Federal Home Loan Bank Housing Goals Amendments, 55114-55133 [2018-23890]

Agencies

• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 83, Number 213 (Friday, November 2, 2018)]
[Proposed Rules]
[Pages 55114-55133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-23890]


=======================================================================
-----------------------------------------------------------------------

FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1281

RIN 2590-AA82


Federal Home Loan Bank Housing Goals Amendments

AGENCY: Federal Housing Finance Agency.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Federal Housing Finance Agency (FHFA) is proposing to 
amend the existing Federal Home Loan Bank Housing Goals regulation. 
FHFA proposes to replace the existing four separate retrospective 
housing goals with a single prospective mortgage purchase housing goal 
as well as establish a separate small member participation housing 
goal. The proposed rule would also allow the Banks to request FHFA 
approval of alternative target levels for the proposed goals. Finally, 
FHFA is proposing to eliminate the existing $2.5 billion volume 
threshold that triggers the application of housing goals for each Bank.

DATES: Written comments must be received on or before January 31, 2019.

ADDRESSES: You may submit your comments, identified by regulatory 
information number (RIN) 2590-AA82, by any of the following methods:
     Agency website: www.fhfa.gov/open-for-comment-or-input.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comment to the Federal eRulemaking Portal, please also send it by email 
to FHFA at [email protected] to ensure timely receipt by FHFA. 
Please include ``Comments/RIN 2590-AA82'' in the subject line of the 
submission.
     Hand Delivered/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA82, 
Federal Housing Finance Agency, Eighth Floor, 400 7th Street SW, 
Washington, DC 20219. The package should be delivered at the 7th Street 
entrance Guard Desk, First Floor, on business days between 9 a.m. and 5 
p.m.
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel, Attention: Comments/RIN 2590-AA82, Federal 
Housing Finance Agency, Eighth Floor, 400 7th Street SW, Washington, DC 
20219. Please note that all mail sent to FHFA via U.S. Mail is

[[Page 55115]]

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, (202) 649-3157 or Ethan Handelman, Senior Policy 
Analyst, Office of Housing and Community Investment, (202) 649-3264. 
These are not toll-free numbers. The telephone number for the Hearing 
Impaired is (800) 877-8339. The mailing address for each contact is: 
Federal Housing Finance Agency, 400 7th Street SW, Washington, DC 
20219.

SUPPLEMENTARY INFORMATION: 

I. Comments

    FHFA invites comments on all aspects of the proposed rule and will 
consider all comments before issuing the final rule. FHFA will post for 
public inspection all comments received by the deadline without change, 
including any personal information you provide, such as your name, 
address, email address, and telephone number. All comments received 
will be available for examination by the public through the electronic 
rulemaking docket for this proposed rule located on the FHFA website at 
https://www.fhfa.gov.

II. Background

A. The Federal Home Loan Bank System

    The eleven Federal Home Loan Banks (Banks) are wholesale financial 
institutions organized under the Federal Home Loan Bank Act (Bank 
Act).\1\ The Banks are cooperatives; only members of a Bank may 
purchase the capital stock of a Bank, and only members or certain 
eligible housing associates (such as state housing finance agencies) 
may obtain access to secured loans, known as advances, or other 
products provided by a Bank.\2\ Any eligible institution (generally, a 
federally insured depository institution or state-regulated insurance 
company) may become a member of a Bank if it satisfies certain criteria 
and purchases a specified amount of the Bank's capital stock.\3\
---------------------------------------------------------------------------

    \1\ See 12 U.S.C. 1423, 1432(a).
    \2\ See 12 U.S.C. 1426(a)(4), 1430(a), 1430b.
    \3\ See 12 U.S.C. 1424; 12 CFR part 1263.
---------------------------------------------------------------------------

    As government-sponsored enterprises, the Banks have certain 
privileges under federal law, which allow them to borrow funds at 
spreads over the rates on U.S. Treasury securities of comparable 
maturity that are narrower than those available to corporate borrowers 
generally. The Banks pass along their funding advantage to their 
members and housing associates--and ultimately to consumers--by 
providing advances \4\ and other financial services at rates that would 
not otherwise be available to their members. Among those financial 
services are the Banks' Acquired Member Assets (AMA) programs, under 
which the Banks provide financing for members' housing finance 
activities by purchasing mortgage loans.
---------------------------------------------------------------------------

    \4\ Members are required to pledge specific collateral, mainly 
mortgages or other real estate related assets, to secure any advance 
taken down from a Bank. See 12 CFR 1266.7.
---------------------------------------------------------------------------

B. AMA Programs

    FHFA's AMA regulation authorizes the Banks to acquire certain 
assets from their members and housing associates as a means of 
advancing their housing finance mission, and prescribes the parameters 
within which the Banks may do so.\5\ Through the acquisition of AMA, 
the Banks provide a source of liquidity to their members and housing 
associates, to further mission-related lending.
---------------------------------------------------------------------------

    \5\ See 12 CFR part 1268.
---------------------------------------------------------------------------

    FHFA's AMA regulation authorizes each Bank, at its discretion, to 
invest in assets that qualify as AMA subject to the requirements of the 
rule. Currently, each of the eleven Banks except the Atlanta Bank 
offers an AMA program to its members, albeit at varying levels. As of 
June 30, 2018, the System's total outstanding AMA mortgages were $57.3 
billion and represented 5 percent of total System assets. In contrast, 
the System's outstanding advances, their primary business line, 
represented 65 percent of total assets. Outstanding mortgages relative 
to total assets at the Banks offering AMA programs to its members 
ranged from a high of 17 percent and 15 percent at the Indianapolis and 
Topeka Banks, respectively, to less than 2 percent at the New York and 
Dallas Banks. Further, as a point of comparison, in 2017 the 
Enterprises' mortgage purchases represented 62 percent of the secondary 
mortgage market comprising the Federal National Mortgage Association 
(Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), 
the Government National Mortgage Association (Ginnie Mae), and the 
Banks, while the Banks' share represented less than 1 percent.
    The two AMA programs that the Banks are currently offering to their 
members are the Mortgage Purchase Program (MPP) and the Mortgage 
Partnership Finance (MPF) program. The Banks generally acquire 15- to 
30-year conventional conforming fixed-rate mortgage loans secured by 1- 
to 4-unit residential mortgages in addition to loans guaranteed or 
insured by a department or agency of the U.S. government.

C. Overview of the Existing Bank Housing Goals Regulation

    The existing Bank housing goals regulation has been in effect since 
January 2011.\6\ The regulation implements section 10C(a) of the Bank 
Act, which requires the Director of FHFA to ``establish housing goals 
with respect to the purchase of mortgages, if any, by the [Banks].'' 
\7\ Section 10C(b) requires that the Bank housing goals be ``consistent 
with'' the housing goals established by FHFA for Fannie Mae and Freddie 
Mac (collectively, the Enterprises) under sections 1331 through 1334 of 
the Federal Housing Enterprises Financial Safety and Soundness Act of 
1992 (Safety and Soundness Act), taking into consideration ``the unique 
mission and ownership structure of the [Banks].'' \8\
---------------------------------------------------------------------------

    \6\ 75 FR 81096 (Dec. 27, 2010).
    \7\ 12 U.S.C. 1430c(a).
    \8\ 12 U.S.C. 1430c(b).
---------------------------------------------------------------------------

    The existing Bank housing goals regulation provides that a Bank 
will be subject to the housing goals if its AMA mortgage purchases in a 
given year exceed a volume threshold of $2.5 billion. The regulation 
establishes three single-family owner-occupied purchase money mortgage 
goals and one single-family refinancing mortgage goal applicable to the 
Banks' purchases under their AMA programs. The goals for purchase money 
mortgages separately measure performance on purchase money mortgages 
for (1) low-income families, (2) families in low-income areas, and (3) 
very low-income families. The goal for refinancing mortgages measures 
performance on refinancing mortgages for low-income families. The 
levels of the housing goals are established retrospectively using Home 
Mortgage Disclosure Act (HMDA) data to calculate the percentage of 
single-family originations in the Bank's district that qualify for each 
of the housing goals.
    Each year, FHFA determines whether any of the Banks have exceeded 
the volume threshold. For each Bank that has exceeded the volume 
threshold, FHFA determines the Bank's performance under the housing 
goals. FHFA evaluates performance by calculating the percentage share 
of a Bank's AMA mortgage purchases that qualify for each housing goal. 
A Bank meets a housing goal if its performance is equal to or greater 
than the level of the housing goal established by FHFA based on HMDA 
data for that year.

[[Page 55116]]

III. Summary of Proposed Rule

    This proposed rule would replace the existing Bank housing goals 
with new, streamlined goals that reflect the Banks' unique mission 
while supporting affordable lending. The proposed rule would provide 
certainty for the Banks by informing them of the housing goal levels in 
advance and would provide clarity and flexibility for the Banks by 
consolidating multiple goals into a more straightforward measurement of 
performance. The proposed rule would also establish a new housing goal 
that would measure the extent to which smaller members are 
participating in AMA programs.

A. New Process for Setting Housing Goal Levels

    The proposed rule would revise the Bank housing goals regulation to 
remove the existing process for FHFA to establish the levels of the 
housing goals retrospectively based on HMDA data. The proposed rule 
would establish levels for each of the housing goals in advance, in the 
regulation itself. This would eliminate any uncertainty about the 
levels of the housing goals from year-to-year. The proposed rule would 
also allow the Banks to request FHFA approval of an alternative goal 
level. Finally, the proposed rule would eliminate the existing $2.5 
billion volume threshold that triggers the application of housing goals 
for each Bank.

B. Prospective Mortgage Purchase Housing Goal

    The proposed rule would revise the Bank housing goals regulation to 
remove the separate housing goals for home-purchase mortgages for low-
income families, home-purchase mortgages for low-income areas, home-
purchase mortgages for very low-income families, and refinancing 
mortgages for low-income families. The proposed rule would replace the 
four separate housing goals with a single, overall measurement of 
performance. This new housing goal would include each of the categories 
currently covered by the Bank housing goals, but it would not include 
separate targets for each category. The proposed rule would establish 
the prospective mortgage purchase housing goal target level at 20 
percent of a Bank's AMA mortgage purchases.

C. New Housing Goal for Small Member Participation

    The proposed rule would establish a separate goal for participation 
by smaller members in Bank AMA programs.
    The proposed rule would establish the small member participation 
housing goal target level at 50 percent.

D. Phase-in of New Housing Goals

    The proposed rule would establish a three-year phase-in for 
enforcement of the new housing goals.

E. Other Changes

    The proposed rule would revise and simplify the criteria and 
requirements under which mortgages are either included or excluded from 
FHFA's measurement of a Bank's performance under the housing goals. The 
proposed rule would also revise the reporting requirements to reflect 
the new structure of the Bank housing goals.

IV. New Process for Setting Target Levels for Housing Goals

    The proposed rule would revise the Bank housing goals regulation to 
establish a specific annual target level for each housing goal. The 
proposed rule would also allow a Bank to request FHFA approval of a 
different target level for either of the new housing goals. The Bank 
would be required to submit its proposed target level for the housing 
goal to FHFA for review and approval. Finally, the proposed rule would 
also remove the volume threshold from the Bank housing goals 
regulation. The new housing goals would apply to each Bank every year.

A. Target Levels for Housing Goals Established in Advance

    Under the existing Bank housing goals regulation, FHFA establishes 
the target level for each of the housing goals retrospectively using 
data collected and maintained pursuant to HMDA. This data typically 
becomes publicly available in September of the following year, although 
in 2018 the Bureau of Consumer Financial Protection released 2017 HMDA 
data in May, subject to possible revision.\9\
---------------------------------------------------------------------------

    \9\ See Federal Financial Institutions Examination Council, 
``FFIEC Announces Availability of 2017 Data on Mortgage Lending,'' 
(May 7, 2018), available at https://www.ffiec.gov/press/pr050818.htm.
---------------------------------------------------------------------------

    A Bank meets a housing goal under the existing rule if its mortgage 
purchases that meet the counting requirements established in the rule, 
as a percentage of its overall AMA purchases, equals or exceeds the 
percentage originated in its district. For example, if 23 percent of 
mortgages originated in a Bank's district were for low-income 
borrowers, then the low-income share of the Bank's purchases must be 23 
percent or greater.
    Because the level of the housing goals is not known until after the 
end of the year being evaluated, it is more difficult for a Bank to 
assess its performance relative to the goal during the year. A Bank may 
therefore have more difficulty adjusting its activities based on its 
performance relative to the goals.
    By setting the target levels for the housing goals in advance, the 
proposed rule would provide certainty for the Banks and would allow the 
Banks to monitor their own performance and, if necessary, take steps in 
advance to ensure that they meet the housing goals.

B. Bank-Proposed Housing Goal Levels

    Under the existing Bank housing goals regulation, FHFA evaluates 
the feasibility of the target levels for the housing goals for a 
particular Bank after the fact. For each Bank that has exceeded the 
volume threshold in a year, FHFA determines whether the Bank met each 
housing goal. If FHFA determines that a Bank has not met one of the 
housing goals, FHFA will also determine whether achievement of the 
target level for the housing goal was feasible, taking into 
consideration any information provided by the Bank, along with market 
and economic conditions. While this process provides FHFA the ability 
to evaluate facts and circumstances for not meeting a goal that may 
weigh against adverse supervisory actions against the Banks, the Banks 
face uncertainty because the feasibility evaluation does not happen 
until FHFA makes its final determination on the Bank's performance, 
after the year being measured is over.
    The proposed rule would address this uncertainty by setting a 
prospective goal, as described above, and by allowing a Bank to propose 
an alternate level for the housing goal. If a Bank's district, 
membership, or affordable housing needs do not fit the proposed goal 
and the Bank believes the goal is infeasible, the Bank would be able to 
propose an alternate level for FHFA review and approval. The Bank would 
be required to provide a justification for the alternate level by 
submitting any information it considers relevant to the feasibility of 
the proposed goal level. FHFA would review the Bank proposal to verify 
the Bank's showing of infeasibility, and to ensure: (1) That the 
proposed goal demonstrates a meaningful contribution to affordable 
housing, and (2) that the proposed goal would be feasible for the 
Bank's AMA program.
    To illustrate, the proposed rule would establish target levels for 
each of the housing goals in advance. The target

[[Page 55117]]

level for the prospective mortgage purchase housing goal would be 20 
percent of a Bank's AMA mortgage purchases, and a 50 percent 
participation rate by small members delivering mortgages to the Bank's 
AMA programs. If a Bank determines that the 20 percent prospective 
mortgage purchase housing goal and the 50 percent small member 
participation housing goal are both feasible for the Bank to achieve, 
the Bank would not need to take any additional action. However, each 
Bank would have the option to propose an alternative for one or both 
goals. The proposed alternatives would address only the target levels 
for the housing goals. A Bank would not be able to change how a goal is 
defined and measured or how the loans meet the counting requirements 
established by the rules. FHFA would consider the Bank's request and 
notify the Bank if the request is approved.
    The proposed rule would establish a three-year cycle for setting 
alternate target levels for the Bank housing goals. In other words, the 
Bank's proposal would cover the target levels for the housing goals for 
the next three years. For the initial three-year housing goals cycle, 
the Bank would submit its request by October 31, 2019. Under special 
circumstances that would trigger application of housing goals, such as 
starting a new AMA program, a Bank would have an opportunity to propose 
a goal alternative.
    If FHFA approves an alternate target level for one or both of the 
housing goals for a Bank, the evaluation process would remain the same. 
At the end of the year, FHFA would evaluate the Bank based on the FHFA 
approved alternative target level and make its determination based on 
whether the Bank's performance met the approved target level for the 
housing goal or goals.
    This new alternative process for setting the target levels of the 
housing goals would ensure that the target levels for the housing goals 
are feasible for each Bank, taking into account the particular programs 
and activities of the Bank.

C. Removing the Volume Threshold

    Under the existing Bank housing goals regulation, a Bank is subject 
to the housing goals only if the total unpaid principal balance (UPB) 
of the Bank's purchases of AMA mortgages in a year exceeds $2.5 billion 
(the ``volume threshold''). Since the 2010 housing goals rule became 
effective, there have been only three instances where a Bank exceeded 
the $2.5 billion annual volume threshold. The three instances were in 
2015 (Indianapolis Bank) and in 2016 (Indianapolis Bank and Cincinnati 
Bank).
    The proposed rule would eliminate the annual volume threshold for 
triggering the application of the housing goals. The housing goals 
would apply to each of the Banks each year, either at the target level 
established by FHFA in the housing goals regulation or a Bank-proposed 
alternative target level approved by FHFA.
    The volume threshold was adopted to avoid adverse impact on Bank 
AMA programs, particularly programs focused on providing liquidity for 
smaller Bank members described at the time of adoption as being a 
relatively low level. Over time, however, the volume threshold has 
instead operated as an upper limit on Bank AMA programs. Banks below 
the volume threshold in effect avoid the housing goals, while Banks 
above the threshold face application of housing goals that AMA programs 
were not designed to, and typically did not, meet.
    Housing goals will better serve their public purpose if they are 
flexible enough to be meaningful and achievable for a variety of Bank 
AMA programs. Instead of the housing goals being a simple binary on-or-
off based on a volume threshold, the proposed rule offers a mechanism 
for goals to apply to all Banks in ways that fit their unique mission. 
The new process for setting the levels of the housing goals would 
accomplish the purpose of the volume threshold by allowing the Banks to 
propose meaningful and achievable target levels based on the nature of 
the AMA program at each Bank.

D. FHFA Discretion and Feasibility Review

    The proposed rule would retain existing provisions that allow FHFA 
to exercise discretion when events out of a Bank's control occur, such 
as unexpected market shifts or member mergers. It would also retain the 
feasibility review that FHFA would undertake before exercising remedies 
if a Bank did not meet either housing goal.

V. Prospective Mortgage Purchase Housing Goal

    The proposed rule would replace the four housing goals in the 
existing Bank housing goals regulation with a prospective mortgage 
purchase housing goal. The new housing goal would include mortgage 
loans that met the criteria for any of the current housing goals. The 
proposed rule would establish the target level for the new goal in the 
regulation at 20 percent of each Bank's total purchases of AMA 
mortgages. The proposed rule would also limit the number of loans to 
higher-income borrowers that could be counted toward this goal. This 
new prospective mortgage purchase housing goal would encourage 
affordable home lending as part of safe, sound, and sustainable 
business growth for the Banks, while providing flexibility to the Banks 
in how they serve borrowers by working with members.

A. Structure of the Prospective Mortgage Purchase Housing Goal

    Under the existing Bank housing goals regulation, there are four 
separate housing goals. Three of the goals measure Bank purchases of 
AMA purchase money mortgages on owner-occupied, single-family housing. 
The current home purchase housing goals require a Bank to meet separate 
targets for mortgages for low-income families (i.e., families with 
incomes at or below 80 percent of area median income), mortgages for 
very low-income families (i.e., families with incomes at or below 50 
percent of area median income), and mortgages for families in low-
income areas. The regulation defines ``families in low-income areas'' 
to include families in low-income census tracts regardless of family 
income, as well as moderate-income families in minority census tracts 
(i.e., census tracts with minority population of at least 30 percent 
and a tract median income less than the area median income) and 
moderate-income families in designated disaster areas. The fourth 
housing goal under the existing Bank housing goals regulation measures 
Bank purchases of AMA refinancing mortgages on owner-occupied, single-
family housing for low-income families.
    The categories of the current Bank housing goals are the same as 
the housing goals for Fannie Mae and Freddie Mac (the Enterprises). The 
Enterprise housing goals include the same single-family housing goals 
as the Bank housing goals, along with separate single-family subgoals 
and multifamily goals that are not included in the Bank housing goals. 
The separate categories for the individual single-family housing goals 
are established by statute for the Enterprises and are designed to 
encourage the Enterprises to target activity in each of the separately 
defined areas. Multiple housing goals targeting specific segments of 
the market are appropriate for the Enterprises, which are large 
institutions operating nationwide and are able to design products and 
programs to support many different segments of the mortgage market.
    The Banks are smaller institutions with mortgage purchase programs 
that

[[Page 55118]]

are much more limited in scope than the broad-based purchase activities 
of the Enterprises. Thus, it is more difficult for the Banks to develop 
products and programs targeting each of the market segments covered by 
the existing Bank housing goals. The proposed rule would replace the 
four separate housing goals for the Banks with a new prospective 
mortgage purchase housing goal including mortgage purchases that meet 
any of the existing housing goal categories. This new goal would 
greatly reduce the complexity of the housing goals and would make it 
easier for the Banks to appropriately target their AMA purchase 
activity based on their individual needs and the needs of their 
members.
    The proposed rule would establish a prospective mortgage purchase 
housing goal, which would include all single-family, first lien AMA 
mortgages purchased by a Bank. Eligible mortgages meeting the income or 
geographic eligibility requirements for any of the current four housing 
goals would continue to be eligible under the proposed goal. This would 
include mortgages for low- or very low-income borrowers and mortgages 
for borrowers living in low-income areas.
    The new housing goal would also include both purchase money 
mortgages and refinancing mortgages. This would include refinancing 
mortgages for low-income families, which currently count only for the 
separate low-income families refinancing goal. By combining the 
different categories into a single, overall goal the proposed rule 
would make refinancing mortgages for families of any income level who 
reside in low-income areas meet the counting requirements established 
by the rule.

B. Proposed Level for the Prospective Mortgage Purchase Housing Goal

    The proposed rule would establish the target level for the new 
prospective mortgage purchase housing goal at 20 percent of the Bank's 
AMA mortgage purchases. In proposing a 20 percent target for the new 
housing goal, FHFA considered how the Banks would have performed under 
this new overall goal in recent years, the ability of the Banks to meet 
the new prospective mortgage purchase housing goal, as well as the 
needs of underserved borrowers.
    Past performance of the Banks. Historically, most of the Banks have 
exceeded the 20 percent goal level. Table 1 below shows how the Banks 
would have performed under the proposed prospective mortgage purchase 
housing goal using 2017 data. For each Bank, the Table shows the 
percent of all AMA loans that were to very low-income (at or below 50 
percent of area median income) borrowers, the percent of all AMA loans 
that were to low-income (above 50 percent and at or below 80 percent of 
area median income) borrowers, and the percent of loans to borrowers 
above low-income but that meet the low-income areas criteria. The low-
income areas contribution to the housing goal is further limited by the 
requirement that no more than 25 percent of the loans counting toward 
the housing goal can be to borrowers above the low-income level.
    The following Chart 1 shows a time series of each Bank's total 
percentage of loans meeting the prospective mortgage purchase housing 
goal over the period 2011-2017. Note that the tables and charts in this 
proposed rule mask the identity of individual Banks to maintain 
confidentiality of Bank data. The letters have been randomized for each 
table and chart (i.e., Bank A may refer to different Banks in different 
tables). Rows may not appear to total due to rounding.
BILLING CODE 8070-01-P
[GRAPHIC] [TIFF OMITTED] TP02NO18.011


[[Page 55119]]


[GRAPHIC] [TIFF OMITTED] TP02NO18.012

BILLING CODE 8070-01-C
    In 2017, the combined housing goals performance for the Bank System 
as a whole (shown as SYS in Chart 1) would have reached 25 percent of 
all AMA mortgages. The performance of the individual Banks varies 
significantly. The variation in performance likely results from the 
volumes of AMA purchased by individual Banks, different focuses by 
different Banks, district-level differences in the housing markets, and 
that Banks under the $2.5 billion threshold are not motivated to meet 
the affordable housing goals. Note that for the three Banks at zero for 
some years, Chart 1 reflects that these Banks did not have active AMA 
programs in those years. The same three Banks are the only Banks that 
would have not met the proposed 20 percent housing goal target in 2017, 
which may be related to having more recent AMA program initiation.
    Feasibility of the proposed goal. In proposing the 20 percent 
target for the new prospective mortgage purchase housing goal, FHFA 
seeks to ensure that the proposed target level for the housing goal 
demonstrates a meaningful contribution to affordable housing while also 
being feasible given the structure of AMA programs. Striking the 
appropriate balance is challenging in part because of the variation in 
performance of the different Banks. A target level for the housing goal 
that is high enough to be meaningful for one Bank may not be feasible 
for another Bank to achieve based on differences between the Bank 
districts and the individual Bank prudential limits on AMA purchases.
    Eight of the eleven Banks would have achieved the proposed housing 
goal level of 20 percent each year since 2011, though the performance 
for several Banks was very close to the 20 percent target in some 
years. The 20 percent housing goal level would be high enough to be 
meaningful for those Banks, while still being feasible for the Banks to 
achieve.
    For the three Banks whose performance would have been below the 20 
percent target level in 2017, it may be possible for the Banks to 
increase their performance. Alternatively, these Banks may elect to 
propose alternate target levels if the 20 percent target is infeasible 
based on the specific circumstances in their respective districts and 
under their existing AMA programs.
    Needs of underserved borrowers. In determining the target level to 
propose, FHFA considered the Nation's affordable housing needs, which 
affect both homeowners and renters, while focusing on homeownership as 
the policy area most directly connected to the Bank housing goals. The 
national homeownership rate declined every year from 2004 to 2017, with 
particularly sharp declines for younger households and African American 
households.\10\ Tight access to mortgage credit is an ongoing factor in 
the lack of access to homeownership, particularly

[[Page 55120]]

in places with lower-cost homes.\11\ Workers in growing sectors like 
healthcare often cannot afford to purchase even modestly priced homes 
in most metropolitan statistical areas. As an example, a typical 
emergency medical technician could afford the median home price in only 
17 out of 203 metropolitan statistical areas in a recent analysis.\12\ 
Improved financing opportunities can help mitigate homeownership 
difficulties for underserved borrowers.
---------------------------------------------------------------------------

    \10\ See Joint Center for Housing Studies of Harvard University, 
``The State of the Nation's Housing 2017,'' 23 (2015), available at 
https://www.jchs.harvard.edu/sites/default/files/harvard_jchs_state_of_the_nations_housing_2017_0.pdf.
    \11\ Id.
    \12\ National Housing Conference, ``Paycheck to Paycheck 2017,'' 
3 (Sept. 2017), available at https://www.nhc.org/wp-content/uploads/2017/09/2017-Paycheck-to-Paycheck-Final.pdf.
---------------------------------------------------------------------------

    FHFA recognizes these challenges and has considered them in 
proposing a target level for the AMA home purchase housing goal of 20 
percent. The proposed target level encourages the Banks to continue to 
make meaningful contributions to affordable housing, while recognizing 
the limited ability of the Banks to affect the overall housing market.

C. Cap on Mortgages to Higher-Income Borrowers in Low-Income Areas

    As discussed above, the proposed rule would combine each of the 
categories for the four current Bank housing goals into a single 
overall housing goal. These categories include mortgages on properties 
in low-income areas, which may include some mortgages for families with 
incomes above the low-income maximum of 80 percent of area median 
income. The proposed rule would include a limit on the extent to which 
a Bank could rely on mortgages for higher-income families in these 
areas to meet the new housing goal.
    The proposed prospective mortgage purchase housing goal would 
include mortgages for families in low-income areas as one of the 
criteria for loans to be counted toward the new housing goal. The 
proposed rule remains unchanged from the current rule in that it would 
continue to define ``families in low-income areas'' to include (a) 
families in low-income census tracts regardless of family income, (b) 
moderate-income families in minority census tracts (i.e., census tracts 
with minority population of at least 30 percent and a tract median 
income less than the area median income), and (c) moderate-income 
families in designated disaster areas. These criteria are summarized in 
Table 2:

                  Table 2--Low-Income Areas Components
------------------------------------------------------------------------
                        Income requirement       Geographic requirement
------------------------------------------------------------------------
Path 1............  None.....................  Tract Income.
                                               <=80% AMI.
Path 2............  <=100% AMI...............  Minority Census Tract.
                                               (>=30% minority + Tract
                                                Income <100% AMI
Path 3............  <=100% AMI...............  Designated Disaster Area.
------------------------------------------------------------------------

    The definition of families in low-income areas is different from 
the other components included in the proposed housing goal because it 
can include mortgages for families with higher incomes. For properties 
located in low-income census tracts, each mortgage purchase would count 
toward a Bank's achievement of the housing goal, regardless of family 
income. For properties in minority census tracts and for properties in 
designated disaster areas, mortgage purchases would count if family 
income is lower than the area median income, which would include 
families with incomes between 80 percent and 100 percent of area median 
income.
    As a result, it is possible for loans to higher-income households 
in low-income areas to count toward achievement of the housing goal. 
While the proposed rule would not exclude such mortgages for higher-
income families from counting entirely, the proposed rule would limit 
the extent to which a Bank could rely on such loans as the primary 
means of meeting the housing goal. FHFA recognizes an unresolved 
tension between the need for homeownership investment in communities 
that have lacked consistent, large-scale homeownership investment, on 
one hand, and concern about the impact of an influx of higher-income 
households on existing residents, on the other hand.\13\
---------------------------------------------------------------------------

    \13\ For information on the effects of gentrification, see 
generally Federal Reserve Bank of Philadelphia, ``Research Symposium 
on Gentrification and Neighborhood Change'' (May 25, 2016), 
available at https://www.philadelphiafed.org/community-development/events/2016/research-symposium-on-gentrification; Diane K. Levy, 
Jennifer Comey & Sandra Padilla, ``IN THE FACE OF GENTRIFICATION: 
Case Studies of Local Efforts to Mitigate Displacement'' (Urban 
Institute 2006), available at https://www.urban.org/sites/default/files/publication/50791/411294-In-the-Face-of-Gentrification.PDF.
---------------------------------------------------------------------------

    HMDA data on mortgage lending overall suggest that lending to 
higher-income borrowers in low-income census tracts is already a 
growing segment. There is a rising trend from 2010 to 2016 of mortgages 
originated for borrowers with incomes greater than 120 percent of area 
median income in low-income census tracts. This reached a high of 33.4 
percent of all borrowers in low-income census tracts in 2016, as Table 
3 below shows:
[GRAPHIC] [TIFF OMITTED] TP02NO18.013


[[Page 55121]]


    To limit the extent to which a Bank can rely on mortgages for 
higher-income families in meeting the prospective mortgage purchase 
housing goal, the proposed rule would establish a cap on how much of 
the goal a Bank can satisfy with loans to borrowers above the low-
income threshold (i.e., 80 percent of area median income). 
Specifically, the proposed rule would require that at least 75 percent 
of all mortgage purchases that count toward achievement of the 
prospective mortgage purchase housing goal be for borrowers with 
incomes at or below 80 percent of area median income. Stated 
differently, no more than 25 percent of the mortgages a Bank uses to 
qualify for the prospective mortgage purchase housing goal could be to 
borrowers above 80 percent of AMI. This cap would allow Banks to 
provide significant support for low-income areas, including minority 
census tracts and designated disaster areas, while ensuring an overall 
focus on low-income and very low-income borrowers.
    Note that the proposed cap would not prohibit the Banks from 
purchasing mortgages for borrowers with incomes above 80 percent of 
AMI. Rather, it would simply limit the extent to which such mortgages 
could be counted toward achievement of the housing goals.

D. Comparison to Enterprise Housing Goals

    FHFA considered the similarities and differences between the 
Enterprises' mortgage purchases and the Banks' mortgage purchases when 
proposing Bank housing goals. Both the Enterprises and the Banks 
provide valuable sources of liquidity for the secondary mortgage market 
and support for affordable housing. Key differences, however, informed 
the goal structure and levels in this proposed rule.
    The Enterprises are chartered to provide stability and liquidity in 
the secondary market for residential mortgages by purchasing and making 
commitments to purchase residential mortgages. The Banks, in contrast, 
operate AMA programs at their discretion. If a Bank believes housing 
goals are too onerous or require unacceptable risks, it may cease 
purchasing mortgages entirely.
    The Banks' AMA purchases are so small compared to other secondary 
market participants that they do not shape the market in the way the 
Enterprises do. Combined Bank AMA purchases constituted only 1 percent 
of the total unpaid principal balance of secondary market activity 
comprising Fannie Mae, Freddie Mac, Ginnie Mae, and the Banks. The 
Enterprises together represented 62 percent. The Banks are therefore 
market-takers, not market-makers.
    Additionally, unlike Fannie Mae and Freddie Mac, the Banks hold in 
portfolio nearly all loans they purchase and must manage the related 
market risk exposure. While FHFA considers AMA mortgage loans a mission 
asset, it also advises each Bank's board of directors to establish 
prudential limits for the mortgage purchases. The combination of the 
AMA regulatory requirements, the fact that the Banks hold the loans in 
portfolio, and the fact that the decision to offer an AMA program to 
members is at a Bank's discretion (with FHFA approval) all contribute 
to the AMA programs being market-takers.
    Goal levels reflect these differences. The Enterprises have 
different percentage benchmarks for each of their goals and subgoals. 
FHFA also compares Enterprise performance retrospectively to market 
levels. If an Enterprise meets either the benchmark or the market level 
in a particular year, FHFA determines that it has met the goal. These 
goals are appropriate for entities with a market position like the 
Enterprises. In contrast, the goal level for the Banks combines all of 
the eligible categories from the Enterprise goals and reflects the 
market niche the Banks occupy. It is difficult to compare the benchmark 
levels for the Enterprise goals to the proposed target level for the 
prospective Bank housing goal. The Enterprise housing goals measure 
performance in four separate categories. Table 4 below illustrates the 
benchmark levels from 2017 for the Enterprise housing goals (market 
levels are published in the 2018 Annual Housing Report).

                  Table 4--Enterprise Goal Levels, 2017
------------------------------------------------------------------------
                                                             Benchmark
                          Goal                              Level, 2017
                                                                (%)
------------------------------------------------------------------------
Low-Income Home Purchase Goal...........................              24
Very Low-Income Home Purchase Goal......................               6
Low-Income Areas Home Purchase Goal.....................              18
Low-Income Areas Home Purchase Subgoal..................              14
Low-Income Refinance Goal...............................              21
------------------------------------------------------------------------

    The prospective Bank housing goal would combine these four 
categories into a single overall goal, but it is not possible to add 
the benchmark levels together because the categories measured by the 
Enterprise housing goals have significant overlap.
    FHFA invites comment on all proposed changes related to the 
prospective mortgage purchase housing goal including but not limited to 
the following specific questions (please identify the question answered 
by the number assigned below):
    1. Is a prospective mortgage purchase housing goal measured as a 
percentage of each Bank's AMA purchases the optimal way to meaningfully 
and achievably encourage affordable home mortgage purchases? If not, 
what other options would more likely result in attainment of that goal? 
Why?
    2. Is 20 percent the appropriate level? Why or why not? Please 
provide quantitative analysis to support your position when possible.
    3. Is a single percentage goal that includes purchase and refinance 
loans to low-income borrowers, very low-income borrowers, and families 
in low-income areas an appropriate mechanism? Why or why not?
    4. Is the 25 percent cap on AMA mortgages to higher-income 
borrowers in low-income areas that count towards the goal the 
appropriate level? Why or why not? Please provide quantitative analysis 
to support your position when possible.
    5. What changes could Banks make to their AMA products to encourage 
more purchases of affordable home mortgages if needed to meet a goal?
    6. Should the Banks have an additional opportunity to propose a 
revision to the target level for either housing goal, either annually 
or at some other interval? Why or why not?

VI. Proposed Housing Goal for Small Member Participation

    The proposed rule would establish a new small member participation 
housing goal that would require each Bank to ensure that a certain 
percentage of the members participating in the Bank's AMA programs are 
smaller members. The new small member participation housing goal would 
recognize that smaller lenders are well-positioned to reach borrowers 
with affordable housing needs.
    Across the Bank System, a majority of the members participating in 
AMA programs are small with respect to asset size, but a majority of 
the number of AMA mortgages purchased by the Banks come from members 
with larger assets. In 2017, 87 percent of AMA users had total assets 
below $1.173 billion, the current threshold for community financial 
institutions. Those AMA users sold 57 percent of the total number of 
loans purchased by the Banks. Charts 2 and 3 below show the 
distribution of each Bank's AMA users by asset size

[[Page 55122]]

and share of the number of loans purchased. Note that most Banks have a 
large majority of AMA users below the community financial institutions 
threshold--Chart 2 shows the Bank System as a whole had roughly 85 
percent of its AMA users in that category in 2017. Chart 3 shows, for 
instance, that in the Bank System nearly 45 percent of the AMA loans in 
2017 came from AMA users larger than the community financial 
institutions threshold.
[GRAPHIC] [TIFF OMITTED] TP02NO18.014

    In proposing the new small member participation housing goal, FHFA 
considered that one of the benefits of Bank AMA programs is connecting 
members with the secondary mortgage market. This connection has the 
potential to particularly benefit borrowers in rural communities or 
places of persistent poverty where borrowers have less access to 
credit. Small institutions appear more likely to originate loans to 
low-income and very low-income households, as Table 5 below documents. 
It shows that in 2017, participating financial institutions (PFIs) 
above the community financial institutions asset cap produced 17 
percent of their loans for low-income or very low-income borrowers, 
while PFIs that were also community financial institutions produced 21 
percent.

[[Page 55123]]

[GRAPHIC] [TIFF OMITTED] TP02NO18.015

    The proposed small member participation housing goal would align 
with FHFA's policy position embodied in the AMA regulation, which 
considers the cooperative structure of the Banks and that the Banks, as 
government-sponsored enterprises, pass along their funding advantage to 
their members by providing financial services, including AMA programs. 
FHFA recognizes that adding new members to participate in AMA, 
especially smaller members with less staff capacity, requires active 
marketing and outreach with a long sales cycle. As individual AMA user 
participation may vary year-to-year, Banks would have to maintain 
outreach efforts to ensure that small member participation continues at 
or above the target level. Nevertheless, the investment of time and 
effort to bring new members to the program should pay off both in new 
lending to borrowers that may not otherwise receive access to credit 
and in safe and sound business growth for the Banks.

A. Structure of the Small Member Participation Housing Goal

    The existing Bank housing goals regulation does not include a goal 
specifically targeting smaller member participation in the Bank AMA 
programs. However, the Bank housing goals have long recognized the 
importance of smaller members for the Banks, and conversely, the 
importance of the Bank AMA programs for some smaller members. For 
example, the final rule establishing the Bank housing goals included a 
volume threshold in part ``to avoid adverse impact on Bank AMA 
programs, particularly with respect to CFIs [community financial 
institutions].'' \14\
---------------------------------------------------------------------------

    \14\ 75 FR 81096, 81098 (Dec. 27, 2010).
---------------------------------------------------------------------------

    The proposed rule would establish for the first time a new housing 
goal for smaller member participation in Bank AMA programs. The new 
goal would encourage Banks to maintain a focus in their AMA programs on 
small members that are more likely to produce affordable home loans to 
low-income households. Small institutions often rely on their Bank 
membership for a connection to the secondary mortgage market. It is 
reasonable to require the Banks to deploy their federally supported 
funding-cost advantage for the benefit of small members that might 
otherwise have difficulty accessing national capital markets, rather 
than primarily to augment the financial results of large members that 
have no such difficulty.\15\ Small institutions are also an important 
source of credit access for rural areas, places of persistent poverty, 
and other underserved populations.
---------------------------------------------------------------------------

    \15\ For this reason, FHFA grounds the small-member goal not 
just in the housing goals section of the Bank Act, 12 U.S.C. 1430c, 
but also in the statutory basis for the AMA program more generally. 
See 12 U.S.C. 1430, 1430b, 1431; Texas Savings & Community Bankers 
Ass'n v. Federal Housing Finance Board, 201 F.3d 551 (5th Cir. 
2000).
---------------------------------------------------------------------------

    The Banks already serve many small members, so the small member 
participation housing goal would encourage them to maintain that focus 
over time. FHFA anticipates that the working relationships between 
Banks and small members will result in ongoing purchases of mortgages 
to benefit borrowers in need of financing for affordable housing.

B. Proposed Level for the Small Member Participation Housing Goal

    The proposed rule would establish the target level for the new 
small member participation housing goal as having at least 50 percent 
of ``AMA users'' be small members. The proposed rule would define ``AMA 
user'' to include any PFI that sells one or more AMA mortgage(s) to a 
Bank during the year being measured. The proposed rule would define the 
small member participation housing goal by incorporating the definition 
of ``community financial institution'' in the Bank membership 
regulation, which includes institutions with total assets below the 
community financial institution threshold, currently $1.173 
billion.\16\
---------------------------------------------------------------------------

    \16\ 12 CFR 1263.1.
---------------------------------------------------------------------------

    In proposing a 50 percent target for the new small member 
participation housing goal, FHFA considered how the Banks would have 
performed under this goal in recent years and the ability of the Banks 
to meet the new goal.
    Past performance of the Banks. Table 6 below shows how each Bank 
would have performed under the new small member participation housing 
goal in 2017.

[[Page 55124]]

[GRAPHIC] [TIFF OMITTED] TP02NO18.016

    In 2017, nine of the eleven Banks would have met the new small 
member participation housing goal as proposed, with most of the Banks 
being significantly over the proposed 50 percent goal level. Two of the 
eleven Banks would have fallen below the 50 percent goal level. The two 
Banks that would not have met the goal in 2017 are also noteworthy in 
that they had very few AMA users during 2017.
    Feasibility of the proposed goal. In proposing the 50 percent 
target for the new small member participation housing goal, FHFA 
considered the ability of the Banks to meet the new proposed goal. 
Recognizing that some Banks may currently have performance that would 
fall below the proposed goal level, the proposed rule would provide an 
alternate means of achieving the goal. If a Bank's performance under 
the goal falls below the 50 percent goal level, the Bank could also 
comply by increasing its performance under the goal by 300 basis points 
compared to the preceding year. For example, if only 33 percent of a 
Bank's AMA users had been small members in the preceding year, the next 
year the Bank could satisfy the goal if at least 36 percent of its AMA 
users are small members. Once a Bank reaches the 50 percent 
participation rate, it would no longer need to demonstrate annual 
growth.
    FHFA also retains its supervisory discretion if a percentage 
changed due to events outside of a Bank's control, such as a sudden 
drop in participation due to member mergers or failures.
    FHFA invites comments on all aspects of the small member 
participation housing goal and specifically solicits comments on the 
following questions (please identify the question answered by the 
number assigned below):
    7. Is the small member participation housing goal an effective way 
to encourage access to mortgage credit in rural communities or places 
of persistent poverty, or would other approaches be more effective?
    8. Should FHFA consider an alternative level (other than the 
community financial institutions threshold, currently $1.173 billion) 
for defining ``small member?''
    9. Are there any issues that FHFA should consider related to the 
proposed 300 basis point growth rate under the small member 
participation housing goal? If so, please suggest and explain an 
alternative approach.
    10. Is the 50 percent goal too low, considering that nine of the 11 
Banks already meet it?

VII. Phase-in of New Housing Goals

    The proposed rule would establish a phase-in period for enforcement 
of the new housing goals. Although many Banks would be on track for 
immediate compliance based on their 2017 performance, FHFA acknowledges 
that it may take substantial effort for some Banks to comply. A phase-
in period would help the Banks adjust to the

[[Page 55125]]

housing goals and manage risk appropriately.
    The existing Bank housing goals regulation sets forth procedures 
for how FHFA enforces the housing goals.\17\ For each Bank that is 
subject to housing goals, the Director determines whether a Bank 
achieved the goal(s), provides notice to the Bank of the Director's 
preliminary determination, receives a response from the Bank, and 
determines whether goal(s) achievement was feasible.\18\ If the 
Director finds that a Bank has not achieved a goal and the goal was 
feasible, the Director may require the Bank to submit a housing 
plan.\19\
---------------------------------------------------------------------------

    \17\ See 12 CFR 1281.14 and 1281.15.
    \18\ See 12 CFR 1281.14.
    \19\ See 12 CFR 1281.15.
---------------------------------------------------------------------------

    The proposed rule would modify these provisions to specify that not 
meeting a goal in the first or second year in which the new regulation 
is in effect will not result in the Director requiring a housing plan. 
During the first and second year, FHFA would monitor performance using 
existing AMA data collection, notify the Banks of its preliminary 
determination, and then make a final determination as described above, 
including determining whether the goal was feasible. FHFA would not, 
however, require a housing plan for not meeting a goal in the first or 
second year. The Banks should expect full implementation of the rule 
including the possibility of a housing plan if a Bank does not meet a 
housing goal in 2022.
    The phase-in period would not limit the Director's remedies apart 
from imposition of a housing plan due to the housing goals, such as 
through supervisory criticism in the examination process, nor would it 
limit FHFA's discretion with respect to feasibility determinations.

VIII. Other Changes

    The proposed rule would make a number of changes to provisions in 
the current Bank housing goals regulation that address which mortgages 
count for purposes of the housing goals. The proposed rule would revise 
the Bank housing goals regulation to: (a) Permit mortgages guaranteed 
or insured by a department or agency of the U.S. government to count 
for purposes of the Bank housing goals; (b) address the treatment of 
participations among different Banks under the Bank housing goals; and 
(c) remove provisions related to Home Ownership and Equity Protection 
Act (HOEPA) mortgages and mortgages with unacceptable terms and 
conditions.

A. Counting Requirements for Federally Backed Mortgages

    The proposed rule would revise the existing Bank housing goals 
regulation to allow mortgages guaranteed or insured by a department or 
agency of the U.S. government to count for purposes of the Bank housing 
goals.
    The Enterprise housing goals are defined by statute to include only 
conventional loans, i.e., those that are not government-backed. The 
existing Bank housing goals regulation includes the same provisions 
excluding loans guaranteed or insured by a department or agency of the 
U.S. government from counting for purposes of the Bank housing goals. 
The proposed rule would change this provision so that these mortgages 
would be counted for purposes of the Bank housing goals. Non-
conventional loans would continue to be excluded from the Enterprise 
housing goals.
    Federal Housing Administration (FHA), Veterans Administration (VA), 
and Rural Housing Service (RHS) provide mortgage options that can help 
lower-income borrowers and borrowers in low-income areas achieve 
homeownership, for instance, with lower down payments. Some lenders--
and particularly smaller lenders--may lack the economy of scale needed 
for efficiently participating in multiple secondary market options. 
Some depositories have dropped federally backed mortgages from their 
product lines, while nonbanks--which are generally ineligible to be 
members--originate an increasing share of this market.\20\ For many 
PFIs, the Banks are their preferred means of access to the secondary 
market because of the high level of service Bank staff provide and the 
longstanding member relationships. Allowing small institutions to use 
their preferred secondary market channel along with government backing 
through FHA, VA, or RHS means those institutions do not have to choose 
between secondary market executions and loan type and can therefore 
better serve their borrowers.
---------------------------------------------------------------------------

    \20\ According to Ginnie Mae, nonbanks' overall share of Ginnie 
Mae MBS issuances more than doubled from 36 percent in early 2013 to 
over 77 percent as of November 2016. See Ginnie Mae, ``The Role of 
Nonbanks in Expanding Access to Credit,'' 3 (Jan. 2017), available 
at https://www.ginniemae.gov/newsroom/publications/Documents/expand_role_nonbanks.pdf. See also Christopher Whalen, ``No good 
reason for banks to offer more government-backed mortgages,'' 
American Banker (Jan. 22, 2018), available at https://www.americanbanker.com/opinion/no-good-reason-for-banks-to-offer-more-government-backed-mortgages.
---------------------------------------------------------------------------

    The Banks acquire federally backed mortgages through products under 
both the MPF and MPP programs. Under the MPF program, the Banks acquire 
federally backed loans for their ``MPF Government'' and ``MPF 
Government MBS'' products. With ``MPF Government,'' the Bank serves as 
investor and holds the loans on its balance sheet. With ``MPF 
Government MBS,'' the Bank essentially serves as an aggregator, 
purchasing federally backed mortgages (MPF Government loans) and then 
issuing Ginnie Mae securities backed by the mortgages.
    The Banks' purchases of federally backed mortgages have varied 
greatly. In 2017, the Bank System's purchases of federally backed loans 
represented 10 percent of total AMA loans (less than 8 percent measured 
by UPB), but the purchases by individual Banks ranged from 0 percent to 
100 percent, as detailed in the Table 7 below:

[[Page 55126]]

[GRAPHIC] [TIFF OMITTED] TP02NO18.017

    The proposed rule would simplify the rules under which mortgages 
may be counted by including purchases of federally backed mortgages 
under AMA products. This approach would also complement FHFA's AMA 
regulation, provide better secondary market execution for many PFIs, 
and support the needs of underserved borrowers.

B. Counting Participations

    The current Bank housing goals regulation does not explicitly 
address the treatment of ``participations.'' A participation exists 
where two or more institutions each acquire a percentage interest in a 
mortgage. The proposed rule would incorporate existing FHFA guidance on 
the treatment of participations into the regulation.
    FHFA has addressed the Bank housing goals treatment of 
participations under two different scenarios. Under the first scenario, 
a Bank would purchase a mortgage and later sell a participation 
interest in the mortgage to another Bank. FHFA addressed this scenario 
in the Supplementary Information to the 2010 final rule establishing 
the Bank housing goals. In this scenario, FHFA stated that ``each 
mortgage will be assigned to the Bank that initially acquired the 
mortgage regardless of whether an interest in the mortgage was later 
sold to another Bank.'' \21\ The proposed rule would codify in the 
regulation that participations among Banks that are executed after the 
mortgage was first acquired by a Bank should not be counted as 
``mortgage purchases'' for purposes of the Bank housing goals 
regulation. This exclusion would apply even if the participation were 
executed on the same day as the original acquisition by a Bank.
---------------------------------------------------------------------------

    \21\ See 75 FR 81096, 81103 (Dec. 27, 2010), available at 
https://www.gpo.gov/fdsys/pkg/FR-2010-12-27/pdf/2010-32350.pdf.
---------------------------------------------------------------------------

    Under a second scenario, two or more Banks would each purchase 
participation interests in the same mortgage simultaneously. FHFA has 
interpreted the existing Bank housing goals regulation to require that 
such transactions be counted on a pro rata basis according to each 
Bank's percentage interests in the mortgage. The proposed rule would 
codify in the regulation that participations among Banks that are 
entered simultaneously pursuant to an existing participation agreement 
should be counted as ``mortgage purchases'' based on the pro rata 
number of mortgages according to each Bank's percentage interests for 
purposes of the Bank housing goals regulation.

C. HOEPA Mortgages and Mortgages With Unacceptable Terms and Conditions

    The current Bank housing goals regulation counts purchases of 
``HOEPA mortgages'' and ``mortgages with unacceptable terms and 
conditions'' in the housing goals denominator, but makes them 
ineligible for the numerator.\22\ This category generally encompasses 
mortgages with excessive points and fees, the financing of single 
premium, credit life insurance, and high prepayment penalties.\23\
---------------------------------------------------------------------------

    \22\ See 12 CFR 1281.1.
    \23\ Id.
---------------------------------------------------------------------------

    FHFA has issued other guidance to the Banks covering purchases of 
mortgages with predatory features or accepting such mortgages as 
collateral for advances.\24\ The prohibition on goals eligibility in 
the current regulation is largely redundant with that guidance, and the 
Banks have demonstrated no interest in purchasing such mortgages. The 
proposed rule would remove the restriction from the Bank housing goals 
regulation. FHFA would instead rely on existing supervisory and 
regulatory authorities and procedures to address any concerns about 
particular types of mortgages.
---------------------------------------------------------------------------

    \24\ See generally ``Federal Home Loan Bank Collateral for 
Advances and Interagency Guidance on Nontraditional Mortgage 
Products, Notice of study and recommendations and request for 
comment,'' 74 FR 38618 (Aug. 4, 2009), available at https://www.gpo.gov/fdsys/pkg/FR-2009-08-04/pdf/E9-18545.pdf. In removing 
the exclusion for ``mortgages with unacceptable terms and 
conditions'' from the Enterprises' housing goals regulation, FHFA 
noted that it ``has regulatory authority to directly prohibit 
purchases by the Enterprises of any types of mortgages it determines 
are unsuitable.'' See ``2015-2017 Enterprise Housing Goals,'' 80 FR 
53392, 53427 (Sept. 3, 2015), available at https://www.gpo.gov/fdsys/pkg/FR-2015-09-03/pdf/2015-20880.pdf.
---------------------------------------------------------------------------

IX. Section-by-Section Analysis of Proposed Rule

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

A. Changes to Definitions--Proposed Sec.  1281.1

    The proposed rule includes changes to definitions used in the 
current Bank housing goals regulation. The proposed rule would add new 
definitions of ``AMA mortgage,'' ``AMA program,'' ``AMA user,'' ``CFI 
asset cap,'' and ``community financial institution or CFI,'' and would 
revise the definitions of ``dwelling unit,'' ``families in low-income 
areas,'' ``median income,'' ``metropolitan area,'' ``mortgage,'' and

[[Page 55127]]

``non-metropolitan area.'' The proposed rule would also remove the 
definitions of ``Acquired Member Assets (AMA) program,'' ``AMA-approved 
mortgage,'' ``conforming mortgage,'' ``conventional mortgage,'' 
``HMDA,'' ``HOEPA mortgage,'' ``HUD,'' ``mortgage data,'' ``mortgage 
with unacceptable terms or conditions,'' ``owner-occupied housing,'' 
``residential mortgage,'' and ``second mortgage.''
1. Definition of ``AMA Mortgage''
    The current Bank housing goals regulation defines ``AMA-approved 
mortgage'' as a mortgage that meets the requirements of an AMA program, 
with cross-references to the Acquired Member Assets regulation (12 CFR 
part 1268) and the New Business Activities regulation (12 CFR part 
1272). The proposed rule would replace the term ``AMA-approved 
mortgage'' with ``AMA mortgage'' as a technical, non-substantive 
change. ``AMA mortgage'' is more consistent with typical usage for the 
AMA program. In addition, because the proposed rule would define the 
term ``AMA program'' by cross-referencing the Acquired Member Assets 
regulation, it is not necessary to include additional cross-references 
in the proposed definition of ``AMA mortgage.''
2. Definition of ``AMA program''
    The current Bank housing goals regulation defines ``Acquired Member 
Assets (AMA) program'' as a program that authorizes a Bank to hold 
assets acquired from a member by a purchase or funding transaction 
subject to the requirements of parts 1268 (Acquired Member Assets) and 
1272 (New Business Activities). At the time the current Bank housing 
goals regulation was adopted, the term ``AMA program'' was not a 
defined term in the Acquired Member Assets regulation. A definition for 
the term ``AMA program'' was added to the Acquired Member Assets 
regulation in 2016.\25\ There is no substantive difference between the 
definition of ``Acquired Member Assets (AMA) program'' under the Bank 
housing goals regulation and the definition of ``AMA program'' under 
the Acquired Member Assets regulation. The proposed rule would replace 
the definition of ``Acquired Member Assets (AMA) program'' in the Bank 
housing goals regulation with a new definition of ``AMA program'' that 
would cross-reference the definition in the Acquired Member Assets 
regulation.
---------------------------------------------------------------------------

    \25\ 12 CFR 1268.1.
---------------------------------------------------------------------------

3. Definition of ``AMA user''
    The proposed rule would add a new definition for the term ``AMA 
user,'' to mean any participating financial institution from which a 
Bank purchased at least one AMA mortgage during the year being 
measured.
    The Acquired Member Assets regulation generally defines 
``participating financial institution'' as a member or housing 
associate of a Bank that is authorized to sell, credit enhance, or 
service mortgage loans to or for a Bank through an AMA program. This 
definition includes all members that are authorized to sell mortgages 
through an AMA program, regardless of whether the member actually sells 
such a mortgage in any particular year. The proposed rule would define 
the term ``AMA user'' more narrowly than the definition of a 
participating financial institution. An ``AMA user'' would be defined 
as a participating financial institution from which the Bank purchased 
at least one AMA mortgage during the year being measured. The proposed 
new small member participation housing goal would be limited only to 
AMA users, i.e., those participating financial institutions that sold 
at least one mortgage loan to the Bank in question in the year being 
measured.
4. Definition of ``CFI Asset Cap''
    The proposed rule would add a new definition for the term ``CFI 
asset cap.'' The proposed rule would define the term ``CFI asset cap'' 
to have the same meaning as defined in the Bank membership 
regulation.\26\ The term ``CFI asset cap'' is defined in the Bank 
membership regulation to mean $1 billion, as adjusted annually by FHFA 
based on changes in the Consumer Price Index.
---------------------------------------------------------------------------

    \26\ See 12 CFR 1263.1.
---------------------------------------------------------------------------

    The new small member participation housing goal would measure the 
percentage of AMA users for a Bank with assets that are below the CFI 
asset cap. The proposed rule would define the term ``CFI asset cap'' by 
cross-referencing the existing definition in the Bank membership 
regulation.
5. Definition of ``Community Financial Institution or CFI''
    The proposed rule would add a new definition for the term 
``community financial institution or CFI.'' The proposed rule would 
define the term ``community financial institution or CFI'' to have the 
same meaning as defined in the Bank membership regulation.\27\ The term 
``community financial institution or CFI'' is defined in the Bank 
membership regulation to mean an institution (1) the deposits of which 
are insured under the Federal Deposit Insurance Act (12 U.S.C. 1811 et 
seq.); and (2) the total assets of which, as of the date of a 
particular transaction, are less than the CFI asset cap, with total 
assets being calculated as an average of total assets over three years, 
with such average being based on the institution's regulatory financial 
reports filed with its appropriate regulator for the most recent 
calendar quarter and the immediately preceding 11 calendar quarters. 
The proposed rule would define the term ``community financial 
institution or CFI'' by cross-referencing the existing definition in 
the Bank membership regulation.
---------------------------------------------------------------------------

    \27\ Id.
---------------------------------------------------------------------------

6. Definition of ``Conforming Mortgage''
    The current Bank housing goals regulation defines ``conforming 
mortgage'' as a conventional, AMA-approved single-family mortgage with 
an original principal obligation that does not exceed the dollar 
limitation under the Acquired Member Assets regulation or under the 
Freddie Mac conforming loan limits. The Bank housing goals are already 
limited to purchases of mortgages under AMA programs, which include 
limits on the size of mortgages that can be purchased by a Bank. It is 
not necessary for the Bank housing goals to include a separate limit on 
the size of mortgages that may be counted for purposes of the Bank 
housing goals. The proposed rule would remove the definition of 
``conforming mortgage'' from the Bank housing goals regulation as 
unnecessary.
7. Definition of ``Conventional Mortgage''
    The current Bank housing goals regulation defines ``conventional 
mortgage'' as any mortgage that does not include a guaranty, insurance 
or other obligation by the United States or any of its agencies or 
instrumentalities. The definition of ``conventional mortgage'' is 
included in the Bank housing goals regulation because the Bank housing 
goals are currently limited to conventional mortgages. The proposed 
rule would expand the coverage of the Bank housing goals to include all 
AMA mortgages, including both conventional mortgages and non-
conventional mortgages. Because the proposed rule would no longer limit 
the Bank housing goals to conventional mortgages, the proposed rule 
would remove the definition of ``conventional mortgage'' from the Bank 
housing goals regulation as unnecessary.

[[Page 55128]]

8. Definition of ``Dwelling Unit''
    The current Bank housing goals regulation defines ``dwelling unit'' 
to mean a room or unified combination of rooms intended for use, in 
whole or in part, as a dwelling by one or more persons, and includes a 
dwelling unit in a single-family property, multifamily property, or 
other residential or mixed-use property. In its 2015 final rule 
amending the Enterprise housing goals regulation, FHFA revised the 
analogous definition in the Enterprise housing goals regulation to 
exclude a combination of rooms without plumbing or kitchen 
facilities.\28\ The proposed rule would revise the definition of 
``dwelling unit'' to align with the definition of ``dwelling unit'' 
provided in the Enterprise housing goals regulation.
---------------------------------------------------------------------------

    \28\ See 80 FR 53392 (Sept. 3, 2015), codified at 12 CFR 1282.1.
---------------------------------------------------------------------------

9. Definition of ``Families in Low-income Areas''
    The current Bank housing goals regulation defines ``families in 
low-income areas'' to mean (1) any family that resides in a census 
tract or block numbering area in which the median income does not 
exceed 80 percent of the area median income; (2) any family with an 
income that does not exceed area median income that resides in a 
minority census tract; and (3) any family with an income that does not 
exceed area median income that resides in a designated disaster area. 
In its 2015 final rule amending the Enterprise housing goals 
regulation, FHFA amended the analogous provision in the Enterprise 
housing goals regulation (12 CFR 1282.1) by removing the reference to 
``block numbering areas'' to conform to the terminology used by the 
U.S. Census Bureau.\29\ The proposed rule would amend the Bank housing 
goals regulation by making a conforming revision to the definition of 
``families in low-income areas.''
---------------------------------------------------------------------------

    \29\ Id. at 53423.
---------------------------------------------------------------------------

10. Definition of ``HMDA''
    The current Bank housing goals regulation defines ``HMDA'' as the 
Home Mortgage Disclosure Act of 1975, as amended. The definition of 
``HMDA'' is included in the current Bank housing goals regulation 
because the Bank housing goals are currently evaluated based on a 
retrospective market measurement calculated using HMDA data. The 
proposed rule would remove the retrospective market measurement from 
the Bank housing goals and instead establish goal levels prospectively 
in the regulation. Because the proposed rule would no longer include a 
market calculation based on HMDA data, the proposed rule would remove 
the definition of ``HMDA'' from the Bank housing goals regulation as 
unnecessary.
11. Definition of ``HOEPA Mortgage''
    The current Bank housing goals regulation defines ``HOEPA 
mortgage'' as a mortgage covered by the definition of ``high-cost 
mortgage'' under the Truth in Lending Act. The definition of ``HOEPA 
mortgage'' is included in the current Bank housing goals regulation 
because the Bank housing goals do not allow HOEPA mortgages to be 
counted toward achievement of the Bank housing goals. The proposed rule 
would remove the provision excluding HOEPA mortgages from counting for 
purposes of the Bank housing goals. Therefore, the proposed rule would 
remove the definition of ``HOEPA mortgages'' from the Bank housing 
goals regulation as unnecessary.
12. Definition of ``HUD,'' ``Median Income,'' ``Metropolitan Area,'' 
and ``Non-Metropolitan Area''
    The current Bank housing goals regulation defines ``median 
income,'' with respect to an area, as the unadjusted median family 
income for the area as determined by HUD. The current definition 
further provides that FHFA will provide the Banks annually with 
information specifying how the median family income estimates for 
metropolitan areas are to be applied for the purposes of determining 
median family income. FHFA's practice is to calculate the applicable 
median income figures for both metropolitan and non-metropolitan areas 
and to provide the median income information to the Banks. The proposed 
rule would align the definition of ``median income'' with FHFA's 
practice, by revising it to mean, with respect to an area, the 
unadjusted median family income for the area as determined by FHFA. The 
proposed rule would also revise the definition to provide that FHFA 
will provide the Banks 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.
    The current Bank housing goals regulation defines ``metropolitan 
area'' as a metropolitan statistical area (MSA), or a portion of such 
an area, including Metropolitan Divisions, for which median family 
income estimates are determined by HUD. The regulation defines ``non-
metropolitan area'' as a county, or a portion of a county, including 
those counties that comprise Micropolitan Statistical Areas, located 
outside any metropolitan area for which median family income estimates 
are published annually by HUD. The proposed rule would align the 
definition of ``metropolitan area'' with FHFA's practice by revising it 
to mean an MSA, or a portion of such an area, including Metropolitan 
Divisions, for which median incomes are determined by FHFA. The 
proposed rule would align the definition of ``non-metropolitan area'' 
with FHFA's practice by revising it to mean 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.
    The current Bank housing goals regulation defines ``HUD'' as the 
United States Department of Housing and Urban Development. The term 
``HUD'' is used only in the definitions of ``median income,'' 
``metropolitan area,'' and ``non-metropolitan area'' in the current 
Bank housing goals regulation. The proposed rule would revise those 
definitions to remove each reference to ``HUD,'' and the proposed rule 
would therefore remove the definition of ``HUD'' from the Bank housing 
goals regulation as unnecessary.
13. Definition of ``Mortgage''
    The current Bank housing goals regulation defines ``mortgage'' to 
include all loans secured by real estate and any interests in such 
mortgages. The current definition is based on the definition of 
``mortgage'' in the Enterprise housing goals regulation and excludes 
chattel loans on manufactured housing. The proposed rule would revise 
the definition of ``mortgage'' in the Bank housing goals regulation to 
include chattel loans on manufactured housing. The AMA regulation 
allows the Banks to acquire chattel loans on manufactured housing. 
Adding such loans to the definition of ``mortgage'' in the Bank housing 
goals regulation would further align the coverage of the Bank housing 
goals with the AMA regulation and would make it easier for the Banks to 
assess their own housing goals performance during the year. Chattel 
mortgages on manufactured housing are a significant means by which 
lower-income households obtain housing, and are therefore appropriate 
to be included in the Bank housing goals calculation.
14. Definition of ``Mortgage With Unacceptable Terms or Conditions''
    The current Bank housing goals regulation defines ``mortgage with 
unacceptable terms or conditions'' as a

[[Page 55129]]

mortgage that has one or more of a series of terms or conditions that 
FHFA determined to be harmful to borrowers. The definition of 
``mortgage with unacceptable terms or conditions'' is included in the 
current Bank housing goals regulation because the Bank housing goals do 
not allow mortgages with unacceptable terms or conditions to be counted 
toward achievement of the Bank housing goals. The proposed rule would 
remove the provision excluding mortgages with unacceptable terms or 
conditions from counting for purposes of the Bank housing goals. 
Therefore, the proposed rule would remove, as unnecessary, the 
definition of ``mortgage with unacceptable terms or conditions'' from 
the Bank housing goals regulation.
15. Definition of ``Owner-Occupied Housing''
    The current Bank housing goals regulation defines ``owner-occupied 
housing'' as single-family housing in which a mortgagor resides, 
including two- to four-unit owner-occupied properties where one or more 
units are used for rental purposes. The definition of ``owner-occupied 
housing'' is included in the Bank housing goals regulation because the 
Bank housing goals are currently limited to mortgages on owner-occupied 
housing. The proposed rule would expand the coverage of the Bank 
housing goals to include all AMA mortgages, including mortgages on 
owner-occupied and investor-owned single-family properties. The 
proposed rule would not establish separate criteria for evaluating 
whether a mortgage on an investor-owned property could be counted for 
purposes of the housing goals. Any such mortgages would be evaluated 
based on the income of the mortgagor in the same manner as the 
evaluation of a mortgage on an owner-occupied property. Because the 
proposed rule would no longer limit the Bank housing goals to mortgages 
on owner-occupied housing, the proposed rule would remove the 
definition of ``owner-occupied housing'' from the Bank housing goals 
regulation as unnecessary.
16. Definition of ``Residential Mortgage''
    The current Bank housing goals regulation defines ``residential 
mortgage'' as a mortgage on single-family housing. The term 
``residential mortgage'' is not used anywhere else in the current Bank 
housing goals regulation, and the proposed rule would not include any 
use of the term either. The proposed rule would remove the definition 
of ``residential mortgage'' from the Bank housing goals regulation as 
unnecessary.
17. Definition of ``Second Mortgage''
    The current Bank housing goals regulation defines ``second 
mortgage'' as any mortgage that has a lien position subordinate only to 
the lien of the first mortgage. This term is used in Sec.  
1281.13(b)(8), which provides that ``purchases of subordinate lien 
mortgages (second mortgages),'' do not count for purposes of housing 
goals credit. The proposed rule would clarify that this prohibition 
would apply to all mortgages that are subordinate to the first 
mortgages, not only second mortgages. Because ``second mortgage'' would 
no longer appear in the regulation, this definition is unnecessary and 
would be removed.

B. Changes to General--Proposed Sec.  1281.10

    The proposed rule would revise Sec.  1281.10 to reflect the new 
housing goals that would be defined by the proposed rule.
    The current regulation states that the subpart establishes three 
single-family housing goals for purchase money mortgages and one 
single-family housing goal for refinancing mortgages. The current 
regulation also states that the subpart establishes a volume threshold 
for the Bank housing goals.
    The proposed rule would revise the structure of the Bank housing 
goals to remove the volume threshold and to replace the existing 
housing goals with a new prospective mortgage purchase housing goal and 
a new small member participation housing goal. The proposed rule would 
revise Sec.  1281.10 to reflect these changes.

C. Changes to Bank Housing Goals--Proposed Sec. Sec.  1281.11 and 
1281.14

    The proposed rule would revise Sec.  1281.11 to define the new 
prospective mortgage purchase housing goal and small member 
participation housing goal, and would make conforming changes to Sec.  
1281.14.
    The current regulation establishes three single-family housing 
goals for purchase money mortgages and one single-family housing goal 
for refinancing mortgages. The proposed rule would revise Sec.  1281.11 
in its entirety to replace the existing Bank housing goals with two new 
housing goals: a prospective mortgage purchase housing goal and a small 
member participation housing goal.
    The current regulation establishes a volume threshold that a Bank 
must exceed before it is subject to the housing goals. The threshold is 
$2.5 billion in unpaid principal balance in a single year. The proposed 
rule would remove the volume threshold provision so that the new Bank 
housing goals would apply to each Bank regardless of the volume of AMA 
mortgages purchased by the Bank. The proposed rule would also make a 
conforming change to Sec.  1281.14(a) by eliminating Bank volume 
thresholds as a consideration in determining whether the Director 
evaluates annual performance of Bank performance under each housing 
goal.
    The current regulation establishes criteria for determining the 
target level for each goal based on HMDA data for the year being 
measured, i.e., retrospectively. The proposed rule would define the 
prospective mortgage purchase housing goal as the percentage of a 
Bank's AMA mortgages acquired during the calendar year that are for 
very low-income families, low-income families, or families in low-
income areas. The proposed rule would establish a target level of 20 
percent for the prospective mortgage purchase housing goal. The 
proposed rule would also require that at least 75 percent of the 
mortgages that are counted toward a Bank's achievement of the 
prospective mortgage purchase housing goal must be for low-income or 
very low-income families.
    The proposed rule would define the small member participation 
housing goal as the percentage of AMA users with assets that do not 
exceed the CFI asset cap. The proposed rule would establish the target 
level for the small member participation housing goal as the lesser of 
50 percent or 300 basis points greater than the percentage of the 
Bank's AMA users with assets that do not exceed the CFI cap from the 
preceding year.
    The proposed rule would also establish a process for a Bank to 
propose a different target level for the prospective mortgage purchase 
housing goal, the small member participation housing goal, or both. The 
proposed rule would require that this Bank-specific housing goal 
proposal be submitted to FHFA by October 31, 2019, and by October 31 
every third year thereafter, or at some other appropriate time as may 
be determined by FHFA, for example if a Bank, in the middle of a three-
year cycle, resumes purchasing AMA mortgages under a dormant AMA 
program. The proposed rule would require that a Bank-specific housing 
goal proposal include proposed targets for each of the three years 
following the year in which the Bank's proposal is submitted, and that 
the proposal include a detailed explanation of (i) why the 
corresponding housing goal

[[Page 55130]]

provided in the regulation is infeasible, (ii) why the proposed goal is 
achievable, and (iii) how the proposed goal meaningfully furthers 
affordable housing mortgage lending in the Bank's district.

D. Changes to General Counting Eequirements--Proposed Sec.  1281.12

    The current Bank housing goals regulation defines the ``numerator'' 
and ``denominator'' used to calculate performance under the current 
housing goals. The new housing goals are clearly defined in the 
proposed rule. The proposed rule would delete paragraph (a) as 
unnecessary in light of the mortgage goal calculation standards 
reflected in proposed Sec.  1281.11. The current Bank housing goals 
regulation also provides that mortgages with missing data or 
information necessary for counting would be included in the denominator 
when calculating a Bank's performance, but not in the numerator. This 
effectively penalizes a Bank's performance by treating mortgages with 
missing data or information as if they were loans that did not meet the 
applicable criteria. The proposed rule would remove paragraph (b)(1), 
so that mortgages with missing data or information would be disregarded 
for purposes of measuring a Bank's performance on the housing goals. 
Finally, paragraph (c), which provides that a mortgage may only count 
once towards achievement of a current housing goal even if it satisfies 
more than one goal, would be redesignated as paragraph (b) and revised 
to permit each mortgage to be counted only once toward achievement of 
the prospective mortgage purchase housing goal, even if it satisfies 
multiple criteria. The changes to this paragraph would be consistent 
with the revised structure of the prospective mortgage purchase housing 
goal established in proposed Sec.  1281.11. The proposed rule would 
make conforming redesignations of paragraphs throughout the remainder 
of Sec.  1281.12.

E. Changes to Special Counting Requirements--Proposed Sec.  1281.13

    Paragraph (b) of Sec.  1281.13 currently enumerates categories of 
transactions or activities that are not counted for purposes of the 
housing goals and are not included in the numerator or the denominator 
in calculating a Bank's housing goals performance. The proposed rule 
would amend this paragraph by removing the references to ``numerator'' 
and ``denominator.'' This language would be unnecessary in light of the 
simplified calculation methodology provided in proposed Sec.  1281.11.
    Paragraph (b)(1) currently excludes non-conventional single family 
mortgages from counting towards housing goals credit. The proposed rule 
would allow loans guaranteed or insured by a department or agency of 
the U.S. government to count towards housing goals credit for the 
prospective mortgage purchase housing goal. Paragraph (b)(1) would be 
revised to codify FHFA's current treatment of mortgage participation 
interests. The proposed rule would exclude participation interests in 
AMA mortgages that are purchased from another Bank, except where two or 
more Banks acquire a participation interest in the same mortgage 
simultaneously. The proposed rule would add new paragraph (e) to 
clarify that where two or more Banks acquire a participation interest 
in the same mortgage simultaneously, the mortgage would be counted on a 
pro rata basis for each Bank.
    Paragraph (b)(8) would be revised to clarify that all mortgages 
which are subordinate to the first mortgage are excluded from counting 
for purposes of the Bank housing goals.

F. Changes to Determination of Compliance With Housing Goals; Notice of 
Determination--Proposed Sec.  1281.14

    The proposed rule would amend Sec.  1281.14(a) by removing the 
reference to the volume threshold, which would be moot in light of the 
threshold's elimination under proposed Sec.  1281.11. The proposed rule 
would also amend Sec.  1281.14(a) to require that FHFA publish the 
annual determination of compliance. The proposed rule would describe 
the data that would be included in the published determination.

G. Changes to Housing Plans--Proposed Sec.  1281.15

    The proposed rule would revise Sec.  1281.15 to provide that the 
Director may only require that a Bank submit a housing plan for any 
year after 2021. This would reflect the phase-in period for the new 
housing goals, eliminating possibility of a housing plan during the 
first two years in which the proposed prospective and small member 
participation housing goals are operative. Because a Bank may be 
required to submit a housing plan while awaiting FHFA's response to a 
Bank-specific housing goal proposal, the proposed rule would amend 
Sec.  1281.15 by adding new paragraph (b)(5) to require that the 
housing plan address any Bank-specific housing goals the Bank is 
proposing.

H. Changes to Reporting Requirements--Proposed Sec. Sec.  1281.1 and 
1281.20.

    The proposed rule would revise Subpart C to simplify and clarify 
the reporting requirements for the Banks under the new housing goals.
    The current Bank housing goals regulation sets out a number of 
specific reporting requirements for the Banks. Section 1281.20 of the 
current regulation describes the matters that are covered by Subpart C, 
``Reporting Requirements.'' Section 1281.21 of the current regulation 
describes the reporting requirements including the required timing and 
format of the data to be submitted. Section 1281.22 of the current 
regulation permits FHFA to require additional reports, information, and 
data as it determines appropriate. Finally, Sec.  1281.23 of the 
current regulation requires a senior officer of each Bank to certify 
the data submitted under the Bank housing goals regulation and allows 
FHFA to address errors, omissions or discrepancies in data reported by 
a Bank by adjusting the Bank's official housing goals performance 
figures and in certain circumstances increasing a Bank's housing goal 
in a later year.
    The proposed rule would revise the reporting requirements in 
Subpart C to reflect the new housing goals structure and to eliminate 
provisions that are either duplicative of or potentially inconsistent 
with the existing Bank reporting requirements under FHFA's Data 
Reporting Manual (DRM). The DRM is issued by FHFA containing reporting 
requirements for the Banks and is amended from time to time. The DRM 
includes detailed requirements about the data elements that the Banks 
must report and the timing and format of the required reporting. The 
proposed rule would remove reporting requirements from the Bank housing 
goals regulation that are duplicative of and potentially inconsistent 
with the DRM.
    The proposed rule would consolidate the four sections that 
currently exist in Subpart C of the Bank housing goals regulation into 
a single section. Sections 1281.21, 1281.22 and 1281.23 would be 
removed from the regulation. Section 1281.20 would include the new 
reporting requirements for the Bank housing goals regulation. As 
revised, Sec.  1281.20(a) would require the Banks to submit to FHFA any 
data that FHFA determines to be necessary to evaluate transactions and 
activities under the Bank housing goals. Section 1281.20(b)

[[Page 55131]]

and (c) would set out the data reporting requirements for the 
prospective mortgage purchase housing goal and the small member 
participation housing goal, respectively, and would require such 
submissions to be made in accordance with the DRM. Section 1281.20(d) 
would continue to permit FHFA to require a Bank to provide such 
additional reports, information, and data as FHFA may request from time 
to time.
    In addition to the above clarifications of the existing Bank 
reporting requirements, the proposed rule would also remove the 
provision in the current Bank housing goals regulation that addresses 
errors, omissions or discrepancies in the data reported by a Bank. This 
provision is unnecessary in light of FHFA's existing supervisory and 
regulatory authorities and procedures, and the proposed rule would 
remove the provision.
    Finally, the proposed rule would remove the definition of 
``mortgage data'' from Sec.  1281.1. The current Bank housing goals 
regulation defines ``mortgage data'' as data obtained from the Banks 
under the Data Reporting Manual. The revisions to the reporting 
requirements in Subpart C would remove all references to the term 
``mortgage data.'' The proposed rule would therefore remove the 
definition of ``mortgage data'' from the Bank housing goals regulation 
as unnecessary.

X. Considerations of Differences Between the Banks and the Enterprises

    When promulgating regulations relating to the Banks, section 
1313(f) of the Safety and Soundness Act requires the Director of FHFA 
to consider the differences between the Banks and the Enterprises with 
respect to the Banks' cooperative ownership structure; mission of 
providing liquidity to members; affordable housing and community 
development mission; capital structure; and joint and several 
liability. FHFA, in preparing this proposed rule, considered the 
differences between the Banks and the Enterprises as they relate to the 
above factors. FHFA also considered these differences in light of 
section 10C of the Bank Act, which requires that the Bank housing goals 
be consistent with the Enterprise housing goals, with consideration of 
the unique mission and ownership structure of the Banks.\30\ FHFA 
requests comments from the public about whether these differences 
should result in any revisions to the proposed rule.
---------------------------------------------------------------------------

    \30\ See 12 U.S.C. 1430c.
---------------------------------------------------------------------------

XI. Paperwork Reduction Act

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

XII. Regulatory Flexibility Act

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

List of Subjects in 12 CFR Part 1281

    Credit, Federal home loan banks, Housing, Mortgages, Reporting and 
recordkeeping requirements.

Authority and Issuance

    For the reasons stated in the SUPPLEMENTARY INFORMATION, under the 
authority of 12 U.S.C. 4526, FHFA proposes to amend part 1281 of Title 
12 of the Code of Federal Regulations as follows:

CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY

SUBCHAPTER E--HOUSING GOALS AND MISSION

PART 1281--FEDERAL HOME LOAN BANK HOUSING GOALS

0
1. Revise the authority citation for part 1281 to read as follows:

    Authority: 12 U.S.C. 1430, 1430b, 1430c, 1431.

0
2. Amend Sec.  1281.1 by:
0
a. Removing the definitions of ``Acquired Member Assets (AMA) program'' 
and ``AMA-approved mortgage'';
0
b. Adding definitions for ``AMA mortgage'', ``AMA program'', and ``AMA 
user'' in alphabetical order;
0
c. Removing the definitions of ``Conforming mortgage'' and 
``Conventional mortgage'';
0
d. Adding definitions for ``CFI asset cap'' and ``Community financial 
institution or CFI'' in alphabetical order;
0
e. Revising the definition of ``Dwelling unit'' and paragraph (1) of 
the definition of ``Families in low-income areas'';
0
f. Removing the definitions of ``HMDA'', ``HOEPA mortgage'', and 
``HUD'';
0
g. Revising the definitions of ``Median income'', ``Metropolitan 
area'', and ``Mortgage'';
0
h. Removing the definitions of ``Mortgage data'' and ``Mortgage with 
unacceptable terms or conditions'';
0
i. Revising the definition of ``Non-metropolitan area''; and
0
j. Removing the definitions of ``Owner-occupied housing'', 
``Residential mortgage'', and ``Second mortgage''.
    The revisions and additions read as follows:


Sec.  1281.1  Definitions.

* * * * *
    AMA mortgage means a mortgage that was purchased by a Bank under an 
AMA program.
    AMA program has the meaning set forth in Sec.  1268.1 of this 
chapter.
    AMA user means any participating financial institution, as defined 
in Sec.  1268.1 of this chapter, from which the Bank purchased at least 
one AMA mortgage during the year for which the housing goals are being 
measured.
* * * * *
    CFI asset cap has the meaning set forth in Sec.  1263.1 of this 
chapter.
    Community financial institution or CFI has the meaning set forth in 
Sec.  1263.1 of this chapter.
* * * * *
    Dwelling unit means a room or unified combination of rooms with 
plumbing and kitchen facilities intended for use, in whole or in part, 
as a dwelling by one or more persons, and includes a dwelling unit in a 
single-family property, multifamily property, or other residential or 
mixed-use property.
    Families in low-income areas * * *
    (1) Any family that resides in a census tract in which the median 
income does not exceed 80 percent of the area median income;
* * * * *
    Median income means, with respect to an area, the unadjusted median 
family income for the area as determined by FHFA. FHFA will provide the 
Banks annually with information specifying how the median family income 
estimates for

[[Page 55132]]

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.
* * * * *
    Mortgage means a member of such classes of liens, including 
subordinate liens, as are commonly given or are legally effective to 
secure advances on, or the unpaid purchase price of, real estate under 
the laws of the State in which the real estate is located, or a 
manufactured home that is personal property under the laws of the State 
in which the manufactured home is located, together with the credit 
instruments, if any, secured thereby, and includes interests in 
mortgages. Mortgage includes a mortgage, lien, including a subordinate 
lien, or other security interest on the stock or membership certificate 
issued to a tenant-stockholder or resident-member by a cooperative 
housing corporation, as defined in section 216 of the Internal Revenue 
Code of 1986, and on the proprietary lease, occupancy agreement, or 
right of tenancy in the dwelling unit of the tenant-stockholder or 
resident-member in such cooperative housing corporation.
* * * * *
    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. Amend Sec.  1281.10 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  1281.10  General.

* * * * *
    (a) A prospective mortgage purchase housing goal;
    (b) A small member participation housing goal;
* * * * *
0
4. Revise Sec.  1281.11 to read as follows:


Sec.  1281.11  Bank housing goals.

    (a) Prospective mortgage purchase housing goal. For each calendar 
year, the percentage of a Bank's AMA mortgages acquired during the 
calendar year that are for very low-income families, low-income 
families, or families in low-income areas must meet or exceed either:
    (1) 20 percent; or
    (2) A percentage target approved under paragraph (d) of this 
section.
    (b) Cap on low-income areas loans counted toward goal. At least 75 
percent of the mortgages that are counted toward a Bank's achievement 
of the prospective mortgage purchase housing goal must be for low-
income or very low-income families.
    (c) Small member participation housing goal. For each calendar 
year, the percentage of all AMA users that are AMA users with assets 
that do not exceed the CFI asset cap must meet or exceed either:
    (1) 50 percent;
    (2) A percentage that is three percentage points greater than the 
percentage of the Bank's AMA users with assets that do not exceed the 
CFI cap from the preceding year; or
    (3) A percentage target approved under paragraph (d) of this 
section.
    (d) Bank-specific housing goals. (1) A Bank may submit a written 
request for FHFA approval of different target percentages for the 
prospective mortgage purchase housing goal, the small member 
participation housing goal, or both. A Bank request under this 
paragraph must include proposed target percentages for three 
consecutive years following the calendar year in which the proposal is 
submitted. A Bank is not required to propose the same target percentage 
for each of the three years.
    (2) A Bank's request under this paragraph must include a detailed 
explanation of:
    (i) Why the goal in paragraphs (a) and (b) of this section, as 
applicable, is infeasible;
    (ii) Why the Bank's proposed goal is achievable; and
    (iii) How the Bank's proposed goal meaningfully furthers affordable 
housing mortgage lending in its district.
    (3) A proposal under this paragraph may only be submitted once 
every three years, or under the circumstances described in paragraph 
(d)(4) of this section. The deadline for submitting a proposal under 
this section is October 31, 2019, and October 31 for every third year 
after 2019. FHFA will review each Bank proposal that is received by the 
deadline and will notify the Bank in writing if the Bank proposal is 
approved. If FHFA does not notify a Bank that its proposal is approved, 
the Bank will remain subject to the percentage goals in paragraphs (a) 
and (b) of this section, as applicable.
    (4) FHFA may require a Bank to propose a target percentage for 
either or both housing goals to address discontinuation of an AMA 
program or approval of a new AMA program.
0
5. Revise Sec.  1281.12 to read as follows:


Sec.  1281.12  General counting requirements.

    (a) General. Mortgage purchases financing single-family properties 
shall be evaluated based on the income of the mortgagors and the area 
median income at the time the mortgage was originated. To determine 
whether mortgages may be counted under a particular family income level 
(i.e., low- or very low-income), the income of the mortgagor is 
compared to the median income for the area at the time the mortgage was 
originated, using the appropriate percentage factor provided under 
Sec.  1281.1.
    (b) No double-counting. A mortgage may be counted only once toward 
the achievement of the prospective mortgage purchase housing goal, even 
if it satisfies multiple criteria for the prospective mortgage purchase 
housing goal.
    (c) Application of median income. For purposes of determining an 
area's median income under Sec.  1281.1, the area is:
    (1) The metropolitan area, if the residence that secures 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.
    (d) Sampling not permitted. Performance under the housing goals for 
each year shall be based on a tabulation of each mortgage during that 
year; a sampling of such purchases is not acceptable.
0
6. Amend Sec.  1281.13 by:
0
a. Revising the introductory text of paragraph (b);
0
b. Revising paragraphs (b)(1) and (b)(8);
0
c. Removing paragraph (d);
0
d. Redesignating paragraph (e) as paragraph (d); and
0
e. Adding new paragraph (e).
    The revisions and additions read as follows:


Sec.  1281.13  Special counting requirements.

* * * * *
    (b) Not counted. The following transactions or activities shall not 
be counted for purposes of the housing goals, even if the transaction 
or activity would otherwise be counted under paragraph (c) of this 
section:
    (1) Purchases of participation interests in AMA mortgages from 
another Bank, except as provided in paragraph (e) of this section;
* * * * *
    (8) Purchases of subordinate lien mortgages;
* * * * *

[[Page 55133]]

    (e) Mortgage participation transactions. Where two or more Banks 
acquire a participation interest in the same mortgage simultaneously, 
the mortgage will be counted on a pro rata basis for the prospective 
mortgage purchase housing goal for each Bank with a participation 
interest.
0
7. Amend Sec.  1281.14 by revising paragraph (a) to read as follows:


Sec.  1281.14  Determination of compliance with housing goals; notice 
of determination.

    (a) Determination of compliance with housing goals. On an annual 
basis, the Director shall determine each Bank's performance under each 
housing goal and will publish the final determinations. FHFA will 
publish its final determination including the numbers and percentages 
for each Bank's AMA purchases that meet each of the housing goals 
criteria, including loans to low-income families, loans to very low-
income families, and loans to families in low-income areas, including 
by each of the defined categories. FHFA's determination will include 
these numbers in total and separated into purchase money mortgages, 
refinancing mortgages, conventional mortgages, and non-conventional 
mortgages.
* * * * *
0
8. Amend Sec.  1281.15 by revising paragraphs (a) and (b) to read as 
follows:


Sec.  1281.15  Housing plans.

    (a) Housing plan requirement. For any year after 2021, if the 
Director determines that a Bank has failed to meet any housing goal and 
that the achievement of the housing goal was feasible, the Director may 
require the Bank to submit a housing plan for approval by the Director.
    (b) Nature of plan. If the Director requires a housing plan, the 
housing plan shall:
    (1) Be feasible;
    (2) Be sufficiently specific to enable the Director to monitor 
compliance periodically;
    (3) Describe the specific actions that the Bank will take to 
achieve the housing goal for the next calendar year;
    (4) Address any additional matters relevant to the housing plan as 
required, in writing, by the Director; and
    (5) Address any Bank-specific housing goals the Bank is proposing.
* * * * *
0
9. Revise Subpart C to read as follows:

Subpart C--Reporting Requirements


Sec.  1281.20  Reporting requirements.

    (a) General. Each Bank must collect and submit to FHFA any data 
that FHFA determines to be necessary for FHFA to evaluate transactions 
and activities under the Bank housing goals.
    (b) Reporting for prospective mortgage purchase housing goal. Each 
Bank must collect data on each AMA mortgage purchased by the Bank. The 
data must include any data elements specified by FHFA. On no less 
frequent than an annual basis, each Bank must submit such data to FHFA 
in accordance with the DRM.
    (c) Reporting for small member participation housing goal. Each 
Bank must collect data on AMA user asset size. On no less frequent than 
an annual basis, each Bank must submit such data to FHFA in accordance 
with the DRM.
    (d) Other reporting. Each Bank must provide to FHFA such additional 
reports, information and data as FHFA may request from time to time.

    Dated: October 29, 2018.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2018-23890 Filed 11-1-18; 8:45 am]
 BILLING CODE 8070-01-P