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.

Proposed Rules Federal Register

32099 

Vol. 75, No. 108 

Monday, June 7, 2010 

1See Division A, titled the ‘‘Federal Housing 

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

section 1101, Public Law No. 110–289, 122 Stat. 

2654 (2008), codified at 12 U.S.C. 4501 et seq. 

2See 12 U.S.C. 4513. 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1282 

RIN 2590–AA27 

Enterprise Duty To Serve Underserved 

Markets 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Notice of proposed rulemaking; 

request for comments. 

SUMMARY: Section 1129 of the Housing 

and Economic Recovery Act of 2008 

(HERA) amended section 1335 of 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, 

the Enterprises) to serve three specified 

underserved markets—manufactured 

housing, affordable housing 

preservation, and rural markets—in 

order to increase the liquidity of 

mortgage investments and improve the 

distribution of investment capital 

available for mortgage financing for very 

low-, low- and moderate-income 

families in those markets. The Federal 

Housing Finance Agency (FHFA) is 

issuing and seeking comments on a 

proposed rule that would establish a 

method for evaluating and rating the 

Enterprises’ performance in each 

underserved market for 2010 and each 

subsequent year. In addition, the 

proposed rule would set forth Enterprise 

transactions and activities that would be 

considered for the duty to serve. 

The proposed rule would, among 

other things: Consider only 

manufactured homes titled as real 

property for purposes of the duty to 

serve the manufactured housing market; 

give the Enterprises latitude to 

concentrate on assisting particular 

affordable housing preservation 

programs that would benefit very 

low-, low- and moderate-income 

families; and define rural areas 

generally in accordance with the 

definition set forth in the Housing Act 

of 1949. 

DATES: Written comments must be 

received on or before July 22, 2010. 

ADDRESSES: You may submit your 

comments, identified by regulatory 

information number (RIN) 2590–AA27, 

by any of the following methods: 

• 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 the Agency. Please 

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

line of the message. 

• 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. 

• U.S. Mail, United Parcel Service, 

Federal Express, or Other Mail Service: 

The mailing address for comments is: 

Alfred M. Pollard, General Counsel, 

Attention: Comments/RIN 2590–AA27, 

Federal Housing Finance Agency, 

Fourth Floor, 1700 G Street, NW., 

Washington, DC 20552. 

FOR FURTHER INFORMATION CONTACT: 

Nelson Hernandez, Senior Associate 

Director, Office of Housing and 

Community Investment, (202) 408– 

2993, Brian Doherty, Manager, Office of 

Housing and Community Investment, 

(202) 408–2991, or Mike Price, Senior 

Policy Analyst, Office of Housing and 

Community Investment, (202) 408– 

2941. For legal questions, contact: Lyn 

Abrams, Attorney, (202) 414–8951, 

Kevin Sheehan, Attorney, (202) 414– 

8952, or Sharon Like, Associate General 

Counsel, (202) 414–8950. These are not 

toll-free numbers. The mailing address 

for each contact is: 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 proposed rule, and may revise the 

language of the proposed rule as 

appropriate after taking all comments 

into consideration. Copies of all 

comments will be posted on FHFA’s 

Internet 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 inspect comments, 

please call the Office of General Counsel 

at (202) 414–6924. 

II. Background 

A. Establishment of FHFA 

Effective July 30, 2008, HERA 

amended the Safety and Soundness Act 

to create 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 

housing goals for the Enterprises from 

the Department of Housing and Urban 

Development (HUD) to FHFA. 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.2

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 

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32100 Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules 

3See HERA at section 1302, 122 Stat. 2795; 12 

U.S.C. 4603. 

4 See 12 U.S.C. 1716 et seq.; 12 U.S.C. 1451 et 

seq. 

5 Id. 

6The terms ‘‘very low-income’’, ‘‘low-income’’ and 

‘‘moderate-income’’ are defined in 12 U.S.C. 4502. 

7See Letter from Acting Director Edward J. 

DeMarco to the Honorable Christopher Dodd, 

Honorable Richard C. Shelby, Honorable Barney 

Frank, and Honorable Spencer Bachus (Feb. 2, 

2010). 

Act and the Federal Home Loan 

Mortgage Corporation Act (together, the 

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.3

The Enterprises are governmentsponsored enterprises chartered by 

Congress for the purpose of establishing 

secondary market facilities for 

residential mortgages.4 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, and promote 

access to mortgage credit throughout the 

nation.5

B. Statutory Background 

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.6 Id. sec. 

4565(a). In addition, section 1335(d)(1) 

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)(1). 

FHFA is required to separately evaluate 

each Enterprise’s performance with 

respect to each underserved market, 

taking into consideration the following: 

(i) The Enterprise’s development of 

loan products, more flexible 

underwriting guidelines, and other 

innovative approaches to providing 

financing to each of the underserved 

markets (hereafter, the ‘‘loan product 

assessment factor’’); 

(ii) The extent of the Enterprise’s 

outreach to qualified loan sellers and 

other market participants in each of the 

underserved markets (hereafter, the 

‘‘outreach assessment factor’’); 

(iii) The volume of loans purchased 

by the Enterprise in each underserved 

market relative to the market 

opportunities available to the 

Enterprise, except that the Director shall 

not establish specific quantitative 

targets or evaluate the Enterprise based 

solely on the volume of loans purchased 

(hereafter, the ‘‘loan purchase 

assessment factor’’); and 

(iv) The amount of investments and 

grants by the Enterprise in projects 

which assist in meeting the needs of the 

underserved markets (hereafter, the 

‘‘investments and grants assessment 

factor’’). 

Id. sec. 4565(d)(2). 

The duty to serve provisions and 

issues for consideration are discussed 

further below. 

C. Conservatorship 

On September 6, 2008, the Director of 

FHFA appointed FHFA as conservator 

of the Enterprises in accordance with 

the Safety and Soundness Act to 

maintain the Enterprises in a safe and 

sound financial condition and to help 

assure performance of their public 

mission. The Enterprises remain under 

conservatorship at this time. 

Because Congress enacted the duty to 

serve provisions in the Safety and 

Soundness Act before the Enterprises 

were placed in conservatorship, 

Congress developed the duty to serve 

requirements for normal Enterprise 

operating conditions, not 

conservatorship. While the Enterprises 

are in conservatorship, FHFA expects 

them to continue to fulfill their core 

statutory purposes which include their 

support for affordable housing. One set 

of measures of the Enterprises’ support 

for affordable housing comes from the 

housing goals and another comes from 

the duty to serve. At the same time, all 

Enterprise activities, including those in 

support of affordable housing, must be 

consistent with the requirements of 

conservatorship. 

Since the establishment of the 

conservatorships, the combined losses 

at the two Enterprises depleted all of 

their capital and required them to draw 

about $145 billion from the Department 

of the Treasury (Treasury) under the 

Senior Preferred Stock Purchase 

Agreements with Treasury. By letter 

dated February 2, 2010, FHFA’s Acting 

Director reported to Congress that 

having the Enterprises engage in new 

products would be inconsistent with the 

goals of conservatorship and, 

consequently, that the Enterprises 

would be limited to continuing their 

existing core business activities and 

taking actions necessary to advance the 

goals of the conservatorship (Letter to 

Congress).7

Under the terms of the Senior 

Preferred Stock Purchase Agreements, 

the Enterprises will be shrinking their 

retained mortgage portfolios by ten 

percent per year. The Administration 

has announced its intention to develop 

and present to Congress a plan for the 

future of the nation’s housing finance 

system that will include a proposal for 

the ultimate resolution of the 

Enterprises in conservatorship. 

Administration and congressional 

leadership have each pointed to the 

coming year as likely to see substantial 

legislative action affecting the 

Enterprises’ future form and function. 

FHFA intends to continue operating the 

conservatorships as set forth in the 

Letter to Congress in anticipation of 

congressional action on the future of the 

Enterprises. In recognition of the 

foregoing facts and circumstances, 

FHFA’s approach to implementing 

section 1335 of the Safety and 

Soundness Act is to limit the proposed 

rule to existing core business activities 

at the Enterprises and not to require that 

they engage in new lines of business as 

a result of the duty to serve proposed 

rule. 

III. Duty To Serve Underserved 

Markets 

A. Implementation of the Duty To Serve 

The Enterprises’ public purposes 

include a broad obligation to serve 

moderate- and lower-income borrowers. 

Through HERA, Congress created a duty 

for the Enterprises to serve three 

specific underserved markets. The duty 

to serve is a new obligation for the 

Enterprises and a new oversight 

responsibility for FHFA. The proposed 

rule would set forth standards for 

compliance with the duty to serve, 

methods for evaluating and rating the 

Enterprises and requirements for the 

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Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules 32101 

8 74 FR 38572 (Aug. 4, 2009). 

9 In this rulemaking FHFA is using the term 

‘‘manufactured home communities’’ to mean 

‘‘manufactured home parks.’’ 

10For the 2008 reporting year, lenders reported 

the difference between the loan’s annual percentage 

rate (APR) and the yield on Treasury securities 

having comparable periods of maturity, if that 

difference is equal to or greater than 3 percentage 

points for loans secured by a first lien on a 

dwelling, or equal to or greater than 5 percentage 

points for loans secured by a subordinate lien on 

a dwelling. See 67 FR 43218 (June 27, 2002). 

11 Jon Thompson, ‘‘Manufactured housing: An 

expected beneficiary from subprime mortgage 

disruption,’’ p. 3. (Advantus Capital Management, 

4th Qtr. 2007), available at http:// 

www.advantuscapital.com/adv/pdf/F67229.pdf. 

12Manufactured housing industry commenters 

asserted there could be advantages to personal 

property mortgages. The Manufactured Housing 

Continued 

Enterprises to provide reports and data 

on their performance under the duty to 

serve. 

B. Overview of Comments 

The formal rulemaking for the duty to 

serve commenced with FHFA’s 

publication of an Advance Notice of 

Proposed Rulemaking (ANPR), 74 FR 

38572 (Aug. 4, 2009).8 FHFA received 

100 comment letters in response. The 

majority of the commenters addressed 

manufactured housing. Twenty-six 

individuals, 18 nonprofit organizations, 

11 trade associations, 11 corporations, 

seven policy advocacy organizations 

and one government entity addressed 

this issue. FHFA also received 

comments on other issues from one 

individual, nine nonprofit 

organizations, six trade associations, 

one corporation, five policy advocacy 

organizations, one government agency, 

one professional association and both 

Enterprises. 

In addition to the comment letters, 

FHFA held five in-person meetings and 

one teleconference with manufactured 

housing industry representatives. These 

discussions covered current secondary 

mortgage market support for 

manufactured housing, the practices 

and operations of the industry and the 

consumer protections afforded 

manufactured housing borrowers. On 

December 3, 2009, FHFA hosted a forum 

on affordable housing, which was 

attended by members of the Affordable 

Housing Advisory Councils of the 12 

Federal Home Loan Banks. The forum 

focused on manufactured housing and 

rural housing issues. Summaries of the 

forum, the meetings and the 

teleconference are available on FHFA’s 

Web site. 

Commenters on the duty to serve the 

manufactured housing market focused 

primarily on personal property (chattel) 

loans for manufactured homes and 

manufactured home community 9

financing. Fifty-seven commenters, 

including most of the individuals and 

nonprofit organizations, opposed 

consideration for chattel loans, or would 

limit consideration of such loans to 

instances in which they were backed by 

rigorous consumer protections. 

With regard to manufactured home 

communities, individuals, nonprofit 

organizations, and policy advocacy 

groups expressed concern about the lack 

of tenant protections in communities 

owned by investors. Although some 

commenters favored consideration for 

loans made in support of these 

communities, this support was 

conditioned upon FHFA’s establishing 

significant protections for residents. The 

manufactured housing corporations and 

trade associations generally favored 

duty to serve consideration for 

purchases of mortgages on investorowned and resident-owned 

manufactured home communities. They 

commented that a dearth of new 

manufactured home communities are 

being developed, there is a shortage of 

financing for such communities, many 

communities need to refinance over the 

next several years, and there are harmful 

effects on residents when a community 

cannot obtain financing and must 

convert to a different use. 

FHFA received sixteen comments 

regarding the affordable housing 

preservation market. The commenters, 

who included one trade association, 

four policy advocacy organizations, 

seven nonprofit organizations, one 

government agency and both 

Enterprises, addressed a range of issues. 

Most commenters supported 

consideration under the affordable 

housing preservation market for 

Enterprise assistance to HUD’s 

Neighborhood Stabilization Program 

(NSP) and state and local foreclosure 

prevention programs. However, other 

commenters opposed consideration for 

assistance to NSP, but did favor 

consideration for state and local 

foreclosure prevention programs. A few 

commenters suggested consideration for 

assisting with Treasury’s loan 

modification programs. Most of the 

affordable housing advocate 

commenters wanted less rigorous 

underwriting assumptions for properties 

receiving Section 8 payments or other 

property-based HUD subsidies. There 

was also strong support for more 

interaction between the Enterprises and 

state and local Housing Finance 

Agencies (HFAs). 

The majority of comments on rural 

markets addressed the definition of 

‘‘rural area.’’ In the ANPR, FHFA 

requested comment on three definitions 

of ‘‘rural area.’’ While some commenters 

supported at least one of those three 

definitions, more than half of the 

commenters on this issue supported 

adoption of the definition of ‘‘rural area’’ 

from the Housing Act of 1949, which 

was not one of the definitions identified 

in the ANPR. These commenters, all of 

whom are involved in rural housing 

mortgage lending or development, are 

familiar with this definition and use it 

within their organizations. The 

comments received and the merits of the 

different definitions are analyzed in 

detail below under the discussion of the 

duty to serve rural markets. 

Several commenters supported 

evaluating the Enterprises’ performance 

by using an evaluation methodology 

similar to that used to evaluate 

compliance with the Community 

Reinvestment Act (CRA). Other 

commenters stated that the four tests for 

evaluation set forth in the ANPR should 

not necessarily be given equal weight in 

evaluating the Enterprises’ performance. 

C. Underserved Markets 

The duty to serve provisions in the 

Safety and Soundness Act indicate that 

the markets for manufactured housing, 

affordable housing preservation and 

rural areas are underserved and in need 

of particular assistance by the 

Enterprises. The extent of the lack of 

service and some of the factors 

underlying it are discussed below. 

1. Manufactured Housing 

According to Home Mortgage 

Disclosure Act (HMDA) data for 2008, 

home purchase applications for 

manufactured homes are denied at three 

times the rate that applications for sitebuilt homes are denied. Further, of 

those mortgages that are originated, 60 

percent are ‘‘higher-cost mortgages’’ 

under HMDA 10, whereas only 8 percent 

of originations for site-built homes are 

higher-cost mortgages. Manufactured 

housing borrowers may have few 

refinancing options even if interest rates 

decrease.11

A number of other factors combine to 

make the manufactured housing market 

underserved. In recent times, mortgage 

insurance has been generally 

unavailable for manufactured homes. 

Moreover, comparable properties, 

particularly in rural areas, can be 

difficult to identify, which makes 

appraisals more difficult. Also, unlike 

site-built housing, many manufactured 

homes have been financed as personal 

property, which many commenters 

viewed as offering terms less favorable 

to borrowers.12

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32102 Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules 

Institute, for example, suggested: (1) The overall 

principal loan amount is more affordable due to the 

absence of land in the transaction; (2) no appraisal, 

survey or private mortgage insurance is necessary, 

which lowers closing costs; (3) the customer does 

not encumber any real property; (4) tax, titling fees, 

homeowners insurance and service warranties can 

be financed; and (5) the transaction is generally 

faster. 

13See ‘‘Window of Opportunity—Preserving 

Affordable Housing’’ p. 6 (MacArthur Foundation, 

Nov. 2007), available at http://www.macfound.org/ 

atf/cf/%7BB0386CE3-8B29-4162-8098- 

E466FB856794%7D/MAC_1107_Singles.pdf. 

14See e.g., ‘‘Affordable Housing Preservation,’’ 

Hearing before the Subcomm. on Housing and 

Transportation of the Senate Comm. on Banking, 

Housing, and Urban Affairs, 107th Cong., 2nd Sess. 

(Oct. 9, 2002) (S. Hearing 107–1014), available at 

http://www.gpo.gov/congress/senate/pdf/107hrg/ 

90543.pdf; ‘‘Legislative Options for Preserving 

Federally- and State-assisted Affordable Housing 

and Preventing Displacement of Low-Income, 

Elderly, and Disabled Tenants,’’ Hearing Before the 

Subcomm. on Housing & Community Opportunities 

of the House Comm. on Financial Services, 111th 

Cong., 1st Sess. (July 15, 2009) (Serial No. 111–59), 

available at http://frwebgate.access.gpo.gov/cgi-bin/ 

getdoc.cgi?dbname=111_house_hearings&

docid=f:53239.wais. 

15See National Housing Trust, ‘‘Affordable 

Housing Preservation FAQs’’ (2010), available at 

http://www.nhtinc.org/preservation_faq.php. 

16See generally National Rural Housing Coalition, 

‘‘Preserving Rural America’s Affordable Rental 

Housing’’ (Oct. 2004), available at http:// 

www.nrhcweb.org/news/515PreservationReport.pdf; 

E. Bolda, et al., ‘‘Creating Affordable Rural Housing 

with Services: Options and Strategies,’’ Working 

Paper #19 (Apr. 2000), available at http:// 

muskie.usm.maine.edu/Publications/rural/ 

WP%2319.pdf. 

17See Joe Myer, ‘‘Developing Rural Housing 

Despite the Obstacles—Why It is Hard to Build 

Affordable Housing in Rural Delaware’’ (Winter 

2002), available at http://www.housingforall.org/

housing_in_rural_de.htm. 

18Statement of Moises Loza, Housing Assistance 

Council, before the Subcomm. on Housing and 

Community Development, U.S. House of 

Representatives (May 8, 2007), available at http:// 

financialservices.house.gov/hearing110/ 

htloza050807.pdf. 

19 ‘‘Rural Housing Programs: Review of Fiscal 

Year 2008 Budget and Pending Rural Housing 

Legislation,’’ Hearing Before the Subcomm. on 

Housing & Community Opportunities of the House 

Comm. on Financial Services, 110th Cong., 1st Sess. 

28 (May 8, 2007) (Serial No. 110–27), available at 

http://frwebgate.access.gpo.gov/cgi-bin/ 

getdoc.cgi?dbname=110_house_

hearings&docid=f:37205.pdf. 

20This assessment is based on HMDA data from 

2004–2008, exclusive of HOEPA mortgages and 

mortgages lacking borrower income information. 

21The average size of a site-built house in 2008 

was 2,459 square feet, whereas the average square 

footage of a single-wide manufactured home was 

1,105 square feet and the average square footage of 

a double-wide manufactured home was 1,775 

square feet. See U.S. Bureau of the Census, ‘‘Cost 

& Size Comparisons for New Manufactured Homes 

and New Single Family Site Built Homes’’ (2004– 

2008), available at http://www.census.gov/const/ 

mhs/sitebuiltvsmh.pdf. 

22 In 2008, the average price per square foot for 

a new site-built home was $88.55 and for a new 

double-wide manufactured home was $42.87. See 

id. 

23See generally Standard & Poor’s, ‘‘Ratings 

Roundup: Monoline and Financial Institution 

Rating Volatility Drive Fourth-Quarter U.S. ABS 

Downgrades’’ (Jan. 28, 2009), available at http:// 

www.ambac.com/pdfs/RA/

Volatility%20Drive%20FourthQuarter%20U.S.%20ABS%20Downgrades%20(01- 

28-09).pdf. 

24See generally Standard & Poor’s, ‘‘S&P various 

actions on 182 U.S. rtgs after Ambac downgrade’’ 

(July 8, 2009), available at http://www.reuters.com/ 

article/idUSWNA860120090708. 

25As an illustration of the recent market, 

according to Origen Financial Services, the lack of 

2. Affordable Housing Preservation 

Affordable housing is preserved when 

an owner acts to keep rents affordable 

for low- and moderate-income 

households while ensuring that the 

property remains in good physical and 

financial condition for an extended 

period.13 While affordable housing 

preservation is often associated with 

programs to help existing subsidized 

properties remain financially viable, it 

also encompasses efforts to keep 

unsubsidized properties in good 

condition while maintaining 

affordability for low- and moderateincome households. Many owners of 

subsidized properties face the need to 

refinance the loans on their properties, 

either because the original financing is 

nearing maturity or because they need 

to obtain equity from the property to 

perform major upgrades and repairs. 

Congressional hearings have highlighted 

the problems in this area.14

A variety of factors make the 

affordable housing preservation market 

difficult to serve. For example, the 

disruptions in the financial markets and 

the general lowering in value of Low 

Income Housing Tax Credits (LIHTCs) 

affect some of the programs that the 

Enterprises are required to assist. 

Transactions in many of the enumerated 

programs are generally project specific, 

involving multiple sources for debt and 

equity. Structuring is often complex, 

and the transaction process is often 

difficult and lengthy. 

Units lacking rental assistance, which 

are often in older and/or small 

multifamily properties, provide a 

significant share of housing affordable 

to low- and moderate-income families. 

Keeping these units in the housing stock 

at reasonable rents can be more costeffective than building new subsidized 

units.15 One way to achieve this is to 

make financing for affordable housing 

preservation available on better terms. 

3. Rural Areas 

Practitioners and researchers have 

identified a number of long-standing 

impediments to affordable housing in 

rural areas. One impediment is the 

lower population density, which may 

prevent developers and operators from 

taking advantage of economies of scale 

in developing affordable housing in 

rural areas.16 In addition, rural areas 

often have fewer nonprofit housing 

development corporations with the 

capacity to handle complicated 

government subsidy programs and the 

long and difficult housing development 

process.17 Many smaller communities 

and governments have difficulty 

funding public utilities essential to 

constructing housing. Moreover, there 

are fewer lenders in rural areas than in 

metropolitan areas, and rural lenders 

may lack the back office capacity and 

the necessary scale of volume to 

effectively sell mortgages in the 

secondary market. 

In 2007, the Housing Assistance 

Council (HAC) testified that ‘‘[n]early 

3.6 million rural households are cost 

burdened, paying more than 30 percent 

of their monthly income for housing 

costs.’’ 18 HAC further testified that less 

than 16 percent of the rural population 

is minority; however, this population 

was disproportionately affected by poor 

housing conditions, as rural minorities 

are more likely than rural whites to live 

in substandard housing.19

D. Market-by-Market Considerations 

1. Manufactured Housing Market— 

Proposed § 1282.32 

Section 1335 of the Safety and 

Soundness Act requires the Enterprises 

to ‘‘develop loan products and flexible 

underwriting guidelines to facilitate a 

secondary market for mortgages on 

manufactured homes for very low-, 

low-, and moderate-income families.’’ 12 

U.S.C. 4565(a)(1)(A). Manufactured 

housing could be an important housing 

option for lower-income families. 

Nearly half of all loans originated on 

manufactured homes from 2004 to 2008 

were for families with incomes at or 

below 80 percent of area median income 

(AMI).20 Manufactured housing also 

costs less initially than site-built 

housing. Manufactured homes tend to 

be much smaller, which significantly 

reduces the price of the home.21 In 

addition, the average price per square 

foot of a new site-built home in 2008, 

exclusive of the cost of the land, was 

more than double that of a double-wide 

manufactured home.22

Investors have been cautious about 

manufactured housing in the wake of 

market disruptions at the end of the 

1990s and the beginning of this decade, 

particularly in light of the demise of 

some of the larger specialized 

manufactured housing lenders. More 

recently, shortages of warehouse lines of 

credit, downgrades of existing assetbacked securities 23 and difficulties with 

bond insurance 24 have added to 

concerns.25

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Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules 32103 

a reliable source for a loan warehouse facility and 

the uncertainty of the availability of an exit in the 

securitization market caused it to stop originating 

loans for its own account and sell its portfolio of 

unsecuritized loans at a substantial loss. See Origen 

Financial, Inc., Annual Report on Form 10–K, as 

Amended, For the Fiscal Year Ended December 31, 

2008, p. 2, available at http:// 

www.origenfinancial.com/sites/default/files/

as_printed_Origen_10-K.pdf. 

26Neighborhood Reinvestment Corporation, ‘‘An 

Examination of Manufactured Housing as a 

Community-and Asset-Building Strategy,’’ p. 6 

(Sept. 2002), available at http:// 

www.jchs.harvard.edu/publications/ 

communitydevelopment/W02–11_apgar_et_al.pdf. 

27See U.S. Bureau of the Census, ‘‘Cost & Size 

Comparisons For New Manufactured Homes and 

New Single Family Site Built Homes (2004–2008),’’ 

available at http://www.census.gov/const/mhs/ 

sitebuiltvsmh.pdf. 

28The Enterprises generally acquire single-family 

mortgage loans for securitization or for portfolio 

through either ‘‘flow’’ or ‘‘bulk’’ transaction 

channels. In the flow business, which represents 

the majority of their mortgage acquisitions, the 

Enterprises typically enter into agreements that 

generally set agreed-upon guaranty fee prices for a 

lender’s future delivery of individual loans over a 

specified time period. Bulk business involves 

transactions in which a defined set of loans is to 

be delivered in bulk, a process which allows the 

Enterprises to review the loans for eligibility and 

pricing prior to delivery in accordance with the 

terms of the applicable contracts. Guaranty fees and 

other contract terms for bulk mortgage acquisitions 

are negotiated on an individual transaction basis, 

thereby enabling the Enterprises to adjust pricing 

more rapidly than in a flow transaction to reflect 

changes in market conditions and the credit risk of 

the specific transactions. 29See Ronald A. Wirtz, ‘‘Home, sweet 

(manufactured?) home’’ Fedgazette (July 2005), 

available at http://www.minneapolisfed.org/pubs/ 

fedgaz/05-07/cover.cfm. Annual percentage rates 

may also be higher. For example, in 2007 one 

lender advertised an average annual percentage rate 

of 10.14 percent for its chattel loans and an average 

annual percentage rate of 7.54 percent for its real 

estate-secured loans. See ‘‘Tammac Manufactured 

Housing Advantage’’ (2007), available at http:// 

www.cdscreative.com/images/portfolio/tammacholdings.pdf. 

30More than 40 states reportedly provide for 

conversion to real estate titles for manufactured 

Continued 

Manufactured housing could be an 

option for very low- and low-income 

families who reside in rural areas. 

HMDA data for 2008 show that 15 

percent of all loan originations on 

manufactured homes in rural areas were 

for families with incomes at or below 50 

percent of AMI, and another 29 percent 

were for families with incomes greater 

than 50 percent but at or below 80 

percent of AMI. From 2004 through 

2008, loan originations on manufactured 

homes in rural areas were more than 

double loan originations on 

manufactured homes in non-rural areas. 

Nearly half of all manufactured housing 

loans in rural areas during that time 

period were for families whose incomes 

were 80 percent or less of AMI. 

One study explained the importance 

of manufactured housing to rural areas 

this way: 

The prevalence of manufactured housing 

in rural areas is in part a reflection of the 

costs and logistical challenges of site-built 

construction on relatively remote and 

scattered sites. It is also due to rural 

residents’ generally lower incomes, and to 

the challenge of arranging standard mortgage 

financing for lots and land uses that do not 

conform to customary mortgage-underwriting 

criteria. Part of manufactured housing’s 

appeal, in fact, lies in the ease with which 

units can be sited, a characteristic that is 

particularly important in areas lacking well 

developed construction and trade sectors. 

Manufactured housing’s popularity in rural 

areas also results from a lack of affordable 

housing options, such as multifamily rental 

units, which are rarely developed at a costeffective scale in low-density settings.26

The Enterprises have not been major 

investors in manufactured housing 

mortgages in recent years. Some 

industry commenters observed that 

manufactured housing loans are 

significantly under-represented in the 

Enterprises’ mortgage portfolios in 

comparison with site-built homes. In 

particular, the Manufactured Housing 

Association for Regulatory Reform 

(MHARR) commented that 

manufactured housing loans now 

constitute less than one percent of the 

total business portfolios of both 

Enterprises, even though manufactured 

housing has historically represented 

approximately 10 to 15 percent of the 

single-family housing market. The fact 

that the majority of manufactured home 

loans were not financed as real property 

helps to explain why manufactured 

home loans constitute a small share of 

the Enterprises’ business. 

HMDA data do not specify the portion 

of these manufactured home loans that 

are financed as chattel, but the U.S. 

Census Bureau reported that in 2008, 63 

percent of new manufactured homes 

placed for residential use were titled as 

personal property.27

In the ANPR, FHFA invited comment 

on the appropriate treatment under the 

duty to serve the manufactured housing 

market for personal property loans, 

land-home loans, real estate loans and 

loans for manufactured home 

communities. The comments are 

discussed in the relevant sections 

below. 

Personal Property Loans. Section 

1335(d)(3) of the Safety and Soundness 

Act provides that in determining 

whether the Enterprises have complied 

with the duty to serve the manufactured 

housing market, ‘‘the Director may 

consider loans secured by both real and 

personal property.’’ 12 U.S.C. 4565(d)(3). 

FHFA is proposing that only loans titled 

as real property be considered towards 

the Enterprise’s duty to serve. 

Neither Enterprise has an ongoing 

business activity of purchasing chattel 

loans, although at least one of them has 

made limited bulk purchases of such 

loans in the past. Purchasing or 

guaranteeing chattel loans would 

require each Enterprise to develop 

operational capacities and risk 

management processes not currently in 

place. Moreover, to ensure that such 

lending was done responsibly would 

require each Enterprise to develop an 

extensive set of consumer protection 

requirements. Thus, FHFA proposes 

that chattel loans on manufactured 

homes not be considered towards the 

duty to serve the manufactured housing 

market as these loans are inconsistent 

with Enterprise conservatorship and 

would require substantial new efforts by 

the Enterprises to ensure safe and sound 

operations and sustainable 

homeownership for families. 

The following paragraphs describe the 

widely divergent views FHFA received 

on this topic in response to the ANPR 

and the bases for the proposed 

exclusion of chattel loans. 

Seventy-six commenters addressed 

the appropriateness of Enterprise 

support for personal property (chattel) 

loans on manufactured homes. 

Organizations representing consumers 

and manufactured home community 

residents expressed serious reservations 

about chattel lending. CFED, for 

example, stated that chattel loans 

provide low-income families with 

higher rates, less optimal terms and 

reduced consumer protections, as 

compared to a mortgage loan, and this 

was echoed in other comment letters. 

Manufactured housing industry 

commenters asserted that manufactured 

housing financed as chattel provides a 

low cost housing option for lowerincome borrowers, and that the 

secondary market for these loans is 

limited. These industry commenters 

largely supported providing duty to 

serve consideration for Enterprise 

purchase of chattel loans and suggested 

that the Enterprises purchase them on a 

flow basis and in significant 

quantities.28

In proposing that only loans titled as 

real property be considered towards the 

duty to serve, FHFA recognizes that 

manufactured housing financing often 

differs from financing for site-built 

homes. Interest rates charged for chattel 

loans are typically higher than those for 

real estate-secured loans.29 Normally, 

chattel loans have shorter maturities 

and offer fewer consumer protections 

than real property loans. In several 

states, manufactured homes cannot be 

titled as real property 30 and, as a result, 

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32104 Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules 

homes. See Cathy Adkins, ‘‘Manufactured Housing: 

Not What You Think’’ (National Conference of State 

Legislatures, Apr. 2007), available at http:// 

www.ncsl.org/default.aspx?tabid=12742. 

31See generally Michael Koss, ‘‘Manufactured 

Housing ABS—Valuation in a Troubled Sector,’’ p. 

22 (Feb. 9, 2005) (Lehman Brothers Fixed-Income 

Research) (regarding the performance of different 

types of manufactured housing collateral). Origen 

Financial Services, LLC, commented that the 

Enterprises frequently object to purchasing chattel 

loans because of their high default rates and that 

about 30 percent of chattel loans fail during the life 

of the loan. 

32For information on consumer protections under 

repossession, see Government Accountability 

Office, ‘‘Federal Housing Administration—Agency 

Should Assess the Effects of Proposed Changes to 

the Manufactured Home Loan Program,’’ GAO–07– 

879, 26–27 (Aug. 2007), available at http:// 

www.gao.gov/new.items/d07879.pdf. See generally 

A. Schmitz, ‘‘Promoting the Promise Manufactured 

Homes Provide for Affordable Housing,’’ 13 Journal 

of Affordable Housing 394–395 (No. 3) (Spring 

2004), available at http://lawweb.colorado.edu/

profiles/pubpdfs/schmitz/SchmitzAHCDL.pdf; 

Consumers Union, ‘‘Manufactured housing: A home 

that the law still treats like a car’’ (Feb. 2005), 

available at http://www.consumersunion.org/mh/ 

docs/Feb2005.pdf. 

33For a discussion of consumer concerns about 

the origination and servicing of manufactured 

housing mortgages, see generally S. West, 

‘‘Manufactured Housing Finance and the Secondary 

Market,’’ Vol. 2, Issue 1, Community Development 

Investment Review 39 (2006) (Federal Reserve Bank 

of San Francisco), available at http://www.frbsf.org/ 

publications/community/review/062006/west.pdf 

(Current financing of manufactured housing is 

expensive; the secondary market for manufactured 

housing mortgages must include the Enterprises 

and strategies to reduce investor risk.); A. Schmitz, 

‘‘Promoting the Promise Manufactured Homes 

Provide for Affordable Housing,’’ 13 Journal of 

Affordable Housing 384 (No. 3) (Spring 2004), 

available at http://lawweb.colorado.edu/profiles/

pubpdfs/schmitz/SchmitzAHCDL.pdf (State laws 

differ with respect to real and personal property 

financing and with respect to corresponding 

consumer protection provisions; the relatively small 

number of manufactured housing lenders allows 

them to garner bargaining power over consumers 

and has led to predatory financing.). 

34By letter dated February 2, 2010, FHFA advised 

Congress of its concerns about new Enterprise 

initiatives that could require entry into new 

business lines with little prior experience or the 

dedication of Enterprise personnel already 

operating in a stressed environment. See Letter to 

Congress at 7. 

35One manufactured housing lender observed: 

‘‘The value of manufactured houses has tended to 

depreciate over time * * * rapid depreciation may 

cause the fair market value of borrowers’ 

manufactured houses to be less than the 

outstanding balance of their loans. In cases where 

borrowers have negative equity in their houses, they 

may not be able to resell their manufactured houses 

for enough money to repay their loans and may 

have less incentive to continue to repay their loans, 

which may lead to increased delinquencies and 

defaults.’’ Origen Financial, Inc., Annual Report on 

Form 10–K, as Amended, for the Fiscal Year Ended 

December 31, 2008, p. 7, available at http:// 

www.origenfinancial.com/sites/default/files/as_

printed_Origen_10-K.pdf. 

36See S. Nelson & G. Bailey, ‘‘Manufactured 

Housing RMBS Performance Update,’’ p. 1 (Nov. 17, 

2009) (Fitch Ratings). See also Consumer 

Federation of America, ‘‘The Promise and Pitfalls of 

Building Wealth through Manufactured Housing,’’ 

p. 2–3 (http://content.knowledgeplex.org/kp2/ 

cache/documents/1895/189501.pdf; April 2006), 

available at Dominion Bond Rating Service, 

‘‘Methodology—Rating U.S. Residential MortgageBacked Securities Transactions,’’ p. 22 (Apr. 2009), 

available at http://www.dbrs.com/research/227912/ 

rating-u-s-residential-mortgage-backed-securitiestransactions.pdf (‘‘Historically, chattel paper posed 

difficulties for investors of RMBS since the greatest 

recovery value is in the land, not the structure.’’). 37See Michael Koss, ‘‘Manufactured Housing 

ABS—Valuation in a Troubled Sector,’’ p. 13 (Feb. 

9, 2005) (Lehman Brothers Fixed-Income Research). 

Advantus Capital views manufactured homes as 

depreciating like a car depreciates. See Jon 

Thomson, ‘‘Manufactured housing: An expected 

beneficiary from subprime mortgage disruption’’ 3 

(Advantus Capital Management, 4th Qtr. 2007), 

available at http://www.advantuscapital.com/adv/ 

pdf/F67229.pdf. 

38T. Boehm & A. Schlottmann, ‘‘Is Manufactured 

Housing a Good Alternative for Low-Income 

Families? Evidence from the American Housing 

Survey,’’ p. 50 (December 2004), available at 

http://www.huduser.org/Publications/pdf/ 

IsManufacturedHousingAGoodAlternativeForLowIncomeFamiliesEvidence

FromTheAmericanHousingSurvey.pdf 

39See Office of Thrift Supervision, Examination 

Handbook, 212.25 (Sept. 2008), available at 

http://files.ots.treas.gov/422320.pdf. 

40This definition is consistent with the definition 

of ‘‘manufactured housing’’ in FHFA’s regulation 

governing Federal Home Loan Bank advances to 

members, at 12 CFR 950.1. 

are not afforded certain borrower 

protections that apply when loans are 

secured by real property. Delinquencies 

and defaults on chattel loans typically 

exceed rates on mortgage loans.31

Sustainable homeownership results, 

in part, from the enforcement of 

appropriate consumer protections. 

Consumer organizations and some 

manufactured home resident 

organizations were particularly 

concerned that the Real Estate 

Settlement Procedures Act (RESPA), 

which requires that consumers receive 

an estimate of costs prior to closing and 

which prohibits payment of referral fees 

among settlement providers, does not 

apply to chattel loans. The National 

Consumer Law Center commented that 

the distinction between real property 

and personal property is especially 

important upon default because if a 

home is personal property rather than 

real property, the rights of the creditor 

are governed by Article 9 of the Uniform 

Commercial Code and the home may be 

subject to self-help repossession.32

Further, the National Consumer Law 

Center commented that if the home is 

real property, upon default most states 

require that the creditor use the 

foreclosure process. 

Commenters suggested that if FHFA 

determines that manufactured homes 

secured by chattel loans be considered, 

FHFA should require borrower 

protections such as: (i) Capping the 

annual percentage rate (APR) at 3.5 

points above the prime rate; (ii) banning 

prepayment penalties; (iii) banning 

yield spread premiums; and (iv) 

requiring that lease terms extend five 

years beyond the term of the loan.33

Commenters also emphasized the 

importance of RESPA-like protections 

for chattel loans. However, developing 

such protections may require legislative 

and regulatory changes beyond the 

scope of the duty to serve. 

The Enterprises have minimal 

experience with chattel financing, and 

the high level of defaults related to such 

financing creates significant credit and 

operational risks.34 The depreciation in 

the value of the manufactured home 

could result in greater loss to the 

Enterprise in the event of default on the 

loan.35 Manufactured homes are 

generally regarded as depreciating 

assets, even in a strong market 

environment.36 A 2005 report by 

Lehman Brothers estimated the 

expected annual depreciation rate at 

three to four percent annually.37

Likewise, Abt Associates noted that 

‘‘[m]anufactured housing where the 

household does not own the lot is not 

an investment in any sense * * * [i]t 

should be thought of as a type of 

consumer durable.’’ 38 The Office of 

Thrift Supervision cautioned lenders 

engaged in manufactured housing 

finance to carefully manage the risk of 

collateral depreciation for the homes.39

Upon consideration of the risks facing 

the borrowers and the Enterprises, 

FHFA proposes that only Enterprise 

purchases of mortgages on 

manufactured homes titled as real 

property and activities related to such 

mortgages be considered toward the 

duty to serve the manufactured housing 

market. Enterprise purchases of chattel 

mortgages or other mortgages not titled 

as real estate, and any activity related to 

such mortgages, would not be 

considered. The proposed rule would 

define ‘‘manufactured home’’ in 

accordance with the definition of 

‘‘manufactured home’’ used by HUD 

under section 603(6) of the 

Manufactured Home Construction and 

Safety Standards Act of 1974, as 

amended, 42 U.S.C. 5402(6), and 

implementing regulations.40

FHFA has determined that very 

low-, low- and moderate-income 

families can be best served through 

manufactured housing titled as real 

property and that the Enterprises, as 

part of their mission to increase the 

liquidity of mortgages to low- and 

moderate-income families, can play a 

significant role in serving this segment 

of the market. In addition, the safe and 

sound operations of the Enterprises in 

conservatorship are better protected 

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41A different view was expressed by Hometown 

American Communities, who commented that 

financing for manufactured home communities is 

generally available including from various life 

insurance companies. 

42Stewards of Affordable Housing for the Future, 

‘‘Housing at Risk’’, available at http:// 

www.poah.org/about/at-risk.htm. According to 

HUD, the general definition of ‘‘affordability’’ is for 

a household to pay no more than 30 percent of its 

annual income on housing. See http:// 

www.hud.gov/offices/cpd/affordablehousing/ 

index.cfm. 

when real estate is pledged as collateral 

for the mortgage loan. 

Other Types of Manufactured Home 

Loans. In the ANPR, FHFA requested 

comment on definitions for land-home 

loans. FHFA has reviewed the 

comments received and literature on 

land-home loans and found no universal 

agreement on terminology or 

definitions. Fannie Mae commented that 

it ‘‘has many years of experience 

purchasing loans secured by real 

property manufactured housing, 

sometimes called ‘land home’ 

mortgages.’’ The Manufactured Housing 

Institute (MHI) described ‘‘land-home 

non-conforming mortgage loans’’ as 

including both the acquisition of the 

home and the land as part of the loan 

transaction, but as not conforming to 

one or more of the Enterprises’ 

underwriting requirements. According 

to MHI, there is a separate classification 

of ‘‘real property conforming mortgage 

loans,’’ which includes both the 

acquisition of the home and the land as 

part of the loan transaction and meets 

the Enterprises’ underwriting 

requirements. 

With some manufactured housing 

financing transactions, a single loan is 

secured by separate liens against the 

home and against the real estate on 

which the home is sited. In the event of 

a default, this arrangement provides the 

lender with the option of proceeding 

against either the home or the real 

estate, whichever is most advantageous. 

These types of transactions would not 

be considered under the proposed rule, 

but FHFA welcomes further comment as 

to their relative merits in serving very 

low-, low- and moderate-income 

families in the manufactured housing 

market. 

Manufactured Home Communities. 

Enterprise assistance to manufactured 

home communities would not be 

considered for purposes of the duty to 

serve the manufactured housing market 

in the proposed rule. 

Although some manufactured home 

communities may include units owned 

by the community that are rented to 

tenants, manufactured home 

communities generally provide siting 

for chattel financed homes, and for the 

reasons discussed previously, the 

proposed rule would not allow for 

consideration for assistance to 

manufactured homes not titled as real 

property. Advocacy organizations 

representing tenants highlighted 

significant concerns about the 

vulnerability of tenants in investorowned communities. In their view, 

short-term leases, in combination with 

the expense and difficulty involved in 

relocating a manufactured home, made 

tenants vulnerable to a variety of 

difficulties, including unexpectedly 

high rental increases and conversions of 

communities to other uses with the 

resulting displacement of tenants. 

Enterprise support for housing under 

these circumstances would not be 

consistent with the intent of the duty to 

serve. 

The ANPR solicited comments on 

whether and how Enterprise assistance 

for manufactured home communities 

should be considered for purposes of 

the duty to serve the manufactured 

housing market and whether there 

should be differences in how residentowned and investor-owned 

communities are treated. Eighty-four 

commenters addressed this issue. There 

was support from most commenters for 

considering assistance to residentowned communities. Commenters did 

not cite resident protection issues in 

connection with these types of 

communities. To the contrary, 

community, resident and consumer 

advocacy organizations suggested that 

Enterprise assistance with residentowned communities would support 

affordable housing for lower-income 

families. ROC USA commented that 

after 25 years and over $150 million in 

originations for resident-owned 

communities, it had ‘‘not had a single 

loan lost or charged off.’’ 

Several commenters stated that this 

market faces significant difficulties. The 

commenters indicated that there is a 

shortage of financing for manufactured 

home communities, many communities 

need to refinance over the next several 

years, few new communities are being 

developed and residents face 

dislocation when a community cannot 

obtain financing and must convert to a 

different use.41 In addition, commenters 

stated that manufactured home 

communities are analogous to 

multifamily properties in providing 

affordable housing and that multifamily 

properties receive significant support 

from the Enterprises. 

However, many resident and 

consumer advocacy commenters 

identified certain tenant protections that 

would be necessary in conjunction with 

providing assistance to manufactured 

home communities including 

requirements that: 

(i) The term of the lease on the lot 

where the home is sited is tied to the 

term of the mortgage on the 

manufactured home; 

(ii) Rental increases on the lot where 

the home is sited would be governed by 

formulas based on published, third 

party indices; 

(iii) Residents would be notified 

significantly in advance of any sale of 

the community by the owner and would 

have a collective right of first refusal to 

purchase the community; 

(iv) Residents would have the right to 

sell their homes in place to persons of 

their choosing; and 

(v) Residents would have the right to 

form resident associations and conduct 

resident meetings. 

In light of the potential for 

manufactured home communities to 

provide affordable housing to very 

low-, low- and moderate-income 

families, FHFA solicits comment on 

whether assistance to manufactured 

home communities should be 

considered for purposes of the duty to 

serve the manufactured housing market. 

FHFA particularly encourages 

comments on the safety and soundness 

of financing, distinctions between 

investor-owned and resident-owned 

communities, and the potential to 

ensure appropriate consumer 

protections in conjunction with such 

assistance. 

2. Affordable Housing Preservation 

Market—Proposed § 1282.33 

Affordable housing preservation 

focuses primarily on ‘‘at risk properties.’’ 

A property becomes ‘‘at risk’’ ‘‘either 

when its rent affordability restrictions 

expire, or because mismanagement or 

disinvestment cause [sic] the property to 

deteriorate and become unsafe or 

uninhabitable.’’ 42 Across the country, 

thousands of multifamily properties 

with federal, state or local subsidies or 

financing are at risk of conversion to 

market rate rents, obsolescence, or 

foreclosure, if owners are unable to 

refinance loans. The Enterprises can 

play an important role in preserving 

affordable multifamily properties by 

offering owners refinancing alternatives 

to Federal Housing Administration 

(FHA), state and local financing 

programs. 

Section 1335(a)(1)(B) of the Safety and 

Soundness Act requires the Enterprises 

to ‘‘develop loan products and flexible 

underwriting guidelines to facilitate a 

secondary market to preserve housing 

affordable to very low-, low-, and 

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43 ‘‘Appropriations risk’’ is the possibility that 

Congress will not appropriate any funds for a 

program, or appropriate less funds than requested 

by the executive branch. 

44HUD Insured Multifamily Mortgages Database, 

available at http://www.hud.gov/offices/hsg/comp/

rpts/mfh/mf_f47.cfm. 

moderate-income families,’’ including 

assistance to housing projects under the 

following programs: 

i. The project-based and tenant-based 

rental assistance programs under 

Section 8 of the United States Housing 

Act of 1937 (42 U.S.C. 1437f); 

ii. The program under Section 236 of 

the National Housing Act (rental and 

cooperative housing for lower income 

families) (12 U.S.C. 1715z-1); 

iii. The below-market interest rate 

mortgage program under Section 

221(d)(4) of the National Housing Act 

(housing for moderate-income and 

displaced families) (12 U.S.C. 1715l); 

iv. The supportive housing for the 

elderly program under Section 202 of 

the Housing Act of 1959 (12 U.S.C. 

1701q); 

v. The supportive housing program 

for persons with disabilities under 

Section 811 of the Cranston-Gonzalez 

National Affordable Housing Act (42 

U.S.C. 8013); 

vi. The programs under title IV of the 

McKinney-Vento Homeless Assistance 

Act (42 U.S.C. 11361 et seq.), but only 

permanent supportive housing projects 

subsidized under such programs; 

vii. The rural rental housing program 

under Section 515 of the Housing Act of 

1949 (42 U.S.C. 1485); 

viii. The low-income housing tax 

credit (LIHTC) 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). 

Under the proposed rule, Enterprise 

assistance to housing projects under 

these programs would be considered 

under the duty to serve the affordable 

housing preservation market. FHFA will 

pay particular attention to the volume of 

existing loans that are maturing and 

may need refinancing in the affordable 

housing preservation market. The 

Enterprises would not be required to 

assist each program every year, but 

could take a step-by-step, concentrated 

approach. For example, an Enterprise 

might initially focus on the HUD 

Section 8, Section 236 and Section 202 

programs. Several commenters asserted 

that the Enterprises should do more to 

support small multifamily properties. 

The Enterprises have existing loan 

products that may meet the need of 

some owners seeking to refinance 

subsidized properties eligible to be 

considered under the affordable housing 

preservation market. The Enterprises 

offer subsidized property owners 

options not available under FHA 

programs, such as shorter terms and 

amortization periods, although these 

may not be as competitive as some FHA 

programs. The Enterprises have several 

loan products already in place for 

refinancing loans on Section 8 

properties and Sections 236 and 202 

loans. The properties refinanced under 

these programs are more numerous than 

properties refinanced pursuant to other 

enumerated programs, and their 

financing structure is more immediately 

suited to the Enterprises’ existing 

operations. Other enumerated programs 

may require additional time for the 

Enterprise to tailor financing and other 

assistance, in particular, Section 

221(d)(4), Section 811 and Section 515 

programs, the McKinney-Vento 

Homeless Assistance Act and LIHTCs. 

In some or all of these cases, developing 

or implementing new loan products 

may be inconsistent with the 

requirements of conservatorship, but 

Enterprise outreach, such as providing 

technical assistance, or other support 

may be possible and appropriate. 

The status of the enumerated 

programs and the role that the 

Enterprises could play in assisting them 

are discussed below. 

Section 8. Both Enterprises currently 

purchase refinance mortgages on 

properties with HUD Section 8 contracts 

known as Housing Assistance Payments 

(HAP) contracts. Under this program, 

property owners receive rent payment 

subsidies from HUD and, in return, the 

property owner agrees to maintain 

affordable rents and maintain housing 

quality standards. Several commenters, 

including the Consumer Federation of 

America, Center for Responsible 

Lending, National Consumer Law 

Center, and Local Initiatives Support 

Corporation (LISC), stated that the 

Enterprises’ underwriting guidelines are 

unnecessarily strict. For example, the 

Enterprises do not count all of the 

Section 8 payments as rental income 

and require additional reserves to 

protect against appropriations risk.43 In 

the commenters’ view, this may make 

refinancing a property infeasible or 

result in a lower loan amount and, 

therefore, fewer funds for repairs and 

replacement. 

LISC commented in detail about the 

need for changes in Enterprise Section 

8 financing. According to this comment 

letter, the Enterprises should modify 

their underwriting guidelines to allow 

the debt service coverage ratios to be 

based upon the full amount of the 

Section 8 rent levels, provided these 

rents were not above market levels. In 

addition, the letter suggested that the 

Enterprises may give better treatment for 

the debt service coverage ratios and the 

loan-to-value ratios for non-subsidized 

or LIHTC-only projects than they do for 

projects subsidized under Section 8, 

which may be a disincentive for 

financing of Section 8 projects. 

Section 236. Both Enterprises 

currently have programs for purchasing 

refinance mortgages on Section 236 

below-market interest rate (BMIR) loans. 

HUD’s Section 236 program, also known 

as Section 236 Decoupling, permits an 

owner to refinance into a conventional 

multifamily mortgage while maintaining 

the interest rate subsidy provided by 

HUD. The HUD subsidy is referred to as 

Interest Reduction Payments (IRPs), and 

they are made directly to the lender. 

The amount HUD pays is the difference 

between the note rate and one percent. 

The Section 236 programs of both 

Enterprises use a bifurcated loan 

structure where the real estate loan and 

IRP payments amortize separately. The 

loan must be structured to ensure that 

the IRP payments are liquidated prior to 

the maturing of the real estate loan. 

HUD data indicate that there are over 

1,300 outstanding Section 236 BMIR 

loans, and that about 200 of these loans 

will mature in 2010 and 2011.44

Section 221(d)(4). The Section 

221(d)(4) program provides financing 

for the construction or major 

rehabilitation of multifamily rental 

properties and for permanent financing 

when construction is completed. The 

program is not subsidized, and there are 

no income restrictions on tenants. 

Therefore, the program may provide 

housing for other than very low-, lowand moderate-income households. 

Section 221(d)(4) loans purchased by 

the Enterprise may be considered as 

long as the units financed serve the 

income groups targeted by the duty to 

serve. 

While the Safety and Soundness Act 

does not specifically mention the HUD 

Section 221(d)(3) program, this program, 

which is for nonprofit sponsors, can 

have a BMIR loan component. FHFA 

solicits comments on whether 

Enterprise purchases of Section 

221(d)(3) loans should be considered 

under the duty to serve the affordable 

housing preservation market. 

Section 202. Opportunities for the 

Enterprises to purchase refinanced 

Section 202 loans for the low-income 

elderly could grow due to legislative 

and HUD program changes and the 

increasing number of Section 202 

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45See generally ‘‘The American Association of 

Homes and Services for the Aging’’, House Financial 

Services Comm., Subcomm. on Housing and 

Community Opportunity, ‘‘Legislative Options for 

Preserving Federally- and State-Assisted Affordable 

Housing and Preventing Displacement of LowIncome, Elderly and Disabled Tenants,’’ 111th 

Cong., 1st Sess. (July 15, 2009) (Statement for the 

Record), available at http://www.house.gov/apps/ 

list/hearing/financialsvcs_dem/aahsa_statement_

for_the_record.pdf. 

46 Id. 

47See Vincent F. O’Donnell, ‘‘Prepayment and 

Refinancing of Section 202 Direct Loans—A 

Summary of HUD Notices H 2002–16 and H 2004– 

21’’ (Feb. 25, 2005), available at http://docs.google.

com/viewer?a=v&q=cache:OS9fkvDzizwJ:

www.lisc.org/files/896_file_asset_upload_file62_

6015.pdf+.org+h+2004–21+lisc+February+25&hl=

en&gl=us&pid=bl&srcid=ADGEESjfLlsfyFT-bDHQ8QSySzpNFYC5VTDHxWlM74Ji4PmkCWW2a

FM9bzzQOeXlu7iwS8Tzpo6jShgeYz

BOBsEdxcMAaFM-pR2WpxlKvtWL1XZmcoS_

F9fsbV8cUbyqcmouUB8Hycy&sig=

AHIEtbR0BncO3GAlI_rSAfSyljUDOH_Y9g. 

48HUD Insured Multifamily Mortgages Database, 

available at http://www.hud.gov/offices/hsg/comp/ 

rpts/mfh/mf_f47.cfm. 

49See S. 118—111th Cong.: ‘‘Section 202 

Supportive Housing for the Elderly Act of 2009,’’ 

available at http://thomas.loc.gov/cgi-bin/query/ 

z?c111:S.118:. 

50For a description of the Section 811 program, 

see http://www.hud.gov/offices/hsg/mfh/progdesc/ 

disab811.cfm. 

51For a description of the PRAC initiative, see 

http://www.hud.gov/offices/cfo/reports/2011/cjs/ 

Housing_For_Persons_Disabilities_2011.pdf. 

properties in need of funding for 

rehabilitation. Established by the 

National Housing Act of 1959, Section 

202 was a loan program without rental 

subsidies from 1959 to 1974. In 1974, 

HUD began to provide rental subsidies, 

but replaced subsidized loans with 

direct financing at prevailing market 

interest rates. As a result of the National 

Housing Act of 1990, HUD discontinued 

financing Section 202 properties, and 

instead, the Section 202 program 

became a capital advance program 

under which HUD provided 

construction or rehabilitation funds to 

sponsors, and after construction, rental 

subsidies. In return, sponsors were 

required to keep rents affordable to 

elderly households for a period of 40 

years. 

Most loans financed under Section 

202 from 1959 to 1974 have 50-year 

terms, and most sponsors with such 

loans have already refinanced or sold 

their properties for redevelopment. The 

remaining Section 202 properties are at 

risk of deteriorating or being sold for 

redevelopment but not as affordable 

properties.45 Section 202 properties that 

were financed from 1969 to 1974 are 

most in need of new financing.46 Many 

properties financed from 1974 to 1990 

have loans with interest rates exceeding 

nine percent and might also benefit 

from legislative changes. Refinancing 

would allow owners to acquire 

additional funds for rehabilitation, 

which could then be used to repair or 

rehabilitate Section 202 properties.47

HUD data show that over 2,800 

outstanding Section 202 loans are 

eligible for refinancing.48

Most Section 202 properties are 

refinanced through FHA-insured 

programs. FHA programs offer financing 

terms such as lower debt service 

coverage ratios and higher loan-to-value 

ratios than conventional mortgage 

lenders. More importantly, sponsors can 

refinance properties using contract rents 

rather than lower market rents, which 

usually results in a larger loan amount 

and more cash available to the sponsor 

for rehabilitation and reserves. 

By actively pursuing Section 202 

refinancing opportunities, the 

Enterprises would be able to provide 

more refinancing options for sponsors. 

Conventional financing through the 

Enterprises would allow sponsors 

access to adjustable rate mortgages with 

shorter maturities and amortization 

periods. Legislative changes to further 

facilitate refinancing of Section 202 

loans have been introduced in 

Congress.49 If these changes are enacted 

into law, the Enterprises would have 

increased opportunities to purchase 

refinanced mortgages and preserve 

Section 202 housing. Given the growing 

need for Section 202 sponsors to have 

available refinancing options other than 

FHA and state and local programs, 

Enterprise assistance in this area is 

particularly useful. 

Section 811. The Section 811 program 

is a capital advance and rental 

assistance program for low-income 

disabled persons, and was created by 

the Cranston-Gonzalez National 

Housing Act of 1990. Under current law, 

Section 811 properties carry no debt, 

and HUD rental subsidies cover the 

difference between HUD-determined 

operating expenses and rental income.50

There are no provisions under current 

law for refinancing Section 811 

properties, and nonprofit organizations 

could not qualify for financing because 

excess cash flows produced by the 

properties under the program are 

minimal. Further, owners participating 

in the Section 811 program are required 

to maintain the property as housing for 

the disabled for a period of 40 years, 

and it will be at least 20 more years 

before low-income use restrictions on 

owners expire. However, the President’s 

2011 budget proposes changes to the 

Section 811 program and will introduce 

Project Rental Assistance Contracts 

(PRACs) as part of the program.51 This 

would open up new opportunities for 

the Enterprises to provide long-term 

funding for properties receiving Section 

811 PRACs. 

McKinney-Vento Homeless Assistance 

Act. Programs under title IV of the 

McKinney-Vento Homeless Assistance 

Act (42 U.S.C. 11361 et seq.) provide 

supportive housing grants to help the 

homeless, especially homeless families 

with children, transition to independent 

living. Nonprofits that develop such 

supportive housing can use a 

combination of equity and financing 

sources, but such projects typically do 

not involve mortgages, which effectively 

limits Enterprise duty to serve activity 

under these programs. FHFA solicits 

comments on how the Enterprises could 

provide assistance to properties 

subsidized pursuant to the McKinneyVento Homeless Assistance Act for 

purposes of the duty to serve the 

affordable housing preservation market. 

Sections 515 and 538. Both 

Enterprises currently have programs to 

help owners of properties with the U.S. 

Department of Agriculture’s (USDA) 

Section 515 direct loans to support lowincome housing in rural areas. The 

Enterprises could also purchase eligible 

Section 538 loans that refinance Section 

515 properties. Section 538 is the 

primary program used by USDA to 

preserve affordable rural rental housing. 

Low-Income Housing Tax Credits 

(LIHTCs). LIHTCs, which are an 

important source of equity for new lowincome rental housing, face significant 

challenges in today’s market. 

Traditionally, the Enterprises have been 

among the largest investors in LIHTCs. 

Now in conservatorship, the Enterprises 

have no business reasons to purchase 

LIHTCs and are not currently 

purchasing them. 

Neighborhood Stabilization Program. 

The proposed rule would add the 

Neighborhood Stabilization Program 

(NSP) administered by state and local 

governments with funds provided by 

HUD, as an eligible state and local 

affordable housing program for purposes 

of the duty to serve the affordable 

housing preservation market. The NSP 

is designed to enable communities to 

address problems related to mortgage 

foreclosure and abandonment through 

the purchase of foreclosed or abandoned 

homes. Under the NSP, at least 25 

percent of NSP funds must be used to 

purchase and redevelop abandoned or 

foreclosed homes that will be used to 

house families with incomes that do not 

exceed 50 percent of AMI. 

Some commenters, including the 

National Association of Home Builders 

and several consumer advocacy 

organizations, suggested that Enterprise 

assistance with foreclosure prevention 

efforts done in conjunction with 

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52See ‘‘NCSHA 2010 Legislative and Regulatory 

Priorities,’’ (Oct. 14, 2009), available at http:// 

www.ncsha.org/resource/ncsha-2010-legislativeand-regulatory-priorities. 

53U.S. Department of the Treasury, 

‘‘Administration Announces Initiatives for State and 

Local Housing Finance Agencies,’’ Press Release 

(Oct. 19, 2009), available at http://www.ustreas.gov/ 

press/releases/tg323.htm. 

nonprofit organizations and state and 

local governments that receive NSP 

funds should be considered towards the 

duty to serve. The consumer 

commenters also encouraged greater 

Enterprise involvement in helping 

community development financial 

institutions (CDFIs) finance foreclosed 

properties that have been acquired by 

nonprofits through debt and equity 

investments. 

Comparable State and Local 

Affordable Housing Programs. The 

Enterprises’ support of state and local 

affordable housing programs has been 

primarily through purchases of LIHTCs 

and mortgage revenue bonds (MRBs) 

from state and local HFAs. The National 

Council of State Housing Agencies 

(NCSHA) has made increased 

cooperation between HFAs and the 

Enterprises a top legislative and 

regulatory goal for 2010.52

As a result of the liquidity crisis 

facing HFAs, on October 19, 2009, 

FHFA, in conjunction with Treasury 

and HUD, announced an initiative to 

support state and local HFAs through a 

new bond purchase program that will 

support new lending by HFAs and a 

temporary credit and liquidity program 

that will improve the access of HFAs to 

liquidity for outstanding HFA bonds.53

Fannie Mae and Freddie Mac both 

played a role in this program, which, 

through its support of HFA liquidity, 

could expand resources for low- and 

moderate-income borrowers who want 

to purchase or rent homes that are 

affordable over the long term. On 

January 13, 2010, Treasury, FHFA and 

HUD announced the completion of all 

transactions under the initiative, which 

involved more than 90 HFAs. Two 

commenters noted that there needs to be 

a closer partnership between state and 

local HFAs and the Enterprises in order 

to expand affordable housing 

preservation opportunities. However, 

commenters did not suggest any specific 

programs or activities where the 

Enterprises could assist. 

Several commenters suggested other 

potential sources of affordable housing 

units that should be preserved such as: 

(i) Subsidized or non-subsidized 

affordable housing where there is and/ 

or will be a local, state or federal longterm affordable use restriction in place 

for at least 20 percent of the units; 

(ii) State mortgage subsidy programs; 

(iii) State low-income housing tax 

credit programs; 

(iv) Tax-exempt bond-financed 

housing; 

(v) Public housing and state public 

housing involving mixed-finance 

redevelopment; and 

(vi) Affordable, sustainable 

communities and healthy housing 

programs. 

FHFA invites further comments on 

the merit of considering any of these 

other potential sources of affordable 

housing as part of the Enterprises’ duty 

to serve, consistent with the 

requirements of conservatorship 

described earlier. 

3. Rural Markets—Proposed §§ 1282.1, 

1282.34 

Section 1335(a)(1)(C) of the Safety and 

Soundness Act 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). An 

appropriate definition for ‘‘rural area’’ 

and the types of Enterprise activities 

that should be considered are discussed 

below. 

Definition of ‘‘Rural Area.’’ In the 

ANPR, FHFA suggested three 

definitions of ‘‘rural area.’’ The first 

definition is based on classifications 

used by the U.S. Census Bureau for the 

2000 census and distinguishes between 

urban and rural areas. Urban areas are 

classified as all territory, population, 

and housing units located within 

urbanized areas and urban clusters. 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. 

Three commenters favored this 

definition. 

The second definition defines ‘‘rural 

areas’’ as all counties assigned a USDA 

Rural-Urban Continuum code (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, 

are lacking, FHFA suggested treating 

these territories as ‘‘rural areas.’’ A 

disadvantage of using the RUC code is 

that designations based on RUC codes 

are county-based. Consequently, these 

designations could encompass both 

urban and rural areas, as occurs with 

very large counties, particularly west of 

the Mississippi River. Commenters 

recognized this disadvantage and were 

generally not in favor of this definition. 

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, i.e., outside 

metropolitan statistical areas (MSAs) 

designated by the Office of Management 

and Budget (OMB), 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 

(RUCA) code. Because it would be 

census tract-based, it would be more 

granular than county-based or MSAbased definitions and should better 

distinguish between rural areas and 

non-rural areas. Furthermore, this 

definition would be easily implemented 

by the Enterprises’ existing geocoding 

systems. Freddie Mac and two other 

commenters supported this definition. 

One disadvantage of the third 

definition, as some commenters pointed 

out, is that a census tract could be 

excluded if a small portion is also 

included within an ‘‘Urbanized Area’’ or 

an ‘‘Urban Cluster.’’ Also, as with the 

other definitions, this definition is 

based upon aging 2000 census data, and 

updated information is not expected to 

be available until 2012 or 2013. Another 

disadvantage of the third definition is 

that USDA does not plan to extend the 

RUCA code to Puerto Rico until at least 

2012, and RUCA codes are not currently 

assigned to census tracts in the other 

U.S. territories. In the ANPR, FHFA 

suggested filling this gap by using the 

RUC code described above to augment 

the RUCA code in Puerto Rico and other 

U.S. territories or by creating an 

estimate of the RUCA code for these 

areas. 

FHFA solicits further comment on the 

three definitions discussed in the ANPR 

and how to address the operational 

concerns involved. 

A number of commenters, including 

USDA and Fannie Mae, recommended 

that FHFA adopt the definition of ‘‘rural 

area’’ from the Housing Act of 1949, as 

implemented by USDA. Under this 

definition, ‘‘rural area’’ means any open 

country or any town, village, city, or 

place that is not part of or associated 

with an urban area, and that ‘‘(1) has a 

population not in excess of 2,500 

inhabitants, or (2) has a population in 

excess of 2, 500 but not in excess of 

10,000 if it is rural in character, or (3) 

has a population in excess of 10,000 but 

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54See United States Government Accountability 

Office, GAO–05–110, ‘‘Rural Housing—Changing 

the Definition of Rural Could Improve Eligibility 

Determinations’’ (Dec. 2004), available at http:// 

www.gao.gov/new.items/d05110.pdf. 

55For purposes of HUD’s Colonia Set-Aside 

Program, a ‘‘colonia’’ is any identifiable community 

in the U.S.-Mexico border regions of Arizona, 

California, New Mexico and Texas that is 

determined to be a colonia on the basis of objective 

criteria, including lack of a potable water supply, 

inadequate sewage systems, and a shortage of 

decent, safe and sanitary housing. The border 

region is the area within 150 miles of the U.S.- 

Mexico border excluding MSAs with populations 

exceeding one million. See http://www.hud.gov/ 

offices/cpd/communitydevelopment/programs/ 

colonias/cdbgcolonias.cfm. 

not in excess of 20,000 and (A) is not 

contained within a standard 

metropolitan statistical area, and (B) has 

a serious lack of mortgage credit for 

lower and moderate income families.’’ 

42 U.S.C. 1490. 

The proposed rule would define 

‘‘rural area’’ for purposes of the duty to 

serve consistent with the above 

definition. Because rural housing 

practitioners and USDA use this 

definition, its adoption would obviate 

the need for practitioners to adapt their 

practices and systems to fit a new 

definition. In addition, since the 

definition is maintained by USDA, it 

would not need to be updated by FHFA 

with successive censuses. 

The proposed definition may present 

operational concerns to FHFA and to 

the Enterprises. The Government 

Accountability Office (GAO) has found 

that because MSAs contain both urban 

and rural areas and have increased 

substantially in both size and number in 

recent decades, the use of MSAs may no 

longer be a good way to distinguish 

urban territory from rural territory.54 In 

addition, it would be necessary for the 

Enterprises to automate the coding of a 

rural/urban designation based on 

information currently available only 

through the USDA Web site. The USDA 

Web site is designed for loan 

underwriters and originators with much 

smaller transaction volume, who must 

enter property addresses individually 

into the Web site to determine which 

addresses are located in rural areas. The 

volume of the Enterprises’ transactions 

is much larger, and they will need the 

capability to automate the rural/urban 

designation for large numbers of 

properties. 

FHFA suggests two approaches for 

addressing the coding problem. First, 

USDA’s RUCA code could be used until 

USDA implements an automated system 

for coding multiple properties. A second 

approach is for originators of loans 

purchased on a flow basis to manually 

enter the property addresses in USDA’s 

Web site and provide the resulting 

classification data to the Enterprise. For 

loans purchased in bulk transactions, 

the Enterprise would be allowed to use 

the RUCA code definition for 

determining ‘‘rural area’’ rather than the 

Housing Act of 1949 definition. 

The definition proposed for ‘‘rural 

area’’ may not encompass all tribal lands 

and colonias.55 Very low-, low- and 

moderate-income families in these areas 

face unique housing challenges. In 

comments received in response to the 

ANPR, two nonprofit organizations and 

one policy advocacy organization stated 

that tribal lands should be automatically 

included in the definition of ‘‘rural 

area’’; one trade association opposed 

this. 

FHFA requests further comments on 

whether tribal lands and colonias 

should be included in the definition of 

‘‘rural area’’ and how to define colonias. 

Inclusion of Rural Housing Service 

(RHS) Programs. Under the RHS’s 

Section 538 program, the federal 

government guarantees loans made 

through approved lenders to build or 

acquire apartments for moderate-income 

tenants in rural areas. USDA and HAC 

commented on the need for secondary 

market support for Section 538 

mortgages, emphasizing that Section 

538 multifamily properties provide 

housing for lower-income families. HAC 

also recommended duty to serve 

consideration for Enterprise assistance 

to the RHS Section 514 program, which 

finances housing for farm workers in 

rural areas. 

Section 514 loans cannot be 

supported by the Enterprises in the 

same way as Section 538 loans, because 

Section 514 loans are made directly by 

USDA, which holds them in its 

portfolio. FHFA solicits comments on 

what type of assistance the Enterprises 

could provide for residential lending to 

farm workers in rural areas and under 

the Section 514 program in particular. 

A number of commenters sought 

express FHFA authorization for 

particular RHS loan programs under the 

duty to serve rural markets. For 

purposes of the duty to serve, it is not 

necessary that FHFA specifically 

determine the eligibility of individual 

federal, state or local programs that 

support rural housing. As a general 

matter, where: (1) An Enterprise’s 

mortgage purchase, or other activity 

related to such mortgage, is authorized 

under the Charter Act; (2) the property 

financed is residential real estate 

located within a rural area; and (3) the 

income of the residents falls within the 

duty to serve income limits, the units 

financed may be considered. 

Enterprise Activities in Rural Markets. 

The Safety and Soundness Act 

enumerates specific housing programs 

for the Enterprises to assist to fulfill 

their duty to serve the affordable 

housing preservation market but does 

not prescribe specific programs for 

purposes of the Enterprises’ duty to 

serve rural markets. The Enterprises 

have latitude to address the needs in 

rural markets. FHFA expects each 

Enterprise to evaluate its current 

activities in rural areas and 

opportunities to increase those activities 

to address liquidity needs. For example, 

an Enterprise may market its products to 

lenders in rural areas in an effort to 

increase the number of approved 

lenders in those areas. An Enterprise 

may also purchase or otherwise assist 

with loans guaranteed under USDA 

programs and any other residential 

mortgage to the extent such mortgage 

otherwise qualifies for consideration. 

FHFA expects the Enterprises to 

thoroughly review their underwriting 

guidelines to ensure they are 

appropriate for rural markets. 

Some rural areas with very high 

median incomes may lack affordable 

multifamily housing for lower-income 

workers employed there. FHFA seeks 

comment on what assistance the 

Enterprises might be able to provide in 

these areas for purposes of the duty to 

serve rural markets. 

E. Evaluating and Rating Performance 

1. Overview of Evaluation 

Section 1335(d) of the Safety and 

Soundness Act requires FHFA to 

separately evaluate whether each 

Enterprise has complied with the duty 

to serve each underserved market and 

annually ‘‘rate the performance of each 

Enterprise as to the extent of 

compliance.’’ 12 U.S.C. 4565(d). Both 

Enterprises and most other commenters 

suggested a flexible approach to 

evaluation. Commenters generally 

supported an evaluation methodology 

similar to that used by regulators to 

determine compliance with the CRA, 

and FHFA has incorporated certain 

CRA-like features into the proposed 

rule. See 12 U.S.C. 2901 et seq.; 12 CFR 

parts 25, 228, 345, and 563e. 

The proposed rule would require each 

Enterprise to submit an underserved 

markets plan under which its 

performance would be evaluated and 

rated. FHFA would consider four factors 

in determining whether an Enterprise 

has complied with the duty to serve. 

These four factors were described as 

four ‘‘tests’’ in the ANPR, but have been 

renamed ‘‘assessment factors’’ in the 

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56For stylistic simplicity, where a commenter 

speaks of the four ‘‘tests’’ as set forth in the ANPR, 

the preamble will describe them as ‘‘assessment 

factors.’’ 

57See Letter to Congress at 6. 

58For information on strategic plans under CRA 

regulations, see generally 12 CFR 228.27. 

proposed rule.56 FHFA would evaluate 

each Enterprise’s performance on each 

assessment factor and assign a rating of 

satisfactory or unsatisfactory to each 

assessment factor in each underserved 

market. Based on the assessment factor 

ratings, FHFA would assign a rating to 

the Enterprise of ‘‘in compliance’’ or 

‘‘noncompliance’’ with the duty to serve 

each underserved market. 

Enterprise new products and new 

activities are subject to the prior 

approval and prior notice requirements 

FHFA established pursuant to section 

1321 of the Safety and Soundness Act. 

See 12 U.S.C. 4541, 12 CFR Part 1253. 

However, innovation in the provision of 

services to underserved markets is not 

necessarily the same as the concept of 

new products requiring FHFA approval 

under section 1321 of the Safety and 

Soundness Act. In the Letter to 

Congress, FHFA advised Congress that 

permitting the Enterprises to engage in 

new products is inconsistent with the 

goals of conservatorship and further 

instructed them not to submit such 

requests under the new products rule.57

This guidance does not prohibit the 

Enterprises from engaging in new 

activities that are substantially similar 

to existing activities previously 

approved by FHFA, or from modifying 

underwriting guidelines for existing 

loan products, consistent with safety 

and soundness and the requirements of 

conservatorship. FHFA will consider 

this guidance when evaluating the 

Enterprise’s plan and performance of its 

duty to serve underserved markets. 

2. Underserved Markets Plan—Proposed 

§ 1282.35 

FHFA proposes that each Enterprise 

provide an underserved markets plan 

against which the Enterprise would be 

evaluated and rated. The plan would be 

similar to a ‘‘strategic plan’’ under the 

CRA, but the plan would be mandatory 

rather than optional.58 In its plan, the 

Enterprise would establish benchmarks 

and objectives upon which FHFA would 

evaluate and rate its performance. The 

plan would specify the actions the 

Enterprise would take and results it 

expects to achieve under each 

assessment factor for each underserved 

market. The Enterprise would be 

required to specify benchmarks and 

objectives to achieve a rating of 

satisfactory for each assessment factor in 

each underserved market. Although the 

plan may include non-quantitative 

considerations, it must include objective 

measurements with sufficient specificity 

to enable FHFA to evaluate and rate the 

Enterprise’s performance against those 

measures. All benchmarks and 

objectives must have a timeframe for 

completion. 

The proposed rule would identify 

benchmarks and objectives for each 

assessment factor that the Enterprise 

must address in its plan. These are 

discussed in more detail below. 

Loan Product Assessment Factor. The 

loan product assessment factor 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 received several comments 

addressing the loan product assessment 

factor. Fannie Mae suggested that FHFA 

give appropriate consideration to 

research and development activities that 

may not show results in their initial 

phase, but which are necessary for longterm planning and development. CFED 

commented that loan products for 

previously owned manufactured homes 

and energy-efficient single-wide 

manufactured homes serve the most 

underserved segments of the 

manufactured housing industry and 

should be considered under the loan 

product assessment factor. FHFA agrees 

with these comments and will consider 

these activities, provided they meet the 

other requirements set forth in the 

proposed rule. 

To comply with this assessment 

factor, the proposed rule would require 

the Enterprise to evaluate its 

underwriting guidelines, which could 

include empirical testing of different 

parameters and modification of loan 

products in an effort to increase the 

availability of loans to families in each 

income group targeted by the duty to 

serve, consistent with prudent lending 

practices. FHFA expects the Enterprise 

to identify underwriting obstacles that 

could prevent service to underserved 

families. Enterprise modification of 

underwriting guidelines, particularly in 

the manufactured housing and rural 

markets, could also be considered. In its 

plan, the Enterprise would be permitted 

to establish additional benchmarks and 

objectives that could be considered 

under the loan product assessment 

factor. 

Outreach Assessment Factor. The 

outreach assessment factor 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). For this assessment 

factor, the Enterprises are expected to 

engage market participants and pursue 

relationships that result in enhanced 

service to each underserved market. 

These market participants could include 

nontraditional issuers, such as CDFIs 

and consortia sponsored by banks, local 

and state governments or others. 

USDA indicated that one way to 

assess outreach in rural markets would 

be to consider the number of approved 

Fannie Mae or Freddie Mac lenders in 

a state that are active in lending in rural 

areas. USDA suggested, as an example, 

a goal for each state to have at least 

three active approved lenders and for 

each lender to have financed three 

different properties within that state 

over a two-year period. In the example, 

the Enterprise would be evaluated on its 

performance relative to such a 

quantitative benchmark and objective in 

its plan. 

Other examples include actions such 

as simplifying the procedures for 

approving new seller-servicers that 

specialize in a particular underserved 

market, conducting relevant market 

surveys and forums to gather 

information on how to better serve the 

particular market and marketing 

existing products targeted towards an 

underserved market. In response to 

commenters, Enterprise training in its 

products and processes to market 

participants would also be considered. 

This could include training for 

specialized participants in an 

underserved market, such as USDA field 

staff, nonprofit and for-profit lenders 

and state and local HFAs. 

The proposed rule would require the 

Enterprise to specify new relationships 

it would develop with qualified loan 

sellers, its outreach to market 

participants that serve families in each 

income group targeted by the duty to 

serve and technical support it would 

provide. The Enterprise could also 

specify other outreach activities in its 

plan. 

Loan Purchase Assessment Factor. 

The loan purchase assessment factor 

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 

Safety and Soundness Act 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 received specific suggestions 

from commenters regarding 

implementation of the loan purchase 

assessment factor. USDA suggested that 

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the Enterprises buy at least five percent 

of the total new construction loans 

guaranteed by the Guaranteed Rural 

Rental Housing Program. Under USDA’s 

proposal, this would escalate to 10 

percent in the second year and 15 

percent in the third year. Similarly, the 

Center for Responsible Lending, CFED 

and the National Consumer Law Center 

recommended requiring that Enterprise 

participation in affordable housing 

preservation be proportional to its 

service to the larger multifamily market. 

The proposed rule would set forth 

benchmarks and objectives for the loan 

purchase assessment factor that the 

Enterprise must establish in its plan. 

Although FHFA is not establishing 

quantitative targets, FHFA would 

consider the Enterprise’s past 

performance on the volume of loans 

purchased in a particular underserved 

market relative to the volume of loans 

the Enterprise purchases in that 

underserved market in a given year. 

The Enterprise’s plan would provide 

FHFA with assessments and analyses of 

the market opportunities available for 

each underserved market and describe 

the Enterprise’s expected volume of 

loan purchases for a given year. The 

plan would be subject to FHFA review, 

which would normally take into 

account difficulties in forecasting future 

performance and the need for flexibility 

in dealing with unexpected market 

changes. 

Investments and Grants Assessment 

Factor. The investments and grants 

assessment factor 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). 

CFED provided several suggestions for 

grants in connection with manufactured 

housing, such as grants that promote 

peer-learning and industry knowledge 

on innovative and promising practices 

on the development of new products 

and activities. Under appropriate 

circumstances, these may be considered. 

The proposed rule would require the 

Enterprise to specify in its plan the 

benchmarks and objectives it would 

establish for the investments and grants 

assessment factor. The plan would 

describe the Enterprise’s projected 

investments and grants in a given year 

and any other benchmark and objective 

the Enterprise deems relevant. 

Other Considerations. The Enterprises 

would have the option, in their plans, 

of selecting within each underserved 

market particular programs to 

emphasize in a particular year. As 

discussed previously, for example, the 

Enterprises would not be required to 

assist each enumerated program in the 

affordable housing preservation market 

every year. Rather, the Enterprises could 

target certain programs in a given year. 

Likewise, for rural markets an 

Enterprise may choose to emphasize 

assistance with particular RHS 

programs. The plan should articulate 

the reasons for choosing particular 

programs. 

Although the Enterprises are in 

conservatorship, FHFA expects them to 

show tangible results in each 

underserved market and to be a catalyst 

for mortgage lending to very low-, lowand moderate-income families in each 

underserved market. The Enterprises 

should expect mortgage purchases and 

activities pursuant to the duty to serve 

to be profitable, even though they may 

be less so than activities that do not 

serve these underserved markets. 

Submission and Review of Plan. The 

proposed rule would set forth 

procedures for submission and review 

of the plan. The Enterprise would be 

required to submit the plan to FHFA at 

least 90 days before the plan’s effective 

date of January 1st of a particular year. 

The term of the plan must be for two 

years. 

Within 60 days of receipt of the plan, 

FHFA would inform the Enterprise of 

any concerns with or objections to the 

plan and, if necessary, would direct the 

Enterprise to amend the plan to FHFA’s 

satisfaction. 

For the 2010 evaluation year, FHFA 

would expect the Enterprises to submit 

a plan as soon as practical after 

publication of the final rule, and with 

the earliest feasible effective date. 

Assigned Ratings. The proposed rule 

would require that the Enterprise 

establish benchmarks and objectives in 

its plan to achieve an assigned rating of 

satisfactory on each assessment factor in 

each underserved market. The proposed 

rule would specify appropriate 

benchmarks and objectives that may 

result in a rating of satisfactory. 

Satisfactory performance would mean 

that an Enterprise has diligently and 

with a degree of success pursued 

opportunities and acted on the 

opportunities to serve the market in a 

given year. Satisfactory performance 

would include attention to families in 

each income group targeted by the duty 

to serve and responsiveness to the needs 

of the particular underserved market. 

Unsatisfactory performance would 

mean that the results were poor and the 

Enterprise did not meet the benchmarks 

and objectives in its plan for a rating of 

satisfactory. 

FHFA solicits comments on whether 

the assigned ratings for each assessment 

factor should be limited to satisfactory 

or unsatisfactory or have additional 

possible ratings such as outstanding or 

marginal. 

3. Determination of Compliance— 

Proposed § 1282.36 

FHFA would evaluate an Enterprise’s 

performance annually, as required by 

the Safety and Soundness Act. 12 U.S.C. 

4565(d)(1). In rating the Enterprise, 

FHFA would determine whether the 

Enterprise has substantially achieved its 

benchmarks and objectives for the 

desired rating as set forth in its plan. In 

determining substantial achievement, 

FHFA would consider the specific 

needs and conditions of each 

underserved market and the financial 

condition of the Enterprise. If market 

conditions or the financial condition of 

the Enterprise change markedly during 

an evaluation year, FHFA would take 

this into consideration. FHFA would 

also consider input from the Enterprise, 

market participants and others, such as 

housing and financial researchers, as to 

the Enterprise’s performance, financial 

condition and the needs and 

opportunities in the underserved 

markets. 

Evaluation of Assessment Factors. 

When evaluating an Enterprise’s 

compliance with the duty to serve, 

FHFA would not mechanically tally an 

Enterprise’s performance on each 

assessment factor into a total score for 

that market. Rather, FHFA would 

evaluate and weight each assessment 

factor based on the needs of the 

particular underserved market, overall 

market conditions and the financial 

condition of the Enterprise. 

Some commenters suggested a 

mathematical weighting of the four 

assessment factors to generate overall 

scores for the individual underserved 

markets. FHFA has considered these 

comments and has determined that a 

rigid mathematical weighting of the 

assessment factors would not provide 

FHFA with sufficient flexibility when 

evaluating an Enterprise’s compliance 

with the duty to serve during 

conservatorship. 

ROC USA suggested that the 

assessment factors for loan products, 

outreach and investments and grants 

should initially count more than loan 

purchases, but FHFA has not adopted 

this approach in the proposed rule. 

Loan purchases are the core business of 

the Enterprises and result in a tangible 

and immediate benefit to the families 

targeted for assistance. Accordingly, the 

loan purchase assessment factor, along 

with the outreach assessment factor, 

would receive significant weight in 

FHFA’s evaluation. Although FHFA 

would also consider the Enterprises’ 

performance under the loan product 

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59Office of the Comptroller of the Currency, 

Federal Reserve Board, Federal Deposit Insurance 

Corporation, Office of Thrift Supervision, National 

Credit Union Administration, ‘‘Statement on 

Subprime Mortgage Lending,’’ 72 FR 37569–575 

(July 10, 2007). 

60Office of the Comptroller of the Currency, 

Federal Reserve Board, Federal Deposit Insurance 

Corporation, Office of Thrift Supervision, National 

Credit Union Administration, ‘‘Interagency 

Guidance on Nontraditional Mortgage Product 

Risks.’’ 71 FR 58609–618 (Oct. 4, 2006). 

assessment factor, this would not 

include any requirement that the 

Enterprises enter new lines of business. 

Because the Enterprises are in 

conservatorship and are obligated to pay 

dividends to the Treasury for preferred 

shares of Enterprise stock that Treasury 

holds, the investments and grants 

assessment factor would receive little to 

no weight. 

Evaluation and Rating for 2010. For 

the 2010 evaluation year, FHFA would 

consider the administrative and 

operational effects on the Enterprises of 

not having final guidance in place for 

the entire year, and the Enterprises 

would only be rated for the portion of 

2010 for which the rule is effective. 

4. Requirements for Transactions or 

Activities—Proposed §§ 1282.37 

Through 1282.39 

The proposed rule would establish 

requirements for how transactions or 

activities would be treated. With some 

exceptions, the counting rules and other 

requirements would be similar to those 

established for the housing goals. For 

example, under appropriate 

circumstances, a single transaction 

could count towards the achievement of 

multiple housing goals, and in the same 

way one transaction could be 

considered towards more than one 

underserved market. Also, specialized 

transactions such as guarantees of MRBs 

and purchases of participations in 

mortgages would be treated in the same 

manner as under the Enterprises’ 

housing goals regulation. Consistent 

with the comments received, FHFA 

proposes to measure performance in 

terms of units rather than mortgages or 

unpaid principal balance for the loan 

purchase assessment factor. 

Under the proposed rule, Enterprise 

purchases of HOEPA mortgages and 

mortgages with unacceptable terms or 

conditions, as defined by FHFA in 

existing 12 CFR 1282.1, would not be 

considered under the duty to serve 

underserved markets. Thus, for 

example, purchase money mortgages 

exceeding the thresholds in 12 CFR 

1282.1 would not be considered. In 

addition, Enterprise purchase of 

mortgages where the sale or financing of 

prepaid single-premium credit life 

insurance products occurs in 

connection with the origination would 

not be considered. 

The proposed rule would provide that 

Enterprise purchases of mortgages that 

do not conform to the interagency 

Statement on Subprime Mortgage 

Lending 59 and the Interagency 

Guidance on Nontraditional Mortgage 

Product Risks 60 would not be 

considered under the duty to serve. To 

receive consideration under the duty to 

serve, all single-family loans purchased 

by the Enterprises must meet the 

standards in the Statement and 

Guidance. The Enterprises are expected 

to review the operations of loan sellers 

to ensure that the loans being sold to the 

Enterprises meet the standards in the 

Statement and Guidance. 

The proposed rule would require that 

the Enterprise use actual income or rent 

of the borrower or tenant when this is 

available. When this is not available for 

rental properties, the Enterprise could 

estimate affordability by using the 

median income level of the census tract 

where the property is located, relative to 

AMI. FHFA seeks comment on whether 

an alternative basis for estimating 

affordability would be more effective. 

For example, the affordability of rental 

units in a census tract could be 

estimated based on the affordable 

proportion of all rental units securing 

new mortgages in that census tract. 

The proposed rule would not limit the 

number of units with missing data for 

which an Enterprise could estimate 

affordability. Comments as to whether 

and how FHFA should impose a limit 

are invited. 

F. Enforcement of Duty to Serve— 

Proposed §§ 1282.40, 1282.41 

Section 1336(a)(4) of the Safety and 

Soundness Act provides that the duty to 

serve underserved markets is 

enforceable to the same extent and 

under the same enforcement provisions 

as are applicable to the Enterprise 

housing goals, except as otherwise 

provided. See 12 U.S.C. 4566(a)(4). 

Accordingly, if an Enterprise fails to 

comply with, or there is a substantial 

probability that the Enterprise will not 

comply with, its duty to serve a 

particular underserved market in a 

given year, FHFA would determine 

whether the benchmarks and objectives 

in the Enterprise’s plan are or were 

feasible. 

In determining feasibility, FHFA 

would consider factors such as market 

conditions and the financial condition 

of the Enterprise. The proposed rule 

would provide that if FHFA determines 

that such compliance is or was feasible, 

FHFA would follow the procedures in 

12 U.S.C. 4566(b). The proposed rule 

would also include provisions for 

submitting a housing plan in the 

Director’s discretion, if the Director 

determines that the Enterprise did not 

comply with its duty to serve a 

particular underserved market. 

G. Reports and Data Submission— 

Proposed § 1282.66 

The ANPR solicited comment on 

appropriate reporting and data 

submission requirements. The 

comments received were not extensive. 

The Center for Responsible Lending, 

Consumer Federation of America and 

National Consumer Law Center 

commented that FHFA should consider 

requiring each Enterprise to annually 

publish a comprehensive report that 

describes the Enterprise’s activities in 

each underserved market. Freddie Mac 

commented that the reporting 

requirements should be flexible and that 

FHFA should utilize existing Enterprise 

systems and processes. LISC 

commented that requiring the 

Enterprises to provide a complete listing 

of transactions would be valuable as 

long as confidentiality concerns are 

appropriately addressed. 

FHFA proposes to require the 

Enterprise to provide three quarterly 

reports and one annual report on its 

performance and progress towards 

meeting its duty to serve each 

underserved market. The reports would 

contain both narrative and summary 

statistical information, supported by 

submission of appropriate transactionlevel data. The annual report would 

include a description of the Enterprise’s 

market opportunities for loan purchases 

that year that were available in each 

underserved market, to the extent data 

is available, the volume of qualifying 

loans purchased that year, a comparison 

of the Enterprise’s loan purchases in 

that year with its loan purchases in past 

years, and a comparison of market 

opportunities with the size of the 

relevant markets in the past, to the 

extent data are available. The annual 

reports would also include discussion of 

the factors affecting the availability of 

loans for purchase that meet the 

requirements of the regulation. These 

factors could include market or 

accounting requirements for lenders to 

retain loans in portfolio or to sell them, 

the availability and pricing of credit 

enhancements from third parties and 

competition from other secondary 

market participants. 

IV. Paperwork Reduction Act 

The proposed rule does not contain 

any information collection requirement 

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that requires the approval of the Office 

of Management and Budget under the 

Paperwork Reduction Act (44 U.S.C. 

3501 et seq.). 

V. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) requires that a 

regulation that has a significant 

economic impact on a substantial 

number of small entities, small 

businesses, or small organizations must 

include an initial regulatory flexibility 

analysis describing the regulation’s 

impact on small entities. Such an 

analysis need not be undertaken if the 

agency has certified that the regulation 

will not have a significant economic 

impact on a substantial number of small 

entities. 5 U.S.C. 605(b). FHFA has 

considered the impact of the proposed 

rule under the Regulatory Flexibility 

Act. The General Counsel of FHFA 

certifies that the proposed rule, if 

adopted as a final rule, is not likely to 

have a significant economic impact on 

a substantial number of small business 

entities because the regulation is 

applicable only to the Enterprises, 

which are not small entities for 

purposes of the Regulatory Flexibility 

Act. 

List of Subjects in 12 CFR Part 1282 

Mortgages, Reporting and 

recordkeeping requirements. 

Accordingly, for the reasons stated in 

the preamble, FHFA proposes to further 

amend part 1282 of subchapter E of 12 

CFR chapter XII, as proposed to be 

revised at 75 FR 9061 (February 26, 

2010), as follows: 

SUBCHAPTER E—HOUSING GOALS AND 

MISSION 

PART 1282—ENTERPRISE HOUSING 

GOALS AND MISSION 

1. The authority citation for part 1282 

is revised to read as follows: 

Authority: 12 U.S.C. 4501, 4502, 4511, 

4513, 4526, 4561–4566, 4603. 

2. In § 1282.1, add the following 

definitions in alphabetical order: 

§ 1282.1 Definitions. 

* * * * * 

Manufactured home, for purposes of 

subpart C of this part, means a 

manufactured home as defined in 

section 603(6) of the Manufactured 

Home Construction and Safety 

Standards Act of 1974, as amended, 42 

U.S.C. 5402(6), and implementing 

regulations. 

* * * * * 

Rural area, for purposes of subpart C 

of this part, shall have the same 

meaning as provided in 42 U.S.C. 1490. 

* * * * * 

3. Add subpart C to read as follows: 

Subpart C—Duty to Serve 

Sec. 

1282.31 General. 

1282.32 Manufactured housing market. 

1282.33 Affordable housing preservation 

market. 

1282.34 Rural markets. 

1282.35 Underserved markets plan. 

1282.36 Evaluations and assigned ratings. 

1282.37 Consideration of transactions or 

activities. 

1282.38 General requirements for loan 

purchases. 

1282.39 Special requirements for loan 

purchases. 

1282.40 Failure to comply. 

1282.41 Housing plans. 

Subpart C—Duty to Serve 

§ 1282.31 General. 

(a) This subpart sets forth the 

Enterprises’ duty to serve three 

underserved markets as required by 

section 1335 of the Safety and 

Soundness Act, 12 U.S.C. 4565. This 

subpart also establishes for 2010 and 

subsequent years, standards and 

procedures for evaluating and rating 

each Enterprise’s compliance with the 

duty to serve underserved markets. 

(b) Nothing in this subpart shall 

permit or require an Enterprise to 

engage in any activity that would 

otherwise be inconsistent with its 

Charter Act or the Safety and Soundness 

Act. 

§ 1282.32 Manufactured housing market. 

(a) Duty in general. Each Enterprise 

shall develop loan products and flexible 

underwriting guidelines to facilitate a 

secondary market for eligible mortgages 

on manufactured homes for very low-, 

low- and moderate-income families. The 

Enterprise’s activities under this section 

shall serve each such income group in 

the year for which the Enterprise is 

evaluated and rated. 

(b) Eligible activities. Mortgages on 

manufactured homes and activities 

related to such mortgages shall be 

eligible for consideration under the duty 

to serve the manufactured housing 

market provided that: 

(1) The home is titled as real property; 

and 

(2) The loan does not provide for 

mandatory arbitration of disputes. 

§ 1282.33 Affordable housing preservation 

market. 

(a) Duty in general. Each Enterprise 

shall develop loan products and flexible 

underwriting guidelines to facilitate a 

secondary market to preserve housing 

affordable to very low-, low- and 

moderate-income families under eligible 

housing programs. The Enterprise’s 

activities under this section shall serve 

each such income group in the year for 

which the Enterprise is evaluated and 

rated. 

(b) Eligible housing programs. 

Enterprise activities related to housing 

projects under the following programs 

shall be eligible for consideration under 

the affordable housing preservation 

market: 

(1) The project-based and tenantbased rental assistance housing 

programs under section 8 of the U.S. 

Housing Act of 1937, 42 U.S.C. 1437f; 

(2) The rental and cooperative 

housing for lower income families 

under section 236 of the National 

Housing Act, 12 U.S.C. 1715z–1; 

(3) The housing program for 

moderate-income and displaced families 

under section 221(d)(4) of the National 

Housing Act, 12 U.S.C. 1715l; 

(4) The supportive housing program 

for the elderly under section 202 of the 

Housing Act of 1959, 12 U.S.C. 1701q; 

(5) The supportive housing program 

for persons with disabilities under 

section 811 of the Cranston-Gonzalez 

National Affordable Housing Act, 42 

U.S.C. 8013; 

(6) The permanent supportive housing 

projects subsidized under Title IV of the 

McKinney-Vento Homeless Assistance 

Act, 42 U.S.C. 11361 et seq.; 

(7) The rural rental housing program 

under section 515 of the Housing Act of 

1949, 42 U.S.C. 1485; 

(8) Low-income housing tax credits 

under section 42 of the Internal Revenue 

Code of 1986, 26 U.S.C. 42; 

(9) The Neighborhood Stabilization 

Program; and 

(10) Other comparable affordable 

housing programs administered by a 

state or local government that preserve 

housing affordable to very low-, lowand moderate-income families, as may 

be determined by FHFA in its 

discretion. 

(c) Level of assistance. An Enterprise 

shall not be required to assist every 

program enumerated in paragraphs 

(b)(1) through (b)(9) of this section in a 

particular year. 

§ 1282.34 Rural markets. 

Each Enterprise shall 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. The Enterprise’s 

activities under this section shall serve 

each such income group in the year for 

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32114 Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules 

which the Enterprise is evaluated and 

rated. 

§ 1282.35 Underserved markets plan. 

(a) General. Each Enterprise shall 

submit an underserved markets plan 

describing the steps it will take to serve 

each underserved market. FHFA will 

annually evaluate the Enterprise on its 

performance in all three underserved 

markets pursuant to the plan. 

(b) Term of plan. The plan shall cover 

a period of two years. 

(c) Plan content.—(1) The plan shall 

specify measurable benchmarks and 

objectives designed to achieve a rating 

of satisfactory for each assessment factor 

in each underserved market. For each 

underserved market, the plan shall 

address each benchmark and objective 

set forth in paragraphs (c)(2) through 

(c)(5) of this section and describe with 

sufficient specificity the steps the 

Enterprise will take to accomplish such 

benchmark and objective. The plan shall 

include annual measurable benchmarks 

and objectives and a timeframe for 

meeting them. 

(2) Benchmarks and objectives for 

loan product assessment factor.—(i) 

Loan features or products the Enterprise 

will evaluate or develop to increase the 

number of loans available to very 

low-, low- and moderate-income 

families in a particular underserved 

market; 

(ii) The Enterprise’s evaluation of and 

changes to its underwriting guidelines 

for existing loan products for the 

purpose of increasing the number of 

very low-, low- and moderate-income 

families that would qualify for such 

products. Any changes must be 

consistent with the Safety and 

Soundness Act and the safe and sound 

operation of the Enterprise; 

(iii) The degree to which such loan 

features, products or evaluation of or 

changes to underwriting guidelines 

serve families in each income group 

targeted by the duty to serve; and 

(iv) Any other benchmark and 

objective the Enterprise deems relevant. 

(3) Benchmarks and objectives for 

outreach assessment factor.—(i) New 

relationships the Enterprise will 

develop with qualified loan sellers that 

serve the needs of very low-, low- and 

moderate-income families in a 

particular underserved market; 

(ii) Enterprise outreach to market 

participants, such as community 

organizations, community development 

financial institutions, and organizations 

or market participants that serve 

families in each income group targeted 

by the duty to serve; 

(iii) Technical support the Enterprise 

will provide to qualified loan sellers 

and market participants. Technical 

support may include seminars, training 

and literature on the Enterprise’s loan 

products and processes, and any other 

support that would assist qualified loan 

sellers and market participants gain a 

better understanding of the Enterprise’s 

products; and 

(iv) Any other benchmark and 

objective the Enterprise deems relevant. 

(4) Benchmarks and objectives for 

loan purchase assessment factor.—(i) 

The volume of loans the Enterprise will 

purchase that serves the particular 

underserved market; 

(ii) The market opportunities for 

Enterprise mortgage purchases in the 

underserved area. Descriptions of 

market opportunities shall be supported 

by market size estimations; 

(iii) The Enterprise’s past performance 

on the volume of loans purchased in a 

particular underserved market relative 

to the volume of loans the Enterprise 

will purchase in such underserved 

market in a given year; 

(iv) The extent to which the loans 

purchased will serve each income group 

targeted by the duty to serve; and 

(v) Any other benchmark and 

objective the Enterprise deems relevant. 

(5) Benchmarks and objectives for 

investments and grants assessment 

factor.—(i) Investments and grants the 

Enterprise intends to make in a 

particular year; and 

(ii) Any other benchmark and 

objective the Enterprise deems relevant. 

(d) Procedures.—(1) An Enterprise 

shall submit the plan to FHFA at least 

90 days before the effective date of the 

plan. 

(2) The effective date of the plan shall 

be January 1st of that evaluation year. 

(3) Within 60 days of receipt of an 

Enterprise’s plan, FHFA will review the 

plan and inform the Enterprise of any 

concerns with or objections to the plan. 

(4) If FHFA objects to a plan 

submitted by the Enterprise, the 

Enterprise shall submit an amended 

plan to FHFA not later than 15 days 

following notification from FHFA. 

(e) Criteria for evaluating plan 

content. FHFA will evaluate a plan 

using the following criteria: 

(1) The extent to which the plan 

addresses each assessment factor and 

describes the steps the Enterprise will 

take to implement each benchmark and 

objective for each assessment factor in 

each underserved market; 

(2) The extent to which the plan 

establishes measurable benchmarks and 

objectives to achieve a rating of 

satisfactory and to serve a particular 

underserved market; 

(3) The innovativeness and 

effectiveness of the steps the Enterprise 

will take to accomplish the benchmarks 

and objectives and whether those steps 

will be responsive to the needs of a 

particular underserved market; and 

(4) The extent to which the plan 

serves families in each targeted income 

group in a particular underserved 

market. 

(f) Satisfactory rating. Benchmarks 

and objectives appropriate for a rating of 

satisfactory for a particular assessment 

factor may include: 

(1) Use of innovative products, 

practices and services; 

(2) Improvement in performance from 

year to year; 

(3) Responsiveness to the needs of a 

particular underserved market; 

(4) Assistance with products and 

programs for first-time homebuyers; 

(5) Assistance to insured depository 

institutions in meeting their CRA 

requirements; 

(6) Attention to families in each 

income group targeted by the duty to 

serve; and 

(7) For the loan purchase assessment 

factor, improvement in loan purchases 

over prior years. 

(g) Unsatisfactory rating. Failure to 

substantially achieve the benchmarks 

and objectives for a rating of satisfactory 

on a particular assessment factor shall 

result in a rating of unsatisfactory for 

that assessment factor. 

§ 1282.36 Evaluations and assigned 

ratings. 

(a) Assessment factors.—(1) FHFA 

will separately evaluate an Enterprise’s 

performance on each of the four 

assessment factors, as provided in 

paragraphs (a)(2) through (a)(5) of this 

section, in each underserved market. 

FHFA will evaluate and rate each 

Enterprise’s performance in each 

underserved market on an annual basis. 

(2) Loan product assessment factor. 

FHFA will evaluate each Enterprise on 

its development of loan products, more 

flexible underwriting guidelines, and 

other innovative approaches to 

providing financing to each underserved 

market. 

(3) Outreach assessment factor. FHFA 

will evaluate each Enterprise on the 

extent of its outreach to qualified loan 

sellers and other market participants in 

each underserved market. 

(4) Loan purchase assessment factor. 

FHFA will evaluate each Enterprise on 

the volume of loans it purchases in each 

underserved market relative to the 

market opportunities available to the 

Enterprise. 

(5) Investments and grants assessment 

factor. FHFA will evaluate each 

Enterprise on the amount of its 

investments and grants in projects that 

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assist in meeting the needs of each 

underserved market, taking into 

consideration the safe and sound 

operation of the Enterprise and the 

requirements of conservatorship. 

(b) Evaluation of assessment factors. 

In determining whether an Enterprise 

has complied with the duty to serve 

each underserved market, FHFA will 

annually evaluate the Enterprise under 

its underserved markets plan and assign 

a rating as follows: 

(1) FHFA will assign a rating of 

satisfactory or unsatisfactory to each 

assessment factor in each underserved 

market based on FHFA’s determination 

of whether the Enterprise has 

substantially achieved its benchmarks 

and objectives under its underserved 

markets plan; 

(2) In determining whether the 

Enterprise has substantially achieved its 

benchmarks and objectives, FHFA will 

consider market factors and other 

circumstances beyond the Enterprise’s 

control that affected the Enterprise’s 

ability to fully achieve its benchmarks 

and objectives. 

(c) Determination of compliance. For 

each underserved market, FHFA will 

assign a rating of ‘‘in compliance’’ or 

‘‘noncompliance’’ with the duty to serve 

that market. 

§ 1282.37 Consideration of transactions or 

activities. 

(a) General. FHFA shall determine 

whether an Enterprise transaction or 

activity shall be considered for purposes 

of the duty to serve underserved 

markets. In this determination, FHFA 

will consider whether the transaction or 

activity facilitates a secondary market 

for mortgages: On manufactured homes 

for very low-, low- and moderateincome families; to preserve housing 

affordable to very low-, low- and 

moderate-income families under eligible 

housing programs; and on housing for 

very low-, low- and moderate-income 

families in rural areas. If FHFA 

determines that a transaction or activity 

will be considered for purposes of the 

duty to serve underserved markets, such 

transaction or activity will be 

considered under the relevant 

assessment factor for each underserved 

market it serves. 

(b) Not considered. The following 

transactions or activities shall not be 

considered for purposes of the duty to 

serve underserved markets and shall not 

be considered for any assessment factor, 

even if the transaction or activity would 

otherwise be considered under 

§ 1282.39: 

(1) Enterprise contributions to the 

Housing Trust Fund, 12 U.S.C. 4568, 

and the Capital Magnet Fund, 12 U.S.C. 

4569, and mortgage purchases funded 

with such grant amounts; 

(2) HOEPA mortgages and mortgages 

with unacceptable terms and 

conditions; 

(3) Mortgages that do not conform to 

the interagency Statement on Subprime 

Mortgage Lending, 72 FR 37569–575 

(July 10, 2007), and the Interagency 

Guidance on Nontraditional Mortgage 

Product Risks, 71 FR 58609–618 (Oct. 4, 

2006); 

(4) Mortgages on manufactured homes 

not titled as real property or that 

provide for mandatory arbitration of 

disputes, or any activity related to such 

mortgages; 

(5) Mortgages on manufactured home 

communities or any activity related to 

such mortgages; 

(6) Purchases of single-family private 

label securities; 

(7) Commitments to buy mortgages at 

a later date or time; 

(8) Options to acquire mortgages; 

(9) Rights of first refusal to acquire 

mortgages; 

(10) Mortgage purchases to the extent 

they finance any dwelling units that are 

secondary residences; 

(11) Single-family refinancing 

mortgages that result from conversion of 

balloon notes to fully amortizing notes, 

if the Enterprise already owns or has an 

interest in the balloon note at the time 

conversion occurs; 

(12) Purchases of subordinate lien 

mortgages (second mortgages); 

(13) Transactions or activities for 

which either Enterprise previously 

received consideration under the duty 

to serve underserved markets within the 

five years immediately preceding the 

current performance year; 

(14) Purchases of mortgages where the 

property has not been approved for 

occupancy; 

(15) Any interests in mortgages that 

the Director determines, in writing, 

shall not be treated as interests in 

mortgages; 

(16) Purchases of State and local 

government housing bonds except as 

provided in § 1282.39(g); and 

(17) Any combination of factors in 

paragraphs (b)(1) through (b)(16) of this 

section. 

(c) FHFA review of transactions or 

activities. FHFA may determine whether 

and how any transaction or activity will 

be considered for purposes of the duty 

to serve underserved markets, including 

treatment of missing data. FHFA will 

notify each Enterprise in writing of any 

determination regarding the treatment of 

any transaction or activity. 

(d) The year in which a transaction or 

activity will be considered. A 

transaction or activity will be 

considered for purposes of the duty to 

serve underserved markets in the year in 

which the transaction or activity is 

completed. FHFA may determine that 

partial consideration is appropriate for a 

transaction or activity that begins in a 

particular year but is not completed 

until a subsequent year, except that 

transactions that count toward the loan 

purchase assessment factor shall be 

considered in the year in which the 

Enterprise purchased the mortgage. 

(e) Consideration under one 

assessment factor. A transaction or 

activity will only be considered under 

one assessment factor in a particular 

underserved market. 

(f) Consideration toward multiple 

underserved markets. A transaction or 

activity, including dwelling units 

financed by an Enterprise’s mortgage 

purchase, shall be considered for each 

underserved market for which such 

transaction or activity qualifies in that 

year. 

§ 1282.38 General requirements for loan 

purchases. 

(a) General. This section shall apply 

to Enterprise mortgage purchases that 

will be considered under the loan 

purchase assessment factor for a 

particular underserved market. Only 

dwelling units that are financed by 

mortgage purchases eligible to be 

considered under the duty to serve a 

particular underserved market, and that 

are not specifically excluded as 

ineligible under § 1282.37(b), may be 

considered. 

(b) Rental units. For purposes of 

counting rental units toward the loan 

purchase assessment factor, mortgage 

purchases financing such units shall be 

evaluated based on the income of actual 

or prospective tenants where such data 

is available, i.e., known to a lender. 

(1) Use of income. Each Enterprise 

shall require lenders to provide to the 

Enterprise tenant income information, 

but only when such information is 

known to the lender. When the income 

of actual tenants is available, the income 

of the tenant shall be compared to the 

median income for the area, adjusted for 

family size as provided in § 1282.17, or 

as provided in § 1282.18 if family size 

is not known. 

(i) When such tenant income 

information is available for all occupied 

units, the Enterprise’s performance shall 

be based on the income of the tenants 

in the occupied units. For unoccupied 

units that are vacant and available for 

rent and for unoccupied units that are 

under repair or renovation and not 

available for rent, the Enterprise shall 

use rent levels for comparable units in 

the property to determine affordability, 

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32116 Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules 

except as provided in paragraph 

(b)(1)(ii) of this section. 

(ii) When income for tenants is 

available to a lender because a project 

is subject to a federal housing program 

that establishes the maximum income 

for a tenant or a prospective tenant in 

rental units, the income of prospective 

tenants may be counted at the maximum 

income level established under such 

housing program for that unit, but such 

tenant income shall not exceed 100 

percent of area median income. In 

determining the income of prospective 

tenants, the income shall be projected 

based on the types of units and market 

area involved. Where the income of 

prospective tenants is projected, each 

Enterprise must determine that the 

income figures are reasonable 

considering the rents (if any) on the 

same units in the past and considering 

current rents on comparable units in the 

same market area. 

(2) Use of rent. When the income of 

the prospective or actual tenants of a 

dwelling unit is not available, 

performance will be evaluated based on 

rent and whether the rent is affordable 

to the income group targeted by the 

underserved market. A rent is affordable 

if the rent does not exceed the 

maximum income levels as provided in 

§ 1282.19. In determining contract rent 

for a dwelling unit, the actual rent or 

average rent by unit type shall be used. 

(3) Model units and rental offices. A 

model unit or rental office may be 

counted towards the loan purchase 

assessment factor only if an Enterprise 

determines that the number of such 

units is reasonable and minimal 

considering the size of the property. 

(4) Timeliness of information. When 

counting dwelling units, each Enterprise 

shall use tenant and rental information 

as of the time of mortgage acquisition. 

(c) Missing data or information—(1) 

When an Enterprise lacks sufficient 

information to determine whether an 

owner-occupied unit in a property 

securing a mortgage purchased by an 

Enterprise counts toward the loan 

purchase assessment factor for a 

particular underserved market because 

the income of the mortgagor is not 

available, the Enterprise may not count 

such unit. 

(2) When an Enterprise lacks 

sufficient information to determine 

whether a rental unit in a property 

securing a mortgage purchased by an 

Enterprise counts toward the loan 

purchase assessment factor for a 

particular underserved market because 

neither the income of prospective or 

actual tenants, nor the actual or average 

rental data, are available, an Enterprise 

may estimate affordability with respect 

to such unit by using the median 

income level of the census tract where 

the property is located, as determined 

by FHFA based on the most recent 

decennial census. 

(d) Application of median income— 

(1) For purposes of determining an 

area’s median income under §§ 1282.17 

through 1282.19 and the definitions in 

§ 1282.1, the area is: 

(i) The metropolitan area, if the 

property which is the subject of the 

mortgage is in a metropolitan area; and 

(ii) In all other areas, the county in 

which the property is located, except 

that where the State non-metropolitan 

median income is higher than the 

county’s median income, the area is the 

State non-metropolitan area. 

(2) When an Enterprise cannot 

precisely determine whether a mortgage 

is on dwelling unit(s) located in one 

area, the Enterprise shall determine the 

median income for the split area in the 

manner prescribed by the Federal 

Financial Institutions Examination 

Council for reporting under the Home 

Mortgage Disclosure Act, if the 

Enterprise can determine that the 

mortgage is on dwelling unit(s) located 

in: 

(i) A census tract; 

(ii) A census place code; 

(iii) A block-group enumeration 

district; 

(iv) A nine-digit zip code; or 

(v) Another appropriate geographic 

segment that is partially located in more 

than one area (‘‘split area’’). 

(e) Sampling not permitted. 

Performance under the loan purchase 

assessment factor for each underserved 

market for each year shall be based on 

a complete tabulation of dwelling units 

for that year; a sampling of such 

dwelling units is not acceptable. 

(f) Newly available data. When an 

Enterprise uses data to determine 

whether a dwelling unit counts toward 

the loan purchase assessment factor for 

a particular underserved market and 

new data is released after the start of a 

calendar quarter, the Enterprise need 

not use the new data until the start of 

the following quarter. 

§ 1282.39 Special requirements for loan 

purchases. 

(a) General. Subject to FHFA’s 

determination of whether a transaction 

or activity shall be considered for 

purposes of the duty to serve 

underserved markets, the transactions 

and activities identified in this section 

shall be treated as mortgage purchases 

as described, and be considered under 

the loan purchase assessment factor. A 

transaction or activity that is covered by 

more than one paragraph below must 

satisfy the requirements of each such 

paragraph. 

(b) Credit enhancements—(1) 

Dwelling units financed under a credit 

enhancement entered into by an 

Enterprise shall be treated as mortgage 

purchases only when: 

(i) The Enterprise provides a specific 

contractual obligation to ensure timely 

payment of amounts due under a 

mortgage or mortgages financed by the 

issuance of housing bonds (such bonds 

may be issued by any entity, including 

a State or local housing finance agency); 

and 

(ii) The Enterprise assumes a credit 

risk in the transaction substantially 

equivalent to the risk that would have 

been assumed by the Enterprise if it had 

securitized the mortgages financed by 

such bonds. 

(2) When an Enterprise provides a 

specific contractual obligation to ensure 

timely payment of amounts due under 

any mortgage originally insured by a 

public purpose mortgage insurance 

entity or fund, the Enterprise may, on a 

case-by-case basis, seek approval from 

the Director for such transactions to 

count under the loan purchase 

assessment factor for a particular 

underserved market. 

(c) Risk-sharing. Mortgages purchased 

under risk-sharing arrangements 

between an Enterprise and any federal 

agency under which the Enterprise is 

responsible for a substantial amount (50 

percent or more) of the risk shall be 

treated as mortgage purchases. 

(d) Participations. Participations 

purchased by an Enterprise shall be 

treated as mortgage purchases only 

when the Enterprise’s participation in 

the mortgage is 50 percent or more. 

(e) Cooperative housing and 

condominiums—(1) The purchase of a 

mortgage on a cooperative housing unit 

(‘‘a share loan’’) or a mortgage on a 

condominium unit shall be treated as a 

mortgage purchase. 

(2) The purchase of a mortgage on a 

cooperative building (‘‘a blanket loan’’) 

or a mortgage on a condominium project 

shall be treated as a mortgage purchase. 

(3) Where an Enterprise purchases 

both a blanket loan on a cooperative 

building and share loans for units in the 

same building, both the blanket loan 

and the share loan(s) shall be treated as 

mortgage purchases. Where an 

Enterprise purchases both a 

condominium project mortgage and 

mortgages on condominium dwelling 

units in the same project, both the 

condominium project mortgages and the 

mortgages on condominium dwelling 

units shall be treated as mortgage 

purchases. 

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Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules 32117 

(f) Seasoned mortgages. An 

Enterprise’s purchase of a seasoned 

mortgage shall be treated as a mortgage 

purchase. 

(g) Purchase of refinancing mortgages. 

The purchase of a refinancing mortgage 

by an Enterprise shall be treated as a 

mortgage purchase only if the 

refinancing is an arms-length 

transaction that is borrower-driven. 

(h) Mortgage revenue bonds. The 

purchase or guarantee of a mortgage 

revenue bond issued by a State or local 

housing finance agency shall be treated 

as a purchase of the underlying 

mortgages only to the extent the 

Enterprise has sufficient information to 

determine whether the underlying 

mortgages or mortgage-backed securities 

serve very low-, low- or moderateincome families in a particular 

underserved market. 

(i) Loan modifications. An 

Enterprise’s modification of a loan in 

accordance with the Making Home 

Affordable program announced on 

March 4, 2009, that is held in the 

Enterprise’s portfolio or that is in a pool 

backing a security guaranteed by the 

Enterprise, shall be treated as a 

mortgage purchase. 

(j) Seller dissolution option—(1) 

Mortgages acquired through transactions 

involving seller dissolution options 

shall be treated as mortgage purchases 

only when: 

(i) The terms of the transaction 

provide for a lockout period that 

prohibits the exercise of the dissolution 

option for at least one year from the date 

on which the transaction was entered 

into by the Enterprise and the seller of 

the mortgages; and 

(ii) The transaction is not dissolved 

during the one-year minimum lockout 

period. 

(2) FHFA may grant an exception to 

the one-year minimum lockout period 

described in paragraphs (j)(1)(i) and 

(j)(1)(ii) of this section, in response to a 

written request from an Enterprise, if 

FHFA determines that the transaction 

furthers the purposes of the Enterprise’s 

Charter Act and the Safety and 

Soundness Act. 

(3) For purposes of paragraph (j) of 

this section, ‘‘seller dissolution option’’ 

means an option for a seller of 

mortgages to the Enterprises to dissolve 

or otherwise cancel a mortgage purchase 

agreement or loan sale. 

§ 1282.40 Failure to comply. 

If the Director determines that an 

Enterprise has not complied with, or 

there is a substantial probability that the 

Enterprise will not comply with, the 

duty to serve a particular underserved 

market in a given year and the Director 

determines that such compliance is or 

was feasible, the Director will follow the 

procedures in 12 U.S.C. 4566(b). 

§ 1282.41 Housing plans. 

(a) General. If the Director determines 

that an Enterprise did not comply with 

the duty to serve a particular 

underserved market in a given year, the 

Director may require the Enterprise to 

submit a housing plan for approval by 

the Director. 

(b) Nature of housing plan. If the 

Director requires a housing plan, the 

housing plan shall: 

(1) Be feasible; 

(2) Be sufficiently specific to enable 

the Director to monitor compliance 

periodically; 

(3) Describe the specific actions that 

the Enterprise will take—: 

(i) To comply with the duty to serve 

a particular underserved market for the 

next calendar year; or 

(ii) To make such improvements and 

changes in its operations as are 

reasonable in the remainder of the year, 

if the Director determines that there is 

a substantial probability that the 

Enterprise will fail to comply with the 

duty to serve a particular underserved 

market in such year; and 

(4) Address any additional matters 

relevant to the housing plan as required, 

in writing, by the Director. 

(c) Deadline for submission. The 

Enterprise shall submit the housing plan 

to the Director within 45 days after 

issuance of a notice requiring the 

Enterprise to submit a housing plan. 

The Director may extend the deadline 

for submission of a housing plan, in 

writing and for a time certain, to the 

extent the Director determines an 

extension is necessary. 

(d) Review of housing plans. The 

Director shall review and approve or 

disapprove housing plans in accordance 

with 12 U.S.C. 4566(c)(4) and (c)(5). 

(e) Resubmission. If the Director 

disapproves an initial housing plan 

submitted by an Enterprise, the 

Enterprise shall submit an amended 

housing plan acceptable to the Director 

not later than 15 days after the 

Director’s disapproval of the initial 

housing plan; the Director may extend 

the deadline if the Director determines 

an extension is in the public interest. If 

the amended housing plan is not 

acceptable to the Director, the Director 

may afford the Enterprise 15 days to 

submit a new housing plan. 

4. Add § 1282.66 in subpart D to read 

as follows: 

§ 1282.66 Enterprise reports on duty to 

serve. 

(a) Quarterly reports. Each Enterprise 

shall submit to the Director a quarterly 

report on its transactions and activities 

undertaken pursuant to its underserved 

markets plan, which shall include 

detailed information on the Enterprise’s 

progress towards meeting the 

benchmarks and objectives in its plan. 

(b) Annual report. To comply with the 

requirements in sections 309(n) of the 

Fannie Mae Charter Act and 307(f) of 

the Freddie Mac Act and for purposes 

of FHFA’s Annual Housing Report to 

Congress, each Enterprise shall submit 

to the Director an annual report on its 

transactions and activities undertaken 

pursuant to its underserved markets 

plan no later than 60 days after the end 

of each calendar year. For each 

underserved market, the annual report 

shall include: a description of the 

Enterprise’s market opportunities for 

loan purchases during the evaluation 

year to the extent data is available; the 

volume of qualifying loans purchased 

by the Enterprise; a comparison of the 

Enterprise’s loan purchases with its loan 

purchases in prior years; and a 

comparison of market opportunities 

with the size of the relevant markets in 

the past, to the extent data are available. 

Dated: May 28, 2010. 

Edward J. DeMarco, 

Acting Director, Federal Housing Finance 

Agency. 

[FR Doc. 2010–13411 Filed 6–4–10; 8:45 am] 

BILLING CODE 8070–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 71 

[Docket No. FAA–2010–0365; Airspace 

Docket No. 10–AAL–12] 

RIN 2120–AA66 

Proposed Amendment of Colored 

Federal Airway B–38; Alaska 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: This action proposes to 

amend Colored Federal Airway Blue 38 

(B–38), in Alaska. Specifically this 

action would remove a segment of B–38 

from Haines Non-directional Beacon 

(NDB) to the Whitehorse, Yukon 

Territories Canada (XY NDB). The FAA 

is proposing this action in preparation 

of the eventual decommissioning of XY 

NDB by the Canadian Air Authority 

NAV CANADA. 

DATES: Comments must be received on 

or before July 22, 2010. 

WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS