Exception to Restrictions on Private Transfer Fee Covenants for Loans Meeting Certain Duty To Serve Shared Equity Loan Program Requirements, 65827-65831 [2023-20818]

Download as PDF 65827 Proposed Rules Federal Register Vol. 88, No. 185 Tuesday, September 26, 2023 This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. FEDERAL HOUSING FINANCE AGENCY 12 CFR Part 1228 RIN 2590–AB30 Exception to Restrictions on Private Transfer Fee Covenants for Loans Meeting Certain Duty To Serve Shared Equity Loan Program Requirements Federal Housing Finance Agency. ACTION: Notice of proposed rulemaking. AGENCY: The Federal Housing Finance Agency (FHFA) is proposing to amend its regulation that restricts its regulated entities—the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the Enterprises), and the Federal Home Loan Banks (Banks)—from purchasing, investing in, accepting as collateral, or otherwise dealing in mortgages on properties encumbered by certain types of private transfer fee covenants (PTFCs), and in related securities, subject to certain exceptions (PTFC Regulation). The proposed rule would establish an additional exception to the restrictions for loans on properties with PTFCs, and related securities, if the loans meet certain shared equity loan program requirements for Resale Restriction Programs in FHFA’s Duty to Serve Underserved Markets Regulation (Duty to Serve Regulation). DATES: Written comments on the proposed rule must be received on or before November 27, 2023. ADDRESSES: You may submit your comments on the proposed rule, identified by regulatory information number (RIN) 2590–AB30, 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 lotter on DSK11XQN23PROD with PROPOSALS1 SUMMARY: VerDate Sep<11>2014 15:49 Sep 25, 2023 Jkt 259001 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–AB30. • Hand Delivered/Courier: The hand delivery address is: Clinton Jones, General Counsel, Attention: Comments/ RIN 2590–AB30, 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–AB30, 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 (OHCI), 202–649–3157, ted.wartell@ fhfa.gov; or Sara L. Todd, Assistant General Counsel, Office of General Counsel (OGC), 202–649–3527, sara.todd@fhfa.gov; Federal Housing Finance Agency, 400 Seventh Street SW, Washington, DC 20219. These are not toll-free numbers. The mailing address for each contact is: Federal Housing Finance Agency, Fourth Floor, 400 Seventh Street SW, Washington, DC 20219. For TTY/TRS users with disabilities, dial 711 and ask to be connected to any of the contact numbers above. SUPPLEMENTARY INFORMATION: I. Public Comments and Access FHFA invites comments on all aspects of the proposed rule, and will take all comments into consideration before issuing a final rule. Commenters do not need to answer each of the specific questions asked below. Copies of all comments received will be posted on the FHFA website at https:// www.fhfa.gov, and will include any personal information you provide, such as your name, address, email address, and telephone number. In addition, PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 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 and Regulatory Background: Enterprises The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended (Safety and Soundness Act), provides that the Director of FHFA has a duty to ensure that the operations and activities of the Enterprises foster liquid, efficient, competitive, and resilient national housing finance markets.1 To achieve these goals, the Enterprises purchase residential mortgages that fall within the conforming loan limits established pursuant to 12 U.S.C. 1717 and 12 U.S.C. 1454, and issue guaranteed mortgage-backed securities backed by those loans. In addition, the 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.’’ 2 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 (Duty to Serve) 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.3 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.4 FHFA’s Duty to Serve Regulation,5 which implements these 1 12 U.S.C. 4513(a)(1)(B)(ii). U.S.C. 4501(7). 3 12 U.S.C. 4565. 4 12 U.S.C. 4565(a). The terms ‘‘very lowincome,’’ ‘‘low-income,’’ and ‘‘moderate-income’’ are defined in 12 U.S.C. 4502. 5 12 CFR part 1282, subpart C. 2 12 E:\FR\FM\26SEP1.SGM 26SEP1 65828 Federal Register / Vol. 88, No. 185 / Tuesday, September 26, 2023 / Proposed Rules Duty to Serve statutory requirements, is discussed further below. lotter on DSK11XQN23PROD with PROPOSALS1 B. Statutory and Regulatory Background: Federal Home Loan Banks The eleven Banks are wholesale financial institutions organized under the Federal Home Loan Bank Act to support housing finance and further affordable housing and community development.6 The Banks are cooperatives and carry out their mission primarily by providing products and services to their member institutions. Bank members and eligible housing associates (nonmember mortgagee borrowers such as state housing finance agencies) may obtain access to secured loans, known as advances.7 These must be fully secured by eligible collateral at the time of issuance or renewal, which may include, among other forms of collateral, residential mortgages and mortgage-backed securities.8 In addition, the Banks issue standby letters of credit on behalf of members and housing associates, which may be secured by residential mortgages and mortgage-backed securities. Most Banks also offer Acquired Member Assets (AMA) programs, under which they acquire eligible mortgages from participating members and housing associates, subject to parameters set forth in FHFA’s AMA regulation.9 The Banks are also authorized to invest in mortgage-backed securities and other mortgage-related investments meeting applicable requirements.10 Finally, the Banks may serve as pass-through entities for mortgage loans acquired by another purchaser. III. PTFC Regulation The current PTFC Regulation prohibits the Enterprises and Banks from purchasing, investing in, or otherwise dealing in any mortgages encumbered by PTFCs or related securities, and prohibits the Banks from accepting such mortgages or securities as collateral for advances, unless such PTFCs are ‘‘excepted transfer fee covenants.’’ 11 Under the PTFC Regulation, ‘‘PTFCs’’ mean obligations that purport to ‘‘run with the land’’ in the records of title to real property or to bind current owners of, and successors in title to, such real property, and that obligate a transferee or transferor to pay a private transfer fee upon transfer of 6 See 12 U.S.C. 1421 et seq. 12 U.S.C. 1426(a)(4), 1430(a), 1430b. 8 See 12 U.S.C. 1430(a)(3), 1430(b); 12 CFR 1266.7, 1266.17, part 1269. 9 See 12 CFR part 1268. 10 See 12 CFR 1267.3(a)(4)(iv), (v). 11 12 CFR 1228.2. 7 See VerDate Sep<11>2014 15:49 Sep 25, 2023 Jkt 259001 the property.12 A ‘‘private transfer fee’’ is defined in the PTFC Regulation as a transfer fee, including a charge or payment, imposed by a covenant, and required to be paid in connection with or as a result of a transfer of title to real estate, and payable on a continuing basis each time a property is transferred (except for transfers specifically excepted) for a period of time or indefinitely.13 In adopting the PTFC Regulation, FHFA was concerned that private transfer fees would: (1) be used to fund purely private continuous streams of income for select market participants, either directly or through securitized investment vehicles; (2) not benefit homeowners or the properties involved; and (3) interfere with accurate determination of property values. Therefore, FHFA concluded that mortgages on properties with PTFCs might impair the safety and soundness of the Enterprises and the Banks that purchase, invest in, or otherwise deal in, or in the case of the Banks, that accept as collateral, such mortgages.14 The prohibition in the PTFC Regulation does not apply where the PTFC is an ‘‘excepted transfer fee covenant,’’ which is defined as a covenant that requires payment to a ‘‘covered association’’ and that limits the use of such payment to purposes that provide a ‘‘direct benefit’’ to the real property.15 A ‘‘covered association’’ is defined as ‘‘a nonprofit mandatory membership organization comprising owners of homes, condominiums, cooperatives, manufactured homes, or any interest in real property, created pursuant to a declaration, covenant or other applicable law; or an organization described in section 501(c)(3) or section 501(c)(4) of the Internal Revenue Code.’’ 16 The PTFC Regulation defines a ‘‘direct benefit’’ as meaning that the proceeds of a PTFC ‘‘are used exclusively to support maintenance and improvements to encumbered properties, and acquisition, improvement, administration, and maintenance of property owned by the covered association of which the owners of the burdened property are members and used primarily for their benefit.’’ 17 This may include ‘‘cultural, educational, charitable, recreational, 12 12 CFR 1228.1. 13 12 CFR 1228.1. The definition excludes fees imposed by or payable to the Federal, State, or local government, and fees that defray actual costs of the transfer of the property, neither of which would be modified by the proposed rule. 14 See 77 FR 15566, 15567 (Mar. 16, 2012). 15 12 CFR 1228.1. 16 Id. 17 Id. PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 environmental, conservation, or other similar activities that (1) are conducted in or protect the burdened community or adjacent or contiguous property, or (2) are conducted on other property that is used primarily by residents of the burdened community.’’ 18 IV. Interaction Between the PTFC Regulation and the Enterprise Duty To Serve Regulation and Activities Approximately four years after the adoption of the PTFC Regulation, FHFA adopted the Duty to Serve Regulation, which applies only to the Enterprises.19 Under the Duty to Serve Regulation, each Enterprise is required to prepare an Underserved Markets Plan (Plan), which is subject to Non-Objection by FHFA, and which describes the specific activities and objectives the Enterprise will undertake over a three-year period to fulfill its Duty to Serve in each underserved market.20 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 under each underserved market.21 An Enterprise may also include additional activities in its Plan, subject to FHFA determination of whether they are eligible to receive Duty to Serve credit.22 Under the Duty to Serve Regulation, one of the activities eligible for Duty to Serve credit under the affordable housing preservation market is Enterprise support for shared equity programs for affordable homeownership preservation in the form of resale restriction programs administered by community land trusts, other nonprofit organizations, or state or local governments or instrumentalities (collectively, Resale Restriction Programs).23 The Duty to Serve Regulation further specifies the following criteria for an eligible Resale Restriction Program: (a) Provides homeownership opportunities to very low-, low-, or moderate-income households (100 percent or less of area median income (AMI)); (b) Utilizes a ground lease, deed restriction, subordinate loan, or similar legal mechanism that includes provisions stating that the program will 18 Id. 19 12 CFR part 1282, subpart C; 81 FR 96242 (Dec. 29, 2016). 20 12 CFR 1282.32(a), (b). 21 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. 22 12 CFR 1282.32(d)(2). 23 12 CFR 1282.34(d)(4)(i)(A). E:\FR\FM\26SEP1.SGM 26SEP1 lotter on DSK11XQN23PROD with PROPOSALS1 Federal Register / Vol. 88, No. 185 / Tuesday, September 26, 2023 / Proposed Rules keep the home affordable for subsequent very low-, low-, or moderate-income families, the affordability term is at least 30 years after recordation, a resale formula applies that limits the homeowner’s proceeds upon resale, and the program administrator or its assignee has a preemptive option to purchase the homeownership unit from the homeowner at resale; and (c) Supports homebuyers and homeowners to promote sustainable homeownership, including reviewing and pre-approving refinances and home equity lines of credit.24 The preamble to the 2015 proposed Duty to Serve rule noted that many shared equity loan programs allow the sponsors to charge modest fees that cover the cost of operating the program.25 However, the preamble to the final Duty to Serve rule did not reiterate this discussion of fees and did not include a reference to fees in the regulatory text. The final Duty to Serve rule also did not refer to or amend the PTFC Regulation specifically to provide an exception to the restriction on PTFCs for loans that meet Resale Restriction Program requirements in the Duty to Serve Regulation. Between 2018 (the first year of Duty to Serve program implementation) and 2022, the Enterprises, collectively, purchased 595 shared equity loans for Duty to Serve credit. Both Enterprises’ 2022–2024 Duty to Serve Plans include plans to purchase shared equity loans under Resale Restriction Programs in 2023 and 2024. The loans purchased by the Enterprises under many of the Resale Restriction Programs are on properties encumbered by PTFCs that fall within the PTFC Regulation’s prohibition because they bind current owners and successors to pay a fee to the program administrator (often a community land trust) on a continuing basis each time the property is transferred. The loans do not meet the definition of an ‘‘excepted transfer fee covenant’’ in the PTFC Regulation because they are used by the program administrator to pay for its operating costs, including costs of enforcing the long-term affordability requirements, but they are not limited to costs and activities that are specific to the ‘‘burdened community’’ in which the subject property is located, nor are they otherwise required to be used for the purpose of providing a ‘‘direct benefit’’ to the property (as these quoted terms are defined in the PTFC Regulation).26 24 12 CFR 1282.34(d)(4)(ii). FR 79181, 79203 (Dec. 18, 2015). 26 See 12 CFR 1228.1. 25 80 VerDate Sep<11>2014 15:49 Sep 25, 2023 Jkt 259001 During the Enterprises’ efforts to implement the shared equity loan objectives in their Duty to Serve Plans, the Enterprises reviewed model organizational documents that were proposed to be used as templates by Resale Restriction Programs. In preparing to establish approved templates, the Enterprises determined that, while Resale Restriction Programs using the templates would meet the criteria for Resale Restriction Programs in the Duty to Serve Regulation (except for the 100 percent of AMI limit), the programs’ possible inclusion of private transfer fee payment requirements could cause any loans issued under the terms of the model organizational documents to be ineligible for purchase by the Enterprises pursuant to the PTFC Regulation. V. Regulatory Waiver for the Enterprises; Proposed § 1228.1 In response to the Enterprises’ identification of PTFCs in shared equity loans under Resale Restriction Programs that otherwise could be purchased and qualify for Duty to Serve credit, FHFA reviewed these types of loans and determined that the private transfer fees in these programs are not the types of fees that prompted the concern underlying the PTFC Regulation. Unlike fees paid to the select market participants that concerned FHFA when the PTFC Regulation was adopted, the fees in Resale Restriction Programs reimburse the program administrators, which are typically community land trusts, nonprofits, or local governments, for their ongoing operating expenses related to the purchase and sale of affordable homes under the program. They are not used as a method to provide a continuous income stream to the program administrators with no continuing affordable housing-related services provided. For example, fees in Resale Restriction Programs may be used to pay for: maintaining a list of, and qualifying, prospective programeligible homebuyers; providing seller representation and outreach to prospective buyers; ensuring that repairs are incorporated into the sale transaction; providing potential homebuyers with homeownership counseling or similar education; exercising the program administrator’s option to purchase the home if the homeowner defaults on the first lien or the affordability restriction; enforcing the long-term affordability requirements (such as calculating the maximum resale price according to the resale formula); and executing legal documents with subsequent homebuyers. PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 65829 Accordingly, FHFA issued a temporary prospective waiver of the private transfer fee restrictions in § 1228.2 of the PTFC Regulation for Enterprise purchases or securitizations of shared equity loans on properties with PTFCs that meet the Duty to Serve shared equity loan program criteria for Resale Restriction Programs in the Duty to Serve Regulation other than the Duty to Serve 100 percent of AMI limit,27 through the remaining term of the Enterprises’ 2022–2024 Duty to Serve Plans, i.e., through December 31, 2024. The waiver did not include an income limit, based on input from the Enterprises and other practitioners familiar with shared equity programs who indicated that these programs typically set income limits up to 140 percent of AMI (which is above the Duty to Serve 100 percent of AMI limit), especially in communities where housing costs are high relative to incomes. Limiting eligibility for the waiver to loans that meet the Duty to Serve 100 percent of AMI limit would require lenders and shared equity program administrators to use a differentiated approach with borrowers above and below this income threshold. Further, it would require lenders to review each loan to ensure eligibility for purchase by the Enterprises and the Banks. This would undermine the objective of standardizing the shared equity homeownership market and increasing the number of Enterprise shared equity loan purchases under the Duty to Serve program. The waiver also included a retrospective component that waived the restrictions in the PTFC Regulation for shared equity loans on properties with private transfer fees purchased or securitized by the Enterprises with note dates prior to July 1, 2023, regardless of whether the loans met the Duty to Serve shared equity loan program criteria for Resale Restriction Program loans. Finally, the waiver provided notice of FHFA’s intention to promptly engage in notice-and-comment rulemaking to propose amending the PTFC Regulation to codify the waiver provisions. This proposed rule implements that intent. Specifically, the proposed rule would amend the definition of ‘‘excepted transfer fee covenant’’ in § 1228.1 of the PTFC Regulation to add as an exception a PTFC that encumbers a property for which a shared equity loan meets the requirements of a Duty to Serve Resale Restriction Program (§ 1282.34(d)(4)(i)(A) and (d)(4)(ii) of this chapter) other than the 100 percent of AMI limit. 27 12 E:\FR\FM\26SEP1.SGM CFR 1282.34(d)(4)(i)(A), (d)(4)(ii). 26SEP1 65830 Federal Register / Vol. 88, No. 185 / Tuesday, September 26, 2023 / Proposed Rules VI. Interaction Between the PTFC Regulation and the Banks’ Activities; Proposed § 1228.1 The current PTFC Regulation also prohibits the Banks from purchasing, investing in, or otherwise dealing in mortgages on properties encumbered by PTFCs, and related securities, and prohibits the Banks from accepting such mortgages or securities as collateral for advances, subject to the exceptions in the regulation.28 The Banks have indicated that, to their knowledge, they have not purchased, or accepted as collateral, shared equity loans. The same considerations discussed above for the Enterprises (regarding differences in the uses of fees payable at resale to administrators of Resale Restriction Programs and the fees that FHFA was concerned about when the PTFC Regulation was adopted) also apply to the Banks. However, because the waiver for the Enterprises derived from their activities under the Duty to Serve regulation (which does not apply to the Banks), the waiver did not address activities of the Banks with respect to shared equity loans. Because the Banks might decide in the future to purchase, invest in, or otherwise deal in shared equity loans or related securities under Resale Restriction Programs, or accept them as collateral, to facilitate increased liquidity for affordable homeownership, FHFA believes the exception provided in the proposed rule for the Enterprises should also apply for the Banks. Accordingly, the definition of ‘‘excepted transfer fee covenant’’ in § 1228.1 of the PTFC Regulation would continue to apply to both the Enterprises and the Banks, as amended by the proposed rule to add as an exception a PTFC that encumbers a property for which a shared equity loan meets the requirements of a Duty to Serve Resale Restriction Program (§ 1282.34(d)(4)(i)(A) and (d)(4)(ii) of that chapter) other than the 100 percent of AMI limit. lotter on DSK11XQN23PROD with PROPOSALS1 VII. Limitation on Applicability; Proposed § 1228.3 The proposed rule would remove the prospective application and effective date in current § 1228.3 of the PTFC Regulation. Current § 1228.3 includes a grandfather provision for mortgages on certain properties encumbered by PTFCs if those PTFCs were created pursuant to an agreement entered into before the effective date of the PTFC regulation. The regulated entities have been operating under the terms of the current regulation since July 16, 2012, 28 12 CFR 1228.2. VerDate Sep<11>2014 15:49 Sep 25, 2023 Jkt 259001 and the Enterprises subsequently have been operating under the terms of the regulatory waiver since July 1, 2023. If this proposed PTFC rule is adopted as a final rule, the prospective application date (i.e., the effective date) of the final rule would be 60 days after the date of its publication in the Federal Register. This date will precede December 31, 2024, which is the conclusion of the 2022–2024 Duty to Serve Plan cycle and the date on which the temporary prospective component of the waiver will expire. Proposed § 1228.3 would include the retrospective component of the waiver by allowing the Enterprises to retain in their portfolios any of the 595 shared equity loans on properties with private transfer fees that were purchased or securitized by the Enterprises with note dates prior to the effective date of the waiver (July 1, 2023), regardless of whether the loans met the Duty to Serve shared equity loan program criteria for resale restriction programs in § 1282.34(d)(4)(i)(A) and (d)(4)(ii) of this chapter. VIII. Requests for Comments FHFA specifically requests comments on the following questions (please identify the question answered by the number assigned below): 1. Should the proposed rule apply to the Banks in addition to the Enterprises? Do differences between the Banks and the Enterprises warrant additional or other revisions to the proposed rule as it relates to the Banks? 2. Should all of the Duty to Serve Resale Restriction Program criteria, including the 100 percent of AMI limit, apply to the determination of whether a mortgage loan that is subject to PTFCs, or a related security, is eligible for purchase, investment, otherwise dealing in, or acceptance as collateral by the Banks and Enterprises? If not, which of those specific criteria should apply? 3. Should criteria other than the Duty to Serve Resale Restriction Program criteria, such as an income limit different from 100 percent of AMI, apply to the determination of eligibility? 4. Should criteria in addition to the Duty to Serve Resale Restriction Program criteria apply to the determination of eligibility? IX. Paperwork Reduction Act The proposed rule does not contain any information collection requirement. Thus, it would not require approval of the Office of Management and Budget (OMB) under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). Therefore, FHFA has not submitted any information to OMB for review. PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 X. 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 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 proposed rule is applicable only to the regulated entities, which are not small entities for purposes of the Regulatory Flexibility Act. XI. Consideration of Differences Between the Banks and the Enterprises When promulgating regulations relating to the Banks, section 1313(f) of the Safety and Soundness Act requires the Director of FHFA to consider the differences between the Banks and the Enterprises with respect to the Banks’ cooperative ownership structure; mission of providing liquidity to members and housing associates; affordable housing and community development mission; capital structure; and joint and several liability. In preparing this proposed rule, FHFA considered the differences between the Banks and the Enterprises as they relate to the above factors, and determined that the proposed rule is appropriate as it would have no impact on four of the five factors and could have a modest, positive impact on the fifth factor—the mission of providing liquidity to members and housing associates. FHFA requests comments regarding whether differences related to those factors should result in any additional or other revisions to the proposed rule. List of Subjects in 12 CFR Part 1228 Banks, Banking, Condominiums, Cooperatives, Federal Home Loan Banks, Government-sponsored enterprises, Investments, Loan programs—housing and community development, Low and moderate income housing, Mortgages, Nonprofit organizations, Real property acquisition, Securities. For the reasons stated in the Preamble, and under the authority of 12 U.S.C. 4526, FHFA proposes to amend E:\FR\FM\26SEP1.SGM 26SEP1 Federal Register / Vol. 88, No. 185 / Tuesday, September 26, 2023 / Proposed Rules part 1228 of chapter XII of title 12 of the Code of Federal Regulations as follows: PART 1228—RESTRICTIONS ON THE ACQUISITION OF, OR TAKING SECURITY INTERESTS IN, MORTGAGES ON PROPERTIES ENCUMBERED BY CERTAIN PRIVATE TRANSFER FEE COVENANTS AND RELATED SECURITIES 1. The authority citation for part 1228 is revised to read as follows: ■ Authority: 12 U.S.C. 4511, 4513, 4526, 4565, 4616, 4617, 4631. 2. Amend § 1228.1 by revising the definition of ‘‘Excepted transfer fee covenant’’ to read as follows: ■ § 1228.1 Definitions. * * * * Excepted transfer fee covenant means a private transfer fee covenant that: (1) Requires payment of a private transfer fee to a covered association and limits the use of such transfer fees exclusively to purposes which provide a direct benefit to the real property encumbered by the private transfer fee covenants; or (2) Requires payment of a private transfer fee under a program meeting the Duty to Serve shared equity loan program criteria for resale restriction programs in § 1282.34(d)(4)(i)(A) and (d)(4)(ii) of this chapter other than the Duty to Serve 100 percent of area median income limit. * * * * * ■ 3. Revise § 1228.3 to read as follows: Limitation on applicability. This part is not applicable to shared equity loans, or related securities, that were purchased or securitized by the Enterprises with note dates prior to July 1, 2023, regardless of whether the loans met the Duty to Serve shared equity loan program criteria for resale restriction programs in § 1282.34(d)(4)(i)(A) and (d)(4)(ii) of this chapter. Sandra L. Thompson, Director, Federal Housing Finance Agency. lotter on DSK11XQN23PROD with PROPOSALS1 [FR Doc. 2023–20818 Filed 9–25–23; 8:45 am] BILLING CODE 8070–01–P VerDate Sep<11>2014 15:49 Sep 25, 2023 Jkt 259001 Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA–2023–1887; Project Identifier MCAI–2023–00543–T] RIN 2120–AA64 Airworthiness Directives; Airbus SAS Airplanes Federal Aviation Administration (FAA), DOT. ACTION: Notice of proposed rulemaking (NPRM). AGENCY: The FAA proposes to supersede Airworthiness Directive (AD) 2020–24–12, which applies to certain Airbus SAS Model A350–941 airplanes. AD 2020–24–12 requires replacing certain center wing box (CWB) fasteners with fasteners having improved friction efficiency. Since the FAA issued AD 2020–24–12, additional work was introduced to ensure the correct application of the fuel vapor barrier structure paint on the outside of the CWB. This proposed AD would continue to require the actions in AD 2020–24–12 and would require the additional work, as specified in a European Union Aviation Safety Agency (EASA) AD, which is proposed for incorporation by reference (IBR). The FAA is proposing this AD to address the unsafe condition on these products. DATES: The FAA must receive comments on this proposed AD by November 13, 2023. ADDRESSES: You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods: • Federal eRulemaking Portal: Go to regulations.gov. Follow the instructions for submitting comments. • Fax: 202–493–2251. • Mail: U.S. Department of Transportation, Docket Operations, M– 30, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE, Washington, DC 20590. • Hand Delivery: Deliver to Mail address above between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. AD Docket: You may examine the AD docket at regulations.gov under Docket No. FAA–2023–1887; or in person at Docket Operations between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this NPRM, the mandatory continuing airworthiness information (MCAI), any comments received, and other information. The street address for Docket Operations is listed above. SUMMARY: * § 1228.3 DEPARTMENT OF TRANSPORTATION PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 65831 Material Incorporated by Reference: • For the EASA AD identified in this NPRM, you may contact EASA, KonradAdenauer-Ufer 3, 50668 Cologne, Germany; telephone +49 221 8999 000; email ADs@easa.europa.eu; website easa.europa.eu. You may find this material on the EASA website at ad.easa.europa.eu. It is also available at regulations.gov under Docket No. FAA– 2023–1887. • You may view this service information at the FAA, Airworthiness Products Section, Operational Safety Branch, 2200 South 216th St., Des Moines, WA. For information on the availability of this material at the FAA, call 206–231–3195. FOR FURTHER INFORMATION CONTACT: Dat Le, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; telephone (516) 228–7317; email dat.v.le@faa.gov. SUPPLEMENTARY INFORMATION: Comments Invited The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under ADDRESSES. Include ‘‘Docket No. FAA–2023–1887; Project Identifier MCAI–2023–00543–T’’ at the beginning of your comments. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. The FAA will consider all comments received by the closing date and may amend this proposal because of those comments. Except for Confidential Business Information (CBI) as described in the following paragraph, and other information as described in 14 CFR 11.35, the FAA will post all comments received, without change, to regulations.gov, including any personal information you provide. The agency will also post a report summarizing each substantive verbal contact received about this NPRM. Confidential Business Information CBI is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public disclosure. If your comments responsive to this NPRM contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to this NPRM, it is important that you clearly designate the submitted comments as CBI. Please mark each E:\FR\FM\26SEP1.SGM 26SEP1

Agencies

FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 88, Number 185 (Tuesday, September 26, 2023)]
[Proposed Rules]
[Pages 65827-65831]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20818]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

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

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Federal Register / Vol. 88, No. 185 / Tuesday, September 26, 2023 / 
Proposed Rules

[[Page 65827]]



FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1228

RIN 2590-AB30


Exception to Restrictions on Private Transfer Fee Covenants for 
Loans Meeting Certain Duty To Serve Shared Equity Loan Program 
Requirements

AGENCY: Federal Housing Finance Agency.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is proposing to 
amend its regulation that restricts its regulated entities--the Federal 
National Mortgage Association (Fannie Mae), the Federal Home Loan 
Mortgage Corporation (Freddie Mac) (collectively, the Enterprises), and 
the Federal Home Loan Banks (Banks)--from purchasing, investing in, 
accepting as collateral, or otherwise dealing in mortgages on 
properties encumbered by certain types of private transfer fee 
covenants (PTFCs), and in related securities, subject to certain 
exceptions (PTFC Regulation). The proposed rule would establish an 
additional exception to the restrictions for loans on properties with 
PTFCs, and related securities, if the loans meet certain shared equity 
loan program requirements for Resale Restriction Programs in FHFA's 
Duty to Serve Underserved Markets Regulation (Duty to Serve 
Regulation).

DATES: Written comments on the proposed rule must be received on or 
before November 27, 2023.

ADDRESSES: You may submit your comments on the proposed rule, 
identified by regulatory information number (RIN) 2590-AB30, 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-AB30.
     Hand Delivered/Courier: The hand delivery address is: 
Clinton Jones, General Counsel, Attention: Comments/RIN 2590-AB30, 
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-AB30, 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 (OHCI), 202-649-3157, 
[email protected]; or Sara L. Todd, Assistant General Counsel, 
Office of General Counsel (OGC), 202-649-3527, [email protected]; 
Federal Housing Finance Agency, 400 Seventh Street SW, Washington, DC 
20219. These are not toll-free numbers. The mailing address for each 
contact is: Federal Housing Finance Agency, Fourth Floor, 400 Seventh 
Street SW, Washington, DC 20219. For TTY/TRS users with disabilities, 
dial 711 and ask to be connected to any of the contact numbers above.

SUPPLEMENTARY INFORMATION:

I. Public Comments and Access

    FHFA invites comments on all aspects of the proposed rule, and will 
take all comments into consideration before issuing a final rule. 
Commenters do not need to answer each of the specific questions asked 
below. Copies of all comments received will be posted on the FHFA 
website at https://www.fhfa.gov, and will include any personal 
information you provide, such as your name, address, email address, and 
telephone number. 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 and Regulatory Background: Enterprises

    The Federal Housing Enterprises Financial Safety and Soundness Act 
of 1992, as amended (Safety and Soundness Act), provides that the 
Director of FHFA has a duty to ensure that the operations and 
activities of the Enterprises foster liquid, efficient, competitive, 
and resilient national housing finance markets.\1\ To achieve these 
goals, the Enterprises purchase residential mortgages that fall within 
the conforming loan limits established pursuant to 12 U.S.C. 1717 and 
12 U.S.C. 1454, and issue guaranteed mortgage-backed securities backed 
by those loans.
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    \1\ 12 U.S.C. 4513(a)(1)(B)(ii).
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    In addition, the 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.'' \2\ 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 (Duty to Serve) 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.\3\ 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.\4\ FHFA's Duty to Serve Regulation,\5\ which 
implements these

[[Page 65828]]

Duty to Serve statutory requirements, is discussed further below.
---------------------------------------------------------------------------

    \2\ 12 U.S.C. 4501(7).
    \3\ 12 U.S.C. 4565.
    \4\ 12 U.S.C. 4565(a). The terms ``very low-income,'' ``low-
income,'' and ``moderate-income'' are defined in 12 U.S.C. 4502.
    \5\ 12 CFR part 1282, subpart C.
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B. Statutory and Regulatory Background: Federal Home Loan Banks

    The eleven Banks are wholesale financial institutions organized 
under the Federal Home Loan Bank Act to support housing finance and 
further affordable housing and community development.\6\ The Banks are 
cooperatives and carry out their mission primarily by providing 
products and services to their member institutions. Bank members and 
eligible housing associates (nonmember mortgagee borrowers such as 
state housing finance agencies) may obtain access to secured loans, 
known as advances.\7\ These must be fully secured by eligible 
collateral at the time of issuance or renewal, which may include, among 
other forms of collateral, residential mortgages and mortgage-backed 
securities.\8\ In addition, the Banks issue standby letters of credit 
on behalf of members and housing associates, which may be secured by 
residential mortgages and mortgage-backed securities.
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    \6\ See 12 U.S.C. 1421 et seq.
    \7\ See 12 U.S.C. 1426(a)(4), 1430(a), 1430b.
    \8\ See 12 U.S.C. 1430(a)(3), 1430(b); 12 CFR 1266.7, 1266.17, 
part 1269.
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    Most Banks also offer Acquired Member Assets (AMA) programs, under 
which they acquire eligible mortgages from participating members and 
housing associates, subject to parameters set forth in FHFA's AMA 
regulation.\9\ The Banks are also authorized to invest in mortgage-
backed securities and other mortgage-related investments meeting 
applicable requirements.\10\ Finally, the Banks may serve as pass-
through entities for mortgage loans acquired by another purchaser.
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    \9\ See 12 CFR part 1268.
    \10\ See 12 CFR 1267.3(a)(4)(iv), (v).
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III. PTFC Regulation

    The current PTFC Regulation prohibits the Enterprises and Banks 
from purchasing, investing in, or otherwise dealing in any mortgages 
encumbered by PTFCs or related securities, and prohibits the Banks from 
accepting such mortgages or securities as collateral for advances, 
unless such PTFCs are ``excepted transfer fee covenants.'' \11\ Under 
the PTFC Regulation, ``PTFCs'' mean obligations that purport to ``run 
with the land'' in the records of title to real property or to bind 
current owners of, and successors in title to, such real property, and 
that obligate a transferee or transferor to pay a private transfer fee 
upon transfer of the property.\12\ A ``private transfer fee'' is 
defined in the PTFC Regulation as a transfer fee, including a charge or 
payment, imposed by a covenant, and required to be paid in connection 
with or as a result of a transfer of title to real estate, and payable 
on a continuing basis each time a property is transferred (except for 
transfers specifically excepted) for a period of time or 
indefinitely.\13\
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    \11\ 12 CFR 1228.2.
    \12\ 12 CFR 1228.1.
    \13\ 12 CFR 1228.1. The definition excludes fees imposed by or 
payable to the Federal, State, or local government, and fees that 
defray actual costs of the transfer of the property, neither of 
which would be modified by the proposed rule.
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    In adopting the PTFC Regulation, FHFA was concerned that private 
transfer fees would: (1) be used to fund purely private continuous 
streams of income for select market participants, either directly or 
through securitized investment vehicles; (2) not benefit homeowners or 
the properties involved; and (3) interfere with accurate determination 
of property values. Therefore, FHFA concluded that mortgages on 
properties with PTFCs might impair the safety and soundness of the 
Enterprises and the Banks that purchase, invest in, or otherwise deal 
in, or in the case of the Banks, that accept as collateral, such 
mortgages.\14\
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    \14\ See 77 FR 15566, 15567 (Mar. 16, 2012).
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    The prohibition in the PTFC Regulation does not apply where the 
PTFC is an ``excepted transfer fee covenant,'' which is defined as a 
covenant that requires payment to a ``covered association'' and that 
limits the use of such payment to purposes that provide a ``direct 
benefit'' to the real property.\15\ A ``covered association'' is 
defined as ``a nonprofit mandatory membership organization comprising 
owners of homes, condominiums, cooperatives, manufactured homes, or any 
interest in real property, created pursuant to a declaration, covenant 
or other applicable law; or an organization described in section 
501(c)(3) or section 501(c)(4) of the Internal Revenue Code.'' \16\ The 
PTFC Regulation defines a ``direct benefit'' as meaning that the 
proceeds of a PTFC ``are used exclusively to support maintenance and 
improvements to encumbered properties, and acquisition, improvement, 
administration, and maintenance of property owned by the covered 
association of which the owners of the burdened property are members 
and used primarily for their benefit.'' \17\ This may include 
``cultural, educational, charitable, recreational, environmental, 
conservation, or other similar activities that (1) are conducted in or 
protect the burdened community or adjacent or contiguous property, or 
(2) are conducted on other property that is used primarily by residents 
of the burdened community.'' \18\
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    \15\ 12 CFR 1228.1.
    \16\ Id.
    \17\ Id.
    \18\ Id.
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IV. Interaction Between the PTFC Regulation and the Enterprise Duty To 
Serve Regulation and Activities

    Approximately four years after the adoption of the PTFC Regulation, 
FHFA adopted the Duty to Serve Regulation, which applies only to the 
Enterprises.\19\ Under the Duty to Serve Regulation, each Enterprise is 
required to prepare an Underserved Markets Plan (Plan), which is 
subject to Non-Objection by FHFA, and which describes the specific 
activities and objectives the Enterprise will undertake over a three-
year period to fulfill its Duty to Serve in each underserved 
market.\20\ 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 under each underserved market.\21\ An Enterprise 
may also include additional activities in its Plan, subject to FHFA 
determination of whether they are eligible to receive Duty to Serve 
credit.\22\
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    \19\ 12 CFR part 1282, subpart C; 81 FR 96242 (Dec. 29, 2016).
    \20\ 12 CFR 1282.32(a), (b).
    \21\ 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.
    \22\ 12 CFR 1282.32(d)(2).
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    Under the Duty to Serve Regulation, one of the activities eligible 
for Duty to Serve credit under the affordable housing preservation 
market is Enterprise support for shared equity programs for affordable 
homeownership preservation in the form of resale restriction programs 
administered by community land trusts, other nonprofit organizations, 
or state or local governments or instrumentalities (collectively, 
Resale Restriction Programs).\23\ The Duty to Serve Regulation further 
specifies the following criteria for an eligible Resale Restriction 
Program:
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    \23\ 12 CFR 1282.34(d)(4)(i)(A).
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    (a) Provides homeownership opportunities to very low-, low-, or 
moderate-income households (100 percent or less of area median income 
(AMI));
    (b) Utilizes a ground lease, deed restriction, subordinate loan, or 
similar legal mechanism that includes provisions stating that the 
program will

[[Page 65829]]

keep the home affordable for subsequent very low-, low-, or moderate-
income families, the affordability term is at least 30 years after 
recordation, a resale formula applies that limits the homeowner's 
proceeds upon resale, and the program administrator or its assignee has 
a preemptive option to purchase the homeownership unit from the 
homeowner at resale; and
    (c) Supports homebuyers and homeowners to promote sustainable 
homeownership, including reviewing and pre-approving refinances and 
home equity lines of credit.\24\
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    \24\ 12 CFR 1282.34(d)(4)(ii).
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    The preamble to the 2015 proposed Duty to Serve rule noted that 
many shared equity loan programs allow the sponsors to charge modest 
fees that cover the cost of operating the program.\25\ However, the 
preamble to the final Duty to Serve rule did not reiterate this 
discussion of fees and did not include a reference to fees in the 
regulatory text. The final Duty to Serve rule also did not refer to or 
amend the PTFC Regulation specifically to provide an exception to the 
restriction on PTFCs for loans that meet Resale Restriction Program 
requirements in the Duty to Serve Regulation.
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    \25\ 80 FR 79181, 79203 (Dec. 18, 2015).
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    Between 2018 (the first year of Duty to Serve program 
implementation) and 2022, the Enterprises, collectively, purchased 595 
shared equity loans for Duty to Serve credit. Both Enterprises' 2022-
2024 Duty to Serve Plans include plans to purchase shared equity loans 
under Resale Restriction Programs in 2023 and 2024.
    The loans purchased by the Enterprises under many of the Resale 
Restriction Programs are on properties encumbered by PTFCs that fall 
within the PTFC Regulation's prohibition because they bind current 
owners and successors to pay a fee to the program administrator (often 
a community land trust) on a continuing basis each time the property is 
transferred. The loans do not meet the definition of an ``excepted 
transfer fee covenant'' in the PTFC Regulation because they are used by 
the program administrator to pay for its operating costs, including 
costs of enforcing the long-term affordability requirements, but they 
are not limited to costs and activities that are specific to the 
``burdened community'' in which the subject property is located, nor 
are they otherwise required to be used for the purpose of providing a 
``direct benefit'' to the property (as these quoted terms are defined 
in the PTFC Regulation).\26\
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    \26\ See 12 CFR 1228.1.
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    During the Enterprises' efforts to implement the shared equity loan 
objectives in their Duty to Serve Plans, the Enterprises reviewed model 
organizational documents that were proposed to be used as templates by 
Resale Restriction Programs. In preparing to establish approved 
templates, the Enterprises determined that, while Resale Restriction 
Programs using the templates would meet the criteria for Resale 
Restriction Programs in the Duty to Serve Regulation (except for the 
100 percent of AMI limit), the programs' possible inclusion of private 
transfer fee payment requirements could cause any loans issued under 
the terms of the model organizational documents to be ineligible for 
purchase by the Enterprises pursuant to the PTFC Regulation.

V. Regulatory Waiver for the Enterprises; Proposed Sec.  1228.1

    In response to the Enterprises' identification of PTFCs in shared 
equity loans under Resale Restriction Programs that otherwise could be 
purchased and qualify for Duty to Serve credit, FHFA reviewed these 
types of loans and determined that the private transfer fees in these 
programs are not the types of fees that prompted the concern underlying 
the PTFC Regulation. Unlike fees paid to the select market participants 
that concerned FHFA when the PTFC Regulation was adopted, the fees in 
Resale Restriction Programs reimburse the program administrators, which 
are typically community land trusts, nonprofits, or local governments, 
for their ongoing operating expenses related to the purchase and sale 
of affordable homes under the program. They are not used as a method to 
provide a continuous income stream to the program administrators with 
no continuing affordable housing-related services provided. For 
example, fees in Resale Restriction Programs may be used to pay for: 
maintaining a list of, and qualifying, prospective program-eligible 
homebuyers; providing seller representation and outreach to prospective 
buyers; ensuring that repairs are incorporated into the sale 
transaction; providing potential homebuyers with homeownership 
counseling or similar education; exercising the program administrator's 
option to purchase the home if the homeowner defaults on the first lien 
or the affordability restriction; enforcing the long-term affordability 
requirements (such as calculating the maximum resale price according to 
the resale formula); and executing legal documents with subsequent 
homebuyers.
    Accordingly, FHFA issued a temporary prospective waiver of the 
private transfer fee restrictions in Sec.  1228.2 of the PTFC 
Regulation for Enterprise purchases or securitizations of shared equity 
loans on properties with PTFCs that meet the Duty to Serve shared 
equity loan program criteria for Resale Restriction Programs in the 
Duty to Serve Regulation other than the Duty to Serve 100 percent of 
AMI limit,\27\ through the remaining term of the Enterprises' 2022-2024 
Duty to Serve Plans, i.e., through December 31, 2024. The waiver did 
not include an income limit, based on input from the Enterprises and 
other practitioners familiar with shared equity programs who indicated 
that these programs typically set income limits up to 140 percent of 
AMI (which is above the Duty to Serve 100 percent of AMI limit), 
especially in communities where housing costs are high relative to 
incomes. Limiting eligibility for the waiver to loans that meet the 
Duty to Serve 100 percent of AMI limit would require lenders and shared 
equity program administrators to use a differentiated approach with 
borrowers above and below this income threshold. Further, it would 
require lenders to review each loan to ensure eligibility for purchase 
by the Enterprises and the Banks. This would undermine the objective of 
standardizing the shared equity homeownership market and increasing the 
number of Enterprise shared equity loan purchases under the Duty to 
Serve program.
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    \27\ 12 CFR 1282.34(d)(4)(i)(A), (d)(4)(ii).
---------------------------------------------------------------------------

    The waiver also included a retrospective component that waived the 
restrictions in the PTFC Regulation for shared equity loans on 
properties with private transfer fees purchased or securitized by the 
Enterprises with note dates prior to July 1, 2023, regardless of 
whether the loans met the Duty to Serve shared equity loan program 
criteria for Resale Restriction Program loans.
    Finally, the waiver provided notice of FHFA's intention to promptly 
engage in notice-and-comment rulemaking to propose amending the PTFC 
Regulation to codify the waiver provisions. This proposed rule 
implements that intent. Specifically, the proposed rule would amend the 
definition of ``excepted transfer fee covenant'' in Sec.  1228.1 of the 
PTFC Regulation to add as an exception a PTFC that encumbers a property 
for which a shared equity loan meets the requirements of a Duty to 
Serve Resale Restriction Program (Sec.  1282.34(d)(4)(i)(A) and 
(d)(4)(ii) of this chapter) other than the 100 percent of AMI limit.

[[Page 65830]]

VI. Interaction Between the PTFC Regulation and the Banks' Activities; 
Proposed Sec.  1228.1

    The current PTFC Regulation also prohibits the Banks from 
purchasing, investing in, or otherwise dealing in mortgages on 
properties encumbered by PTFCs, and related securities, and prohibits 
the Banks from accepting such mortgages or securities as collateral for 
advances, subject to the exceptions in the regulation.\28\ The Banks 
have indicated that, to their knowledge, they have not purchased, or 
accepted as collateral, shared equity loans. The same considerations 
discussed above for the Enterprises (regarding differences in the uses 
of fees payable at resale to administrators of Resale Restriction 
Programs and the fees that FHFA was concerned about when the PTFC 
Regulation was adopted) also apply to the Banks. However, because the 
waiver for the Enterprises derived from their activities under the Duty 
to Serve regulation (which does not apply to the Banks), the waiver did 
not address activities of the Banks with respect to shared equity 
loans. Because the Banks might decide in the future to purchase, invest 
in, or otherwise deal in shared equity loans or related securities 
under Resale Restriction Programs, or accept them as collateral, to 
facilitate increased liquidity for affordable homeownership, FHFA 
believes the exception provided in the proposed rule for the 
Enterprises should also apply for the Banks.
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    \28\ 12 CFR 1228.2.
---------------------------------------------------------------------------

    Accordingly, the definition of ``excepted transfer fee covenant'' 
in Sec.  1228.1 of the PTFC Regulation would continue to apply to both 
the Enterprises and the Banks, as amended by the proposed rule to add 
as an exception a PTFC that encumbers a property for which a shared 
equity loan meets the requirements of a Duty to Serve Resale 
Restriction Program (Sec.  1282.34(d)(4)(i)(A) and (d)(4)(ii) of that 
chapter) other than the 100 percent of AMI limit.

VII. Limitation on Applicability; Proposed Sec.  1228.3

    The proposed rule would remove the prospective application and 
effective date in current Sec.  1228.3 of the PTFC Regulation. Current 
Sec.  1228.3 includes a grandfather provision for mortgages on certain 
properties encumbered by PTFCs if those PTFCs were created pursuant to 
an agreement entered into before the effective date of the PTFC 
regulation. The regulated entities have been operating under the terms 
of the current regulation since July 16, 2012, and the Enterprises 
subsequently have been operating under the terms of the regulatory 
waiver since July 1, 2023. If this proposed PTFC rule is adopted as a 
final rule, the prospective application date (i.e., the effective date) 
of the final rule would be 60 days after the date of its publication in 
the Federal Register. This date will precede December 31, 2024, which 
is the conclusion of the 2022-2024 Duty to Serve Plan cycle and the 
date on which the temporary prospective component of the waiver will 
expire.
    Proposed Sec.  1228.3 would include the retrospective component of 
the waiver by allowing the Enterprises to retain in their portfolios 
any of the 595 shared equity loans on properties with private transfer 
fees that were purchased or securitized by the Enterprises with note 
dates prior to the effective date of the waiver (July 1, 2023), 
regardless of whether the loans met the Duty to Serve shared equity 
loan program criteria for resale restriction programs in Sec.  
1282.34(d)(4)(i)(A) and (d)(4)(ii) of this chapter.

VIII. Requests for Comments

    FHFA specifically requests comments on the following questions 
(please identify the question answered by the number assigned below):
    1. Should the proposed rule apply to the Banks in addition to the 
Enterprises? Do differences between the Banks and the Enterprises 
warrant additional or other revisions to the proposed rule as it 
relates to the Banks?
    2. Should all of the Duty to Serve Resale Restriction Program 
criteria, including the 100 percent of AMI limit, apply to the 
determination of whether a mortgage loan that is subject to PTFCs, or a 
related security, is eligible for purchase, investment, otherwise 
dealing in, or acceptance as collateral by the Banks and Enterprises? 
If not, which of those specific criteria should apply?
    3. Should criteria other than the Duty to Serve Resale Restriction 
Program criteria, such as an income limit different from 100 percent of 
AMI, apply to the determination of eligibility?
    4. Should criteria in addition to the Duty to Serve Resale 
Restriction Program criteria apply to the determination of eligibility?

IX. Paperwork Reduction Act

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

X. 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 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 proposed rule is applicable only to the regulated entities, 
which are not small entities for purposes of the Regulatory Flexibility 
Act.

XI. Consideration of Differences Between the Banks and the Enterprises

    When promulgating regulations relating to the Banks, section 
1313(f) of the Safety and Soundness Act requires the Director of FHFA 
to consider the differences between the Banks and the Enterprises with 
respect to the Banks' cooperative ownership structure; mission of 
providing liquidity to members and housing associates; affordable 
housing and community development mission; capital structure; and joint 
and several liability. In preparing this proposed rule, FHFA considered 
the differences between the Banks and the Enterprises as they relate to 
the above factors, and determined that the proposed rule is appropriate 
as it would have no impact on four of the five factors and could have a 
modest, positive impact on the fifth factor--the mission of providing 
liquidity to members and housing associates. FHFA requests comments 
regarding whether differences related to those factors should result in 
any additional or other revisions to the proposed rule.

List of Subjects in 12 CFR Part 1228

    Banks, Banking, Condominiums, Cooperatives, Federal Home Loan 
Banks, Government-sponsored enterprises, Investments, Loan programs--
housing and community development, Low and moderate income housing, 
Mortgages, Nonprofit organizations, Real property acquisition, 
Securities.

    For the reasons stated in the Preamble, and under the authority of 
12 U.S.C. 4526, FHFA proposes to amend

[[Page 65831]]

part 1228 of chapter XII of title 12 of the Code of Federal Regulations 
as follows:

PART 1228--RESTRICTIONS ON THE ACQUISITION OF, OR TAKING SECURITY 
INTERESTS IN, MORTGAGES ON PROPERTIES ENCUMBERED BY CERTAIN PRIVATE 
TRANSFER FEE COVENANTS AND RELATED SECURITIES

0
1. The authority citation for part 1228 is revised to read as follows:

    Authority:  12 U.S.C. 4511, 4513, 4526, 4565, 4616, 4617, 4631.
0
2. Amend Sec.  1228.1 by revising the definition of ``Excepted transfer 
fee covenant'' to read as follows:


Sec.  1228.1  Definitions.

* * * * *
    Excepted transfer fee covenant means a private transfer fee 
covenant that:
    (1) Requires payment of a private transfer fee to a covered 
association and limits the use of such transfer fees exclusively to 
purposes which provide a direct benefit to the real property encumbered 
by the private transfer fee covenants; or
    (2) Requires payment of a private transfer fee under a program 
meeting the Duty to Serve shared equity loan program criteria for 
resale restriction programs in Sec.  1282.34(d)(4)(i)(A) and (d)(4)(ii) 
of this chapter other than the Duty to Serve 100 percent of area median 
income limit.
* * * * *
0
3. Revise Sec.  1228.3 to read as follows:


Sec.  1228.3  Limitation on applicability.

    This part is not applicable to shared equity loans, or related 
securities, that were purchased or securitized by the Enterprises with 
note dates prior to July 1, 2023, regardless of whether the loans met 
the Duty to Serve shared equity loan program criteria for resale 
restriction programs in Sec.  1282.34(d)(4)(i)(A) and (d)(4)(ii) of 
this chapter.

Sandra L. Thompson,
Director, Federal Housing Finance Agency.
[FR Doc. 2023-20818 Filed 9-25-23; 8:45 am]
BILLING CODE 8070-01-P

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