[Federal Register Volume 75, Number 108 (Monday, June 7, 2010)]
[Proposed Rules]
[Pages 32099-32117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-13411]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

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

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

[[Page 32099]]



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.

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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:
    <bullet> E-mail: Comments to Alfred M. Pollard, General Counsel, 
may be sent by e-mail to <a href="/cdn-cgi/l/email-protection#52003735113d3f3f373c262112343a34337c353d24"><span class="__cf_email__" data-cfemail="ca98afad89a5a7a7afa4beb98aaca2acabe4ada5bc">[email protected]</span></a>. Please include ``RIN 
2590-AA27'' in the subject line of the message.
    <bullet> 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 <a href="/cdn-cgi/l/email-protection#8cdee9ebcfe3e1e1e9e2f8ffcceae4eaeda2ebe3fa"><span class="__cf_email__" data-cfemail="0c5e696b4f6361616962787f4c6a646a6d226b637a">[email protected]</span></a> to ensure timely receipt by the 
Agency. Please include ``RIN 2590-AA27'' in the subject line of the 
message.
    <bullet> 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.
    <bullet> 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\
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    \1\ See 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.
    \2\ See 12 U.S.C. 4513.
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    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

[[Page 32100]]

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\
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    \3\ See HERA at section 1302, 122 Stat. 2795; 12 U.S.C. 4603.
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    The Enterprises are government-sponsored 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\
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    \4\ See 12 U.S.C. 1716 et seq.; 12 U.S.C. 1451 et seq.
    \5\ Id.
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B. Statutory Background

    The Safety and Soundness Act provides that the Enterprises ``have 
an affirmative obligation to facilitate the financing of affordable 
housing for low- and 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:
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    \6\ The terms ``very low-income'', ``low-income'' and 
``moderate-income'' are defined in 12 U.S.C. 4502.
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    (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\
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    \7\ See 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).
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    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

[[Page 32101]]

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.
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    \8\ 74 FR 38572 (Aug. 4, 2009).
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    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.
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    \9\ In this rulemaking FHFA is using the term ``manufactured 
home communities'' to mean ``manufactured home parks.''
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    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 investor-owned 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 site-built 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\
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    \10\ For 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.
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    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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    \12\ Manufactured housing industry commenters asserted there 
could be advantages to personal property mortgages. The Manufactured 
Housing 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.

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[[Page 32102]]

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 moderate-income 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\
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    \13\ See ``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.
    \14\ See 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.
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    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 cost-effective than 
building new subsidized units.\15\ One way to achieve this is to make 
financing for affordable housing preservation available on better 
terms.
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    \15\ See National Housing Trust, ``Affordable Housing 
Preservation FAQs'' (2010), available at http://www.nhtinc.org/preservation_faq.php.
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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.
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    \16\ See 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 
<greek-i>19 (Apr. 2000), available at http://muskie.usm.maine.edu/Publications/rural/WP%2319.pdf.
    \17\ See 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.
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    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\
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    \18\ Statement 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.
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D. Market-by-Market Considerations

1. Manufactured Housing Market--Proposed Sec.  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\
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    \20\ This assessment is based on HMDA data from 2004-2008, 
exclusive of HOEPA mortgages and mortgages lacking borrower income 
information.
    \21\ The 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.
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    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 asset-backed 
securities \23\ and difficulties with bond insurance \24\ have added to 
concerns.\25\
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    \23\ See 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%20Fourth-Quarter%20U.S.%20ABS%20Downgrades%20(01-28-09).pdf.
    \24\ See 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.
    \25\ As an illustration of the recent market, according to 
Origen Financial Services, the lack of 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.

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[[Page 32103]]

    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 cost-
effective scale in low-density settings.\26\

    \26\ Neighborhood 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.

    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\
---------------------------------------------------------------------------

    \27\ 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.
---------------------------------------------------------------------------

    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 
lower-income 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\
---------------------------------------------------------------------------

    \28\ The 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.
---------------------------------------------------------------------------

    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,

[[Page 32104]]

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\
---------------------------------------------------------------------------

    \29\ See 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/tammac-holdings.pdf.
    \30\ More than 40 states reportedly provide for conversion to 
real estate titles for manufactured 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.
    \31\ See 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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \32\ For 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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \33\ For 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.).
---------------------------------------------------------------------------

    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\
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    \34\ By 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.
    \35\ One 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.
    \36\ See 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 Mortgage-Backed Securities Transactions,'' 
p. 22 (Apr. 2009), available at http://www.dbrs.com/research/227912/rating-u-s-residential-mortgage-backed-securities-transactions.pdf 
(``Historically, chattel paper posed difficulties for investors of 
RMBS since the greatest recovery value is in the land, not the 
structure.'').
    \37\ See 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.
    \38\ T. 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/IsManufacturedHousingAGoodAlternativeForLow-IncomeFamiliesEvidenceFromTheAmericanHousingSurvey.pdf
    \39\ See Office of Thrift Supervision, Examination Handbook, 
212.25 (Sept. 2008), available at  http://files.ots.treas.gov/422320.pdf.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \40\ This 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.
---------------------------------------------------------------------------

    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

[[Page 32105]]

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 investor-
owned 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 resident-owned and investor-
owned communities are treated. Eighty-four commenters addressed this 
issue. There was support from most commenters for considering 
assistance to resident-owned 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 resident-owned 
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.
---------------------------------------------------------------------------

    \41\ A 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.
---------------------------------------------------------------------------

    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 Sec.  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.
---------------------------------------------------------------------------

    \42\ Stewards 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.
---------------------------------------------------------------------------

    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

[[Page 32106]]

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \44\ HUD Insured Multifamily Mortgages Database, available at 
http://www.hud.gov/offices/hsg/comp/rpts/mfh/mf_f47.cfm.
---------------------------------------------------------------------------

    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-, low- and 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

[[Page 32107]]

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\
---------------------------------------------------------------------------

    \45\ See 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 Low-Income, 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.
    \47\ See 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-b-DHQ8QSySzpNFYC5VTDHxWlM74Ji4PmkCWW2aFM9bzzQOeXlu7iwS8Tzpo6jShgeYzBOBsEdxcMAaFM-pR2WpxlKvtWL1XZmcoS_F9fsbV8cUbyqcmouUB8Hycy&sig=AHIEtbR0BncO3GAlI_rSAfSyljUDOH_Y9g.
    \48\ HUD Insured Multifamily Mortgages Database, available at 
http://www.hud.gov/offices/hsg/comp/rpts/mfh/mf_f47.cfm.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \49\ See 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:.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \50\ For a description of the Section 811 program, see http://www.hud.gov/offices/hsg/mfh/progdesc/disab811.cfm.
    \51\ For a description of the PRAC initiative, see http://www.hud.gov/offices/cfo/reports/2011/cjs/Housing_For_Persons_Disabilities_2011.pdf.
---------------------------------------------------------------------------

    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 McKinney-Vento 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 low-income 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 low-income 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

[[Page 32108]]

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\
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    \52\ See ``NCSHA 2010 Legislative and Regulatory Priorities,'' 
(Oct. 14, 2009), available at http://www.ncsha.org/resource/ncsha-2010-legislative-and-regulatory-priorities.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \53\ U.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.
---------------------------------------------------------------------------

    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 long-term 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 Sec. Sec.  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 MSA-based 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

[[Page 32109]]

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.
---------------------------------------------------------------------------

    \54\ See 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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \55\ For 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.
---------------------------------------------------------------------------

    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

[[Page 32110]]

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.
---------------------------------------------------------------------------

    \56\ For stylistic simplicity, where a commenter speaks of the 
four ``tests'' as set forth in the ANPR, the preamble will describe 
them as ``assessment factors.''
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \57\ See Letter to Congress at 6.
---------------------------------------------------------------------------

2. Underserved Markets Plan--Proposed Sec.  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.
---------------------------------------------------------------------------

    \58\ For information on strategic plans under CRA regulations, 
see generally 12 CFR 228.27.
---------------------------------------------------------------------------

    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 long-term 
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

[[Page 32111]]

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-, low- and 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 Sec.  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

[[Page 32112]]

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 Sec. Sec.  
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.
---------------------------------------------------------------------------

    \59\ Office 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).
    \60\ Office 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).
---------------------------------------------------------------------------

    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 Sec. Sec.  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 Sec.  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 transaction-level 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

[[Page 32113]]

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 Sec.  1282.1, add the following definitions in alphabetical 
order:


Sec.  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


Sec.  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.


Sec.  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.


Sec.  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 tenant-based 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-
, low- and 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.


Sec.  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

[[Page 32114]]

which the Enterprise is evaluated and rated.


Sec.  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.


Sec.  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

[[Page 32115]]

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.


Sec.  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 moderate-
income 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 Sec.  
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 Sec.  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.


Sec.  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 Sec.  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 Sec.  
1282.17, or as provided in Sec.  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,

[[Page 32116]]

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 
Sec.  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 Sec. Sec.  1282.17 through 1282.19 and 
the definitions in Sec.  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.


Sec.  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.

[[Page 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 moderate-income 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.


Sec.  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).


Sec.  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 Sec.  1282.66 in subpart D to read as follows:


Sec.  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


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