Federal Register, Volume 80 Issue 171 (Thursday, September 3, 2015)

[Federal Register Volume 80, Number 171 (Thursday, September 3, 2015)]
[Rules and Regulations]
[Pages 53392-53433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-20880]

[[Page 53391]]

Vol. 80

Thursday,

No. 171

September 3, 2015

Part II

Federal Housing Finance Agency

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12 CFR Part 1282

2015-2017 Enterprise Housing Goals; Final Rule

Federal Register / Vol. 80 , No. 171 / Thursday, September 3, 2015 /
Rules and Regulations

[[Page 53392]]

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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1282

RIN 2590-AA65

2015-2017 Enterprise Housing Goals

AGENCY: Federal Housing Finance Agency.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing a final
rule regarding the housing goals for Fannie Mae and Freddie Mac (the
Enterprises) for 2015 through 2017. The Federal Housing Enterprises
Financial Safety and Soundness Act of 1992, as amended (the Safety and
Soundness Act), requires FHFA to establish annual housing goals for
mortgages purchased by the Enterprises. The housing goals include
separate categories for single-family and multifamily mortgages on
housing that is affordable to low-income and very low-income families,
among other categories.
The final rule establishes the benchmark levels for each of the
housing goals and subgoals for 2015 through 2017. In addition, the
final rule establishes a new housing subgoal for small multifamily
properties affordable to low-income families.
The final rule also adds or revises a number of other provisions in
the housing goals regulation in order to provide greater clarity about
the mortgages that will qualify for the goals or subgoals. In addition,
the final rule makes a number of clarifying and conforming changes,
including revisions to the definitions of ``rent'' and ``utilities''
and to the rules for determining affordability of both single-family
and multifamily units. The final rule also establishes more transparent
agency procedures for FHFA guidance on the housing goals.
FHFA also discusses here its plans to require more detailed
Enterprise reporting to FHFA on the Enterprises' purchases of mortgages
on single-family rental housing.

DATES: The final rule is effective on October 5, 2015.

FOR FURTHER INFORMATION CONTACT: Ted Wartell, Manager, Housing &
Community Investment, Division of Housing Mission and Goals, at (202)
649-3157. This is not a toll-free number. The mailing address is:
Federal Housing Finance Agency, 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. Description of the Enterprise Affordable Housing Goals

The Safety and Soundness Act requires FHFA to establish several
annual housing goals for single-family and multifamily mortgages
purchased by Fannie Mae and Freddie Mac.\1\ The housing goals
provisions were substantially revised in 2008 with the enactment of the
Housing and Economic Recovery Act.\2\ Under the revised structure, FHFA
established housing goals for the Enterprises for 2010 and 2011 in a
final rule published on September 14, 2010.\3\ FHFA established new
housing goals benchmark levels for the Enterprises for 2012 through
2014 in a final rule published on November 13, 2012.\4\ The housing
goals established by FHFA in these two prior rulemakings include four
goals and one subgoal for single-family owner-occupied housing and one
goal and one subgoal for multifamily housing.
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\1\ 12 U.S.C. 4561(a).
\2\ Housing and Economic Recovery Act of 2008, Public Law 110-
289, 122 Stat. 2654 (July 30, 2008).
\3\ 75 FR 55891.
\4\ 77 FR 67535.
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Single-family goals. The single-family goals defined under the
Safety and Soundness Act include separate categories for home purchase
mortgages for low-income families, very low-income families, and
families that reside in low-income areas. Performance on the single-
family home purchase goals is measured as the percentage of the total
home purchase mortgages acquired by an Enterprise each year that
qualifies for each goal or subgoal. There is also a separate goal for
refinancing mortgages for low-income families, and performance on the
refinancing goal is determined in a similar way.
Under the Safety and Soundness Act, the single-family housing goals
are limited to mortgages on owner-occupied housing with a total of one
to four units, at least one of which must be owner-occupied. The
single-family goals cover ``conventional, conforming mortgages,'' with
``conventional'' meaning not insured or guaranteed by the Federal
Housing Administration (FHA) or other government agency, and
``conforming'' meaning those mortgages with a principal balance that
does not exceed the loan limits for Enterprise mortgages.
The single-family goals established by FHFA in 2010 and 2012
compare the goal-qualifying share of an Enterprise's mortgage purchases
to two separate measures: A ``benchmark level'' and a ``market level.''
The benchmark level is set prospectively by rulemaking, based on
various factors, including FHFA's forecast of the goal-qualifying share
of the overall conventional conforming mortgage market using FHFA's
market estimation models. The market level is determined
retrospectively each year based on the actual goal-qualifying share of
the overall conventional conforming mortgage market as measured by FHFA
based on Home Mortgage Disclosure Act (HMDA) data for that year. The
overall mortgage market that FHFA uses for purposes of both the
prospective market forecasts and the retrospective market measurement
consists of all conventional conforming mortgages on single-family,
owner-occupied properties that would be eligible for purchase by either
Enterprise. It includes loans actually purchased by the Enterprises, as
well as comparable loans held in a lender's portfolio or sold to
another mortgage conduit, some of which may be securitized into a
private label security (PLS), although very few such securities have
been issued for conventional conforming mortgages since 2008.
Under this two-part approach, determining whether an Enterprise has
met the single-family goals and subgoals for a specific year requires
looking at both the benchmark level and the market level for each goal
and subgoal. In order to meet a single-family housing goal or subgoal
during 2012-2014, the actual percentage of mortgage purchases by an
Enterprise that met each goal or subgoal had to meet or exceed either
the benchmark level or the market level for that goal or subgoal for
that year.
Multifamily goals. The multifamily goals defined under the Safety
and Soundness Act include separate categories for mortgages on
multifamily properties (i.e., properties with five or more units) with
rental units affordable to low-income families and very low-income
families. The multifamily goals established by FHFA in 2010 and 2012
are based on numeric targets, not percentages of mortgage purchases,
for the number of affordable units in properties backed by mortgages
purchased by an Enterprise. FHFA has not established a retrospective
market level measure for the multifamily goals and subgoals because of
the lack of comprehensive data about the multifamily mortgage market
such as that provided by HMDA for single-family mortgages. As a result,
FHFA measures Enterprise multifamily goals performance only against the
benchmark levels, which are set prospectively by rulemaking based on
various statutorily-prescribed factors, including FHFA's forecast of
the goal-

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qualifying share of the overall conventional multifamily mortgage
market.

II. Proposed Rule and Comments

FHFA published a proposed rule in the Federal Register on September
11, 2014 regarding the establishment of affordable housing goals for
Fannie Mae and Freddie Mac for 2015-2017.\5\ The proposed rule would
have established benchmark levels for each of the single-family and
multifamily housing goals. The proposed rule also would have
established a new multifamily housing subgoal for small multifamily
properties with units that are affordable to low-income families and
would have revised the rules for determining whether some types of
transactions could be counted for purposes of the housing goals.
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\5\ 79 FR 54481. The proposed rule was also posted on FHFA's
public Web site on August 29, 2014 for public comment.
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In addition, the proposed rule requested comment on three options
for determining compliance with the single-family housing goals.
Specifically, the proposed rule requested comment on whether the
current two-part approach should be maintained (alternative #1),
whether housing goals performance should be measured against a
prospective benchmark level only (alternative #2), or whether it should
be measured against a retrospective market level measure only
(alternative #3).
FHFA received 144 comment letters on the proposed rule.\6\ Comments
were submitted by policy advocacy groups, many of which have a specific
focus on affordable housing; trade associations representing lenders,
home builders, realtors, and other mortgage market participants;
individuals, including many with personal or professional experience in
housing or mortgage finance; members of Congress; a trade association
representing government entities; businesses and non-profit
organizations with an interest in housing, including mission-oriented
housing developers and housing counseling groups; investors and groups
representing investors; Fannie Mae; and Freddie Mac. FHFA has reviewed
and considered all of the comments. Specific provisions of the proposed
rule, and the comments received on those provisions, are discussed
below. A significant number of comment letters discussed whether the
conservatorships of the Enterprises should be ended or raised other
issues unrelated to the housing goals. Those comments are beyond the
scope of this rulemaking and are not addressed in the final rule.
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\6\ In addition, FHFA posted in the public comments docket a
summary of a meeting on the proposed rule with an individual, a
policy advocacy group and a housing advocacy group.
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III. Summary of the Final Rule

A. Single-Family Housing Goals

The final rule maintains the current two-part approach for
determining Enterprise compliance with the single-family housing goals,
under which FHFA compares Enterprise performance to both a benchmark
level and a market level. The final rule establishes the benchmark
levels for the single-family housing goals and subgoal for 2015-2017 as
follows:

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Benchmark level for Final Rule benchmark
Goal Criteria 2012-2014 level for 2015-2017
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Low-Income Home Purchase Goal....... Home purchase mortgages on 23 percent........... 24 percent.
single-family, owner-
occupied properties with
borrowers with incomes no
greater than 80 percent of
area median income.
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Very Low-Income Home Purchase Goal.. Home purchase mortgages on 7 percent............ 6 percent.
single-family, owner-
occupied properties with
borrowers with incomes no
greater than 50 percent of
area median income.
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Low-Income Areas Home Purchase Home purchase mortgages on
Subgoal. single-family, owner-
occupied properties with:
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Borrowers in
census tracts with tract
median income no greater
than 80 percent of area
median income; and
Borrowers with 11 percent........... 14 percent.
income no greater than 100
percent of area median
income in census tracts
where (i) tract income is
less than 100 percent of
area median income, and (ii)
minorities comprise at least
30 percent of the tract
population
Low-Income Refinancing Goal......... Refinancing mortgages on 20 percent........... 21 percent.
single-family, owner-
occupied properties with
borrowers with incomes no
greater than 80 percent of
area median income.
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In addition to the low-income areas subgoal described in the above
chart, the Enterprises are subject to a low-income areas home purchase
goal, which includes the subgoal and mortgages to families with incomes
no greater than area median income that live in counties that have been
declared disaster areas within the previous three years. This goal is
set at the beginning of each year and can vary from year to year,
depending on the pattern of disaster areas. The Enterprises are
notified by letter about the level of this goal, and these letters are
posted on FHFA's public Web site.\7\
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\7\ FHFA's determinations regarding Enterprise performance under
the housing goals can be accessed from this page: http://www.fhfa.gov/PolicyProgramsResearch/Programs/AffordableHousing/Pages/Affordable-Housing-FMandFM.aspx.
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B. Multifamily Housing Goals

The final rule establishes the benchmark levels for the multifamily
goals and subgoals for 2015-2017 as shown below. The low-income
multifamily goals are higher than the levels in the proposed rule for
Fannie Mae and Freddie Mac, consistent with the larger multifamily
finance market size in 2015 and the expanded number of exclusions from
the cap on the dollar volume of multifamily financing established by
FHFA in the 2015 Scorecard for Fannie Mae, Freddie Mac, and Common
Securitization Solutions (2015 Conservatorship Scorecard). The agency
announced expanded multifamily exclusions under the 2015
Conservatorship Scorecard cap on May

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7, 2015. The expanded exclusions from the cap permit both Enterprises
to purchase unlimited amounts of loans on multifamily properties that
provide affordable rental units in the categories identified by the
exclusions. Most of these units can be credited towards the
Enterprises' annual multifamily housing goals benchmark levels. Under
the final rule, the multifamily benchmark levels are now the same for
both Enterprises.
The very low-income multifamily subgoal benchmark levels in the
final rule are the same for Fannie Mae and higher than those in the
proposed rule for Freddie Mac, consistent with the equal treatment of
the two Enterprises in the 2015 Conservatorship Scorecard.
Consistent with the proposed rule, the final rule establishes for
the first time a new subgoal for rental units that are affordable to
low-income families, (i.e., families with incomes no greater than 80
percent of area median income) in small (5- to 50-unit) multifamily
properties financed by mortgages purchased by an Enterprise.

--------------------------------------------------------------------------------------------------------------------------------------------------------
Final rule goal Final rule goal Final rule goal
Goal Criteria Goal levels for 2014 levels for 2015 levels for 2016 levels for 2017
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Low-Income Goal................... Units affordable to Fannie Mae: 250,000 Fannie Mae: 300,000 Fannie Mae: 300,000 Fannie Mae: 300,000
families with incomes no units. units. units. units.
greater than 80 percent Freddie Mac: 200,000 Freddie Mac: 300,000 Freddie Mac: 300,000 Freddie Mac: 300,000
of area median income in units. units. units. units.
multifamily rental
properties with mortgages
purchased by an
Enterprise.
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Very Low-Income Subgoal........... Units affordable to Fannie Mae: 60,000 Fannie Mae: 60,000 Fannie Mae: 60,000 Fannie Mae: 60,000
families with incomes no units. units. units. units.
greater than 50 percent Freddie Mac: 40,000 Freddie Mac: 60,000 Freddie Mac: 60,000 Freddie Mac: 60,000
of area median income in units. units. units. units.
multifamily rental
properties with mortgages
purchased by an
Enterprise.
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Low-Income Subgoal for Small Units affordable to None................. Fannie Mae:.......... Fannie Mae:......... Fannie Mae: 10,000
Multifamily Rental Properties. families with incomes no 6,000 units.......... 8,000 units......... units.
greater than 80 percent Freddie Mac: 6,000 Freddie Mac: 8,000 Freddie Mac: 10,000
of area median income in units. units. units.
small multifamily rental
properties (5 to 50
units) with mortgages
purchased by an
Enterprise.
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C. Changes to Counting Rules

The final rule makes a number of changes and clarifications to the
existing rules concerning whether a particular Enterprise mortgage
purchase may be counted toward the single-family and multifamily
housing goals. These changes include updating and clarifying
definitions and other provisions to reflect current Enterprise lending
programs and market practices. The final rule also adds transparency to
FHFA guidance on issues that arise under the housing goals by
indicating that guidance will be placed on FHFA's public Web site.

IV. Affordability

The annual housing goals help measure the extent to which the
Enterprises are meeting their public purposes, which include ``an
affirmative obligation to facilitate the financing of affordable
housing for low- and moderate-income families in a manner consistent
with their overall public purposes, while maintaining a strong
financial condition and a reasonable economic return.'' \8\ The
Enterprise Charter Acts state that one of their purposes is to
``provide ongoing assistance to the secondary market for residential
mortgages (including activities relating to mortgages on housing for
low- and moderate-income families involving a reasonable economic
return that may be less than the return earned on other activities). .
. .. .'' \9\
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\8\ 12 U.S.C. 4501.
\9\ 12 U.S.C. 1716(3); 12 U.S.C. 1451(b)(3).
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FHFA received numerous comments on the proposed rule that
emphasized the importance of affordable housing for families, including
both options for ownership and rental, whether in single-family homes
or multifamily housing. FHFA shares this understanding of the
importance of affordable housing, and the approach to setting the
levels for each of the housing goals is informed by it. While the
housing goals target particular segments of the overall housing market,
FHFA recognizes that the Enterprises have an important role to play in
supporting liquidity for all parts of the housing market, not just
those covered by the housing goals.
For households with credit sufficient to qualify for mortgages,
homes remain relatively affordable, despite recent increases in home
prices. The interest rate on 30-year fixed rate mortgages--the primary
financing option for most homebuyers--was below 4.5 percent for most of
2014 and below 4.0 percent for most of the first six months of 2015.
This rate is extraordinarily low by historical standards.\10\
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\10\ See the Freddie Mac Primary Mortgage Market Survey (PMMS),
available at http://www.freddiemac.com/pmms/pmms_archives.html.
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Increases in home prices have eroded affordability over the last
several years, however. While interest rates have remained low, the
recovery in home prices has been robust, with U.S. home prices rising
by roughly five percent between the fourth quarters of 2013 and 2014.
In the preceding four quarters, home price growth was almost eight
percent. In some areas, home prices are now at levels that were
prevalent prior to the recent housing collapse.\11\
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\11\ See FHFA's house price index (HPI). Historical HPI data are
available at http://www.fhfa.gov/KeyTopics/Pages/House-Price-Index.aspx.
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In addition to rising home prices, other challenges affect
affordability. The quality and quantity of jobs in the U.S. economy
play key roles in determining affordability and, while labor markets
have improved since the onset of this recession, a full recovery
remains elusive. Unemployment rates are still elevated in many areas,
and the labor force participation rate is relatively low. Importantly,
household incomes, which fell during the recession, have exhibited very
little real growth since then. Although estimates may vary across data
sources, the Census Bureau has determined the annual inflation-adjusted
household income growth rate to be below one percent for 2011-2013 (the
latest years available). Household income growth is important to
affordability because it provides prospective homebuyers confidence
that

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future mortgage payments can be made even as the cost of living
rises.\12\
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\12\ The unemployment and labor force participation rates are
available in data published by the Bureau of Labor Statistics. State
unemployment rates can be found at http://www.bls.gov/lau/lauov.htm/. The U.S.-wide labor force participation rate is
available at http://data.bls.gov/timeseries/LNS11300000. Household
income data are available from the Census Bureau. Recent reports on
income growth are available at http://www.census.gov/content/dam/Census/library/publications/2014/acs/acsbr13-02.pdf and http://www.census.gov/content/dam/Census/library/publications/2013/acs/acsbr12-02.pdf.
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Another challenge to affordability is the relatively limited
resources that many prospective households have available for making
down payments on a home purchase. For many households, the extent of
household savings is extremely limited. For example, using data from
the Federal Reserve's 2013 Survey of Consumer Finances, Harvard's Joint
Center for Housing Studies estimated that the median household net
worth for households that rented in 2013 was $5,400. For younger
renting households--those with household heads under the age of 25 or
between the ages of 25 and 34--median household net worth was even
lower; the median net worth for renting households headed by
individuals under 25 was $2,000, while the median net worth for
households headed by 25-34 year-olds was $4,850.\13\ In a November 2014
speech, FHFA Director Watt noted that the problem of low wealth is
particularly acute for communities of color. In his speech, he stated
that:
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\13\ See Appendix Tables (Table W-2) in the 2015 ``The State of
the Nation's Housing,'' Joint Center for Housing Studies, available
at http://www.jchs.harvard.edu/research/state_nations_housing.
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``[such communities] . . . generally have significantly lower
average household wealth and experienced record loss of wealth during
the financial crisis as a result of abusive mortgage products, the
economic downturn and other factors . . . . [T]his wealth disparity is
likely to have a growing impact on the future housing market since
people of color are projected to account for approximately 70 percent
of the increase in number of households over the next decade.'' \14\
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\14\ See http://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-of-Melvin-L-Watt-2014-NAR-Conference.aspx.
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For some households--particularly households headed by younger
individuals--household debt is an impediment to home buying. Student
loan and automobile debt are burdening household budgets, often making
it difficult for prospective borrowers to afford to purchase a home.
Outstanding balances for these types of non-mortgage debt have been
growing in recent years. According to data recently published by the
New York Federal Reserve Bank, between the fourth quarters of 2013 and
2014, the amount of automobile loan debt grew by more than ten percent
and the amount of student loan debt grew by more than seven
percent.\15\
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\15\ Growth rates calculated by FHFA using data from the New
York Federal Reserve Bank's Household Debt and Credit Report Web
site, http://www.newyorkfed.org/microeconomics/hhdc.html#2014/q4.
The Web site reports that automobile loan debt grew from $0.86
trillion to $0.95 trillion (10.5 percent), whereas student loan debt
grew from $1.08 trillion to $1.16 trillion (7.4 percent).
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Increasing rents and nearly stagnant wages, particularly for low-
and very low- income renters, have resulted in a significant decline in
rental housing affordability over the past three years. A recent
Harvard study shows that more than half of all tenants pay more than 30
percent of household income for rental housing, especially in the high-
cost urban markets where most renters reside and where much of Fannie
Mae and Freddie Mac lending is focused. Tenants in the lower income
brackets, such as those at 50 or 80 percent of area median income, pay
the highest percentage of income for rental housing. These are the
income groups targeted by the very low-income and low-income goals,
respectively.\16\
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\16\ See ``State of the Nation's Housing 2015.'' In particular,
see Table W-9. The data and the full report are available at http://www.jchs.harvard.edu/state-nations-housing-2015-embargoed.
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V. Single-Family Housing Goals

A. Approach for Determining Enterprise Compliance With the Single-
Family Housing Goals--Sec. 1282.12(a)

Since 2010, under the housing goals regulation, FHFA has determined
Enterprise compliance with the single-family housing goals using a two-
part approach under which FHFA compares each Enterprise's housing goals
performance to both: (1) A benchmark level that is set in advance in
the housing goals regulation; and (2) the actual market level, as
measured retrospectively by FHFA based on HMDA data. An Enterprise is
determined to have met the goal if it meets or exceeds either the
benchmark level or the actual market level for the goal.
The proposed rule presented three alternatives for determining
Enterprise compliance with the single-family housing goals. The first
alternative would have maintained the current two-part approach. The
second alternative would have measured Enterprise performance by
comparing it only to a benchmark level set in advance in the
regulation. The third alternative would have measured Enterprise
performance by comparing it only to the actual market level, as
measured retrospectively based on HMDA data.
After considering the comments on the three alternatives, which are
discussed below, FHFA has decided to retain in the final rule the
current two-part approach for determining Enterprise compliance with
the single-family housing goals. This approach balances the risks of
its two component tests. Under a benchmark level only approach, since
benchmark levels are based on multi-year mortgage market forecasts, the
Enterprises would know their goals in advance, thereby enabling more
certainty in their planning for how they will meet the goals each year.
FHFA recognizes, however, that the market forecasts could result in
setting the levels too high relative to the actual market for the year
as the market forecasts include factors such as prior market
performance that do not necessarily reflect current or future market
conditions. The market forecasts also depend on current forecasts of
other economic indicators such as interest rates, economic growth, and
unemployment.
The retrospective market measure is based on the actual performance
of the market in the year being evaluated. The retrospective market
measure helps to address the inherent difficulty of accurately
forecasting, years in advance, the housing goals' shares of the overall
market for purposes of establishing benchmark levels, and thereby help
to ensure that the goals are feasible. The retrospective market measure
is much more adaptive than a fixed benchmark level by itself, although
the HMDA data used for the retrospective market measure do not become
available until September of the following year. However, a
retrospective market measure-only approach could make it more difficult
for the Enterprises to plan their operations and calibrate their
performance in the absence of prospectively set benchmark levels.
Even with the inclusion of retrospective market levels under the
two-part approach, if FHFA determines in the future that the benchmark
levels need to be adjusted in light of changes in the market, either to
ensure the safety and soundness of the Enterprises or for any other
reason, FHFA will take steps, including adjusting the benchmark levels,
as appropriate.
Comments on Proposed Rule
Comments recommending current two-part approach. Several trade
associations, housing advocacy groups,

[[Page 53396]]

and both Enterprises commented that the current two-part approach for
determining Enterprise compliance with the single-family housing goals
should be retained in the final rule. The commenters stated that
neither the benchmark level nor the market level alone is a perfect
tool for measuring compliance with the goals. They stated, however,
that together the two measures balance the need for predictable
prospective targets which encourage the Enterprises to purchase more
affordable loans with the need to ensure that the goals are feasible
for the Enterprises.
Fannie Mae supported the current two-part approach, stating that
prospective benchmark levels provide forecasted targets against which
the Enterprises can calibrate and manage their resources, while relying
solely on benchmark levels, which are based on multi-year mortgage
market forecasts, risks setting levels that will be out of step with
actual market conditions and may raise safety and soundness concerns.
Fannie Mae noted that if it becomes apparent that an Enterprise is
falling short of the benchmark levels, it may become increasingly
inefficient economically for the Enterprise to acquire the last loans
needed to achieve the benchmarks. Fannie Mae stated that the ``price
pay-up'' needed to acquire those ``last'' loans could have the effect
of ``bidding up'' the price to the Enterprises for other loans that
would have come to the Enterprises anyway, which would be an
inefficient use of Enterprise funds. Fannie Mae stated that the
retrospective market measure diminishes the likelihood of such
distortions and makes it less likely that additional FHFA regulatory
action will be needed to address changing market conditions. Fannie Mae
noted the concern raised in the proposed rule that the two-part
approach may provide less of an incentive for the Enterprises to
achieve the benchmark levels in years when the Enterprises anticipate
that market levels will end up lower than the benchmark levels, but
stated that the Enterprises will always strive to meet the benchmark
levels rather than wager on HMDA data that is not available until
months after the rating period closes to meet the market levels
instead. Fannie Mae also recognized the concern raised in the proposed
rule that the retrospective market measure may be less meaningful in
years when the Enterprises purchase a large percentage of the overall
mortgage market because it would effectively compare the performance of
the Enterprises to their own activities, but noted that steps such as
increasing guarantee fees have already been taken to reduce the role of
the Enterprises and encourage other financial institutions to re-enter
the market. Fannie Mae also noted that the Enterprises compete against
each other, even in conservatorship, and neither has a controlling
share of the market.
Freddie Mac also recommended that FHFA maintain the current two-
part approach, stating that projecting market size and composition in
setting the benchmark levels is a challenging task and that a changing
economic environment can have a significant effect on the volume and
goals-qualifying composition of the mortgage market. Freddie Mac stated
that the current two-part approach strikes the right balance in
providing the Enterprises with known targets, while recognizing that
actual market performance may make meeting such targets infeasible.
Comment recommending modified two-part approach (meet retrospective
market level only during downturns). One trade association commenter
recommended modifying the current two-part approach by retaining both
the benchmark level and retrospective market measure but applying the
latter only during unexpected market downturns when the total goal-
qualifying market share for the loans differs substantially from the
benchmark level. The commenter noted that relying solely on the
benchmark standard could spur the Enterprises to increase their support
for affordable homeowner lending, but would also leave them vulnerable
to unexpected market swings. The commenter also noted that relying
solely on the retrospective market measure would make it impossible for
the Enterprises to plan ahead, and the lack of a benchmark standard
might lower the Enterprises' incentive to support affordable homeowner
lending. The commenter stated that the benefit the Enterprises receive
from their quasi-governmental status should come with a responsibility
to be an affordable housing lending leader.
Comments recommending modified two-part approach (meet both
levels). Several housing advocacy groups recommended modifying the
current two-part approach by requiring that an Enterprise meet both the
benchmark level and the retrospective market measure. The commenters
stated that, by itself, the retrospective market measure is inherently
circular because the Enterprises continue to purchase a high percentage
of the loans originated in the conventional market, i.e., the market
level is generally set--and largely guaranteed to be met--by the
Enterprises regardless of their progress or failure to provide
reasonable access to affordable home loans. The commenters stated that
the benchmark level is an essential part of setting meaningful goals
but would not alone be sufficient. The commenters stated that the
Enterprises should be required to meet both the benchmark and market
level tests. The commenters also suggested that exceeding the market
level by some margin should be a significant factor in evaluating
performance on a housing goal, to ensure that the Enterprises are
making substantial progress in returning reasonable accessibility to
the market.
FHFA Response
The housing goals are designed to motivate the Enterprises to help
make financing available to more borrowers who are creditworthy and
well positioned for homeownership. Both Enterprises have taken
important steps to help provide access to credit for the populations
the goal is intended to serve. However, if the goal is too high, the
Enterprises may not be able to meet the goal due to the lack of
qualifying loans available for purchase, and a goal set too high could
lead them to make inappropriate business decisions to meet the goal
that are not consistent with safety and soundness.
Comments recommending modified two-part approach (meet
retrospective market level only for enforcement). Two policy advocacy
groups recommended that FHFA maintain the current two-part approach but
use the retrospective market measure only for enforcement purposes for
determining whether to impose penalties on an Enterprise for failure to
meet a benchmark level. The commenters noted that relying solely on a
benchmark level can be problematic if the benchmark level is either too
high or too low, but relying solely on the retrospective market measure
would undermine the Enterprises' incentive to promote affordable
lending products. The commenters' recommendation is similar to the
current two-part approach in that under the commenters' recommendation,
if an Enterprise fails to meet the benchmark level, FHFA would look at
the market level for enforcement purposes and if the Enterprise met the
market level, FHFA presumably would take no enforcement action against
the Enterprise. Under the current approach, if an Enterprise fails to
meet the benchmark level but meets the market level, it has met the
goal and no enforcement action is taken against the Enterprise.

[[Page 53397]]

FHFA Response
Both tests--the benchmark and the retrospective market--serve
important purposes. The benchmarks, which are prospective, provide
targets against which the Enterprises can plan for and calibrate their
performance. However, benchmarks, which predict market performance
years out, are inevitably imperfect. Applying prospective benchmark
levels only could result in some years where an Enterprise would be
judged against a level that does not reflect what is reasonably
feasible given market conditions. The retrospective market measure
provides an important safety valve in years when the goal-qualifying
share of the overall market turns out to be lower than anticipated.
This situation may be expected when prospective benchmark levels are
set several years in advance, especially if the benchmark levels are
set to encourage the Enterprises to lead the market in supporting
affordable housing. Applying the retrospective market measure only if
there has been a ``substantial'' market downturn would be too uncertain
due to the difficulties of defining whether there has been a
substantial downturn triggering the use of the retrospective measure.
Such an approach would introduce greater uncertainty to the process of
evaluating Enterprise performance and would make it more difficult for
the Enterprises to plan.
Comments recommending prospective benchmark test only. Several
housing advocacy groups stated that FHFA lacks the legal authority
under the Safety and Soundness Act to adopt the retrospective market
measure as a stand-alone measure or as a component of the two-part
approach for determining Enterprise compliance with the single-family
goals. The commenters stated that the prospective benchmark standard is
the most appropriate standard both legally and as a policy matter to
encourage the Enterprises to lead the market.
FHFA Response
The inclusion of the retrospective market measure in the two-part
approach is fully consistent with the Safety and Soundness Act and
Congressional intent in delegating responsibility for setting the
housing goals to FHFA. The statute provides that the single-family
goals ``shall be established as a percentage of the total number of
conventional, conforming, single-family, owner-occupied, purchase money
[or refinance] mortgages purchased by the [E]nterprise. . ..'' \17\
This language is consistent with setting goals prospectively as a fixed
percentage of mortgages purchased, but it is also consistent with the
retrospective market measure of FHFA's two-part approach. The
retrospective market measure uses actual market performance, measured
as the percentage of total market production that consists of goals-
eligible mortgages, and that percentage is established as the goal for
Enterprise purchases. The various provisions in the statute enabling
the goals to be adjusted based on market conditions are evidence of
Congressional intent that the goals generally be related to and even
based on the market for loans in the various goal categories, and that
the goals should be set in light of market conditions. Those provisions
include: (i) The requirement that FHFA calculate the preceding three-
year average percentages of goal-eligible originations for each goal
category, and take that information into account in setting the single-
family goals; \18\ (ii) the authority to adjust goals, when they have
been set for more than one year, based on market conditions; \19\ (iii)
the discretionary authority to reduce a goal in response to a petition
from an Enterprise, either in response to market conditions or if
efforts to meet the goal could potentially constrain liquidity; \20\
and (iv) the provisions for relief from enforcement if goals are
determined not to have been feasible.\21\
---------------------------------------------------------------------------

\17\ 12 U.S.C. 4562(b).
\18\ 12 U.S.C. 4562(e)(2)(A).
\19\ 12 U.S.C. 4562(e)(3).
\20\ 12 U.S.C. 4564(b)(1), (2).
\21\ 12 U.S.C. 4566(b).
---------------------------------------------------------------------------

Comments recommending enforcement and adjustment of the housing
goals. A comment from housing advocacy groups recommended that FHFA
more fully enforce the housing goals through detailed examination of
failed or infeasible goals and by requiring a detailed housing plan,
where appropriate. A comment from policy advocacy groups recommended
that FHFA adjust the benchmark levels upwards for future years if the
market level for a goal is consistently above the benchmark level.
FHFA Response
FHFA places a high priority on the housing goals and uses a range
of tools, both formal and informal, to monitor, analyze and enforce the
goals. As discussed above, FHFA has authority to adjust a benchmark
level upward or downward through notice-and-comment rulemaking.\22\ If,
after publication of this final rule, FHFA determines that any of the
single-family or multifamily benchmark levels should be adjusted upward
or downward in light of market conditions, to ensure the safety and
soundness of the Enterprises, or for any other reason, FHFA will take
any steps that are necessary and appropriate to adjust the benchmark
levels.
---------------------------------------------------------------------------

\22\ The housing advocacy groups stated that the statute does
not give FHFA authority to administratively adjust the housing goal
targets once they have been established by rulemaking without first
soliciting public input on any change. The reference in the proposed
rule preamble was to FHFA's discretionary authority to reduce a goal
in response to a petition from an Enterprise, after notice and
comment, as specifically authorized by the statute. See 12 U.S.C.
4564(b); 12 CFR 1282.14(d); 79 FR 54481, 54483 (Sept. 11, 2014).
---------------------------------------------------------------------------

B. Factors Considered in Setting the Single-Family Housing Goal
Benchmark Levels

Section 1332(e)(2) of the Safety and Soundness Act requires FHFA to
consider the following seven factors in setting the single-family
housing goal levels:
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.\23\
---------------------------------------------------------------------------

\23\ 12 U.S.C. 4562(e)(2).
---------------------------------------------------------------------------

FHFA has considered each of these seven statutory factors in
setting the final benchmark levels for each of the single-family goals
and the single-family subgoal.
The Safety and Soundness Act requires FHFA to consider the
percentage of goal-qualifying mortgages under each housing goal, as
calculated based on HMDA data for the three most recent years for which
data are available, when setting the prospective benchmark levels for
the single-family goals.\24\ FHFA has incorporated HMDA data in the
goals process, by comparing actual goal performance with market
performance through the retrospective

[[Page 53398]]

approach. The HMDA performance numbers are provided in the tables in
subsequent sections for each of the single-family housing goals.
---------------------------------------------------------------------------

\24\ 12 U.S.C. 4562(e)(2)(A).
---------------------------------------------------------------------------

1. FHFA's Market Estimation Models
In setting the benchmark levels for the single-family goals, FHFA
relies extensively on projections of the estimated shares of home
purchase or refinance mortgages originated in the single-family primary
conventional conforming market that will qualify for each goal or
subgoal. These projections are based on FHFA's market estimation
models. The confidence intervals around the forecasted point estimates
in the models for the final rule narrowed from those for the proposed
rule due mainly to inclusion in the models of the additional year of
HMDA data for 2013 and refining the models' equations to obtain
statistically better fitting models. The addition of the 2013 HMDA data
provided 12 additional data points (months) from which the parameters
were estimated, resulting in one less year of forecasting, i.e., the
forecasting started at January 2014 instead of January 2013. With the
inclusion of the 2013 HMDA data, FHFA re-estimated all four housing
goal/subgoal estimation models. This re-estimation resulted in a
slightly different mix of explanatory variables, as some variables in
the previous models no longer provided statistically significant
impacts, while other variables that were not significant in past models
proved to be significant in the current models. The specific market
estimation model projections for each housing goal are discussed below.
The market estimation models incorporate four of the seven
statutory factors that FHFA is required to consider in setting the
benchmark levels. The models are designed to measure the size of the
single-family mortgage market (Factor 6), and in so doing, they
consider aspects of three of the other factors: Factor 1: National
Housing Needs; Factor 2: Economic, Housing, and Demographic Conditions;
and Factor 5: Other Mortgage Data. Information about economic and
housing conditions, such as the unemployment rate, inflation, housing
starts, home sales, and home prices, which are produced by the U.S.
Bureau of Labor Statistics, U.S. Census Bureau, and FHFA, are included
in the market estimation models. FHFA also considers various other
mortgage data sources, including the Mortgage Bankers Association's
mortgage default survey, the National Association of Realtors' Housing
Affordability Index, and Freddie Mac's Primary Mortgage Market Survey.
FHFA's market estimation models \25\ are econometric time-series
models that examine the relationship between (a) the historical market
performance for each single-family housing goal, as calculated from
HMDA data, and (b) the historical values for various factors that may
influence the market performance, such as interest rates, inflation,
house prices, home sales, and the unemployment rate. The models use all
available relevant historical information based on statistically
significant correlations among economic, housing and mortgage data, and
the mortgage affordability measures over time. The models' parameters
are re-estimated annually as HMDA data become available in September of
each year.
---------------------------------------------------------------------------

\25\ More detailed explanation of the market estimation models
can be found in FHFA's research papers available at http://www.fhfa.gov/PolicyProgramsResearch/Research/.
---------------------------------------------------------------------------

The market estimation models then use available updated government
and industry forecasts for each of the variables influencing market
performance--most significantly interest rates and inflation--to
project an estimated goal-qualifying share of the market for each goal
or subgoal. Specifically, the models yield a point estimate for each
goal that represents the best estimate of goal-qualifying shares for
each year (i.e., 2015, 2016, and 2017), as well as a range around that
point estimate representing the confidence that the range includes the
actual future market affordability measure for the goal (referred to as
the ``confidence interval''). The wider the confidence interval, the
less exact the point estimate, and vice versa. For example, the
estimate for the low-income home purchase goal for 2015 is 22.4
percent, with a 95 percent confidence interval of plus or minus 3.2
percent. In other words, the model prediction is that there is a 95
percent chance that the actual market share in 2015 will be between
19.2 percent and 25.6 percent. The same forecast for 2017 is 22.0
percent, with a 95 percent confidence interval of plus or minus 5.0
percent. Thus, the model prediction range for 2017 is between 17.0
percent and 27.0 percent. The same pattern holds for each of the
forecasts: The confidence intervals widen for each successive year in
the forecast, reflecting greater uncertainty about the market shares
for the later years in the forecast.
The market estimation models are limited by two factors. First, to
specify the market accurately, as defined in the regulation,
affordability is measured using HMDA data going back to 2004; pre-2004
data are not used in the parameter estimation, because it was missing
important variables that make comparisons to post-2004 originations
problematic. Second, some explanatory variables, such as inventory,
vacancy rates, rents and completions, which are known to be correlated
with mortgage affordability, are not available in the government- and
industry-produced forecasts and, therefore, those variables are not
able to be included in the parameter estimation.
In response to the comments discussed below, FHFA plans to engage
in additional discussions with interested parties regarding its market
estimation models, and may make adjustments to the models as warranted.
If changes are made to the models, FHFA may engage in additional
rulemaking, if necessary, to adjust the benchmark levels for the goals.
Comments on Proposed Rule
Several commenters, including housing advocacy groups, policy
advocacy groups and a trade association, provided similar comments on
the market estimation models used by FHFA in setting the benchmark
levels for the single-family housing goals. These comments are
discussed below. Neither Fannie Mae nor Freddie Mac commented on the
market estimation models.
(1) Confidence Intervals
Commenters stated that the confidence intervals for the market size
estimates in the models showed wide ranges of possible affordable
housing, limiting the usefulness of the estimates.
FHFA Response
Changes in the models since the proposed rule have narrowed these
confidence intervals, in some cases considerably. In response to
comments, FHFA tested additional explanatory variables and, in some
cases, incorporated them into the revised models. In addition, FHFA had
the benefit of an additional year of actual economic data that became
available since the proposed rule was posted for comment in August,
2014. In addition, the updated forecasts incorporate changes in the
economic outlook by government and industry observers. Most
significantly, they reflect changes in the outlook for interest rates
and inflation. As a result, the models' confidence intervals in the
final rule are much narrower than in the proposed rule. For example, in
the proposed rule, the point estimate for the 2015 low-income home
purchase goal was 20.9 percent, with a 95 percent confidence

[[Page 53399]]

interval of 14.2 percent to 27.6 percent. In the final rule, the point
estimate for this goal is 22.4 percent, with a 95 percent confidence
interval of 19.2 percent to 25.6 percent. This is about half the width
of the confidence interval in the proposed rule.
In addition, FHFA notes that under its models, the mean forecast is
FHFA's best estimate of what the goal-qualifying share of the market
will be at any particular month between January 2015 and December 2017.
FHFA has considered all applicable factors in setting the goals, which
are generally not identical to the forecasted mean values for the goal-
qualifying market shares. In particular, FHFA gives weight to past
Enterprise performance on each goal. The inclusion of the retrospective
market measure in the housing goals determination takes into account
the uncertainty with the benchmark level forecasts.
(2) Certain Variables Not Included
Some commenters stated that certain important variables were
omitted from the models for specific goals in order to keep the
confidence intervals from becoming even wider. Commenters recommended
that any variable that improves the fit of the models should be
included, even if it is not statistically significant.
FHFA Response
FHFA notes that it followed common econometric practice by testing
and evaluating many explanatory variables but publishing for the
proposed rule only statistically significant explanatory variables that
provided the best fit model. In the process of re-estimating the market
models for the final rule and in response to the comments, FHFA has
added and tested additional explanatory variables including: Monthly
binary variables for the 2004-2007 period to capture structural shifts
in the market; loan-to-value (LTV) share variables; an owner-occupied
share variable; and an adjustable rate mortgage share variable. The
additional variables in the models did not materially change the
results in the forecast point estimates for the final rule. Four model
specifications are presented for each single-family goal in FHFA's
research paper published on its Web site in order to compare the impact
of including or excluding explanatory variables. The paper is available
at: http://www.fhfa.gov/PolicyProgramsResearch/Research/.
(3) Data Period Used
Some commenters stated that FHFA's model forecasts give too much
weight to recent years, which reflect more limited credit availability.
The commenters recommended that FHFA consider market data from periods
that may reflect more normal levels of credit availability. The
commenters noted that FHFA based its best fit model forecasts on market
data from 2004-2014 and stated that those years reflect atypical market
conditions. From 2004-2007, the market was characterized by
historically low interest rates, with home prices rising and falling
dramatically and liberal extensions of credit. In contrast, from 2008-
2013, the market was characterized by significant tightening of credit
availability. The commenters stated that excluding market data from
periods prior to 2004 resulted in benchmark estimates that are too low.
The commenters pointed out that even if interest rates and home prices
increase over the next three years, they will still be at very
favorable levels historically and will be at least as favorable as the
numerous years prior to the mortgage boom when affordable housing
lending levels by the Enterprises were much higher.
FHFA Response
FHFA agrees that additional data points, including prior to the
market boom, should improve forecast accuracy, i.e., better fit models.
FHFA's forecasts do not use HMDA data prior to 2004 for several
reasons. Explanatory variables that were found to be predictive in one
or more of the models are not available prior to 2004. Pre-2004 HMDA
data did not identify property type, lien status, Home Ownership Equity
Protection Act (HOEPA) status, and the Average Prime Offer Rate (APOR)
rate spread. It was also less precise in identifying manufactured loans
and subprime loans. All of these factors make it difficult to define
the market using pre-2004 data as specified in the regulation.
In response to comments, FHFA did test model specifications that
included monthly data going back to January 1996. A detailed
description of that analysis is included as an appendix to the FHFA
research paper that was discussed earlier and that is posted on FHFA's
Web site. The results using pre-2004 data may be less reliable because
either the confidence intervals are wider using the 1996-2013 data (as
in the case of the single-family, low-income borrower home purchase
goal and low-income areas subgoal), or the predicted trends do not
coincide with what we have observed in recent months (in the case of
the single-family, very low-income home purchase and low-income
refinance goals). FHFA determined that the predicted trends resulting
from the models using the shorter 2004-2013 time series are preferable.
(4) Impact of Enterprises' Dominant Share of Market
Some commenters stated that the models do not capture the
Enterprises' dominant share of the conventional mortgage market, which
enables the Enterprises to greatly impact the mix of loans that lenders
produce. The commenters stated that the models do not take into account
factors that explain the impact of Enterprise policies on the market
that are likely to significantly affect the market for affordable
loans. These commenters cited as an example the changes in the
representations and warranties policies that will reduce Enterprise
mortgage buyback risk, which may result in elimination of lenders'
credit overlays and, therefore, an increase in affordability of loans.
FHFA Response
FHFA considers these factors in its judgment involved in setting
the final levels of the goals after it estimates its models. FHFA
recognizes the significant impact that the Enterprises have on the
market. While FHFA supports Enterprise efforts to expand credit
availability for borrowers at different income levels and in different
areas, those efforts must be consistent with the safe and sound
operation of the Enterprises.
(5) Impact of Share of Government-Insured Mortgages
Some commenters stated that the models do not appropriately take
into account the FHA, Department of Veterans Affairs, and other
government agency market shares. These commenters stated that a large
FHA market share raises questions about why the Enterprises cannot
compete with FHA for the same segments of the market.
FHFA Response
FHFA recognizes that the FHA market share will have some impact on
the affordable portion of the conventional mortgage market. In fact,
FHA share was tested as an explanatory variable in the market models
for both the home purchase and refinance goals. It proved to be
statistically significant only in the low-income areas subgoal and
refinance goal models.
(6) Frequency of Market Assessments
Several commenters raised the possibility of FHFA conducting more
frequent reassessments of the single-family mortgage market if the
models

[[Page 53400]]

are not changed, including the use of a transparent metric for
recalculating the benchmark levels based on changes in the forecasts. A
policy advocacy group commenter noted that while this would create
greater uncertainty that would make it more difficult for the
Enterprises to plan to meet the benchmark levels, a tolerance for
shortfall could be built into any goals increased through the
reassessments. A trade association commenter recommended annual updates
of the market projections and adjustments of the benchmark levels
accordingly. A housing advocacy group commenter recommended that FHFA
set the benchmark levels for a two-year period, as a means of
addressing the uncertainty in the models about the size of the market
in the third year of the forecast. Another housing advocacy group
commenter stated that in light of the uncertainty of the models, FHFA
could monitor market trends and revise the benchmark levels as needed,
or set higher benchmark levels.
FHFA Response
After consideration of the comments, FHFA has decided to continue
to set the benchmark levels in the final rule for a three-year period,
as permitted by the Safety and Soundness Act.\26\ FHFA recognizes the
limitations of forecasting the market for a three-year period. However,
the inclusion of the retrospective market measure helps to ensure
feasibility of the goals, especially during the later years of the
three-year period. In addition, if FHFA determines that the benchmark
levels need to be adjusted in light of changes in the market at any
point in the future, FHFA will take all appropriate steps, including
possibly adjusting the benchmark levels for the goals.
---------------------------------------------------------------------------

\26\ 12 U.S.C. 4562(e)(1).
---------------------------------------------------------------------------

(7) Transparency of the Models
For the proposed rule, FHFA tested several specifications of the
market estimation models but published only the best fit model on
FHFA's Web site, since it was the model relevant to the market
affordability forecasts. A number of commenters requested that FHFA
make more information available about its market estimation models to
enable more meaningful comments on the methodology used. A policy
advocacy group commenter stated that a sensitivity analysis that shows
how the models respond to changes in the values of variables, both for
those used and those omitted, would be useful. The commenter stated
that without more information about the models, it is difficult to
suggest how the models could be improved or compensated for by setting
different benchmark levels. A housing advocacy group commenter stated
that the monthly nationwide time series provided by the Federal
Financial Institutions Examination Council (FFIEC), which serves as the
basis for FHFA's market estimation models, should be made publicly
available. The commenter stated that disclosure of the data, which is
aggregated, would not create privacy or confidentiality problems, and
would allow researchers to reproduce, and possibly modify, FHFA's
results, with the aim of improving their predictive accuracy.
FHFA Response
In response to the comments, FHFA is publishing on its Web site
four models that capture different model specifications, as well as the
model specification used in the proposed rule and re-estimated for the
final rule using updated data. The models are contained in FHFA's
research paper available at http://www.fhfa.gov/PolicyProgramsResearch/Research/.
As noted above, FHFA welcomes input on how the market estimation
models could be enhanced to improve market forecasts. FHFA plans to
engage in additional discussions with interested parties on the models
and may make adjustments to the models as warranted. If changes are
made to the models, FHFA may engage in additional rulemaking, if
necessary, to adjust the benchmark levels.
2. Past Performance of the Enterprises
The past performance of the Enterprises on each of the single-
family housing goals and subgoal, Factor 3 above, is also an important
factor in setting the benchmark levels. FHFA has reviewed the actual
performance of the Enterprises on each housing goal in previous years
and compared that performance to the performance of the overall single-
family mortgage market to help FHFA ensure that the benchmark levels
are set at levels that are feasible. For example, the market estimation
models may not capture all of the factors that contribute to Enterprise
performance, such as changes in lender underwriting standards and the
resulting impact on credit availability. FHFA's measurements of the
mortgage market using HMDA data may not reflect the exact portion of
the market that is eligible for purchase by the Enterprises, for
example, because not all lenders are required to report data under
HMDA. FHFA may rely more heavily on past Enterprise performance if the
market estimation models yield results that are far above, or far
below, the past performance of either Enterprise on a housing goal. The
Enterprises' past performance on the housing goals is discussed under
each of the housing goals below.

3. Other Factors

FHFA has also considered the remaining two statutory factors in
setting the single-family benchmark levels: Factor 4: Ability to Lead
the Industry and Factor 7: Need to Maintain Sound Financial Condition.
FHFA's consideration of these factors takes into account the financial
condition of the Enterprises, the importance of maintaining the
Enterprises in sound and solvent financial condition, and the
appropriate role of the Enterprises in relation to the overall single-
family mortgage market. The recent performance of the Enterprises and
the past and expected performance of the overall single-family market
also contribute to FHFA's consideration of these statutory factors.\27\
Factors 4 and 7 are discussed under each of the housing goals below.
---------------------------------------------------------------------------

\27\ In 2013, the Enterprises remained the largest issuers of
mortgage-backed securities (MBS), guaranteeing 73 percent of single-
family MBS, slightly above the average of 72 percent for 2008-2012,
but well above the average of 46 percent for 2004-2007, and somewhat
above the average of 67 percent for 2000-2003. See Inside Mortgage
Finance Publications, ``Mortgage Market Statistical Annual,'' volume
II, ``The Secondary Mortgage Market,'' p.4 (2013 Edition); see also
Inside MBS & ABS, p.4 (April 4, 2014).
---------------------------------------------------------------------------

FHFA continues to monitor the activities of the Enterprises, both
in FHFA's capacity as safety and soundness regulator and as
conservator. If necessary, FHFA will make any appropriate changes to
the single-family benchmark levels to ensure the continued safety and
soundness of the Enterprises.

C. Single-Family Benchmark Levels

1. Low-Income Home Purchase Goal--Sec. 1282.12(c)
The low-income home purchase goal is based on the percentage of all
single-family, owner-occupied home purchase mortgages purchased by an
Enterprise that are for low-income families, defined as families with
incomes less than or equal to 80 percent of area median income. After
consideration of the statutory factors, including updated forecasts
from FHFA's market estimation models, preliminary figures on goal
performance in 2014, as reported by the Enterprises, and the comments
received on the proposed benchmark level for this goal, which are
discussed below, Sec. 1282.12(c) of the

[[Page 53401]]

final rule sets the annual benchmark level for this goal for 2015
through 2017 at 24 percent. The 24 percent level is one percentage
point above the benchmark level for 2014 and the proposed benchmark
level for 2015-2017.
Because this final rule is being published well into 2015, FHFA
will consider that timing as part of the evaluation of the Enterprises'
actual 2015 housing goals performance.
Market Size
FHFA's consideration of the size of the single-family mortgage
market takes into account both the actual size of the market in
previous years, as measured using the most recent HMDA data available,
and FHFA's forecast for the size of the market based on its market
estimation models.
As indicated in Table 1, FHFA's forecasts for the low-income share
of the overall market for home purchase mortgages for 2015 through
2017, which are the result of updating the market estimation models
used by FHFA to forecast the market size for the proposed rule through
May 2015, are significantly lower than the actual low-income shares of
the overall market for home purchase mortgages in 2010 through 2013.
The proposed rule estimated the low-income shares of the market as 20.9
percent for 2015, 20.2 percent for 2016, and 19.8 percent for 2017.
FHFA's updated market estimation models project that the low-income
borrower shares of the overall home purchase mortgage market will be
22.4 percent for 2015, 22.9 percent for 2016, and 22.0 percent for
2017. The forecast ranges are 19.2 percent-25.6 percent for 2015, 18.7
percent-27.1 percent for 2016, and 17.0 percent-27.0 percent for 2017.
As can be seen, the updated estimates for 2015 and 2016 are higher than
the estimates that were used for the proposed rule, and this was taken
into account in setting the goal level at 24 percent for 2015-2017, an
increase of one percentage point from the 2014 benchmark level and from
the level in the proposed rule.
Past Performance of the Enterprises
As indicated in Table 1, the performance of the Enterprises on the
low-income home purchase goal has followed a pattern similar to that
for the overall market performance on the goal since 2010--steady
performance in 2010 through 2012, followed by lower levels in 2013 and
2014. However, while the low-income share of the market was lower in
2013 and 2014, the total volume of single-family home purchase loans in
those years was significantly higher than in 2010 through 2012. Fannie
Mae's performance in 2010 was 25.1 percent, which increased to 25.8
percent in 2011, before falling slightly to 25.6 percent in 2012 and
23.8 percent in 2013. Freddie Mac's performance in 2010 was 26.8
percent, before declining to 23.3 percent in 2011, increasing to 24.4
percent in 2012, and declining to 21.8 percent in 2013. Preliminary
performance figures as reported by the Enterprises for 2014 indicate
that Fannie Mae's performance on this goal was approximately 23.5
percent and Freddie Mac's performance was approximately 21.0 percent.
Official 2014 performance figures as determined by FHFA, as well as the
retrospective HMDA market performance numbers, will be available later
in 2015. The market share shown in Table 1 for 2014 is a forecast based
on FHFA's market model. With the exception of Fannie Mae's reported
performance in 2014, the performance level of each Enterprise on the
low-income home purchase goal was below the retrospective HMDA share
for each year from 2010 through 2014.

Table 1--Enterprise Low-Income Home Purchase Goal
----------------------------------------------------------------------------------------------------------------
Performance
Year Type of Home Purchase Benchmark -------------------------------- Market share
(HP) mortgages Fannie Mae Freddie Mac estimate
----------------------------------------------------------------------------------------------------------------
2010.................. Low-Income HP Mortgages. .............. 120,430 82,443 ..............
Total HP Mortgages...... .............. 479,200 307,555 ..............
Low-Inc. % of HP 27% 25.1% 26.8% 27.2%
Mortgages.
----------------------------------------------------------------------------------------------------------------
2011.................. Low-Income HP Mortgages. .............. 120,597 60,682 ..............
Total HP Mortgages...... .............. 467,066 260,796 ..............
Low-Inc. % of HP 27% 25.8% 23.3% 26.5%
Mortgages.
----------------------------------------------------------------------------------------------------------------
2012.................. Low-Income HP Mortgages. .............. 162,486 70,393 ..............
Total HP Mortgages...... .............. 633,627 288,007 ..............
Low-Inc. % of HP 23% 25.6% 24.4% 26.6%
Mortgages.
----------------------------------------------------------------------------------------------------------------
2013.................. Low-Income HP Mortgages. .............. 193,712 93,478 ..............
Total HP Mortgages...... .............. 814,137 429,158 ..............
Low-Inc. % of HP 23% 23.8% 21.8% 24.0%
Mortgages.
----------------------------------------------------------------------------------------------------------------
2014.................. Low-Income HP Mortgages. .............. 177,846 108,948 ..............
Total HP Mortgages...... .............. 757,870 519,731 ..............
Low-Inc. % of HP 23% 23.5% 21.0% 22.0%
Mortgages.
95% Confidence Interval. .............. .............. .............. +/-2.0%
----------------------------------------------------------------------------------------------------------------
2015.................. Final Rule Benchmark.... 24% .............. .............. 22.4%
95% Confidence Interval. .............. .............. .............. +/-3.2%
----------------------------------------------------------------------------------------------------------------
2016.................. Final Rule Benchmark.... 24% .............. .............. 22.9%
95% Confidence Interval. .............. .............. .............. +/-4.2%
----------------------------------------------------------------------------------------------------------------
2017.................. Final Rule Benchmark.... 24% .............. .............. 22.0%
95% Confidence Interval. .............. .............. .............. +/-5.0%
----------------------------------------------------------------------------------------------------------------
Source: Official performance as determined by FHFA for 2010-13; preliminary performance figures for 2014 as
reported by the Enterprises. Actual goal-qualifyiing market shares, based on FHFA analysis of HMDA data, for
2010-13. FHFA estimates of goal-qualifying market shares for 2014-17.

[[Page 53402]]

Analysis
The final rule sets the annual benchmark level for the low-income
home purchase goal at 24 percent for 2015 through 2017, which is one
percentage above both the actual benchmark level for 2014 and the level
in the proposed rule for 2015-2017. As shown in Table 1, the market
estimation models forecast a range of possible market levels. The
benchmark level of 24 percent is above the point estimates for 2015-
2017 but within the confidence intervals for all three years. Although
FHFA's market estimation models forecast declines in the low-income
share of the overall home purchase mortgage market between 2015 and
2017, the point estimate of 22.4 percent for 2015 is subject to less
uncertainty than the point estimate of 22.0 percent for 2017. Recent
data also show a decline in the Enterprises' performances from 2012 to
2013 on this goal, and a further decline in market performance with a
revised market size estimate of 22.0 percent for 2014. However, a
benchmark level of 24 percent will encourage the Enterprises to
continue their efforts to promote safe and sustainable lending to low-
income families if the market share turns out to be smaller than 24
percent. This may include any steps the Enterprises take to bring
greater certainty to origination and servicing representation and
warranty standards for lenders, any additional outreach to small and
rural lenders and to state and local housing finance agencies, and any
other efforts by the Enterprises to reach underserved creditworthy
borrowers. The above factors, taken together, support setting the
benchmark level somewhat above the market estimate for 2015, but still
well within the confidence interval.
FHFA will continue to monitor the Enterprises in its capacities as
regulator and as conservator, and FHFA will take any steps appropriate
to address changes in market conditions.
Comments on Proposed Rule
Several commenters supported the proposed benchmark level of 23
percent for the low-income home purchase goal.
A housing advocacy group commenter recommended that the benchmark
levels be set at the upper ranges of the market estimates, or the
Enterprises otherwise would have little incentive to increase their
purchases of goal-qualifying loans. The commenter noted that the
retrospective market measure will serve as a fallback if the levels
turn out to be too high.
A number of housing advocacy and policy advocacy group commenters
recommended setting a higher benchmark level of 27 percent. A housing
advocacy group commenter cited limitations of the market estimation
models, the fact that 27 percent was the level in effect in 2010 and
2011, and the fact that the Enterprises exceeded 23 percent in almost
every year since 2001. Another housing advocacy group commenter also
recommended 27 percent based on its concerns about the market
estimation models and the Enterprises' ``tight credit box,'' which the
commenter stated has driven many low-income borrowers and borrowers of
color out of the home purchase market. A policy advocacy group
commenter recommended setting an ``aggressive'' benchmark level of 27
percent given the uncertainty in the market estimation models and other
data strongly indicating a lack of access to conventional conforming
mortgage credit by lower-income and minority borrowers.
A housing advocacy group commenter recommended that the benchmark
level be set higher than 27 percent, based on historical market size
data from years pre-dating the housing crisis and on the Enterprises'
goal performance during that period. The commenter stated that the
period between 2000 and 2004 reflected economic conditions and a market
environment that more closely align with 2015-2017 and, therefore, the
2000-2004 period would provide a more useful comparison for purposes of
setting the benchmark levels for the single-family housing goals. The
commenter stated that while the proposed 23 percent level might be
higher than FHFA's point estimates for the overall market share
projected for low-income home mortgage purchases for 2015-2017, the
benchmark level should be set as a ``stretch'' goal of at least 28
percent. The commenter based its recommendation on the Enterprises'
past performance during the 2000-2004 period, their current dominant
position in the secondary mortgage market, and improved market
performance expectations.
Fannie Mae commented that the proposed 23 percent level reflected
an appropriate analysis and application of the statutory factors.
Freddie Mac did not comment on the proposed benchmark level.
FHFA Response
As discussed above, the final rule sets the annual benchmark level
for 2015-2017 at 24 percent, which is slightly higher (1.6 percentage
points) than the point estimate for 2015 but well within the confidence
intervals for all three years. FHFA believes this is an appropriate
benchmark level based on the market estimation models' forecasts for
2015-2017, the Enterprises' recent performance, the updated market size
estimate for 2014, and the goal to encourage the Enterprises to
continue their efforts to promote safe and sustainable lending to low-
income families.
2. Very Low-Income Home Purchase Goal--Sec. 1282.12(d)
The very low-income home purchase goal is based on the percentage
of all single-family, owner-occupied home purchase mortgages purchased
by an Enterprise that are for very low-income families, defined as
families with incomes less than or equal to 50 percent of the area
median income. After consideration of the statutory factors, including
updated forecasts from FHFA's market estimation models, and the
comments received on the proposed benchmark level for this goal, which
are discussed below, Sec. 1282.12(d) of the final rule sets the annual
benchmark level for this goal for 2015 through 2017 at 6 percent. The 6
percent level is one percentage point below both the benchmark level
for 2014 and the proposed benchmark level.
Market Size
As discussed above, FHFA's consideration of the size of the single-
family market takes into account both the actual size of the market in
previous years, as measured using the most recent HMDA data available
and FHFA's forecast for the size of the market based on its market
estimation model.
As shown in Table 2, FHFA's forecasts for the very low-income share
of the overall market for home purchase mortgages for 2015 through 2017
are lower than the actual very low-income share of the overall market
for home purchase mortgages in 2010 through 2013, and are similar to
the estimated very low-income share for 2014. These estimates are the
result of updating the market estimation models used by FHFA to
forecast the market size for the proposed rule. The proposed rule
estimated the very low-income shares of the market at 5.8 percent for
2015, 5.7 percent for 2016, and 5.6 percent for 2017. FHFA's updated
market estimation models project through May 2015 that the very low-
income shares of the overall market for home purchase mortgages will be
almost the same for each year: 5.9 percent for 2015, 6.0 percent for
2016, and 5.7 percent for 2017. The forecast ranges at a 95 percent
confidence level are 3.4 percent-8.4 percent for 2015, 2.8 percent-9.2

[[Page 53403]]

percent for 2016, and 1.9 percent-9.5 percent for 2017.
Past Performance of the Enterprises
As indicated in Table 2, the performance of the Enterprises on the
very low-income home purchase goal was relatively stable between 2010
and 2012, before declining in 2013 and further in 2014. As discussed
above for the low-income home purchase goal, while the very low-income
share of the market was lower in 2013 and 2014, the total volume of
single-family home purchase loans in those years was significantly
higher than in 2010 through 2012. Fannie Mae's performance was 7.2
percent in 2010, 7.6 percent in 2011 and 7.3 percent in 2012, while
Freddie Mac's performance was 7.9 percent in 2010, 6.6 percent in 2011
and 7.1 percent in 2012. Preliminary performance figures as reported by
the Enterprises for 2014 indicate that Fannie Mae's performance on this
goal was 5.7 percent, and Freddie Mac's performance was 4.9 percent.
Official 2014 performance figures as determined by FHFA, as well as the
retrospective HMDA market performance numbers, will be available later
in 2015. The market share shown in Table 2 for 2014 is a forecast based
on FHFA's market model. With the exception of Fannie Mae's reported
performance in 2014, the performance level of each Enterprise on the
very low-income home purchase goal was below the retrospective HMDA
share each year from 2010 through 2014.

Table 2--Enterprise Very Low-Income Home Purchase Goal
----------------------------------------------------------------------------------------------------------------
Type of Home Performance
Year Purchase (HP) Benchmark -------------------------------- Market share/
mortgages Fannie Mae Freddie Mac estimate
----------------------------------------------------------------------------------------------------------------
2010........................ Very Low-Income HP .............. 34,673 24,276 ..............
Mortgages.
Total HP Mortgages .............. 479,200 307,555 ..............
Very Low-Inc. % of 8% 7.2% 7.9% 8.1%
HP Mortgages.
----------------------------------------------------------------------------------------------------------------
2011........................ Very Low-Income HP .............. 35,443 17,303 ..............
Mortgages.
Total HP Mortgages .............. 467,066 260,796 ..............
Very Low-Inc. % of 8% 7.6% 6.6% 8.0%
HP Mortgages.
----------------------------------------------------------------------------------------------------------------
2012........................ Very Low-Income HP .............. 46,519 20,469 ..............
Mortgages.
Total HP Mortgages .............. 633,627 288,007 ..............
Very Low-Inc. % of 7% 7.3% 7.1% 7.7%
HP Mortgages.
----------------------------------------------------------------------------------------------------------------
2013........................ Very Low-Income HP .............. 48,810 23,705 ..............
Mortgages.
Total HP Mortgages .............. 814,137 429,158 ..............
Very Low-Inc. % of 7% 6.0% 5.5% 6.3%
HP Mortgages.
----------------------------------------------------------------------------------------------------------------
2014........................ Very Low-Income HP .............. 42,872 25,232 ..............
Mortgages.
Total HP Mortgages .............. 757,870 519,731 ..............
Very Low-Inc. % of 7% 5.7% 4.9% 5.7%
HP Mortgages.
95% Confidence .............. .............. .............. +/-1.4%
Interval.
----------------------------------------------------------------------------------------------------------------
2015........................ Final Rule 6% .............. .............. 5.9%
Benchmark.
95% Confidence .............. .............. .............. +/-2.5%
Interval.
----------------------------------------------------------------------------------------------------------------
2016........................ Final Rule 6% .............. .............. 6.0%
Benchmark.
95% Confidence .............. .............. .............. +/-3.2%
Interval.
----------------------------------------------------------------------------------------------------------------
2017........................ Final Rule 6% .............. .............. 5.7%
Benchmark.
95% Confidence .............. .............. .............. +/-3.8%
Interval.
----------------------------------------------------------------------------------------------------------------
Source: Official performance as determined by FHFA for 2010-13; preliminary performance figures for 2014 as
reported by the Enterprises. Actual goal-qualifying market shares, based on FHFA analysis of HMDA data, for
2010-13. FHFA estimates of goal-qualifying market shares for 2014-17.

While the recovery in the home purchase market between 2012 and
2013 resulted in significantly higher volumes of home purchase
mortgages acquired by the Enterprises, the volume of very low-income
home purchase mortgages did not increase by nearly as much as the rest
of the market. Between 2012 and 2013, the volume of Fannie Mae's
purchases of very low-income home purchase mortgages increased by 5
percent, while its overall volume of home purchase mortgages increased
by 28 percent. As a result, Fannie Mae's very low-income home purchase
goal performance fell from 7.3 percent in 2012 to 6.0 percent in 2013.
Similarly, the volume of Freddie Mac's purchases of very low-income
home purchase mortgages increased by 16 percent, while its overall
volume of home purchase mortgages increased by 49 percent. As a result,
Freddie Mac's very low-income home purchase goal performance fell from
7.1 percent in 2012 to 5.5 percent in 2013.
Analysis
The final rule sets the annual benchmark level for the very low-
income home purchase goal for 2015 through 2017 at 6 percent, which is
one percentage point below both the actual benchmark level for 2014 and
the level in the proposed rule for 2015-2017. It is more difficult for
the Enterprises to manage their percentage of very low-income mortgage
purchases because of the small number of such loans available to them.
Further, given the Enterprises' preliminary performance figures for
2014 (Fannie Mae at 5.7 percent and Freddie Mac at 4.9 percent), FHFA
believes the proposed 7 percent target would have been difficult for
either Enterprise to achieve in 2014. The 6 percent benchmark level
will still encourage the Enterprises to continue their efforts to
promote safe and sustainable lending to very low-income families.
As shown in Table 2, the market estimation models forecast point

[[Page 53404]]

estimates for this goal of 5.9 percent, 6.0 percent and 5.7 percent in
2015, 2016 and 2017, respectively. Recent data show a decline in the
Enterprises' performances in 2012-2014, relative to previous years, on
this goal. The 6 percent benchmark level is set essentially at the
forecast midpoint to encourage the Enterprises to continue their
efforts to promote safe and sustainable lending to very low-income
families. As discussed above, this may include any steps the
Enterprises take to bring greater certainty to origination and
servicing standards for lenders, any additional outreach to small and
rural lenders and to state and local housing finance agencies, and any
other efforts by the Enterprises to reach underserved creditworthy
borrowers. FHFA recognizes that this benchmark level may be challenging
to meet, though less so than the 7 percent level in the proposed rule,
as the Enterprises may not purchase loans inconsistent with safety and
soundness. If an Enterprise fails to meet the benchmark level, it may
still meet the goal if its performance equals or exceeds the
retrospective market level.
HMDA data suggest that banks are keeping an increasingly higher
share of mortgages to low-income and very low-income borrowers in their
portfolios, meaning that they are not sold to any entity on the
secondary market, making it more difficult for either Enterprise to
reach the market level. Possible explanations are that: Lenders are
originating these loans to comply with the Community Reinvestment Act
but prefer to hold them in portfolio to protect against the risk that
the Enterprises require the lenders to repurchase the loans, which they
may consider somewhat more likely to default, because of violations to
representations and warranties, or the loans are originated without
private mortgage insurance and/or below market interest rates, meaning
the lenders would need to sell the loans to the Enterprises at a loss
and/or take recourse on the loans. In addition, FHA's mortgage
insurance premium reduction of 50 basis points has the result that its
execution is cheaper for many low-income borrowers with less than
perfect credit scores.
FHFA will continue to monitor the Enterprises in its capacities as
regulator and as conservator, and FHFA will take any steps appropriate
to address changes in market conditions.
Comments on Proposed Rule
A housing advocacy group commenter recommended that the benchmark
level be set at the upper range of the market estimates, or the
Enterprises otherwise would have little incentive to increase their
purchases of very low-income loans. A comment from policy advocacy
groups recommended setting an ``aggressive'' benchmark level given the
uncertainty in the market estimation models and other data strongly
indicating a lack of access to conventional conforming mortgage credit
by lower-income borrowers and minority borrowers. A comment from
housing advocacy groups also recommended setting a higher benchmark
level due to the uncertainty in the market estimation models. A non-
profit housing developer suggested that the very low-income share of
the market is expected to be around 7 to 8 percent, but did not provide
a source for that forecast.
Fannie Mae commented that it opposed the proposed benchmark level
of 7 percent for this goal, recommending a 6 percent level instead.
Fannie Mae noted that FHFA's market size forecasts for this goal in the
proposed rule were 5.8 percent for 2015, 5.7 percent for 2016, and 5.6
percent for 2017 and, thus, were lower than the proposed benchmark
level of 7 percent. Fannie Mae stated that setting the benchmark level
significantly higher than the market size forecasts in order to
encourage the Enterprises to continue their efforts to promote safe and
sustainable lending to very low-income families could have the
unintended negative consequence of suggesting that the Enterprises
should undertake efforts that may not contribute to a safe and
sustainable market. In addition, Fannie Mae stated that it is already
committed to a variety of efforts to support financing for very low-
income borrowers, including its standard product eligibility criteria
for 95 percent LTV loans, targeted products such as
MyCommunityMortgage, acquiring loans through its partnerships with
housing finance agencies, reintroducing acquisitions of loans from
HUD's Section 184 program and the U.S. Department of Agriculture's
Rural Development 502 program that serve Native American and rural
communities, and changing requirements for loans to borrowers with
derogatory credit events, such as foreclosures, short sales, deed-in-
lieu transfers and bankruptcy, to facilitate earlier borrower
requalification.
Freddie Mac did not comment on the proposed benchmark level for the
very low-income home purchase goal.
FHFA Response
As discussed above, the final rule sets the annual benchmark level
for 2015-2017 at 6 percent, which is above the point estimates but
within the confidence intervals for all three years. FHFA believes this
is an appropriate benchmark level based on the market estimation
models' forecasts for 2015-2017, the Enterprises' recent performance,
the updated market size estimate for 2014, and the goal to encourage
the Enterprises to continue their efforts to promote safe and
sustainable lending to very low-income families.
3. Low-Income Areas Home Purchase Subgoal--Sec. 1282.12(f)
The low-income areas home purchase subgoal is based on the
percentage of all single-family, owner-occupied home purchase mortgages
acquired by an Enterprise that are either: (1) For families in low-
income areas, defined to include census tracts with median income less
than or equal to 80 percent of area median income; or (2) for families
with incomes less than or equal to area median income who reside in
minority census tracts (defined as census tracts with a minority
population of at least 30 percent and a tract median income of less
than 100 percent of the area median income). After consideration of the
statutory factors, including updated forecasts from FHFA's market
estimation models, and the comments received on the proposed benchmark
level for this subgoal, which are discussed below, Sec. 1282.12(f) of
the final rule sets the annual benchmark level for this subgoal for
2015 through 2017 at 14 percent. The 14 percent level is higher than
the 11 percent level for 2014 and the same as the proposed benchmark
level.
Market Size
As discussed above, FHFA's consideration of the size of the single-
family market takes into account both the actual size of the market in
previous years, as measured using the most recent HMDA data available,
and FHFA's forecast for the size of the market based on its market
estimation model.
As shown in Table 3, FHFA's forecasts for the low-income areas
shares of the overall market for home purchase mortgages for 2015 and
2016 are lower than the actual low-income areas share of the overall
market for home purchase mortgages in 2013 and the current estimate for
2014. The proposed rule estimated the low-income areas shares of the
market as 14.7 percent for 2015, 14.7 percent for 2016, and 14.2
percent for 2017. FHFA's updated market estimation models project that
the low-income areas shares

[[Page 53405]]

of the overall home purchase market will be somewhat lower, with point
estimates of 13.2 percent for 2015, 13.6 percent for 2016, and 14.2
percent for 2017. The forecast ranges are 11.7 percent-14.7 percent for
2015, 10.8 percent-16.4 percent for 2016, and 10.6 percent-17.8 percent
for 2017.

Past Performance of the Enterprises

As indicated in Table 3, Fannie Mae's performance on the low-income
areas home purchase subgoal was 12.4 percent in 2010, declined to 11.6
percent in 2011, and increased to 13.1 percent in 2012 and 14.0 percent
in 2013. Freddie Mac's performance followed the same basic pattern--its
performance was 10.4 percent in 2010, declined to 9.2 percent in 2011,
and increased to 11.4 percent in 2012 and 12.3 percent in 2013.
Preliminary performance figures as reported by the Enterprises for 2014
indicate that Fannie Mae's performance on this subgoal was 15.5
percent, and Freddie Mac's performance was 13.6 percent. Official 2014
performance figures, as well as the retrospective HMDA market
performance numbers, will be determined by FHFA later in 2015. The
market share shown in Table 3 for 2014 is a forecast based on FHFA's
market model. While Freddie Mac's performance on the low-income areas
home purchase subgoal was below the retrospective HMDA share each year
from 2010 through 2014, Fannie Mae's performance exceeded the
retrospective HMDA share in several of those years.

Table 3--Enterprise Low-Income Areas Home Purchase Subgoal
----------------------------------------------------------------------------------------------------------------
Performance
Year Type of Home Purchase Benchmark -------------------------------- Market share/
(HP) mortgages Fannie Mae Freddie Mac estimate
----------------------------------------------------------------------------------------------------------------
2010.................. Low-Income Area HP .............. 44,467 23,928 ..............
Mortgages.
High-Minority Area HP .............. 14,814 8,161 ..............
Mortgages.
Subgoal-Qualifying Total .............. 59,281 32,089 ..............
Total HP Mortgages...... .............. 479,200 307,555 ..............
Subgoal Benchmark/ 13% 12.4% 10.4% 12.1%
Performance.
----------------------------------------------------------------------------------------------------------------
2011.................. Low-Income Area HP .............. 40,736 18,270 ..............
Mortgages.
High-Minority Area HP .............. 13,549 5,632 ..............
Mortgages.
Subgoal-Qualifying Total .............. 54,285 23,902 ..............
Total HP Mortgages...... .............. 467,066 260,796 ..............
Subgoal Benchmark/ 13% 11.6% 9.2% 11.4%
Performance.
----------------------------------------------------------------------------------------------------------------
2012.................. Low-Income Area HP .............. 60,927 24,586 ..............
Mortgages.
High-Minority Area HP .............. 22,275 8,164 ..............
Mortgages.
Subgoal-Qualifying Total .............. 83,202 32,750 ..............
Total HP Mortgages...... .............. 633,627 288,007 ..............
Subgoal Benchmark/ 11% 13.1% 11.4% 13.6%
Performance.
----------------------------------------------------------------------------------------------------------------
2013.................. Low-Income Area HP .............. 86,430 40,444 ..............
Mortgages.
High-Minority Area HP .............. 27,425 12,177 ..............
Mortgages.
Subgoal-Qualifying Total .............. 113,855 52,621 ..............
Total HP Mortgages...... .............. 814,137 429,158 ..............
Subgoal Benchmark/ 11% 14.0% 12.3% 14.2%
Performance.
----------------------------------------------------------------------------------------------------------------
2014.................. Low-Income Area HP .............. 91,691 55,987 ..............
Mortgages.
High-Minority Area HP .............. 25,650 14,808 ..............
Mortgages.
Subgoal-Qualifying Total .............. 117,341 70,795 ..............
Total HP Mortgages...... .............. 757,870 519,731 ..............
Subgoal Benchmark/ 11% 15.5% 13.6% 14.0%
Performance.
95% Confidence Interval. .............. .............. .............. +/-0.6%
----------------------------------------------------------------------------------------------------------------
2015.................. Final Rule Benchmark.... 14% .............. .............. 13.2%
95% Confidence Interval. .............. .............. .............. +/-1.5%
----------------------------------------------------------------------------------------------------------------
2016.................. Final Rule Benchmark.... 14% .............. .............. 13.6%
95% Confidence Interval. .............. .............. .............. +/-2.8%
----------------------------------------------------------------------------------------------------------------
2017.................. Final Rule Benchmark.... 14% .............. .............. 14.2%
95% Confidence Interval. .............. .............. .............. +/-3.6%
----------------------------------------------------------------------------------------------------------------
Source: Official performance as determined by FHFA for 2010-13; preliminary performance figures for 2014 as
reported by the Enterprises. Actual subgoal-qualifying market shares, based on FHFA analysis of HMDA data, for
2010-13. FHFA estimates of subgoal-qualifying market shares for 2014-17.

Analysis
The final rule sets the annual benchmark for this subgoal at 14
percent for 2015-2017, which is higher than the actual benchmark level
of 11 percent for 2014 and the same as the level in the proposed rule
for 2015-2017. As shown in Table 2, the market estimation models
forecast a range of possible market levels. The benchmark level of 14
percent is above the point estimates of 13.2 percent and 13.6 percent
for 2015 and 2016, respectively, and just below the point estimate of
14.2 percent for 2017, but well within the confidence intervals for all
three years. It is the same as or higher than both Enterprises'
performance on this subgoal in 2012 and 2013. Recent data also show an
increase in the Enterprises' performances in 2012 through 2014,
relative to previous years, on this subgoal. The benchmark level is not
being raised to 15 percent as this would

[[Page 53406]]

rely too heavily on Fannie Mae's reported performance of 15.5 percent
for 2014. While Freddie Mac's performance has increased, reaching a
reported 13.6 percent for 2014, it would be less likely to reach 15
percent in 2015-2017.
FHFA will continue to monitor the Enterprises in its capacities as
regulator and as conservator, and FHFA will take any steps appropriate
to address changes in market conditions.
Comments on Proposed Rule
Several policy advocacy group commenters and Fannie Mae supported
the proposed 14 percent benchmark level. One commenter stated that,
``[h]aving subgoals for . . . households in low-income areas will
encourage credit to flow to these households and communities suffering
from lack of access to credit.'' The commenters supported the increase
from the 11 percent benchmark level for 2014, noting that the
Enterprises' past performance demonstrates their ability to meet an
increased level without increasing risk, and an increase in the level
will further meet the needs of geographically underserved areas. Fannie
Mae stated that the proposed 14 percent level reflected an appropriate
analysis and application of the statutory factors.
A housing advocacy group commenter recommended setting the
benchmark level at the upper range of the market estimates because it
believes that the Enterprises would otherwise have little incentive to
increase their purchases of goal-qualifying loans. A comment from
policy advocacy groups recommended setting an ``aggressive'' benchmark
level, given the uncertainty in the market estimation models and other
data strongly indicating a lack of access to conventional conforming
mortgage credit by lower-income borrowers and minority borrowers. A
comment from housing advocacy groups also recommended setting a higher
benchmark level due to the uncertainty in the market estimation models.
Freddie Mac did not comment on the proposed benchmark level.
FHFA Response
As discussed above, the final rule sets the annual benchmark level
for 2015-2017 for this subgoal at 14 percent, which is above the point
estimates for 2015 and 2016 and just below the point estimate for 2017,
but within the confidence intervals for all three years. FHFA believes
this is an appropriate benchmark level based on the market estimation
models' forecasts for 2015-2017, the Enterprises' recent performance,
and the updated market size estimate for 2014.
4. Low-Income Areas Home Purchase Goal--Sec. 1282.12(e)
Section 1282.12(e) provides that the low-income areas home purchase
goal includes all mortgages that are counted for purposes of the low-
income areas home purchase subgoal discussed above (families in low-
income areas and moderate-income families who reside in high-minority
census tracts), as well as home purchase mortgages for families with
incomes no greater than 100 percent of area median income 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 area median income).
FHFA does not separately forecast the size of the market for the
low-income areas home purchase goal and does not establish a benchmark
level for the goal in advance in the housing goals regulation. The
benchmark level for this goal is determined each year based on the
benchmark level for the low-income areas home purchase subgoal, plus an
additional amount determined each year by FHFA separately from
rulemaking to reflect the disaster areas covered for that year.
Designated disaster areas include counties declared by the Federal
Emergency Management Agency to be disaster areas eligible for
individual assistance during the previous three years. This is referred
to as the ``disaster areas increment.'' It is established through an
FHFA analysis of HMDA data for the most recent three-year period
available. Given the lag in the release of HMDA data, the disaster
areas increment for 2013 was based on disaster areas declared between
2010 and 2012, but the increment was calculated using HMDA data for
2009 through 2011, because 2012 HMDA data were not available until
later in 2013. The disaster areas increment used in setting the
benchmark level of the goal for 2014 was based on disaster areas
declared between 2011 and 2013, but the increment was calculated using
HMDA data for 2010 through 2012. Thus, the disaster areas increment,
and the resulting low-income areas home purchase goal, can vary from
one year to the next.
For 2012, the disaster areas increment was 9 percent; thus, the
overall low-income areas home purchase goal for that year was 20
percent (11 percent + 9 percent). For 2013 and 2014, the disaster areas
increment was 10 percent; thus, the overall low-income areas goal for
those years was 21 percent (11 percent + 10 percent). For 2015-2017,
the disaster areas increment will be provided by letter to the
Enterprises each year based on updated disaster area information.
Past performance on the low-income areas home purchase goal is
shown below in Table 4.

Table 4--Enterprise Low-Income Areas Home Purchase Goal
----------------------------------------------------------------------------------------------------------------
Type of Home Performance
Year Purchase (HP) Benchmark -------------------------------- Market share/
mortgages Fannie Mae Freddie Mac estimate
----------------------------------------------------------------------------------------------------------------
2010........................ Subgoal-Qualifying .............. 59,281 32,089 ..............
HP Mortgages.
Disaster Areas HP .............. 56,076 38,898 ..............
Mortgages.
Goal-Qualifying .............. 115,357 70,987 ..............
Total.
Total HP Mortgages .............. 479,200 307,555 ..............
Goal Benchmark/ 24% 24.1% 23.1% 24.0%
Performance.
----------------------------------------------------------------------------------------------------------------
2011........................ Subgoal-Qualifying .............. 54,285 23,902 ..............
HP Mortgages.
Disaster Areas HP .............. 50,209 26,232 ..............
Mortgages.
Goal-Qualifying .............. 104,494 50,134 ..............
Total.
Total HP Mortgages .............. 467,066 260,796 ..............
Goal Benchmark/ 24% 22.4% 19.2% 22.0%
Performance.
----------------------------------------------------------------------------------------------------------------
2012........................ Subgoal-Qualifying .............. 83,202 32,750 ..............
HP Mortgages.
Disaster Areas HP .............. 58,085 26,486 ..............
Mortgages.
Goal-Qualifying .............. 141,287 59,236 ..............
Total.

[[Page 53407]]

Total HP Mortgages .............. 633,627 288,007 ..............
Goal Benchmark/ 20% 22.3% 20.6% 23.2%
Performance.
----------------------------------------------------------------------------------------------------------------
2013........................ Subgoal-Qualifying .............. 113,855 52,621 ..............
HP Mortgages.
Disaster Areas HP .............. 62,314 33,123 ..............
Mortgages.
Goal-Qualifying .............. 176,169 85,744 ..............
Total.
Total HP Mortgages .............. 814,137 429,158 ..............
Goal Benchmark/ 21% 21.6% 20.0% 22.1%
Performance.
----------------------------------------------------------------------------------------------------------------
2014........................ Subgoal-Qualifying .............. 117,341 70,795 ..............
HP Mortgages.
Disaster Areas HP .............. 54,548 33,923 ..............
Mortgages.
Goal-Qualifying .............. 171,889 104,718 ..............
Total.
Total HP Mortgages .............. 757,870 519,731 ..............
Goal Benchmark/ 18% 22.7% 20.1% NA
Performance.
----------------------------------------------------------------------------------------------------------------
Source: Official performance as determined by FHFA for 2010-13; preliminary performance figures for 2014 as
reported by the Enterprises. Actual goal-qualifyiing market shares, based on FHFA analysis of HMDA data, for
2010-13. Goal-qualifying market share for 2014 will be available after FHFA analysis of HMDA data for 2014.

5. Low-Income Refinancing Goal--Sec. 1282.12(g)
The low-income refinancing goal is based on the percentage of all
refinancing mortgages on owner-occupied single-family housing purchased
by an Enterprise that are for low-income families, defined as families
with incomes less than or equal to 80 percent of the area median
income. After consideration of the statutory factors, including updated
forecasts from FHFA's market estimation models and the comments
received on the proposed benchmark level for this goal, which are
discussed below, Sec. 1282.12(g) of the final rule sets the annual
benchmark level for this goal for 2015 through 2017 at 21 percent. The
21 percent level is higher than the 20 percent level for 2014, but
lower than the proposed benchmark level of 27 percent. FHFA's updated
forecasts project a significantly smaller low-income share of the
overall refinancing mortgage market compared to the forecasts FHFA used
to set the benchmark level in the proposed rule.
Market Size
FHFA's consideration of the size of the single-family market takes
into account both the actual size of the market in previous years, as
measured using the most recent HMDA data available, and FHFA's forecast
for the size of the market based on its market estimation model.
The low-income share of the overall market for refinancing
mortgages is strongly affected by the overall volume of refinancings.
The size of the entire refinancing mortgage market has an impact on the
share of affordable refinancing mortgages (defined as refinancing
mortgages for borrowers with incomes of 80 percent or less of area
median income) and, thus, on the development of the benchmark level for
the Enterprises for the low-income refinancing goal. Refinancing
mortgage volume has historically increased when the refinancing of
mortgages is motivated by low interest rates, i.e., ``rate-and-term
refinances,'' and this increased volume is typically dominated by
higher-income borrowers. Consequently, in periods of low interest
rates, the share of lower-income borrowers refinancing often decreases.
The opposite is true when interest rates rise--there are usually fewer
refinancings overall, but a greater percentage of those are cash-out
refinancings by low-income borrowers. Because interest rates and
mortgage rates are currently continuing at relatively low levels, the
low-income share of borrowers who are refinancing has continued at
relatively low levels.\28\
---------------------------------------------------------------------------

\28\ 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 many homeowners to refinance. Homeowners
with LTV ratios above 80 percent whose mortgages are owned or
guaranteed by Fannie Mae or Freddie Mac 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.
---------------------------------------------------------------------------

The proposed rule estimated the low-income refinancing shares of
the market as 31.0 percent for 2015, 33.5 percent for 2016, and 34.2
percent for 2017. As shown in Table 5, FHFA's updated market estimation
models project that the low-income refinancing shares of the market
will be much lower--21.8 percent for 2015, 22.4 percent for 2016 and
22.8 percent for 2017. The forecast ranges are 19.1 percent-24.5
percent for 2015; 17.7 percent-27.1 percent for 2016; and 16.2 percent-
29.0 percent for 2017. FHFA's updated forecasts for 2015 through 2017
are significantly lower than the estimates used in the proposed rule,
but still higher than the 2014 benchmark level of 20 percent.
Past Performance of the Enterprises
As indicated in Table 5, the performance of the Enterprises on the
low-income refinancing goal has followed a similar pattern as the
overall market performance on this goal since 2010, although the
performance of the Enterprises varied more over the period than the
overall market performance. Fannie Mae's performance on the low-income
refinancing goal in 2010 was 20.9 percent, and increased to 24.3
percent in 2013 and a reported 26.5 percent in 2014. Freddie Mac's
performance on the low-income refinancing goal in 2010 was 22.0
percent, and increased to 24.1 percent in 2013 and a reported 26.4
percent in 2014.

[[Page 53408]]

Table 5--Enterprise Low-Income Refinancing Goal
----------------------------------------------------------------------------------------------------------------
Type of Home Performance
Year Purchase (HP) Benchmark -------------------------------- Market share/
mortgages Fannie Mae Freddie Mac estimate
----------------------------------------------------------------------------------------------------------------
2010........................ Low-Income % of NA 19.3% 20.8% 20.2%
Refinance
Mortgages.
Low-Income % of NA 69.9% 67.5% NA
HAMP
Modifications.
Goal Benchmark & 21% 20.9% 22.0% NA
Performance.
2011........................ Low-Income % of NA 21.3% 21.2% 21.5%
Refinance
Mortgages.
Low-Income % of NA 71.2% 67.3% NA
HAMP
Modifications.
Goal Benchmark & 21% 23.1% 23.4% NA
Performance.
2012........................ Low-Income % of NA 21.2% 21.5% 22.3%
Refinance
Mortgages.
Low-Income % of NA 72.9% 69.3% NA
HAMP
Modifications.
Goal Benchmark & 20% 21.8% 22.4% NA
Performance.
2013........................ Low-Income .............. 519,753 306,205 ..............
Refinance
Mortgages.
Total Refinance .............. 2,170,063 1,309,435 ..............
Mortgages.
Low-Income % of NA 24.0% 23.4% 24.3%
Refinance
Mortgages.
Low-Income HAMP .............. 11,858 14,757 ..............
Modifications.
Total HAMP .............. 16,478 21,599 ..............
Modifications.
Low-Income % of NA 72.0% 68.3% NA
HAMP Mods.
Low-Income Refis/ .............. 531,611 320,962 ..............
HAMP Mods.
Total Refis/HAMP .............. 2,186,541 1,331,034 ..............
Mods.
Goal Benchmark & 20% 24.3% 24.1% NA
Performance.
2014........................ Low-Income .............. 215,826 131,921 ..............
Refinance
Mortgages.
Total Refinance .............. 831,218 514,936 ..............
Mortgages.
Low-Income % of NA 26.0% 25.6% 26.2%
Refinance
Mortgages.
95% Confidence .............. .............. .............. 1.5%
Low-Income HAMP .............. 6,503 6,795 ..............
Modifications.
Total HAMP .............. 9,288 10,335 ..............
Modifications.
Low-Income % of NA 70.0% 65.7% NA
HAMP Mods.
Low-Income Refis/ .............. 222,329 138,716 ..............
HAMP Mods.
Total Refis/HAMP .............. 840,506 525,271 ..............
Mods.
Goal Benchmark & 20% 26.5% 26.4% NA
Performance.
2015........................ Final Rule 21% .............. .............. 21.8%
Benchmark (incl.
HAMP mods).
95% Confidence .............. .............. .............. 2.7%
2016........................ Final Rule 21% .............. .............. 22.4%
Benchmark (incl.
HAMP mods).
95% Confidence .............. .............. .............. 4.7%
2017........................ Final Rule 21% .............. .............. 22.8%
Benchmark (incl.
HAMP mods).
95% Confidence .............. .............. .............. 6.2%
----------------------------------------------------------------------------------------------------------------
Source: Official performance as determined by FHFA for 2010-13; preliminary performance figures for 2014 as
reported by the Enterprises. Actual goal-qualifying market shares, based on FHFA analysis of HMDA data, for
2010-13. FHFA estimates of goal-qualifying market shares for 2014-17. Note that market results/estimates do
not take into account HAMP modifications due to lack of data (See discussion below.)
Detailed data on the total and goal-qualifying volumes of refinancing mortgages and HAMP modifications for 2010-
12 are presented in FHFA's proposed housing goals rule, Federal Register, September 11, 2014, Table 8, p.
54515.

Analysis
The final rule sets the annual benchmark level for this goal at 21
percent for 2015 through 2017, which is higher than the actual
benchmark level of 20 percent for 2014, but below the level in the
proposed rule for 2015-2017 of 27 percent. As shown in Table 5, the
market estimation models forecast a range of possible market levels.
The benchmark level of 21 percent is slightly lower than the point
estimate of 21.8 percent for 2015, and lower than the point estimates
of 22.4 percent for 2016 and 22.8 percent for 2017, and within the
confidence intervals for all three years.
FHFA's current market forecast has moderated considerably for this
goal, down by nine percentage points in 2015, and just over 11
percentage points in 2016 and 2017. This calls into question the
magnitude of the increase in the proposed rule. FHFA has also reviewed
the Enterprises' month-by-month performance for the second half of 2014
and observed a steady decline in the low-income share of refinance
mortgages over this period.
The final rule, therefore, sets the benchmark level for this goal
at 21 percent for 2015-2017, which is 1 percentage points higher than
the 2014 level, but 6 percentage points lower than the level in the
proposed rule. This is consistent with FHFA's updated forecasts for
2015-2017.
FHFA will continue to monitor the Enterprises in its capacities as
regulator and as conservator, and FHFA will take any steps appropriate
to address changes in market conditions.
Comments on Proposed Rule
Several commenters supported the proposed benchmark level of 27
percent for this goal. Fannie Mae commented that the proposed 27
percent level reflected an appropriate analysis and application of the
statutory factors. Freddie Mac did not comment on the proposed
benchmark level.
A comment from a housing counseling group suggested raising the
benchmark level to 35 percent to help ``reduce unnecessary displacement
and loss of potential wealth building of homeowners with Enterprises'
guaranteed mortgages.'' A housing advocacy group commenter recommended
that the benchmark level be set at the upper range of the market
estimates because it believes that the Enterprises would otherwise have
little incentive to increase their purchases of low-income refinancing
loans. A comment from policy advocacy groups recommended setting an
``aggressive'' benchmark level, given the uncertainty in the market
estimation models and other data strongly indicating a lack of access
to conventional conforming mortgage credit by lower-income borrowers
and minority borrowers. A comment from housing advocacy groups also
recommended setting a higher

[[Page 53409]]

benchmark level due to the uncertainty in the market estimation models.
FHFA Response
As described above, FHFA believes that given current conditions in
the refinance market, a larger increase from the 2014 benchmark level
of 20 percent would be too substantial an increase in the goal. As
discussed above, the final rule sets the annual benchmark level for
2015-2017 for this goal at 21 percent, which is slightly lower than the
point estimate of 21.8 percent for 2015, lower than the point estimates
of 22.4 percent for 2016 and 22.8 percent for 2017, and within the
confidence intervals for all three years. FHFA believes this is an
appropriate benchmark level based on the market estimation models'
forecasts for 2015-2017, the Enterprises' recent performance, and the
updated market size estimate for 2014.
Counting Loan Modifications--Sec. 1282.16(c)(10)
Under Sec. 1282.16(c)(10) of the housing goals regulation,
Enterprise financings of qualifying permanent modifications of loans
for low-income families under the Home Affordable Modification Program
(HAMP) are counted toward the low-income refinancing goal. These HAMP
permanent loan modifications are the only type of loan modification
eligible for counting for purposes of the housing goals. The intent in
permitting HAMP permanent loan modifications to count toward the low-
income refinancing goal was to encourage support for the HAMP program.
In every year from 2010 through 2014, low-income families received at
least 67 percent of HAMP loan modifications at each Enterprise. Because
the low-income share of all HAMP loan modifications is much higher than
the low-income share of all refinancing transactions, including HAMP
loan modifications, the low-income refinancing goal increases the
performance of the Enterprises on the low-income refinancing goal. This
was especially true for 2011, when Fannie Mae's performance was 21.3
percent without HAMP loan modifications, but 23.1 percent with HAMP
loan modifications. The impact was even larger for Freddie Mac, whose
performance in 2011 was 21.2 percent without HAMP loan modifications,
but 23.4 percent with HAMP loan modifications.
However, HAMP loan modifications have had a smaller impact on low-
income refinancing goal performance in recent years as HAMP loan
modification volume has fallen--for Fannie Mae, from a high of 64,124
loan modifications in 2011 to 9,288 loan modifications in 2014, and for
Freddie Mac, from 52,910 loan modifications in 2011 to 10,355 loan
modifications in 2014.
Comments on Proposed Rule
Freddie Mac recommended that loan modifications other than HAMP
loan modifications also be permitted to count for purposes of the low-
income refinancing goal. Freddie Mac stated that its own non-HAMP loan
modification programs are largely consistent with HAMP, serving similar
goals.
FHFA Response
Because loan modifications are not considered new originations,
they are not reported in HMDA data. As a result, it is difficult to
adjust the market estimates based on expected modification volumes.

VI. Reporting Requirements for Single-Family Rental Units

In the Notice accompanying the proposed rule, FHFA noted that it
plans to require the Enterprises to include more detailed information
about their purchases of mortgages on single-family rental housing in
the Annual Mortgage Reports (AMRs) that the Enterprises are required to
submit under Sec. 1282.62(b) of the current regulation. This
additional information will be included in the Enterprise AMRs covering
2015 and years following.
The AMRs currently provide information on Enterprise purchases of
all mortgages on owner-occupied and rental properties, regardless of
whether the mortgage may be counted for purposes of the housing goals.
The additional requirements will provide detailed affordability
information on rental units in all single-family properties, whether
owner-occupied (with one or more rental units in addition to the owner-
occupied unit) or investor-owned.
Comments
FHFA received several comments from policy advocacy groups and
housing advocacy groups supporting more detailed reporting in the AMRs.
The same commenters also recommended that FHFA establish specific
requirements in the regulation for Enterprise support of single-family
rental properties.
FHFA Response
The final rule does not revise the regulation to specifically
address single-family rental properties. This is consistent with the
proposed rule. The additional AMR reporting requirements fall within
the scope of the existing regulation, so no changes to the text of the
regulation are necessary. FHFA is requiring the Enterprises to provide
additional information regarding their purchases of mortgages on
single-family rental properties as described in the Notice accompanying
the proposed rule. This additional information will be publicly
available as part of the housing goals tables submitted as part of the
Enterprise AMRs. These housing goals tables are available on FHFA's Web
site.\29\
---------------------------------------------------------------------------

\29\ The Enterprise Annual Housing Activity Reports and the
summary tables for the AMRs can be accessed from this page: http://www.fhfa.gov/PolicyProgramsResearch/Programs/AffordableHousing/Pages/Affordable-Housing-FMandFM.aspx.
---------------------------------------------------------------------------

VII. Multifamily Housing Goals

A. Multifamily Housing Goals Benchmark Levels in Final Rule

1. Multifamily Low-Income Housing Goal--Sec. 1282.13(b)
The multifamily low-income housing goal is based on the total
number of rental units in multifamily properties financed by mortgages
purchased by the Enterprises that are affordable to low-income
families, defined as families with incomes less than or equal to 80
percent of area median income. FHFA has considered each of the
statutory factors, including updated forecasts of the multifamily
market and the comments received on the proposed benchmark levels for
this goal, which are discussed below. Section 1282.13(b) of the final
rule sets the same annual benchmark level for each Enterprise at
300,000 low-income units for each year from 2015 through 2017. This is
higher than the 2014 benchmark levels (250,000 units for Fannie Mae and
200,000 units for Freddie Mac) and higher than the proposed benchmark
levels (250,000 units for Fannie Mae and 210,000 to 230,000 units for
Freddie Mac), to account for the overall size of the multifamily
finance market, which has expanded substantially since the proposed
rule was issued. Each Enterprise has exceeded 250,000 low-income units
in each of the past three years, and given the larger size of the
current multifamily mortgage market and the expanded exclusions from
the 2015 Conservatorship Scorecard multifamily cap, FHFA believes that
an annual 300,000 low-income unit goal for 2015-2017 is achievable and
appropriate.

[[Page 53410]]

2. Multifamily Very Low-Income Housing Subgoal--Sec. 1282.13(c)
The multifamily very low-income housing subgoal is based on the
total number of rental units in multifamily properties financed by
mortgages purchased by the Enterprises that are affordable to very low-
income families, defined as families with incomes less than or equal to
50 percent of area median income. FHFA has considered each of the
statutory factors, including updated forecasts of the size of the
multifamily market and the comments received on the proposed benchmark
levels for this subgoal, which are discussed below. Freddie Mac has
traditionally lagged Fannie Mae under this subgoal, but the gap
narrowed considerably in 2013 and 2014. Section 1282.13(c) of the final
rule sets Fannie Mae's very low-income subgoal benchmark level at
60,000 units for each year of the three-year goals period, as in the
proposed rule. The final rule also sets Freddie Mac's very low-income
subgoal benchmark level at 60,000 units for each year of the three-year
goals period, which is an increase from the proposed annual benchmark
level of 43,000 to 50,000 units. This is consistent with the 2015
Conservatorship Scorecard multifamily cap that permits the same volume
cap and exclusions for each Enterprise.
The applicable statutory factors, comments received and analyses
supporting these benchmark levels are discussed below.

B. Factors Considered in Setting the Multifamily Housing Goal Benchmark
Levels

Section 1333(a)(4) of the Safety and Soundness Act requires FHFA to
consider the following six factors in setting the multifamily 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.\30\
---------------------------------------------------------------------------

\30\ 12 U.S.C. 4563(a)(4).
---------------------------------------------------------------------------

In setting the benchmark levels for the multifamily housing goals,
FHFA has considered each of the six statutory factors. The statutory
factors for the multifamily goals are very similar, but not identical,
to the statutory factors that were considered in setting the benchmark
levels for the single-family housing goals. There are several important
distinctions between the single-family housing goals and the
multifamily housing goals. While there are separate single-family goals
for home purchase and refinancing mortgages, the multifamily goals
include all Enterprise multifamily mortgage purchases, regardless of
the purpose of the loan. In addition, unlike the single-family goals,
the multifamily goals are set based on the total volume of multifamily
mortgage purchases, not on a percentage of overall multifamily mortgage
purchases.
Another difference between the single-family and multifamily goals
is that performance on the multifamily goals is measured based solely
on meeting a benchmark level, without any retrospective market measure.
The absence of a retrospective market measure for the multifamily goals
is due, in part, to the lack of reliable, comprehensive data about new
loan origination activity in the multifamily mortgage market. Unlike
the single-family mortgage market, where HMDA provides a reasonably
comprehensive data set about single-family mortgage originations each
year, the multifamily mortgage market (and the market segment that
supports properties with affordable market rents) has no such
comparable data set. As a result, it can be difficult to correlate
different data sets that may rely on different reporting formats--for
example, some data are available by dollar volume while other data are
available by unit production. The lack of comprehensive data about the
multifamily mortgage market is even more apparent with respect to the
segments of the market that are targeted to low-income and very low-
income renters. Much of the analysis that follows discusses general
trends in the overall multifamily mortgage market, although FHFA
recognizes that these general trends may not apply to the same extent
to all segments of the market.
FHFA has considered each of the required statutory factors, which
are discussed below, a number of which are related or overlap.

C. Analysis of Considerations in Setting the Multifamily Benchmark
Levels

1. The Multifamily Mortgage Market: Market Size, Competition and the
Affordable Multifamily Market (Factors 1 and 3)
FHFA's consideration of the multifamily mortgage market addresses
the size of and competition within the market, as well as the subset of
the market that finances units affordable to low-income and very low-
income families. Recent trends in the multifamily mortgage market
indicate that overall loan volumes have increased substantially from
the volumes in 2014, both in terms of total refinancing activity and
total financing for property acquisitions and for new multifamily units
being completed. FHFA has also considered the importance of Enterprise
support of the multifamily mortgage market in light of recent decreases
in rental housing affordability.
(i) 2015 Conservatorship Scorecard--Multifamily Limits
Given the increasing participation in the market from private
sector capital, FHFA's 2015 Conservatorship Scorecard established a cap
of $30 billion on new multifamily loan purchases for each Enterprise.
However, consistent with the recent expansion of the market and in
order to facilitate market liquidity, especially in the segment of the
market that supports properties with affordable rents, FHFA recently
revised and expanded the types of affordable housing lending activities
that are excluded from the Scorecard cap, as was discussed above.
(ii) Multifamily Mortgage Market Size
The total number of units in multifamily properties in the United
States, defined as all units in structures with five or more rental
units, was over 18 million in 2013, according to data from the U.S.
Census Bureau in the 2013 American Community Survey.\31\ Multifamily
mortgage origination volume varies significantly from year to year
based on a variety of market conditions. During the financial crisis,
the size of the multifamily mortgage market decreased significantly
before rebounding in 2013 and beyond. Overall, multifamily mortgage
originations fell from $147.7 billion in 2007 to $87.9 billion in 2008
to $52.5 billion in 2009, as shown in Table 6.

[[Page 53411]]

The declines were even more pronounced in the private sector segment of
the market, which decreased from almost $112 billion in 2007 to $46.4
billion in 2008 to $18.4 billion in 2009. The Enterprises' mortgage
purchases provided a countercyclical source of liquidity during this
same period. While the size of the overall multifamily market was
declining, the volume of Enterprise purchases was relatively steady.
The combined volume of Enterprise multifamily mortgage purchases in
2007, excluding purchases of commercial mortgage-backed securities
(CMBS), was $34.6 billion, and rose to $40 billion in 2008 before
declining to $31 billion in 2009.
---------------------------------------------------------------------------

\31\ U.S. Census Bureau, 2013 American Community Survey,
National Table C-12-RO.
http://www.census.gov/programs-surveys/ahs/data/2013/national-summary-report-and-tables-ahs-2013.html?eml=gd.

Table 6--Government and Private Sector Market Shares of Multifamily Originations
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total volume Enterprise Private sector
Year ($Bil.) Fannie Mae (%) Freddie Mac (%) total (%) FHA (%) (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2005.............................................. $133.1 11.7% 6.7% 18.4% 2.2% 79.3%
2006.............................................. $138.0 11.7% 7.1% 18.8% 1.0% 80.2%
2007.............................................. $147.7 13.1% 10.4% 23.4% 0.8% 75.8%
2008.............................................. $87.9 25.4% 20.1% 45.5% 1.7% 52.8%
2009.............................................. $52.5 30.2% 28.9% 59.2% 5.6% 35.2%
2010.............................................. $68.8 24.5% 20.3% 44.8% 15.3% 40.0%
2011.............................................. $110.1 20.9% 18.9% 39.8% 10.6% 49.6%
2012.............................................. $146.1 21.7% 18.3% 39.9% 10.2% 49.8%
2013.............................................. $170.0 16.6% 14.8% 31.4% 10.4% 58.3%
2014.............................................. $209.9 16.1% 14.9% 31.0% 6.0% 63.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: FHA data is for fiscal years 2005 to 2014.
Sources: ``MBA Commercial Real Estate Finance Survey.''
Sources for 2014 data: Fannie Mae, Freddie Mac, and FHA. Total 2014 volume derived from ``MBA Commercial Real Estate Finance Survey'' data.
Note: All multifamily loans in CMBS issuances are included under ``Private Sector,'' regardless of the investor.

Since the financial crisis, the total multifamily origination
market has rebounded and has shown increased private capital
participation, with private capital defined to include CMBS and
insurance company and bank/credit union portfolio purchases. The
multifamily new origination market has increased from a low of $52.5
billion in 2009 to $176 billion in 2014.\32\ As the size of the overall
market has increased, the Enterprise share of the market has decreased,
from a high of almost 60 percent in 2009 to just over one-third in
2014.
---------------------------------------------------------------------------

\32\ MBA/CREF Forecast of Key Multifamily Real Estate Finance
Indicators, February 2015.
---------------------------------------------------------------------------

Volumes in the overall multifamily new origination market are
expected to continue to increase between 2015 and 2017, including
refinancing activity, financing for newly constructed multifamily
units, and financing for property acquisitions. However, the
Enterprises are expected to roughly maintain or slightly increase their
current percentage share of the overall market due to increased private
capital participation and competition.
Comments on Proposed Rule
A comment from public advocacy groups suggested that, in evaluating
the size of the multifamily mortgage market, FHFA should include all
rental units, cooperative units and condominiums. The comment pointed
to data from the American Community Survey suggesting that a more
inclusive definition of the market would result in a significantly
larger overall market size and, therefore, increased multifamily goal
benchmark levels.
FHFA Response
Although certain cooperative housing blanket loans are eligible for
goals credit under the housing goals, FHFA considers cooperative and
condominium units to be primarily intended to be owner-occupied and,
therefore, including them in the overall multifamily market size would
overstate the number of rental units and properties available for
financing.
(iii) Affordable Multifamily Mortgage Market Segment
FHFA's consideration of the multifamily mortgage market is limited
by the lack of comprehensive data about the size of the market for
financing properties affordable to low-income and very low-income
families. The challenge of identifying goals-qualifying units is made
more difficult because utility allowances must be added to the market
rent on all individually metered rental units before calculating a
unit's affordability.
FHFA recognizes that the portion of the overall multifamily rental
market that is affordable to low-income and very low-income families
may vary from year to year, that the competition among capital sources
within the market as a whole may differ from the competition within the
affordable segment of the market, and that the financing volume for the
segment of the market that is affordable to very low-income renters is
also related to the limited availability of affordable housing
subsidies.
Increasing rents and nearly stagnant wages, particularly for low-
and very low- income renters, has resulted in a significant decline in
rental housing affordability over the past three years. The Safety and
Soundness Act requires FHFA to determine affordability based on rents,
which FHFA has defined by regulation to include utilities, not
exceeding 30 percent of the relevant percentage of household
income.\33\ However, as mentioned above, a recent Harvard study shows
that more than half of all tenants pay more than 30 percent of
household income for rental housing, especially in the high-cost urban
markets where most renters reside and where much of Fannie Mae and
Freddie Mac lending is focused. Tenants in the lowest income brackets,
such as at the low-income and very low-income goal levels, pay the
highest percentage of their income for rental housing. As a result,
there are a declining number of low-income and very low-income units
that qualify as affordable under the 30 percent test for the
Enterprises to finance, and even fewer in the high-cost urban markets
where their lenders are most active but where tenant rent burden is the
greatest.\34\
---------------------------------------------------------------------------

\33\ 12 U.S.C. 4563(c); 12 CFR 1282.1.
\34\ See ``State of the Nation's Housing 2015.'' The data and
the full report are available at http://www.jchs.harvard.edu/state-nations-housing-2015-embargoed.
---------------------------------------------------------------------------

(iv) Factors Impacting the Multifamily Mortgage Market
FHFA has considered a variety of economic indicators and measures

[[Page 53412]]

related to the size and affordability of the multifamily market,
including the market fundamentals and the ongoing need for affordable
rental units. This section examines the following such factors:
Interest rates, property values, rents, vacancy rates, and housing
permits, starts and completions. The trends in each of these factors in
recent years have tended to show strong demand for multifamily housing
relative to the overall supply, which is reflected in higher property
values and rents, lower vacancy rates, and increasing multifamily
construction. All of these factors indicate that multifamily mortgage
origination volumes can be expected to continue at a relatively high
rate.
Interest Rates
The volume of multifamily mortgage originations is heavily
influenced by interest rates, with lower rates generating higher loan
volumes. Multifamily properties benefit from lower interest rates
because reduced borrowing costs increase net property cash flow and,
thus, an owner's return on equity. Although interest rates rose in
2013, they decreased in 2014 and have remained low compared to
historical levels. Continued low rates in 2015 have contributed to
increased mortgage origination volumes for both refinancing and
acquisition financing.
Property Values
As of the first quarter of 2015, multifamily property values were
up over 16 percent from the first quarter of 2014 and more than 34
percent since the first quarter of 2013, and are now above the
valuation peak reached in 2007.\35\ Rising multifamily property values
usually spur increases in refinancings, property sales, and new
construction activity. Multifamily property values continued to
increase through the first quarter of 2015, with more modest increases
expected to continue during the remainder of 2015 through 2017.
---------------------------------------------------------------------------

\35\ Moody's/Real Capital Analytics, ``Composite CPPI Indices''
(July 2015), https://www.rcanalytics.com/Public/rca_cppi.aspx.
---------------------------------------------------------------------------

Multifamily Vacancy Rates and Rents
During the housing crisis, vacancy rates for multifamily properties
increased significantly and median asking rents declined. Since then,
vacancy rates have dropped while rents have increased. Rental vacancy
rates peaked at over 13 percent in the third quarter of 2009, but have
declined each year since then to less than 7.1 percent nationwide in
the first quarter of 2015.\36\ Median asking rents nationwide have
increased steadily since 2011, reaching $734 in 2013 and $756 in the
third quarter of 2014.\37\ Both the low vacancy rates and higher asking
rents indicate that the demand for multifamily housing will remain
strong during the three-year goals period.
---------------------------------------------------------------------------

\36\ U.S. Census Bureau, ``Current Population Survey/Housing
Vacancy Survey, Series H-111, U.S. Census Bureau, Washington, DC
20233.'' The vacancy rates reported by the U.S. Census Bureau differ
from those reported by some other sources, but trends are similar.
\37\ U.S. Census Bureau, ``Median Asking Rent for the U.S. and
Regions.'' The asking rents reported by the U.S. Census Bureau
differ from those reported by some other sources, but trends are
similar. For example, data from CB Richard Ellis shows average rent
rates at $1,191 in 2010, then increasing steadily to $1,339 in 2013
and to $1,457 in 2014.
---------------------------------------------------------------------------

Multifamily Building Permits, Starts and Completions
Multifamily building permits and construction starts have recovered
in recent years, after falling significantly after the housing market
crisis. Multifamily building permits averaged 357,000 units annually
between 2005 and 2008 but fell dramatically in 2009 and 2010, to
approximately 130,000 units per year. The volume of permits has
increased since 2010, exceeding 340,000 units in 2013 and almost
reaching the same level in 2014.\38\ Actual multifamily housing starts
have followed the same pattern, averaging approximately 287,000 units
annually between 2005 and 2008, decreasing to just under 100,000 units
annually in 2009 and 2010, but increasing since then to 338,000 units
in 2013 and 339,000 units in 2014.\39\
---------------------------------------------------------------------------

\38\ U.S. Census Bureau, ``New Privately Owned Housing Units
Authorized by Building Permits in Permit-Issuing Places (In
structures with 5 units or more).''
\39\ U.S. Census Bureau, ``New Privately Owned Housing Started
(In structures with 5 units or more).''
---------------------------------------------------------------------------

Multifamily completions have followed a similar pattern.
Completions exceeded 250,000 units each year from 2005 through 2009
until declining in 2009 and 2010, when the number of units completed
dropped below 150,000 units each year. Multifamily completions have
since recovered to pre-2009 levels, reaching 254,000 units in 2014.\40\
Given the recent increases in the volume of multifamily building
permits and starts, completions are expected to increase in the coming
years, which will generate increased demand for permanent mortgage
financing.
---------------------------------------------------------------------------

\40\ U.S. Census Bureau, ``New Privately Owned Housing Units
Completed (In structures with 5 units or more).''
---------------------------------------------------------------------------

2. Past Performance of the Enterprises (Factor 2)
The Enterprises have served a consistent and critical role in the
multifamily mortgage market in the years before, during, and since the
financial crisis. The 2012 housing goals rule increased the overall
multifamily goals for 2012 through 2014 compared to previous years,
reflecting the Enterprises' increased market share since 2008. However,
the 2012 rule also anticipated the increase in private market activity
during 2012 through 2014, and as a result set goal levels that declined
in each of those years, with 2012 the highest and 2014 the lowest.
As required by the Safety and Soundness Act, in setting the
multifamily goals for 2015 through 2017, FHFA has considered the
mortgage purchase performance of the Enterprises in previous years.
Previously, FHFA had established higher multifamily goals for Fannie
Mae than for Freddie Mac, reflecting the more established history and
higher overall loan volumes of Fannie Mae's multifamily business.
Moreover, because of its delegated underwriting platform, Fannie Mae,
through its lenders, was seen to have a greater origination capacity
than Freddie Mac, which underwrites each multifamily loan it purchases.
Freddie Mac has also typically financed fewer total units than Fannie
Mae on the same dollar volume of loan originations. This was because
Freddie Mac usually financed fewer properties that had higher leverage,
which were located in high-cost, urban core markets. Freddie Mac has
also financed fewer small multifamily properties with 50 or fewer units
and fewer properties in secondary, tertiary, or rural markets.
However, that changed in 2014 with Freddie Mac's increased loan
production of $28.3 billion, which was a new record and only $500
million less than Fannie Mae. It is expected that both Enterprises will
sustain similar high levels of loan production during the three-year
goals period of the final rule.
Enterprise Performance on Multifamily Low-Income Housing Goal
The multifamily low-income housing goal includes units affordable
to low-income families. Enterprise purchases of mortgages that finance
properties with units affordable to low-income families over the 2010-
2014 period, are shown in Table 7. From 2010 to 2014, Fannie Mae
financed an average of 296,000 such units each year, peaking at 375,924
units in 2012, and Freddie Mac financed

[[Page 53413]]

an average of 244,000 such units each year, peaking at 298,529 units in
2012. Since 2010, Fannie Mae and Freddie Mac financings have yielded a
relatively stable percentage of mortgages financing low-income units
relative to their total mortgage purchases, as is shown in Table 7. The
share of low-income units financed by Fannie Mae compared to its total
multifamily mortgage purchases rose from 68 percent in 2009 to a range
of 75 to 77 percent between 2010 and 2014. Similarly, the share of low-
income units financed by Freddie Mac rose from 65 percent in 2009 to a
range of 75 to 79 percent between 2010 and 2014.\41\
---------------------------------------------------------------------------

\41\ Enterprise data.
---------------------------------------------------------------------------

Until 2014, Fannie Mae had consistently financed more low-income
units than Freddie Mac, by a relatively stable amount. However, in
2014, due to its increased loan volume, Freddie Mac surpassed Fannie
Mae's low-income unit production. In that year, Freddie Mac financed
273,582 low-income units (above its goal of 200,000), compared to
Fannie Mae's 262,050 units (above its goal of 250,000).

Table 7--Enterprise Past Performance on Low-Income Multifamily Goal, 2006-14
[Goals and performance measured in low-income multifamily units financed]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fannie Mae Freddie Mac
-------------------------------------------------------------------------------------------------------------
Total multifamily Total multifamily
Year -------------------------------------------------------------------------------------------------------------
Units Low income Units Low income
Goal Performance financed (%) Goal Performance financed (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014...................................... 250,000 262,050 372,072 70% 200,000 273,582 366,377 75%
2013...................................... 265,000 326,597 430,751 76% 215,000 254,628 341,490 75%
2012...................................... 285,000 375,924 501,256 75% 225,000 298,529 377,522 79%
2011...................................... 177,750 301,224 390,526 77% 161,250 229,001 290,116 79%
2010...................................... 177,750 214,997 286,504 75% 161,250 161,500 216,042 75%
2009...................................... NA 235,199 344,989 68% NA 167,026 256,346 65%
2008...................................... NA 450,850 653,060 69% NA 268,036 375,760 71%
2007...................................... NA 392,666 668,963 59% NA 298,746 388,072 77%
2006...................................... NA 313,620 427,130 73% NA 174,377 224,608 78%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Performance as reported by the Enterprises for 2014; official performance as determined by FHFA for 2010-13; performance if the goal had been in
effect for 2006-09 as calculated by FHFA. ``Low-income'' refers to units affordable to renters with incomes no greater than 80 percent of Area Median
Income (AMI), based on rental proxy.
Note: Figures do not include units financed by the purchase of commercial mortgage-backed securities (CMBS).

Enterprise Performance on Multifamily Very Low-Income Subgoal
The multifamily very low-income housing subgoal includes units
affordable to very low-income families. Enterprise-financed properties
with units affordable to very low-income families from 2010-2013 are
shown in Table 8. From 2010 to 2013, Fannie Mae financed an average of
81,000 very low-income units each year, peaking at 108,878 units in
2012, whereas Freddie Mac financed an average of 46,000 such units each
year, peaking at 60,084 units in 2012.
In recent years, Fannie Mae has financed a higher percentage of
very low-income units than has Freddie Mac, although the difference was
very small in 2013, as shown in Table 8. The share of very low-income
units financed by Fannie Mae was 18 percent of its overall purchases in
2009, rising to 22 percent in 2011 and 2012, and then falling to 18
percent in 2013 and 16 percent in 2014. Freddie Mac financing of very
low-income units was unusually low in 2009, at 8 percent of its overall
purchases, but returned to a more typical level of 14 percent in 2010.
It has fluctuated since then, increasing to 17 percent in 2013 and
decreasing to 13 percent in 2014.\42\
---------------------------------------------------------------------------

\42\ Enterprise data.
---------------------------------------------------------------------------

In 2014, both Enterprises reported that they exceeded their very
low-income subgoals. As shown in Table 8, Fannie Mae financed 60,542
such units compared to its 2014 goal of 60,000 units, and Freddie Mac
financed 48,689 such units compared to its 2014 goal of 40,000 units.

Table 8--Enterprise Past Performance on Very Low-Income Multifamily Goal, 2006-14
[Goals and performance measured in low-income multifamily units financed]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fannie Mae Freddie Mac
-------------------------------------------------------------------------------------------------------------
Total multifamily Total multifamily
Year -------------------------------------------------------------------------------------------------------------
Units Very low Units Very low
Goal Performance financed income (%) Goal Performance financed income (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014...................................... 60,000 60,542 372,072 16% 40,000 48,689 366,377 13%
2013...................................... 70,000 78,071 430,751 18% 50,000 56,752 341,490 17%
2012...................................... 80,000 108,878 501,256 22% 59,000 60,084 377,522 16%
2011...................................... 42,750 84,244 390,526 22% 21,000 35,471 290,116 12%
2010...................................... 42,750 53,908 286,504 19% 21,000 29,656 216,042 14%
2009...................................... NA 60,765 344,989 18% NA 20,302 256,346 8%
2008...................................... NA 96,242 653,060 15% NA 45,154 375,760 12%
2007...................................... NA 88,901 668,963 13% NA 59,821 388,072 15%

[[Page 53414]]

2006...................................... NA 88,521 427,130 21% NA 34,638 224,608 15%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Performance as reported by the Enterprises for 2014; official performance as determined by FHFA for 2010-13; performance if the goal had been in
effect for 2006-09, as calculated by FHFA. ``Very low-income'' refers to units affordable to renters with incomes no greater than 50 percent of Area
Median Income (AMI), based on rental proxy.
Note: Figures do not include units financed by the purchase of commercial mortgage-backed securities (CMBS).

3. Ability of the Enterprises to Lead the Market in Making Multifamily
Mortgage Credit Available (Factor 4)
In setting the multifamily housing goals benchmark levels, FHFA has
considered the ability of the Enterprises to lead the market in making
multifamily mortgage credit available. As discussed, the Enterprises'
share of the overall mortgage market increased in the years immediately
following the financial crisis and decreased in subsequent years in
response to growing private sector participation. Despite the
Enterprises' reduced market share in the overall multifamily mortgage
market, FHFA expects them to demonstrate leadership in multifamily
affordable housing lending, which includes supporting housing for
tenants at different income levels in various geographic markets and in
various market segments.
4. Availability of Public Subsidies (Factor 5)
The broad decline in rental housing affordability has particularly
affected very low-income renters (households with incomes at or below
50 percent of area median income), so the number of market rate units
qualifying as affordable for the very low-income goal that are
available for the Enterprises to finance is limited and will likely
decline in each year of the three-year goals period. Thus, the ability
of either Enterprise to meet the very low-income subgoal is largely
dependent on the availability of rental housing subsidies to make units
affordable to very low-income households (known as targeted affordable
housing), because in many rental markets there are few, if any, units
with market rents that are affordable to very low-income households
using the required 30 percent of income test for rent plus tenant paid
utilities.\43\
---------------------------------------------------------------------------

\43\ ``America's Rental Housing Markets: Evolving Markets and
Needs,'' Harvard Joint Center for Housing Studies (December 2013).
---------------------------------------------------------------------------

The number of subsidized projects available to finance is finite
due to the limited amount of subsidies available and the limited number
of subsidized properties. Thus, it would be difficult for the
Enterprises to increase their share of the subsidized housing finance
market and to finance greater numbers of such units beyond their
current levels of activity.
These factors have less impact on the low-income goal because that
goal targets households with incomes at or below 80 percent of area
median income, while housing subsidy programs generally target
households with incomes at or below 60 percent of area median
income.\44\ The low-income goal, thus, is usually met through financing
properties that contain non-subsidized, market rate units, which have
rents that are affordable to low-income households.
---------------------------------------------------------------------------

\44\ Ibid.
---------------------------------------------------------------------------

5. Need To Maintain Sound Financial Condition of the Enterprises
(Factor 6)
In setting the multifamily goal benchmark levels, FHFA also
considered the importance of maintaining the Enterprises in sound and
solvent financial condition. During the conservatorships, under both
stressed and normal market conditions, the delinquency and default
performance of Enterprise loans on affordable housing properties has
not been significantly different from loans on market rate properties,
which have experienced extremely low delinquency and foreclosure rates.
The Enterprises should, therefore, be able to sustain or increase their
purchases of loans on affordable properties without impacting the
Enterprises' safety and soundness or negatively affecting the
performance of their portfolios. FHFA continues to monitor the
activities of the Enterprises, both in FHFA's capacity as safety and
soundness regulator and as conservator. If necessary, FHFA could make
appropriate changes to the multifamily goal benchmark levels to ensure
the Enterprises' continued safety and soundness.
Analysis
Based on FHFA's analysis of the factors discussed above, the final
rule sets the multifamily goals generally higher than the Enterprises'
reported actual low-income and very low-income goals performance in
2014, reflecting the substantially increased size of the multifamily
finance market in 2015 and the revised 2015 Conservatorship Scorecard.
Beginning with their actual 2014 loan production totals and
continuing in 2015, FHFA expects both Enterprises to have substantially
equivalent total multifamily loan volumes for each year of the three-
year goals period, with their combined volume representing between one-
third to 40 percent of the estimated new origination market size during
those years. Given the significant expansion of the multifamily market
in 2015, the final rule revises the proposed benchmark level for the
multifamily low-income goal by setting the same annual level for each
Enterprise at 300,000 low-income units for each year of the three-year
goals period. The fact that both Enterprises exceeded 250,000 low-
income units in each of the past three years, when they had
considerably lower annual loan origination volume than in 2015,
demonstrates that the low-income goal of 300,000 units is achievable,
given the larger size of the current market.
The final rule also revises the proposed benchmark level for the
multifamily very low-income goal by setting both Fannie Mae's and
Freddie Mac's goals at 60,000 units for each year of the three-year
goals period. Fannie Mae's performance was above the

[[Page 53415]]

60,000 unit level in 2014, and Freddie Mac's performance fell below the
60,000 unit level in 2014. Nonetheless, in light of the significant
expansion of the multifamily financing market in 2015 and the revised
2015 Conservatorship Scorecard, FHFA believes that the very low-income
goals in the final rule are achievable.
However, in light of the declining number of qualifying affordable
low-income units available to finance in the current rental market due
to the market forces discussed in previous sections, FHFA expects both
Enterprises will require increasing efforts to meet the low-income unit
goal during the three-year goals period as compared to previous years.
Those efforts will likely include adjustments to existing loan
products, expanded specialized lender networks, and increased marketing
efforts. FHFA does not expect either Enterprise to engage in any
transaction that does not involve a reasonable rate of return. A
reasonable rate of return on mortgages for properties with rents
affordable to very low- and low-income families may be less than the
return earned on other activities, in order to meet the goals. FHFA
will take market conditions and other appropriate factors into account
in assessing Enterprise performance on the multifamily goals. FHFA
could also adjust the levels of the multifamily goals in future years
if necessary.
Comments on Proposed Rule
FHFA specifically requested comment in the proposed rule on whether
the benchmark levels would be achievable and appropriate for the
Enterprises. A number of commenters stated that the benchmark levels
should be set at higher levels than proposed. Commenters noted that
while the Enterprises' role in the multifamily mortgage market is
expected to be maintained or possibly decrease over the coming years as
private capital becomes increasingly prevalent, the overall market is
expected to continue to grow. A comment from policy advocacy groups
stated that, even if the overall volume of Enterprise multifamily
mortgage purchases declines, the number of affordable units they
support should remain higher than proposed. The comment stated that
increased market competition has come from life insurance companies
that tend to invest in properties geared toward higher income earners.
The comment also noted that both Enterprises easily exceeded both
multifamily goals over the past several years. A trade association
commenter recommended that the proposed benchmark levels be increased
to encourage the Enterprises to expand their relationships with housing
finance agencies, noting that the Enterprises have been strong partners
in supporting housing finance agencies in the development and
rehabilitation of affordable rental properties. Several commenters
stated that there is a severe shortage of affordable rental housing and
that both Enterprises could do more to support such housing. The
commenters, thus, encouraged FHFA to set ``stretch'' benchmark levels
as an incentive to the Enterprises to increase their affordable
mortgage purchase volumes.
Another trade association commenter stated that in setting the
benchmark levels, FHFA should consider market trends such as increased
competition from the private market, as well as the interplay with
regulatory directives such as the portfolio dollar volume limits for
the Enterprises under conservatorship and FHFA's proposed rule on the
Enterprise duty to serve underserved markets. The commenter stated that
the housing goals should be aligned with the priorities set by FHFA for
the Enterprises in conservatorship, whether in the Conservatorship
Scorecard or through other means. The commenter recommended that FHFA
monitor multifamily market conditions closely to determine whether any
of the multifamily goals should be adjusted.
Fannie Mae commented that it was committed to meeting the benchmark
levels in the proposed rule, but stated that the multifamily mortgage
market has changed and will continue to change, including a decline in
the Enterprises' multifamily mortgage market share and an overall trend
of increased competition from the private sector. Fannie Mae also
stated that while there have been recent increases in the volume of
multifamily building permits and housing starts, very little of this
new construction is targeting class B and C properties, which in
general are older and smaller properties with fewer amenities and which
generally provide more affordable units than class A properties. Fannie
Mae provided data showing that class B and C properties made up 65
percent of all multifamily properties in 2000, but dropped to 58
percent by 2013. Fannie Mae stated that the market changes will make
the proposed benchmark levels difficult to meet, and in the absence of
a retrospective market measure for the multifamily goals, indicated
that it may request that FHFA reduce the benchmark levels if
circumstances warrant in the future.
FHFA also specifically requested comment in the proposed rule on
whether the goals should be set at different levels for each Enterprise
or if the levels should be the same. Several trade association
commenters stated that the benchmark levels of both Enterprises should
be the same, while others supported the proposal to raise Freddie Mac's
goals levels, which have lagged behind Fannie Mae's goals levels for
many years. A trade association commenter recommended that over time,
both Enterprises should be subject to the same benchmark levels.
Freddie Mac commented that it welcomes the challenge of gradually
increasing its multifamily loan purchases from 2015-2017, but stated
that the historical difference in the volume of multifamily business at
each Enterprise warrants maintaining the difference in the goal levels
between the two Enterprises. Freddie Mac stated that every loan it
finances supports affordable rental housing, and historically,
approximately 90 percent of the total financing it provides in any
given year supports moderate-income households, defined as households
with incomes at or below 100 percent of area median income.
A comment from policy advocacy groups suggested that FHFA revisit
pre-conservatorship initiatives such as those providing lines of credit
to mission-based entities that build or preserve affordable housing.
The comment also recommended that FHFA consider providing bonus goals
credit for Enterprise purchases of mortgages financing multifamily
properties located outside of areas with high concentrations of
minority and low-income residents. The comment stated that housing
located in communities with better schools, transportation, and
employment potential can lead to significant improvements in resident
outcomes.
FHFA Response
FHFA has taken into consideration the views of the commenters and
has adjusted the goals in the final rule consistent with the expanded
size of the market, the revised 2015 Conservatorship Scorecard and to
reinforce FHFA's emphasis on providing financing for affordable rental
housing. However, there is currently no shortage of private capital
serving multifamily lending beyond the Enterprises' established market
share, nor does FHFA expect there to be any shortage during the new
three-year goals period, including from depository institutions.
Mortgage Bankers Association data show the Enterprises' market share
falling from over 60 percent during the height of the

[[Page 53416]]

recession in 2009, to approximately one-third in 2014, or close to
historical norms, with increased volumes in 2015. The Enterprises
fulfilled their countercyclical function when most lenders withdrew
from the market in 2008 and 2009 and remained the market leaders until
commercial mortgage markets stabilized over the past several years.
Furthermore, setting goals for the Enterprises that are too high could
be disruptive to the multifamily mortgage market by compelling them to
compete for lending business already adequately served by private
capital sources and potentially making the multifamily mortgage
industry more dependent on the Enterprises than is necessary.
FHFA has also concluded that, at this point in the growth of the
Enterprises' multifamily businesses, the low-income housing goals
should not be set at different levels for each Enterprise for the
three-year goals period, because each Enterprise is expected to produce
substantially the same loan volumes and unit counts and to have the
same share of the multifamily market for mortgage purchases. The final
rule sets the low-income goals at the same level for both Enterprises,
based in part on FHFA's expectation that the Enterprises combined will
comprise one-third to 40 percent of the estimated multifamily market
for mortgage purchases for the three-year goals period.
Similarly, the final rule sets the very low-income goals at the
same level for both Enterprises, under the assumption that the
Enterprises will have similar shares of very low-income units and,
thus, should have the same goal levels.
The policy advocacy groups' suggestion to re-establish lines of
credit is not addressed in the final rule because that issue is beyond
the scope of this specific rulemaking.
Regarding the recommendation on financing properties in certain
geographic areas, FHFA will monitor the geographic distribution of the
financing provided by the Enterprises to such properties.
As further discussed below, the final rule also changes several
definitions to ensure that any rental unit claimed as goals-eligible
is, in fact, a unit with affordable rents. These changes are expected,
however, to have only a limited impact on the ability of the
Enterprises to meet the 2015-2017 multifamily housing goals because
they make up only a small percentage of very low- and low-income units
financed by the Enterprises.

VIII. New Low-Income Housing Subgoal for Small Multifamily Properties

A. Small Multifamily Housing Subgoal Benchmark Levels in Final Rule--
Sec. 1282.13(d)

The Enterprises have played a relatively limited role in supporting
financing for small multifamily properties with 5 to 50 units. The
proposed rule included establishment of a new subgoal for Enterprise
purchases of mortgages on small multifamily properties with units
affordable to low-income families. Based on FHFA's consideration of
each of the applicable statutory factors, as well as the comments
received on the proposed subgoal, Sec. 1282.13(d) of the final rule
establishes a new subgoal for Enterprise purchases of mortgages on
small multifamily properties for low-income families. For both Fannie
Mae and Freddie Mac, the benchmark levels in the final rule for this
subgoal are 6,000 low-income units for 2015; 8,000 such units for 2016;
and 10,000 such units for 2017. The benchmark levels in the final rule
are generally lower than the levels in the proposed rule for Freddie
Mac and substantially lower for Fannie Mae. Recent surveys indicate
that there is currently ample liquidity available to small property
owners, mainly through local banks and thrifts.\45\ Increasing the
small multifamily goals to the levels in the proposed rule risks the
Enterprises ``crowding out'' smaller lenders. Nonetheless, market
conditions can change and both Enterprises must have the capability to
serve the small multifamily market during stressed market conditions.
The small multifamily goals are modest, but are intended to keep the
Enterprises active in this market segment. Consistent with the proposed
rule, the final rule defines ``small multifamily property'' as a
property with 5 to 50 units.\46\ The new small multifamily properties
subgoal will provide an additional incentive for the Enterprises to
support these properties, which are an important source of affordable
rental housing.
---------------------------------------------------------------------------

\45\ ``What Community Banks Are Saying--A Review of Four
Community Banks' Small Multifamily Lending Programs,'' Community
Developments Investments (May 2015), Office of the Comptroller of
the Currency: http://www2.occ.gov/publications/publications-by-type/other-publications-reports/cdi-newsletter/small-multifamily-rental-spring-2015/small-multifamily-rental-ezine-article-5-community.html.
\46\ The final rule also makes a number of conforming changes
throughout part 1282 to reflect the addition of this new small
multifamily subgoal.
---------------------------------------------------------------------------

The applicable statutory factors, comments received, and analysis
supporting these benchmark levels are discussed below.

B. Factors Considered in Setting the Small Multifamily Housing Subgoal
Benchmark Levels

The Safety and Soundness Act provides that the Enterprises must
report to FHFA on their purchases of mortgages on small multifamily
properties with units affordable to low-income families, which may be
defined as multifamily properties with 5 to 50 units (as such numbers
may be adjusted by FHFA), or as mortgages of up to $5 million (as such
amount may be adjusted by FHFA).\47\ These purchases (based on units)
are included in the quarterly and annual activities reports published
by the Enterprises. The Safety and Soundness Act further provides that
FHFA may, by regulation, establish additional requirements related to
such units.\48\ The statutory language, thus, provides FHFA with
discretion to define small multifamily properties as those containing 5
to 50 units and to include in the rule a low-income families subgoal
for small multifamily properties. FHFA has not established a subgoal
for affordable small multifamily properties in previous rules.
---------------------------------------------------------------------------

\47\ 12 U.S.C. 4563(a)(3).
\48\ Id.
---------------------------------------------------------------------------

The Safety and Soundness Act requires FHFA to consider the same six
factors in setting a low-income housing subgoal for small multifamily
properties as are considered in setting the multifamily low-income and
very low-income housing goals:
1. National multifamily mortgage credit needs;
2. Past performance of the Enterprises;
3. Multifamily mortgage market size;
4. Ability to lead the market;
5. Availability of public subsidies; and
6. The need to maintain the sound financial condition of the
Enterprises.\49\
---------------------------------------------------------------------------

\49\ 12 U.S.C. 4563(a)(4).
---------------------------------------------------------------------------

FHFA has considered each of these six factors in setting the
benchmark levels for the low-income housing subgoal for small
multifamily properties, as further discussed below.

C. Analysis of Considerations in Setting the Small Multifamily Housing
Subgoal Benchmark Levels

1. Size of the Small Multifamily Mortgage Market (Factor 3)
Limited data is available on the overall size of the market for
mortgages on small multifamily properties. Market data is generally
reported based on loan balances rather than by property size, which
necessitates using loan balances

[[Page 53417]]

to estimate the size of the market for smaller properties with 5 to 50
units. Although using loan balances between $1 million and $3 million
will include some smaller balance loans on larger properties and will
exclude some larger loans on smaller properties, it can provide a
reasonable estimate of the size of the mortgage market for properties
with 5 to 50 units.
According to data from the Mortgage Bankers Association, the volume
of multifamily loans with balances from $1 million to $3 million
originated in 2006 and 2007 was just over $34 billion each year. These
volumes declined significantly in 2008 through 2010, to as low as $8
billion in 2009, but have increased steadily since 2010, reaching $34
billion again in 2012, representing almost 25 percent of all
multifamily loans by loan volume originated in 2012.
These trends in origination volumes have followed a similar pattern
to those for the overall multifamily mortgage market, where volumes
increased starting in 2014 and are expected to continue to increase
through 2017 for both the overall market and for the segment consisting
of loans with balances between $1 million and $3 million.
2. National Multifamily Mortgage Credit Needs (Factor 1)
Small multifamily properties have different operating and ownership
characteristics than larger properties and as a result have different
financing needs.\50\ Small multifamily properties are more likely to be
owned by an individual or small investor and less likely to be managed
by a third party property management firm. As a result, these
properties are more likely to have informal documentation of the
property's financial and other operating records, which can make it
more difficult for property owners to obtain financing from some
sources, including from the Enterprises.
---------------------------------------------------------------------------

\50\ U.S. Census Bureau, ``2011 American Community Survey.''
---------------------------------------------------------------------------

Small multifamily properties also are often older than larger
properties, have fewer, if any, amenities, and tend to have more
affordable rents. As a result, small multifamily properties are likely
to generate less revenue per unit than larger properties and support
less leverage. While these factors make small multifamily properties an
important source of affordable rental housing, they can also make
financing more difficult to obtain. However, FHFA does not have any
data showing that small multifamily property owners' financing needs
are not currently being met or that there are liquidity gaps in this
segment of the market.
3. Past Performance of Enterprises (Factor 2)
The Enterprises have played a relatively limited role in supporting
financing for small multifamily properties, a role that is
significantly smaller than their role in the multifamily market
overall. In fact, small multifamily properties accounted for less than
three percent of the total multifamily units financed by Fannie Mae in
2013, and less than one percent of the total multifamily units financed
by Freddie Mac, even though the total small multifamily market
comprises approximately 25 percent to one-third of the overall
multifamily market.
While it appears that, currently, the small multifamily property
finance sector has ample liquidity, primarily from community and larger
banks, and that property owners' financing needs are largely being met,
the Enterprises' loan products provide borrowers the option of longer,
fixed rate loan terms and lower financing costs than other sources of
financing, which are important features to some small property owners.
Fixed rate financing provides borrowers with a predictable monthly
mortgage payment for a longer period, as compared to alternatives such
as adjustable rate mortgages or short-term loans with balloon payments,
and can lock in lower, predictable mortgage costs that may result in
less pressure to raise rents for low-income tenants.
Fannie Mae's purchases of mortgages financing low-income units in
small multifamily properties were significantly greater in the years
before the mortgage crisis than in subsequent years. Fannie Mae
financed at least 40,000 low-income units in small multifamily
properties each year between 2006 and 2008, peaking at 59,015 units in
2007, with much of this volume generated through loan pool purchases.
Fannie Mae financed 12,552 low-income units in small multifamily
properties in 2010, 13,480 such units in 2011, 16,801 such units in
2012, 13,827 such units in 2013, but only 6,732 such units in 2014.
Freddie Mac has played a much smaller role than Fannie Mae in this
market, financing 459 low-income units in small multifamily properties
in 2010, 691 such units in 2011, 829 such units in 2012, 1,128 such
units in 2013, and 2,076 such units in 2014. Table 9 shows the number
of low-income units in small multifamily properties financed by
mortgages purchased by the Enterprises in 2006-2014.

Table 9--Enterprise Funding of Low-Income Units in Small Multifamily Properties, 2006-14
[``Small multifamily properties'' are those with 5-50 units]
----------------------------------------------------------------------------------------------------------------
Fannie Mae Freddie Mac
-----------------------------------------------------------------------------
Year Low-income Low-income
LI Units Total units (%) LI Units Total units (%)
----------------------------------------------------------------------------------------------------------------
2014.............................. 6,732 11,880 56.7% 2,076 4,659 44.6%
2013.............................. 13,827 21,764 63.5% 1,128 2,375 47.5%
2012.............................. 16,801 26,479 63.5% 829 2,194 37.8%
2011.............................. 13,480 22,382 60.2% 691 2,173 31.8%
2010.............................. 12,552 20,810 60.3% 459 1,978 23.2%
2009.............................. 13,466 21,934 61.4% 528 1,619 32.6%
2008.............................. 43,782 82,706 52.9% 1,879 3,391 55.4%
2007.............................. 59,015 111,221 53.1% 2,147 3,522 61.0%
2006.............................. 40,631 60,174 67.5% 773 1,467 52.7%
----------------------------------------------------------------------------------------------------------------
Source: Funding as reported by the Enterprises for 2014; as calculated by FHFA for 2006-13.``Low-income'' refers
to units affordable to renters with incomes no greater than 80 percent of Area Median Income (AMI), based on
rental proxy.
Note: Figures do not include units financed by the purchase of commercial mortgage-backed securities (CMBS).

[[Page 53418]]

4. Ability of the Enterprises To Lead the Market in Making Small
Multifamily Mortgage Credit Available (Factor 4)
In setting the benchmark level for the low-income housing subgoal
for small multifamily properties, FHFA considered the ability of the
Enterprises to lead the market in making mortgage credit available. As
discussed above, the Enterprises have played a smaller role in the
small multifamily property mortgage market than in the overall market.
The low-income housing subgoal for small multifamily properties will
encourage the Enterprises to increase their participation in this
market segment. It will also assure that the Enterprises and their
lenders maintain an ongoing presence in the small multifamily property
mortgage market so their role could be increased if there is a future
financial crisis and other participating lenders withdraw from the
market. FHFA will continue to assess the impact of Enterprise
participation in the small multifamily property mortgage market and
could adjust the benchmark levels for this subgoal as necessary.
5. Availability of Public Subsidies (Factor 5)
According to Rental Housing Finance Survey data, the availability
of public subsidies for small multifamily properties is primarily
through Section 8 rental assistance vouchers, although the data also
show that small multifamily properties are less likely to contain
subsidized rental units than larger multifamily properties.\51\ As
discussed above, this is at least in part due to the fact that market
rents in small multifamily properties are more likely to be affordable
to low- and moderate-income families without needing to use rental
subsidies.
---------------------------------------------------------------------------

\51\ ``Rental Housing Finance Survey,'' Table 3 (March 27,
2013), http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2013/HUDNo.13-035.
---------------------------------------------------------------------------

6. Need To Maintain Sound Financial Condition of the Enterprises
(Factor 6)
In setting the benchmark level for the low-income housing subgoal
for small multifamily properties, FHFA also considered the importance
of maintaining the Enterprises in sound and solvent financial
condition. The delinquency rates for Fannie Mae's overall multifamily
loan purchases are very low, as are the delinquency rates for the
subset of those loans financing small properties. There is less data
available on the performance of loans on small multifamily properties
held by banks and thrifts, since detailed reporting data is not
available or is combined with reporting on other income-producing
properties. However, there is no evidence to suggest that increasing
the Enterprises' purchases of loans on small multifamily properties
will affect the Enterprises' financial conditions or negatively impact
the performance of their loan portfolios as long as prudent
underwriting judgments about such loans continue to be made.
FHFA will continue to monitor the activities of the Enterprises,
both in FHFA's capacities as safety and soundness regulator and as
conservator. If necessary, FHFA could make appropriate changes in the
benchmark levels for this subgoal to ensure their continued safety and
soundness.
Analysis
The primary benefit of increased purchases of loans on small
multifamily properties by the Enterprises is to provide borrowers the
opportunity to obtain longer-term, fixed rate financing at relatively
low interest rates. Owners of small multifamily properties are more
likely to have an adjustable rate mortgage or short-term loans with
balloon payments than are owners of large properties.\52\ Adjustable
rate mortgages usually have terms ranging from 1 to 5 years, with
frequent rate adjustments based on changes to the LIBOR index, while
balloon mortgages must be paid off or refinanced after a specific time
period, often after five years. Further, during periods of financial
instability, small property owners may be left with few, if any,
sources of mortgage credit. By further addressing this financing need,
the Enterprises would bring to small multifamily property owners the
same benefits they provide to large multifamily property owners: Lower
fixed interest rates, longer loan terms, and continued liquidity during
periods of financial instability.
---------------------------------------------------------------------------

\52\ ``Rental Housing Finance Survey,'' Tables 2b, 2c, 2d and 3
(March 27, 2013), http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2013/HUDNo.13-035.
---------------------------------------------------------------------------

In setting the benchmark levels for the small multifamily property
subgoal, FHFA considered the limited role the Enterprises have played
in this market and the challenges of financing small multifamily
properties, including a lack of standardization in this asset class,
which can make the credit risk of small loans more difficult and time-
consuming to assess. The mortgage origination process can be more
costly, and it may be difficult to include small loans in
securitizations for sale to investors. While small multifamily
properties tend to have more affordable rents than larger properties,
it is less profitable for the Enterprises' lenders to originate and
service small loans. As a result, many small property lenders are banks
that maintain a retail presence in the communities where properties are
located and that can originate small loans for portfolio without
securitizing them.\53\
---------------------------------------------------------------------------

\53\ See Fannie Mae, ``Fannie Mae's Role in the Small
Multifamily Loan Market'' (First Quarter 2011), https://www.fanniemae.com/content/fact_sheet/wpmfloanmkt.pdf.
---------------------------------------------------------------------------

The challenges of supporting mortgage lending for small multifamily
properties are even greater for properties with 24 or fewer units than
for properties with 25 to 50 units. While the subgoal includes all
properties with 5 to 50 units, FHFA expects that most Enterprise
purchases of mortgages on small multifamily properties will be for
properties with 25 to 50 units. The 2012 Rental Housing Finance Survey
provides information on the characteristics of multifamily properties
that have 5 to 24 units and properties that have 25 to 49 units.\54\
Multifamily properties with 25 to 49 units, unlike 5 to 24 unit
properties, have operating characteristics that are similar to those of
50+ unit properties. For example, 25 to 49 unit properties and 50+ unit
properties are more likely to be operated by a third party property
management firm, have a mortgage, and be newer than 5 to 24 unit
properties. The Enterprises should be able to provide additional
liquidity to the 25 to 50 unit properties in light of the similarities
of this property group to larger multifamily properties. In fact, data
provided by Fannie Mae show that about 73 percent of all small
multifamily units it financed in 2013 were in 25 to 50 unit properties.
---------------------------------------------------------------------------

\54\ ``Rental Housing Finance Survey'' (2012), http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2013/HUDNo.13-035. Although the
Rental Housing Finance Survey data do not match FHFA's definition of
small multifamily properties precisely (the data use 5 to 49 units
instead of 5 to 50 units), the difference is not material.
---------------------------------------------------------------------------

For both Fannie Mae and Freddie Mac, the benchmark levels in the
final rule for this subgoal are 6,000 low-income units for 2015, 8,000
such units for 2016, and 10,000 such units for 2017. These benchmark
levels are generally lower than the levels in the proposed rule for
Freddie Mac and substantially lower than the proposed benchmark levels
for Fannie Mae.
By setting relatively low benchmark levels initially in the final
rule, FHFA will have an opportunity to assess the impact of the new
subgoal. For example, if there is unmet demand for alternative lending
products, it is possible that

[[Page 53419]]

additional support from the Enterprises could result in a wider array
of long-term, fixed rate financing options for small multifamily
property borrowers, with better mortgage terms (such as 10-year fixed
rate loans) and lower financing costs than other sources of financing.
These savings would lock in lower borrowing expenses for a multi-year
period and may result in lower and more stable rents for low-income
tenants. On the other hand, if the current market for lending to small
multifamily properties is providing adequate long-term, fixed rate
financing options for small multifamily property owners and investors,
it is possible that the Enterprises would simply be competing on the
same terms with existing sources of liquidity for small multifamily
properties.
In addition, the Enterprises will be poised to quickly expand their
financing activities in the event of a future financial crisis and a
withdrawal from this market by other lending sources, such as
commercial banks. Without having already established an ongoing market
presence in this segment, including engaging the Enterprises' lender
base in offering this financing, the Enterprises' programs would be
unable to expand quickly when needed.
Comments on Proposed Rule
Most commenters on the proposed new small multifamily subgoal
supported establishment of the subgoal. A trade association commenter
noted that small multifamily properties play a key role in efforts to
provide affordable housing in rural and other less densely populated
areas, but that it is often difficult for developers to secure
financing for such properties. Comments from a trade association and
from policy advocacy groups urged FHFA to monitor developments in the
small multifamily market and consider increasing the benchmark levels
if market dynamics and the Enterprises' activities and capabilities
justify such an increase. The commenters stated that the new subgoal
will push the Enterprises to further innovate their approaches to the
small multifamily market. The trade association commenter stated that
the new subgoal would be an important step toward improving access to
affordable, fixed rate financing, which the commenter stated is an
urgent need for small multifamily units. Freddie Mac also supported
establishment of the subgoal.
A trade association commenter stated that the proposed benchmark
levels for the subgoal are high relative to the recent activity of the
Enterprises in the small multifamily property market and other capital
sources active in the market. The commenter cautioned that if the
benchmark levels pressure the Enterprises to be overly aggressive in
competing in the small multifamily market, it could result in a shift
toward greater government-sponsored financing in this market, rather
than promoting liquidity in other markets with substantial scarcity of
capital.
A number of commenters suggested that the benchmark levels should
increase more gradually from year to year. A trade association
commenter noted that the Enterprises, especially Freddie Mac, may need
more time to ramp up their small multifamily mortgage programs and that
FHFA should consider this in setting the benchmark levels.
Another trade association commenter recommended increasing the
proposed benchmark levels in order to promote readily available,
consistently-priced, long-term credit. The commenter noted that the
proposed levels are a relatively small percentage of the Enterprises'
total low-income units. The commenter cited the lack of a functioning
secondary market for 5 to 50 unit properties and that nearly three-
fourths of small rental properties are affordable to very low-income
households without government assistance.
A comment from an academic stated that more research is needed
before FHFA makes a decision on establishing a small multifamily low-
income subgoal. The comment noted that mortgages on small multifamily
properties have significantly higher origination costs compared to
large properties, since fixed origination costs are spread over fewer
units. The comment stated that it is more efficient for the Enterprises
to finance large properties than small properties.
Fannie Mae recommended that FHFA either delay implementation of the
small multifamily subgoal to conduct further inquiry and analysis or
significantly reduce the proposed benchmark level. Fannie Mae stated
that existing data and information are insufficient to establish
appropriate benchmark levels. Fannie Mae stated that it has been a
leader in financing 5 to 50 unit small properties, notwithstanding the
challenges inherent in such financings. Fannie Mae noted, however, that
given the challenges with the data, it is difficult for it to fully
evaluate the proposed subgoal benchmark levels, stating that the
proposed level of 20,000 units for 2015 is likely to be 40 to 50
percent higher than Fannie Mae's own projections for 2015 based on
current production.
Fannie Mae commented that it did not believe it would be able to
meet the proposed benchmark levels solely through its Delegated
Underwriting and Servicing (DUS) flow business. In addition, Fannie Mae
stated that it is unclear whether the proposed benchmark levels could
be met without re-entering the pools purchase business, which involves
acquisition of an aggregation of seasoned permanent mortgages on
multifamily rental properties from another lender. Fannie Mae stated
that it made such pool acquisitions most recently in 2006-2008, but has
not engaged in these transactions since then.
A trade association commenter expressed concerns over the impact of
more Enterprise competition in the small multifamily market on smaller
lenders. The commenter stated that small lenders may not be able to
compete on price given the lower borrowing costs for the Enterprises.
In addition, the Enterprises only make non-recourse loans, while small
lenders almost always require recourse.
FHFA Response
Regardless of the level of support for this market segment from the
secondary market, FHFA does not have any recent evidence of illiquidity
or a lack of financing availability in the small multifamily property
segment. Further, in spite of the limited empirical data that is
currently available about the small multifamily property market, FHFA
has determined that the data is sufficient for it to assess the
statutory factors used to determine the benchmark levels and has set
the benchmark levels in the final rule primarily based on the
Enterprises' past and current histories of serving this market segment.
FHFA realizes that both Enterprises, and especially Freddie Mac,
have limited experience in purchasing loans on small multifamily
properties. The final rule establishes lower benchmark levels for
Fannie Mae than the levels in the proposed rule due to the significant
drop in small multifamily units Fannie Mae financed in 2014 compared to
the levels it financed over previous years, and due to an apparent
abundance of capital sources serving this segment of the multifamily
market. These final lower benchmark levels should be achievable by
Fannie Mae without needing to re-enter the pool purchase business.
Consistent with the other multifamily benchmark levels set in this
final rule, since Fannie Mae and Freddie Mac are expected to have the
same loan volume during the three-year goals period, Fannie Mae will be
expected to

[[Page 53420]]

purchase the same volume of loans on small multifamily properties as
does Freddie Mac, with both Enterprises being held to the same
benchmark levels during that time.
The benchmark levels for Freddie Mac in the final rule are modest
in volume due to Freddie Mac's limited experience in purchasing loans
on small multifamily properties, but increase each year of the three-
year goals period commensurate with Freddie Mac's projected increase in
loan volume to this market segment.
As discussed above, while it appears that currently the small
multifamily property finance sector has ample liquidity, primarily from
community and larger banks, and that small multifamily property owners'
financing needs are largely being met, the Enterprises' loan products
could provide small multifamily property borrowers the option of
longer, fixed rate loan terms and lower financing costs than other
sources of financing.
FHFA also believes that,_ in light of the subgoal's relatively low
benchmark levels in the final rule, the Enterprises will not take
significant business away from local banks and thrifts.
A trade association commenter cited challenges facing
implementation of a small multifamily mortgage program. Another trade
association commenter noted high costs and credit risks of small
multifamily lending. Comments from policy advocacy groups and a
mission-oriented housing developer noted some of the risks of small
multifamily lending including: Disparate borrowers; lack of
standardization in underwriting, originating, and servicing, which
makes financing more expensive and limits secondary market
participation; and large fluctuations in property financial
performance. Commenters recommended consideration of these factors in
setting the benchmark levels and close monitoring by FHFA of the
Enterprises' small multifamily mortgage purchases due to these
challenges.
FHFA Response
FHFA has considered the factors pointed out by the commenters but
believes that the Enterprises will be able to effectively manage the
risks and any additional fixed costs associated with purchasing loans
on small multifamily properties, and FHFA will closely monitor the
Enterprises' participation in this market segment.
A trade association commenter expressed concern that the
Enterprises would concentrate their loan purchases on 25 to 49 unit
properties rather than the more numerous and more affordable 5 to 24
unit properties. The commenter noted that existing sources of liquidity
for small multifamily properties, especially properties with fewer than
25 units, are not sufficient to meet the needs of the market and that
the Enterprises could play a much larger role in supporting those
segments of the market. The commenter stated that the Enterprises have
not provided sufficient support for small multifamily properties,
instead focusing on buildings with more than 50 units. The commenter
noted that Fannie Mae has stated that nearly half of its small loan
book of business is concentrated in just two MSAs, New York and Los
Angeles and recommended that FHFA require the Enterprises to issue
annual reports detailing the composition of the Enterprises'
multifamily lending portfolios to show how the Enterprises are meeting
the goals.
FHFA Response
As noted previously, no evidence has been presented of illiquidity
or a lack of financing availability in the small multifamily property
segment for properties with fewer than 25 units.
With respect to the proposed definition of ``small multifamily
property,'' the Safety and Soundness Act provides FHFA with discretion
to define ``small multifamily property'' either in terms of the number
of units in the property or in terms of the size of the loan.\55\ Both
Enterprises commented that the proposed definition of 5-50 units is
different from the definitions used and reported by the Enterprises for
their respective small loan products, both of which are based on the
unpaid principal balance of the loan. Fannie Mae noted that the
Mortgage Bankers Association also uses loan balances. Freddie Mac
recommended that FHFA define ``small multifamily property'' as either
properties with 5 to 50 units or a loan balance of up to $5 million.
Freddie Mac stated that this definition would be consistent with the
Safety and Soundness Act language and would facilitate the use of more
accurate data in market size estimations for purposes of evaluating the
appropriate levels for the small multifamily housing subgoal.
---------------------------------------------------------------------------

\55\ See 12 U.S.C. 4563(a)(3).
---------------------------------------------------------------------------

FHFA Response
FHFA has decided in the final rule not to define ``small
multifamily property'' using loan amount, because some larger
multifamily properties with more than 50 units may obtain low-leverage
financing, meaning the Enterprise loan is small but the property
securing the loan is not. Including smaller loans on larger properties
would tend to overstate the level of support that the Enterprises
provide for small multifamily properties.
Modifications of Multifamily Mortgages
Freddie Mac also recommended that modifications of multifamily
mortgages be treated as mortgage purchases for purposes of the housing
goals. Freddie Mac stated that such modifications mitigate risk and the
adverse impacts of foreclosure, thereby benefiting tenants by
preventing disinvestment, maintaining building services, and helping
avoid destabilizing the surrounding community.
FHFA Response
FHFA agrees that for troubled multifamily properties at risk of
default, loan modifications, which may split a loan into supportable
and cash flow only payments and/or reduce the loan interest rate, are
effective means of avoiding foreclosure and the potentially negative
effects on tenants and communities. Indeed, these risk mitigation tools
are already in wide use by the Enterprises and are their primary tools
to address, stabilize, and resolve troubled multifamily assets and
avoid foreclosure and further losses. However, Freddie Mac did not
offer any reasons why loan modifications should be counted the same as
new loan acquisitions for purposes of providing housing goals credit.
Because simply modifying an existing loan on an existing Enterprise-
financed property that has already been counted towards the housing
goals does not represent a new loan on a property that was not
previously financed, FHFA has determined that there is no reason to
provide housing goals credit for such loan modifications. Although FHFA
counts income-eligible single-family HAMP modifications as refinancing
mortgages for purposes of the single-family housing goals, it began
doing so to encourage the Enterprises to engage fully in that program.
The same rationale is not applicable to modifications of multifamily
mortgages.

IX. Section-by-Section Analysis of Other Changes in Final Rule

The final rule also revises other provisions of the housing goals
regulation, as discussed below.

A. Changes to Definitions--Sec. 1282.1

The final rule makes changes to definitions used in the current
housing goals regulation, including: (1) Definitions related to rent
and utilities; (2) the definition of ``dwelling unit;'' (3)

[[Page 53421]]

technical definition changes; and (4) other changes to definitions. The
changes are discussed below.
1. Definitions Related to Rent and Utilities
Rents are used to determine the affordability of a unit for
purposes of counting under the housing goals. Consistent with the
proposed rule, the final rule consolidates and simplifies several terms
related to rents that are defined separately in the current regulation.
Specifically, the final rule deletes the separate definitions of
``contract rent'' and ``utility allowance,'' with the substance of
those definitions included in a revised definition of ``rent.''
``Rent'' is defined generally in the final rule as the actual rent,
or the average rent by unit size, for a dwelling unit. The rent is to
be determined by the Enterprises based on the total combined rent for
all bedrooms in the dwelling unit including fees or charges for
management and maintenance services and any included utility charges.
Where the rent does not also include all utilities provided to the
unit, then ``rent'' also includes either the actual cost of utilities
not included in the rent or a utility allowance, which is further
discussed below.
Comments on Proposed Rule
Two policy advocacy groups supported clarification of the
definition of ``rent'' as proposed.
Freddie Mac recommended that the definition of ``rent'' be revised
to delete the proposed requirement that rent reflect the total combined
rent for all bedrooms in the dwelling unit because in certain
circumstances, such as student housing, there is a separate lease for
each room in a unit and the combined rent of each room may not be equal
to the rent if all four bedrooms were rented out under one lease. This
aspect of the definition of ``rent'' relates to the more general issue
regarding the definition of ``dwelling unit,'' which is discussed in
more detail below in the context of the definition of ``dwelling
unit.''
FHFA Response
The final rule maintains the proposed requirement that rents for
individual bedrooms in a dwelling unit be combined for purposes of
determining the affordability of the dwelling unit in shared living
arrangements. This requirement mirrors the revised definition of
``dwelling unit'' under the final rule, which generally does not permit
individual bedrooms in a single living space to be treated as separate
units for purposes of the housing goals.
Sources of Information for Determining Utility Allowances
The final rule expands the sources of information that may be used
by an Enterprise for determining the utility allowance. Specifically,
consistent with the proposed rule, the final rule allows an Enterprise
to use the utility allowance established by a state or local housing
finance agency that is used in determining the affordability of low-
income housing tax credit (LIHTC) properties for the area where the
property is located.
The current regulation requires the Enterprises to take into
account the cost of utilities for rental units in determining
affordability for purposes of the housing goals. The definition of
``rent'' provides that if the rent includes all utilities, the
Enterprises must use that rent to determine affordability. If the rent
does not include all utilities, then the Enterprises may use either:
(a) Data on the actual cost of utilities paid by individual tenants but
not included in the rent; or (b) a ``utility allowance.'' The current
definition of ``utility allowance'' allows the use of either a
nationwide average utility allowance provided by FHFA or the utility
allowances issued by the U.S. Department of Housing and Urban
Development (HUD), the Enterprises' former mission regulator, under the
Section 8 Program for the area where the property is located. The
expanded definition of ``utility allowance'' in the final rule will
allow the Enterprises to use the same utility allowance data that is
used in the administration of the LIHTC program and will facilitate
alignment in determining affordability for such units.
Comments on Proposed Rule
A comment, signed by several members of Congress, stated that the
proposed new source for calculating the utility allowance is acceptable
and appropriate.
Freddie Mac recommended that the Enterprises also be permitted to
use a fixed 8 percent of the rent as a proxy for utility costs. Freddie
Mac stated that while the alternatives in the proposed rule for
calculating utility allowances would more accurately reflect actual
utility costs, it would be an administrative burden to implement.
Freddie Mac also provided data on average operating expenses and
utilities from the ``2013 Survey of Operating Income and Expense in
Rental Apartment Communities.'' Based on that data, Freddie Mac
suggested that the Enterprises be permitted to calculate the utility
allowance as a fixed 8 percent of the rent.
FHFA Response
In order to provide additional flexibility in determining accurate
rent levels that better reflect local and regional differences in
utility costs, the final rule expands the permitted ways to determine
the utility allowance as discussed above. The Enterprises will continue
to have the option to use the nationwide average utility allowance
provided by FHFA or the utility allowance established under the HUD
Section 8 Program.
While the final rule does not adopt the alternative measure for
determining utility allowances proposed by Freddie Mac, FHFA notes that
the proposed and final rule language regarding the nationwide average
utility allowances does not specify the sole method by which FHFA will
determine such allowances. The current nationwide average utility
allowances are fixed numbers based on data from the American Housing
Survey, but the regulation is sufficiently broad to allow FHFA to adopt
the measure proposed by Freddie Mac at a future date, without changing
the regulation itself, if it chooses to do so.
Nationwide Average Utility Allowances
In the Notice accompanying the proposed rule, FHFA noted that it
planned to issue updated figures for the nationwide average utility
allowances as more recent American Housing Survey data becomes
available. FHFA is providing updated figures to the Enterprises by
letters, which will be posted on FHFA's Web site. These revised
nationwide average utility allowances are based on the most recent
American Housing Survey data available, as follows:

[[Page 53422]]

----------------------------------------------------------------------------------------------------------------
Number of Bedrooms
Type of property ---------------------------------------------------------------
Efficiency 1 2 3 or more
----------------------------------------------------------------------------------------------------------------
Multifamily..................................... $50 $77 $110 $149
Single-family................................... $70 $111 $161 $219
----------------------------------------------------------------------------------------------------------------

Definition of ``Rental Unit''
Consistent with the proposed rule, the final rule streamlines the
current regulation by deleting the term ``rental housing'' in Sec.
1282.1, and replacing this term in Sec. 1282.17 with the term ``rental
units,'' the only other place in the regulation where the term ``rental
housing'' appears.
Definition of ``Utilities''
Consistent with the proposed rule, the final rule revises the
existing definition of ``utilities'' to expand the list of excluded
services. The current regulation excludes charges for cable and
telephone services from the definition of ``utilities.'' The revised
definition also excludes all subscription-based television, telephone
and internet services (regardless of whether provided by a cable
provider or other provider).
2. Definition of ``Dwelling Unit''--Shared Living Arrangements
The final rule revises the current definition of ``dwelling unit''
by limiting the definition to include only units with plumbing and
kitchen facilities. Section 1282.1 of the current regulation defines
``dwelling unit'' as ``a room or unified combination of rooms intended
for use, in whole or in part, as a dwelling by one or more persons, and
includes a dwelling unit in a single-family property, multifamily
property, or other residential or mixed-use property.'' The proposed
rule would have added a provision limiting the definition to units with
complete plumbing and kitchen facilities. After considering the
comments on the proposed change, the final rule adopts this limitation
but omits the word ``complete,'' to ensure that FHFA retains
flexibility, if necessary, to provide more specific guidance on
specific classes of transactions in the future.
Limiting the definition of ``dwelling unit'' to units with plumbing
and kitchen facilities is intended to address shared living
arrangements where separate individuals rent separate bedrooms but
share common areas and cooking and sanitary facilities. The final rule
does this by providing that a unified combination of rooms will be
treated as a single dwelling unit, regardless of whether there are
individual leases for the separate bedrooms in the unit, if the rooms
share plumbing and kitchen facilities. FHFA may provide additional
guidance regarding whether particular types of housing should be
counted as separate dwelling units despite the limitation added by this
final rule.
Comments on Proposed Rule
One comment letter, signed by several members of Congress,
supported the proposed change to the definition of ``dwelling unit,''
stating that it makes sense to count a unit as a single unit no matter
how many bedrooms it has.
Fannie Mae agreed with the new definition but recommended that
seniors housing units that lack a full kitchen (e.g., kitchenettes) or
have no cooking facilities in the units due to safety concerns, such as
in seniors housing Alzheimer's units, be considered ``dwelling units''
for housing goals purposes.
Freddie Mac opposed the proposed revision to the definition of
``dwelling unit,'' stating that the change may restrict the
availability of safe, affordable housing for seniors and students, and
could impact single-room occupancy (SRO) living space. Freddie Mac
noted that shared living arrangements represent an important segment of
the affordable housing market and are often used by unrelated persons
who live together due to a lack of affordable housing alternatives.
Freddie Mac also noted that the availability of affordable housing for
students is becoming increasingly important as the costs of higher
education continue to rise. Freddie Mac recommended that a bedroom
rented to a tenant pursuant to a separate and independent lease be
counted as a separate dwelling unit for purposes of the housing goals.
Freddie Mac also suggested alternative criteria that could be used to
limit potential ``over-counting'' of individual rooms in a single
dwelling: Whether there are separate and independent leases; whether a
separate rent amount is identifiable and reported; and/or whether each
bedroom has a separate entrance and lock.
FHFA Response
FHFA has decided to adopt the revised definition of ``dwelling
unit'' as proposed, with one change as described above. Under the final
rule, bedrooms sharing the same plumbing and kitchen facilities will be
treated as a single dwelling unit for housing goals counting purposes.
For example, four individuals living in a shared living arrangement
with separate bedrooms but with shared bathrooms and kitchen would be
considered a single dwelling unit with four bedrooms rather than four
efficiency units. For purposes of determining affordability under the
housing goals, the rent for the dwelling unit would be the aggregate of
all rent payments made by all of the individuals residing in the
dwelling unit, even if each individual who resides in a bedroom has
entered into a separate lease agreement or if the bedrooms have
separate locks.
This change will also clarify the appropriate calculation of rent
for dwelling units in student housing or other shared living
arrangements in a single dwelling unit. Potential over-counting of such
shared units under the housing goals can occur when the rent for each
bedroom is calculated as if it were a separate unit. Thus, four
bedrooms renting for $500 each could be considered affordable for
housing goals purposes if they were considered efficiency units, but
may not be affordable if they were considered a single four-bedroom
unit renting for $2,000. To avoid potential over-counting of the
Enterprises' housing goals performance, FHFA has decided to adopt the
revised definition as proposed, except that the final rule omits the
word ``complete.''
FHFA recognizes that the Enterprises purchase mortgages secured by
multifamily properties with a variety of different purposes and
configurations. While the definition of ``dwelling unit'' will
generally prevent an Enterprise from receiving credit under the housing
goals for individual bedrooms that share the same plumbing and kitchen
facilities, FHFA retains authority under Sec. 1282.16(e) to determine
how any class of transactions will be treated for purposes of the
housing goals. FHFA may exercise this authority in the future to permit
housing goals credit for particular types of housing, such as certain
types of seniors housing or group housing for people with special
needs, which may lack separate plumbing or kitchen facilities but that

[[Page 53423]]

otherwise meet the criteria to be considered a separate dwelling unit.
FHFA will provide any such guidance to the Enterprises, and post such
guidance on FHFA's public Web site, in writing in accordance with the
procedures in Sec. 1282.16(e).
3. Technical Definition Changes
Consistent with the proposed rule, the final rule makes a number of
technical changes to the existing definitions in Sec. 1282.1.
Specifically, the final rule removes two definitions that are not used
anywhere in the current regulation, other than the definitions
themselves: ``HMDA'' and ``working day.'' The final rule also revises
the definition of ``families in low-income areas'' to remove the
reference to ``block numbering areas,'' which conforms the words used
in the definition to the terminology currently used by the U.S. Census
Bureau. In addition, the final rule revises the existing definition of
``HOEPA mortgage'' to reflect renumbering in the statute cited in the
definition.
Comments on Proposed Rule
FHFA did not receive any comments on these technical revisions, and
the final rule adopts the changes as proposed.
4. Other Changes to Definitions
Other definitional changes in Sec. 1282.1 are discussed below in
the corresponding section dealing with the substantive provisions to
which the definitions relate. These changes include: (i) Deleting the
definitions of ``mortgage with unacceptable terms or conditions'' and
``rental housing;'' and (ii) adding a definition for ``efficiency.''
The definition of ``small multifamily property'' was discussed above
under the section on the new small multifamily property subgoal.

B. General Counting Requirements--Sec. 1282.15

The final rule revises a number of provisions related to counting
single-family owner-occupied units and rental units under the housing
goals. Some provisions are being revised or eliminated because they are
no longer necessary based on the affordability information that is
available to the Enterprises. Other provisions are being amended or
added in order to provide greater clarity and to minimize cases where a
unit may be treated as affordable when it is not in fact affordable.
1. Use of Area Median Income at Single-Family Mortgage Loan Origination
Date
Consistent with the proposed rule, the final rule revises current
Sec. 1282.15(b)(1) to provide that, for purposes of determining
whether single-family mortgage loan purchases may be counted under a
housing goal, the income of the mortgagors shall be determined based on
the area median income as of the date the mortgage loan was originated,
rather than as of the date of the mortgage loan application.
The data that is reported to the Enterprises typically includes an
origination date, which is used by the Enterprises for purposes of
determining affordability. This change conforms the regulatory language
to the existing practice of the Enterprises.
Comments on Proposed Rule
FHFA did not receive any comments on this change, and the final
rule adopts the change as proposed.
2. Removal of Affordability Estimation Provision for Mortgages on
Single-Family Owner-Occupied Units--Sec. 1282.15(b)
Consistent with the proposed rule, the final rule revises current
Sec. 1282.15(b) by removing the affordability estimation provisions in
current paragraphs (b)(2) and (b)(3) for mortgages on single-family
owner-occupied units where the borrower's income information is not
available, and provides in Sec. 1282.15(b)(2) that such mortgages may
not be counted in the numerator but will still be included in the
denominator for any of the housing goals.\56\ This change in the
treatment of single-family mortgages with missing borrower income
information is similar to the treatment of HOEPA loans under Sec.
1282.16(d) and will continue to provide an incentive for the
Enterprises to maintain their high rate of income data collection.
---------------------------------------------------------------------------

\56\ The denominator includes the Enterprise's total purchases
of mortgages on owner-occupied single-family properties and is
measured separately for home purchase mortgages and for refinancing
mortgages. The numerator includes only those purchases of mortgages
that actually meet the criteria for a particular housing goal.
---------------------------------------------------------------------------

The current regulation allows the Enterprises to estimate
affordability for single-family owner-occupied mortgages by multiplying
the number of mortgage purchases with missing borrower income
information in each census tract by the percentage of all single-family
owner-occupied mortgage originations in the respective tracts that
would count toward achievement of each housing goal, as determined by
FHFA based on the most recent HMDA data available. The current
regulation further provides that the estimation methodology may be used
up to a nationwide maximum calculated by multiplying, for each census
tract, the percentage of all single-family owner-occupied mortgage
originations with missing borrower incomes (as determined by FHFA based
on the most recent HMDA data available for home purchase and
refinancing mortgages, respectively) by the number of Enterprise
mortgage purchases secured by single-family owner-occupied properties
for each census tract, summed up over all census tracts.
Comments on Proposed Rule
A housing advocacy group commenter agreed that mortgages with
missing income data should not be included in the numerator for housing
goals counting purposes. The final rule adopts the change as proposed.
3. Determination of Affordability of Rental Units Based on Rents, Not
Incomes--Sec. 1282.15(d)(1)
Consistent with the proposed rule, the final rule revises current
Sec. 1282.15(d) to provide that, in determining whether rental units
count under the housing goals, the affordability of a unit shall be
determined based solely on the rent for the unit.
The current regulation provides that the affordability of rental
units is to be determined based on the tenant's actual income, if
available, and based on rents if the tenant's income is not available.
Because lenders generally do not collect income information on tenants,
the Enterprises use rents in all cases (except for certain seniors
housing units) to determine affordability for purposes of the housing
goals. The revision in the final rule to use rents, thus, conforms the
counting rule to the Enterprises' actual practices and recognizes the
general unavailability of actual tenant income data. The revision also
more closely aligns the regulation's language with section 1333(c) of
the Safety and Soundness Act, which provides that FHFA shall evaluate
the performance of the Enterprises under the multifamily housing goals
``based on whether the rent levels are affordable.'' \57\
---------------------------------------------------------------------------

\57\ 12 U.S.C. 4563(c).
---------------------------------------------------------------------------

Section 1333(c) provides that to be counted as an affordable rent
for purposes of the housing goals, a unit's rent may not exceed 30
percent of the maximum income level of very low- or low-income
families, adjusted for the number of bedrooms in a unit.\58\ Section
1282.19 of the current regulation sets forth tables containing the
applicable

[[Page 53424]]

affordable amounts for each of the income categories targeted under the
housing goals, adjusted for the number of bedrooms in a unit.
---------------------------------------------------------------------------

\58\ Id.
---------------------------------------------------------------------------

Comments on Proposed Rule
FHFA did not receive any comments on this change, and the final
rule adopts the change as proposed.
4. Reliance on Other Housing Program Affordability Restrictions for
Determining Affordability of Rental Units--Sec. 1282.15(d)(2)
Consistent with the proposed rule, Sec. 1282.15(d)(2) of the final
rule adopts a new counting rule for rental units that are subject to
affordability restrictions of local, state, or federal affordable
housing programs, with a clarification regarding the applicable
affordability restrictions. This provision is intended to ease the
Enterprises' operational compliance requirements for determining
affordability of units that are already required to be affordable under
a separate governmental housing program.
The final rule permits an Enterprise to determine the affordability
of rental units for housing goals purposes using the housing program's
maximum permitted income level for a renter household or the maximum
permitted rent for the units. Although affordability for a multifamily
property is generally determined based solely on rent levels for each
unit, the final rule permits rental units that are subject to
affordability restrictions of local, state, or federal affordable
housing programs to be counted assuming that the program restricts
affordability based on tenant income or rent levels. The final rule
clarifies that in order for a unit to be counted as affordable for
purposes of the housing goals under a housing program with eligibility
limits on income, the maximum income level for the unit under the
program must be no greater than the maximum income level for the
applicable family or unit size under each goal as set forth in Sec.
1282.17 or Sec. 1282.18, as appropriate. For a housing program with
eligibility limits on rent, the maximum rent level for the unit under
the program must be no greater than the maximum rent level for each
goal, adjusted for unit size as set forth in Sec. 1282.19.
If a property includes both units with affordability restrictions
and units that are not restricted but that would nonetheless qualify as
affordable, an Enterprise may only rely on the program restriction for
purposes of determining affordability for the actual units that are
restricted, with the affordability of the remainder of the units
determined based on rent data.
An example of an applicable affordable housing program is the LIHTC
program. LIHTC units restricted for occupancy by tenants with incomes
at 50 percent of area median income and rents not exceeding 30 percent
of tenant income, adjusted for bedroom count and household size, will
receive credit toward the multifamily very low-income housing subgoal,
and the Enterprises will not have to separately determine affordability
for such units.
The Notice accompanying the proposed rule stated that the
Enterprises must also confirm that the LIHTC or other monitoring entity
that exercises compliance oversight over the property has determined
that the units are in compliance with the program's affordability
restrictions as to maximum tenant incomes or maximum permitted rents
charged. FHFA expects the Enterprises to have appropriate procedures in
place to ensure the accuracy and reliability of the information they
report to FHFA regarding whether units meet the necessary criteria for
counting under the housing goals. Therefore, the final rule does not
include a specific requirement for the Enterprises to document
compliance with the housing programs' affordability restrictions on
maximum tenant incomes or rents. Confirming compliance with the
affordability restrictions is a standard due diligence requirement
imposed on lenders who are authorized to participate in the
Enterprises' loan programs. In addition, LIHTC properties rarely go out
of compliance with their affordability restrictions because of the
potentially adverse tax consequences to investors. LIHTC properties are
also subject to ongoing compliance monitoring by designated oversight
agencies and other participants in the transaction.
Comments on Proposed Rule
Several housing advocacy groups, Fannie Mae and Freddie Mac
supported the proposed new counting rule for properties with
affordability restrictions on the basis that compliance with the
restrictions is already monitored by a designated public agency and it
would be redundant for the Enterprises to independently conduct such
compliance monitoring themselves.
Fannie Mae recommended expanding the proposal to include limited
equity cooperatives (where unit affordability is tied to limitations on
the amount of equity shareholders may retain when they sell their
cooperative shares) when the cooperative units are subject to rent and
income restrictions that meet the affordability targets for low-income
and very low-income families if the units are rented out. Fannie Mae
noted that such properties are generally valued and the blanket loan is
sized using unrestricted market rents. As a result, limited equity
cooperatives that are subject to rent restrictions are generally not
counted as affordable for housing goals purposes.
Freddie Mac recommended that the proposal be revised to allow an
Enterprise to rely on a property owner's certification of compliance
with the applicable income and rent restrictions, rather than having to
obtain a certification from the housing program's monitoring entity.
Freddie Mac stated that most housing programs that would qualify under
the proposal rely on a property owner's certification of compliance.
A trade association commenter opposed the proposal, stating that it
would undermine secondary market support for affordable housing by
favoring financing of subsidized multifamily properties over affordable
non-subsidized multifamily properties.
FHFA Response
Regarding counting rules for rental units in limited equity
cooperatives, FHFA has determined that, because of the wide variance
among cooperative bylaws that govern the types of rent and occupancy
restrictions (if any) that may be imposed on cooperative owners who
rent out their units, the counting rule described in this section will
not apply to limited equity cooperatives. Instead, the Enterprises will
follow the rule's requirements for determining the affordability of a
particular cooperative unit's rent. If a limited equity cooperative's
bylaws limit the rent and income of tenants who may occupy a
cooperative unit at levels that would qualify for housing goals credit,
then that can be recognized by the lender or the Enterprise when
establishing the comparable rent for the unit, thereby receiving
housing goals credit.
Regarding verification of compliance with regulatory agreements, as
noted above, FHFA expects the Enterprises to have appropriate
procedures in place to ensure the accuracy and reliability of the
information they report to FHFA regarding whether units meet the
necessary criteria for counting under the housing goals. FHFA agrees
that certifications from property owners would be sufficient for
purposes of verifying compliance with rent and income restrictions, but
it is not necessary to include a specific provision regarding
documentation in the regulation itself.
Regarding favoring financing for subsidized over affordable non-
subsidized units, FHFA does not believe

[[Page 53425]]

that allowing the Enterprises to rely on the income and rent compliance
determinations of other affordable housing programs would necessarily
mean that the Enterprises would, therefore, decide to purchase more
loans on properties subsidized by such programs rather than purchasing
loans on properties with similarly affordable market rents.
Furthermore, the number of subsidized units available to finance is
limited by the availability of housing subsidies, whereas the number of
affordable market rate units is only limited by market conditions.
5. Counting Unoccupied Units--Sec. 1282.15(d)(3)
Consistent with the proposed rule, the final rule consolidates the
current provisions related to unoccupied units, including model units
and rental offices, into a single provision located at Sec.
1282.15(d)(3). As under the current rule, Sec. 1282.15(d)(3) of the
final rule provides that a unit in a multifamily property that is
unoccupied because it is being used as a model unit or rental office
may be counted for purposes of the multifamily housing goals and
subgoals only if an Enterprise determines that the number of such units
is reasonable and minimal considering the size of the multifamily
property. The method for determining affordability for such units is
found in the definition of ``contract rent'' under Sec. 1282.1 of the
current regulation.
Consistent with the current regulation, Sec. 1282.15(d)(3) of the
final rule also provides that anticipated rent for unoccupied units may
be the market rent for similar units in the neighborhood as determined
by the lender or appraiser for underwriting purposes.
Comments on Proposed Rule
FHFA did not receive any comments on the proposed changes, and the
final rule adopts the changes as proposed.
6. Missing Bedroom Data for Rental Units--Sec. 1282.15(e)(1)
Consistent with the proposed rule, the final rule revises Sec.
1282.15(e)(1) to provide that a rental unit for which the number of
bedrooms is missing shall be considered an efficiency unit for purposes
of calculating unit affordability. This provision is moved here from
current Sec. 1282.19(f) so that all provisions on missing information
are included in the same section of the regulation, and as a result the
final rule deletes the current Sec. 1282.19(f). Consistent with the
proposed rule, Sec. 1282.1 of the final rule adds a definition for
``efficiency'' to mean a dwelling unit having no separate bedrooms or 0
bedrooms.
Under Sec. 1282.15(d)(1), the affordability of a rental unit is
calculated taking into account adjustment for the unit size under Sec.
1282.19 based on the number of bedrooms in the unit. However, this
adjustment is not possible when data on the number of bedrooms is
unavailable. Because the Enterprise will have in fact purchased a
mortgage secured by the rental unit, consistent with the current
regulation, the final rule allows the unit to count towards the housing
goals if it qualifies for the lowest-rent unit permitted to receive
goals credit under the rule, i.e., as an efficiency.
Comments on Proposed Rule
FHFA did not receive any comments on this change, and the final
rule adopts the change as proposed.
7. Reduction in Cap on Estimating Affordability for Rental Units--Sec.
1282.15(e)(2)
Consistent with the proposed rule, the final rule revises current
Sec. 1282.15(e)(2) to reduce the cap for the number of rental units
for which an Enterprise may estimate the rent from 10 percent to 5
percent of the total number of rental units in properties securing
multifamily mortgages purchased by the Enterprise in the current year.
The final rule does not adopt the proposal to count seniors housing
units where additional services are included in the rent toward the 5
percent cap, so such units will continue to be excluded from the cap as
under their current treatment. The purpose of lowering the estimation
cap to 5 percent is to provide an incentive for the Enterprises to
collect rent information for their multifamily mortgage purchases.
Under the current regulation, an Enterprise is permitted to use
estimated rent for purposes of determining affordability of a rental
unit where both income and rent information are unavailable. The
current regulation allows the Enterprises to estimate affordability by
multiplying the number of rental units with missing affordability
information in each census tract by the percentage of all rental units
in the respective tracts that would count toward achievement of each
goal and subgoal, as determined by FHFA based on the most recent
decennial census. The estimation methodology may currently be used up
to a nationwide maximum of 10 percent of the total number of rental
units in properties securing multifamily mortgages purchased by the
Enterprise in the current year. Rental units in excess of this maximum
percentage cap, and any units for which estimation information is not
available, may not be counted for purposes of the multifamily housing
goal and subgoal. The Enterprises have been permitted to estimate
affordability for seniors housing units where additional services are
included in the rent because of the difficulty of separating out the
housing expenses from the non-housing related services in the rent
amount, and those seniors housing units have been excluded from the
maximum percentage cap.
As discussed above, under the final rule, the Enterprises will
determine the affordability of rental units based on the rents, not on
the income of the tenants. Missing rent data rates for multifamily
mortgages purchased by the Enterprises are generally very low given the
Enterprises' requirements for submission of underwriting and property
level information from their lenders as of the date of mortgage
acquisition. Historically, the Enterprises' affordability estimations
have fallen below 5 percent for units subject to the rent estimation
cap. In 2014, Fannie Mae estimated affordability for 5.5 percent of all
rental units counted toward the multifamily low-income housing goal
(3.8 percent of total acquisitions), but almost all of those units were
either seniors housing units or in cooperative buildings and so were
excluded from the rent estimation cap. Only 0.01 percent of Fannie
Mae's total acquisitions in 2014 were missing data and subject to the
rent estimation cap. Freddie Mac estimated affordability for 7.5
percent of rental units counted toward that goal in 2014 (5.6 percent
of total acquisitions), but only 0.23 percent of its total acquisitions
were subject to the rent estimation cap. In a change from the proposed
rule, and consistent with current practice, FHFA has determined that
seniors housing units where additional services are included in the
rent should continue to be excluded from the affordability estimation
cap because the purpose of the cap is to incentivize the Enterprises to
obtain rent data but that data cannot be obtained for these seniors
housing units because the housing and non-housing expenses are both
included in a single rent payment. In addition, as discussed above, the
final rule now permits the Enterprises to determine affordability based
on the affordability restrictions imposed under other governmental
housing programs, which will eliminate the need to estimate
affordability in those cases and further lower the number of units
counted towards the estimation cap.

[[Page 53426]]

In short, given the very few situations where estimation may be
necessary, and the exclusion of seniors housing units with additional
services included in the rent and subsidized properties with
affordability restrictions from the estimation cap, lowering the cap to
5 percent is unlikely to have an impact on Enterprise performance under
the multifamily goals as neither Enterprise is likely to exceed the
cap. As a result, the final rule reduces the cap for the number of
rental units for which an Enterprise may estimate the rent from 10
percent to 5 percent, as in the proposed rule.
Comments on Proposed Rule
Freddie Mac provided the only comment on this proposal. Freddie Mac
recommended that the cap on estimating affordability for rental units
remain at 10 percent. Freddie Mac stated that two of the other changes
discussed in the proposed rule--counting seniors housing units with
additional services included in the rent towards the cap and providing
goals credit for Enterprise purchases of blanket loans on manufactured
housing communities--would increase the number of rental units for
which estimation is needed, making it more likely that an Enterprise
might reach the cap.
FHFA Response
Separate from and prior to this rulemaking, FHFA has provided
guidance to the Enterprises on the appropriate treatment under the
housing goals for both seniors housing units and blanket loans on
manufactured housing communities. As discussed in more detail in the
appropriate section on each issue, the final rule does not make any
change to the counting rules treatment for either seniors housing units
or blanket loans on manufactured housing communities. As a result,
neither seniors housing units nor blanket loans on manufactured housing
communities will have any impact on the number of rental units for
which estimation is needed.
8. Changes To Reflect U.S. Census Bureau Terminology--Sec.
1282.15(g)(2)
Consistent with the proposed rule, the final rule revises Sec.
1282.15(g)(2) to eliminate outdated terminology used for purposes of
determining split areas in which a dwelling unit is located in
determining area median income for affordability determinations. Due to
changes implemented by the U.S. Census Bureau, it is no longer
necessary to include references to the ``block-group enumeration
district,'' the ``nine-digit zip code,'' or other geographic divisions
partially located in more than one area.
Comments on Proposed Rule
FHFA did not receive any comments on the proposed changes, and the
final rule adopts the changes as proposed.

C. Determining Affordability for Blanket Loans on Cooperative Housing--
Sec. 1282.16(c)(5)

The final rule revises Sec. 1282.16(c)(5) to provide that the
affordability of units securing a blanket loan on a cooperative
property (i.e., a loan that is secured by the entire property) must be
determined solely on the basis of comparable market rents that were
used by the lender or the Enterprise in underwriting the blanket loan
(``underwriting rents''). In response to a comment from Freddie Mac,
the final rule permits an Enterprise to use its own underwriting rents,
a change from the proposed rule which would have only allowed use of
the lender's underwriting rents. If the underwriting rents are not
available for the blanket loan on a cooperative property, the units may
not be counted towards the multifamily housing goals. Determining
affordability for blanket loans on cooperative housing based on the
rent estimation methodology will no longer be permitted. Share loans
used by residents to finance the purchase of a cooperative unit remain
eligible for credit under the single-family housing goals even if the
Enterprise also holds a blanket loan on the same cooperative property
that may be eligible for multifamily housing goals credit.
As discussed above, the final rule revises Sec. 1282.15(d)(1) to
require the Enterprises to use rent levels to determine the
affordability of rental units. In the case of blanket loans on housing
cooperatives, there is no rent data available because all units are
owned by the cooperative in which each unit resident owns shares, which
allows the shareholder to occupy one or more units in the property.
Shareholders pay a monthly fee to cover expenses for common area upkeep
and maintenance and to pay their pro rata share of any blanket loan
payments. In 2013, blanket loans on cooperative housing accounted for
2.7 percent and 1.4 percent of multifamily mortgages purchased by
Fannie Mae and Freddie Mac, respectively.
Because of the absence of rental data for cooperatives, the
Enterprises have used the estimated rent methodology under Sec.
1282.15(e) discussed above to determine whether units in cooperatives
count towards the multifamily housing goals. Under Sec. 1282.15(e),
this methodology permitted the Enterprises to assume that the same
percentage of low- and very low-income affordable rental units (by unit
size) as are located in the census tract where the cooperative property
is located are also present in the cooperative being financed. For
example, if a cooperative property is in a census tract where
multifamily properties average a certain percentage of low- and very
low-income units, then the cooperative property is assumed to have the
same percentage of low- and very low-income affordable units. In some
geographic areas, particularly in certain parts of New York City, the
rent estimation methodology may significantly overstate the number of
low- and very low-income units that are eligible for goals credit in a
specific cooperative property. This is because some census tracts in
these geographic areas have great variations in unit rents due to the
large number of subsidized, rent controlled, and rent stabilized units
that are in close proximity to luxury market rate cooperative and
rental properties. A luxury building in such a census tract could be
determined under the rent estimation methodology to have low- and very
low-income units that it does not actually have simply because the
census tract has a significant number of such units. Due to these
concerns, the final rule provides that the affordability of units in a
cooperative property securing a blanket loan shall be determined solely
on the basis of comparable rents used by the lender or the Enterprise
in underwriting the blanket loan.
Comments on Proposed Rule
Several commenters supported the proposal to require that
comparable rents rather than rent estimation be used to determine
affordability of units in cooperative properties, although the reasons
for their support were not articulated.
Fannie Mae supported the proposal, but also recommended that
blanket loans on cooperative housing be permitted to count towards the
housing goals if the property is a limited equity cooperative subject
to rent restrictions. Fannie Mae stated that the affordability of such
cooperative units should be based on the maximum permitted rent levels
established under the rent restrictions for those units, as imposed by
the cooperative's bylaws.
Freddie Mac opposed the proposal, recommending that the current
rent estimation methodology be retained for determining affordability
for blanket loans on cooperative housing. Freddie Mac stated that while
it is possible that the use of the rent estimation

[[Page 53427]]

methodology might result in overstating the number of low- and very
low-income units in certain census tracts where lower-income
cooperatives are in close proximity to luxury market rate housing, it
questioned whether there is any data indicating that such overstatement
has actually occurred.
Freddie Mac stated that if the proposal is adopted in the final
rule, the rule should clarify that it is permissible for Freddie Mac to
use its own underwriting rents rather than the rents used by the
lenders, for purposes of determining affordability. Freddie Mac stated
that it does not rely on a delegated underwriting model and instead re-
underwrites each multifamily loan that it purchases.
FHFA Response
Regarding counting rules for rental units in limited equity
cooperatives, as discussed in a previous section, FHFA has determined
that, because of the wide variance among limited equity cooperative
bylaws with respect to the types of rent and occupancy restrictions (if
any) that may be imposed on cooperative owners who rent out their
units, the Enterprises should follow their standard practice of
determining the affordability of a specific unit's rent in limited
equity cooperatives.
As to retaining the current rent estimation methodology for
cooperatives, FHFA disagrees with Freddie Mac's comments for the
reasons stated previously in this section.
As to establishing the underwriting rents for cooperative units,
FHFA agrees that relying on an Enterprise's own underwriting rents
should be permissible and has adopted this option in the final rule.

D. Mortgages With Unacceptable Terms or Conditions--Sec. 1282.16(d)

Consistent with the proposed rule, the final rule revises Sec.
1282.16(d), which prohibits the Enterprises from receiving housing
goals credit for purchases of ``mortgages with unacceptable terms or
conditions,'' by eliminating the reference to that term, and amends
Sec. 1282.1 by removing the definition of ``mortgage with unacceptable
terms or conditions.'' The final rule maintains the current prohibition
on receiving housing goals credit for purchases of HOEPA mortgages,
defined as mortgages covered by section 103(bb) of the Home Ownership
and Equity Protection Act (15 U.S.C. 1602(bb)), as implemented by the
Bureau of Consumer Financial Protection (CFPB).
The regulation currently defines ``mortgages with unacceptable
terms or conditions'' to include single-family mortgages with excessive
interest rates or costs, mortgages with certain prepayment penalties,
and mortgages with prepaid credit life insurance. ``Mortgages with
unacceptable terms or conditions'' also include mortgages with terms
contrary to banking regulator guidance on nontraditional and subprime
lending and mortgages originated using practices that do not comply
with fair lending requirements.
Under the current regulation, ``mortgages with unacceptable terms
or conditions'' and ``HOEPA mortgages'' must be included in the
denominator for purposes of the housing goals. However, such mortgages
are excluded from counting in the numerator, regardless of whether the
loans would otherwise qualify. This treatment was intended to create a
disincentive to purchasing such mortgages, by effectively lowering the
goals performance of an Enterprise. In practice, these provisions have
not affected the housing goals performance of the Enterprises because
the Enterprises have purchased very few such mortgages. For example, in
2014, Fannie Mae reported it purchased one mortgage that met the
definition of ``mortgages with unacceptable terms or conditions.''
Freddie Mac did not purchase any such mortgages in 2014.
Comments on Proposed Rule
Several advocacy groups recommended that high-cost loans should
count in both the numerator and denominator for a housing goal because
some of these loans can provide access to credit for underserved
households if properly underwritten and given CFPB protections.
However, the commenters stated that FHFA should monitor these loans
closely to ensure consumers are not being overcharged for mortgages.
A housing advocacy group commenter recommended continuing the
prohibition on ``mortgages with unacceptable terms and conditions.''
The commenter stated that keeping the phrase ``mortgages with
unacceptable terms and conditions'' in the regulation would give FHFA
the flexibility to address any new abusive loan products entering the
market.
FHFA Response
The final rule eliminates the provisions related to ``mortgages
with unacceptable terms or conditions,'' consistent with the proposed
rule. As a result of the Enterprises' own mortgage purchase eligibility
criteria, the Enterprises purchase virtually no mortgages that would be
considered ``mortgages with unacceptable terms and conditions'' under
the current housing goals regulation. Accordingly, the prohibition on
receiving housing goals credit for purchases of such mortgages is not
necessary in the regulation text.
In addition, the housing goals are not the most effective
regulatory tool available for FHFA to discourage purchases of predatory
or otherwise unsuitable mortgages. FHFA has regulatory authority to
directly prohibit purchases by the Enterprises of any types of
mortgages it determines are unsuitable. For example, FHFA prohibits the
purchase of HOEPA loans by the Enterprises. FHFA has also required the
Enterprises to limit their mortgage purchases to those that meet
Qualified Mortgage product characteristics under the regulations
implementing the Dodd-Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank Act). Qualified Mortgage product characteristics are
those related to the loan product itself rather than to the borrowers
and their debt-to-income ratio. As a result, the Enterprises are
generally prohibited from purchasing interest-only or negatively
amortizing loans, balloon loans, 40-year loans, or loans with points
and fees greater than three percentage points or up to five percentage
points for smaller loans. To the extent that FHFA identifies any types
of mortgages that meet Qualified Mortgage product criteria yet are not
suitable for the Enterprises or for borrowers, FHFA may restrict
Enterprise purchases of such mortgages in the future.
Higher Rate Mortgages in FHFA's Measurement of the Market
FHFA's measurement of the single-family mortgage market, which is
used to determine the retrospective market share for the single-family
housing goals under Sec. 1282.12(b), as well as to set the prospective
benchmark levels for the goals, is intended to reflect the portion of
the overall single-family market that is eligible for purchase by the
Enterprises. FHFA currently excludes mortgages with rate spreads of 150
basis points or more above the applicable average prime offer rate
(APOR) as reported in the Home Mortgage Disclosure Act data.
In the proposed rule, FHFA specifically requested comment on
whether mortgages with rate spreads that exceed 150 basis points above
APOR should continue to be excluded from FHFA's measurement of the
market, or whether a higher rate spread threshold should be
established.

[[Page 53428]]

Comments on Proposed Rule
A housing advocacy group commenter recommended that FHFA continue
to exclude loans with rate spreads more than 150 basis points above
APOR. A trade association commenter noted that because the Enterprises
already purchase mortgages with rate spreads more than 150 basis points
above APOR, such loans should be included in the market size
calculation. The commenter also stated that loans with rate spreads
more than 650 basis points above APOR, which is the HOEPA trigger level
for high-cost loans, should not be included.
FHFA Response
The final rule does not make any change to the existing regulation,
which excludes loans with rate spreads more than 150 basis points above
APOR from the retrospective market measure for the single-family
housing goals. FHFA used the same exclusion in determining the size of
the market in its analysis supporting the prospective benchmark levels
for the single-family housing goals. FHFA recognizes that some
mortgages purchased by the Enterprises may have rate spreads that
exceed 150 basis points above APOR while still meeting the Enterprises'
established underwriting criteria. However, other loans with rate
spreads more than 150 basis points above APOR may not meet Enterprise
underwriting criteria. While excluding loans with rate spreads more
than 150 basis points above APOR is not a perfect substitute for
excluding loans that do not meet Enterprise underwriting criteria, FHFA
has determined that it is a reasonable approximation given the limited
data available under HMDA.

E. Housing Goals Guidance--Sec. 1282.16(e)

Consistent with the proposed rule, Sec. 1282.16(e) of the final
rule adds a new provision requiring FHFA to make available on FHFA's
public Web site (www.fhfa.gov) any determinations issued under Sec.
1282.16(e) regarding the appropriate treatment of particular
transactions or classes of transactions under the housing goals.
This change is intended to ensure that both Enterprises and any
other interested parties are aware of any guidance that FHFA provides
to either Enterprise regarding the appropriate housing goals treatment
of any transactions in which they may engage, regardless of whether or
not those transactions are covered in the housing goals regulation.
FHFA and HUD, the Enterprises' predecessor mission regulator, from time
to time have issued guidance on particular issues. To promote clear and
consistent treatment of all transactions engaged in by either
Enterprise, FHFA will make guidance issued to the Enterprises available
on FHFA's public Web site.
Comments on Proposed Rule
Fannie Mae commented that Enterprise requests for guidance from
FHFA often include confidential Enterprise business information that is
subject to limitations on public disclosure. Fannie Mae recommended
that the proposal be revised to state explicitly that any confidential
business information submitted by an Enterprise in connection with a
request will be excluded or redacted from any public release of a
determination under this provision.
FHFA Response
FHFA recognizes that any confidential business information
submitted by an Enterprise is subject to limitations on its public
release. It is not necessary for the housing goals regulation to
specifically cross-reference the applicable provisions on
confidentiality in order for them to apply. Any public release of a
determination under the housing goals would be made subject to the
existing limitations on the release of confidential Enterprise
information.

X. Seniors Housing Units and Skilled Nursing Units

The proposed rule would have incorporated into the regulation
guidance that is currently in effect regarding the treatment of seniors
housing units and skilled nursing units under the housing goals. The
proposed rule would not have made any substantive changes to the
guidance currently in effect.
Currently, seniors housing units are counted towards the housing
goals, provided that the units meet the requirements that apply
generally for multifamily housing. However, some seniors housing units
with additional services included in the rent require that a
prospective resident pay an up-front entrance fee as a condition of
occupancy in addition to the monthly rent. Units with large up-front
entrance fees are excluded from counting towards the housing goals
because such fees make it difficult to distinguish between the portion
of the up-front entrance fee that constitutes the actual monthly rent
for purposes of determining affordability, and because in most
instances large up-front entrance fees mean that the units are not
affordable to low-income or very low-income families who would not be
able to occupy a unit in any case.
Skilled nursing units are generally excluded from counting under
the housing goals because their principal purpose is to provide medical
services and housing is incidental to those purposes.
After consideration of the comments received on these provisions,
FHFA has determined that it is not necessary to include the existing
guidance on seniors housing units and skilled nursing units in the
regulation itself. FHFA will make the current guidance available to the
public on its Web site in accordance with the procedures described
above under Sec. 1282.16(e).
Comments on Proposed Rule--Seniors Housing Units
A comment letter signed by several members of Congress supported
the proposed housing goals eligibility for seniors housing units with
small up-front entrance fees, but stated that FHFA should monitor any
adverse impacts on asset-rich seniors with low incomes. An advocacy
group, while supporting the proposal, was also concerned with the
impact of such fees on asset-rich, but income-poor, seniors.
Fannie Mae commented that it would be difficult to apply the
proposal, stating that there is no consistent way of defining what are
appropriate up-front entrance fees in the seniors housing industry.
Fannie Mae recommended that in lieu of trying to determine which up-
front entrance fees would be appropriate, a maximum amount of $12,500
should be established as an appropriate up-front entrance fee, based on
current pricing in the seniors housing market.
Freddie Mac stated that the proposed limitation on up-front
entrance fees was too broad and would exclude affordable seniors
housing units with relatively small up-front ``community fees.''
Freddie Mac recommended that FHFA revise the proposal to allow units to
be counted towards the housing goals unless there are large up-front
entrance fees other than application processing fees, first-month
advanced rent payments, security deposit fees, community fees, and
other similar fees.
FHFA Response
As noted above, no substantive changes to the current guidance are
being made at this time. FHFA may issue further guidance at a later
date on what constitutes a ``large'' up-front entrance fee such that a
seniors housing unit with services may be excluded from counting
towards the housing goals.

[[Page 53429]]

Freddie Mac also commented that alternative methods should be
permitted for determining affordability in seniors housing units with
services rather than relying on the affordability estimation
methodology in Sec. 1282.15(e)(2), stating that the current
methodology understates their affordability. Freddie Mac recommended
that the Enterprises be permitted to determine the level of tenant
incomes based on the age of the tenant and the census tract area median
income for that age group. Freddie Mac also recommended that the
Enterprises be permitted to rely on the receipt of Medicaid benefits as
a proxy for income in determining the income level of a resident in a
seniors housing unit.
FHFA Response
Under the current regulation, seniors housing units that do not
include additional services in the rent are treated as multifamily
dwelling units for purposes of the housing goals, with affordability
determined based on the unit rent. Seniors housing units that include
additional services in the rent are currently treated as multifamily
dwelling units with missing data for purposes of determining
affordability under the estimation provisions of Sec. 1282.15(e)(2).
As discussed above and consistent with current practice, under the
final rule, seniors housing units with additional services included in
the rent will continue to be excluded from the estimation cap in Sec.
1282.15(e)(3). FHFA will consider whether to conduct further review of
the alternatives proposed by Freddie Mac to determine whether they
would be appropriate methods for determining affordability. If FHFA
changes how affordability is determined for seniors housing units, it
will post the revised guidance on FHFA's public Web site in accordance
with Sec. 1282.16(e).
Comments on Proposed Rule--Skilled Nursing Units
Fannie Mae recommended that the proposed definition of ``skilled
nursing unit'' be narrowed by distinguishing between units that are
principally residential and units with a principal purpose of providing
medical services on a temporary basis. Specifically, Fannie Mae
suggested revising the definition to mean ``a seniors housing unit, the
principal purpose of which is to provide 24-hour skilled medical
services on a temporary basis rather than to serve as a residence.''
Freddie Mac recommended similar changes to the proposed definition
of ``skilled nursing unit.'' Freddie Mac noted that many facilities
provide a range of services and that the market has trended toward
continuing care retirement communities. Freddie Mac also noted that the
services provided in a particular unit may change over time. Freddie
Mac proposed defining ``skilled nursing unit'' as ``a multifamily
property unit dedicated to providing tenants aged 55 and over with 24-
hour licensed medical services that go beyond assistance with
activities of daily living. Activities of daily living may include
management of medications, bathing, dressing, toileting, ambulating and
eating.''
FHFA Response
The definition of ``skilled nursing unit'' in the proposed rule was
not intended to include other types of continuing care retirement
communities where housing is also a principal purpose. FHFA may provide
revised guidance at a later date on the definition of ``skilled nursing
unit.'' FHFA will post any revised guidance on its public Web site in
accordance with Sec. 1282.16(e).

XI. Blanket Loans on Manufactured Housing Communities

FHFA intends to make available to the public on its Web site, in
accordance with the procedures under Sec. 1282.16(e), its existing
guidance which provides that blanket loans on manufactured housing
communities are excluded from counting under the multifamily housing
goals. FHFA specifically requested comment in the proposed rule on
whether blanket loans on manufactured housing communities owned by
either residents, investors, or cooperatively by residents, should be
eligible for multifamily housing goals credit.
The final rule does not revise the current regulation to allow
blanket loans on manufactured housing communities to count under the
multifamily housing goals. It is difficult to accurately determine a
manufactured housing unit's affordability under the housing goals
because bedroom count information on individual manufactured housing
units in the communities is not collected by the Enterprises, and the
pad rent alone does not include the full cost of housing for the
residents, which includes paying for their unit financing. Therefore,
the practical question of how to determine housing costs and
affordability, including how to adjust household size for the number of
bedrooms in a unit so as to accurately apply the rent estimation
alternative, cannot be answered at this time given available data. FHFA
will continue to evaluate the treatment of manufactured housing
communities in connection with its rulemaking for the Enterprises' Duty
to Serve underserved markets under 12 U.S.C. 4565. FHFA may issue
further guidance on the appropriate treatment of blanket loans on
manufactured housing communities under the housing goals at a later
date.
Comments on Proposed Rule
FHFA received extensive comments in response to its request for
comment on the potential inclusion of blanket loans on manufactured
housing communities under the multifamily housing goals. All but one of
the commenters on this issue recommended counting such loans for goals
credit. Fannie Mae noted that purchases of blanket loans on
manufactured housing communities are comparable to purchases of blanket
loans on cooperative buildings and condominium projects and should be
treated similarly for purposes of the housing goals. Both Fannie Mae
and Freddie Mac stated that manufactured housing is an important source
of low-cost housing, particularly for lower income households. Fannie
Mae provided data illustrating the affordability of manufactured
housing as compared to other housing types. Freddie Mac stated that
manufactured homes account for between 7 and 8 percent of all single-
family housing units. Freddie Mac also noted that manufactured housing
is particularly important as a source of affordable housing in rural
communities, where other housing options often are not available.
Fannie Mae and Freddie Mac also provided substantial additional
comments on how to define and count blanket loans on manufactured
housing communities.
FHFA Response
Due to the practical limitations on determining affordability
described above, FHFA has determined not to allow blanket loans on
manufactured housing communities to count under the housing goals. FHFA
will instead separately consider the treatment of manufactured housing
communities in connection with its rulemaking for the Enterprises' Duty
to Serve underserved markets.

XII. Paperwork Reduction Act

This final rule does not contain any information collection
requirement that would require the approval of the Office of Management
and Budget (OMB) under the Paperwork Reduction Act (44 U.S.C. 3501 et
seq.). Therefore, FHFA has not submitted any information to OMB for
review.

[[Page 53430]]

XIII. 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 rule
under the Regulatory Flexibility Act. The General Counsel of FHFA
certifies that this rule will not have a significant economic impact on
a substantial number of small entities because the regulation applies
to Fannie Mae and Freddie Mac, 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 amends part 1282 of
Title 12 of the Code of Federal Regulations as follows:

PART 1282--ENTERPRISE HOUSING GOALS AND MISSION

0
1. The authority citation for part 1282 continues to read as follows:

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

0
2. Amend Sec. 1282.1(b) as follows:
0
a. Remove the definition of ``Contract rent'';
0
b. Revise the definition of ``Dwelling unit'';
0
c. Add in alphabetical order a definition of ``Efficiency'';
0
d. Revise the definition of ``Families in low-income areas'';
0
e. Remove the definition of ``HMDA'';
0
f. Revise the definition of ``HOEPA mortgage'';
0
g. Remove the definition of ``Mortgage with unacceptable terms or
conditions'';
0
h. Revise the definition of ``Rent'';
0
i. Remove the definition of ``Rental housing'';
0
j. Add in alphabetical order a definition of ``Small multifamily
property'';
0
k. Revise the definition of ``Utilities''; and
0
l. Remove the definitions of ``Utility allowance,'' and ``Working
day''.
The revisions and additions read as follows:

Sec. 1282.1 Definitions.

* * * * *
(b)* * *
Dwelling unit means a room or unified combination of rooms with
plumbing and kitchen facilities intended for use, in whole or in part,
as a dwelling by one or more persons, and includes a dwelling unit in a
single-family property, multifamily property, or other residential or
mixed-use property.
Efficiency means a dwelling unit having no separate bedrooms or 0
bedrooms.
* * * * *
Families in low-income areas means:
(i) Any family that resides in a census tract in which the median
income does not exceed 80 percent of the area median income;
(ii) Any family with an income that does not exceed area median
income that resides in a minority census tract; and
(iii) Any family with an income that does not exceed area median
income that resides in a designated disaster area.
* * * * *
HOEPA mortgage means a mortgage covered by section 103(bb) of the
Home Ownership and Equity Protection Act (HOEPA) (15 U.S.C. 1602(bb)),
as implemented by the Bureau of Consumer Financial Protection.
* * * * *
Rent means the actual rent or average rent by unit size for a
dwelling unit.
(i) Rent is determined based on the total combined rent for all
bedrooms in the dwelling unit, including fees or charges for management
and maintenance services and any utility charges that are included.
(A) Rent concessions shall not be considered, i.e., the rent is not
decreased by any rent concessions.
(B) Rent is net of rental subsidies, i.e., the rent is decreased by
any rental subsidy.
(ii) When the rent does not include all utilities, the rent shall
also include:
(A) The actual cost of utilities not included in the rent;
(B) The nationwide average utility allowance, as issued
periodically by FHFA;
(C) The utility allowance established under the HUD Section 8
Program (42 U.S.C. 1437f) for the area where the property is located;
or
(D) The utility allowance for the area in which the property is
located, as established by the state or local housing finance agency
for determining the affordability of low-income housing tax credit
properties under section 42 of the Internal Revenue Code (26 U.S.C.
42).
* * * * *
Small multifamily property means any multifamily property with at
least 5 dwelling units but no more than 50 dwelling units.
Utilities means charges for electricity, piped or bottled gas,
water, sewage disposal, fuel (oil, coal, kerosene, wood, solar energy,
or other), and garbage and trash collection. Utilities do not include
charges for subscription-based television, telephone, or internet
service.
* * * * *

0
3. Amend Sec. 1282.11 by revising paragraph (a)(1) to read as follows:

Sec. 1282.11 General.

(a) * * *
(1) Three single-family owner-occupied purchase money mortgage
housing goals, a single-family owner-occupied purchase money mortgage
housing subgoal, a single-family refinancing mortgage housing goal, a
multifamily special affordable housing goal, and two multifamily
special affordable housing subgoals;
* * * * *

0
4. Revise Sec. 1282.12 to read as follows:

Sec. 1282.12 Single-family housing goals.

(a) Single-family housing goals. An Enterprise shall be in
compliance with a single-family housing goal if its performance under
the housing goal meets or exceeds either:
(1) The share of the market that qualifies for the goal; or
(2) The benchmark level for the goal.
(b) Size of market. The size of the market for each goal shall be
established annually by FHFA based on data reported pursuant to the
Home Mortgage Disclosure Act for a given year. Unless otherwise
adjusted by FHFA, the size of the market shall be determined based on
the following criteria:
(1) Only owner-occupied, conventional loans shall be considered;
(2) Purchase money mortgages and refinancing mortgages shall only
be counted for the applicable goal or goals;
(3) All mortgages flagged as HOEPA loans or subordinate lien loans
shall be excluded;
(4) All mortgages with original principal balances above the
conforming loan limits for single unit properties for the year being
evaluated (rounded to the nearest $1,000) shall be excluded;
(5) All mortgages with rate spreads of 150 basis points or more
above the applicable average prime offer rate as reported in the Home
Mortgage

[[Page 53431]]

Disclosure Act data shall be excluded; and
(6) All mortgages that are missing information necessary to
determine appropriate counting under the housing goals shall be
excluded.
(c) Low-income families housing goal. The percentage share of each
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for low-
income families shall meet or exceed either:
(1) The share of such mortgages in the market as defined in
paragraph (b) of this section in each year; or
(2) The benchmark level, which for 2015, 2016, and 2017 shall be 24
percent of the total number of purchase money mortgages purchased by
that Enterprise in each year that finance owner-occupied single-family
properties.
(d) Very low-income families housing goal. The percentage share of
each Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for very low-
income families shall meet or exceed either:
(1) The share of such mortgages in the market as defined in
paragraph (b) of this section in each year; or
(2) The benchmark level, which for 2015, 2016, and 2017 shall be 6
percent of the total number of purchase money mortgages purchased by
that Enterprise in each year that finance owner-occupied single-family
properties.
(e) Low-income areas housing goal. The percentage share of each
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for families
in low-income areas shall meet or exceed either:
(1) The share of such mortgages in the market as defined in
paragraph (b) of this section in each year; or
(2) A benchmark level which shall be set annually by FHFA notice
based on the benchmark level for the low-income areas housing subgoal,
plus an adjustment factor reflecting the additional incremental share
of mortgages for moderate-income families in designated disaster areas
in the most recent year for which such data is available.
(f) Low-income areas housing subgoal. The percentage share of each
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for families
in low-income census tracts or for moderate-income families in minority
census tracts shall meet or exceed either:
(1) The share of such mortgages in the market as defined in
paragraph (b) of this section in each year; or
(2) The benchmark level, which for 2015, 2016, and 2017 shall be 14
percent of the total number of purchase money mortgages purchased by
that Enterprise in each year that finance owner-occupied single-family
properties.
(g) Refinancing housing goal. The percentage share of each
Enterprise's total purchases of refinancing mortgages on owner-occupied
single-family housing that consists of refinancing mortgages for low-
income families shall meet or exceed either:
(1) The share of such mortgages in the market as defined in
paragraph (b) of this section in each year; or
(2) The benchmark level, which for 2015, 2016, and 2017 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.

0
5. Revise Sec. 1282.13 to read as follows:

Sec. 1282.13 Multifamily special affordable housing goal and
subgoals.

(a) Multifamily housing goal and subgoals. An Enterprise shall be
in compliance with a multifamily housing goal or subgoal if its
performance under the housing goal or subgoal meets or exceeds the
benchmark level for the goal or subgoal, respectively.
(b) Multifamily low-income housing goal. The benchmark level for
each Enterprise's purchases of mortgages on multifamily residential
housing affordable to low-income families shall be at least 300,000
dwelling units affordable to low-income families in multifamily
residential housing financed by mortgages purchased by the Enterprise
in each year for 2015, 2016, and 2017.
(c) Multifamily very low-income housing subgoal. The benchmark
level for each Enterprise's purchases of mortgages on multifamily
residential housing affordable to very low-income families shall be at
least 60,000 dwelling units affordable to very low-income families in
multifamily residential housing financed by mortgages purchased by the
Enterprise in each year for 2015, 2016, and 2017.
(d) Small multifamily low-income housing subgoal. (1) For the year
2015, the benchmark level for each Enterprise's purchases of mortgages
on small multifamily properties affordable to low-income families shall
be at least 6,000 dwelling units affordable to low-income families in
small multifamily properties financed by mortgages purchased by the
Enterprise.
(2) For the year 2016, the benchmark level for each Enterprise's
purchases of mortgages on small multifamily properties affordable to
low-income families shall be at least 8,000 dwelling units affordable
to low-income families in small multifamily properties financed by
mortgages purchased by the Enterprise.
(3) For the year 2017, the benchmark level for each Enterprise's
purchases of mortgages on small multifamily properties affordable to
low-income families shall be at least 10,000 dwelling units affordable
to low-income families in small multifamily properties financed by
mortgages purchased by the Enterprise.

0
6. Amend Sec. 1282.15 by revising paragraphs (b), (c), (d), (e) and
(g)(2) to read as follows:

Sec. 1282.15 General counting requirements.

* * * * *
(b) Counting owner-occupied units. (1) Mortgage purchases financing
owner-occupied single-family properties shall be evaluated based on the
income of the mortgagors and the area median income at the time the
mortgage was originated. To determine whether mortgages may be counted
under a particular family income level, i.e., low- or very low-income,
the income of the mortgagors is compared to the median income for the
area at the time the mortgage was originated, using the appropriate
percentage factor provided under Sec. 1282.17.
(2) Mortgage purchases financing owner-occupied single-family
properties for which the income of the mortgagors is not available
shall be included in the denominator for the single-family housing
goals and subgoal, but such mortgages shall not be counted in the
numerator of any single-family housing goal or subgoal.
(c) Counting dwelling units for multifamily housing goal and
subgoals. Performance under the multifamily housing goal and subgoals
shall be measured by counting the number of dwelling units that count
toward achievement of a particular housing goal or subgoal in all
multifamily properties financed by mortgages purchased by an Enterprise
in a particular year. Only dwelling units that are financed by mortgage
purchases, as defined by FHFA, and that are not specifically excluded
as ineligible under Sec. 1282.16(b), may be counted for purposes of
the multifamily housing goal and subgoals.

[[Page 53432]]

(d) Counting rental units--(1) Use of rent. For purposes of
counting rental units toward achievement of the multifamily housing
goal and subgoals, mortgage purchases financing such units shall be
evaluated based on rent and whether the rent is affordable to the
income group targeted by the housing goal and subgoals. A rent is
affordable if the rent does not exceed the maximum levels as provided
in Sec. 1282.19.
(2) Affordability of rents based on housing program requirements.
Where a multifamily property is subject to an affordability restriction
under a housing program that establishes the maximum permitted income
level for a tenant or a prospective tenant or the maximum permitted
rent, the affordability of units in the property may be determined
based on the maximum permitted income level or maximum permitted rent
established under such housing program for those units. If using
income, the maximum income level must be no greater than the maximum
income level for each goal, adjusted for family or unit size as
provided in Sec. 1282.17 or Sec. 1282.18, as appropriate. If using
rent, the maximum rent level must be no greater than the maximum rent
level for each goal, adjusted for unit size as provided in Sec.
1282.19.
(3) Unoccupied units. Anticipated rent for unoccupied units may be
the market rent for similar units in the neighborhood as determined by
the lender or appraiser for underwriting purposes. A unit in a
multifamily property that is unoccupied because it is being used as a
model unit or rental office may be counted for purposes of the
multifamily housing goal and subgoals only if an Enterprise determines
that the number of such units is reasonable and minimal considering the
size of the multifamily property.
(4) Timeliness of information. In evaluating affordability under
the multifamily housing goal and subgoals, each Enterprise shall use
tenant and rental information as of the time of mortgage acquisition.
(e) Missing data or information for multifamily housing goal and
subgoals. (1) Rental units for which bedroom data are missing shall be
considered efficiencies for purposes of calculating unit affordability.
(2) When an Enterprise lacks sufficient information to determine
whether a rental unit in a property securing a multifamily mortgage
purchased by an Enterprise counts toward achievement of the multifamily
housing goal or subgoals because rental data is not available, an
Enterprise's performance with respect to such unit may be evaluated
using estimated affordability information by multiplying the number of
rental units with missing affordability information in properties
securing multifamily mortgages purchased by the Enterprise in each
census tract by the percentage of all rental dwelling units in the
respective tracts that would count toward achievement of each goal and
subgoal, as determined by FHFA based on the most recent decennial
census.
(3) The estimation methodology in paragraph (e)(2) of this section
may be used up to a nationwide maximum of 5 percent of the total number
of rental units in properties securing multifamily mortgages purchased
by the Enterprise in the current year. Multifamily rental units in
excess of this maximum, and any units for which estimation information
is not available, shall not be counted for purposes of the multifamily
housing goal and subgoals.
* * * * *
(g) * * *
(2) When an Enterprise cannot precisely determine whether a
mortgage is on dwelling unit(s) located in one area, the Enterprise
shall determine the median income for the split area in the manner
prescribed by the Federal Financial Institutions Examination Council
for reporting under the Home Mortgage Disclosure Act (12 U.S.C. 2801 et
seq.), if the Enterprise can determine that the mortgage is on dwelling
unit(s) located in:
(i) A census tract; or
(ii) A census place code.
* * * * *

0
7. Amend Sec. 1282.16 by revising paragraphs (c)(5), (d), and (e) to
read as follows:

Sec. 1282.16 Special counting requirements.

* * * * *
(c) * * *
(5) Cooperative housing and condominiums. (i) The purchase of a
mortgage on a cooperative housing unit (``a share loan'') or a mortgage
on a condominium unit shall be treated as a mortgage purchase for
purposes of the housing goals. Such a purchase shall be counted in the
same manner as a mortgage purchase of single-family owner-occupied
units.
(ii) The purchase of a blanket mortgage on a cooperative building
or a mortgage on a condominium project shall be treated as a mortgage
purchase for purposes of the housing goals. The purchase of a blanket
mortgage on a cooperative building shall be counted in the same manner
as a mortgage purchase of a multifamily rental property, except that
affordability must be determined based solely on the comparable market
rents used in underwriting the blanket loan. If the underwriting rents
are not available, the loan shall not be treated as a mortgage purchase
for purposes of the housing goals. The purchase of a mortgage on a
condominium project shall be counted in the same manner as a mortgage
purchase of a multifamily rental property.
(iii) Where an Enterprise purchases both a blanket mortgage on a
cooperative building and share loans for units in the same building,
both the mortgage on the cooperative building and the share loans shall
be treated as mortgage purchases for purposes of the housing goals.
Where an Enterprise purchases both a mortgage on a condominium project
and mortgages on individual dwelling units in the same project, both
the mortgage on the condominium project and the mortgages on individual
dwelling units shall be treated as mortgage purchases for purposes of
the housing goals.
* * * * *
(d) HOEPA mortgages. HOEPA mortgages shall be treated as mortgage
purchases for purposes of the housing goals and shall be included in
the denominator for each applicable single-family housing goal, but
such mortgages shall not be counted in the numerator for any housing
goal.
(e) FHFA review of transactions. FHFA may determine whether and how
any transaction or class of transactions shall be counted for purposes
of the housing goals, including treatment of missing data. FHFA will
notify each Enterprise in writing of any determination regarding the
treatment of any transaction or class of transactions under the housing
goals. FHFA will make any such determinations available to the public
on FHFA's Web site, www.fhfa.gov.

Sec. 1282.17 [Amended]

0
8. Amend Sec. 1282.17 in the introductory text by removing the phrase
``rental housing'' and adding in its place the phrase ``rental units''.

Sec. 1282.19 [Amended]

0
9. Amend Sec. 1282.19 by removing paragraph (f).

[[Page 53433]]

0
10. Amend Sec. 1282.20 by revising paragraph (b) to read as follows:

Sec. 1282.20 Determination of compliance with housing goals; notice
of determination.

* * * * *
(b) Multifamily housing goal and subgoals. The Director shall
evaluate each Enterprise's performance under the multifamily low-income
housing goal, the multifamily very low-income housing subgoal, and the
small multifamily low-income housing subgoal, on an annual basis. If
the Director determines that an Enterprise has failed, or there is a
substantial probability that an Enterprise will fail, to meet a
multifamily housing goal or subgoal established by this subpart, the
Director shall notify the Enterprise in writing of such preliminary
determination.
* * * * *

Dated: August 13, 2015.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2015-20880 Filed 9-2-15; 8:45 am]
BILLING CODE 8070-01-P