38572 Federal Register / Vol. 74, No. 148 / Tuesday, August 4, 2009 / Proposed Rules 

overall opinion cannot be expressed, the 

reasons therefor shall be stated. 

Bank written in title case, means a 

Federal Home Loan Bank established 

under section 12 of the Bank Act (12 

U.S.C. 1432). 

Bank System means the Federal Home 

Loan Bank System, consisting of the 

twelve Banks and the Office of Finance. 

FHFA means the Federal Housing 

Finance Agency. 

Financing Corporation or FICO means 

the Financing Corporation established 

and supervised by the FHFA under 

section 21 of the Bank Act (12 U.S.C. 

1441). 

Office of Finance or OF has the same 

meaning as set forth in § 1273.1 of this 

chapter. 

§ 1274.2 Audit requirements. 

(a) Each Bank, the OF and the FICO 

shall obtain annually an independent 

external audit of and an audit report on 

its individual financial statement. 

(b) The OF audit committee shall 

obtain an audit and an audit report on 

the combined annual financial 

statements for the Bank System. 

(c) All audits must be conducted in 

accordance with generally accepted 

auditing standards and in accordance 

with the most current government 

auditing standards issued by the Office 

of the Comptroller General of the United 

States. 

(d) An independent, external auditor 

must meet at least twice each year with 

the audit committee of each Bank, the 

audit committee of OF, and the FICO 

Directorate. 

(e) FHFA examiners shall have 

unrestricted access to all auditors’ work 

papers and to the auditors to address 

substantive accounting issues that may 

arise during the course of any audit. 

§ 1274.3 Requirement to provide financial 

and other information to the FHFA and the 

OF. 

In order to facilitate the preparation 

by the OF of combined Bank System 

annual and quarterly reports, each Bank 

shall provide to the OF in such form 

and within such timeframes as the 

FHFA or the OF shall specify, all 

financial and other information and 

assistance that the OF shall request for 

that purpose. Nothing in this section 

shall contravene or be deemed to 

circumscribe in any manner the 

authority of the FHFA to obtain any 

information from any Bank related to 

the preparation or review of any 

financial report. 

Dated: July 29, 2009. 

James B. Lockhart III, 

Director, Federal Housing Finance Agency. 

[FR Doc. E9–18567 Filed 8–3–09; 8:45 am] 

BILLING CODE P 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1282 

RIN 2590–AA27 

Duty To Serve Underserved Markets 

for Enterprises 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Advance notice of proposed 

rulemaking and request for comment. 

SUMMARY: Section 1129 of the Housing 

and Economic Recovery Act of 2008 

(HERA) amended the Federal Housing 

Enterprises Financial Safety and 

Soundness Act of 1992 (Safety and 

Soundness Act) to establish a duty for 

the Federal National Mortgage 

Association (Fannie Mae) and the 

Federal Home Loan Mortgage 

Corporation (Freddie Mac) (collectively, 

Enterprises) to serve three underserved 

markets—manufactured housing, 

affordable housing preservation, and 

rural areas—in order to increase the 

liquidity of mortgage investments and 

improve the distribution of investment 

capital available for mortgage financing 

in those markets. Section 1335 of the 

Safety and Soundness Act, as amended, 

requires the Federal Housing Finance 

Agency (FHFA), beginning in 2010, to 

establish a manner for: evaluating 

whether and to what extent the 

Enterprises have complied with the 

duty to serve underserved markets; and 

rating the extent of compliance. To 

assist FHFA in rulemaking to 

implement the duty to serve 

underserved markets, FHFA seeks 

comment on the characteristics and 

types of Enterprise transactions and 

activities that should be considered and 

how such transactions and activities 

should be evaluated and rated, for 

purposes of determining the Enterprises’ 

performance of the duty to serve 

underserved markets. 

DATES: Written comments must be 

received on or before: September 18, 

2009. 

ADDRESSES: You may submit your 

comments, identified by regulatory 

information number (RIN) 2590–AA27, 

by any of the following methods: 

• U.S. Mail, United Parcel Post, 

Federal Express, or Other Mail Service: 

The mailing address for comments is: 

Alfred M. Pollard, General Counsel, 

Attention: Comments/RIN 2590–AA27, 

Federal Housing Finance Agency, 

Fourth Floor, 1700 G Street, NW., 

Washington, DC 20552. 

• Hand Delivered/Courier: The hand 

delivery address is: Alfred M. Pollard, 

General Counsel, Attention: Comments/ 

RIN 2590–AA27, Federal Housing 

Finance Agency, Fourth Floor, 1700 G 

Street, NW., Washington, DC 20552. The 

package should be logged at the Guard 

Desk, First Floor, on business days 

between 9 a.m. and 5 p.m. 

• E-mail: Comments to Alfred M. 

Pollard, General Counsel, may be sent 

by e-mail to RegComments@fhfa.gov. 

Please include ‘‘RIN 2590–AA27’’ in the 

subject line of the message. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. If 

you submit your comment to the 

Federal eRulemaking Portal, please also 

send it by e-mail to FHFA at 

RegComments@fhfa.gov to ensure 

timely receipt by FHFA. Please include 

‘‘RIN 2590–AA27’’ in the subject line of 

the message. 

FOR FURTHER INFORMATION CONTACT: 

Nelson Hernandez, Senior Associate 

Director, Housing Mission and Goals, 

(202) 408–2819, Brian Doherty, Acting 

Manager, Housing Mission and Goals– 

Policy, (202) 408–2991, or Paul 

Manchester, Acting Manager, Housing 

Mission and Goals–Quantitative 

Analysis, (202) 408–2946 (these are not 

toll-free numbers); Lyn Abrams, 

Attorney-Advisor, (202) 414–8951, 

Kevin Sheehan, Attorney-Advisor, (202) 

414–8952, or Sharon Like, Associate 

General Counsel, (202) 414–8950 (these 

are not toll-free numbers), Office of 

General Counsel, Federal Housing 

Finance Agency, Fourth Floor, 1700 G 

Street, NW., Washington, DC 20552. The 

telephone number for the 

Telecommunications Device for the 

Hearing Impaired is (800) 877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Comments 

FHFA invites comments on all aspects 

of the Advance Notice of Proposed 

Rulemaking. Copies of all comments 

will be posted without change, 

including any personal information you 

provide, such as your name and 

address, on the FHFA Web site at 

http://www.fhfa.gov. In addition, copies 

of all comments received will be 

available for examination by the public 

on business days between the hours of 

10 a.m. and 3 p.m. at the Federal 

Housing Finance Agency, Fourth Floor, 

1700 G Street, NW., Washington, DC 

20552. To make an appointment to 


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1See Division A, titled the ‘‘Federal Housing 

Finance Regulatory Reform Act of 2008,’’ Title I, 

Section 1101 of HERA. 

2On May 1, 2009, FHFA issued a proposed rule 

to adopt portions of 24 CFR part 81 in new 12 CFR 

part 1282 and to adjust the levels of the Enterprises 

2009 affordable housing goals to levels consistent 

with current market conditions. See 74 FR 20236 

(May 1, 2009). 

3The terms ‘‘very low-income’’, ‘‘low-income’’ 

and ‘‘moderate-income’’ are defined in 12 U.S.C. 

4502. 

4 ‘‘HOEPA’’ refers to the Home Ownership Equity 

Protection Act. 

5See Office of Federal Housing Enterprises 

Oversight, ‘‘OFHEO Director James B. Lockhart 

Commends GSEs on Implementation of Subprime 

Mortgage Lending Guidance,’’ News Release (Sept. 

10, 2007), available at http://www.fhfa.gov/webfiles/ 

1608/ 

LockhartcommendsGSEsreSubprime91007.pdf. 

inspect comments, please call the Office 

of General Counsel at (202) 414–3751. 

II. Background 

A. Establishment of FHFA 

Effective July 30, 2008, Division A of 

HERA, Public Law 110–289, 122 Stat. 

2654 (2008), amended the Safety and 

Soundness Act, 12 U.S.C. 4501 et seq., 

and created FHFA as an independent 

agency of the Federal government.1

HERA transferred the safety and 

soundness supervisory and oversight 

responsibilities over the Enterprises 

from the Office of Federal Housing 

Enterprise Oversight (OFHEO) to FHFA. 

HERA also transferred the charter 

compliance authority and responsibility 

to establish, monitor and enforce the 

affordable housing goals for the 

Enterprises from the Department of 

Housing and Urban Development (HUD) 

to FHFA. HERA provides for the 

abolishment of OFHEO one year after 

the date of enactment. FHFA is 

responsible for ensuring that the 

Enterprises operate in a safe and sound 

manner, including maintenance of 

adequate capital and internal controls, 

that their operations and activities foster 

liquid, efficient, competitive, and 

resilient national housing finance 

markets, and that they carry out their 

public policy missions through 

authorized activities. See 12 U.S.C. 

4513. 

Section 1302 of HERA provides, in 

part, that all regulations, orders and 

determinations issued by the Secretary 

of HUD (Secretary) with respect to the 

Secretary’s authority under the Safety 

and Soundness Act, the Federal 

National Mortgage Association Charter 

Act, 12 U.S.C. 1716 et seq., and the 

Federal Home Loan Mortgage 

Corporation Act, 12 U.S.C. 1451 et seq., 

(Charter Acts), shall remain in effect and 

be enforceable by the Secretary or the 

Director of FHFA, as the case may be, 

until modified, terminated, set aside or 

superseded by the Secretary or the 

Director, any court, or operation of law. 

The Enterprises continue to operate 

under regulations promulgated by 

OFHEO and HUD until FHFA issues its 

own regulations. See HERA at section 

1302, 122 Stat. 2795; 12 U.S.C. 4603.2

The Enterprises are governmentsponsored enterprises (GSEs) chartered 

by Congress for the purpose of 

establishing secondary market facilities 

for residential mortgages. See 12 U.S.C. 

1451, 1716. Specifically, Congress 

established the Enterprises to provide 

stability in the secondary market for 

residential mortgages, respond 

appropriately to the private capital 

market, provide ongoing assistance to 

the secondary market for residential 

mortgages (including activities relating 

to mortgages on housing for low- and 

moderate-income families involving a 

reasonable economic return that may 

provide less of a return than the 

Enterprises’ other activities), and 

promote access to mortgage credit 

throughout the nation. Id. 

B. Duty To Serve Underserved Markets 

The Safety and Soundness Act 

provides that the Enterprises ‘‘have an 

affirmative obligation to facilitate the 

financing of affordable housing for lowand moderate-income families.’’ 12 

U.S.C. 4501(7). Section 1129 of HERA 

amended section 1335 of the Safety and 

Soundness Act to establish a duty for 

the Enterprises to serve three specified 

underserved markets, in order to 

increase the liquidity of mortgage 

investments and improve the 

distribution of investment capital 

available for mortgage financing for 

certain categories of borrowers in those 

markets. 12 U.S.C. 4565. Specifically, 

the Enterprises are required to provide 

leadership to the market 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 with respect to manufactured 

housing, affordable housing 

preservation, and rural markets.3 Id. In 

addition, section 1335 requires FHFA to 

establish, by regulation effective for 

2010 and each subsequent year, a 

method for evaluating and rating the 

Enterprises’ performance of the duty to 

serve underserved markets. Id. sec. 

4565(d). Furthermore, FHFA is required 

to report annually to Congress on the 

Enterprises’ performance of the duty to 

serve underserved markets. Id. A 

description of the duty to serve 

provisions and issues for consideration 

are set forth below. 

III. Duty To Serve Provisions 

A. Overview 

The duty to serve underserved 

markets is separate from and additional 

to the Enterprises’ affordable housing 

goals. Mortgage purchases that 

contribute to the affordable housing 

goals may, under appropriate 

circumstances, also be considered for 

the duty to serve underserved markets. 

In addition, an activity or transaction 

may be considered for more than one 

underserved market. The rules for 

determining which types of mortgage 

purchases receive credit for purposes of 

the affordable housing goals could also 

be used to determine which types of 

mortgage purchases would be 

considered for purposes of the duty to 

serve underserved markets. FHFA seeks 

comment on whether there are any 

categories of mortgage purchase 

transactions for which the Enterprises 

receive housing goals credit that should 

not be considered for the duty to serve. 

The affordable housing goals 

regulation applicable to the Enterprises 

prohibits housing goals credit for 

‘‘HOEPA mortgages’’ 4 and mortgages 

with unacceptable terms or conditions 

or resulting from unacceptable 

practices. See 24 CFR 81.2, 81.16(c)(12); 

proposed 12 CFR 1282.2, 1282.16(c)(12) 

(74 FR 20236 (May 1, 2009)). Purchases 

of these types of mortgages would be 

ineligible for consideration under the 

duty to serve underserved markets. 

Likewise, Enterprise purchases of 

mortgages that do not conform with the 

interagency ‘‘Statement on Subprime 

Lending’’ and the ‘‘Interagency 

Guidance on Nontraditional Mortgage 

Products Risk’’ 5 would not be 

considered. 

The duty to serve underserved 

markets is not an independent source of 

program authority for the Enterprise, 

and activities or transactions conducted 

in furtherance of this duty must be 

consistent with the Enterprise’s Charter 

Act powers and limitations. In addition, 

any activity undertaken pursuant to the 

duty to serve must be consistent with 

the Safety and Soundness Act, as 

amended, the safe and sound operation 

of the Enterprise, and the public 

interest. 

FHFA invites comment on the issues 

discussed above. 

B. Underserved Markets 

1. Manufactured Housing 

Section 1335 of the Safety and 

Soundness Act, as amended, requires 

the Enterprises to ‘‘develop loan 

products and flexible underwriting 

guidelines to facilitate a secondary 


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6 In some jurisdictions, personal property loans 

on manufactured homes are known as ‘‘chattel 

loans.’’ 

7The affordable housing goals regulation defines 

‘‘rural areas’’ in connection with the underserved 

areas affordable housing goal. See 24 CFR 81.2, 

proposed 12 CFR 1282.2 (74 FR 20236 (May 1, 

2009)). Beginning on January 1, 2010, this 

definition will no longer be in effect because 

section 1128 of HERA replaces the previous 

housing goals established by the Safety and 

Soundness Act of 1992 with new housing goals. See 

12 U.S.C. 4561 through 4563. 

market for mortgages on manufactured 

homes for very low-, low- and moderateincome families.’’ 12 U.S.C. 

4565(a)(1)(A). A ‘‘manufactured home’’ 

is a structure, transportable in one or 

more sections, which is built on a 

permanent frame and is designed to be 

used as a dwelling when connected to 

the required utilities. See 12 U.S.C. 

5402. FHFA specifically invites 

comment on three aspects of the 

manufactured housing market further 

discussed below: Manufactured home 

parks; personal property loans; and 

land-home and real estate manufactured 

housing loans. 

Manufactured Home Parks. Many 

manufactured home residents site their 

homes in manufactured home parks and 

rent the underlying land. Some 

manufactured home parks are investorowned and others are resident-owned. 

Fannie Mae and Freddie Mac currently 

purchase loans secured by 

manufactured home parks. FHFA seeks 

comment on whether and how these 

transactions should be considered under 

the duty to serve the manufactured 

housing market and on the types of 

flexibility the Enterprises could add to 

their underwriting guidelines to 

facilitate financing these transactions. 

FHFA also solicits comment on whether 

there should be differences in how 

resident-owned parks and investorowned parks are treated for purposes of 

the duty to serve the manufactured 

housing market. 

Personal Property Loans.6 The Safety 

and Soundness Act, as amended, 

provides that FHFA may consider loans 

secured by both real and personal 

property in evaluating whether the 

Enterprises have complied with the 

duty to serve the manufactured housing 

market. 12 U.S.C. 4565(d)(3). In some 

jurisdictions manufactured homes are 

financed as personal property, and the 

loan to the homebuyer is secured by a 

lien only on the manufactured home. 

Neither Enterprise currently purchases 

personal property loans on 

manufactured housing on a flow basis. 

FHFA seeks comment on whether 

Enterprise purchases of manufactured 

housing loans secured by personal 

property should be considered for 

purposes of the duty to serve the 

manufactured housing market. FHFA 

also requests comment on whether there 

are consumer protection laws or 

standards, in addition to those 

mentioned above, that should apply to 

personal property loans on 

manufactured homes. 

Land-Home and Real Estate 

Manufactured Housing Loans. ‘‘Landhome’’ manufactured housing loans and 

‘‘real estate’’ manufactured housing 

loans provide financing to the 

homebuyer for both the manufactured 

home and the underlying land. FHFA 

seeks comment on the types of 

flexibility the Enterprises could add to 

their underwriting guidelines to 

facilitate financing for land-home and 

real estate loans. 

FHFA requests comment on the 

relative advantages and disadvantages to 

borrowers of personal property loans, 

land-home loans, and real estate loans 

and on appropriate definitions for these 

terms. FHFA also seeks comment on the 

safety and soundness considerations of 

Enterprise purchase or guarantee of 

these various loan types, and on how 

Enterprise leadership under the duty to 

serve requirements may provide greater 

standardization and liquidity to the 

market and protection to borrowers. 

2. Affordable Housing Preservation 

Under the Safety and Soundness Act, 

as amended, the Enterprises are 

required to develop loan products and 

flexible underwriting guidelines to 

facilitate a secondary market to preserve 

housing affordable to very low-, low-, 

and moderate-income borrowers, 

including housing projects subsidized 

under: 

(i) Section 8 of the Housing Act of 

1937 (project-based and tenant-based 

rental assistance housing programs) (42 

U.S.C. 1437f); 

(ii) Section 236 of the National 

Housing Act (rental and cooperative 

housing for lower income families) (12 

U.S.C. 1715z–1); 

(iii) Section 221(d)(4) of the National 

Housing Act (housing for moderateincome and displaced families) (12 

U.S.C. 1715l); 

(iv) Section 202 of the Housing Act of 

1959 (supportive housing program for 

the elderly) (12 U.S.C. 1701q); 

(v) Section 811 of the CranstonGonzalez National Affordable Housing 

Act (supportive housing program for 

persons with disabilities) (42 U.S.C. 

8013); 

(vi) Title IV of the McKinney-Vento 

Homeless Assistance Act (only 

permanent supportive housing projects 

subsidized under such programs) (42 

U.S.C. 11301 et seq.); 

(vii) Section 515 of the Housing Act 

of 1949 (rural rental housing program) 

(42 U.S.C. 1485); 

(viii) Low-income housing tax credits 

under section 42 of the Internal Revenue 

Code of 1986 (26 U.S.C. 42); and 

(ix) Comparable State and local 

affordable housing programs. 12 U.S.C. 

4565(a)(1)(B). 

Some of the housing preservation 

programs listed above are voucher, 

capital advance or grant programs rather 

than mortgage origination programs, and 

the Enterprises’ assistance may fall 

outside of their traditional role of 

purchasing, securitizing and 

guaranteeing mortgage loans. Moreover, 

compliance with the duty to assist with 

affordable housing preservation is not 

dependent on whether the Enterprise 

assists each enumerated program each 

year, because the needs and 

opportunities in some programs might 

change from year to year. FHFA seeks 

comment on how the Enterprises could 

assist these programs in meaningful and 

measurable ways. 

The housing programs enumerated 

above are not exhaustive, and the 

Enterprises are not limited to assisting 

these programs as their sole means of 

fulfilling their duty to serve the 

affordable housing preservation market. 

For example, HUD’s Neighborhood 

Stabilization Program provides grants to 

State and local governments to acquire 

and redevelop foreclosed properties for 

the purpose of stabilizing communities 

that have suffered from home 

foreclosures and abandonment. FHFA 

requests comment on whether 

Enterprise assistance in connection with 

this program should be considered for 

the duty to serve the affordable housing 

preservation market and how the 

Enterprises might render assistance. 

FHFA also seeks comment on other 

State and local affordable housing 

programs, including foreclosure 

prevention programs, that could be 

considered for the duty to serve the 

affordable housing preservation market. 

3. Rural Markets 

The Safety and Soundness Act, as 

amended, requires the Enterprises to 

‘‘develop loan products and flexible 

underwriting guidelines to facilitate a 

secondary market for mortgages on 

housing for very low-, low-, and 

moderate-income families in rural 

areas.’’ 12 U.S.C. 4565(a)(1)(C). 

Definition of ‘‘Rural Area’’. A clear 

delineation of which areas are rural 7 is 

necessary to implement the duty to 

serve rural markets. Three definitions 


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8See Appendix A—Census 2000 Geographic 

Terms and Concepts A–22, available at http:// 

www.census.gov/geo/www/tiger/glossry2.pdf. 9 Id. For a discussion of urbanized areas and 

urbanized clusters, see generally, U.S. Department 

of Agriculture, ‘‘Measuring Rurality: What is 

Rural?’’ (Mar. 22, 2007), available at http:// 

www.ers.usda.gov/Briefing/Rurality/WhatIsRural/. 

10See Census 2000, supra note 8. 

11See U.S. Department of Agriculture, Measuring 

Rurality: Rural-Urban Continuum Codes (Updated 

Apr. 28, 2004), available at http://www.ers.usda.

gov/Briefing/Rurality/RuralUrbCon/. 12See http://www.ers.usda.gov/briefing/Rurality/

RuralUrbanCommutingAreas/. 13This table is constructed from data available 

from the Office of Management and Budget at 

http://www.whitehouse.gov/omb/assets/omb/

bulletins/fy2009/09–01.pdf, the U.S. Census Bureau 

at http://www.census.gov/geo/www/relate/ 

rel_tract.html, and the USDA at http://www.ers.

usda.gov/briefing/Rurality/RuralUrbanCommuting

Areas/. In order to make a direct comparison to the 

USDA data, which excludes census tracts for Guam, 

the Virgin islands, and Puerto Rico, these census 

tracts were not included in the table. 

are set forth below for comment, and 

FHFA invites suggestions for other 

definitions. 

The first definition would be based on 

classifications used by the U.S. Census 

Bureau for the 2000 census and would 

distinguish between urban and rural 

areas.8 Urban areas are classified as all 

territory, population, and housing units 

located within ‘‘urbanized areas’’ and 

‘‘urban clusters.’’ 9 In general, urbanized 

areas must have a core with a 

population density of 1,000 persons per 

square mile and may contain adjoining 

territory with at least 500 persons per 

square mile. ‘‘Urban clusters’’ have at 

least 2,500 but less than 50,000 persons. 

Rural areas are classified as all territory 

located outside of urbanized areas and 

urban clusters.10

The second definition would define 

‘‘rural areas’’ as all counties assigned a 

U.S. Department of Agriculture (USDA) 

Rural-Urban Continuum code 11 (RUC 

code), which the USDA uses to classify 

rural areas. These codes are available for 

all U.S. counties and for municipios 

(county equivalents) in Puerto Rico. 

Because data on other U.S. territories, 

including Guam and the Virgin Islands, 

is lacking, FHFA could regard these 

territories as ‘‘rural areas.’’ A 

disadvantage of using the RUC code is 

that because designations based on RUC 

codes are county-based, these 

designations could encompass both 

urban and rural areas, as occurs with 

very large counties west of the 

Mississippi River. 

The third definition would combine 

two different designations, one used by 

the U.S. Census Bureau and one used by 

the USDA. Under this two-pronged 

definition, all census tracts designated 

by the U.S. Census Bureau as 

‘‘nonmetropolitan’’ would be 

considered rural areas, as would all 

census tracts outside of urbanized areas 

and urban clusters, as designated by 

USDA’s Rural-Urban Commuting 

Area 12 code (RUCA code). The number 

of census tracts that would be 

considered rural areas under this 

definition is indicated by the shaded 

cells in the table below.13

Using this definition, 29 percent of 

the census tracts in the 50 States would 

be rural areas. It would also capture 27 

percent of the census tracts regarded as 

‘‘underserved areas’’ under the 

affordable housing goals regulation 

applicable to the Enterprises. See 24 

CFR 81.2; proposed 12 CFR 1282.2 (74 

FR 20236 (May 1, 2009)). One drawback 

to this approach is that USDA does not 

plan to extend the RUCA code to Puerto 

Rico until at least 2012, and RUCA 

codes are not assigned to census tracts 

in the other U.S. territories. FHFA could 

fill this gap by using the RUC code 

described above to augment the RUCA 

code in Puerto Rico and other U.S. 

territories, or FHFA could create its own 

estimate of the RUCA code for these 

areas. 

The definitions discussed above 

would cover most, but not all, Tribal 

lands. Accordingly, FHFA seeks 

comment on whether the definition of 

‘‘rural areas’’ should include all Tribal 

lands. 

Rural Transactions. FHFA seeks 

comment on the types of transactions 

and activities that should receive 

consideration toward the duty to serve 

rural markets, and on the types of 

flexibility the Enterprises could add to 

their underwriting guidelines to assist 

this market. In addition, while rural 

markets are served by a variety of 

Federal programs, principally through 

the USDA, FHFA seeks comment on 

opportunities available for the 

Enterprises to assist private sector 

initiatives for rural housing. 

C. Evaluation of Performance 

1. Evaluation Criteria 

In determining whether the 

Enterprises have complied with the 

duty to serve underserved markets, the 

Safety and Soundness Act, as amended, 

requires FHFA to separately evaluate 

and rate the Enterprise’s performance 

for each of the three underserved 

markets based on four specific criteria, 

which are discussed below. 12 U.S.C. 

4565(d). The Enterprises’ performance 

under the three underserved markets 

may vary significantly from year to year 

because the needs and opportunities of 

one market may require more attention 

and resources than the needs of another 

market. Accordingly, the method for 

evaluating the Enterprises’ performance 

of the duty to serve underserved 

markets should be sufficiently flexible 

to account for these variations in market 

needs and opportunities. 

Loan Product Test. The first criterion, 

referred to here as the ‘‘Loan Product 

Test,’’ requires evaluation of the 

Enterprise’s ‘‘development of loan 

products, more flexible underwriting 

guidelines, and other innovative 

approaches to providing financing to 

each’’ underserved market. Id. sec. 

4565(d)(2)(A). FHFA invites comment 

on the types of loan products, 

underwriting flexibility and innovative 

approaches the Enterprises could 

develop to serve each of the three 

underserved markets. 


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14The Enterprises’ performance under the 

affordable housing goals is measured using 

dwelling units, mortgages or unpaid principal 

balance. See 24 CFR 81.12 through 81.14; proposed 

12 CFR 1282.12 through 1282.14 (74 FR 20236 (May 

1, 2009)). 

15See generally Notice, Community Reinvestment 

Act; Interagency Questions and Answers Regarding 

Community Reinvestment, 74 FR 498, 526–527 (Jan. 

6, 2009), available at http://edocket.access.gpo.gov/ 

2009/pdf/E8-31116.pdf. 

Outreach Test. The second criterion, 

referred to here as the ‘‘Outreach Test,’’ 

requires evaluation of ‘‘the extent of 

outreach [by the Enterprises] to 

qualified loan sellers and other market 

participants’’ in each of the three 

underserved markets. Id. sec. 

4565(d)(2)(B). FHFA seeks comment on 

the types of activities or programs in 

which the Enterprises could engage that 

would satisfy this Test, and on how 

FHFA could objectively measure the 

Enterprises’ outreach. 

Purchase Test. The third criterion, 

referred to here as the ‘‘Purchase Test,’’ 

requires FHFA to consider ‘‘the volume 

of loans purchased in each of such 

underserved markets relative to the 

market opportunities available to the 

[E]nterprise.’’ Id. sec. 4565(d)(2)(C). The 

provision further states that FHFA 

‘‘shall not establish specific quantitative 

targets nor evaluate the [E]nterprises 

based solely on the volume of loans 

purchased.’’ Id. FHFA requests 

comment on how to implement the 

Purchase Test consistent with this 

restriction and comment on any nonquantitative evaluation methods that 

would be appropriate. In addition, 

FHFA seeks comment on whether to 

measure the Enterprises’ mortgage 

purchases by number of units financed, 

number of mortgages purchased, or 

unpaid principal balance.14 FHFA 

further requests comment on the 

advantages and disadvantages of using 

each of these methods of measurement, 

and on the appropriateness of the 

different methods for different types of 

transactions. 

Grants Test. The fourth criterion, 

referred to here as the ‘‘Grants Test,’’ 

requires evaluation of ‘‘the amount of 

investments and grants in projects 

which assist in meeting the needs of 

such underserved markets.’’ 12 U.S.C. 

4565(d)(2)(D). FHFA seeks comment on 

types of investments and grants the 

Enterprises could make that could be 

considered under this Test. FHFA also 

seeks comment on methods available for 

evaluating the Enterprises’ performance 

in making the grants and investments. 

2. Sizing the Market 

The Purchase Test requires that the 

volume of loans purchased in each 

underserved market be evaluated 

‘‘relative to the market opportunities 

available to the [E]nterprise.’’ 12 U.S.C. 

4565(d)(2)(C). FHFA invites comment 

on how to estimate the size of the 

manufactured housing, affordable 

housing preservation, and rural markets. 

FHFA further invites comment on 

whether there are categories of 

mortgages that should be excluded from 

the market size because the mortgages 

are unavailable for purchase. 

If market size estimation is not 

possible, the Enterprises’ performance 

in the specific underserved market 

could be evaluated based on their 

purchases in that market in recent 

previous years, although this approach 

would not be available for the 2010 

evaluation year. FHFA seeks comment 

on this approach. 

3. Evaluating Compliance 

In order to evaluate the Enterprises’ 

performance under the duty to serve 

underserved markets, FHFA is 

considering developing a rating method 

similar to the method used to determine 

whether a financial institution has met 

the requirements under the Community 

Reinvestment Act of 1977 (CRA). See 12 

U.S.C. 2901 et seq.; 12 CFR parts 25, 

228, 345, and 563e. For each 

underserved market, the Enterprises’ 

performance would be evaluated based 

on the four criteria described above, 

with an overall rating for each 

underserved market of Outstanding, 

Satisfactory, Needs to Improve or 

Noncompliance. These terms would be 

defined in the regulation. 

One way to implement this approach 

would be to devise a rating scheme in 

which achievements or receipt of a 

certain number of points would result in 

a particular rating.15 The Enterprise’s 

rating in a particular underserved 

market would be a combination of the 

ratings on each of the four Tests. 

The four Tests need not be given 

equal consideration. For example, the 

Outreach Test might be weighted less 

than the Loan Product or Purchase 

Tests, because it results in less tangible 

benefits to the markets served and may 

require less effort and devotion of 

resources by the Enterprise. 

Furthermore, FHFA could weigh the 

four Tests differently across the three 

underserved markets. For example, the 

Purchase Test might receive more 

consideration for the manufactured 

housing market than for the affordable 

housing preservation market. The 

ratings would also take into 

consideration the overall effort and 

effectiveness of the Enterprise’s service 

to the underserved market, its capital 

and portfolio positions, and the 

condition of the particular underserved 

market, which could vary from year to 

year. 

FHFA seeks comment on the 

evaluation methodology discussed 

above and invites descriptions of other 

types of evaluation or rating 

methodologies that may be feasible. 

D. Reporting Requirements 

FHFA would require annual reports 

from the Enterprises on their 

performance of the duty to serve 

underserved markets. FHFA anticipates 

that part of the report would be 

narrative and part would be summary 

statistical information, supported by 

submission of appropriate transactionlevel data. The narrative portion would 

likely include discussions of the 

Enterprise’s performance in each of the 

three underserved markets. Except for 

purchases of single-family mortgages, a 

complete listing and summary of each 

transaction for which the Enterprise 

seeks credit would likely be required. In 

addition, the Enterprise would certify to 

the accuracy of the information 

submitted. FHFA invites comment on 

specific requirements for the contents of 

the report. 

IV. Request for Comment 

FHFA invites comment on all of the 

issues discussed above, and will 

consider all comments received in 

developing a proposed rule to 

implement the duty to serve 

underserved markets. 

Dated: July 28, 2009. 

James B. Lockhart III, 

Director, Federal Housing Finance Agency. 

[FR Doc. E9–18515 Filed 8–3–09; 8:45 am] 

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