Exception to Restrictions on Private Transfer Fee Covenants for Loans Meeting Certain Duty To Serve Shared Equity Loan Program Requirements, 17711-17716 [2024-05194]

Agencies

• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 89, Number 49 (Tuesday, March 12, 2024)]
[Rules and Regulations]
[Pages 17711-17716]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05194]


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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: Final rule.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is adopting as 
final, without substantive change, a proposed rule amending 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), or related securities, subject to certain exceptions 
(PTFC Regulation). As proposed, the final rule establishes an 
additional exception that authorizes the Enterprises and Banks to 
engage in such transactions if the loans meet the shared equity loan 
program requirements for Resale Restriction Programs in FHFA's Duty to 
Serve Underserved Markets Regulation (Duty to Serve Regulation), 
without regard to any household income limit.

DATES: The final rule is effective May 13, 2024.

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 hearing and 
speech disabilities, dial 711 and ask to be connected to any of the 
contact numbers above.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Proposed PTFC Rule

    On September 26, 2023, FHFA published a Notice of Proposed 
Rulemaking (proposed PTFC rule) in the

[[Page 17712]]

Federal Register to amend FHFA's PTFC Regulation.\1\ The proposed PTFC 
rule proposed adding an exception to the PTFC Regulation's restrictions 
for loans on properties with PTFCs, and related securities, if the 
loans meet the shared equity loan program requirements for Resale 
Restriction Programs, other than the 100 percent of area median income 
(AMI) limit, in Sec.  1228.34(d)(4)(i)(A) and (d)(4)(ii) of FHFA's Duty 
to Serve Regulation.\2\ Thus, the Enterprises and Banks would be 
authorized to purchase, invest in, accept as collateral, or otherwise 
deal in loans on properties with PTFCs, or related securities, if the 
loans met the requirements for Duty to Serve Resale Restriction 
Programs, without regard to any household income limit. Relevant 
discussion from the proposed PTFC rule's preamble is included below.
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    \1\ 88 FR 65827 (Sept. 26, 2023).
    \2\ 12 CFR 1282.34(d)(4)(i)(A), (d)(4)(ii).
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    FHFA received comments on the proposed PTFC rule from Fannie Mae, 
Freddie Mac, three nonprofit organizations, one trade association, and 
one individual. The Banks did not submit any comments. The comments are 
further discussed in Section VI. below.

B. 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.\3\ 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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    \3\ 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.'' \4\ 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.\5\ 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.\6\ FHFA's Duty to Serve Regulation,\7\ which 
implements these Duty to Serve statutory requirements, is discussed 
further below.
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    \4\ 12 U.S.C. 4501(7).
    \5\ 12 U.S.C. 4565.
    \6\ 12 U.S.C. 4565(a). The terms ``very low-income,'' ``low-
income,'' and ``moderate-income'' are defined in 12 U.S.C. 4502.
    \7\ 12 CFR part 1282, subpart C.
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C. 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.\8\ 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.\9\ 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.\10\ 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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    \8\ See 12 U.S.C. 1421 et seq.
    \9\ See 12 U.S.C. 1426(a)(4), 1430(a), 1430b.
    \10\ 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.\11\ The Banks are also authorized to invest in mortgage-
backed securities and other mortgage-related investments meeting 
applicable requirements.\12\ Finally, the Banks may serve as pass-
through entities for mortgage loans acquired by another purchaser.
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    \11\ See 12 CFR part 1268.
    \12\ See 12 CFR 1267.3(a)(4)(iv), (v).
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II. PTFC Regulation

    FHFA's PTFC Regulation, which was adopted in 2012, 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.'' \13\ Under the PTFC Regulation, the term ``PTFCs'' means 
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.\14\ A ``private transfer fee'' is defined in the PTFC 
Regulation as ``a transfer fee, including a charge or payment, imposed 
by a covenant, restriction, or other similar document 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.'' \15\
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    \13\ 12 CFR 1228.2.
    \14\ 12 CFR 1228.1.
    \15\ 12 CFR 1228.1. The definition excludes fees, charges, 
payments, or other obligations imposed by or payable to the Federal 
government or a State or local government, or that defray actual 
costs of the transfer of the property, including transfer of 
membership in the relevant covered association. The final rule does 
not modify this exclusion.
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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.\16\
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    \16\ See 77 FR 15566, 15567 (March 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 in the 
regulation 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.\17\
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    \17\ 12 CFR 1228.1.

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[[Page 17713]]

III. 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.\18\ 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.\19\ 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 for each underserved market.\20\ 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.\21\
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    \18\ 12 CFR part 1282, subpart C; 81 FR 96242 (Dec. 29, 2016).
    \19\ 12 CFR 1282.32(a), (b).
    \20\ 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.
    \21\ 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).\22\ The Duty to Serve Regulation further 
specifies the following criteria for an eligible Resale Restriction 
Program:
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    \22\ 12 CFR 1282.34(d)(4)(i)(A).
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    (a) Provides homeownership opportunities to very low-, low-, or 
moderate-income households;
    (b) Utilizes a ground lease, deed restriction, subordinate loan, or 
similar legal mechanism that includes provisions stating that the 
program will keep the home affordable for subsequent very low-, low-, 
or moderate-income households, 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.\23\
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    \23\ 12 CFR 1282.34(d)(4)(ii).
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    The proposed PTFC rule referred to the very low-, low-, and 
moderate-income household income limits in these Duty to Serve 
regulatory provisions as the ``100 percent of area median income 
limit,'' which is the definition of ``moderate-income'' in the Safety 
and Soundness Act and the Duty to Serve Regulation. The definitions of 
``very low-income'' (50 percent of AMI) and ``low-income'' (80 percent 
of AMI) are subsumed within the definition of ``moderate-income.'' \24\
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    \24\ 12 CFR 1282.1(b); 12 U.S.C. 4502(14), (16), (24).
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    The preamble to the 2015 proposed Duty to Serve rule noted that 
many shared equity loan programs allow the program sponsors (also 
called administrators) 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, nor did its 
regulatory text include a reference to fees.\26\ The final Duty to 
Serve rule also did not refer to or amend the PTFC Regulation 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).
    \26\ 81 FR 96294 (Dec. 29, 2016); 12 CFR 1282.34(d)(4).
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    Prior to FHFA's issuance of the proposed PTFC rule, between 2018 
(the first year of Duty to Serve program implementation) and 2022, the 
Enterprises, collectively, purchased more than 800 shared equity loans 
that met Duty to Serve criteria. Both Enterprises' 2022-2024 Duty to 
Serve Plans include plans to purchase shared equity loans under Resale 
Restriction Programs in each of the Plan years.
    During the Enterprises' efforts to implement the shared equity loan 
objectives in their current 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 household income limit, the programs' possible inclusion of PTFC 
payment requirements could cause any loans issued under the terms of 
the model organizational documents to be ineligible for purchase by the 
Enterprises because of the PTFC Regulation's limitations. The 
Enterprises also realized that loans they purchased previously under 
many of the Resale Restriction Programs are secured by 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, but those PTFCs do not 
meet the PTFC Regulation's definition of an ``excepted transfer fee 
covenant.'' \27\
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    \27\ The fees or payments are used by the program administrator 
to pay for its operating costs, including costs of enforcing the 
long-term affordability requirements. 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). See 12 CFR 1228.1.
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IV. Regulatory Waiver of Sec.  1228.2 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 would be 
eligible for purchase 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. The fees 
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

[[Page 17714]]

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.
    The Enterprises and other practitioners familiar with shared equity 
programs also provided input that these programs typically set income 
limits up to 140 percent of AMI, which is above the Duty to Serve 
household income limit of 100 percent of AMI, especially in communities 
where housing costs are high relative to incomes. Fannie Mae also noted 
that limiting eligibility under the PTFC Regulation to loans that meet 
the Duty to Serve household income limit would require lenders and 
shared equity program administrators to use a differentiated approach 
with borrowers above and below the income limit. Further, it would 
require lenders to review each loan to ensure eligibility for purchase 
by the Enterprises. FHFA finds these points persuasive, and agrees that 
the burden and potential deterrent effect of this differentiated 
approach and additional review 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.
    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 shared equity loan program 
criteria for Resale Restriction Programs, other than the Duty to Serve 
100 percent of AMI limit, in 12 CFR 1282.34(d)(4)(i)(A) and (d)(4)(ii) 
of the Duty to Serve Regulation, through the remaining term of the 
Enterprises' current 2022-2024 Duty to Serve Plans, i.e., through 
December 31, 2024.
    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 that were in effect when 
the loans were purchased.
    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. To implement that intent, 
FHFA published the proposed PTFC rule referenced in Section I. above, 
which proposed to 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, other than the 100 percent of AMI limit, in 12 CFR 
1282.34(d)(4)(i)(A) and (d)(4)(ii).

V. Interaction Between the PTFC Regulation and the Banks' Activities--
Proposed Sec.  1228.1

    As noted above, the PTFC Regulation also prohibits the Banks from 
purchasing, investing in, or otherwise dealing in mortgages on 
properties encumbered by PTFCs, or 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, any 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. The Banks might decide in the future to purchase, 
invest in, accept as collateral, or otherwise deal in shared equity 
loans, or related securities, under Resale Restriction Programs, to 
facilitate increased liquidity for affordable homeownership. Therefore, 
FHFA proposed in the proposed PTFC rule that the exception added in 
Sec.  1228.1 for the Enterprises also apply to the Banks.
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    \28\ 12 CFR 1228.2.
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VI. Public Comments Received on the Proposed PTFC Rule

    FHFA requested feedback on specific questions posed in the proposed 
PTFC rule's preamble, each of which is discussed below. FHFA received 
comments on the proposed PTFC rule from Fannie Mae, Freddie Mac, three 
nonprofit organizations that are active in the shared equity housing 
industry, a home builders trade association, and an individual. None of 
the Banks submitted comments. FHFA has reviewed and considered all of 
the comments, which overwhelmingly supported the proposed PTFC rule.
    The individual commenter expressed general disagreement with 
government regulation of the mortgage market and opposed the proposed 
PTFC rule on that basis. For the reasons described above, FHFA, as 
regulator of the Enterprises and the Banks, is proceeding with this 
rulemaking because FHFA believes the original basis for the PTFC 
Regulation continues to support the restrictions therein and there is a 
reasonable basis to adopt the proposed amendments.
    The specific questions that FHFA invited commenters to address were 
as follows:
    1. Should the proposed PTFC 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 PTFC rule as it 
relates to the Banks?
    The home builders trade association and one nonprofit organization 
supported applying the provisions in the proposed PTFC rule to the 
Banks in addition to the Enterprises. These commenters stated that this 
broad application would remove barriers that might prevent the Banks 
from expanding their activities to include shared equity homeownership, 
including investing in shared equity loans or related securities, or 
accepting these loans as collateral. The other commenters did not 
address this question.
    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?
    Two of the nonprofit organizations and both Enterprises supported 
the proposed approach--applying the Duty to Serve Resale Restriction 
Program criteria other than the Duty to Serve household income limit--
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. The third nonprofit organization stated that it did not 
have an opinion on whether to apply the Duty to Serve household income 
limit.

[[Page 17715]]

The home builders trade association generally supported applying the 
proposed PTFC rule to the Banks, which FHFA construes as support for 
not applying the Duty to Serve household income limit.
    The two nonprofit organizations that supported the proposed 
approach noted that market conditions are leading many shared equity 
programs to serve homebuyers with incomes that are higher than the Duty 
to Serve household income limit. These commenters stated that applying 
a household income limit would unnecessarily limit flexibility and 
restrict secondary market access for lenders, shared equity 
homeownership programs, and homebuyers. One of these nonprofit 
organizations encouraged FHFA to allow the Enterprises to advance 
standardization in the shared equity homeownership market, including 
for shared equity loans to higher-income homebuyers, whose loans would 
be eligible for purchase or investment by an Enterprise or Bank even 
though they are ineligible for Duty to Serve credit.
    Fannie Mae commented that the proposed PTFC rule would clarify how 
the Enterprises can continue to provide liquidity in the shared equity 
homeownership market, and Freddie Mac commented that the proposed PTFC 
rule would contribute to its ability to increase access to credit for 
this underserved market. Fannie Mae suggested that applying a household 
income limit would require lenders and shared equity programs to use 
different approaches with borrowers above and below the limit, which 
could result in additional cost burdens for borrowers below the limit. 
FHFA finds this an additional persuasive reason to not apply a 
household income limit.
    Fannie Mae suggested a technical edit that it stated would better 
align the language in Sec.  1228.1 of the proposed PTFC rule with the 
language in the Duty to Serve Regulation, making it easier for lenders 
and others in the housing industry to interpret and apply the language. 
Specifically, Fannie Mae suggested that the proposed PTFC rule's 
reference to ``the Duty to Serve 100 percent of area median income 
limit'' be changed to the Duty to Serve ``provisions relating to very 
low-, low- and moderate-income families and households'' (the 
individual income limit components). FHFA agrees that greater clarity 
could be provided regarding these references and has adopted a 
different, more straightforward technical change to the language in the 
final rule. Specifically, rather than refer to the ``100 percent of 
area median income limit,'' the final rule states that ``no household 
income limit shall apply.'' (Because no household income limit will 
apply, it is unnecessary to add references to the individual income 
limit components.)
    4. Should criteria in addition to the Duty to Serve Resale 
Restriction Program criteria apply to the determination of eligibility?
    Fannie Mae and one of the nonprofit organizations opposed applying 
criteria in addition to the Duty to Serve Resale Restriction Program 
criteria when determining eligibility of loans for purchase by the 
Enterprises, with the nonprofit organization stating that the Duty to 
Serve criteria have worked well to date. The other commenters did not 
address this question.

VII. Limitation on Applicability--Proposed Sec.  1228.3

    The proposed PTFC rule proposed removing the prospective 
application and effective date in Sec.  1228.3 of the PTFC Regulation. 
Section 1228.3 currently 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 July 16, 2012 
effective date of the PTFC Regulation. The transitional provision is no 
longer necessary because the Enterprises and the Banks have been 
operating under the terms of the PTFC Regulation since July 16, 2012, 
and the Enterprises subsequently have been operating under the terms of 
the regulatory waiver since July 1, 2023. The prospective application 
date (i.e., the effective date) of this final rule is May 13, 2024. 
This date precedes 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.
    The proposed PTFC rule also proposed to revise Sec.  1228.3 to 
include the retrospective component of the waiver, by allowing the 
Enterprises to retain in their portfolios 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 12 CFR 1282.34(d)(4)(i)(A) and (d)(4)(ii).
    No comments were received on the proposed revisions to Sec.  
1228.3. The final rule adopts the proposed revisions to Sec.  1228.3 
with technical changes to improve clarity regarding the intent of the 
provisions. Specifically, the final rule adds the word ``promissory'' 
before ``note'' to clarify that the limitation on applicability applies 
to promissory notes and not to other types of notes. In addition, the 
phrase ``that were purchased or securitized by the Enterprises'' is 
removed in the final rule to make clear that the sentence applies 
broadly to all of the activities of both the Enterprises and the Banks 
encompassed in Sec.  1228.2. In other words, part 1228 is inapplicable 
not only to purchases and securitizations of shared equity loans, or 
related securities, with promissory note dates prior to July 1, 2023, 
but also to investing in, accepting as collateral, or otherwise dealing 
in such loans or related securities.

VIII. Final Rule

    For the reasons discussed above and after considering the comments 
received on the proposed PTFC rule, which overwhelmingly supported the 
proposed PTFC rule, FHFA is adopting the proposed PTFC rule as a final 
rule with the change to the household income limit language in Sec.  
1228.1, and the technical changes in Sec.  1228.3, as summarized below.

A. Sec.  1228.1--Definition of ``Excepted Transfer Fee Covenant''

    The final rule revises the definition of ``excepted transfer fee 
covenant'' in Sec.  1228.1 to add an exception, in new paragraph (2), 
to the regulation's restrictions on loans on properties with PTFCs, and 
related securities, if the PTFC 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 12 CFR 
1282.34(d)(4)(i)(A) and (d)(4)(ii), except that no household income 
limit shall apply.

B. Sec.  1228.3--Limitation on Applicability

    The final rule revises Sec.  1228.3 by removing the transitional 
provision with prospective application and effective dates that are 
long past, and providing instead that this part is not applicable to 
shared equity loans, or related securities, with promissory 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 12 CFR 1282.34(d)(4)(i)(A) and (d)(4)(ii).

IX. Paperwork Reduction Act

    The final rule does not contain any information collection 
requirement. Thus, it does 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.

[[Page 17716]]

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 final 
rule under the Regulatory Flexibility Act and FHFA certifies that the 
final rule will not have a significant economic impact on a substantial 
number of small entities because the final rule applies only to Fannie 
Mae, Freddie Mac, and the Banks, which are not small entities for 
purposes of the Regulatory Flexibility Act.

XI. Congressional Review Act

    In accordance with the Congressional Review Act (5 U.S.C. 801 et 
seq.), FHFA has determined that this final rule is a major rule and has 
verified this determination with OMB.

XII. 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 the proposed PTFC rule's preamble, FHFA 
requested comments regarding whether differences related to those 
factors should result in any additional or other revisions to the 
proposed PTFC rule. No commenter on the proposed PTFC rule supported 
amending the PTFC Regulation to apply different criteria to the Banks 
or the Enterprises.
    In preparing this final rule, FHFA considered the differences 
between the Banks and the Enterprises as they relate to the above 
factors and the lack of comments supporting applying different criteria 
to the Banks or the Enterprises. FHFA determined that the final 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 Bank members and housing associates.

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 amends 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, except that no household income limit shall apply.
* * * * *

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, with promissory 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. 2024-05194 Filed 3-11-24; 8:45 am]
BILLING CODE 8070-01-P