[Federal Register Volume 74, Number 148 (Tuesday, August 4, 2009)]
[Proposed Rules]
[Pages 38572-38576]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-18515]
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FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1282
RIN 2590-AA27
Duty To Serve Underserved Markets for Enterprises
AGENCY: Federal Housing Finance Agency.
ACTION: Advance notice of proposed rulemaking and request for comment.
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SUMMARY: Section 1129 of the Housing and Economic Recovery Act of 2008
(HERA) amended the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992 (Safety and Soundness Act) to establish a duty
for the Federal National Mortgage Association (Fannie Mae) and the
Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively,
Enterprises) to serve three underserved markets--manufactured housing,
affordable housing preservation, and rural areas--in order to increase
the liquidity of mortgage investments and improve the distribution of
investment capital available for mortgage financing in those markets.
Section 1335 of the Safety and Soundness Act, as amended, requires the
Federal Housing Finance Agency (FHFA), beginning in 2010, to establish
a manner for: evaluating whether and to what extent the Enterprises
have complied with the duty to serve underserved markets; and rating
the extent of compliance. To assist FHFA in rulemaking to implement the
duty to serve underserved markets, FHFA seeks comment on the
characteristics and types of Enterprise transactions and activities
that should be considered and how such transactions and activities
should be evaluated and rated, for purposes of determining the
Enterprises' performance of the duty to serve underserved markets.
DATES: Written comments must be received on or before: September 18,
2009.
ADDRESSES: You may submit your comments, identified by regulatory
information number (RIN) 2590-AA27, by any of the following methods:
U.S. Mail, United Parcel Post, Federal Express, or Other
Mail Service: The mailing address for comments is: Alfred M. Pollard,
General Counsel, Attention: Comments/RIN 2590-AA27, Federal Housing
Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552.
Hand Delivered/Courier: The hand delivery address is:
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA27,
Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW.,
Washington, DC 20552. The package should be logged at the Guard Desk,
First Floor, on business days between 9 a.m. and 5 p.m.
E-mail: Comments to Alfred M. Pollard, General Counsel,
may be sent by e-mail to RegComments@fhfa.gov. Please include ``RIN
2590-AA27'' in the subject line of the message.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments. If you submit your
comment to the Federal eRulemaking Portal, please also send it by e-
mail to FHFA at RegComments@fhfa.gov to ensure timely receipt by FHFA.
Please include ``RIN 2590-AA27'' in the subject line of the message.
FOR FURTHER INFORMATION CONTACT: Nelson Hernandez, Senior Associate
Director, Housing Mission and Goals, (202) 408-2819, Brian Doherty,
Acting Manager, Housing Mission and Goals-Policy, (202) 408-2991, or
Paul Manchester, Acting Manager, Housing Mission and Goals-Quantitative
Analysis, (202) 408-2946 (these are not toll-free numbers); Lyn Abrams,
Attorney-Advisor, (202) 414-8951, Kevin Sheehan, Attorney-Advisor,
(202) 414-8952, or Sharon Like, Associate General Counsel, (202) 414-
8950 (these are not toll-free numbers), Office of General Counsel,
Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW.,
Washington, DC 20552. The telephone number for the Telecommunications
Device for the Hearing Impaired is (800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Comments
FHFA invites comments on all aspects of the Advance Notice of
Proposed Rulemaking. Copies of all comments will be posted without
change, including any personal information you provide, such as your
name and address, on the FHFA Web site at http://www.fhfa.gov. In
addition, copies of all comments received will be available for
examination by the public on business days between the hours of 10 a.m.
and 3 p.m. at the Federal Housing Finance Agency, Fourth Floor, 1700 G
Street, NW., Washington, DC 20552. To make an appointment to
[[Page 38573]]
inspect comments, please call the Office of General Counsel at (202)
414-3751.
II. Background
A. Establishment of FHFA
Effective July 30, 2008, Division A of HERA, Public Law 110-289,
122 Stat. 2654 (2008), amended the Safety and Soundness Act, 12 U.S.C.
4501 et seq., and created FHFA as an independent agency of the Federal
government.\1\ HERA transferred the safety and soundness supervisory
and oversight responsibilities over the Enterprises from the Office of
Federal Housing Enterprise Oversight (OFHEO) to FHFA. HERA also
transferred the charter compliance authority and responsibility to
establish, monitor and enforce the affordable housing goals for the
Enterprises from the Department of Housing and Urban Development (HUD)
to FHFA. HERA provides for the abolishment of OFHEO one year after the
date of enactment. FHFA is responsible for ensuring that the
Enterprises operate in a safe and sound manner, including maintenance
of adequate capital and internal controls, that their operations and
activities foster liquid, efficient, competitive, and resilient
national housing finance markets, and that they carry out their public
policy missions through authorized activities. See 12 U.S.C. 4513.
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\1\ See Division A, titled the ``Federal Housing Finance
Regulatory Reform Act of 2008,'' Title I, Section 1101 of HERA.
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Section 1302 of HERA provides, in part, that all regulations,
orders and determinations issued by the Secretary of HUD (Secretary)
with respect to the Secretary's authority under the Safety and
Soundness Act, the Federal National Mortgage Association Charter Act,
12 U.S.C. 1716 et seq., and the Federal Home Loan Mortgage Corporation
Act, 12 U.S.C. 1451 et seq., (Charter Acts), shall remain in effect and
be enforceable by the Secretary or the Director of FHFA, as the case
may be, until modified, terminated, set aside or superseded by the
Secretary or the Director, any court, or operation of law. The
Enterprises continue to operate under regulations promulgated by OFHEO
and HUD until FHFA issues its own regulations. See HERA at section
1302, 122 Stat. 2795; 12 U.S.C. 4603.\2\
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\2\ On May 1, 2009, FHFA issued a proposed rule to adopt
portions of 24 CFR part 81 in new 12 CFR part 1282 and to adjust the
levels of the Enterprises 2009 affordable housing goals to levels
consistent with current market conditions. See 74 FR 20236 (May 1,
2009).
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The Enterprises are government-sponsored enterprises (GSEs)
chartered by Congress for the purpose of establishing secondary market
facilities for residential mortgages. See 12 U.S.C. 1451, 1716.
Specifically, Congress established the Enterprises to provide stability
in the secondary market for residential mortgages, respond
appropriately to the private capital market, provide ongoing assistance
to the secondary market for residential mortgages (including activities
relating to mortgages on housing for low- and moderate-income families
involving a reasonable economic return that may provide less of a
return than the Enterprises' other activities), and promote access to
mortgage credit throughout the nation. Id.
B. Duty To Serve Underserved Markets
The Safety and Soundness Act provides that the Enterprises ``have
an affirmative obligation to facilitate the financing of affordable
housing for low- and moderate-income families.'' 12 U.S.C. 4501(7).
Section 1129 of HERA amended section 1335 of the Safety and Soundness
Act to establish a duty for the Enterprises to serve three specified
underserved markets, in order to increase the liquidity of mortgage
investments and improve the distribution of investment capital
available for mortgage financing for certain categories of borrowers in
those markets. 12 U.S.C. 4565. Specifically, the Enterprises are
required to provide leadership to the market in developing loan
products and flexible underwriting guidelines to facilitate a secondary
market for mortgages on housing for very low-, low-, and moderate-
income families with respect to manufactured housing, affordable
housing preservation, and rural markets.\3\ Id. In addition, section
1335 requires FHFA to establish, by regulation effective for 2010 and
each subsequent year, a method for evaluating and rating the
Enterprises' performance of the duty to serve underserved markets. Id.
sec. 4565(d). Furthermore, FHFA is required to report annually to
Congress on the Enterprises' performance of the duty to serve
underserved markets. Id. A description of the duty to serve provisions
and issues for consideration are set forth below.
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\3\ The terms ``very low-income'', ``low-income'' and
``moderate-income'' are defined in 12 U.S.C. 4502.
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III. Duty To Serve Provisions
A. Overview
The duty to serve underserved markets is separate from and
additional to the Enterprises' affordable housing goals. Mortgage
purchases that contribute to the affordable housing goals may, under
appropriate circumstances, also be considered for the duty to serve
underserved markets. In addition, an activity or transaction may be
considered for more than one underserved market. The rules for
determining which types of mortgage purchases receive credit for
purposes of the affordable housing goals could also be used to
determine which types of mortgage purchases would be considered for
purposes of the duty to serve underserved markets. FHFA seeks comment
on whether there are any categories of mortgage purchase transactions
for which the Enterprises receive housing goals credit that should not
be considered for the duty to serve.
The affordable housing goals regulation applicable to the
Enterprises prohibits housing goals credit for ``HOEPA mortgages'' \4\
and mortgages with unacceptable terms or conditions or resulting from
unacceptable practices. See 24 CFR 81.2, 81.16(c)(12); proposed 12 CFR
1282.2, 1282.16(c)(12) (74 FR 20236 (May 1, 2009)). Purchases of these
types of mortgages would be ineligible for consideration under the duty
to serve underserved markets. Likewise, Enterprise purchases of
mortgages that do not conform with the interagency ``Statement on
Subprime Lending'' and the ``Interagency Guidance on Nontraditional
Mortgage Products Risk'' \5\ would not be considered.
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\4\ ``HOEPA'' refers to the Home Ownership Equity Protection
Act.
\5\ See Office of Federal Housing Enterprises Oversight, ``OFHEO
Director James B. Lockhart Commends GSEs on Implementation of
Subprime Mortgage Lending Guidance,'' News Release (Sept. 10, 2007),
available at http://www.fhfa.gov/webfiles/1608/LockhartcommendsGSEsreSubprime91007.pdf.
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The duty to serve underserved markets is not an independent source
of program authority for the Enterprise, and activities or transactions
conducted in furtherance of this duty must be consistent with the
Enterprise's Charter Act powers and limitations. In addition, any
activity undertaken pursuant to the duty to serve must be consistent
with the Safety and Soundness Act, as amended, the safe and sound
operation of the Enterprise, and the public interest.
FHFA invites comment on the issues discussed above.
B. Underserved Markets
1. Manufactured Housing
Section 1335 of the Safety and Soundness Act, as amended, requires
the Enterprises to ``develop loan products and flexible underwriting
guidelines to facilitate a secondary
[[Page 38574]]
market for mortgages on manufactured homes for very low-, low- and
moderate-income families.'' 12 U.S.C. 4565(a)(1)(A). A ``manufactured
home'' is a structure, transportable in one or more sections, which is
built on a permanent frame and is designed to be used as a dwelling
when connected to the required utilities. See 12 U.S.C. 5402. FHFA
specifically invites comment on three aspects of the manufactured
housing market further discussed below: Manufactured home parks;
personal property loans; and land-home and real estate manufactured
housing loans.
Manufactured Home Parks. Many manufactured home residents site
their homes in manufactured home parks and rent the underlying land.
Some manufactured home parks are investor-owned and others are
resident-owned. Fannie Mae and Freddie Mac currently purchase loans
secured by manufactured home parks. FHFA seeks comment on whether and
how these transactions should be considered under the duty to serve the
manufactured housing market and on the types of flexibility the
Enterprises could add to their underwriting guidelines to facilitate
financing these transactions. FHFA also solicits comment on whether
there should be differences in how resident-owned parks and investor-
owned parks are treated for purposes of the duty to serve the
manufactured housing market.
Personal Property Loans.\6\ The Safety and Soundness Act, as
amended, provides that FHFA may consider loans secured by both real and
personal property in evaluating whether the Enterprises have complied
with the duty to serve the manufactured housing market. 12 U.S.C.
4565(d)(3). In some jurisdictions manufactured homes are financed as
personal property, and the loan to the homebuyer is secured by a lien
only on the manufactured home. Neither Enterprise currently purchases
personal property loans on manufactured housing on a flow basis. FHFA
seeks comment on whether Enterprise purchases of manufactured housing
loans secured by personal property should be considered for purposes of
the duty to serve the manufactured housing market. FHFA also requests
comment on whether there are consumer protection laws or standards, in
addition to those mentioned above, that should apply to personal
property loans on manufactured homes.
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\6\ In some jurisdictions, personal property loans on
manufactured homes are known as ``chattel loans.''
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Land-Home and Real Estate Manufactured Housing Loans. ``Land-home''
manufactured housing loans and ``real estate'' manufactured housing
loans provide financing to the homebuyer for both the manufactured home
and the underlying land. FHFA seeks comment on the types of flexibility
the Enterprises could add to their underwriting guidelines to
facilitate financing for land-home and real estate loans.
FHFA requests comment on the relative advantages and disadvantages
to borrowers of personal property loans, land-home loans, and real
estate loans and on appropriate definitions for these terms. FHFA also
seeks comment on the safety and soundness considerations of Enterprise
purchase or guarantee of these various loan types, and on how
Enterprise leadership under the duty to serve requirements may provide
greater standardization and liquidity to the market and protection to
borrowers.
2. Affordable Housing Preservation
Under the Safety and Soundness Act, as amended, the Enterprises are
required to develop loan products and flexible underwriting guidelines
to facilitate a secondary market to preserve housing affordable to very
low-, low-, and moderate-income borrowers, including housing projects
subsidized under:
(i) Section 8 of the Housing Act of 1937 (project-based and tenant-
based rental assistance housing programs) (42 U.S.C. 1437f);
(ii) Section 236 of the National Housing Act (rental and
cooperative housing for lower income families) (12 U.S.C. 1715z-1);
(iii) Section 221(d)(4) of the National Housing Act (housing for
moderate-income and displaced families) (12 U.S.C. 1715l);
(iv) Section 202 of the Housing Act of 1959 (supportive housing
program for the elderly) (12 U.S.C. 1701q);
(v) Section 811 of the Cranston-Gonzalez National Affordable
Housing Act (supportive housing program for persons with disabilities)
(42 U.S.C. 8013);
(vi) Title IV of the McKinney-Vento Homeless Assistance Act (only
permanent supportive housing projects subsidized under such programs)
(42 U.S.C. 11301 et seq.);
(vii) Section 515 of the Housing Act of 1949 (rural rental housing
program) (42 U.S.C. 1485);
(viii) Low-income housing tax credits under section 42 of the
Internal Revenue Code of 1986 (26 U.S.C. 42); and
(ix) Comparable State and local affordable housing programs. 12
U.S.C. 4565(a)(1)(B).
Some of the housing preservation programs listed above are voucher,
capital advance or grant programs rather than mortgage origination
programs, and the Enterprises' assistance may fall outside of their
traditional role of purchasing, securitizing and guaranteeing mortgage
loans. Moreover, compliance with the duty to assist with affordable
housing preservation is not dependent on whether the Enterprise assists
each enumerated program each year, because the needs and opportunities
in some programs might change from year to year. FHFA seeks comment on
how the Enterprises could assist these programs in meaningful and
measurable ways.
The housing programs enumerated above are not exhaustive, and the
Enterprises are not limited to assisting these programs as their sole
means of fulfilling their duty to serve the affordable housing
preservation market. For example, HUD's Neighborhood Stabilization
Program provides grants to State and local governments to acquire and
redevelop foreclosed properties for the purpose of stabilizing
communities that have suffered from home foreclosures and abandonment.
FHFA requests comment on whether Enterprise assistance in connection
with this program should be considered for the duty to serve the
affordable housing preservation market and how the Enterprises might
render assistance. FHFA also seeks comment on other State and local
affordable housing programs, including foreclosure prevention programs,
that could be considered for the duty to serve the affordable housing
preservation market.
3. Rural Markets
The Safety and Soundness Act, as amended, requires the Enterprises
to ``develop loan products and flexible underwriting guidelines to
facilitate a secondary market for mortgages on housing for very low-,
low-, and moderate-income families in rural areas.'' 12 U.S.C.
4565(a)(1)(C).
Definition of ``Rural Area''. A clear delineation of which areas
are rural \7\ is necessary to implement the duty to serve rural
markets. Three definitions
[[Page 38575]]
are set forth below for comment, and FHFA invites suggestions for other
definitions.
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\7\ The affordable housing goals regulation defines ``rural
areas'' in connection with the underserved areas affordable housing
goal. See 24 CFR 81.2, proposed 12 CFR 1282.2 (74 FR 20236 (May 1,
2009)). Beginning on January 1, 2010, this definition will no longer
be in effect because section 1128 of HERA replaces the previous
housing goals established by the Safety and Soundness Act of 1992
with new housing goals. See 12 U.S.C. 4561 through 4563.
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The first definition would be based on classifications used by the
U.S. Census Bureau for the 2000 census and would distinguish between
urban and rural areas.\8\ Urban areas are classified as all territory,
population, and housing units located within ``urbanized areas'' and
``urban clusters.'' \9\ In general, urbanized areas must have a core
with a population density of 1,000 persons per square mile and may
contain adjoining territory with at least 500 persons per square mile.
``Urban clusters'' have at least 2,500 but less than 50,000 persons.
Rural areas are classified as all territory located outside of
urbanized areas and urban clusters.\10\
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\8\ See Appendix A--Census 2000 Geographic Terms and Concepts A-
22, available at http://www.census.gov/geo/www/tiger/glossry2.pdf.
\9\ Id. For a discussion of urbanized areas and urbanized
clusters, see generally, U.S. Department of Agriculture, ``Measuring
Rurality: What is Rural?'' (Mar. 22, 2007), available at http://www.ers.usda.gov/Briefing/Rurality/WhatIsRural/.
\10\ See Census 2000, supra note 8.
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The second definition would define ``rural areas'' as all counties
assigned a U.S. Department of Agriculture (USDA) Rural-Urban Continuum
code \11\ (RUC code), which the USDA uses to classify rural areas.
These codes are available for all U.S. counties and for municipios
(county equivalents) in Puerto Rico. Because data on other U.S.
territories, including Guam and the Virgin Islands, is lacking, FHFA
could regard these territories as ``rural areas.'' A disadvantage of
using the RUC code is that because designations based on RUC codes are
county-based, these designations could encompass both urban and rural
areas, as occurs with very large counties west of the Mississippi
River.
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\11\ See U.S. Department of Agriculture, Measuring Rurality:
Rural-Urban Continuum Codes (Updated Apr. 28, 2004), available at
http://www.ers.usda.gov/Briefing/Rurality/RuralUrbCon/.
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The third definition would combine two different designations, one
used by the U.S. Census Bureau and one used by the USDA. Under this
two-pronged definition, all census tracts designated by the U.S. Census
Bureau as ``nonmetropolitan'' would be considered rural areas, as would
all census tracts outside of urbanized areas and urban clusters, as
designated by USDA's Rural-Urban Commuting Area \12\ code (RUCA code).
The number of census tracts that would be considered rural areas under
this definition is indicated by the shaded cells in the table
below.\13\
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\12\ See http://www.ers.usda.gov/briefing/Rurality/RuralUrbanCommutingAreas/.
\13\ This table is constructed from data available from the
Office of Management and Budget at http://www.whitehouse.gov/omb/assets/omb/bulletins/fy2009/09-01.pdf, the U.S. Census Bureau at
http://www.census.gov/geo/www/relate/rel_tract.html, and the USDA
at http://www.ers.usda.gov/briefing/Rurality/RuralUrbanCommutingAreas/. In order to make a direct comparison to
the USDA data, which excludes census tracts for Guam, the Virgin
islands, and Puerto Rico, these census tracts were not included in
the table.
[GRAPHIC] [TIFF OMITTED] TP04AU09.115
Using this definition, 29 percent of the census tracts in the 50
States would be rural areas. It would also capture 27 percent of the
census tracts regarded as ``underserved areas'' under the affordable
housing goals regulation applicable to the Enterprises. See 24 CFR
81.2; proposed 12 CFR 1282.2 (74 FR 20236 (May 1, 2009)). One drawback
to this approach is that USDA does not plan to extend the RUCA code to
Puerto Rico until at least 2012, and RUCA codes are not assigned to
census tracts in the other U.S. territories. FHFA could fill this gap
by using the RUC code described above to augment the RUCA code in
Puerto Rico and other U.S. territories, or FHFA could create its own
estimate of the RUCA code for these areas.
The definitions discussed above would cover most, but not all,
Tribal lands. Accordingly, FHFA seeks comment on whether the definition
of ``rural areas'' should include all Tribal lands.
Rural Transactions. FHFA seeks comment on the types of transactions
and activities that should receive consideration toward the duty to
serve rural markets, and on the types of flexibility the Enterprises
could add to their underwriting guidelines to assist this market. In
addition, while rural markets are served by a variety of Federal
programs, principally through the USDA, FHFA seeks comment on
opportunities available for the Enterprises to assist private sector
initiatives for rural housing.
C. Evaluation of Performance
1. Evaluation Criteria
In determining whether the Enterprises have complied with the duty
to serve underserved markets, the Safety and Soundness Act, as amended,
requires FHFA to separately evaluate and rate the Enterprise's
performance for each of the three underserved markets based on four
specific criteria, which are discussed below. 12 U.S.C. 4565(d). The
Enterprises' performance under the three underserved markets may vary
significantly from year to year because the needs and opportunities of
one market may require more attention and resources than the needs of
another market. Accordingly, the method for evaluating the Enterprises'
performance of the duty to serve underserved markets should be
sufficiently flexible to account for these variations in market needs
and opportunities.
Loan Product Test. The first criterion, referred to here as the
``Loan Product Test,'' requires evaluation of the Enterprise's
``development of loan products, more flexible underwriting guidelines,
and other innovative approaches to providing financing to each''
underserved market. Id. sec. 4565(d)(2)(A). FHFA invites comment on the
types of loan products, underwriting flexibility and innovative
approaches the Enterprises could develop to serve each of the three
underserved markets.
[[Page 38576]]
Outreach Test. The second criterion, referred to here as the
``Outreach Test,'' requires evaluation of ``the extent of outreach [by
the Enterprises] to qualified loan sellers and other market
participants'' in each of the three underserved markets. Id. sec.
4565(d)(2)(B). FHFA seeks comment on the types of activities or
programs in which the Enterprises could engage that would satisfy this
Test, and on how FHFA could objectively measure the Enterprises'
outreach.
Purchase Test. The third criterion, referred to here as the
``Purchase Test,'' requires FHFA to consider ``the volume of loans
purchased in each of such underserved markets relative to the market
opportunities available to the [E]nterprise.'' Id. sec. 4565(d)(2)(C).
The provision further states that FHFA ``shall not establish specific
quantitative targets nor evaluate the [E]nterprises based solely on the
volume of loans purchased.'' Id. FHFA requests comment on how to
implement the Purchase Test consistent with this restriction and
comment on any non-quantitative evaluation methods that would be
appropriate. In addition, FHFA seeks comment on whether to measure the
Enterprises' mortgage purchases by number of units financed, number of
mortgages purchased, or unpaid principal balance.\14\ FHFA further
requests comment on the advantages and disadvantages of using each of
these methods of measurement, and on the appropriateness of the
different methods for different types of transactions.
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\14\ The Enterprises' performance under the affordable housing
goals is measured using dwelling units, mortgages or unpaid
principal balance. See 24 CFR 81.12 through 81.14; proposed 12 CFR
1282.12 through 1282.14 (74 FR 20236 (May 1, 2009)).
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Grants Test. The fourth criterion, referred to here as the ``Grants
Test,'' requires evaluation of ``the amount of investments and grants
in projects which assist in meeting the needs of such underserved
markets.'' 12 U.S.C. 4565(d)(2)(D). FHFA seeks comment on types of
investments and grants the Enterprises could make that could be
considered under this Test. FHFA also seeks comment on methods
available for evaluating the Enterprises' performance in making the
grants and investments.
2. Sizing the Market
The Purchase Test requires that the volume of loans purchased in
each underserved market be evaluated ``relative to the market
opportunities available to the [E]nterprise.'' 12 U.S.C. 4565(d)(2)(C).
FHFA invites comment on how to estimate the size of the manufactured
housing, affordable housing preservation, and rural markets. FHFA
further invites comment on whether there are categories of mortgages
that should be excluded from the market size because the mortgages are
unavailable for purchase.
If market size estimation is not possible, the Enterprises'
performance in the specific underserved market could be evaluated based
on their purchases in that market in recent previous years, although
this approach would not be available for the 2010 evaluation year. FHFA
seeks comment on this approach.
3. Evaluating Compliance
In order to evaluate the Enterprises' performance under the duty to
serve underserved markets, FHFA is considering developing a rating
method similar to the method used to determine whether a financial
institution has met the requirements under the Community Reinvestment
Act of 1977 (CRA). See 12 U.S.C. 2901 et seq.; 12 CFR parts 25, 228,
345, and 563e. For each underserved market, the Enterprises'
performance would be evaluated based on the four criteria described
above, with an overall rating for each underserved market of
Outstanding, Satisfactory, Needs to Improve or Noncompliance. These
terms would be defined in the regulation.
One way to implement this approach would be to devise a rating
scheme in which achievements or receipt of a certain number of points
would result in a particular rating.\15\ The Enterprise's rating in a
particular underserved market would be a combination of the ratings on
each of the four Tests.
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\15\ See generally Notice, Community Reinvestment Act;
Interagency Questions and Answers Regarding Community Reinvestment,
74 FR 498, 526-527 (Jan. 6, 2009), available at http://edocket.access.gpo.gov/2009/pdf/E8-31116.pdf.
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The four Tests need not be given equal consideration. For example,
the Outreach Test might be weighted less than the Loan Product or
Purchase Tests, because it results in less tangible benefits to the
markets served and may require less effort and devotion of resources by
the Enterprise. Furthermore, FHFA could weigh the four Tests
differently across the three underserved markets. For example, the
Purchase Test might receive more consideration for the manufactured
housing market than for the affordable housing preservation market. The
ratings would also take into consideration the overall effort and
effectiveness of the Enterprise's service to the underserved market,
its capital and portfolio positions, and the condition of the
particular underserved market, which could vary from year to year.
FHFA seeks comment on the evaluation methodology discussed above
and invites descriptions of other types of evaluation or rating
methodologies that may be feasible.
D. Reporting Requirements
FHFA would require annual reports from the Enterprises on their
performance of the duty to serve underserved markets. FHFA anticipates
that part of the report would be narrative and part would be summary
statistical information, supported by submission of appropriate
transaction-level data. The narrative portion would likely include
discussions of the Enterprise's performance in each of the three
underserved markets. Except for purchases of single-family mortgages, a
complete listing and summary of each transaction for which the
Enterprise seeks credit would likely be required. In addition, the
Enterprise would certify to the accuracy of the information submitted.
FHFA invites comment on specific requirements for the contents of the
report.
IV. Request for Comment
FHFA invites comment on all of the issues discussed above, and will
consider all comments received in developing a proposed rule to
implement the duty to serve underserved markets.
Dated: July 28, 2009.
James B. Lockhart III,
Director, Federal Housing Finance Agency.
[FR Doc. E9-18515 Filed 8-3-09; 8:45 am]
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