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Enterprised Duty to Serve Underserved Markets

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					                                                                                                                                                                                                                32099

                                                      Proposed Rules                                                                                                 Federal Register
                                                                                                                                                                     Vol. 75, No. 108

                                                                                                                                                                     Monday, June 7, 2010



                                                      This section of the FEDERAL REGISTER                    generally in accordance with the                       Telecommunications Device for the
                                                      contains notices to the public of the proposed          definition set forth in the Housing Act                Hearing Impaired is (800) 877–8339.
                                                      issuance of rules and regulations. The                  of 1949.                                               SUPPLEMENTARY INFORMATION:
                                                      purpose of these notices is to give interested
                                                      persons an opportunity to participate in the            DATES: Written comments must be                        I. Comments
                                                      rule making prior to the adoption of the final          received on or before July 22, 2010.
                                                                                                                                                                        FHFA invites comments on all aspects
                                                      rules.                                                  ADDRESSES: You may submit your
                                                                                                                                                                     of the proposed rule, and may revise the
                                                                                                              comments, identified by regulatory                     language of the proposed rule as
                                                                                                              information number (RIN) 2590–AA27,                    appropriate after taking all comments
                                                      FEDERAL HOUSING FINANCE                                 by any of the following methods:
                                                      AGENCY                                                                                                         into consideration. Copies of all
                                                                                                                 • E-mail: Comments to Alfred M.                     comments will be posted on FHFA’s
                                                      12 CFR Part 1282                                        Pollard, General Counsel, may be sent                  Internet Web site at http://www.fhfa.gov.
                                                                                                              by e-mail to RegComments@fhfa.gov.                     In addition, copies of all comments
                                                      RIN 2590–AA27                                           Please include ‘‘RIN 2590–AA27’’ in the                received will be available for
                                                                                                              subject line of the message.                           examination by the public on business
                                                      Enterprise Duty To Serve Underserved                       • Federal eRulemaking Portal: http://
                                                      Markets                                                                                                        days between the hours of 10 a.m. and
                                                                                                              www.regulations.gov. Follow the                        3 p.m., at the Federal Housing Finance
                                                      AGENCY: Federal Housing Finance                         instructions for submitting comments. If               Agency, Fourth Floor, 1700 G Street,
                                                      Agency.                                                 you submit your comment to the                         NW., Washington, DC 20552. To make
                                                      ACTION: Notice of proposed rulemaking;                  Federal eRulemaking Portal, please also                an appointment to inspect comments,
                                                      request for comments.                                   send it by e-mail to FHFA at                           please call the Office of General Counsel
                                                                                                              RegComments@fhfa.gov to ensure                         at (202) 414–6924.
                                                      SUMMARY: Section 1129 of the Housing                    timely receipt by the Agency. Please
                                                      and Economic Recovery Act of 2008                       include ‘‘RIN 2590–AA27’’ in the subject               II. Background
                                                      (HERA) amended section 1335 of the                      line of the message.                                   A. Establishment of FHFA
                                                      Federal Housing Enterprises Financial                      • Hand Delivered/Courier: The hand
                                                      Safety and Soundness Act of 1992                                                                                  Effective July 30, 2008, HERA
                                                                                                              delivery address is: Alfred M. Pollard,                amended the Safety and Soundness Act
                                                      (Safety and Soundness Act) to establish                 General Counsel, Attention: Comments/
                                                      a duty for the Federal National Mortgage                                                                       to create FHFA as an independent
                                                                                                              RIN 2590–AA27, Federal Housing                         agency of the federal government.1
                                                      Association (Fannie Mae) and the                        Finance Agency, Fourth Floor, 1700 G
                                                      Federal Home Loan Mortgage                                                                                     HERA transferred the safety and
                                                                                                              Street, NW., Washington, DC 20552. The                 soundness supervisory and oversight
                                                      Corporation (Freddie Mac) (collectively,                package should be logged at the Guard
                                                      the Enterprises) to serve three specified                                                                      responsibilities over the Enterprises
                                                                                                              Desk, First Floor, on business days                    from the Office of Federal Housing
                                                      underserved markets—manufactured                        between 9 a.m. and 5 p.m.
                                                      housing, affordable housing                                                                                    Enterprise Oversight (OFHEO) to FHFA.
                                                                                                                 • U.S. Mail, United Parcel Service,                 HERA also transferred the charter
                                                      preservation, and rural markets—in                      Federal Express, or Other Mail Service:
                                                      order to increase the liquidity of                                                                             compliance authority and responsibility
                                                                                                              The mailing address for comments is:                   to establish, monitor and enforce the
                                                      mortgage investments and improve the
                                                                                                              Alfred M. Pollard, General Counsel,                    housing goals for the Enterprises from
                                                      distribution of investment capital
                                                                                                              Attention: Comments/RIN 2590–AA27,                     the Department of Housing and Urban
                                                      available for mortgage financing for very
                                                                                                              Federal Housing Finance Agency,                        Development (HUD) to FHFA. FHFA is
                                                      low-, low- and moderate-income
                                                                                                              Fourth Floor, 1700 G Street, NW.,                      responsible for ensuring that the
                                                      families in those markets. The Federal
                                                                                                              Washington, DC 20552.                                  Enterprises operate in a safe and sound
                                                      Housing Finance Agency (FHFA) is
                                                      issuing and seeking comments on a                       FOR FURTHER INFORMATION CONTACT:                       manner, including maintenance of
                                                      proposed rule that would establish a                    Nelson Hernandez, Senior Associate                     adequate capital and internal controls,
                                                      method for evaluating and rating the                    Director, Office of Housing and                        that their operations and activities foster
                                                      Enterprises’ performance in each                        Community Investment, (202) 408–                       liquid, efficient, competitive, and
                                                      underserved market for 2010 and each                    2993, Brian Doherty, Manager, Office of                resilient national housing finance
                                                      subsequent year. In addition, the                       Housing and Community Investment,                      markets, and that they carry out their
                                                      proposed rule would set forth Enterprise                (202) 408–2991, or Mike Price, Senior                  public policy missions through
                                                      transactions and activities that would be               Policy Analyst, Office of Housing and                  authorized activities.2
                                                      considered for the duty to serve.                       Community Investment, (202) 408–                          Section 1302 of HERA provides, in
                                                         The proposed rule would, among                       2941. For legal questions, contact: Lyn                part, that all regulations, orders and
                                                      other things: Consider only                             Abrams, Attorney, (202) 414–8951,                      determinations issued by the Secretary
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                                                      manufactured homes titled as real                       Kevin Sheehan, Attorney, (202) 414–                    of HUD (Secretary) with respect to the
                                                      property for purposes of the duty to                    8952, or Sharon Like, Associate General                Secretary’s authority under the Safety
                                                      serve the manufactured housing market;                  Counsel, (202) 414–8950. These are not                 and Soundness Act, the Federal
                                                      give the Enterprises latitude to                        toll-free numbers. The mailing address                 National Mortgage Association Charter
                                                      concentrate on assisting particular                     for each contact is: Office of General
                                                                                                                                                                       1 See Division A, titled the ‘‘Federal Housing
                                                      affordable housing preservation                         Counsel, Federal Housing Finance
                                                                                                                                                                     Finance Regulatory Reform Act of 2008,’’ Title I,
                                                      programs that would benefit very                        Agency, Fourth Floor, 1700 G Street,                   section 1101, Public Law No. 110–289, 122 Stat.
                                                      low-, low- and moderate-income                          NW., Washington, DC 20552. The                         2654 (2008), codified at 12 U.S.C. 4501 et seq.
                                                      families; and define rural areas                        telephone number for the                                 2 See 12 U.S.C. 4513.




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

                                                      Act and the Federal Home Loan                            respect to each underserved market,                   their capital and required them to draw
                                                      Mortgage Corporation Act (together, the                  taking into consideration the following:              about $145 billion from the Department
                                                      Charter Acts), shall remain in effect and                   (i) The Enterprise’s development of                of the Treasury (Treasury) under the
                                                      be enforceable by the Secretary or the                   loan products, more flexible                          Senior Preferred Stock Purchase
                                                      Director of FHFA, as the case may be,                    underwriting guidelines, and other                    Agreements with Treasury. By letter
                                                      until modified, terminated, set aside or                 innovative approaches to providing                    dated February 2, 2010, FHFA’s Acting
                                                      superseded by the Secretary or the                       financing to each of the underserved                  Director reported to Congress that
                                                      Director, any court, or operation of law.                markets (hereafter, the ‘‘loan product                having the Enterprises engage in new
                                                      The Enterprises continue to operate                      assessment factor’’);                                 products would be inconsistent with the
                                                      under regulations promulgated by                            (ii) The extent of the Enterprise’s                goals of conservatorship and,
                                                      OFHEO and HUD until FHFA issues its                      outreach to qualified loan sellers and                consequently, that the Enterprises
                                                      own regulations.3                                        other market participants in each of the              would be limited to continuing their
                                                        The Enterprises are government-                        underserved markets (hereafter, the                   existing core business activities and
                                                      sponsored enterprises chartered by                       ‘‘outreach assessment factor’’);                      taking actions necessary to advance the
                                                      Congress for the purpose of establishing                    (iii) The volume of loans purchased                goals of the conservatorship (Letter to
                                                      secondary market facilities for                          by the Enterprise in each underserved                 Congress).7
                                                      residential mortgages.4 Specifically,                    market relative to the market                            Under the terms of the Senior
                                                      Congress established the Enterprises to                  opportunities available to the                        Preferred Stock Purchase Agreements,
                                                      provide stability in the secondary                       Enterprise, except that the Director shall            the Enterprises will be shrinking their
                                                      market for residential mortgages,                        not establish specific quantitative                   retained mortgage portfolios by ten
                                                      respond appropriately to the private                     targets or evaluate the Enterprise based              percent per year. The Administration
                                                      capital market, provide ongoing                          solely on the volume of loans purchased               has announced its intention to develop
                                                      assistance to the secondary market for                   (hereafter, the ‘‘loan purchase                       and present to Congress a plan for the
                                                      residential mortgages, and promote                       assessment factor’’); and                             future of the nation’s housing finance
                                                      access to mortgage credit throughout the                    (iv) The amount of investments and                 system that will include a proposal for
                                                      nation.5                                                 grants by the Enterprise in projects                  the ultimate resolution of the
                                                      B. Statutory Background                                  which assist in meeting the needs of the              Enterprises in conservatorship.
                                                                                                               underserved markets (hereafter, the                   Administration and congressional
                                                         The Safety and Soundness Act                                                                                leadership have each pointed to the
                                                                                                               ‘‘investments and grants assessment
                                                      provides that the Enterprises ‘‘have an                                                                        coming year as likely to see substantial
                                                                                                               factor’’).
                                                      affirmative obligation to facilitate the                                                                       legislative action affecting the
                                                      financing of affordable housing for low-                 Id. sec. 4565(d)(2).
                                                                                                                                                                     Enterprises’ future form and function.
                                                      and moderate-income families.’’ 12                          The duty to serve provisions and                   FHFA intends to continue operating the
                                                      U.S.C. 4501(7). Section 1129 of HERA                     issues for consideration are discussed                conservatorships as set forth in the
                                                      amended section 1335 of the Safety and                   further below.                                        Letter to Congress in anticipation of
                                                      Soundness Act to establish a duty for                    C. Conservatorship                                    congressional action on the future of the
                                                      the Enterprises to serve three specified                                                                       Enterprises. In recognition of the
                                                      underserved markets, in order to                            On September 6, 2008, the Director of
                                                                                                               FHFA appointed FHFA as conservator                    foregoing facts and circumstances,
                                                      increase the liquidity of mortgage                                                                             FHFA’s approach to implementing
                                                      investments and improve the                              of the Enterprises in accordance with
                                                                                                               the Safety and Soundness Act to                       section 1335 of the Safety and
                                                      distribution of investment capital                                                                             Soundness Act is to limit the proposed
                                                      available for mortgage financing for                     maintain the Enterprises in a safe and
                                                                                                               sound financial condition and to help                 rule to existing core business activities
                                                      certain categories of borrowers in those                                                                       at the Enterprises and not to require that
                                                      markets. 12 U.S.C. 4565. Specifically,                   assure performance of their public
                                                                                                               mission. The Enterprises remain under                 they engage in new lines of business as
                                                      the Enterprises are required to provide                                                                        a result of the duty to serve proposed
                                                      leadership to the market in developing                   conservatorship at this time.
                                                                                                                  Because Congress enacted the duty to               rule.
                                                      loan products and flexible underwriting
                                                      guidelines to facilitate a secondary                     serve provisions in the Safety and                    III. Duty To Serve Underserved
                                                      market for mortgages on housing for                      Soundness Act before the Enterprises                  Markets
                                                      very low-, low- and moderate-income                      were placed in conservatorship,
                                                                                                                                                                     A. Implementation of the Duty To Serve
                                                      families with respect to manufactured                    Congress developed the duty to serve
                                                      housing, affordable housing                              requirements for normal Enterprise                      The Enterprises’ public purposes
                                                      preservation and rural markets.6 Id. sec.                operating conditions, not                             include a broad obligation to serve
                                                      4565(a). In addition, section 1335(d)(1)                 conservatorship. While the Enterprises                moderate- and lower-income borrowers.
                                                      requires FHFA to establish, by                           are in conservatorship, FHFA expects                  Through HERA, Congress created a duty
                                                      regulation effective for 2010 and each                   them to continue to fulfill their core                for the Enterprises to serve three
                                                      subsequent year, a method for                            statutory purposes which include their                specific underserved markets. The duty
                                                      evaluating and rating the Enterprises’                   support for affordable housing. One set               to serve is a new obligation for the
                                                      performance of the duty to serve                         of measures of the Enterprises’ support               Enterprises and a new oversight
                                                      underserved markets. Id. sec. 4565(d)(1).                for affordable housing comes from the                 responsibility for FHFA. The proposed
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                                                      FHFA is required to separately evaluate                  housing goals and another comes from                  rule would set forth standards for
                                                      each Enterprise’s performance with                       the duty to serve. At the same time, all              compliance with the duty to serve,
                                                                                                               Enterprise activities, including those in             methods for evaluating and rating the
                                                         3 See HERA at section 1302, 122 Stat. 2795; 12
                                                                                                               support of affordable housing, must be                Enterprises and requirements for the
                                                      U.S.C. 4603.                                             consistent with the requirements of
                                                         4 See 12 U.S.C. 1716 et seq.; 12 U.S.C. 1451 et                                                               7 See Letter from Acting Director Edward J.
                                                      seq.
                                                                                                               conservatorship.
                                                                                                                                                                     DeMarco to the Honorable Christopher Dodd,
                                                         5 Id.                                                    Since the establishment of the                     Honorable Richard C. Shelby, Honorable Barney
                                                         6 The terms ‘‘very low-income’’, ‘‘low-income’’ and   conservatorships, the combined losses                 Frank, and Honorable Spencer Bachus (Feb. 2,
                                                      ‘‘moderate-income’’ are defined in 12 U.S.C. 4502.       at the two Enterprises depleted all of                2010).



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

                                                      Enterprises to provide reports and data                 loans made in support of these                         detail below under the discussion of the
                                                      on their performance under the duty to                  communities, this support was                          duty to serve rural markets.
                                                      serve.                                                  conditioned upon FHFA’s establishing                     Several commenters supported
                                                                                                              significant protections for residents. The             evaluating the Enterprises’ performance
                                                      B. Overview of Comments                                                                                        by using an evaluation methodology
                                                                                                              manufactured housing corporations and
                                                         The formal rulemaking for the duty to                trade associations generally favored                   similar to that used to evaluate
                                                      serve commenced with FHFA’s                             duty to serve consideration for                        compliance with the Community
                                                      publication of an Advance Notice of                     purchases of mortgages on investor-                    Reinvestment Act (CRA). Other
                                                      Proposed Rulemaking (ANPR), 74 FR                       owned and resident-owned                               commenters stated that the four tests for
                                                      38572 (Aug. 4, 2009).8 FHFA received                    manufactured home communities. They                    evaluation set forth in the ANPR should
                                                      100 comment letters in response. The                    commented that a dearth of new                         not necessarily be given equal weight in
                                                      majority of the commenters addressed                    manufactured home communities are                      evaluating the Enterprises’ performance.
                                                      manufactured housing. Twenty-six                        being developed, there is a shortage of
                                                      individuals, 18 nonprofit organizations,                                                                       C. Underserved Markets
                                                                                                              financing for such communities, many
                                                      11 trade associations, 11 corporations,                 communities need to refinance over the                    The duty to serve provisions in the
                                                      seven policy advocacy organizations                     next several years, and there are harmful              Safety and Soundness Act indicate that
                                                      and one government entity addressed                     effects on residents when a community                  the markets for manufactured housing,
                                                      this issue. FHFA also received                          cannot obtain financing and must                       affordable housing preservation and
                                                      comments on other issues from one                       convert to a different use.                            rural areas are underserved and in need
                                                      individual, nine nonprofit                                 FHFA received sixteen comments                      of particular assistance by the
                                                      organizations, six trade associations,                  regarding the affordable housing                       Enterprises. The extent of the lack of
                                                      one corporation, five policy advocacy                   preservation market. The commenters,                   service and some of the factors
                                                      organizations, one government agency,                   who included one trade association,                    underlying it are discussed below.
                                                      one professional association and both                   four policy advocacy organizations,                    1. Manufactured Housing
                                                      Enterprises.                                            seven nonprofit organizations, one
                                                         In addition to the comment letters,                                                                            According to Home Mortgage
                                                                                                              government agency and both
                                                      FHFA held five in-person meetings and                                                                          Disclosure Act (HMDA) data for 2008,
                                                                                                              Enterprises, addressed a range of issues.
                                                      one teleconference with manufactured                                                                           home purchase applications for
                                                                                                              Most commenters supported
                                                      housing industry representatives. These                                                                        manufactured homes are denied at three
                                                                                                              consideration under the affordable
                                                      discussions covered current secondary                                                                          times the rate that applications for site-
                                                                                                              housing preservation market for
                                                      mortgage market support for                                                                                    built homes are denied. Further, of
                                                                                                              Enterprise assistance to HUD’s
                                                      manufactured housing, the practices                                                                            those mortgages that are originated, 60
                                                                                                              Neighborhood Stabilization Program
                                                      and operations of the industry and the                                                                         percent are ‘‘higher-cost mortgages’’
                                                                                                              (NSP) and state and local foreclosure
                                                      consumer protections afforded                                                                                  under HMDA 10, whereas only 8 percent
                                                                                                              prevention programs. However, other
                                                      manufactured housing borrowers. On                                                                             of originations for site-built homes are
                                                                                                              commenters opposed consideration for
                                                      December 3, 2009, FHFA hosted a forum                                                                          higher-cost mortgages. Manufactured
                                                                                                              assistance to NSP, but did favor
                                                      on affordable housing, which was                                                                               housing borrowers may have few
                                                                                                              consideration for state and local
                                                      attended by members of the Affordable                                                                          refinancing options even if interest rates
                                                                                                              foreclosure prevention programs. A few
                                                      Housing Advisory Councils of the 12                                                                            decrease.11
                                                                                                              commenters suggested consideration for                    A number of other factors combine to
                                                      Federal Home Loan Banks. The forum                      assisting with Treasury’s loan
                                                      focused on manufactured housing and                                                                            make the manufactured housing market
                                                                                                              modification programs. Most of the                     underserved. In recent times, mortgage
                                                      rural housing issues. Summaries of the                  affordable housing advocate
                                                      forum, the meetings and the                                                                                    insurance has been generally
                                                                                                              commenters wanted less rigorous                        unavailable for manufactured homes.
                                                      teleconference are available on FHFA’s                  underwriting assumptions for properties
                                                      Web site.                                                                                                      Moreover, comparable properties,
                                                                                                              receiving Section 8 payments or other                  particularly in rural areas, can be
                                                         Commenters on the duty to serve the                  property-based HUD subsidies. There
                                                      manufactured housing market focused                                                                            difficult to identify, which makes
                                                                                                              was also strong support for more                       appraisals more difficult. Also, unlike
                                                      primarily on personal property (chattel)                interaction between the Enterprises and
                                                      loans for manufactured homes and                                                                               site-built housing, many manufactured
                                                                                                              state and local Housing Finance                        homes have been financed as personal
                                                      manufactured home community 9                           Agencies (HFAs).
                                                      financing. Fifty-seven commenters,                                                                             property, which many commenters
                                                                                                                 The majority of comments on rural                   viewed as offering terms less favorable
                                                      including most of the individuals and                   markets addressed the definition of
                                                      nonprofit organizations, opposed                                                                               to borrowers.12
                                                                                                              ‘‘rural area.’’ In the ANPR, FHFA
                                                      consideration for chattel loans, or would               requested comment on three definitions                   10 For the 2008 reporting year, lenders reported
                                                      limit consideration of such loans to                    of ‘‘rural area.’’ While some commenters               the difference between the loan’s annual percentage
                                                      instances in which they were backed by                  supported at least one of those three                  rate (APR) and the yield on Treasury securities
                                                      rigorous consumer protections.                          definitions, more than half of the                     having comparable periods of maturity, if that
                                                         With regard to manufactured home                                                                            difference is equal to or greater than 3 percentage
                                                                                                              commenters on this issue supported                     points for loans secured by a first lien on a
                                                      communities, individuals, nonprofit                     adoption of the definition of ‘‘rural area’’           dwelling, or equal to or greater than 5 percentage
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                                                      organizations, and policy advocacy                      from the Housing Act of 1949, which                    points for loans secured by a subordinate lien on
                                                      groups expressed concern about the lack                 was not one of the definitions identified              a dwelling. See 67 FR 43218 (June 27, 2002).
                                                      of tenant protections in communities                    in the ANPR. These commenters, all of
                                                                                                                                                                       11 Jon Thompson, ‘‘Manufactured housing: An

                                                      owned by investors. Although some                                                                              expected beneficiary from subprime mortgage
                                                                                                              whom are involved in rural housing                     disruption,’’ p. 3. (Advantus Capital Management,
                                                      commenters favored consideration for                    mortgage lending or development, are                   4th Qtr. 2007), available at http://
                                                                                                              familiar with this definition and use it               www.advantuscapital.com/adv/pdf/F67229.pdf.
                                                        8 74 FR 38572 (Aug. 4, 2009).                                                                                  12 Manufactured housing industry commenters
                                                        9 Inthis rulemaking FHFA is using the term
                                                                                                              within their organizations. The                        asserted there could be advantages to personal
                                                      ‘‘manufactured home communities’’ to mean               comments received and the merits of the                property mortgages. The Manufactured Housing
                                                      ‘‘manufactured home parks.’’                            different definitions are analyzed in                                                            Continued




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

                                                      2. Affordable Housing Preservation                       Keeping these units in the housing stock                D. Market-by-Market Considerations
                                                         Affordable housing is preserved when                  at reasonable rents can be more cost-
                                                                                                                                                                       1. Manufactured Housing Market—
                                                      an owner acts to keep rents affordable                   effective than building new subsidized
                                                                                                                                                                       Proposed § 1282.32
                                                      for low- and moderate-income                             units.15 One way to achieve this is to
                                                                                                               make financing for affordable housing                      Section 1335 of the Safety and
                                                      households while ensuring that the
                                                                                                               preservation available on better terms.                 Soundness Act requires the Enterprises
                                                      property remains in good physical and
                                                                                                                                                                       to ‘‘develop loan products and flexible
                                                      financial condition for an extended                      3. Rural Areas                                          underwriting guidelines to facilitate a
                                                      period.13 While affordable housing
                                                                                                                  Practitioners and researchers have                   secondary market for mortgages on
                                                      preservation is often associated with
                                                                                                               identified a number of long-standing                    manufactured homes for very low-,
                                                      programs to help existing subsidized
                                                                                                               impediments to affordable housing in                    low-, and moderate-income families.’’ 12
                                                      properties remain financially viable, it
                                                                                                               rural areas. One impediment is the                      U.S.C. 4565(a)(1)(A). Manufactured
                                                      also encompasses efforts to keep
                                                                                                               lower population density, which may                     housing could be an important housing
                                                      unsubsidized properties in good
                                                                                                               prevent developers and operators from                   option for lower-income families.
                                                      condition while maintaining
                                                                                                               taking advantage of economies of scale                  Nearly half of all loans originated on
                                                      affordability for low- and moderate-
                                                                                                               in developing affordable housing in                     manufactured homes from 2004 to 2008
                                                      income households. Many owners of
                                                                                                               rural areas.16 In addition, rural areas                 were for families with incomes at or
                                                      subsidized properties face the need to
                                                                                                               often have fewer nonprofit housing                      below 80 percent of area median income
                                                      refinance the loans on their properties,
                                                                                                               development corporations with the                       (AMI).20 Manufactured housing also
                                                      either because the original financing is
                                                                                                               capacity to handle complicated                          costs less initially than site-built
                                                      nearing maturity or because they need
                                                                                                               government subsidy programs and the                     housing. Manufactured homes tend to
                                                      to obtain equity from the property to
                                                                                                               long and difficult housing development                  be much smaller, which significantly
                                                      perform major upgrades and repairs.
                                                                                                               process.17 Many smaller communities                     reduces the price of the home.21 In
                                                      Congressional hearings have highlighted
                                                                                                               and governments have difficulty                         addition, the average price per square
                                                      the problems in this area.14
                                                         A variety of factors make the                         funding public utilities essential to                   foot of a new site-built home in 2008,
                                                      affordable housing preservation market                   constructing housing. Moreover, there                   exclusive of the cost of the land, was
                                                      difficult to serve. For example, the                     are fewer lenders in rural areas than in                more than double that of a double-wide
                                                      disruptions in the financial markets and                 metropolitan areas, and rural lenders                   manufactured home.22
                                                                                                               may lack the back office capacity and                      Investors have been cautious about
                                                      the general lowering in value of Low
                                                                                                               the necessary scale of volume to                        manufactured housing in the wake of
                                                      Income Housing Tax Credits (LIHTCs)
                                                                                                               effectively sell mortgages in the                       market disruptions at the end of the
                                                      affect some of the programs that the
                                                                                                               secondary market.                                       1990s and the beginning of this decade,
                                                      Enterprises are required to assist.
                                                                                                                  In 2007, the Housing Assistance                      particularly in light of the demise of
                                                      Transactions in many of the enumerated
                                                                                                               Council (HAC) testified that ‘‘[n]early                 some of the larger specialized
                                                      programs are generally project specific,
                                                                                                               3.6 million rural households are cost                   manufactured housing lenders. More
                                                      involving multiple sources for debt and
                                                                                                               burdened, paying more than 30 percent                   recently, shortages of warehouse lines of
                                                      equity. Structuring is often complex,
                                                                                                               of their monthly income for housing                     credit, downgrades of existing asset-
                                                      and the transaction process is often
                                                                                                               costs.’’ 18 HAC further testified that less             backed securities 23 and difficulties with
                                                      difficult and lengthy.
                                                                                                               than 16 percent of the rural population                 bond insurance 24 have added to
                                                         Units lacking rental assistance, which
                                                                                                               is minority; however, this population                   concerns.25
                                                      are often in older and/or small
                                                      multifamily properties, provide a                        was disproportionately affected by poor
                                                                                                               housing conditions, as rural minorities                 http://frwebgate.access.gpo.gov/cgi-bin/
                                                      significant share of housing affordable                                                                          getdoc.cgi?dbname=110_house_
                                                      to low- and moderate-income families.                    are more likely than rural whites to live               hearings&docid=f:37205.pdf.
                                                                                                               in substandard housing.19                                  20 This assessment is based on HMDA data from

                                                      Institute, for example, suggested: (1) The overall                                                               2004–2008, exclusive of HOEPA mortgages and
                                                      principal loan amount is more affordable due to the
                                                                                                                  15 See National Housing Trust, ‘‘Affordable          mortgages lacking borrower income information.
                                                      absence of land in the transaction; (2) no appraisal,    Housing Preservation FAQs’’ (2010), available at           21 The average size of a site-built house in 2008

                                                      survey or private mortgage insurance is necessary,       http://www.nhtinc.org/preservation_faq.php.             was 2,459 square feet, whereas the average square
                                                      which lowers closing costs; (3) the customer does           16 See generally National Rural Housing Coalition,   footage of a single-wide manufactured home was
                                                      not encumber any real property; (4) tax, titling fees,   ‘‘Preserving Rural America’s Affordable Rental          1,105 square feet and the average square footage of
                                                      homeowners insurance and service warranties can          Housing’’ (Oct. 2004), available at http://             a double-wide manufactured home was 1,775
                                                      be financed; and (5) the transaction is generally        www.nrhcweb.org/news/515PreservationReport.pdf;         square feet. See U.S. Bureau of the Census, ‘‘Cost
                                                      faster.                                                  E. Bolda, et al., ‘‘Creating Affordable Rural Housing   & Size Comparisons for New Manufactured Homes
                                                        13 See ‘‘Window of Opportunity—Preserving              with Services: Options and Strategies,’’ Working        and New Single Family Site Built Homes’’ (2004–
                                                      Affordable Housing’’ p. 6 (MacArthur Foundation,         Paper #19 (Apr. 2000), available at http://             2008), available at http://www.census.gov/const/
                                                      Nov. 2007), available at http://www.macfound.org/        muskie.usm.maine.edu/Publications/rural/                mhs/sitebuiltvsmh.pdf.
                                                      atf/cf/%7BB0386CE3-8B29-4162-8098-                       WP%2319.pdf.                                               22 In 2008, the average price per square foot for

                                                      E466FB856794%7D/MAC_1107_Singles.pdf.                       17 See Joe Myer, ‘‘Developing Rural Housing          a new site-built home was $88.55 and for a new
                                                        14 See e.g., ‘‘Affordable Housing Preservation,’’      Despite the Obstacles—Why It is Hard to Build           double-wide manufactured home was $42.87. See
                                                      Hearing before the Subcomm. on Housing and               Affordable Housing in Rural Delaware’’ (Winter          id.
                                                      Transportation of the Senate Comm. on Banking,           2002), available at http://www.housingforall.org/          23 See generally Standard & Poor’s, ‘‘Ratings

                                                      Housing, and Urban Affairs, 107th Cong., 2nd Sess.       housing_in_rural_de.htm.                                Roundup: Monoline and Financial Institution
                                                                                                                                                                       Rating Volatility Drive Fourth-Quarter U.S. ABS
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                                                                                                                  18 Statement of Moises Loza, Housing Assistance
                                                      (Oct. 9, 2002) (S. Hearing 107–1014), available at
                                                      http://www.gpo.gov/congress/senate/pdf/107hrg/           Council, before the Subcomm. on Housing and             Downgrades’’ (Jan. 28, 2009), available at http://
                                                      90543.pdf; ‘‘Legislative Options for Preserving          Community Development, U.S. House of                    www.ambac.com/pdfs/RA/
                                                      Federally- and State-assisted Affordable Housing         Representatives (May 8, 2007), available at http://     Volatility%20Drive%20Fourth-
                                                      and Preventing Displacement of Low-Income,               financialservices.house.gov/hearing110/                 Quarter%20U.S.%20ABS%20Downgrades%20(01-
                                                      Elderly, and Disabled Tenants,’’ Hearing Before the      htloza050807.pdf.                                       28-09).pdf.
                                                                                                                                                                          24 See generally Standard & Poor’s, ‘‘S&P various
                                                      Subcomm. on Housing & Community Opportunities               19 ‘‘Rural Housing Programs: Review of Fiscal

                                                      of the House Comm. on Financial Services, 111th          Year 2008 Budget and Pending Rural Housing              actions on 182 U.S. rtgs after Ambac downgrade’’
                                                      Cong., 1st Sess. (July 15, 2009) (Serial No. 111–59),    Legislation,’’ Hearing Before the Subcomm. on           (July 8, 2009), available at http://www.reuters.com/
                                                      available at http://frwebgate.access.gpo.gov/cgi-bin/    Housing & Community Opportunities of the House          article/idUSWNA860120090708.
                                                      getdoc.cgi?dbname=111_house_hearings&                    Comm. on Financial Services, 110th Cong., 1st Sess.        25 As an illustration of the recent market,

                                                      docid=f:53239.wais.                                      28 (May 8, 2007) (Serial No. 110–27), available at      according to Origen Financial Services, the lack of



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

                                                        Manufactured housing could be an                      Enterprises, even though manufactured                     Seventy-six commenters addressed
                                                      option for very low- and low-income                     housing has historically represented                   the appropriateness of Enterprise
                                                      families who reside in rural areas.                     approximately 10 to 15 percent of the                  support for personal property (chattel)
                                                      HMDA data for 2008 show that 15                         single-family housing market. The fact                 loans on manufactured homes.
                                                      percent of all loan originations on                     that the majority of manufactured home                 Organizations representing consumers
                                                      manufactured homes in rural areas were                  loans were not financed as real property               and manufactured home community
                                                      for families with incomes at or below 50                helps to explain why manufactured                      residents expressed serious reservations
                                                      percent of AMI, and another 29 percent                  home loans constitute a small share of                 about chattel lending. CFED, for
                                                      were for families with incomes greater                  the Enterprises’ business.                             example, stated that chattel loans
                                                      than 50 percent but at or below 80                        HMDA data do not specify the portion                 provide low-income families with
                                                      percent of AMI. From 2004 through                       of these manufactured home loans that                  higher rates, less optimal terms and
                                                      2008, loan originations on manufactured                 are financed as chattel, but the U.S.                  reduced consumer protections, as
                                                      homes in rural areas were more than                     Census Bureau reported that in 2008, 63                compared to a mortgage loan, and this
                                                      double loan originations on                             percent of new manufactured homes                      was echoed in other comment letters.
                                                      manufactured homes in non-rural areas.                  placed for residential use were titled as                 Manufactured housing industry
                                                      Nearly half of all manufactured housing                 personal property.27                                   commenters asserted that manufactured
                                                      loans in rural areas during that time                     In the ANPR, FHFA invited comment                    housing financed as chattel provides a
                                                      period were for families whose incomes                  on the appropriate treatment under the                 low cost housing option for lower-
                                                      were 80 percent or less of AMI.                         duty to serve the manufactured housing                 income borrowers, and that the
                                                        One study explained the importance                    market for personal property loans,                    secondary market for these loans is
                                                      of manufactured housing to rural areas                  land-home loans, real estate loans and                 limited. These industry commenters
                                                      this way:                                               loans for manufactured home                            largely supported providing duty to
                                                                                                              communities. The comments are                          serve consideration for Enterprise
                                                         The prevalence of manufactured housing
                                                                                                              discussed in the relevant sections                     purchase of chattel loans and suggested
                                                      in rural areas is in part a reflection of the
                                                      costs and logistical challenges of site-built           below.                                                 that the Enterprises purchase them on a
                                                      construction on relatively remote and                     Personal Property Loans. Section                     flow basis and in significant
                                                      scattered sites. It is also due to rural                1335(d)(3) of the Safety and Soundness                 quantities.28
                                                      residents’ generally lower incomes, and to              Act provides that in determining                          In proposing that only loans titled as
                                                      the challenge of arranging standard mortgage            whether the Enterprises have complied                  real property be considered towards the
                                                      financing for lots and land uses that do not            with the duty to serve the manufactured                duty to serve, FHFA recognizes that
                                                      conform to customary mortgage-underwriting              housing market, ‘‘the Director may                     manufactured housing financing often
                                                      criteria. Part of manufactured housing’s                consider loans secured by both real and                differs from financing for site-built
                                                      appeal, in fact, lies in the ease with which            personal property.’’ 12 U.S.C. 4565(d)(3).             homes. Interest rates charged for chattel
                                                      units can be sited, a characteristic that is            FHFA is proposing that only loans titled               loans are typically higher than those for
                                                      particularly important in areas lacking well
                                                                                                              as real property be considered towards                 real estate-secured loans.29 Normally,
                                                      developed construction and trade sectors.
                                                      Manufactured housing’s popularity in rural              the Enterprise’s duty to serve.                        chattel loans have shorter maturities
                                                      areas also results from a lack of affordable              Neither Enterprise has an ongoing                    and offer fewer consumer protections
                                                      housing options, such as multifamily rental             business activity of purchasing chattel                than real property loans. In several
                                                      units, which are rarely developed at a cost-            loans, although at least one of them has               states, manufactured homes cannot be
                                                      effective scale in low-density settings.26              made limited bulk purchases of such                    titled as real property 30 and, as a result,
                                                        The Enterprises have not been major                   loans in the past. Purchasing or
                                                      investors in manufactured housing                       guaranteeing chattel loans would                          28 The Enterprises generally acquire single-family

                                                                                                              require each Enterprise to develop                     mortgage loans for securitization or for portfolio
                                                      mortgages in recent years. Some                                                                                through either ‘‘flow’’ or ‘‘bulk’’ transaction
                                                                                                              operational capacities and risk
                                                      industry commenters observed that                                                                              channels. In the flow business, which represents
                                                                                                              management processes not currently in                  the majority of their mortgage acquisitions, the
                                                      manufactured housing loans are
                                                                                                              place. Moreover, to ensure that such                   Enterprises typically enter into agreements that
                                                      significantly under-represented in the                                                                         generally set agreed-upon guaranty fee prices for a
                                                                                                              lending was done responsibly would
                                                      Enterprises’ mortgage portfolios in                                                                            lender’s future delivery of individual loans over a
                                                                                                              require each Enterprise to develop an
                                                      comparison with site-built homes. In                                                                           specified time period. Bulk business involves
                                                                                                              extensive set of consumer protection                   transactions in which a defined set of loans is to
                                                      particular, the Manufactured Housing
                                                                                                              requirements. Thus, FHFA proposes                      be delivered in bulk, a process which allows the
                                                      Association for Regulatory Reform                                                                              Enterprises to review the loans for eligibility and
                                                                                                              that chattel loans on manufactured
                                                      (MHARR) commented that                                                                                         pricing prior to delivery in accordance with the
                                                                                                              homes not be considered towards the                    terms of the applicable contracts. Guaranty fees and
                                                      manufactured housing loans now
                                                                                                              duty to serve the manufactured housing                 other contract terms for bulk mortgage acquisitions
                                                      constitute less than one percent of the                 market as these loans are inconsistent                 are negotiated on an individual transaction basis,
                                                      total business portfolios of both                       with Enterprise conservatorship and                    thereby enabling the Enterprises to adjust pricing
                                                                                                                                                                     more rapidly than in a flow transaction to reflect
                                                                                                              would require substantial new efforts by               changes in market conditions and the credit risk of
                                                      a reliable source for a loan warehouse facility and
                                                      the uncertainty of the availability of an exit in the   the Enterprises to ensure safe and sound               the specific transactions.
                                                      securitization market caused it to stop originating     operations and sustainable                                29 See Ronald A. Wirtz, ‘‘Home, sweet

                                                      loans for its own account and sell its portfolio of     homeownership for families.                            (manufactured?) home’’ Fedgazette (July 2005),
                                                      unsecuritized loans at a substantial loss. See Origen                                                          available at http://www.minneapolisfed.org/pubs/
                                                                                                                The following paragraphs describe the
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                                                      Financial, Inc., Annual Report on Form 10–K, as                                                                fedgaz/05-07/cover.cfm. Annual percentage rates
                                                      Amended, For the Fiscal Year Ended December 31,
                                                                                                              widely divergent views FHFA received                   may also be higher. For example, in 2007 one
                                                      2008, p. 2, available at http://                        on this topic in response to the ANPR                  lender advertised an average annual percentage rate
                                                      www.origenfinancial.com/sites/default/files/            and the bases for the proposed                         of 10.14 percent for its chattel loans and an average
                                                      as_printed_Origen_10-K.pdf.                                                                                    annual percentage rate of 7.54 percent for its real
                                                                                                              exclusion of chattel loans.                            estate-secured loans. See ‘‘Tammac Manufactured
                                                        26 Neighborhood Reinvestment Corporation, ‘‘An                                                               Housing Advantage’’ (2007), available at http://
                                                      Examination of Manufactured Housing as a                   27 See U.S. Bureau of the Census, ‘‘Cost & Size     www.cdscreative.com/images/portfolio/tammac-
                                                      Community-and Asset-Building Strategy,’’ p. 6           Comparisons For New Manufactured Homes and             holdings.pdf.
                                                      (Sept. 2002), available at http://                      New Single Family Site Built Homes (2004–2008),’’         30 More than 40 states reportedly provide for

                                                      www.jchs.harvard.edu/publications/                      available at http://www.census.gov/const/mhs/          conversion to real estate titles for manufactured
                                                      communitydevelopment/W02–11_apgar_et_al.pdf.            sitebuiltvsmh.pdf.                                                                                 Continued




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

                                                      are not afforded certain borrower                        requiring that lease terms extend five                  Lehman Brothers estimated the
                                                      protections that apply when loans are                    years beyond the term of the loan.33                    expected annual depreciation rate at
                                                      secured by real property. Delinquencies                     Commenters also emphasized the                       three to four percent annually.37
                                                      and defaults on chattel loans typically                  importance of RESPA-like protections                    Likewise, Abt Associates noted that
                                                      exceed rates on mortgage loans.31                        for chattel loans. However, developing                  ‘‘[m]anufactured housing where the
                                                                                                               such protections may require legislative                household does not own the lot is not
                                                        Sustainable homeownership results,                     and regulatory changes beyond the                       an investment in any sense * * * [i]t
                                                      in part, from the enforcement of                         scope of the duty to serve.                             should be thought of as a type of
                                                      appropriate consumer protections.                           The Enterprises have minimal                         consumer durable.’’ 38 The Office of
                                                      Consumer organizations and some                          experience with chattel financing, and                  Thrift Supervision cautioned lenders
                                                      manufactured home resident                               the high level of defaults related to such              engaged in manufactured housing
                                                      organizations were particularly                          financing creates significant credit and                finance to carefully manage the risk of
                                                      concerned that the Real Estate                           operational risks.34 The depreciation in                collateral depreciation for the homes.39
                                                      Settlement Procedures Act (RESPA),                       the value of the manufactured home                         Upon consideration of the risks facing
                                                      which requires that consumers receive                    could result in greater loss to the                     the borrowers and the Enterprises,
                                                      an estimate of costs prior to closing and                Enterprise in the event of default on the               FHFA proposes that only Enterprise
                                                      which prohibits payment of referral fees                 loan.35 Manufactured homes are                          purchases of mortgages on
                                                      among settlement providers, does not                     generally regarded as depreciating                      manufactured homes titled as real
                                                      apply to chattel loans. The National                     assets, even in a strong market                         property and activities related to such
                                                      Consumer Law Center commented that                       environment.36 A 2005 report by                         mortgages be considered toward the
                                                      the distinction between real property                                                                            duty to serve the manufactured housing
                                                      and personal property is especially
                                                                                                                  33 For a discussion of consumer concerns about
                                                                                                                                                                       market. Enterprise purchases of chattel
                                                                                                               the origination and servicing of manufactured           mortgages or other mortgages not titled
                                                      important upon default because if a                      housing mortgages, see generally S. West,
                                                      home is personal property rather than                    ‘‘Manufactured Housing Finance and the Secondary        as real estate, and any activity related to
                                                      real property, the rights of the creditor                Market,’’ Vol. 2, Issue 1, Community Development        such mortgages, would not be
                                                      are governed by Article 9 of the Uniform                 Investment Review 39 (2006) (Federal Reserve Bank       considered. The proposed rule would
                                                                                                               of San Francisco), available at http://www.frbsf.org/   define ‘‘manufactured home’’ in
                                                      Commercial Code and the home may be                      publications/community/review/062006/west.pdf
                                                      subject to self-help repossession.32                     (Current financing of manufactured housing is           accordance with the definition of
                                                      Further, the National Consumer Law                       expensive; the secondary market for manufactured        ‘‘manufactured home’’ used by HUD
                                                                                                               housing mortgages must include the Enterprises          under section 603(6) of the
                                                      Center commented that if the home is                     and strategies to reduce investor risk.); A. Schmitz,   Manufactured Home Construction and
                                                      real property, upon default most states                  ‘‘Promoting the Promise Manufactured Homes
                                                                                                               Provide for Affordable Housing,’’ 13 Journal of         Safety Standards Act of 1974, as
                                                      require that the creditor use the                                                                                amended, 42 U.S.C. 5402(6), and
                                                                                                               Affordable Housing 384 (No. 3) (Spring 2004),
                                                      foreclosure process.                                     available at http://lawweb.colorado.edu/profiles/       implementing regulations.40
                                                        Commenters suggested that if FHFA                      pubpdfs/schmitz/SchmitzAHCDL.pdf (State laws               FHFA has determined that very
                                                                                                               differ with respect to real and personal property
                                                      determines that manufactured homes                       financing and with respect to corresponding
                                                                                                                                                                       low-, low- and moderate-income
                                                      secured by chattel loans be considered,                  consumer protection provisions; the relatively small    families can be best served through
                                                      FHFA should require borrower                             number of manufactured housing lenders allows           manufactured housing titled as real
                                                      protections such as: (i) Capping the                     them to garner bargaining power over consumers          property and that the Enterprises, as
                                                                                                               and has led to predatory financing.).
                                                      annual percentage rate (APR) at 3.5                         34 By letter dated February 2, 2010, FHFA advised
                                                                                                                                                                       part of their mission to increase the
                                                      points above the prime rate; (ii) banning                Congress of its concerns about new Enterprise           liquidity of mortgages to low- and
                                                      prepayment penalties; (iii) banning                      initiatives that could require entry into new           moderate-income families, can play a
                                                      yield spread premiums; and (iv)                          business lines with little prior experience or the      significant role in serving this segment
                                                                                                               dedication of Enterprise personnel already              of the market. In addition, the safe and
                                                                                                               operating in a stressed environment. See Letter to
                                                      homes. See Cathy Adkins, ‘‘Manufactured Housing:         Congress at 7.
                                                                                                                                                                       sound operations of the Enterprises in
                                                      Not What You Think’’ (National Conference of State          35 One manufactured housing lender observed:         conservatorship are better protected
                                                      Legislatures, Apr. 2007), available at http://           ‘‘The value of manufactured houses has tended to
                                                      www.ncsl.org/default.aspx?tabid=12742.                   depreciate over time * * * rapid depreciation may       difficulties for investors of RMBS since the greatest
                                                        31 See generally Michael Koss, ‘‘Manufactured          cause the fair market value of borrowers’               recovery value is in the land, not the structure.’’).
                                                      Housing ABS—Valuation in a Troubled Sector,’’ p.         manufactured houses to be less than the                    37 See Michael Koss, ‘‘Manufactured Housing
                                                      22 (Feb. 9, 2005) (Lehman Brothers Fixed-Income          outstanding balance of their loans. In cases where      ABS—Valuation in a Troubled Sector,’’ p. 13 (Feb.
                                                      Research) (regarding the performance of different        borrowers have negative equity in their houses, they    9, 2005) (Lehman Brothers Fixed-Income Research).
                                                      types of manufactured housing collateral). Origen        may not be able to resell their manufactured houses     Advantus Capital views manufactured homes as
                                                      Financial Services, LLC, commented that the              for enough money to repay their loans and may           depreciating like a car depreciates. See Jon
                                                      Enterprises frequently object to purchasing chattel      have less incentive to continue to repay their loans,   Thomson, ‘‘Manufactured housing: An expected
                                                      loans because of their high default rates and that       which may lead to increased delinquencies and           beneficiary from subprime mortgage disruption’’ 3
                                                      about 30 percent of chattel loans fail during the life   defaults.’’ Origen Financial, Inc., Annual Report on    (Advantus Capital Management, 4th Qtr. 2007),
                                                      of the loan.                                             Form 10–K, as Amended, for the Fiscal Year Ended        available at http://www.advantuscapital.com/adv/
                                                        32 For information on consumer protections under       December 31, 2008, p. 7, available at http://           pdf/F67229.pdf.
                                                      repossession, see Government Accountability              www.origenfinancial.com/sites/default/files/as_            38 T. Boehm & A. Schlottmann, ‘‘Is Manufactured

                                                      Office, ‘‘Federal Housing Administration—Agency          printed_Origen_10-K.pdf.                                Housing a Good Alternative for Low-Income
                                                      Should Assess the Effects of Proposed Changes to            36 See S. Nelson & G. Bailey, ‘‘Manufactured         Families? Evidence from the American Housing
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                                                      the Manufactured Home Loan Program,’’ GAO–07–            Housing RMBS Performance Update,’’ p. 1 (Nov. 17,       Survey,’’ p. 50 (December 2004), available at
                                                      879, 26–27 (Aug. 2007), available at http://             2009) (Fitch Ratings). See also Consumer                http://www.huduser.org/Publications/pdf/
                                                      www.gao.gov/new.items/d07879.pdf. See generally          Federation of America, ‘‘The Promise and Pitfalls of    IsManufacturedHousingAGoodAlternativeForLow-
                                                      A. Schmitz, ‘‘Promoting the Promise Manufactured         Building Wealth through Manufactured Housing,’’         IncomeFamiliesEvidence
                                                      Homes Provide for Affordable Housing,’’ 13 Journal       p. 2–3 (http://content.knowledgeplex.org/kp2/           FromTheAmericanHousingSurvey.pdf
                                                      of Affordable Housing 394–395 (No. 3) (Spring            cache/documents/1895/189501.pdf; April 2006),              39 See Office of Thrift Supervision, Examination

                                                      2004), available at http://lawweb.colorado.edu/          available at Dominion Bond Rating Service,              Handbook, 212.25 (Sept. 2008), available at
                                                      profiles/pubpdfs/schmitz/SchmitzAHCDL.pdf;               ‘‘Methodology—Rating U.S. Residential Mortgage-         http://files.ots.treas.gov/422320.pdf.
                                                      Consumers Union, ‘‘Manufactured housing: A home          Backed Securities Transactions,’’ p. 22 (Apr. 2009),       40 This definition is consistent with the definition

                                                      that the law still treats like a car’’ (Feb. 2005),      available at http://www.dbrs.com/research/227912/       of ‘‘manufactured housing’’ in FHFA’s regulation
                                                      available at http://www.consumersunion.org/mh/           rating-u-s-residential-mortgage-backed-securities-      governing Federal Home Loan Bank advances to
                                                      docs/Feb2005.pdf.                                        transactions.pdf (‘‘Historically, chattel paper posed   members, at 12 CFR 950.1.



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                                                                                Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules                                                       32105

                                                      when real estate is pledged as collateral               tenants vulnerable to a variety of                       (ii) Rental increases on the lot where
                                                      for the mortgage loan.                                  difficulties, including unexpectedly                   the home is sited would be governed by
                                                         Other Types of Manufactured Home                     high rental increases and conversions of               formulas based on published, third
                                                      Loans. In the ANPR, FHFA requested                      communities to other uses with the                     party indices;
                                                      comment on definitions for land-home                    resulting displacement of tenants.                       (iii) Residents would be notified
                                                      loans. FHFA has reviewed the                            Enterprise support for housing under                   significantly in advance of any sale of
                                                      comments received and literature on                     these circumstances would not be                       the community by the owner and would
                                                      land-home loans and found no universal                  consistent with the intent of the duty to              have a collective right of first refusal to
                                                      agreement on terminology or                             serve.                                                 purchase the community;
                                                      definitions. Fannie Mae commented that                     The ANPR solicited comments on                        (iv) Residents would have the right to
                                                      it ‘‘has many years of experience                       whether and how Enterprise assistance                  sell their homes in place to persons of
                                                      purchasing loans secured by real                        for manufactured home communities                      their choosing; and
                                                      property manufactured housing,                          should be considered for purposes of                     (v) Residents would have the right to
                                                      sometimes called ‘land home’                            the duty to serve the manufactured                     form resident associations and conduct
                                                      mortgages.’’ The Manufactured Housing                   housing market and whether there                       resident meetings.
                                                      Institute (MHI) described ‘‘land-home                   should be differences in how resident-                   In light of the potential for
                                                      non-conforming mortgage loans’’ as                      owned and investor-owned                               manufactured home communities to
                                                      including both the acquisition of the                   communities are treated. Eighty-four                   provide affordable housing to very
                                                      home and the land as part of the loan                   commenters addressed this issue. There                 low-, low- and moderate-income
                                                      transaction, but as not conforming to                   was support from most commenters for                   families, FHFA solicits comment on
                                                      one or more of the Enterprises’                         considering assistance to resident-                    whether assistance to manufactured
                                                      underwriting requirements. According                    owned communities. Commenters did                      home communities should be
                                                      to MHI, there is a separate classification              not cite resident protection issues in                 considered for purposes of the duty to
                                                      of ‘‘real property conforming mortgage                  connection with these types of                         serve the manufactured housing market.
                                                      loans,’’ which includes both the                        communities. To the contrary,                          FHFA particularly encourages
                                                      acquisition of the home and the land as                 community, resident and consumer                       comments on the safety and soundness
                                                      part of the loan transaction and meets                  advocacy organizations suggested that                  of financing, distinctions between
                                                      the Enterprises’ underwriting                           Enterprise assistance with resident-                   investor-owned and resident-owned
                                                      requirements.                                           owned communities would support                        communities, and the potential to
                                                         With some manufactured housing                       affordable housing for lower-income                    ensure appropriate consumer
                                                      financing transactions, a single loan is                families. ROC USA commented that                       protections in conjunction with such
                                                      secured by separate liens against the                   after 25 years and over $150 million in                assistance.
                                                      home and against the real estate on
                                                                                                              originations for resident-owned                        2. Affordable Housing Preservation
                                                      which the home is sited. In the event of
                                                                                                              communities, it had ‘‘not had a single                 Market—Proposed § 1282.33
                                                      a default, this arrangement provides the
                                                                                                              loan lost or charged off.’’
                                                      lender with the option of proceeding                                                                              Affordable housing preservation
                                                                                                                 Several commenters stated that this
                                                      against either the home or the real                                                                            focuses primarily on ‘‘at risk properties.’’
                                                                                                              market faces significant difficulties. The
                                                      estate, whichever is most advantageous.                                                                        A property becomes ‘‘at risk’’ ‘‘either
                                                                                                              commenters indicated that there is a
                                                      These types of transactions would not                                                                          when its rent affordability restrictions
                                                                                                              shortage of financing for manufactured
                                                      be considered under the proposed rule,                                                                         expire, or because mismanagement or
                                                                                                              home communities, many communities
                                                      but FHFA welcomes further comment as                                                                           disinvestment cause [sic] the property to
                                                                                                              need to refinance over the next several
                                                      to their relative merits in serving very                                                                       deteriorate and become unsafe or
                                                      low-, low- and moderate-income                          years, few new communities are being
                                                                                                              developed and residents face                           uninhabitable.’’ 42 Across the country,
                                                      families in the manufactured housing                                                                           thousands of multifamily properties
                                                      market.                                                 dislocation when a community cannot
                                                                                                              obtain financing and must convert to a                 with federal, state or local subsidies or
                                                         Manufactured Home Communities.                                                                              financing are at risk of conversion to
                                                      Enterprise assistance to manufactured                   different use.41 In addition, commenters
                                                                                                              stated that manufactured home                          market rate rents, obsolescence, or
                                                      home communities would not be                                                                                  foreclosure, if owners are unable to
                                                      considered for purposes of the duty to                  communities are analogous to
                                                                                                              multifamily properties in providing                    refinance loans. The Enterprises can
                                                      serve the manufactured housing market                                                                          play an important role in preserving
                                                      in the proposed rule.                                   affordable housing and that multifamily
                                                                                                              properties receive significant support                 affordable multifamily properties by
                                                         Although some manufactured home
                                                                                                              from the Enterprises.                                  offering owners refinancing alternatives
                                                      communities may include units owned
                                                                                                                 However, many resident and                          to Federal Housing Administration
                                                      by the community that are rented to
                                                                                                              consumer advocacy commenters                           (FHA), state and local financing
                                                      tenants, manufactured home
                                                                                                              identified certain tenant protections that             programs.
                                                      communities generally provide siting                                                                              Section 1335(a)(1)(B) of the Safety and
                                                      for chattel financed homes, and for the                 would be necessary in conjunction with
                                                                                                              providing assistance to manufactured                   Soundness Act requires the Enterprises
                                                      reasons discussed previously, the                                                                              to ‘‘develop loan products and flexible
                                                      proposed rule would not allow for                       home communities including
                                                                                                              requirements that:                                     underwriting guidelines to facilitate a
                                                      consideration for assistance to
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                                                                                                                 (i) The term of the lease on the lot                secondary market to preserve housing
                                                      manufactured homes not titled as real                                                                          affordable to very low-, low-, and
                                                      property. Advocacy organizations                        where the home is sited is tied to the
                                                      representing tenants highlighted                        term of the mortgage on the                               42 Stewards of Affordable Housing for the Future,
                                                      significant concerns about the                          manufactured home;                                     ‘‘Housing at Risk’’, available at http://
                                                      vulnerability of tenants in investor-                                                                          www.poah.org/about/at-risk.htm. According to
                                                                                                                 41 A different view was expressed by Hometown       HUD, the general definition of ‘‘affordability’’ is for
                                                      owned communities. In their view,
                                                                                                              American Communities, who commented that               a household to pay no more than 30 percent of its
                                                      short-term leases, in combination with                  financing for manufactured home communities is         annual income on housing. See http://
                                                      the expense and difficulty involved in                  generally available including from various life        www.hud.gov/offices/cpd/affordablehousing/
                                                      relocating a manufactured home, made                    insurance companies.                                   index.cfm.



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                                                      32106                     Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules

                                                      moderate-income families,’’ including                   may not be as competitive as some FHA                  addition, the letter suggested that the
                                                      assistance to housing projects under the                programs. The Enterprises have several                 Enterprises may give better treatment for
                                                      following programs:                                     loan products already in place for                     the debt service coverage ratios and the
                                                         i. The project-based and tenant-based                refinancing loans on Section 8                         loan-to-value ratios for non-subsidized
                                                      rental assistance programs under                        properties and Sections 236 and 202                    or LIHTC-only projects than they do for
                                                      Section 8 of the United States Housing                  loans. The properties refinanced under                 projects subsidized under Section 8,
                                                      Act of 1937 (42 U.S.C. 1437f);                          these programs are more numerous than                  which may be a disincentive for
                                                         ii. The program under Section 236 of                 properties refinanced pursuant to other                financing of Section 8 projects.
                                                      the National Housing Act (rental and                    enumerated programs, and their                            Section 236. Both Enterprises
                                                      cooperative housing for lower income                    financing structure is more immediately                currently have programs for purchasing
                                                      families) (12 U.S.C. 1715z-1);                          suited to the Enterprises’ existing                    refinance mortgages on Section 236
                                                         iii. The below-market interest rate                  operations. Other enumerated programs                  below-market interest rate (BMIR) loans.
                                                      mortgage program under Section                          may require additional time for the                    HUD’s Section 236 program, also known
                                                      221(d)(4) of the National Housing Act                   Enterprise to tailor financing and other               as Section 236 Decoupling, permits an
                                                      (housing for moderate-income and                        assistance, in particular, Section                     owner to refinance into a conventional
                                                      displaced families) (12 U.S.C. 1715l);                  221(d)(4), Section 811 and Section 515                 multifamily mortgage while maintaining
                                                         iv. The supportive housing for the                   programs, the McKinney-Vento                           the interest rate subsidy provided by
                                                      elderly program under Section 202 of                    Homeless Assistance Act and LIHTCs.                    HUD. The HUD subsidy is referred to as
                                                      the Housing Act of 1959 (12 U.S.C.                      In some or all of these cases, developing              Interest Reduction Payments (IRPs), and
                                                      1701q);                                                 or implementing new loan products                      they are made directly to the lender.
                                                         v. The supportive housing program                    may be inconsistent with the                           The amount HUD pays is the difference
                                                      for persons with disabilities under                     requirements of conservatorship, but                   between the note rate and one percent.
                                                      Section 811 of the Cranston-Gonzalez                    Enterprise outreach, such as providing                 The Section 236 programs of both
                                                      National Affordable Housing Act (42                     technical assistance, or other support                 Enterprises use a bifurcated loan
                                                      U.S.C. 8013);                                           may be possible and appropriate.                       structure where the real estate loan and
                                                         vi. The programs under title IV of the                  The status of the enumerated                        IRP payments amortize separately. The
                                                      McKinney-Vento Homeless Assistance                      programs and the role that the                         loan must be structured to ensure that
                                                      Act (42 U.S.C. 11361 et seq.), but only                 Enterprises could play in assisting them               the IRP payments are liquidated prior to
                                                      permanent supportive housing projects                   are discussed below.                                   the maturing of the real estate loan.
                                                      subsidized under such programs;                            Section 8. Both Enterprises currently               HUD data indicate that there are over
                                                         vii. The rural rental housing program                purchase refinance mortgages on                        1,300 outstanding Section 236 BMIR
                                                      under Section 515 of the Housing Act of                 properties with HUD Section 8 contracts                loans, and that about 200 of these loans
                                                      1949 (42 U.S.C. 1485);                                  known as Housing Assistance Payments                   will mature in 2010 and 2011.44
                                                         viii. The low-income housing tax                     (HAP) contracts. Under this program,                      Section 221(d)(4). The Section
                                                      credit (LIHTC) under Section 42 of the                  property owners receive rent payment                   221(d)(4) program provides financing
                                                      Internal Revenue Code of 1986 (26                       subsidies from HUD and, in return, the                 for the construction or major
                                                      U.S.C. 42); and                                         property owner agrees to maintain                      rehabilitation of multifamily rental
                                                         ix. Comparable state and local                       affordable rents and maintain housing                  properties and for permanent financing
                                                      affordable housing programs.                            quality standards. Several commenters,                 when construction is completed. The
                                                      12 U.S.C. 4565(a)(1)(B).                                including the Consumer Federation of                   program is not subsidized, and there are
                                                         Under the proposed rule, Enterprise                  America, Center for Responsible                        no income restrictions on tenants.
                                                      assistance to housing projects under                    Lending, National Consumer Law                         Therefore, the program may provide
                                                      these programs would be considered                      Center, and Local Initiatives Support                  housing for other than very low-, low-
                                                      under the duty to serve the affordable                  Corporation (LISC), stated that the                    and moderate-income households.
                                                      housing preservation market. FHFA will                  Enterprises’ underwriting guidelines are               Section 221(d)(4) loans purchased by
                                                      pay particular attention to the volume of               unnecessarily strict. For example, the                 the Enterprise may be considered as
                                                      existing loans that are maturing and                    Enterprises do not count all of the                    long as the units financed serve the
                                                      may need refinancing in the affordable                  Section 8 payments as rental income                    income groups targeted by the duty to
                                                      housing preservation market. The                        and require additional reserves to                     serve.
                                                                                                              protect against appropriations risk.43 In                 While the Safety and Soundness Act
                                                      Enterprises would not be required to
                                                                                                              the commenters’ view, this may make                    does not specifically mention the HUD
                                                      assist each program every year, but
                                                                                                              refinancing a property infeasible or                   Section 221(d)(3) program, this program,
                                                      could take a step-by-step, concentrated
                                                                                                              result in a lower loan amount and,                     which is for nonprofit sponsors, can
                                                      approach. For example, an Enterprise
                                                                                                              therefore, fewer funds for repairs and                 have a BMIR loan component. FHFA
                                                      might initially focus on the HUD
                                                                                                              replacement.                                           solicits comments on whether
                                                      Section 8, Section 236 and Section 202
                                                                                                                 LISC commented in detail about the                  Enterprise purchases of Section
                                                      programs. Several commenters asserted
                                                                                                              need for changes in Enterprise Section                 221(d)(3) loans should be considered
                                                      that the Enterprises should do more to
                                                                                                              8 financing. According to this comment                 under the duty to serve the affordable
                                                      support small multifamily properties.
                                                                                                              letter, the Enterprises should modify                  housing preservation market.
                                                         The Enterprises have existing loan
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                                                                                                              their underwriting guidelines to allow                    Section 202. Opportunities for the
                                                      products that may meet the need of
                                                                                                              the debt service coverage ratios to be                 Enterprises to purchase refinanced
                                                      some owners seeking to refinance
                                                                                                              based upon the full amount of the                      Section 202 loans for the low-income
                                                      subsidized properties eligible to be
                                                                                                              Section 8 rent levels, provided these                  elderly could grow due to legislative
                                                      considered under the affordable housing
                                                                                                              rents were not above market levels. In                 and HUD program changes and the
                                                      preservation market. The Enterprises
                                                                                                                                                                     increasing number of Section 202
                                                      offer subsidized property owners                          43 ‘‘Appropriations risk’’ is the possibility that
                                                      options not available under FHA                         Congress will not appropriate any funds for a            44 HUD Insured Multifamily Mortgages Database,
                                                      programs, such as shorter terms and                     program, or appropriate less funds than requested      available at http://www.hud.gov/offices/hsg/comp/
                                                      amortization periods, although these                    by the executive branch.                               rpts/mfh/mf_f47.cfm.



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                                                                                 Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules                                          32107

                                                      properties in need of funding for                        terms such as lower debt service                      funding for properties receiving Section
                                                      rehabilitation. Established by the                       coverage ratios and higher loan-to-value              811 PRACs.
                                                      National Housing Act of 1959, Section                    ratios than conventional mortgage                        McKinney-Vento Homeless Assistance
                                                      202 was a loan program without rental                    lenders. More importantly, sponsors can               Act. Programs under title IV of the
                                                      subsidies from 1959 to 1974. In 1974,                    refinance properties using contract rents             McKinney-Vento Homeless Assistance
                                                      HUD began to provide rental subsidies,                   rather than lower market rents, which                 Act (42 U.S.C. 11361 et seq.) provide
                                                      but replaced subsidized loans with                       usually results in a larger loan amount               supportive housing grants to help the
                                                      direct financing at prevailing market                    and more cash available to the sponsor                homeless, especially homeless families
                                                      interest rates. As a result of the National              for rehabilitation and reserves.                      with children, transition to independent
                                                      Housing Act of 1990, HUD discontinued                       By actively pursuing Section 202                   living. Nonprofits that develop such
                                                      financing Section 202 properties, and                    refinancing opportunities, the                        supportive housing can use a
                                                      instead, the Section 202 program                         Enterprises would be able to provide                  combination of equity and financing
                                                      became a capital advance program                         more refinancing options for sponsors.                sources, but such projects typically do
                                                      under which HUD provided                                 Conventional financing through the                    not involve mortgages, which effectively
                                                      construction or rehabilitation funds to                  Enterprises would allow sponsors                      limits Enterprise duty to serve activity
                                                      sponsors, and after construction, rental                 access to adjustable rate mortgages with              under these programs. FHFA solicits
                                                      subsidies. In return, sponsors were                      shorter maturities and amortization                   comments on how the Enterprises could
                                                      required to keep rents affordable to                     periods. Legislative changes to further               provide assistance to properties
                                                      elderly households for a period of 40                    facilitate refinancing of Section 202                 subsidized pursuant to the McKinney-
                                                      years.                                                   loans have been introduced in                         Vento Homeless Assistance Act for
                                                         Most loans financed under Section                     Congress.49 If these changes are enacted              purposes of the duty to serve the
                                                      202 from 1959 to 1974 have 50-year                       into law, the Enterprises would have                  affordable housing preservation market.
                                                      terms, and most sponsors with such                       increased opportunities to purchase                      Sections 515 and 538. Both
                                                      loans have already refinanced or sold                    refinanced mortgages and preserve                     Enterprises currently have programs to
                                                      their properties for redevelopment. The                  Section 202 housing. Given the growing                help owners of properties with the U.S.
                                                      remaining Section 202 properties are at                  need for Section 202 sponsors to have                 Department of Agriculture’s (USDA)
                                                      risk of deteriorating or being sold for                  available refinancing options other than              Section 515 direct loans to support low-
                                                      redevelopment but not as affordable                      FHA and state and local programs,                     income housing in rural areas. The
                                                      properties.45 Section 202 properties that                Enterprise assistance in this area is                 Enterprises could also purchase eligible
                                                      were financed from 1969 to 1974 are                      particularly useful.                                  Section 538 loans that refinance Section
                                                      most in need of new financing.46 Many                       Section 811. The Section 811 program               515 properties. Section 538 is the
                                                      properties financed from 1974 to 1990                    is a capital advance and rental                       primary program used by USDA to
                                                      have loans with interest rates exceeding                 assistance program for low-income                     preserve affordable rural rental housing.
                                                      nine percent and might also benefit                      disabled persons, and was created by                     Low-Income Housing Tax Credits
                                                      from legislative changes. Refinancing                    the Cranston-Gonzalez National                        (LIHTCs). LIHTCs, which are an
                                                      would allow owners to acquire                            Housing Act of 1990. Under current law,               important source of equity for new low-
                                                      additional funds for rehabilitation,                     Section 811 properties carry no debt,                 income rental housing, face significant
                                                      which could then be used to repair or                    and HUD rental subsidies cover the                    challenges in today’s market.
                                                      rehabilitate Section 202 properties.47                   difference between HUD-determined                     Traditionally, the Enterprises have been
                                                      HUD data show that over 2,800                            operating expenses and rental income.50               among the largest investors in LIHTCs.
                                                      outstanding Section 202 loans are                                                                              Now in conservatorship, the Enterprises
                                                                                                               There are no provisions under current
                                                      eligible for refinancing.48                                                                                    have no business reasons to purchase
                                                                                                               law for refinancing Section 811
                                                         Most Section 202 properties are                                                                             LIHTCs and are not currently
                                                                                                               properties, and nonprofit organizations
                                                      refinanced through FHA-insured                                                                                 purchasing them.
                                                                                                               could not qualify for financing because                  Neighborhood Stabilization Program.
                                                      programs. FHA programs offer financing                   excess cash flows produced by the                     The proposed rule would add the
                                                         45 See generally ‘‘The American Association of
                                                                                                               properties under the program are                      Neighborhood Stabilization Program
                                                      Homes and Services for the Aging’’, House Financial      minimal. Further, owners participating                (NSP) administered by state and local
                                                      Services Comm., Subcomm. on Housing and                  in the Section 811 program are required               governments with funds provided by
                                                      Community Opportunity, ‘‘Legislative Options for         to maintain the property as housing for               HUD, as an eligible state and local
                                                      Preserving Federally- and State-Assisted Affordable      the disabled for a period of 40 years,
                                                      Housing and Preventing Displacement of Low-                                                                    affordable housing program for purposes
                                                      Income, Elderly and Disabled Tenants,’’ 111th            and it will be at least 20 more years                 of the duty to serve the affordable
                                                      Cong., 1st Sess. (July 15, 2009) (Statement for the      before low-income use restrictions on                 housing preservation market. The NSP
                                                      Record), available at http://www.house.gov/apps/         owners expire. However, the President’s
                                                      list/hearing/financialsvcs_dem/aahsa_statement_                                                                is designed to enable communities to
                                                      for_the_record.pdf.
                                                                                                               2011 budget proposes changes to the                   address problems related to mortgage
                                                         46 Id.                                                Section 811 program and will introduce                foreclosure and abandonment through
                                                         47 See Vincent F. O’Donnell, ‘‘Prepayment and         Project Rental Assistance Contracts                   the purchase of foreclosed or abandoned
                                                      Refinancing of Section 202 Direct Loans—A                (PRACs) as part of the program.51 This                homes. Under the NSP, at least 25
                                                      Summary of HUD Notices H 2002–16 and H 2004–             would open up new opportunities for
                                                      21’’ (Feb. 25, 2005), available at http://docs.google.                                                         percent of NSP funds must be used to
                                                                                                               the Enterprises to provide long-term                  purchase and redevelop abandoned or
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                                                      com/viewer?a=v&q=cache:OS9fkvDzizwJ:
                                                      www.lisc.org/files/896_file_asset_upload_file62_                                                               foreclosed homes that will be used to
                                                                                                                 49 See S. 118—111th Cong.: ‘‘Section 202
                                                      6015.pdf+.org+h+2004–21+lisc+February+25&hl=
                                                      en&gl=us&pid=bl&srcid=ADGEESjfLlsfyFT-b-                 Supportive Housing for the Elderly Act of 2009,’’     house families with incomes that do not
                                                      DHQ8QSySzpNFYC5VTDHxWlM74Ji4PmkCWW2a                     available at http://thomas.loc.gov/cgi-bin/query/     exceed 50 percent of AMI.
                                                      FM9bzzQOeXlu7iwS8Tzpo6jShgeYz                            z?c111:S.118:.                                           Some commenters, including the
                                                      BOBsEdxcMAaFM-pR2WpxlKvtWL1XZmcoS_                         50 For a description of the Section 811 program,
                                                                                                                                                                     National Association of Home Builders
                                                      F9fsbV8cUbyqcmouUB8Hycy&sig=                             see http://www.hud.gov/offices/hsg/mfh/progdesc/      and several consumer advocacy
                                                      AHIEtbR0BncO3GAlI_rSAfSyljUDOH_Y9g.                      disab811.cfm.
                                                         48 HUD Insured Multifamily Mortgages Database,          51 For a description of the PRAC initiative, see    organizations, suggested that Enterprise
                                                      available at http://www.hud.gov/offices/hsg/comp/        http://www.hud.gov/offices/cfo/reports/2011/cjs/      assistance with foreclosure prevention
                                                      rpts/mfh/mf_f47.cfm.                                     Housing_For_Persons_Disabilities_2011.pdf.            efforts done in conjunction with


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                                                      32108                     Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules

                                                      nonprofit organizations and state and                     (ii) State mortgage subsidy programs;                urban and rural areas, as occurs with
                                                      local governments that receive NSP                        (iii) State low-income housing tax                   very large counties, particularly west of
                                                      funds should be considered towards the                  credit programs;                                       the Mississippi River. Commenters
                                                      duty to serve. The consumer                               (iv) Tax-exempt bond-financed                        recognized this disadvantage and were
                                                      commenters also encouraged greater                      housing;                                               generally not in favor of this definition.
                                                      Enterprise involvement in helping                         (v) Public housing and state public                    The third definition would combine
                                                      community development financial                         housing involving mixed-finance                        two different designations, one used by
                                                      institutions (CDFIs) finance foreclosed                 redevelopment; and                                     the U.S. Census Bureau and one used by
                                                      properties that have been acquired by                     (vi) Affordable, sustainable                         the USDA. Under this two-pronged
                                                      nonprofits through debt and equity                      communities and healthy housing                        definition, all census tracts designated
                                                      investments.                                            programs.                                              by the U.S. Census Bureau as
                                                         Comparable State and Local                             FHFA invites further comments on                     nonmetropolitan, i.e., outside
                                                      Affordable Housing Programs. The                        the merit of considering any of these                  metropolitan statistical areas (MSAs)
                                                      Enterprises’ support of state and local                 other potential sources of affordable                  designated by the Office of Management
                                                      affordable housing programs has been                    housing as part of the Enterprises’ duty               and Budget (OMB), would be
                                                      primarily through purchases of LIHTCs                   to serve, consistent with the                          considered rural areas, as would all
                                                      and mortgage revenue bonds (MRBs)                       requirements of conservatorship                        census tracts outside of urbanized areas
                                                      from state and local HFAs. The National                 described earlier.                                     and urban clusters, as designated by
                                                      Council of State Housing Agencies                       3. Rural Markets—Proposed §§ 1282.1,                   USDA’s Rural-Urban Commuting Area
                                                      (NCSHA) has made increased                              1282.34                                                (RUCA) code. Because it would be
                                                      cooperation between HFAs and the                                                                               census tract-based, it would be more
                                                                                                                 Section 1335(a)(1)(C) of the Safety and             granular than county-based or MSA-
                                                      Enterprises a top legislative and                       Soundness Act requires the Enterprises
                                                      regulatory goal for 2010.52                                                                                    based definitions and should better
                                                                                                              to ‘‘develop loan products and flexible                distinguish between rural areas and
                                                         As a result of the liquidity crisis
                                                                                                              underwriting guidelines to facilitate a                non-rural areas. Furthermore, this
                                                      facing HFAs, on October 19, 2009,
                                                                                                              secondary market for mortgages on                      definition would be easily implemented
                                                      FHFA, in conjunction with Treasury
                                                                                                              housing for very low-, low-, and                       by the Enterprises’ existing geocoding
                                                      and HUD, announced an initiative to
                                                                                                              moderate-income families in rural                      systems. Freddie Mac and two other
                                                      support state and local HFAs through a
                                                                                                              areas.’’ 12 U.S.C. 4565(a)(1)(C). An                   commenters supported this definition.
                                                      new bond purchase program that will
                                                                                                              appropriate definition for ‘‘rural area’’                One disadvantage of the third
                                                      support new lending by HFAs and a
                                                                                                              and the types of Enterprise activities                 definition, as some commenters pointed
                                                      temporary credit and liquidity program
                                                                                                              that should be considered are discussed                out, is that a census tract could be
                                                      that will improve the access of HFAs to
                                                                                                              below.                                                 excluded if a small portion is also
                                                      liquidity for outstanding HFA bonds.53                     Definition of ‘‘Rural Area.’’ In the
                                                      Fannie Mae and Freddie Mac both                                                                                included within an ‘‘Urbanized Area’’ or
                                                                                                              ANPR, FHFA suggested three                             an ‘‘Urban Cluster.’’ Also, as with the
                                                      played a role in this program, which,                   definitions of ‘‘rural area.’’ The first
                                                      through its support of HFA liquidity,                                                                          other definitions, this definition is
                                                                                                              definition is based on classifications                 based upon aging 2000 census data, and
                                                      could expand resources for low- and                     used by the U.S. Census Bureau for the
                                                      moderate-income borrowers who want                                                                             updated information is not expected to
                                                                                                              2000 census and distinguishes between                  be available until 2012 or 2013. Another
                                                      to purchase or rent homes that are                      urban and rural areas. Urban areas are
                                                      affordable over the long term. On                                                                              disadvantage of the third definition is
                                                                                                              classified as all territory, population,               that USDA does not plan to extend the
                                                      January 13, 2010, Treasury, FHFA and                    and housing units located within
                                                      HUD announced the completion of all                                                                            RUCA code to Puerto Rico until at least
                                                                                                              urbanized areas and urban clusters. In                 2012, and RUCA codes are not currently
                                                      transactions under the initiative, which                general, urbanized areas must have a
                                                      involved more than 90 HFAs. Two                                                                                assigned to census tracts in the other
                                                                                                              core with a population density of 1,000                U.S. territories. In the ANPR, FHFA
                                                      commenters noted that there needs to be                 persons per square mile and may                        suggested filling this gap by using the
                                                      a closer partnership between state and                  contain adjoining territory with at least              RUC code described above to augment
                                                      local HFAs and the Enterprises in order                 500 persons per square mile. Urban                     the RUCA code in Puerto Rico and other
                                                      to expand affordable housing                            clusters have at least 2,500 but less than             U.S. territories or by creating an
                                                      preservation opportunities. However,                    50,000 persons. Rural areas are                        estimate of the RUCA code for these
                                                      commenters did not suggest any specific                 classified as all territory located outside            areas.
                                                      programs or activities where the                        of urbanized areas and urban clusters.                   FHFA solicits further comment on the
                                                      Enterprises could assist.                               Three commenters favored this                          three definitions discussed in the ANPR
                                                         Several commenters suggested other
                                                                                                              definition.                                            and how to address the operational
                                                      potential sources of affordable housing                    The second definition defines ‘‘rural               concerns involved.
                                                      units that should be preserved such as:                 areas’’ as all counties assigned a USDA                  A number of commenters, including
                                                         (i) Subsidized or non-subsidized                     Rural-Urban Continuum code (RUC                        USDA and Fannie Mae, recommended
                                                      affordable housing where there is and/                  code), which the USDA uses to classify                 that FHFA adopt the definition of ‘‘rural
                                                      or will be a local, state or federal long-              rural areas. These codes are available for             area’’ from the Housing Act of 1949, as
                                                      term affordable use restriction in place                all U.S. counties and for municipios                   implemented by USDA. Under this
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                                                      for at least 20 percent of the units;                   (county equivalents) in Puerto Rico.                   definition, ‘‘rural area’’ means any open
                                                         52 See ‘‘NCSHA 2010 Legislative and Regulatory
                                                                                                              Because data on other U.S. territories,                country or any town, village, city, or
                                                      Priorities,’’ (Oct. 14, 2009), available at http://     including Guam and the Virgin Islands,                 place that is not part of or associated
                                                      www.ncsha.org/resource/ncsha-2010-legislative-          are lacking, FHFA suggested treating                   with an urban area, and that ‘‘(1) has a
                                                      and-regulatory-priorities.                              these territories as ‘‘rural areas.’’ A                population not in excess of 2,500
                                                         53 U.S. Department of the Treasury,
                                                                                                              disadvantage of using the RUC code is                  inhabitants, or (2) has a population in
                                                      ‘‘Administration Announces Initiatives for State and
                                                      Local Housing Finance Agencies,’’ Press Release
                                                                                                              that designations based on RUC codes                   excess of 2, 500 but not in excess of
                                                      (Oct. 19, 2009), available at http://www.ustreas.gov/   are county-based. Consequently, these                  10,000 if it is rural in character, or (3)
                                                      press/releases/tg323.htm.                               designations could encompass both                      has a population in excess of 10,000 but


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                                                                                Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules                                            32109

                                                      not in excess of 20,000 and (A) is not                  moderate-income families in these areas                  Enterprise Activities in Rural Markets.
                                                      contained within a standard                             face unique housing challenges. In                     The Safety and Soundness Act
                                                      metropolitan statistical area, and (B) has              comments received in response to the                   enumerates specific housing programs
                                                      a serious lack of mortgage credit for                   ANPR, two nonprofit organizations and                  for the Enterprises to assist to fulfill
                                                      lower and moderate income families.’’                   one policy advocacy organization stated                their duty to serve the affordable
                                                      42 U.S.C. 1490.                                         that tribal lands should be automatically              housing preservation market but does
                                                         The proposed rule would define                       included in the definition of ‘‘rural                  not prescribe specific programs for
                                                      ‘‘rural area’’ for purposes of the duty to              area’’; one trade association opposed                  purposes of the Enterprises’ duty to
                                                      serve consistent with the above                         this.                                                  serve rural markets. The Enterprises
                                                      definition. Because rural housing                          FHFA requests further comments on                   have latitude to address the needs in
                                                      practitioners and USDA use this                         whether tribal lands and colonias                      rural markets. FHFA expects each
                                                      definition, its adoption would obviate                  should be included in the definition of                Enterprise to evaluate its current
                                                      the need for practitioners to adapt their               ‘‘rural area’’ and how to define colonias.             activities in rural areas and
                                                      practices and systems to fit a new                         Inclusion of Rural Housing Service                  opportunities to increase those activities
                                                      definition. In addition, since the                      (RHS) Programs. Under the RHS’s                        to address liquidity needs. For example,
                                                      definition is maintained by USDA, it                    Section 538 program, the federal                       an Enterprise may market its products to
                                                      would not need to be updated by FHFA                    government guarantees loans made                       lenders in rural areas in an effort to
                                                      with successive censuses.                               through approved lenders to build or                   increase the number of approved
                                                         The proposed definition may present                  acquire apartments for moderate-income                 lenders in those areas. An Enterprise
                                                      operational concerns to FHFA and to                     tenants in rural areas. USDA and HAC                   may also purchase or otherwise assist
                                                      the Enterprises. The Government                         commented on the need for secondary                    with loans guaranteed under USDA
                                                      Accountability Office (GAO) has found                   market support for Section 538                         programs and any other residential
                                                      that because MSAs contain both urban                    mortgages, emphasizing that Section                    mortgage to the extent such mortgage
                                                      and rural areas and have increased                      538 multifamily properties provide                     otherwise qualifies for consideration.
                                                      substantially in both size and number in                housing for lower-income families. HAC                 FHFA expects the Enterprises to
                                                      recent decades, the use of MSAs may no                  also recommended duty to serve                         thoroughly review their underwriting
                                                      longer be a good way to distinguish                                                                            guidelines to ensure they are
                                                                                                              consideration for Enterprise assistance
                                                      urban territory from rural territory.54 In                                                                     appropriate for rural markets.
                                                                                                              to the RHS Section 514 program, which
                                                      addition, it would be necessary for the
                                                                                                              finances housing for farm workers in                     Some rural areas with very high
                                                      Enterprises to automate the coding of a
                                                                                                              rural areas.                                           median incomes may lack affordable
                                                      rural/urban designation based on
                                                                                                                 Section 514 loans cannot be                         multifamily housing for lower-income
                                                      information currently available only
                                                                                                              supported by the Enterprises in the                    workers employed there. FHFA seeks
                                                      through the USDA Web site. The USDA
                                                                                                              same way as Section 538 loans, because                 comment on what assistance the
                                                      Web site is designed for loan
                                                                                                              Section 514 loans are made directly by                 Enterprises might be able to provide in
                                                      underwriters and originators with much
                                                                                                              USDA, which holds them in its                          these areas for purposes of the duty to
                                                      smaller transaction volume, who must
                                                                                                              portfolio. FHFA solicits comments on                   serve rural markets.
                                                      enter property addresses individually
                                                                                                              what type of assistance the Enterprises
                                                      into the Web site to determine which                                                                           E. Evaluating and Rating Performance
                                                                                                              could provide for residential lending to
                                                      addresses are located in rural areas. The
                                                                                                              farm workers in rural areas and under                  1. Overview of Evaluation
                                                      volume of the Enterprises’ transactions
                                                                                                              the Section 514 program in particular.
                                                      is much larger, and they will need the                                                                           Section 1335(d) of the Safety and
                                                                                                                 A number of commenters sought
                                                      capability to automate the rural/urban                                                                         Soundness Act requires FHFA to
                                                                                                              express FHFA authorization for
                                                      designation for large numbers of                                                                               separately evaluate whether each
                                                                                                              particular RHS loan programs under the
                                                      properties.                                                                                                    Enterprise has complied with the duty
                                                         FHFA suggests two approaches for                     duty to serve rural markets. For
                                                                                                              purposes of the duty to serve, it is not               to serve each underserved market and
                                                      addressing the coding problem. First,                                                                          annually ‘‘rate the performance of each
                                                      USDA’s RUCA code could be used until                    necessary that FHFA specifically
                                                                                                              determine the eligibility of individual                Enterprise as to the extent of
                                                      USDA implements an automated system                                                                            compliance.’’ 12 U.S.C. 4565(d). Both
                                                      for coding multiple properties. A second                federal, state or local programs that
                                                                                                              support rural housing. As a general                    Enterprises and most other commenters
                                                      approach is for originators of loans                                                                           suggested a flexible approach to
                                                      purchased on a flow basis to manually                   matter, where: (1) An Enterprise’s
                                                                                                              mortgage purchase, or other activity                   evaluation. Commenters generally
                                                      enter the property addresses in USDA’s                                                                         supported an evaluation methodology
                                                      Web site and provide the resulting                      related to such mortgage, is authorized
                                                                                                              under the Charter Act; (2) the property                similar to that used by regulators to
                                                      classification data to the Enterprise. For                                                                     determine compliance with the CRA,
                                                      loans purchased in bulk transactions,                   financed is residential real estate
                                                                                                              located within a rural area; and (3) the               and FHFA has incorporated certain
                                                      the Enterprise would be allowed to use                                                                         CRA-like features into the proposed
                                                      the RUCA code definition for                            income of the residents falls within the
                                                                                                              duty to serve income limits, the units                 rule. See 12 U.S.C. 2901 et seq.; 12 CFR
                                                      determining ‘‘rural area’’ rather than the                                                                     parts 25, 228, 345, and 563e.
                                                      Housing Act of 1949 definition.                         financed may be considered.
                                                                                                                                                                       The proposed rule would require each
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                                                         The definition proposed for ‘‘rural
                                                      area’’ may not encompass all tribal lands               in the U.S.-Mexico border regions of Arizona,          Enterprise to submit an underserved
                                                      and colonias.55 Very low-, low- and                     California, New Mexico and Texas that is               markets plan under which its
                                                                                                              determined to be a colonia on the basis of objective   performance would be evaluated and
                                                                                                              criteria, including lack of a potable water supply,
                                                        54 See United States Government Accountability
                                                                                                              inadequate sewage systems, and a shortage of
                                                                                                                                                                     rated. FHFA would consider four factors
                                                      Office, GAO–05–110, ‘‘Rural Housing—Changing            decent, safe and sanitary housing. The border          in determining whether an Enterprise
                                                      the Definition of Rural Could Improve Eligibility       region is the area within 150 miles of the U.S.-       has complied with the duty to serve.
                                                      Determinations’’ (Dec. 2004), available at http://      Mexico border excluding MSAs with populations          These four factors were described as
                                                      www.gao.gov/new.items/d05110.pdf.                       exceeding one million. See http://www.hud.gov/
                                                        55 For purposes of HUD’s Colonia Set-Aside            offices/cpd/communitydevelopment/programs/
                                                                                                                                                                     four ‘‘tests’’ in the ANPR, but have been
                                                      Program, a ‘‘colonia’’ is any identifiable community    colonias/cdbgcolonias.cfm.                             renamed ‘‘assessment factors’’ in the


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                                                      32110                       Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules

                                                      proposed rule.56 FHFA would evaluate                     plan may include non-quantitative                      of the three underserved markets. Id.
                                                      each Enterprise’s performance on each                    considerations, it must include objective              sec. 4565(d)(2)(B). For this assessment
                                                      assessment factor and assign a rating of                 measurements with sufficient specificity               factor, the Enterprises are expected to
                                                      satisfactory or unsatisfactory to each                   to enable FHFA to evaluate and rate the                engage market participants and pursue
                                                      assessment factor in each underserved                    Enterprise’s performance against those                 relationships that result in enhanced
                                                      market. Based on the assessment factor                   measures. All benchmarks and                           service to each underserved market.
                                                      ratings, FHFA would assign a rating to                   objectives must have a timeframe for                   These market participants could include
                                                      the Enterprise of ‘‘in compliance’’ or                   completion.                                            nontraditional issuers, such as CDFIs
                                                      ‘‘noncompliance’’ with the duty to serve                    The proposed rule would identify                    and consortia sponsored by banks, local
                                                      each underserved market.                                 benchmarks and objectives for each                     and state governments or others.
                                                         Enterprise new products and new                       assessment factor that the Enterprise                     USDA indicated that one way to
                                                      activities are subject to the prior                      must address in its plan. These are                    assess outreach in rural markets would
                                                      approval and prior notice requirements                   discussed in more detail below.                        be to consider the number of approved
                                                      FHFA established pursuant to section                        Loan Product Assessment Factor. The                 Fannie Mae or Freddie Mac lenders in
                                                      1321 of the Safety and Soundness Act.                    loan product assessment factor requires                a state that are active in lending in rural
                                                      See 12 U.S.C. 4541, 12 CFR Part 1253.                    evaluation of the Enterprise’s                         areas. USDA suggested, as an example,
                                                      However, innovation in the provision of                  ‘‘development of loan products, more                   a goal for each state to have at least
                                                      services to underserved markets is not                   flexible underwriting guidelines, and                  three active approved lenders and for
                                                      necessarily the same as the concept of                   other innovative approaches to                         each lender to have financed three
                                                      new products requiring FHFA approval                     providing financing to each’’                          different properties within that state
                                                      under section 1321 of the Safety and                     underserved market. Id. sec.                           over a two-year period. In the example,
                                                      Soundness Act. In the Letter to                          4565(d)(2)(A).                                         the Enterprise would be evaluated on its
                                                      Congress, FHFA advised Congress that                        FHFA received several comments                      performance relative to such a
                                                      permitting the Enterprises to engage in                  addressing the loan product assessment                 quantitative benchmark and objective in
                                                      new products is inconsistent with the                    factor. Fannie Mae suggested that FHFA                 its plan.
                                                      goals of conservatorship and further                     give appropriate consideration to                         Other examples include actions such
                                                      instructed them not to submit such                       research and development activities that               as simplifying the procedures for
                                                      requests under the new products rule.57                  may not show results in their initial                  approving new seller-servicers that
                                                      This guidance does not prohibit the                      phase, but which are necessary for long-               specialize in a particular underserved
                                                      Enterprises from engaging in new                         term planning and development. CFED                    market, conducting relevant market
                                                      activities that are substantially similar                commented that loan products for                       surveys and forums to gather
                                                      to existing activities previously                        previously owned manufactured homes                    information on how to better serve the
                                                      approved by FHFA, or from modifying                      and energy-efficient single-wide                       particular market and marketing
                                                      underwriting guidelines for existing                     manufactured homes serve the most                      existing products targeted towards an
                                                      loan products, consistent with safety                    underserved segments of the                            underserved market. In response to
                                                      and soundness and the requirements of                    manufactured housing industry and                      commenters, Enterprise training in its
                                                      conservatorship. FHFA will consider                      should be considered under the loan                    products and processes to market
                                                      this guidance when evaluating the                        product assessment factor. FHFA agrees                 participants would also be considered.
                                                      Enterprise’s plan and performance of its                 with these comments and will consider                  This could include training for
                                                      duty to serve underserved markets.                       these activities, provided they meet the               specialized participants in an
                                                                                                               other requirements set forth in the                    underserved market, such as USDA field
                                                      2. Underserved Markets Plan—Proposed                     proposed rule.                                         staff, nonprofit and for-profit lenders
                                                      § 1282.35                                                   To comply with this assessment                      and state and local HFAs.
                                                         FHFA proposes that each Enterprise                    factor, the proposed rule would require                   The proposed rule would require the
                                                      provide an underserved markets plan                      the Enterprise to evaluate its                         Enterprise to specify new relationships
                                                      against which the Enterprise would be                    underwriting guidelines, which could                   it would develop with qualified loan
                                                      evaluated and rated. The plan would be                   include empirical testing of different                 sellers, its outreach to market
                                                      similar to a ‘‘strategic plan’’ under the                parameters and modification of loan                    participants that serve families in each
                                                      CRA, but the plan would be mandatory                     products in an effort to increase the                  income group targeted by the duty to
                                                      rather than optional.58 In its plan, the                 availability of loans to families in each              serve and technical support it would
                                                      Enterprise would establish benchmarks                    income group targeted by the duty to                   provide. The Enterprise could also
                                                      and objectives upon which FHFA would                     serve, consistent with prudent lending                 specify other outreach activities in its
                                                      evaluate and rate its performance. The                   practices. FHFA expects the Enterprise                 plan.
                                                      plan would specify the actions the                       to identify underwriting obstacles that                   Loan Purchase Assessment Factor.
                                                      Enterprise would take and results it                     could prevent service to underserved                   The loan purchase assessment factor
                                                      expects to achieve under each                            families. Enterprise modification of                   requires FHFA to consider ‘‘the volume
                                                      assessment factor for each underserved                   underwriting guidelines, particularly in               of loans purchased in each of such
                                                      market. The Enterprise would be                          the manufactured housing and rural                     underserved markets relative to the
                                                      required to specify benchmarks and                       markets, could also be considered. In its              market opportunities available to the
                                                      objectives to achieve a rating of                        plan, the Enterprise would be permitted                [E]nterprise.’’ Id. sec. 4565(d)(2)(C). The
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                                                      satisfactory for each assessment factor in               to establish additional benchmarks and                 Safety and Soundness Act further states
                                                      each underserved market. Although the                    objectives that could be considered                    that FHFA ‘‘shall not establish specific
                                                                                                               under the loan product assessment                      quantitative targets nor evaluate the
                                                        56 For stylistic simplicity, where a commenter
                                                                                                               factor.                                                [E]nterprises based solely on the volume
                                                      speaks of the four ‘‘tests’’ as set forth in the ANPR,      Outreach Assessment Factor. The                     of loans purchased.’’ Id.
                                                      the preamble will describe them as ‘‘assessment
                                                      factors.’’
                                                                                                               outreach assessment factor requires                       FHFA received specific suggestions
                                                        57 See Letter to Congress at 6.                        evaluation of ‘‘the extent of outreach [by             from commenters regarding
                                                        58 For information on strategic plans under CRA        the Enterprises] to qualified loan sellers             implementation of the loan purchase
                                                      regulations, see generally 12 CFR 228.27.                and other market participants’’ in each                assessment factor. USDA suggested that


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                                                                                Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules                                             32111

                                                      the Enterprises buy at least five percent               affordable housing preservation market                 possible ratings such as outstanding or
                                                      of the total new construction loans                     every year. Rather, the Enterprises could              marginal.
                                                      guaranteed by the Guaranteed Rural                      target certain programs in a given year.
                                                                                                                                                                     3. Determination of Compliance—
                                                      Rental Housing Program. Under USDA’s                    Likewise, for rural markets an
                                                                                                                                                                     Proposed § 1282.36
                                                      proposal, this would escalate to 10                     Enterprise may choose to emphasize
                                                      percent in the second year and 15                       assistance with particular RHS                            FHFA would evaluate an Enterprise’s
                                                      percent in the third year. Similarly, the               programs. The plan should articulate                   performance annually, as required by
                                                      Center for Responsible Lending, CFED                    the reasons for choosing particular                    the Safety and Soundness Act. 12 U.S.C.
                                                      and the National Consumer Law Center                    programs.                                              4565(d)(1). In rating the Enterprise,
                                                      recommended requiring that Enterprise                      Although the Enterprises are in                     FHFA would determine whether the
                                                      participation in affordable housing                     conservatorship, FHFA expects them to                  Enterprise has substantially achieved its
                                                      preservation be proportional to its                     show tangible results in each                          benchmarks and objectives for the
                                                      service to the larger multifamily market.               underserved market and to be a catalyst                desired rating as set forth in its plan. In
                                                         The proposed rule would set forth                    for mortgage lending to very low-, low-                determining substantial achievement,
                                                      benchmarks and objectives for the loan                  and moderate-income families in each                   FHFA would consider the specific
                                                      purchase assessment factor that the                     underserved market. The Enterprises                    needs and conditions of each
                                                      Enterprise must establish in its plan.                  should expect mortgage purchases and                   underserved market and the financial
                                                      Although FHFA is not establishing                       activities pursuant to the duty to serve               condition of the Enterprise. If market
                                                      quantitative targets, FHFA would                        to be profitable, even though they may                 conditions or the financial condition of
                                                      consider the Enterprise’s past                          be less so than activities that do not                 the Enterprise change markedly during
                                                      performance on the volume of loans                      serve these underserved markets.                       an evaluation year, FHFA would take
                                                      purchased in a particular underserved                      Submission and Review of Plan. The                  this into consideration. FHFA would
                                                      market relative to the volume of loans                  proposed rule would set forth                          also consider input from the Enterprise,
                                                      the Enterprise purchases in that                        procedures for submission and review                   market participants and others, such as
                                                      underserved market in a given year.                     of the plan. The Enterprise would be                   housing and financial researchers, as to
                                                         The Enterprise’s plan would provide                  required to submit the plan to FHFA at                 the Enterprise’s performance, financial
                                                      FHFA with assessments and analyses of                   least 90 days before the plan’s effective              condition and the needs and
                                                      the market opportunities available for                  date of January 1st of a particular year.              opportunities in the underserved
                                                      each underserved market and describe                    The term of the plan must be for two                   markets.
                                                      the Enterprise’s expected volume of                     years.                                                    Evaluation of Assessment Factors.
                                                      loan purchases for a given year. The                       Within 60 days of receipt of the plan,              When evaluating an Enterprise’s
                                                      plan would be subject to FHFA review,                   FHFA would inform the Enterprise of                    compliance with the duty to serve,
                                                      which would normally take into                          any concerns with or objections to the                 FHFA would not mechanically tally an
                                                      account difficulties in forecasting future              plan and, if necessary, would direct the               Enterprise’s performance on each
                                                      performance and the need for flexibility                Enterprise to amend the plan to FHFA’s                 assessment factor into a total score for
                                                      in dealing with unexpected market                       satisfaction.                                          that market. Rather, FHFA would
                                                      changes.                                                   For the 2010 evaluation year, FHFA                  evaluate and weight each assessment
                                                         Investments and Grants Assessment                    would expect the Enterprises to submit                 factor based on the needs of the
                                                      Factor. The investments and grants                      a plan as soon as practical after                      particular underserved market, overall
                                                      assessment factor requires evaluation of                publication of the final rule, and with                market conditions and the financial
                                                      ‘‘the amount of investments and grants                  the earliest feasible effective date.                  condition of the Enterprise.
                                                      in projects which assist in meeting the                    Assigned Ratings. The proposed rule                    Some commenters suggested a
                                                      needs of such underserved markets.’’ 12                 would require that the Enterprise                      mathematical weighting of the four
                                                      U.S.C. 4565(d)(2)(D).                                   establish benchmarks and objectives in                 assessment factors to generate overall
                                                         CFED provided several suggestions for                its plan to achieve an assigned rating of              scores for the individual underserved
                                                      grants in connection with manufactured                  satisfactory on each assessment factor in              markets. FHFA has considered these
                                                      housing, such as grants that promote                    each underserved market. The proposed                  comments and has determined that a
                                                      peer-learning and industry knowledge                    rule would specify appropriate                         rigid mathematical weighting of the
                                                      on innovative and promising practices                   benchmarks and objectives that may                     assessment factors would not provide
                                                      on the development of new products                      result in a rating of satisfactory.                    FHFA with sufficient flexibility when
                                                      and activities. Under appropriate                          Satisfactory performance would mean                 evaluating an Enterprise’s compliance
                                                      circumstances, these may be considered.                 that an Enterprise has diligently and                  with the duty to serve during
                                                         The proposed rule would require the                  with a degree of success pursued                       conservatorship.
                                                      Enterprise to specify in its plan the                   opportunities and acted on the                            ROC USA suggested that the
                                                      benchmarks and objectives it would                      opportunities to serve the market in a                 assessment factors for loan products,
                                                      establish for the investments and grants                given year. Satisfactory performance                   outreach and investments and grants
                                                      assessment factor. The plan would                       would include attention to families in                 should initially count more than loan
                                                      describe the Enterprise’s projected                     each income group targeted by the duty                 purchases, but FHFA has not adopted
                                                      investments and grants in a given year                  to serve and responsiveness to the needs               this approach in the proposed rule.
                                                      and any other benchmark and objective                   of the particular underserved market.                  Loan purchases are the core business of
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                                                      the Enterprise deems relevant.                             Unsatisfactory performance would                    the Enterprises and result in a tangible
                                                         Other Considerations. The Enterprises                mean that the results were poor and the                and immediate benefit to the families
                                                      would have the option, in their plans,                  Enterprise did not meet the benchmarks                 targeted for assistance. Accordingly, the
                                                      of selecting within each underserved                    and objectives in its plan for a rating of             loan purchase assessment factor, along
                                                      market particular programs to                           satisfactory.                                          with the outreach assessment factor,
                                                      emphasize in a particular year. As                         FHFA solicits comments on whether                   would receive significant weight in
                                                      discussed previously, for example, the                  the assigned ratings for each assessment               FHFA’s evaluation. Although FHFA
                                                      Enterprises would not be required to                    factor should be limited to satisfactory               would also consider the Enterprises’
                                                      assist each enumerated program in the                   or unsatisfactory or have additional                   performance under the loan product


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                                                      32112                     Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules

                                                      assessment factor, this would not                       Guidance on Nontraditional Mortgage                    FHFA would follow the procedures in
                                                      include any requirement that the                        Product Risks 60 would not be                          12 U.S.C. 4566(b). The proposed rule
                                                      Enterprises enter new lines of business.                considered under the duty to serve. To                 would also include provisions for
                                                      Because the Enterprises are in                          receive consideration under the duty to                submitting a housing plan in the
                                                      conservatorship and are obligated to pay                serve, all single-family loans purchased               Director’s discretion, if the Director
                                                      dividends to the Treasury for preferred                 by the Enterprises must meet the                       determines that the Enterprise did not
                                                      shares of Enterprise stock that Treasury                standards in the Statement and                         comply with its duty to serve a
                                                      holds, the investments and grants                       Guidance. The Enterprises are expected                 particular underserved market.
                                                      assessment factor would receive little to               to review the operations of loan sellers
                                                                                                                                                                     G. Reports and Data Submission—
                                                      no weight.                                              to ensure that the loans being sold to the
                                                                                                                                                                     Proposed § 1282.66
                                                        Evaluation and Rating for 2010. For                   Enterprises meet the standards in the
                                                      the 2010 evaluation year, FHFA would                    Statement and Guidance.                                   The ANPR solicited comment on
                                                      consider the administrative and                            The proposed rule would require that                appropriate reporting and data
                                                      operational effects on the Enterprises of               the Enterprise use actual income or rent               submission requirements. The
                                                      not having final guidance in place for                  of the borrower or tenant when this is                 comments received were not extensive.
                                                      the entire year, and the Enterprises                    available. When this is not available for                 The Center for Responsible Lending,
                                                      would only be rated for the portion of                  rental properties, the Enterprise could                Consumer Federation of America and
                                                      2010 for which the rule is effective.                   estimate affordability by using the                    National Consumer Law Center
                                                                                                              median income level of the census tract                commented that FHFA should consider
                                                      4. Requirements for Transactions or                     where the property is located, relative to             requiring each Enterprise to annually
                                                      Activities—Proposed §§ 1282.37                          AMI. FHFA seeks comment on whether                     publish a comprehensive report that
                                                      Through 1282.39                                         an alternative basis for estimating                    describes the Enterprise’s activities in
                                                         The proposed rule would establish                    affordability would be more effective.                 each underserved market. Freddie Mac
                                                      requirements for how transactions or                    For example, the affordability of rental               commented that the reporting
                                                      activities would be treated. With some                  units in a census tract could be                       requirements should be flexible and that
                                                      exceptions, the counting rules and other                estimated based on the affordable                      FHFA should utilize existing Enterprise
                                                      requirements would be similar to those                  proportion of all rental units securing                systems and processes. LISC
                                                      established for the housing goals. For                  new mortgages in that census tract.                    commented that requiring the
                                                      example, under appropriate                                 The proposed rule would not limit the               Enterprises to provide a complete listing
                                                      circumstances, a single transaction                     number of units with missing data for                  of transactions would be valuable as
                                                      could count towards the achievement of                  which an Enterprise could estimate                     long as confidentiality concerns are
                                                      multiple housing goals, and in the same                 affordability. Comments as to whether                  appropriately addressed.
                                                      way one transaction could be                            and how FHFA should impose a limit                        FHFA proposes to require the
                                                      considered towards more than one                        are invited.                                           Enterprise to provide three quarterly
                                                      underserved market. Also, specialized                                                                          reports and one annual report on its
                                                                                                              F. Enforcement of Duty to Serve—                       performance and progress towards
                                                      transactions such as guarantees of MRBs                 Proposed §§ 1282.40, 1282.41
                                                      and purchases of participations in                                                                             meeting its duty to serve each
                                                      mortgages would be treated in the same                    Section 1336(a)(4) of the Safety and                 underserved market. The reports would
                                                      manner as under the Enterprises’                        Soundness Act provides that the duty to                contain both narrative and summary
                                                      housing goals regulation. Consistent                    serve underserved markets is                           statistical information, supported by
                                                      with the comments received, FHFA                        enforceable to the same extent and                     submission of appropriate transaction-
                                                      proposes to measure performance in                      under the same enforcement provisions                  level data. The annual report would
                                                      terms of units rather than mortgages or                 as are applicable to the Enterprise                    include a description of the Enterprise’s
                                                      unpaid principal balance for the loan                   housing goals, except as otherwise                     market opportunities for loan purchases
                                                      purchase assessment factor.                             provided. See 12 U.S.C. 4566(a)(4).                    that year that were available in each
                                                         Under the proposed rule, Enterprise                  Accordingly, if an Enterprise fails to                 underserved market, to the extent data
                                                      purchases of HOEPA mortgages and                        comply with, or there is a substantial                 is available, the volume of qualifying
                                                      mortgages with unacceptable terms or                    probability that the Enterprise will not               loans purchased that year, a comparison
                                                      conditions, as defined by FHFA in                       comply with, its duty to serve a                       of the Enterprise’s loan purchases in
                                                      existing 12 CFR 1282.1, would not be                    particular underserved market in a                     that year with its loan purchases in past
                                                      considered under the duty to serve                      given year, FHFA would determine                       years, and a comparison of market
                                                      underserved markets. Thus, for                          whether the benchmarks and objectives                  opportunities with the size of the
                                                      example, purchase money mortgages                       in the Enterprise’s plan are or were                   relevant markets in the past, to the
                                                      exceeding the thresholds in 12 CFR                      feasible.                                              extent data are available. The annual
                                                                                                                In determining feasibility, FHFA                     reports would also include discussion of
                                                      1282.1 would not be considered. In
                                                                                                              would consider factors such as market                  the factors affecting the availability of
                                                      addition, Enterprise purchase of
                                                                                                              conditions and the financial condition                 loans for purchase that meet the
                                                      mortgages where the sale or financing of
                                                                                                              of the Enterprise. The proposed rule                   requirements of the regulation. These
                                                      prepaid single-premium credit life
                                                                                                              would provide that if FHFA determines                  factors could include market or
                                                      insurance products occurs in
                                                                                                              that such compliance is or was feasible,
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                                                      connection with the origination would                                                                          accounting requirements for lenders to
                                                      not be considered.                                                                                             retain loans in portfolio or to sell them,
                                                                                                              Corporation, Office of Thrift Supervision, National
                                                         The proposed rule would provide that                 Credit Union Administration, ‘‘Statement on
                                                                                                                                                                     the availability and pricing of credit
                                                      Enterprise purchases of mortgages that                  Subprime Mortgage Lending,’’ 72 FR 37569–575           enhancements from third parties and
                                                      do not conform to the interagency                       (July 10, 2007).                                       competition from other secondary
                                                                                                                 60 Office of the Comptroller of the Currency,
                                                      Statement on Subprime Mortgage                                                                                 market participants.
                                                                                                              Federal Reserve Board, Federal Deposit Insurance
                                                      Lending 59 and the Interagency                          Corporation, Office of Thrift Supervision, National    IV. Paperwork Reduction Act
                                                                                                              Credit Union Administration, ‘‘Interagency
                                                        59 Office of the Comptroller of the Currency,         Guidance on Nontraditional Mortgage Product              The proposed rule does not contain
                                                      Federal Reserve Board, Federal Deposit Insurance        Risks.’’ 71 FR 58609–618 (Oct. 4, 2006).               any information collection requirement


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                                                                                Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules                                            32113

                                                      that requires the approval of the Office                  Rural area, for purposes of subpart C                underwriting guidelines to facilitate a
                                                      of Management and Budget under the                      of this part, shall have the same                      secondary market to preserve housing
                                                      Paperwork Reduction Act (44 U.S.C.                      meaning as provided in 42 U.S.C. 1490.                 affordable to very low-, low- and
                                                      3501 et seq.).                                          *     *     *      *    *                              moderate-income families under eligible
                                                                                                                3. Add subpart C to read as follows:                 housing programs. The Enterprise’s
                                                      V. Regulatory Flexibility Act
                                                                                                                                                                     activities under this section shall serve
                                                         The Regulatory Flexibility Act (5                    Subpart C—Duty to Serve                                each such income group in the year for
                                                      U.S.C. 601 et seq.) requires that a                     Sec.                                                   which the Enterprise is evaluated and
                                                      regulation that has a significant                       1282.31 General.                                       rated.
                                                      economic impact on a substantial                        1282.32 Manufactured housing market.                      (b) Eligible housing programs.
                                                      number of small entities, small                         1282.33 Affordable housing preservation                Enterprise activities related to housing
                                                                                                                   market.                                           projects under the following programs
                                                      businesses, or small organizations must
                                                                                                              1282.34 Rural markets.                                 shall be eligible for consideration under
                                                      include an initial regulatory flexibility               1282.35 Underserved markets plan.
                                                      analysis describing the regulation’s                                                                           the affordable housing preservation
                                                                                                              1282.36 Evaluations and assigned ratings.
                                                      impact on small entities. Such an                                                                              market:
                                                                                                              1282.37 Consideration of transactions or
                                                      analysis need not be undertaken if the                       activities.
                                                                                                                                                                        (1) The project-based and tenant-
                                                      agency has certified that the regulation                1282.38 General requirements for loan                  based rental assistance housing
                                                      will not have a significant economic                         purchases.                                        programs under section 8 of the U.S.
                                                      impact on a substantial number of small                 1282.39 Special requirements for loan                  Housing Act of 1937, 42 U.S.C. 1437f;
                                                      entities. 5 U.S.C. 605(b). FHFA has                          purchases.                                           (2) The rental and cooperative
                                                      considered the impact of the proposed                   1282.40 Failure to comply.                             housing for lower income families
                                                                                                              1282.41 Housing plans.                                 under section 236 of the National
                                                      rule under the Regulatory Flexibility
                                                      Act. The General Counsel of FHFA                                                                               Housing Act, 12 U.S.C. 1715z–1;
                                                      certifies that the proposed rule, if                    Subpart C—Duty to Serve                                   (3) The housing program for
                                                      adopted as a final rule, is not likely to                                                                      moderate-income and displaced families
                                                                                                              § 1282.31    General.                                  under section 221(d)(4) of the National
                                                      have a significant economic impact on
                                                                                                                (a) This subpart sets forth the                      Housing Act, 12 U.S.C. 1715l;
                                                      a substantial number of small business
                                                                                                              Enterprises’ duty to serve three                          (4) The supportive housing program
                                                      entities because the regulation is
                                                                                                              underserved markets as required by                     for the elderly under section 202 of the
                                                      applicable only to the Enterprises,
                                                                                                              section 1335 of the Safety and                         Housing Act of 1959, 12 U.S.C. 1701q;
                                                      which are not small entities for
                                                                                                              Soundness Act, 12 U.S.C. 4565. This                       (5) The supportive housing program
                                                      purposes of the Regulatory Flexibility
                                                                                                              subpart also establishes for 2010 and                  for persons with disabilities under
                                                      Act.
                                                                                                              subsequent years, standards and                        section 811 of the Cranston-Gonzalez
                                                      List of Subjects in 12 CFR Part 1282                    procedures for evaluating and rating                   National Affordable Housing Act, 42
                                                                                                              each Enterprise’s compliance with the                  U.S.C. 8013;
                                                        Mortgages, Reporting and                              duty to serve underserved markets.                        (6) The permanent supportive housing
                                                      recordkeeping requirements.                               (b) Nothing in this subpart shall                    projects subsidized under Title IV of the
                                                        Accordingly, for the reasons stated in                permit or require an Enterprise to                     McKinney-Vento Homeless Assistance
                                                      the preamble, FHFA proposes to further                  engage in any activity that would                      Act, 42 U.S.C. 11361 et seq.;
                                                      amend part 1282 of subchapter E of 12                   otherwise be inconsistent with its                        (7) The rural rental housing program
                                                      CFR chapter XII, as proposed to be                      Charter Act or the Safety and Soundness                under section 515 of the Housing Act of
                                                      revised at 75 FR 9061 (February 26,                     Act.                                                   1949, 42 U.S.C. 1485;
                                                      2010), as follows:                                                                                                (8) Low-income housing tax credits
                                                                                                              § 1282.32    Manufactured housing market.              under section 42 of the Internal Revenue
                                                      SUBCHAPTER E—HOUSING GOALS AND                             (a) Duty in general. Each Enterprise                Code of 1986, 26 U.S.C. 42;
                                                      MISSION                                                 shall develop loan products and flexible                  (9) The Neighborhood Stabilization
                                                                                                              underwriting guidelines to facilitate a                Program; and
                                                      PART 1282—ENTERPRISE HOUSING                            secondary market for eligible mortgages                   (10) Other comparable affordable
                                                      GOALS AND MISSION                                       on manufactured homes for very low-,                   housing programs administered by a
                                                                                                              low- and moderate-income families. The                 state or local government that preserve
                                                         1. The authority citation for part 1282
                                                                                                              Enterprise’s activities under this section             housing affordable to very low-, low-
                                                      is revised to read as follows:
                                                                                                              shall serve each such income group in                  and moderate-income families, as may
                                                        Authority: 12 U.S.C. 4501, 4502, 4511,                the year for which the Enterprise is                   be determined by FHFA in its
                                                      4513, 4526, 4561–4566, 4603.                            evaluated and rated.                                   discretion.
                                                                                                                 (b) Eligible activities. Mortgages on                  (c) Level of assistance. An Enterprise
                                                        2. In § 1282.1, add the following
                                                                                                              manufactured homes and activities                      shall not be required to assist every
                                                      definitions in alphabetical order:
                                                                                                              related to such mortgages shall be                     program enumerated in paragraphs
                                                      § 1282.1   Definitions.                                 eligible for consideration under the duty              (b)(1) through (b)(9) of this section in a
                                                      *     *    *     *      *                               to serve the manufactured housing                      particular year.
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                                                                                                              market provided that:
                                                        Manufactured home, for purposes of                                                                           § 1282.34   Rural markets.
                                                                                                                 (1) The home is titled as real property;
                                                      subpart C of this part, means a                                                                                  Each Enterprise shall develop loan
                                                                                                              and
                                                      manufactured home as defined in                                                                                products and flexible underwriting
                                                                                                                 (2) The loan does not provide for
                                                      section 603(6) of the Manufactured                                                                             guidelines to facilitate a secondary
                                                                                                              mandatory arbitration of disputes.
                                                      Home Construction and Safety                                                                                   market for mortgages on housing for
                                                      Standards Act of 1974, as amended, 42                   § 1282.33    Affordable housing preservation           very low-, low- and moderate-income
                                                      U.S.C. 5402(6), and implementing                        market.                                                families in rural areas. The Enterprise’s
                                                      regulations.                                              (a) Duty in general. Each Enterprise                 activities under this section shall serve
                                                      *     *    *     *      *                               shall develop loan products and flexible               each such income group in the year for


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

                                                      which the Enterprise is evaluated and                   and market participants. Technical                     will take to accomplish the benchmarks
                                                      rated.                                                  support may include seminars, training                 and objectives and whether those steps
                                                                                                              and literature on the Enterprise’s loan                will be responsive to the needs of a
                                                      § 1282.35    Underserved markets plan.                  products and processes, and any other                  particular underserved market; and
                                                         (a) General. Each Enterprise shall                   support that would assist qualified loan                 (4) The extent to which the plan
                                                      submit an underserved markets plan                      sellers and market participants gain a                 serves families in each targeted income
                                                      describing the steps it will take to serve              better understanding of the Enterprise’s               group in a particular underserved
                                                      each underserved market. FHFA will                      products; and                                          market.
                                                      annually evaluate the Enterprise on its                    (iv) Any other benchmark and                          (f) Satisfactory rating. Benchmarks
                                                      performance in all three underserved                    objective the Enterprise deems relevant.               and objectives appropriate for a rating of
                                                      markets pursuant to the plan.                              (4) Benchmarks and objectives for                   satisfactory for a particular assessment
                                                         (b) Term of plan. The plan shall cover               loan purchase assessment factor.—(i)                   factor may include:
                                                      a period of two years.                                  The volume of loans the Enterprise will                  (1) Use of innovative products,
                                                         (c) Plan content.—(1) The plan shall                 purchase that serves the particular                    practices and services;
                                                      specify measurable benchmarks and                       underserved market;                                      (2) Improvement in performance from
                                                      objectives designed to achieve a rating                    (ii) The market opportunities for                   year to year;
                                                      of satisfactory for each assessment factor              Enterprise mortgage purchases in the                     (3) Responsiveness to the needs of a
                                                      in each underserved market. For each                    underserved area. Descriptions of                      particular underserved market;
                                                      underserved market, the plan shall                      market opportunities shall be supported                  (4) Assistance with products and
                                                      address each benchmark and objective                    by market size estimations;                            programs for first-time homebuyers;
                                                      set forth in paragraphs (c)(2) through                     (iii) The Enterprise’s past performance               (5) Assistance to insured depository
                                                      (c)(5) of this section and describe with                on the volume of loans purchased in a                  institutions in meeting their CRA
                                                      sufficient specificity the steps the                    particular underserved market relative                 requirements;
                                                      Enterprise will take to accomplish such                 to the volume of loans the Enterprise                    (6) Attention to families in each
                                                      benchmark and objective. The plan shall                 will purchase in such underserved                      income group targeted by the duty to
                                                      include annual measurable benchmarks                    market in a given year;                                serve; and
                                                      and objectives and a timeframe for                         (iv) The extent to which the loans                    (7) For the loan purchase assessment
                                                      meeting them.                                           purchased will serve each income group                 factor, improvement in loan purchases
                                                         (2) Benchmarks and objectives for                    targeted by the duty to serve; and                     over prior years.
                                                      loan product assessment factor.—(i)                        (v) Any other benchmark and                           (g) Unsatisfactory rating. Failure to
                                                      Loan features or products the Enterprise                objective the Enterprise deems relevant.               substantially achieve the benchmarks
                                                      will evaluate or develop to increase the                   (5) Benchmarks and objectives for                   and objectives for a rating of satisfactory
                                                      number of loans available to very                       investments and grants assessment                      on a particular assessment factor shall
                                                      low-, low- and moderate-income                          factor.—(i) Investments and grants the                 result in a rating of unsatisfactory for
                                                      families in a particular underserved                    Enterprise intends to make in a                        that assessment factor.
                                                      market;                                                 particular year; and
                                                         (ii) The Enterprise’s evaluation of and                 (ii) Any other benchmark and                        § 1282.36   Evaluations and assigned
                                                      changes to its underwriting guidelines                                                                         ratings.
                                                                                                              objective the Enterprise deems relevant.
                                                      for existing loan products for the                         (d) Procedures.—(1) An Enterprise                      (a) Assessment factors.—(1) FHFA
                                                      purpose of increasing the number of                     shall submit the plan to FHFA at least                 will separately evaluate an Enterprise’s
                                                      very low-, low- and moderate-income                     90 days before the effective date of the               performance on each of the four
                                                      families that would qualify for such                    plan.                                                  assessment factors, as provided in
                                                      products. Any changes must be                              (2) The effective date of the plan shall            paragraphs (a)(2) through (a)(5) of this
                                                      consistent with the Safety and                          be January 1st of that evaluation year.                section, in each underserved market.
                                                      Soundness Act and the safe and sound                       (3) Within 60 days of receipt of an                 FHFA will evaluate and rate each
                                                      operation of the Enterprise;                            Enterprise’s plan, FHFA will review the                Enterprise’s performance in each
                                                         (iii) The degree to which such loan                  plan and inform the Enterprise of any                  underserved market on an annual basis.
                                                      features, products or evaluation of or                  concerns with or objections to the plan.                  (2) Loan product assessment factor.
                                                      changes to underwriting guidelines                         (4) If FHFA objects to a plan                       FHFA will evaluate each Enterprise on
                                                      serve families in each income group                     submitted by the Enterprise, the                       its development of loan products, more
                                                      targeted by the duty to serve; and                      Enterprise shall submit an amended                     flexible underwriting guidelines, and
                                                         (iv) Any other benchmark and                         plan to FHFA not later than 15 days                    other innovative approaches to
                                                      objective the Enterprise deems relevant.                following notification from FHFA.                      providing financing to each underserved
                                                         (3) Benchmarks and objectives for                       (e) Criteria for evaluating plan                    market.
                                                      outreach assessment factor.—(i) New                     content. FHFA will evaluate a plan                        (3) Outreach assessment factor. FHFA
                                                      relationships the Enterprise will                       using the following criteria:                          will evaluate each Enterprise on the
                                                      develop with qualified loan sellers that                   (1) The extent to which the plan                    extent of its outreach to qualified loan
                                                      serve the needs of very low-, low- and                  addresses each assessment factor and                   sellers and other market participants in
                                                      moderate-income families in a                           describes the steps the Enterprise will                each underserved market.
                                                      particular underserved market;                          take to implement each benchmark and                      (4) Loan purchase assessment factor.
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                                                         (ii) Enterprise outreach to market                   objective for each assessment factor in                FHFA will evaluate each Enterprise on
                                                      participants, such as community                         each underserved market;                               the volume of loans it purchases in each
                                                      organizations, community development                       (2) The extent to which the plan                    underserved market relative to the
                                                      financial institutions, and organizations               establishes measurable benchmarks and                  market opportunities available to the
                                                      or market participants that serve                       objectives to achieve a rating of                      Enterprise.
                                                      families in each income group targeted                  satisfactory and to serve a particular                    (5) Investments and grants assessment
                                                      by the duty to serve;                                   underserved market;                                    factor. FHFA will evaluate each
                                                         (iii) Technical support the Enterprise                  (3) The innovativeness and                          Enterprise on the amount of its
                                                      will provide to qualified loan sellers                  effectiveness of the steps the Enterprise              investments and grants in projects that


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                                                                                Federal Register / Vol. 75, No. 108 / Monday, June 7, 2010 / Proposed Rules                                            32115

                                                      assist in meeting the needs of each                     4569, and mortgage purchases funded                    considered for purposes of the duty to
                                                      underserved market, taking into                         with such grant amounts;                               serve underserved markets in the year in
                                                      consideration the safe and sound                           (2) HOEPA mortgages and mortgages                   which the transaction or activity is
                                                      operation of the Enterprise and the                     with unacceptable terms and                            completed. FHFA may determine that
                                                      requirements of conservatorship.                        conditions;                                            partial consideration is appropriate for a
                                                         (b) Evaluation of assessment factors.                   (3) Mortgages that do not conform to                transaction or activity that begins in a
                                                      In determining whether an Enterprise                    the interagency Statement on Subprime                  particular year but is not completed
                                                      has complied with the duty to serve                     Mortgage Lending, 72 FR 37569–575                      until a subsequent year, except that
                                                      each underserved market, FHFA will                      (July 10, 2007), and the Interagency                   transactions that count toward the loan
                                                      annually evaluate the Enterprise under                  Guidance on Nontraditional Mortgage                    purchase assessment factor shall be
                                                      its underserved markets plan and assign                 Product Risks, 71 FR 58609–618 (Oct. 4,                considered in the year in which the
                                                      a rating as follows:                                    2006);                                                 Enterprise purchased the mortgage.
                                                         (1) FHFA will assign a rating of                        (4) Mortgages on manufactured homes                    (e) Consideration under one
                                                      satisfactory or unsatisfactory to each                  not titled as real property or that                    assessment factor. A transaction or
                                                      assessment factor in each underserved                   provide for mandatory arbitration of                   activity will only be considered under
                                                      market based on FHFA’s determination                    disputes, or any activity related to such              one assessment factor in a particular
                                                      of whether the Enterprise has                           mortgages;                                             underserved market.
                                                      substantially achieved its benchmarks                      (5) Mortgages on manufactured home                     (f) Consideration toward multiple
                                                      and objectives under its underserved                    communities or any activity related to                 underserved markets. A transaction or
                                                      markets plan;                                           such mortgages;                                        activity, including dwelling units
                                                         (2) In determining whether the                          (6) Purchases of single-family private              financed by an Enterprise’s mortgage
                                                      Enterprise has substantially achieved its               label securities;                                      purchase, shall be considered for each
                                                      benchmarks and objectives, FHFA will                       (7) Commitments to buy mortgages at                 underserved market for which such
                                                      consider market factors and other                       a later date or time;                                  transaction or activity qualifies in that
                                                      circumstances beyond the Enterprise’s                      (8) Options to acquire mortgages;                   year.
                                                      control that affected the Enterprise’s                     (9) Rights of first refusal to acquire
                                                      ability to fully achieve its benchmarks                 mortgages;                                             § 1282.38 General requirements for loan
                                                                                                                 (10) Mortgage purchases to the extent               purchases.
                                                      and objectives.
                                                         (c) Determination of compliance. For                 they finance any dwelling units that are                  (a) General. This section shall apply
                                                      each underserved market, FHFA will                      secondary residences;                                  to Enterprise mortgage purchases that
                                                      assign a rating of ‘‘in compliance’’ or                    (11) Single-family refinancing                      will be considered under the loan
                                                      ‘‘noncompliance’’ with the duty to serve                mortgages that result from conversion of               purchase assessment factor for a
                                                      that market.                                            balloon notes to fully amortizing notes,               particular underserved market. Only
                                                                                                              if the Enterprise already owns or has an               dwelling units that are financed by
                                                      § 1282.37 Consideration of transactions or              interest in the balloon note at the time               mortgage purchases eligible to be
                                                      activities.                                             conversion occurs;                                     considered under the duty to serve a
                                                         (a) General. FHFA shall determine                       (12) Purchases of subordinate lien                  particular underserved market, and that
                                                      whether an Enterprise transaction or                    mortgages (second mortgages);                          are not specifically excluded as
                                                      activity shall be considered for purposes                  (13) Transactions or activities for                 ineligible under § 1282.37(b), may be
                                                      of the duty to serve underserved                        which either Enterprise previously                     considered.
                                                      markets. In this determination, FHFA                    received consideration under the duty                     (b) Rental units. For purposes of
                                                      will consider whether the transaction or                to serve underserved markets within the                counting rental units toward the loan
                                                      activity facilitates a secondary market                 five years immediately preceding the                   purchase assessment factor, mortgage
                                                      for mortgages: On manufactured homes                    current performance year;                              purchases financing such units shall be
                                                      for very low-, low- and moderate-                          (14) Purchases of mortgages where the               evaluated based on the income of actual
                                                      income families; to preserve housing                    property has not been approved for                     or prospective tenants where such data
                                                      affordable to very low-, low- and                       occupancy;                                             is available, i.e., known to a lender.
                                                      moderate-income families under eligible                    (15) Any interests in mortgages that                   (1) Use of income. Each Enterprise
                                                      housing programs; and on housing for                    the Director determines, in writing,                   shall require lenders to provide to the
                                                      very low-, low- and moderate-income                     shall not be treated as interests in                   Enterprise tenant income information,
                                                      families in rural areas. If FHFA                        mortgages;                                             but only when such information is
                                                      determines that a transaction or activity                  (16) Purchases of State and local                   known to the lender. When the income
                                                      will be considered for purposes of the                  government housing bonds except as                     of actual tenants is available, the income
                                                      duty to serve underserved markets, such                 provided in § 1282.39(g); and                          of the tenant shall be compared to the
                                                      transaction or activity will be                            (17) Any combination of factors in                  median income for the area, adjusted for
                                                      considered under the relevant                           paragraphs (b)(1) through (b)(16) of this              family size as provided in § 1282.17, or
                                                      assessment factor for each underserved                  section.                                               as provided in § 1282.18 if family size
                                                      market it serves.                                          (c) FHFA review of transactions or                  is not known.
                                                         (b) Not considered. The following                    activities. FHFA may determine whether                    (i) When such tenant income
                                                      transactions or activities shall not be                 and how any transaction or activity will               information is available for all occupied
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                                                      considered for purposes of the duty to                  be considered for purposes of the duty                 units, the Enterprise’s performance shall
                                                      serve underserved markets and shall not                 to serve underserved markets, including                be based on the income of the tenants
                                                      be considered for any assessment factor,                treatment of missing data. FHFA will                   in the occupied units. For unoccupied
                                                      even if the transaction or activity would               notify each Enterprise in writing of any               units that are vacant and available for
                                                      otherwise be considered under                           determination regarding the treatment of               rent and for unoccupied units that are
                                                      § 1282.39:                                              any transaction or activity.                           under repair or renovation and not
                                                         (1) Enterprise contributions to the                     (d) The year in which a transaction or              available for rent, the Enterprise shall
                                                      Housing Trust Fund, 12 U.S.C. 4568,                     activity will be considered. A                         use rent levels for comparable units in
                                                      and the Capital Magnet Fund, 12 U.S.C.                  transaction or activity will be                        the property to determine affordability,


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

                                                      except as provided in paragraph                         to such unit by using the median                       satisfy the requirements of each such
                                                      (b)(1)(ii) of this section.                             income level of the census tract where                 paragraph.
                                                         (ii) When income for tenants is                      the property is located, as determined                     (b) Credit enhancements—(1)
                                                      available to a lender because a project                 by FHFA based on the most recent                       Dwelling units financed under a credit
                                                      is subject to a federal housing program                 decennial census.                                      enhancement entered into by an
                                                      that establishes the maximum income                        (d) Application of median income—                   Enterprise shall be treated as mortgage
                                                      for a tenant or a prospective tenant in                 (1) For purposes of determining an                     purchases only when:
                                                      rental units, the income of prospective                 area’s median income under §§ 1282.17                      (i) The Enterprise provides a specific
                                                      tenants may be counted at the maximum                   through 1282.19 and the definitions in                 contractual obligation to ensure timely
                                                      income level established under such                     § 1282.1, the area is:                                 payment of amounts due under a
                                                      housing program for that unit, but such                    (i) The metropolitan area, if the                   mortgage or mortgages financed by the
                                                      tenant income shall not exceed 100                      property which is the subject of the                   issuance of housing bonds (such bonds
                                                      percent of area median income. In                       mortgage is in a metropolitan area; and                may be issued by any entity, including
                                                      determining the income of prospective                      (ii) In all other areas, the county in              a State or local housing finance agency);
                                                      tenants, the income shall be projected                  which the property is located, except                  and
                                                      based on the types of units and market                  that where the State non-metropolitan                      (ii) The Enterprise assumes a credit
                                                      area involved. Where the income of                      median income is higher than the                       risk in the transaction substantially
                                                      prospective tenants is projected, each                  county’s median income, the area is the                equivalent to the risk that would have
                                                      Enterprise must determine that the                      State non-metropolitan area.                           been assumed by the Enterprise if it had
                                                      income figures are reasonable                              (2) When an Enterprise cannot                       securitized the mortgages financed by
                                                      considering the rents (if any) on the                   precisely determine whether a mortgage                 such bonds.
                                                      same units in the past and considering                  is on dwelling unit(s) located in one                      (2) When an Enterprise provides a
                                                      current rents on comparable units in the                area, the Enterprise shall determine the               specific contractual obligation to ensure
                                                      same market area.                                       median income for the split area in the                timely payment of amounts due under
                                                         (2) Use of rent. When the income of                  manner prescribed by the Federal                       any mortgage originally insured by a
                                                      the prospective or actual tenants of a                  Financial Institutions Examination                     public purpose mortgage insurance
                                                      dwelling unit is not available,                         Council for reporting under the Home                   entity or fund, the Enterprise may, on a
                                                      performance will be evaluated based on                  Mortgage Disclosure Act, if the                        case-by-case basis, seek approval from
                                                      rent and whether the rent is affordable                 Enterprise can determine that the                      the Director for such transactions to
                                                      to the income group targeted by the                     mortgage is on dwelling unit(s) located                count under the loan purchase
                                                      underserved market. A rent is affordable                in:                                                    assessment factor for a particular
                                                      if the rent does not exceed the                            (i) A census tract;
                                                      maximum income levels as provided in                                                                           underserved market.
                                                                                                                 (ii) A census place code;                               (c) Risk-sharing. Mortgages purchased
                                                      § 1282.19. In determining contract rent                    (iii) A block-group enumeration
                                                      for a dwelling unit, the actual rent or                                                                        under risk-sharing arrangements
                                                                                                              district;                                              between an Enterprise and any federal
                                                      average rent by unit type shall be used.                   (iv) A nine-digit zip code; or
                                                         (3) Model units and rental offices. A                                                                       agency under which the Enterprise is
                                                                                                                 (v) Another appropriate geographic
                                                      model unit or rental office may be                                                                             responsible for a substantial amount (50
                                                                                                              segment that is partially located in more
                                                      counted towards the loan purchase                                                                              percent or more) of the risk shall be
                                                                                                              than one area (‘‘split area’’).
                                                      assessment factor only if an Enterprise                                                                        treated as mortgage purchases.
                                                                                                                 (e) Sampling not permitted.
                                                      determines that the number of such                      Performance under the loan purchase                        (d) Participations. Participations
                                                      units is reasonable and minimal                         assessment factor for each underserved                 purchased by an Enterprise shall be
                                                      considering the size of the property.                   market for each year shall be based on                 treated as mortgage purchases only
                                                         (4) Timeliness of information. When                  a complete tabulation of dwelling units                when the Enterprise’s participation in
                                                      counting dwelling units, each Enterprise                for that year; a sampling of such                      the mortgage is 50 percent or more.
                                                      shall use tenant and rental information                 dwelling units is not acceptable.                          (e) Cooperative housing and
                                                      as of the time of mortgage acquisition.                    (f) Newly available data. When an                   condominiums—(1) The purchase of a
                                                         (c) Missing data or information—(1)                  Enterprise uses data to determine                      mortgage on a cooperative housing unit
                                                      When an Enterprise lacks sufficient                     whether a dwelling unit counts toward                  (‘‘a share loan’’) or a mortgage on a
                                                      information to determine whether an                     the loan purchase assessment factor for                condominium unit shall be treated as a
                                                      owner-occupied unit in a property                       a particular underserved market and                    mortgage purchase.
                                                      securing a mortgage purchased by an                     new data is released after the start of a                  (2) The purchase of a mortgage on a
                                                      Enterprise counts toward the loan                       calendar quarter, the Enterprise need                  cooperative building (‘‘a blanket loan’’)
                                                      purchase assessment factor for a                        not use the new data until the start of                or a mortgage on a condominium project
                                                      particular underserved market because                   the following quarter.                                 shall be treated as a mortgage purchase.
                                                      the income of the mortgagor is not                                                                                 (3) Where an Enterprise purchases
                                                      available, the Enterprise may not count                 § 1282.39 Special requirements for loan                both a blanket loan on a cooperative
                                                      such unit.                                              purchases.                                             building and share loans for units in the
                                                         (2) When an Enterprise lacks                            (a) General. Subject to FHFA’s                      same building, both the blanket loan
                                                      sufficient information to determine                     determination of whether a transaction                 and the share loan(s) shall be treated as
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                                                      whether a rental unit in a property                     or activity shall be considered for                    mortgage purchases. Where an
                                                      securing a mortgage purchased by an                     purposes of the duty to serve                          Enterprise purchases both a
                                                      Enterprise counts toward the loan                       underserved markets, the transactions                  condominium project mortgage and
                                                      purchase assessment factor for a                        and activities identified in this section              mortgages on condominium dwelling
                                                      particular underserved market because                   shall be treated as mortgage purchases                 units in the same project, both the
                                                      neither the income of prospective or                    as described, and be considered under                  condominium project mortgages and the
                                                      actual tenants, nor the actual or average               the loan purchase assessment factor. A                 mortgages on condominium dwelling
                                                      rental data, are available, an Enterprise               transaction or activity that is covered by             units shall be treated as mortgage
                                                      may estimate affordability with respect                 more than one paragraph below must                     purchases.


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

                                                         (f) Seasoned mortgages. An                           determines that such compliance is or                  report on its transactions and activities
                                                      Enterprise’s purchase of a seasoned                     was feasible, the Director will follow the             undertaken pursuant to its underserved
                                                      mortgage shall be treated as a mortgage                 procedures in 12 U.S.C. 4566(b).                       markets plan, which shall include
                                                      purchase.                                                                                                      detailed information on the Enterprise’s
                                                         (g) Purchase of refinancing mortgages.               § 1282.41    Housing plans.
                                                                                                                                                                     progress towards meeting the
                                                      The purchase of a refinancing mortgage                     (a) General. If the Director determines             benchmarks and objectives in its plan.
                                                      by an Enterprise shall be treated as a                  that an Enterprise did not comply with                    (b) Annual report. To comply with the
                                                      mortgage purchase only if the                           the duty to serve a particular                         requirements in sections 309(n) of the
                                                      refinancing is an arms-length                           underserved market in a given year, the                Fannie Mae Charter Act and 307(f) of
                                                      transaction that is borrower-driven.                    Director may require the Enterprise to                 the Freddie Mac Act and for purposes
                                                         (h) Mortgage revenue bonds. The                      submit a housing plan for approval by                  of FHFA’s Annual Housing Report to
                                                      purchase or guarantee of a mortgage                     the Director.                                          Congress, each Enterprise shall submit
                                                      revenue bond issued by a State or local                    (b) Nature of housing plan. If the
                                                                                                                                                                     to the Director an annual report on its
                                                      housing finance agency shall be treated                 Director requires a housing plan, the
                                                                                                                                                                     transactions and activities undertaken
                                                      as a purchase of the underlying                         housing plan shall:
                                                                                                                 (1) Be feasible;                                    pursuant to its underserved markets
                                                      mortgages only to the extent the                                                                               plan no later than 60 days after the end
                                                                                                                 (2) Be sufficiently specific to enable
                                                      Enterprise has sufficient information to                                                                       of each calendar year. For each
                                                                                                              the Director to monitor compliance
                                                      determine whether the underlying                                                                               underserved market, the annual report
                                                                                                              periodically;
                                                      mortgages or mortgage-backed securities                    (3) Describe the specific actions that              shall include: a description of the
                                                      serve very low-, low- or moderate-                      the Enterprise will take—:                             Enterprise’s market opportunities for
                                                      income families in a particular                            (i) To comply with the duty to serve                loan purchases during the evaluation
                                                      underserved market.                                     a particular underserved market for the                year to the extent data is available; the
                                                         (i) Loan modifications. An                           next calendar year; or                                 volume of qualifying loans purchased
                                                      Enterprise’s modification of a loan in                     (ii) To make such improvements and                  by the Enterprise; a comparison of the
                                                      accordance with the Making Home                         changes in its operations as are                       Enterprise’s loan purchases with its loan
                                                      Affordable program announced on                         reasonable in the remainder of the year,               purchases in prior years; and a
                                                      March 4, 2009, that is held in the                      if the Director determines that there is               comparison of market opportunities
                                                      Enterprise’s portfolio or that is in a pool             a substantial probability that the                     with the size of the relevant markets in
                                                      backing a security guaranteed by the                    Enterprise will fail to comply with the                the past, to the extent data are available.
                                                      Enterprise, shall be treated as a                       duty to serve a particular underserved                   Dated: May 28, 2010.
                                                      mortgage purchase.                                      market in such year; and
                                                         (j) Seller dissolution option—(1)                                                                           Edward J. DeMarco,
                                                                                                                 (4) Address any additional matters
                                                      Mortgages acquired through transactions                                                                        Acting Director, Federal Housing Finance
                                                                                                              relevant to the housing plan as required,
                                                      involving seller dissolution options                                                                           Agency.
                                                                                                              in writing, by the Director.
                                                      shall be treated as mortgage purchases                     (c) Deadline for submission. The                    [FR Doc. 2010–13411 Filed 6–4–10; 8:45 am]
                                                      only when:                                              Enterprise shall submit the housing plan               BILLING CODE 8070–01–P
                                                         (i) The terms of the transaction                     to the Director within 45 days after
                                                      provide for a lockout period that                       issuance of a notice requiring the
                                                      prohibits the exercise of the dissolution               Enterprise to submit a housing plan.                   DEPARTMENT OF TRANSPORTATION
                                                      option for at least one year from the date              The Director may extend the deadline
                                                      on which the transaction was entered                    for submission of a housing plan, in                   Federal Aviation Administration
                                                      into by the Enterprise and the seller of                writing and for a time certain, to the
                                                      the mortgages; and                                      extent the Director determines an                      14 CFR Part 71
                                                         (ii) The transaction is not dissolved                extension is necessary.
                                                      during the one-year minimum lockout                                                                            [Docket No. FAA–2010–0365; Airspace
                                                                                                                 (d) Review of housing plans. The                    Docket No. 10–AAL–12]
                                                      period.                                                 Director shall review and approve or
                                                         (2) FHFA may grant an exception to                   disapprove housing plans in accordance                 RIN 2120–AA66
                                                      the one-year minimum lockout period                     with 12 U.S.C. 4566(c)(4) and (c)(5).
                                                      described in paragraphs (j)(1)(i) and                      (e) Resubmission. If the Director                   Proposed Amendment of Colored
                                                      (j)(1)(ii) of this section, in response to a            disapproves an initial housing plan                    Federal Airway B–38; Alaska
                                                      written request from an Enterprise, if                  submitted by an Enterprise, the                        AGENCY: Federal Aviation
                                                      FHFA determines that the transaction                    Enterprise shall submit an amended
                                                      furthers the purposes of the Enterprise’s                                                                      Administration (FAA), DOT.
                                                                                                              housing plan acceptable to the Director
                                                      Charter Act and the Safety and                                                                                 ACTION: Notice of proposed rulemaking
                                                                                                              not later than 15 days after the
                                                      Soundness Act.                                          Director’s disapproval of the initial                  (NPRM).
                                                         (3) For purposes of paragraph (j) of                 housing plan; the Director may extend                  SUMMARY: This action proposes to
                                                      this section, ‘‘seller dissolution option’’             the deadline if the Director determines                amend Colored Federal Airway Blue 38
                                                      means an option for a seller of                         an extension is in the public interest. If             (B–38), in Alaska. Specifically this
                                                      mortgages to the Enterprises to dissolve                the amended housing plan is not                        action would remove a segment of B–38
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS




                                                      or otherwise cancel a mortgage purchase                 acceptable to the Director, the Director               from Haines Non-directional Beacon
                                                      agreement or loan sale.                                 may afford the Enterprise 15 days to                   (NDB) to the Whitehorse, Yukon
                                                      § 1282.40    Failure to comply.                         submit a new housing plan.                             Territories Canada (XY NDB). The FAA
                                                                                                                 4. Add § 1282.66 in subpart D to read               is proposing this action in preparation
                                                        If the Director determines that an                    as follows:
                                                      Enterprise has not complied with, or                                                                           of the eventual decommissioning of XY
                                                      there is a substantial probability that the             § 1282.66    Enterprise reports on duty to             NDB by the Canadian Air Authority
                                                      Enterprise will not comply with, the                    serve.                                                 NAV CANADA.
                                                      duty to serve a particular underserved                    (a) Quarterly reports. Each Enterprise               DATES: Comments must be received on
                                                      market in a given year and the Director                 shall submit to the Director a quarterly               or before July 22, 2010.


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