2018-2020 Enterprise Housing Goals, 31009-31030 [2017-14039]

Download as PDF 31009 Proposed Rules Federal Register Vol. 82, No. 127 Wednesday, July 5, 2017 This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. FEDERAL HOUSING FINANCE AGENCY 12 CFR Part 1282 RIN 2590–AA81 2018–2020 Enterprise Housing Goals Federal Housing Finance Agency. ACTION: Proposed rule. AGENCY: The Federal Housing Finance Agency (FHFA) is issuing a proposed rule with request for comments on the housing goals for Fannie Mae and Freddie Mac (the Enterprises) for 2018 through 2020. The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (the Safety and Soundness Act) requires FHFA to establish annual housing goals for mortgages purchased by the Enterprises. The housing goals include separate categories for single-family and multifamily mortgages on housing that is affordable to low-income and very low-income families, among other categories. The existing housing goals for the Enterprises include benchmark levels for each housing goal through the end of 2017. This proposed rule would establish benchmark levels for each of the housing goals and subgoals for 2018 through 2020. In addition, the proposed rule would make a number of clarifying and conforming changes, including revisions to the requirements for the housing plan that an Enterprise may be required to submit in response to a failure to achieve one or more of the housing goals. DATES: FHFA will accept written comments on the proposed rule on or before September 5, 2017. ADDRESSES: You may submit your comments on the proposed rule, identified by regulatory information number (RIN) 2590–AA81, by any one of the following methods: • Agency Web site: www.fhfa.gov/ open-for-comment-or-input. sradovich on DSK3GMQ082PROD with PROPOSALS SUMMARY: VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 • Federal eRulemaking Portal: http:// 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. Include the following information in the subject line of your submission: Comments/RIN 2590–AA81. • Hand Delivered/Courier: The hand delivery address is: Alfred M. Pollard, General Counsel, Attention: Comments/ RIN 2590–AA81, Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., Washington, DC 20219. Deliver the package at the Seventh 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–AA81, Federal Housing Finance Agency, Eighth Floor, 400 Seventh 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: Ted Wartell, Manager, Housing & Community Investment, Division of Housing Mission and Goals, at (202) 649–3157. This is not a toll-free number. The mailing address is: Federal Housing Finance Agency, 400 Seventh Street SW., Washington, DC 20219. The telephone number for the Telecommunications Device for the Deaf is (800) 877–8339. SUPPLEMENTARY INFORMATION: I. Comments FHFA invites comments on all aspects of the proposed rule and will take all comments into consideration before issuing the final rule. Copies of all comments will be posted without change, including any personal information you provide such as your name, address, email address, and telephone number, on the FHFA Web site at http://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, 400 Seventh PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 Street SW., Washington, DC 20219. To make an appointment to inspect comments, please call the Office of General Counsel at (202) 649–3804. Commenters are encouraged to review and comment on all aspects of the proposed rule, including the singlefamily benchmark levels, the multifamily benchmark levels, and other changes to the regulation. II. Background A. Statutory and Regulatory Background for the Existing Housing Goals The Safety and Soundness Act requires FHFA to establish annual housing goals for several categories of both single-family and multifamily mortgages purchased by Fannie Mae and Freddie Mac.1 The annual housing goals are one measure of the extent to which the Enterprises are meeting their public purposes, which include ‘‘an affirmative obligation to facilitate the financing of affordable housing for lowand moderate-income families in a manner consistent with their overall public purposes, while maintaining a strong financial condition and a reasonable economic return.’’ 2 The housing goals provisions of the Safety and Soundness Act were substantially revised in 2008 with the enactment of the Housing and Economic Recovery Act, which amended the Safety and Soundness Act.3 Under this revised structure, FHFA established housing goals for the Enterprises for 2010 and 2011 in a final rule published on September 14, 2010.4 FHFA established housing goals levels for the Enterprises for 2012 through 2014 in a final rule published on November 13, 2012.5 In a final rule published on September 3, 2015, FHFA announced the housing goals for the Enterprises for 2015 through 2017, including a new small multifamily low-income housing subgoal.6 Single-family goals. The single-family goals defined under the Safety and Soundness Act include separate categories for home purchase mortgages for low-income families, very lowincome families, and families that reside 1 See 12 U.S.C. 4561(a). 12 U.S.C. 4501(7). 3 Housing and Economic Recovery Act of 2008, Pub. L. 110–289, 122 Stat. 2654 (July 30, 2008). 4 See 75 FR 55892. 5 See 77 FR 67535. 6 See 80 FR 53392. 2 See E:\FR\FM\05JYP1.SGM 05JYP1 sradovich on DSK3GMQ082PROD with PROPOSALS 31010 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules in low-income areas. Performance on the single-family home purchase goals is measured as the percentage of the total home purchase mortgages purchased by an Enterprise each year that qualify for each goal or subgoal. There is also a separate goal for refinancing mortgages for low-income families, and performance on the refinancing goal is determined in a similar way. Under the Safety and Soundness Act, the single-family housing goals are limited to mortgages on owner-occupied housing with one to four units total. The single-family goals cover conventional, conforming mortgages, defined as mortgages that are not insured or guaranteed by the Federal Housing Administration (FHA) or another government agency and with principal balances that do not exceed the loan limits for Enterprise mortgages. Two-part approach. The performance of the Enterprises on the housing goals is evaluated using a two-part approach, which compares the goal-qualifying share of the Enterprise’s mortgage purchases to two separate measures: A benchmark level and a market level. FHFA considered alternatives to this method in the 2015–2017 housing goals rulemaking and determined that the two-part approach continued to be the most appropriate method for evaluating performance on the single-family goals. FHFA is proposing to continue that approach in this rule. In order to meet a single-family housing goal or subgoal, the percentage of mortgage purchases by an Enterprise that meet each goal or subgoal must exceed either the benchmark level or the market level for that year. The benchmark level is set prospectively by rulemaking based on various factors, including FHFA’s forecast of the goalqualifying share of the overall market. The market level is determined retrospectively each year, based on the actual goal-qualifying share of the overall market as measured by FHFA based on Home Mortgage Disclosure Act (HMDA) data for that year. The overall mortgage market that FHFA uses for both the prospective market forecasts and the retrospective market measurement consists of all singlefamily owner-occupied conventional conforming mortgages that would be eligible for purchase by either Enterprise. It includes loans actually purchased by the Enterprises as well as comparable loans held in a lender’s portfolio. It also includes comparable loans that are part of a private label security (PLS), although very few such securities have been issued for conventional conforming mortgages since 2008. VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 While both the benchmark and the retrospective market measure are designed to measure the current year’s mortgage originations, the performance of the Enterprises on the housing goals includes all Enterprise purchases in that year, regardless of the year in which the loan was originated. This provides housing goals credit when the Enterprises acquire qualified seasoned loans. (Seasoned loans are loans that were originated in prior years and acquired by the Enterprise in the current year.) The Enterprises’ acquisition of seasoned loans provides an important source of liquidity for this market segment. Recent changes to the HMDA regulations will result in the HMDA data covering a greater portion of the single-family mortgage market.7 The changes will also provide more detailed information about the loans included in the HMDA data. The changes to the HMDA regulations generally take effect at the start of 2018, so the new, more detailed information will not be available until after the 2018 performance year. For example, the Enterprise housing goals currently count all loans purchased by an Enterprise with original principal balances that are within the conforming loan limits. The conforming loan limits are different for single-family properties depending on the number of units in the property. However, the definition of the retrospective market excludes all loans with original principal balances above the conforming loan limits for single unit properties because the current HMDA data do not identify the number of units for each loan. Starting with the new HMDA data reported, it will be possible to identify the number of units for each loan. This may allow FHFA to revise the definition of the retrospective market to exclude only those loans above the conforming loan limits applicable to the size of the property, instead of excluding all loans above the conforming loan limit applicable to a single unit property. FHFA has considered the possible impact that certain changes to the HMDA regulations may have on the Enterprise housing goals. However, at this time the impact that such changes might have on the retrospective measure of the market is uncertain. FHFA is not proposing to make any changes to the Enterprise housing goals in anticipation of the upcoming changes to the HMDA data. FHFA will assess the impact of the changes and, if necessary, may propose 7 See Home Mortgage Disclosure Act final rule, 80 FR 66128 (Oct. 28, 2015). PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 changes to the housing goals regulation at a later date. Multifamily goals. The multifamily goals defined under the Safety and Soundness Act include separate categories for mortgages on multifamily properties (properties with five or more units) with rental units affordable to low-income families and on multifamily properties with rental units affordable to very low-income families, as well as a small multifamily low-income subgoal for properties with 5–50 units. The multifamily goals established by FHFA in 2010, 2012, and 2015 evaluated the performance of the Enterprises based on numeric targets, not percentages, for the number of affordable units in properties backed by mortgages purchased by an Enterprise. FHFA has not established a retrospective market level measure for the multifamily goals and subgoals, due in part to a lack of comprehensive data about the multifamily market such as that provided by HMDA for singlefamily mortgages. As a result, FHFA currently measures Enterprise multifamily goals performance against the benchmark levels only. The expanded HMDA fields that will be available for the 2018 performance year are expected to include information on the number of units for each multifamily loan and should be helpful in evaluating performance for this market segment. B. Adjusting the Housing Goals Under the housing goals regulation first established by FHFA in 2010, as well as under this proposed rule, FHFA may reduce the benchmark levels for any of the single-family or multifamily housing goals in a particular year without going through notice and comment rulemaking based on a determination by FHFA that (1) market and economic conditions or the financial condition of the Enterprise require a reduction, or (2) ‘‘efforts to meet the goal or subgoal would result in the constraint of liquidity, overinvestment in certain market segments, or other consequences contrary to the intent of the Safety and Soundness Act or the purposes of the Charter Acts.’’ 8 The proposal also takes into account the possibility that achievement of a particular housing goal may or may not have been feasible for the Enterprise. If FHFA determines that a housing goal was not feasible for the Enterprise to achieve, then the regulation provides for no further enforcement of that housing goal for that year.9 8 12 9 12 E:\FR\FM\05JYP1.SGM CFR 1282.14(d). CFR 1282.21(a). 05JYP1 31011 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules If, after publication of a final rule establishing the housing goals for 2018 through 2020, FHFA determines that any of the single-family or multifamily housing goals should be adjusted in light of market conditions, to ensure the safety and soundness of the Enterprises, or for any other reason, FHFA will take steps as necessary and appropriate to adjust that goal. Such steps could include adjusting the benchmark levels through the processes in the existing regulation or establishing revised housing goal levels through notice and comment rulemaking. C. Housing Goals Under Conservatorship On September 6, 2008, FHFA placed each Enterprise into conservatorship. Although the Enterprises remain in conservatorship at this time, they continue to have the mission of supporting a stable and liquid national market for residential mortgage financing. FHFA has continued to establish annual housing goals for the Enterprises and to assess their performance under the housing goals each year during conservatorship. III. Summary of Proposed Rule A. Benchmark Levels for the SingleFamily Housing Goals This proposed rule would establish the benchmark levels for the singlefamily housing goals and subgoal for 2018–2020 as follows: Current benchmark level for 2015–2017 Goal Criteria Low-Income Home Purchase Goal .. Home purchase mortgages on single-family, owner-occupied properties with borrowers with incomes no greater than 80 percent of area median income. Home purchase mortgages on single-family, owner-occupied properties with borrowers with incomes no greater than 50 percent of area median income. Home purchase mortgages on single-family, owner-occupied properties with: • Borrowers in census tracts with tract median income of no greater than 80 percent of area median income; or • Borrowers with income no greater than 100 percent of area median income in census tracts where (i) tract income is less than 100 percent of area median income, and (ii) minorities comprise at least 30 percent of the tract population. Refinancing mortgages on single-family, owner-occupied properties with borrowers with incomes no greater than 80 percent of area median income. Very Low-Income Home Purchase Goal. Low-Income Areas Home Purchase Subgoal. Low-Income Refinancing Goal ......... Proposed benchmark level for 2018–2020 24 percent ..... 24 percent. 6 percent ....... 6 percent. 14 percent ..... 15 percent. 21 percent ..... 21 percent. B. Multifamily Housing Goal Levels The proposed rule would establish the levels for the multifamily goal and subgoals for 2018–2020 as follows: Current goal level for 2017 Goal Criteria Low-Income Goal ......................... Units affordable to families with incomes no greater than 80 percent of area median income in multifamily rental properties with mortgages purchased by an Enterprise. Units affordable to families with incomes no greater than 50 percent of area median income in multifamily rental properties with mortgages purchased by an Enterprise. Units affordable to families with incomes no greater than 80 percent of area median income in small multifamily rental properties (5 to 50 units) with mortgages purchased by an Enterprise. Very Low-Income Subgoal ........... Low-Income Subgoal. Small Multifamily sradovich on DSK3GMQ082PROD with PROPOSALS C. Other Proposed Changes IV. Single-Family Housing Goals The proposed rule would make changes and clarifications to the existing rules, including minor technical changes to some regulatory definitions. The proposed rule also would revise the requirements applicable to the housing plan an Enterprise may be required to submit based on a failure to achieve one or more of the housing goals. This proposed rule sets out FHFA’s views about benchmark levels for the single-family housing goals from 2018– 2020. In making this proposal, FHFA has considered the required statutory factors described below. FHFA’s analysis and goal setting process includes developing market forecast models for each of the single-family housing goals, as well as considering a VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 Proposed goal level for 2018–2020 300,000 units ...... 315,000 units. 60,000 units ........ 60,000 units. 10,000 units ........ 10,000 units. number of other variables that impact affordable homeownership. Many of these variables indicate that low-income and very low-income households are facing, and will continue to face, difficulties in achieving homeownership or in refinancing an existing mortgage. These factors, such as rising property values and stagnant household incomes, also impact the Enterprises’ ability to meet their mission and facilitate E:\FR\FM\05JYP1.SGM 05JYP1 31012 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS affordable homeownership for lowincome and very low-income households. Nevertheless, FHFA expects and encourages the Enterprises to work toward meeting their housing goal requirements in a safe and sound manner. This may include steps the Enterprises take to fulfill FHFA’s access to credit expectations expressed in the most recent Conservatorship Scorecard, which requires the Enterprises to undertake a number of research and related efforts including the development of pilots and initiatives.10 A. Setting the Single-Family Housing Goal Levels FHFA process for setting the singlefamily benchmark levels. Section 1332(e)(2) of the Safety and Soundness Act requires FHFA to consider the following seven factors in setting the single-family housing goals: 1. National housing needs; 2. Economic, housing, and demographic conditions, including expected market developments; 3. The performance and effort of the Enterprises toward achieving the housing goals in previous years; 4. The ability of the Enterprises to lead the industry in making mortgage credit available; 5. Such other reliable mortgage data as may be available; 6. The size of the purchase money conventional mortgage market, or refinance conventional mortgage market, as applicable, serving each of the types of families described, relative to the size of the overall purchase money mortgage market or the overall refinance mortgage market, respectively; and 7. The need to maintain the sound financial condition of the Enterprises.11 FHFA has considered each of these seven statutory factors in setting the proposed benchmark levels for each of the single-family housing goals and subgoal. Recognizing that some of the factors required by statute to be considered can be readily captured using reliable data series while others cannot, FHFA implemented the following approach: FHFA’s statistical market models considered factors that are captured through well-known and established data series and these are then used to generate a point forecast for each goal as well as a confidence interval for the 10 See 2017 Scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions, December 2016, available at https://www.fhfa.gov/ AboutUs/Reports/ReportDocuments/2017Scorecard-for-Fannie-Mae-Freddie-Mac-andCSS.pdf. 11 12 U.S.C. 4562(e)(2). VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 point forecast. FHFA then considered the remaining statutory factors, as well as other relevant policy factors, in selecting the specific point forecast within the confidence interval as the proposed benchmark level. FHFA’s market forecast models incorporate four of the seven statutory factors: national housing needs; economic, housing, and demographic conditions; other reliable mortgage data; and the size of the purchase money conventional mortgage market or refinance conventional mortgage market for each single-family housing goal. The market forecast models generate a point estimate, as well as a confidence interval. FHFA then considered the remaining three statutory factors (historical performance and effort of the Enterprises toward achieving the housing goal; ability of the Enterprises to lead the industry in making mortgage credit available; and need to maintain the sound financial condition of the Enterprises), as well as other relevant policy factors in selecting the specific point forecast within the confidence interval as the proposed benchmark level for the goal period. Market forecast models. The purpose of FHFA’s market forecast models is to forecast the market share of the goalqualifying mortgage originations in the market for the 2018–2020 period. The models are intended to generate reliable forecasts rather than to test various economic hypotheses about the housing market or to explain the relationship between variables. Following standard practice among forecasters and economists at other federal agencies, FHFA estimated a reduced-form equation for each of the housing goals and fit an Autoregressive Integrated Moving Average (or ARIMA) model to each goal share. The models look at the statistical relationship between (a) the historical market share for each singlefamily housing goal or subgoal, as calculated from monthly HMDA data, and (b) the historical values for various factors that may influence the market shares, e.g. interest rates, inflation, house prices, home sales, the unemployment rate, and other factors. The models then project the future value of the affordable market share using forecast values of the model inputs. Separate models were developed for each of the single-family housing goals and subgoals. FHFA has employed similar models in past housing goals rulemakings to generate market forecasts. The models were developed using monthly series generated from HMDA and other data sources, and the resulting monthly forecasts were then averaged into an annual forecast for each of the three PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 years in the goal period. The models rely on 12 years of HMDA data, from 2004 to 2015, the latest year for which HMDA data are available. Additional discussion of the market forecast models can be found in a research paper, available at http://www.fhfa.gov/ PolicyProgramsResearch/Research/.12 In the final rule establishing the housing goals for 2015–2017, FHFA stated that it would engage directly with commenters to obtain detailed feedback on FHFA’s econometric models for the housing goals. Throughout 2016, FHFA met with industry modeling experts about potential improvements to the econometric models. Considering input received, FHFA has revised the market forecast models to include better specifications and new variables for all goal-qualifying shares, while still following and adhering to generally accepted practices and standards adopted by economists, including those at other federal agencies. During the model development process, FHFA grouped factors that are expected by housing market economists to have an impact on the market share of affordable housing into seven broad categories. For each category of variables, many variables were tested but only retained when they exhibited predictive power. The new set of models includes new driver variables that reflect factors that impact the affordable housing market— for example, household debt service ratio, labor force participation rate, and underwriting standards. As is the case with any forecasting model, the accuracy of the forecast will vary depending on the accuracy of the inputs to the model and the length of the forecast period. FHFA has attempted to minimize the first variable by using third party forecasts published by Moody’s and other accredited mortgage market forecasters. The second variable is harder to address. The proposed rule relies on the most up-to-date data available as of December 2016, and uses forecasted input values for 2017 to produce the forecasts for 2018–2020. The confidence intervals for the benchmark levels become wider as the forecast period lengthens. In other words, it becomes more likely that the actual market levels will be different from the forecasts the farther into the future the forecasts attempt to make predictions. Predicting four years out is not the usual practice in forecasting. A number of industry forecasters, including Fannie Mae, Freddie Mac, 12 Details on FHFA’s single-family market models will be available in the technical paper ‘‘The Size of the Affordable Mortgage Market: 2018–2020 Enterprise Single-Family Housing Goals.’’ E:\FR\FM\05JYP1.SGM 05JYP1 sradovich on DSK3GMQ082PROD with PROPOSALS Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules and the Mortgage Bankers Association (MBA), do not publish forecasts beyond two years because accuracy of forecasts decreases substantially beyond a two year period. Market outlook. There are many factors that impact the affordable housing market as a whole, and changes to any one of them may significantly impact the ability of the Enterprises to meet the goals. In developing our market models, FHFA used Moody’s forecasts, where available, as the source for macroeconomic variables.13 In cases where Moody’s forecasts were not available (for example, the share of government-guaranteed home purchases and the share of government-guaranteed refinances), FHFA generated and tested its own forecasts.14 Elements that impact the models and the determination of benchmark levels are discussed below. Interest rates are arguably one of the most important variables in determining the trajectory of the mortgage market. The Federal Reserve launched its interest rate normalization process in December 2015 with a 0.25-percentage point increase. At the July 2016 meeting of the Federal Open Market Committee (FOMC), policymakers indicated their commitment to a low federal funds rate for the time being, signaling a pause in the interest rate normalization path. However, there is broad consensus among economists that the Federal Reserve will resume rate hikes if the economy performs as expected. Based on Moody’s January 2017 forecast, mortgage interest rates—in particular the 30-year fixed rate, which is closely tied to the federal funds rate and the 10year Treasury note yield—are projected to rise gradually from the current historic low of 3.6 percent in 2016 to 5.5 percent by 2020. The unemployment rate has steadily fallen over the last few years and according to Moody’s is expected to remain at 4.7 percent over the next four years, given expected growth of the economy at the modest range of 1.5 to 2.9 percent per year (January 2017 forecast). Moody’s also forecasts a modest increase in per capita disposable nominal income growth—from $43,100 in 2016 to $50,300 in 2020. Moody’s estimates that the inflation rate will remain flat at 2.0 percent throughout the same period, although this also depends on Federal Reserve policy. 13 The macroeconomic outlook described here is based on Moody’s and other forecasts as of September 2016. 14 This refers to the mortgages insured/guaranteed by government agencies such as the FHA, Department of Veterans Affairs (VA), and the Rural Housing Service (RHS). VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 Industry analysts generally expect the overall housing market to continue its recovery, although the growth of house prices may slow down, assuming continued increases in interest rates. According to Moody’s forecast (as of January 2017) based on FHFA’s purchase-only House Price Index (HPI), house prices are expected to increase at the annual rates of 3.9, 1.8, and 2.0 percent in 2018, 2019, and 2020, respectively. The expected increase in mortgage interest rates and house prices will likely impact the ability of low- and very low-income households to purchase homes. Housing affordability, as measured by Moody’s forecast of the National Association of Realtors’ Housing Affordability Index, is projected to decline from an index value of 162.2 in 2016 to 152.5 in 2020. Low interest rates coupled with rising house prices usually create incentives for homeowners to refinance, and the refinance share of overall mortgage originations increased from 39.9 percent in 2014 to 50 percent in 2016. However, assuming that interest rates rise in the near future, the refinance rate is expected to fall below 21.4 percent by 2019, according to the Moody’s forecast. Additional factors reflecting affordability challenges in the singlefamily market. While FHFA’s models can address and forecast many of the statutory factors that can make affordability for single-family homeownership more challenging for low-income and very low-income households, including increasing interest rates and rising property values, some factors are not captured in the models. FHFA, therefore, considers additional factors when selecting the benchmark point within the modelgenerated confidence interval for each of the single-family housing goals. Some of these factors may affect a subset of the market rather than the market as a whole. Some of these additional factors include an uneven economic recovery, stagnant wages even where unemployment is decreasing, demographic trends, and the Enterprises’ share of the mortgage market. Variability in these factors can also have substantial impacts on the ability of the Enterprises to meet housing goals. Consequently, as discussed further below, FHFA will carefully monitor these factors and consider the potential impact of market shifts or larger trends on the ability of the Enterprises to achieve the housing goals. Throughout 2016, the economy and the housing market continued to recover from the financial crisis, but the PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 31013 recovery has been uneven across the country. In some areas, economic growth, job gains, and demand are outpacing housing supply, sparking rapidly rising property values, while other areas of the country have not regained pre-crisis home values and are not projected to do so in the near future. Trends in factors such as area median income (AMI) point to an uneven recovery. FHFA uses census-tract level AMIs published by the U.S. Department of Housing and Urban Development (HUD) to determine affordability for the Enterprise single-family and multifamily mortgage acquisitions. AMI is a measure of median family income derived from the Census Bureau’s American Community Survey (ACS). Since the 1990s, AMIs have been used widely by HUD, state housing finance agencies, the Federal Deposit Insurance Corporation (FDIC), the U.S. Department of Treasury, and local governments across the nation to determine eligibility for various affordable housing and public assistance programs. The HUDpublished AMIs are considered the standard benchmark in the affordable housing industry. HUD changed the methodology for determining AMIs in 2015 because of changes in the Census Bureau’s data collection methodology and changes in the reporting schedules of the ACS data. AMI shifts reflect changes in borrower income levels at the census tract level. In general, a decrease in an area’s AMI represents a decline in housing affordability in the area because the households will have relatively less income with which to purchase a home where property values have either remained the same or increased during the same time period.15 This can make it more challenging for the Enterprises to meet the housing goals. Conversely, increases in AMIs would make it easier for the Enterprises to meet the housing goals. Overall, while there are annual fluctuations in AMI, the trends over a longer period (for instance, over four years) indicate that the economy is recovering, albeit in an uneven manner. For instance, from 2014 to 2016, over 80 percent of census tracts experienced an AMI increase. Over the four-year period from 2012 to 2016, AMI increased in about 51 percent of census tracts. This unevenness of the economic recovery is particularly evident geographically. For instance, the census tracts that experienced more than a 10 percent 15 The supply of single-family homes at the more affordable end of the market also impacts a lowincome or very low-income household’s ability to purchase a home. See The State of the Nation’s Housing 2017, Joint Center on Housing Studies, June 2017. E:\FR\FM\05JYP1.SGM 05JYP1 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS decline in AMIs in 2016 are concentrated in the southern and midwestern regions of the country. In addition to the uneven recovery reflected in changing AMI levels, many households have experienced stagnant wages or limited wage growth even though unemployment levels have decreased significantly since the peak of the financial crisis. Data released by the U.S. Census Bureau last year for the most recent year available reflected that while median household income increased by 5.2 percent in 2015, the first annual increase in median household income since 2007, median wages remained 1.6 percent lower than the median in 2007, the year before the most recent recession, and 2.4 percent lower than the median household income peak that occurred in 1999.16 Constrained wages, in addition to rising interest rates and increasing property values, could make it difficult for many low-income and very low-income households to achieve homeownership. Demographic changes, such as the housing patterns of millennials or the growth of minority households, also reflect challenges in the affordable homeownership market. The homeownership rate among millennials is lower than other demographic groups, but household formation will likely increase as this group ages. However, many millennials will face multiple challenges, including difficulty finding affordable homes to buy and building enough wealth for a down payment and closing costs, particularly in light of student loan and other debt burdens. In addition, another continuing demographic trend is the growth of minority households, which is projected to be over 70 percent of net household growth through 2025.17 In light of the fact that the median net worth of minority households has been historically low, building the necessary wealth to meet down payment and closing costs will likely also be a challenge for many of these new households. FHFA is committed to identifying new market conditions and challenges and working with the Enterprises to identify solutions to help meet these challenges. The effectiveness of these solutions, however, cannot be accounted for in a model. Another factor that can affect the Enterprises’ ability to support affordable 16 See Income and Poverty in the United States: 2015, United States Census Bureau, September 2016 https://www.census.gov/content/dam/Census/ library/publications/2016/demo/p60-256.pdf. homeownership for low-income and very low-income households is the Enterprises’ overall share of the mortgage market. The Enterprises’ share of the market is continually subject to fluctuation. During the mortgage market bubble, the Enterprises’ share of the market dropped to about 46 percent in the last quarter of 2005. The other significant low point occurred in 2008, when the Enterprises’ acquisitions accounted for less than 45 percent of the mortgage market. Since then, the Enterprises’ share has risen overall but declined slightly in recent years, accounting for about 52 percent of the market in 2015. As shown in Graph 1, over the same time period, the total government share of the mortgage market (including FHA, VA, and RHS) has been expanding. In 2015, the total government share accounted for 28 percent of overall mortgage originations, up from 24 percent in 2014. This is likely an impact of the FHA mortgage insurance premium reduction announced in January 2015. As seen in Graph 1, the increase in government share came from decreases in the other two segments. 17 Daniel McCue, Christopher Herbert, Working Paper: Updated Household Projections, 2015–2035: Methodology and Results, Harvard Joint Center for Housing Studies, December 2016. VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 PO 00000 Frm 00006 Fmt 4702 Sfmt 4725 E:\FR\FM\05JYP1.SGM 05JYP1 EP05JY17.010</GPH> 31014 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules Both Enterprises’ charter acts require that all mortgages the Enterprises acquire have mortgage insurance (or one of the other forms of credit enhancement specified in the charter acts) if the loan-to-value (LTV) ratio for the loan at acquisition is greater than 80 percent. Private mortgage insurance rates are dependent on characteristics of the mortgage such as loan term, type of mortgage (purchase, type of refinance), LTV ratio, and credit score of the borrower. Lenders may also be able to negotiate and obtain lower private mortgage insurance directly from the mortgage insurer. Therefore, for certain market segments, the choice between government mortgage insurance or private mortgage insurance depends on the net impact of these factors. In recent years private mortgage insurance rates have increased relative to government mortgage insurance rates, but the increase has not been uniform across the credit score and LTV spectrum. Changes in the mortgage insurance market can impact the cost of mortgage insurance and, consequently, may influence whether the mortgage is originated with private mortgage insurance or with FHA insurance. For example, FHA decreased its rates for mortgage insurance from 1.35 percent to 0.85 percent in January 2015. If FHA decreased or increased its mortgage insurance premiums, it would be reasonable to expect further shifts in the market that would not be uniform across the credit score and LTV spectrum. Reductions in the FHA insurance premium are likely to have two impacts on the conforming segment of the market: (1) The substitution effect— some borrowers will switch from private mortgage insurance to FHA insurance due to the lower premium rate; and (2) the expanded homeownership effect— new borrowers, especially those with lower credit scores seeking higher LTV loans, will enter the mortgage market because they are now able to meet the debt-to-income threshold due to the lower monthly mortgage payment. Analysis conducted by Federal Reserve Board staff indicates that both effects existed after the last FHA reduction.18 Increases in FHA premiums would likely result in reverse shifts. As discussed above, multiple factors impact the Enterprises’ ability to meet 31015 their mission and support affordable homeownership through the housing finance market. Nevertheless, FHFA expects the Enterprises to continue efforts in a safe and sound manner to support affordable homeownership under the single-family housing goals categories. B. Proposed Single-Family Benchmark Levels 1. Low-Income Home Purchase Goal The low-income home purchase goal is based on the percentage of all singlefamily, owner-occupied home purchase mortgages purchased by an Enterprise that are for low-income families, defined as families with incomes less than or equal to 80 percent of AMI. The proposed rule would set the annual lowincome home purchase housing goal benchmark level for 2018–2020 at 24 percent, the same as the current 2015– 2017 benchmark level. FHFA believes that, despite the various challenges to affordability highlighted above, the Enterprises will be able to take steps to maintain or increase their performance on this goal. TABLE 1—ENTERPRISE LOW-INCOME HOME PURCHASE GOAL Historical performance Projected performance Year 2013 Actual Market ................... Benchmark ....................... Current Market Forecast .. 2014 2015 2016 2017 2018 2019 2020 24.0% 23% .................... .................... 22.8% 23% .................... .................... 23.6% 24% .................... .................... .................... 24% 23.9% +/¥2.5% .................... 24% 24.9% +/¥4.3% .................... .................... 25.5% +/¥5.6% .................... .................... 24.0% +/¥6.6% .................... .................... 23.0% +/¥7.4% 193,712 177,846 188,891 221,249 .................... .................... .................... .................... 814,137 757,870 802,432 964,847 .................... .................... .................... .................... 23.8% 23.5% 23.5% 22.9% .................... .................... .................... .................... 93,478 108,948 129,455 153,435 .................... .................... .................... .................... 429,158 519,731 579,340 644,991 .................... .................... .................... .................... 21.8% 21.0% 22.3% 23.8% .................... .................... .................... .................... sradovich on DSK3GMQ082PROD with PROPOSALS Fannie Mae Performance: Low-Income Home Purchase Mortgages ..................... Total Home Purchase Mortgages ............. Low-Income % of Home Purchase Mortgages ............. Freddie Mac Performance: Low-Income Home Purchase Mortgages ..................... Total Home Purchase Mortgages ............. Low-Income % of Home Purchase Mortgages ............. As shown in Table 1, performance at both Enterprises has fallen short of the market in the low-income purchase goal almost every year since 2013 (with the exception of Fannie Mae in 2014), although the Enterprises have sometimes missed the market look-back goal only by one- or two-tenths of a percentage point. Performance at both Enterprises fell short of both the benchmark and the market level in 2015. The past performance of the Enterprises indicates that it has been difficult for the Enterprises to consistently lead this market segment in making credit available. From 2013 to 2014, the low-income home purchase market decreased from 18 Bhutta, Neil and Ringo, Daniel (2016). ‘‘Changing FHA Mortgage Insurance Premiums and the Effects on Lending,’’ FEDS Notes. Washington: Board of Governors of the Federal Reserve System, September 29, 2016, http://dx.doi.org/10.17016/ 2380-7172.1843. VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 E:\FR\FM\05JYP1.SGM 05JYP1 31016 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules 24.0 percent to 22.8 percent. In 2015, the actual market rebounded to 23.6 percent. FHFA’s current model forecasts that the market for this goal will increase slightly to 23.9 percent in 2016 and then to 24.9 percent in 2017. (Actual market levels for 2016 will not be available until HMDA data are published in September 2017.) Although the Enterprises have been challenged in meeting the percentage single-family housing goal levels in recent years, FHFA notes that each Enterprise has increased the number of single-family home purchase loans made to low-income households. Fannie Mae’s eligible single-family loan purchases increased from 193,712 loans in 2013 to 221,249 in 2016. Freddie Mac’s eligible single-family loan purchases increased from 93,478 in 2013 to 153,435 in 2016. From 2018 to 2020, the proposed goals period, the current forecast peaks at 25.5 percent in 2018, before decreasing to 24.0 percent in 2019 and 23.0 percent in 2020. The average of these projections is 24.1 percent. This forecast is based on the latest data available and will be updated before the release of the final housing goals rule. The confidence intervals for the 2018– 2020 goal period are wide, but they will narrow before the final rule is published. FHFA is proposing a benchmark level for the low-income home purchase housing goal that is close to the market forecast, to encourage the Enterprises to continue to find ways to support lower income borrowers while not compromising safe and sound lending standards. FHFA notes that the proposed benchmark is close to the average of its market forecast for this goal. FHFA recognizes that there may be challenges to meeting this goal, including uneven growth in AMI and the relative affordability of private mortgage insurance, that may be beyond the control of the Enterprises and impact their ability to achieve these goals. FHFA will continue to monitor the Enterprises, both as regulator and as conservator, and if FHFA determines in later years that the benchmark level for the low-income home purchase housing goal is no longer feasible for the Enterprises to achieve in light of market conditions or for any other reason, FHFA can take appropriate steps to adjust the benchmark level. 2. Very Low-Income Home Purchase Goal The very low-income home purchase goal is based on the percentage of all single-family, owner-occupied home purchase mortgages purchased by an Enterprise that are for very low-income families, defined as families with incomes less than or equal to 50 percent of the area median income. The proposed rule would set the annual very low-income home purchase housing goal benchmark level for 2018 through 2020 at 6 percent, also unchanged from the current 2015 to 2017 benchmark level. TABLE 2—VERY LOW-INCOME HOME PURCHASE GOAL Historical performance Projected performance Year 2013 Actual Market ................... Benchmark ....................... Current Market Forecast .. 2014 2015 2016 2017 2018 2019 2020 6.3% 7% .................... .................... 5.7% 7% .................... .................... 5.8% 6% .................... .................... .................... 6% 5.9% +/¥0.8% .................... 6% 6.4% +/¥1.4% .................... .................... 6.7% +/¥1.8% .................... .................... 6.3% +/¥2.1% .................... .................... 6.2% +/¥2.4% 48,810 42,872 45,022 49,852 .................... .................... .................... .................... 814,137 757,870 802,432 964,847 .................... .................... .................... .................... 6.0% 5.7% 5.6% 5.2% .................... .................... .................... .................... 23,705 25,232 31,146 36,838 .................... .................... .................... .................... 429,158 519,731 579,340 644,991 .................... .................... .................... .................... 5.5% 4.9% 5.4% 5.7% .................... .................... .................... .................... sradovich on DSK3GMQ082PROD with PROPOSALS Fannie Mae Performance: Very Low-Income Home Purchase Mortgages ............. Total Home Purchase Mortgages ............. Very Low-Income % of Home Purchase Mortgages ............. Freddie Mac Performance: Very Low-Income Home Purchase Mortgages ............. Total Home Purchase Mortgages ............. Very Low-Income % of Home Purchase Mortgages ............. Since 2013, the market for very lowincome home purchase loans has also been declining, as reflected in HMDA data, although there was a slight uptick in 2015. FHFA has gradually lowered the benchmark for this goal from 8 percent in 2010 to 6 percent in 2015. Despite this reduction, the performance of both Enterprises has fallen below the benchmark and the market levels in each year since 2013. In addition, both VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 Enterprises are projected to fall below the 6 percent benchmark level in 2016. FHFA market analysis reflects a relatively flat trend for this segment, at 5.7 percent in 2014 and 5.8 percent in 2015. FHFA’s current model forecasted the market to increase slightly to 5.9 percent in 2016 and then to 6.4 percent in 2017. For the 2018–2020 goal period, FHFA’s forecast indicates an increase to 6.7 percent in 2018, followed by declines to 6.3 percent and 6.2 percent PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 in 2019 and 2020, respectively. As noted earlier, the confidence intervals widen as the forecast period lengthens, and will reduce somewhat as FHFA incorporates more information before publishing the final rule. Similar to the low-income home purchase goal, FHFA is proposing a benchmark level that is near the market forecast to encourage the Enterprises to continue their efforts to promote safe and sustainable lending to very low- E:\FR\FM\05JYP1.SGM 05JYP1 31017 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules income families. As noted in the lowincome purchase goal discussion, FHFA believes that there are significant challenges to housing affordability that may be beyond the control of the Enterprises that could make the proposed benchmark a challenge for the Enterprises. As each Enterprise has been struggling to meet the current benchmark and market levels, the proposed benchmark will continue to encourage the Enterprise to safely and soundly innovate in this area. FHFA, as regulator and as conservator, will continue to monitor the Enterprises’ performance, and if FHFA determines in later years that the benchmark level for the very low-income areas home purchase housing goal is no longer feasible for the Enterprises to achieve in light of market conditions or for any other reason, FHFA may take appropriate steps to adjust the benchmark level. 3. Low-Income Areas Home Purchase Subgoal Background. The low-income areas home purchase subgoal is based on the percentage of all single-family, owneroccupied home purchase mortgages purchased by an Enterprise that are either: (1) For families in low-income areas, defined to include census tracts with median income less than or equal to 80 percent of AMI; or (2) for families with incomes less than or equal to AMI who reside in minority census tracts (defined as census tracts with a minority population of at least 30 percent and a tract median income of less than 100 percent of AMI). Borrowers could qualify under either or both conditions. As noted in Table 3, mortgages satisfying condition (1) above (borrowers in low-income areas) are almost typically double the share of mortgages satisfying condition (2) (moderate-income borrowers in minority census tracts). For example, in 2015, 12.2 percent of mortgages met only condition (1), 7.6 percent met only condition (2), and 4.6 percent of mortgages met both conditions. TABLE 3—COMPOSITION OF LOW-INCOME AREAS HOME PURCHASE SUBGOAL BASED ON HMDA DATA Low-income area goal (%) Low-income census tracts that are not high minority areas (%) High minority areas that are also low-income census tracts (%) High minority areas that are not low-income census tracts (%) All high minority areas (%) (A) Grand Total Year All lowincome areas (%) (B) LI (C) LI, not HM (D) HM and LI (E) HM, not LI (F) HM Distribution of HMDA Borrowers by Census Tract Location: 2004 .................................................. 2005 .................................................. 2006 .................................................. 2007 .................................................. 2008 .................................................. 2009 .................................................. 2010 .................................................. 2011 .................................................. 2012 .................................................. 2013 .................................................. 2014 .................................................. 2015 .................................................. Enterprises’ Performance: 2010 .................................................. 2011 .................................................. 2012 .................................................. 2013 .................................................. 2014 .................................................. 2015 .................................................. 16.8 15.3 15.8 16.2 14.3 13.1 12.1 11.4 13.5 14.1 15.0 15.1 13.3 12.5 13.1 13.3 11.6 10.0 9.2 8.8 10.3 10.9 12.0 12.2 8.1 8.3 8.9 8.5 7.4 5.9 5.6 5.5 6.0 6.6 7.5 7.6 5.3 4.2 4.3 4.8 4.2 4.1 3.6 3.3 4.3 4.3 4.6 4.6 3.5 2.8 2.7 3.0 2.7 3.0 2.9 2.6 3.2 3.1 3.0 2.9 8.7 7.0 6.9 7.7 6.9 7.2 6.5 5.9 7.5 7.4 7.5 7.5 11.6 10.7 12.6 13.4 14.7 15.1 8.7 8.1 9.3 10.2 11.6 12.1 5.2 5.1 5.4 6.2 7.0 7.4 3.5 3.1 3.9 4.0 4.5 4.6 2.9 2.6 3.3 3.2 3.2 3.0 6.4 5.7 7.2 7.2 7.7 7.7 sradovich on DSK3GMQ082PROD with PROPOSALS Source: FHFA’s tabulation of Home Mortgage Disclosure Act (HMDA) and Enterprises’ data. Conventional conforming single-family owner-occupied 1st lien non-HOEPA originations. The forecast for this subgoal is obtained by generating separate forecasts for the two sub-populations (the low-income areas component and the high-minority income component). For this proposed rulemaking, FHFA has tested alternate model specifications for this subgoal and determined that aligning the overlapping portion with the low-income area component yields forecast estimates that are more precise (in terms of a narrower confidence interval).19 FHFA sought to understand how the markets in low-income areas and high minority census tracts have evolved in recent years and who was being served by the Enterprises’ efforts in these areas. FHFA’s analysis found that the mortgage market in both low-income areas and in high-minority census tracts has been moving towards borrowers with higher incomes in recent years. As noted in Table 4, HMDA data show that both the low-income areas and the highminority areas have increasing shares of 19 Details are available in the market model paper, ‘‘The Size of the Affordable Mortgage Market: 2018– 2020 Enterprise Single-Family Housing Goals,’’ available at http://www.fhfa.gov/ PolicyProgramsResearch/Research/ PaperDocuments/Market-Estimates_2018-2020.pdf. VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 borrowers with incomes at or above 100 percent of AMI, although loans to borrowers with incomes over 100 percent of AMI do not qualify for the minority areas component of the goal. For instance, the share of loans made to borrowers with incomes less than 50 percent of AMI and residing in lowincome areas decreased from 17.8 percent in 2010 to 14.1 percent in 2015, after peaking at 19 percent in 2012. Over the same period, the share of loans made to borrowers with incomes greater than 100 percent of AMI and residing in these low-income census tracts increased from 38.8 percent in 2010 to E:\FR\FM\05JYP1.SGM 05JYP1 31018 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules 42.1 percent in 2015, after dipping to 36.5 percent in 2012. Thus, borrowers with higher incomes have made up an increasing share of the mortgage market in the low-income areas. A similar trend exists among borrowers residing in high minority census tracts. While borrowers with incomes greater than 100 percent of AMI represented 42.5 percent of borrowers in these census tracts in 2010, the share increased to 49.2 percent in 2015. TABLE 4—BORROWER INCOME RELATIVE TO AMI FOR LOW-INCOME AREAS SUBGOAL [HMDA] 2010 (%) Borrowers Residing in Low-Income Census Tracts: Borrower Income ≤50% AMI ............ Borrower Income >50% and ≤60% AMI ................................................ Borrower Income >60% and ≤80% AMI ................................................ Borrower Income >80% and ≤100% AMI ................................................ Borrower Income >100% and ≤120% AMI ................................................ Borrower Income >120% AMI .......... Income Missing ................................. Total ........................................... Borrowers Residing in High-Minority Census Tracts: Borrower Income ≤50% AMI ............ Borrower Income >50% and ≤60% AMI ................................................ Borrower Income >60% and ≤80% AMI ................................................ Borrower Income >80% and ≤100% AMI ................................................ Borrower Income >100% and ≤120% AMI ................................................ Borrower Income >120% AMI .......... Income Missing ................................. 2011 (%) 2012 (%) 2013 (%) 2014 (%) 2015 (%) 17.8 19.0 15.4 14.1 14.1 9.6 9.0 10.5 9.8 9.3 9.3 18.4 17.6 18.8 18.6 18.6 18.6 14.3 13.9 13.9 14.7 14.9 14.9 10.1 28.7 1.0 100.0 10.0 30.5 1.4 100.0 10.0 26.5 1.3 100.0 10.8 29.3 1.3 100.0 11.3 30.9 0.9 100.0 11.3 30.8 1.0 100.0 14.9 15.0 14.6 11.3 10.1 10.3 9.0 8.7 9.1 8.1 7.6 7.6 18.0 17.7 17.7 16.9 16.8 17.0 14.6 14.3 14.1 14.7 14.8 14.9 10.9 31.6 1.0 10.6 32.4 1.3 11.0 32.3 1.3 11.7 36.0 1.4 12.0 37.8 0.9 12.2 37.0 1.0 100.0 Total ........................................... 17.7 100.0 100.0 100.0 100.0 100.0 Definitions: Low-income census tracts = Census tracts with median income ≤80% Area Median Income (AMI). High-minority census tracts = Census tracts where (i) tract median income ≤100% Area Median Income (AMI); and (ii) minorities comprise at least 30 percent of the tract population. Source: FHFA’s tabulation of HMDA data. The presence of higher income borrowers in lower income and higher minority areas may be a sign of economic diversity in those areas and may be related to the possibility of improved economic indicators for the community, but there is nevertheless some concern that such a trend could displace lower income households in these areas. Change in the mix of renters to owner-occupied households often precedes and accompanies these trends. FHFA is aware that this particular subgoal may encourage the Enterprises to focus on purchasing loans for higher income households in low-income and high-minority areas, and FHFA is also aware of concerns about the impact of rising housing costs on existing households in lower-income or higherminority areas. FHFA welcomes input on all aspects of the low-income areas goal and subgoal, and in particular how best to satisfy the policy objectives of the various components of the goal and subgoal. Table 5 shows similar trends in Enterprise acquisitions of mortgages in low-income areas and high-minority areas. In 2015, 42.5 percent of Enterprise acquisitions were of loans made to borrowers with incomes greater than or equal to 100 percent of the AMI, up from 40.7 percent in 2010. Also in 2015, 48.3 percent of Enterprise acquisitions in high-minority census tracts were acquisitions of loans made to borrowers with incomes greater than or equal to 100 percent of AMI, up from 45.4 percent in 2010. sradovich on DSK3GMQ082PROD with PROPOSALS TABLE 5—BORROWER INCOME RELATIVE TO AMI FOR LOW-INCOME AREAS SUBGOAL [Enterprise Loans Only] 2010 (%) Borrowers Residing in Low-Income Census Tracts: Borrower Income ≤50% AMI ............ Borrower Income >50% and ≤60% AMI ................................................ VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 2011 (%) 2012 (%) 2013 (%) 2014 (%) 2015 (%) 16.7 18.2 14.5 13.4 13.4 9.2 PO 00000 16.3 8.8 10.0 9.6 9.4 9.4 Frm 00010 Fmt 4702 Sfmt 4702 E:\FR\FM\05JYP1.SGM 05JYP1 31019 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules TABLE 5—BORROWER INCOME RELATIVE TO AMI FOR LOW-INCOME AREAS SUBGOAL—Continued [Enterprise Loans Only] 2010 (%) Borrower Income >60% and ≤80% AMI ................................................ Borrower Income >80% and ≤100% AMI ................................................ Borrower Income >100% and ≤120% AMI ................................................ Borrower Income >120% AMI .......... Income Missing ................................. 2011 (%) 2012 (%) 2013 (%) 2014 (%) 2015 (%) 18.4 17.5 18.6 18.6 19.0 19.1 14.8 14.4 14.6 15.3 15.5 15.6 10.8 29.9 0.2 10.9 32.0 0.0 10.8 27.7 0.0 11.5 30.5 0.0 11.7 31.0 0.0 11.8 30.7 0.0 Total ........................................... Borrowers Residing in High-Minority Census Tracts: Borrower Income ≤50% AMI ............ Borrower Income >50% and ≤60% AMI ................................................ Borrower Income >60% and ≤80% AMI ................................................ Borrower Income >80% and ≤100% AMI ................................................ Borrower Income >100% and ≤120% AMI ................................................ Borrower Income >120% AMI .......... Income Missing ................................. 100.0 100.0 100.0 100.0 100.0 100.0 13.3 12.9 15.2 11.5 10.3 10.3 8.4 8.0 9.0 8.3 8.0 7.9 17.7 16.9 18.0 17.7 17.7 17.7 15.1 14.7 14.9 15.5 15.7 15.9 11.6 33.8 0.2 11.4 36.2 0.1 11.5 31.3 0.0 12.4 34.6 0.0 12.6 35.7 0.0 12.8 35.5 0.0 Total ........................................... 100.0 100.0 100.0 100.0 100.0 100.0 Definitions: Low-income census tracts = Census tracts with median income ≤80% Area Median Income (AMI). High-minority census tracts = Census tracts where (i) tract median income ≤100% Area Median Income (AMI); and (ii) minorities comprise at least 30 percent of the tract population. Source: FHFA’s tabulation of Enterprises’ data. Proposed rule. The proposed rule would raise the annual low-income areas home purchase subgoal benchmark level for 2018 through 2020 to 15 percent from the 14 percent level set for the current goal period (2015– 2017). TABLE 6—LOW-INCOME AREAS HOME PURCHASE SUBGOAL Historical performance Projected performance Year 2013 sradovich on DSK3GMQ082PROD with PROPOSALS Actual Market ................... Benchmark ....................... Current Market Forecast .. 2014 2015 2016 2017 2018 2019 2020 14.2% 11% .................... .................... 15.2% 11% .................... .................... 15.2% 14% .................... .................... .................... 14% 14.7% +/¥1.2% .................... 14% 15.6% +/¥2.0% .................... .................... 15.8% +/¥2.6% .................... .................... 16.1% +/¥3.1% .................... .................... 15.7% +/¥3.5% 86,430 91,691 99,723 n/a .................... .................... .................... .................... 27,425 25,650 25,349 n/a .................... .................... .................... .................... 113,855 117,341 125,072 156,441 .................... .................... .................... .................... 814,137 757,870 802,432 964,847 .................... .................... .................... .................... 14.0% 15.5% 15.6% 16.2% .................... .................... .................... .................... 40,444 55,987 67,172 n/a .................... .................... .................... .................... 12,177 14,808 16,601 n/a .................... .................... .................... .................... Fannie Mae Performance: Low-Income Area Home Purchase Mortgages ............. High-Minority Area Home Purchase Mortgages ............. Subgoal-Qualifying Total Home Purchase Mortgages ... Total Home Purchase Mortgages ............. Low-Income Area % of Home Purchase Mortgages ............. Freddie Mac Performance: Low-Income Area Home Purchase Mortgages ............. High-Minority Area Home Purchase Mortgages ............. VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 PO 00000 Frm 00011 Fmt 4702 Sfmt 4702 E:\FR\FM\05JYP1.SGM 05JYP1 31020 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules TABLE 6—LOW-INCOME AREAS HOME PURCHASE SUBGOAL—Continued Historical performance Projected performance Year 2013 Subgoal-Qualifying Total Home Purchase Mortgages ... Total Home Purchase Mortgages ............. Low-Income Area % of Home Purchase Mortgages ............. 2014 2015 2016 2017 2018 2019 2020 52,621 70,795 83,773 100,608 .................... .................... .................... .................... 429,158 519,731 579,340 644,991 .................... .................... .................... .................... 12.3% 13.6% 14.5% 15.6% .................... .................... .................... .................... Both Enterprises have met this subgoal every year since 2013, regularly exceeding both the market and the benchmark levels. Fannie Mae’s performance exceeded both the market and the benchmark in 2014 and 2015, although its performance was lower than that of the market in 2013. From 2013 through 2015, Freddie Mac’s performance exceeded the benchmark but was below the market level. FHFA’s forecast indicates that the market will increase slightly in the coming years, reaching a maximum level of 16.1 in 2019. FHFA is proposing only a modest increase in the benchmark level that reflects the recent performance levels of the Enterprises while FHFA continues to evaluate whether the measure meets policy objectives. FHFA, as regulator and as conservator, will continue to monitor the Enterprises’ performance, and if FHFA determines in later years that the benchmark level for the lowincome areas home purchase housing subgoal is no longer feasible for the Enterprises to achieve in light of market conditions or for other reasons, FHFA may take appropriate steps to adjust the benchmark level. 4. Low-Income Areas Home Purchase Goal The low-income areas home purchase goal covers the same categories as the low-income areas home purchase subgoal, but it also includes moderate income families in designated disaster areas. As a result, the low-income areas home purchase goal is based on the percentage of all single-family, owneroccupied home purchase mortgages purchased by an Enterprise that are: (1) For families in low-income areas, defined to include census tracts with median income less than or equal to 80 percent of AMI; (2) for families with incomes less than or equal to AMI who reside in minority census tracts (defined as census tracts with a minority population of at least 30 percent and a tract median income of less than 100 percent of AMI); or (3) for families with incomes less than or equal to 100 percent of AMI who reside in designated disaster areas. The low-income areas goal benchmark level is established by a two-step process. The first step is setting the benchmark level for the low-income areas subgoal, as established by this proposed rule. The second step is establishing an additional increment for mortgages to families located in federally-declared disaster areas with incomes less than or equal to AMI.20 Each year, FHFA sets the disaster area increment separately from this rule and notifies the Enterprises by letter of the benchmark level for that year. The proposed rule would set the annual lowincome areas home purchase goal benchmark level for 2018 through 2020 at the subgoal benchmark level of 15 percent plus a disaster areas increment that FHFA will set separately each year. TABLE 7—LOW-INCOME AREAS HOME PURCHASE GOAL Historical performance Year sradovich on DSK3GMQ082PROD with PROPOSALS 2010 Actual Market ........................................... Benchmark ............................................... Fannie Mae Performance: Subgoal-Qualifying Home Purchase Mortgages ..................................... Disaster Areas Home Purchase Mortgages ..................................... Goal-Qualifying Total Home Purchase Mortgages ........................... Total Home Purchase Mortgages ..... Goal Performance ............................. Freddie Mac Performance: Subgoal-Qualifying Home Purchase Mortgages ..................................... Disaster Areas Home Purchase Mortgages ..................................... Goal-Qualifying Total Home Purchase Mortgages ........................... Total Home Purchase Mortgages ..... 2011 2012 2013 2014 16:19 Jul 03, 2017 Jkt 241001 2016 24.0% 24% 22.0% 24% 23.2% 20% 22.1% 21% 22.1% 18% 19.8% 19% n/a 17% 59,281 54,285 83,202 113,855 117,341 125,072 156,441 56,076 50,209 58,085 62,314 54,548 38,885 38,545 115,357 479,200 24.1% 104,494 467,066 22.4% 141,287 633,627 22.3% 176,169 814,137 21.6% 171,889 757,870 22.7% 163,957 802,432 20.4% 194,986 964,847 20.2% 32,089 23,902 32,750 52,621 70,795 83,773 100,608 38,898 26,232 26,486 33,123 33,923 26,411 27,709 70,987 307,555 50,134 260,796 59,236 288,007 85,744 429,158 104,718 519,731 110,184 579,340 128,317 644,991 20 Disaster declarations are listed on the Federal Emergency Management Agency (FEMA) Web site at https://www.fema.gov/disasters. VerDate Sep<11>2014 2015 PO 00000 Frm 00012 Fmt 4702 Sfmt 4702 E:\FR\FM\05JYP1.SGM 05JYP1 31021 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules TABLE 7—LOW-INCOME AREAS HOME PURCHASE GOAL—Continued Historical performance Year 2010 Goal Performance ............................. 2011 23.1% 5. Low-Income Refinancing Goal The low-income refinancing goal is based on the percentage of all singlefamily, owner-occupied refinance mortgages purchased by an Enterprise that are for low-income families, defined as families with incomes less than or equal to 80 percent of AMI. The proposed rule would set the annual low- 19.2% 2012 2013 20.6% 2014 20.0% income refinancing housing goal benchmark level for 2018 through 2020 at 21 percent. While this proposed benchmark level is unchanged from the current 2015 to 2017 benchmark level, FHFA believes that this level will nevertheless be challenging for the Enterprises given the current level of interest rates (which are at historic low levels) and the likelihood of interest rate 20.1% 2015 19.0% 2016 19.9% hikes. Because of the significant impacts interest rate changes have on this market, Enterprise and market performance on this goal are particularly susceptible to fluctuation. Moderation in the setting of this goal is also supported by the fact that many borrowers have already refinanced during the recent extended period of historically low interest rates. TABLE 8—LOW-INCOME REFINANCING GOAL Historical performance Projected performance Year 2013 sradovich on DSK3GMQ082PROD with PROPOSALS Actual Market ................... Benchmark ....................... Current Market Forecast .. 2014 2015 2016 2017 2018 2019 2020 24.3% 20% .................... .................... 25.0% 20% .................... .................... 22.5% 21% .................... .................... .................... 21% 21.1% +/¥2.9% .................... 21% 23.4% +/¥4.9% .................... .................... 24.3% +/¥6.2% .................... .................... 25.5% +/¥7.3% .................... .................... 24.8% +/¥8.3% 519,753 215,826 227,817 247,663 .................... .................... .................... .................... 2,170,063 831,218 1,038,663 1,268,648 .................... .................... .................... .................... 24.0% 26.0% 21.9% 19.5% .................... .................... .................... .................... 11,858 6,503 3,563 n/a .................... .................... .................... .................... 16,478 9,288 6,595 n/a .................... .................... .................... .................... 72.0% 70.0% 54.0% n/a .................... .................... .................... .................... 531,611 222,329 231,380 n/a .................... .................... .................... .................... 2,186,541 840,506 1,045,258 n/a .................... .................... .................... .................... 24.3% 26.5% 22.1% n/a .................... .................... .................... .................... 306,205 131,921 179,530 174,664 .................... .................... .................... .................... 1,309,435 514,936 795,936 830,824 .................... .................... .................... .................... 23.4% 25.6% 22.6% 21.0% .................... .................... .................... .................... 14,757 6,795 3,064 n/a .................... .................... .................... .................... 21,599 10,335 4,433 n/a .................... .................... .................... .................... 68.3% 65.7% 69.1% n/a .................... .................... .................... .................... Fannie Mae Performance: Low-Income Refinance Mortgages .. Total Refinance Mortgages ..................... Low-Income % of Refinance Mortgages Low-Income HAMP Modification Mortgages ..................... Total HAMP Modification Mortgages ...... Low-Income % of HAMP Modification Mortgages ............. Low-Income Refinance & HAMP Modification Mortgages ..................... Total Refinance & HAMP Modification Mortgages ............. Low-Income % of Refinance & HAMP Modification Mortgages ..................... Freddie Mac Performance: Low-Income Refinance Mortgages .. Total Refinance Mortgages ..................... Low-Income % of Refinance Mortgages Low-Income HAMP Modification Mortgages ..................... Total HAMP Modification Mortgages ...... Low-Income % of HAMP Modification Mortgages ............. VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 PO 00000 Frm 00013 Fmt 4702 Sfmt 4702 E:\FR\FM\05JYP1.SGM 05JYP1 31022 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules TABLE 8—LOW-INCOME REFINANCING GOAL—Continued Historical performance Projected performance Year 2013 sradovich on DSK3GMQ082PROD with PROPOSALS Low-Income Refinance & HAMP Modification Mortgages ..................... Total Refinance & HAMP Modification Mortgages ............. Low-Income % of Refinance & HAMP Modification Mortgages ..................... 2014 2017 2018 2019 2020 138,716 182,594 n/a .................... .................... .................... .................... 1,331,034 525,271 800,369 n/a .................... .................... .................... .................... 24.1% 26.4% 22.8% n/a .................... .................... .................... .................... 21 The goal has included permanent HAMP modifications to low-income borrowers in the numerator and all HAMP permanent modifications in the denominator. 22 The HAMP program expired at the end of 2016. There will be some HAMP modifications that will 16:19 Jul 03, 2017 2016 320,962 Both Enterprises have met this goal since 2013. The performance of the Enterprises on this goal has historically been very close to actual market levels. In 2014, when the market figure was at its highest point, both Enterprises met the goal and exceeded the market. In 2015, Freddie Mac exceeded the market and the benchmark level, and Fannie Mae exceeded the benchmark level. The low-income share of the refinance market as measured by HMDA data has changed dramatically in recent years, increasing from 20.2 percent in 2010 to a peak of 25.0 percent in 2014. FHFA’s model for this goal forecasts that this market will decrease in 2016, with a sharp rise in 2017–2019, followed by slight moderation in 2020. However, the confidence intervals around the forecasts are very wide, reflecting the uncertainty about interest rates. Recent macroeconomic forecasts have predicted interest rate hikes that have not materialized. Since 2010 the low-income refinancing housing goal has included modifications under the Home Affordable Modification Program (HAMP).21 HAMP modifications, however, are not included in the data used to calculate the market levels. Including HAMP modifications in the Enterprise performance numbers increases the measured performance of the Enterprises on the low-income refinancing housing goal because lower income borrowers make up a greater proportion of the borrowers receiving HAMP modifications than the lowincome share of the overall refinancing mortgage market. However, HAMP modifications have been declining over time, and the program stopped taking applications at the end of 2016.22 The VerDate Sep<11>2014 2015 Jkt 241001 expiration of the HAMP program may make it slightly more difficult for the Enterprises to meet the low-income refinancing goal. FHFA, as regulator and conservator, will continue to monitor the Enterprises and if FHFA determines in later years that the benchmark level for the lowincome refinancing housing goal needs to be revised, FHFA may take appropriate steps to adjust the benchmark level. V. Multifamily Housing Goals This proposed rule also sets out FHFA’s views about benchmark levels for the multifamily housing goals from 2018–2020. FHFA has considered the required statutory factors described below. Despite the strength of the multifamily mortgage market, data indicates a continued supply gap of units affordable to lower-income households. However, FHFA expects and encourages the Enterprises to fully support affordable multifamily housing, in part by fulfilling the multifamily housing goals in a safe and sound manner. A. Factors Considered in Setting the Proposed Multifamily Housing Goal Levels In setting the proposed benchmark levels for the multifamily housing goals, FHFA has considered the statutory factors outlined in Section 1333(a)(4) of the Safety and Soundness Act. These factors include: 1. National multifamily mortgage credit needs and the ability of the Enterprises to provide additional liquidity and stability for the multifamily mortgage market; 2. The performance and effort of the Enterprises in making mortgage credit count toward the Enterprise housing goals in 2017 as applications that were initiated before the end of the program are converted to permanent modifications. PO 00000 Frm 00014 Fmt 4702 Sfmt 4702 available for multifamily housing in previous years; 3. The size of the multifamily mortgage market for housing affordable to low-income and very low-income families, including the size of the multifamily markets for housing of a smaller or limited size; 4. The ability of the Enterprises to lead the market in making multifamily mortgage credit available, especially for multifamily housing affordable to lowincome and very low-income families; 5. The availability of public subsidies; and 6. The need to maintain the sound financial condition of the Enterprises.23 Unlike the single-family housing goals, performance on the multifamily housing goals is measured solely against a benchmark level, without any retrospective market measure. The absence of a retrospective market measure for the multifamily housing goals results, in part, from the lack of comprehensive data about the multifamily mortgage market. Unlike the single-family market, for which HMDA provides a reasonably comprehensive dataset about singlefamily mortgage originations each year, the multifamily market (including the affordable multifamily market segment) has no comparable source. Consequently, it can be difficult to correlate different datasets that usually rely on different reporting formats. For example, some data are available by dollar volume while other data are available by unit production. 24 Another difference between the single-family and multifamily goals is that there are separate single-family housing goals for home purchase and 23 12 U.S.C. 4563(a)(4). is planning to collect and release additional data fields (including the number of units for each multifamily loan that is reported) beginning in 2018 that likely will be useful in creating a retrospective market measure for the multifamily market. 24 CFPB E:\FR\FM\05JYP1.SGM 05JYP1 sradovich on DSK3GMQ082PROD with PROPOSALS Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules refinancing mortgages, while the multifamily goals include all Enterprise multifamily mortgage purchases, regardless of the purpose of the loan. In addition, unlike the single-family housing goals, the multifamily housing goals are measured based on the total volume of affordable multifamily mortgage purchases rather than on a percentage of multifamily mortgage purchases. The use of total volumes, which FHFA measures by the number of eligible units, rather than percentages of each Enterprises’ overall multifamily purchases, requires that FHFA take into account the expected size of the overall multifamily mortgage market and the affordable share of the market, as well as the expected volume of the Enterprises’ overall multifamily purchases and the affordable share of those purchases. The lack of comprehensive data for the multifamily mortgage market is even more acute with respect to the segments of the market that are targeted to lowincome families, defined as families with incomes at or below 80 percent of AMI, and very low-income families, defined as families with incomes at or below 50 percent of AMI. As required by the Safety and Soundness Act, FHFA determines affordability of multifamily units based on a unit’s rent and utility expenses not exceeding 30 percent of the area median income standard for low- and very low-income families.25 While much of the analysis that follows discusses trends in the overall multifamily mortgage market, FHFA recognizes that these general trends may not apply to the same extent to all segments of the multifamily market. Notwithstanding these challenges, FHFA has considered each of the required statutory factors (a number of which are related) as discussed below. Multifamily mortgage market. FHFA’s consideration of the multifamily mortgage market addresses the size of and competition within the multifamily mortgage market, as well as the subset of the multifamily market affordable to low-income and very low-income families. In 2015, the multifamily mortgage origination market experienced remarkable growth—yearover-year origination volume grew 28 percent over the prior year to nearly $250 billion, fueled largely by a recovery in multifamily construction. The overall market grew modestly in 2016. Forecasts from various industry experts indicate that overall multifamily growth in mortgage market volumes and mortgage originations are expected to increase only modestly in 2017, both for 25 12 U.S.C. 4563(c). VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 refinancing activity and for financing new multifamily units, and remain level in 2018. According to the National Multifamily Housing Council’s tabulation of American Community Survey microdata, in 2015 about 43 percent of renter households (18.7 million households) lived in multifamily properties, defined as structures with five or more rental units.26 More generally, the population of renters continued to grow from 35 million in 2005 to 44 million in 2015, an increase of about one quarter.27 This growth led to an increase in demand for rental units that has only partially been met by expansions in supply. Vacancy rates hit a 30-year low in 2016, and are especially low in lower-priced segments of the market, while climbing in the high-end segment of many markets.28 As a result of these factors, rents continued to rise nationally and outpaced inflation in 2016.29 Affordability in the multifamily market. There are several factors that make it difficult to accurately forecast the affordable share of the multifamily mortgage market. First, the portion of the overall multifamily mortgage market that provides housing units affordable to low-income and very low-income families varies from year to year. Second, competition between purchasers of mortgages within the multifamily market overall may differ from the competition within the affordable multifamily market segment. Finally, the volume for the affordable multifamily market segment will depend on the availability of affordable housing subsidies. Using the measure under which affordable rent and utilities do not exceed 30 percent of AMI, affordability for families living in rental units has decreased for many households in recent years. The Joint Center for Housing Studies (JCHS) 2016 State of the Nation’s Housing Report notes some concerning trends in the supply of affordable multifamily units. For example, the report found that the majority of growth in the multifamily housing stock has been the result of new construction. Moreover, most of the new construction consists of apartments with 26 Accessed on 9/22/2016 at http:// www.nmhc.org/Content.aspx?id=4708#Type_of_ Structure. 27 ‘‘America’s Rental Housing: Expanding Options for Diverse and Growing Demand’’ Joint Center on Housing Studies of Harvard University, December 2015. 28 ‘‘State of the Nation’s Housing 2017,’’ Joint Center on Housing Studies of Harvard University, June 2017. 29 Id. PO 00000 Frm 00015 Fmt 4702 Sfmt 4702 31023 fewer bedrooms and has been concentrated in urban areas with higher median rents. In the same report, JCHS also noted, ‘‘the steep rent for new units reflect rising land and development costs, which push multifamily construction to the high end of the market.’’ 30 JCHS has also noted the significant prevalence of cost-burdened renters. In 2015, nearly half of all tenants paid more than 30 percent of household income for rental housing, especially in high-cost urban markets where most renters reside and where Fannie Mae and Freddie Mac have focused their multifamily lending. Among lowerincome households, cost burdens are especially severe.31 In addition, a recent study showed that the median incomes of renter households have experienced slight declines in some large metropolitan areas in recent years, leading to increased cost burdens for these households.32 One source of growth in the stock of lower-rent apartments is ‘‘filtering,’’ a process by which existing units become more affordable as they age. However, in recent years, this downward filtering of rental units has occurred at a slow pace in most markets. Coupled with the permanent loss of affordable units, as these units fall into disrepair or units are demolished to create new higherrent or higher-valued ownership units, this trend has severely limited the supply of lower rent units. As a result, there is an acute shortfall of affordable units for extremely low-income renters (earning up to 30 percent of AMI) and very low-income renters (earning up to 50 percent of AMI). This supply gap is especially wide in certain metropolitan areas in the southern and western United States.33 The combination of the supply gap in affordable units which resulted in significant increases in rental rates, and the prevalence of cost-burdened renters resulting from largely flat real incomes has led to an erosion of affordability with fewer units qualifying for the 30 ‘‘The State of the Nation’s Housing 2016,’’ Joint Center for Housing Studies of Harvard University, June 2016, available at http:// www.jchs.harvard.edu/sites/jchs.harvard.edu/files/ jchs_2016_state_of_the_nations_housing_ lowres.pdf. 31 ‘‘State of the Nation’s Housing 2017,’’ Joint Center on Housing Studies of Harvard University, June 2017. 32 ‘‘Renting in America’s Largest Metropolitan Areas,’’ NYU Furman Center, March 2016. 33 ‘‘The Gap: The Affordable Housing Gap Analysis 2017,’’ National Low Income Housing Coalition, March 2017. E:\FR\FM\05JYP1.SGM 05JYP1 sradovich on DSK3GMQ082PROD with PROPOSALS 31024 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules housing goals.34 This challenge of affordability is also reflected in the falling share of low-income multifamily units financed by loans purchased by the Enterprises. While 77 percent of the multifamily units financed by Fannie Mae in 2011 were low-income, that ratio dropped steadily in the intervening years to 64 percent in 2016. At Freddie Mac, the low-income share also peaked in 2011 and 2012 at 79 percent, and decreased gradually to 68 percent in 2016. For the very low-income goal, the share at Fannie Mae peaked in 2012 at 22 percent before falling to 12 percent in 2016, and at Freddie Mac the share peaked at 17 percent in 2013 before falling to 12 percent in 2016. Small multifamily properties with 5 to 50 units are also an important source of affordable rental housing and represent approximately one-third of the affordable rental market. Because they have different operating and ownership characteristics than larger properties, small multifamily properties often have different financing needs. For example, small multifamily properties are more likely to be owned by an individual or small investor and less likely to be managed by a third party property management firm.35 Likewise, the affordability of small multifamily units means they generate less revenue per unit than larger properties. These factors can make financing more difficult to obtain for small multifamily property owners. While the volume of Enterprisesupported loans on small multifamily properties has been inconsistent in recent years, each Enterprise continues to refine its approach to serving this market. Availability of public subsidies. Multifamily housing assistance is primarily available in two forms— demand-side subsidies that either assist low-income tenants directly (e.g., Section 8 vouchers) or provide projectbased rental assistance (Section 8 contracts), and supply-side subsidies that support the creation and preservation of affordable housing (e.g., public housing and Low-Income Housing Tax Credit (LIHTC)). The availability of public subsidies impacts the overall affordable multifamily housing market, and changes to historic programs could significantly impact the ability of the Enterprises to meet the goals. Financing for affordable multifamily buildings—particularly those affordable 34 ‘‘State of the Nation’s Housing 2017,’’ Joint Center on Housing Studies of Harvard University, June 2017. 35 ‘‘2012 Rental Housing Finance Survey,’’ U.S. Census Bureau and U.S. Department of Housing and Urban Development, Tables 2b, 2c, 2d and 3. VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 to very low-income families—often uses an array of state and federal supply-side housing subsidies, such as LIHTC, taxexempt bonds, project-based rental assistance, or soft subordinate financing.36 In recent years, competition for affordable housing subsidy has been intense and investor interest in tax credit equity projects of all types and in all markets has been strong, especially in markets in which bank investors are seeking to meet Community Reinvestment Act (CRA) goals. By contrast, in recent months, the subsidy provided by the LIHTC program has been volatile and much more uncertain, as policymakers consider a broader range of potential tax reform legislation that could adversely impact the LIHTC program. Subject to the continuing availability of these subsidies, there should continue to be opportunities in the multifamily market to provide permanent financing for properties with LIHTC during the 2018–2020 period. There should also be opportunities for market participants, including the Enterprises, to purchase mortgages that finance the preservation of existing affordable housing units (especially for restructurings of older properties that reach the end of their initial 15-year LIHTC compliance periods and for refinancing properties with expiring Section 8 rental assistance contracts). In recent years, demand-side public subsidies and the availability of public housing have not kept pace with the growing number of low-income and very low-income households in need of federal housing assistance. As a result, the number of renter households with ‘‘worst case needs’’ has grown to 8.19 million, an increase of one-third since 2005.37 Role of the Enterprises. In setting the proposed multifamily housing goals, FHFA has considered the ability of the Enterprises to lead the market in making multifamily mortgage credit available. The share of the overall multifamily market purchased by the Enterprises increased in the years immediately following the financial crisis but has 36 LIHTC is a supply-side subsidy created under the Tax Reform Act of 1986 and is the main source of new affordable housing construction in the United States today. Tax credits are used for the acquisition, rehabilitation, and/or new construction of rental housing for low-income households. LIHTC has facilitated the creation or rehabilitation of approximately 2.4 million affordable units since inception in 1986. 37 ‘‘Preview of 2015 Worst Case Housing Needs,’’ U.S. Department of Housing and Urban Development, January 2017. Renters with worse case needs have very low incomes, lack housing assistance, and have either severe rent burdens or severely inadequate housing (or both). PO 00000 Frm 00016 Fmt 4702 Sfmt 4702 declined more recently in response to growing private sector participation. The Enterprise share of the multifamily origination market was approximately 70 percent of the market in 2008 and 2009 compared to 38 percent in 2015.38 The total share is expected to remain at around the 2015 level in 2016, 2017, and 2018 in light of the Scorecard cap imposed by FHFA in its role as conservator (discussed below). Despite the Enterprises’ reduced market share in the overall multifamily market, FHFA expects the Enterprises to continue to demonstrate leadership in multifamily affordable housing by providing liquidity and supporting housing for tenants at different income levels in various geographic markets and in various market segments. Conservatorship limits on multifamily mortgage purchases (Conservatorship Scorecard cap). As conservator of the Enterprises, FHFA has established a yearly cap in the Conservatorship Scorecard that limits the amount of conventional (market-rate) multifamily loans that each Enterprise can purchase. The multifamily lending cap is intended to further FHFA’s conservatorship goal: Maintaining the presence of the Enterprises as a backstop for the multifamily finance market, while not impeding the participation of private capital. This target for the Enterprise share of the multifamily origination market reflect what is generally considered by the industry as an appropriate market share for the Enterprises during normal market conditions. The cap prevents the Enterprises from crowding out other capital sources and restrains the rapid growth of the Enterprises’ multifamily businesses that started in 2011.39 In 2015, FHFA established a cap of $30 billion on new conventional multifamily loan purchases for each Enterprise in response to increased participation in the market from private sector capital. In 2016, the cap was initially set at $30 billion, raised in May 2016 to $35 billion, and further increased to $36.5 billion in August, in response to growth of the overall multifamily origination market throughout the year. These increases maintained the Enterprises’ current market share at about 40 percent. FHFA has announced that for 2017, the cap will remain at $36.5 billion. FHFA reviews the market size estimates quarterly, using current market data provided by Fannie Mae, 38 Urban Institute, ‘‘The GSEs’ Shrinking Role in the Multifamily Market,’’ April 2015. 39 MBA, 2015 Annual Report on Multifamily Lending, October 2016. E:\FR\FM\05JYP1.SGM 05JYP1 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules Freddie Mac, the MBA, and the National Multifamily Housing Council. If FHFA determines that the actual market size is greater than was projected, the agency will consider an approximate increase to the capped (conventional market-rate) category of the Conservatorship Scorecard for each Enterprise. In light of the need for market participants to plan sales of mortgages during long origination processes, if FHFA determines that the actual market size is smaller than projected, there will be no reduction to the capped volume for the current year from the amount initially established under the Conservatorship Scorecard. In order to encourage affordable lending activities, FHFA excludes many types of loans in underserved markets from the Conservatorship Scorecard cap on conventional loans. The Conservatorship Scorecard has no volume targets in the market segments excluded from the cap. There is significant overlap between the types of multifamily mortgages that are excluded from the Conservatorship Scorecard cap and the multifamily mortgages that contribute to the performance of the Enterprises under the affordable housing goals. The 2017 Conservatorship Scorecard excludes either the entirety of the loan amount or a pro rata share of the loan on the following categories: (1) Targeted affordable housing; (2) small multifamily properties; (3) blanket loans on manufactured housing communities; (4) blanket loans on senior housing and assisted living communities; (5) loans in rural areas; (6) loans to finance energy or water efficiency improvements; and (7) market rate affordable units in standard (60 percent AMI), high cost (80 percent AMI), and very high cost (100 percent AMI) markets. By excluding the underserved market categories from the cap, the Conservatorship Scorecard continues to encourage the Enterprises to support affordable housing in their purchases of multifamily mortgages.40 B. Proposed Multifamily Housing Goal Benchmark Levels In setting the proposed multifamily housing goals, FHFA encourages the Enterprises to provide liquidity and to support various multifamily finance market segments while doing so in a safe and sound manner. The Enterprises have served as a stabilizing force in the multifamily market in the years since the financial crisis. During the conservatorship period, the Enterprise portfolios of loans on multifamily affordable housing properties have experienced low levels of delinquency and default, similar to the performance of Enterprise loans on market rate properties. In light of this performance, the Enterprises should be able to sustain or increase their volume of purchases of loans on affordable multifamily housing 31025 properties without adversely impacting the Enterprises’ safety and soundness or negatively affecting the performance of their total loan portfolios. FHFA continues to monitor the activities of the Enterprises, both in FHFA’s capacity as regulator and as conservator. If necessary, FHFA will make appropriate changes in the multifamily housing goals to ensure the Enterprises’ continued safety and soundness. The proposed rule establishes benchmark levels for the multifamily housing goals for the Enterprises. Before finalizing the benchmark levels for the low-income and very low-income multifamily goals in the final rule, FHFA will review any additional data that become available about the multifamily performance of the Enterprises in 2016, updated projections of the size of the multifamily market and affordable market share, and any public comments received on the proposed multifamily housing goals. 1. Multifamily Low-Income Housing Goal The multifamily low-income housing goal is based on the total number of rental units in multifamily properties financed by mortgages purchased by the Enterprises that are affordable to lowincome families, defined as families with incomes less than or equal to 80 percent of AMI. TABLE 9—MULTIFAMILY LOW-INCOME HOUSING GOAL Historical performance Year 2012 sradovich on DSK3GMQ082PROD with PROPOSALS Fannie Mae Goal ................................................................. Freddie Mac Goal ................................................................ Fannie Mae Performance: Low-Income Multifamily Units ....................................... Total Multifamily Units .................................................. Low-Income % Total ..................................................... Freddie Mac Performance: Low-Income Multifamily Units ....................................... Total Multifamily Units .................................................. Low-Income % of Total Units ....................................... 2013 2014 265,000 215,000 250,000 200,000 300,000 300,000 300,000 300,000 375,924 501,256 75.0% 326,597 430,751 75.8% 260,124 372,089 69.9% 307,510 468,798 65.6% 351,235 551,666 63.7% 298,529 377,522 79.1% 254,628 341,921 74.5% 273,807 366,377 74.7% 379,043 514,275 73.7% 407,340 597,033 68.2% In 2016, the goal for each Enterprise was 300,000 units. Fannie Mae purchased mortgages financing 351,235 low-income units, and Freddie Mac purchased mortgages financing 407,340 low-income units. While total volumes have increased, the share of low-income units financed at each Enterprise has been declining from peak levels in 2012. As noted above, the forecast for the multifamily originations market 40 For more information on the Conservatorship Scorecard, see https://www.fhfa.gov/AboutUs/ Reports/ReportDocuments/2017-Scorecard-forFannie-Mae-Freddie-Mac-and-CSS.pdf. 16:19 Jul 03, 2017 Jkt 241001 PO 00000 Frm 00017 2016 285,000 225,000 From 2012 through 2016, both Enterprises exceeded their low-income multifamily goals. Prior to 2015, Fannie Mae had higher goals than Freddie Mac. For the 2015–2017 goal period, FHFA set the same goal level for both Enterprises for the first time, reflecting parity between Freddie Mac and Fannie Mae multifamily market share in terms of unit counts. VerDate Sep<11>2014 2015 Fmt 4702 Sfmt 4702 increases slightly and then levels off after 2017. The Conservatorship Scorecard cap for each Enterprise was raised from an initial $30 billion cap to $36.5 billion in August 2016 in response to growth of the multifamily origination market throughout the year. This change allowed the Enterprises to pursue purchases of a greater volume of multifamily originations and support the overall market and may seem to E:\FR\FM\05JYP1.SGM 05JYP1 31026 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules support an increase in the proposed goal levels for both Enterprises. However, the gap between the supply of low-income and very low-income units and the needs of low-income households, as described in the affordability discussion above, is expected to continue in the next goal period. Moreover, the forecast for the multifamily originations market for 2017 and 2018 is relatively flat, and securing housing subsidies will likely continue to be challenging. These trends suggest moderation in any increase in the proposed goal levels. Therefore, balancing these considerations, the proposed rule sets the annual lowincome multifamily housing goal for each Enterprise at 315,000 units in each year from 2018 through 2020, a modest increase from the 300,000 unit goal for each Enterprise in 2015–2017. 2. Multifamily Very Low-Income Housing Subgoal The multifamily very low-income housing subgoal includes units affordable to very low-income families, defined as families with incomes no greater than 50 percent of AMI. TABLE 10—MULTIFAMILY VERY LOW-INCOME SUBGOAL Historical performance Year 2012 Fannie Mae Goal ................................................................. Freddie Mac Goal ................................................................ Fannie Mae Performance: Very Low-Income Multifamily Units .............................. Total Multifamily Units .................................................. Very Low-Income % of Total Units ............................... Freddie Mac Performance: Very Low-Income Multifamily Units .............................. Total Home Purchase Mortgages ................................. Very Low-Income % of Total Units ............................... From 2012 through 2016, both Enterprises met and exceeded their very low-income multifamily goals. In 2016, the goal for each Enterprise was 60,000 units. Fannie Mae purchased mortgages financing 65,445 very low-income units, while Freddie Mac purchased mortgages financing 73,032 very low-income units. Similar to the low-income multifamily goal, the share of very low-income units financed at each Enterprise has been declining in recent years. The market for very low-income multifamily housing faces even larger 2013 2014 2015 2016 80,000 59,000 70,000 50,000 60,000 40,000 60,000 60,000 60,000 60,000 108,878 501,256 21.7% 78,071 430,751 18.1% 60,542 372,089 16.3% 69,078 468,798 14.7% 65,445 551,666 11.9% 60,084 377,522 15.9% 56,752 341,921 16.6% 48,689 366,377 13.3% 76,935 514,275 15.0% 73,032 597,033 12.2% challenges than the market for lowincome multifamily housing, given the need for lower rents—often requiring deeper subsidies—to make units affordable to these households. These factors suggest moderation in the setting of the very low-income multifamily subgoal for the Enterprises. Therefore, the proposed rule maintains the annual very low-income multifamily subgoal for each Enterprise at 60,000 units each year from 2018 through 2020. 3. Small Multifamily Low-Income Housing Subgoal A small multifamily property is defined as a property with 5 to 50 units. The small multifamily low-income housing subgoal is based on the total number of units in small multifamily properties financed by mortgages purchased by the Enterprises that are affordable to low-income families, defined as families with incomes less than or equal to 80 percent of AMI. TABLE 11—SMALL MULTIFAMILY LOW-INCOME SUBGOAL Historical performance Year 2012 sradovich on DSK3GMQ082PROD with PROPOSALS Small Low-Income Multifamily Goal .................................... Fannie Mae Performance: Small Low-Income Multifamily Units ............................. Total Small Multifamily Units ........................................ Low-Income % of Total Small Multifamily Units ........... Freddie Mac Performance: Small Low-Income Multifamily Units ............................. Total Small Multifamily Units ........................................ Low-Income % of Total Small Multifamily Units ........... This was a new subgoal created in the 2015–2017 goal period. The goal was set at 6,000 units in 2015, 8,000 units in 2016, and 10,000 units in 2017. In 2016, both Enterprises exceeded the goal of 8,000 units. Fannie Mae purchased mortgages financing 9,310 units, and Freddie Mac purchased mortgages financing 22,101 units. VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 2013 2014 ........................ ........................ ........................ 6,000 8,000 16,801 26,479 63.5% 13,827 21,764 63.5% 6,732 11,880 56.7% 6,731 11,198 60.1% 9,310 15,230 61.1% 829 2,194 37.8% 1,128 2,375 47.5% 2,076 4,659 44.6% 12,802 21,246 60.3% 22,101 33,984 65.0% The proposed rule would set the annual small multifamily subgoal for each Enterprise at 10,000 units for each year from 2018 through 2020, the same as the 2017 goal. The Enterprises continue to innovate in their approaches to serving this market. FHFA is still monitoring the trends in this market segment as well as Enterprise performance for this new subgoal, and PO 00000 Frm 00018 Fmt 4702 Sfmt 4702 2015 2016 will consider all input in preparation of the final rule. However, FHFA is proposing to maintain the same benchmark level for 2018 through 2020 as the 2017 benchmark level for both Enterprises. Maintaining the current goal should continue to encourage the Enterprises’ participation in this market and ensure the Enterprises have the expertise necessary to serve this market E:\FR\FM\05JYP1.SGM 05JYP1 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules should private sources of financing become unable or unwilling to lend on small multifamily properties. VI. Section-by-Section Analysis of Other Proposed Changes The proposed rule would also revise other provisions of the housing goals regulation, as discussed below. sradovich on DSK3GMQ082PROD with PROPOSALS A. Changes to Definitions—Proposed § 1282.1 The proposed rule includes changes to definitions used in the current housing goals regulation. The proposed rule would revise the definitions of ‘‘median income,’’ ‘‘metropolitan area,’’ and ‘‘non-metropolitan area’’ and would remove the definition of ‘‘AHS.’’ 1. Definition of ‘‘Median Income’’ The current regulation defines ‘‘median income’’ as the unadjusted median family income for an area as most recently determined by HUD. While this definition accurately identifies the source that FHFA uses to determine median incomes each year, the definition does not reflect the longstanding practice FHFA has followed in providing the Enterprises with the median incomes that the Enterprises must use each year. The proposed rule would revise the definition to be clear that the Enterprises are required to use the median incomes provided by FHFA each year in determining affordability for purposes of the housing goals. The proposed rule would also make two additional technical changes to the definition of ‘‘median income.’’ First, the proposed rule would add a reference to ‘‘non-metropolitan areas’’ in the definition because FHFA determines median incomes for both metropolitan areas and non-metropolitan areas each year. Second, the proposed rule would remove the word ‘‘family’’ in one place so that the term ‘‘median income’’ is used consistently throughout the regulation. The revised definition would read: ‘‘Median income means, with respect to an area, the unadjusted median family income for the area as determined by FHFA. FHFA will provide the Enterprises annually with information specifying how the median family income estimates for metropolitan and non-metropolitan areas are to be applied for purposes of determining median income.’’ 2. Definitions of ‘‘Metropolitan Area’’ and ‘‘Non-Metropolitan Area’’ The proposed rule would revise the definitions of ‘‘metropolitan area’’ and ‘‘non-metropolitan area’’ to be VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 consistent with each other and to reflect the proposed changes to the definition of ‘‘median income’’ discussed above. The current regulation defines both ‘‘metropolitan area’’ and ‘‘nonmetropolitan area’’ based on the areas for which HUD defines median family incomes. The definition of ‘‘metropolitan area’’ refers to median family incomes ‘‘determined by HUD,’’ while the definition of ‘‘nonmetropolitan area’’ refers to median family incomes ‘‘published annually by HUD.’’ To be consistent with the proposed changes to the definition of ‘‘median income,’’ the proposed rule would revise the definition of ‘‘metropolitan area’’ by replacing the phrase ‘‘for which median family income estimates are determined by HUD’’ with the phrase ‘‘for which median incomes are determined by FHFA.’’ For the same reason, the proposed rule would revise the definition of ‘‘non-metropolitan area’’ by replacing the phrase ‘‘for which median family income estimates are published annually by HUD’’ with the phrase ‘‘for which median incomes are determined by FHFA.’’ 3. Definition of ‘‘AHS’’ (American Housing Survey) The proposed rule would remove the definition of ‘‘AHS’’ from § 1282.1 because the term is no longer used in the Enterprise housing goals regulation. Prior to the 2015 amendments to the Enterprise housing goals regulation, the term ‘‘AHS’’ was used to specify the data source from which FHFA derives the utility allowances used to determine the total rent for a rental unit which, in turn, is used to determine the affordability of the unit when actual utility costs are not available. The 2015 amendments consolidated and simplified the definitions applicable to determining the total rent and eliminated the reference to AHS in the part of the definition related to utility allowances, providing FHFA with flexibility in how it determines the nationwide utility allowances. The current nationwide average utility allowances are still fixed numbers based on AHS data, but the regulation does not require FHFA to rely solely on AHS data to determine those utility allowances. The term ‘‘AHS’’ is not used anywhere else in the regulation, so the proposed rule would remove the definition from § 1282.1. B. Data Source for Estimating Affordability of Multifamily Rental Units—Proposed § 1282.15(e)(2) The proposed rule would revise § 1282.15(e)(2) to update the data source PO 00000 Frm 00019 Fmt 4702 Sfmt 4702 31027 used by FHFA to estimate affordability where actual information about rental units in a multifamily property is not available. Section 1282.15(e) permits the Enterprises to use estimated affordability information to determine the affordability of multifamily rental units for up to 5 percent of the total multifamily rental units in properties securing mortgages purchased by the Enterprise each year when actual information about the units is not available. The estimations are based on the affordable percentage of all rental units in the census tract in which the property for which the Enterprise is estimating affordability is located. The current regulation provides that the affordable percentage of all rental units in the census tract will be determined by FHFA based on the most recent decennial census. However, the 2000 decennial census was the last decennial census that collected this information. The U.S. Census Bureau now collects this information through the ACS. Since 2011, FHFA has used the most recent data available from the ACS to determine the affordable percentage of rental units in a census tract for purposes of estimating affordability. The proposed rule would revise § 1282.15(e)(2) to reflect this change. To take into account possible future changes in how rental affordability data is collected, the revised sentence would not refer specifically to data derived from the ACS. Section 1282.15(e)(2) would be revised to replace the phrase ‘‘as determined by FHFA based on the most recent decennial census’’ with the phrase ‘‘as determined by FHFA.’’ C. Determination of Median Income for Certain Census Tracts—Proposed § 1282.15(g)(2) The proposed rule would revise § 1282.15(g) to remove paragraph (g)(2), an obsolete provision describing the method that the Enterprises were required to use to determine the median income for a census tract where the census tract was split between two areas with different median incomes. Current § 1282.15(g)(2) requires the Enterprises to use the method prescribed by the Federal Financial Institutions Examination Council to determine the median income for certain census tracts that were split between two areas with different median incomes. This provision was put in place by the 1995 final rule published by HUD to establish the E:\FR\FM\05JYP1.SGM 05JYP1 31028 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS Enterprise housing goals under the Safety and Soundness Act.41 As discussed above regarding the definition of ‘‘median income,’’ the process of determining median incomes has changed over the years, so that the Enterprises are now required to use median incomes provided by FHFA each year when determining affordability for purposes of the housing goals. Because FHFA provides median incomes for every location in the United States, it is no longer necessary for the regulation to set forth a process for the Enterprises to use when it is not certain what the applicable median income would be for a particular location. Consequently, the proposed rule would remove § 1282.15(g)(2) from the regulation. D. Housing Plan Timing—Proposed § 1282.21(b)(3) The proposed rule would revise § 1282.21(b)(3) to provide the Director with discretion to determine the appropriate period of time that an Enterprise may be subject to a housing plan to address a failure to meet a housing goal. Section 1336 of the Safety and Soundness Act provides for the enforcement of the Enterprise housing goals. If FHFA determines that an Enterprise has failed to meet a housing goal and that achievement of the goal was feasible, FHFA may require the Enterprise to submit a housing plan describing the actions it will take ‘‘to achieve the goal for the next calendar year.’’ 42 The Safety and Soundness Act has similar provisions for requiring a housing plan if FHFA determines, during the year in question, that there is a substantial probability that an Enterprise will fail to meet a housing goal and that achievement of the goal is feasible. In such cases, the housing plan would describe the actions the Enterprise will take ‘‘to make such improvements and changes in its operations as are reasonable in the remainder of such year.’’ The current regulation generally mirrors the statutory language on the requirements for a housing plan, except that the regulation makes clear that the housing plan must also ‘‘[a]ddress any additional matters relevant to the plan as required, in writing, by the Director.’’ 43 FHFA required an Enterprise to submit a housing plan for the first time in late 2015 in response to Freddie Mac’s failure to achieve the singlefamily low-income and very low-income 41 See 60 FR 61846 (Dec. 1, 1995). 12 U.S.C. 4566(c)(2). 43 See 12 CFR 1282.21(b). home purchase goals in 2014. FHFA required Freddie Mac to submit a housing plan setting out the steps Freddie Mac would take in 2016 and 2017 to achieve the two goals that it failed to achieve in 2013 and 2014. The requirement for the plan to address actions taken in both 2016 and 2017 was based on FHFA’s authority under § 1282.21(b) to require a housing plan to address any additional matters required by the Director and was intended to address an issue of timing. FHFA’s final determination on Freddie Mac’s performance on the housing goals for 2014 was issued on December 17, 2015. As described in more detail below, that timing was driven by procedural steps required by the Safety and Soundness Act and FHFA’s own regulation. If FHFA interpreted narrowly the statutory and regulatory provisions stating that the housing plan should address the steps the Enterprise would take in the following year, the housing plan itself would become irrelevant because the year it would cover would have ended before the housing plan was even submitted to FHFA. The extended time required to reach a final determination housing goals performance will occur every year as a result of the procedural steps required by the Safety and Soundness Act. Under those procedures, if FHFA determines that an Enterprise has failed to achieve a housing goal in a particular year, FHFA is first required to issue a preliminary determination that generally provides at least 30 days for the Enterprise to respond. FHFA must then consider any information submitted by the Enterprise before making a final determination on whether the Enterprise failed to meet the goal and whether achievement of the goal was feasible. If FHFA determines that the Enterprise should be required to submit a housing plan, the statute provides for up to 45 days for the Enterprise to submit its housing plan.44 FHFA must then evaluate the housing plan, generally within 30 days. The time necessary for FHFA’s review and determination at each step of this procedural process is generally four to six months. These procedural steps cannot begin until FHFA has the information necessary to make a determination on whether the Enterprise has met the housing goals. The Enterprises are required to submit their official performance numbers to FHFA within 75 days after the end of the year, usually March 15 of the following year. 42 See VerDate Sep<11>2014 16:19 Jul 03, 2017 44 See Jkt 241001 PO 00000 12 U.S.C. 4566(c)(3). Frm 00020 Fmt 4702 Sfmt 4702 Therefore, the earliest that FHFA would be able to approve a housing plan from an Enterprise would be mid-July of the year following the performance year. For the single-family housing goals, this time period is extended even further because the HMDA data necessary to determine if an Enterprise met the retrospective market measurement portion of the single-family housing goals are not available until September of the year following the performance year. Based on (1) FHFA’s experience in overseeing the housing goals, in particular the experience in requiring Freddie Mac to submit a housing plan based on its failure to achieve certain housing goals in 2014, (2) the inherent conflict in the timeframes set out in the Safety and Soundness Act, and (3) the importance of ensuring that any housing plans are focused on sustainable improvements in Enterprise goals performance, FHFA is proposing to amend § 1282.21(b)(3) to state explicitly that a housing plan that is required based on an Enterprise’s failure to achieve a housing goal will be required to address a time period determined by the Director. If FHFA requires an Enterprise to submit a housing plan, FHFA will notify the Enterprise of the applicable time period in FHFA’s final determination on the performance of the Enterprise for a particular year. VII. Paperwork Reduction Act The proposed rule would not contain any information collection requirement that would require the approval of the Office of Management and Budget (OMB) under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). Therefore, FHFA has not submitted any information to OMB for review. VIII. 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 E:\FR\FM\05JYP1.SGM 05JYP1 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules because the regulation applies to Fannie Mae and Freddie Mac, 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 SUPPLEMENTARY INFORMATION, under the authority of 12 U.S.C. 4511, 4513 and 4526, FHFA proposes to amend part 1282 of Title 12 of the Code of Federal Regulations as follows: CHAPTER XII—FEDERAL HOUSING FINANCE AGENCY Subchapter E—Housing Goals and Mission PART 1282—ENTERPRISE HOUSING GOALS AND MISSION 1. The authority citation for part 1282 continues to read as follows: ■ Authority: 12 U.S.C. 4501, 4502, 4511, 4513, 4526, 4561–4566. § 1282.1 [Amended] 2. Amend § 1282.1 as follows: a. Remove the definition of ‘‘AHS’’; and ■ b. Revise the definitions of ‘‘Median income,’’ ‘‘Metropolitan area,’’ and ‘‘Non-metropolitan area.’’ The revisions read as follows: ■ ■ § 1282.1 Definitions. sradovich on DSK3GMQ082PROD with PROPOSALS * * * * * Median income means, with respect to an area, the unadjusted median family income for the area as determined by FHFA. FHFA will provide the Enterprises annually with information specifying how the median family income estimates for metropolitan and non-metropolitan areas are to be applied for purposes of determining median income. Metropolitan area means a metropolitan statistical area (MSA), or a portion of such an area, including Metropolitan Divisions, for which median incomes are determined by FHFA. * * * * * Non-metropolitan area means a county, or a portion of a county, including those counties that comprise Micropolitan Statistical Areas, located outside any metropolitan area, for which median incomes are determined by FHFA. * * * * * ■ 3. Revise § 1282.12 to read as follows: § 1282.12 Single-family housing goals. (a) Single-family housing goals. An Enterprise shall be in compliance with VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 a single-family housing goal if its performance under the housing goal meets or exceeds either: (1) The share of the market that qualifies for the goal; or (2) The benchmark level for the goal. (b) Size of market. The size of the market for each goal shall be established annually by FHFA based on data reported pursuant to the Home Mortgage Disclosure Act for a given year. Unless otherwise adjusted by FHFA, the size of the market shall be determined based on the following criteria: (1) Only owner-occupied, conventional loans shall be considered; (2) Purchase money mortgages and refinancing mortgages shall only be counted for the applicable goal or goals; (3) All mortgages flagged as HOEPA loans or subordinate lien loans shall be excluded; (4) All mortgages with original principal balances above the conforming loan limits for single unit properties for the year being evaluated (rounded to the nearest $1,000) shall be excluded; (5) All mortgages with rate spreads of 150 basis points or more above the applicable average prime offer rate as reported in the Home Mortgage Disclosure Act data shall be excluded; and (6) All mortgages that are missing information necessary to determine appropriate counting under the housing goals shall be excluded. (c) Low-income families housing goal. The percentage share of each Enterprise’s total purchases of purchase money mortgages on owner-occupied single-family housing that consists of mortgages for low-income families shall meet or exceed either: (1) The share of such mortgages in the market as defined in paragraph (b) of this section in each year; or (2) The benchmark level, which for 2018, 2019 and 2020 shall be 24 percent of the total number of purchase money mortgages purchased by that Enterprise in each year that finance owneroccupied single-family properties. (d) Very low-income families housing goal. The percentage share of each Enterprise’s total purchases of purchase money mortgages on owner-occupied single-family housing that consists of mortgages for very low-income families shall meet or exceed either: (1) The share of such mortgages in the market as defined in paragraph (b) of this section in each year; or (2) The benchmark level, which for 2018, 2019 and 2020 shall be 6 percent of the total number of purchase money mortgages purchased by that Enterprise in each year that finance owneroccupied single-family properties. PO 00000 Frm 00021 Fmt 4702 Sfmt 4702 31029 (e) Low-income areas housing goal. The percentage share of each Enterprise’s total purchases of purchase money mortgages on owner-occupied single-family housing that consists of mortgages for families in low-income areas shall meet or exceed either: (1) The share of such mortgages in the market as defined in paragraph (b) of this section in each year; or (2) A benchmark level which shall be set annually by FHFA notice based on the benchmark level for the low-income areas housing subgoal, plus an adjustment factor reflecting the additional incremental share of mortgages for moderate-income families in designated disaster areas in the most recent year for which such data is available. (f) Low-income areas housing subgoal. The percentage share of each Enterprise’s total purchases of purchase money mortgages on owner-occupied single-family housing that consists of mortgages for families in low-income census tracts or for moderate-income families in minority census tracts shall meet or exceed either: (1) The share of such mortgages in the market as defined in paragraph (b) of this section in each year; or (2) The benchmark level, which for 2018, 2019 and 2020 shall be 15 percent of the total number of purchase money mortgages purchased by that Enterprise in each year that finance owneroccupied single-family properties. (g) Refinancing housing goal. The percentage share of each Enterprise’s total purchases of refinancing mortgages on owner-occupied single-family housing that consists of refinancing mortgages for low-income families shall meet or exceed either: (1) The share of such mortgages in the market as defined in paragraph (b) of this section in each year; or (2) The benchmark level, which for 2018, 2019 and 2020 shall be 21 percent of the total number of refinancing mortgages purchased by that Enterprise in each year that finance owneroccupied single-family properties. ■ 4. Revise § 1282.13 to read as follows: § 1282.13 Multifamily special affordable housing goal and subgoals. (a) Multifamily housing goal and subgoals. An Enterprise shall be in compliance with a multifamily housing goal or subgoal if its performance under the housing goal or subgoal meets or exceeds the benchmark level for the goal or subgoal, respectively. (b) Multifamily low-income housing goal. The benchmark level for each Enterprise’s purchases of mortgages on multifamily residential housing E:\FR\FM\05JYP1.SGM 05JYP1 31030 Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / Proposed Rules affordable to low-income families shall be at least 315,000 dwelling units affordable to low-income families in multifamily residential housing financed by mortgages purchased by the Enterprise in each year for 2018, 2019, and 2020. (c) Multifamily very low-income housing subgoal. The benchmark level for each Enterprise’s purchases of mortgages on multifamily residential housing affordable to very low-income families shall be at least 60,000 dwelling units affordable to very low-income families in multifamily residential housing financed by mortgages purchased by the Enterprise in each year for 2018, 2019, and 2020. (d) Small multifamily low-income housing subgoal. The benchmark level for each Enterprise’s purchases of mortgages on small multifamily properties affordable to low-income families shall be at least 10,000 dwelling units affordable to low-income families in small multifamily properties financed by mortgages purchased by the Enterprise in each year for 2018, 2019, and 2020. § 1282.15 [Amended] 5. Amend § 1282.15 as follows: ■ a. In paragraph (e)(2) remove the phrase ‘‘based on the most recent decennial census’’; and ■ b. Revise paragraph (g). The revisions read as follows: ■ § 1282.15 General counting requirements. * * * * (g) Application of median income. For purposes of determining an area’s median income under §§ 1282.17 through 1282.19 and the definitions in § 1282.1, the area is: (1) The metropolitan area, if the property which is the subject of the mortgage is in a metropolitan area; and (2) 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. * * * * * ■ 6. Amend § 1282.21 by revising paragraph (b)(3), to read as follows: sradovich on DSK3GMQ082PROD with PROPOSALS * § 1282.21 Housing plans. * * * * * (b) * * * (3) Describe the specific actions that the Enterprise will take in a time period determined by the Director to improve the Enterprise’s performance under the housing goal; and * * * * * VerDate Sep<11>2014 16:19 Jul 03, 2017 Jkt 241001 Dated: June 28, 2017. Melvin L. Watt, Director, Federal Housing Finance Agency. [FR Doc. 2017–14039 Filed 7–3–17; 8:45 am] BILLING CODE 8070–01–P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 71 [Docket No. FAA–2017–0391; Airspace Docket No. 17–ANM–13] Proposed Amendment of Class E Airspace; Bend, OR Federal Aviation Administration (FAA), DOT. ACTION: Notice of proposed rulemaking (NPRM). AGENCY: This action proposes to modify Class E airspace extending upward from 700 feet above the surface at Bend Municipal Airport, Bend, OR, to accommodate airspace redesign for the safety and management of instrument flight rules (IFR) operations within the National Airspace System. DATES: Comments must be received on or before August 21, 2017. ADDRESSES: Send comments on this proposal to the U.S. Department of Transportation, Docket Operations, 1200 New Jersey Avenue SE., West Building Ground Floor, Room W12–140, Washington, DC 20590; telephone: 1– 800–647–5527, or (202) 366–9826. You must identify FAA Docket No. FAA– 2017–0391; Airspace Docket No. 17– ANM–13, at the beginning of your comments. You may also submit comments through the Internet at http:// www.regulations.gov. FAA Order 7400.11A, Airspace Designations and Reporting Points, and subsequent amendments can be viewed online at http://www.faa.gov/air_traffic/ publications/. For further information, you can contact the Airspace Policy Group, Federal Aviation Administration, 800 Independence Avenue SW., Washington, DC 20591; telephone: (202) 267–8783. The Order is also available for inspection at the National Archives and Records Administration (NARA). For information on the availability of FAA Order 7400.11A at NARA, call (202) 741–6030, or go to http:// www.archives.gov/federal_register/ code_of_federal-regulations/ ibr_locations.html. FAA Order 7400.11, Airspace Designations and Reporting Points, is published yearly and effective on September 15. SUMMARY: PO 00000 Frm 00022 Fmt 4702 Sfmt 4702 Tom Clark, Federal Aviation Administration, Operations Support Group, Western Service Center, 1601 Lind Avenue SW., Renton, WA 98057; telephone (425) 203–4511. SUPPLEMENTARY INFORMATION: FOR FURTHER INFORMATION CONTACT: Authority for This Rulemaking The FAA’s authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency’s authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it would amend Class E airspace extending upward from 700 feet above the surface at Bend Municipal Airport, Bend, OR, to support IFR operations under standard instrument approach procedures. Comments Invited Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Persons wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: ‘‘Comments to Docket No. FAA–2017–0391/Airspace Docket No. 17–ANM–13’’. The postcard will be date/time stamped and returned to the commenter. All communications received before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this notice may be changed in light of the comments received. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket. E:\FR\FM\05JYP1.SGM 05JYP1

Agencies

[Federal Register Volume 82, Number 127 (Wednesday, July 5, 2017)]
[Proposed Rules]
[Pages 31009-31030]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14039]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 82, No. 127 / Wednesday, July 5, 2017 / 
Proposed Rules

[[Page 31009]]



FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1282

RIN 2590-AA81


2018-2020 Enterprise Housing Goals

AGENCY: Federal Housing Finance Agency.

ACTION: Proposed rule.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing a 
proposed rule with request for comments on the housing goals for Fannie 
Mae and Freddie Mac (the Enterprises) for 2018 through 2020. The 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 
(the Safety and Soundness Act) requires FHFA to establish annual 
housing goals for mortgages purchased by the Enterprises. The housing 
goals include separate categories for single-family and multifamily 
mortgages on housing that is affordable to low-income and very low-
income families, among other categories.
    The existing housing goals for the Enterprises include benchmark 
levels for each housing goal through the end of 2017. This proposed 
rule would establish benchmark levels for each of the housing goals and 
subgoals for 2018 through 2020. In addition, the proposed rule would 
make a number of clarifying and conforming changes, including revisions 
to the requirements for the housing plan that an Enterprise may be 
required to submit in response to a failure to achieve one or more of 
the housing goals.

DATES: FHFA will accept written comments on the proposed rule on or 
before September 5, 2017.

ADDRESSES: You may submit your comments on the proposed rule, 
identified by regulatory information number (RIN) 2590-AA81, by any one 
of the following methods:
     Agency Web site: www.fhfa.gov/open-for-comment-or-input.
     Federal eRulemaking Portal: http://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. 
Include the following information in the subject line of your 
submission: Comments/RIN 2590-AA81.
     Hand Delivered/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA81, 
Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., 
Washington, DC 20219. Deliver the package at the Seventh 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-AA81, Federal 
Housing Finance Agency, Eighth Floor, 400 Seventh 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: Ted Wartell, Manager, Housing & 
Community Investment, Division of Housing Mission and Goals, at (202) 
649-3157. This is not a toll-free number. The mailing address is: 
Federal Housing Finance Agency, 400 Seventh Street SW., Washington, DC 
20219. The telephone number for the Telecommunications Device for the 
Deaf is (800) 877-8339.

SUPPLEMENTARY INFORMATION: 

I. Comments

    FHFA invites comments on all aspects of the proposed rule and will 
take all comments into consideration before issuing the final rule. 
Copies of all comments will be posted without change, including any 
personal information you provide such as your name, address, email 
address, and telephone number, on the FHFA Web site at http://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, 400 
Seventh Street SW., Washington, DC 20219. To make an appointment to 
inspect comments, please call the Office of General Counsel at (202) 
649-3804.
    Commenters are encouraged to review and comment on all aspects of 
the proposed rule, including the single-family benchmark levels, the 
multifamily benchmark levels, and other changes to the regulation.

II. Background

A. Statutory and Regulatory Background for the Existing Housing Goals

    The Safety and Soundness Act requires FHFA to establish annual 
housing goals for several categories of both single-family and 
multifamily mortgages purchased by Fannie Mae and Freddie Mac.\1\ The 
annual housing goals are one measure of the extent to which the 
Enterprises are meeting their public purposes, which include ``an 
affirmative obligation to facilitate the financing of affordable 
housing for low- and moderate-income families in a manner consistent 
with their overall public purposes, while maintaining a strong 
financial condition and a reasonable economic return.'' \2\
---------------------------------------------------------------------------

    \1\ See 12 U.S.C. 4561(a).
    \2\ See 12 U.S.C. 4501(7).
---------------------------------------------------------------------------

    The housing goals provisions of the Safety and Soundness Act were 
substantially revised in 2008 with the enactment of the Housing and 
Economic Recovery Act, which amended the Safety and Soundness Act.\3\ 
Under this revised structure, FHFA established housing goals for the 
Enterprises for 2010 and 2011 in a final rule published on September 
14, 2010.\4\ FHFA established housing goals levels for the Enterprises 
for 2012 through 2014 in a final rule published on November 13, 
2012.\5\ In a final rule published on September 3, 2015, FHFA announced 
the housing goals for the Enterprises for 2015 through 2017, including 
a new small multifamily low-income housing subgoal.\6\
---------------------------------------------------------------------------

    \3\ Housing and Economic Recovery Act of 2008, Pub. L. 110-289, 
122 Stat. 2654 (July 30, 2008).
    \4\ See 75 FR 55892.
    \5\ See 77 FR 67535.
    \6\ See 80 FR 53392.
---------------------------------------------------------------------------

    Single-family goals. The single-family goals defined under the 
Safety and Soundness Act include separate categories for home purchase 
mortgages for low-income families, very low-income families, and 
families that reside

[[Page 31010]]

in low-income areas. Performance on the single-family home purchase 
goals is measured as the percentage of the total home purchase 
mortgages purchased by an Enterprise each year that qualify for each 
goal or subgoal. There is also a separate goal for refinancing 
mortgages for low-income families, and performance on the refinancing 
goal is determined in a similar way.
    Under the Safety and Soundness Act, the single-family housing goals 
are limited to mortgages on owner-occupied housing with one to four 
units total. The single-family goals cover conventional, conforming 
mortgages, defined as mortgages that are not insured or guaranteed by 
the Federal Housing Administration (FHA) or another government agency 
and with principal balances that do not exceed the loan limits for 
Enterprise mortgages.
    Two-part approach. The performance of the Enterprises on the 
housing goals is evaluated using a two-part approach, which compares 
the goal-qualifying share of the Enterprise's mortgage purchases to two 
separate measures: A benchmark level and a market level. FHFA 
considered alternatives to this method in the 2015-2017 housing goals 
rulemaking and determined that the two-part approach continued to be 
the most appropriate method for evaluating performance on the single-
family goals. FHFA is proposing to continue that approach in this rule.
    In order to meet a single-family housing goal or subgoal, the 
percentage of mortgage purchases by an Enterprise that meet each goal 
or subgoal must exceed either the benchmark level or the market level 
for that year. The benchmark level is set prospectively by rulemaking 
based on various factors, including FHFA's forecast of the goal-
qualifying share of the overall market. The market level is determined 
retrospectively each year, based on the actual goal-qualifying share of 
the overall market as measured by FHFA based on Home Mortgage 
Disclosure Act (HMDA) data for that year. The overall mortgage market 
that FHFA uses for both the prospective market forecasts and the 
retrospective market measurement consists of all single-family owner-
occupied conventional conforming mortgages that would be eligible for 
purchase by either Enterprise. It includes loans actually purchased by 
the Enterprises as well as comparable loans held in a lender's 
portfolio. It also includes comparable loans that are part of a private 
label security (PLS), although very few such securities have been 
issued for conventional conforming mortgages since 2008.
    While both the benchmark and the retrospective market measure are 
designed to measure the current year's mortgage originations, the 
performance of the Enterprises on the housing goals includes all 
Enterprise purchases in that year, regardless of the year in which the 
loan was originated. This provides housing goals credit when the 
Enterprises acquire qualified seasoned loans. (Seasoned loans are loans 
that were originated in prior years and acquired by the Enterprise in 
the current year.) The Enterprises' acquisition of seasoned loans 
provides an important source of liquidity for this market segment.
    Recent changes to the HMDA regulations will result in the HMDA data 
covering a greater portion of the single-family mortgage market.\7\ The 
changes will also provide more detailed information about the loans 
included in the HMDA data. The changes to the HMDA regulations 
generally take effect at the start of 2018, so the new, more detailed 
information will not be available until after the 2018 performance 
year.
---------------------------------------------------------------------------

    \7\ See Home Mortgage Disclosure Act final rule, 80 FR 66128 
(Oct. 28, 2015).
---------------------------------------------------------------------------

    For example, the Enterprise housing goals currently count all loans 
purchased by an Enterprise with original principal balances that are 
within the conforming loan limits. The conforming loan limits are 
different for single-family properties depending on the number of units 
in the property. However, the definition of the retrospective market 
excludes all loans with original principal balances above the 
conforming loan limits for single unit properties because the current 
HMDA data do not identify the number of units for each loan. Starting 
with the new HMDA data reported, it will be possible to identify the 
number of units for each loan. This may allow FHFA to revise the 
definition of the retrospective market to exclude only those loans 
above the conforming loan limits applicable to the size of the 
property, instead of excluding all loans above the conforming loan 
limit applicable to a single unit property.
    FHFA has considered the possible impact that certain changes to the 
HMDA regulations may have on the Enterprise housing goals. However, at 
this time the impact that such changes might have on the retrospective 
measure of the market is uncertain. FHFA is not proposing to make any 
changes to the Enterprise housing goals in anticipation of the upcoming 
changes to the HMDA data. FHFA will assess the impact of the changes 
and, if necessary, may propose changes to the housing goals regulation 
at a later date.
    Multifamily goals. The multifamily goals defined under the Safety 
and Soundness Act include separate categories for mortgages on 
multifamily properties (properties with five or more units) with rental 
units affordable to low-income families and on multifamily properties 
with rental units affordable to very low-income families, as well as a 
small multifamily low-income subgoal for properties with 5-50 units. 
The multifamily goals established by FHFA in 2010, 2012, and 2015 
evaluated the performance of the Enterprises based on numeric targets, 
not percentages, for the number of affordable units in properties 
backed by mortgages purchased by an Enterprise. FHFA has not 
established a retrospective market level measure for the multifamily 
goals and subgoals, due in part to a lack of comprehensive data about 
the multifamily market such as that provided by HMDA for single-family 
mortgages. As a result, FHFA currently measures Enterprise multifamily 
goals performance against the benchmark levels only. The expanded HMDA 
fields that will be available for the 2018 performance year are 
expected to include information on the number of units for each 
multifamily loan and should be helpful in evaluating performance for 
this market segment.

B. Adjusting the Housing Goals

    Under the housing goals regulation first established by FHFA in 
2010, as well as under this proposed rule, FHFA may reduce the 
benchmark levels for any of the single-family or multifamily housing 
goals in a particular year without going through notice and comment 
rulemaking based on a determination by FHFA that (1) market and 
economic conditions or the financial condition of the Enterprise 
require a reduction, or (2) ``efforts to meet the goal or subgoal would 
result in the constraint of liquidity, over-investment in certain 
market segments, or other consequences contrary to the intent of the 
Safety and Soundness Act or the purposes of the Charter Acts.'' \8\ The 
proposal also takes into account the possibility that achievement of a 
particular housing goal may or may not have been feasible for the 
Enterprise. If FHFA determines that a housing goal was not feasible for 
the Enterprise to achieve, then the regulation provides for no further 
enforcement of that housing goal for that year.\9\
---------------------------------------------------------------------------

    \8\ 12 CFR 1282.14(d).
    \9\ 12 CFR 1282.21(a).

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

[[Page 31011]]

    If, after publication of a final rule establishing the housing 
goals for 2018 through 2020, FHFA determines that any of the single-
family or multifamily housing goals should be adjusted in light of 
market conditions, to ensure the safety and soundness of the 
Enterprises, or for any other reason, FHFA will take steps as necessary 
and appropriate to adjust that goal. Such steps could include adjusting 
the benchmark levels through the processes in the existing regulation 
or establishing revised housing goal levels through notice and comment 
rulemaking.

C. Housing Goals Under Conservatorship

    On September 6, 2008, FHFA placed each Enterprise into 
conservatorship. Although the Enterprises remain in conservatorship at 
this time, they continue to have the mission of supporting a stable and 
liquid national market for residential mortgage financing. FHFA has 
continued to establish annual housing goals for the Enterprises and to 
assess their performance under the housing goals each year during 
conservatorship.

III. Summary of Proposed Rule

A. Benchmark Levels for the Single-Family Housing Goals

    This proposed rule would establish the benchmark levels for the 
single-family housing goals and subgoal for 2018-2020 as follows:

----------------------------------------------------------------------------------------------------------------
                                                                 Current  benchmark        Proposed  benchmark
                Goal                         Criteria           level for  2015-2017      level for  2018-2020
----------------------------------------------------------------------------------------------------------------
Low-Income Home Purchase Goal.......  Home purchase           24 percent..............  24 percent.
                                       mortgages on single-
                                       family, owner-
                                       occupied properties
                                       with borrowers with
                                       incomes no greater
                                       than 80 percent of
                                       area median income.
Very Low-Income Home Purchase Goal..  Home purchase           6 percent...............  6 percent.
                                       mortgages on single-
                                       family, owner-
                                       occupied properties
                                       with borrowers with
                                       incomes no greater
                                       than 50 percent of
                                       area median income.
Low-Income Areas Home Purchase        Home purchase
 Subgoal.                              mortgages on single-
                                       family, owner-
                                       occupied properties
                                       with:
                                       Borrowers in   14 percent..............  15 percent.
                                       census tracts with
                                       tract median income
                                       of no greater than 80
                                       percent of area
                                       median income; or
                                       Borrowers
                                       with income no
                                       greater than 100
                                       percent of area
                                       median income in
                                       census tracts where
                                       (i) tract income is
                                       less than 100 percent
                                       of area median
                                       income, and (ii)
                                       minorities comprise
                                       at least 30 percent
                                       of the tract
                                       population.
Low-Income Refinancing Goal.........  Refinancing mortgages   21 percent..............  21 percent.
                                       on single-family,
                                       owner-occupied
                                       properties with
                                       borrowers with
                                       incomes no greater
                                       than 80 percent of
                                       area median income.
----------------------------------------------------------------------------------------------------------------

B. Multifamily Housing Goal Levels

    The proposed rule would establish the levels for the multifamily 
goal and subgoals for 2018-2020 as follows:

 
----------------------------------------------------------------------------------------------------------------
                                                            Current goal level for      Proposed goal level for
               Goal                       Criteria                   2017                      2018-2020
----------------------------------------------------------------------------------------------------------------
Low-Income Goal...................  Units affordable to   300,000 units.............  315,000 units.
                                     families with
                                     incomes no greater
                                     than 80 percent of
                                     area median income
                                     in multifamily
                                     rental properties
                                     with mortgages
                                     purchased by an
                                     Enterprise.
Very Low-Income Subgoal...........  Units affordable to   60,000 units..............  60,000 units.
                                     families with
                                     incomes no greater
                                     than 50 percent of
                                     area median income
                                     in multifamily
                                     rental properties
                                     with mortgages
                                     purchased by an
                                     Enterprise.
Low-Income Small Multifamily        Units affordable to   10,000 units..............  10,000 units.
 Subgoal.                            families with
                                     incomes no greater
                                     than 80 percent of
                                     area median income
                                     in small
                                     multifamily rental
                                     properties (5 to 50
                                     units) with
                                     mortgages purchased
                                     by an Enterprise.
----------------------------------------------------------------------------------------------------------------

C. Other Proposed Changes

    The proposed rule would make changes and clarifications to the 
existing rules, including minor technical changes to some regulatory 
definitions. The proposed rule also would revise the requirements 
applicable to the housing plan an Enterprise may be required to submit 
based on a failure to achieve one or more of the housing goals.

IV. Single-Family Housing Goals

    This proposed rule sets out FHFA's views about benchmark levels for 
the single-family housing goals from 2018-2020. In making this 
proposal, FHFA has considered the required statutory factors described 
below. FHFA's analysis and goal setting process includes developing 
market forecast models for each of the single-family housing goals, as 
well as considering a number of other variables that impact affordable 
homeownership. Many of these variables indicate that low-income and 
very low-income households are facing, and will continue to face, 
difficulties in achieving homeownership or in refinancing an existing 
mortgage. These factors, such as rising property values and stagnant 
household incomes, also impact the Enterprises' ability to meet their 
mission and facilitate

[[Page 31012]]

affordable homeownership for low-income and very low-income households. 
Nevertheless, FHFA expects and encourages the Enterprises to work 
toward meeting their housing goal requirements in a safe and sound 
manner. This may include steps the Enterprises take to fulfill FHFA's 
access to credit expectations expressed in the most recent 
Conservatorship Scorecard, which requires the Enterprises to undertake 
a number of research and related efforts including the development of 
pilots and initiatives.\10\
---------------------------------------------------------------------------

    \10\ See 2017 Scorecard for Fannie Mae, Freddie Mac, and Common 
Securitization Solutions, December 2016, available at https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/2017-Scorecard-for-Fannie-Mae-Freddie-Mac-and-CSS.pdf.
---------------------------------------------------------------------------

A. Setting the Single-Family Housing Goal Levels

    FHFA process for setting the single-family benchmark levels. 
Section 1332(e)(2) of the Safety and Soundness Act requires FHFA to 
consider the following seven factors in setting the single-family 
housing goals:
    1. National housing needs;
    2. Economic, housing, and demographic conditions, including 
expected market developments;
    3. The performance and effort of the Enterprises toward achieving 
the housing goals in previous years;
    4. The ability of the Enterprises to lead the industry in making 
mortgage credit available;
    5. Such other reliable mortgage data as may be available;
    6. The size of the purchase money conventional mortgage market, or 
refinance conventional mortgage market, as applicable, serving each of 
the types of families described, relative to the size of the overall 
purchase money mortgage market or the overall refinance mortgage 
market, respectively; and
    7. The need to maintain the sound financial condition of the 
Enterprises.\11\
---------------------------------------------------------------------------

    \11\ 12 U.S.C. 4562(e)(2).
---------------------------------------------------------------------------

    FHFA has considered each of these seven statutory factors in 
setting the proposed benchmark levels for each of the single-family 
housing goals and subgoal.
    Recognizing that some of the factors required by statute to be 
considered can be readily captured using reliable data series while 
others cannot, FHFA implemented the following approach: FHFA's 
statistical market models considered factors that are captured through 
well-known and established data series and these are then used to 
generate a point forecast for each goal as well as a confidence 
interval for the point forecast. FHFA then considered the remaining 
statutory factors, as well as other relevant policy factors, in 
selecting the specific point forecast within the confidence interval as 
the proposed benchmark level. FHFA's market forecast models incorporate 
four of the seven statutory factors: national housing needs; economic, 
housing, and demographic conditions; other reliable mortgage data; and 
the size of the purchase money conventional mortgage market or 
refinance conventional mortgage market for each single-family housing 
goal. The market forecast models generate a point estimate, as well as 
a confidence interval. FHFA then considered the remaining three 
statutory factors (historical performance and effort of the Enterprises 
toward achieving the housing goal; ability of the Enterprises to lead 
the industry in making mortgage credit available; and need to maintain 
the sound financial condition of the Enterprises), as well as other 
relevant policy factors in selecting the specific point forecast within 
the confidence interval as the proposed benchmark level for the goal 
period.
    Market forecast models. The purpose of FHFA's market forecast 
models is to forecast the market share of the goal-qualifying mortgage 
originations in the market for the 2018-2020 period. The models are 
intended to generate reliable forecasts rather than to test various 
economic hypotheses about the housing market or to explain the 
relationship between variables. Following standard practice among 
forecasters and economists at other federal agencies, FHFA estimated a 
reduced-form equation for each of the housing goals and fit an 
Autoregressive Integrated Moving Average (or ARIMA) model to each goal 
share. The models look at the statistical relationship between (a) the 
historical market share for each single-family housing goal or subgoal, 
as calculated from monthly HMDA data, and (b) the historical values for 
various factors that may influence the market shares, e.g. interest 
rates, inflation, house prices, home sales, the unemployment rate, and 
other factors. The models then project the future value of the 
affordable market share using forecast values of the model inputs. 
Separate models were developed for each of the single-family housing 
goals and subgoals.
    FHFA has employed similar models in past housing goals rulemakings 
to generate market forecasts. The models were developed using monthly 
series generated from HMDA and other data sources, and the resulting 
monthly forecasts were then averaged into an annual forecast for each 
of the three years in the goal period. The models rely on 12 years of 
HMDA data, from 2004 to 2015, the latest year for which HMDA data are 
available. Additional discussion of the market forecast models can be 
found in a research paper, available at http://www.fhfa.gov/PolicyProgramsResearch/Research/.\12\
---------------------------------------------------------------------------

    \12\ Details on FHFA's single-family market models will be 
available in the technical paper ``The Size of the Affordable 
Mortgage Market: 2018-2020 Enterprise Single-Family Housing Goals.''
---------------------------------------------------------------------------

    In the final rule establishing the housing goals for 2015-2017, 
FHFA stated that it would engage directly with commenters to obtain 
detailed feedback on FHFA's econometric models for the housing goals. 
Throughout 2016, FHFA met with industry modeling experts about 
potential improvements to the econometric models. Considering input 
received, FHFA has revised the market forecast models to include better 
specifications and new variables for all goal-qualifying shares, while 
still following and adhering to generally accepted practices and 
standards adopted by economists, including those at other federal 
agencies. During the model development process, FHFA grouped factors 
that are expected by housing market economists to have an impact on the 
market share of affordable housing into seven broad categories. For 
each category of variables, many variables were tested but only 
retained when they exhibited predictive power. The new set of models 
includes new driver variables that reflect factors that impact the 
affordable housing market--for example, household debt service ratio, 
labor force participation rate, and underwriting standards.
    As is the case with any forecasting model, the accuracy of the 
forecast will vary depending on the accuracy of the inputs to the model 
and the length of the forecast period. FHFA has attempted to minimize 
the first variable by using third party forecasts published by Moody's 
and other accredited mortgage market forecasters. The second variable 
is harder to address. The proposed rule relies on the most up-to-date 
data available as of December 2016, and uses forecasted input values 
for 2017 to produce the forecasts for 2018-2020. The confidence 
intervals for the benchmark levels become wider as the forecast period 
lengthens. In other words, it becomes more likely that the actual 
market levels will be different from the forecasts the farther into the 
future the forecasts attempt to make predictions. Predicting four years 
out is not the usual practice in forecasting. A number of industry 
forecasters, including Fannie Mae, Freddie Mac,

[[Page 31013]]

and the Mortgage Bankers Association (MBA), do not publish forecasts 
beyond two years because accuracy of forecasts decreases substantially 
beyond a two year period.
    Market outlook. There are many factors that impact the affordable 
housing market as a whole, and changes to any one of them may 
significantly impact the ability of the Enterprises to meet the goals. 
In developing our market models, FHFA used Moody's forecasts, where 
available, as the source for macroeconomic variables.\13\ In cases 
where Moody's forecasts were not available (for example, the share of 
government-guaranteed home purchases and the share of government-
guaranteed refinances), FHFA generated and tested its own 
forecasts.\14\ Elements that impact the models and the determination of 
benchmark levels are discussed below.
---------------------------------------------------------------------------

    \13\ The macroeconomic outlook described here is based on 
Moody's and other forecasts as of September 2016.
    \14\ This refers to the mortgages insured/guaranteed by 
government agencies such as the FHA, Department of Veterans Affairs 
(VA), and the Rural Housing Service (RHS).
---------------------------------------------------------------------------

    Interest rates are arguably one of the most important variables in 
determining the trajectory of the mortgage market. The Federal Reserve 
launched its interest rate normalization process in December 2015 with 
a 0.25-percentage point increase. At the July 2016 meeting of the 
Federal Open Market Committee (FOMC), policymakers indicated their 
commitment to a low federal funds rate for the time being, signaling a 
pause in the interest rate normalization path. However, there is broad 
consensus among economists that the Federal Reserve will resume rate 
hikes if the economy performs as expected. Based on Moody's January 
2017 forecast, mortgage interest rates--in particular the 30-year fixed 
rate, which is closely tied to the federal funds rate and the 10-year 
Treasury note yield--are projected to rise gradually from the current 
historic low of 3.6 percent in 2016 to 5.5 percent by 2020.
    The unemployment rate has steadily fallen over the last few years 
and according to Moody's is expected to remain at 4.7 percent over the 
next four years, given expected growth of the economy at the modest 
range of 1.5 to 2.9 percent per year (January 2017 forecast). Moody's 
also forecasts a modest increase in per capita disposable nominal 
income growth--from $43,100 in 2016 to $50,300 in 2020. Moody's 
estimates that the inflation rate will remain flat at 2.0 percent 
throughout the same period, although this also depends on Federal 
Reserve policy.
    Industry analysts generally expect the overall housing market to 
continue its recovery, although the growth of house prices may slow 
down, assuming continued increases in interest rates. According to 
Moody's forecast (as of January 2017) based on FHFA's purchase-only 
House Price Index (HPI), house prices are expected to increase at the 
annual rates of 3.9, 1.8, and 2.0 percent in 2018, 2019, and 2020, 
respectively.
    The expected increase in mortgage interest rates and house prices 
will likely impact the ability of low- and very low-income households 
to purchase homes. Housing affordability, as measured by Moody's 
forecast of the National Association of Realtors' Housing Affordability 
Index, is projected to decline from an index value of 162.2 in 2016 to 
152.5 in 2020. Low interest rates coupled with rising house prices 
usually create incentives for homeowners to refinance, and the 
refinance share of overall mortgage originations increased from 39.9 
percent in 2014 to 50 percent in 2016. However, assuming that interest 
rates rise in the near future, the refinance rate is expected to fall 
below 21.4 percent by 2019, according to the Moody's forecast.
    Additional factors reflecting affordability challenges in the 
single-family market. While FHFA's models can address and forecast many 
of the statutory factors that can make affordability for single-family 
homeownership more challenging for low-income and very low-income 
households, including increasing interest rates and rising property 
values, some factors are not captured in the models. FHFA, therefore, 
considers additional factors when selecting the benchmark point within 
the model-generated confidence interval for each of the single-family 
housing goals. Some of these factors may affect a subset of the market 
rather than the market as a whole. Some of these additional factors 
include an uneven economic recovery, stagnant wages even where 
unemployment is decreasing, demographic trends, and the Enterprises' 
share of the mortgage market. Variability in these factors can also 
have substantial impacts on the ability of the Enterprises to meet 
housing goals. Consequently, as discussed further below, FHFA will 
carefully monitor these factors and consider the potential impact of 
market shifts or larger trends on the ability of the Enterprises to 
achieve the housing goals.
    Throughout 2016, the economy and the housing market continued to 
recover from the financial crisis, but the recovery has been uneven 
across the country. In some areas, economic growth, job gains, and 
demand are outpacing housing supply, sparking rapidly rising property 
values, while other areas of the country have not regained pre-crisis 
home values and are not projected to do so in the near future.
    Trends in factors such as area median income (AMI) point to an 
uneven recovery. FHFA uses census-tract level AMIs published by the 
U.S. Department of Housing and Urban Development (HUD) to determine 
affordability for the Enterprise single-family and multifamily mortgage 
acquisitions. AMI is a measure of median family income derived from the 
Census Bureau's American Community Survey (ACS). Since the 1990s, AMIs 
have been used widely by HUD, state housing finance agencies, the 
Federal Deposit Insurance Corporation (FDIC), the U.S. Department of 
Treasury, and local governments across the nation to determine 
eligibility for various affordable housing and public assistance 
programs. The HUD-published AMIs are considered the standard benchmark 
in the affordable housing industry. HUD changed the methodology for 
determining AMIs in 2015 because of changes in the Census Bureau's data 
collection methodology and changes in the reporting schedules of the 
ACS data.
    AMI shifts reflect changes in borrower income levels at the census 
tract level. In general, a decrease in an area's AMI represents a 
decline in housing affordability in the area because the households 
will have relatively less income with which to purchase a home where 
property values have either remained the same or increased during the 
same time period.\15\ This can make it more challenging for the 
Enterprises to meet the housing goals. Conversely, increases in AMIs 
would make it easier for the Enterprises to meet the housing goals. 
Overall, while there are annual fluctuations in AMI, the trends over a 
longer period (for instance, over four years) indicate that the economy 
is recovering, albeit in an uneven manner. For instance, from 2014 to 
2016, over 80 percent of census tracts experienced an AMI increase. 
Over the four-year period from 2012 to 2016, AMI increased in about 51 
percent of census tracts. This unevenness of the economic recovery is 
particularly evident geographically. For instance, the census tracts 
that experienced more than a 10 percent

[[Page 31014]]

decline in AMIs in 2016 are concentrated in the southern and midwestern 
regions of the country.
---------------------------------------------------------------------------

    \15\ The supply of single-family homes at the more affordable 
end of the market also impacts a low-income or very low-income 
household's ability to purchase a home. See The State of the 
Nation's Housing 2017, Joint Center on Housing Studies, June 2017.
---------------------------------------------------------------------------

    In addition to the uneven recovery reflected in changing AMI 
levels, many households have experienced stagnant wages or limited wage 
growth even though unemployment levels have decreased significantly 
since the peak of the financial crisis. Data released by the U.S. 
Census Bureau last year for the most recent year available reflected 
that while median household income increased by 5.2 percent in 2015, 
the first annual increase in median household income since 2007, median 
wages remained 1.6 percent lower than the median in 2007, the year 
before the most recent recession, and 2.4 percent lower than the median 
household income peak that occurred in 1999.\16\ Constrained wages, in 
addition to rising interest rates and increasing property values, could 
make it difficult for many low-income and very low-income households to 
achieve homeownership.
---------------------------------------------------------------------------

    \16\ See Income and Poverty in the United States: 2015, United 
States Census Bureau, September 2016 https://www.census.gov/content/dam/Census/library/publications/2016/demo/p60-256.pdf.
---------------------------------------------------------------------------

    Demographic changes, such as the housing patterns of millennials or 
the growth of minority households, also reflect challenges in the 
affordable homeownership market. The homeownership rate among 
millennials is lower than other demographic groups, but household 
formation will likely increase as this group ages. However, many 
millennials will face multiple challenges, including difficulty finding 
affordable homes to buy and building enough wealth for a down payment 
and closing costs, particularly in light of student loan and other debt 
burdens. In addition, another continuing demographic trend is the 
growth of minority households, which is projected to be over 70 percent 
of net household growth through 2025.\17\ In light of the fact that the 
median net worth of minority households has been historically low, 
building the necessary wealth to meet down payment and closing costs 
will likely also be a challenge for many of these new households. FHFA 
is committed to identifying new market conditions and challenges and 
working with the Enterprises to identify solutions to help meet these 
challenges. The effectiveness of these solutions, however, cannot be 
accounted for in a model.
---------------------------------------------------------------------------

    \17\ Daniel McCue, Christopher Herbert, Working Paper: Updated 
Household Projections, 2015-2035: Methodology and Results, Harvard 
Joint Center for Housing Studies, December 2016.
---------------------------------------------------------------------------

    Another factor that can affect the Enterprises' ability to support 
affordable homeownership for low-income and very low-income households 
is the Enterprises' overall share of the mortgage market. The 
Enterprises' share of the market is continually subject to fluctuation. 
During the mortgage market bubble, the Enterprises' share of the market 
dropped to about 46 percent in the last quarter of 2005. The other 
significant low point occurred in 2008, when the Enterprises' 
acquisitions accounted for less than 45 percent of the mortgage market. 
Since then, the Enterprises' share has risen overall but declined 
slightly in recent years, accounting for about 52 percent of the market 
in 2015. As shown in Graph 1, over the same time period, the total 
government share of the mortgage market (including FHA, VA, and RHS) 
has been expanding. In 2015, the total government share accounted for 
28 percent of overall mortgage originations, up from 24 percent in 
2014. This is likely an impact of the FHA mortgage insurance premium 
reduction announced in January 2015. As seen in Graph 1, the increase 
in government share came from decreases in the other two segments.
[GRAPHIC] [TIFF OMITTED] TP05JY17.010


[[Page 31015]]


    Both Enterprises' charter acts require that all mortgages the 
Enterprises acquire have mortgage insurance (or one of the other forms 
of credit enhancement specified in the charter acts) if the loan-to-
value (LTV) ratio for the loan at acquisition is greater than 80 
percent. Private mortgage insurance rates are dependent on 
characteristics of the mortgage such as loan term, type of mortgage 
(purchase, type of refinance), LTV ratio, and credit score of the 
borrower. Lenders may also be able to negotiate and obtain lower 
private mortgage insurance directly from the mortgage insurer. 
Therefore, for certain market segments, the choice between government 
mortgage insurance or private mortgage insurance depends on the net 
impact of these factors.
    In recent years private mortgage insurance rates have increased 
relative to government mortgage insurance rates, but the increase has 
not been uniform across the credit score and LTV spectrum. Changes in 
the mortgage insurance market can impact the cost of mortgage insurance 
and, consequently, may influence whether the mortgage is originated 
with private mortgage insurance or with FHA insurance. For example, FHA 
decreased its rates for mortgage insurance from 1.35 percent to 0.85 
percent in January 2015. If FHA decreased or increased its mortgage 
insurance premiums, it would be reasonable to expect further shifts in 
the market that would not be uniform across the credit score and LTV 
spectrum. Reductions in the FHA insurance premium are likely to have 
two impacts on the conforming segment of the market: (1) The 
substitution effect--some borrowers will switch from private mortgage 
insurance to FHA insurance due to the lower premium rate; and (2) the 
expanded homeownership effect--new borrowers, especially those with 
lower credit scores seeking higher LTV loans, will enter the mortgage 
market because they are now able to meet the debt-to-income threshold 
due to the lower monthly mortgage payment. Analysis conducted by 
Federal Reserve Board staff indicates that both effects existed after 
the last FHA reduction.\18\ Increases in FHA premiums would likely 
result in reverse shifts.
---------------------------------------------------------------------------

    \18\ Bhutta, Neil and Ringo, Daniel (2016). ``Changing FHA 
Mortgage Insurance Premiums and the Effects on Lending,'' FEDS 
Notes. Washington: Board of Governors of the Federal Reserve System, 
September 29, 2016, http://dx.doi.org/10.17016/2380-7172.1843.
---------------------------------------------------------------------------

    As discussed above, multiple factors impact the Enterprises' 
ability to meet their mission and support affordable homeownership 
through the housing finance market. Nevertheless, FHFA expects the 
Enterprises to continue efforts in a safe and sound manner to support 
affordable homeownership under the single-family housing goals 
categories.

B. Proposed Single-Family Benchmark Levels

1. Low-Income Home Purchase Goal
    The low-income home purchase goal is based on the percentage of all 
single-family, owner-occupied home purchase mortgages purchased by an 
Enterprise that are for low-income families, defined as families with 
incomes less than or equal to 80 percent of AMI. The proposed rule 
would set the annual low-income home purchase housing goal benchmark 
level for 2018-2020 at 24 percent, the same as the current 2015-2017 
benchmark level. FHFA believes that, despite the various challenges to 
affordability highlighted above, the Enterprises will be able to take 
steps to maintain or increase their performance on this goal.

                                                    Table 1--Enterprise Low-Income Home Purchase Goal
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Historical performance                               Projected performance
                      Year                       -------------------------------------------------------------------------------------------------------
                                                      2013         2014         2015         2016         2017         2018         2019         2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
Actual Market...................................        24.0%        22.8%        23.6%  ...........  ...........  ...........  ...........  ...........
Benchmark.......................................          23%          23%          24%          24%          24%  ...........  ...........  ...........
Current Market Forecast.........................  ...........  ...........  ...........        23.9%        24.9%        25.5%        24.0%        23.0%
                                                  ...........  ...........  ...........      +/-2.5%      +/-4.3%      +/-5.6%      +/-6.6%      +/-7.4%
Fannie Mae Performance:
    Low-Income Home Purchase Mortgages..........      193,712      177,846      188,891      221,249  ...........  ...........  ...........  ...........
    Total Home Purchase Mortgages...............      814,137      757,870      802,432      964,847  ...........  ...........  ...........  ...........
    Low-Income % of Home Purchase Mortgages.....        23.8%        23.5%        23.5%        22.9%  ...........  ...........  ...........  ...........
Freddie Mac Performance:
    Low-Income Home Purchase Mortgages..........       93,478      108,948      129,455      153,435  ...........  ...........  ...........  ...........
    Total Home Purchase Mortgages...............      429,158      519,731      579,340      644,991  ...........  ...........  ...........  ...........
    Low-Income % of Home Purchase Mortgages.....        21.8%        21.0%        22.3%        23.8%  ...........  ...........  ...........  ...........
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As shown in Table 1, performance at both Enterprises has fallen 
short of the market in the low-income purchase goal almost every year 
since 2013 (with the exception of Fannie Mae in 2014), although the 
Enterprises have sometimes missed the market look-back goal only by 
one- or two-tenths of a percentage point. Performance at both 
Enterprises fell short of both the benchmark and the market level in 
2015. The past performance of the Enterprises indicates that it has 
been difficult for the Enterprises to consistently lead this market 
segment in making credit available.
    From 2013 to 2014, the low-income home purchase market decreased 
from

[[Page 31016]]

24.0 percent to 22.8 percent. In 2015, the actual market rebounded to 
23.6 percent. FHFA's current model forecasts that the market for this 
goal will increase slightly to 23.9 percent in 2016 and then to 24.9 
percent in 2017. (Actual market levels for 2016 will not be available 
until HMDA data are published in September 2017.) Although the 
Enterprises have been challenged in meeting the percentage single-
family housing goal levels in recent years, FHFA notes that each 
Enterprise has increased the number of single-family home purchase 
loans made to low-income households. Fannie Mae's eligible single-
family loan purchases increased from 193,712 loans in 2013 to 221,249 
in 2016. Freddie Mac's eligible single-family loan purchases increased 
from 93,478 in 2013 to 153,435 in 2016.
    From 2018 to 2020, the proposed goals period, the current forecast 
peaks at 25.5 percent in 2018, before decreasing to 24.0 percent in 
2019 and 23.0 percent in 2020. The average of these projections is 24.1 
percent. This forecast is based on the latest data available and will 
be updated before the release of the final housing goals rule. The 
confidence intervals for the 2018-2020 goal period are wide, but they 
will narrow before the final rule is published.
    FHFA is proposing a benchmark level for the low-income home 
purchase housing goal that is close to the market forecast, to 
encourage the Enterprises to continue to find ways to support lower 
income borrowers while not compromising safe and sound lending 
standards. FHFA notes that the proposed benchmark is close to the 
average of its market forecast for this goal. FHFA recognizes that 
there may be challenges to meeting this goal, including uneven growth 
in AMI and the relative affordability of private mortgage insurance, 
that may be beyond the control of the Enterprises and impact their 
ability to achieve these goals. FHFA will continue to monitor the 
Enterprises, both as regulator and as conservator, and if FHFA 
determines in later years that the benchmark level for the low-income 
home purchase housing goal is no longer feasible for the Enterprises to 
achieve in light of market conditions or for any other reason, FHFA can 
take appropriate steps to adjust the benchmark level.
2. Very Low-Income Home Purchase Goal
    The very low-income home purchase goal is based on the percentage 
of all single-family, owner-occupied home purchase mortgages purchased 
by an Enterprise that are for very low-income families, defined as 
families with incomes less than or equal to 50 percent of the area 
median income. The proposed rule would set the annual very low-income 
home purchase housing goal benchmark level for 2018 through 2020 at 6 
percent, also unchanged from the current 2015 to 2017 benchmark level.

                                                       Table 2--Very Low-Income Home Purchase Goal
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Historical performance                               Projected performance
                      Year                       -------------------------------------------------------------------------------------------------------
                                                      2013         2014         2015         2016         2017         2018         2019         2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
Actual Market...................................         6.3%         5.7%         5.8%  ...........  ...........  ...........  ...........  ...........
Benchmark.......................................           7%           7%           6%           6%           6%  ...........  ...........  ...........
Current Market Forecast.........................  ...........  ...........  ...........         5.9%         6.4%         6.7%         6.3%         6.2%
                                                  ...........  ...........  ...........      +/-0.8%      +/-1.4%      +/-1.8%      +/-2.1%      +/-2.4%
Fannie Mae Performance:
    Very Low-Income Home Purchase Mortgages.....       48,810       42,872       45,022       49,852  ...........  ...........  ...........  ...........
    Total Home Purchase Mortgages...............      814,137      757,870      802,432      964,847  ...........  ...........  ...........  ...........
    Very Low-Income % of Home Purchase Mortgages         6.0%         5.7%         5.6%         5.2%  ...........  ...........  ...........  ...........
Freddie Mac Performance:
    Very Low-Income Home Purchase Mortgages.....       23,705       25,232       31,146       36,838  ...........  ...........  ...........  ...........
    Total Home Purchase Mortgages...............      429,158      519,731      579,340      644,991  ...........  ...........  ...........  ...........
    Very Low-Income % of Home Purchase Mortgages         5.5%         4.9%         5.4%         5.7%  ...........  ...........  ...........  ...........
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Since 2013, the market for very low-income home purchase loans has 
also been declining, as reflected in HMDA data, although there was a 
slight uptick in 2015. FHFA has gradually lowered the benchmark for 
this goal from 8 percent in 2010 to 6 percent in 2015. Despite this 
reduction, the performance of both Enterprises has fallen below the 
benchmark and the market levels in each year since 2013. In addition, 
both Enterprises are projected to fall below the 6 percent benchmark 
level in 2016.
    FHFA market analysis reflects a relatively flat trend for this 
segment, at 5.7 percent in 2014 and 5.8 percent in 2015. FHFA's current 
model forecasted the market to increase slightly to 5.9 percent in 2016 
and then to 6.4 percent in 2017. For the 2018-2020 goal period, FHFA's 
forecast indicates an increase to 6.7 percent in 2018, followed by 
declines to 6.3 percent and 6.2 percent in 2019 and 2020, respectively. 
As noted earlier, the confidence intervals widen as the forecast period 
lengthens, and will reduce somewhat as FHFA incorporates more 
information before publishing the final rule.
    Similar to the low-income home purchase goal, FHFA is proposing a 
benchmark level that is near the market forecast to encourage the 
Enterprises to continue their efforts to promote safe and sustainable 
lending to very low-

[[Page 31017]]

income families. As noted in the low-income purchase goal discussion, 
FHFA believes that there are significant challenges to housing 
affordability that may be beyond the control of the Enterprises that 
could make the proposed benchmark a challenge for the Enterprises. As 
each Enterprise has been struggling to meet the current benchmark and 
market levels, the proposed benchmark will continue to encourage the 
Enterprise to safely and soundly innovate in this area. FHFA, as 
regulator and as conservator, will continue to monitor the Enterprises' 
performance, and if FHFA determines in later years that the benchmark 
level for the very low-income areas home purchase housing goal is no 
longer feasible for the Enterprises to achieve in light of market 
conditions or for any other reason, FHFA may take appropriate steps to 
adjust the benchmark level.
3. Low-Income Areas Home Purchase Subgoal
    Background. The low-income areas home purchase subgoal is based on 
the percentage of all single-family, owner-occupied home purchase 
mortgages purchased by an Enterprise that are either: (1) For families 
in low-income areas, defined to include census tracts with median 
income less than or equal to 80 percent of AMI; or (2) for families 
with incomes less than or equal to AMI who reside in minority census 
tracts (defined as census tracts with a minority population of at least 
30 percent and a tract median income of less than 100 percent of AMI). 
Borrowers could qualify under either or both conditions. As noted in 
Table 3, mortgages satisfying condition (1) above (borrowers in low-
income areas) are almost typically double the share of mortgages 
satisfying condition (2) (moderate-income borrowers in minority census 
tracts). For example, in 2015, 12.2 percent of mortgages met only 
condition (1), 7.6 percent met only condition (2), and 4.6 percent of 
mortgages met both conditions.

                                    Table 3--Composition of Low-Income Areas Home Purchase Subgoal Based on HMDA Data
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Low-income     High minority   High minority
                                                                             All low-      census tracts  areas that are  areas that are     All high
                          Year                              Low-income     income areas    that are not      also low-    not low-income  minority areas
                                                           area goal (%)        (%)        high minority   income census   census tracts        (%)
                                                                                             areas (%)      tracts (%)          (%)
                                                                     (A)             (B)             (C)             (D)             (E)             (F)
                                                             Grand Total              LI      LI, not HM       HM and LI      HM, not LI              HM
--------------------------------------------------------------------------------------------------------------------------------------------------------
Distribution of HMDA Borrowers by Census Tract Location:
    2004................................................            16.8            13.3             8.1             5.3             3.5             8.7
    2005................................................            15.3            12.5             8.3             4.2             2.8             7.0
    2006................................................            15.8            13.1             8.9             4.3             2.7             6.9
    2007................................................            16.2            13.3             8.5             4.8             3.0             7.7
    2008................................................            14.3            11.6             7.4             4.2             2.7             6.9
    2009................................................            13.1            10.0             5.9             4.1             3.0             7.2
    2010................................................            12.1             9.2             5.6             3.6             2.9             6.5
    2011................................................            11.4             8.8             5.5             3.3             2.6             5.9
    2012................................................            13.5            10.3             6.0             4.3             3.2             7.5
    2013................................................            14.1            10.9             6.6             4.3             3.1             7.4
    2014................................................            15.0            12.0             7.5             4.6             3.0             7.5
    2015................................................            15.1            12.2             7.6             4.6             2.9             7.5
Enterprises' Performance:
    2010................................................            11.6             8.7             5.2             3.5             2.9             6.4
    2011................................................            10.7             8.1             5.1             3.1             2.6             5.7
    2012................................................            12.6             9.3             5.4             3.9             3.3             7.2
    2013................................................            13.4            10.2             6.2             4.0             3.2             7.2
    2014................................................            14.7            11.6             7.0             4.5             3.2             7.7
    2015................................................            15.1            12.1             7.4             4.6             3.0             7.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: FHFA's tabulation of Home Mortgage Disclosure Act (HMDA) and Enterprises' data. Conventional conforming single-family owner-occupied 1st lien
  non-HOEPA originations.

    The forecast for this subgoal is obtained by generating separate 
forecasts for the two sub-populations (the low-income areas component 
and the high-minority income component). For this proposed rulemaking, 
FHFA has tested alternate model specifications for this subgoal and 
determined that aligning the overlapping portion with the low-income 
area component yields forecast estimates that are more precise (in 
terms of a narrower confidence interval).\19\
---------------------------------------------------------------------------

    \19\ Details are available in the market model paper, ``The Size 
of the Affordable Mortgage Market: 2018-2020 Enterprise Single-
Family Housing Goals,'' available at http://www.fhfa.gov/PolicyProgramsResearch/Research/PaperDocuments/Market-Estimates_2018-2020.pdf.
---------------------------------------------------------------------------

    FHFA sought to understand how the markets in low-income areas and 
high minority census tracts have evolved in recent years and who was 
being served by the Enterprises' efforts in these areas. FHFA's 
analysis found that the mortgage market in both low-income areas and in 
high-minority census tracts has been moving towards borrowers with 
higher incomes in recent years. As noted in Table 4, HMDA data show 
that both the low-income areas and the high-minority areas have 
increasing shares of borrowers with incomes at or above 100 percent of 
AMI, although loans to borrowers with incomes over 100 percent of AMI 
do not qualify for the minority areas component of the goal. For 
instance, the share of loans made to borrowers with incomes less than 
50 percent of AMI and residing in low-income areas decreased from 17.8 
percent in 2010 to 14.1 percent in 2015, after peaking at 19 percent in 
2012. Over the same period, the share of loans made to borrowers with 
incomes greater than 100 percent of AMI and residing in these low-
income census tracts increased from 38.8 percent in 2010 to

[[Page 31018]]

42.1 percent in 2015, after dipping to 36.5 percent in 2012. Thus, 
borrowers with higher incomes have made up an increasing share of the 
mortgage market in the low-income areas. A similar trend exists among 
borrowers residing in high minority census tracts. While borrowers with 
incomes greater than 100 percent of AMI represented 42.5 percent of 
borrowers in these census tracts in 2010, the share increased to 49.2 
percent in 2015.

                                          Table 4--Borrower Income Relative to AMI for Low-Income Areas Subgoal
                                                                         [HMDA]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             2010 (%)        2011 (%)        2012 (%)        2013 (%)        2014 (%)        2015 (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Borrowers Residing in Low-Income Census Tracts:
    Borrower Income <=50% AMI...........................            17.8            17.7            19.0            15.4            14.1            14.1
    Borrower Income >50% and <=60% AMI..................             9.6             9.0            10.5             9.8             9.3             9.3
    Borrower Income >60% and <=80% AMI..................            18.4            17.6            18.8            18.6            18.6            18.6
    Borrower Income >80% and <=100% AMI.................            14.3            13.9            13.9            14.7            14.9            14.9
    Borrower Income >100% and <=120% AMI................            10.1            10.0            10.0            10.8            11.3            11.3
    Borrower Income >120% AMI...........................            28.7            30.5            26.5            29.3            30.9            30.8
    Income Missing......................................             1.0             1.4             1.3             1.3             0.9             1.0
        Total...........................................           100.0           100.0           100.0           100.0           100.0           100.0
Borrowers Residing in High-Minority Census Tracts:
    Borrower Income <=50% AMI...........................            14.9            15.0            14.6            11.3            10.1            10.3
    Borrower Income >50% and <=60% AMI..................             9.0             8.7             9.1             8.1             7.6             7.6
    Borrower Income >60% and <=80% AMI..................            18.0            17.7            17.7            16.9            16.8            17.0
    Borrower Income >80% and <=100% AMI.................            14.6            14.3            14.1            14.7            14.8            14.9
    Borrower Income >100% and <=120% AMI................            10.9            10.6            11.0            11.7            12.0            12.2
    Borrower Income >120% AMI...........................            31.6            32.4            32.3            36.0            37.8            37.0
    Income Missing......................................             1.0             1.3             1.3             1.4             0.9             1.0
                                                         -----------------------------------------------------------------------------------------------
        Total...........................................           100.0           100.0           100.0           100.0           100.0           100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Definitions:
Low-income census tracts = Census tracts with median income <=80% Area Median Income (AMI).
High-minority census tracts = Census tracts where (i) tract median income <=100% Area Median Income (AMI); and (ii) minorities comprise at least 30
  percent of the tract population.
Source: FHFA's tabulation of HMDA data.

    The presence of higher income borrowers in lower income and higher 
minority areas may be a sign of economic diversity in those areas and 
may be related to the possibility of improved economic indicators for 
the community, but there is nevertheless some concern that such a trend 
could displace lower income households in these areas. Change in the 
mix of renters to owner-occupied households often precedes and 
accompanies these trends. FHFA is aware that this particular subgoal 
may encourage the Enterprises to focus on purchasing loans for higher 
income households in low-income and high-minority areas, and FHFA is 
also aware of concerns about the impact of rising housing costs on 
existing households in lower-income or higher-minority areas. FHFA 
welcomes input on all aspects of the low-income areas goal and subgoal, 
and in particular how best to satisfy the policy objectives of the 
various components of the goal and subgoal.
    Table 5 shows similar trends in Enterprise acquisitions of 
mortgages in low-income areas and high-minority areas. In 2015, 42.5 
percent of Enterprise acquisitions were of loans made to borrowers with 
incomes greater than or equal to 100 percent of the AMI, up from 40.7 
percent in 2010. Also in 2015, 48.3 percent of Enterprise acquisitions 
in high-minority census tracts were acquisitions of loans made to 
borrowers with incomes greater than or equal to 100 percent of AMI, up 
from 45.4 percent in 2010.

                                          Table 5--Borrower Income Relative to AMI for Low-Income Areas Subgoal
                                                                 [Enterprise Loans Only]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             2010 (%)        2011 (%)        2012 (%)        2013 (%)        2014 (%)        2015 (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Borrowers Residing in Low-Income Census Tracts:
    Borrower Income <=50% AMI...........................            16.7            16.3            18.2            14.5            13.4            13.4
    Borrower Income >50% and <=60% AMI..................             9.2             8.8            10.0             9.6             9.4             9.4

[[Page 31019]]

 
    Borrower Income >60% and <=80% AMI..................            18.4            17.5            18.6            18.6            19.0            19.1
    Borrower Income >80% and <=100% AMI.................            14.8            14.4            14.6            15.3            15.5            15.6
    Borrower Income >100% and <=120% AMI................            10.8            10.9            10.8            11.5            11.7            11.8
    Borrower Income >120% AMI...........................            29.9            32.0            27.7            30.5            31.0            30.7
    Income Missing......................................             0.2             0.0             0.0             0.0             0.0             0.0
                                                         -----------------------------------------------------------------------------------------------
        Total...........................................           100.0           100.0           100.0           100.0           100.0           100.0
Borrowers Residing in High-Minority Census Tracts:
    Borrower Income <=50% AMI...........................            13.3            12.9            15.2            11.5            10.3            10.3
    Borrower Income >50% and <=60% AMI..................             8.4             8.0             9.0             8.3             8.0             7.9
    Borrower Income >60% and <=80% AMI..................            17.7            16.9            18.0            17.7            17.7            17.7
    Borrower Income >80% and <=100% AMI.................            15.1            14.7            14.9            15.5            15.7            15.9
    Borrower Income >100% and <=120% AMI................            11.6            11.4            11.5            12.4            12.6            12.8
    Borrower Income >120% AMI...........................            33.8            36.2            31.3            34.6            35.7            35.5
    Income Missing......................................             0.2             0.1             0.0             0.0             0.0             0.0
                                                         -----------------------------------------------------------------------------------------------
        Total...........................................           100.0           100.0           100.0           100.0           100.0           100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Definitions:
Low-income census tracts = Census tracts with median income <=80% Area Median Income (AMI).
High-minority census tracts = Census tracts where (i) tract median income <=100% Area Median Income (AMI); and (ii) minorities comprise at least 30
  percent of the tract population.
Source: FHFA's tabulation of Enterprises' data.

    Proposed rule. The proposed rule would raise the annual low-income 
areas home purchase subgoal benchmark level for 2018 through 2020 to 15 
percent from the 14 percent level set for the current goal period 
(2015-2017).

                                                     Table 6--Low-Income Areas Home Purchase Subgoal
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Historical performance                               Projected performance
                      Year                       -------------------------------------------------------------------------------------------------------
                                                      2013         2014         2015         2016         2017         2018         2019         2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
Actual Market...................................        14.2%        15.2%        15.2%  ...........  ...........  ...........  ...........  ...........
Benchmark.......................................          11%          11%          14%          14%          14%  ...........  ...........  ...........
Current Market Forecast.........................  ...........  ...........  ...........        14.7%        15.6%        15.8%        16.1%        15.7%
                                                  ...........  ...........  ...........      +/-1.2%      +/-2.0%      +/-2.6%      +/-3.1%      +/-3.5%
Fannie Mae Performance:
    Low-Income Area Home Purchase Mortgages.....       86,430       91,691       99,723          n/a  ...........  ...........  ...........  ...........
    High-Minority Area Home Purchase Mortgages..       27,425       25,650       25,349          n/a  ...........  ...........  ...........  ...........
    Subgoal-Qualifying Total Home Purchase            113,855      117,341      125,072      156,441  ...........  ...........  ...........  ...........
     Mortgages..................................
    Total Home Purchase Mortgages...............      814,137      757,870      802,432      964,847  ...........  ...........  ...........  ...........
    Low-Income Area % of Home Purchase Mortgages        14.0%        15.5%        15.6%        16.2%  ...........  ...........  ...........  ...........
Freddie Mac Performance:
    Low-Income Area Home Purchase Mortgages.....       40,444       55,987       67,172          n/a  ...........  ...........  ...........  ...........
    High-Minority Area Home Purchase Mortgages..       12,177       14,808       16,601          n/a  ...........  ...........  ...........  ...........

[[Page 31020]]

 
    Subgoal-Qualifying Total Home Purchase             52,621       70,795       83,773      100,608  ...........  ...........  ...........  ...........
     Mortgages..................................
    Total Home Purchase Mortgages...............      429,158      519,731      579,340      644,991  ...........  ...........  ...........  ...........
    Low-Income Area % of Home Purchase Mortgages        12.3%        13.6%        14.5%        15.6%  ...........  ...........  ...........  ...........
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Both Enterprises have met this subgoal every year since 2013, 
regularly exceeding both the market and the benchmark levels. Fannie 
Mae's performance exceeded both the market and the benchmark in 2014 
and 2015, although its performance was lower than that of the market in 
2013. From 2013 through 2015, Freddie Mac's performance exceeded the 
benchmark but was below the market level. FHFA's forecast indicates 
that the market will increase slightly in the coming years, reaching a 
maximum level of 16.1 in 2019.
    FHFA is proposing only a modest increase in the benchmark level 
that reflects the recent performance levels of the Enterprises while 
FHFA continues to evaluate whether the measure meets policy objectives. 
FHFA, as regulator and as conservator, will continue to monitor the 
Enterprises' performance, and if FHFA determines in later years that 
the benchmark level for the low-income areas home purchase housing 
subgoal is no longer feasible for the Enterprises to achieve in light 
of market conditions or for other reasons, FHFA may take appropriate 
steps to adjust the benchmark level.
4. Low-Income Areas Home Purchase Goal
    The low-income areas home purchase goal covers the same categories 
as the low-income areas home purchase subgoal, but it also includes 
moderate income families in designated disaster areas. As a result, the 
low-income areas home purchase goal is based on the percentage of all 
single-family, owner-occupied home purchase mortgages purchased by an 
Enterprise that are: (1) For families in low-income areas, defined to 
include census tracts with median income less than or equal to 80 
percent of AMI; (2) for families with incomes less than or equal to AMI 
who reside in minority census tracts (defined as census tracts with a 
minority population of at least 30 percent and a tract median income of 
less than 100 percent of AMI); or (3) for families with incomes less 
than or equal to 100 percent of AMI who reside in designated disaster 
areas.
    The low-income areas goal benchmark level is established by a two-
step process. The first step is setting the benchmark level for the 
low-income areas subgoal, as established by this proposed rule. The 
second step is establishing an additional increment for mortgages to 
families located in federally-declared disaster areas with incomes less 
than or equal to AMI.\20\ Each year, FHFA sets the disaster area 
increment separately from this rule and notifies the Enterprises by 
letter of the benchmark level for that year. The proposed rule would 
set the annual low-income areas home purchase goal benchmark level for 
2018 through 2020 at the subgoal benchmark level of 15 percent plus a 
disaster areas increment that FHFA will set separately each year.
---------------------------------------------------------------------------

    \20\ Disaster declarations are listed on the Federal Emergency 
Management Agency (FEMA) Web site at https://www.fema.gov/disasters.

                                                      Table 7--Low-Income Areas Home Purchase Goal
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Historical performance
                             Year                             ------------------------------------------------------------------------------------------
                                                                   2010         2011         2012         2013         2014         2015         2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
Actual Market................................................        24.0%        22.0%        23.2%        22.1%        22.1%        19.8%          n/a
Benchmark....................................................          24%          24%          20%          21%          18%          19%          17%
Fannie Mae Performance:
    Subgoal-Qualifying Home Purchase Mortgages...............       59,281       54,285       83,202      113,855      117,341      125,072      156,441
    Disaster Areas Home Purchase Mortgages...................       56,076       50,209       58,085       62,314       54,548       38,885       38,545
    Goal-Qualifying Total Home Purchase Mortgages............      115,357      104,494      141,287      176,169      171,889      163,957      194,986
    Total Home Purchase Mortgages............................      479,200      467,066      633,627      814,137      757,870      802,432      964,847
    Goal Performance.........................................        24.1%        22.4%        22.3%        21.6%        22.7%        20.4%        20.2%
Freddie Mac Performance:
    Subgoal-Qualifying Home Purchase Mortgages...............       32,089       23,902       32,750       52,621       70,795       83,773      100,608
    Disaster Areas Home Purchase Mortgages...................       38,898       26,232       26,486       33,123       33,923       26,411       27,709
    Goal-Qualifying Total Home Purchase Mortgages............       70,987       50,134       59,236       85,744      104,718      110,184      128,317
    Total Home Purchase Mortgages............................      307,555      260,796      288,007      429,158      519,731      579,340      644,991

[[Page 31021]]

 
    Goal Performance.........................................        23.1%        19.2%        20.6%        20.0%        20.1%        19.0%        19.9%
--------------------------------------------------------------------------------------------------------------------------------------------------------

5. Low-Income Refinancing Goal
    The low-income refinancing goal is based on the percentage of all 
single-family, owner-occupied refinance mortgages purchased by an 
Enterprise that are for low-income families, defined as families with 
incomes less than or equal to 80 percent of AMI. The proposed rule 
would set the annual low-income refinancing housing goal benchmark 
level for 2018 through 2020 at 21 percent. While this proposed 
benchmark level is unchanged from the current 2015 to 2017 benchmark 
level, FHFA believes that this level will nevertheless be challenging 
for the Enterprises given the current level of interest rates (which 
are at historic low levels) and the likelihood of interest rate hikes. 
Because of the significant impacts interest rate changes have on this 
market, Enterprise and market performance on this goal are particularly 
susceptible to fluctuation. Moderation in the setting of this goal is 
also supported by the fact that many borrowers have already refinanced 
during the recent extended period of historically low interest rates.

                                                          Table 8--Low-Income Refinancing Goal
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Historical performance                               Projected performance
                      Year                       -------------------------------------------------------------------------------------------------------
                                                      2013         2014         2015         2016         2017         2018         2019         2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
Actual Market...................................        24.3%        25.0%        22.5%  ...........  ...........  ...........  ...........  ...........
Benchmark.......................................          20%          20%          21%          21%          21%  ...........  ...........  ...........
Current Market Forecast.........................  ...........  ...........  ...........        21.1%        23.4%        24.3%        25.5%        24.8%
                                                  ...........  ...........  ...........      +/-2.9%      +/-4.9%      +/-6.2%      +/-7.3%      +/-8.3%
Fannie Mae Performance:
    Low-Income Refinance Mortgages..............      519,753      215,826      227,817      247,663  ...........  ...........  ...........  ...........
    Total Refinance Mortgages...................    2,170,063      831,218    1,038,663    1,268,648  ...........  ...........  ...........  ...........
    Low-Income % of Refinance Mortgages.........        24.0%        26.0%        21.9%        19.5%  ...........  ...........  ...........  ...........
    Low-Income HAMP Modification Mortgages......       11,858        6,503        3,563          n/a  ...........  ...........  ...........  ...........
    Total HAMP Modification Mortgages...........       16,478        9,288        6,595          n/a  ...........  ...........  ...........  ...........
    Low-Income % of HAMP Modification Mortgages.        72.0%        70.0%        54.0%          n/a  ...........  ...........  ...........  ...........
    Low-Income Refinance & HAMP Modification          531,611      222,329      231,380          n/a  ...........  ...........  ...........  ...........
     Mortgages..................................
    Total Refinance & HAMP Modification             2,186,541      840,506    1,045,258          n/a  ...........  ...........  ...........  ...........
     Mortgages..................................
    Low-Income % of Refinance & HAMP                    24.3%        26.5%        22.1%          n/a  ...........  ...........  ...........  ...........
     Modification Mortgages.....................
Freddie Mac Performance:
    Low-Income Refinance Mortgages..............      306,205      131,921      179,530      174,664  ...........  ...........  ...........  ...........
    Total Refinance Mortgages...................    1,309,435      514,936      795,936      830,824  ...........  ...........  ...........  ...........
    Low-Income % of Refinance Mortgages.........        23.4%        25.6%        22.6%        21.0%  ...........  ...........  ...........  ...........
    Low-Income HAMP Modification Mortgages......       14,757        6,795        3,064          n/a  ...........  ...........  ...........  ...........
    Total HAMP Modification Mortgages...........       21,599       10,335        4,433          n/a  ...........  ...........  ...........  ...........
    Low-Income % of HAMP Modification Mortgages.        68.3%        65.7%        69.1%          n/a  ...........  ...........  ...........  ...........

[[Page 31022]]

 
    Low-Income Refinance & HAMP Modification          320,962      138,716      182,594          n/a  ...........  ...........  ...........  ...........
     Mortgages..................................
    Total Refinance & HAMP Modification             1,331,034      525,271      800,369          n/a  ...........  ...........  ...........  ...........
     Mortgages..................................
    Low-Income % of Refinance & HAMP                    24.1%        26.4%        22.8%          n/a  ...........  ...........  ...........  ...........
     Modification Mortgages.....................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Both Enterprises have met this goal since 2013. The performance of 
the Enterprises on this goal has historically been very close to actual 
market levels. In 2014, when the market figure was at its highest 
point, both Enterprises met the goal and exceeded the market. In 2015, 
Freddie Mac exceeded the market and the benchmark level, and Fannie Mae 
exceeded the benchmark level.
    The low-income share of the refinance market as measured by HMDA 
data has changed dramatically in recent years, increasing from 20.2 
percent in 2010 to a peak of 25.0 percent in 2014. FHFA's model for 
this goal forecasts that this market will decrease in 2016, with a 
sharp rise in 2017-2019, followed by slight moderation in 2020. 
However, the confidence intervals around the forecasts are very wide, 
reflecting the uncertainty about interest rates. Recent macroeconomic 
forecasts have predicted interest rate hikes that have not 
materialized.
    Since 2010 the low-income refinancing housing goal has included 
modifications under the Home Affordable Modification Program 
(HAMP).\21\ HAMP modifications, however, are not included in the data 
used to calculate the market levels. Including HAMP modifications in 
the Enterprise performance numbers increases the measured performance 
of the Enterprises on the low-income refinancing housing goal because 
lower income borrowers make up a greater proportion of the borrowers 
receiving HAMP modifications than the low-income share of the overall 
refinancing mortgage market. However, HAMP modifications have been 
declining over time, and the program stopped taking applications at the 
end of 2016.\22\ The expiration of the HAMP program may make it 
slightly more difficult for the Enterprises to meet the low-income 
refinancing goal.
---------------------------------------------------------------------------

    \21\ The goal has included permanent HAMP modifications to low-
income borrowers in the numerator and all HAMP permanent 
modifications in the denominator.
    \22\ The HAMP program expired at the end of 2016. There will be 
some HAMP modifications that will count toward the Enterprise 
housing goals in 2017 as applications that were initiated before the 
end of the program are converted to permanent modifications.
---------------------------------------------------------------------------

    FHFA, as regulator and conservator, will continue to monitor the 
Enterprises and if FHFA determines in later years that the benchmark 
level for the low-income refinancing housing goal needs to be revised, 
FHFA may take appropriate steps to adjust the benchmark level.

V. Multifamily Housing Goals

    This proposed rule also sets out FHFA's views about benchmark 
levels for the multifamily housing goals from 2018-2020. FHFA has 
considered the required statutory factors described below. Despite the 
strength of the multifamily mortgage market, data indicates a continued 
supply gap of units affordable to lower-income households. However, 
FHFA expects and encourages the Enterprises to fully support affordable 
multifamily housing, in part by fulfilling the multifamily housing 
goals in a safe and sound manner.

A. Factors Considered in Setting the Proposed Multifamily Housing Goal 
Levels

    In setting the proposed benchmark levels for the multifamily 
housing goals, FHFA has considered the statutory factors outlined in 
Section 1333(a)(4) of the Safety and Soundness Act. These factors 
include:
    1. National multifamily mortgage credit needs and the ability of 
the Enterprises to provide additional liquidity and stability for the 
multifamily mortgage market;
    2. The performance and effort of the Enterprises in making mortgage 
credit available for multifamily housing in previous years;
    3. The size of the multifamily mortgage market for housing 
affordable to low-income and very low-income families, including the 
size of the multifamily markets for housing of a smaller or limited 
size;
    4. The ability of the Enterprises to lead the market in making 
multifamily mortgage credit available, especially for multifamily 
housing affordable to low-income and very low-income families;
    5. The availability of public subsidies; and
    6. The need to maintain the sound financial condition of the 
Enterprises.\23\
---------------------------------------------------------------------------

    \23\ 12 U.S.C. 4563(a)(4).
---------------------------------------------------------------------------

    Unlike the single-family housing goals, performance on the 
multifamily housing goals is measured solely against a benchmark level, 
without any retrospective market measure. The absence of a 
retrospective market measure for the multifamily housing goals results, 
in part, from the lack of comprehensive data about the multifamily 
mortgage market. Unlike the single-family market, for which HMDA 
provides a reasonably comprehensive dataset about single-family 
mortgage originations each year, the multifamily market (including the 
affordable multifamily market segment) has no comparable source. 
Consequently, it can be difficult to correlate different datasets that 
usually rely on different reporting formats. For example, some data are 
available by dollar volume while other data are available by unit 
production. \24\
---------------------------------------------------------------------------

    \24\ CFPB is planning to collect and release additional data 
fields (including the number of units for each multifamily loan that 
is reported) beginning in 2018 that likely will be useful in 
creating a retrospective market measure for the multifamily market.
---------------------------------------------------------------------------

    Another difference between the single-family and multifamily goals 
is that there are separate single-family housing goals for home 
purchase and

[[Page 31023]]

refinancing mortgages, while the multifamily goals include all 
Enterprise multifamily mortgage purchases, regardless of the purpose of 
the loan. In addition, unlike the single-family housing goals, the 
multifamily housing goals are measured based on the total volume of 
affordable multifamily mortgage purchases rather than on a percentage 
of multifamily mortgage purchases. The use of total volumes, which FHFA 
measures by the number of eligible units, rather than percentages of 
each Enterprises' overall multifamily purchases, requires that FHFA 
take into account the expected size of the overall multifamily mortgage 
market and the affordable share of the market, as well as the expected 
volume of the Enterprises' overall multifamily purchases and the 
affordable share of those purchases.
    The lack of comprehensive data for the multifamily mortgage market 
is even more acute with respect to the segments of the market that are 
targeted to low-income families, defined as families with incomes at or 
below 80 percent of AMI, and very low-income families, defined as 
families with incomes at or below 50 percent of AMI. As required by the 
Safety and Soundness Act, FHFA determines affordability of multifamily 
units based on a unit's rent and utility expenses not exceeding 30 
percent of the area median income standard for low- and very low-income 
families.\25\ While much of the analysis that follows discusses trends 
in the overall multifamily mortgage market, FHFA recognizes that these 
general trends may not apply to the same extent to all segments of the 
multifamily market. Notwithstanding these challenges, FHFA has 
considered each of the required statutory factors (a number of which 
are related) as discussed below.
---------------------------------------------------------------------------

    \25\ 12 U.S.C. 4563(c).
---------------------------------------------------------------------------

    Multifamily mortgage market. FHFA's consideration of the 
multifamily mortgage market addresses the size of and competition 
within the multifamily mortgage market, as well as the subset of the 
multifamily market affordable to low-income and very low-income 
families. In 2015, the multifamily mortgage origination market 
experienced remarkable growth--year-over-year origination volume grew 
28 percent over the prior year to nearly $250 billion, fueled largely 
by a recovery in multifamily construction. The overall market grew 
modestly in 2016. Forecasts from various industry experts indicate that 
overall multifamily growth in mortgage market volumes and mortgage 
originations are expected to increase only modestly in 2017, both for 
refinancing activity and for financing new multifamily units, and 
remain level in 2018.
    According to the National Multifamily Housing Council's tabulation 
of American Community Survey microdata, in 2015 about 43 percent of 
renter households (18.7 million households) lived in multifamily 
properties, defined as structures with five or more rental units.\26\ 
More generally, the population of renters continued to grow from 35 
million in 2005 to 44 million in 2015, an increase of about one 
quarter.\27\ This growth led to an increase in demand for rental units 
that has only partially been met by expansions in supply. Vacancy rates 
hit a 30-year low in 2016, and are especially low in lower-priced 
segments of the market, while climbing in the high-end segment of many 
markets.\28\ As a result of these factors, rents continued to rise 
nationally and outpaced inflation in 2016.\29\
---------------------------------------------------------------------------

    \26\ Accessed on 9/22/2016 at http://www.nmhc.org/Content.aspx?id=4708#Type_of_Structure.
    \27\ ``America's Rental Housing: Expanding Options for Diverse 
and Growing Demand'' Joint Center on Housing Studies of Harvard 
University, December 2015.
    \28\ ``State of the Nation's Housing 2017,'' Joint Center on 
Housing Studies of Harvard University, June 2017.
    \29\ Id.
---------------------------------------------------------------------------

    Affordability in the multifamily market. There are several factors 
that make it difficult to accurately forecast the affordable share of 
the multifamily mortgage market. First, the portion of the overall 
multifamily mortgage market that provides housing units affordable to 
low-income and very low-income families varies from year to year. 
Second, competition between purchasers of mortgages within the 
multifamily market overall may differ from the competition within the 
affordable multifamily market segment. Finally, the volume for the 
affordable multifamily market segment will depend on the availability 
of affordable housing subsidies.
    Using the measure under which affordable rent and utilities do not 
exceed 30 percent of AMI, affordability for families living in rental 
units has decreased for many households in recent years. The Joint 
Center for Housing Studies (JCHS) 2016 State of the Nation's Housing 
Report notes some concerning trends in the supply of affordable 
multifamily units. For example, the report found that the majority of 
growth in the multifamily housing stock has been the result of new 
construction. Moreover, most of the new construction consists of 
apartments with fewer bedrooms and has been concentrated in urban areas 
with higher median rents. In the same report, JCHS also noted, ``the 
steep rent for new units reflect rising land and development costs, 
which push multifamily construction to the high end of the market.'' 
\30\
---------------------------------------------------------------------------

    \30\ ``The State of the Nation's Housing 2016,'' Joint Center 
for Housing Studies of Harvard University, June 2016, available at 
http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs_2016_state_of_the_nations_housing_lowres.pdf.
---------------------------------------------------------------------------

    JCHS has also noted the significant prevalence of cost-burdened 
renters. In 2015, nearly half of all tenants paid more than 30 percent 
of household income for rental housing, especially in high-cost urban 
markets where most renters reside and where Fannie Mae and Freddie Mac 
have focused their multifamily lending. Among lower-income households, 
cost burdens are especially severe.\31\ In addition, a recent study 
showed that the median incomes of renter households have experienced 
slight declines in some large metropolitan areas in recent years, 
leading to increased cost burdens for these households.\32\
---------------------------------------------------------------------------

    \31\ ``State of the Nation's Housing 2017,'' Joint Center on 
Housing Studies of Harvard University, June 2017.
    \32\ ``Renting in America's Largest Metropolitan Areas,'' NYU 
Furman Center, March 2016.
---------------------------------------------------------------------------

    One source of growth in the stock of lower-rent apartments is 
``filtering,'' a process by which existing units become more affordable 
as they age. However, in recent years, this downward filtering of 
rental units has occurred at a slow pace in most markets. Coupled with 
the permanent loss of affordable units, as these units fall into 
disrepair or units are demolished to create new higher-rent or higher-
valued ownership units, this trend has severely limited the supply of 
lower rent units. As a result, there is an acute shortfall of 
affordable units for extremely low-income renters (earning up to 30 
percent of AMI) and very low-income renters (earning up to 50 percent 
of AMI). This supply gap is especially wide in certain metropolitan 
areas in the southern and western United States.\33\
---------------------------------------------------------------------------

    \33\ ``The Gap: The Affordable Housing Gap Analysis 2017,'' 
National Low Income Housing Coalition, March 2017.
---------------------------------------------------------------------------

    The combination of the supply gap in affordable units which 
resulted in significant increases in rental rates, and the prevalence 
of cost-burdened renters resulting from largely flat real incomes has 
led to an erosion of affordability with fewer units qualifying for the

[[Page 31024]]

housing goals.\34\ This challenge of affordability is also reflected in 
the falling share of low-income multifamily units financed by loans 
purchased by the Enterprises. While 77 percent of the multifamily units 
financed by Fannie Mae in 2011 were low-income, that ratio dropped 
steadily in the intervening years to 64 percent in 2016. At Freddie 
Mac, the low-income share also peaked in 2011 and 2012 at 79 percent, 
and decreased gradually to 68 percent in 2016. For the very low-income 
goal, the share at Fannie Mae peaked in 2012 at 22 percent before 
falling to 12 percent in 2016, and at Freddie Mac the share peaked at 
17 percent in 2013 before falling to 12 percent in 2016.
---------------------------------------------------------------------------

    \34\ ``State of the Nation's Housing 2017,'' Joint Center on 
Housing Studies of Harvard University, June 2017.
---------------------------------------------------------------------------

    Small multifamily properties with 5 to 50 units are also an 
important source of affordable rental housing and represent 
approximately one-third of the affordable rental market. Because they 
have different operating and ownership characteristics than larger 
properties, small multifamily properties often have different financing 
needs. For example, small multifamily properties are more likely to be 
owned by an individual or small investor and less likely to be managed 
by a third party property management firm.\35\ Likewise, the 
affordability of small multifamily units means they generate less 
revenue per unit than larger properties. These factors can make 
financing more difficult to obtain for small multifamily property 
owners. While the volume of Enterprise-supported loans on small 
multifamily properties has been inconsistent in recent years, each 
Enterprise continues to refine its approach to serving this market.
---------------------------------------------------------------------------

    \35\ ``2012 Rental Housing Finance Survey,'' U.S. Census Bureau 
and U.S. Department of Housing and Urban Development, Tables 2b, 2c, 
2d and 3.
---------------------------------------------------------------------------

    Availability of public subsidies. Multifamily housing assistance is 
primarily available in two forms--demand-side subsidies that either 
assist low-income tenants directly (e.g., Section 8 vouchers) or 
provide project-based rental assistance (Section 8 contracts), and 
supply-side subsidies that support the creation and preservation of 
affordable housing (e.g., public housing and Low-Income Housing Tax 
Credit (LIHTC)). The availability of public subsidies impacts the 
overall affordable multifamily housing market, and changes to historic 
programs could significantly impact the ability of the Enterprises to 
meet the goals.
    Financing for affordable multifamily buildings--particularly those 
affordable to very low-income families--often uses an array of state 
and federal supply-side housing subsidies, such as LIHTC, tax-exempt 
bonds, project-based rental assistance, or soft subordinate 
financing.\36\ In recent years, competition for affordable housing 
subsidy has been intense and investor interest in tax credit equity 
projects of all types and in all markets has been strong, especially in 
markets in which bank investors are seeking to meet Community 
Reinvestment Act (CRA) goals. By contrast, in recent months, the 
subsidy provided by the LIHTC program has been volatile and much more 
uncertain, as policymakers consider a broader range of potential tax 
reform legislation that could adversely impact the LIHTC program.
---------------------------------------------------------------------------

    \36\ LIHTC is a supply-side subsidy created under the Tax Reform 
Act of 1986 and is the main source of new affordable housing 
construction in the United States today. Tax credits are used for 
the acquisition, rehabilitation, and/or new construction of rental 
housing for low-income households. LIHTC has facilitated the 
creation or rehabilitation of approximately 2.4 million affordable 
units since inception in 1986.
---------------------------------------------------------------------------

    Subject to the continuing availability of these subsidies, there 
should continue to be opportunities in the multifamily market to 
provide permanent financing for properties with LIHTC during the 2018-
2020 period. There should also be opportunities for market 
participants, including the Enterprises, to purchase mortgages that 
finance the preservation of existing affordable housing units 
(especially for restructurings of older properties that reach the end 
of their initial 15-year LIHTC compliance periods and for refinancing 
properties with expiring Section 8 rental assistance contracts).
    In recent years, demand-side public subsidies and the availability 
of public housing have not kept pace with the growing number of low-
income and very low-income households in need of federal housing 
assistance. As a result, the number of renter households with ``worst 
case needs'' has grown to 8.19 million, an increase of one-third since 
2005.\37\
---------------------------------------------------------------------------

    \37\ ``Preview of 2015 Worst Case Housing Needs,'' U.S. 
Department of Housing and Urban Development, January 2017. Renters 
with worse case needs have very low incomes, lack housing 
assistance, and have either severe rent burdens or severely 
inadequate housing (or both).
---------------------------------------------------------------------------

    Role of the Enterprises. In setting the proposed multifamily 
housing goals, FHFA has considered the ability of the Enterprises to 
lead the market in making multifamily mortgage credit available. The 
share of the overall multifamily market purchased by the Enterprises 
increased in the years immediately following the financial crisis but 
has declined more recently in response to growing private sector 
participation. The Enterprise share of the multifamily origination 
market was approximately 70 percent of the market in 2008 and 2009 
compared to 38 percent in 2015.\38\ The total share is expected to 
remain at around the 2015 level in 2016, 2017, and 2018 in light of the 
Scorecard cap imposed by FHFA in its role as conservator (discussed 
below).
---------------------------------------------------------------------------

    \38\ Urban Institute, ``The GSEs' Shrinking Role in the 
Multifamily Market,'' April 2015.
---------------------------------------------------------------------------

    Despite the Enterprises' reduced market share in the overall 
multifamily market, FHFA expects the Enterprises to continue to 
demonstrate leadership in multifamily affordable housing by providing 
liquidity and supporting housing for tenants at different income levels 
in various geographic markets and in various market segments.
    Conservatorship limits on multifamily mortgage purchases 
(Conservatorship Scorecard cap). As conservator of the Enterprises, 
FHFA has established a yearly cap in the Conservatorship Scorecard that 
limits the amount of conventional (market-rate) multifamily loans that 
each Enterprise can purchase. The multifamily lending cap is intended 
to further FHFA's conservatorship goal: Maintaining the presence of the 
Enterprises as a backstop for the multifamily finance market, while not 
impeding the participation of private capital. This target for the 
Enterprise share of the multifamily origination market reflect what is 
generally considered by the industry as an appropriate market share for 
the Enterprises during normal market conditions. The cap prevents the 
Enterprises from crowding out other capital sources and restrains the 
rapid growth of the Enterprises' multifamily businesses that started in 
2011.\39\
---------------------------------------------------------------------------

    \39\ MBA, 2015 Annual Report on Multifamily Lending, October 
2016.
---------------------------------------------------------------------------

    In 2015, FHFA established a cap of $30 billion on new conventional 
multifamily loan purchases for each Enterprise in response to increased 
participation in the market from private sector capital. In 2016, the 
cap was initially set at $30 billion, raised in May 2016 to $35 
billion, and further increased to $36.5 billion in August, in response 
to growth of the overall multifamily origination market throughout the 
year. These increases maintained the Enterprises' current market share 
at about 40 percent. FHFA has announced that for 2017, the cap will 
remain at $36.5 billion.
    FHFA reviews the market size estimates quarterly, using current 
market data provided by Fannie Mae,

[[Page 31025]]

Freddie Mac, the MBA, and the National Multifamily Housing Council. If 
FHFA determines that the actual market size is greater than was 
projected, the agency will consider an approximate increase to the 
capped (conventional market-rate) category of the Conservatorship 
Scorecard for each Enterprise. In light of the need for market 
participants to plan sales of mortgages during long origination 
processes, if FHFA determines that the actual market size is smaller 
than projected, there will be no reduction to the capped volume for the 
current year from the amount initially established under the 
Conservatorship Scorecard.
    In order to encourage affordable lending activities, FHFA excludes 
many types of loans in underserved markets from the Conservatorship 
Scorecard cap on conventional loans. The Conservatorship Scorecard has 
no volume targets in the market segments excluded from the cap. There 
is significant overlap between the types of multifamily mortgages that 
are excluded from the Conservatorship Scorecard cap and the multifamily 
mortgages that contribute to the performance of the Enterprises under 
the affordable housing goals. The 2017 Conservatorship Scorecard 
excludes either the entirety of the loan amount or a pro rata share of 
the loan on the following categories: (1) Targeted affordable housing; 
(2) small multifamily properties; (3) blanket loans on manufactured 
housing communities; (4) blanket loans on senior housing and assisted 
living communities; (5) loans in rural areas; (6) loans to finance 
energy or water efficiency improvements; and (7) market rate affordable 
units in standard (60 percent AMI), high cost (80 percent AMI), and 
very high cost (100 percent AMI) markets. By excluding the underserved 
market categories from the cap, the Conservatorship Scorecard continues 
to encourage the Enterprises to support affordable housing in their 
purchases of multifamily mortgages.\40\
---------------------------------------------------------------------------

    \40\ For more information on the Conservatorship Scorecard, see 
https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/2017-Scorecard-for-Fannie-Mae-Freddie-Mac-and-CSS.pdf.
---------------------------------------------------------------------------

B. Proposed Multifamily Housing Goal Benchmark Levels

    In setting the proposed multifamily housing goals, FHFA encourages 
the Enterprises to provide liquidity and to support various multifamily 
finance market segments while doing so in a safe and sound manner. The 
Enterprises have served as a stabilizing force in the multifamily 
market in the years since the financial crisis. During the 
conservatorship period, the Enterprise portfolios of loans on 
multifamily affordable housing properties have experienced low levels 
of delinquency and default, similar to the performance of Enterprise 
loans on market rate properties. In light of this performance, the 
Enterprises should be able to sustain or increase their volume of 
purchases of loans on affordable multifamily housing properties without 
adversely impacting the Enterprises' safety and soundness or negatively 
affecting the performance of their total loan portfolios.
    FHFA continues to monitor the activities of the Enterprises, both 
in FHFA's capacity as regulator and as conservator. If necessary, FHFA 
will make appropriate changes in the multifamily housing goals to 
ensure the Enterprises' continued safety and soundness.
    The proposed rule establishes benchmark levels for the multifamily 
housing goals for the Enterprises. Before finalizing the benchmark 
levels for the low-income and very low-income multifamily goals in the 
final rule, FHFA will review any additional data that become available 
about the multifamily performance of the Enterprises in 2016, updated 
projections of the size of the multifamily market and affordable market 
share, and any public comments received on the proposed multifamily 
housing goals.
1. Multifamily Low-Income Housing Goal
    The multifamily low-income housing goal is based on the total 
number of rental units in multifamily properties financed by mortgages 
purchased by the Enterprises that are affordable to low-income 
families, defined as families with incomes less than or equal to 80 
percent of AMI.

                                  Table 9--Multifamily Low-Income Housing Goal
----------------------------------------------------------------------------------------------------------------
                                                              Historical performance
              Year               -------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Fannie Mae Goal.................         285,000         265,000         250,000         300,000         300,000
Freddie Mac Goal................         225,000         215,000         200,000         300,000         300,000
Fannie Mae Performance:
    Low-Income Multifamily Units         375,924         326,597         260,124         307,510         351,235
    Total Multifamily Units.....         501,256         430,751         372,089         468,798         551,666
    Low-Income % Total..........           75.0%           75.8%           69.9%           65.6%           63.7%
Freddie Mac Performance:
    Low-Income Multifamily Units         298,529         254,628         273,807         379,043         407,340
    Total Multifamily Units.....         377,522         341,921         366,377         514,275         597,033
    Low-Income % of Total Units.           79.1%           74.5%           74.7%           73.7%           68.2%
----------------------------------------------------------------------------------------------------------------

    From 2012 through 2016, both Enterprises exceeded their low-income 
multifamily goals. Prior to 2015, Fannie Mae had higher goals than 
Freddie Mac. For the 2015-2017 goal period, FHFA set the same goal 
level for both Enterprises for the first time, reflecting parity 
between Freddie Mac and Fannie Mae multifamily market share in terms of 
unit counts.
    In 2016, the goal for each Enterprise was 300,000 units. Fannie Mae 
purchased mortgages financing 351,235 low-income units, and Freddie Mac 
purchased mortgages financing 407,340 low-income units. While total 
volumes have increased, the share of low-income units financed at each 
Enterprise has been declining from peak levels in 2012.
    As noted above, the forecast for the multifamily originations 
market increases slightly and then levels off after 2017. The 
Conservatorship Scorecard cap for each Enterprise was raised from an 
initial $30 billion cap to $36.5 billion in August 2016 in response to 
growth of the multifamily origination market throughout the year. This 
change allowed the Enterprises to pursue purchases of a greater volume 
of multifamily originations and support the overall market and may seem 
to

[[Page 31026]]

support an increase in the proposed goal levels for both Enterprises. 
However, the gap between the supply of low-income and very low-income 
units and the needs of low-income households, as described in the 
affordability discussion above, is expected to continue in the next 
goal period. Moreover, the forecast for the multifamily originations 
market for 2017 and 2018 is relatively flat, and securing housing 
subsidies will likely continue to be challenging. These trends suggest 
moderation in any increase in the proposed goal levels. Therefore, 
balancing these considerations, the proposed rule sets the annual low-
income multifamily housing goal for each Enterprise at 315,000 units in 
each year from 2018 through 2020, a modest increase from the 300,000 
unit goal for each Enterprise in 2015-2017.
2. Multifamily Very Low-Income Housing Subgoal
    The multifamily very low-income housing subgoal includes units 
affordable to very low-income families, defined as families with 
incomes no greater than 50 percent of AMI.

                                  Table 10--Multifamily Very Low-Income Subgoal
----------------------------------------------------------------------------------------------------------------
                                                              Historical performance
              Year               -------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Fannie Mae Goal.................          80,000          70,000          60,000          60,000          60,000
Freddie Mac Goal................          59,000          50,000          40,000          60,000          60,000
Fannie Mae Performance:
    Very Low-Income Multifamily          108,878          78,071          60,542          69,078          65,445
     Units......................
    Total Multifamily Units.....         501,256         430,751         372,089         468,798         551,666
    Very Low-Income % of Total             21.7%           18.1%           16.3%           14.7%           11.9%
     Units......................
Freddie Mac Performance:
    Very Low-Income Multifamily           60,084          56,752          48,689          76,935          73,032
     Units......................
    Total Home Purchase                  377,522         341,921         366,377         514,275         597,033
     Mortgages..................
    Very Low-Income % of Total             15.9%           16.6%           13.3%           15.0%           12.2%
     Units......................
----------------------------------------------------------------------------------------------------------------

    From 2012 through 2016, both Enterprises met and exceeded their 
very low-income multifamily goals. In 2016, the goal for each 
Enterprise was 60,000 units. Fannie Mae purchased mortgages financing 
65,445 very low-income units, while Freddie Mac purchased mortgages 
financing 73,032 very low-income units. Similar to the low-income 
multifamily goal, the share of very low-income units financed at each 
Enterprise has been declining in recent years.
    The market for very low-income multifamily housing faces even 
larger challenges than the market for low-income multifamily housing, 
given the need for lower rents--often requiring deeper subsidies--to 
make units affordable to these households. These factors suggest 
moderation in the setting of the very low-income multifamily subgoal 
for the Enterprises. Therefore, the proposed rule maintains the annual 
very low-income multifamily subgoal for each Enterprise at 60,000 units 
each year from 2018 through 2020.
3. Small Multifamily Low-Income Housing Subgoal
    A small multifamily property is defined as a property with 5 to 50 
units. The small multifamily low-income housing subgoal is based on the 
total number of units in small multifamily properties financed by 
mortgages purchased by the Enterprises that are affordable to low-
income families, defined as families with incomes less than or equal to 
80 percent of AMI.

                                 Table 11--Small Multifamily Low-Income Subgoal
----------------------------------------------------------------------------------------------------------------
                                                              Historical performance
              Year               -------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Small Low-Income Multifamily      ..............  ..............  ..............           6,000           8,000
 Goal...........................
Fannie Mae Performance:
    Small Low-Income Multifamily          16,801          13,827           6,732           6,731           9,310
     Units......................
    Total Small Multifamily               26,479          21,764          11,880          11,198          15,230
     Units......................
    Low-Income % of Total Small            63.5%           63.5%           56.7%           60.1%           61.1%
     Multifamily Units..........
Freddie Mac Performance:
    Small Low-Income Multifamily             829           1,128           2,076          12,802          22,101
     Units......................
    Total Small Multifamily                2,194           2,375           4,659          21,246          33,984
     Units......................
    Low-Income % of Total Small            37.8%           47.5%           44.6%           60.3%           65.0%
     Multifamily Units..........
----------------------------------------------------------------------------------------------------------------

    This was a new subgoal created in the 2015-2017 goal period. The 
goal was set at 6,000 units in 2015, 8,000 units in 2016, and 10,000 
units in 2017. In 2016, both Enterprises exceeded the goal of 8,000 
units. Fannie Mae purchased mortgages financing 9,310 units, and 
Freddie Mac purchased mortgages financing 22,101 units.
    The proposed rule would set the annual small multifamily subgoal 
for each Enterprise at 10,000 units for each year from 2018 through 
2020, the same as the 2017 goal. The Enterprises continue to innovate 
in their approaches to serving this market. FHFA is still monitoring 
the trends in this market segment as well as Enterprise performance for 
this new subgoal, and will consider all input in preparation of the 
final rule. However, FHFA is proposing to maintain the same benchmark 
level for 2018 through 2020 as the 2017 benchmark level for both 
Enterprises. Maintaining the current goal should continue to encourage 
the Enterprises' participation in this market and ensure the 
Enterprises have the expertise necessary to serve this market

[[Page 31027]]

should private sources of financing become unable or unwilling to lend 
on small multifamily properties.

VI. Section-by-Section Analysis of Other Proposed Changes

    The proposed rule would also revise other provisions of the housing 
goals regulation, as discussed below.

A. Changes to Definitions--Proposed Sec.  1282.1

    The proposed rule includes changes to definitions used in the 
current housing goals regulation. The proposed rule would revise the 
definitions of ``median income,'' ``metropolitan area,'' and ``non-
metropolitan area'' and would remove the definition of ``AHS.''
1. Definition of ``Median Income''
    The current regulation defines ``median income'' as the unadjusted 
median family income for an area as most recently determined by HUD. 
While this definition accurately identifies the source that FHFA uses 
to determine median incomes each year, the definition does not reflect 
the longstanding practice FHFA has followed in providing the 
Enterprises with the median incomes that the Enterprises must use each 
year. The proposed rule would revise the definition to be clear that 
the Enterprises are required to use the median incomes provided by FHFA 
each year in determining affordability for purposes of the housing 
goals.
    The proposed rule would also make two additional technical changes 
to the definition of ``median income.'' First, the proposed rule would 
add a reference to ``non-metropolitan areas'' in the definition because 
FHFA determines median incomes for both metropolitan areas and non-
metropolitan areas each year. Second, the proposed rule would remove 
the word ``family'' in one place so that the term ``median income'' is 
used consistently throughout the regulation.
    The revised definition would read: ``Median income means, with 
respect to an area, the unadjusted median family income for the area as 
determined by FHFA. FHFA will provide the Enterprises annually with 
information specifying how the median family income estimates for 
metropolitan and non-metropolitan areas are to be applied for purposes 
of determining median income.''
2. Definitions of ``Metropolitan Area'' and ``Non-Metropolitan Area''
    The proposed rule would revise the definitions of ``metropolitan 
area'' and ``non-metropolitan area'' to be consistent with each other 
and to reflect the proposed changes to the definition of ``median 
income'' discussed above.
    The current regulation defines both ``metropolitan area'' and 
``non-metropolitan area'' based on the areas for which HUD defines 
median family incomes. The definition of ``metropolitan area'' refers 
to median family incomes ``determined by HUD,'' while the definition of 
``non-metropolitan area'' refers to median family incomes ``published 
annually by HUD.''
    To be consistent with the proposed changes to the definition of 
``median income,'' the proposed rule would revise the definition of 
``metropolitan area'' by replacing the phrase ``for which median family 
income estimates are determined by HUD'' with the phrase ``for which 
median incomes are determined by FHFA.'' For the same reason, the 
proposed rule would revise the definition of ``non-metropolitan area'' 
by replacing the phrase ``for which median family income estimates are 
published annually by HUD'' with the phrase ``for which median incomes 
are determined by FHFA.''
3. Definition of ``AHS'' (American Housing Survey)
    The proposed rule would remove the definition of ``AHS'' from Sec.  
1282.1 because the term is no longer used in the Enterprise housing 
goals regulation.
    Prior to the 2015 amendments to the Enterprise housing goals 
regulation, the term ``AHS'' was used to specify the data source from 
which FHFA derives the utility allowances used to determine the total 
rent for a rental unit which, in turn, is used to determine the 
affordability of the unit when actual utility costs are not available. 
The 2015 amendments consolidated and simplified the definitions 
applicable to determining the total rent and eliminated the reference 
to AHS in the part of the definition related to utility allowances, 
providing FHFA with flexibility in how it determines the nationwide 
utility allowances. The current nationwide average utility allowances 
are still fixed numbers based on AHS data, but the regulation does not 
require FHFA to rely solely on AHS data to determine those utility 
allowances. The term ``AHS'' is not used anywhere else in the 
regulation, so the proposed rule would remove the definition from Sec.  
1282.1.

B. Data Source for Estimating Affordability of Multifamily Rental 
Units--Proposed Sec.  1282.15(e)(2)

    The proposed rule would revise Sec.  1282.15(e)(2) to update the 
data source used by FHFA to estimate affordability where actual 
information about rental units in a multifamily property is not 
available.
    Section 1282.15(e) permits the Enterprises to use estimated 
affordability information to determine the affordability of multifamily 
rental units for up to 5 percent of the total multifamily rental units 
in properties securing mortgages purchased by the Enterprise each year 
when actual information about the units is not available. The 
estimations are based on the affordable percentage of all rental units 
in the census tract in which the property for which the Enterprise is 
estimating affordability is located.
    The current regulation provides that the affordable percentage of 
all rental units in the census tract will be determined by FHFA based 
on the most recent decennial census. However, the 2000 decennial census 
was the last decennial census that collected this information. The U.S. 
Census Bureau now collects this information through the ACS. Since 
2011, FHFA has used the most recent data available from the ACS to 
determine the affordable percentage of rental units in a census tract 
for purposes of estimating affordability. The proposed rule would 
revise Sec.  1282.15(e)(2) to reflect this change. To take into account 
possible future changes in how rental affordability data is collected, 
the revised sentence would not refer specifically to data derived from 
the ACS. Section 1282.15(e)(2) would be revised to replace the phrase 
``as determined by FHFA based on the most recent decennial census'' 
with the phrase ``as determined by FHFA.''

C. Determination of Median Income for Certain Census Tracts--Proposed 
Sec.  1282.15(g)(2)

    The proposed rule would revise Sec.  1282.15(g) to remove paragraph 
(g)(2), an obsolete provision describing the method that the 
Enterprises were required to use to determine the median income for a 
census tract where the census tract was split between two areas with 
different median incomes.
    Current Sec.  1282.15(g)(2) requires the Enterprises to use the 
method prescribed by the Federal Financial Institutions Examination 
Council to determine the median income for certain census tracts that 
were split between two areas with different median incomes. This 
provision was put in place by the 1995 final rule published by HUD to 
establish the

[[Page 31028]]

Enterprise housing goals under the Safety and Soundness Act.\41\
---------------------------------------------------------------------------

    \41\ See 60 FR 61846 (Dec. 1, 1995).
---------------------------------------------------------------------------

    As discussed above regarding the definition of ``median income,'' 
the process of determining median incomes has changed over the years, 
so that the Enterprises are now required to use median incomes provided 
by FHFA each year when determining affordability for purposes of the 
housing goals. Because FHFA provides median incomes for every location 
in the United States, it is no longer necessary for the regulation to 
set forth a process for the Enterprises to use when it is not certain 
what the applicable median income would be for a particular location. 
Consequently, the proposed rule would remove Sec.  1282.15(g)(2) from 
the regulation.

D. Housing Plan Timing--Proposed Sec.  1282.21(b)(3)

    The proposed rule would revise Sec.  1282.21(b)(3) to provide the 
Director with discretion to determine the appropriate period of time 
that an Enterprise may be subject to a housing plan to address a 
failure to meet a housing goal.
    Section 1336 of the Safety and Soundness Act provides for the 
enforcement of the Enterprise housing goals. If FHFA determines that an 
Enterprise has failed to meet a housing goal and that achievement of 
the goal was feasible, FHFA may require the Enterprise to submit a 
housing plan describing the actions it will take ``to achieve the goal 
for the next calendar year.'' \42\ The Safety and Soundness Act has 
similar provisions for requiring a housing plan if FHFA determines, 
during the year in question, that there is a substantial probability 
that an Enterprise will fail to meet a housing goal and that 
achievement of the goal is feasible. In such cases, the housing plan 
would describe the actions the Enterprise will take ``to make such 
improvements and changes in its operations as are reasonable in the 
remainder of such year.'' The current regulation generally mirrors the 
statutory language on the requirements for a housing plan, except that 
the regulation makes clear that the housing plan must also ``[a]ddress 
any additional matters relevant to the plan as required, in writing, by 
the Director.'' \43\
---------------------------------------------------------------------------

    \42\ See 12 U.S.C. 4566(c)(2).
    \43\ See 12 CFR 1282.21(b).
---------------------------------------------------------------------------

    FHFA required an Enterprise to submit a housing plan for the first 
time in late 2015 in response to Freddie Mac's failure to achieve the 
single-family low-income and very low-income home purchase goals in 
2014. FHFA required Freddie Mac to submit a housing plan setting out 
the steps Freddie Mac would take in 2016 and 2017 to achieve the two 
goals that it failed to achieve in 2013 and 2014. The requirement for 
the plan to address actions taken in both 2016 and 2017 was based on 
FHFA's authority under Sec.  1282.21(b) to require a housing plan to 
address any additional matters required by the Director and was 
intended to address an issue of timing.
    FHFA's final determination on Freddie Mac's performance on the 
housing goals for 2014 was issued on December 17, 2015. As described in 
more detail below, that timing was driven by procedural steps required 
by the Safety and Soundness Act and FHFA's own regulation. If FHFA 
interpreted narrowly the statutory and regulatory provisions stating 
that the housing plan should address the steps the Enterprise would 
take in the following year, the housing plan itself would become 
irrelevant because the year it would cover would have ended before the 
housing plan was even submitted to FHFA.
    The extended time required to reach a final determination housing 
goals performance will occur every year as a result of the procedural 
steps required by the Safety and Soundness Act. Under those procedures, 
if FHFA determines that an Enterprise has failed to achieve a housing 
goal in a particular year, FHFA is first required to issue a 
preliminary determination that generally provides at least 30 days for 
the Enterprise to respond. FHFA must then consider any information 
submitted by the Enterprise before making a final determination on 
whether the Enterprise failed to meet the goal and whether achievement 
of the goal was feasible. If FHFA determines that the Enterprise should 
be required to submit a housing plan, the statute provides for up to 45 
days for the Enterprise to submit its housing plan.\44\ FHFA must then 
evaluate the housing plan, generally within 30 days. The time necessary 
for FHFA's review and determination at each step of this procedural 
process is generally four to six months.
---------------------------------------------------------------------------

    \44\ See 12 U.S.C. 4566(c)(3).
---------------------------------------------------------------------------

    These procedural steps cannot begin until FHFA has the information 
necessary to make a determination on whether the Enterprise has met the 
housing goals. The Enterprises are required to submit their official 
performance numbers to FHFA within 75 days after the end of the year, 
usually March 15 of the following year. Therefore, the earliest that 
FHFA would be able to approve a housing plan from an Enterprise would 
be mid-July of the year following the performance year. For the single-
family housing goals, this time period is extended even further because 
the HMDA data necessary to determine if an Enterprise met the 
retrospective market measurement portion of the single-family housing 
goals are not available until September of the year following the 
performance year.
    Based on (1) FHFA's experience in overseeing the housing goals, in 
particular the experience in requiring Freddie Mac to submit a housing 
plan based on its failure to achieve certain housing goals in 2014, (2) 
the inherent conflict in the timeframes set out in the Safety and 
Soundness Act, and (3) the importance of ensuring that any housing 
plans are focused on sustainable improvements in Enterprise goals 
performance, FHFA is proposing to amend Sec.  1282.21(b)(3) to state 
explicitly that a housing plan that is required based on an 
Enterprise's failure to achieve a housing goal will be required to 
address a time period determined by the Director. If FHFA requires an 
Enterprise to submit a housing plan, FHFA will notify the Enterprise of 
the applicable time period in FHFA's final determination on the 
performance of the Enterprise for a particular year.

VII. Paperwork Reduction Act

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

VIII. 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

[[Page 31029]]

because the regulation applies to Fannie Mae and Freddie Mac, 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 SUPPLEMENTARY INFORMATION, under the 
authority of 12 U.S.C. 4511, 4513 and 4526, FHFA proposes to amend part 
1282 of Title 12 of the Code of Federal Regulations as follows:

CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY

Subchapter E--Housing Goals and Mission

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.


Sec.  1282.1  [Amended]

0
2. Amend Sec.  1282.1 as follows:
0
a. Remove the definition of ``AHS''; and
0
b. Revise the definitions of ``Median income,'' ``Metropolitan area,'' 
and ``Non-metropolitan area.''
    The revisions read as follows:


Sec.  1282.1   Definitions.

* * * * *
    Median income means, with respect to an area, the unadjusted median 
family income for the area as determined by FHFA. FHFA will provide the 
Enterprises annually with information specifying how the median family 
income estimates for metropolitan and non-metropolitan areas are to be 
applied for purposes of determining median income.
    Metropolitan area means a metropolitan statistical area (MSA), or a 
portion of such an area, including Metropolitan Divisions, for which 
median incomes are determined by FHFA.
* * * * *
    Non-metropolitan area means a county, or a portion of a county, 
including those counties that comprise Micropolitan Statistical Areas, 
located outside any metropolitan area, for which median incomes are 
determined by FHFA.
* * * * *
0
3. Revise Sec.  1282.12 to read as follows:


Sec.  1282.12   Single-family housing goals.

    (a) Single-family housing goals. An Enterprise shall be in 
compliance with a single-family housing goal if its performance under 
the housing goal meets or exceeds either:
    (1) The share of the market that qualifies for the goal; or
    (2) The benchmark level for the goal.
    (b) Size of market. The size of the market for each goal shall be 
established annually by FHFA based on data reported pursuant to the 
Home Mortgage Disclosure Act for a given year. Unless otherwise 
adjusted by FHFA, the size of the market shall be determined based on 
the following criteria:
    (1) Only owner-occupied, conventional loans shall be considered;
    (2) Purchase money mortgages and refinancing mortgages shall only 
be counted for the applicable goal or goals;
    (3) All mortgages flagged as HOEPA loans or subordinate lien loans 
shall be excluded;
    (4) All mortgages with original principal balances above the 
conforming loan limits for single unit properties for the year being 
evaluated (rounded to the nearest $1,000) shall be excluded;
    (5) All mortgages with rate spreads of 150 basis points or more 
above the applicable average prime offer rate as reported in the Home 
Mortgage Disclosure Act data shall be excluded; and
    (6) All mortgages that are missing information necessary to 
determine appropriate counting under the housing goals shall be 
excluded.
    (c) Low-income families housing goal. The percentage share of each 
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for low-
income families shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) The benchmark level, which for 2018, 2019 and 2020 shall be 24 
percent of the total number of purchase money mortgages purchased by 
that Enterprise in each year that finance owner-occupied single-family 
properties.
    (d) Very low-income families housing goal. The percentage share of 
each Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for very low-
income families shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) The benchmark level, which for 2018, 2019 and 2020 shall be 6 
percent of the total number of purchase money mortgages purchased by 
that Enterprise in each year that finance owner-occupied single-family 
properties.
    (e) Low-income areas housing goal. The percentage share of each 
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for families 
in low-income areas shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) A benchmark level which shall be set annually by FHFA notice 
based on the benchmark level for the low-income areas housing subgoal, 
plus an adjustment factor reflecting the additional incremental share 
of mortgages for moderate-income families in designated disaster areas 
in the most recent year for which such data is available.
    (f) Low-income areas housing subgoal. The percentage share of each 
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for families 
in low-income census tracts or for moderate-income families in minority 
census tracts shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) The benchmark level, which for 2018, 2019 and 2020 shall be 15 
percent of the total number of purchase money mortgages purchased by 
that Enterprise in each year that finance owner-occupied single-family 
properties.
    (g) Refinancing housing goal. The percentage share of each 
Enterprise's total purchases of refinancing mortgages on owner-occupied 
single-family housing that consists of refinancing mortgages for low-
income families shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) The benchmark level, which for 2018, 2019 and 2020 shall be 21 
percent of the total number of refinancing mortgages purchased by that 
Enterprise in each year that finance owner-occupied single-family 
properties.
0
4. Revise Sec.  1282.13 to read as follows:


Sec.  1282.13   Multifamily special affordable housing goal and 
subgoals.

    (a) Multifamily housing goal and subgoals. An Enterprise shall be 
in compliance with a multifamily housing goal or subgoal if its 
performance under the housing goal or subgoal meets or exceeds the 
benchmark level for the goal or subgoal, respectively.
    (b) Multifamily low-income housing goal. The benchmark level for 
each Enterprise's purchases of mortgages on multifamily residential 
housing

[[Page 31030]]

affordable to low-income families shall be at least 315,000 dwelling 
units affordable to low-income families in multifamily residential 
housing financed by mortgages purchased by the Enterprise in each year 
for 2018, 2019, and 2020.
    (c) Multifamily very low-income housing subgoal. The benchmark 
level for each Enterprise's purchases of mortgages on multifamily 
residential housing affordable to very low-income families shall be at 
least 60,000 dwelling units affordable to very low-income families in 
multifamily residential housing financed by mortgages purchased by the 
Enterprise in each year for 2018, 2019, and 2020.
    (d) Small multifamily low-income housing subgoal. The benchmark 
level for each Enterprise's purchases of mortgages on small multifamily 
properties affordable to low-income families shall be at least 10,000 
dwelling units affordable to low-income families in small multifamily 
properties financed by mortgages purchased by the Enterprise in each 
year for 2018, 2019, and 2020.


Sec.  1282.15   [Amended]

0
5. Amend Sec.  1282.15 as follows:
0
a. In paragraph (e)(2) remove the phrase ``based on the most recent 
decennial census''; and
0
b. Revise paragraph (g).
    The revisions read as follows:


Sec.  1282.15   General counting requirements.

* * * * *
    (g) Application of median income. For purposes of determining an 
area's median income under Sec. Sec.  1282.17 through 1282.19 and the 
definitions in Sec.  1282.1, the area is:
    (1) The metropolitan area, if the property which is the subject of 
the mortgage is in a metropolitan area; and
    (2) 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.
* * * * *
0
6. Amend Sec.  1282.21 by revising paragraph (b)(3), to read as 
follows:


Sec.  1282.21   Housing plans.

* * * * *
    (b) * * *
    (3) Describe the specific actions that the Enterprise will take in 
a time period determined by the Director to improve the Enterprise's 
performance under the housing goal; and
* * * * *

    Dated: June 28, 2017.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2017-14039 Filed 7-3-17; 8:45 am]
 BILLING CODE 8070-01-P