Enterprise Duty To Serve Underserved Markets Amendments, 60331-60338 [2022-21404]
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Federal Register / Vol. 87, No. 192 / Wednesday, October 5, 2022 / Proposed Rules
§ 702.402
Definitions.
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Qualified Counsel means an attorney
licensed to practice law who has
expertise in the areas of Federal and
state securities laws and debt
transactions similar to those described
in this subpart.
Regulatory Capital means:
(1) With respect to an Issuing Credit
Union that is a LICU and not a complex
credit union, the aggregate outstanding
principal amount of Subordinated Debt
and, until the later of 30 years from the
date of issuance or January 1, 2052,
Grandfathered Secondary Capital that is
included in the credit union’s net worth
ratio;
(2) With respect to an Issuing Credit
Union that is a complex credit union
and not a LICU, the aggregate
outstanding principal amount of
Subordinated Debt that is included in
the credit union’s RBC Ratio, if
applicable;
(3) With respect to an Issuing Credit
Union that is both a LICU and a
complex credit union, the aggregate
outstanding principal amount of
Subordinated Debt and, until the later of
30 years from the date of issuance or
January 1, 2052, Grandfathered
Secondary Capital that is included in its
net worth ratio and in its RBC Ratio, if
applicable; and
(4) With respect to a new credit
union, the aggregate outstanding
principal amount of Subordinated Debt
and, until the later of 30 years from the
date of issuance or January 1, 2052,
Grandfathered Secondary Capital that is
considered pursuant to § 702.207.
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■ 4. In § 702.404, revise the section
heading and paragraph (a)(2) to read as
follows:
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§ 702.404 Requirements of the
Subordinated Debt Note.
(a) * * *
(1) * * *
(2) Have, at the time of issuance, a
fixed stated maturity of at least five
years. The stated maturity of the
Subordinated Debt Note may not reset
and may not contain an option to extend
the maturity. A credit union seeking to
issue Subordinated Debt Notes with
maturities longer than 20 years from the
date of issuance must provide the
information required in § 702.408(b)(14)
as part of its application for preapproval
to issue Subordinated Debt;
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■ 5. In § 702.408:
■ a. Revise paragraph (b)(7);
■ b. Redesignate paragraphs (b)(14) and
(15) as paragraphs (b)(15) and (16);
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c. Add new paragraph (b)(14); and
d. Revise paragraph (l)(1).
The revisions and addition read as
follows:
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60331
secondary capital’’ re-categorized as
Subordinated Debt)’’.
[FR Doc. 2022–20926 Filed 10–4–22; 8:45 am]
BILLING CODE 7535–01–P
§ 702.408 Preapproval to Issue
Subordinated Debt.
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(b) * * *
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(7) Pro Forma Financial Statements
(balance sheet and income statement)
and cash flow projections, including
any off-balance sheet items, covering at
least two years. Analytical support for
key assumptions and key assumption
changes must be included in the
application. Key assumptions include,
but are not limited to, interest rate,
liquidity, and credit loss scenarios;
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(14) In the case of a credit union
applying to issue Subordinated Debt
Notes with maturities longer than 20
years, an analysis demonstrating that
the proposed Subordinated Debt Notes
would be properly characterized as debt
in accordance with U.S. GAAP. The
Appropriate Supervision Office may
require that such analysis include one
or more of the following:
(i) A written legal opinion from a
Qualified Counsel;
(ii) A written opinion from a licensed
CPA; and
(iii) An analysis conducted by the
credit union or independent third party;
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(l) Filing requirements.
(1) Except as otherwise provided in
this section, all initial applications,
Offering Documents, amendments,
notices, or other documents must be
filed electronically with the Appropriate
Supervision Office. Documents may be
signed electronically using the signature
provision in 17 CFR 230.402 (Rule 402
under the Securities Act of 1933, as
amended).
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■ 6. In § 702.409, revise paragraph (b)(2)
to read as follows:
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(b) * * *
(2) Pro Forma Financial Statements
(balance sheet and income statement)
and cash flow projections, including
any off-balance sheet items, covering at
least two years. Analytical support for
key assumptions and key assumption
changes must be included in the
application. Key assumptions include,
but are not limited to, interest rate,
liquidity, and credit loss scenarios.
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§ 702.414
[Amended]
7. In § 702.414(c) introductory text,
remove the phrase ‘‘(‘‘discounted
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FEDERAL HOUSING FINANCE
AGENCY
12 CFR Part 1282
RIN 2590–AB22
Enterprise Duty To Serve Underserved
Markets Amendments
Federal Housing Finance
Agency.
ACTION: Notice of proposed rulemaking.
AGENCY:
The Federal Housing Finance
Agency (FHFA or Agency) is proposing
to amend its Enterprise Duty to Serve
Underserved Markets regulation to add
a definition of ‘‘colonia census tract,’’
which would serve as a census tractbased proxy for a ‘‘colonia,’’ and to
amend the definition of ‘‘high-needs
rural region’’ in the regulation by
substituting ‘‘colonia census tract’’ for
‘‘colonia.’’ The proposed rule would
also revise the definition of ‘‘rural area’’
in the regulation to include all colonia
census tracts regardless of their location.
These changes would make activities by
the Federal National Mortgage
Association (Fannie Mae) and the
Federal Home Loan Mortgage
Corporation (Freddie Mac) (collectively,
the Enterprises) in all colonia census
tracts eligible for Duty to Serve credit.
The intent of the changes is to facilitate
the Enterprises’ ability to operationalize
their Duty to Serve activities and
thereby help increase liquidity in these
underserved communities.
DATES: FHFA will accept written
comments on the proposed rule on or
before December 5, 2022.
ADDRESSES: You may submit your
comments on the proposed rule,
identified by regulatory information
number (RIN) 2590–AB22, by any one 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
RegComments@fhfa.gov to ensure
timely receipt by FHFA. Include the
following information in the subject line
of your submission: Comments/RIN
2590–AB22.
• Hand Delivered/Courier: The hand
delivery address is: Clinton Jones,
SUMMARY:
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Federal Register / Vol. 87, No. 192 / Wednesday, October 5, 2022 / Proposed Rules
General Counsel, Attention: Comments/
RIN 2590–AB22, Federal Housing
Finance Agency, 400 Seventh Street
SW, Washington, DC 20219. Deliver the
package at the Seventh Street, SW
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:
Clinton Jones, General Counsel,
Attention: Comments/RIN 2590–AB22,
Federal Housing Finance Agency, 400
Seventh Street SW, Washington, DC
20219. Please note that all mail sent to
FHFA via U.S. Mail is routed through a
national irradiation facility, a process
that may delay delivery by
approximately two weeks. For time
sensitive correspondence, please plan
accordingly.
FOR FURTHER INFORMATION CONTACT: Ted
Wartell, Associate Director, Office of
Housing and Community Investment,
202–649–3157, ted.wartell@fhfa.gov;
Marcea Barringer, Supervisory Policy
Analyst, Office of Housing and
Community Investment, 202–649–3275,
marcea.barringer@fhfa.gov; or Dinah
Knight, Assistant General Counsel,
Office of General Counsel, (202) 748–
7801, dinah.knight@fhfa.gov, Federal
Housing Finance Agency, 400 Seventh
Street SW, Washington, DC 20219.
These are not toll-free numbers. For
TTY/TRS users with hearing and speech
disabilities, dial 711 and ask to be
connected to any of the contact numbers
above.
SUPPLEMENTARY INFORMATION:
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I. Comments and Access
FHFA invites comments on all aspects
of the proposed rule, in addition to
specific requests for comments provided
throughout, and will take all comments
into consideration before issuing a final
rule. Commenters do not need to answer
each question. Copies of all comments
will be posted without change and will
include any personal information you
provide such as your name, address,
email address, and telephone number,
on the FHFA website at https://
www.fhfa.gov. In addition, copies of all
comments received will be available for
examination by the public through the
electronic rulemaking docket for this
proposed rule also located on the FHFA
website.
II. Background
A. Statutory Background
The Federal Housing Enterprises
Financial Safety and Soundness Act of
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1992 (Safety and Soundness Act)
provides generally that the Enterprises
‘‘have an affirmative obligation to
facilitate the financing of affordable
housing for low- and moderate income
families.1 Section 1129 of the Housing
and Economic Recovery Act of 2008
(HERA) amended section 1335 of the
Safety and Soundness Act to establish a
duty for the Enterprises to serve three
specified underserved markets in order
to increase the liquidity of mortgage
investments and improve the
distribution of investment capital
available for mortgage financing for
certain categories of borrowers in those
markets.2 Specifically, the Enterprises
are required to provide leadership in
developing loan products and flexible
underwriting guidelines to facilitate a
secondary market for mortgages on
housing for very low-, low-, and
moderate-income families for the
manufactured housing, affordable
housing preservation, and rural housing
markets.3 In addition, section 1335(d)(1)
of the Safety and Soundness Act
requires FHFA to establish, by
regulation, a method for evaluating and
rating the Enterprises’ compliance with
the Duty to Serve underserved markets.4
B. Duty To Serve Regulation and Policy
Guidance
FHFA’s regulation on the Enterprise
Duty to Serve Underserved Markets
implements the Duty to Serve statutory
requirements in the Safety and
Soundness Act.5 Under the regulation,
each Enterprise is required to prepare an
Underserved Markets Plan (Plan)
describing the specific activities and
objectives it will undertake to fulfill its
Duty to Serve in each underserved
market over a three-year period.6 The
regulation identifies specific types of
activities that are eligible to receive
Duty to Serve credit and that an
Enterprise may include in its Plan.7 The
1 See
12 U.S.C. 4501(7).
12 U.S.C. 4565.
3 See 12 U.S.C. 4565(a). The terms ‘‘very lowincome,’’ ‘‘low-income,’’ and ‘‘moderate-income’’
are defined in 12 U.S.C. 4502.
4 See 12 U.S.C. 4565(d)(1).
5 See 12 CFR part 1282, subpart C; 81 FR 96242
(Dec. 29, 2016).
6 See 12 CFR 1282.32(a), (b).
7 See 12 CFR 1282.33(c) for eligible activities in
the manufactured housing market; 12 CFR
1282.34(c), (d) for eligible activities in the
affordable housing preservation market; and 12 CFR
1282.35(c) for eligible activities in the rural housing
market. An Enterprise may include in its Plan other
activities (referred to as ‘‘Additional Activities’’) to
serve eligible households, subject to FHFA
determination of whether the Additional Activities
are eligible to receive Duty to Serve credit.
2 See
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regulation also provides a general
framework for FHFA to annually
evaluate and rate the Enterprises’
compliance with their Duty to Serve.8
In addition to the regulation, FHFA
has released, and periodically updates,
guidance addressing implementation
and operational issues the Enterprises
have encountered while developing and
executing their Plans, referred to as the
Evaluation Guidance.9 The Evaluation
Guidance describes: the procedures for
preparing the Plans; the standards for
FHFA issuance of Non-Objections to the
Plans; and the process by which and
standards for FHFA’s annual evaluation
of each Enterprise’s compliance with its
Plan and FHFA’s rating of the extent of
such compliance and its impact on each
underserved market.10
Under the regulation, activities
eligible for Duty to Serve credit and for
inclusion in the Plans for each
underserved market are grouped into
three categories—Statutory Activities
(which are specified in the Safety and
Soundness Act), Regulatory Activities
(which are specified in the regulation),
and Additional Activities (which are
proposed by an Enterprise and subject
to FHFA determination of whether they
are eligible to receive Duty to Serve
credit). While no single Statutory or
Regulatory Activity is mandatory, an
Enterprise is required to consider a
minimum number of Statutory or
Regulatory Activities for each
underserved market, as designated by
FHFA in the Evaluation Guidance.11
C. The Rural Housing Market Under the
Duty To Serve Regulation
Under the regulation, activities
eligible for Duty to Serve credit for the
rural housing market must be in a ‘‘rural
area.’’ Section 1282.1 of the regulation
defines ‘‘rural area’’ as: (i) a census tract
outside of a metropolitan statistical area
(MSA) as designated by the Office of
Management and Budget (OMB); or (ii)
a census tract in an MSA but outside of
the MSA’s Urbanized Areas as
designated by the U.S. Department of
Agriculture’s (USDA) Rural-Urban
Commuting Area (RUCA) Code #1 and
outside of tracts with a housing density
of more than 64 housing units per
square mile in USDA’s RUCA Code #2.
8 See
12 CFR 1282.36.
12 CFR 1282.36(d).
10 The current Duty to Serve Evaluation Guidance
is available at: https://www.fhfa.gov/
PolicyProgramsResearch/Programs/Documents/
Evaluation-Guidance_2022-5.pdf.
11 See 12 CFR 1282.32(d)(1).
9 See
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The regulation identifies certain
regions within rural areas that have
particularly acute financing needs for
affordable housing for low-income
households as ‘‘high-needs rural
regions,’’ and designates Enterprise
support for these high-needs rural
regions as a Regulatory Activity.12
Specifically, § 1282.1(b) of the
regulation defines a ‘‘high-needs rural
region’’ as any of the following regions
located in a rural area: (i) Middle
Appalachia; (ii) the Lower Mississippi
Delta; (iii) a colonia; or (iv) a tract
located in a persistent poverty county
and not included in Middle Appalachia,
the Lower Mississippi Delta, or a
colonia. FHFA stated in the preamble to
its 2016 Duty to Serve final rule that it
selected the rural regions identified in
the definition because they are
characterized by a high concentration of
poverty and substandard housing
conditions.13 The preamble also
acknowledged comments received on
FHFA’s 2015 Duty to Serve proposed
rule from policy advocacy
organizations, nonprofit organizations,
government entities, and a trade
association supporting the inclusion of
the proposed high-needs rural regions as
a Regulatory Activity, stating that there
are extensive challenges to serving these
regions and populations, and that these
regions and populations have
historically lacked necessary
investment.14 Additionally, the
preamble referred to discussions with
both Enterprises highlighting that
certain regions and populations, such as
colonias, were unique and would likely
take significant time and resources in
order to make meaningful improvement
in housing conditions in such
communities.15
FHFA originally proposed a definition
of ‘‘colonia’’ in its 2015 Duty to Serve
proposed rule that would have included
a requirement that the community be
located in a U.S. census tract with some
portion of the tract within 150 miles of
the U.S.-Mexico border.16 After analysis
of existing federal, state, and local
definitions of ‘‘colonia’’ and in response
to commenters’ concerns that the
proposed definition was too narrow in
scope, FHFA adopted a broader
definition of ‘‘colonia’’ in the 2016 final
rule with the intent to encourage
Enterprise support for colonias.17
Accordingly, § 1282.1 of the regulation
defines a ‘‘colonia’’ as an identifiable
community that meets the definition of
a colonia under a federal, State, tribal,
or local program. However, FHFA noted
in the preamble to the 2016 final rule
that this broader definition of ‘‘colonia’’
could present challenges for the
Enterprises in their efforts to target
colonias.18 The preamble specifically
noted that by adopting the broader
definition of ‘‘colonia,’’ the Agency
would be unable, at the time the final
rule was issued, to provide the
Enterprises with a data file listing all of
the census tracts containing colonias
eligible for Duty to Serve credit, as it
planned to do for the other high-needs
rural regions.19 In an effort to address
the data challenges associated with
specifically identifying the census tracts
that contain a colonia, the preamble
encouraged the Enterprises to collect
and share granular data with
researchers, lenders, and housing
providers.20
D. Challenges Associated With
Targeting Colonias
As previously noted, each Enterprise
is required to develop and implement a
three-year Plan describing the specific
activities and objectives it plans to
undertake to fulfill its Duty to Serve in
each underserved market. Under their
2018–2021 Plans,21 both Enterprises
engaged in activities designed to
increase access to mortgage credit by
households residing in high-needs rural
regions, including colonias. Despite
these efforts, the Enterprises have had
little success acquiring loans originated
in colonias. To date, Enterprise
purchases of single-family and
multifamily loans originated in colonias
that received Duty to Serve credit are
low relative to their loan purchases from
other high-needs rural regions that
received Duty to Serve credit. Figure 1
below shows that the Enterprises
reported purchasing 123 single-family
loans originated in colonias during the
period 2018 through 2021 that received
Duty to Serve credit. During the same
period, the Enterprises reported
purchasing 62,011 single-family loans
originated in rural tracts in Middle
Appalachia, 41,174 single-family loans
originated in rural tracts in the Lower
Mississippi Delta, and 28,752 singlefamily loans originated in persistent
poverty counties not already included
in one of the other high-needs rural
regions that received Duty to Serve
credit.
FIGURE 1—ENTERPRISE SINGLE-FAMILY LOAN PURCHASES IN HIGH-NEEDS RURAL REGIONS
Enterprise single-Family loan purchases in high-needs rural regions that received
duty to serve credit
High-needs rural region 22
2018
Rural Tract in Middle Appalachia ........................................
Rural Tract in Lower Mississippi Delta ................................
Colonia .................................................................................
Persistent Poverty County Only 23 .......................................
2019
9,471
6,783
24
4,624
10,280
6,794
26
4,842
2020
2021
18,339
11,887
29
8,044
23,921
15,710
44
11,242
Total, 2018–
2021
62,011
41,174
123
28,752
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Source: FHFA Analysis of Enterprise Data.
12 See
18 Id.
13 81
12 CFR 1282.35(c).
FR 96242, 96274 (Dec. 29, 2016).
19 Id.
14 Id.
20 Id.
15 Id.
Families in colonias have been found to lack
safe, sanitary, and sound housing and basic services
such as potable water, adequate sewage systems,
drainage, utilities, and paved roads.’’ See https://
www.tdhca.state.tx.us/oci/background.htm.
16 80 FR 79181, 79216 (Dec. 18, 2015).
17 81 FR 96242, 96276 (Dec. 29, 2016).
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21 Due to the coronavirus pandemic, the initial
three-year Plan cycle was extended by one year, on
an exception basis.
22 The information presented in Figure 1
regarding single-family loan purchases does not
take into account the differences in the geographic
size or population of the high-needs rural regions.
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23 Colonias and rural tracts in Middle Appalachia
and the Lower Mississippi Delta may also be
located in persistent poverty counties. If a singlefamily loan purchase is in a persistent poverty
county and another high-needs rural region, it is
counted under the other high-needs rural region.
Single-family loan purchases counted under a
persistent poverty county only are those not located
in any of the other high-needs rural regions.
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Figure 2 below shows that the
Enterprises reported no purchases of
multifamily loans originated in colonias
that received Duty to Serve credit
during the period 2018 through 2021.
Figure 2 also shows that the Enterprises
reported purchasing 43 multifamily
loans originated in rural tracts in
Middle Appalachia, 65 multifamily
loans originated in rural tracts in the
Lower Mississippi Delta, and 91
multifamily loans originated in
persistent poverty counties not already
included in one of the other high-needs
rural regions that received Duty to Serve
credit.
FIGURE 2—ENTERPRISE MULTIFAMILY LOAN PURCHASES IN HIGH-NEEDS RURAL REGIONS
Enterprise multifamily loan purchases in high-needs rural regions that received
duty to serve credit
High-needs rural
region 24
2018
Rural Tract in Middle Appalachia ........................................
Rural Tract in Lower Mississippi Delta ................................
Colonia .................................................................................
Persistent Poverty County Only 25 .......................................
2019
7
8
0
9
2020
10
22
0
29
Total, 2018–
2021
2021
14
23
0
17
12
11
0
36
43
64
0
91
Source: FHFA Analysis of Enterprise Data.
FHFA has identified two main
challenges that have hindered the
Enterprises’ Duty to Serve activities in
colonias. The first challenge is an
operational one that prevents the
Enterprises from easily identifying and
verifying Duty to Serve-eligible loan
purchases and outreach activities in
colonias. The second challenge is
related to the ability of the Duty to Serve
program to effectively target households
in colonias due to their under-inclusion
in the Duty to Serve regulation’s current
‘‘rural area’’ definition. As a result, the
number of single-family and
multifamily loan purchases in colonias
that received Duty to Serve credit has
been limited or non-existent to date, as
indicated in Figures 1 and 2 above.
These challenges and proposed
amendments to the Duty to Serve
regulation to address them are further
discussed below.
1. Operational Challenges With
Verifying Duty To Serve-Eligible
Activities in Colonias
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As noted above, the identification of
a colonia under the Duty to Serve
regulation relies, in the first instance, on
the identification of the community as
a colonia using federal, State, tribal, or
local definitions. These definitions are
based on varied criteria and boundaries.
Some rely on descriptive terms that may
be meaningful only at the local level,
24 The information presented in Figure 2
regarding multifamily loan purchases does not take
into account the differences in the geographic size
or population of the high-needs rural regions.
25 Colonias and rural tracts in Middle Appalachia
and the Lower Mississippi Delta may also be
located in persistent poverty counties. If a
multifamily loan purchase is in a persistent poverty
county and another high-needs rural region, it is
counted under the other high-needs rural region.
Multifamily loan purchases counted under a
persistent poverty county only are those not located
in any of the other high-needs rural regions.
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such as neighborhood names, and are
generally not tied to any standard
geographic identifiers used by lenders
such as census tracts. There is no
specific, uniform definition of colonia
that can be easily operationalized at the
regional or national level through
inclusion in a public database that the
Enterprises and lenders could check to
determine if a particular loan is located
in an eligible colonia. Instead, the
Enterprises and lenders must first
determine, for each loan, the applicable
federal, State, tribal, or local definition
of colonia, and then confirm that a
particular loan falls within the specified
boundary of a colonia that meets the
definition. This is a time-consuming
process that is labor-intensive and
susceptible to user error. In light of
these constraints, the Enterprises cannot
provide clear guidance to lenders and
other providers about where to target
Duty to Serve-eligible lending and
outreach activities in colonias.
The Enterprises have adopted various
approaches that aim to support lending
activity and mitigate the operational
challenges of verifying Duty to Serveeligible activities in colonias. For
example, Freddie Mac has engaged
partners to implement initiatives to
improve homebuyer readiness in
colonias through homeownership fairs,
housing counseling and homebuyer
education, and credit-building
activities. Freddie Mac has also directed
its efforts to purchase single-family
loans from colonias to the six counties
in Texas that have both the largest
number of colonias and the largest
colonia populations in order to
efficiently deploy and target its
resources.26 This strategy has enabled
26 See Freddie Mac 2018–2021 Plan, page RH8
(https://www.fhfa.gov/PolicyProgramsResearch/
Programs/Documents/Freddie-Mac-Clean-2018-
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Freddie Mac to leverage the efforts of
the Texas Secretary of State to map
colonias identified under Texas state
law. However, the strategy is not easily
replicated in other parts of the country
where colonias that meet the applicable
definition have not been mapped.
Fannie Mae took a different approach
under its Plan, in response to FHFA’s
encouragement in the preamble to the
2016 final rule that the Enterprises
collect and share granular data with
researchers, lenders, and housing
providers to address the data challenges
associated with specifically identifying
the census tracts that contained
colonias.27 Fannie Mae engaged a
nonprofit organization with research
capacities, the Housing Assistance
Council (HAC), to conduct research and
analysis in an effort to develop a nationwide, usable and programmatic
methodology that would enable accurate
targeting and tracking of loans in these
communities.28 The research
culminated in a report by HAC that
proposed using census tracts that
contain a colonia as the relevant
geographic unit for Duty to Serve credit,
which would enable mortgage lenders
and other financial service providers to
more efficiently and effectively serve
such communities.29 The report
highlighted the uncertainty that lenders
face in targeting colonias that are
2021-UMP-Sept2021.pdf), and Freddie Mac 2022–
2024 Plan, page RH11 (https://www.fhfa.gov/
PolicyProgramsResearch/Programs/Documents/
FreddieMac2022-24DTSPlan-April2022.pdf).
27 81 FR 96242, 96276 (Dec. 29, 2016).
28 Fannie Mae 2018–2021 Plan for the Rural
Housing Market, page RH23 (https://www.fhfa.gov/
PolicyProgramsResearch/Programs/Documents/
Fannie-Mae-2021-Plan-Mod-Clean-Redacted.pdf).
29 See Housing Assistance Council, ‘‘Colonias
Investment Areas: Working Toward a Better
Understanding of Colonia Communities for
Mortgage Access and Finance,’’ (November 2020),
available at https://www.fanniemae.com/media/
37566/display.
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eligible for Duty to Serve credit given
the lack of a census tract-based
definition, as well as the effort and
expense associated with verifying that a
loan qualifies for Duty to Serve credit.
The report concluded that the absence
of a widely accepted and standardized
definition creates disincentives for the
Enterprises to target support for colonias
in their Plans.
Proposed Revisions to Regulation To
Add Colonia Census Tracts—§ 1282.1(b)
FHFA finds merit in adopting a
census tract-based approach that would
serve as a proxy for colonias for
purposes of identifying and verifying
Duty to Serve-eligible activities.
Accordingly, the proposed rule would
amend § 1281.1(b) of the Duty to Serve
regulation by substituting the term
‘‘colonia census tract’’ for the term
‘‘colonia’’ in the definition of ‘‘highneeds rural region,’’ and adding a
definition of ‘‘colonia census tract’’ to
mean a census tract that contains a
colonia.
The use of census tracts would greatly
enhance the Enterprises’ and lenders’
ability to identify lending and outreach
activities in areas containing colonias
that would be eligible for Duty to Serve
credit. Census tracts are easily obtained
geographic identifiers that are widely
used by businesses and governments to
classify locations. FHFA publishes and
regularly updates on its website a Rural
Areas Data file that specifies the census
tracts in the other high-needs rural
regions where lending and outreach
activities are eligible for Duty to Serve
credit. To date, colonia census tracts
have not been included in the Rural
Areas Data file due to the absence of a
comprehensive list of census tracts
containing colonias, as many of the
federal, State, tribal, and local
definitions of colonias were not mapped
to census tracts. Now that such
information is available, FHFA would
be able to expand the Rural Areas Data
file to include the colonia census tracts.
The availability of this information in
the Rural Areas Data file would make it
easier for the Enterprises and lenders to
target outreach and loan purchases in
these locations, and to assess the impact
of efforts to improve housing conditions
in these areas.
A census tract-based approach also
would align FHFA’s treatment of
colonias under the Duty to Serve
regulation with other census tract-based
standards for Enterprise reporting to
FHFA. For example, FHFA collects data
at the census tract level to assess
compliance with the Duty to Serve and
Enterprise Housing Goals. Specifically,
census tracts serve as the basis for
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identifying other geographically-based
underserved areas, including lowincome areas, and area median income
to determine affordability and
compliance with Duty to Serve and
Enterprise Housing Goals objectives.
Request for Comments
FHFA specifically requests comments
on the following questions (please
identify the question answered by the
number assigned below):
1. What are the advantages and
disadvantages, if any, to using colonia
census tracts instead of colonias, for
purposes of identifying and verifying
Duty to Serve-eligible activities?
2. Are there other ways to identify the
geographic areas in which the
Enterprises should receive Duty to Serve
credit for eligible activities addressing
colonias? If so, describe the alternative
approach(es) and any advantages and
disadvantages over the proposed census
tract-based methodology.
2. Challenges Related to Colonias and
the ‘‘Rural Area’’ Definition
Under the Duty to Serve regulation,
an Enterprise is eligible to receive Duty
to Serve credit for activities supporting
colonias if the activities (e.g., loan
purchases) are located in a ‘‘colonia,’’ as
defined in the regulation, and the
colonia is located in a ‘‘rural area,’’ as
defined in the regulation. As noted
above, § 1282.1(b) of the regulation
currently defines a ‘‘rural area’’ as: (i) a
census tract outside of an MSA; or (ii)
a census tract in an MSA but outside of
the MSA’s Urbanized Areas as
designated by the USDA RUCA Code #1
and outside of tracts with a housing
density of more than 64 housing units
per square mile in USDA’s RUCA Code
#2. The HAC report identified 446
census tracts that contain colonias
(based on 2010 census data), with 213
of these census tracts, or less than onehalf, meeting the Duty to Serve ‘‘rural
area’’ definition. HAC subsequently
determined that, based on the 2020
census, 577 census tracts contain
colonias, with 260 of these census
tracts, or less than one-half, meeting the
Duty to Serve ‘‘rural area’’ definition.30
Specifically, the 260 colonia census
tracts would satisfy par. (i) of the ‘‘rural
area’’ definition because they are
located outside of an MSA, but the
remaining 317 colonia census tracts,
which are located within an MSA,
30 The sizeable increase in census tracts
containing colonias using the 2020 geography, from
the initial count of 446 using 2010 geography,
reflects the increase in the number of census tracts
in the region due to population growth. Housing
Assistance Council communication with FHFA
(August 15, 2022).
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60335
would not meet the additional
qualifying parameters of par. (ii) of the
‘‘rural area’’ definition.
FHFA noted in the preamble to its
2016 Duty to Serve final rule that it
rejected several definitions of ‘‘colonia’’
because they were too restrictive and
would result in the Enterprises
receiving little or no Duty to Serve
credit for activities in colonias.31 As a
result of the recent mapping of federal,
State, tribal, and local definitions of
colonia to census tracts, FHFA has
learned that its definition of ‘‘rural area’’
has unintentionally excluded a large
share of colonia census tracts from
eligibility for Duty to Serve credit.
FHFA is proposing to revise the
definition of ‘‘rural area’’ to include all
colonia census tracts (and, therefore, all
colonias) to address this oversight. This
would enable the Enterprises to receive
Duty to Serve credit for purchases of
loans located in any colonia census
tract, thereby enhancing the ability of
the Duty to Serve program to incentivize
the Enterprises to support the financing
of affordable housing for very low-, low, and moderate-income households in
colonia census tracts.
In the 2015 proposed rule, FHFA had
proposed and evaluated various ways to
define ‘‘rural area.’’ In considering
definitions used by other agencies,
FHFA noted that there was no single,
universally accepted definition of ‘‘rural
area’’ because the varying definitions
were intended to achieve different
policy objectives.32 FHFA explained in
the preamble to the 2016 final rule that
its ultimate selection for the definition
of ‘‘rural area’’ was based on three
primary criteria that would best support
the objectives of the Duty to Serve
program: (1) the definition should be
broad enough to include rural residents
living in outlying counties of
metropolitan areas; (2) the definition
should remain stable over time to
support the Enterprises’ Plans; and (3)
the definition should remain easy to
implement and operationalize by the
Enterprises.33
Revising the ‘‘rural area’’ definition to
include all colonia census tracts
regardless of location, i.e., whether
within or outside an MSA, would be
consistent with these three criteria.
Regarding the first criterion, in the 2015
proposed rule, FHFA took into
consideration a finding that MSAs may
no longer be a good way to distinguish
31 81
FR 96242, 96275 (Dec. 29, 2016).
FR 79181, 79207 (Dec. 18, 2015).
33 81 FR 96242, 96273 (Dec. 29, 2016).
32 80
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urban territory from rural territory.34 35
Similarly, several commenters on the
2015 proposed rule stated that the
proposed definition of ‘‘rural area’’ was
overly inclusive within metropolitan
areas by including suburban/exurban
communities that are not truly rural in
character, and overly restrictive within
metropolitan areas by excluding some
small towns, particularly in the Western
U.S., that are truly rural in character.36
The qualifying parameters in the second
component of the ‘‘rural area’’ definition
(par. (ii)) were added to the definition
in the 2016 final rule in an effort to
more accurately target areas that are
truly rural in character and exclude
those that are more realistically
classified as suburban/exurban
communities, which do not share the
challenges to accessing credit that rural
markets face.37
FHFA has reviewed the
characteristics of the colonia census
tracts and believes that all colonia
census tracts—regardless of where they
are located—share important
characteristics with census tracts that
already meet the ‘‘rural area’’ definition.
Colonia census tracts—regardless of
whether they are located within or
outside an MSA—have high poverty
rates and low housing density, which
contribute to limited access to credit for
the households in those communities.
In fact, as Figure 3 below demonstrates,
the estimated poverty rate for all colonia
census tracts is higher than the
estimated poverty rate in Duty to Serve
rural areas in general, and even higher
than the estimated poverty rate in other
Duty to Serve high-needs rural regions,
including the Lower Mississippi Delta
and Middle Appalachia. Figure 3 further
demonstrates that the estimated housing
density, as measured by housing units
per square mile, in all colonia census
tracts is lower than the estimated
housing density in rural areas in
general, and even lower than the
estimated housing density in other highneeds rural regions, including the Lower
Mississippi Delta and Middle
Appalachia. In general, areas with both
high poverty rates and low housing
density are likely to lack resources and
experience credit challenges.38
FIGURE 3—ESTIMATED HOUSING DENSITY AND POVERTY RATE BY COLONIA CENSUS TRACT AND HIGH-NEEDS RURAL
REGION 39
Number of
census tracts
Area
All Colonia Census Tracts (DTS ‘‘Rural Area’’ Census Tracts and Other Colonia Census
Tracts) ......................................................................................................................................
Lower Mississippi Delta (DTS ‘‘Rural Area’’ Census Tracts) ......................................................
Middle Appalachia (DTS ‘‘Rural Area’’ Census Tracts) ..............................................................
All DTS ‘‘Rural Area’’ Census Tracts ..........................................................................................
Housing
density
(units per
sq. mile)
446
1,386
1,342
19,227
Poverty rate
(percent)
7
17
30
10
28
23
21
17
Source: FHFA Analysis of 2020 FFIEC data based on the 2015 American Community Survey 5-year estimates.
Households residing in colonia
census tracts often lack access to
affordable home financing and standard
mortgage financing.40 Recent research
indicates that census tracts containing
colonias have substantially lower rates
of mortgage lending than nearly any
other market nationally.41 Figure 4
below shows that the average annual
ratio of conventional loan originations
per 1,000 owner-occupied units in
colonia census tracts during the period
2015–2017 was 33.5, or less than half
the average annual ratio of 73.7 loan
originations per 1,000 owner-occupied
units in the United States as a whole.
The average annual ratio of
conventional loans and government-
backed (FHA, VA, USDA) loan
originations per 1,000 owner-occupied
units in colonia census tracts during the
same period was 61.5, compared to an
average annual ratio of 100.8 loans per
1,000 owner-occupied units in the
United States as a whole.
FIGURE 4—RATIO OF HOME LOANS ORIGINATED TO OWNER-OCCUPIED UNITS (ANNUAL AVERAGE 2015–2017)
Conventional
loans originated
per 1,000 owneroccupied units
(annual average
2015–2017)
Area
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All Colonia Census Tracts (DTS ‘‘Rural Area’’ Census Tracts and Other Colonia Census Tracts) ..........
34 80 FR 79207 (Dec. 18, 2015) (citing United
States Government Accountability Office, GAO–05–
110, ‘‘Rural Housing—Changing the Definition of
Rural Could Improve Eligibility Determinations’’
(December 2004), available at https://www.gao.gov/
new.items/d05110.pdf).
35 See also The Urban Institute ‘‘In Search of
‘Good’ Rural Data: Measuring Rural Prosperity’’
(April 2020) available at https://www.urban.org/
sites/default/files/publication/102134/in-search-ofgood-rural-data.pdf.
36 81 FR 96242, 96273 (Dec. 29, 2016).
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37 Id.
38 Durst,
Noah J. and Peter M. Ward, ‘‘Colonia
Housing Conditions in Model Subdivisions: A De´ja`
Vu for Policy Makers,’’ Housing Policy Debate 26
(2): 316–333 (2015) available at https://
www.tandfonline.com/doi/abs/10.1080/
10511482.2015.1068826?journalCode=rhpd20.
39 FHFA used Federal Financial Institutions
Examination Council (FFIEC) census reports to
calculate housing densities and poverty rates for
these underlying census tracts, and then tabulated
estimates of these measures for the respective highneeds rural regions.
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33.5
Total loans
(conventional and
FHA, VA, USDA)
originated per
1,000 owneroccupied units
(annual
average 2015–
2017)
61.5
40 Housing Assistance Council, ‘‘Colonias
Investment Areas: Working Toward a Better
Understanding of Colonia Communities for
Mortgage Access and Finance,’’ p. 9 (November
2020), available at https://www.fanniemae.com/
media/37566/display.
41 See Wiley, Keith, George, Lance and Lipshutz,
Sam, ‘‘Colonias Investment Areas: A More Focused
Approach,’’ p. 27, CityScape, Vol. 23, Number 3
(November 2021), available at https://
www.huduser.gov/portal/periodicals/cityscpe/
vol23num3/Cityscape-November-2021.pdf.
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60337
FIGURE 4—RATIO OF HOME LOANS ORIGINATED TO OWNER-OCCUPIED UNITS (ANNUAL AVERAGE 2015–2017)—
Continued
Conventional
loans originated
per 1,000 owneroccupied units
(annual average
2015–2017)
Area
United States ...............................................................................................................................................
73.7
Total loans
(conventional and
FHA, VA, USDA)
originated per
1,000 owneroccupied units
(annual
average 2015–
2017)
100.8
Source: Wiley, Keith, George, Lance and Lipshutz, Sam, ‘‘Colonias Investment Areas: A More Focused Approach,’’ Figure 20, p. 34, CityScape, Vol. 23, Number 3 (November 2021), available at https://www.huduser.gov/portal/periodicals/cityscpe/vol23num3/Cityscape-November2021.pdf.
jspears on DSK121TN23PROD with PROPOSALS
Further, high-cost loans are more
common in colonia census tracts than in
the United States as a whole. HAC
research based on tabulations of 2017
Home Mortgage Disclosure Act data
showed that 14.4 percent of loans in
colonia census tracts were classified as
high-cost, compared to 5.9 percent of
loans in the United States as a whole.42
There are indications that access to
credit in colonias specifically may be
even more limited than in other parts of
the colonia census tract.43 Because of
the lack of access to standard mortgage
financing, colonia residents often
purchase lots through a contract for
deed, a property financing method
whereby developers typically offer a
low down payment and low monthly
payments but no title to the property
until the final payment is made.44 If
contract-for-deed borrowers miss a
payment, they run the risk of losing all
of the investment they made in the
home, in addition to the danger of
losing the home itself.45 Many residents
also rely on self-help strategies,
rehabilitating their properties
incrementally over time when they have
available funds, instead of using
42 Housing Assistance Council, ‘‘Colonias
Investment Areas: Working Toward a Better
Understanding of Colonia Communities for
Mortgage Access and Finance,’’ p. 36 (November
2020), available at https://www.fanniemae.com/
media/37566/display.
43 Id. at 9.
44 See The Federal Reserve Bank of Dallas, ‘‘Las
Colonias in the 21st Century: Progress Along the
Texas-Mexico Border,’’ p. 6 (2015), available at
https://www.dallasfed.org/∼/media/documents/cd/
pubs/lascolonias.pdf; and The Federal Reserve
Bank of Dallas, ‘‘Texas Colonias: A Thumbnail
Sketch of the Conditions, Issues, Challenges and
Opportunities,’’ p. 3 (1996), available at https://
www.dallasfed.org/∼/media/documents/cd/pubs/
colonias.pdf.
45 See Pew Charitable Trusts, ‘‘Less Than Half of
States Have Laws Governing ‘Land Contracts’:
Statutes provide limited consumer protection for
widely used alternative home financing,’’ (April 30,
2021), available at https://www.pewtrusts.org/en/
research-and-analysis/white-papers/2022/02/lessthan-half-of-states-have-laws-governing-landcontracts.
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conventional financing to make
improvements on their homes, because
they lack conventional financing
options.46
Regarding the second criterion
discussed in the 2016 final rule
preamble—that the ‘‘rural area’’
definition should remain stable over
time to support the Enterprises’ Plans—
the proposed change to the ‘‘rural area’’
definition would, in line with other
components of the definition, be based
on census tracts and, therefore, remain
stable. Since census tract boundaries are
updated every ten years to reflect
changes in population following the
decennial U.S. census, FHFA would
comprehensively update the colonia
census tracts on a similar timeline and
include them in FHFA’s Rural Areas
Data file. Any intervening changes to
federal, State, tribal, or local definitions
of colonia, or to the identification of
colonias under those definitions, that
impact the designation of colonia
census tracts could be reflected, as
appropriate, as an update to FHFA’s
Rural Areas Data file. FHFA would not
expect to make any such updates during
a Plan cycle, to ensure that the
Enterprises and market participants can
base their decisions on a stable
definition.
Regarding the third criterion in the
2016 final rule preamble—that the
‘‘rural area’’ definition should remain
easy to implement and operationalize by
the Enterprises—the proposed
definition would improve the
Enterprises’ ability to implement and
operationalize their loan purchase and
outreach efforts in colonia census tracts.
FHFA would be able to amend the Duty
to Serve Rural Areas Data file to include
all colonia census tracts regardless of
46 Durst, Noah J. and Ward, Peter M., ‘‘Measuring
self-help home improvements in Texas colonias: A
ten year ‘Snapshot’ study,’’ pp. 2143–2159, Urban
Studies, Vol. 51, No. 10 (August 2014), available at
https://www.jstor.org/stable/
26145856?socuuid=ecc189e2-293e-42c2-83ca8ff6b40c6e43.
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Fmt 4702
Sfmt 4702
their location. The update of this file
would streamline the process of
identifying Duty to Serve-eligible loans
and enhance certainty for lenders and
the Enterprises, who would know from
the outset which colonia census tracts to
target for loan purchases and outreach
and would be certain that those
activities would be eligible for Duty to
Serve credit. In this manner, the
proposed changes to the ‘‘rural area’’
definition would promote the
achievement of the objectives of the
Duty to Serve program.
Proposed Revision of Regulation’s
‘‘Rural Area’’ Definition—§ 1282.1(b)
For the reasons discussed above,
FHFA is proposing to amend the
definition of ‘‘rural area’’ in § 1282.1(b)
to include all colonia census tracts
regardless of their location. Specifically,
the proposed rule would amend the
second component of the ‘‘rural area’’
definition (par. (ii)) to include colonia
census tracts that would not otherwise
satisfy the current ‘‘rural area’’
definition.
Request for Comments
FHFA specifically requests comments
on the following question (please
identify the question answered by the
number assigned below):
3. What are the advantages and
disadvantages, if any, to revising the
Duty to Serve ‘‘rural area’’ definition to
incorporate all census tracts that contain
a colonia regardless of their location?
III. 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. FHFA need not
undertake such an analysis if the
Agency has certified that the regulation
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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 and FHFA certifies that the
proposed rule, if adopted as a final rule,
will not have a significant economic
impact on a substantial number of small
entities because the regulation only
applies to Fannie Mae and Freddie Mac,
which are not small entities for
purposes of the Regulatory Flexibility
Act.
IV. Paperwork Reduction Act
The proposed rule would not contain
any information collection requirement
that would require the approval of the
Office of Management and Budget
(OMB) under the Paperwork Reduction
Act (44 U.S.C. 3501 et seq.). Therefore,
FHFA has not submitted the proposed
rule to OMB for review.
Sandra L. Thompson,
Director, Federal Housing Finance Agency.
[FR Doc. 2022–21404 Filed 10–4–22; 8:45 am]
BILLING CODE 8070–01–P
List of Subjects in 12 CFR Part 1282
Mortgages; Reporting and
recordkeeping requirements.
DEPARTMENT OF TRANSPORTATION
Authority and Issuance
Federal Aviation Administration
For the reasons stated in the
preamble, under the authority of 12
U.S.C. 4501, 4502, 4511, 4513, 4526,
and 4561–4566, FHFA proposes to
amend part 1282 of subchapter E of 12
CFR chapter XII, as follows:
CHAPTER XII—FEDERAL HOUSING
FINANCE AGENCY
PART 1282—ENTERPRISE HOUSING
GOALS AND MISSION
1. The authority citation for part 1282
continues to read as follows:
■
Authority: 12 U.S.C. 4501, 4502, 4511,
4513, 4526, 4561–4566.
2. Amend § 1282.1(b) by:
a. Adding, in alphabetical order, the
definition of ‘‘Colonia census tract’’;
■ b. In paragraph (iii) of the definition
‘‘High-needs rural region’’ removing the
term ‘‘colonia’’ and adding the term
‘‘colonia census tract’’ in its place; and
■ c. Revising the definition of ‘‘Rural
area’’.
The additions and revisions read as
follows:
■
■
§ 1282.1
Definitions.
*
*
*
*
*
Colonia census tract, for purposes of
subpart C of this part, means a census
tract that contains a colonia.
*
*
*
*
*
Rural area, for purposes of subpart C
of this part, means:
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14 CFR Part 21
[Docket No. FAA–2022–0533]
Airworthiness Criteria: Special Class
Airworthiness Criteria for the Insitu
Inc. ScanEagle3 Unmanned Aircraft
Federal Aviation
Administration (FAA), Department of
Transportation (DOT).
ACTION: Notice of proposed
airworthiness criteria.
AGENCY:
SUBCHAPTER E—HOUSING GOALS AND
MISSION
jspears on DSK121TN23PROD with PROPOSALS
(i) A census tract outside of a
metropolitan statistical area as
designated by the Office of Management
and Budget; or
(ii) A census tract in a metropolitan
statistical area as designated by the
Office of Management and Budget that
is:
(A) Outside of the metropolitan
statistical area’s Urbanized Areas as
designated by the U.S. Department of
Agriculture’s (USDA) Rural-Urban
Commuting Area (RUCA) Code #1, and
outside of tracts with a housing density
of over 64 housing units per square mile
for USDA’s RUCA Code #2; or
(B) A colonia census tract that does
not satisfy paragraphs (i) or (ii)(A) of
this definition.
*
*
*
*
*
The FAA announces the
availability of and requests comments
on proposed airworthiness criteria for
the Insitu Inc. Model ScanEagle3
unmanned aircraft (UA). This document
proposes the airworthiness criteria that
the FAA finds to be appropriate and
applicable for the UA design.
DATES: Send comments on or before
November 4, 2022.
ADDRESSES: Send comments identified
by docket number FAA–2022–0533
using any of the following methods:
• Federal eRulemaking Portal: Go to
https://www.regulations.gov and follow
the online instructions for sending your
comments electronically.
• Mail: Send comments to Docket
Operations, M–30, U.S. Department of
Transportation, 1200 New Jersey
Avenue SE, Room W12–140, West
Building Ground Floor, Washington, DC
20590–0001.
• Hand Delivery or Courier: Take
comments to Docket Operations in
SUMMARY:
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Room W12–140 of the West Building
Ground Floor at 1200 New Jersey
Avenue SE, Washington, DC 20590–
0001, between 9 a.m., and 5 p.m.,
Monday through Friday, except Federal
holidays.
• Fax: Fax comments to Docket
Operations at (202) 493–2251.
Privacy: The FAA will post all
comments it receives, without change,
to https://www.regulations.gov/,
including any personal information the
commenter provides. Using the search
function of the docket website, anyone
can find and read the electronic form of
all comments received into any FAA
docket, including the name of the
individual sending the comment (or
signing the comment for an association,
business, labor union, etc.). DOT’s
complete Privacy Act Statement can be
found in the Federal Register published
on April 11, 2000 (65 FR 19477–19478),
as well as at https://www.dot.gov/
privacy.
Docket: Background documents or
comments received may be read at
https://www.regulations.gov at any time.
Follow the online instructions for
accessing the docket or go to Docket
Operations in Room W12–140 of the
West Building Ground Floor at 1200
New Jersey Avenue SE, Washington,
DC, between 9 a.m., and 5 p.m., Monday
through Friday, except Federal holidays.
FOR FURTHER INFORMATION CONTACT:
Christopher J. Richards, Emerging
Aircraft Strategic Policy Section, AIR–
618, Strategic Policy Management
Branch, Policy and Innovation Division,
Aircraft Certification Service, Federal
Aviation Administration, 6020 28th
Avenue South, Room 103, Minneapolis,
MN 55450, telephone (612) 253–4559.
SUPPLEMENTARY INFORMATION:
Comments Invited
The FAA invites interested people to
take part in the development of these
airworthiness criteria by sending
written comments, data, or views. The
most helpful comments reference a
specific portion of the airworthiness
criteria, explain the reason for any
recommended change, and include
supporting data. Comments on
operational, pilot certification, and
maintenance requirements would
address issues that are beyond the scope
of this document.
Except for Confidential Business
Information as described in the
following paragraph, and other
information as described in title 14,
Code of Federal Regulations (14 CFR)
11.35, the FAA will file in the docket all
comments received, as well as a report
summarizing each substantive public
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]]>Agencies
[Federal Register Volume 87, Number 192 (Wednesday, October 5, 2022)]
[Proposed Rules]
[Pages 60331-60338]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-21404]
=======================================================================
-----------------------------------------------------------------------
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1282
RIN 2590-AB22
Enterprise Duty To Serve Underserved Markets Amendments
AGENCY: Federal Housing Finance Agency.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Federal Housing Finance Agency (FHFA or Agency) is
proposing to amend its Enterprise Duty to Serve Underserved Markets
regulation to add a definition of ``colonia census tract,'' which would
serve as a census tract-based proxy for a ``colonia,'' and to amend the
definition of ``high-needs rural region'' in the regulation by
substituting ``colonia census tract'' for ``colonia.'' The proposed
rule would also revise the definition of ``rural area'' in the
regulation to include all colonia census tracts regardless of their
location. These changes would make activities by the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
Corporation (Freddie Mac) (collectively, the Enterprises) in all
colonia census tracts eligible for Duty to Serve credit. The intent of
the changes is to facilitate the Enterprises' ability to operationalize
their Duty to Serve activities and thereby help increase liquidity in
these underserved communities.
DATES: FHFA will accept written comments on the proposed rule on or
before December 5, 2022.
ADDRESSES: You may submit your comments on the proposed rule,
identified by regulatory information number (RIN) 2590-AB22, by any one
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.
Include the following information in the subject line of your
submission: Comments/RIN 2590-AB22.
Hand Delivered/Courier: The hand delivery address is:
Clinton Jones,
[[Page 60332]]
General Counsel, Attention: Comments/RIN 2590-AB22, Federal Housing
Finance Agency, 400 Seventh Street SW, Washington, DC 20219. Deliver
the package at the Seventh Street, SW 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: Clinton Jones,
General Counsel, Attention: Comments/RIN 2590-AB22, Federal Housing
Finance Agency, 400 Seventh Street SW, Washington, DC 20219. Please
note that all mail sent to FHFA via U.S. Mail is routed through a
national irradiation facility, a process that may delay delivery by
approximately two weeks. For time sensitive correspondence, please plan
accordingly.
FOR FURTHER INFORMATION CONTACT: Ted Wartell, Associate Director,
Office of Housing and Community Investment, 202-649-3157,
[email protected]; Marcea Barringer, Supervisory Policy Analyst,
Office of Housing and Community Investment, 202-649-3275,
[email protected]; or Dinah Knight, Assistant General Counsel,
Office of General Counsel, (202) 748-7801, [email protected],
Federal Housing Finance Agency, 400 Seventh Street SW, Washington, DC
20219. These are not toll-free numbers. For TTY/TRS users with hearing
and speech disabilities, dial 711 and ask to be connected to any of the
contact numbers above.
SUPPLEMENTARY INFORMATION:
I. Comments and Access
FHFA invites comments on all aspects of the proposed rule, in
addition to specific requests for comments provided throughout, and
will take all comments into consideration before issuing a final rule.
Commenters do not need to answer each question. Copies of all comments
will be posted without change and will include any personal information
you provide such as your name, address, email address, and telephone
number, on the FHFA website at https://www.fhfa.gov. In addition, copies
of all comments received will be available for examination by the
public through the electronic rulemaking docket for this proposed rule
also located on the FHFA website.
II. Background
A. Statutory Background
The Federal Housing Enterprises Financial Safety and Soundness Act
of 1992 (Safety and Soundness Act) provides generally that the
Enterprises ``have an affirmative obligation to facilitate the
financing of affordable housing for low- and moderate income
families.\1\ Section 1129 of the Housing and Economic Recovery Act of
2008 (HERA) amended section 1335 of the Safety and Soundness Act to
establish a duty for the Enterprises to serve three specified
underserved markets in order to increase the liquidity of mortgage
investments and improve the distribution of investment capital
available for mortgage financing for certain categories of borrowers in
those markets.\2\ Specifically, the Enterprises are required to provide
leadership in developing loan products and flexible underwriting
guidelines to facilitate a secondary market for mortgages on housing
for very low-, low-, and moderate-income families for the manufactured
housing, affordable housing preservation, and rural housing markets.\3\
In addition, section 1335(d)(1) of the Safety and Soundness Act
requires FHFA to establish, by regulation, a method for evaluating and
rating the Enterprises' compliance with the Duty to Serve underserved
markets.\4\
---------------------------------------------------------------------------
\1\ See 12 U.S.C. 4501(7).
\2\ See 12 U.S.C. 4565.
\3\ See 12 U.S.C. 4565(a). The terms ``very low-income,'' ``low-
income,'' and ``moderate-income'' are defined in 12 U.S.C. 4502.
\4\ See 12 U.S.C. 4565(d)(1).
---------------------------------------------------------------------------
B. Duty To Serve Regulation and Policy Guidance
FHFA's regulation on the Enterprise Duty to Serve Underserved
Markets implements the Duty to Serve statutory requirements in the
Safety and Soundness Act.\5\ Under the regulation, each Enterprise is
required to prepare an Underserved Markets Plan (Plan) describing the
specific activities and objectives it will undertake to fulfill its
Duty to Serve in each underserved market over a three-year period.\6\
The regulation identifies specific types of activities that are
eligible to receive Duty to Serve credit and that an Enterprise may
include in its Plan.\7\ The regulation also provides a general
framework for FHFA to annually evaluate and rate the Enterprises'
compliance with their Duty to Serve.\8\
---------------------------------------------------------------------------
\5\ See 12 CFR part 1282, subpart C; 81 FR 96242 (Dec. 29,
2016).
\6\ See 12 CFR 1282.32(a), (b).
\7\ See 12 CFR 1282.33(c) for eligible activities in the
manufactured housing market; 12 CFR 1282.34(c), (d) for eligible
activities in the affordable housing preservation market; and 12 CFR
1282.35(c) for eligible activities in the rural housing market. An
Enterprise may include in its Plan other activities (referred to as
``Additional Activities'') to serve eligible households, subject to
FHFA determination of whether the Additional Activities are eligible
to receive Duty to Serve credit.
\8\ See 12 CFR 1282.36.
---------------------------------------------------------------------------
In addition to the regulation, FHFA has released, and periodically
updates, guidance addressing implementation and operational issues the
Enterprises have encountered while developing and executing their
Plans, referred to as the Evaluation Guidance.\9\ The Evaluation
Guidance describes: the procedures for preparing the Plans; the
standards for FHFA issuance of Non-Objections to the Plans; and the
process by which and standards for FHFA's annual evaluation of each
Enterprise's compliance with its Plan and FHFA's rating of the extent
of such compliance and its impact on each underserved market.\10\
---------------------------------------------------------------------------
\9\ See 12 CFR 1282.36(d).
\10\ The current Duty to Serve Evaluation Guidance is available
at: https://www.fhfa.gov/PolicyProgramsResearch/Programs/Documents/Evaluation-Guidance_2022-5.pdf.
---------------------------------------------------------------------------
Under the regulation, activities eligible for Duty to Serve credit
and for inclusion in the Plans for each underserved market are grouped
into three categories--Statutory Activities (which are specified in the
Safety and Soundness Act), Regulatory Activities (which are specified
in the regulation), and Additional Activities (which are proposed by an
Enterprise and subject to FHFA determination of whether they are
eligible to receive Duty to Serve credit). While no single Statutory or
Regulatory Activity is mandatory, an Enterprise is required to consider
a minimum number of Statutory or Regulatory Activities for each
underserved market, as designated by FHFA in the Evaluation
Guidance.\11\
---------------------------------------------------------------------------
\11\ See 12 CFR 1282.32(d)(1).
---------------------------------------------------------------------------
C. The Rural Housing Market Under the Duty To Serve Regulation
Under the regulation, activities eligible for Duty to Serve credit
for the rural housing market must be in a ``rural area.'' Section
1282.1 of the regulation defines ``rural area'' as: (i) a census tract
outside of a metropolitan statistical area (MSA) as designated by the
Office of Management and Budget (OMB); or (ii) a census tract in an MSA
but outside of the MSA's Urbanized Areas as designated by the U.S.
Department of Agriculture's (USDA) Rural-Urban Commuting Area (RUCA)
Code #1 and outside of tracts with a housing density of more than 64
housing units per square mile in USDA's RUCA Code #2.
[[Page 60333]]
The regulation identifies certain regions within rural areas that
have particularly acute financing needs for affordable housing for low-
income households as ``high-needs rural regions,'' and designates
Enterprise support for these high-needs rural regions as a Regulatory
Activity.\12\ Specifically, Sec. 1282.1(b) of the regulation defines a
``high-needs rural region'' as any of the following regions located in
a rural area: (i) Middle Appalachia; (ii) the Lower Mississippi Delta;
(iii) a colonia; or (iv) a tract located in a persistent poverty county
and not included in Middle Appalachia, the Lower Mississippi Delta, or
a colonia. FHFA stated in the preamble to its 2016 Duty to Serve final
rule that it selected the rural regions identified in the definition
because they are characterized by a high concentration of poverty and
substandard housing conditions.\13\ The preamble also acknowledged
comments received on FHFA's 2015 Duty to Serve proposed rule from
policy advocacy organizations, nonprofit organizations, government
entities, and a trade association supporting the inclusion of the
proposed high-needs rural regions as a Regulatory Activity, stating
that there are extensive challenges to serving these regions and
populations, and that these regions and populations have historically
lacked necessary investment.\14\ Additionally, the preamble referred to
discussions with both Enterprises highlighting that certain regions and
populations, such as colonias, were unique and would likely take
significant time and resources in order to make meaningful improvement
in housing conditions in such communities.\15\
---------------------------------------------------------------------------
\12\ See 12 CFR 1282.35(c).
\13\ 81 FR 96242, 96274 (Dec. 29, 2016).
\14\ Id.
\15\ Id. Families in colonias have been found to lack safe,
sanitary, and sound housing and basic services such as potable
water, adequate sewage systems, drainage, utilities, and paved
roads.'' See https://www.tdhca.state.tx.us/oci/background.htm.
---------------------------------------------------------------------------
FHFA originally proposed a definition of ``colonia'' in its 2015
Duty to Serve proposed rule that would have included a requirement that
the community be located in a U.S. census tract with some portion of
the tract within 150 miles of the U.S.-Mexico border.\16\ After
analysis of existing federal, state, and local definitions of
``colonia'' and in response to commenters' concerns that the proposed
definition was too narrow in scope, FHFA adopted a broader definition
of ``colonia'' in the 2016 final rule with the intent to encourage
Enterprise support for colonias.\17\ Accordingly, Sec. 1282.1 of the
regulation defines a ``colonia'' as an identifiable community that
meets the definition of a colonia under a federal, State, tribal, or
local program. However, FHFA noted in the preamble to the 2016 final
rule that this broader definition of ``colonia'' could present
challenges for the Enterprises in their efforts to target colonias.\18\
The preamble specifically noted that by adopting the broader definition
of ``colonia,'' the Agency would be unable, at the time the final rule
was issued, to provide the Enterprises with a data file listing all of
the census tracts containing colonias eligible for Duty to Serve
credit, as it planned to do for the other high-needs rural regions.\19\
In an effort to address the data challenges associated with
specifically identifying the census tracts that contain a colonia, the
preamble encouraged the Enterprises to collect and share granular data
with researchers, lenders, and housing providers.\20\
---------------------------------------------------------------------------
\16\ 80 FR 79181, 79216 (Dec. 18, 2015).
\17\ 81 FR 96242, 96276 (Dec. 29, 2016).
\18\ Id.
\19\ Id.
\20\ Id.
---------------------------------------------------------------------------
D. Challenges Associated With Targeting Colonias
As previously noted, each Enterprise is required to develop and
implement a three-year Plan describing the specific activities and
objectives it plans to undertake to fulfill its Duty to Serve in each
underserved market. Under their 2018-2021 Plans,\21\ both Enterprises
engaged in activities designed to increase access to mortgage credit by
households residing in high-needs rural regions, including colonias.
Despite these efforts, the Enterprises have had little success
acquiring loans originated in colonias. To date, Enterprise purchases
of single-family and multifamily loans originated in colonias that
received Duty to Serve credit are low relative to their loan purchases
from other high-needs rural regions that received Duty to Serve credit.
Figure 1 below shows that the Enterprises reported purchasing 123
single-family loans originated in colonias during the period 2018
through 2021 that received Duty to Serve credit. During the same
period, the Enterprises reported purchasing 62,011 single-family loans
originated in rural tracts in Middle Appalachia, 41,174 single-family
loans originated in rural tracts in the Lower Mississippi Delta, and
28,752 single-family loans originated in persistent poverty counties
not already included in one of the other high-needs rural regions that
received Duty to Serve credit.
---------------------------------------------------------------------------
\21\ Due to the coronavirus pandemic, the initial three-year
Plan cycle was extended by one year, on an exception basis.
\22\ The information presented in Figure 1 regarding single-
family loan purchases does not take into account the differences in
the geographic size or population of the high-needs rural regions.
\23\ Colonias and rural tracts in Middle Appalachia and the
Lower Mississippi Delta may also be located in persistent poverty
counties. If a single-family loan purchase is in a persistent
poverty county and another high-needs rural region, it is counted
under the other high-needs rural region. Single-family loan
purchases counted under a persistent poverty county only are those
not located in any of the other high-needs rural regions.
Figure 1--Enterprise Single-Family Loan Purchases in High-Needs Rural Regions
----------------------------------------------------------------------------------------------------------------
Enterprise single-Family loan purchases in high-needs rural regions that
received duty to serve credit
High-needs rural region \22\ -------------------------------------------------------------------------------
Total, 2018-
2018 2019 2020 2021 2021
----------------------------------------------------------------------------------------------------------------
Rural Tract in Middle Appalachia 9,471 10,280 18,339 23,921 62,011
Rural Tract in Lower Mississippi 6,783 6,794 11,887 15,710 41,174
Delta..........................
Colonia......................... 24 26 29 44 123
Persistent Poverty County Only 4,624 4,842 8,044 11,242 28,752
\23\...........................
----------------------------------------------------------------------------------------------------------------
Source: FHFA Analysis of Enterprise Data.
[[Page 60334]]
Figure 2 below shows that the Enterprises reported no purchases of
multifamily loans originated in colonias that received Duty to Serve
credit during the period 2018 through 2021. Figure 2 also shows that
the Enterprises reported purchasing 43 multifamily loans originated in
rural tracts in Middle Appalachia, 65 multifamily loans originated in
rural tracts in the Lower Mississippi Delta, and 91 multifamily loans
originated in persistent poverty counties not already included in one
of the other high-needs rural regions that received Duty to Serve
credit.
Figure 2--Enterprise Multifamily Loan Purchases in High-Needs Rural Regions
----------------------------------------------------------------------------------------------------------------
Enterprise multifamily loan purchases in high-needs rural regions that
received duty to serve credit
High-needs rural region \24\ -------------------------------------------------------------------------------
Total, 2018-
2018 2019 2020 2021 2021
----------------------------------------------------------------------------------------------------------------
Rural Tract in Middle Appalachia 7 10 14 12 43
Rural Tract in Lower Mississippi 8 22 23 11 64
Delta..........................
Colonia......................... 0 0 0 0 0
Persistent Poverty County Only 9 29 17 36 91
\25\...........................
----------------------------------------------------------------------------------------------------------------
Source: FHFA Analysis of Enterprise Data.
FHFA has identified two main challenges that have hindered the
Enterprises' Duty to Serve activities in colonias. The first challenge
is an operational one that prevents the Enterprises from easily
identifying and verifying Duty to Serve-eligible loan purchases and
outreach activities in colonias. The second challenge is related to the
ability of the Duty to Serve program to effectively target households
in colonias due to their under-inclusion in the Duty to Serve
regulation's current ``rural area'' definition. As a result, the number
of single-family and multifamily loan purchases in colonias that
received Duty to Serve credit has been limited or non-existent to date,
as indicated in Figures 1 and 2 above. These challenges and proposed
amendments to the Duty to Serve regulation to address them are further
discussed below.
---------------------------------------------------------------------------
\24\ The information presented in Figure 2 regarding multifamily
loan purchases does not take into account the differences in the
geographic size or population of the high-needs rural regions.
\25\ Colonias and rural tracts in Middle Appalachia and the
Lower Mississippi Delta may also be located in persistent poverty
counties. If a multifamily loan purchase is in a persistent poverty
county and another high-needs rural region, it is counted under the
other high-needs rural region. Multifamily loan purchases counted
under a persistent poverty county only are those not located in any
of the other high-needs rural regions.
---------------------------------------------------------------------------
1. Operational Challenges With Verifying Duty To Serve-Eligible
Activities in Colonias
As noted above, the identification of a colonia under the Duty to
Serve regulation relies, in the first instance, on the identification
of the community as a colonia using federal, State, tribal, or local
definitions. These definitions are based on varied criteria and
boundaries. Some rely on descriptive terms that may be meaningful only
at the local level, such as neighborhood names, and are generally not
tied to any standard geographic identifiers used by lenders such as
census tracts. There is no specific, uniform definition of colonia that
can be easily operationalized at the regional or national level through
inclusion in a public database that the Enterprises and lenders could
check to determine if a particular loan is located in an eligible
colonia. Instead, the Enterprises and lenders must first determine, for
each loan, the applicable federal, State, tribal, or local definition
of colonia, and then confirm that a particular loan falls within the
specified boundary of a colonia that meets the definition. This is a
time-consuming process that is labor-intensive and susceptible to user
error. In light of these constraints, the Enterprises cannot provide
clear guidance to lenders and other providers about where to target
Duty to Serve-eligible lending and outreach activities in colonias.
The Enterprises have adopted various approaches that aim to support
lending activity and mitigate the operational challenges of verifying
Duty to Serve-eligible activities in colonias. For example, Freddie Mac
has engaged partners to implement initiatives to improve homebuyer
readiness in colonias through homeownership fairs, housing counseling
and homebuyer education, and credit-building activities. Freddie Mac
has also directed its efforts to purchase single-family loans from
colonias to the six counties in Texas that have both the largest number
of colonias and the largest colonia populations in order to efficiently
deploy and target its resources.\26\ This strategy has enabled Freddie
Mac to leverage the efforts of the Texas Secretary of State to map
colonias identified under Texas state law. However, the strategy is not
easily replicated in other parts of the country where colonias that
meet the applicable definition have not been mapped.
---------------------------------------------------------------------------
\26\ See Freddie Mac 2018-2021 Plan, page RH8 (https://www.fhfa.gov/PolicyProgramsResearch/Programs/Documents/Freddie-Mac-Clean-2018-2021-UMP-Sept2021.pdf), and Freddie Mac 2022-2024 Plan,
page RH11 (https://www.fhfa.gov/PolicyProgramsResearch/Programs/Documents/FreddieMac2022-24DTSPlan-April2022.pdf).
---------------------------------------------------------------------------
Fannie Mae took a different approach under its Plan, in response to
FHFA's encouragement in the preamble to the 2016 final rule that the
Enterprises collect and share granular data with researchers, lenders,
and housing providers to address the data challenges associated with
specifically identifying the census tracts that contained colonias.\27\
Fannie Mae engaged a nonprofit organization with research capacities,
the Housing Assistance Council (HAC), to conduct research and analysis
in an effort to develop a nation-wide, usable and programmatic
methodology that would enable accurate targeting and tracking of loans
in these communities.\28\ The research culminated in a report by HAC
that proposed using census tracts that contain a colonia as the
relevant geographic unit for Duty to Serve credit, which would enable
mortgage lenders and other financial service providers to more
efficiently and effectively serve such communities.\29\ The report
highlighted the uncertainty that lenders face in targeting colonias
that are
[[Page 60335]]
eligible for Duty to Serve credit given the lack of a census tract-
based definition, as well as the effort and expense associated with
verifying that a loan qualifies for Duty to Serve credit. The report
concluded that the absence of a widely accepted and standardized
definition creates disincentives for the Enterprises to target support
for colonias in their Plans.
---------------------------------------------------------------------------
\27\ 81 FR 96242, 96276 (Dec. 29, 2016).
\28\ Fannie Mae 2018-2021 Plan for the Rural Housing Market,
page RH23 (https://www.fhfa.gov/PolicyProgramsResearch/Programs/Documents/Fannie-Mae-2021-Plan-Mod-Clean-Redacted.pdf).
\29\ See Housing Assistance Council, ``Colonias Investment
Areas: Working Toward a Better Understanding of Colonia Communities
for Mortgage Access and Finance,'' (November 2020), available at
https://www.fanniemae.com/media/37566/display.
---------------------------------------------------------------------------
Proposed Revisions to Regulation To Add Colonia Census Tracts--Sec.
1282.1(b)
FHFA finds merit in adopting a census tract-based approach that
would serve as a proxy for colonias for purposes of identifying and
verifying Duty to Serve-eligible activities. Accordingly, the proposed
rule would amend Sec. 1281.1(b) of the Duty to Serve regulation by
substituting the term ``colonia census tract'' for the term ``colonia''
in the definition of ``high-needs rural region,'' and adding a
definition of ``colonia census tract'' to mean a census tract that
contains a colonia.
The use of census tracts would greatly enhance the Enterprises' and
lenders' ability to identify lending and outreach activities in areas
containing colonias that would be eligible for Duty to Serve credit.
Census tracts are easily obtained geographic identifiers that are
widely used by businesses and governments to classify locations. FHFA
publishes and regularly updates on its website a Rural Areas Data file
that specifies the census tracts in the other high-needs rural regions
where lending and outreach activities are eligible for Duty to Serve
credit. To date, colonia census tracts have not been included in the
Rural Areas Data file due to the absence of a comprehensive list of
census tracts containing colonias, as many of the federal, State,
tribal, and local definitions of colonias were not mapped to census
tracts. Now that such information is available, FHFA would be able to
expand the Rural Areas Data file to include the colonia census tracts.
The availability of this information in the Rural Areas Data file would
make it easier for the Enterprises and lenders to target outreach and
loan purchases in these locations, and to assess the impact of efforts
to improve housing conditions in these areas.
A census tract-based approach also would align FHFA's treatment of
colonias under the Duty to Serve regulation with other census tract-
based standards for Enterprise reporting to FHFA. For example, FHFA
collects data at the census tract level to assess compliance with the
Duty to Serve and Enterprise Housing Goals. Specifically, census tracts
serve as the basis for identifying other geographically-based
underserved areas, including low-income areas, and area median income
to determine affordability and compliance with Duty to Serve and
Enterprise Housing Goals objectives.
Request for Comments
FHFA specifically requests comments on the following questions
(please identify the question answered by the number assigned below):
1. What are the advantages and disadvantages, if any, to using
colonia census tracts instead of colonias, for purposes of identifying
and verifying Duty to Serve-eligible activities?
2. Are there other ways to identify the geographic areas in which
the Enterprises should receive Duty to Serve credit for eligible
activities addressing colonias? If so, describe the alternative
approach(es) and any advantages and disadvantages over the proposed
census tract-based methodology.
2. Challenges Related to Colonias and the ``Rural Area'' Definition
Under the Duty to Serve regulation, an Enterprise is eligible to
receive Duty to Serve credit for activities supporting colonias if the
activities (e.g., loan purchases) are located in a ``colonia,'' as
defined in the regulation, and the colonia is located in a ``rural
area,'' as defined in the regulation. As noted above, Sec. 1282.1(b)
of the regulation currently defines a ``rural area'' as: (i) a census
tract outside of an MSA; or (ii) a census tract in an MSA but outside
of the MSA's Urbanized Areas as designated by the USDA RUCA Code #1 and
outside of tracts with a housing density of more than 64 housing units
per square mile in USDA's RUCA Code #2. The HAC report identified 446
census tracts that contain colonias (based on 2010 census data), with
213 of these census tracts, or less than one-half, meeting the Duty to
Serve ``rural area'' definition. HAC subsequently determined that,
based on the 2020 census, 577 census tracts contain colonias, with 260
of these census tracts, or less than one-half, meeting the Duty to
Serve ``rural area'' definition.\30\ Specifically, the 260 colonia
census tracts would satisfy par. (i) of the ``rural area'' definition
because they are located outside of an MSA, but the remaining 317
colonia census tracts, which are located within an MSA, would not meet
the additional qualifying parameters of par. (ii) of the ``rural area''
definition.
---------------------------------------------------------------------------
\30\ The sizeable increase in census tracts containing colonias
using the 2020 geography, from the initial count of 446 using 2010
geography, reflects the increase in the number of census tracts in
the region due to population growth. Housing Assistance Council
communication with FHFA (August 15, 2022).
---------------------------------------------------------------------------
FHFA noted in the preamble to its 2016 Duty to Serve final rule
that it rejected several definitions of ``colonia'' because they were
too restrictive and would result in the Enterprises receiving little or
no Duty to Serve credit for activities in colonias.\31\ As a result of
the recent mapping of federal, State, tribal, and local definitions of
colonia to census tracts, FHFA has learned that its definition of
``rural area'' has unintentionally excluded a large share of colonia
census tracts from eligibility for Duty to Serve credit. FHFA is
proposing to revise the definition of ``rural area'' to include all
colonia census tracts (and, therefore, all colonias) to address this
oversight. This would enable the Enterprises to receive Duty to Serve
credit for purchases of loans located in any colonia census tract,
thereby enhancing the ability of the Duty to Serve program to
incentivize the Enterprises to support the financing of affordable
housing for very low-, low-, and moderate-income households in colonia
census tracts.
---------------------------------------------------------------------------
\31\ 81 FR 96242, 96275 (Dec. 29, 2016).
---------------------------------------------------------------------------
In the 2015 proposed rule, FHFA had proposed and evaluated various
ways to define ``rural area.'' In considering definitions used by other
agencies, FHFA noted that there was no single, universally accepted
definition of ``rural area'' because the varying definitions were
intended to achieve different policy objectives.\32\ FHFA explained in
the preamble to the 2016 final rule that its ultimate selection for the
definition of ``rural area'' was based on three primary criteria that
would best support the objectives of the Duty to Serve program: (1) the
definition should be broad enough to include rural residents living in
outlying counties of metropolitan areas; (2) the definition should
remain stable over time to support the Enterprises' Plans; and (3) the
definition should remain easy to implement and operationalize by the
Enterprises.\33\
---------------------------------------------------------------------------
\32\ 80 FR 79181, 79207 (Dec. 18, 2015).
\33\ 81 FR 96242, 96273 (Dec. 29, 2016).
---------------------------------------------------------------------------
Revising the ``rural area'' definition to include all colonia
census tracts regardless of location, i.e., whether within or outside
an MSA, would be consistent with these three criteria. Regarding the
first criterion, in the 2015 proposed rule, FHFA took into
consideration a finding that MSAs may no longer be a good way to
distinguish
[[Page 60336]]
urban territory from rural territory.34 35 Similarly,
several commenters on the 2015 proposed rule stated that the proposed
definition of ``rural area'' was overly inclusive within metropolitan
areas by including suburban/exurban communities that are not truly
rural in character, and overly restrictive within metropolitan areas by
excluding some small towns, particularly in the Western U.S., that are
truly rural in character.\36\ The qualifying parameters in the second
component of the ``rural area'' definition (par. (ii)) were added to
the definition in the 2016 final rule in an effort to more accurately
target areas that are truly rural in character and exclude those that
are more realistically classified as suburban/exurban communities,
which do not share the challenges to accessing credit that rural
markets face.\37\
---------------------------------------------------------------------------
\34\ 80 FR 79207 (Dec. 18, 2015) (citing United States
Government Accountability Office, GAO-05-110, ``Rural Housing--
Changing the Definition of Rural Could Improve Eligibility
Determinations'' (December 2004), available at https://www.gao.gov/new.items/d05110.pdf).
\35\ See also The Urban Institute ``In Search of `Good' Rural
Data: Measuring Rural Prosperity'' (April 2020) available at https://www.urban.org/sites/default/files/publication/102134/in-search-of-good-rural-data.pdf.
\36\ 81 FR 96242, 96273 (Dec. 29, 2016).
\37\ Id.
---------------------------------------------------------------------------
FHFA has reviewed the characteristics of the colonia census tracts
and believes that all colonia census tracts--regardless of where they
are located--share important characteristics with census tracts that
already meet the ``rural area'' definition. Colonia census tracts--
regardless of whether they are located within or outside an MSA--have
high poverty rates and low housing density, which contribute to limited
access to credit for the households in those communities. In fact, as
Figure 3 below demonstrates, the estimated poverty rate for all colonia
census tracts is higher than the estimated poverty rate in Duty to
Serve rural areas in general, and even higher than the estimated
poverty rate in other Duty to Serve high-needs rural regions, including
the Lower Mississippi Delta and Middle Appalachia. Figure 3 further
demonstrates that the estimated housing density, as measured by housing
units per square mile, in all colonia census tracts is lower than the
estimated housing density in rural areas in general, and even lower
than the estimated housing density in other high-needs rural regions,
including the Lower Mississippi Delta and Middle Appalachia. In
general, areas with both high poverty rates and low housing density are
likely to lack resources and experience credit challenges.\38\
---------------------------------------------------------------------------
\38\ Durst, Noah J. and Peter M. Ward, ``Colonia Housing
Conditions in Model Subdivisions: A D[eacute]j[agrave] Vu for Policy
Makers,'' Housing Policy Debate 26 (2): 316-333 (2015) available at
https://www.tandfonline.com/doi/abs/10.1080/10511482.2015.1068826?journalCode=rhpd20.
Figure 3--Estimated Housing Density and Poverty Rate by Colonia Census Tract and High-Needs Rural Region \39\
----------------------------------------------------------------------------------------------------------------
Housing
Area Number of density (units Poverty rate
census tracts per sq. mile) (percent)
----------------------------------------------------------------------------------------------------------------
All Colonia Census Tracts (DTS ``Rural Area'' Census Tracts and 446 7 28
Other Colonia Census Tracts)...................................
Lower Mississippi Delta (DTS ``Rural Area'' Census Tracts)...... 1,386 17 23
Middle Appalachia (DTS ``Rural Area'' Census Tracts)............ 1,342 30 21
All DTS ``Rural Area'' Census Tracts............................ 19,227 10 17
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Source: FHFA Analysis of 2020 FFIEC data based on the 2015 American Community Survey 5-year estimates.
Households residing in colonia census tracts often lack access to
affordable home financing and standard mortgage financing.\40\ Recent
research indicates that census tracts containing colonias have
substantially lower rates of mortgage lending than nearly any other
market nationally.\41\ Figure 4 below shows that the average annual
ratio of conventional loan originations per 1,000 owner-occupied units
in colonia census tracts during the period 2015-2017 was 33.5, or less
than half the average annual ratio of 73.7 loan originations per 1,000
owner-occupied units in the United States as a whole. The average
annual ratio of conventional loans and government-backed (FHA, VA,
USDA) loan originations per 1,000 owner-occupied units in colonia
census tracts during the same period was 61.5, compared to an average
annual ratio of 100.8 loans per 1,000 owner-occupied units in the
United States as a whole.
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\39\ FHFA used Federal Financial Institutions Examination
Council (FFIEC) census reports to calculate housing densities and
poverty rates for these underlying census tracts, and then tabulated
estimates of these measures for the respective high-needs rural
regions.
\40\ Housing Assistance Council, ``Colonias Investment Areas:
Working Toward a Better Understanding of Colonia Communities for
Mortgage Access and Finance,'' p. 9 (November 2020), available at
https://www.fanniemae.com/media/37566/display.
\41\ See Wiley, Keith, George, Lance and Lipshutz, Sam,
``Colonias Investment Areas: A More Focused Approach,'' p. 27,
CityScape, Vol. 23, Number 3 (November 2021), available at https://www.huduser.gov/portal/periodicals/cityscpe/vol23num3/Cityscape-November-2021.pdf.
Figure 4--Ratio of Home Loans Originated to Owner-Occupied Units (Annual
Average 2015-2017)
------------------------------------------------------------------------
Total loans
Conventional (conventional and
loans originated FHA, VA, USDA)
per 1,000 owner- originated per
Area occupied units 1,000 owner-
(annual average occupied units
2015-2017) (annual average
2015-2017)
------------------------------------------------------------------------
All Colonia Census Tracts (DTS 33.5 61.5
``Rural Area'' Census Tracts and
Other Colonia Census Tracts).....
[[Page 60337]]
United States..................... 73.7 100.8
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Source: Wiley, Keith, George, Lance and Lipshutz, Sam, ``Colonias
Investment Areas: A More Focused Approach,'' Figure 20, p. 34,
CityScape, Vol. 23, Number 3 (November 2021), available at https://www.huduser.gov/portal/periodicals/cityscpe/vol23num3/Cityscape-November-2021.pdf.
Further, high-cost loans are more common in colonia census tracts
than in the United States as a whole. HAC research based on tabulations
of 2017 Home Mortgage Disclosure Act data showed that 14.4 percent of
loans in colonia census tracts were classified as high-cost, compared
to 5.9 percent of loans in the United States as a whole.\42\
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\42\ Housing Assistance Council, ``Colonias Investment Areas:
Working Toward a Better Understanding of Colonia Communities for
Mortgage Access and Finance,'' p. 36 (November 2020), available at
https://www.fanniemae.com/media/37566/display.
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There are indications that access to credit in colonias
specifically may be even more limited than in other parts of the
colonia census tract.\43\ Because of the lack of access to standard
mortgage financing, colonia residents often purchase lots through a
contract for deed, a property financing method whereby developers
typically offer a low down payment and low monthly payments but no
title to the property until the final payment is made.\44\ If contract-
for-deed borrowers miss a payment, they run the risk of losing all of
the investment they made in the home, in addition to the danger of
losing the home itself.\45\ Many residents also rely on self-help
strategies, rehabilitating their properties incrementally over time
when they have available funds, instead of using conventional financing
to make improvements on their homes, because they lack conventional
financing options.\46\
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\43\ Id. at 9.
\44\ See The Federal Reserve Bank of Dallas, ``Las Colonias in
the 21st Century: Progress Along the Texas-Mexico Border,'' p. 6
(2015), available at https://www.dallasfed.org/~/media/documents/cd/
pubs/lascolonias.pdf; and The Federal Reserve Bank of Dallas,
``Texas Colonias: A Thumbnail Sketch of the Conditions, Issues,
Challenges and Opportunities,'' p. 3 (1996), available at https://
www.dallasfed.org/~/media/documents/cd/pubs/colonias.pdf.
\45\ See Pew Charitable Trusts, ``Less Than Half of States Have
Laws Governing `Land Contracts': Statutes provide limited consumer
protection for widely used alternative home financing,'' (April 30,
2021), available at https://www.pewtrusts.org/en/research-and-analysis/white-papers/2022/02/less-than-half-of-states-have-laws-governing-land-contracts.
\46\ Durst, Noah J. and Ward, Peter M., ``Measuring self-help
home improvements in Texas colonias: A ten year `Snapshot' study,''
pp. 2143-2159, Urban Studies, Vol. 51, No. 10 (August 2014),
available at https://www.jstor.org/stable/26145856?socuuid=ecc189e2-293e-42c2-83ca-8ff6b40c6e43.
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Regarding the second criterion discussed in the 2016 final rule
preamble--that the ``rural area'' definition should remain stable over
time to support the Enterprises' Plans--the proposed change to the
``rural area'' definition would, in line with other components of the
definition, be based on census tracts and, therefore, remain stable.
Since census tract boundaries are updated every ten years to reflect
changes in population following the decennial U.S. census, FHFA would
comprehensively update the colonia census tracts on a similar timeline
and include them in FHFA's Rural Areas Data file. Any intervening
changes to federal, State, tribal, or local definitions of colonia, or
to the identification of colonias under those definitions, that impact
the designation of colonia census tracts could be reflected, as
appropriate, as an update to FHFA's Rural Areas Data file. FHFA would
not expect to make any such updates during a Plan cycle, to ensure that
the Enterprises and market participants can base their decisions on a
stable definition.
Regarding the third criterion in the 2016 final rule preamble--that
the ``rural area'' definition should remain easy to implement and
operationalize by the Enterprises--the proposed definition would
improve the Enterprises' ability to implement and operationalize their
loan purchase and outreach efforts in colonia census tracts. FHFA would
be able to amend the Duty to Serve Rural Areas Data file to include all
colonia census tracts regardless of their location. The update of this
file would streamline the process of identifying Duty to Serve-eligible
loans and enhance certainty for lenders and the Enterprises, who would
know from the outset which colonia census tracts to target for loan
purchases and outreach and would be certain that those activities would
be eligible for Duty to Serve credit. In this manner, the proposed
changes to the ``rural area'' definition would promote the achievement
of the objectives of the Duty to Serve program.
Proposed Revision of Regulation's ``Rural Area'' Definition--Sec.
1282.1(b)
For the reasons discussed above, FHFA is proposing to amend the
definition of ``rural area'' in Sec. 1282.1(b) to include all colonia
census tracts regardless of their location. Specifically, the proposed
rule would amend the second component of the ``rural area'' definition
(par. (ii)) to include colonia census tracts that would not otherwise
satisfy the current ``rural area'' definition.
Request for Comments
FHFA specifically requests comments on the following question
(please identify the question answered by the number assigned below):
3. What are the advantages and disadvantages, if any, to revising
the Duty to Serve ``rural area'' definition to incorporate all census
tracts that contain a colonia regardless of their location?
III. 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. FHFA need not undertake such an
analysis if the Agency has certified that the regulation
[[Page 60338]]
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 and FHFA certifies
that the proposed rule, if adopted as a final rule, will not have a
significant economic impact on a substantial number of small entities
because the regulation only applies to Fannie Mae and Freddie Mac,
which are not small entities for purposes of the Regulatory Flexibility
Act.
IV. Paperwork Reduction Act
The proposed rule would not contain any information collection
requirement that would require the approval of the Office of Management
and Budget (OMB) under the Paperwork Reduction Act (44 U.S.C. 3501 et
seq.). Therefore, FHFA has not submitted the proposed rule to OMB for
review.
List of Subjects in 12 CFR Part 1282
Mortgages; Reporting and recordkeeping requirements.
Authority and Issuance
For the reasons stated in the preamble, under the authority of 12
U.S.C. 4501, 4502, 4511, 4513, 4526, and 4561-4566, FHFA proposes to
amend part 1282 of subchapter E of 12 CFR chapter XII, as follows:
CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY
SUBCHAPTER E--HOUSING GOALS AND MISSION
PART 1282--ENTERPRISE HOUSING GOALS AND MISSION
0
1. The authority citation for part 1282 continues to read as follows:
Authority: 12 U.S.C. 4501, 4502, 4511, 4513, 4526, 4561-4566.
0
2. Amend Sec. 1282.1(b) by:
0
a. Adding, in alphabetical order, the definition of ``Colonia census
tract'';
0
b. In paragraph (iii) of the definition ``High-needs rural region''
removing the term ``colonia'' and adding the term ``colonia census
tract'' in its place; and
0
c. Revising the definition of ``Rural area''.
The additions and revisions read as follows:
Sec. 1282.1 Definitions.
* * * * *
Colonia census tract, for purposes of subpart C of this part, means
a census tract that contains a colonia.
* * * * *
Rural area, for purposes of subpart C of this part, means:
(i) A census tract outside of a metropolitan statistical area as
designated by the Office of Management and Budget; or
(ii) A census tract in a metropolitan statistical area as
designated by the Office of Management and Budget that is:
(A) Outside of the metropolitan statistical area's Urbanized Areas
as designated by the U.S. Department of Agriculture's (USDA) Rural-
Urban Commuting Area (RUCA) Code #1, and outside of tracts with a
housing density of over 64 housing units per square mile for USDA's
RUCA Code #2; or
(B) A colonia census tract that does not satisfy paragraphs (i) or
(ii)(A) of this definition.
* * * * *
Sandra L. Thompson,
Director, Federal Housing Finance Agency.
[FR Doc. 2022-21404 Filed 10-4-22; 8:45 am]
BILLING CODE 8070-01-P
