[Federal Register Volume 75, Number 177 (Tuesday, September 14, 2010)]
[Rules and Regulations]
[Pages 55892-55939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-22361]
[[Page 55891]]
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Part III
Federal Housing Finance Agency
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12 CFR Parts 1249 and 1282
2010-2011 Enterprise Housing Goals; Enterprise Book-entry Procedures;
Final Rule
Federal Register / Vol. 75 , No. 177 / Tuesday, September 14, 2010 /
Rules and Regulations
[[Page 55892]]
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FEDERAL HOUSING FINANCE AGENCY
12 CFR Parts 1249, 1282
RIN 2590-AA26
2010-2011 Enterprise Housing Goals; Enterprise Book-entry
Procedures
AGENCY: Federal Housing Finance Agency.
ACTION: Final rule.
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SUMMARY: Section 1128(b) of the Housing and Economic Recovery Act of
2008 (HERA) amended the Federal Housing Enterprises Financial Safety
and Soundness Act of 1992 (Safety and Soundness Act) to provide for the
establishment, monitoring and enforcement of new housing goals
effective for 2010 and 2011 for the Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
(Freddie Mac) (collectively, the Enterprises). Section 1332(a) of the
Safety and Soundness Act, as amended by HERA, requires the Federal
Housing Finance Agency (FHFA) to establish three single-family owner-
occupied purchase money mortgage goals and one single-family
refinancing mortgage goal. Section 1333(a) of the Safety and Soundness
Act requires FHFA to establish one multifamily special affordable
housing goal, as well as providing for a multifamily special affordable
housing subgoal. This final rule establishes new housing goals for 2010
and 2011, consistent with the Safety and Soundness Act, as amended. The
final rule also revises and updates the rules for counting mortgages
for purposes of the housing goals to ensure clarity and consistency
with the new goals. In addition, the final rule includes provisions
regarding reporting requirements and book-entry procedures.
DATES: This rule is effective October 14, 2010.
FOR FURTHER INFORMATION CONTACT: Nelson Hernandez, Senior Associate
Director, Housing Mission and Goals, Office of Housing and Community
Investment, (202) 408-2819, Brian Doherty, Manager, Housing Mission and
Goals, Office of Housing and Community Investment, (202) 408-2991, Paul
Manchester, Principal Economist, Housing Mission and Goals, Office of
Housing and Community Investment, (202) 408-2946, Sharon Like, Managing
Associate General Counsel, Office of General Counsel, (202) 414-8950,
Kevin Sheehan, Attorney, Office of General Counsel, (202) 414-8952 or
Lyn Abrams, Attorney, Office of General Counsel, (202) 414-8951. These
are not toll-free numbers. The mailing address for each contact is:
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. 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 affordable 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, Sec. 1101, Public Law
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 Act
and the Federal Home Loan Mortgage Corporation Act (together, the
Charter Acts), shall remain in effect and be enforceable by the
Secretary or the Director of FHFA, as the case may be, until modified,
terminated, set aside or superseded by the Secretary or the Director,
any court, or operation of law. The Enterprises continue to operate
under regulations promulgated by OFHEO and HUD until FHFA issues its
own regulations.\3\ The Enterprises are government-sponsored
enterprises (GSEs) 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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\3\ See HERA at section 1302, 122 Stat. 2795.
\4\ See 12 U.S.C. 1716 et seq.; 12 U.S.C. 1451 et seq.
\5\ Id.
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B. Statutory and Regulatory Background
Prior to HERA, the Safety and Soundness Act provided the Secretary
of HUD with specific authority to establish, monitor and enforce
affordable housing goals for the Enterprises.\6\ HUD issued regulations
establishing affordable housing goals for the Enterprises, which were
periodically updated, most recently in 2004, when HUD established new
housing goal levels for 2005 through 2008.\7\ HUD's regulations
provided for the housing goal levels for 2008 to continue in effect in
2009 and each year thereafter until replaced by new annual housing
goals established by HUD.\8\ In August 2009, FHFA issued a final rule
that adopted many of the existing housing goals provisions in a new
part 1282 of title 12 of the Code of Federal Regulations. As authorized
by section 1331(c) of the Safety and Soundness Act, as amended, the
final rule also revised the levels of the existing affordable housing
goals in light of current market conditions.\9\
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\6\ See 12 U.S.C. 4561 et seq. (2008).
\7\ See 24 CFR part 81 (2008).
\8\ See 24 CFR 81.12 through 81.14 (2008).
\9\ See 74 FR 39873 (Aug. 10, 2009).
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The Safety and Soundness Act, as amended by HERA, requires the
Director of FHFA to establish new housing goals effective for 2010 and
beyond. The new housing goals include four goals for single-family,
owner-occupied housing, one multifamily special affordable housing
goal, and one multifamily special affordable housing subgoal.\10\ The
single-family housing goals target purchase money mortgages for low-
income families, families that reside in low-income areas, and very
low-income families, and refinancing mortgages for low-income
families.\11\ The multifamily special affordable housing goal targets
multifamily housing affordable to low-income families, and the
multifamily special affordable housing subgoal targets multifamily
housing affordable to very low-income families.\12\
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\10\ See 12 U.S.C. 4561 and 4563(a)(2).
\11\ See 12 U.S.C. 4562.
\12\ See 12 U.S.C. 4563.
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[[Page 55893]]
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, as amended by HERA, to maintain the Enterprises in a
safe and sound financial condition. The Enterprises remain under
conservatorship at this time.
Although the Enterprises' substantial market presence has been a
key step to restoring market stability, neither company would be
capable of serving the mortgage market today without the ongoing
financial support provided by the U.S. Department of Treasury. Fannie
Mae has drawn $85.1 billion and Freddie Mac has drawn $63.1 billion in
Treasury support under the Senior Preferred Stock Purchase Agreements,
over $148 billion in total. Under the terms of the Senior Preferred
Stock Purchase Agreements, the Enterprises will be shrinking their
retained mortgage portfolio 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 action affecting the
Enterprises' future form and function. While reliance on the Treasury
Department's backing will continue until legislation produces a final
resolution to the Enterprises' future, FHFA is monitoring the
activities of the Enterprises to: (a) Limit their risk and exposure by
avoiding new lines of business; (b) ensure profitability in the new
book of business without deterring market participation or hindering
market recovery; and (c) minimize losses on the mortgages already on
their books.
II. Proposed Rule
On February 26, 2010, FHFA published in the Federal Register a
proposed rule to establish new housing goals for the Enterprises. The
45-day comment period closed April 12, 2010. See 75 FR 9034 (Feb. 26,
2010). FHFA received a total of 29 comment letters on the proposed
rule. Eight of the comment letters were from real estate professionals
and addressed seller concessions in real estate transactions, an issue
that is not applicable to this rulemaking. The remaining 21 comment
letters were from 11 trade associations, two not-for-profit
organizations, two policy advocacy groups, one corporation, one
government entity, one financial research organization, one individual,
and both Enterprises.
In the proposed rule, FHFA proposed measuring the Enterprises'
single-family performance against specified benchmark levels and
against the primary mortgage market. FHFA received 11 comment letters
on this proposal, all in support of the two-part approach. Most of the
trade associations, as well as the Enterprises, recognized the
difficulty of forecasting the mortgage market in the current economic
environment and were receptive to the alternative measurements.
Seven commenters supported the proposed benchmark levels for the
single-family home purchase goals. These commenters also supported the
new separate low-income families refinancing goal. The Enterprises did
not object to the mortgage purchase goal levels, but were concerned
that the low-income refinancing goal was set too high. One trade
association stated that the mortgage purchase goal levels were set at
only 50 to 60 percent of Enterprise purchases in 2008 and should be
higher.
The multifamily housing goal levels were supported generally by
four commenters, although two commenters noted that the multifamily
market may be difficult to measure. Eight commenters did not support
the multifamily housing goal levels. Six commenters stated that the
goal levels were too low, and that the Enterprises should be required
to provide more assistance to the multifamily market. On the other
hand, the Enterprises commented that demand for multifamily financing
is too weak to support the proposed goal levels, and that they should
be set lower.
The proposed rule invited comment on whether there should be
housing goals established for mortgages secured by small multifamily
properties, in addition to reporting requirements. Five commenters
supported the proposed reporting requirements, and urged FHFA to also
establish small multifamily housing goals. The commenters stated that
the small multifamily market is an underserved market segment, and
assistance is needed in smaller communities. Three commenters,
including both Enterprises, stated that reporting on small multifamily
properties was appropriate, but they discouraged a small multifamily
housing goal at this time given the state of the multifamily market and
the financial condition of the Enterprises.
Eight commenters addressed the proposed standards for exclusion of
certain mortgage purchases from counting toward achievement of the
housing goals. Five commenters were in favor of excluding private label
securities from the housing goals, although Freddie Mac favored
inclusion if due diligence is conducted. A few other commenters
suggested the use of Regulation Z and the Home Ownership and Equity
Protection Act (HOEPA) rather than interagency guidance to determine
goals eligibility. Commenters also suggested that FHFA explicitly
exclude from the housing goals mortgages with other characteristics
such as low teaser rates, interest-only options, negative amortization,
reduced documentation, and second liens. One commenter expressed
support for the provision that allows FHFA discretion to enumerate
additional unacceptable terms and conditions that constitute
unacceptable mortgages.
FHFA has considered all of the comments on the proposed rule and
has determined to adopt a final rule that makes certain revisions to
the proposed rule, as described in detail below. Comments that raised
issues beyond the scope of the proposed rule are not addressed in this
final rule, but may be considered by FHFA at a future date.
III. Summary of Final Rule
A. Modification of Housing Goal Structure
The final rule modifies the structure of the housing goals in
accordance with HERA's revisions to the Safety and Soundness Act. HUD
established overall housing goals for 2005-2008 that combined an
Enterprise's purchases of mortgages on single-family housing,
multifamily housing, purchase money mortgages, and refinancing
mortgages. FHFA adjusted the levels of these overall goals for 2009.
These goals are revised for 2010 and 2011 to include four separate
goals and one subgoal for purchases of single-family mortgages and one
goal and one subgoal for purchases of multifamily mortgages. To carry
out the requirements of HERA regarding designated disaster areas while
continuing to provide a focus on low-income and high minority
concentration census tracts, the final rule establishes both a low-
income areas home purchase goal and subgoal. As in the proposed rule,
the final rule provides for a retrospective, market-based assessment of
the achievement by the Enterprises of their housing goals as well as
the traditional prospective, benchmark goals approach. These changes
are described in more detail below.
[[Page 55894]]
B. Adjustment of Home Purchase and Refinancing Goal Levels, and
Multifamily Goal and Subgoal Levels
Consistent with the proposed rule, the final rule provides that
Enterprise goal performance under each of the single-family housing
goals shall be measured using a fraction of qualifying mortgage
purchases as a percent of total mortgage purchases. Neither the
numerator nor the denominator includes Enterprise transactions or
activities that are not mortgage purchases as defined by FHFA or that
are specifically excluded as ineligible under Sec. 1282.16(b). The
final rule establishes separate single-family goals for home purchase
mortgages and refinancing mortgages. This differs from previous
treatment, which combined Enterprise purchases of home purchase and
refinancing mortgages for the overall goals.
Consistent with the proposed rule, the final rule bases the 2010-
2011 multifamily goals on the numbers of affordable dwelling units
financed, rather than specifying such goals in minimum dollar terms.
The special affordable multifamily subgoal in effect prior to 2010
applied to purchases of mortgages on housing for families with incomes
below 60 percent of area median income (AMI) and for families with
incomes between 60 percent and 80 percent of AMI living in low-income
areas. The overall multifamily goal for 2010-2011 is somewhat broader
in its coverage than the previous special affordable multifamily goal,
applying to mortgages on housing for families with incomes no greater
than 80 percent of AMI, regardless of location. However, the 2010-2011
very low-income multifamily subgoal is targeted to households with
significantly lower incomes. The qualifying household income for
purposes of the 2010-2011 multifamily subgoal is at or below 50 percent
of AMI.
Consistent with the proposed rule, the final rule provides that the
2010-2011 low-income home purchase and refinancing goals target
households with lower incomes than the previous low- and moderate-
income goal. The previous low- and moderate-income goal included
families with incomes at or below 100 percent of AMI. Under the final
rule, the low-income home purchase goal and refinancing goal include
only families with incomes no greater than 80 percent of AMI.
Consistent with the proposed rule, the final rule provides that the
2010-2011 low-income areas home purchase goal includes families in
census tracts with incomes up to 80 percent of AMI, while the previous
underserved areas home purchase subgoal included families in census
tracts with incomes up to 90 percent of AMI.
Although this final rule establishing the new housing goals is
effective in mid-2010, FHFA will evaluate performance under the housing
goals established for 2010 on a calendar year basis.
C. New Counting Requirements
In accordance with HERA, and consistent with the proposed rule, the
final rule counts only conventional loans for purposes of the single-
family housing goals. This means that certain Federal Housing
Administration (FHA) loans that previously counted toward the goals,
such as Home Equity Conversion Mortgages (HECMs), will no longer be
counted. Second liens, which also counted toward the goals in the past,
will now be excluded from counting for purposes of the single-family
and multifamily housing goals.
Consistent with the proposed rule, the final rule provides that
mortgages financing rental units in investor-owned single-family
properties, which were previously included in the goals, are no longer
counted for purposes of the housing goals. Rental units in 2-4 unit
owner-occupied single-family properties will continue to be counted.
However, FHFA will continue to monitor the Enterprises' purchases of
such mortgages with regard to rental units in both 2-4 unit owner-
occupied housing and investor-owned 1-4 unit rental housing.
IV. Analysis of Final Rule
A. Definitions--Sec. 1282.1
As in the proposed rule, the final rule includes a number of
technical amendments to conform the definitions to the statutory
definitions in the Safety and Soundness Act, as amended by HERA.
Consistent with the proposed rule, Sec. 1282.1 of the final rule
removes a number of definitions that were used in regulatory provisions
that were revised or eliminated based on HERA's amendments of the
Safety and Soundness Act. Specifically, Sec. 1282.1 of the final rule
no longer includes definitions for ``central city,'' ``ECOA,''
``government-sponsored enterprise, or GSE,'' ``home purchase
mortgage,'' ``New England,'' ``ongoing program,'' ``other underserved
area,'' ``owner-occupied unit,'' ``portfolio of loans,'' ``real estate
mortgage investment conduit (REMIC),'' ``rural area,'' ``underserved
area,'' and ``wholesale exchange.''
As in the proposed rule, Sec. 1282.1 of the final rule adds new
definitions of ``extremely low-income,'' ``low-income,'' and
``moderate-income,'' and revises the income levels in the definition of
``very low-income.'' The final rule also replaces the definition of
``low-income area'' with a new definition for ``families in low-income
areas.'' Each of these definitions is revised to be substantially the
same as the corresponding definition in section 1303 of the Safety and
Soundness Act, as amended by HERA.\13\
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\13\ 12 U.S.C. 4502.
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Consistent with the proposed rule, Sec. 1282.1 of the final rule
adds new definitions for ``borrower income,'' ``FEMA,'' ``HMDA,''
``minority census tract,'' ``mortgage revenue bond,'' ``non-
metropolitan area,'' ``owner-occupied housing,'' ``private label
security,'' and ``purchase money mortgage.'' The new definitions are
intended to reflect common usage and provide certainty in interpreting
the terms as used in new and existing regulatory provisions.
The definition of ``contract rent,'' consistent with the proposed
rule, is revised to make clear that the market rent for similar units
in the neighborhood, as used by the lender or appraiser in underwriting
a property, may be used as the anticipated rent for unoccupied units.
As in the proposed rule, the final rule adds language to the definition
of ``utilities'' clarifying that charges for cable or telephone service
shall not be included. In addition, the final rule adopts the proposed
clarification that Metropolitan Divisions are included in the
definition of ``metropolitan area'' to facilitate comparisons with
census and HMDA information. As in the proposed rule, the final rule
removes unnecessary references to the form of payment from the
definition of ``mortgage purchase.''
Consistent with the proposed rule, the final rule removes the
definition of ``refinancing'' and incorporates those provisions in a
new definition of ``refinancing mortgage.'' The final rule also
provides for the exclusion of most workout agreements from the
definition of ``refinancing.'' The proposed rule omitted this provision
to avoid confusion over whether a transaction should be treated as a
loan modification or a refinancing. The final rule includes the
provision to maintain consistency with the prior definition of
``refinancing'' under the housing goals.
Mortgage. Consistent with the proposed rule, the final rule removes
personal property (chattel) loans on manufactured housing from the
definition of ``mortgage,'' with the result that such purchases would
not qualify for credit under the housing goals.
[[Page 55895]]
Two trade associations, both for the manufactured housing industry,
maintained that the Enterprises should be more active in the area of
personal property loans. One commented that Enterprise purchases of
these loans provide much-needed liquidity to lenders, lower borrowing
costs, and ensure the continued availability of this form of affordable
housing. The other commented that the unavailability of purchase-money
financing effectively discriminates against manufactured homes and
consumers, and also contravenes federal housing policy contained in the
Manufactured Housing Improvement Act of 2000.
The final rule does not revise the proposed definition of
``mortgage'' to include personal property loans on manufactured
housing. The Enterprises have minimal experience with chattel
financing, and the high level of defaults related to such financing
creates significant credit and operational risks. 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. The role of the
Enterprises in the market for personal property loans on manufactured
housing is the subject of FHFA final rulemaking on the duty to serve
requirements of HERA. FHFA may revise the definition of ``mortgage'' in
future rulemaking to ensure conformance with the final regulation on
duty to serve. Until that time, purchases of personal property loans on
manufactured housing will not be counted as mortgage purchases for
purposes of the housing goals.
Mortgage with unacceptable terms or conditions. Consistent with the
proposed rule, the final rule removes the definitions for ``mortgages
contrary to good lending practices'' and ``mortgages with unacceptable
terms or conditions or resulting from unacceptable practices,'' and
revises and consolidates their substantive provisions into a single new
definition of ``mortgage with unacceptable terms or conditions.'' The
definition of ``mortgage with unacceptable terms or conditions''
includes a new provision regarding mortgages with annual percentage
rates (APRs) above a certain level. The new provision is intended to
cover mortgages that were formerly included in the definition of
``HOEPA mortgage.'' The definition of ``HOEPA mortgage'' is revised to
conform FHFA's definition to the coverage in HOEPA itself. The
provision in the definition of ``mortgage with unacceptable terms or
conditions'' relating to a borrower's ability to pay is replaced with a
provision incorporating interagency guidance on nontraditional and
subprime mortgages. This change is intended to cover similar types of
mortgages while providing greater consistency between the provisions of
the housing goals and other regulatory provisions.
FHFA received several comments on the proposed definition of
``mortgages with unacceptable terms or conditions,'' both supporting
and opposing particular terms or conditions. One commenter noted that
the definition does not explicitly exclude subprime loans. One trade
association objected to the inclusion of prepaid single-premium credit
life insurance products, and recommended that the rule specifically
allow mortgages where the insurance premiums are calculated and paid on
a monthly basis and are not financed by the lender. Another trade
association commented that FHFA should strengthen the terms and
conditions that constitute unacceptable mortgages, and recommended the
use of Regulation Z and HOEPA rather than interagency guidance. A
policy advocacy group supported requiring the Enterprises to follow
interagency guidance, but noted that the current regulatory guidance
may not be sufficient. This commenter cautioned that FHFA should not
surrender its independent authority to restrict the Enterprises from
engaging in abusive and unsafe lending practices. One trade association
supported the provision that allows FHFA to determine other additional
unacceptable terms and conditions because markets and abusive practices
evolve. Fannie Mae noted that its single-family underwriting guidelines
are already consistent with the interagency guidance.
In the final rule, the definition of ``mortgages with unacceptable
terms or conditions'' does not explicitly exclude all subprime loans,
but loans with any of the listed terms or conditions are excluded from
counting towards the goals. Mortgages with prepaid single-premium
credit life insurance products, for example, which have adverse effects
on borrowers, continue to be excluded from counting, as they have in
the past. While the final rule specifically references interagency
guidance on subprime and nontraditional loans, FHFA expects the
Enterprises to ensure that mortgage loans they acquire comply with
Regulation Z and HOEPA, as well as any federal law related to minimum
standards for mortgages and predatory lending. While compliance with
these and other applicable laws is expected, FHFA retains its
independent authority to restrict the Enterprises from engaging in
abusive and unsafe lending practices. Accordingly, as markets and
abusive practices evolve, FHFA may determine additional terms and
conditions to be unacceptable.
Families in low-income areas. Consistent with the proposed rule,
the new definition of ``families in low-income areas'' in the final
rule includes families with incomes at or below 100 percent of AMI who
reside in ``designated disaster areas.'' The proposed rule defined
``designated disaster areas'' as areas at the census tract level and
included only census tracts in counties approved for individual
assistance within the declared major disaster area where the average
real property damage severity, as reported by the Federal Emergency
Management Agency (FEMA), exceeds $1,000 per household for that census
tract.
Fannie Mae commented that the rule language should reflect the
Community Reinvestment Act (CRA) criteria for designated disaster
areas. For purposes of complying with the CRA, regulators have
determined that ``[e]xaminers will consider institution activities
related to disaster recovery that revitalize or stabilize a designated
disaster area for 36 months following the date of designation. Where
there is a demonstrable community need to extend the period for
recognizing revitalization or stabilization activities in a particular
disaster area to assist in long-term recovery efforts, this time period
may be extended.'' \14\
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\14\ The Department of the Treasury, the Federal Reserve Board
and the Federal Deposit Insurance Corporation, Community
Reinvestment Act; Interagency Questions and Answers Regarding
Community Reinvestment; Notice, 74 FR 509 (Jan. 6, 2009).
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In response to this comment and to ensure efficiency in
implementation, the final rule draws on the CRA criteria for designated
disaster areas. Section 1282.1 of the final rule provides that a
designated disaster area will include (1) any county designated by the
federal government as adversely affected by a declared major disaster
under FEMA's administration, (2) where individual assistance payments
were authorized by FEMA. Section 1282.12(e) of the final rule
establishes an overall low-income areas goal that includes families in
low-income census tracts, moderate-income families in minority census
tracts, and moderate-income families in designated disaster areas.
Section 1282.12(f) of the final rule also establishes a low-income
areas subgoal that includes only families in low-income census tracts
and moderate-income families in minority census tracts. Both the
overall goal and the subgoal include a benchmark level and a market-
based assessment. The
[[Page 55896]]
benchmark levels for both the overall goal and the subgoal are set
based on a market analysis that is similar to the analysis that was
used for the proposed rule. The benchmark level for the subgoal is set
at 13 percent. The benchmark level for the overall goal will be set
annually by FHFA notice based on the subgoal benchmark level plus an
amount that reflects the impact of designated disaster areas in the
most recent year for which data is available. The market-based
assessment for both the overall goal and the subgoal will use the
designated disaster areas from the year for which performance is
measured, as will the measurement of the Enterprises' performance each
year.
To accommodate the Enterprises' business planning requirements, for
purposes of the low-income areas housing goal, the final rule,
consistent with the proposed rule, treats a designated disaster area as
effective beginning on the January 1 after the FEMA designation of the
county and continuing through December 31 of the third full calendar
year following the FEMA designation. If data is available in a
particular case to support treatment as a designated disaster area from
an earlier date or for a longer period of time, FHFA may provide for
such treatment by notice to the Enterprises.
B. Housing Goals--Sec. Sec. 1282.11 through 1282.13
As required by sections 1331(a) and 1333(a)(2) of the Safety and
Soundness Act, as amended by HERA, and consistent with the proposed
rule, this subpart of the final rule establishes, for 2010 and 2011,
four single-family housing goals, one single-family housing subgoal,
one multifamily special affordable housing goal, and one multifamily
special affordable housing subgoal. As under the proposed rule, the
single-family housing goals in the final rule are based both on the
benchmark levels and on an evaluation of the Enterprise's performance
relative to the market for each housing goal in each year. Section
1282.11(b) requires the Director to establish housing goals for a
particular year by December 1st of the previous year.\15\
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\15\ See 12 U.S.C. 4561(b).
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1. Prospective and Market-Based Approach
As discussed in the proposed rule, following passage of the Safety
and Soundness Act, HUD established housing goals for Fannie Mae and
Freddie Mac in October 1993,\16\ and revised and expanded those goals
in 1995,\17\ 2000,\18\ and 2004.\19\ Multi-year goals were established
in the 1993 housing goals rule for 1993-94 (subsequently extended to
1995), in the 1994 housing goals rule for 1996-99 (with the goal levels
for 1999 continuing in effect for 2000), in the 2000 housing goals rule
for 2001-03 (with the goal levels for 2003 continuing in effect for
2004), and in the 2004 housing goals rule for 2005-08.\20\
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\16\ See 58 FR 53048 (Oct. 13, 1993) and 58 FR 53072 (Oct. 13,
1993).
\17\ See 60 FR 61846 (Dec. 1, 1995).
\18\ See 65 FR 65044 (Oct. 31, 2000).
\19\ See 69 FR 63580 (Nov. 2, 2004).
\20\ See 75 FR 9034-9036 (Feb. 26, 2010).
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In each case, the numerical goals were established up to four years
in advance. The goals were set as specific minimum goal-qualifying
percentages of all dwelling units financed by mortgages acquired by
each Enterprise in a given year, except for the special affordable
multifamily subgoal, which was set as a minimum dollar volume for
purchases of goal-qualifying loans. In the 2004 final rule, HUD added
three single-family home purchase subgoals, which were similarly
established as specific minimum goal-qualifying percentages of all home
purchase mortgages financed by the Enterprises on owner-occupied
properties in metropolitan statistical areas (MSAs).
HUD set the goals for 1993-2008 based on the six factors as
specified in the Safety and Soundness Act. The most important factors
were past performance on the goals and, especially for the home
purchase subgoals, HUD's estimates of the goal-qualifying shares of
home purchase mortgages in the primary mortgage market on properties in
MSAs. For the overall goals, HUD's estimates of the goal-qualifying
shares of all dwelling units financed in the primary market by the
Enterprises in each year were also important. For example, HUD
estimated that low- and moderate-income units would account for 50-55
percent of all units financed in the primary mortgage market for 2003-
04, and 51-56 percent of all units financed in 2005-08. The low- and
moderate-income goal was set at 50 percent for 2003-04, and was later
established to increase in accordance with the market range over the
2005-08 period--specifically, 52 percent for 2005, 53 percent for 2006,
55 percent for 2007, and 56 percent for 2008. A similar approach was
followed with regard to the overall underserved areas and special
affordable goals for 2005-08.
As recent market developments show, it can be difficult to forecast
the goal-qualifying shares of the primary mortgage market several years
in advance. The forecasts developed by HUD were based on the assumption
of a ``home purchase market environment,'' a market environment in
which purchase mortgages dominate over refinancing mortgages. However,
when market conditions result in higher than average refinance
activity, the actual market goal-qualifying shares can be significantly
different from the forecast because the actual refinance share would
dominate. A second reason for the divergence between forecasted and
actual shares of goal-qualifying units in the primary mortgage market
is the variation in the affordability of housing, such as measured by
the National Association of Realtors (NAR) housing affordability index.
If the price of a product or service declines, it is more affordable to
the consumer. In this respect, housing is no different from any other
product. A third reason for divergence is the variance in the size of
the multifamily mortgage market over time. Under the previous goals
counting regime, multifamily units played a significant role in whether
an Enterprise met the goals. A fourth reason for the divergence is the
change in the size of the share of the mortgage market accounted for by
Federal Housing Administration (FHA) and Department of Veterans Affairs
(VA) mortgages. As discussed below, the market share of mortgages
insured by FHA increased dramatically in recent years.
As measured after the fact, HUD's market estimates often differed
significantly from the actual goal-qualifying shares of the primary
market. Specifically, the actual low- and moderate-income share of the
primary market in 2003 was 53 percent, which was within HUD's 2001-2003
forecasted range of 50-55 percent, but when the share increased to 58
percent for 2004, it exceeded the upper end of the range. The low- and
moderate-income share of the primary market remained high, at 57
percent for 2005, above HUD's 2005-2008 forecasted range of 51-56
percent, but then decreased to 55 percent for 2006 and 52 percent for
2007. Thus, over the 2005-2007 period, the low- and moderate-income
goals increased steadily, while the low- and moderate-income share of
the primary mortgage market decreased steadily.
While the Enterprises are in conservatorship, FHFA expects the
Enterprises to continue to fulfill their core statutory purposes,
including their support for affordable housing. The housing goals are
one set of measures of that support. FHFA does not intend for the
Enterprises to undertake uneconomic or high-risk activities in support
of the goals. However, the fact
[[Page 55897]]
that the Enterprises are in conservatorship should not be a
justification for withdrawing support from these market segments. While
in conservatorship the Enterprises have tightened their underwriting
standards to avoid poor quality mortgages that may have contributed to
their losses. Maintaining sound underwriting discipline going forward
is important for conserving the Enterprises' assets and for supporting
their mission in a manner in which the achievement of housing goals
directly relates to actual market conditions.
In light of these circumstances and the difficulties in
anticipating market deviations from the normal home purchase
environment in the traditional approach to goal-setting, the final rule
adopts the approach in the proposed rule to measure the Enterprises'
single-family goal performance relative to benchmark levels for the
goal-qualifying shares of the Enterprises' mortgage purchases, as well
as relative to the actual goal-qualifying shares of the primary
mortgage market. A dual approach prevents exclusive reliance on multi-
year mortgage market forecasts. The primary disadvantage of this
approach is that information on the goal-qualifying shares of the
current single-family primary market is not available until the release
of HMDA data in late summer of the following year, approximately nine
months after the rating period. However, FHFA believes that this
market-based approach is an appropriate measure of mission achievement
under the housing goals, especially while the Enterprises are operating
in conservatorship, and that the overall advantages of this approach
outweigh the disadvantages.
FHFA received 11 comments on the proposal to calculate goals
performance based on the eligible market share and the benchmark level.
All 11 commenters supported this approach. One trade association
cautioned that FHFA should carefully reassess this approach for
accuracy after actual data is available to compare with forecasts. A
policy advocacy group agreed with the proposed approach, and stated
that it would help FHFA more effectively match Enterprise performance
to actual market conditions. This commenter added that the benchmark
should be considered the floor. Fannie Mae supported the proposed
approach, but expressed concern about the time delay between submission
of goals performance data and the availability of HMDA data, which
could cause regulatory uncertainty. Regarding Sec. 1282.11(b), one
commenter stated that setting the housing goals annually, based upon
the most recent data, would be an improvement over the HUD projection
of five or so years into the future.
Nine commenters supported the proposed single-family housing goal
benchmark levels. One policy advocacy group commented that the goals
are an improvement over previous years because they target the same
populations as the CRA. This commenter also supported the inclusion of
minorities in the low-income areas housing goal. Both Enterprises
commented that the proposed purchase money mortgage goal benchmark
levels were reasonable. One trade association opposed the proposed
single-family housing goal benchmark levels, stating that the proposed
levels would be 50 to 60 percent of Enterprise purchases in 2008, which
the commenter believed is too low to realize HERA's objectives.
Two commenters specifically supported the separate refinancing
housing goal. One trade association commented that a separate
refinancing goal is important because of the cyclical nature of
refinancing. The other commenter stated that refinance volume can vary,
from less than the volume of home purchase mortgages to over three
times the volume of home purchase mortgages, depending upon interest
rates, which makes a combined goal unworkable. The Enterprises did not
oppose the separate refinancing housing goal, but stated that the
proposed refinancing housing goal benchmark level was too high. Fannie
Mae noted that non-HAMP (Home Affordable Modification Program) loan
modifications are not goal-eligible, and there is also a reluctance to
refinance when the labor market is weak. Freddie Mac commented that the
current low interest rate environment is not favorable for a high share
of low-income qualifying refinance mortgages.
As in the proposed rule, the final rule establishes single-family
housing goals that include (1) an assessment of Enterprise performance
as compared to the actual share of the market that meets the criteria
for each goal, and (2) a benchmark level to measure Enterprise
performance. The benchmark levels for performance are intended to
provide greater certainty for the Enterprises in establishing
strategies for meeting the housing goals. An Enterprise would fail to
meet a housing goal if its annual performance fell below both the
benchmark level and the actual share of the market that met the
criteria for a particular housing goal for that year. An Enterprise
would not fail to meet a goal if it achieved the benchmark level for
that goal, even if the actual market size for the year was higher than
the benchmark level. In order to plan their operations, the Enterprises
must be able to rely on the benchmark levels that FHFA has set.\21\
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\21\ See 12 U.S.C. 4561(b), acknowledging ``the need for the
enterprises to reasonably and sufficiently plan their operations and
activities in advance, including operations and activities necessary
to meet such annual goals.''
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This approach to setting the goals, involving both the setting of a
prospective target and an assessment of actual market opportunity, is a
departure from the approach used by HUD and FHFA in the past. FHFA has
determined that this approach is appropriate because of the
difficulties of predicting the market, especially in light of recent
market turmoil and the difficulty of making accurate projections even
in more stable economic environments. This approach is consistent with
Congressional intent, as Congress authorized FHFA to establish the goal
levels for the Enterprises. In addition, several provisions of the
Safety and Soundness Act, as amended, authorize the Director to set or
adjust the goal levels in light of changing market conditions. These
provisions include: the requirement that FHFA calculate the preceding
three-year average percentages of goal-eligible originations for each
goal category, and take that information into account in setting the
single-family goals; \22\ the authority to adjust previously
established goal levels based on current market conditions; \23\ the
authority to adjust goal levels in response to a petition by an
Enterprise based, in part, on market conditions and the risk of ``over-
investment''; \24\ and relief from enforcement if the goal levels are
determined to be infeasible.\25\
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\22\ 12 U.S.C. 4562(e)(2)(A).
\23\ 12 U.S.C. 4562(e)(3).
\24\ 12 U.S.C. 4564(b)(1), (2).
\25\ 12 U.S.C. 4566(b).
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FHFA will carefully assess the approach of using both prospective
targets and assessments of actual market opportunity for accuracy after
actual data is available to compare with forecasts. The benchmark
level, however, will not be considered the floor in assessing whether
an Enterprise achieved a particular housing goal. The time delay
between submission of goals performance data and the availability of
HMDA data, while not optimal, is also unavoidable for this market-based
approach.
FHFA notes that because HERA mandates separate single-family home
purchase and refinance low-income goals, each goal level is set
individually, based on projected market conditions.
[[Page 55898]]
Prior to HERA, the home purchase and refinance components of the
income-based goals (both the low- and moderate-income and the special
affordable goals) provided cumulative effects toward the overall goal,
including a cumulative impact from the Enterprises' multifamily
acquisitions. This is no longer the case under the separate HERA
single-family home purchase and refinance low-income goals.
2. Retrospective Measurement of the Market
Consistent with the proposed rule, Sec. 1282.12(b) of the final
rule sets forth specific criteria for determining the size of the
market based on HMDA data. This retrospective measurement of the size
of the market will be used to evaluate the performance of each
Enterprise on each single-family housing goal. The specific criteria
for establishing the size of the market reflect the types of mortgages
that are counted for purposes of the housing goals and that are
typically eligible for purchase by an Enterprise. The retrospective
measurement of the size of the market is defined under the limitations
of HMDA data. The market includes only originations of conventional
conforming first-lien non-HOEPA single-family mortgages on owner-
occupied properties. Only home purchase mortgages are included in the
market estimates for the three home purchase mortgage goals and the
home purchase mortgage subgoal, and only refinance mortgages are
included in the market estimates for the refinance mortgage goal.
Mortgages with rate spreads of 150 basis points or more above the
applicable Average Prime Offer Rate (APOR) reported in HMDA would be
excluded, as would mortgages that are missing information that would be
necessary to determine the appropriate counting treatment under the
housing goals. Additional details regarding the housing goals are
discussed above, along with the factors considered by FHFA in
establishing the housing goals.
FHFA received five comments on the proposed criteria for
establishing the size of the market. One commenter from the
manufactured housing sector noted that many manufactured housing loans
are personal property loans for affordable housing, and questioned the
prudence of excluding higher interest rate loans (300 basis points over
prime) from the market size. One trade association urged FHFA to make
public its goal calculation methodology as technical guidance, and
expressed concerns that excluding FHA and other government loans from
the market calculation would distort the market measurement. Another
trade association was concerned that tighter underwriting standards and
lower loan-to-value requirements were not fully factored into the
market size. Another commenter stated that FHFA's monthly survey of
single-family mortgage originations will provide a more timely and in-
depth addition to HMDA data. Freddie Mac recommended that the
definition of higher-priced loan used to establish market size conform
to the definition set by the Federal Reserve Board, which is 150 basis
points or more above APOR for first loans.
To the extent possible, the market estimates are based on the
universe of goal-eligible mortgages. Manufactured housing loans that
are not higher-cost loans are included in the market estimates, to the
extent that they are included in the HMDA data. Manufactured housing
loans make up two percent of the single-family originations reported in
the HMDA data, and approximately 60 percent of those manufactured
housing loans are higher-cost loans, which FHFA is using as a proxy for
personal property loans, not eligible for goals credit under this rule.
FHFA also determined that subprime loans should not be included in the
market estimates. Therefore, the final rule excludes higher-priced
loans (150 basis points or more above APOR) as a proxy for subprime
loans. Because most government-insured mortgages are ineligible under
HERA to qualify for the housing goals, FHA and other government loans
are not included in the market estimates.
3. Sustainable Mortgages
The proposed rule requested comments on an alternative to defining
the market for determining whether a mortgage is eligible to count
toward the housing goals that would focus on the sustainability of the
mortgage. Under this approach, the housing goals would be defined in
such a way that only mortgages that support sustainable homeownership
would count toward the goals. This would require a standard to
differentiate between mortgages that are sustainable and mortgages that
are not likely to be sustainable.
Four commenters supported an alternative discussed in the proposed
rule that would use historical data on the cumulative default rate
(CDR) of mortgages acquired by the Enterprises for defining the
sustainable mortgage market, while one commenter opposed this approach.
A trade association urged deferral of the use of CDR until final
Congressional and regulatory action on risk retention and the exemption
of certain qualified mortgages from the risk retention requirements. A
policy advocacy group favored the use of CDR to define the market, but
cautioned that the use of particular features to define a market would
be useful only to the extent the models are reliable and reflect likely
market conditions over some length of time. A trade association favored
the use of CDR. Both Enterprises supported the use of CDR to define the
market, but expressed reservations. Fannie Mae stated that its systems
already filter out loans with the most risk, and given the
considerations that must go into determining whether a loan is
sustainable, it stated that it would be difficult to develop a system
that appropriately removes unsustainable loans from the market sizing
analysis. Freddie Mac stated that the use of CDR should help FHFA and
the Enterprises align and maintain appropriate balance between
affordability, sustainability, and safety and soundness, but cautioned
that any methodology to develop market share estimates must be aligned
with the proprietary models used by the Enterprises so that
inconsistency can be avoided.
FHFA has considered the comments on this alternative approach to
determining whether a mortgage is eligible to count toward the housing
goals. Because the sustainable mortgage approach raises multiple policy
and technical issues that require further consideration, the final rule
does not implement this approach. FHFA may solicit further public
comments regarding a sustainable mortgage approach toward the housing
goals in the future.
4. Monthly Mortgage Survey
As described in the proposed rulemaking, FHFA is conducting a
monthly survey of single-family mortgage originations pursuant to
section 1324(c) of the Safety and Soundness Act, as amended by HERA,
and will make data collected under that survey available to the public.
Release of that data will provide additional information on home
mortgage lending activity. FHFA will use the survey data in its
monitoring of Enterprise housing goals performance.
C. Analysis of Factors for Single-Family Housing Goals
Section 1332(e)(2) of the Safety and Soundness Act, as amended by
HERA, requires FHFA to consider the following seven factors in setting
the single-family housing goals:
(1) National housing needs;
[[Page 55899]]
(2) Economic, housing, and demographic conditions, including
expected market developments;
(3) The performance and effort of the Enterprises toward achieving
the housing goals under this section in previous years;
(4) The ability of the Enterprise to lead the industry in making
mortgage credit available;
(5) Such other reliable mortgage data as may be available;
(6) The size of the purchase money conventional mortgage market, or
refinance conventional mortgage market, as applicable, serving each of
the types of families described, relative to the size of the overall
purchase money mortgage market or the overall refinance mortgage
market, respectively; and
(7) The need to maintain the sound financial condition of the
Enterprises.\26\
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\26\ 12 U.S.C. 4562(e)(2).
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FHFA's consideration of the size of the market for each housing
goal includes consideration of the percentage of goal-qualifying
mortgages under each housing goal, as calculated based on HMDA data for
the three most recent years for which data is available.\27\ FHFA's
analysis of each of the factors, which has been updated since the
proposed rulemaking, is set forth below.
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\27\ See 12 U.S.C. 4562(e)(2)(A).
---------------------------------------------------------------------------
1. National Housing Needs
With the collapse of subprime and Alt-A lending, tighter credit
conditions, and stricter underwriting standards, single-family mortgage
originations fell 38 percent in 2008. The Enterprises' share of single-
family mortgage-backed securities (MBS) issuance rose to over 73
percent in that year, however, and the credit risk characteristics of
their purchases began to improve. In 2009, the Enterprises' mortgage
purchase and guarantee activity represented more than 76 percent of
conforming single-family originations. Falling house prices caused
equity in homes to decline sharply. The resetting of interest rates on
poorly underwritten adjustable rate mortgages (ARMs) originated in
recent years, deteriorating household balance sheets, rising
unemployment, continued credit tightening, and the deepening recession
contributed to increases in mortgage delinquency and home foreclosure
rates as well as sharply lower housing starts and sales. Continued
tightening in lender credit policies, large inventories of unsold
homes, significant volumes of homes in foreclosure, rising
unemployment, and increasing pessimism among potential homebuyers
combined to drive home prices down further.
Despite improving housing affordability, the U.S. homeownership
rate declined since peaking at an average rate of 69 percent in 2004.
In the second quarter of 2010, the homeownership rate was 66.9 percent,
down from 67.4 percent in the second quarter of 2009. The homeownership
rate for Black households in the second quarter of 2010 was 46.2
percent, down from 46.5 percent in the second quarter of 2009. The
homeownership rate for Hispanic households in the second quarter of
2010 was 47.8 percent, down from 48.1 percent in the second quarter of
2009.\28\
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\28\ U.S. Census Bureau, ``Residential Vacancies and
Homeownership in the Second Quarter 2010,'' tables 4 and 7, July 27,
2010.
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In 2008, the most recent year in which HMDA data is publicly
available, applications from Black borrowers fell by 48 percent, and
applications from Hispanic borrowers fell by 55 percent.\29\ One of the
key catalysts of the current economic crisis was falling housing prices
after the substantial increase that began in 2000. From January 2000
through the May 2006 peak, the S&P/Case-Shiller Home Price Index rose
by approximately 105 percent, only to fall dramatically since then. The
less volatile FHFA House Price Index, which reflects the book of
business of the Enterprises, peaked later and also showed a decline.
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\29\ ``HMDA Data Show Huge Decline in 2008 Mortgage Activity--
Except at Government Insured Programs.'' Inside Mortgage Finance.
Oct. 2, 2009 at 8.
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Changes in mortgage underwriting, particularly for affordable
products, had a direct impact on the national housing market. During
the boom, as house price appreciation reduced affordability, low
documentation Alt-A loans, interest-only loans and ARMs proliferated.
Subprime market share tripled to more than 20 percent of the market.
Lenders accepted more loans with higher loan-to-value (LTV) ratios and
lower borrower credit scores. The Joint Center for Housing Studies
report, ``State of the Nation's Housing 2009,'' describes the effect of
loosened mortgage underwriting standards on the housing market.
According to that report, in 2005, a household with median owner income
of about $57,000 and spending 28 percent of income on mortgage
principal and interest could qualify for a 30-year, fixed-rate loan of
$225,000. If the same borrower took out an ARM loan at a discounted
interest rate, the maximum loan amount increased to $265,000. By adding
an interest-only feature to that ARM and qualifying the household based
on the initial interest-only payments, the potential loan size grew to
$356,000. Allowing the borrower to spend 38 percent of income on
mortgage costs meant that the mortgage loan could total approximately
$482,000. Interagency regulatory guidance on nontraditional and
subprime loans issued in 2006 and 2007, including guidance to the
Enterprises by OFHEO, contributed to limiting the numbers of such loans
as underwriting standards were subsequently strengthened.\30\
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\30\ See Office of Federal Housing Enterprise Oversight, ``OFHEO
Director James B. Lockhart Commends Enterprises on Implementation of
Subprime Mortgage Lending Guidance,'' News Release (Sept. 10, 2007),
available at http://www.fhfa.gov/webfiles/1608/LockhartcommendsENTERPRISEsreSubprime91007.pdf. See also 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 37569-37575 (July 10, 2007); and 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 58609-58618 (Oct. 4, 2006).
---------------------------------------------------------------------------
With the decline in house prices over the 2007-2009 period and
historically low mortgage interest rates, new homebuyers encountered a
much more affordable housing market in 2009 and continue to do so in
2010. As measured by the National Association of Realtors' composite
housing affordability index, which reports the ratio of median
household income to the income that would be required to buy a median-
priced home (where 100 indicates the exact amount of income required to
buy a median-priced home), affordability continued to increase in 2009.
That index rose from 166.3 in December 2008 to 171.5 one year later.
The higher value of the index mainly reflected the decline in the
median price of existing single-family homes and lower mortgage
interest rates. The index dipped to 158.9 in June 2010 as a result of
an increase in the median price of existing single-family homes between
December 2009 and June 2010, but affordability is still at a very high
level by historical standards.
2. Economic, Housing and Demographic Conditions
The current turmoil in the housing and mortgage markets has created
less than favorable conditions for expansions in credit to borrowers on
the margins of homeownership. The adverse market conditions include:
(1) Tightened credit underwriting practices; (2) sharply increased
standards of private mortgage insurance (MI)
[[Page 55900]]
companies; (3) increased role of FHA in the marketplace; (4) collapse
of the private label mortgage-backed securities (PLS) market; and (5)
high unemployment. These developments contribute to a decrease in the
overall number of single-family loans likely to qualify for housing
goals credit.
Tightened credit underwriting practices. In general, more
conservative underwriting standards in the mortgage market will likely
result in fewer goal-qualifying loans and a lower percentage of goal-
qualifying loans in the market. Underwriting standards in the mortgage
market generally, and at Fannie Mae and Freddie Mac, have tightened
considerably in response to declining market conditions and early
payment defaults, among other factors, and such standards can be
expected to remain in place in the near future. In May 2008, responding
to changes in private MI underwriting, Fannie Mae revised its down
payment policy to lower the maximum allowable LTV ratio for loans
underwritten by Desktop Underwriter (DU) and for manually underwritten
loans. The implementation of Fannie Mae's updated DU Version 8.0,
effective in December 2009, generally reduces the allowable ``back-
end'' borrower debt-to-income ratio--the portion of a borrower's income
that goes toward paying debts--to 45 percent. In addition, it
eliminates DU recommendations for Expanded Approval II and Expanded
Approval III loans, loans which historically counted heavily toward the
housing goals.\31\ If the DU 8.0 revisions had been in effect for all
of 2009, substantially fewer goal-qualifying loans would have been
underwritten. The changes to DU will likely have a similar effect in
2010 and 2011. Freddie Mac has similarly tightened its underwriting
standards.
---------------------------------------------------------------------------
\31\ Desktop Originator/Desktop Underwriter Release Notes. DU
Version 8.0. DODU 0909. Fannie Mae. Sept. 22, 2009. DU 8.0 will
allow a back-end ratio of up to 50 percent for case files with
strong compensating factors.
---------------------------------------------------------------------------
Mortgage underwriting standards in the near term at the Enterprises
will be decidedly more conservative than earlier in the decade. During
the first quarter of 2010, for example, less than two percent of Fannie
Mae's purchases were interest-only loans, and Freddie Mac purchased
none. Similarly, Alt-A loans were less than one percent of acquisitions
for both Enterprises. This is significant because interest-only loans
previously purchased by the Enterprises have serious delinquency rates
of more than 18 percent, and Alt-A loans have serious delinquency rates
of more than 12 percent. During the first quarter of 2010, Alt-A loans
already on the books were responsible for 37 percent of Fannie Mae's
losses for the quarter and 42 percent of Freddie Mac's losses for the
quarter. Due to the Enterprises' focus on improved purchase quality and
underwriting standards, the loans that the Enterprises have purchased
since conservatorship in late 2008 have had much lower rates of serious
delinquency. Serious delinquencies for 2009 were a fraction of the
serious delinquency rates for the 2006-2008 vintages for comparable
periods after origination.\32\
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\32\ Statement of Edward J. DeMarco, Acting Director, Federal
Housing Finance Agency, House Financial Services Subcommittee on
Capital Markets, Insurance and Government Sponsored Enterprises. May
26, 2010 at 3.
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Sharply increased standards of private mortgage insurers. Much like
tighter credit underwriting standards generally, higher underwriting
standards of private MI providers have resulted in fewer goal-
qualifying loans and a lower percentage of goal-qualifying loans in the
market. As a result of stress in the mortgage markets, beginning in
late 2007, private MI providers implemented major changes in the types
of risk they were able to insure. Insurers that had experienced
substantial ratings downgrades acted to minimize losses by imposing
stricter underwriting standards on loans with high LTVs and
implementing measures in ``declining markets'' that have sharply
limited the insurability of certain higher-LTV mortgage loans.
As with the Enterprises, the steps taken by mortgage insurers to
strengthen their financial condition, while necessary to improving
mortgage sustainability, may reduce the overall mortgage lending
volume, particularly for higher-LTV mortgages, which historically have
tended to be more likely to count for purposes of the housing goals.
Increased role of FHA in the marketplace. Another factor that has
had substantial marketplace impact is the increase in the share of
mortgages insured by FHA and mortgages guaranteed by the VA. These
loans generally are pooled into mortgage-backed securities guaranteed
by the Government National Mortgage Association (GNMA). Purchases of
mortgages insured by FHA and mortgages guaranteed by the VA ordinarily
have not received goals credit in the past and will not generally
receive credit going forward. In general, the impact of the FHA market
on the percentage of loans in the conventional market that qualify for
a particular goal depends on: (1) The goal-qualifying size of the
overall market; (2) the share of the market accounted for by FHA
mortgages; and (3) the extent to which FHA mortgages have goal-
qualifying characteristics.
The market share of mortgages insured by FHA and mortgages
guaranteed by the VA has risen dramatically. Loans insured by FHA
increased to 21 percent of single-family mortgages insured in 2009, up
from 17 percent in 2008, spurred by the continuation of favorable
lending programs. VA's share of originations also increased, rising to
4 percent in 2009. Both types of mortgages backed by the federal
government accounted for a combined 25 percent of single-family
originations in 2009, up from just 4 percent two years earlier.\33\ A
key reason for this growth is that Fannie Mae and Freddie Mac generally
cannot buy loans with original LTV ratios greater than 80 percent
without some form of credit enhancement. Borrowers without substantial
down payments are increasingly utilizing government insurance and
guaranty programs. Nearly 80 percent of FHA's purchase-loan borrowers
in 2009 were first-time homebuyers.\34\ To ensure long-term actuarial
soundness, FHA announced several policy changes on January 20, 2010
that could reduce borrower eligibility for FHA, including: (1) Reducing
the maximum permissible seller concession from the current six percent
to three percent, which is in line with marketplace norms; (2)
requiring a minimum credit score of 580 for new borrowers seeking to
qualify for the 3.5 percent down payment program; and (3) increasing
the up-front mortgage insurance premium by 50 basis points, to 2.25
percent. In addition, FHA asked for a change in the law to allow it the
ability to increase the maximum annual mortgage insurance premium.\35\
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\33\ ``Report to Congress 2009.'' Federal Housing Finance Agency
at 10.
\34\ ``HUD Secretary, FHA Commissioner Report on FHA's
Finances.'' HUD Press Release No. 09-214. Nov. 12, 2009.
\35\ ``FHA Announces Policy Changes to Address Risk and
Strengthen Finances.'' HUD Press Release No. 10-016. Jan. 20, 2010.
---------------------------------------------------------------------------
Legislative changes which exempt FHA, VA and Rural Housing Service
loans from certain risk retention requirements could have the effect of
increasing the loan volume for these federally-insured and guaranteed
mortgages.\36\
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\36\ ``Free Pass on Risk Retention Could Boost FHA Loan
Volume.'' American Banker, June 28, 2010.
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Collapse of private label securities market. In the middle part of
the decade--the period covered by the prior HUD rule on the housing
goals--Fannie Mae and Freddie Mac were major
[[Page 55901]]
purchasers of the AAA-rated tranches of PLS that contained substantial
amounts of subprime mortgages. While the size and nature of the
Enterprises' subprime holdings differed, these purchases had an impact
on the achievement of the housing goals for each Enterprise,
particularly for the home purchase subgoals. Such loans were not a
large factor in the mortgage marketplace in 2008 or 2009. OFHEO
provided guidance to the Enterprises in 2007 incorporating interagency
policy guidance from the Federal Deposit Insurance Corporation, the
Office of the Comptroller of the Currency, the Federal Reserve Board
and the National Credit Union Administration. The guidance restricted
the purchase of such securities by the Enterprises when certain terms
of mortgages backing those securities are harmful to the borrower.\37\
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\37\ On August 10, 2007, OFHEO issued letters directing the
Enterprises to apply the principles and practices of the interagency
Statement on Subprime Mortgage Lending to their purchases of
subprime loans in the regular flow of business, including bulk
purchases. OFHEO directed that, not later than September 13, 2007,
nontraditional and subprime loans purchased by Fannie Mae and
Freddie Mac as part of PLS transactions comply with the Interagency
Guidance on Nontraditional Mortgage Product Risks and the Statement
on Subprime Mortgage Lending. This application to PLS conformed to
the underwriting provisions of the guidance. Further, OFHEO directed
that the Enterprises adopt such business practices and take such
quality control steps as necessary to ensure the orderly and
effective implementation of the guidance with respect to the
purchase of PLS. OFHEO News Release (Sept. 10, 2007).
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At year-end 2009, Freddie Mac's $175.6 billion private label MBS
and commercial MBS portfolio reflected deteriorating credit
performance. Although substantially all of these securities were rated
triple-A at purchase, $84.2 billion were rated below investment grade
at year-end 2009. In the same year, Fannie Mae's $89.8 billion private
label MBS, commercial MBS and mortgage revenue bond portfolios also
reflected deteriorating credit performance. Although almost all of
these securities were rated triple-A at purchase, $42.2 billion were
rated below investment grade at year-end 2009.
Unemployment. Unemployment and underemployment have an effect on
mortgage default rates, and on the number of borrowers seeking and
obtaining a purchase money mortgage or a refinance mortgage. The
civilian unemployment rate was 9.5 percent in June and July 2010, down
from 9.7 percent in May 2010 and a high of 10.1 percent in October
2009.\38\ However, the unemployment rate is still historically high and
will likely remain above eight percent in the 2010 to 2011 period. To
the extent that lower-income jobs are affected more by unemployment
than higher-income jobs, the affordable home purchase market is
affected.
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\38\ Bureau of Labor Statistics, News Release: The Employment
Situation--July 2010. August 6, 2010.
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NeighborWorks, a national network of community-based organizations
actively involved in foreclosure mitigation counseling, has estimated
that the two leading causes of mortgage default rates as of January 31,
2010 were a reduction in income (37 percent of defaults) and loss of
income (21 percent of defaults).\39\ The high rates of unemployment and
underemployment are likely to continue to have a significant impact on
the size of the mortgage market going forward.
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\39\ NeighborWorks, National Foreclosure Mitigation Counseling
Program, Congressional Update, Activity Through January 31, 2010.
May 28, 2010.
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Refinancings. Refinancing volumes are strongly influenced by
mortgage interest rates and LTV ratios on existing mortgages. Under the
umbrella of the Administration's Making Home Affordable program, the
Home Affordable Refinance Program (HARP) is an effort by the
Enterprises to enhance the opportunity for owners to refinance. Under
this program, homeowners whose mortgages are owned or guaranteed by
Fannie Mae or Freddie Mae who are current on their mortgages have the
opportunity to reduce their monthly mortgage payments to take advantage
of low monthly mortgage interest rates, which Freddie Mac's July 1,
2010 Primary Mortgage Market Survey indicated had fallen to 4.58
percent for a 30-year, fixed-rate mortgage. Even under favorable
interest rate conditions, however, refinancings may not mirror previous
years.
For homeowners with a current LTV ratio between 80 and 125 percent,
the Enterprises will refinance mortgages without requiring additional
mortgage insurance. Of the 2.5 million borrowers who refinanced their
mortgages with Fannie Mae financing in 2009, 329,000 refinanced through
Fannie Mae's streamlined process, including 105,000 Fannie Mae
borrowers who refinanced through HARP. Of the 1.7 million borrowers who
refinanced their mortgages with Freddie Mac financing in 2009, 169,000
refinanced through Freddie Mac's streamlined process, including 86,000
Freddie Mac borrowers who refinanced through HARP.
Demographic conditions. In establishing the 2010 goals, FHFA
analyzed current demographic trends for their possible effect on
housing demand. Analysis of current trends reveals that by 2008,
household formation rates were already on the decline. In addition, the
recession and unemployment have reduced immigration, which in the past
has been a driver of housing demand. It is still too early to assess
the impact of the current economic downturn on housing demand,
particularly given regional variations in impact and mitigating
factors, such as increased affordability of housing ownership. In the
long-term, housing demand is likely to increase as a result of
population growth, immigration, and future household formation by the
generation born between 1981 and 2000.\40\ However, the impact of long-
term demographic conditions on short-term goals performance would be
minimal.
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\40\ ``State of the Nation's Housing 2009.'' Joint Center for
Housing Studies of Harvard University.
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3. The Performance and Effort of the Enterprises Toward Achieving the
Housing Goals in Previous Years
Section 1332(a) of the Safety and Soundness Act, as amended by
section 1128 of HERA, requires FHFA to establish three single-family
home purchase mortgage goals for the Enterprises: A goal for low-income
families; a goal for families that reside in low-income areas; and a
goal for very low-income families. Section 1332(a) also requires FHFA
to establish a goal for single-family refinancing mortgages for low-
income families. The following section reviews what performance would
have been on these four single-family goals if they had been in effect
over the 2001-09 period.
Low-Income Families Housing Goal. The housing goals in the Safety
and Soundness Act, as amended, apply to the Enterprises' acquisitions
of ``conventional, conforming, single-family, purchase money mortgages
financing owner-occupied housing'' for the targeted groups.
Accordingly, they are similar in structure to the home purchase
subgoals established by HUD for Fannie Mae and Freddie Mac for 2005-08,
and subsequently adjusted for 2009 by FHFA. One difference is that the
subgoals established by HUD applied only to mortgages on properties in
metropolitan areas, while the new goals apply to mortgages on
properties in all locations.
The low-income families home purchase goal applies to mortgages
made to ``low-income families,'' defined as families with incomes no
greater than 80 percent of AMI.\41\ Past performance on this goal, if
it had been in effect in previous years, is shown in Table 1.
Performance is shown excluding units
[[Page 55902]]
financed by Enterprise purchases of PLS; as discussed elsewhere in this
final rule, FHFA has decided to exclude such units from the numerator
and the denominator in calculating goal performance for 2010 and 2011,
although the PLS market has declined markedly. As indicated, Fannie
Mae's performance (excluding PLS) would have risen markedly between
2001 and 2003, and then, with the exception of 2006, would have fallen
steadily between 2003 and 2008. Its performance in 2008, at 23.1
percent, would have been the lowest of the period. Freddie Mac's
performance generally would have risen between 2001 and 2005, and then
declined between 2005 and 2008. Its performance in 2008 would have been
24.3 percent, also the lowest of the period.
---------------------------------------------------------------------------
\41\ 12 U.S.C. 4502(14).
---------------------------------------------------------------------------
Total Enterprise home purchase loan volume fell sharply in 2008 and
2009--for Fannie Mae, from 1.5 million mortgages in 2007 to 978,000 in
2008 and 723,000 in 2009, and for Freddie Mac, from 1.0 million
mortgages in 2007 to 655,000 in 2008 and 482,000 in 2009, due to the
turmoil and tightened underwriting standards in the mortgage market.
However, the low-income share of home purchase loans rose for both
Enterprises, from 23.1 percent in 2008 to 25.5 percent in 2009 for
Fannie Mae, and from 24.3 percent in 2008 to 25.4 percent in 2009 for
Freddie Mac. Possible explanations for this include the greater
affordability of housing and a decrease in the role of investors in the
home purchase market.
In setting the goals for the Enterprises for 2010 and 2011, FHFA
recognizes the impact that counting loan modifications of home purchase
mortgages would have had on the home purchase goals in prior years.
Data on the volume and shares of loan modifications counting toward the
low-income home purchase goal in 2009 are also shown in Table 1. As
indicated, 67.2 percent of Fannie Mae's modifications of home purchase
mortgages and 65.3 percent of Freddie Mac's modifications were for
lower-income families. Combined performance on this goal, including
both home purchase mortgages and modifications, would have been 33.5
percent for Fannie Mae and 30.9 percent for Freddie Mac in 2009, as
shown in Table 1. However, as discussed elsewhere in this final rule,
modifications of mortgages will be treated differently for purposes of
the housing goals in 2010-2011. Specifically, modifications of
mortgages will be counted only under the refinancing housing goal, not
under the housing goals for home purchase mortgages. This means that,
in order to be comparable, the 2009 low-income home purchase goal
performance figure in Table 1 reflects performance excluding loan
modifications.
BILLING CODE 8070-01-P
[[Page 55903]]
[GRAPHIC] [TIFF OMITTED] TR14SE10.008
Very Low-Income Families Housing Goal. The Safety and Soundness
Act, as amended by HERA, defines a ``very low-income'' owner-occupied
property as one occupied by a family with income
[[Page 55904]]
no greater than 50 percent of AMI.\42\ Past performance on this home
purchase goal, if it had been in effect in previous years, is shown in
Table 2. As indicated, Fannie Mae's performance would have risen from
6.1 percent in 2001 to 7.9 percent in 2003, and then generally
decreased, to 5.5 percent in 2008, the lowest in the period. With the
exception of 2006, Freddie Mac's performance on this goal would have
changed little over the 2001-08 period, remaining in the range of 6.0
percent to 6.7 percent.
---------------------------------------------------------------------------
\42\ 12 U.S.C. 4502(24).
---------------------------------------------------------------------------
The very low-income share of home purchase loans rose for both
Enterprises, from 5.5 percent in 2008 to 7.3 percent in 2009 for Fannie
Mae, and from 6.1 percent in 2008 to 7.2 percent in 2009 for Freddie
Mac.
Data on the volume and shares of modifications counting toward the
very low-income home purchase goal are also shown in Table 2. As
indicated, 27.5 percent of Fannie Mae's modifications of home purchase
mortgages and 26.0 percent of Freddie Mac's modifications were for very
low-income families. Thus, combined performance on this goal, including
both home purchase mortgages and modifications, would have been 11.2
percent for Fannie Mae and 9.8 percent for Freddie Mac in 2009, as
shown in Table 2. However, as discussed above, modifications of
mortgages will be counted only under the refinancing housing goal, not
under the housing goals for home purchase mortgages. This means that,
in order to be comparable, the 2009 very low-income home purchase goal
performance figure in Table 2 reflects performance excluding loan
modifications.
[[Page 55905]]
[GRAPHIC] [TIFF OMITTED] TR14SE10.009
Low-Income Areas Housing Goal and Subgoal. The low-income areas
housing goal targets the Enterprises' purchases of mortgages in
specified geographic areas, in a manner similar to the previous
underserved areas goal. The Safety and
[[Page 55906]]
Soundness Act, as amended by HERA, now defines a ``low-income area'' as
a census tract or block numbering area in which the median income does
not exceed 80 percent of AMI, and it includes families with incomes not
greater than 100 percent of AMI who reside in minority census tracts or
in designated disaster areas.\43\ It defines a ``minority census
tract'' as a census tract that has a minority population of at least 30
percent and a median family income of less than 100 percent of AMI.\44\
---------------------------------------------------------------------------
\43\ 12 U.S.C. 4502(28).
\44\ 12 U.S.C. 4502(29).
---------------------------------------------------------------------------
According to the 2000 census, of the 66,145 census tracts, there
were 18,615 low-income tracts. There were 25,254 tracts with a minority
population of at least 30 percent, of which 5,710 had a tract income
greater than 80 percent of AMI but less than 100 percent of AMI.
Accordingly, based on the 2000 census, there were 24,325 tracts that
would be targeted by this goal, excluding tracts in designated disaster
areas, but only families with incomes no greater than 100 percent of
AMI would be included in the 5,710 high-minority, moderate-income
tracts.
Past performance on the low-income areas housing goal, if it had
been in effect in previous years, including designated disaster areas,
is shown in Table 3A. This measurement corresponds to the overall low-
income areas housing goal. The inclusion of designated disaster areas
would have had a significant impact on the performance of each
Enterprise under this goal. The impact of the designated disaster areas
would also have changed significantly from year to year. As discussed
above, modifications of mortgages will be counted only under the
refinancing housing goal, not under the housing goals for home purchase
mortgages. This means that, in order to be comparable, the 2009 low-
income areas home purchase goal performance figure in Table 3A reflects
performance excluding loan modifications.
[GRAPHIC] [TIFF OMITTED] TR14SE10.010
Past performance on the new low-income areas housing subgoal if it
had been in effect in previous years, excluding designated disaster
areas, is shown in Table 3B. The exclusion of designated disaster areas
corresponds to the new low-income areas housing subgoal. As indicated,
Fannie Mae's performance would have varied over
[[Page 55907]]
time. It would have reached its highest level, 19.1 percent, in 2002,
and its lowest level, 15.1 percent, in 2008. Freddie Mac's performance
would have peaked at 18.6 percent in 2002, then fallen sharply to 12.1
percent in 2003, and would have been 15.2 percent in 2008. As discussed
above, modifications of mortgages will be counted only under the
refinancing housing goal, not under the housing goals for home purchase
mortgages. This means that, in order to be comparable, the 2009 low-
income areas home purchase goal performance figure in Table 3B reflects
performance excluding loan modifications.
[[Page 55908]]
[GRAPHIC] [TIFF OMITTED] TR14SE10.011
Refinancing Housing Goal. Under the Safety and Soundness Act, as
amended by HERA, the refinancing housing goal is targeted to low-income
families, i.e., families with incomes no greater than 80 percent of
AMI. It applies to mortgages that are given to pay off or prepay an
existing loan secured by the same property. Thus, the goal would not
apply to home equity or home purchase loans.
[[Page 55909]]
Past performance on this goal, if it had been in effect in previous
years, is shown in Table 4. As indicated, Fannie Mae's performance
(again, excluding units financed by purchases of PLS) would have peaked
in 2005 at 28.4 percent, following the 2001-03 refinance boom, and
declined thereafter over the 2006-08 period to a low of 23.1 percent in
2008. Freddie Mac's performance would also have peaked in 2005 at 26.3
percent, and then also declined to 26.0 percent in 2006, 25.2 percent
in 2007, and 23.2 percent in 2008.
Performance on the refinancing goal is also shown in Table 4 for
2009. As indicated, performance exclusive of loan modifications fell to
the lowest levels of this period--19.9 percent for Fannie Mae and 19.1
percent for Freddie Mac. However, 67.9 percent of Fannie Mae's
modifications of refinance mortgages pursuant to HAMP and 67.7 percent
of Freddie Mac's modifications of refinance mortgages pursuant to HAMP
were for low-income families. As a result, total performance on the
goal, including modifications pursuant to HAMP, would have been 23.0
percent for Fannie Mae and 21.7 percent for Freddie Mac.
However, as discussed elsewhere in this rule, the treatment of loan
modifications for purposes of the housing goals will be different in
2010-2011 than it was in 2009, in two respects. First, only permanent
modifications of mortgages will be counted as mortgage purchases--that
is, for 2010, only modifications initiated and made permanent in 2010
will be counted, and for 2011, only modifications made permanent in
2011 will be counted. Second, loan modifications will be counted only
under the refinancing housing goal, not under the housing goals for
home purchase mortgages. This differs from the treatment of loan
modifications in 2009, when loan modifications were treated as either
refinancing loans or home purchase loans, depending on the original
purpose of the loan that was modified. The data in Table 4 indicate
what performance under the low-income refinancing housing goal would
have been in 2009 under the 2009 provisions for counting loan
modifications. Performance excluding all loan modifications would have
been 19.9 percent for Fannie Mae and 19.1 percent for Freddie Mac.
Performance including initial loan modifications of low-income
refinancing mortgages would have been 23.0 percent for Fannie Mae and
21.7 percent for Freddie Mac. FHFA estimates that approximately 25
percent of all loan modifications initiated by the Enterprises in 2009
were actually made permanent in 2009. Thus, 2009 performance under the
low-income refinancing housing goal, based on the 2010 provisions for
counting loan modifications, would have been less than the performance
figures including initial loan modifications, but greater than the
performance figures excluding all loan modifications. Assuming that the
low-income shares of permanent modifications in 2009 were the same as
the low-income shares of initial modifications in 2009, FHFA estimates
that performance on the low-income refinancing housing goal in 2009
would have been approximately 21.3 percent for Fannie Mae and 20.2
percent for Freddie Mac.
[[Page 55910]]
[GRAPHIC] [TIFF OMITTED] TR14SE10.012
Interpreting Past Goal Performance Data. Past performance is not
necessarily a good indicator of future goal performance, due to changes
in mortgage interest rates, home prices, credit availability, and other
factors. In recent years, for example, the Enterprises purchased PLS
primarily due to anticipated profitability, to maintain market share,
and because some PLS, especially those containing subprime mortgages,
helped achieve the housing goals. Elsewhere in this final rule is a
more detailed discussion regarding the exclusion of mortgages included
in PLS from counting toward the housing goals in 2010-2011. The
performance data in Tables 1-4 show
[[Page 55911]]
performance excluding the effects of these PLS purchases.
In response to the housing crisis and their financial difficulties,
including the performance of PLS, the Enterprises have adopted more
conservative underwriting guidelines. As previously discussed, those
changes in underwriting standards will affect goal performance as
compared to the past goal performance of the Enterprises.
4. The Ability of the Enterprises To Lead the Industry in Making
Mortgage Credit Available
As background for the statutory requirement to consider the
Enterprises' ``ability * * * to lead the industry in making mortgage
credit available,'' a Senate committee report on legislation leading to
the enactment of the Safety and Soundness Act in 1992 expressed concern
that Enterprise purchases had not kept pace with market originations of
mortgages to low- and moderate-income borrowers.\45\ FHFA shares that
concern and has defined the Enterprise housing goals in part against
that history. FHFA believes that, in fact, the Enterprises, directly
supported by the Treasury Department, have played a leading role in
sustaining the mortgage market during the recent crisis.
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\45\ S. Rep. No. 102-282, at 10-11 (1992).
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Leading the industry in making mortgage credit available includes
making mortgage credit available to primary market borrowers at
different income levels. It also includes the ability of the
Enterprises to respond to pressing mortgage needs in the current
market, such as the threat of a loss of a home by the borrower, for
example, by implementing the loan modification and refinance programs
under the Administration's Making Home Affordable (MHA) Program, and by
supporting state and local housing finance agencies. The Enterprises'
ability to respond is reflected through the introduction of safe and
sound innovative products, technology and process improvements.
In the current market environment, the Enterprises, along with FHA
and VA, lead the market. In the first quarter of 2010, they had a
combined purchase market share of nearly 100 percent.\46\
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\46\ The combined purchase market share of Fannie Mae, Freddie
Mac and Ginnie Mae was 98 percent, down slightly from 99 percent in
the prior year. ``Fannie, Freddie GNMA At Nearly 100% Share.''
National Mortgage News, May 31, 2010.
---------------------------------------------------------------------------
From 1997-2003, the Enterprises' share of purchases of mortgage
originations grew to almost 55 percent. From 2004-2006, the private
mortgage market predominated, and the Enterprises' market share dropped
to below 35 percent. After the private mortgage market began to
deteriorate in 2007, the Enterprises' share of the mortgage purchase
and guarantee activity represented more than 76 percent of total
conforming single-family originations in 2009.\47\
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\47\ Statement of Edward DeMarco, Acting Director of the Federal
Housing Finance Agency, U.S. House of Representatives House
Financial Services Subcommittee on Capital Markets, Insurance and
Government Sponsored Enterprises.'' May 26, 2010.
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At the same time, the Enterprises have been severely stressed by
the financial crisis. As described below, they have suffered losses
that have depleted their capital, and they have been sustained only by
multi-billion dollar infusions of capital from the U.S. Treasury under
the Senior Preferred Stock Purchase Agreements. In this environment,
with FHFA as conservator exercising a statutory mandate to conserve and
preserve the Enterprises' assets, it is especially important that the
Enterprises not take on undue additional credit risk by purchasing
mortgages in any defined segment in quantities beyond what market
originations reasonably provide.
FHFA has taken into account all of the foregoing considerations in
assessing the Enterprises' ability to lead the industry.
5. Other Mortgage Data
The primary source of reliable mortgage data for establishing the
housing goals is the HMDA data reported by originators. Enterprise
mortgage purchase data are compared to HMDA data to evaluate the
Enterprises' performance with respect to leading or lagging the housing
market under specific housing goals.
FHFA also uses other reliable data sources including the American
Housing Survey (AHS), Census demographics, commercial sources such as
Moody's,\48\ and other industry and trade research sources, e.g.,
Mortgage Bankers Association (MBA),\49\ Inside Mortgage Finance
Publications,\50\ NAR,\51\ National Association of Home Builders
(NAHB),\52\ and the CRE Finance Council.\53\ The FHFA MIRS,\54\
previously administered by the Federal Housing Finance Board, a
predecessor agency to FHFA, is used to complement forecast models for
home purchase loan originations by making intra-annual adjustments
prior to the public release of HMDA mortgage data. In the development
of economic forecasts, FHFA uses data and information from Wells Fargo,
PNC, Fannie Mae, Freddie Mac, The Wall Street Journal Survey, Standard
and Poor's, The Conference Board and the Federal Open Market Committee.
In addition, FHFA uses market and economic data from the Bureau of
Labor Statistics, the Federal Reserve Board, the Department of Commerce
Bureau of Economic Analysis, and FedStats.\55\
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\48\ http://www.moodys.com/.
\49\ http://www.mbaa.org/.
\50\ http://www.imfpubs.com/.
\51\ http://www.realtor.org/.
\52\ http://www.nahb.org/.
\53\ http://www.cmsaglobal.org/CMSA_Resources/Research/Market_Statistics/Market_Statistics/.
\54\ http://www.fhfa.gov/Default.aspx?Page=250.
\55\ http://www.fedstats.gov/other.html.
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6. Market Size
In general, the single-family mortgage market environment of 2009
is expected to extend to 2010, with modest improvements in 2011.
Quantifiable factors influencing FHFA's outlook for the mortgage market
include general growth in the economy, employment and inflation. Other
factors that are less easily quantified include the effect of the
homebuyer tax credit on the mortgage market. Also, activity in the
subprime market is expected to be minimal through 2011.
In particular, the following factors have a direct or indirect
impact on the affordability of home purchases or the refinancing of
mortgages:
Interest Rates. To a large extent, FHFA's estimates of
affordability in the mortgage market rely on a continuing low interest
rate environment. Interest rates are expected to remain low in the near
future and possibly through 2011 as the Federal Reserve expects to
continue its low interest rate policy.\56\ Mortgage interest rates
reached an all-time low in August 2010, with the national average
interest rate on a 30-year fixed-rate mortgage reaching 4.42
percent.\57\ Lower interest rates directly affect the affordability of
buying a home or refinancing a mortgage.
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\56\ ``The Federal Open Market Committee seeks monetary and
financial conditions that will foster price stability and promote
sustainable growth in output. To further its long-run objectives,
the Committee seeks conditions in reserve markets consistent with
federal funds trading in a range from 0 to \1/4\ percent.'' Minutes
of the Federal Open Market Committee, June 22-23, 2010, p. 10.
\57\ Freddie Mac. Primary Mortgage Market Survey. August 19,
2010.
---------------------------------------------------------------------------
Unemployment. In addition to being an indicator of the health of
the economy in general, the employment situation impacts the housing
market more directly in that buying a house is a large investment and a
long-term commitment of mortgage payments. Private-sector payroll
employment edged up by 71,000 and the unemployment rate remained at 9.5
[[Page 55912]]
percent in July.\58\ The unemployment rate is still historically high
and will likely remain above eight percent in the 2010 to 2011 period.
To the extent that lower-income jobs are affected more by the
employment situation, the affordable home purchase market is affected.
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\58\ Bureau of Labor Statistics, News Release: The Employment
Situation--July 2010. August 8, 2010.
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House Prices. The price of housing has a direct impact on the
affordability of home mortgages. The housing and mortgage markets are
also influenced by trends in house prices. In periods of house price
appreciation, home sales and mortgage originations increase as the
expected return on investment rises. In periods of price depreciation
or price uncertainty, home sales and mortgage originations decrease as
risk-adverse homebuyers are reluctant to enter the market. Between May
2009 and May 2010, FHFA's purchase-only House Price Index shows prices
down 1.2 percent, compared to a 5.8 percent price decline between May
2008 and May 2009. While price declines appear to be moderating, and
while the S&P/Case Shiller Home Price Index actually shows prices
increased 5.4 percent over the May 2009 to May 2010 period, prices are
expected to decline further during the third quarter of 2010.\59\ An
analysis by Wells Fargo Securities Economics Group states that ``[t]he
combination of high inventories and declining home sales means prices
should turn down again this summer.'' \60\
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\59\ S&P/Case Shiller. Press Release, July 27, 2010.
\60\ Wells Fargo Securities Economics Group. Existing Home Sales
Slip in June, July 22, 2010, p. 1.
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Housing Market. A robust housing market is generally good for the
affordable home market. Home sales, after increasing 8.4 percent in
March and 8.2 percent in April, have decreased 4.6 percent in June and
another 3.8 percent in July. Both the increase and the subsequent
decrease in home sales may be attributed to the homebuyers' tax credit
program and its expiration. Many industry observers expect that home
sales will remain near recent lows during the remainder of 2010.
According to an analysis by Wells Fargo Securities Economics Group,
``[s]ales of existing homes fell 5.1 percent in June to a still
relatively robust 5.37 million-unit pace. Sales continue to be
supported by tax credits. Delays in the closing process have led to an
extension of the closing deadline which will likely smooth the
adjustment to the post-tax credit environment.'' \61\
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\61\ Wells Fargo Securities Economics Group. Existing Home Sales
Slip in June. July 22, 2010, p. 1.
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The additional first-time homebuyers taking advantage of the $8,000
tax credit will likely have a positive impact on the housing goals. The
additional repeat homebuyers who qualify for the $6,500 tax credit
(there is a five-year occupancy requirement) will likely have a
negative impact on the housing goals. The repeat homebuyers who qualify
for the tax credit include a greater proportion of older and thus
higher income borrowers.
FHA Market Share. The composition of the affordable conventional
mortgage market is also influenced by FHA's market share, which rose
significantly in 2008-2009 and continues to be high. Mortgages insured
by FHA are likely to continue to represent a significant share of the
mortgage market in 2010 and 2011. These loans generally are pooled into
mortgage-backed securities guaranteed by GNMA. Purchases of mortgages
insured by FHA and VA ordinarily do not receive housing goals credit.
As shown in Figure 1, the market share of all mortgages insured by
FHA has increased dramatically. A key reason for this growth is that
Fannie Mae and Freddie Mac generally cannot buy loans with original LTV
ratios greater than 80 percent without some form of credit enhancement.
Borrowers without substantial down payments are increasingly utilizing
government insurance programs. Since FHA's market share increase
appears to coincide with the demise of the subprime market, it would be
easy to conclude that FHA loans are now assisting the types of
borrowers who previously were served by subprime products. However,
FHA's internal data indicate that the average riskiness of the loans
they insure has actually decreased, i.e., credit scores increased,
since late 2007.\62\
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\62\ See FHA Outlook, a monthly statistical summary of
application insurance endorsement, delinquency and claim information
on FHA single family programs. Available at http://www.hud.gov/offices/hsg/comp/rpts/ooe/olmenu.cfm.
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[[Page 55913]]
[GRAPHIC] [TIFF OMITTED] TR14SE10.013
Refinance Rate. The share of the mortgage market that is from
refinancing existing mortgages has an impact on the share of affordable
refinance mortgages. Specifically, when the refinancing of mortgages is
motivated by low interest rates, the market is dominated by higher
income borrowers. In addition, a combination of depressed housing
prices and high LTV ratios could disproportionately decrease the number
[[Page 55914]]
of low-income homeowners refinancing their mortgages.
Manufactured Housing Loans. During 2004 to 2008, 57 percent of
manufactured housing loans were higher cost, according to the HMDA
data. Only 8.5 percent of manufactured housing loans, with most being
refinance loans, were from lenders who specialized in serving riskier
borrowers. To adjust the market estimates of the housing goals to
account for the effect from chattel loans on manufactured housing, FHFA
weighted the average 2004 to 2008 manufactured housing contribution to
the goals market estimates by 60 percent for the home purchase mortgage
goals and 50 percent for the refinance mortgage goal. The market
estimates were adjusted downward by that amount. This resulted in the
market estimate for the low-income home purchase housing goal being
adjusted by -0.9 percent, the very low-income home purchase housing
goal by -0.3 percent, the low-income areas home purchase housing goal
by -0.4 percent, and the low-income borrower refinance housing goal by
-0.3 percent. The projected market estimates in Table 6 reflect these
adjustments.
Given all of the influences on the housing and mortgage markets,
the outlook for the 2010-2011 period remains guarded. In developing its
Economic and Mortgage Outlook (see Table 5, below), FHFA uses an
average of forecasted values for key economic indicators drawn from
several industry sources.\63\ On average, industry forecasters project
the economy to rebound in 2010 and 2011, with real Gross Domestic
Product (GDP) growing at a rate of 3.0 and 2.7 percent, respectively.
Industry assessments of housing markets generally are conservative. The
unemployment rate is expected to remain above eight percent during 2010
and 2011. As uncertainty in the job market remains, it will continue to
have a negative impact on the housing market. ``Employment stability
and job growth are keys to a housing recovery. In addition to
alleviating worker's fears about their next paycheck, improving
employment measures help boost the confidence of households that are
considering buying a home.'' \64\ Mortgage interest rates are currently
dependent on federal policies, somewhat independent of the federal
funds rate and influenced by the economic situation in Europe. The
Federal Open Market Committee is committed to a low federal funds rate
policy (at 0 to 0.25 percent) as it ``continues to anticipate that
economic conditions, including low rates of resource utilization,
subdued inflation trends, and stable inflation expectations, are likely
to warrant exceptionally low levels of the federal funds rate for an
extended period.'' \65\ For the 2010 and 2011 period, the forecasts
polled by FHFA show that interests rates will remain near recent
levels.
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\63\ These forecasts include those by the Mortgage Bankers
Association, Fannie Mae, Freddie Mac, the National Association of
Realtors, Wells Fargo, Wall Street Journal Forecast Survey, PNC
Financial, National Association of Home Builders, Standard and
Poor's, The Conference Board and The Federal Reserve Board's Federal
Open Market Committee.
\64\ National Association of Home Builders. Eye on the Economy--
Private Sector Job Growth Slows in May, June 10, 2010.
\65\ Board of Governors of the Federal Reserve System. Press
Release of the Federal Open Market Committee, June 23, 2010.
[GRAPHIC] [TIFF OMITTED] TR14SE10.014
[[Page 55915]]
FHFA's estimates of the market performance for the two single-
family owner-occupied home purchase housing goals and one subgoal, and
the refinancing mortgage housing goal, are provided in Table 6. For
2010 and 2011, FHFA estimates that the low-income and very low-income
borrower shares of the home purchase mortgage market will be 27 percent
and 8 percent, respectively. Comparing these market estimates in Table
6 with the corresponding estimates in Table 6 of the proposed rule
shows that the estimates have not changed. The estimated share of goal-
qualifying mortgages in low-income areas in the home purchase mortgage
market, excluding designated disaster areas, in 2010 and 2011, remained
at the 13 percent of home purchase mortgages estimate that was
published in the proposed rule. While changes in expected economic
conditions had an impact on the market for these three housing goals,
that impact is insignificant. The market for the low-income areas
housing goal is influenced by the level of home sales. During periods
when home sales are increasing, a smaller share of the additional home
sales take place in low-income areas. Home sales are expected to fall
slightly in 2010 and then rebound in 2011.\66\
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\66\ The average industry January forecast for home sales during
2010 and 2011 was 5.9 and 6.5 million units respectively. This is
compared to the 5.5 and 6.0 million units from Table 5.
[GRAPHIC] [TIFF OMITTED] TR14SE10.015
The refinance share of the market, as measured by the Mortgage
Bankers Association, was 65 percent during the first quarter of 2010.
With interest rates projected to be at historical lows during the
remainder of 2010, there is real potential for refinance rates to be
higher than currently anticipated. With a projected refinance rate of
62 percent in 2010 (down from 65 percent in 2009), FHFA estimates that
18 percent of refinance mortgages will be made to low-income borrowers
in 2010. The refinance rate is expected to fall to 40 percent in 2011,
resulting in an estimate that the low-income borrower mortgage share of
the refinance mortgage market will be 20 percent in 2011.
To arrive at these estimates, FHFA used econometric methods to
extend the trends of the market performance for each goal, based on a
monthly time series database provided by the Federal Financial
Institutions Examination Council (FFIEC) and the Federal Reserve Board.
For the low-income areas goal, this model produced only the market
estimates for the subgoal. The remainder of the market estimates for
this goal relates to the designated disaster areas. FHFA estimates that
11 percent of home purchase mortgages originated in 2010 will qualify
for the low-income areas goal because the properties associated with
these mortgages are located in designated disaster areas that are not
already classified as low-income or high minority. The methodology used
in FHFA's analysis of the mortgage market for 2010 and 2011 is
contained in a document entitled ``Market Estimation Model for the 2010
and 2011 Enterprise Single-Family Housing Goals,'' which is available
at http://www.fhfa.gov.
FHFA used all relevant information when determining the benchmark
levels for the 2010 and 2011 housing goals. While the tightening of
underwriting standards is not included in the market estimates
calculation, it was considered in the determination of the benchmark
levels. FHFA attempts to use the most current data possible when
estimating market size, including information from the Monthly Interest
Rate Survey (MIRS) to extend HMDA goal performance data. To extend the
series for the three single-family home purchase goals through 2009,
FHFA supplements the HMDA series with estimated market series of goal-
qualifying shares provided by Freddie Mac that are based on MIRS data.
Guidance for calculating market
[[Page 55916]]
size using historical HMDA data is provided in the ``Market Estimation
Model for the 2010 and 2011 Enterprise Single-Family Housing Goals''
published by FHFA. The market estimation methodology for estimating
current and future market size is provided in that market estimation
model document. As noted above, FHFA will use the Federal Reserve
Board's new guidelines of 150 basis points or more above APOR to
identify higher-cost loans.
7. Financial Condition of the Enterprises
The financial performance of both Enterprises is dominated by
credit-related expenses and losses stemming principally from purchases
of PLS and purchases and guarantees of mortgages originated in 2006 and
2007. Since the establishment of the conservatorship for the
Enterprises in September 2008, the combined losses of the two
Enterprises depleted their capital and required them to draw from the
U.S. Treasury under the Senior Preferred Stock Purchase Agreements.
Fannie Mae has drawn $85.1 billion and Freddie Mac has drawn $63.1
billion in Treasury support under the Senior Preferred Stock Purchase
Agreements, over $148 billion in total.
As discussed above, FHFA's duties as conservator require the
conservation and preservation of the assets of the two Enterprises.
While reliance on the Treasury Department's backing will continue until
legislation produces a final resolution to the Enterprises' future,
FHFA is monitoring the activities of the Enterprises to: (a) Limit
their risk exposure by avoiding new lines of business; (b) ensure
profitability in the new book of business without deterring market
participation or hindering market recovery; and (c) minimize losses on
the mortgages already on the books. Given the importance of the
Enterprises to the housing market, any goal-setting must be closely
linked to putting the Enterprises in sound and solvent condition. Over
the long term, such actions will assist homeowners and neighborhoods
while saving the Enterprises money. In 2009, FHFA adjusted the
Enterprises' housing goal levels to align them with safe and sound
practices and market reality, and the housing goals requirements for
2010 and 2011 must be similarly aligned.
D. Single-Family Housing Goal Levels
Based on the factors described above, Sec. 1282.12 of the final
rule establishes the benchmark levels for the single-family housing
goals for 2010 and 2011 as follows:
Housing goal for low-income families. The benchmark level of the
annual goal for each Enterprise's purchases of purchase money mortgages
on owner-occupied single-family housing for low-income families is 27
percent of the total number of such mortgages purchased by that
Enterprise, as in the proposed rule.
Housing goal and subgoal for families in low-income areas. The
benchmark level of the annual goal for each Enterprise's purchases of
purchase money mortgages on owner-occupied single-family housing for
families in low-income areas will be set annually by notice from FHFA.
The benchmark level will be based on the benchmark level for the low-
income areas subgoal, plus an adjustment factor that reflects the
incremental percentage share that mortgages for low- and moderate-
income families in designated disaster areas had in the most recent
year for which data is available. The benchmark level of the annual
subgoal for each Enterprise's purchases of purchase money mortgages on
owner-occupied single-family housing for families in low-income census
tracts and for low- and moderate-income families in minority census
tracts is 13 percent of the total number of such mortgages purchased by
that Enterprise.
Housing goal for very low-income families. The benchmark level of
the annual goal for each Enterprise's purchases of purchase money
mortgages on owner-occupied single-family housing for very low-income
families is 8 percent of the total number of such mortgages purchased
by that Enterprise, as in the proposed rule.
Housing goal for refinancing mortgages. The benchmark level of the
annual goal for each Enterprise's purchases of refinancing mortgages on
owner-occupied single-family housing for low-income families is 21
percent of the total number of such mortgages purchased by that
Enterprise, an adjustment downward from the 25 percent level in the
proposed rule to reflect current market conditions.
E. Analysis of Factors for Multifamily Housing Goals
Section 1333(a)(4) of the Safety and Soundness Act, as amended by
HERA, requires FHFA to consider the following six factors in setting
multifamily special affordable housing goals:
(1) National multifamily mortgage credit needs and the ability of
the Enterprise to provide additional liquidity and stability for the
multifamily mortgage market;
(2) The performance and effort of the Enterprise in making mortgage
credit available for multifamily housing in previous years;
(3) The size of the multifamily mortgage market for housing
affordable to low-income and very low-income families, including the
size of the multifamily markets for housing of a smaller or limited
size;
(4) The ability of the Enterprise to lead the market in making
multifamily mortgage credit available, especially for multifamily
housing affordable to low-income and very low-income families;
(5) The availability of public subsidies; and
(6) The need to maintain the sound financial condition of the
Enterprise.\67\
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\67\ 12 U.S.C. 4563(a)(4).
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FHFA's analysis of each of the factors, which has been updated
since the proposed rulemaking, is set forth below.
1. National Multifamily Mortgage Credit Needs
At the onset of the mortgage credit crisis, traditional sources of
multifamily credit, primarily commercial mortgage-backed securities
(CMBS), life insurance companies, commercial banks, and thrifts,
significantly reduced lending or stopped lending completely. This
contraction left Freddie Mac and Fannie Mae as the principal sources of
financing for most multifamily owners and investors. Although FHA has
increased significantly its non-healthcare, non-new construction
endorsements in fiscal year 2010 as compared to fiscal year 2009, it
remains a relatively small player in the multifamily refinance market.
Data on initial endorsements for the first eight months of fiscal year
2010 show more than a four-fold increase in initial FHA endorsements of
non-healthcare, non-new construction multifamily loans to over $3.7
billion.\68\ While this number is much less than Enterprise purchases
over the same period, FHA has managed to increase its business, in
part, because its underwriting parameters are less stringent than those
of the Enterprises.\69\ Life insurance companies appear to be returning
to the multifamily market. According to data from the MBA, life
insurance companies have increased originations of commercial property
loans, including multifamily loans, by
[[Page 55917]]
131 percent in the first quarter of 2010, compared to the same period
in 2009.\70\
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\68\ Source: FHA Multifamily Data Base available at: http://www.hud.gov/offices/hsg/mfh/fhamie/iecompiled10.pdf.
\69\ FHA permits LTVs up to 85 percent and DSCR ratios as low as
1.176 on its primary market rent refinance program Section 223(f).
This compares to Enterprise maximum LTVs of 80 percent and a minimum
DSCR of 1.25. Earlier in 2010, FHA announced plans to raise the DSCR
for Section 223(f) loans to 1.2 from 1.176.
\70\ ``MBA Study: First Quarter 2010 Commercial/Multifamily
Mortgage Originations Increase from Year Earlier, Though Levels
Remain Low, 5/18/2010'', available at: http://www.mbaa.org/NewsandMedia/PressCenter/72890.htm.
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With multifamily property prices having fallen by almost 31 percent
from the third quarter of 2008 to the first quarter of 2010,\71\ many
properties that would have been eligible for refinance through
Enterprise programs lack enough equity to meet Enterprise loan
underwriting standards. The decline in multifamily property prices will
adversely affect owners who financed with interest-only loans over the
past decade. As these loans become due, properties with non-amortizing
loans may not have sufficient equity to counter the effects of
declining property values.
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\71\ Moody's/Real CPPI Report May 2010, available at: http://web.mit.edu/cre/research/credl/rca.html.
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Demand for new multifamily housing credit has also waned due to the
credit crunch and the existing oversupply of multifamily units.
According to the U.S. Census Bureau, multifamily housing starts
plummeted by two-thirds from April 2008 to April 2010.\72\ Sales of
multifamily properties are far below normal levels in part because
owners are waiting for property values to stabilize. Many other
multifamily property owners, unable to refinance, have been granted
extensions by lenders, or in the case of loans securitized through
CMBS, by the servicer. On the positive side, the maturations of
multifamily loans acquired by the Enterprises and backing CMBS
issuances are unlikely to begin to increase significantly until after
2010.
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\72\ ``New Residential Construction in April 2010,'' U.S. Census
Bureau, Joint Release, U.S. Department of Housing and Urban
Development, May 18, 2010. Available at: http://www.census.gov/const/www/newresconstindex.html.
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In the CMBS portion of the multifamily market, while the
Enterprises have primarily purchased the highest-rated CMBS tranches,
they may be indirectly affected by increasing CMBS delinquency rates.
According to May 2010 data released by TREPP,\73\ delinquencies on
multifamily properties financed by CMBS issuances rose to 13.34 percent
from 5.17 percent a year earlier. As properties collateralizing CMBS
issuances become delinquent, foreclosures and workouts will increase,
further depressing prices of all commercial properties, including
multifamily properties. This will make refinancing maturing multifamily
loans more challenging for the Enterprises.
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\73\ ``TREPP Wire Monthly Delinquency Report'' June, 2010.
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While multifamily delinquencies remain relatively low for both
Fannie Mae \74\ and Freddie Mac,\75\ there is growing concern among
multifamily property owners and investors about properties that are
overleveraged or generating negative cash flows.
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\74\ Fannie Mae: Monthly Summary, April 2010, Table 9.
\75\ Freddie Mac: Monthly Volume Summary: April 2010, Table 6.
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2. Past Performance
HUD established dollar-based multifamily housing subgoals for the
Enterprises for the years 1996 through 2008. HERA extended the 2008
subgoals through 2009, subject to review by FHFA, and FHFA increased
these 2009 subgoals modestly, from $5.49 billion to $6.56 billion for
Fannie Mae, and from $3.92 billion to $4.60 billion for Freddie Mac.
HERA changed the structure of the multifamily goals for 2010 and
beyond. The multifamily housing subgoals for 2009 were set in terms of
units for very low-income families and low-income families in low-
income areas. The scope of the goals is broader for 2010-11, covering
units affordable to all low-income families (those with incomes no
greater than 80 percent of AMI), regardless of property location.
Section 1333(a)(2) of the Safety and Soundness Act, as amended by
HERA, requires the Director to establish ``additional requirements for
the purchase by each enterprise of mortgages on multifamily housing
that finance dwelling units affordable to very low-income families,''
with ``very low-income families'' defined as those with incomes no
greater than 50 percent of AMI. To implement this provision, consistent
with the proposed rule, FHFA is establishing a multifamily subgoal for
very low-income families.
Section 1333(a)(3) of the Safety and Soundness Act, as amended by
HERA, provides that the Director shall require each Enterprise to
report on its purchases of mortgages on multifamily housing ``of a
smaller or limited size that is affordable to low-income families.''
The provision defines small multifamily projects as those containing 5
to 50 units or as those with mortgages of up to $5,000,000. The
Director may adjust the definition to include projects containing
different numbers of units or with mortgages of different amounts. The
provision further states that the Director may establish additional
requirements related to such units by regulation.
As in the proposed rule, FHFA is defining smaller multifamily
properties as those containing 5 to 50 units, which is consistent with
industry standards. FHFA already requires reporting by the Enterprises
on purchases of mortgages on such properties.
Multifamily special affordable housing goals. Both Enterprises
played major roles in funding multifamily units for low-income families
between 2001 and 2009, as shown in Table 7. Fannie Mae financed an
average of 410,000 such units over this period, peaking at 599,000
units in 2003, while Freddie Mac financed an average of 331,000 units,
peaking at 493,000 units in 2007. However, as discussed elsewhere in
the final rule, the Enterprises followed different approaches to the
multifamily market, with Freddie Mac relying to a significant extent on
the purchase of CMBS, while Fannie Mae depended to a greater extent on
the direct purchase of multifamily loans originated by its Delegated
Underwriting and Servicing (DUS) lenders. Data on low-income
multifamily units financed, excluding CMBS purchases, are shown in the
last two columns of Table 7.
As indicated in Table 7, Fannie Mae's financing of low-income
multifamily units fell by 16 percent in 2008, from 542,000 units in
2007 to 456,000 units in 2008, and by an additional 46 percent in 2009,
to 235,000 units. Such financing fell more sharply at Freddie Mac, by
44 percent, from 493,000 units in 2007 to 276,000 units in 2008, and by
an additional 40 percent in 2009, to 167,000 units. This difference
reflects the drop in CMBS purchases by Freddie Mac. As a result,
Freddie Mac's financing of such units was 61 percent of Fannie Mae's
financing in 2008, the lowest ratio of the period.
[[Page 55918]]
[GRAPHIC] [TIFF OMITTED] TR14SE10.016
Very low-income multifamily subgoals. HERA revised the definition
of ``very low-income'' families as it pertains to the Enterprises'
housing goals. Under the housing goals established by HUD for 1993-2008
and as revised by FHFA for 2009, ``very low-income'' referred to
borrowers with incomes no greater than 60 percent of AMI, or for rental
units, to units affordable to families with incomes in this range, with
adjustments for family size. This definition was changed by HERA to
refer to borrowers with incomes no greater than 50 percent of AMI, or
for rental units, to units affordable to families with incomes in this
range, with adjustments for family size. The new definition of ``very
low-income families'' is consistent with that used in some other
housing programs.
Enterprise financing of rental units for very low-income families
over the 2001-09 period is reported in Table 8. On average, Fannie Mae
funded 92,000 such units each year and Freddie Mac funded 74,000 such
units. The same general pattern prevailed over time as that shown in
Table 7 between 2007 and 2009, with a significant drop in funding by
Fannie Mae (49 percent) and a substantial drop by Freddie Mac (80
percent). As a result, the number of such units financed by Freddie Mac
in 2009 was only 33 percent of the number financed by Fannie Mae, the
lowest ratio of this period.
[[Page 55919]]
[GRAPHIC] [TIFF OMITTED] TR14SE10.017
Financing of low-income units in small multifamily properties. As
discussed above, HERA recognizes the important role played by small
multifamily housing as a source of affordable rental housing. According
to the 2007 American Housing Survey (AHS), multifamily properties
containing 5-49 units constituted 77 percent of all multifamily units
and 74 percent of multifamily units constructed in the previous 4
years. Other sources indicate that a smaller, but still significant,
share of multifamily units are located in small multifamily
properties.\76\ HERA requires reporting of the Enterprises' role in
this market with regard to units affordable to low-income families, and
such data is reported in Table 9.
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\76\ American Housing Survey for the United States: 2007, U.S.
Department of Housing and Urban Development and U.S. Department of
Commerce, Bureau of the Census, September 2008, Table 1A-1, page 1.
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Both Enterprises increased their financing of low-income small
multifamily units between 2001 and 2003, from 24,000 units to 155,000
units for Fannie Mae, and from 44,000 units to 139,000 units for
Freddie Mac. This increase was motivated at least in part by the
``bonus points'' that HUD gave for financing goal-qualifying units in
small multifamily properties over the 2001-03 period. Under these
``bonus points,'' each goal-qualifying unit counted twice in the
numerator and once in the denominator in calculating goal performance.
As indicated in Table 9, both Enterprises decreased their roles in
the small multifamily market after the expiration of HUD's ``bonus
points'' in 2004. Fannie Mae financed an average of 49,000 units for
2004-07, while the comparable average for Freddie Mac was 24,000 such
units.
Since 2007, both Enterprises' roles in this market have fallen
significantly. Fannie Mae's purchases of mortgages financing low-income
units in small multifamily properties fell from 65,000 units in 2007 to
44,000 units in 2008 and 13,000 units in 2009, a combined decrease of
79 percent. The decline was even sharper for Freddie Mac, from 24,000
units in 2007 to 2,100 units in 2008 and only 528 units in 2009, a
combined decrease of 98 percent.
Although the Safety and Soundness Act requires FHFA to consider the
past performance of the Enterprises in establishing the multifamily
housing goals, current market conditions suggest that many fewer units
are likely to be readily available for purchase in a safe and sound
manner in 2010 and 2011. Measuring the multifamily goals as was
[[Page 55920]]
done previously would ignore the steep fall in multifamily property
values and high vacancy rates, among other factors.
BILLING CODE 8070-01-P
[GRAPHIC] [TIFF OMITTED] TR14SE10.018
BILLING CODE 8070-01-C
3. Market size
The size of the overall multifamily mortgage market is likely to
remain relatively unchanged in 2010 as compared to 2009, and the dollar
amount of multifamily loans financed in 2010 will likely be similar to
that of 2009, approximately $40-45 billion. Poor property fundamentals,
especially declines in property value, will affect the type of
properties and owners that can access multifamily credit. If the
multifamily market begins to recover in 2011, multifamily originations
may increase. Projections of such activity, however, are uncertain. For
purposes of this rulemaking, the multifamily goals for both 2010 and
2011 are based on the overall multifamily market for 2009 and
Enterprise multifamily performance in recent years, and on current
multifamily market conditions. As in prior years, the multifamily goals
are set separately for each Enterprise. Unlike prior years, the
multifamily goals are measured in units rather than dollar volume.
The proportion of multifamily affordable units available for
financing in 2010 and 2011 will likely be below historical levels due
to weakness in the multifamily housing market. Steep declines in
multifamily property prices since mid-2007 have caused a significant
loss of equity for owners, many of whom can no longer qualify for
Enterprise financing without placing substantial cash into the
property. The loss of equity for most owners has meant that only
financially strong properties and borrowers will qualify for Enterprise
financing. These properties often have a much lower proportion of
affordable units.
[[Page 55921]]
Another factor that will likely constrain Enterprise multifamily
loan production in 2010 and 2011 will be the relatively small dollar
amount of loans maturing in the Enterprise portfolios in 2010 and 2011.
The MBA expects only $26 billion in total maturing multifamily
mortgages in 2010. However, the volume of maturing loans is expected to
increase from 2011 onward.\77\
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\77\ Multifamily Housing News: Special Report: MBA Says Large
Amounts of Multifamily Loans Will Mature in 2011 and After, Feb. 11,
2009.
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For well over a decade, Freddie Mac relied upon purchases of CMBS
and structured deals involving large portfolios of affordable
multifamily loans to meet applicable affordable housing goals.
Beginning in 2006 and 2007, CMBS made up a significant portion of
Fannie Mae's affordable multifamily purchases. These sources of
affordable units are now either unavailable or do not meet Enterprise
standards. Therefore, based on the factors discussed above, multifamily
affordable purchases in the very low-income category are near
historical lows in 2009 overall. The effect, though, will be more
pronounced at Freddie Mac. The percentage of very low-income
multifamily purchases in 2010 for Freddie Mac will likely be below its
average for 2004 to 2008, while Fannie Mae will likely have a very low-
income purchase volume near its average for the past several years. As
discussed elsewhere in this final rule, CMBS units will no longer
receive credit towards the housing goals.
4. Ability of the Enterprise To Lead the Market in Making Multifamily
Mortgage Credit Available
As described above in the context of the single-family goals,
Congress in enacting the Safety and Soundness Act was concerned that
the Enterprises were lagging behind market originations of mortgages
for the benefit of low- and moderate-income households. FHFA has been
cognizant of that concern in setting goals for the Enterprises.
With the current credit crisis negatively affecting the commercial
real estate market, the Enterprises became market leaders by default.
The disciplined underwriting and credit standards they bring to the
industry have contributed to relatively low delinquency rates. Compared
to the industry, the Enterprises have relatively conservative
multifamily underwriting parameters. Although showing signs of
improvement, the fundamentals of the multifamily real estate market are
still weak (e.g., high vacancy rates, stagnant rents and falling
property values). As a result, the Enterprises have enhanced their
credit standards to reduce risk exposure, which has meant that owners
of the strongest performing properties are more likely to obtain credit
from lenders selling to the Enterprises. As noted previously, Fannie
Mae and Freddie Mac have recently composed a larger than usual portion
of the multifamily market. For example, while Fannie Mae estimates that
its share of the multifamily market ranged from 21-28 percent in the
period from 2004 to 2007, its multifamily market share was 47 percent
in 2009. In the years 2010-2011, the Enterprises' share of the market
will likely not be as large because of renewed competition from other
multifamily market players, including life insurance companies and
banks, and declining multifamily market fundamentals.
5. Availability of Public Subsidies
Public subsidies for multifamily housing have been affected by the
mortgage credit crisis. Low-income housing tax credits (LIHTCs), an
important source of equity for new low-income housing, have fallen in
value. However, on October 19, 2009, FHFA announced, in conjunction
with the Treasury Department and HUD, an initiative to support state
and local housing finance agencies (HFAs) through a new bond purchase
program to support new lending by HFAs, and a temporary credit and
liquidity program to improve the access of HFAs to liquidity for
outstanding HFA bonds. Fannie Mae and Freddie Mac each played critical
roles in this program, which helped support low mortgage rates and
expand resources for low- and middle-income borrowers who want to
purchase or rent homes that are affordable over the long term.
The Enterprises actively purchase mortgages on properties with HUD
Section 8 Housing Assistance Plan (HAP) contracts. Newly constructed or
rehabilitated properties usually receive forward commitments from the
Enterprises with part of the new equity coming from LIHTCs. The
remaining properties are refinancings where the property owners sign
long-term use agreements with HUD and receive a HAP contract in return.
The Enterprises can also assist state and local HFAs by credit
enhancing HFA bonds, and by offering permanent financing for properties
rehabilitated through the Neighborhood Stabilization Program and other
HUD grants.
6. Financial Condition of Enterprises
The financial performance of both Enterprises, including the
establishment of the conservatorship for the Enterprises in September
2008, is discussed in more detail above. FHFA has considered the
multifamily housing goals in light of the importance of the Enterprises
to the housing market and in light of FHFA's duties as conservator to
conserve and preserve the assets of the Enterprises. FHFA has aligned
the multifamily housing goal levels for 2010 and 2011 with safe and
sound practices and market reality.
F. Multifamily Housing Goal Levels
As a result of the changes in HERA, the final rule establishes the
multifamily affordable housing goals for each Enterprise separately
from the single-family housing goals beginning in 2010. Qualifying
multifamily units previously had been included with single-family
affordable purchases in the overall goals. Additional requirements for
multifamily housing were imposed under a multifamily special affordable
subgoal. Consistent with the proposed rule, the multifamily affordable
goals for each Enterprise in the final rule are established in terms of
low-income and very low-income units financed annually.
Regarding the setting of multifamily goals, one commenter noted
that there does not appear to be a convenient measure of the market,
particularly for very-low income families. The commenter suggested
using HMDA data to calculate the size of the small multifamily property
market, and estimating the size of the large multifamily property
market. The overall size of the market could then be estimated in
dollars. FHFA received four comments generally supporting the
multifamily housing goal levels in the proposed rule. One policy
advocacy group supported the goal levels, but cautioned that increasing
the Enterprises' performance for very-low income families may be
difficult without a significant increase in the availability of housing
subsidies through which rents can be made affordable to such families.
Eight commenters opposed the proposed multifamily goal levels. Two
not-for-profit organizations stated that rather than focus on
multifamily goal targets, the Enterprises should address the unmet
demand for affordable multifamily financing by focusing on the overall
quality and effectiveness of project-specific efforts, prototypes and
market-wide coverage. One trade association commented that the
[[Page 55922]]
multifamily goals should continue to be measured as previously, stating
that the proposed goals were too precise for these uncertain times. Two
other trade associations commented that the proposed goal levels were
too low, based on previous Enterprise performance. One trade
association added that the Enterprises are now the principal source of
financing for affordable rental housing, and FHFA should push them to
remain as market leaders. Both Enterprises stated that the multifamily
goal levels were too high, and that the demand for multifamily
financing is too weak to support such levels.
The final rule lowers the multifamily goal levels by approximately
25 percent from those in the proposed rule. The lower goal levels
reflect the uncertain state of the overall multifamily market, the
anticipation that the Enterprises will play a less dominant role in
that market through 2011 as competition for market share increases from
such traditional players as life insurance companies and banks, the
decrease in properties qualifying for Enterprise multifamily financing
as a result of steep declines in multifamily property prices and
declining fundamentals in the market (e.g. debt service ratios and LTV
ratios, deteriorating property conditions), and the adverse impact on
multifamily production as a result of decreased LIHTC investment.
As noted earlier, Freddie Mac's multifamily volume has not kept
pace with Fannie Mae's multifamily volume since the beginning of the
credit crisis in 2008, especially for very low-income units, due in
part to Freddie Mac's reliance on CMBS and structured purchases from
banks and thrifts. Structured purchases are not readily available and
are likely to reappear in only limited volumes in the near term.
Pursuant to this final rule, CMBS units will no longer count toward the
housing goals.
Fannie Mae, on the other hand, is better positioned than Freddie
Mac to finance affordable units through its flow business. For example,
Fannie Mae has a division dedicated to purchasing mortgages on small
multifamily properties (5 to 50 units). Smaller properties, in general,
have higher percentages of affordable units than larger properties.
Furthermore, Fannie Mae's DUS program allows it to share credit losses
with lenders. Mortgages on small multifamily properties, however, are
often more at risk of delinquency and default than other multifamily
mortgage property types. Mortgages on small multifamily properties are
usually more expensive to originate and underwrite than mortgages on
large properties because the costs, mostly fixed, are spread over fewer
units.\78\ The DUS program helps Fannie Mae mitigate some of the credit
risk of financing affordable multifamily units.
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\78\ ``Why do Small Multifamily Properties Bedevil Us?'' Shekar
Narasimhan, The Brookings Institution, Nov. 2001, http://www.brookings.edu/articles/2001/11metropolitanpolicy_narasimhan.aspx.
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Since Fannie Mae will likely finance significantly more multifamily
units in 2010 than Freddie Mac, consistent with the proposed rule, the
final rule sets distinct goals for each of the Enterprises, as was done
in previous years. FHFA anticipates that for low-income units and very
low-income units, multifamily mortgages acquired by Freddie Mac will
finance fewer units than multifamily mortgages acquired by Fannie Mae
in 2010 and 2011. The disparity will be even greater for very low-
income units. Freddie Mac will likely purchase multifamily loans that
finance about half as many very low-income units as will be financed by
multifamily loans acquired by Fannie Mae in 2010 and 2011.
Unlike with the dual approach for the single-family goals described
above, FHFA has not defined the multifamily goals as prospective
market-based targets, with a provision to be measured retrospectively
against actual market data. The availability of the necessary market
data to measure affordability of rents in the multifamily market,
prospectively or retrospectively, is less certain. As a result,
consistent with the proposed rule, the final rule sets the multifamily
goals in the traditional prospective volume of business manner.
However, these goals remain subject to the statutory provisions
enabling them to be adjusted, or providing relief from enforcement, if
multifamily market conditions so require.
FHFA considered previous multifamily performance and the current
market in setting the multifamily goals in the final rule as well as
revisions in the final rule which disallow counting CMBS toward
multifamily goals in setting these revised goals.
Multifamily low-income housing goal. Under the final rule, the
annual goal for Fannie Mae's purchases of mortgages on multifamily
residential housing affordable to low-income families is at least
177,750 dwelling units for each of 2010 and 2011, a decrease from the
237,000 units set in the proposed rule. The annual goal for Freddie
Mac's purchases of mortgages on multifamily residential housing
affordable to low-income families is at least 161,250 such dwelling
units for each of 2010 and 2011, a decrease from the 215,000 units set
in the proposed rule.
Multifamily very low-income housing subgoal. Under the final rule,
the annual subgoal for Fannie Mae's purchases of mortgages on
multifamily residential housing affordable to very low-income families
is at least 42,750 dwelling units for each of 2010 and 2011, a decrease
from the 57,000 units set in the proposed rule. The annual subgoal for
Freddie Mac's purchases of mortgages on multifamily residential housing
affordable to very low-income families is at least 21,000 such dwelling
units for each of 2010 and 2011, a decrease from the 28,000 units set
in the proposed rule.
G. Small Multifamily Properties
HERA requires the Enterprises to report on purchases of mortgages
secured by small multifamily properties. In the proposed rule, FHFA
invited comment on whether additional requirements for small
multifamily properties should be considered.
Five commenters supported the establishment of small multifamily
housing goals. They stated that this is an underserved market segment
and should be a focus for the Enterprises. One policy advocacy group
stated that a small multifamily housing goal would recognize the vast
majority of renters who live in small multifamily properties. However,
the commenter added that this still would not address the significant
number of single-family rentals. A governmental entity stated that the
goal should be expanded to include mixed-use residential properties
that include one- to four-family buildings with ground floor commercial
space.
Three commenters opposed establishing a small multifamily housing
goal. One trade association supported reporting requirements for small
multifamily properties rather than establishing a goal, and recommended
that FHFA meet with industry and banking representatives to explore
small multifamily options. Both Enterprises stated that small
multifamily housing requirements were not necessary at this time,
citing the current state of the multifamily market and the financial
condition of the Enterprises.
FHFA has considered these comments and determined that the
Enterprises should not be subject to small multifamily housing subgoals
while in conservatorship. Such new subgoals could be viewed as
encouraging substantial new activity in an area in which the
Enterprises have limited operational capacity. Accordingly, the
[[Page 55923]]
final rule does not establish such subgoals but, as provided by HERA,
the Enterprises will be required to continue to report on their
activity in this area.
H. Discretionary Adjustment of Housing Goals--Sec. 1282.14
Consistent with the requirements of section 1334 of the Safety and
Soundness Act, as amended by HERA, and the proposed rule, Sec. 1282.14
of the final rule provides for an Enterprise to petition the Director
to reduce the level of any goal or subgoal,\79\ and sets forth the
standards and procedures for consideration by the Director in
determining whether to reduce a goal or subgoal level.
---------------------------------------------------------------------------
\79\ 12 U.S.C. 4564.
---------------------------------------------------------------------------
One trade association supported the discretionary authority of the
Director to adjust the housing goals upon petition by the Enterprises.
However, this commenter requested that any such petitions and
adjustments be made public to ensure transparent consideration of the
full implications of any such request.
FHFA considered this comment and determined that the final rule
should not make any changes to this section of the proposed rule,
because it already provides for public comment on such adjustments,
consistent with the process required under section 1334 of the Safety
and Soundness Act, as amended by HERA.
I. General Counting Requirements--Sec. 1282.15
In the final rule, Sec. 1282.15 sets forth general requirements
for the counting of Enterprise mortgage purchases toward the
achievement of the housing goals. Except as described below, these
requirements are unchanged from the general requirements set forth in
the proposed rule. Performance under the single-family housing goals
will be evaluated based on the percentage of all single-family, owner-
occupied mortgages purchased by an Enterprise that meet a particular
goal. Performance under the multifamily housing goals will be evaluated
based on the total number of units that meet a particular goal and are
financed by mortgages purchased by an Enterprise.
The data estimation methodologies in this section have been revised
to reflect changes in the housing goals for 2010 and 2011. The
methodology for estimating affordability for single-family rental
properties has been eliminated as unnecessary because the single-family
housing goals are measured in terms of mortgages rather than units. The
option to exclude single-family owner-occupied units with missing data
up to one percent of the total number of single-family owner-occupied
units backing mortgages purchased by an Enterprise has been removed
because it is no longer in use by either Enterprise. The option to
request approval of alternative methodologies has also been removed. In
light of the shorter time period for which the housing goals are being
established, it should not be necessary to make changes to the rules
for missing data prior to FHFA's proposal of new housing goals for
later years.
Contract rent. Under the proposed rule, the definition of
``contract rent'' would clarify that market rent would be used as the
anticipated rent for unoccupied units.
Freddie Mac recommended that effective rent, not market rent, be
used to determine affordability. Freddie Mac and other industry
participants use effective rent, which averages nearly six percent
below market rent, when underwriting multifamily loans and determining
property value. The use of effective rent would align goals
qualification rules with these market standards.
FHFA understands that it is industry practice when estimating cash
flow for underwriting purposes to use rents net of rent concessions.
FHFA also understands that when rent concessions are given, the tenants
pay less than the contract rent for that given period of time. However,
since FHFA does not have sufficient information to project when and
where rent concessions will be available to tenants or prospective
tenants, FHFA uses contract rents as the basis for establishing
affordability and the multifamily housing goal and subgoal targets.
Since the affordability of units in properties associated with the
Enterprises' mortgage acquisitions will be scored against a housing
goal based on contract rents, Sec. 1282.15(d) of the final rule
continues to require the Enterprises to use contract rents when
calculating affordability.
J. Special Counting Requirements--Sec. 1282.16
Section 1282.16 of the final rule sets forth special counting
requirements for the receipt of full, partial or no credit for a
transaction toward achievement of the housing goals. A number of
clarifying and conforming changes were proposed for this section to
ensure consistent application of the counting rules among the
Enterprises. The final rule adopts most of the changes from the
proposed rule, except as described in more detail below.
As in the proposed rule, Sec. 1282.16(b) of the final rule makes
clear that where a mortgage falls within one of the categories excluded
from consideration under the housing goals, the mortgage is excluded
even if it otherwise falls within one of the special counting rules in
Sec. 1282.16(c). For example, a non-conventional mortgage that is
excluded from consideration pursuant to Sec. 1282.16(b)(3) could not
be counted even if it otherwise would be counted as a seasoned mortgage
under Sec. 1282.16(c)(6). Section 1282.16(c) also makes clear that
where a transaction falls under more than one of the special counting
rules in Sec. 1282.16(c), all of the applicable requirements must be
satisfied in order for the loan to be counted for purposes of the
housing goals.
Consistent with the proposed rule, Sec. 1282.16(b) of the final
rule does not include the provision that excluded jumbo conforming
loans from consideration for purposes of the housing goals.\80\ These
loans had been excluded from consideration in the past because the
goals had been established based on market estimates that preceded the
increases in the conforming loan limits. Because the higher loan limits
have been considered in the evaluation of the market for this final
rule, it is no longer necessary to exclude such loans from
consideration for purposes of the housing goals.
---------------------------------------------------------------------------
\80\ See 12 CFR 1282.16(b)(10).
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Equity investments in low-income housing tax credits. Consistent
with the proposed rule, Sec. 1282.16(b)(1) of the final rule clarifies
the existing rule to refer more specifically to equity investments in
LIHTCs as being excluded from counting toward the housing goals.
Four commenters supported the exclusion of Enterprise equity
investments in LIHTCs from counting for purposes of the housing goals,
and one commenter opposed such exclusion. One policy advocacy group
commented that the lack of LIHTC investments is one reason for the
short supply of affordable housing for very low-, low- and moderate-
income families. Another policy advocacy group commented that the
Enterprises should invest in LIHTCs but refrain from selling these
investments in a manner that would destabilize the market. One trade
association agreed that investments in LIHTCs should be a non-
qualifying activity, but recommended that subordinate debt be allowed
to fill the financing gap.
FHFA recognizes that LIHTCs are an important component of the
affordable
[[Page 55924]]
housing financing structure. However, investments in LIHTCs have never
been counted for purposes of the housing goals, and the final rule does
not make any changes to that policy.
Home Equity Conversion Mortgages. Consistent with the proposed
rule, Sec. 1282.16(b)(3) of the final rule excludes all purchases of
non-conventional single-family mortgages, including mortgages insured
under HUD's HECM insurance program, from counting for purposes of the
housing goals. Certain non-conventional mortgages, including HECMs,
have been counted for purposes of the goals in the past. HERA, however,
amended section 1332(a) of the Safety and Soundness Act to restrict the
single-family housing goals to include only conventional mortgages.\81\
This restriction does not preclude the Enterprises' purchase of
Charter-compliant non-conventional single-family mortgages, including
HECMs, but such purchases will not count toward the housing goals--that
is, such purchases are excluded from both the numerator and denominator
in calculating goal performance. The final rule also clarifies that the
existing exception that permitted certain non-conventional multifamily
mortgages to count, continues to apply.
---------------------------------------------------------------------------
\81\ 12 U.S.C. 4562(a).
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Subordinate liens. Proposed Sec. 1282.16(b)(10) would have
excluded purchases of subordinate lien mortgages (second mortgages)
from counting for purposes of the housing goals, as does the final
rule. This excludes ``piggy-back'' liens that may be acquired by an
Enterprise along with the corresponding first lien mortgage and
subordinate lien mortgages, such as home equity loans, acquired
separately by an Enterprise where the Enterprise does not also acquire
the corresponding first lien mortgage. The proceeds of a home equity
loan are not used for the purchase price of a property, and the
mortgage does not satisfy or replace an existing mortgage and so does
not count toward the housing goals. FHFA excluded piggy-back loans from
counting toward the housing goals because such loans are not easily
distinguishable from home equity loans.
One trade association supported the general exclusion of
subordinate or second lien mortgages, as well as first lien mortgages
accompanied by simultaneous second lien mortgages, from counting for
purposes of the housing goals. Four commenters supported providing
housing goals credit for purchases of subordinate lien mortgages on
multifamily properties. A trade association and a policy advocacy group
stated that the Enterprises should be allowed to count subordinate
liens on multifamily mortgages because it would help make low-cost
capital available to support affordable lending. Fannie Mae commented
that subordinate liens allow multifamily owners to tap additional
equity for property rehabilitation without requiring refinancing or
payment of a lockout waiver fee. Fannie Mae noted that subordinate
liens could comprise five to ten percent of low- and very low-income
multifamily units. Freddie Mac commented that subordinate financing is
an efficient and standard industry practice that is beneficial to both
owners and residents of multifamily rental housing. Freddie Mac stated
that the exclusion of subordinate multifamily loans from housing goal-
eligibility would reduce the availability of capital for multifamily
properties, including for property repairs, improvements and upgrades.
Section 1282.16(b)(10) of the final rule excludes both single-
family and multifamily subordinate liens from counting for purposes of
the housing goals. This provision does not preclude the Enterprises'
purchase of Charter-compliant subordinate lien mortgages, but as with
HECMs, such purchases do not count for purposes of the housing goals.
Although multifamily mortgages that finance dwelling units affordable
to low-income families generally count toward the housing goals, it is
not clear whether all subordinate lien multifamily mortgages are for
the purpose of financing dwelling units affordable to low-income
families. Accordingly, the final rule does not allow credit for
subordinate lien multifamily mortgages. FHFA may solicit further public
comment on whether such mortgages, entered into in a manner that is
safe and sound, and which finance repairs, upgrades and rehabilitation
that benefit low-income residents, should be counted for purposes of
the housing goals.
Mortgages previously counted. Proposed Sec. 1282.16(b)(11) would
have made explicit the existing prohibition on counting mortgages for
purposes of the housing goals if the mortgages had previously been
counted for purposes of the performance of either Enterprise under the
housing goals for a previous year. To limit excessively burdensome
recordkeeping that could result, the proposed rule would have made
clear that this limitation only extends back for five years.
The Enterprises opposed this provision, commenting that compliance
would be burdensome and operationally challenging. They stated that
only a small number of loans would be identified, but the cost of
compliance would be very high and inter-Enterprise cooperation in data
sharing could impact the competitive structure between the Enterprises.
In response to these comments and in view of the operational
concerns expressed, the final rule retains the restriction on counting
an Enterprise's own mortgages more than once, which shall only extend
back for five years. The final rule does not extend this general
restriction to mortgages the other Enterprise may have counted in a
previous year.
Certificate of occupancy. Proposed Sec. 1282.16(b)(12) would have
excluded purchases of mortgages secured by properties that have not
been certified as ready for occupancy from consideration for purposes
of the housing goals.
Fannie Mae requested clarification on this counting issue for large
multifamily properties that may be completed and certified for
occupancy in stages. In particular, Fannie Mae stated that the rule
should clarify whether the entire project is excluded if any part is
not yet certified, or if the certified units may be counted. Fannie Mae
also stated that the rule should clarify whether housing goals credit
would be received in the year of certification or in the year of
purchase.
In the final rule, to avoid splitting mortgage acquisitions across
calendar reporting years, mortgages will be reported by an Enterprise,
and receive housing goals credit where applicable, in the calendar year
that all units are certified for occupancy. This may result in a delay
in the reporting of a mortgage where not all units are certified for
occupancy at the time of mortgage acquisition by the Enterprise.
Mortgages with a reporting delay due to lack of full certification for
occupancy will be excluded from both the numerator and denominator of
the multifamily housing goals calculations for the year of acquisition.
Private Label Securities. As in the proposed rule, Sec.
1282.16(b)(13) of the final rule excludes PLS from counting for
purposes of the housing goals.
As discussed in the proposed rulemaking, historically, the
Enterprises--particularly Freddie Mac--relied on PLS purchases to help
them achieve certain affordable housing goals. Freddie Mac met the 2005
and 2006 affordable housing goals and subgoals in part through its
purchases of AAA-rated tranches of PLS backed by subprime mortgages
that were targeted to satisfy goals and subgoals. As house price
appreciation and rising interest rates
[[Page 55925]]
reduced housing affordability, PLS proliferated as the subprime share
of the market grew to more than 20 percent. Fannie Mae and Freddie Mac
began to follow suit in response to declining market share and in
pursuit of higher profits. The Enterprises not only modified their own
underwriting standards, but also bought hundreds of billions of
dollars' worth of AAA-rated tranches of subprime and Alt-A PLS for the
yield and, in certain instances, to satisfy specific housing goals and
subgoals.
The results of providing large-scale funding for such loans were
adverse for borrowers who entered into mortgages that did not sustain
homeownership and for the Enterprises themselves. Although Fannie Mae
and Freddie Mac have a combined 57 percent share of mortgages
outstanding in their guaranteed portfolio, the mortgages in that
portfolio account for only 25 percent of serious delinquencies.
However, while PLS account for 12 percent of all mortgages outstanding,
PLS account for 34 percent of serious delinquencies. As delinquencies
in PLS portfolios triggered downgrades, 90 percent of the PLS holdings
of the Enterprises experienced a downgrade. In light of that record,
the final rule, like the proposed rule, excludes PLS from consideration
under the housing goals.
In addition to the recent dismal performance of PLS, it is
reasonable to separate any future growth of the PLS market from the
Enterprises' housing goals. The housing goals reflect Congress' concern
that the Enterprises' charter mission to support the stability,
liquidity and affordability of the secondary market not be managed to
the detriment or neglect of goal-eligible mortgages. In this way the
goals may be seen as a mechanism to ensure that each Enterprise serves
all segments of the mortgage market available to it. Accordingly, even
to the extent that a non-GSE secondary mortgage market returns, loans
backing new or seasoned PLS will not count in either the numerator or
the denominator for purposes of the housing goals.
As in the proposed rule, the final rule also excludes CMBS from
counting towards the housing goals.
FHFA invited comments in the proposed rulemaking on the proposed
exclusion of PLS, and on alternatives to not counting PLS mortgages for
purposes of the housing goals. One alternative discussed was to allow
PLS mortgages to be counted if an appropriate senior Enterprise
official certified that the mortgages are compliant with all existing
regulations regarding good mortgage practices, and with the interagency
guidance on subprime lending and non-traditional loans. FHFA also
requested comments on whether CMBS should be treated differently from
other PLS for purposes of the housing goals.
Five commenters supported excluding PLS, while Freddie Mac favored
inclusion of PLS in the housing goals if due diligence on the
characteristics of the loans backing the securities is conducted. The
MBA supported excluding CMBS for goals credit, while three other
commenters favored including CMBS. One trade association commented that
Enterprise participation in the market has expanded liquidity to the
apartment sector, and supported housing goals credit for the purchase
of CMBS for multifamily properties. The commenter recommended that a
reduced percentage of units be allocated to CMBS. Both Enterprises
opposed the exclusion of purchases of CMBS for housing goals purposes.
Fannie Mae stated that maturing loans in CMBS securities are being
extended by special servicers, reducing the number of loans available
for refinancing or for sale. Freddie Mac commented that it has
accomplished small multifamily financing through structured pool deals
and CMBS purchases to mitigate the higher risk of small multifamily
finance. Freddie Mac also commented that these avenues of finance are
not available in the current market, but they bring liquidity to the
CMBS market and should receive goals credit.
Consistent with the exclusion of single-family PLS from the housing
goals, the final rule does not count CMBS for purposes of the housing
goals. While CMBS historically have helped the Enterprises to meet
multifamily housing goals, purchases of CMBS do not add liquidity to
the multifamily market in the same way as the direct purchase and
securitization of multifamily mortgages by the Enterprises.
Housing Trust Fund and Capital Magnet Fund. As in the proposed
rule, and pursuant to HERA, Sec. 1282.16(b)(14) of the final rule
provides that Enterprise contributions to the Housing Trust Fund and
the Capital Magnet Fund and mortgage purchases funded with such grant
amounts shall not be counted for purposes of the housing goals.\82\
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\82\ See 12 U.S.C. 4568, 4569.
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REMICs. Consistent with the proposed rule, Sec. 1282.16(c) of the
final rule no longer includes real estate mortgage investment conduits
(REMICs) as mortgage purchases for purposes of the housing goals,
consistent with the general exclusion of PLS under Sec.
1282.16(b)(13). In addition, Sec. 1282.16(c) eliminates consideration
of expiring assistance contracts, reflecting the changes under HERA to
the former special affordable housing goal.
Risk-sharing. The proposed rule would not have changed existing
Sec. 1282.16(c)(3), which provides that a mortgage purchase under a
risk-sharing arrangement between an Enterprise and a Federal agency
counts for purposes of the housing goals if the Enterprise was
responsible for a substantial amount of the risk, specified as at least
50 percent of the risk. Section 1282.16(c)(3) of the final rule does
not include a specific percent that would constitute a ``substantial
amount.'' The change is not intended to affect the substantive
requirement that an Enterprise hold a substantial portion of the risk
in order for units to be counted for purposes of the housing goals, but
is intended to provide more flexibility in determining on a case-by-
case basis whether a particular risk-sharing program meets that
requirement.
Cooperative housing and condominiums. Section 1282.16(c)(5) is
unchanged from the proposed rule and amends the existing provisions
regarding cooperative housing and condominiums to reflect HERA's
treatment of single-family housing and multifamily housing under
separate goals.
Mortgage revenue bonds. As in the proposed rule, Sec.
1282.16(c)(8) of the final rule removes current limitations on counting
mortgage revenue bonds related to the source of funds for repayment and
the presence of additional credit enhancements. An Enterprise is
required to have sufficient information available to determine the
eligibility of any underlying mortgages before counting such mortgages
or units for purposes of the housing goals.
Two policy advocacy groups and the Enterprises supported these
proposed changes to the counting rules. One policy advocacy group
supported Enterprise investment in housing bonds as a means to
stabilize and improve pricing in the market. The other policy advocacy
group commented that the inclusion of eligible mortgage revenue bonds
is important and helpful, because these bonds are often a major source
of lower-cost capital for the preservation and construction of
affordable rental housing units. Fannie Mae supported the inclusion of
mortgage revenue bonds, and recommended that the rule be modified to
provide full credit for dwellings financed by tax exempt or taxable
bonds issued by state and local HFAs. Freddie Mac commented that the
proposed provision will encourage the
[[Page 55926]]
Enterprises to continue to support state and local HFAs through the
purchase of single-family and multifamily mortgage revenue bonds.
FHFA does not believe that a further broadening of the mortgage
revenue bond counting rules is appropriate while the Enterprises are in
conservatorship.
Loan modifications. Proposed Sec. 1282.16(c)(10) would have
treated certain modifications of single-family loans held in an
Enterprise's portfolio or in a pool backing a security guaranteed by an
Enterprise as mortgage purchases for purposes of the housing goals.
Only modifications undertaken under the Making Home Affordable (MHA)
program would have been eligible for inclusion.
Two commenters recommended that this counting treatment be expanded
to include non-MHA single-family loan modifications and multifamily
loan modifications. One trade association recommended the inclusion of
multifamily loan modifications, and stated that as a result of falling
property values and stress on rental income due to the extreme economic
and employment issues faced by multifamily property owners, many owners
will not be able to refinance their loans. Freddie Mac recommended that
multifamily loan modifications, as well as single-family loan
modifications outside of MHA, be eligible to count toward the housing
goals.
The final rule adjusting the levels of the housing goals for 2009,
which generally lowered the housing goal levels, allowed credit for MHA
modifications. See 74 FR 39873, 39898 (Aug. 10, 2009). Proposed Sec.
1282.16(c)(10) would have retained this provision. Loan modifications,
however, are not readily incorporated into market estimates, which
makes it difficult to set housing goals that reflect the actual market.
Accordingly, the final rule provides that only permanent MHA loan
modifications will be counted as mortgage purchases for purposes of the
housing goals. For 2010, only modifications that were both initiated
and made permanent in 2010 will be counted for purposes of the housing
goals. For 2011, only modifications that were initiated in 2010 or 2011
and made permanent in 2011 will be counted for purposes of the housing
goals. Modifications that were opened on a trial basis but not made
permanent in 2010 or 2011 will not be given credit toward the goals.
In addition, all such permanent MHA loan modifications will be
treated as refinance mortgages in 2010 and 2011, rather than being
treated in accordance with the original purpose of the loan. Loan
modifications are more similar to refinancing mortgages than to
purchase money mortgages. A loan modification changes the terms of the
loan but involves the same property and the same borrower. A loan
modification does not involve a new home purchase. Thus, it is more
appropriate to treat loan modifications as refinancing mortgages than
as home purchase mortgages. Accordingly, a modification of a low-income
home purchase mortgage will not be counted toward the low-income home
purchase goal, as it was in 2009. Rather, it will be counted in
calculating performance on the low-income refinance goal. As a result,
performance on the three home purchase goals for 2010-11 will not be
affected by loan modifications, but performance on the low-income
refinance goal will be affected. That is, all permanent MHA loan
modifications will be included in the denominator, and all permanent
MHA loan modifications for low-income families will be included in the
numerator in calculating performance on the low-income refinance goal
in 2010 and 2011.
FHFA will consider providing credit for MHA loan modifications in
the final rulemaking on the Duty to Serve requirements of HERA.
HOEPA mortgages and mortgages with unacceptable terms or
conditions. Consistent with the proposed rule, Sec. 1282.16(d) of the
final rule relocates existing provisions regarding HOEPA mortgages and
mortgages with unacceptable terms or conditions from current Sec.
1282.16(c). Placing these provisions in a separate paragraph reflects
the fact that unlike other types of mortgage purchases, HOEPA mortgages
and mortgages with unacceptable terms and conditions must be counted in
the denominator as mortgage purchases but can never be counted in the
numerator, regardless of whether the mortgages would otherwise qualify
based on the affordability and other counting criteria.
Multifamily property conversion. Some commenters suggested that
FHFA revise the counting rules to deny housing goal credit for
multifamily loans that aid the conversion of properties from being
affordable to market rate properties, at which point the units,
although initially scored as affordable, would no longer be affordable.
FHFA expects to address this issue in a separate rulemaking following
the implementation of this final rule.
K. Affordability Definitions--Sec. Sec. 1282.17 Through 1282.19
Consistent with the proposed rule, Sec. 1282.17 of the final rule
sets forth definitions and establishes cutoff points or boundaries for
the statutory and traditionally defined levels of affordability based
on AMI for owners and tenants of rental units where the family size and
income are known to the Enterprise. In addition to the levels of
affordability that currently appear at Sec. 1282.17, this section
includes an additional paragraph (e) for extremely low-income borrowers
and tenants with income at or below 30 percent of AMI with adjustments
for family size. Although the Enterprise housing goals do not
specifically target extremely low-income borrowers or tenants, the
final rule establishes cutoffs for determining such affordability to
facilitate any reporting or analysis of such data that is required.
As in the proposed rule, Sec. 1282.18 of the final rule sets forth
definitions and establishes cutoff points or boundaries for the
statutory and traditionally defined levels of affordability based on
AMI for tenants of rental units where the family size is not known to
the Enterprise. In addition to the levels of affordability that
currently appear at Sec. 1282.18, this section includes an additional
paragraph (e) for extremely low-income tenants with income at or below
30 percent of AMI with adjustments for unit size.
As in the proposed rule, Sec. 1282.19 of the final rule sets forth
definitions and establishes cutoff points or boundaries for the
statutory and traditionally defined levels of affordability based on
AMI for tenants of rental units where tenant income is not known to the
Enterprise. In addition to the levels of affordability that currently
appear at Sec. 1282.19, this section includes an additional paragraph
(e) for extremely low-income tenants with income at or below 30 percent
of AMI with adjustments for unit size.
L. Housing Goals Enforcement--Sec. Sec. 1282.20 and 1282.21
Consistent with the proposed rule, Sec. 1282.20 of the final rule
provides that the Director shall determine whether an Enterprise has
met the housing goals, in accordance with the standards established
under the Safety and Soundness Act, as amended by HERA and this final
rule. If the Director determines that an Enterprise has failed, or
there is a substantial probability that an Enterprise will fail, to
meet any housing goal, the Director shall provide notice, in writing,
to the Enterprise of
[[Page 55927]]
such preliminary determination in accordance with 12 U.S.C. 4566(b).
As in the proposed rule, Sec. 1282.21 of the final rule includes
requirements for submission of a housing plan by an Enterprise for
failure or substantial probability of failure to meet any housing goal
that was or is feasible. The requirement to submit a housing plan is at
the discretion of the Director.
M. Reporting Requirements--Subpart D
As in the proposed rule, subpart D of the final rule relocates
existing Enterprise reporting requirements from part 81, subpart E of
title 24 of the Code of Federal Regulations. Section 1282.65 relocates
an existing regulatory provision on data certification from 24 CFR
81.102. These provisions have continued in effect pursuant to section
1302 of HERA. Upon the effective date of the final housing goals rule,
the reporting requirement and Enterprise data integrity provisions in
24 CFR part 81 will no longer be in effect.
The proposed rule included various conforming changes throughout
subpart D. Proposed Sec. 1282.62(b) would have included a requirement
for the Enterprises to submit loan-level mortgage data on a quarterly
basis. Previously, such submissions were required only semi-annually.
Proposed Sec. 1282.62(c) would have revised the due date for
submission to FHFA of the required quarterly Mortgage Reports from 60
days after the end of the quarter to 45 days. Proposed Sec. 1282.63
would have revised the due date for fourth quarter Annual Mortgage
Report and the Annual Housing Activities Reports (AHARs) from 75 days
after the end of the calendar year to 60 days.
In its comment letter, Fannie Mae requested that the due dates for
the quarterly and Annual Mortgage Reports and loan-level data
submissions remain unchanged. Fannie Mae stated that shortening the
time period would adversely impact its quarterly data quality reviews
and prevent reconciliation with its annual Form 10-K, which is due
within 60 days of the end of the calendar year.
FHFA acknowledges Fannie Mae's concerns and, accordingly, the final
rule retains the current due dates for the quarterly and Annual
Mortgage Reports and AHARs. Consistent with the proposed rule, the
final rule requires that the loan-level data be submitted on a
quarterly basis.
As in the proposed rule, Sec. 1282.63 of the final rule requires
that the Enterprises make their AHARs available to the public online.
FHFA does not expect that the requirement to make available online
information that is already publicly available will be burdensome to
the Enterprises. As in the proposed rule, Sec. 1282.64 of the final
rule eliminates the requirement for the Enterprises to submit
information that is typically made available to the public by each
Enterprise. The Director may continue to request such reports,
information and data as the Director deems necessary. Consistent with
the proposed rule, subpart D of the final rule does not include the
provisions regarding submission of additional data or reports and the
addresses for submission of information that were formerly found at 24
CFR 81.65 and 81.66. Section 1282.64 is sufficiently broad to encompass
any requests for additional data or reports that the Director deems
necessary.
Consistent with the proposed rule, Sec. 1282.65 of the final rule
simplifies the detailed procedures laid out in the previous data
integrity provision found at 24 CFR 81.102. FHFA will implement the
data integrity process pursuant to its general regulatory authority
over the Enterprises. FHFA expects that the Enterprises will continue
to work cooperatively with FHFA to identify and resolve any
discrepancies or errors in the housing goals data reported to FHFA.
Section 1282.65 maintains the most important aspects of the data
integrity process in the regulation, including the requirement that the
Enterprises certify the accuracy of their submissions.
One trade association requested that FHFA consider clarifying the
procedures for certification of submissions, and recommended that
measures should be established to ensure the Enterprises submit
accurate, truthful and complete information. FHFA currently requires
data submitted for the calendar year housing goals to be certified as
true, correct and complete by a corporate officer with the authority to
sign for the Enterprise. This certification was required beginning with
the submission of 2005 mortgage data to align with the customary
practice of regulators of financial institutions, which require
certification as a means of ensuring corporate accuracy in, and
accountability for, the financial information provided by a corporation
to its regulators.
N. Book-Entry Procedures--Part 1249
As in the proposed rule, part 1249 of the final rule relocates
existing regulatory provisions on book-entry procedures from part 81,
subpart H of title 24 of the Code of Federal Regulations. These
provisions have continued in effect pursuant to section 1302 of HERA.
Upon the effective date of the final housing goals rule, the book-entry
procedures in 24 CFR part 81 will no longer be in effect.
As in the proposed rule, the final rule also relocates definitions
that are currently found in Sec. 1282.2 and that are applicable only
to the book-entry procedures in part 1249 to a new section 1249.10 in
that part. The final rule makes conforming changes throughout the part,
including a clarification that the waiver provision in Sec. 1249.17
applies only to the book-entry provisions in part 1249. Section 1249.15
has been amended to reflect the transfer of authority from the
Secretary of HUD to the Director. The final rule also corrects several
typographical errors that were present in the proposed rule. The final
rule does not make any changes to the substance of the book-entry
provisions.
V. Paperwork Reduction Act
The final rule does not contain any information collection
requirement that requires the approval of the Office of Management and
Budget under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).
VI. 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 final
rule under the Regulatory Flexibility Act. The General Counsel of FHFA
certifies that the final rule is not likely to have a significant
economic impact on a substantial number of small 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
12 CFR Part 1249
Federal Reserve System, Securities.
12 CFR Part 1282
Mortgages, Reporting and recordkeeping requirements.
0
Accordingly, for the reasons stated in the preamble, under the
authority of 12 U.S.C. 4511, 4513, 4526, FHFA amends chapter XII of
title 12 of the Code of Federal Regulations as follows:
[[Page 55928]]
0
1. Part 1249 is added to subchapter C to read as follows:
CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY
SUBCHAPTER C--ENTERPRISES
PART 1249--BOOK-ENTRY PROCEDURES
Sec.
1249.10 Definitions.
1249.11 Maintenance of Enterprise Securities.
1249.12 Law governing rights and obligations of United States,
Federal Reserve Banks, and Enterprises; rights of any person against
United States, Federal Reserve Banks, and Enterprises; law governing
other interests.
1249.13 Creation of Participant's Security Entitlement; security
interests.
1249.14 Obligations of Enterprises; no adverse claims.
1249.15 Authority of Federal Reserve Banks.
1249.16 Withdrawal of Eligible Book-entry Enterprise Securities for
conversion to definitive form.
1249.17 Waiver of regulations.
1249.18 Liability of Enterprises and Federal Reserve Banks.
1249.19 Additional provisions.
Authority: 12 U.S.C. 4501, 4502, 4511, 4513, 4526.
Sec. 1249.10 Definitions.
(a) General. Unless the context requires otherwise, terms used in
this part that are not defined in this part, have the meanings as set
forth in 31 CFR 357.2 and in 12 CFR 1282.1. Definitions and terms used
in 31 CFR part 357 should read as though modified to effectuate their
application to the Enterprises.
(b) Other terms. As used in this part, the term:
Book-entry Enterprise Security means an Enterprise Security issued
or maintained in the Book-entry System. Book-entry Enterprise Security
also means the separate interest and principal components of a Book-
entry Enterprise Security if such security has been designated by the
Enterprise as eligible for division into such components and the
components are maintained separately on the books of one or more
Federal Reserve Banks.
Book-entry System means the automated book-entry system operated by
the Federal Reserve Banks acting as the fiscal agent for the
Enterprises, on which Book-entry Enterprise Securities are issued,
recorded, transferred and maintained in book-entry form.
Definitive Enterprise Security means an Enterprise Security in
engraved or printed form, or that is otherwise represented by a
certificate.
Eligible Book-entry Enterprise Security means a Book-entry
Enterprise Security issued or maintained in the Book-entry System which
by the terms of its Securities Documentation is eligible to be
converted from book-entry form into definitive form.
Enterprise Security means any security or obligation of Fannie Mae
or Freddie Mac issued under its respective Charter Act in the form of a
Definitive Enterprise Security or a Book-entry Enterprise Security.
Entitlement Holder means a Person or an Enterprise to whose account
an interest in a Book-entry Enterprise Security is credited on the
records of a Securities Intermediary.
Federal Reserve Bank Operating Circular means the publication
issued by each Federal Reserve Bank that sets forth the terms and
conditions under which the Reserve Bank maintains Book-entry Securities
accounts (including Book-entry Enterprise Securities) and transfers
Book-entry Securities (including Book-entry Enterprise Securities).
Participant means a Person or Enterprise that maintains a
Participant's Securities Account with a Federal Reserve Bank.
Person, as used in this part, means and includes an individual,
corporation, company, governmental entity, association, firm,
partnership, trust, estate, representative, and any other similar
organization, but does not mean or include the United States, an
Enterprise, or a Federal Reserve Bank.
Revised Article 8 has the same meaning as in 31 CFR 357.2.
Securities Documentation means the applicable statement of terms,
trust indenture, securities agreement or other documents establishing
the terms of a Book-entry Enterprise Security.
Security means any mortgage participation certificate, note, bond,
debenture, evidence of indebtedness, collateral-trust certificate,
transferable share, certificate of deposit for a security, or, in
general, any interest or instrument commonly known as a ``security''.
Transfer message means an instruction of a Participant to a Federal
Reserve Bank to effect a transfer of a Book-entry Security (including a
Book-entry Enterprise Security) maintained in the Book-entry System, as
set forth in Federal Reserve Bank Operating Circulars.
Sec. 1249.11 Maintenance of Enterprise Securities.
An Enterprise Security may be maintained in the form of a
Definitive Enterprise Security or a Book-entry Enterprise Security. A
Book-entry Enterprise Security shall be maintained in the Book-entry
System.
Sec. 1249.12 Law governing rights and obligations of United States,
Federal Reserve Banks, and Enterprises; rights of any person against
United States, Federal Reserve Banks, and Enterprises; law governing
other interests.
(a) Except as provided in paragraph (b) of this section, the
following rights and obligations are governed solely by the book-entry
regulations contained in this part, the Securities Documentation, and
Federal Reserve Bank Operating Circulars (but not including any choice
of law provisions in the Securities Documentation to the extent such
provisions conflict with the Book-entry regulations contained in this
part):
(1) The rights and obligations of an Enterprise and the Federal
Reserve Banks with respect to:
(i) A Book-entry Enterprise Security or Security Entitlement; and
(ii) The operation of the Book-entry System as it applies to
Enterprise Securities; and
(2) The rights of any Person, including a Participant, against an
Enterprise and the Federal Reserve Banks with respect to:
(i) A Book-entry Enterprise Security or Security Entitlement; and
(ii) The operation of the Book-entry System as it applies to
Enterprise Securities;
(b) A security interest in a Security Entitlement that is in favor
of a Federal Reserve Bank from a Participant and that is not recorded
on the books of a Federal Reserve Bank pursuant to Sec. 1249.13(c)(1),
is governed by the law (not including the conflict-of-law rules) of the
jurisdiction where the head office of the Federal Reserve Bank
maintaining the Participant's Securities Account is located. A security
interest in a Security Entitlement that is in favor of a Federal
Reserve Bank from a Person that is not a Participant, and that is not
recorded on the books of a Federal Reserve Bank pursuant to Sec.
1249.13(c)(1), is governed by the law determined in the manner
specified in paragraph (d) of this section.
(c) If the jurisdiction specified in the first sentence of
paragraph (b) of this section is a State that has not adopted Revised
Article 8, then the law specified in paragraph (b) of this section
shall be the law of that State as though Revised Article 8 had been
adopted by that State.
(d) To the extent not otherwise inconsistent with this part, and
notwithstanding any provision in the Securities Documentation setting
forth a
[[Page 55929]]
choice of law, the provisions set forth in 31 CFR 357.11 regarding law
governing other interests apply and shall be read as though modified to
effectuate the application of 31 CFR 357.11 to the Enterprises.
Sec. 1249.13 Creation of Participant's Security Entitlement; security
interests.
(a) A Participant's Security Entitlement is created when a Federal
Reserve Bank indicates by book-entry that a Book-entry Enterprise
Security has been credited to a Participant's Securities Account.
(b) A security interest in a Security Entitlement of a Participant
in favor of the United States to secure deposits of public money,
including without limitation deposits to the Treasury tax and loan
accounts, or other security interest in favor of the United States that
is required by Federal statute, regulation, or agreement, and that is
marked on the books of a Federal Reserve Bank is thereby effected and
perfected, and has priority over any other interest in the securities.
Where a security interest in favor of the United States in a Security
Entitlement of a Participant is marked on the books of a Federal
Reserve Bank, such Federal Reserve Bank may rely, and is protected in
relying, exclusively on the order of an authorized representative of
the United States directing the transfer of the security. For purposes
of this paragraph, an ``authorized representative of the United
States'' is the official designated in the applicable regulations or
agreement to which a Federal Reserve Bank is a party, governing the
security interest.
(c)(1) An Enterprise and the Federal Reserve Banks have no
obligation to agree to act on behalf of any Person or to recognize the
interest of any transferee of a security interest or other limited
interest in favor of any Person except to the extent of any specific
requirement of Federal law or regulation or to the extent set forth in
any specific agreement with the Federal Reserve Bank on whose books the
interest of the Participant is recorded. To the extent required by such
law or regulation or set forth in an agreement with a Federal Reserve
Bank, or the Federal Reserve Bank Operating Circular, a security
interest in a Security Entitlement that is in favor of a Federal
Reserve Bank, an Enterprise, or a Person may be created and perfected
by a Federal Reserve Bank marking its books to record the security
interest. Except as provided in paragraph (b) of this section, a
security interest in a Security Entitlement marked on the books of a
Federal Reserve Bank shall have priority over any other interest in the
securities.
(2) In addition to the method provided in paragraph (c)(1) of this
section, a security interest, including a security interest in favor of
a Federal Reserve Bank, may be perfected by any method by which a
security interest may be perfected under applicable law as described in
Sec. 1249.12(b) or (d). The perfection, effect of perfection or non-
perfection and priority of a security interest are governed by such
applicable law. A security interest in favor of a Federal Reserve Bank
shall be treated as a security interest in favor of a clearing
corporation in all respects under such law, including with respect to
the effect of perfection and priority of such security interest. A
Federal Reserve Bank Operating Circular shall be treated as a rule
adopted by a clearing corporation for such purposes.
Sec. 1249.14 Obligations of Enterprises; no adverse claims.
(a) Except in the case of a security interest in favor of the
United States or a Federal Reserve Bank or otherwise as provided in
Sec. 1249.13(c)(1), for the purposes of this part, each Enterprise and
the Federal Reserve Banks shall treat the Participant to whose
Securities Account an interest in a Book-entry Enterprise Security has
been credited as the person exclusively entitled to issue a Transfer
Message, to receive interest and other payments with respect thereof
and otherwise to exercise all the rights and powers with respect to
such Security, notwithstanding any information or notice to the
contrary. Neither the Federal Reserve Banks nor an Enterprise shall be
liable to a Person asserting or having an adverse claim to a Security
Entitlement or to a Book-entry Enterprise Security in a Participant's
Securities Account, including any such claim arising as a result of the
transfer or disposition of a Book-entry Enterprise Security by a
Federal Reserve Bank pursuant to a Transfer Message that the Federal
Reserve Bank reasonably believes to be genuine.
(b) The obligation of the Enterprise to make payments (including
payments of interest and principal) with respect to Book-entry
Enterprise Securities is discharged at the time payment in the
appropriate amount is made as follows:
(1) Interest or other payments on Book-entry Enterprise Securities
is either credited by a Federal Reserve Bank to a Funds Account
maintained at such Federal Reserve Bank or otherwise paid as directed
by the Participant.
(2) Book-entry Enterprise Securities are redeemed in accordance
with their terms by a Federal Reserve Bank withdrawing the securities
from the Participant's Securities Account in which they are maintained
and by either crediting the amount of the redemption proceeds,
including both redemption proceeds, where applicable, to a Funds
Account at such Federal Reserve Bank or otherwise paying such
redemption proceeds as directed by the Participant. No action by the
Participant ordinarily is required in connection with the redemption of
a Book-entry Enterprise Security.
Sec. 1249.15 Authority of Federal Reserve Banks.
(a) Each Federal Reserve Bank is hereby authorized as fiscal agent
of the Enterprises to perform the following functions with respect to
the issuance of Book-entry Enterprise Securities offered and sold by an
Enterprise to which this part applies, in accordance with the
Securities Documentation, Federal Reserve Bank Operating Circulars,
this part, and any procedures established by the Director consistent
with these authorities:
(1) To service and maintain Book-entry Enterprise Securities in
accounts established for such purposes;
(2) To make payments with respect to such securities, as directed
by the Enterprise;
(3) To effect transfer of Book-entry Enterprise Securities between
Participants' Securities Accounts as directed by the Participants;
(4) To effect conversions between Book-entry Enterprise Securities
and Definitive Enterprise Securities with respect to those securities
as to which conversion rights are available pursuant to the applicable
Securities Documentation; and
(5) To perform such other duties as fiscal agent as may be
requested by the Enterprise.
(b) Each Federal Reserve Bank may issue Federal Reserve Bank
Operating Circulars not inconsistent with this part, governing the
details of its handling of Book-entry Enterprise Securities, Security
Entitlements, and the operation of the Book-entry System under this
part.
Sec. 1249.16 Withdrawal of Eligible Book-entry Enterprise Securities
for conversion to definitive form.
(a) Eligible Book-entry Enterprise Securities may be withdrawn from
the Book-entry System by requesting delivery of like Definitive
Enterprise Securities.
(b) A Federal Reserve Bank shall, upon receipt of appropriate
instructions to withdraw Eligible Book-entry
[[Page 55930]]
Enterprise Securities from book-entry in the Book-entry System, convert
such securities into Definitive Enterprise Securities and deliver them
in accordance with such instructions. No such conversion shall affect
existing interests in such Enterprise Securities.
(c) All requests for withdrawal of Eligible Book-entry Enterprise
Securities must be made prior to the maturity or date of call of the
securities.
(d) Enterprise Securities which are to be delivered upon withdrawal
may be issued in either registered or bearer form, to the extent
permitted by the applicable Securities Documentation.
Sec. 1249.17 Waiver of regulations.
The Director reserves the right, in the Director's discretion, to
waive any provision(s) of this part in any case or class of cases for
the convenience of an Enterprise, the United States, or in order to
relieve any person(s) of unnecessary hardship, if such action is not
inconsistent with law, does not adversely affect any substantial
existing rights, and the Director is satisfied that such action will
not subject an Enterprise or the United States to any substantial
expense or liability.
Sec. 1249.18 Liability of Enterprises and Federal Reserve Banks.
An Enterprise and the Federal Reserve Banks may rely on the
information provided in a Transfer Message, and are not required to
verify the information. An Enterprise and the Federal Reserve Banks
shall not be liable for any action taken in accordance with the
information set out in a Transfer Message, or evidence submitted in
support thereof.
Sec. 1249.19 Additional provisions.
(a) Additional requirements. In any case or any class of cases
arising under this part, an Enterprise may require such additional
evidence and a bond of indemnity, with or without surety, as may in the
judgment of the Enterprise be necessary for the protection of the
interests of the Enterprise.
(b) Notice of attachment for Enterprise Securities in Book-entry
System. The interest of a debtor in a Security Entitlement may be
reached by a creditor only by legal process upon the Securities
Intermediary with whom the debtor's securities account is maintained,
except where a Security Entitlement is maintained in the name of a
secured party, in which case the debtor's interest may be reached by
legal process upon the secured party. These regulations do not purport
to establish whether a Federal Reserve Bank is required to honor an
order or other notice of attachment in any particular case or class of
cases.
0
2. Part 1282 is revised to read as follows:
SUBCHAPTER E--HOUSING GOALS AND MISSION
PART 1282--ENTERPRISE HOUSING GOALS AND MISSION
Sec.
Subpart A--General
1282.1 Definitions.
Subpart B--Housing Goals
1282.11 General.
1282.12 Single-family housing goals.
1282.13 Multifamily special affordable housing goal and subgoal.
1282.14 Discretionary adjustment of housing goals.
1282.15 General counting requirements.
1282.16 Special counting requirements.
1282.17 Affordability--Income level definitions--family size and
income known (owner-occupied units, actual tenants, and prospective
tenants).
1282.18 Affordability--Income level definitions--family size not
known (actual or prospective tenants).
1282.19 Affordability--Rent level definitions--tenant income is not
known.
1282.20 Determination of compliance with housing goals; notice of
determination.
1282.21 Housing plans.
Subpart C--[Reserved]
Subpart D--Reporting Requirements
1282.61 General.
1282.62 Mortgage reports.
1282.63 Annual Housing Activities Report.
1282.64 Periodic reports.
1282.65 Enterprise data integrity.
Authority: 12 U.S.C. 4501, 4502, 4511, 4513, 4526, 4561-4566,
4603.
Subpart A--General
Sec. 1282.1 Definitions.
(a) Statutory terms. All terms defined in the Safety and Soundness
Act are used in accordance with their statutory meaning unless
otherwise defined in paragraph (b) of this section.
(b) Other terms. As used in this part, the term:
AHAR means the Annual Housing Activities Report that an Enterprise
submits to the Director under section 309(n) of the Fannie Mae Charter
Act or section 307(f) of the Freddie Mac Act.
AHAR information means data or information contained in the AHAR.
AHS means the American Housing Survey published by HUD and the
Department of Commerce.
Balloon mortgage means a mortgage providing for payments at regular
intervals, with a final payment (``balloon payment'') that is at least
5 percent more than the periodic payments. The periodic payments may
cover some or all of the periodic principal or interest. Typically, the
periodic payments are level monthly payments that would fully amortize
the mortgage over a stated term and the balloon payment is a single
payment due after a specified period (but before the mortgage would
fully amortize) and pays off or satisfies the outstanding balance of
the mortgage.
Borrower income means the total gross income relied on in making
the credit decision.
Charter Act means the Fannie Mae Charter Act, as amended, or the
Freddie Mac Act, as amended.
Contract rent means the total rent that is, or is anticipated to
be, specified in the rental contract as payable by the tenant to the
owner for rental of a dwelling unit, including fees or charges for
management and maintenance services and those utility charges that are
included in the rental contract. In determining contract rent, rent
concessions shall not be considered, i.e., contract rent is not
decreased by any rent concessions. Contract rent is rent net of rental
subsidies. Anticipated rent for unoccupied units may be the market rent
for similar units in the neighborhood as determined by the lender or
appraiser for underwriting purposes.
Conventional mortgage means a mortgage other than a mortgage as to
which an Enterprise has the benefit of any guaranty, insurance or other
obligation by the United States or any of its agencies or
instrumentalities.
Day means a calendar day.
Designated disaster area means any census tract that is located in
a county designated by the federal government as adversely affected by
a declared major disaster administered by FEMA, where individual
assistance payments were authorized by FEMA. A census tract shall be
treated as a ``designated disaster area'' for purposes of this part
beginning on the January 1 after the FEMA designation of the county, or
such earlier date as determined by FHFA, and continuing through
December 31 of the third full calendar year following the FEMA
designation. This time period may be adjusted for a particular disaster
area by notice from FHFA to the Enterprises.
Director means the Director of FHFA or his or her designee.
Dwelling unit means a room or unified combination of rooms intended
for use, in whole or in part, as a dwelling by one or more persons, and
includes a dwelling unit in a single-family property, multifamily
property, or other residential or mixed-use property.
[[Page 55931]]
Enterprise means Fannie Mae or Freddie Mac (Enterprises means,
collectively, Fannie Mae and Freddie Mac).
Extremely low-income means:
(i) In the case of owner-occupied units, income not in excess of 30
percent of area median income; and
(ii) In the case of rental units, income not in excess of 30
percent of area median income, with adjustments for smaller and larger
families in accordance with this part.
Families in low-income areas means:
(i) Any family that resides in a census tract or block numbering
area in which the median income does not exceed 80 percent of the area
median income;
(ii) Any family with an income that does not exceed area median
income that resides in a minority census tract; and
(iii) Any family with an income that does not exceed area median
income that resides in a designated disaster area.
Family means one or more individuals who occupy the same dwelling
unit.
Fannie Mae means the Federal National Mortgage Association and any
affiliate thereof.
Fannie Mae Charter Act means the Federal National Mortgage
Association Charter Act, as amended (12 U.S.C. 1715 et seq.).
FEMA means the Federal Emergency Management Agency.
FHFA means the Federal Housing Finance Agency.
FOIA means the Freedom of Information Act, as amended (5 U.S.C.
552).
Freddie Mac means the Federal Home Loan Mortgage Corporation and
any affiliate thereof.
Freddie Mac Act means the Federal Home Loan Mortgage Corporation
Act, as amended (12 U.S.C. 1451 et seq.).
Ginnie Mae means the Government National Mortgage Association.
HMDA means the Home Mortgage Disclosure Act (12 U.S.C. 2801 et
seq.).
HOEPA mortgage means a mortgage covered by section 103(aa) of the
Home Ownership and Equity Protection Act (HOEPA) (15 U.S.C. 1602(aa)),
as implemented by the Board of Governors of the Federal Reserve System.
HUD means the United States Department of Housing and Urban
Development.
Lender means any entity that makes, originates, sells, or services
mortgages, and includes the secured creditors named in the debt
obligation and document creating the mortgage.
Low-income means:
(i) In the case of owner-occupied units, income not in excess of 80
percent of area median income; and
(ii) In the case of rental units, income not in excess of 80
percent of area median income, with adjustments for smaller and larger
families in accordance with this part.
Median income means, with respect to an area, the unadjusted median
family income for the area as most recently determined by HUD. FHFA
will provide the Enterprises annually with information specifying how
the median family income estimates for metropolitan areas are to be
applied for the purposes of determining median family income.
Metropolitan area means a metropolitan statistical area (MSA), or a
portion of such an area, including Metropolitan Divisions, for which
median family income estimates are determined by HUD.
Minority means any individual who is included within any one or
more of the following racial and ethnic categories:
(i) American Indian or Alaskan Native--a person having origins in
any of the original peoples of North and South America (including
Central America), and who maintains Tribal affiliation or community
attachment;
(ii) Asian--a person having origins in any of the original peoples
of the Far East, Southeast Asia, or the Indian subcontinent, including,
for example, Cambodia, China, India, Japan, Korea, Malaysia, Pakistan,
the Philippine Islands, Thailand, and Vietnam;
(iii) Black or African American--a person having origins in any of
the black racial groups of Africa;
(iv) Hispanic or Latino--a person of Cuban, Mexican, Puerto Rican,
South or Central American, or other Spanish culture or origin,
regardless of race; and
(v) Native Hawaiian or Other Pacific Islander--a person having
origins in any of the original peoples of Hawaii, Guam, Samoa, or other
Pacific Islands.
Minority census tract means a census tract that has a minority
population of at least 30 percent and a median income of less than 100
percent of the area median income.
Moderate-income means:
(i) In the case of owner-occupied units, income not in excess of
area median income; and
(ii) In the case of rental units, income not in excess of area
median income, with adjustments for smaller and larger families in
accordance with this part.
Mortgage means a member of such classes of liens, including
subordinate liens, as are commonly given or are legally effective to
secure advances on, or the unpaid purchase price of, real estate under
the laws of the State in which the real estate is located, together
with the credit instruments, if any, secured thereby, and includes
interests in mortgages. ``Mortgage'' includes a mortgage, lien,
including a subordinate lien, or other security interest on the stock
or membership certificate issued to a tenant-stockholder or resident-
member by a cooperative housing corporation, as defined in section 216
of the Internal Revenue Code of 1986, and on the proprietary lease,
occupancy agreement, or right of tenancy in the dwelling unit of the
tenant-stockholder or resident-member in such cooperative housing
corporation.
Mortgage data means data obtained by the Director from the
Enterprises under section 309(m) of the Fannie Mae Charter Act and
section 307(e) of the Freddie Mac Act.
Mortgage purchase means a transaction in which an Enterprise bought
or otherwise acquired a mortgage or an interest in a mortgage for
portfolio, resale, or securitization.
Mortgage revenue bond means a tax-exempt bond or taxable bond
issued by a State or local government or agency where the proceeds from
the bond issue are used to finance residential housing.
Mortgage with unacceptable terms or conditions means a single-
family mortgage, including a reverse mortgage, or a group or category
of such mortgages, with one or more of the following terms or
conditions:
(i) Excessive fees, where the total points and fees charged to a
borrower exceed the greater of 5 percent of the loan amount or a
maximum dollar amount of $1000, or an alternative amount requested by
an Enterprise and determined by the Director as appropriate for small
mortgages.
(A) For purposes of this definition, points and fees include:
(1) Origination fees;
(2) Underwriting fees;
(3) Broker fees;
(4) Finder's fees; and
(5) Charges that the lender imposes as a condition of making the
loan, whether they are paid to the lender or a third party;
(B) For purposes of this definition, points and fees do not
include:
(1) Bona fide discount points;
(2) Fees paid for actual services rendered in connection with the
origination of the mortgage, such as attorneys' fees, notary's fees,
and fees paid for property appraisals, credit reports, surveys, title
examinations and extracts, flood and tax certifications, and home
inspections;
(3) The cost of mortgage insurance or credit-risk price
adjustments;
[[Page 55932]]
(4) The costs of title, hazard, and flood insurance policies;
(5) State and local transfer taxes or fees;
(6) Escrow deposits for the future payment of taxes and insurance
premiums; and
(7) Other miscellaneous fees and charges that, in total, do not
exceed 0.25 percent of the loan amount;
(ii) An annual percentage rate that exceeds by more than 8
percentage points the yield on Treasury securities with comparable
maturities as of the fifteenth day of the month immediately preceding
the month in which the application for the extension of credit was
received;
(iii) Prepayment penalties, except where:
(A) The mortgage provides some benefit to the borrower (e.g., a
rate or fee reduction for accepting the prepayment premium);
(B) The borrower is offered the choice of another mortgage that
does not contain payment of such a premium;
(C) The terms of the mortgage provision containing the prepayment
penalty are adequately disclosed to the borrower; and
(D) The prepayment penalty is not charged when the mortgage debt is
accelerated as the result of the borrower's default in making his or
her mortgage payments;
(iv) The sale or financing of prepaid single-premium credit life
insurance products in connection with the origination of the mortgage;
(v) Underwriting practices contrary to the Interagency Guidance on
Nontraditional Mortgage Product Risks (71 FR 58609) (Oct. 4, 2006), the
Interagency Statement on Subprime Mortgage Lending (72 FR 37569) (July
10, 2007), or similar guidance subsequently issued by Federal banking
agencies;
(vi) Failure to comply with fair lending requirements; or
(vii) Other terms or conditions that are determined by the Director
to be an unacceptable term or condition of a mortgage.
Multifamily housing means a residence consisting of more than four
dwelling units. The term includes cooperative buildings and condominium
projects.
Non-metropolitan area means a county, or a portion of a county,
including those counties that comprise Micropolitan Statistical Areas,
located outside any metropolitan area for which median family income
estimates are published annually by HUD.
Owner-occupied housing means single-family housing in which a
mortgagor resides, including two- to four-unit owner-occupied
properties where one or more units are used for rental purposes.
Participation means a fractional interest in the principal amount
of a mortgage.
Private label security means any mortgage-backed security that is
neither issued nor guaranteed by Fannie Mae, Freddie Mac, Ginnie Mae,
or any other government agency.
Proprietary information means all mortgage data and all AHAR
information that the Enterprises submit to the Director in the AHARs
that contain trade secrets or privileged or confidential, commercial,
or financial information that, if released, would be likely to cause
substantial competitive harm.
Public data means all mortgage data and all AHAR information that
the Enterprises submit to the Director in the AHARs that the Director
determines are not proprietary and may appropriately be disclosed
consistent with other applicable laws and regulations.
Purchase money mortgage means a mortgage given to secure a loan
used for the purchase of a single-family residential property.
Refinancing mortgage means a mortgage undertaken by a borrower that
satisfies or replaces an existing mortgage of such borrower. The term
does not include:
(i) A renewal of a single payment obligation with no change in the
original terms;
(ii) A reduction in the annual percentage rate of the mortgage as
computed under the Truth in Lending Act (15 U.S.C. 1601 et seq.), with
a corresponding change in the payment schedule;
(iii) An agreement involving a court proceeding;
(iv) A workout agreement, in which a change in the payment schedule
or collateral requirements is agreed to as a result of the mortgagor's
default or delinquency, unless the rate is increased or the new amount
financed exceeds the unpaid balance plus earned finance charges and
premiums for the continuation of insurance;
(v) The renewal of optional insurance purchased by the mortgagor
and added to an existing mortgage;
(vi) A renegotiated balloon mortgage on a multifamily property
where the balloon payment was due within 1 year after the date of the
closing of the renegotiated mortgage; and
(vii) A conversion of a balloon mortgage note on a single-family
property to a fully amortizing mortgage note where the Enterprise
already owns or has an interest in the balloon note at the time of the
conversion.
Rent means, for a dwelling unit:
(i) When the contract rent includes all utilities, the contract
rent; or
(ii) When the contract rent does not include all utilities, the
contract rent plus:
(A) The actual cost of utilities not included in the contract rent;
or
(B) A utility allowance.
Rental housing means dwelling units in multifamily housing and
dwelling units that are not owner-occupied in single-family housing.
Rental unit means a dwelling unit that is not owner-occupied and is
rented or available to rent.
Residence means a property where one or more families reside.
Residential mortgage means a mortgage on single-family or
multifamily housing.
Safety and Soundness Act means the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992, as amended (12 U.S.C. 4501
et seq.).
Seasoned mortgage means a mortgage on which the date of the
mortgage note is more than 1 year before the Enterprise purchased the
mortgage.
Second mortgage means any mortgage that has a lien position
subordinate only to the lien of the first mortgage.
Secondary residence means a dwelling where the mortgagor maintains
(or will maintain) a part-time place of abode and typically spends (or
will spend) less than the majority of the calendar year. A person may
have more than one secondary residence at a time.
Single-family housing means a residence consisting of one to four
dwelling units. Single-family housing includes condominium dwelling
units and dwelling units in cooperative housing projects.
Utilities means charges for electricity, piped or bottled gas,
water, sewage disposal, fuel (oil, coal, kerosene, wood, solar energy,
or other), and garbage and trash collection. Utilities do not include
charges for cable or telephone service.
Utility allowance means either:
(i) The amount to be added to contract rent when utilities are not
included in contract rent (also referred to as the ``AHS-derived
utility allowance''), as issued periodically by FHFA; or
(ii) The utility allowance established under the HUD Section 8
Program (42 U.S.C. 1437f) for the area where the property is located.
Very low-income means:
(i) In the case of owner-occupied units, income not in excess of 50
percent of area median income; and
(ii) In the case of rental units, income not in excess of 50
percent of area
[[Page 55933]]
median income, with adjustments for smaller and larger families in
accordance with this part.
Working day means a day when FHFA is officially open for business.
Subpart B--Housing Goals
Sec. 1282.11 General.
(a) General. Pursuant to the requirements of the Safety and
Soundness Act (12 U.S.C. 4561-4564, 4566), this subpart establishes:
(1) Three single-family owner-occupied purchase money mortgage
housing goals, a single-family owner-occupied purchase money mortgage
housing subgoal, a single-family refinancing mortgage housing goal, a
multifamily special affordable housing goal and a multifamily special
affordable housing subgoal;
(2) Requirements for measuring performance under the goals; and
(3) Procedures for monitoring and enforcing the goals.
(b) Annual goals. Each housing goal shall be established by
regulation no later than December 1 of the preceding year, except that
any housing goal may be adjusted by regulation to reflect subsequent
available data and market developments.
Sec. 1282.12 Single-family housing goals.
(a) Single-family housing goals. An Enterprise shall be in
compliance with a single-family housing goal if its performance under
the housing goal meets or exceeds either:
(1) The share of the market that qualifies for the goal; or
(2) The benchmark level for the goal.
(b) Size of market. The size of the market for each goal shall be
established annually by FHFA based on data reported pursuant to the
Home Mortgage Disclosure Act for a given year. Unless otherwise
adjusted by FHFA, the size of the market shall be determined based on
the following criteria:
(1) Only owner-occupied, conventional loans shall be considered;
(2) Purchase money mortgages and refinancing mortgages shall only
be counted for the applicable goal or goals;
(3) All mortgages flagged as HOEPA loans or subordinate lien loans
shall be excluded;
(4) All mortgages with original principal balances above the
conforming loan limits for single unit properties for the year being
evaluated (rounded to the nearest $1,000) shall be excluded;
(5) All mortgages with rate spreads of 150 basis points or more
above the applicable average prime offer rate as reported in the Home
Mortgage Disclosure Act data shall be excluded; and
(6) All mortgages that are missing information necessary to
determine appropriate counting under the housing goals shall be
excluded.
(c) Low-income families housing goal. The percentage share of each
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for low-
income families shall meet or exceed either:
(1) The share of such mortgages in the market as defined in
paragraph (b) of this section in each year; or
(2) The benchmark level, which for 2010 and 2011 shall be 27
percent of the total number of purchase money mortgages purchased by
that Enterprise in each year that finance owner-occupied single-family
properties.
(d) Very low-income families housing goal. The percentage share of
each Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for very low-
income families shall meet or exceed either:
(1) The share of such mortgages in the market as defined in
paragraph (b) of this section in each year; or
(2) The benchmark level, which for 2010 and 2011 shall be 8 percent
of the total number of purchase money mortgages purchased by that
Enterprise in each year that finance owner-occupied single-family
properties.
(e) Low-income areas housing goal. The percentage share of each
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for families
in low-income areas shall meet or exceed either:
(1) The share of such mortgages in the market as defined in
paragraph (b) of this section in each year; or
(2) A benchmark level which shall be set annually by FHFA notice
based on the benchmark level for the low-income areas housing subgoal,
plus an adjustment factor reflecting the additional incremental share
of mortgages for moderate-income families in designated disaster areas
in the most recent year for which such data is available.
(f) Low-income areas housing subgoal. The percentage share of each
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for families
in low-income census tracts or for moderate-income families in minority
census tracts shall meet or exceed either:
(1) The share of such mortgages in the market as defined in
paragraph (b) of this section in each year; or
(2) The benchmark level, which for 2010 and 2011 shall be 13
percent of the total number of purchase money mortgages purchased by
that Enterprise in each year that finance owner-occupied single-family
properties.
(g) Refinancing housing goal. The percentage share of each
Enterprise's total purchases of refinancing mortgages on owner-occupied
single-family housing that consists of refinancing mortgages for low-
income families shall meet or exceed either:
(1) The share of such mortgages in the market as defined in
paragraph (b) of this section in each year; or
(2) The benchmark level, which for 2010 and 2011 shall be 21
percent of the total number of refinancing mortgages purchased by that
Enterprise in each year that finance owner-occupied single-family
properties.
Sec. 1282.13 Multifamily special affordable housing goal and subgoal.
(a) Multifamily housing goal and subgoal. An Enterprise shall be in
compliance with a multifamily housing goal or subgoal if its
performance under the housing goal or subgoal meets or exceeds the
benchmark level for the goal.
(b) Multifamily low-income housing goal. For the years 2010 and
2011, the goal for each Enterprise's purchases of mortgages on
multifamily residential housing affordable to low-income families shall
be, for Fannie Mae, at least 177,750 dwelling units affordable to low-
income families in multifamily residential housing financed by
mortgages purchased by that Enterprise in each year, and for Freddie
Mac, at least 161,250 such dwelling units in each year.
(c) Multifamily very low-income housing subgoal. For the years 2010
and 2011, the subgoal for each Enterprise's purchases of mortgages on
multifamily residential housing affordable to very low-income families
shall be, for Fannie Mae, at least 42,750 dwelling units affordable to
very low-income families in multifamily residential housing financed by
mortgages purchased by that Enterprise in each year, and for Freddie
Mac, at least 21,000 such dwelling units in each year.
Sec. 1282.14 Discretionary adjustment of housing goals.
(a) An Enterprise may petition the Director in writing during any
year to reduce any goal or subgoal for that year.
(b) The Director shall seek public comment on any such petition for
a period of 30 days.
(c) The Director shall make a determination regarding the petition
[[Page 55934]]
within 30 days after the end of the public comment period. If the
Director requests additional information from the Enterprise after the
end of the public comment period, the Director may extend the period
for a final determination for a single additional 15-day period.
(d) The Director may reduce a goal or subgoal pursuant to a
petition for reduction only if:
(1) Market and economic conditions or the financial condition of
the Enterprise require such a reduction; or
(2) Efforts to meet the goal or subgoal would result in the
constraint of liquidity, over-investment in certain market segments, or
other consequences contrary to the intent of the Safety and Soundness
Act or the purposes of the Charter Acts (12 U.S.C. 1716; 12 U.S.C. 1451
note).
Sec. 1282.15 General counting requirements.
(a) Calculating the numerator and denominator for single-family
housing goals. Performance under each of the single-family housing
goals shall be measured using a fraction that is converted into a
percentage. Neither the numerator nor the denominator shall include
Enterprise transactions or activities that are not mortgage purchases
as defined by FHFA or that are specifically excluded as ineligible
under Sec. 1282.16(b).
(1) The numerator. The numerator of each fraction is the number of
mortgage purchases of an Enterprise in a particular year that finance
owner-occupied single-family properties that count toward achievement
of a particular single-family housing goal.
(2) The denominator. The denominator of each fraction is the total
number of mortgage purchases of an Enterprise in a particular year that
finance owner-occupied single-family properties. A separate denominator
shall be calculated for purchase money mortgages and for refinancing
mortgages.
(b) Missing data or information for single-family housing goals.
When an Enterprise lacks sufficient data or information to determine
whether the purchase of a mortgage originated after 1992 counts toward
achievement of a particular single-family housing goal, that mortgage
purchase shall be included in the denominator for that housing goal,
except under the circumstances described in this paragraph (b).
(1) Mortgage purchases financing owner-occupied single-family
properties shall be evaluated based on the income of the mortgagors and
the area median income at the time the mortgage was originated. To
determine whether mortgages may be counted under a particular family
income level, i.e., low- or very low-income, the income of the
mortgagors is compared to the median income for the area at the time of
the mortgage application, using the appropriate percentage factor
provided under Sec. 1282.17.
(2) When the income of the mortgagor(s) is not available to
determine whether a mortgage purchase counts toward achievement of a
particular single-family housing goal, an Enterprise's performance with
respect to such mortgage purchase may be evaluated using estimated
affordability information by multiplying the number of mortgage
purchases with missing borrower income information in each census tract
by the percentage of all single-family owner-occupied mortgage
originations in the respective tracts that would count toward
achievement of each goal, as determined by FHFA based on the most
recent Home Mortgage Disclosure Act data available.
(3) The estimation methodology in paragraph (b)(2) of this section
may be used up to a nationwide maximum that shall be calculated by
multiplying, for each census tract, the percentage of all single-family
owner-occupied mortgage originations with missing borrower incomes (as
determined by FHFA based on the most recent Home Mortgage Disclosure
Act data available for home purchase and refinance mortgages,
respectively) by the number of Enterprise mortgage purchases secured by
single-family owner-occupied properties for each census tract, summed
up over all census tracts. Separate nationwide maximums shall be
calculated for purchase money mortgages and for refinancing mortgages.
If the nationwide maximum is exceeded, then the estimated number of
goal-qualifying mortgages will be adjusted by the ratio of the
applicable nationwide maximum to the total number of mortgage purchases
secured by single-family owner-occupied properties for the Enterprise
in that year. Mortgage purchases in excess of the nationwide maximum,
and any units for which estimation information is not available, shall
remain in the denominator of the respective goal calculation.
(c) Counting dwelling units for multifamily housing goal and
subgoal. Performance under the multifamily housing goal and subgoal
shall be measured by counting the number of dwelling units that count
toward achievement of a particular housing goal or subgoal in all
multifamily properties financed by mortgages purchased by an Enterprise
in a particular year. Only dwelling units that are financed by mortgage
purchases, as defined by FHFA, and that are not specifically excluded
as ineligible under Sec. 1282.16(b), may be counted for purposes of
the multifamily housing goal and subgoal.
(d) Counting rental units. For purposes of counting rental units
toward achievement of the multifamily housing goal and subgoal,
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, and the area median income at the time the
mortgage was acquired.
(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, except as provided in paragraph (d)(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. 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 under the
multifamily housing goal and subgoal will be evaluated based on rent
and whether the rent is affordable to the income group
[[Page 55935]]
targeted by the housing goal and subgoal. 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
in a multifamily property may be counted for purposes of the
multifamily housing goal and subgoal only if an Enterprise determines
that the number of such units is reasonable and minimal considering the
size of the multifamily property.
(4) Timeliness of information. In evaluating affordability under
the multifamily housing goal and subgoal, each Enterprise shall use
tenant and rental information as of the time of mortgage acquisition.
(e) Missing data or information for multifamily housing goal and
subgoal.--(1) When an Enterprise lacks sufficient information to
determine whether a rental unit in a property securing a multifamily
mortgage purchased by an Enterprise counts toward achievement of the
multifamily housing goal or subgoal because neither the income of
prospective or actual tenants, nor the actual or average rental data,
are available, an Enterprise's performance with respect to such unit
may be evaluated using estimated affordability information by
multiplying the number of rental units with missing affordability
information in properties securing multifamily mortgages purchased by
the Enterprise in each census tract by the percentage of all rental
dwelling units in the respective tracts that would count toward
achievement of each goal and subgoal, as determined by FHFA based on
the most recent decennial census.
(2) The estimation methodology in paragraph (e)(1) of this section
may be used up to a nationwide maximum of ten percent of the total
number of rental units in properties securing multifamily mortgages
purchased by the Enterprise in the current year. Multifamily rental
units in excess of this maximum, and any units for which estimation
information is not available, shall not be counted for purposes of the
multifamily housing goal and subgoal.
(f) Credit toward multiple goals. A mortgage purchase (or dwelling
unit financed by such purchase) by an Enterprise in a particular year
shall count toward the achievement of each housing goal for which such
purchase (or dwelling unit) qualifies in that year.
(g) 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'').
(h) Sampling not permitted. Performance under the housing goals for
each year shall be based on a complete tabulation of mortgage purchases
(or dwelling units) for that year; a sampling of such purchases (or
dwelling units) is not acceptable.
(i) Newly available data. When an Enterprise uses data to determine
whether a mortgage purchase (or dwelling unit) counts toward
achievement of any goal 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. 1282.16 Special counting requirements.
(a) General. FHFA shall determine whether an Enterprise shall
receive full, partial, or no credit toward achievement of any of the
housing goals for a transaction that otherwise qualifies under this
part. In this determination, FHFA will consider whether a transaction
or activity of the Enterprise is substantially equivalent to a mortgage
purchase and either creates a new market or adds liquidity to an
existing market, provided however that such mortgage purchase actually
fulfills the Enterprise's purposes and is in accordance with its
Charter Act.
(b) Not counted. The following transactions or activities shall not
be counted for purposes of the housing goals and shall not be included
in the numerator or the denominator in calculating either Enterprise's
performance under the housing goals, even if the transaction or
activity would otherwise be counted pursuant to paragraph (c) of this
section:
(1) Equity investments in low-income housing tax credits;
(2) Purchases of State and local government housing bonds except as
provided in paragraph (c)(8) of this section;
(3) Purchases of single-family non-conventional mortgages and
multifamily non-conventional mortgages, except:
(i) Multifamily mortgages acquired under a risk-sharing arrangement
with a Federal agency;
(ii) Multifamily mortgages under other multifamily mortgage
programs involving Federal guarantees, insurance or other Federal
obligation where FHFA determines in writing that the financing needs
addressed by the particular mortgage program are not well served and
that the mortgage purchases under such program should count under the
housing goals;
(4) Commitments to buy mortgages at a later date or time;
(5) Options to acquire mortgages;
(6) Rights of first refusal to acquire mortgages;
(7) Any interests in mortgages that the Director determines, in
writing, shall not be treated as interests in mortgages;
(8) Mortgage purchases to the extent they finance any dwelling
units that are secondary residences;
(9) 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;
(10) Purchases of subordinate lien mortgages (second mortgages);
(11) Purchases of mortgages or interests in mortgages that were
previously counted by the Enterprise under any current or previous
housing goal within the five years immediately preceding the current
performance year;
(12) Purchases of mortgages where the property, or any units within
the property, have not been approved for occupancy;
(13) Purchases of private label securities;
(14) Enterprise contributions to the Housing Trust Fund (12 U.S.C.
4568) or the Capital Magnet Fund (12 U.S.C. 4569), and mortgage
purchases funded with such grant amounts; and
(15) Any combination of factors in paragraphs (b)(1) through
(b)(14) of this section.
(c) Other special rules. Subject to FHFA's determination of whether
an Enterprise shall receive full, partial, or
[[Page 55936]]
no credit for a transaction toward achievement of any of the housing
goals as provided in paragraph (a) of this section, the transactions
and activities identified in this paragraph (c) shall be treated as
mortgage purchases as described. A transaction or activity that is
covered by more than one paragraph below must satisfy the requirements
of each such paragraph. The mortgages (or dwelling units, for the
multifamily housing goals) from each such transaction or activity shall
be included in the denominator in calculating the Enterprise's
performance under the housing goals, and shall be included in the
numerator, as appropriate.
(1) Credit enhancements.--(i) Mortgages (or dwelling units)
financed under a credit enhancement entered into by an Enterprise shall
be treated as mortgage purchases for purposes of the housing goals only
when:
(A) 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
(B) 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.
(ii) 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 activities to count toward achievement of the housing
goals.
(2) [Reserved.]
(3) 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 of the risk
shall be treated as mortgage purchases for purposes of the housing
goals.
(4) Participations. Participations purchased by an Enterprise shall
be treated as mortgage purchases for purposes of the housing goals only
when the Enterprise's participation in the mortgage is 50 percent or
more.
(5) Cooperative housing and condominiums.--(i) 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 for
purposes of the housing goals. Such a purchase shall be counted in the
same manner as a mortgage purchase of single-family owner-occupied
units.
(ii) 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 for purposes of the housing goals. The purchase
of a blanket loan or a condominium project mortgage shall be counted in
the same manner as a mortgage purchase of a multifamily rental
property.
(iii) 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 for purposes of the housing goals. 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 for purposes of the housing goals.
(6) Seasoned mortgages. An Enterprise's purchase of a seasoned
mortgage shall be treated as a mortgage purchase for purposes of the
housing goals, except where the Enterprise has already counted the
mortgage under any current or previous housing goal within the five
years immediately preceding the current performance year.
(7) Purchase of refinancing mortgages. The purchase of a
refinancing mortgage by an Enterprise shall be treated as a mortgage
purchase for purposes of the housing goals only if the refinancing is
an arms-length transaction that is borrower-driven.
(8) Mortgage revenue bonds. The purchase or guarantee by an
Enterprise of a mortgage revenue bond issued by a State or local
housing finance agency shall be treated as a purchase of the underlying
mortgages for purposes of the housing goals only to the extent the
Enterprise has sufficient information to determine whether the
underlying mortgages or mortgage-backed securities qualify for
inclusion in the numerator for one or more housing goal.
(9) [Reserved.]
(10) Loan modifications. An Enterprise's permanent modification, in
accordance with the Making Home Affordable program announced on March
4, 2009, of a loan 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 for purposes of the housing goals. Each
such permanent loan modification shall be counted in the same manner as
a purchase of a refinancing mortgage.
(11) [Reserved.]
(12) [Reserved.]
(13) [Reserved.]
(14) Seller dissolution option.--(i) Mortgages acquired through
transactions involving seller dissolution options shall be treated as
mortgage purchases for purposes of the housing goals, only when:
(A) 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
(B) The transaction is not dissolved during the one-year minimum
lockout period.
(ii) The Director may grant an exception to the one-year minimum
lockout period described in paragraphs (c)(14)(i)(A) and (B) of this
section, in response to a written request from an Enterprise, if the
Director determines that the transaction furthers the purposes of the
Safety and Soundness Act and the Enterprise's Charter Act.
(iii) For purposes of this paragraph (c)(14), ``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.
(d) HOEPA mortgages and mortgages with unacceptable terms or
conditions. HOEPA mortgages and mortgages with unacceptable terms or
conditions, as defined in Sec. 1282.1, shall be treated as mortgage
purchases for purposes of the housing goals and shall be included in
the denominator for each applicable single-family housing goal, but
such mortgages shall not be counted in the numerator for any housing
goal.
(e) FHFA review of transactions. FHFA may determine whether and how
any transaction or class of transactions shall be counted for purposes
of the housing goals, including treatment of missing data. FHFA will
notify each Enterprise in writing of any determination regarding the
treatment of any transaction or class of transactions under the housing
goals.
Sec. 1282.17 Affordability--Income level definitions--family size and
income known (owner-occupied units, actual tenants, and prospective
tenants).
In determining whether a dwelling unit is affordable where income
information (and family size, for rental housing) is known to the
Enterprise, the affordability of the unit shall be determined as
follows:
(a) Moderate-income means:
[[Page 55937]]
(1) In the case of owner-occupied units, income not in excess of
100 percent of area median income; and
(2) In the case of rental units, where the income of actual or
prospective tenants is available, income not in excess of the following
percentages of area median income corresponding to the following family
sizes:
------------------------------------------------------------------------
Percentage of
Number of persons in family area median
income
------------------------------------------------------------------------
1....................................................... 70
2....................................................... 80
3....................................................... 90
4....................................................... 100
5 or more............................................... *
------------------------------------------------------------------------
*100% plus (8% multiplied by the number of persons in excess of 4).
(b) Low-income (80%) means:
(1) In the case of owner-occupied units, income not in excess of 80
percent of area median income; and
(2) In the case of rental units, where the income of actual or
prospective tenants is available, income not in excess of the following
percentages of area median income corresponding to the following family
sizes:
------------------------------------------------------------------------
Percentage of
Number of persons in family area median
income
------------------------------------------------------------------------
1....................................................... 56
2....................................................... 64
3....................................................... 72
4....................................................... 80
5 or more............................................... *
------------------------------------------------------------------------
*80% plus (6.4% multiplied by the number of persons in excess of 4).
(c) Low-income (60%) means:
(1) In the case of owner-occupied units, income not in excess of 60
percent of area median income; and
(2) In the case of rental units, where the income of actual or
prospective tenants is available, income not in excess of the following
percentages of area median income corresponding to the following family
sizes:
------------------------------------------------------------------------
Percentage of
Number of persons in family area median
income
------------------------------------------------------------------------
1....................................................... 42
2....................................................... 48
3....................................................... 54
4....................................................... 60
5 or more............................................... *
------------------------------------------------------------------------
*60% plus (4.8% multiplied by the number of persons in excess of 4).
(d) Very low-income means:
(1) In the case of owner-occupied units, income not in excess of 50
percent of area median income; and
(2) In the case of rental units, where the income of actual or
prospective tenants is available, income not in excess of the following
percentages of area median income corresponding to the following family
sizes:
------------------------------------------------------------------------
Percentage of
Number of persons in family area median
income
------------------------------------------------------------------------
1....................................................... 35
2....................................................... 40
3....................................................... 45
4....................................................... 50
5 or more............................................... *
------------------------------------------------------------------------
*50% plus (4.0% multiplied by the number of persons in excess of 4).
(e) Extremely low-income means:
(1) In the case of owner-occupied units, income not in excess of 30
percent of area median income; and
(2) In the case of rental units, where the income of actual or
prospective tenants is available, income not in excess of the following
percentages of area median income corresponding to the following family
sizes:
------------------------------------------------------------------------
Percentage of
Number of persons in family area median
income
------------------------------------------------------------------------
1....................................................... 21
2....................................................... 24
3....................................................... 27
4....................................................... 30
5 or more............................................... *
------------------------------------------------------------------------
*30% plus (2.4% multiplied by the number of persons in excess of 4).
Sec. 1282.18 Affordability--Income level definitions--family size
not known (actual or prospective tenants).
In determining whether a rental unit is affordable where family
size is not known to the Enterprise, income will be adjusted using unit
size, and affordability determined as follows:
(a) For moderate-income, the income of prospective tenants shall
not exceed the following percentages of area median income with
adjustments, depending on unit size:
------------------------------------------------------------------------
Percentage of
Unit size area median
income
------------------------------------------------------------------------
Efficiency.............................................. 70
1 bedroom............................................... 75
2 bedrooms.............................................. 90
3 bedrooms or more...................................... *
------------------------------------------------------------------------
*104% plus (12% multiplied by the number of bedrooms in excess of 3).
(b) For low-income (80%), income of prospective tenants shall not
exceed the following percentages of area median income with
adjustments, depending on unit size:
------------------------------------------------------------------------
Percentage of
Unit size area median
income
------------------------------------------------------------------------
Efficiency.............................................. 56
1 bedroom............................................... 60
2 bedrooms.............................................. 72
3 bedrooms or more...................................... *
------------------------------------------------------------------------
*83.2% plus (9.6% multiplied by the number of bedrooms in excess of 3).
(c) For low-income (60%), income of prospective tenants shall not
exceed the following percentages of area median income with
adjustments, depending on unit size:
------------------------------------------------------------------------
Percentage of
Unit size area median
income
------------------------------------------------------------------------
Efficiency.............................................. 42
1 bedroom............................................... 45
2 bedrooms.............................................. 54
3 bedrooms or more...................................... *
------------------------------------------------------------------------
*62.4% plus (7.2% multiplied by the number of bedrooms in excess of 3).
(d) For very low-income, income of prospective tenants shall not
exceed the following percentages of area median income with
adjustments, depending on unit size:
------------------------------------------------------------------------
Percentage of
Unit size area median
income
------------------------------------------------------------------------
Efficiency............................................. 35
1 bedroom.............................................. 37.5
2 bedrooms............................................. 45
3 bedrooms or more..................................... *
------------------------------------------------------------------------
*52% plus (6.0% multiplied by the number of bedrooms in excess of 3).
(e) For extremely low-income, income of prospective tenants shall
not exceed the following percentages of area median income with
adjustments, depending on unit size:
------------------------------------------------------------------------
Percentage of
Unit size area median
income
------------------------------------------------------------------------
Efficiency............................................. 21
1 bedroom.............................................. 22.5
2 bedrooms............................................. 27
3 bedrooms or more..................................... *
------------------------------------------------------------------------
*31.2% plus (3.6% multiplied by the number of bedrooms in excess of 3).
Sec. 1282.19 Affordability--Rent level definitions--tenant income is
not known.
For purposes of determining whether a rental unit is affordable
where the income of the family in the dwelling unit is not known to the
Enterprise, the
[[Page 55938]]
affordability of the unit is determined based on unit size as follows:
(a) For moderate-income, maximum affordable rents to count as
housing for moderate-income families shall not exceed the following
percentages of area median income with adjustments, depending on unit
size:
------------------------------------------------------------------------
Percentage of
Unit size area median
income
------------------------------------------------------------------------
Efficiency............................................. 21
1 bedroom.............................................. 22.5
2 bedrooms............................................. 27
3 bedrooms or more..................................... *
------------------------------------------------------------------------
*31.2% plus (3.6% multiplied by the number of bedrooms in excess of 3).
(b) For low-income (80%), maximum affordable rents to count as
housing for low-income (80%) families shall not exceed the following
percentages of area median income with adjustments, depending on unit
size:
------------------------------------------------------------------------
Percentage of
Unit size area median
income
------------------------------------------------------------------------
Efficiency............................................. 16.8
1 bedroom.............................................. 18
2 bedrooms............................................. 21.6
3 bedrooms or more..................................... *
------------------------------------------------------------------------
*24.96% plus (2.88% multiplied by the number of bedrooms in excess of
3).
(c) For low-income (60%), maximum affordable rents to count as
housing for low-income (60%) families shall not exceed the following
percentages of area median income with adjustments, depending on unit
size:
------------------------------------------------------------------------
Percentage of
Unit size area median
income
------------------------------------------------------------------------
Efficiency............................................. 12.6
1 bedroom.............................................. 13.5
2 bedrooms............................................. 16.2
3 bedrooms or more..................................... *
------------------------------------------------------------------------
*18.72% plus (2.16% multiplied by the number of bedrooms in excess of
3).
(d) For very low-income, maximum affordable rents to count as
housing for very low-income families shall not exceed the following
percentages of area median income with adjustments, depending on unit
size:
------------------------------------------------------------------------
Percentage of
Unit size area median
income
------------------------------------------------------------------------
Efficiency............................................ 10.5
1 bedroom............................................. 11.25
2 bedrooms............................................ 13.5
3 bedrooms or more.................................... *
------------------------------------------------------------------------
*15.6% plus (1.8% multiplied by the number of bedrooms in excess of 3).
(e) For extremely low-income, maximum affordable rents to count as
housing for extremely low-income families shall not exceed the
following percentages of area median income with adjustments, depending
on unit size:
------------------------------------------------------------------------
Percentage of
Unit size area median
income
------------------------------------------------------------------------
Efficiency.............................................. 6.3
1 bedroom............................................... 6.75
2 bedrooms.............................................. 8.1
3 bedrooms or more...................................... *
------------------------------------------------------------------------
* 9.36% plus (1.08% multiplied by the number of bedrooms in excess of
3).
(f) Missing Information. Each Enterprise shall make every effort to
obtain the information necessary to make the calculations in this
section. If an Enterprise makes such efforts but cannot obtain data on
the number of bedrooms in particular units, in making the calculations
on such units, the units shall be assumed to be efficiencies except as
provided in Sec. 1282.15(e)(1).
Sec. 1282.20 Determination of compliance with housing goals; notice
of determination.
(a) Single-family housing goals. The Director shall evaluate each
Enterprise's performance under the low-income families housing goal,
the very low-income families housing goal, the low-income areas housing
goal, the low-income areas housing subgoal, and the refinancing
mortgages housing goal on an annual basis. If the Director determines
that an Enterprise has failed, or there is a substantial probability
that an Enterprise will fail, to meet a single-family housing goal
established by this subpart, the Director shall notify the Enterprise
in writing of such preliminary determination.
(b) Multifamily housing goal and subgoal. The Director shall
evaluate each Enterprise's performance under the multifamily low-income
housing goal and the multifamily very low-income housing subgoal on an
annual basis. If the Director determines that an Enterprise has failed,
or there is a substantial probability that an Enterprise will fail, to
meet a multifamily housing goal or subgoal established by this subpart,
the Director shall notify the Enterprise in writing of such preliminary
determination.
(c) Any notification to an Enterprise of a preliminary
determination under this section shall provide the Enterprise with an
opportunity to respond in writing in accordance with the procedures at
12 U.S.C. 4566(b).
Sec. 1282.21 Housing plans.
(a) General. If the Director determines that an Enterprise has
failed, or there is a substantial probability that an Enterprise will
fail, to meet any housing goal and that the achievement of the housing
goal was or is feasible, the Director may require the Enterprise to
submit a housing plan for approval by the Director.
(b) Nature of 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 achieve the goal for the next calendar year; and
(ii) If the Director determines that there is a substantial
probability that the Enterprise will fail to meet a housing goal in the
current year, to make such improvements and changes in its operations
as are reasonable in the remainder of the year; and
(4) Address any additional matters relevant to the 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 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
plan acceptable to the Director not later than 15 days after the
Director's disapproval of the initial plan; the Director may extend the
deadline if the Director determines an extension is in the public
interest. If the amended plan is not acceptable to the Director, the
Director may afford the Enterprise 15 days to submit a new plan.
Subpart C--[Reserved]
Subpart D--Reporting Requirements
Sec. 1282.61 General.
This subpart establishes data submission and reporting requirements
to carry out the requirements of the Enterprises' Charter Acts and the
Safety and Soundness Act.
Sec. 1282.62 Mortgage reports.
(a) Loan-level data elements. To implement the data collection and
[[Page 55939]]
submission requirements for mortgage data, and to assist the Director
in monitoring the Enterprises' housing goal activities, each Enterprise
shall collect and compile computerized loan-level data on each mortgage
purchased in accordance with 12 U.S.C. 1456(e) and 1723a(m). The
Director may, from time to time, issue a list entitled ``Required Loan-
level Data Elements'' specifying the loan-level data elements to be
collected and maintained by the Enterprises and provided to the
Director. The Director may revise the list by written notice to the
Enterprises.
(b) Quarterly Mortgage Reports. Each Enterprise shall submit to the
Director a quarterly Mortgage Report. The fourth quarter Mortgage
Report shall serve as the Annual Mortgage Report and shall be
designated as such. Each Mortgage Report shall include:
(1) Aggregations of the loan-level mortgage data compiled by the
Enterprise under paragraph (a) of this section for year-to-date
mortgage purchases, in the format specified in writing by the Director;
(2) Year-to-date dollar volume, number of units, and number of
mortgages on owner-occupied and rental properties purchased by the
Enterprise that do, and do not, qualify under each housing goal as set
forth in this part; and
(3) Year-to-date computerized loan-level data consisting of the
data elements required under paragraph (a) of this section.
(c) Timing of Reports. The Enterprises shall submit the Mortgage
Report for each of the first 3 quarters of each year within 60 days of
the end of the quarter. Each Enterprise shall submit its Annual
Mortgage Report within 75 days after the end of the calendar year.
(d) Revisions to Reports. At any time before submission of its
Annual Mortgage Report, an Enterprise may revise any of its quarterly
reports for that year.
(e) Format. The Enterprises shall submit to the Director
computerized loan-level data with the Mortgage Report, in the format
specified in writing by the Director.
Sec. 1282.63 Annual Housing Activities 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 assist the
Director in preparing the Director's Annual Report to Congress, each
Enterprise shall submit to the Director an AHAR including the
information listed in those sections of the Charter Acts. Each
Enterprise shall submit such report within 75 days after the end of
each calendar year, to the Director, the Committee on Financial
Services of the House of Representatives, and the Committee on Banking,
Housing, and Urban Affairs of the Senate. Each Enterprise shall make
its AHAR available to the public online and at its principal and
regional offices. Before making any such report available to the
public, the Enterprise may exclude from the report any information that
the Director has deemed proprietary.
Sec. 1282.64 Periodic reports.
Each Enterprise shall provide to the Director such reports,
information and data as the Director may request from time to time.
Sec. 1282.65 Enterprise data integrity.
(a) Certification.--(1) The senior officer of each Enterprise who
is responsible for submitting the fourth quarter Annual Mortgage Report
and the AHAR under sections 309(m) and (n) of the Fannie Mae Charter
Act or sections 307(e) and (f) of the Freddie Mac Act, as applicable,
or for submitting any other report(s), data or information for which
certification is requested in writing by the Director, shall certify
such report(s), data or information.
(2) The certification shall state as follows: ``To the best of my
knowledge and belief, the information provided herein is true, correct
and complete.''
(b) Adjustment to correct errors, omissions or discrepancies in
AHAR data. FHFA shall determine the official housing goal performance
figure for each Enterprise under the housing goals on an annual basis.
FHFA may resolve any error, omission or discrepancy by adjusting the
Enterprise's official housing goal performance figure. If the Director
determines that the year-end data reported by an Enterprise for a year
preceding the latest year for which data on housing goals performance
was reported to FHFA contained a material error, omission or
discrepancy, the Director may increase the corresponding housing goal
for the current year by the number of mortgages (or dwelling units)
that the Director determines were overstated in the prior year's goal
performance.
Dated: September 1, 2010.
Edward J. DeMarco,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2010-22361 Filed 9-13-10; 8:45 am]
BILLING CODE 8070-01-P