an Enterprise purchases both a blanket mortgage on a 
cooperative building and share loans for units in the same building, 
both the mortgage on the cooperative building and the share loans will 
be treated as mortgage purchases. Where an Enterprise purchases both a 
mortgage on a condominium project and mortgages on individual dwelling 
units in the same project, both the mortgage on the condominium project 
and the mortgages on individual dwelling units will be treated as 
mortgage purchases.
    (f) Seasoned mortgages. An Enterprise's purchase of a seasoned 
mortgage will be treated as a mortgage purchase.
    (g) Purchase of refinancing mortgages. The purchase of a 
refinancing mortgage by an Enterprise will be treated as a mortgage 
purchase only if the refinancing is an arms-length transaction that is 
borrower-driven.
    (h) Mortgage revenue bonds. The purchase or guarantee by an 
Enterprise of a mortgage revenue bond issued by a State or local 
housing finance agency will be treated as a purchase of the underlying 
mortgages only to the extent the Enterprise has sufficient information 
to determine whether the underlying mortgages or mortgage-backed 
securities serve the income groups targeted by the duty to serve.
    (i) Seller dissolution option. (1) Mortgages acquired through 
transactions involving seller dissolution options will be treated as 
mortgage purchases only when:
    (i) The terms of the transaction provide for a lockout period that 
prohibits the exercise of the dissolution option for at least one year 
from the date on which the transaction was entered into by the 
Enterprise and the seller of the mortgages; and
    (ii) The transaction is not dissolved during the one-year minimum 
lockout period.
    (2) FHFA may grant an exception to the one-year minimum lockout 
period described in paragraphs (i)(1)(i) and (ii) of this section, in 
response to a written request from an Enterprise, if FHFA determines 
that the transaction furthers the purposes of the Enterprise's Charter 
Act and the Safety and Soundness Act.
    (3) For purposes of paragraph (i) of this section, ``seller 
dissolution option'' means an option for a seller of mortgages to the 
Enterprises to dissolve or otherwise cancel a mortgage purchase 
agreement or loan sale.


Sec.  1282.41  Failure to comply.

    If the Director determines that an Enterprise has not complied 
with, or there is a substantial probability that an Enterprise will not 
comply with, the duty to serve a particular underserved market in a 
given year and the Director determines that such compliance is or was 
feasible, the Director will follow the procedures in 12 U.S.C. 4566(b).


Sec.  1282.42  Housing plans.

    (a) General. If the Director determines that an Enterprise did not 
comply with, or there is a substantial probability that an Enterprise 
will not comply with, the duty to serve a particular underserved market 
in a given year, the Director may require the Enterprise to submit a 
housing plan for approval by the Director.
    (b) Nature of housing plan. If the Director requires a housing 
plan, the housing plan must:
    (1) Be feasible;
    (2) Be sufficiently specific to enable the Director to monitor 
compliance periodically;
    (3) Describe the specific actions that the Enterprise will take:
    (i) To comply with the duty to serve a particular underserved 
market for the next calendar year; or
    (ii) To make such improvements and changes in its operations as are 
reasonable in the remainder of the year, if the Director determines 
that there is

[[Page 79222]]

a substantial probability that the Enterprise will fail to comply with 
the duty to serve a particular underserved market in such year; and
    (4) Address any additional matters relevant to the housing plan as 
required, in writing, by the Director.
    (c) Deadline for submission. The Enterprise must submit the housing 
plan to the Director within 45 days after issuance of a notice 
requiring the Enterprise to submit a housing plan. The Director may 
extend the deadline for submission of a housing plan, in writing and 
for a time certain, to the extent the Director determines an extension 
is necessary.
    (d) Review of housing plans. The Director will review and approve 
or disapprove housing plans in accordance with 12 U.S.C. 4566(c)(4) and 
(5).
    (e) Resubmission. If the Director disapproves an initial housing 
plan submitted by an Enterprise, the Enterprise must submit an amended 
housing plan acceptable to the Director not later than 15 days after 
the Director's disapproval of the initial housing plan. The Director 
may extend the deadline if the Director determines that an extension is 
in the public interest. If the amended housing plan is not acceptable 
to the Director, the Director may afford the Enterprise 15 days to 
submit a new housing plan.
0
4. Add Sec.  1282.66 to subpart D to read as follows:


Sec.  1282.66  Enterprise reports on duty to serve.

    (a) First and third quarter reports. Each Enterprise must submit to 
FHFA a first and third quarter report on its activities and objectives 
in its Underserved Markets Plan for the loan purchase assessment factor 
for each underserved market. The report must include detailed 
information on the Enterprise's progress towards meeting the activities 
and objectives. The Enterprise must submit the first and third quarter 
reports within 60 days of the end of the respective quarter.
    (b) Semi-annual report. Each Enterprise must submit to FHFA a semi-
annual report on all of the activities and objectives in its 
Underserved Markets Plan for each underserved market. The report must 
include detailed information on the Enterprise's progress towards 
meeting the activities and objectives. The Enterprise must submit the 
semi-annual report within 60 days of the end of the second quarter.
    (c) Annual report. To comply with the requirements in sections 
309(n) of the Fannie Mae Charter Act and 307(f) of the Freddie Mac Act 
and for purposes of FHFA's Annual Housing Report to Congress, each 
Enterprise must submit to FHFA an annual report on all of the 
activities and objectives in its Underserved Markets Plan for each 
underserved market no later than 75 days after the end of each calendar 
year. For each underserved market, the annual report must include, at a 
minimum: A description of the Enterprise's market opportunities for 
loan purchases during the evaluation year to the extent data is 
available; the volume of qualifying loans purchased by the Enterprise; 
a comparison of the Enterprise's loan purchases with its loan purchases 
in prior years; and a comparison of market opportunities with the size 
of the relevant markets in the past, to the extent data are available.

    Dated: December 10, 2015.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2015-31811 Filed 12-17-15; 8:45 am]
BILLING CODE 8070-01-P