The Federal Housing Finance Agency (FHFA) is seeking public comments on a proposed rule that would require Fannie Mae and Freddie Mac to submit detailed plans for how they support certain segments of the mortgage market that are traditionally underserved by private investors.
Under the Housing and Economic Recovery Act of 2008, the government-sponsored enterprises (GSEs) have a duty to serve three specified, underserved markets — manufactured housing, affordable housing preservation and rural markets.
The objective is to increase the liquidity of mortgage investments and improve the distribution of investment capital available for low-income families in those markets.
Proof of planning
The FHFA’s proposed rule, which it published in the Federal Register on Dec. 15, would establish a method for evaluating and rating the GSEs’ compliance with their “duty to serve” each market. The FHFA was appointed conservator of Fannie and Freddie in 2008 to ensure they operate in a safe and sound financial condition.
“Although the enterprises are in conservatorships, the FHFA expects them to show tangible results in each underserved market and to be a catalyst for mortgage lending to very low-, low- and moderate-income families in each underserved market,” the FHFA’s proposed rule states.
The FHFA also explains that the rule aims to address the needs of families in these markets without compromising the stability of the enterprises. In addition, it expects the imposed duties to result in favorable economic returns.
Under the proposed rule, Fannie and Freddie would each be required to submit to the FHFA an Underserved Markets Plan covering a three-year period, and the public would be invited to provide input on the draft plans.
The draft plans would also be posted on the FHFA’s website, and the final plans would be posted on the GSEs’ and the FHFA’s respective websites.
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How the GSEs can earn gold stars
The FHFA would annually evaluate and rate enterprise performance by allocating points for certain activities — including nine categories of statutory activities and 11 categories of regulatory activities — with a focus on several areas:
- New loan products developed
- Changes to underwriting standards
- Outreach to targeted lenders
- Purchases of eligible loans
- Other relevant investment activities
For the manufactured housing market, duty-to-serve credit would be provided for eligible GSE activities related to homes financed as real property and blanket loans for certain manufactured housing communities.
For the affordable housing preservation market, credit would be provided for eligible GSE activities related to preserving the affordability of housing for renters and homebuyers, including activities under the programs specified in the Safety and Soundness Act.
Duty-to serve credit would also be allocated for activities related to existing small multifamily rental properties, energy efficiency improvements on existing multifamily rental and single-family first-lien properties, shared equity homeownership programs and the U.S. Department of Housing and Urban Development’s Choice Neighborhoods Initiative and Rental Assistance Demonstration program.
For the rural market, credit would be provided for eligible GSE activities related to housing in rural areas, including activities serving the following high-needs rural regions and populations: Middle Appalachia, the Lower Mississippi Delta, colonias, members of a Native American tribe located in a Native American area and migrant and seasonal agricultural workers.
Encouraging healthy competition
The FHFA would tally overall ratings for how well the GSEs served each of these three specific markets, and report them to Congress every year. The proposed rule says nothing about the potential repercussions that Fannie and Freddie may face if they receive unsatisfactory scores; it simply outlines the methods the FHFA will use to assess their compliance with certain activities.
The goal of the proposed rule, the FHFA said, is “to provide the most efficient ways to increase the enterprises’ presence in the three underserved markets and encourage healthy competition between the enterprises. When one enterprise is able to marshal its resources to better serve an underserved market, this may encourage the other enterprise and other institutions to also consider how they could assist that market.”
Any public comments on the proposed rule are due by March 17, 2016. Comments may be submitted on the FHFA’s website or on the Federal eRulemaking Portal, hand-delivered or mailed. The proposed rule is available here.
