[Federal Register Volume 77, Number 112 (Monday, June 11, 2012)]
[Proposed Rules]
[Pages 34263-34281]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14105]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 77, No. 112 / Monday, June 11, 2012 / 
Proposed Rules

[[Page 34263]]



FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1282

RIN 2590-AA49


2012-2014 Enterprise Housing Goals

AGENCY: Federal Housing Finance Agency.

ACTION: Proposed rule.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing and 
seeking comments on a proposed rule that would amend FHFA's existing 
housing goals regulation to establish housing goals for 2012, 2013 and 
2014 for the Federal National Mortgage Association (Fannie Mae) and the 
Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the 
Enterprises). The benchmark levels established by this regulation for 
2013 would continue in effect for 2014, unless FHFA determines that the 
2014 benchmark levels should be adjusted based on its market assessment 
for 2014. In addition, FHFA seeks comments on whether the housing goals 
regulation should be amended to address the possibility that an 
Enterprise would receive credit under the housing goals for the 
purchase of a multifamily mortgage that was intended to facilitate the 
conversion of the property securing the mortgage from affordable rents 
to market rate rents.

DATES: Written comments must be received on or before July 26, 2012.

ADDRESSES: You may submit your comments, identified by regulatory 
information number (RIN) 2590-AA49, by any of the following methods:
     Email: Comments to Alfred M. Pollard, General Counsel, may 
be sent by email to RegComments@fhfa.gov. Please include ``RIN 2590-
AA49'' 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 email 
to FHFA at RegComments@fhfa.gov to ensure timely receipt by the Agency. 
Please include ``RIN 2590-AA49'' in the subject line of the message.
     Hand Delivered/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA49, 
Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., 
Washington, DC 20024. The package should be logged in at the Guard 
Desk, First Floor, on business days between 9 a.m. and 5 p.m.
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel, Attention: Comments/RIN 2590-AA49, Federal 
Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., 
Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Paul Manchester, Principal Economist, 
(202) 649-3115; Jay Schultz, Senior Economist, (202) 649-3117, Office 
of Housing and Regulatory Policy; Kevin Sheehan, Assistant General 
Counsel, (202) 649-3086; Lyn Abrams, Assistant General Counsel, (202) 
649-3059; or Sharon Like, Managing Associate General Counsel, (202) 
649-3057, Office of General Counsel. These are not toll-free numbers. 
The mailing address for each contact is: Office of General Counsel, 
Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., 
Washington, DC 20024. 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 proposed rule, and will 
revise the language of the proposed rule as appropriate after taking 
all comments into consideration. Copies of all comments will be posted 
without change, including any personal information you provide, such as 
your name, address, and phone number, on the FHFA Internet 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, 
Eighth Floor, 400 Seventh Street SW., Washington, DC 20024. To make an 
appointment to inspect comments, please call the Office of General 
Counsel at (202) 649-3804.

II. Background

A. Statutory and Regulatory Background

    The Federal Housing Enterprises Financial Safety and Soundness Act 
of 1992 (Safety and Soundness Act), as amended by the Housing and 
Economic Recovery Act of 2008 (HERA), requires FHFA to establish annual 
housing goals for mortgages purchased by Fannie Mae and Freddie Mac.\1\ 
FHFA established housing goals for the Enterprises for 2010 and 2011 
through a final rule published on September 14, 2010.\2\
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    \1\ See 12 U.S.C. 4561 et seq.
    \2\ See 75 FR 55892.
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    The housing goals established by FHFA include four goals and one 
subgoal for single-family, owner-occupied housing and one goal and one 
subgoal for multifamily housing. The single-family housing goals target 
purchase money mortgages for low-income families, families that reside 
in low-income areas, and very low-income families, and refinancing 
mortgages for low-income families.\3\ The multifamily special 
affordable housing goal targets multifamily housing affordable to low-
income families, and the multifamily special affordable housing subgoal 
targets multifamily housing affordable to very low-income families.\4\
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    \3\ See 12 CFR 1282.12.
    \4\ See 12 CFR 1282.13.
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B. Conservatorship

    On September 6, 2008, the Director of FHFA appointed FHFA as 
conservator of the Enterprises to maintain the Enterprises in a safe 
and sound financial condition and to help assure performance of their 
public mission. The Enterprises remain under conservatorship at this 
time.
    Although the Enterprises' substantial market presence has been key 
to restoring market stability, neither company is capable of serving 
the mortgage market today without the ongoing financial support 
provided by the U.S. Department of the Treasury (Treasury) under their 
respective Senior Preferred Stock Purchase Agreements (Agreements). 
FHFA has projected a range of substantial cumulative draws in Treasury 
support under the Agreements through 2014. While reliance on the 
Treasury Department will continue until legislation produces a final 
resolution to

[[Page 34264]]

the Enterprises' future, FHFA is monitoring the activities of the 
Enterprises to: (a) Minimize losses on the mortgages already on their 
books; (b) ensure profitability in the new book of business without 
deterring market participation or hindering market recovery; and (c) 
limit their risk exposure by avoiding new products and lines of 
business.
    While the Enterprises are in conservatorship, all Enterprise 
activities, including those in support of affordable housing, must be 
consistent with the requirements of conservatorship under the Safety 
and Soundness Act, as amended by HERA. If FHFA determines that the 
Enterprise housing goals cannot be achieved consistent with the goals 
and requirements of conservatorship or in light of market conditions, 
FHFA, as conservator for each Enterprise, may take additional action, 
including suspension of the Enterprise housing goals until they can be 
achieved and in a manner consistent with the conservatorships. In the 
meantime, FHFA is proposing to continue with the existing structure of 
the housing goals, including the market-based approach that was adopted 
for 2010 and 2011, with new benchmark levels in place through 2014.

C. Prospective and Market-Based Approach

    The current housing goals regulation sets forth single-family 
housing goals for 2010-2011 that include: (1) An assessment of 
Enterprise performance, as compared to the actual share of the market 
that meets the criteria for each goal; and (2) a benchmark level to 
measure Enterprise performance. For the single-family housing goals, an 
Enterprise has met a goal if it achieves the benchmark level for that 
goal, even if the actual market size for the year is higher than the 
benchmark level. An Enterprise has failed to meet a goal if its annual 
performance falls below both the benchmark level and the actual share 
of the market that meets the criteria for a particular goal for that 
year. FHFA determined that this approach is appropriate in light of 
recent market turmoil, especially while the Enterprises are operating 
in conservatorship, and in light of the difficulty of making 
projections accurately even in more stable economic environments. For 
those reasons too, and because the correspondence between available 
market data and the Enterprises' actual goals-qualifying activity is 
not exact, FHFA reserves some flexibility in determining whether an 
Enterprise has substantially complied with one or more goals.

III. Summary of Proposed Rule

    The proposed rule would establish new benchmarks for the single-
family housing goals for 2012, 2013 and 2014. The proposed rule would 
also establish new levels for the multifamily housing goals for those 
years. FHFA also seeks comments on whether the housing goals regulation 
should be amended to address the possibility that an Enterprise would 
receive credit under the housing goals for the purchase of a 
multifamily mortgage that was intended to facilitate the conversion of 
the property securing the mortgage from affordable rents to market rate 
rents.

IV. Single-Family Housing Goals

A. Analysis of Factors for Single-Family Housing Goals

    Section 1332(e)(2) of the Safety and Soundness Act, as amended by 
HERA, requires FHFA to consider the following seven factors in setting 
the single-family housing goals:
    (1) National housing needs;
    (2) Economic, housing, and demographic conditions, including 
expected market developments;
    (3) The performance and effort of the Enterprises toward achieving 
the housing goals under this section in previous years;
    (4) The ability of the Enterprise to lead the industry in making 
mortgage credit available;
    (5) Such other reliable mortgage data as may be available;
    (6) The size of the purchase money conventional mortgage market, or 
refinance conventional mortgage market, as applicable, serving each of 
the types of families described, relative to the size of the overall 
purchase money mortgage market or the overall refinance mortgage 
market, respectively; and
    (7) The need to maintain the sound financial condition of the 
Enterprises.\5\
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    \5\ 12 U.S.C. 4562(e)(2).
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    FHFA's consideration of the size of the market for each housing 
goal includes consideration of the percentage of goals-qualifying 
mortgages under each housing goal, as calculated based on Home Mortgage 
Disclosure Act (HMDA) data for the three most recent years for which 
data is available.\6\
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    \6\ See 12 U.S.C. 4562(e)(2)(A).
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    FHFA's analysis of each statutory factor is set forth below.
1. National Housing Needs
    The recent single-family housing market has been characterized by 
falling homeownership rates, high vacancy rates, weak sales, lower home 
prices, high foreclosure rates, and stricter underwriting. These trends 
are likely to continue in the near term. In many instances, they have 
had differing impacts for homeowners and home seekers of different 
ethnicities. Despite demand spurred by the ``First Time'' and ``Move Up 
Home Buyer'' tax credits in 2009 and 2010, the seasonally adjusted 
overall U.S. homeownership rate declined to 65.5 percent in the first 
quarter of 2012, after peaking at 69.1 percent in 2004. The 
homeownership rate for non-Hispanic whites declined from a peak of 76 
percent in 2004 to 73.5 percent in the first quarter of 2012. For black 
households, the decline was more pronounced, going from a peak of 49.1 
percent in 2004 to 43.1 percent in the first quarter of 2012. The 
homeownership rate for Hispanic households also had a noticeable 
decline, going from a peak of 49.7 percent in 2006 and 2007 to 46.3 
percent in the first quarter of 2012.\7\
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    \7\ See U.S. Census Bureau, ``Housing Vacancies and 
Homeownership (CPS/HVS)'' (Table 16), available at http://www.census.gov/hhes/www/housing/hvs/historic/index.html.
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    The homeowner vacancy rate--the proportion of housing inventory for 
homeowners that is vacant and for sale--dropped slightly to 2.2 percent 
in the first quarter of 2012, from a record high of 2.9 percent in 
2008. But the vacancy rate may not fully capture the inventory of 
distressed and at-risk homes that have not yet completed the 
foreclosure process, but will add to the housing supply.\8\ By one 
estimate, nearly 900,000 excess vacant homes are either for sale, for 
rent, or being held off the market.\9\
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    \8\ See generally, Daniel Indiviglio, ``The `Shadow' Foreclosure 
Inventory,'' The Atlantic (Sept. 23, 2009), available at http://www.theatlantic.com/business/archive/2009/09/the-shadow-foreclosure-inventory/27093/.
    \9\ See Mark Zandi, Moody's Analytics, ``To Shore Up the 
Recovery, Help Housing,'' p. 3 (May 25, 2011) (Special Report), 
available at http://www.economy.com/mark-zandi/documents/To-Shore-Up-the-Recovery-Help-Housing.pdf.
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    First-time homebuyers have experienced lower-priced housing. 
According to the 2011 National Association of Realtors (NAR) survey of 
homebuyers and sellers, the median age for first-time homebuyers was 31 
years, and the median income was $62,400. The typical first-time 
homebuyer purchased a $155,000 home, up from $152,000 in the 2010 
survey. Fifty-four percent of entry-level buyers financed their 
purchase with a Federal Housing Administration (FHA) loan, and 6

[[Page 34265]]

percent used the Veterans Administration (VA) loan program.\10\
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    \10\ See National Association of Realtors, ``NAR Profile of Home 
Buyers and Sellers 2011'' (November 2011), available at http://www.realtor.org/topics/homebuyers_sellers_profile/hbs_pdf_2011.
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    For 2011, NAR reported that existing home sales were up by 1.7 
percent from 2010. New home sales for 2011, as reported by the Census 
Bureau, were down by 6.2 percent from 2010. A composite index of 
housing affordability for November 2011 showed that families earning 
the median income had 194.5 percent of the income needed to purchase a 
median-priced existing single-family home, which is very high by 
historical standards.\11\
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    \11\ See National Association of Realtors, ``Housing 
Affordability Index,'' available at http://www.realtor.org/research/research/housinginx.
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    HMDA data for 2010, the most recent year for which such data are 
available, indicated that in comparison with 2009, applications for 
conventional home purchase loans from black borrowers fell by 31 
percent, and for Hispanic borrowers by 34 percent. Applications from 
white borrowers fell by 23 percent.
    Denial rates for black and Hispanic applicants, however, decreased 
from 2008 to 2010. For black applicants, the denial rate dropped from 
36.1 percent in 2008 to 32.3 percent in 2009 and to 30.9 percent in 
2010, while the denial rate for Hispanics dropped from 31.1 percent in 
2008 to 25.6 percent in 2009 and to 22.9 percent in 2010.\12\
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    \12\ See Board of Governors of the Federal Reserve, ``The 2009 
HMDA Data: The Mortgage Market in a Time of Low Interest Rates and 
Economic Distress,'' Federal Reserve Bulletin, available at http://www.federalreserve.gov/pubs/bulletin/2010/pdf/2009_HMDA_final.pdf 
and ``The Mortgage Market in 2010: Highlights from the Data Reported 
under the Home Mortgage Disclosure Act,'' available at http://www.federalreserve.gov/pubs/bulletin/2011/pdf/2010_HMDA_final.pdf.
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    Low housing prices hurt existing homeowners as the number of 
foreclosures and underwater mortgages--where a homeowner owes more than 
the value of the home--remained at elevated levels. Although the number 
of homes with foreclosure filings fell 34 percent relative to 2010, 1.9 
million homes were foreclosed on in 2011.\13\ Foreclosure figures 
likely would have been higher in 2011 had it not been for processing 
slowdowns as a result of concerns about foreclosure practices and 
documentation. Some housing analysts project higher foreclosure rates 
in 2012, with a downward trend beginning in 2013. As of the fourth 
quarter of 2011, the share of underwater mortgages was at a near-record 
high of 22.8 percent, and roughly 5.0 percent of mortgaged homes had 
less than 5 percent equity.\14\ The concentration of underwater 
borrowers is even higher for non-Enterprise loans. In a January 2012 
FHFA letter to Congress, FHFA estimated that less than 10 percent of 
borrowers with Enterprise loans have negative equity in their homes 
(9.9 percent in June 2011), whereas loans backing private label 
securities were more than three times more likely to have negative 
equity (35.5 percent in June 2011).\15\
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    \13\ See ``2011 Year-End Foreclosure Report: Foreclosures on the 
Retreat (January 9, 2012), available at http://www.realtytrac.com/content/foreclosure-market-report/2011-year-end-foreclosure-market-report-6984.
    \14\ See CoreLogic ``Q42011 Negative Equity Report,'' available 
at: http://www.corelogic.com/about-us/researchtrends/asset_upload_file780_1.pdf.
    \15\ See http://www.fhfa.gov/webfiles/23056/PrincipalForgivenessltr12312.pdf.
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    According to the Mortgage Bankers Association (MBA), single-family 
mortgage activity totaled $901 billion in the first three quarters of 
2011, compared to $1,110 billion in the first three quarters of 2010. 
Total originations in 2010 were $1,572 billion, with 70 percent of the 
total being refinancings.\16\
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    \16\ See http://www.mbaa.org/ResearchandForecasts/ForecastsandCommentary.
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    One result of the mortgage crisis is that the mortgage market now 
has stricter and less flexible lending standards. According to the 
Board of Governors of the Federal Reserve System's Senior Loan Officer 
Opinion Survey, underwriting standards tightened beginning in late 2006 
and have not significantly eased since that time.\17\ In the near term, 
underwriting standards can be expected to continue to be rigorous. In 
addition, high vacancy rates, foreclosures and unemployment may 
continue to dampen the housing recovery.
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    \17\ Board of Governors of the Federal Reserve System, Senior 
Loan Officer Opinion Survey (November 7, 2011).
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    FHFA has considered the above data in assessing national housing 
needs as required by the Safety and Soundness Act. FHFA has concluded 
that it is not necessary to adjust the benchmark levels based 
specifically on this factor.
2. Economic, Housing and Demographic Conditions
    The current turmoil in the housing and mortgage markets affects the 
ability of the Enterprises to meet the housing goals. The market 
conditions include: (1) Tightened credit underwriting practices; (2) 
the financial condition of private mortgage insurance (MI) companies; 
(3) the increased role of FHA in the marketplace; (4) high 
unemployment; (5) the state of the refinance market; and (6) shifting 
demographic conditions. These developments have contributed to a 
decrease in the overall share of single-family loans likely to qualify 
for Enterprise housing goals credit.
    Tightened credit underwriting practices. Continuing rigorous credit 
underwriting standards in the mortgage market have resulted in fewer 
goal-qualifying loans and a lower percentage of goal-qualifying loans 
in the market. Underwriting standards in the mortgage market generally, 
and at Fannie Mae and Freddie Mac in particular, have tightened 
considerably since 2008 in response to declining market conditions and 
early payment defaults, among other factors. Such standards can be 
expected to remain in place.\18\
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    \18\ See generally The Joint Center for Housing Studies of 
Harvard University, ``The State of the Nation's Housing, 2010,'' 
available at http://www.jchs.harvard.edu/research/publications/state-nations-housing-2010.
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    Financial condition of private MI companies. Substantial ratings 
downgrades for MI companies followed the recent financial crisis. Most 
MI companies continue to face difficulties in returning to 
profitability. One consequence of these difficulties is more stringent 
MI underwriting standards, which result in fewer goal-qualifying loans 
and a lower percentage of goal-qualifying loans in the overall market. 
These standards include restrictions on borrowers having multiple risk 
factors such as a high loan-to-value (LTV) ratio, a lower credit score, 
and limited documentation. These developments limit the ability of 
mortgage insurers to write new business and may reduce the overall 
mortgage lending volume, particularly for higher-LTV mortgages, which 
are more likely to count for purposes of the housing goals. Post-
conservatorship loan-level pricing adjustments by the Enterprises may 
also have a similar impact.
    Increased role of FHA in the marketplace. The composition of the 
affordable conventional mortgage market is also influenced by FHA's 
market share. FHA loans generally are pooled into mortgage-backed 
securities (MBS) guaranteed by the Government National Mortgage 
Association (GNMA). Enterprise purchases of mortgages insured by FHA 
and mortgages guaranteed by VA generally do not receive housing goals 
credit. As a result, a higher FHA share of the market generally results 
in a smaller proportion of affordable loans among loans that can be 
counted for purposes of the housing goals. FHA's share of the market 
rose significantly during 2008 through 2010, reaching a share of the 
home purchase mortgage market in excess of 35 percent

[[Page 34266]]

in 2010, as measured by HMDA data. FHA announced last year an annual MI 
premium increase of 25 basis points, effective April 18, 2011.\19\
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    \19\ See U.S. Dept. of Housing and Urban Development, Mortgagee 
Letter 11-10 (Feb. 14, 2011), available at http://portal.hud.gov/hudportal/documents/huddoc?id=11-10ml.pdf.
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    High unemployment. In addition to being an indicator of the health 
of the economy in general, labor market conditions affect the housing 
market more directly because buying a house is considered a large 
investment and a long-term commitment that requires stable employment. 
Nonfarm payroll employment increased by 115,000 in April 2012. The 
unemployment rate has steadily fallen from 9.1 percent in August 2011 
to 8.1 percent in April 2012.\20\ NeighborWorks, a national network of 
community-based organizations actively involved in foreclosure 
mitigation counseling, estimated that the two leading causes of 
mortgage default rates were a reduction in income (37 percent of 
defaults) and loss of income (21 percent of defaults).\21\ To the 
extent that high unemployment rates impact lower-income wage earners 
more than higher-income wage earners, there could be fewer mortgage 
originations for goal-qualifying borrowers and, therefore, fewer such 
mortgages available for purchase by the Enterprises.
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    \20\ Bureau of Labor Statistics, News Release: The Employment 
Situation--April (May 4, 2012).
    \21\ See NeighborWorks, ``National Foreclosure Mitigation 
Counseling Program--Congressional Update--Activity Through January 
31, 2010'' p. 41 (May 28, 2010), available at http://www.nw.org/network/nfmcp/documents/CongressionalReportandAppendices.pdf.
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    State of the refinance market. The size of the refinance mortgage 
market has an impact on the share of affordable refinance mortgages. 
Historically, refinance mortgage volume increases when the refinancing 
of mortgages is motivated by low interest rates, i.e., ``rate and term 
refinances,'' and this increased volume is dominated by higher-income 
borrowers. As a result, in periods of low interest rates, the share of 
lower-income borrowers will decrease. Likewise, refinancings that 
occurred when interest rates were high tended to have a higher 
proportion of lower-income homeowners who were consolidating their 
debts or who were drawing equity out of their homes for other uses. 
While there are fewer mortgage refinancings for both lower-income and 
higher-income borrowers during high interest rate periods, the decrease 
is larger for higher-income borrowers.
    While mortgage interest rates are expected to rise later in 2012 to 
2014, there is reason to expect that the refinance patterns observed in 
the past may not occur. In the current economic environment, lower-
income homeowners tend to have less equity--or negative equity--in 
their homes because the prices of lower-valued homes have fallen more 
than the prices of higher-valued homes.\22\ At the same time, lenders 
have tightened underwriting requirements, requiring higher down 
payments and higher credit scores. As a result, fewer lower-income 
homeowners may be able to refinance in 2012 and 2013. In addition, 
programs established in the wake of the financial crisis have affected 
refinancings. The Home Affordable Refinance Program (HARP), which 
became effective in March 2009 and was expanded in 2011, is an effort 
to enhance the opportunity for owners to refinance. Homeowners whose 
mortgages are owned or guaranteed by Fannie Mae or Freddie Mae and who 
are current on their mortgages have the opportunity to reduce their 
monthly mortgage payments to take advantage of historically low 
mortgage interest rates. An essential element of this program is the 
permission to carry forward into the new loan any existing MI from 
prior mortgages or, if no MI existed, none would be required for the 
refinanced mortgage. Even under favorable interest rate conditions, 
however, refinancings may not mirror previous years.
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    \22\ See The Joint Center for Housing Studies of Harvard 
University, ``The State of the Nation's Housing, 2011,'' p. 40 
(2011) (Table A-8), available at http://www.jchs.harvard.edu/research/publications/state-nation%E2%80%99s-housing-2011.
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    Shifting demographic conditions. In establishing the 2012-2014 
housing goals, FHFA analyzed demographic characteristics and trends for 
their possible effect on housing demand. In the long term, housing 
demand is likely to increase as a result of population growth, 
immigration, and formation of new households by the generation born 
between 1981 and 2000.\23\ However, the impact of long-term demographic 
conditions on short-term goals performance would be minimal.
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    \23\ See generally National Association of Hispanic Real Estate 
Professionals, ``State of Hispanic Homeownership'' (2011), available 
at http://nahrep.org/downloads/state-of-homeownership.pdf.
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    Homeownership rates for owner-occupied units vary depending on 
demographic characteristics of households such as income, age, race, 
and type of household, as well as on the location and type of home. 
Generally, families are more likely than individuals to be homeowners, 
and homeowners generally tend to have higher incomes than renters.
    The financial crisis has had broad effects across demographic 
categories. Homeownership rates peaked in the first quarter of 2005 for 
families with incomes greater than or equal to the median family income 
and families with incomes below the median family income, and then 
started falling.\24\ More specifically, the homeownership rate for 
families with incomes above the area median family income dropped from 
84.5 percent in the first quarter of 2005 to 80.3 percent in the first 
quarter of 2012. The homeownership rate for families with incomes below 
the area median family income dropped from 53 percent to 50.4 percent 
over the corresponding period.
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    \24\ See U.S. Census Bureau, Housing Vacancies and Homeownership 
(CPS/HVS) (Table 17. Homeownership Rates by Family Income: 1994 to 
Present), available at http://www.census.gov/hhes/www/housing/hvs/historic/index.html.
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    As discussed previously, the financial crisis took a significant 
toll on minority homeownership, with their homeownership rates trending 
sharply downwards. Recent times have also seen depressed immigration 
rates and headship rates among young as well as middle-aged 
households.\25\ Moody's Analytics has observed that with many young 
people living with their parents for longer periods, there is pent-up 
new household formation that should occur in the next year or two.\26\ 
Meanwhile, aging baby boomers have been projected to increase the 
number of households over the age of 65 by 35 percent from 2010 to 
2020.\27\
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    \25\ See The Joint Center for Housing Studies of Harvard 
University, ``The State of the Nation's Housing, 2011,'' p. 5 
(2011), available at http://www.jchs.harvard.edu/research/publications/state-nation%E2%80%99s-housing-2011.
    \26\ See Mark Zandi, Moody's Analytics, ``To Shore Up the 
Recovery, Help Housing'' 4 (May 25, 2011) (Special Report), 
available at http://www.economy.com/mark-zandi/documents/To-Shore-Up-the-Recovery-Help-Housing.pdf.
    \27\ See The Joint Center for Housing Studies of Harvard 
University, ``The State of the Nation's Housing, 2011,'' p. 3 
(2011), available at http://www.jchs.harvard.edu/research/publications/state-nation%E2%80%99s-housing-2011.
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    FHFA has considered the above data in assessing economic, housing 
and demographic conditions as required by the Safety and Soundness Act. 
FHFA has concluded that it is not necessary to adjust the benchmark 
levels based specifically on this factor.
3. The Performance and Effort of the Enterprises Toward Achieving the 
Housing Goals in Previous Years
    Section 1332(a) of the Safety and Soundness Act, as amended by 
section 1128(b) of HERA, requires FHFA to

[[Page 34267]]

establish three single-family owner-occupied home purchase mortgage 
goals for the Enterprises: A goal for low-income families; a goal for 
families that reside in low-income areas; and a goal for very low-
income families. Section 1332(a) also requires FHFA to establish a goal 
for single-family refinancing mortgages for low-income families. The 
following section discusses performance on these single-family goals in 
2010 and, to provide perspective, reviews what performance would have 
been on these four single-family goals had they been in effect from 
2006 through 2009.
    The figures shown in Tables 1-4 for 2010 are official performance 
results as determined by FHFA, based on loan-level information 
submitted by the Enterprises. The housing goals in the Safety and 
Soundness Act, as amended, apply to the Enterprises' acquisitions of 
``conventional, conforming, single-family, purchase money mortgages 
financing owner-occupied housing'' for the targeted groups. The figures 
exclude units financed by Enterprise purchases of private label 
securities (PLS), since such units were not counted toward the goals in 
2010.
    Low-Income Families Housing Goal. The low-income families home 
purchase goal applies to mortgages made to ``low-income families,'' 
defined as families with incomes no greater than 80 percent of area 
median income (AMI).\28\ As indicated in Table 1, Fannie Mae's 
performance in 2010 (25.1 percent) was comparable to what it would have 
been in 2009 (25.5 percent), somewhat higher than it would have been in 
2008 (23.1 percent), and somewhat lower than it would have been in 2006 
and 2007 (27.7 percent and 26.0 percent). Freddie Mac's performance in 
2010 (26.8 percent) was higher than it would have been in any year from 
2006-2009 (22.1 percent--25.4 percent).
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    \28\ See 12 U.S.C. 4502(14).
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    Very Low-Income Families Housing Goal. The very low-income families 
home purchase goal applies to mortgages made to ``very low-income 
families,'' defined as families with incomes no greater than 50 percent 
of AMI. In essence, this operates as a subgoal of the low-income 
families housing goal, which applies to families with incomes no 
greater than 80 percent of AMI.
    As indicated in Table 2, Fannie Mae's performance in 2010 (7.2 
percent) was comparable to what it would have been in 2009 (7.3 
percent), higher than it would have been in 2007 and 2008 (6.4 percent 
and 5.5 percent), and lower than it would have been in 2006 (7.7 
percent). Freddie Mac's performance in 2010 (7.9 percent) was higher 
than it would have been in any year from 2006-2009 (5.3 percent--7.2 
percent).

                   Table 1--GSE Past Performance on the Low-Income Home Purchase Goal, 2006-10
                                    [Goal benchmark for 2010 was 27 percent]
----------------------------------------------------------------------------------------------------------------
                                                                        Enterprise
               Year                  Type of home purchase ------------------------------------   Market share
                                        (HP) mortgages         Fannie Mae        Freddie Mac         (HMDA)
----------------------------------------------------------------------------------------------------------------
2010..............................  Low-Income HP                    120,430            82,443  ................
                                     Mortgages.
                                    Total HP Mortgages....           479,200           307,555  ................
                                    Low-Inc. % of HP                   25.1%             26.8%             27.2%
                                     Mortgages.
2009..............................  Low-Income HP                    148,423           105,719  ................
                                     Mortgages.
                                    Total HP Mortgages....           582,673           415,897  ................
                                    Low-Inc. % of HP                   25.5%             25.4%             29.6%
                                     Mortgages.
2008..............................  Low-Income HP                    226,290           158,896  ................
                                     Mortgages.
                                    Total HP Mortgages....           977,852           655,156  ................
                                    Low-Inc. % of HP                   23.1%             24.3%             25.5%
                                     Mortgages.
2007..............................  Low-Income HP                    383,129           284,434  ................
                                     Mortgages.
                                    Total HP Mortgages....         1,471,242         1,008,064  ................
                                    Low-Inc. % of HP                   26.0%             24.6%             26.1%
                                     Mortgages.
2006..............................  Low-Income HP                    359,609           197,900  ................
                                     Mortgages.
                                    Total HP Mortgages....         1,295,956           895,049  ................
                                    Low-Inc. % of HP                   27.7%             22.1%             24.2%
                                     Mortgages.
----------------------------------------------------------------------------------------------------------------
Source: Official performance as determined by FHFA for 2010; performance if the goal had been in effect, as
  calculated by FHFA, for 2006-09. ``Low-income'' refers to borrowers with incomes no greater than 80 percent of
  Area Median Income (AMI).
Notes:
Freddie Mac's official performance for 2010 was initally reported as 27.8 percent, but it has since been revised
  as shown above.
To determine whether an Enterprise's performance exceeded or fell short of the goal, FHFA compares official
  performance figures with the benchmark level and the low-income share of conventional conforming home purchase
  mortgages originated in 2010, based on FHFA analysis of data submitted by primary mortgage market lenders to
  the Federal Financial Institutions Examination Council (FFIEC) in accordance with the Home Mortgage Disclosure
  Act (HMDA).
The low-income shares of the primary market are shown in the last column in the table.


                Table 2--GSE Past Performance on the Very Low-Income Home Purchase Goal, 2006-10
                                     [Goal benchmark for 2010 was 8 percent]
----------------------------------------------------------------------------------------------------------------
                                                                        Enterprise
               Year                  Type of home purchase ------------------------------------   Market share
                                        (HP) mortgages         Fannie Mae        Freddie Mac         (HMDA)
----------------------------------------------------------------------------------------------------------------
2010..............................  Low-Income HP                     34,673            24,276  ................
                                     Mortgages.
                                    Total HP Mortgages....           479,200           307,555  ................
                                    Low-Inc. % of HP                    7.2%              7.9%              8.1%
                                     Mortgages.
2009..............................  Low-Income HP                     42,571            29,870  ................
                                     Mortgages.
                                    Total HP Mortgages....           582,673           415,897  ................
                                    Low-Inc. % of HP                    7.3%              7.2%              8.8%
                                     Mortgages.
2008..............................  Low-Income HP                     54,263            40,009  ................
                                     Mortgages.

[[Page 34268]]

 
                                    Total HP Mortgages....           977,852           655,156  ................
                                    Low-Inc. % of HP                    5.5%              6.1%              6.5%
                                     Mortgages.
2007..............................  Low-Income HP                     93,543            60,549  ................
                                     Mortgages.
                                    Total HP Mortgages....         1,471,242         1,008,064  ................
                                    Low-Inc. % of HP                    6.4%              6.0%              6.2%
                                     Mortgages.
2006..............................  Low-Income HP                    100,148            47,008  ................
                                     Mortgages.
                                    Total HP Mortgages....         1,295,986           895,049  ................
                                    Low-Inc. % of HP                    7.7%              5.3%              5.9%
                                     Mortgages.
----------------------------------------------------------------------------------------------------------------
Source: Official performance as determined by FHFA for 2010; performance if the goal had been in effect, as
  calculated by FHFA, for 2006-09. ``Very Low-income'' refers to borrowers with incomes no greater than 50
  percent of Area Median Income (AMI).
Notes:
Freddie Mac's official performance for 2010 was initally reported as 8.4 percent, but it has since been revised
  as shown above.
To determine whether an Enterprise's performance exceeded or fell short of the goal, FHFA compares official
  performance figures with the benchmark level and the very low-income share of conventional conforming home
  purchase mortgages originated in 2010, based on FHFA analysis of data submitted by primary mortgage market
  lenders to the Federal Financial Institutions Examination Council (FFIEC) in accordance with the Home Mortgage
  Disclosure Act (HMDA).
The very low-income shares of the primary market are shown in the last column in the table.

    Low-Income Areas Goal and Subgoal. Three categories of mortgages 
qualify for the low-income areas housing goal:
    (1) Home purchase mortgages for families in low-income census 
tracts, defined as tracts with median family income no greater than 80 
percent of AMI;
    (2) Home purchase mortgages for families with incomes no greater 
than 100 percent of AMI who reside in minority census tracts, defined 
as tracts with minority population of at least 30 percent and a median 
family income less than 100 percent of AMI; and
    (3) Home purchase mortgages for families with incomes no greater 
than 100 percent of AMI who reside in Federally-declared disaster areas 
(regardless of the minority share of the population in the tract or the 
ratio of tract median family income to AMI).
    FHFA established an overall goal for this category of home purchase 
mortgages of 24 percent for 2010-2011. As indicated in Table 3, Fannie 
Mae's performance in 2010 (24.0 percent) was lower than it would have 
been in 2009 (26.9 percent) and in 2008 (25.5 percent). Freddie Mac's 
performance in 2010 (23.0 percent) was also lower than it would have 
been in 2009 (25.0 percent) and in 2008 (25.5 percent).
    The 2010-2011 final rule also established a subgoal for the low-
income and high-minority census tracts components of the goal. For 2010 
and 2011, FHFA set the benchmark level for this subgoal at 13 
percent.\29\ As indicated in Table 3, Fannie Mae's performance on the 
subgoal in 2010 (12.4 percent) was lower than it would have been in 
2009 (13.3 percent) and in 2008 (15.1 percent). Freddie Mac's 
performance on the subgoal in 2010 (10.4 percent) was lower than it 
would have been in 2009 (11.6 percent) and in 2008 (15.2 percent).
---------------------------------------------------------------------------

    \29\ Affordability levels in low-income and high-minority areas, 
but not for disaster areas, can be adequately modeled using 
econometric time series forecast models.
---------------------------------------------------------------------------

    Refinancing Housing Goal. The refinancing housing goal is targeted 
to low-income families, i.e., families with incomes no greater than 80 
percent of AMI, and applies to mortgages that are given to pay off or 
prepay an existing loan secured by the same property. Thus, the goal 
does not apply to home equity or home purchase loans.

          Table 3--GSE Past Performance on the Low-Income Areas Home Purchase Goal and Subgoal, 2008-10
                   [Goal benchmark for 2010 was 24 percent; subgoal benchmark was 13 percent]
----------------------------------------------------------------------------------------------------------------
                                                                        Enterprise
               Year                  Type of home purchase ------------------------------------   Market share
                                        (HP) mortgages         Fannie Mae        Freddie Mac         (HDMA)
----------------------------------------------------------------------------------------------------------------
2010..............................  Low-Income Tract HP               44,467            24,037  ................
                                     Mortgages.
                                    High-Minority Tract HP            14,814             8,052  ................
                                     Mortgages.
                                    Subgoal Qualifying                59,281            32,089  ................
                                     Mortgages.
                                    Total HP Mortgages....           479,201           307,555  ................
                                    Subgoal Qualifying %               12.4%             10.4%             12.1%
                                     of Mortgages.
                                    Disaster Area HP                  55,972            38,898  ................
                                     Mortgages.
                                    Goal-Qualifying                  115,253            70,876  ................
                                     Mortgages.
                                    Goal Qualifying % of               24.1%             23.0%             24.0%
                                     Mortgages.
2009..............................  Low-Income Tract HP               59,150            37,138  ................
                                     Mortgages.
                                    High-Minority Tract HP            18,349            11,259  ................
                                     Mortgages.
                                    Subgoal Qualifying                77,499            48,397  ................
                                     Mortgages.
                                    Total HP Mortgages....           582,673           415,897  ................
                                    Subgoal Qualifying %               13.3%             11.6%             13.2%
                                     of Mortgages.
                                    Disaster Area HP                  79,255            55,565  ................
                                     Mortgages.
                                    Goal-Qualifying                  156,754           103,962  ................
                                     Mortgages.
                                    Goal Qualifying % of               26.9%             25.0%             28.1%
                                     Mortgages.
2008..............................  Low-Income Tract HP              118,875            80,288  ................
                                     Mortgages.

[[Page 34269]]

 
                                    High-Minority Tract HP            29,245            19,160  ................
                                     Mortgages.
                                    Subgoal Qualifying               148,120            99,448  ................
                                     Mortgages.
                                    Total HP Mortgages....           977,852           655,156  ................
                                    Subgoal Qualifying %               15.1%             15.2%             14.3%
                                     of Mortgages.
                                    Disaster Area HP                 100,822            67,776  ................
                                     Mortgages.
                                    Goal-Qualifying                  248,942           167,224  ................
                                     Mortgages.
                                    Goal Qualifying % of               25.5%             25.5%             25.5%
                                     Mortgages.
----------------------------------------------------------------------------------------------------------------
Source: Official performance as determined by FHFA for 2010; performance if the goal had been in effect, as
  calculated by FHFA, for 2008-2009. See definition of ``Low-income Area'' in text.
Notes:
Freddie Mac's official performance for 2010 was initially reported as 10.8 percent on the subgoal and as 23.8
  percent on the goal. Its official performance has since been revised as shown above.
To determine whether an Enterprise's performance exceeded or fell short of the 2010 goal and subgoal, FHFA
  compares official performance figures with the benchmark levels and the corresponding shares of conventional
  conforming home purchase mortgages originated in 2010, based on FHFA analysis of data submitted by primary
  mortgage market lenders to the Federal Financial Institutions Examination Council (FFIEC) in accordance with
  the Home Mortgage Disclosure Act (HMDA).
The subgoal and goal-qualifying shares of the primary market are shown in the last column of the table.

    Qualifying permanent modifications of loans for low-income families 
under the Administration's Home Affordable Modification Program (HAMP) 
are counted toward the refinancing housing goal. The impact of such 
modifications on goal performance is shown in Table 4.
    Table 4 shows the Enterprises' performance on this goal for 2010, 
as well as what performance would have been if the goal had been in 
effect for the preceding four years. Performance shown for all years 
excludes units financed by Enterprise purchases of PLS, because such 
units were not counted toward the goals in 2010.
    As indicated in Table 4, Fannie Mae's performance in 2010 (20.9 
percent) was lower that it would have been in 2006-2009 (23.0 percent-
26.6 percent). Freddie Mac's performance in 2010 (22.0 percent) was 
slightly higher than it would have been in 2009 (21.7 percent), but 
lower than it would have been in 2006-2008 (23.2 percent-26.0 percent).
4. The Ability of the Enterprises To Lead the Industry in Making 
Mortgage Credit Available
    Leading the industry in making mortgage credit available includes 
making mortgage credit available to primary market borrowers at 
differing income levels with varying credit profiles living in various 
markets. Leadership also relates to the Enterprises' loss mitigation 
efforts, implementation of loan modification and refinance programs and 
support for state and local housing finance agencies. The Enterprises, 
along with FHA and VA, now lead the market in making mortgage credit 
available. In 2011, the Enterprises remained the largest issuers of 
MBS, guaranteeing 72 percent of single-family MBS. This situation is 
widely viewed as undesirable for the long term. The Enterprises' losses 
have depleted their capital and resulted in their being sustained only 
by infusions of capital from the U.S. Treasury under the Senior 
Preferred Stock Purchase Agreements. FHFA as conservator exercises a 
statutory mandate to conserve and preserve the Enterprises' assets, and 
to place the Enterprises in a sound and stable condition. Consistent 
with those responsibilities, FHFA has announced a number of steps to 
reduce the role of the Enterprises in the mortgage market. FHFA has 
taken into account all of the foregoing considerations in assessing the 
Enterprises' ability to lead the industry.

                     Table 4--GSE Past Performance on the Low-Income Refinance Goal, 2006-10
                                    [Goal benchmark for 2010 was 21 percent]
----------------------------------------------------------------------------------------------------------------
                                                                        Enterprise
               Year                    Type of refinance   ------------------------------------   Market share
                                           mortgages           Fannie Mae        Freddie Mac         (HMDA)
----------------------------------------------------------------------------------------------------------------
2010..............................  Low-Income Refinance             373,105           286,741  ................
                                     Mortgages.
                                    Total Refinance                1,934,270         1,378,578  ................
                                     Mortgages.
                                    Low-Inc. % of                      19.3%             20.8%             20.2%
                                     Refinance Mortgages.
                                    Low-Income Refinance              44,343            25,244  ................
                                     Loan Modifications.
                                    Total Refinance Loan              63,428            37,411  ................
                                     Modifications.
                                    Low-Income % of                    69.9%             67.5%                NA
                                     Refinance Loan
                                     Modifications.
                                    Low-Income Refinance             417,448           311,985  ................
                                     Total.
                                    Refinance Total.......         1,997,698         1,415,989  ................
                                    Low-Inc. % of                      20.9%             22.0%             20.2%
                                     Refinance Total.
2009..............................  Low-Income Refinance             479,631           326,912  ................
                                     Mortgages.
                                    Total Refinance                2,415,169         1,708,676  ................
                                     Mortgages.
                                    Low-Inc. % of                      19.9%             19.1%             20.9%
                                     Refinance Mortgages.
                                    Low-Income Refinance             114,390            63,708  ................
                                     Loan Modifications.
                                    Total Refinance Loan             168,437            94,062  ................
                                     Modifications.
                                    Low-Inc. % of                      67.9%             67.7%                NA
                                     Refinance Loan
                                     Modifications.
                                    Low-Income Refinance             594,021           390,620  ................
                                     Total.

[[Page 34270]]

 
                                    Refinance Total.......         2,583,606         1,802,738  ................
                                    Low-Inc. % of                      23.0%             21.7%                NA
                                     Refinance Total.
2008..............................  Low-Income Refinance             335,864           215,016  ................
                                     Mortgages.
                                    Total Refinance                1,455,287           927,816  ................
                                     Mortgages.
                                    Low-Inc. % of                      23.1%             23.2%             23.4%
                                     Refinance Mortgages.
2007..............................  Low-Income Refinance             351,739           252,889  ................
                                     Mortgages.
                                    Total Refinance                1,421,342         1,005,519  ................
                                     Mortgages.
                                    Low-Inc. % of                      24.7%             25.2%             24.3%
                                     Refinance Mortgages.
2006..............................  Low-Income Refinance             301,995           217,882  ................
                                     Mortgages.
                                    Total Refinance                1,133,684           838,104  ................
                                     Mortgages.
                                    Low-Inc. % of                      26.6%             26.0%             24.8%
                                     Refinance Mortgages.
----------------------------------------------------------------------------------------------------------------
Source: Official performance as determined by FHFA for 2010; performance if the goal had been in effect, as
  calculated by FHFA, for 2006-09. ``Low-income'' refers to borrowers with incomes no greater than 80 percent of
  Area Median Income (AMI).
Notes:
To determine whether an Enterprise's performance exceeded or fell short of the 2010 goal, FHFA compares official
  performance figures with the benchmark level and the low-income share of conventional conforming refinance
  mortgages originated in 2010, based on FHFA analysis of data submitted by primary mortgage market lenders to
  the Federal Financial Institutions Examination Council (FFIEC) in accordance with the Home Mortgage Disclosure
  Act (HMDA). The low-income shares of refinances in the primary market are shown in the last column in the
  table. There is no market data on loan modifications.

    FHFA has considered the above data in assessing the ability of the 
Enterprises to lead the industry in making mortgage credit available as 
required by the Safety and Soundness Act. FHFA has concluded that it is 
not necessary to adjust the benchmark levels based specifically on this 
factor.
5. Other Reliable Mortgage Data
    HMDA data reported by loan originators is the primary source of 
reliable mortgage data for establishing the single-family housing 
goals. In setting the housing goal benchmark levels, FHFA evaluates the 
Enterprises' performance with respect to leading or lagging the housing 
market under specific goals and compares HMDA data with mortgage 
purchase data provided by the Enterprises.
    FHFA also uses other reliable data sources including: The American 
Housing Survey (AHS); U.S. Census Bureau demographics; commercial 
sources such as Moody's; and other industry and trade research sources, 
e.g., MBA, Inside Mortgage Finance Publications, NAR, National 
Association of Home Builders (NAHB), and the Commercial Mortgage 
Securities Association. The FHFA Monthly Interest Rate Survey (MIRS) is 
used to complement forecast models for home purchase loan originations 
by making intra-annual adjustments prior to the public release of HMDA 
mortgage data.
    In the development of economic forecasts, FHFA uses data and 
information from Wells Fargo, PNC, Fannie Mae, Freddie Mac, and The 
Wall Street Journal Survey. In addition, FHFA uses market and economic 
data from the Bureau of Labor Statistics, the Federal Reserve Board, 
the Department of Commerce Bureau of Economic Analysis, and FedStats.
6. Market Size
    Expectations for the 2012 and 2013 single-family mortgage market 
are for zero or slow growth. Quantifiable factors influencing FHFA's 
outlook for the mortgage market include general growth in the economy, 
employment, inflation, and the interest rate environment. Industry 
observers expect subprime mortgage market activity to remain minimal 
through 2013. The FHA-insured mortgage market share is expected by 
industry observers to continue to be a major factor in the 
affordability levels in the conventional market as FHA loans will 
continue to be an attractive option for low-income homebuyers.\30\ The 
effects of unemployment, FHA market share, and refinancing have been 
discussed previously (see Section 2). The effects of interest rates, 
house prices, the overall housing market, manufactured housing, and the 
market outlook are discussed below.
---------------------------------------------------------------------------

    \30\ FHFA monitors the economic, housing and mortgage market 
forecasts of 12 industry and government entities. These entities are 
referred to as ``industry observers.'' For more information, and 
specifically which economic indicators each entity forecasts, see 
``Market Estimation Model for the 2012-2014 Enterprise Single-Family 
Housing Goals'' published at FHFA's Web site, www.fhfa.gov.
---------------------------------------------------------------------------

    Market Outlook. Industry observers' economic and mortgage market 
forecasts are presented in Tables 5 and 6. On average, industry 
forecasters project the economy to continue to grow in 2012 and 2013, 
with real Gross Domestic Product (GDP) growing at rates of 2.3 and 2.7 
percent, respectively. These industry observers also expect the 
unemployment rate to remain below 9.0 percent in 2012, and falling to 
7.8 percent in the fourth quarter of 2013.
BILLING CODE 8070-01-P

[[Page 34271]]

[GRAPHIC] [TIFF OMITTED] TP11JN12.123


[[Page 34272]]


[GRAPHIC] [TIFF OMITTED] TP11JN12.124

BILLING CODE 8070-01-C
    Interest Rates. Affordability in the mortgage market relies in part 
on the interest rate environment. Mortgage interest rates are impacted 
by many factors. Interest rates on longer term financial instruments 
such as mortgages typically follow the fluctuations of the 10-Year 
Treasury Note yield, with approximately an 180 basis point spread 
reflecting the differences in liquidity and credit risk. With 
uncertainty in the financial markets of the Eurpoean Union, the U.S. 
financial markets have seen increased demand as financial instruments 
here are seen as a ``safe haven.'' Overall, interest rates in the 
United States are heavily influenced by the monetary policies of the 
Federal Reserve Board's Federal Open Market Committee (FOMC). During 
the current economic environment, since mid-2008, the FOMC has 
maintained an accommodative monetary policy in support of its dual 
mandate, of fostering maximimum employment and price stability. In its 
April 24-25, 2012 meeting, the FOMC stated that it is committed to a 
low federal funds rate policy (at 0 to 0.25 percent) as it 
``anticipates that economic conditions--including low rates of resource 
utilization and a subdued outlook for inflation over the medium run--
are

[[Page 34273]]

likely to warrant exceptionally low levels for the federal funds rate 
at least through late 2014.'' \31\ This accommodative monetary policy, 
combined with the international demand for U.S. financial instruments, 
has lead to historically low interest rates in the mortgage market. The 
longer term 30-year fixed-rate mortgage interest rate fell to 4.2 
percent in October 2010, before increasing to 4.9 percent by February 
2011 and was reported at 3.83 percent in Freddie Mac's May 10, 2012 
Primary Mortgage Market Survey. Shorter term fixed- and adjustable-rate 
mortgage interest rates remain at their 2011 lows, for example of 2.75 
percent for 1-year ARMs. As a major contributor to the cost of mortgage 
financing, lower interest rates directly affect the affordability of 
buying a home or refinancing a mortgage. As the economic recovery 
strengthens in the near future and if the European situation stabilizes 
it is expected that interest rates, particularly longer term interest 
rates, will rise. For the 2012-2013 period, as shown in Table 6, 
forecasts show that all interest rates are expected to rise, including 
the interest rate on a 30-year fixed-rate mortgage, which is expected 
to reach 4.2 percent by the fourth quarter of 2012 and to average 4.7 
percent in 2013.
---------------------------------------------------------------------------

    \31\ Federal Open Market Committee, Press Release, April 25, 
2012.
---------------------------------------------------------------------------

    House Prices. Trends in house prices influence the housing and 
mortgage markets. In periods of house price appreciation, home sales 
and mortgage originations increase as the expected return on investment 
rises. In periods of price depreciation or price uncertainty, home 
sales and mortgage originations decrease as risk-averse homebuyers are 
reluctant to enter the market. House prices generally fell during 2009 
through 2011, and are expected to fall slightly in 2012 before 
rebounding in 2013. Industry forecasts show a decrease in the S&P/Case 
Shiller Home Price Index of -0.5 percent in 2012 and an increase of 0.8 
percent in 2013 (see Table 6).
    Housing Market. An active housing market is generally good for the 
affordable home market. When there are more homes for sale, potential 
home buyers have more options, prices tend to be more competitive and 
the search costs to find affordable housing decrease. Historical 
volumes for sales of both new and existing houses are shown in Table 6, 
along with forecasts for 2012-2013. Total home sales reached a 10-year 
annual low in 2010 at 4.5 million units. Home sales increased slightly 
in 2011 to 4.6 million units and industry observers expect that home 
sales will increase to 4.9 million units in 2012 and to 5.1 million 
units in 2013--well below 2004-2006 levels.
    During 2009 and early 2010, special homebuyers tax credits were 
available for first-time and repeat homebuyers. Mortgages to first-time 
homebuyers tend to be more likely to qualify for housing goals than 
those for repeat homebuyers, who tend to be older and have higher 
incomes. Many first-time homebuyers whose mortgages might otherwise 
have been available to receive goal-qualifying loans for home purchases 
in 2012-2014, instead bought their homes in 2009 or 2010 to take 
advantage of the first-time homebuyers tax credit.
    Manufactured Housing Loans. Between 2008 and 2010, 58 percent of 
manufactured housing loans were higher priced, according to HMDA data. 
Because chattel-financed loans do not count towards achievement of the 
housing goals, it was necessary to adjust the HMDA figures with respect 
to market estimates to account for this part of the manufactured 
housing market. Accordingly, FHFA down-weighted the average 2008 to 
2010 manufactured housing contribution to the goals market estimates by 
80 percent for the home purchase mortgage goals and 50 percent for the 
refinance mortgage goal. This resulted in the market estimate for the 
low-income home purchase housing goal being reduced by 1.4 percent, the 
very low-income home purchase housing goal by 0.5 percent, the low-
income areas home purchase housing goal by 0.6 percent, and the low-
income borrower refinance housing goal by 0.2 percent. The projected 
market estimates in Table 5 reflect these adjustments.
    Housing Goal Outlook. FHFA's estimates of the market performance 
for the two single-family owner-occupied home purchase housing goals 
and one subgoal, and the refinancing mortgage housing goal, are 
provided in Table 5. For 2012 and 2013, FHFA estimates that the low-
income borrower shares of the home purchase mortgage market will be 
22.4 percent and 19.6 percent, respectively. FHFA estimates that the 
very low-income borrower share of the home purchase mortgage market 
will be 7.5 percent for 2012 and 7.3 percent for 2013. FHFA estimates 
that the share of goal-qualifying mortgages in low-income areas in the 
home purchase mortgage market, excluding designated disaster areas, 
will be 11.9 percent in 2012 and 11.8 percent in 2013.
    The refinance share of the market, as measured by the MBA, averaged 
68 percent in 2011. With interest rates projected to rise during 2012-
2013, industry observers expect the refinance share of total 
originations to decrease. Generally speaking, decreasing refinance 
share leads to a higher percentage of refinance originations made up of 
lower-income borrowers. Accordingly, with a projected refinance share 
of 62 percent in 2012 and 48 percent in 2013 (down from 68 percent in 
2011), FHFA's market model estimates that 21.2 percent of refinance 
mortgages will be made to low-income borrowers in 2012 and 24.1 percent 
in 2013. These estimates are reflective of historical lending patterns 
and trends. However, as evidenced by the Federal Reserve Bank of 
Philadelphia's Community Outlook Survey, the tightening of underwriting 
standards will impact the access to credit of lower-income borrowers. 
In this survey of organizations servicing low- and moderate-income 
populations (those with incomes less than 80 percent of AMI), only 3 
percent of the respondents saw an increase in the access to credit in 
the fourth quarter of 2011, and only 1.6 percent of the respondents saw 
an increase in the access to credit in the third quarter of 2011. When 
asked about what they expect for the first three months of 2012, 9 
percent of the respondents stated that they expected an increase in 
access to credit.\32\
---------------------------------------------------------------------------

    \32\ Federal Reserve Bank of Philadelphia, Fourth Quarter 2011 
Community Outlook Survey, February, 2012.
---------------------------------------------------------------------------

    To arrive at the market estimates, FHFA used an econometric state 
space methodology to extend the trends of the market performance for 
each goal, based on a monthly time series database provided by the 
Federal Financial Institutions Examination Council (FFIEC) and the 
Federal Reserve Board. For the low-income areas goal, this model 
produced the market estimates for only the subgoal. The remainder of 
the market estimates for this goal relates to the designated disaster 
areas. FHFA will provide the 2012 and 2013 estimates of the share of 
home purchase mortgages that will qualify for the designated disaster 
areas portion of the low-income areas goal to the Enterprises in 
January of each year.
    FHFA used all relevant information when determining the benchmark 
levels for the 2012 and 2013 housing goals. While the tightening of 
underwriting standards is not included in the market estimates 
calculation, it was considered in the determination of the benchmark 
levels. FHFA attempts to use the most current data possible when 
estimating market size, including information from FHFA's MIRS and 
combined Fannie Mae and Freddie Mac refinance goal performance data to 
extend HMDA

[[Page 34274]]

performance data. FHFA used estimated market series of goal-qualifying 
shares provided by Freddie Mac that are based on MIRS data from January 
2004 to September 2011. In addition, FHFA used the combined Enterprise 
performance data from January 2001 to December 2011 to inform the 
market estimates for the refinance goal. Guidance for calculating 
market size using historical HMDA data is provided in the ``Market 
Estimation Model for the 2012-2014 Enterprise Single-Family Housing 
Goals'' published by FHFA on its Web site.\33\
---------------------------------------------------------------------------

    \33\ See http://www.fhfa.gov/Default.aspx?Page=72.
---------------------------------------------------------------------------

7. Need To Maintain the Sound Financial Condition of the Enterprises
    The financial performance of both Enterprises is dominated by 
credit-related expenses and losses stemming principally from purchases 
and guarantees of mortgages originated in 2006 and 2007 and from 
purchases of PLS. As discussed above, FHFA's duties as conservator 
require the conservation and preservation of the Enterprises' assets. 
While reliance on the Treasury's backing will continue until 
legislation produces a final resolution to the Enterprises' future, 
FHFA is monitoring the activities of the Enterprises to: (a) Limit 
their risk exposure by avoiding new lines of business; (b) ensure 
profitability in the new book of business without deterring market 
participation or hindering market recovery; and (c) minimize losses on 
the mortgages already on their books. Given the importance of the 
Enterprises to the housing market, any goal-setting must be closely 
linked to putting the Enterprises in sound and solvent condition.

B. Single-Family Housing Goal Benchmark Levels

    Based on the factors described above, proposed Sec.  1282.12 would 
establish the benchmark levels for the single-family housing goals for 
2012, 2013 and 2014 as set forth below:
    Housing goal for low-income families. The proposed benchmark level 
of the annual goal for each Enterprise's purchases of purchase money 
mortgages on owner-occupied single-family housing for low-income 
families is 20 percent of the total number of such mortgages purchased 
by that Enterprise.
    Housing goal for very low-income families. The proposed benchmark 
level of the annual goal for each Enterprise's purchases of purchase 
money mortgages on owner-occupied single-family housing for very low-
income families is 7 percent of the total number of such mortgages 
purchased by that Enterprise.
    Housing goal and subgoal for families in low-income areas. The 
benchmark level of the annual goal for each Enterprise's purchases of 
purchase money mortgages on owner-occupied single-family housing for 
families in low-income areas is set annually by notice from FHFA. The 
benchmark level is based on the benchmark level for the low-income 
areas subgoal, plus an adjustment factor that reflects the incremental 
percentage share that mortgages for low- and moderate-income families 
in designated disaster areas had in the most recent year for which data 
is available. The proposed benchmark level of the annual subgoal for 
each Enterprise's purchases of purchase money mortgages on owner-
occupied single-family housing for families in low-income census tracts 
and for low- and moderate-income families in minority census tracts is 
11 percent of the total number of such mortgages purchased by that 
Enterprise.
    Housing goal for refinancing mortgages. As discussed in the 
Economic, Housing and Demographic Conditions Section, the historic 
secular patterns in the refinance market show that when interest rates 
increase, more higher income homeowners drop out of the refinance 
market relative to lower income homeowners. This is attributed to the 
differing motivations for refinancing between the groups, where lower 
income borrowers are more likely to be seeking a cash-out refinance, 
which is less dependent on interest rates, than a rate-and-term 
refinance. The market model, which is based on historical patterns in 
the refinance market, projects that the low-income borrower share of 
the refinance market will increase from 21 percent in 2012 to 24 
percent in 2013 (see Table 5). FHFA is taking into consideration the 
current economic environment, including the tightening of underwriting 
standards and the decrease in equity in the housing stock, in the 
setting of the refinance goal benchmark. Therefore, the proposed 
benchmark level of the annual goal for each Enterprise's purchases of 
refinancing mortgages on owner-occupied single-family housing for low-
income families is 21 percent of the total number of such mortgages 
purchased by that Enterprise, the low end of the projected range.

V. Multifamily Housing Goals

A. Analysis of Factors for Multifamily Housing Goals

    Section 1333(a)(4) of the Safety and Soundness Act, as amended by 
HERA, requires FHFA to consider the following six factors in setting 
multifamily special affordable housing goals:
    (1) National multifamily mortgage credit needs and the ability of 
the Enterprise to provide additional liquidity and stability for the 
multifamily mortgage market;
    (2) The performance and effort of the Enterprise in making mortgage 
credit available for multifamily housing in previous years;
    (3) The size of the multifamily mortgage market for housing 
affordable to low-income and very low-income families, including the 
size of the multifamily markets for housing of a smaller or limited 
size;
    (4) The ability of the Enterprise to lead the market in making 
multifamily mortgage credit available, especially for multifamily 
housing affordable to low-income and very low-income families;
    (5) The availability of public subsidies; and
    (6) The need to maintain the sound financial condition of the 
Enterprise.
    FHFA's analysis of each of the six factors is set forth below.
1. National Multifamily Mortgage Credit Needs
    In 2011, traditional participants in multifamily mortgage financing 
continued to increase their presence. Life insurance companies, and to 
a limited extent, commercial mortgage-backed securities (CMBS) issuers, 
increased their lending volumes in 2011 compared to 2010. Nevertheless, 
the Enterprises remain by far the largest sources of multifamily 
capital, comprising over 60 percent of originations in dollar 
terms.\34\
---------------------------------------------------------------------------

    \34\ ``GSEs Capture More Than 60 Percent of Market in 2011'', 
Multifamily Executive, January 19, 2012, http://multifamilyexecutive.com/debt/gses-capture-more-than-60-percent-of-market-in-2011.aspx.
---------------------------------------------------------------------------

    The difficulties encountered by CMBS issuers in 2011 will likely 
continue into 2012 as rating agencies remain hesitant to grade 
commercial mortgages bundled into CMBS. FHFA expects that in 2012 the 
Enterprises will have a lower market share than what they had in 2011, 
a little less than 60 percent in terms of dollars.\35\ As investors 
become more confident in the stability of the multifamily mortgage 
market, the CMBS market should slowly make a return, and the 
Enterprises' market share should decline over the 2012-2014 period, 
although the overall multifamily mortgage market should slowly grow as 
the economy recovers. In arriving at this

[[Page 34275]]

conclusion, FHFA considered, among other factors, vacancy rates, 
origination rates, and property prices.
---------------------------------------------------------------------------

    \35\ ``GSEs Capture More Than 60 Percent of Market in 2011'', 
Multifamily Executive, January 19, 2012. http://multifamilyexecutive.com/debt/gses-capture-more-than-60-percent-of-market-in-2011.aspx.
---------------------------------------------------------------------------

    Vacancy Rates and Origination Rates. Falling vacancy rates are 
usually associated with increased rents and investor interest in 
multifamily properties. According to the U.S. Census Bureau, rental 
vacancy rates fell from 9.7 percent in the first quarter of 2011 to 8.8 
percent in the first quarter of 2012. ``Effective rents,'' which are 
the rents that tenants actually pay, increased by over four percent in 
2011 according to Axiometrics, a provider of commercial real estate 
data.\36\ Although vacancy rates decreased and property values and 
rents increased, multifamily permits were issued at an annualized rate 
of 217,000 units in April 2012, which is still well below historical 
levels, according to the U.S. Census Bureau. Low interest rates and 
increased demand for multifamily housing should spur an increase in new 
multifamily construction. Likewise, the lack of new units coming onto 
the market and the prevailing low interest rates should continue to 
encourage multifamily property owners to refinance.
---------------------------------------------------------------------------

    \36\ ``Axiometrics' Research Indicates Strongest Monthly 
Sequential Rent and Occupancy Growth in Last 4 Years'', April 30, 
2012. http://www.axiometrics.com/PressRelease/.
---------------------------------------------------------------------------

    Property Prices. As of the end of September 2011, multifamily 
property prices were up over 15 percent from their low point in the 
third quarter of 2009.\37\ However, multifamily property prices are 
still well below peak levels reached in 2007. FHFA anticipates a 
continued rise in multifamily property prices in most markets for the 
2012-2014 period. Rising multifamily property prices usually spur 
increased refinances, property sales, and new construction activity; 
these factors are reflected in the progressively higher proposed goals 
for 2012-2013.
---------------------------------------------------------------------------

    \37\ Moody's Investor Services, Moody's/Real Commercial Property 
Price Indices, November 7, 2011, available at http://web.mit.edu/cre/research/credl/rca.html.
---------------------------------------------------------------------------

2. The Performance and Effort of the Enterprises in Making Mortgage 
Credit Available for Multifamily Housing in Previous Years
    Multifamily Low-Income Housing Goal. The multifamily low-income 
housing goal includes units affordable to low-income families (those 
with incomes no greater than 80 percent of AMI). Both Enterprises 
played major roles in funding multifamily units for low-income families 
between 2006 and 2009, as shown in Table 7. Fannie Mae financed an 
average of 346,000 such units over this period, peaking at 447,000 
units in 2008, while Freddie Mac financed an average of 226,000 units 
over this period, peaking at 298,000 units in 2007. The Enterprises 
followed different approaches to the multifamily mortgage market, with 
Freddie Mac relying to a significant extent on the purchase of CMBS, 
while Fannie Mae depended to a greater extent on the direct purchase of 
multifamily loans originated by its Delegated Underwriting and 
Servicing (DUS) lenders.
    In the final rule establishing the housing goals for 2010-2011, 
FHFA set the minimum goal for Fannie Mae at 177,750 low-income 
multifamily units, and the minimum goal for Freddie Mac at 161,250 such 
units, which was below the Enterprises' average levels of purchases in 
2006-2009. FHFA determined that Fannie Mae financed 214,997 low-income 
multifamily units in 2010, 121 percent of its goal, while Freddie Mac 
financed 161,500 such units in 2010, 100.2 percent of its goal.

[[Page 34276]]

[GRAPHIC] [TIFF OMITTED] TP11JN12.125

    Multifamily Very Low-Income Subgoal. The multifamily very low-
income housing subgoal includes units affordable to very low-income 
families (those with incomes no greater than 50 percent of AMI). 
Enterprise financing of rental units for very low-income families over 
the 2006-2010 period is reported in Table 8. On average, from 2006 to 
2009, Fannie Mae financed 83,000 such units each year, peaking at 
95,000 units in 2008, and Freddie Mac financed 39,000 such units each 
year, peaking at 59,000 units in 2007. The 2010-2011 housing goals 
regulation set the minimum subgoal for Fannie Mae at 42,750 very low-
income multifamily units, and for Freddie Mac at 21,000 such units, 
which was below the Enterprises' average levels of purchases in 2006-
2009. FHFA determined that Fannie Mae financed 53,908 very low-income 
multifamily units in 2010, 126 percent of its subgoal, while Freddie 
Mac financed 29,650 such units in 2010, 141 percent of its subgoal.

[[Page 34277]]

[GRAPHIC] [TIFF OMITTED] TP11JN12.126

    Financing of Low-Income Units in Small Multifamily Properties. 
Section 1333(a)(3) of the Safety and Soundness Act, as revised by HERA, 
provides that the Director shall require each Enterprise to report on 
its purchases of mortgages on multifamily housing ``of a smaller or 
limited size that is affordable to low-income families.'' \38\ FHFA 
defined such small multifamily properties as those containing 5 to 50 
units, which is consistent with industry practice.
---------------------------------------------------------------------------

    \38\ 12 U.S.C. 4563(a)(3).
---------------------------------------------------------------------------

    Small multifamily housing plays an important role as a source of 
affordable rental housing. According to the 2007 American Housing 
Survey, multifamily properties containing 5 to 49 units constituted 77 
percent of all multifamily units and 74 percent of multifamily units 
constructed in the previous 4 years. Table 9 reports information on 
low-income units in small multifamily properties (defined as those 
containing 5 to 50 units) that were financed by the Enterprises in 
2006-2010.

[[Page 34278]]

[GRAPHIC] [TIFF OMITTED] TP11JN12.127

    Both Enterprises have decreased the volume of their purchases of 
small multifamily mortgages in the past few years due to a lack of CMBS 
issuances available for sale and a decline in the overall volume of 
small multifamily loans available for purchase. Fannie Mae financed 
58,931 low-income units in small multifamily properties in 2007, and an 
average of 38,901 such units per year over the 2007-2009 period, but 
only 12,460 such units in 2010, or about a third of its 2006-2009 
average. Freddie Mac has played a much smaller role in the small 
multifamily market, financing 2,147 low-income units in small 
multifamily properties in 2007, and an average of 1,283 such units per 
year in 2007-2009, but only 459 such units in 2010, also about a third 
of its 2007-2009 average. These figures do not include any units in 
small multifamily properties financed by the acquisition of CMBS, which 
are not eligible for housing goals credit in the 2010-2011 housing 
goals regulation.
3. Multifamily Mortgage Market Size
    With demand for multifamily housing increasing, the multifamily 
mortgage market should continue to grow. The number of multifamily 
units completed in 2011 was 130,000, according to the U.S. Census 
Bureau.\39\ The MBA estimates that multifamily mortgage originations 
totaled $48.9 billion in 2010. Most of those originations occurred in 
the second half of 2010. As a result of the improvement in multifamily 
housing performance in many areas of the country, FHFA anticipates an 
increase in multifamily originations for the period covered in this 
proposed rule. For purposes of this rulemaking, the proposed 
multifamily goals for both 2012 and 2013 reflect the performance of the 
overall multifamily market in 2011. The improvement in multifamily 
mortgage market fundamentals indicates that the 2011 market size was 
around $65 billion. The proposed new multifamily goals anticipate an 
increase in the overall multifamily market to approximately $75 billion 
in 2012 and $80 billion in 2013 and 2014.
---------------------------------------------------------------------------

    \39\ ``New Privately-Owned Housing Units Completed'', U.S. 
Census Bureau, May 16, 2012. http://www.census.gov/construction/nrc/.
---------------------------------------------------------------------------

    As in prior years, multifamily housing goals are set separately for 
each Enterprise, and are measured in units rather than dollar volume. 
Several factors support continuing to establish different goal levels 
for each Enterprise. First, loan maturities will be increasing for both 
Fannie Mae and Freddie Mac from 2012 to 2014, but the increase for 
Fannie Mae will be much greater than for Freddie Mac, thus allowing 
Fannie Mae more opportunity to refinance maturing loans back into its 
portfolio. Second, consistent with the 2010-2011 housing goals 
regulation, multifamily units financed through CMBS purchases will not 
be goals-eligible. Historically, Freddie Mac has relied more heavily on 
purchasing CMBS to obtain goals-eligible units than Fannie Mae, so the 
exclusion of CMBS purchases has a greater impact on Freddie Mac's 
performance.
4. Ability of the Enterprise To Lead the Market in Making Multifamily 
Mortgage Credit Available
    The multifamily housing market began to improve in many geographic 
areas in 2011 (e.g., decreasing vacancy rates, increasing rents and 
rising property values). As discussed above, FHFA expects this 
improvement to continue through 2014. Fannie Mae and Freddie Mac have 
recently composed a larger than usual portion of the multifamily 
mortgage market. For example, the Enterprises estimate their average 
share of the multifamily mortgage market, excluding FHA-insured loans, 
was 37 percent in the period from 2004 to 2007, which peaked at 87 
percent in 2009.

[[Page 34279]]

    By 2011, however, the Enterprises' multifamily mortgage market 
share declined to a little over 60 percent as traditional competitors 
such as life insurance companies, conduits and banks re-entered 
multifamily lending. The decline in Enterprise multifamily mortgage 
market share should continue through 2012-2014 as these traditional 
competitors increase their presence in the multifamily mortgage market.
5. Availability of Public Subsidies
    Public subsidies for multifamily housing have been affected by the 
mortgage credit crisis. The value of low-income housing tax credits 
(LIHTCs), an important source of equity for new low-income housing, 
fell in 2009 but has recovered to a point where the LIHTC market is 
substantially healthier. Total equity raised through LIHTCs is 
forecasted to average $7.8 billion per year from 2013 to 2017 period, 
according to an Office of Management and Budget estimate.\40\ This 
amount would be well above the estimated equity of $4.5 billion raised 
in 2009.\41\ In 2007, before the mortgage crisis, around $9 billion in 
equity was raised through LIHTCs. Demand for LIHTCs should continue in 
strong rental markets. As LIHTC investments return to pre-2008 volumes, 
opportunities for the Enterprises to finance LIHTC properties and, 
therefore, goals-eligible units should increase.
---------------------------------------------------------------------------

    \40\ ``2012 Q & A on the Housing Credit Program'', National 
Council of Sate Housing Agencies, April 18, 2012. http://www.ncsha.org/resource/2012-qa-housing-credit-program.
    \41\ LIHTC Market Gets its Mojo Back'', Tax Credit Advisor, 
housingonline.com, February 2011.
---------------------------------------------------------------------------

6. Need To Maintain the Sound Financial Condition of the Enterprises
    The financial condition of both Enterprises is discussed in more 
detail above. FHFA has considered the multifamily housing goals in 
light of the importance of the Enterprises to the housing market and in 
light of FHFA's duties as conservator to conserve and preserve the 
assets of the Enterprises. The proposed multifamily housing goal levels 
for 2012-2014 are aligned with safe and sound practices and market 
reality.

B. Multifamily Housing Goal Levels

    The proposed rule would set different multifamily goals for each of 
the Enterprises, as was done in previous years. Reflecting a more 
robust multifamily market in the years 2012 through 2014, as well as an 
anticipated decline in market share of the Enterprises, the proposed 
rule would establish the multifamily special affordable housing goals 
and subgoals as follows:
    Multifamily Low-Income Housing Goals. The proposed annual goal for 
Fannie Mae's purchases of mortgages on multifamily residential housing 
affordable to low-income families is at least 251,000 dwelling units 
for 2012, at least 245,000 dwelling units for 2013, and at least 
223,000 dwelling units for 2014. The proposed annual goal for Freddie 
Mac's purchases of mortgages on multifamily residential housing 
affordable to low-income families is at least 191,000 dwelling units 
for 2012, at least 203,000 dwelling units for 2013, and at least 
181,000 dwelling units in 2014.
    Multifamily Very Low-Income Housing Subgoals. The proposed annual 
subgoal for Fannie Mae's purchases of mortgages on multifamily 
residential housing affordable to very low-income families is at least 
60,000 dwelling units for 2012, at least 59,000 dwelling units for 
2013, and at least 53,000 dwelling units for 2014. The proposed annual 
subgoal for Freddie Mac's purchases of mortgages on multifamily 
residential housing affordable to very low-income families is at least 
32,000 dwelling units in 2012, at least 31,000 dwelling units in 2013, 
and at least 27,000 dwelling units in 2014.
    The proposed low-income goal and very low-income subgoal for the 
2012-2014 period reflect the unusually high volume and market share the 
Enterprises experienced in 2011. FHFA believes this level of market 
share will gradually decrease in 2012 and beyond. In 2011, multifamily 
units financed by Fannie Mae increased by 35 percent over 2010 levels, 
while multifamily units financed by Freddie Mac increased by almost 25 
percent. This was primarily due to a 50 percent increase in multifamily 
originations in terms of dollars in 2011 compared to 2010. Competition 
from CMBS issuers and banks and thrifts should increase in 2012. We 
anticipate that as competition increases, the Enterprises' market share 
will decline, as will the number of units they finance during the 2012-
2014 period. FHFA has taken a conservative approach to setting the 
multifamily goals for 2012 to 2014 because of the difficulty of 
predicting changes in the market. FHFA may adjust the levels of the 
multifamily goals at a later date if market conditions so require.

VI. Special Counting Requirements

A. Multifamily Subordinate Liens

    Section 1282.16(b)(10) of the current housing goals regulation 
excludes both single-family and multifamily subordinate lien mortgages 
from counting towards the housing goals, although it does not prohibit 
the purchase of Charter-compliant subordinate lien mortgages. The 
Supplementary Information to the 2010-2011 housing goals final rule 
indicated that FHFA might solicit further public comment on whether 
multifamily subordinate lien mortgages should be counted for purposes 
of the housing goals.\42\ However, FHFA has determined that it will not 
solicit such comments at this time. The current housing goals 
regulation that excludes both single-family and multifamily subordinate 
lien mortgages from counting towards the housing goals will remain in 
effect during the period covered by this proposed rule.
---------------------------------------------------------------------------

    \42\ See 75 FR 55892, 55924 (Sept. 14, 2010).
---------------------------------------------------------------------------

    Multifamily subordinate liens are only available to borrowers who 
have an existing first lien mortgage from the Enterprises, therefore 
the property securing the first lien mortgage will have already been 
counted for housing goals purposes. Subordinate liens are available 
either to supplement the purchase proceeds in connection with the sale 
of an Enterprise funded property and assumption of the existing first 
lien mortgage by a buyer, or as an equity take out by an existing 
borrower who will either retain the proceeds or use them to fund 
property improvements. Equity take outs used for property improvements 
and upgrades may have the effect of repositioning a formerly affordable 
property so it can charge higher rents and be removed from the 
affordable stock. Because the purpose of the multifamily housing goals 
is to gauge the Enterprises' efforts to support the affordable housing 
needs of renters, FHFA has decided not to propose changes to the 
current housing goals regulation regarding counting of subordinate lien 
mortgages towards housing goals.

B. Multifamily Property Conversion

    Section 1282.15(d) currently requires the Enterprises to use tenant 
income to determine the affordability of rental units where such 
information is available, and to use rent where income information is 
not available. Some commenters on the proposed 2010-2011 housing goals 
rule raised concerns that using current rental information could lead 
to counting a multifamily mortgage as ``affordable'' in cases where the 
property is expected to convert from affordable rents to market rate 
rents. FHFA indicated in the Supplementary Information to that rule 
that it expected

[[Page 34280]]

to address this issue in a subsequent rulemaking.\43\
---------------------------------------------------------------------------

    \43\ See 75 FR 55926.
---------------------------------------------------------------------------

    For a variety of reasons, mortgages that result in the conversion 
of multifamily properties from affordable rents to market rate rents 
are not likely to receive housing goals credit. The Enterprise 
underwriting standards for multifamily properties use actual rents, as 
provided on the property rent roll at the time of underwriting, rather 
than post-conversion projected rents. This limits the likelihood that 
an Enterprise will purchase a multifamily mortgage where the financing 
depends on increases in the current rents. The Enterprises may still 
purchase such loans indirectly through purchases of CMBS. For example, 
in one well-publicized case in New York City, rent-regulated properties 
were purchased by investors intent on raising rents to market levels. 
Both Enterprises invested in a total of $3 billion in private label 
CMBS that financed the purchases and received housing goals credit for 
these transactions under the housing goals regulation then in effect. 
However, FHFA's current regulation specifies that purchases of PLS, 
including CMBS, are ineligible for housing goals credit. Accordingly, 
these transactions would not have received housing goals credit under 
the current regulation.\44\
---------------------------------------------------------------------------

    \44\ It is also worth noting that subsequent litigation resulted 
in restrictions on the owners' ability to convert to market rents.
---------------------------------------------------------------------------

    Because it is unlikely that an Enterprise would receive housing 
goals credit for a mortgage that finances the conversion of a 
multifamily property from affordable rents to market rate rents, FHFA 
is not proposing any change to the rules for determining affordability 
for multifamily mortgages. However, in view of public and congressional 
concerns in this area, FHFA requests comment on whether the housing 
goals regulation should be amended to address the possibility that a 
multifamily mortgage financing the conversion of a property from 
affordable rents to market rate rents could be treated as affordable 
under the Enterprise housing goals. In particular, FHFA requests 
comment on whether Sec.  1282.15(d) should be revised to require the 
Enterprises to use projected rents to determine affordability if such 
projected rents are available. Such a change would require the 
Enterprises to determine, to the best of their knowledge, that a 
specific property owner does not anticipate the purchase of affordable 
units in properties with the goal of converting those rents to market 
rents.

VII. Paperwork Reduction Act

    The proposed rule does not contain any information collection 
requirement that requires the approval of the Office of Management and 
Budget under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).

VIII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities, small businesses, or small organizations must 
include an initial regulatory flexibility analysis describing the 
regulation's impact on small entities. Such an analysis need not be 
undertaken if the agency has certified that the regulation will not 
have a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 605(b). FHFA has considered the impact of the 
proposed rule under the Regulatory Flexibility Act.
    The General Counsel of FHFA certifies that the proposed rule, if 
adopted as a final rule, is not likely to have a significant economic 
impact on a substantial number of small entities because the regulation 
is applicable only to the Enterprises, which are not small entities for 
purposes of the Regulatory Flexibility Act.

List of Subjects in 12 CFR Part 1282

    Mortgages, Reporting and recordkeeping requirements.

Authority and Issuance

    For the reasons stated in the Supplementary Information, under the 
authority of 12 U.S.C. 4511, 4513, and 4526, FHFA proposes to amend 
part 1282 of title 12 of the Code of Federal Regulations as follows:

PART 1282--ENTERPRISE HOUSING GOALS AND MISSION

    1. The authority citation for part 1282 is amended to read as 
follows:

    Authority:  12 U.S.C. 4501, 4502, 4511, 4513, 4526, 4561-4566.

    2. Amend Sec.  1282.12 by revising paragraphs (c)(2), (d)(2), 
(f)(2) and (g)(2) to read as follows:


Sec.  1282.12  Single-family housing goals.

* * * * *
    (c) * * *
    (2) The benchmark level, which for 2012, 2013 and 2014 shall be 20 
percent of the total number of purchase money mortgages purchased by 
that Enterprise in each year that finance owner-occupied single-family 
properties.
    (d) * * *
    (2) The benchmark level, which for 2012, 2013 and 2014 shall be 7 
percent of the total number of purchase money mortgages purchased by 
that Enterprise in each year that finance owner-occupied single-family 
properties.
* * * * *
    (f) * * *
    (2) The benchmark level, which for 2012, 2013 and 2014 shall be 11 
percent of the total number of purchase money mortgages purchased by 
that Enterprise in each year that finance owner-occupied single-family 
properties.
    (g) * * *
    (2) The benchmark level, which for 2012, 2013 and 2014 shall be 21 
percent of the total number of refinancing mortgages purchased by that 
Enterprise in each year that finance owner-occupied single-family 
properties.
    3. Amend Sec.  1282.13 by revising paragraphs (b) and (c) to read 
as follows:


Sec.  1282.13  Multifamily special affordable housing goal and subgoal.

* * * * *
    (b) Multifamily low-income housing goal.--(1) For the year 2012, 
the goal for each Enterprise's purchases of mortgages on multifamily 
residential housing affordable to low-income families shall be, for 
Fannie Mae, at least 251,000 dwelling units affordable to low-income 
families in multifamily residential housing financed by mortgages 
purchased by that Enterprise, and for Freddie Mac, at least 191,000 
such dwelling units.
    (2) For the year 2013, the goal for each Enterprise's purchases of 
mortgages on multifamily residential housing affordable to low-income 
families shall be, for Fannie Mae, at least 245,000 dwelling units 
affordable to low-income families in multifamily residential housing 
financed by mortgages purchased by that Enterprise, and for Freddie 
Mac, at least 203,000 such dwelling units.
    (3) For the year 2014, the goal for each Enterprise's purchases of 
mortgages on multifamily residential housing affordable to low-income 
families shall be, for Fannie Mae, at least 223,000 dwelling units 
affordable to low-income families in multifamily residential housing 
financed by mortgages purchased by that Enterprise, and for Freddie 
Mac, at least 181,000 such dwelling units.
    (c) Multifamily very low-income housing subgoal.--(1) For the year 
2012, the subgoal for each Enterprise's purchases of mortgages on 
multifamily residential housing affordable to very low-income families 
shall be, for Fannie Mae, at least 60,000 dwelling units affordable to 
very low-income families

[[Page 34281]]

in multifamily residential housing financed by mortgages purchased by 
that Enterprise, and for Freddie Mac, at least 32,000 such dwelling 
units.
    (2) For the year 2013, the subgoal for each Enterprise's purchases 
of mortgages on multifamily residential housing affordable to very low-
income families shall be, for Fannie Mae, at least 59,000 dwelling 
units affordable to very low-income families in multifamily residential 
housing financed by mortgages purchased by that Enterprise, and for 
Freddie Mac, at least 31,000 such dwelling units.
    (3) For the year 2014, the subgoal for each Enterprise's purchases 
of mortgages on multifamily residential housing affordable to very low-
income families shall be, for Fannie Mae, at least 53,000 dwelling 
units affordable to very low-income families in multifamily residential 
housing financed by mortgages purchased by that Enterprise, and for 
Freddie Mac, at least 27,000 such dwelling units.

    Dated: June 5, 2012.
Edward J. DeMarco,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2012-14105 Filed 6-8-12; 8:45 am]
BILLING CODE 8070-01-P