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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
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
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
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
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
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
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
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
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
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
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
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
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
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
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
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
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
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
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.
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
(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
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
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
WReier-Aviles on DSKGBLS3C1PROD with PROPOSALS
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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