[Federal Register Volume 61, Number 113 (Tuesday, June 11, 1996)]
[Proposed Rules]
[Pages 29592-29621]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14496]




[[Page 29591]]


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Part III





Department of Housing and Urban Development





_______________________________________________________________________



12 CFR Part 1270



Risk-Based Capital; Proposed Rule

  Federal Register / Vol. 61, No. 113 / Tuesday, June 11, 1996 / 
Proposed Rules  

[[Page 29592]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

12 CFR Part 1270

RIN 2550-AA02


Office of Federal Housing Enterprise Oversight; Risk-Based 
Capital

AGENCY: Office of Federal Housing Enterprise Oversight, HUD.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: Title XIII of the Housing and Community Development Act of 
1992, known as the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992 (1992 Act), requires the Office of Federal 
Housing Enterprise Oversight (OFHEO) to develop a risk-based capital 
regulation for the Federal National Mortgage Association (Fannie Mae) 
and the Federal Home Loan Mortgage Corporation (Freddie Mac) 
(collectively, the Enterprises). The regulation will specify a risk-
based capital stress test (stress test) that, when applied to the 
Enterprises, determines the amount of capital that an Enterprise must 
hold to maintain positive capital throughout a 10-year period of 
economic stress. On February 8, 1995, OFHEO published an Advance Notice 
of Proposed Rulemaking (ANPR), which solicited public comment on a 
variety of issues concerning the development of the risk-based capital 
regulation. In light of the complex issues and decisions that OFHEO 
must address prior to issuing proposed risk-based capital standards and 
the challenge of developing the risk-based capital stress test, OFHEO 
has decided to issue the proposed risk-based capital regulation in two 
parts.
    This first Notice of Proposed Rulemaking (NPR) addresses two key 
components of the stress test. The first is OFHEO's proposal of the 
procedures for establishing the ``benchmark loss experience,'' which is 
the basis for determining the extent of Enterprise credit losses during 
the stress test. This NPR describes the methodology and rationale OFHEO 
used to identify the proposed benchmark loss experience, responds to 
relevant ANPR comments, and describes how the benchmark loss experience 
will influence the risk-based capital stress test. In this NPR, OFHEO 
also proposes to use its House Price Index (HPI) in the stress test to 
estimate changes over time in the values of single-family properties 
securing Enterprise mortgages.
    A second NPR will: specify the timing and content of risk-based 
capital reports to be submitted by the Enterprises; specify all of the 
remaining aspects of the risk-based capital stress test; and describe 
how the stress test will be used to determine the Enterprises' risk-
based capital requirements.

DATES: Comments regarding this NPR must be received in writing on or 
before September 9, 1996.

ADDRESSES: Send written comments to Anne E. Dewey, General Counsel, 
Office of General Counsel, Office of Federal Housing Enterprise 
Oversight, 1700 G Street, NW., Fourth Floor, Washington, DC 20552.

FOR FURTHER INFORMATION CONTACT: David J. Pearl, Director, Office of 
Research, Analysis and Capital Standards; or Gary L. Norton, Deputy 
General Counsel, Office of General Counsel, Office of Federal Housing 
Enterprise Oversight, 1700 G Street, NW., Fourth Floor, Washington, DC 
20552, telephone (202) 414-3800 (not a toll-free number).

SUPPLEMENTARY INFORMATION: The Supplementary Information is organized 
according to this table of contents:

Background

Statutory Requirements for Risk-Based Capital
    Credit Losses in the Stress Test
    Interest Rates in the Stress Test
    New Business, Other Activities, and Considerations
    Management and Operations Risk
Regulation Development
    General Approach
    Advance Notice of Proposed Rulemaking
    Notice of Proposed Rulemaking
Benchmark Loss Experience
    Definitions, Data, and Procedures
    1. Definitions
    2. Data
    3. Procedures
    Characterization of the Benchmark Loss Experience Implications 
of the Benchmark Loss Experience for the Stress Test Issues, 
Alternatives Considered, and Comments Received
    1. Data Sources Used to Define the Benchmark Loss Experience
    2. Loan and Property Types Included in the Benchmark Analysis
    3. Determination of a Single Benchmark State/Origination Year 
Combination or a Separate Area and Period for Each Enterprise
    4. Role of Severity Data in Identifying the Benchmark Loss 
Experience
    5. Definition of ``Default Rate''
    a. In General
    b. Interpretation of ``Years''
    c. Definition of ``Defaulted Loans''
    6. Definitions of ``Severity Rate'' and ``Losses''
    7. Definition of ``Contiguous Areas''
    8. Procedures for Accounting for Different LTV Ratios
    9. Procedures for Combining Data from Different States and Years 
in Computing Default and Severity Rates
    10. Procedures for Combining Default and Severity Rates of the 
Two Enterprises
    11. Number of Origination Years in the Benchmark Loss Experience
House Price Indexes
    Introduction
    Using An Index to Adjust for Seasoning
    Description of the HPI
    Issues, Alternatives Considered, and Comments Received
    1. Use of the HPI versus the CQHPI and Other Alternatives
    2. Geographic Aggregation
    3. Bias and Volatility in the HPI
    4. Statistical Methodology

Background

    Title XIII of the Housing and Community Development Act of 1992, 
Pub. L. No. 102-550, known as the Federal Housing Enterprises Financial 
Safety and Soundness Act of 1992, established OFHEO. OFHEO is an 
independent office within the Department of Housing and Urban 
Development (HUD) with responsibility for ensuring that Fannie Mae and 
Freddie Mac are adequately capitalized and operating in a safe and 
sound manner. Included among the express statutory authorities of the 
Director of OFHEO (Director) is the authority to issue regulations 
establishing minimum and risk-based capital standards.1
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    \1\ 1992 Act, section 1313(b)(1) (12 U.S.C. 4513(b)(1)).
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    Fannie Mae and Freddie Mac are Government-sponsored enterprises 
with important public purposes.2 These include providing liquidity 
to the residential mortgage market and increasing the availability of 
mortgage credit benefiting low-and moderate-income families and areas 
that are underserved by lending institutions. The Enterprises engage in 
two principal businesses: Investing in residential mortgages and 
guaranteeing residential mortgage securities. The securities they 
guarantee and the debt instruments they issue are not backed by the 
full faith and credit of the United States.3 However, financial 
market participants perceive that the United States Government would 
not permit the Enterprises to fail. This perception principally arises 
from the public purposes of the Enterprises, their Congressional 
charters, their potential direct access to Treasury funds, and the 
statutory exemptions of their debt and mortgage-backed securities from 
otherwise mandatory investor protection provisions.4

[[Page 29593]]

Furthermore, the insolvency of either of the Enterprises would have 
serious consequences for the nation's housing markets and financial 
system.
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    \2\ See 1992 Act, sections 1331-38 (12 U.S.C. 4561-67, 4562 
note).
    \3\ See section 306(h)(2), Federal Home Loan Mortgage 
Corporation Act (12 U.S.C. 1455(h)(2)), and section 304(b), Federal 
National Mortgage Association Charter Act (12 U.S.C. 1719(b)).
    \4\ See, e.g., 12 U.S.C. 24 (seventh) (authorizing unlimited 
investment by national banks in obligations of or issued by the 
Enterprises); 12 U.S.C. 1455(g), 1719(d), 1723c (exempting 
securities from oversight from federal regulators); 15 U.S.C. 77r-
1(a) (preempting state law that would treat Enterprise securities 
differently from obligations of the United States for investment 
purposes); 15 U.S.C. 77r-1(c) (exempting Enterprise securities from 
state blue sky laws).
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    OFHEO was created as the safety and soundness regulator of the 
Enterprises to reduce the risk of their failure. OFHEO's principal 
responsibilities include conducting examinations and establishing and 
enforcing compliance with capital standards. At least quarterly, OFHEO 
ascertains the amount of capital maintained by each Enterprise, 
computes its capital requirements, and determines its capital 
classification.5
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    \5\ Section 1364 of the 1992 Act (12 U.S.C. 4614) requires the 
Director of OFHEO to determine the capital classification of each 
Enterprise not less than quarterly.
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    Capital provides a cushion to absorb financial losses resulting 
from adverse economic conditions and other problems at the Enterprises. 
The 1992 Act prescribes that to be classified as adequately 
capitalized, an Enterprise must meet both a minimum capital standard 
and a risk-based capital standard.
    Section 1362 of the 1992 Act prescribes the minimum capital 
standard for the Enterprises.6 The minimum capital requirements 
are computed from ratios that are applied to the assets and specific 
categories of off-balance sheet obligations of the Enterprises. The 
minimum capital requirement for an Enterprise represents an amount of 
capital needed to provide protection against risk in general. The 
minimum capital standard is not designed to address specific credit 
risk exposures or exposure to interest rate risk. It does not represent 
the amount needed by an Enterprise to operate safely and soundly under 
all circumstances.
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    \6\ 12 U.S.C. 4612.
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    OFHEO published a proposed rule regarding minimum capital on June 
8, 1995. Until 1 year after the effective date of a final rule on risk-
based capital, an Enterprise need only meet the minimum capital 
standard in order to be classified as adequately capitalized.

Statutory Requirements for Risk-Based Capital

    In contrast to the minimum capital requirement, the risk-based 
capital standard required by the 1992 Act addresses specific risk 
exposures. This standard determines the amount of capital necessary for 
an Enterprise to withstand adverse credit conditions and large interest 
rate movements simultaneously during a 10-year period, plus an 
additional amount to cover management and operations risk.7 This 
10-year period is referred to as the ``stress period.'' The level of 
capital required under this standard for an Enterprise will reflect 
that Enterprise's specific risk profile.8 This NPR proposes two 
key components of the risk-based capital regulation.
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    \7\ 1992 Act, section 1361 (12 U.S.C. 4611).
    \8\ For purposes of the risk-based capital standard, the term 
``capital'' means ``total capital'' as defined under section 
1303(18) of the 1992 Act (12 U.S.C. 4502(18)) to mean the sum of the 
following:
    (A) The core capital of the enterprise;
    (B) A general allowance for foreclosure losses, which--
    (i) shall include an allowance for portfolio mortgage losses, an 
allowance for nonreimbursable foreclosure costs on government 
claims, and an allowance for liabilities reflected on the balance 
sheet for the enterprise for estimated foreclosure losses on 
mortgage-backed securities; and
    (ii) shall not include any reserves of the enterprise made or 
held against specific assets.
    (C) Any other amounts from sources of funds available to absorb 
losses incurred by the enterprise, that the Director by regulation 
determines are appropriate to include in determining total capital. 
The term ``core capital'' is defined under section 1303(4) of the 
1992 Act (12 U.S.C. 4502(4)) to mean the sum of the following (as 
determined in accordance with generally accepted accounting 
principles):
    (A) The par or stated value of outstanding common stock.
    (B) The par or stated value of outstanding perpetual, 
noncumulative preferred stock.
    (C) Paid-in capital.
    (D) Retained earnings.
    The core capital of an enterprise shall not include any amounts 
that the enterprise could be required to pay, at the option of 
investors, to retire capital instruments.
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Credit Losses in the Stress Test

    The 1992 Act requires that the stress test subject each Enterprise 
to very large credit losses on mortgages it owns or guarantees. The 
frequency and severity of those losses must be reasonably related to 
the highest rate of default and severity of mortgage losses experienced 
during a period of at least 2 consecutive years in contiguous areas of 
the United States that together contain at least 5 percent of the total 
U.S. population.9 This provision requires OFHEO to identify a 
``benchmark loss experience,'' which is the default and severity 
behavior of mortgage loans, in a place and time meeting statutory 
requirements, that resulted in the highest loss rate for any such place 
and time.10 In this context, default and severity behavior means 
the frequency, timing, and severity of losses on mortgage loans, given 
the specific characteristics of those loans and the economic 
circumstances affecting those losses.
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    \9\ 1992 Act, section 1361(a)(1) (12 U.S.C. 4611(a)(1)).
    \10\ In this document, the word ``benchmark,'' when used as an 
adjective, refers to the benchmark loss experience.
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Interest Rates in the Stress Test

    The 1992 Act prescribes two interest rate risk scenarios, one with 
rates falling and the other with rates rising.11 The 1992 Act 
further describes the path of the 10-year constant maturity Treasury 
(CMT) yield for each scenario, and directs OFHEO to establish the 
yields on Treasury instruments of other maturities in a manner 
reasonably related to historical experience.
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    \11\ Section 1361(a)(2) (12 U.S.C. 4611(a)(2)).
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    In the falling rate scenario, the 10-year CMT yield decreases 
during the first year of the stress period, and then remains constant 
at the lesser of: (a) 600 basis points below the average yield during 
the 9 months preceding the stress period or (b) 60 percent of the 
average yield during the 3 years preceding the stress period. The 1992 
Act further limits the decrease in yield to a yield no less than 50 
percent of the average yield in the 9 months preceding the stress 
period.12
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    \12\ Section 1361(a)(2)(B) (12 U.S.C. 4611(a)(2)(B)).
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    In the rising rate scenario, the 10-year CMT yield increases during 
the first year of the stress period, and then remains constant at the 
greater of: (a) 600 basis points above the average yield during the 9 
months preceding the stress period or (b) 160 percent of the average 
yield during the 3 years preceding the stress period. The 1992 Act 
further limits the increase in yield to a yield no more than 175 
percent of the average yield over the 9 months preceding the stress 
period.13 The 1992 Act recognizes that interest rates can affect 
credit risk, specifically requiring that credit losses be adjusted for 
a correspondingly higher rate of general price inflation if application 
of the stress test assumes an increase of more than 50 percent in the 
10-year CMT yield.14
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    \13\ Section 1361(a)(2)(C) (12 U.S.C. 4611(a)(2)(C)).
    \14\ Section 1361(a)(2)(E) (12 U.S.C. 4611(a)(2)(E)).
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New Business, Other Activities, and Considerations

    The 1992 Act requires an assumption that the Enterprises conduct no 
new business within the stress period, except to fulfill contractual 
commitments to purchase mortgages or issue securities. The 1992 Act 
states that OFHEO may, 4 years after the final risk-based capital 
regulation is issued, incorporate assumptions about additional new 
business conducted during the stress

[[Page 29594]]

period.15 In doing so, OFHEO must take into consideration the 
results of studies conducted by the Congressional Budget Office and the 
Comptroller General of the United States on the advisability and 
appropriate forms of new business assumptions. The 1992 Act requires 
that the studies be completed within the first year after issuance of 
the regulation.
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    \15\ Section 1361(a)(3)(C) and (D) (12 U.S.C. 4611(a)(3)(C) and 
(D)).
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    The stress test must take into account distinctions among mortgage 
product types and current loan-to-value (LTV) ratios, and may take into 
account any other factors that the Director deems appropriate. The 1992 
Act does not require a specific adjustment for any of these factors, 
allowing the Director to determine how best to account for them. 
Likewise, the 1992 Act requires the Director to determine losses and 
gains on Enterprise activities not specifically addressed, and all 
other characteristics of the stress period not explicitly defined in 
the 1992 Act, on the basis of available information, in a manner 
consistent with the stress period.16 These stress period 
characteristics could include, among others, mortgage prepayment rates 
and Enterprise funding policies, operating expenses, and dividend 
policies.
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    \16\ Sections 1361(b) and (d)(2) (12 U.S.C. 4611(b) and (d)(2)).
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Management and Operations Risk

    To supplement the amount of capital that would permit an Enterprise 
to meet the requirements of the stress test, each Enterprise must 
maintain an additional 30 percent of this amount to protect against 
management and operations risk.17
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    \17\ 1992 Act, section 1361(c)(2) (12 U.S.C. 4611(c)(2)).
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Regulation Development

General Approach

    The mission of OFHEO is to protect the taxpayer by ensuring that 
the Enterprises are adequately capitalized and operating in a safe and 
sound manner. The principal objective of the risk-based capital 
standard is to reduce the risk of Enterprise insolvency. However, 
effective capital standards should promote prudent business practices 
and strategies and the maintenance of the financial health necessary to 
fulfill the Enterprises' public purposes. Although the stress test 
produces a single capital requirement, it effectively creates marginal 
capital requirements--incremental requirements for each additional 
dollar of business--for every type of product the Enterprises guarantee 
or hold in portfolio. Marginal capital requirements for mortgages held 
in portfolio will vary depending on the risk, as reflected in the 
stress test, of an Enterprise's funding strategy. These marginal 
capital requirements will have significant bearing on how the 
Enterprises choose to conduct their businesses.
    OFHEO will seek to design the stress test so that the incentives it 
creates closely reflect the relative risks inherent in the Enterprises' 
different activities. To this end, OFHEO will incorporate, to the 
extent feasible, consistent relationships between the economic 
environment of the stress period and the Enterprises' businesses. Doing 
so will require modeling the Enterprises' assets, liabilities, and off-
balance sheet positions at a sufficient level of detail to capture 
important risk characteristics.
    However, as the level of detail of a stress test increases, so does 
its complexity, together with the time and other resources required to 
develop it. There are also practical limits to the number of variables 
that can be modeled from existing data. OFHEO, therefore, seeks to 
establish a level of complexity and realism in the stress test that 
appropriately weighs the associated benefits and costs.
    OFHEO's stress test is composed of a number of components, some 
that correspond to subjects specifically cited in the 1992 Act and 
others that represent the infrastructure that makes the stress test 
operational. Figure 1 illustrates these components and their 
interrelationships. The infrastructure components--database, cashflows, 
and financial reports--are shaded gray. The unshaded components 
implement the specific requirements of the 1992 Act, as well as the 
many other aspects of the stress test that the 1992 Act either requires 
or permits OFHEO to determine.
    Each of the components of the stress test involves one or more 
projects of varying complexity, resource intensity and expected 
duration. The diagram highlights in bold the completed components of 
the stress test that OFHEO proposes and describes in this NPR--the 
benchmark loss experience and a house price index.

BILLING CODE 4220-01-P

[[Page 29595]]

Figure 1
[GRAPHIC] [TIFF OMITTED] TP11JN96.000


BILLING CODE 4220-01-C

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Advance Notice of Proposed Rulemaking

    On February 8, 1995, OFHEO published an ANPR 18 as its first 
step in developing the risk-based capital regulation. The ANPR 
announced OFHEO's intention to develop and publish a risk-based capital 
regulation and solicited public comment on a variety of issues relating 
to that regulation.
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    \18\ Risk-Based Capital, ANPR, 60 FR 7468.
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    The comment period for the ANPR ended on May 9, 1995, and was 
extended through June 8, 1995.19 OFHEO received 15 comments on the 
ANPR from a variety of interested parties. Commenters included two 
Executive Branch Departments (Department of Housing and Urban 
Development and Department of Veterans Affairs), one financial 
institution regulatory agency (Office of Thrift Supervision), the 
Enterprises (Fannie Mae and Freddie Mac), four trade groups (Mortgage 
Bankers Association of America, America's Community Bankers, National 
Association of Realtors, and Mortgage Insurance Companies of America), 
two mortgage banking firms (PNC Mortgage Corporation of America and 
Norwest Mortgage, Inc.), one rating agency (Standard and Poor's Ratings 
Group), one thrift institution (World Savings and Loan Association), 
one private mortgage research firm (Mortgage Risk Assessment 
Corporation), and one individual (Professor Anthony Yezer of George 
Washington University).
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    \19\ Risk-Based Capital, Extension of Public Comment Period for 
ANPR, 60 FR 25174 (May 11, 1995).
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    The responses to the ANPR ranged from a comment on only one or two 
specific risk-based capital issues to an extensive analysis of every 
question or issue raised. OFHEO has been considering these comments in 
the development of its risk-based capital regulation.

Notice of Proposed Rulemaking

    OFHEO will issue two separate NPRs before issuing a final risk-
based capital regulation. This NPR addresses two key aspects of that 
regulation. The first is OFHEO's methodology for identifying and 
measuring the benchmark loss experience. The benchmark loss experience 
will be the basis for determining credit losses that the Enterprises 
will experience during the stress period. This NPR describes: (1) The 
proposed methodology (definitions, data, and procedures) that is used 
to identify the benchmark loss experience; (2) characteristics of the 
benchmark loss experience that was identified and proposed using this 
methodology; and (3) in general terms, the implications of the 
benchmark loss experience for mortgage losses in the risk-based capital 
test. OFHEO seeks comment on the methodology it used to determine the 
benchmark loss experience.
    In the second key aspect of the regulation addressed in this NPR, 
OFHEO also proposes to use a weighted repeat transactions house price 
index, the HPI produced by OFHEO, rather than the Constant Quality Home 
Price Index (CQHPI), published by the Secretary of Commerce, referenced 
in the 1992 Act, to measure differences in seasoning of single-family 
mortgages in the stress test. The 1992 Act defines ``seasoning'' as the 
change over time in the LTV ratio of a mortgage.20 Such changes 
result from changes in principal balance and changes in the value of 
the property. OFHEO proposes to use the HPI as the basis for estimating 
changes in property values and seeks comment about its choice of index.
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    \20\ Section 1361(d)(1) (12 U.S.C. 4611(d)(1)). This usage in 
the 1992 Act should not be confused with the usage of the same term 
in the mortgage industry. Within this industry, seasoning is 
synonymous with aging, which has important implications for patterns 
of both prepayments and defaults. See Linda Lowell, Mortgage Pass-
Through Securities, in Handbook of Mortgage-Backed Securities 59, 78 
(F. Fabozzi ed., 3rd ed., Probus 1992) (prepayments); Standard and 
Poor's, Residential Mortgages: Criteria, Statistics, Credit Week, 
Oct. 25, 1993, at 29 (defaults).
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    At a later date OFHEO will issue a second NPR which will: (1) 
Specify and propose for public comment all of the remaining aspects of 
the risk-based capital stress test, (2) describe how the stress test 
will be used to determine the Enterprises' risk-based capital 
requirements, and (3) respond to all ANPR comments not addressed in 
this NPR. OFHEO will consider comments received in response to both 
NPRs in the final risk-based capital regulation.
    OFHEO decided to publish two NPRs for several reasons. They include 
the complex issues and decisions that OFHEO must address prior to 
completing its proposal for the risk-based capital regulation and the 
challenge of developing the stress test infrastructure. Further, the 
development of the risk-based capital standard comprises multiple 
projects, most of which will not be concluded until later this year. 
Rather than delay in order to present an entire proposal, OFHEO 
believes the public interest is best served by publishing the results 
of completed projects that can be considered independently of the rest 
of the regulation. OFHEO's analysis, which identified the location, 
time and magnitude of the highest mortgage losses, may also be of 
public interest apart from the development of the risk-based capital 
regulation.
    In the sections titled ``Issues, Alternatives Considered, and 
Comments Received,'' this NPR discusses the ANPR comments that related 
directly to the benchmark loss experience and house price index topics. 
There were certain other issues, such as the potential impact of 
improved underwriting standards on credit losses, the application of a 
regional recession to the Enterprises' books of business, and the 
impact of recent loss mitigation programs that were raised by ANPR 
commenters in discussing the credit stress benchmark. OFHEO believes 
that those issues are more appropriately addressed in the second NPR, 
which will discuss how, or whether, to account for these factors in the 
risk-based capital stress test.

Benchmark Loss Experience

Definitions, Data, and Procedures

    OFHEO proposes to use the methodology (definitions, data, and 
procedures) described in this section to identify the benchmark loss 
experience. Alternatives OFHEO considered and the reasons for OFHEO's 
choices are discussed below in the section titled ``Issues, 
Alternatives Considered, and Comments Received.''
1. Definitions
    The 1992 Act requires OFHEO to determine the highest rate of 
default and severity of mortgage losses in contiguous areas containing 
5 percent or more of the U.S. population for a period of 2 or more 
years. OFHEO defined ``contiguous areas'' as all the areas within a 
state or a group of two or more states sharing common borders, and 
interpreted ``year'' to mean the calendar year in which a loan is 
originated (origination year). Thus, OFHEO's proposed methodology is 
designed to identify the combination of states and origination years 
from which mortgages had a higher loss rate than mortgages from any 
other qualifying state/year combination.
    OFHEO defined ``defaulted loans'' as loans that, within 10 years 
following their origination, (1) resulted in pre-foreclosure sale, (2) 
completed foreclosure, (3) resulted in real estate owned (REO), or (4) 
resulted in a credit loss to an Enterprise. For any group of loans, 
OFHEO defined the ``default rate'' as the ratio of the aggregate 
original principal balance of the defaulted loans in the group to the 
aggregate original principal balance of all loans in the

[[Page 29597]]

group. OFHEO defined ``losses'' on defaulted loans in categories 1, 2, 
or 3 above as the difference between: (1) The sum of the principal and 
interest owed when the borrower lost title to the property securing the 
mortgage; REO financing costs 21 through the date of property 
disposition; and cash expenses incurred during the foreclosure process, 
REO holding period, and property liquidation process; and (2) the sum 
of the property sales price and any other liquidation proceeds (except 
those resulting from private mortgage insurance proceeds or other 
third-party credit enhancements). Losses on defaulted loans not in 
categories 1, 2, or 3 above were defined as the amount of the financial 
loss to the Enterprise. For any group of defaulted loans, the 
``severity rate'' was defined as the aggregate losses on those loans 
divided by the aggregate original principal balance of all loans in the 
group. ``Loss rate'' for a group of loans was defined as the product of 
the default rate for those loans and the severity rate for all 
defaulted loans in that group for which loss data are available.
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    \21\ The financing costs associated with properties acquired 
through foreclosure from the time of foreclosure through property 
disposition were calculated using the average from 1982 through 1992 
of the 12-month Federal Agency constant maturity yield computed by 
Bank of America.
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2. Data
    OFHEO used the proposed methodology to identify the benchmark loss 
experience using historical loan-level data from each of the two 
Enterprises. OFHEO's analysis was based entirely on fixed-rate 
mortgages or ``FRMs'' (which were defined as conventional, 30-year, 
fixed-rate loans secured by first liens) on ``single-family 
properties'' (which were defined as single-unit, owner-occupied, 
detached properties) that were originated from 1979 to 1993. Detached 
properties were defined as single-family properties excluding 
condominiums, planned urban developments (PUDs), and cooperatives. The 
data included only loans that were purchased by an Enterprise within 12 
months after loan origination and loans for which the Enterprise had no 
recourse to the lender.
    Table 1 lists by year the number of loans, by Enterprise, used in 
the analysis. Fannie Mae's loan totals in most years are lower than 
Freddie Mac's, because Fannie Mae's data set does not include data on 
securitized loans. That Enterprise has not retained such data in a form 
that permits historical analysis.

               Table 1.--Number of Loans Used in Analysis               
------------------------------------------------------------------------
                                     Freddie     Fannie                 
         Origination year              Mac        Mae          Total    
------------------------------------------------------------------------
1979..............................     81,507     66,499         148,006
1980..............................     41,551     23,572          65,123
1981..............................     17,922     41,017          58,939
1982..............................     30,005     39,094          69,099
1983..............................    107,406     33,099         140,505
1984..............................     85,829     14,381         100,210
1985..............................    165,966     32,833         198,799
1986..............................    674,684    111,878         786,562
1987..............................    365,580     63,058         428,638
1988..............................    214,299     55,265         269,564
1989..............................    353,687     72,026         425,713
1990..............................    268,877     71,081         339,958
1991..............................    447,731    120,182         567,913
1992..............................    641,929    203,672         845,601
1993..............................    845,052    313,537       1,158,589
------------------------------------------------------------------------

    OFHEO separately analyzed default and severity data from each 
Enterprise. Default rates were calculated from loan records meeting the 
criteria specified above. Severity rates were calculated from the 
subset of defaulted loans for which loss data were available.22
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    \22\ Available data did not permit inclusion of loans on which 
credit losses occurred as a result of loan restructurings, interest 
rate buydowns, or pre-foreclosure sales.
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3. Procedures
    OFHEO calculated each Enterprise's cumulative 10-year default rate 
for a combination of contiguous states and consecutive origination 
years (state/year combination) by grouping all of the Enterprise's 
loans originated in that state/year combination. For origination years 
with less than 10 years of default experience, cumulative-to-date 
default rates were used. The two Enterprise default rates were then 
averaged, yielding an ``average default rate'' for that state/year 
combination.
    An ``average severity rate'' for each state/year combination was 
determined in the same manner as the average default rate; for each 
Enterprise, the aggregate severity rate was first calculated for all 
loans in the relevant state/year combination. The ``loss rate'' for 
each candidate state/year combination examined was calculated by 
multiplying the average default rate for that state/year combination by 
the average severity rate for that combination. The default and 
severity behavior of loans in the candidate with the highest loss rate 
constitutes the benchmark loss experience.

Characterization of the Benchmark Loss Experience

    To identify the state/year combination with the highest loss rate, 
OFHEO examined individual state data on defaults and severity for each 
Enterprise from 1979 through 1985. Based on that examination, OFHEO 
selected more than 250 potential benchmark areas with at least 5 
percent of the U.S. population that appeared to have unusually high 
loss rates for periods of 2 or more consecutive origination years. 
23 For each potential benchmark area, OFHEO calculated loss rates 
for each consecutive combination of 2-, 3-, and 4-origination years 
during the time span examined, making a total of nearly 4,000 candidate 
state/year combinations.
---------------------------------------------------------------------------

    \23\ These combinations of states and origination years are 
referred to as ``candidate state/year combinations'' or 
``candidates.''

---------------------------------------------------------------------------

[[Page 29598]]

    OFHEO also analyzed possible candidate state/year combinations that 
involved mortgage origination years with less than 10 years of loss 
experience (1986 through 1993), and compared their cumulative-to-date 
loss rates with comparable cumulative loss rates for candidate state/
year combinations involving earlier mortgage originations. None of the 
candidates involving recent mortgage originations had cumulative loss 
rates exceeding those of candidates including 10 years of loan 
histories.
    Using the proposed methodology, OFHEO identified the candidate with 
the highest loss rate. OFHEO will monitor new loss data for loans 
originated in more recent years. If OFHEO determines at a future time 
that there is a more recent candidate with a higher loss rate than the 
one described below, OFHEO may establish a new benchmark loss 
experience.
    Table 2 shows some of the principal characteristics of the 
benchmark loss experience identified using the proposed procedures 
described above.

                  Table 2.-- Benchmark Loss Experience                  
------------------------------------------------------------------------
                                                                        
------------------------------------------------------------------------
States....................................  Arkansas, Louisiana,        
                                             Mississippi, and Oklahoma  
Percentage of U.S. Population.*  .........  5.3%                        
Origination Years.........................  1983 and 1984               
Loss Rate.................................  9.4%                        
Average 10-Year Default Rate..............  14.9%                       
Average 10-Year Severity Rate.............  63.3%                       
------------------------------------------------------------------------
* Based on the percentage of 1985 U.S. population as estimated by the   
  Bureau of the Census.                                                 

    Table 3 describes the aggregate data for each Enterprise used in 
calculating the rates in Table 2. Table 3 also shows each Enterprise's 
default and severity rates. A ranking of results for the 500 candidates 
with the highest loss rates appears in the supplementary table at the 
end of the section titled ``Benchmark Loss Experience.''

    Table 3.--Data on Loans Determinnig the Benchmark Loss Experience   
------------------------------------------------------------------------
                                                Freddie Mac   Fannie Mae
------------------------------------------------------------------------
Original Balance of All Loans used in Default                           
 Rate Analysis (000s).........................     $316,930     $242,296
Original Balance of Defaulted Loans used in                             
 Default Rate Analysis (000s).................      $35,742      $44,910
Default Rate..................................       11.28%       18.54%
Original Balance of Defaulted Loans used in                             
 Severity Rate Analysis (000s)................      $14,107      $30,749
Losses on Defaulted Loans used in Severity                              
 Rate Analysis (000s).........................       $8,597      $20,166
Severity Rate.................................       60.94%       65.58%
------------------------------------------------------------------------

    Some comparisons with other loss experiences help put these results 
in perspective. Texas loans originated in the early 1980s are sometimes 
considered a reference point for high loss experiences. Using the 
methodology and data to identify the proposed benchmark loss 
experience, the worst loss rate for Texas was 7.3 percent for loans 
originated in 1982 and 1983. Loss rates within the state were very 
uneven, however. In the 2-digit ZIP Code including Houston, Beaumont, 
and Bryan (77xxx), the loss rate for those years was 11.0 percent. 
Similarly, in the El Paso and West Texas area (79xxx), the loss rate 
was 9.8 percent.
    The loss rate of benchmark loans is much higher than a normal or 
typical rate. The aggregate loss rate for the contiguous 48 states and 
the District of Columbia for all origination years from 1979 through 
1985 was 2.1 percent, which is less than one-quarter of the rate for 
benchmark loans. The benchmark loss experience can also be compared 
with Federal Housing Administration (FHA) experience. The 10-year 
cumulative default rate for FHA loans originated in all states and the 
District of Columbia in 1981 was 19.1 percent, more than one-quarter 
higher than the average default rate of the benchmark loss 
experience.24
---------------------------------------------------------------------------

    \24\ An Actuarial Review for Fiscal Year 1994 of the FHA's 
Mutual Mortgage Insurance Fund: Final Report, Appendix F, May 8, 
1995.
---------------------------------------------------------------------------

    The LTV ratios of loans are good indicators of the likelihood of 
default and the severity of losses on defaulted loans. Table 4 shows 
average default, severity, and loss rates from the benchmark loss 
experience. These rates further characterize the benchmark loss 
experience.25
---------------------------------------------------------------------------

    \25\ Losses experienced by the Enterprises on loans with LTV 
ratios of more than 80 percent were reduced considerably from the 
loss rates shown in the table by proceeds of mortgage insurance. 
Overall, mortgage insurance proceeds offset more than one-quarter of 
the losses on benchmark loans. See discussion of mortgage insurance 
in the stress test in the section ``Implications of the Benchmark 
Loss Experience for the Stress Test'' below.

Table 4.--Default, Severity, and Loss Rates of Benchmark Loans by LTV at
                              Origination*                              
------------------------------------------------------------------------
                                              Average   Average         
                  LTV range                   default  severity    Loss 
                                                rate     rate      rate 
------------------------------------------------------------------------
60%..............................     2.2%     43.5%     1.0%
>60%, 70%........................     3.5%     46.2%     1.6%
>70%, 75%........................     7.9%     50.1%     3.9%
>75 80...........................     9.4%     58.9%     5.5%
>80%, 85%........................    12.0%     55.0%     6.6%
>85%, 90%........................    17.7%     60.2%    10.7%
>90%........................................    26.4%     69.0%    18.2%
------------------------------------------------------------------------
* In addition to the benchmark loans classified by LTV range to produce 
  these results, a large portion (roughly half) of the loans provided by
  one Enterprise have no LTV information available. The average default 
  rate on those loans was 12.2 percent.                                 

    To place these rates in a broader context, they can be compared 
with the loss coverage requirements established by the rating agencies 
for the rating of securitized mortgage pools that are not guaranteed by 
the Enterprises. To receive a given rating, the security structure must 
incorporate protection against credit losses, with higher ratings 
requiring greater loss protection. Each rating agency has its own 
methodology for determining loss coverage requirements (the required 
loss protection as a percentage of the total loan principal at the time 
a pool is formed), but all are based in some way on stress tests or 
default models calibrated to various severe historical episodes. 
Different loss rates have

[[Page 29599]]

become associated in the industry with different ratings, which in turn 
have been associated with hypothetical or actual historical experiences 
of varying severity by the rating agencies in their publications.
    The rating agency loss coverage requirements are a relevant 
industry point of reference from which to gauge the mortgage credit 
losses of the benchmark loss experience. A rating agency's loss 
coverage requirement represents a projected cumulative loss experience 
of a fixed pool of mortgage loans. Once the loans in a fixed pool are 
identified, none is replaced and no additional loans are added to the 
pool; the pool dwindles over time as loans mature, prepay, or default. 
The benchmark loss experience is, in effect, the average experience of 
two fixed pools, one for each Enterprise.
    Four rating agencies are active in the rating of mortgage pools: 
Standard and Poor's Ratings Group (S&P), Moody's Investors Service 
(Moody's), Fitch Investors Service, Inc. (Fitch), and Duff & Phelps 
Credit Rating Co. (Duff & Phelps). Although their methodologies differ, 
they are sufficiently similar to permit a comparison of the benchmark 
results with each of the four rating scales. In all cases, the 
published ``base case'' loss coverage requirements apply to a large, 
nationally diverse pool of good-quality, newly-originated, 30-year, 
fixed-rate loans on owner-occupied, single-family dwellings; and the 
loss coverage requirements vary based on the distribution of LTV ratios 
in the pool.
    For purposes of comparison, Table 5 shows the required loss 
coverage requirements, by rating agency and rating, for a hypothetical 
pool of newly-originated FRMs 26 with a given distribution of LTV 
ratios. These coverage requirements are indicative of rating agency 
requirements derived from agency publications. Requirements for actual 
pools are adjusted to take into account a variety of factors other than 
LTV ratios, such as different mortgage products, underwriting 
standards, servicing practices, and regional economic considerations.
---------------------------------------------------------------------------

    \26\ See issue 2. ``Data'' under section ``Definitions, Data, 
and Procedures'' above.
---------------------------------------------------------------------------

    Applying the LTV-specific loss rates of the benchmark loss 
experience (shown in Table 4) to a pool with the hypothetical LTV 
distribution shown in the note to Table 5 yields an overall loss rate 
of 6.2 percent, a rate roughly comparable to the loss coverage 
requirements for double A rated securities backed by such a pool.

Table 5.-- Loss Coverage Requirements For a Pool With a Hypothetical LTV
            Distribution, by Rating Level and Rating Agency*            
------------------------------------------------------------------------
                                                                  Duff &
            Rating level                S&P    Moody's   Fitch    Phelps
------------------------------------------------------------------------
Triple A............................     9.2%     n.a.     9.1%     8.0%
Double A............................     5.7%   **7.0%     6.0%     4.9%
Single A............................     4.1%     n.a.     n.a.     2.7%
------------------------------------------------------------------------
n.a. = not available.                                                   

Weighted Loss Rate, Benchmark Loss Experience, Using the Same 
Hypothetical LTV Distribution--6.2%
    * Derived by OFHEO from numerical requirements published by the 
rating agencies, for a large, nationally diverse pool of newly-
originated, single-family, 30-year, fixed-rate mortgages with LTV 
ratios of loans distributed as follows:

------------------------------------------------------------------------
                                                                Percent 
                          LTV range                             of loans
                                                                in pool 
------------------------------------------------------------------------
0%60%.........................................         15
60%70%........................................         15
70%75%........................................         15
75%80%........................................         15
80%85%........................................         15
85%90%........................................         15
90%95%........................................         10
------------------------------------------------------------------------

Loss coverage requirements for specific pools may reflect many pool 
characteristics other than LTV distribution. In this table, Fitch 
coverage rates are based on medians of individual Metropolitan 
Statistical Areas requirements; Moody's and Duff & Phelps rates are 
based on rates for mortgages with intermediate risk characteristics 
(those that receive a risk factor of one). For the underlying LTV-
specific requirements and for further details, see S&P, Residential 
Mortgages: Criteria, Statistics, Credit Week, Oct. 25, 1993; 
Moody's, Moody's Approach to Rating Residential Mortgage Pass-
Throughs, Structured Finance Research and Commentary: Special Report 
(1995); Fitch, Fitch Mortgage Default Model, Fitch Research, June 
28, 1993; and Duff & Phelps Residential Mortgage-Backed Securities 
Group, The Rating of Residential Mortgage-Backed Securities, Oct. 
1995.
    ** Moody's has informed OFHEO that its current practice differs 
from that described in its 1991 publication. The coverage 
requirement for ``AA'' rating, consistent with the assumptions of 
the table, now would be 5.6%.

Implications of the Benchmark Loss Experience for the Stress Test

    The stress test subjects the Enterprises to severe credit losses 
and extreme interest rate changes. The benchmark loss experience will 
be the basis for determining mortgage credit losses that the 
Enterprises will experience during the stress period. Although the 
benchmark loss experience relates most directly to single-family 
FRMs,27 losses on other mortgage assets and guarantees also will 
be related to the benchmark experience in the stress test in a manner 
that reflects the different risk characteristics of other mortgages 
compared with those of single-family FRMs.
---------------------------------------------------------------------------

    \27\ The term ``single-family FRM'' is used to mean an FRM 
secured by a single-family property.
---------------------------------------------------------------------------

    The projection of credit losses on an Enterprise's loans in the 
stress period will not involve direct application of the loss rate of 
the benchmark loss experience. That experience reflects the specific 
characteristics of the benchmark loans and the economic circumstances 
affecting the default and severity behavior of those loans. The 
characteristics of an Enterprise's loans during any application of the 
stress test (stress test loans) will differ from those of benchmark 
loans in a number of important ways. In addition to differences in 
mortgage product type,28 differences in the mix of LTV ratios may 
be especially important, and OFHEO will design the stress test to take 
account of them. These differences in LTV ratios will reflect 
differences between the original LTVs of benchmark loans and those of 
an Enterprise's stress test loans. LTV ratios of stress test loans also 
will differ from those of benchmark

[[Page 29600]]

loans because most stress test loans will not be newly-originated 
loans. The LTV ratios of stress test loans will reflect house price 
changes subsequent to origination. Many will have lower LTV ratios than 
they originally did, but some will be higher, and a few will have LTV 
ratios that are higher than the highest original LTV ratios of 
benchmark loans. OFHEO is also considering whether and in what manner 
to incorporate the effect of a loan's age on the likelihood and timing 
of default in the stress test. Loan age is another factor that will 
distinguish some stress test loans from those in the benchmark loss 
experience, because some of the stress test loans will be older than 
the oldest benchmark loans.
---------------------------------------------------------------------------

    \28\ The 1992 Act, section 1361(d)(2), defines ``type of 
mortgage product'' to mean a classification of mortgages based upon 
characteristics that include: (1) the type of property securing the 
mortgages (e.g., single-family, PUD, etc.), (2) the interest rate 
type (fixed, adjustable, balloon, etc.), (3) the priority of the 
liens securing the mortgages, and (4) the terms of the mortgages (15 
years, 30 years, etc.) (12 U.S.C. 4611(d)(2)).
---------------------------------------------------------------------------

    To incorporate properly the effects of differences in LTV ratios, 
age of loans, and mortgage product type in the stress test, OFHEO is 
examining the effects of these factors on the default and severity 
behavior of a broader sample of loans than those of the benchmark loss 
experience.
    Differences between the economic environment of the stress test and 
the environment affecting benchmark loans might also be expected to 
affect loan performance. The levels and patterns of change in interest 
rates will differ considerably among alternative interest rate 
scenarios and will not match the interest rate history of the time 
period affecting benchmark loans. Such differences in interest rates 
might reasonably be associated with differences in prepayments and 
house prices, which could have a significant impact on credit losses. 
OFHEO is considering whether or to what extent to take into account in 
the stress test the effect of interest rates on prepayments and house 
prices. In doing so, the stress test must incorporate the statutory 
requirement that the stress test take into account the effect of a 
correspondingly higher rate of general price inflation, if the 10-year 
CMT yield is assumed to increase more than 50 percent during the stress 
period.29
---------------------------------------------------------------------------

    \29\ 1992 Act, section 1361(a)(2)(E) (12 U.S.C. 4611(a)(2)(E)).
---------------------------------------------------------------------------

    The purpose of incorporating the effects of some or all of these 
factors (and possibly others) is to make the stress test better reflect 
the risks, under stress test conditions, of loans owned or guaranteed 
by the Enterprises. OFHEO plans to design the test so that losses on 
loans with characteristics matching those of the benchmark loans would 
be projected, under economic circumstances matching those affecting the 
benchmark loans, to occur at the same rate of default and severity as 
the benchmark loans. However, as discussed above, projected credit 
losses will differ from benchmark losses to reflect key differences in 
risk affecting each Enterprise's stress test loans. The stress test 
will also take into account, for example, offsetting receipts from 
mortgage insurance, recourse, and other credit enhancements. OFHEO will 
present the specific methodology for determining credit losses in the 
stress test in the second NPR.

Issues, Alternatives Considered, and Comments Received

    OFHEO encountered a number of methodological issues in identifying 
the benchmark loss experience. Many of these issues were mentioned 
specifically in the ANPR. In this section, OFHEO addresses the issues, 
discusses alternative methodologies it considered, and responds to 
related comments received on the ANPR.
    OFHEO chose procedures best designed to identify the worst loss 
experience (meeting statutory time, contiguity, and population 
requirements) for mortgage loans with characteristics similar to those 
purchased or guaranteed by both Enterprises. In choosing among 
alternatives, OFHEO sought approaches that were most appropriate for 
setting capital standards. Because capital standards should be clear 
and predictable, OFHEO favored straightforward approaches over those 
that might require needlessly complex computations or frequent 
adjustments or changes to the benchmark loss experience. Wherever 
appropriate for setting capital standards, OFHEO resolved issues in 
ways that were consistent with analytical practices within or related 
to the residential mortgage industry. In particular, OFHEO looked to 
the practices of credit rating agencies and how the rating agencies 
analyze the credit risk of securitized mortgage pools, as credit rating 
agency practices often are published and readily available. OFHEO also 
considered practices of the Enterprises, mortgage insurers, and, as 
appropriate, the regulators of portfolio lenders. OFHEO also favored 
approaches that would make best use of the data available for analysis.
1. Data Sources Used to Define the Benchmark Loss Experience
    The ANPR requested comment on whether OFHEO should use data from 
sources other than the Enterprises to identify the benchmark loss 
experience. After considering the issue, OFHEO is proposing to use only 
Enterprise data. OFHEO has concluded that the two Enterprise data sets 
are the most relevant sources currently available for determining a 
benchmark loss experience for use in a risk-based capital stress test. 
The choice is consistent with the general practice of banking and 
thrift industry regulators and the credit rating agencies, which use 
data on the loss experience of the relevant industry in determining 
capital adequacy.
    Non-Enterprise mortgage default and severity data are necessarily 
less representative of the experience of loans owned or guaranteed by 
these large secondary mortgage market companies. FHA data, for example, 
reflect the very different market focus of that agency. A large portion 
of FHA loans would not have met Enterprise underwriting guidelines, and 
would, therefore, be expected to exhibit risk characteristics different 
from those of the loans that the Enterprises purchased or guaranteed.
    OFHEO was in a unique position to obtain and analyze extensive data 
on the loss experience of individual Enterprise loans. This data 
included information on a large portion of loans originated and 
purchased since 1979. Severity data were available for a majority of 
the defaulted loans, which was sufficient for OFHEO's analysis.
    The majority of comment letters supported the exclusive use of 
Enterprise data. One commenter, America's Community Bankers (ACB), 
however, suggested that it would be inconsistent with the 1992 Act to 
rely solely on Enterprise data if, as a result, a relatively recent 
period of severe losses might be overlooked. The same commenter stated 
that ``[t]he Federal Housing Administration and credit bureau data that 
are identified as supplementary sources [in the ANPR] should also be 
accompanied by private mortgage insurance data.'' For the reasons cited 
above, OFHEO believes that the exclusive use of Enterprise data to 
identify the benchmark loss experience is the most reasonable approach. 
OFHEO agrees that if using only Enterprise data would cause a recent 
period of severe losses to be overlooked, other data should be included 
in the analysis. However, the quantity and detail of the Enterprise 
data are such that those data reflect losses in recent periods as well 
as or better than data from any other sources.
2. Loan and Property Types Included in the Benchmark Analysis
    OFHEO proposes to use single-family FRMs in the benchmark analysis. 
The analysis excludes other loan types, such as adjustable-rate and 
balloon mortgages and loans secured by other property

[[Page 29601]]

types such as multi-unit and 2- to 4-unit structures, condominiums, 
PUDs, or cooperatives.
    OFHEO believes it is appropriate to identify the benchmark loss 
experience on the basis of single-family FRMs because of the 
homogeneity of these mortgages and their preponderance in the 
Enterprises' portfolios and mortgage-backed securities, especially in 
the early 1980s. Data on these mortgages are available from both 
Enterprises in all regions for loans originated in 1979 and 
subsequently. Single-family FRMs accounted for over three-quarters of 
the total dollar volume of Enterprise mortgages purchased between 1981 
and 1985 and nearly two-thirds of mortgages purchased between 1986 and 
1990.30
---------------------------------------------------------------------------

    \30\ Congressional Budget Office, Controlling the Risks Of 
Government-Sponsored Enterprises, at 125 (April 1991).
---------------------------------------------------------------------------

    OFHEO's proposed approach is supported by the legislative history 
of the 1992 Act. The House and Senate Committee reports both suggested 
that OFHEO should rely on single-family FRMs in identifying the 
benchmark loss experience. The House report explained that:

    Conventional, 30-year, fixed-rate, single-family mortgages 
account for about two-thirds of the mortgages purchased by Fannie 
Mae and Freddie Mac in each year. The most reliable loan performance 
data the enterprises possess pertain to such loans.31

    \31\ Government-Sponsored Enterprises Financial Safety and 
Soundness Act of 1991, H.R. Rep. No. 206, 102d Cong., 1st Sess. 66 
(1991).
---------------------------------------------------------------------------

    The House report also stated that:

    The bill would require the Director to measure rates of default 
in a manner that was reasonably related to prevailing industry 
practice.
    Prevailing industry practice at this time, as reflected by the 
practices of Fannie Mae, Freddie Mac, mortgage insurers and rating 
agencies, is to utilize estimated lifetime default rates of a group 
of mortgages with similar characteristics, e.g. product type and 
loan-to-value ratio, originated over a specific time period.32

    \32\ Id.
---------------------------------------------------------------------------

    The Senate report counseled that:

    The Director is only required to use data from the Benchmark 
origination years on rates of default and loss severity for the most 
common type or types of mortgages held or guaranteed during that 
period. Loss rates on other types of mortgages should be related to 
loss rates on the ``standard'' mortgage types according to 
prevailing practice * * *.33

    \33\ Federal Housing Enterprises Regulatory Reform Act of 1992, 
S. Rep. No. 282, 102d Cong., 2d Sess. 21 (1992).
---------------------------------------------------------------------------

    The use of data on single-family FRMs from a historically stressful 
period to establish a standard for evaluating potential future credit 
losses is also consistent with credit rating agency practice. For 
example, single-family FRMs constitute the benchmark mortgage product 
type for the four rating agencies.34  Lack of data on other 
mortgage product types is likely a major reason for this practice. As 
noted above, the volume of Enterprise loans secured by other mortgage 
product types during the early and middle 1980s was very small relative 
to the volume of single-family FRMs purchased or guaranteed by the 
Enterprises. These small sample sizes were an additional factor in 
OFHEO's decision not to include different mortgage types in its 
analysis. For purposes of the stress test, OFHEO will estimate the risk 
characteristics (and, ultimately, project the loss rates) of other 
Enterprise mortgage product types using all relevant historical data. 
This part of the stress test analysis will be discussed in detail in 
the second NPR.
---------------------------------------------------------------------------

    \34\ Fitch and Moody's note that they reduce the risk of 15-year 
mortgages in their mortgage default models, implying that single-
family FRMs are the standard. See, e.g., Fitch, Fitch Mortgage 
Default Model, Fitch Research, June 28, 1993, at 9; and Moody's, 
Moody's Approach to Rating Residential Mortgage Pass-Throughs, 
Structured Finance Research and Commentary: Special Report (1995), 
at 10-14. However, S&P and Duff & Phelps explicitly note that 30-
year FRMs are the standard. S&P, Residential Mortgages: Criteria, 
Statistics, Credit Week, Oct. 25, 1993, at 20; and Duff & Phelps, 
The Rating of Residential Mortgage-Backed Securities, Oct. 1995, at 
15.
---------------------------------------------------------------------------

    All of the ANPR comments that discussed the issue of which mortgage 
product type(s) to include in the benchmark analysis were consistent 
with OFHEO's general approach of analyzing only the most common 
mortgage product types purchased by the Enterprises. While agreeing 
with OFHEO's general approach, Fannie Mae suggested a minor variation: 
to base the single benchmark loss experience on ``fixed rate, 30-year, 
conventional mortgages on single-family, owner-occupied, primary 
residences,'' thus implicitly including condominiums, PUDs, and 
cooperatives. OFHEO considered this option, but concluded that loans 
secured by condominiums, PUDs, and cooperatives should not be included, 
because they are significantly different types of properties and 
involve fees and contractual agreements with third parties that may 
cause the default and severity experience of the loans to differ from 
that of single-family mortgages. OFHEO decided not to include 
multifamily loans in the identification of the benchmark loss 
experience because, as highlighted in the ANPR and reinforced by many 
comments, multifamily loans and the properties underlying these loans 
present significantly different credit, market, and institutional risks 
to the Enterprises than do single-family mortgages.
3. Determination of a Single Benchmark State/Origination Year 
Combination or a Separate Area and Period for Each Enterprise
    The ANPR also suggested that OFHEO might combine, in some fashion, 
data from the two Enterprises before determining the state/origination 
year combination with the worst joint loss experience, or, 
alternatively, that OFHEO might determine the worst experience for each 
Enterprise separately. If the latter approach were adopted, the ANPR 
suggested the possibility of using a simple or weighted average of 
default rates to derive the single benchmark loss experience to apply 
to both Enterprises in the stress test.
    OFHEO is proposing to identify the benchmark loss experience on the 
basis of a single benchmark state/origination year combination 
representing the worst combined loss experience on mortgages owned or 
guaranteed by the Enterprises. All the comments were consistent with 
this proposal.
4. Role of Severity Data in Identifying the Benchmark Loss Experience
    The ANPR suggested that, as an alternative to identifying a 
specific area and time period that experienced the highest overall loss 
rate, OFHEO might need to use severity data from different sources, 
time periods, or areas than those used to determine the average default 
rates in the benchmark loss experience. OFHEO was concerned at the time 
the ANPR was published that the quality or quantity of severity data 
might be inadequate to derive benchmark loss rates. Subsequently, OFHEO 
obtained severity data from the Enterprises that were adequate to 
determine severity experience from all potential benchmark areas and 
origination years. Severity data were available for 58% of defaulted 
loans and in higher percentages for later origination years. OFHEO, 
therefore, proposes to identify the benchmark loss experience on the 
basis of the worst loss experience of Enterprise loans, rather than 
only the worst default experience. This approach is consistent with all 
comments on the issue.
    Some commenters apparently concluded that OFHEO was considering 
identifying separately the states and origination years with the 
highest default rate and the states and origination years with the 
highest severity rate, and then combining them

[[Page 29602]]

to establish the overall benchmark loss rates. OFHEO did not intend to 
suggest such a synthesis of two different historical experiences. In 
OFHEO's view, such an approach would be inconsistent with the 
provisions of the 1992 Act and its legislative history; first, because 
it could result in an overall benchmark loss rate not ``reasonably 
related'' to any actual historical loss experience and, second, because 
the House and Senate reports consistently describe ``experience'' in 
the singular.35
---------------------------------------------------------------------------

    \35\ See H.R. Rep. No. 206, at 65-6, and S. Rep. No. 282, at 21.
---------------------------------------------------------------------------

5. Definition of ``Default Rate''
    a. In General. OFHEO defined the default rate of a group of loans 
as the ratio of the aggregate original principal balance of the 
defaulted loans in the group to the aggregate original principal 
balance of all loans in the group. Although default rates are sometimes 
defined as the number of defaulted loans divided by the number of loans 
in the group, the dollar values more accurately describe the economic 
impact if large and small loans default at different rates.
    The Enterprise data used in the default analysis did not include 
balances at the date of last paid installment (LPI). In some 
circumstances, the best measurement of default rates using dollar 
values would be based upon principal balances at the LPI date, rather 
than the original principal balance. However, that is not so in this 
case, because the ultimate focus of the analysis was loss rates, not 
default rates, and loss rates are a product of default and severity 
rates.36
---------------------------------------------------------------------------

    \36\ See issue 6. ``Definitions of ``Severity Rate'' and 
``Losses'.''
---------------------------------------------------------------------------

    b. Interpretation of ``Years''. OFHEO considered two approaches to 
analyzing default rates, one based upon origination years (origination 
year approach) and one based upon exposure years (exposure year 
approach). Under an origination year approach, mortgage loans 
originated during specified years are tracked as a group until maturity 
or some intermediate term. Default rates for that group of loans over 
the specified term are expressed as the cumulative defaulted loan 
balances divided by the sum of the original balances of all the loans 
in the group. Exposure year default rates, in contrast, are calculated 
for ``exposure years,'' which are the years in which the loans are 
subject to default. Exposure year default rates are expressed as the 
aggregate balances on all loans (from all origination years) that 
defaulted during a given period of consecutive exposure years divided 
by the unpaid balances of all loans active at the start of that period.
    OFHEO proposes to identify the benchmark loss experience using an 
origination year approach. OFHEO favors the origination year standard 
because (1) it is consistent with industry practice; (2) it is the 
approach that was anticipated in the legislative history; and (3) using 
an exposure year approach would have required annual information on 
unpaid balances, which was not included in the Enterprises'' data on 
individual loans and would have required reliance on estimates.
    Industry practice is to measure default and loss rates based on 
origination year data. Moody's Residential Mortgage-Backed Securities 
Credit Indices are broken out by origination year, as are S&P's 
surveillance reviews.37 The Congressional Committees that 
considered the 1992 Act understood that prevailing industry practice 
was to measure rates of loss based on origination years. The House 
report states: ``Prevailing industry practice at this time, as 
reflected by the practices of Fannie Mae, Freddie Mac, mortgage 
insurers and rating agencies, is to utilize estimated lifetime default 
rates of a group of mortgages with similar characteristics, e.g. 
product type and loan-to-value ratio, originated over a specific time 
period.'' 38 Similarly, the Senate report provides: ``Currently, 
the prevailing practice in the Committee's judgment is to examine 
losses by origination year, that is, losses on mortgages purchased by 
the [Enterprises] in a particular year.'' 39 Although loans 
purchased in a particular year include some loans that were not 
originated in that year, this recommendation is consistent with OFHEO's 
general approach.
---------------------------------------------------------------------------

    \37\ See, e.g., S&P, Study Tracks MBS Loss and Default 
Experience, Credit Week, June 19, 1995 (credit rating agency 
practice); Moody;s, Residential Mortgage-Backed Securities Credit 
Indices Update: Are Slipping ARM Delinquencies Another Signal of 
Consumer Debt Problems?, Structured Finance Credit Index, Dec. 15, 
1995 (same). See also Mortgage Information Corp., The Market Pulse, 
Sept. 1995 (securities industry practice).
    \38\ H.R. Rep. No. 206, at 66.
    \39\ S. Rep. No. 282, at 20.
---------------------------------------------------------------------------

    Most commenters, including the Department of Veterans Affairs, both 
Enterprises, and two trade associations, the Mortgage Bankers 
Association of America (MBA) and the National Association of Realtors 
(NAR), favored the origination year approach. These commenters viewed 
that approach as the most consistent with industry practice. For 
instance, MBA noted that, because of its predictive value, the 
origination year approach is used by Fannie Mae, Freddie Mac, and the 
lending industry.
    Without stating a clear preference, HUD stated that an exposure 
year approach would be more appropriate for a stress test that assumes 
no new business. The comment may reflect a view that the loss 
experience of a mixture of old and new loans would be a more 
appropriate benchmark experience than the experience of newly-
originated loans, because the Enterprises would be purchasing 
relatively few new loans during the stress period. ACB was the only 
commenter clearly preferring the exposure year approach. Its suggestion 
that an exposure year approach dovetails better with what it described 
as the ``foreclosure/disposition orientation'' of the 1992 Act appears 
to be based on similar reasoning. OFHEO believes that HUD's and ACB's 
concern will be dealt with in the stress test, which will take into 
account seasoning, age, amortization, and other factors that are found 
to affect losses on loans. Thus, the stress test will not necessarily 
project the same loss rate for two loans of different ages that are 
otherwise similar.
    c. Definition of ``Defaulted Loans''. OFHEO defined ``defaulted 
loans'' as loans that, within 10 years following their origination, (1) 
resulted in pre-foreclosure sale, (2) completed foreclosure, (3) 
resulted in REO, or (4) resulted in a credit loss to an Enterprise. The 
Enterprises'' data provided little information on loss mitigation 
techniques such as sales prior to completion of foreclosure, loan 
restructurings, or interest rate buydowns. Although one Enterprise's 
data did identify loans that resulted in pre-foreclosure sales, it was 
not possible to include any other loans that were subject to loss 
mitigation efforts unless they resulted in a completed foreclosure or 
in REO. Data sufficient to determine loans on which these techniques 
were applied and the amounts of loss involved exist only for very 
recent years.
    OFHEO's definition only includes defaults that occurred within 10 
years after origination, which facilitated comparisons of data from 
different origination years. Although OFHEO could have estimated 
lifetime default rates for all groups of loans, that approach would 
have required assumptions and extrapolations. It would be unlikely to 
yield a different benchmark experience because the data indicate that 
the vast majority of mortgage defaults occur within 10 years of 
origination. Further, a 10-year rate is

[[Page 29603]]

consistent with the 10-year time span of the stress test.
    All commenters who addressed the issue supported OFHEO's general 
approach to defining default. OFHEO agreed with the thrust of all these 
comments, which were concerned with avoiding counting as ``defaults'' 
loans that are brought current or rehabilitated without loss to the 
Enterprises.
    ACB would have adjusted OFHEO's definition of default to account 
for the effects of loss mitigation, because foreclosure is not the only 
outcome under which the Enterprises may suffer loss. OFHEO agrees with 
this comment. However, as noted above, comprehensive information on 
most types of loss mitigation is unavailable in the historical data 
available to OFHEO.
6. Definitions of ``Severity Rate'' and ``Losses''
    For any group of defaulted loans, the ``severity rate'' was defined 
as the aggregate losses on those loans divided by the aggregate 
original principal balance of all loans in the group. OFHEO defined 
``losses'' on defaulted loans in categories 1, 2, or 3 of the 
definition of defaulted loans as the difference between: (1) The sum of 
the principal and interest owed when the borrower lost title to the 
property securing the mortgage; REO financing costs 40 through the 
date of property disposition; and cash expenses incurred during the 
foreclosure process, REO holding period, and property liquidation 
process; and (2) the sum of the property sales price and any other 
liquidation proceeds (except those resulting from private mortgage 
insurance proceeds or other third-party credit enhancements). Losses on 
defaulted loans not in categories 1, 2, or 3 of the definition were 
defined as the amount of the financial loss to the Enterprise.
---------------------------------------------------------------------------

    \40\ The financing costs associated with properties acquired 
through foreclosure from the time of foreclosure through property 
disposition were calculated using the average from 1982 through 1992 
of the 12-month Federal Agency constant maturity yield computed by 
Bank of America.
---------------------------------------------------------------------------

    This definition is consistent with industry practice. Duff & 
Phelps, Moody's, and S&P include all of these items in their respective 
definitions of severity. Proceeds from mortgage insurance are sometimes 
included; however, as discussed below, OFHEO did not include mortgage 
insurance proceeds for purposes of determining the benchmark loss 
experience.41 Some accounting definitions of loss do not include 
lost interest on the loans or REO financing costs because these costs 
are reflected elsewhere in a company's financial statements. OFHEO 
determined that its definition better reflects the economic losses on 
defaulted loans and is, therefore, more appropriate.
---------------------------------------------------------------------------

    \41\ See, e.g., Duff & Phelps, The Rating of Residential 
Mortgage-Backed Securities, Oct. 1995, at 18; Moody's, Moody's 
Approach to Rating Residential Mortgage Pass-Throughs, Structured 
Finance Research and Commentary: Special Report (1995), at 9, 13; 
and S&P, Residential Mortgages: Criteria, Statistics, Credit Week, 
Oct. 25, 1993, at 18.
---------------------------------------------------------------------------

    Consistent with the calculation of default rate discussed above, 
OFHEO calculated severity rate as a percentage of the original balance, 
rather than the balance at the LPI date of the defaulted loans. Loss 
rates are the product of the default and severity rates. Because the 
balances of defaulted loans appear in the numerator of default rate 
calculations and in the denominator of severity rate calculations, 
errors in measuring those balances will tend to be offsetting when the 
two rates are multiplied in the calculation of loss rates. If it were 
possible, it would have been more accurate to use balances of defaulted 
loans at LPI date for both rates, but using original balances for both 
should have little effect on loss rates.
    Fannie Mae's ANPR comment suggested that OFHEO should define 
``losses'' to incorporate the proceeds of mortgage insurance. OFHEO is 
proposing to exclude the impact of mortgage insurance and other third-
party credit enhancements from consideration in identifying the 
benchmark loss experience because the 1992 Act requires OFHEO to 
identify the highest credit losses on mortgages, not the highest net 
credit losses to the Enterprises. Moreover, third-party sources of 
credit support vary in scope, terms and type of coverage, and can 
change (and have changed) over time. OFHEO intends to propose in the 
second NPR how the stress test will take into account the impact of 
third-party credit enhancements on mortgage losses.
7. Definition of ``Contiguous Areas''
    The 1992 Act requires that the benchmark loss experience must have 
``occurred in contiguous areas of the United States containing an 
aggregate of not less than 5 percent of the total population of the 
United States * * *.'' 42 In determining the appropriate level of 
geographic aggregation to employ in identifying the benchmark area, 
OFHEO considered using entire states or using substate areas based on 
the first two or three digits of ZIP Codes. After considering the 
various options, OFHEO decided to use states as the lowest level of 
aggregation. OFHEO will consider using substate areas in the future, 
taking into account changing geographic patterns of loss as well as any 
new developments in data aggregation technology, if appropriate.
---------------------------------------------------------------------------

    \42\ Section 1361(a)(1) (12 U.S.C. 4611 (a)(1)).
---------------------------------------------------------------------------

    OFHEO found that states are the most logical, efficient, and 
reasonable geographic units from which to construct a benchmark area. 
Although rating agencies conduct studies at various levels of 
aggregation, analysis at the state level is common practice. For 
example, Moody's has established diversification criteria for loan 
pools based on loan distribution by state, and, in stress tests, both 
Moody's and Duff & Phelps have projected mean times to foreclosure 
based on state locations.43
---------------------------------------------------------------------------

    \43\ Duff & Phelps, The Rating of Residential Mortgage-Backed 
Securities, Oct. 1995, at 31; and Moody's, Moody's Approach to 
Rating Residential Mortgage Pass-Throughs, Structured Finance 
Research and Commentary: Special Report (1995), at 19.
---------------------------------------------------------------------------

    The level of geographic aggregation has a significant impact on the 
level of potential benchmark loss rates. In general, the smaller the 
geographic units used, the higher the loss rates that can be 
identified. By connecting pockets of severe losses with narrow parcels 
of land, OFHEO could create an area with extremely high loss rates.
    However, such a result is not consistent with the intent of the 
legislation, which envisioned that the benchmark area would be 
``reasonably compact.'' 44 Furthermore, use of areas defined by 
ZIP Code would have greatly complicated the process of identifying the 
benchmark area by enormously increasing the number of candidates 
requiring consideration.
---------------------------------------------------------------------------

    \44\ S. Rep. No. 282, at 20.
---------------------------------------------------------------------------

    Commenters who addressed this issue unanimously supported the use 
of states as the smallest geographic unit in the benchmark analysis. 
MBA suggested that a contiguous area based on smaller units could look 
``gerrymandered'' and that ``[f]inding the exact combination [of 
counties and metropolitan statistical areas] to produce the most severe 
loss results * * * should not be the goal.'' Freddie Mac observed that 
``using finer geographic areas [than states] would present significant 
computational difficulties in aggregating to five percent of the 
population.''
8. Procedures for Accounting for Different LTV Ratios
    LTV ratios are highly correlated with mortgage losses. Therefore, 
the different distributions of LTV ratios in candidate state/year 
combinations have an impact

[[Page 29604]]

on the relative loss rates of those candidates. In the ANPR, OFHEO 
suggested it would consider grouping loans by LTV ratio, computing 
separate default or loss rates for loans in each LTV range, and 
computing overall default or loss rates by assuming some standard 
distribution of LTV ratios and weighting the LTV-specific loss rates 
according to this distribution. After further evaluation, OFHEO has 
decided to compute loss rates for candidates on a dollar weighted 
basis, that is, based on loan balances without regard to LTV ratios.
    OFHEO selected the simpler approach for three reasons. First, in 
many candidate state/year combinations there are too few loans in some 
LTV ranges for meaningful analysis. Second, OFHEO has found no 
acceptable basis to justify using any specific LTV weights to identify 
the benchmark loss experience. Finally, weighting loss rates by LTV 
category would be inconsistent with the intent of the 1992 Act that 
OFHEO determine the worst actual mortgage loss experience. Although the 
effects on mortgage losses of different LTV distributions are not 
controlled for in the identification of the benchmark loss experience, 
those effects will be accounted for in the stress test.
    Fannie Mae commented that in comparing candidates, loss rates 
``should be constructed from LTV-specific default and severity rates, 
weighted by the proportions of loans outstanding in the current book of 
business.'' The rationale for this approach is that, because 
distributions of LTV ratios at origination in candidate state/year 
combinations will differ from the Enterprises' current LTV 
distribution, loss rates of candidates should be normalized (weighted 
by the current book of business) to provide the most relevant measure 
of risk exposure.
    For the reasons discussed above, OFHEO believes Fannie Mae's 
suggested weighting approach is inappropriate in the benchmark 
analysis. Further, because LTV distributions change constantly and 
changing LTV weightings will alter loss figures for candidate state/
year combinations, Fannie Mae's approach would necessitate the frequent 
reconsideration of candidates, increasing the unpredictability and 
regulatory burden of the risk-based capital regulation.
9. Procedures for Combining Data from Different States and Years in 
Computing Default and Severity Rates
    In computing default and severity rates for specific candidate 
state/year combinations, OFHEO treated loans from different states and 
different origination years within that combination equally, producing 
a single aggregate default rate and a single aggregate severity rate 
for each Enterprise. OFHEO adopted this approach because it is a 
straightforward and simple way to derive aggregate default and severity 
rates. Moreover, the Enterprise data sets, especially in the early 
1980s, are not sufficiently complete to reflect accurately the 
distribution by origination year and state of Enterprise purchases of 
loans. OFHEO's approach more accurately reflects the actual loss 
experience of loans owned or guaranteed by the Enterprises in candidate 
state/year combinations than other approaches OFHEO considered.
    Fannie Mae recommended that OFHEO calculate state-level loss rates 
and that ``benchmark loss rates * * * be built by constructing 
population-weighted averages of state loss rates * * * to meet the five 
percent or greater standard.'' Freddie Mac also suggested this 
approach, and stated that ``[t]his method would appropriately weight 
economic events rather than emphasizing an Enterprise's market share in 
each state during the relevant time period.'' Freddie Mac recommended 
extending this approach by calculating separate state loss rates for 
each origination year and averaging them for each state before 
population weighting the resulting average state loss rates.
    OFHEO disagrees that the appropriate goal in identifying the 
benchmark loss experience is to reflect the underlying economic 
circumstances on a population- and time-weighted basis. Rather, OFHEO 
believes it is appropriate to reflect the actual loss experience of a 
relevant group of mortgages. The 1992 Act specifies that the benchmark 
loss experience should be identified based on the highest rates of 
loss, not the highest rates that would have occurred if loans had been 
distributed across states according to population and evenly across 
origination years. Enterprise purchases are not made evenly on a per 
capita basis, and some years have much higher levels of mortgage 
lending than others. OFHEO, therefore, has no basis to conclude that 
population weighting and annual averaging would yield accurate 
estimates of either Enterprise's default or severity rates for 
candidate state/year combinations.
    Furthermore, population weighting and averaging across origination 
years would place heavy reliance on very small amounts of data from 
some states for some years. Freddie Mac suggested that OFHEO should 
``[e]stablish a minimum acceptable number of observations or dollar 
volume for each state/origination-year combination for each Enterprise, 
to ensure that there are sufficient data from which to make valid 
inferences * * *. '' Although such an approach would address Freddie 
Mac's concern, it would do so at the cost of eliminating large portions 
of the available data set, sharply restricting the range of state/year 
combinations that could be considered. Instead, OFHEO considered the 
available data from less populous states, and avoided placing undue 
emphasis on small loan samples by pooling data from all states and 
origination years of a candidate before calculating default and 
severity rates.
10. Procedures for Combining Default and Severity Rates of the Two 
Enterprises
    OFHEO calculated the default and severity rates for each Enterprise 
separately for candidate state/year combinations, then averaged the 
results. The proposed methodology takes account of the significant 
differences in the mortgage loan purchases of the two Enterprises in 
the early 1980s, which are reflected in their respective data sets. The 
loans in each data set differ by predominant purpose of purchase 
(securitization or portfolio holding), mix of lender types (such as 
thrifts or mortgage banks), geographic distributions, and default rates 
(Fannie Mae's were consistently higher in that period). These 
differences reflect historical differences in the business strategies, 
customers, and markets of the Enterprises.
    Since the early 1980s, the Enterprises' business activities, 
markets, and credit risk profiles have become more similar. For 
example, during that time, Fannie Mae primarily bought loans and held 
them in portfolio, while Freddie Mac securitized all but a few loans it 
purchased. Currently, both Enterprises have extensive portfolio 
investments in mortgages and also guarantee an even larger volume of 
securities backed by mortgages.
    In OFHEO's judgment, each of the two data sets constitutes an 
equally relevant historical experience. Merging the data of the two 
Enterprises without averaging would cause the experience of one or the 
other Enterprise's loans to dominate the resulting combined loan sample 
for many candidates. The proposed methodology avoids that result by 
giving equal weight to the two equally relevant experiences.
    Both Freddie Mac and Fannie Mae suggested that OFHEO base the 
selection of the benchmark loss experience on a simple average of the

[[Page 29605]]

two Enterprises' experiences. Fannie Mae stated that ``loss rates 
should equal the average of Fannie Mae and Freddie Mac experience.'' 
Freddie Mac agreed, stating that ``[t]aking the simple average of the 
historical experience of the [Enterprises] would help smooth such 
institutional differences, thereby emphasizing the macroeconomic 
aspects of historical experience.''
    In its comment, HUD stated that ``[t]he language of Section 
1361(a)(1) [of the 1992 Act] seems to constrain OFHEO to using 
historical weights based on the [Enterprises'] respective market shares 
in averaging Fannie [Mae] and Freddie [Mac] default rates.'' As 
discussed above, OFHEO believes an equal weighting of the two 
Enterprises' default and severity rates experiences is more appropriate 
at this time. Enterprise historical data from the late 1970s and early 
1980s do not provide an accurate estimate of the relative number of 
single-family FRMs actually purchased or guaranteed by each Enterprise 
from specific origination years or geographic areas (including the 
nation as a whole). Therefore, market share weighting using that data 
would be difficult and imprecise.
    The 1992 Act provides broad discretion to the Director to use any 
reasonable weighting or averaging method in the identification of the 
benchmark loss experience.45 The proposed approach, which gives 
equal weight to the default and severity experience of each 
Enterprise's loans in identifying the benchmark loss experience, is 
within the Director's discretion. Loss data for loans originating in 
more recent years than those in the currently identified benchmark loss 
experience have been and should continue to be more complete. As OFHEO 
monitors future data, it will consider whether the new data would 
provide a basis for a different method of weighting, such as market 
share weighting. In the event an alternative method of weighting is 
appropriate, OFHEO would propose an amendment to the regulation to 
incorporate that different methodology.
---------------------------------------------------------------------------

    \45\ Section 1361(a)(1) (12 U.S.C. 4611(a)(1)).
---------------------------------------------------------------------------

11. Number of Origination Years in the Benchmark Loss Experience
    The 1992 Act requires the identification of a benchmark loss 
experience with the highest loss rate on mortgage loans, consistent 
with the relevant statutory requirements, including the requirement 
that the period be at least 2 years. The benchmark loss experience 
should include more than 2 origination years only if the candidate with 
the highest loss rate covers more than 2 origination years. OFHEO 
evaluated potential benchmark areas over 2-, 3-, and 4-origination year 
periods. The candidate state/year combination with the highest mortgage 
loss rate, the proposed benchmark loss experience, is based on loans 
originated during a 2-year period.
    Fannie Mae suggested that more than 2 origination years should be 
used, presumably to lower the benchmark loss rate, if the shorter 
period would ``push prices outside the range that the market would 
accept * * *.'' Presumably, ``prices'' refers to the guarantee fees the 
Enterprises charge and the prices they pay for mortgages. OFHEO does 
not believe Fannie Mae's suggestion is consistent with the requirements 
of the 1992 Act. Furthermore, the proposed benchmark loss experience is 
consistent with the establishment of an appropriate risk-based capital 
standard.

                                               Highest Loss Rates Among Candidate State/Year Combinations                                               
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Percent of   Freddie   Fannie              Freddie   Fannie                     
 Rank  Time period                        Region                           U.S.        Mac       Mae     Average     Mac       Mae     Average    Loss  
                                                                        population  severity  severity  severity   default   default   default    rate  
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....    1983/1984  AR, LA, MS, OK....................................       5.29      60.94     65.58     63.26     11.28     18.54     14.91      9.43
2....    1981/1982  IA, ID, ND, NE, OR, SD, UT, WY....................       5.00      56.86     59.18     58.02      9.71     22.06     15.88      9.22
3....    1981/1982  IA, ID, MT, ND, NE, OR, UT, WY....................       5.05      56.86     59.20     58.03      9.39     22.00     15.69      9.11
4....    1983/1984  IA, KS, MT, ND, NE, OK, WY........................       5.09      63.25     64.52     63.89      8.92     19.53     14.23      9.09
5....    1981/1982  IA, ID, MT, ND, NE, OR, SD, UT, WY................       5.35      56.86     59.20     58.03      9.33     21.91     15.62      9.07
6....    1981/1982  IA, ID, MT, NE, OR, SD, UT, WY....................       5.06      56.86     59.13     57.99      9.23     21.90     15.56      9.03
7....    1983/1984  IA, KS, ND, NE, OK, SD, WY........................       5.04      63.10     64.55     63.83      8.95     19.33     14.14      9.03
8....    1982/1984  AR, LA, MS, OK....................................       5.31      60.23     65.78     63.00     11.34     16.95     14.14      8.91
9....    1982/1984  IA, KS, MT, ND, NE, OK, WY........................       5.20      62.50     65.45     63.97      8.99     18.69     13.84      8.85
10...    1982/1984  IA, KS, ND, NE, OK, SD, WY........................       5.16      62.38     65.47     63.93      9.04     18.58     13.81      8.83
11...    1981/1984  AR, LA, MS, OK....................................       5.31      60.52     65.28     62.90     11.16     16.46     13.81      8.69
12...    1981/1984  IA, KS, MT, ND, NE, OK, WY........................       5.20      62.36     65.68     64.02      8.86     18.27     13.56      8.68
13...    1981/1984  IA, KS, ND, NE, OK, SD, WY........................       5.16      62.25     65.71     63.98      8.91     18.20     13.55      8.67
14...    1981/1982  IA, KS, ND, NE, OK, SD, UT, WY....................       5.80      60.43     66.06     63.25      9.96     17.46     13.71      8.67
15...    1981/1982  IA, KS, NE, OK, UT, WY............................       5.21      60.43     66.06     63.25      9.94     17.47     13.70      8.67
16...    1981/1982  AR, KS, ND, NE, OK, SD, UT, WY....................       5.53      60.51     66.23     63.37     10.05     17.29     13.67      8.66
17...    1981/1982  IA, KS, NE, OK, SD, UT, WY........................       5.52      60.43     66.06     63.25      9.90     17.44     13.67      8.65
18...    1981/1982  AR, KS, NE, OK, SD, UT, WY........................       5.24      60.51     66.24     63.37     10.00     17.27     13.64      8.64
19...    1982/1983  IA, KS, ND, NE, OK, SD, WY........................       5.16      58.61     64.84     61.72      9.40     18.59     13.99      8.64
20...    1982/1983  IA,KS, MT, ND, NE, OK, WY.........................       5.20      58.55     64.83     61.69      9.29     18.66     13.98      8.62
21...    1981/1982  AR, KS, MT, ND, NE, OK, UT, WY....................       5.57      60.51     66.19     63.35      9.88     17.30     13.59      8.61
22...    1981/1982  AR, IA, KS, ND, NE, OK, SD, UT, WY................       6.81      60.51     66.20     63.36      9.88     17.28     13.58      8.60
23...    1981/1982  AR, IA, KS, NE, OK, UT, WY........................       6.22      60.51     66.21     63.36      9.86     17.29     13.58      8.60
24...    1981/1982  IA, KS, MT, ND, NE, OK, SD, UT, WY................       6.15      60.43     66.02     63.22      9.76     17.44     13.60      8.60

[[Page 29606]]

                                                                                                                                                        
25...    1981/1982  IA, KS, MT, NE, OK, UT, WY........................       5.56      60.43     66.02     63.23      9.74     17.45     13.59      8.59
26...    1981/1982  AR, KS, MT, ND, NE, OK, SD, UT, WY................       5.87      60.51     66.19     63.35      9.85     17.27     13.56      8.59
27...    1982/1983  AR, LA, MS, OK....................................       5.31      57.93     63.59     60.76     11.93     16.34     14.13      8.59
28...    1981/1982  AR, KS, MT, NE, OK, UT, WY........................       5.28      60.51     66.19     63.35      9.83     17.28     13.56      8.59
29...    1981/1982  AR, IA, KS, NE, OK, SD, UT, WY....................       6.52      60.51     66.21     63.36      9.83     17.26     13.55      8.58
30...    1981/1982  IA, KS, MT, NE, OK, SD, UT, WY....................       5.86      60.43     66.02     63.23      9.71     17.42     13.56      8.58
31...    1981/1982  AR, KS, MT, NE, OK, SD, UT, WY....................       5.59      60.51     66.19     63.35      9.80     17.25     13.53      8.57
32...    1982/1983  AR, KS, ND, NE, OK, SD, UT, WY....................       5.53      60.11     63.70     61.91      9.78     17.87     13.83      8.56
33...    1981/1982  AR, IA, KS, MT, ND, NE, OK, UT, WY................       6.86      60.51     66.16     63.33      9.72     17.29     13.51      8.55
34...    1982/1983  AR, KS, MT, ND, NE, OK, UT, WY....................       5.57      60.05     63.70     61.87      9.68     17.94     13.81      8.54
35...    1981/1982  AR, IA, KS, MT, ND, NE, OK, SD, UT, WY............       7.16      60.51     66.16     63.33      9.70     17.26     13.48      8.54
36...    1982/1983  AR, KS, NE, OK, SD, UT, WY........................       5.24      60.11     63.69     61.90      9.71     17.86     13.79      8.53
37...    1981/1982  AR, IA, KS, MT, NE, OK, UT, WY....................       6.57      60.51     66.16     63.34      9.67     17.27     13.47      8.53
38...    1982/1983  AR, KS, MT, ND, NE, OK, SD, UT, WY................       5.87      60.05     63.70     61.87      9.68     17.88     13.78      8.53
39...    1982/1983  AR, KS, MT, NE, OK, UT, WY........................       5.28      60.05     63.68     61.87      9.61     17.92     13.77      8.52
40...    1981/1982  AR, IA, KS, MT, NE, OK, SD, UT, WY................       6.87      60.51     66.16     63.34      9.65     17.24     13.44      8.51
41...    1982/1983  AR, AZ, ND, NM, OK, SD, UT, WY....................       5.56      60.72     62.56     61.64      9.66     17.94     13.80      8.51
42...    1982/1983  AR, KS, MT, NE, OK, SD, UT, WY....................       5.59      60.05     63.68     61.87      9.62     17.87     13.74      8.50
43...    1982/1983  AR, AZ, MT, ND, NM, OK, UT, WY....................       5.61      60.65     62.56     61.61      9.56     18.00     13.78      8.49
44...    1981/1982  IA, ID, KS, NE, OK, UT, WY........................       5.63      59.45     65.70     62.58      9.84     17.28     13.56      8.49
45...    1982/1983  IA, KS, ND, NE, OK, SD, UT, WY....................       5.80      60.09     63.86     61.98      9.34     18.04     13.69      8.49
46...    1980/1982  IA, ID, ND, NE, OR, SD, UT, WY....................       5.00      55.21     56.97     56.09     10.01     20.24     15.13      8.49
47...    1981/1982  AR, ID, KS, NE, OK, UT, WY........................       5.35      59.54     65.87     62.70      9.93     17.12     13.53      8.48
48...    1982/1983  AR, AZ, NM, OK, SD, UT, WY........................       5.28      60.72     62.55     61.63      9.59     17.93     13.76      8.48
49...    1981/1983  IA, KS, ND, NE, OK, SD, WY........................       5.16      58.69     65.23     61.96      9.20     18.17     13.69      8.48
50...    1981/1982  ID, KS, MT, ND, NE, OK, SD, UT, WY................       5.28      59.45     65.68     62.57      9.84     17.26     13.55      8.48
51...    1982/1983  IA, KS, NE, OK, UT, WY............................       5.21      60.09     63.85     61.97      9.27     18.08     13.67      8.47
52...    1980/1981  IA, ID, ND, NE, OR, SD, UT, WY....................       5.00      51.85     55.66     53.75     10.79     20.70     15.75      8.46
53...    1982/1983  AR, AZ, MT, NM, OK, UT, WY........................       5.32      60.65     62.54     61.60      9.49     17.99     13.74      8.46
54...    1981/1983  IA, KS, MT, ND, NE, OK, WY........................       5.20      58.64     65.21     61.92      9.10     18.22     13.66      8.46
55...    1982/1983  IA, KS, NE, OK, SD, UT, WY........................       5.52      60.09     63.85     61.97      9.27     18.03     13.65      8.46
56...    1982/1983  IA, KS, MT, ND, NE, OK, SD, UT, WY................       6.15      60.03     63.85     61.94      9.25     18.06     13.65      8.46
57...    1982/1983  AR, AZ, MT, NM, OK, SD, UT, WY....................       5.62      60.65     62.54     61.60      9.49     17.94     13.72      8.45
58...    1982/1983  IA, KS, MT, NE, OK, UT, WY........................       5.56      60.03     63.84     61.93      9.18     18.09     13.64      8.45
59...    1981/1983  AR, KS, ND, NE, OK, SD, UT, WY....................       5.53      58.90     64.06     61.48      9.74     17.73     13.74      8.44
60...    1982/1983  AZ, ND, NE, NM, OK, SD, UT, WY....................       5.25      60.67     62.70     61.69      9.54     17.83     13.69      8.44
61...    1981/1983  AR, LA, MS, OK....................................       5.31      58.55     63.51     61.03     11.67     15.98     13.83      8.44
62...    1982/1983  IA, KS, MT, NE, OK, SD, UT, WY....................       5.86      60.03     63.84     61.93      9.19     18.04     13.61      8.43
63...    1982/1983  AZ, IA, ND, NM, OK, SD, UT, WY....................       5.84      60.70     62.69     61.69      9.23     18.09     13.66      8.43
64...    1982/1983  AZ, MT, ND, NE, NM, OK, UT, WY....................       5.29      60.60     62.70     61.65      9.44     17.89     13.67      8.42
65...    1981/1982  ID, KS, ND, NE, OK, OR, SD, UT, WY................       6.10      59.44     65.18     62.31      9.69     17.35     13.52      8.42
66...    1981/1983  AR, KS, MT, ND, NE, OK, UT, WY....................       5.57      58.85     64.04     61.45      9.64     17.78     13.71      8.42
         1981/1982  ID, KS, NE, OK, OR, UT, WY........................       5.50      59.44     65.18     62.31      9.67     17.36     13.52      8.42
68...    1981/1983  AR, KS, NE, OK, SD, UT, WY........................       5.24      58.90     64.04     61.47      9.68     17.72     13.70      8.42
69...    1981/1983  AR, KS, MT, ND, NE, OK, SD, UT, WY................       5.87      58.85     64.04     61.45      9.64     17.73     13.68      8.41
70...    1981/1982  AR, KS, LA, ND, NE, OK, SD, UT, WY................       7.38      58.28     64.99     61.64     10.50     16.78     13.64      8.41
71...    1981/1982  ID, KS, NE, OK, OR, SD, UT, WY....................       5.81      59.44     65.18     62.31      9.65     17.33     13.49      8.40
72...    1981/1982  AR, KS, LA, NE, OK, UT, WY........................       6.79      58.28     64.99     61.63     10.48     16.78     13.63      8.40
73...    1982/1983  AZ, IA, NM, OK, SD, UT, WY........................       5.55      60.70     62.67     61.68      9.16     18.08     13.62      8.40
74...    1982/1983  AZ, IA, MT, ND, NM, OK, SD, UT, WY................       6.19      60.63     62.68     61.66      9.15     18.10     13.63      8.40
75...    1982/1983  AZ, MT, NE, NM, OK, UT, WY........................       5.00      60.60     62.68     61.64      9.38     17.88     13.63      8.40
76...    1981/1983  AR, KS, MT, NE, OK, UT, WY........................       5.28      58.85     64.03     61.44      9.58     17.76     13.67      8.40
77...    1981/1982  AZ, IA, ND, NM, OK, SD, UT, WY....................       5.84      61.09     63.52     62.30      9.04     17.92     13.48      8.40

[[Page 29607]]

                                                                                                                                                        
78...    1981/1982  AR, AZ, ND, NM, OK, SD, UT, WY....................       5.56      61.16     63.66     62.41      9.12     17.79     13.45      8.39
79...    1981/1982  AR, KS, LA, NE, OK, SD, UT, WY....................       7.09      58.28     64.99     61.63     10.45     16.76     13.61      8.39
80...    1982/1983  AZ, MT, NE, NM, OK, SD, UT, WY....................       5.31      60.60     62.68     61.64      9.38     17.83     13.61      8.39
81...    1981/1983  AR, KS, MT, NE, OK, SD, UT, WY....................       5.59      58.85     64.03     61.44      9.58     17.72     13.65      8.38
82...    1981/1982  ID, KS, MT, ND, NE, OK, OR, UT, WY................       6.14      59.44     65.15     62.29      9.56     17.35     13.45      8.38
83...    1981/1983  IA, KS, ND, NE, OK, SD, UT, WY....................       5.80      58.89     64.22     61.55      9.33     17.90     13.61      8.38
84...    1981/1982  AZ, IA, NM, OK, SD, UT, WY........................       5.55      61.09     63.51     62.30      8.99     17.91     13.45      8.38
85...    1982/1983  AZ, IA, MT, NM, OK, SD, UT, WY....................       5.90      60.63     62.67     61.65      9.08     18.09     13.59      8.38
86...    1981/1982  AR, AZ, NM, OK, SD, UT, WY........................       5.28      61.16     63.66     62.41      9.07     17.77     13.42      8.37
87...    1981/1982  IA, ID, KS, NE, OK, OR, UT, WY....................       6.79      59.44     65.17     62.31      9.53     17.35     13.44      8.37
88...    1981/1982  AR, ID, KS, ND, NE, OK, OR, SD, UT, WY............       7.11      59.52     65.34     62.43      9.63     17.19     13.41      8.37
89...    1981/1983  IA, KS, NE, OK, UT, WY............................       5.21      58.89     64.21     61.55      9.27     17.93     13.60      8.37
90...    1981/1982                                                                                                                                      
               AR,  ID, KS, NE, OK, OR, UT, WY........................       6.51      59.52     65.34     62.43      9.61     17.20     13.40      8.37
91...    1981/1982  ID, KS, MT, ND, NE, OK, OR, SD, UT, WY............       6.44      59.44     65.15     62.29      9.53     17.33     13.43      8.37
92...    1982/1983  AR, IA, KS, ND, NE, OK, SD, UT, WY................       6.81      60.15     63.63     61.89      9.22     17.80     13.51      8.36
93...    1981/1982  ID, KS, MT, NE, OK, OR, UT, WY....................       5.85      59.44     65.15     62.29      9.51     17.34     13.42      8.36
94...    1981/1982  AR, KS, LA, MT, ND, NE, OK, UT, WY................       7.43      58.28     64.97     61.63     10.34     16.78     13.56      8.36
95...    1982/1983  ID, KS, MT, ND, NE, OK, SD, UT, WY................       5.28      58.40     63.82     61.11      9.72     17.63     13.67      8.36
96...    1981/1982  AR, AZ, MT, ND, NM, OK, UT, WY....................       5.61      61.16     63.64     62.40      8.99     17.79     13.39      8.36
97...    1981/1983  IA, KS, NE, OK, SD, UT, WY........................       5.52      58.89     64.21     61.55      9.27     17.88     13.57      8.35
98...    1981/1982  AR, IA, KS, LA, NE, OK, UT, WY....................       8.08      58.28     64.98     61.63     10.33     16.78     13.56      8.35
99...    1982/1983  AR, IA, KS, MT, ND, NE, OK, UT, WY................       6.86      60.09     63.62     61.85      9.14     17.86     13.50      8.35
100..    1982/1983  AR, IA, KS, NE, OK, UT, WY........................       6.22      60.15     63.61     61.88      9.15     17.84     13.49      8.35
101..    1981/1982  AR, AZ, IA, ND, NM, OK, SD, UT, WY................       6.85      61.16     63.68     62.42      8.99     17.77     13.38      8.35
102..    1981/1983  IA, KS, MT, ND, NE, OK, SD, UT, WY................       6.15      58.84     64.20     61.52      9.24     17.90     13.57      8.35
103..    1981/1982  AR, KS, LA, MT, ND, NE, OK, SD, UT, WY............       7.73      58.28     64.97     61.63     10.31     16.77     13.54      8.34
104..    1981/1982  AZ, IA, MT, ND, NM, OK, SD, UT, WY................       6.19      61.09     63.50     62.30      8.89     17.90     13.39      8.34
105..    1981/1982  AR, KS, LA, MT, NE, OK, UT, WY....................       7.14      58.28     64.97     61.62     10.30     16.77     13.54      8.34
106..    1981/1982  AR, IA, KS, LA, NE, OK, SD, UT, WY................       8.38      58.28     64.98     61.63     10.30     16.77     13.53      8.34
107..    1981/1983  IA, KS, MT, NE, OK, UT, WY........................       5.56      58.84     64.19     61.52      9.18     17.93     13.55      8.34
108..    1982/1983  AR, IA, KS, MT, ND, NE, OK, SD, UT, WY............       7.16      60.09     63.62     61.85      9.14     17.81     13.48      8.34
109..    1981/1982  IA, ID, KS, MT, ND, NE, OK, OR, UT, WY............       7.42      59.44     65.14     62.29      9.42     17.34     13.38      8.34
110..    1982/1983  AR, IA, KS, NE, OK, SD, UT, WY....................       6.52      60.15     63.61     61.88      9.16     17.78     13.47      8.34
111..    1981/1982  AR, AZ, MT, NM, OK, UT, WY........................       5.32      61.16     63.64     62.40      8.94     17.77     13.36      8.34
112..    1981/1983  AR, AZ, ND, NM, OK, SD, UT, WY....................       5.56      59.13     62.52     60.83      9.48     17.92     13.70      8.33
113..    1981/1982  AR, AZ, IA, NM, OK, SD, UT, WY....................       6.56      61.16     63.67     62.41      8.94     17.75     13.35      8.33
114..    1981/1982  AR, ID, KS, MT, ND, NE, OK, OR, UT, WY............       7.15      59.52     65.31     62.42      9.50     17.19     13.35      8.33
115..    1981/1982  AR, KS, LA, MT, NE, OK, SD, UT, WY................       7.44      58.28     64.97     61.62     10.27     16.75     13.51      8.33
116..    1981/1982  IA, KS, ND, NE, OK, SD, WY........................       5.16      60.54     66.92     63.73      8.72     17.42     13.07      8.33
117..    1981/1982  AR, IA, ID, KS, ND, NE, OK, OR, SD, UT, WY........       8.39      59.52     65.33     62.43      9.50     17.18     13.34      8.33
118..    1982/1983  AZ, ID, MT, ND, NM, OK, UT, WY....................       5.01      59.02     62.65     60.84      9.59     17.78     13.69      8.33
119..    1982/1983  AR, IA, KS, MT, NE, OK, UT, WY....................       6.57      60.09     63.60     61.85      9.07     17.85     13.46      8.32
120..    1981/1982  AZ, IA, MT, NM, OK, SD, UT, WY....................       5.90      61.09     63.50     62.29      8.84     17.88     13.36      8.32
121..    1981/1983  IA, KS, MT, NE, OK, SD, UT, WY....................       5.86      58.84     64.19     61.52      9.18     17.88     13.53      8.32
122..    1982/1983  AR, AZ, IA, ND, NM, OK, SD, UT, WY................       6.85      60.75     62.51     61.63      9.12     17.88     13.50      8.32

[[Page 29608]]

                                                                                                                                                        
123..    1981/1982  AR, AZ, MT, NM, OK, SD, UT, WY....................       5.62      61.16     63.64     62.40      8.92     17.75     13.33      8.32
124..    1981/1982  IA, ID, KS, MT, ND, NE, OK, OR, SD, UT, WY........       7.73      59.44     65.14     62.29      9.40     17.32     13.36      8.32
125..    1982/1983  AR, AZ, NE, NM, OK, UT, WY........................       5.66      60.72     62.51     61.62      9.34     17.66     13.50      8.32
126..    1981/1982  IA, ID, KS, MT, NE, OK, OR, UT, WY................       7.14      59.44     65.14     62.29      9.38     17.32     13.35      8.32
127..    1980/1982  IA, ID, MT, ND, NE, OR, UT, WY....................       5.05      55.09     57.02     56.06      9.51     20.16     14.83      8.32
128..    1981/1982  AR, ID, KS, MT, ND, NE, OK, OR, SD, UT, WY........       7.45      59.52     65.31     62.42      9.47     17.17     13.32      8.31
129..    1981/1983  AR, AZ, MT, ND, NM, OK, UT, WY....................       5.61      59.09     62.51     60.80      9.39     17.95     13.67      8.31
130..    1982/1983  AZ, ID, MT, ND, NM, OK, SD, UT, WY................       5.32      59.02     62.65     60.84      9.60     17.73     13.67      8.31
131..    1981/1982  AR, ID, KS, MT, NE, OK, OR, UT, WY................       6.86      59.52     65.31     62.41      9.45     17.18     13.31      8.31
132..    1982/1983  AR, IA, KS, MT, NE, OK, SD, UT, WY................       6.87      60.09     63.60     61.85      9.08     17.80     13.44      8.31
133..    1981/1983  AR, AZ, NM, OK, SD, UT, WY........................       5.28      59.13     62.51     60.82      9.42     17.90     13.66      8.31
134..    1981/1982  AZ, ND, NE, NM, OK, SD, UT, WY....................       5.25      61.15     63.44     62.30      9.01     17.67     13.34      8.31
135..    1981/1982  AR, IA, ID, KS, NE, OK, OR, SD, UT, WY............       8.10      59.52     65.33     62.43      9.45     17.16     13.31      8.31
136..    1982/1983  AZ, MS, ND, NM, OK, SD, UT, WY....................       5.67      59.83     62.34     61.09      9.47     17.71     13.59      8.30
137..    1981/1982  IA, ID, KS, MT, NE, OK, OR, SD, UT, WY............       7.44      59.44     65.14     62.29      9.35     17.30     13.33      8.30
138..    1981/1982  AR, AZ, IA, MT, ND, NM, OK, SD, UT, WY............       7.20      61.16     63.66     62.41      8.84     17.75     13.30      8.30
139..    1982/1983  AR, AZ, IA, MT, ND, NM, OK, SD, UT, WY............       7.20      60.68     62.51     61.59      9.05     17.89     13.47      8.30
140..    1982/1983  AR, AZ, IA, NM, OK, SD, UT, WY....................       6.56      60.75     62.50     61.62      9.06     17.87     13.46      8.30
141..    1981/1983  AR, AZ, MT, NM, OK, UT, WY........................       5.32      59.09     62.50     60.79      9.33     17.94     13.64      8.29
142..    1981/1983  ID, KS, MT, ND, NE, OK, SD, UT, WY................       5.28      57.48     64.03     60.76      9.67     17.62     13.64      8.29
143..    1982/1983  AZ, ID, MT, NM, OK, SD, UT, WY....................       5.03      59.02     62.64     60.83      9.53     17.72     13.63      8.29
144..    1980/1982  IA, ID, MT, ND, NE, OR, SD, UT, WY................       5.35      55.09     57.02     56.06      9.48     20.09     14.78      8.29
145..    1982/1983  AZ, MS, MT, ND, NM, OK, UT, WY....................       5.71      59.78     62.34     61.06      9.38     17.76     13.57      8.29
146..    1981/1982  AR, IA, ID, KS, MT, ND, NE, OK, OR, UT, WY........       8.43      59.52     65.29     62.41      9.37     17.19     13.28      8.29
147..    1981/1982  IA, KS, MT, ND, NE, OK, WY........................       5.20      60.54     66.87     63.70      8.57     17.42     12.99      8.28
148..    1981/1983  AR, AZ, MT, NM, OK, SD, UT, WY....................       5.62      59.09     62.50     60.79      9.33     17.90     13.62      8.28
149..    1981/1982  AR, AZ, IA, MT, NM, OK, SD, UT, WY................       6.91      61.16     63.65     62.41      8.80     17.73     13.27      8.28
150..    1982/1983  AZ, MS, NM, OK, SD, UT, WY........................       5.38      59.83     62.33     61.08      9.41     17.69     13.55      8.28
151..    1981/1982  AR, IA, ID, KS, MT, ND, NE, OK, OR, SD, UT, WY....       8.74      59.52     65.29     62.41      9.35     17.16     13.25      8.27
152..    1981/1983  AR, IA, KS, ND, NE, OK, SD, UT, WY................       6.81      58.94     64.05     61.50      9.21     17.68     13.45      8.27
153..    1980/1981  IA, ID, MT, ND, NE, OR, UT, WY....................       5.05      51.74     55.73     53.73     10.22     20.57     15.39      8.27
154..    1982/1983  AR, AZ, IA, MT, NM, OK, SD, UT, WY................       6.91      60.68     62.49     61.59      8.98     17.88     13.43      8.27
155..    1981/1982  AZ, MT, ND, NE, NM, OK, UT, WY....................       5.29      61.15     63.43     62.29      8.88     17.67     13.28      8.27
156..    1980/1983  IA, KS, ND, NE, OK, SD, WY........................       5.16      57.74     64.56     61.15      9.26     17.78     13.52      8.27
157..    1981/1983  AZ, IA, ND, NM, OK, SD, UT, WY....................       5.84      59.12     62.64     60.88      9.11     18.05     13.58      8.27
158..    1981/1982  AR, IA, ID, KS, MT, NE, OK, OR, UT, WY............       8.15      59.52     65.29     62.41      9.33     17.17     13.25      8.27
159..    1981/1982  AZ, IA, ND, NE, NM, OK, SD, UT, WY................       6.54      61.15     63.46     62.30      8.88     17.65     13.27      8.27
160..    1981/1983  AZ, ND, NE, NM, OK, SD, UT, WY....................       5.25      59.12     62.56     60.84      9.36     17.80     13.58      8.26
161..    1982/1983  AZ, MS, MT, NM, OK, UT, WY........................       5.42      59.78     62.32     61.05      9.32     17.75     13.53      8.26
162..    1982/1983  AZ, IA, ND, NE, NM, OK, SD, UT, WY................       6.54      60.70     62.65     61.67      9.02     17.77     13.40      8.26
163..    1981/1983  AR, IA, KS, NE, OK, UT, WY........................       6.22      58.94     64.04     61.49      9.15     17.71     13.43      8.26

[[Page 29609]]

                                                                                                                                                        
164..    1981/1982  AZ, IA, NE, NM, OK, UT, WY........................       5.94      61.15     63.45     62.30      8.86     17.66     13.26      8.26
165..    1981/1982  AR, AZ, NE, NM, OK, UT, WY........................       5.66      61.22     63.60     62.41      8.93     17.53     13.23      8.26
166..    1981/1983  AR, IA, KS, MT, ND, NE, OK, UT, WY................       6.86      58.90     64.03     61.47      9.13     17.73     13.43      8.26
167..    1982/1983  AR, ID, KS, NE, OK, UT, WY........................       5.35      58.51     63.58     61.05      9.62     17.42     13.52      8.25
168..    1981/1982  AZ, ID, MT, ND, NM, OK, UT, WY....................       5.01      60.10     63.25     61.68      9.00     17.77     13.38      8.25
169..    1982/1984  IA, KS, NE, OK, UT, WY............................       5.21      60.49     64.45     62.47      8.53     17.90     13.21      8.25
170..    1981/1982  AZ, MT, NE, NM, OK, UT, WY........................       5.00      61.15     63.42     62.28      8.83     17.66     13.25      8.25
171..    1982/1983  AZ, MS, MT, NM, OK, SD, UT, WY....................       5.73      59.78     62.32     61.05      9.32     17.70     13.51      8.25
172..    1982/1983  AZ, IA, NE, NM, OK, UT, WY........................       5.94      60.70     62.63     61.67      8.95     17.80     13.38      8.25
173..    1982/1984  IA, KS, ND, NE, OK, SD, UT, WY....................       5.80      60.41     64.47     62.44      8.60     17.82     13.21      8.25
174..    1981/1983  AR, IA, KS, NE, OK, SD, UT, WY....................       6.52      58.94     64.04     61.49      9.15     17.67     13.41      8.25
175..    1980/1982  IA, ID, MT, NE, OR, SD, UT, WY....................       5.06      55.22      9.34     56.09      9.34     20.07     14.70      8.25
176..    1981/1982  AZ, LA, ND, NM, OK, SD, UT, WY....................       6.41      58.76     63.42     61.09      9.70     17.30     13.50      8.25
177..    1981/1982  AZ, IA, NE, NM, OK, SD, UT, WY....................       6.25      61.15     63.45     62.30      8.83     17.64     13.23      8.25
178..    1981/1983  AZ, IA, NM, OK, SD, UT, WY........................       5.55      59.12     62.63     60.87      9.04     18.04     13.54      8.24
179..    1982/1984  IA, KS, MT, NE, OK, UT, WY........................       5.56      60.54     64.44     62.49      8.49     17.90     13.19      8.24
180..    1980/1981  IA, ID, MT, ND, NE, OR, SD, UT, WY................       5.35      51.74     55.73     53.73     10.18     20.50     15.34      8.24
181..    1981/1983  AZ, MT, ND, NE, NM, OK, UT, WY....................       5.29      59.07     62.55     60.81      9.28     17.84     13.56      8.24
182..    1981/1982  AR, AZ, ID, NM, OK, UT, WY........................       5.39      60.18     63.42     61.80      9.04     17.63     13.34      8.24
183..    1981/1983  AR, IA, KS, MT, ND, NE, OK, SD, UT, WY............       7.16      58.90     64.03     61.47      9.13     17.68     13.41      8.24
184..    1981/1983  AZ, IA, MT, ND, NM, OK, SD, UT, WY................       6.19      59.08     62.63     60.85      9.03     18.05     13.54      8.24
185..    1981/1982  AZ, ID, MT, ND, NM, OK, SD, UT, WY................       5.32      60.10     63.25     61.68      8.97     17.74     13.36      8.24
186..    1982/1984  IA, KS, MT, ND, NE, OK, SD, UT, WY................       6.15      60.46     64.46     62.46      8.56     17.81     13.19      8.24
187..    1983/1984  AR, AZ, LA, NM, OK................................       6.15      59.53     64.60     62.07      9.23     17.31     13.27      8.24
188..    1982/1983  AZ, IA, NE, NM, OK, SD, UT, WY....................       6.25      60.70     62.63     61.67      8.95     17.76     13.36      8.24
189..    1981/1982  AZ, MT, NE, NM, OK, SD, UT, WY....................       5.31      61.15     63.42     62.28      8.81     17.63     13.22      8.24
190..    1982/1984  AR, KS, MT, ND, NE, OK, UT, WY....................       5.57      60.01     64.36     62.18      8.83     17.65     13.24      8.23
191..    1981/1983  AR, IA, KS, MT, NE, OK, UT, WY....................       6.57      58.90     64.02     61.46      9.07     17.71     13.39      8.23
192..    1981/1982  AZ, IA, ID, NM, OK, SD, UT, WY....................       5.97      60.10     63.28     61.69      8.95     17.73     13.34      8.23
193..    1981/1982  AZ, LA, NM, OK, SD, UT, WY........................       6.12      58.76     63.42     61.09      9.66     17.28     13.47      8.23
194..    1981/1982  AR, KS, MS, ND, NE, OK, SD, UT, WY................       6.64      59.80     65.04     62.42      9.41     16.94     13.18      8.23
195..    1982/1983  AZ, IA, MT, NE, NM, OK, UT, WY....................       6.29      60.63     62.63     61.63      8.88     17.81     13.34      8.22
196..    1982/1983  AR, AZ, ID, NM, OK, UT, WY........................       5.39      59.13     62.46     60.80      9.50     17.56     13.53      8.22
197..    1981/1982  AR, KS, MS, NE, OK, UT, WY........................       6.05      59.80     65.04     62.42      9.39     16.95     13.17      8.22
198..    1982/1983  AR, KS, MS, ND, NE, OK, SD, UT, WY................       6.64      59.29     63.22     61.26      9.47     17.37     13.42      8.22
199..    1981/1982  AZ, ID, MT, NM, OK, SD, UT, WY....................       5.03      60.10     63.25     61.67      8.92     17.73     13.33      8.22
200..    1981/1983  AZ, MT, NE, NM, OK, UT, WY........................       5.00      59.07     62.54     60.81      9.21     17.82     13.52      8.22
201..    1982/1984  IA, KS, NE, OK, SD, UT, WY........................       5.52      60.42     64.46     62.44      8.53     17.80     13.16      8.22
202..    1980/1983  IA, KS, MT, ND, NE, OK, WY........................       5.20      57.64     64.54     61.09      9.10     17.81     13.45      8.22
203..    1981/1983  AR, IA, KS, MT, NE, OK, SD, UT, WY................       6.87      58.90     64.02     61.46      9.07     17.67     13.37      8.22
204..    1981/1983  AZ, IA, MT, NM, OK, SD, UT, WY....................       5.90      59.08     62.62     60.85      8.97     18.04     13.50      8.22
205..    1981/1982  AR, AZ, IA, NE, NM, OK, UT, WY....................       6.95      61.22     63.61     62.42      8.81     17.52     13.16      8.22
206..    1980/1981  IA, ID, MT, NE, OR, SD, UT, WY....................       5.06      51.82     55.73     53.77     10.06     20.49     15.28      8.21
207..    1982/1983  AZ, IA, MT, NE, NM, OK, SD, UT, WY................       6.59      60.63     62.63     61.63      8.88     17.77     13.32      8.21
208..    1981/1982  AR, AZ, LA, ND, NM, OK, SD, UT, WY................       7.42      58.84     63.53     61.18      9.64     17.20     13.42      8.21
209..    1982/1984  AR, KS, ND, NE, OK, SD, UT, WY....................       5.53      59.88     64.38     62.13      8.87     17.56     13.21      8.21
210..    1982/1984  IA, KS, MT, NE, OK, SD, UT, WY....................       5.86      60.47     64.45     62.46      8.49     17.80     13.14      8.21
211..    1981/1982  AZ, ID, ND, NM, OK, OR, SD, UT, WY................       6.13      60.07     62.92     61.50      8.90     17.80     13.35      8.21
212..    1981/1982  AZ, IA, MT, NE, NM, OK, UT, WY....................       6.29      61.15     63.44     62.29      8.72     17.64     13.18      8.21
213..    1982/1983  AR, KS, MS, NE, OK, UT, WY........................       6.05      59.29     63.20     61.25      9.40     17.41     13.40      8.21
214..    1982/1983  AR, KS, MS, MT, ND, NE, OK, UT, WY................       6.68      59.24     63.21     61.22      9.38     17.44     13.41      8.21
215..    1981/1983  AZ, MT, NE, NM, OK, SD, UT, WY....................       5.31      59.07     62.54     60.81      9.21     17.78     13.50      8.21

[[Page 29610]]

                                                                                                                                                        
216..    1981/1982  AZ, LA, MT, ND, NM, OK, UT, WY....................       6.45      58.76     63.41     61.09      9.57     17.30     13.44      8.21
217..    1981/1982  AR, AZ, LA, NM, OK, UT, WY........................       6.83      58.84     63.52     61.18      9.63     17.20     13.41      8.21
218..    1981/1982  AZ, ID, NM, OK, OR, UT, WY........................       5.54      60.07     62.91     61.49      8.88     17.81     13.34      8.21
219..    1981/1983  AR, ID, KS, NE, OK, UT, WY........................       5.35      57.57     63.87     60.72      9.58     17.44     13.51      8.20
220..    1982/1984  AR, KS, MT, NE, OK, UT, WY........................       5.28      60.01     64.35     62.18      8.75     17.64     13.19      8.20
221..    1981/1982  AR, KS, MS, NE, OK, SD,UT WY......................       6.35      59.80     65.04     62.42      9.36     16.92     13.14      8.20
222..    1981/1983  AZ ID, MT, ND, NM, OK, UT, WY.....................       5.01      57.75     62.49     60.12      9.43     17.86     13.64      8.20
223..    1982/1984  AR, KS, MT, ND, NE, OK, SD, UT, WY................       5.87      59.94     64.37     62.16      8.82     17.56     13.19      8.20
224..    1982/1983  AZ, LA, ND, NM, OK, SD, UT, WY....................       6.41      59.21     62.16     60.68     10.02     17.00     13.51      8.20
225..    1981/1984   IA, KS, NE, OK, UT, WY...........................       5.21      59.73     64.67     62.20      8.56     17.81     13.18      8.20
226..    1981/1984  IA, KS, ND, NE, OK, SD, UT, WY....................       5.80      59.67     64.69     62.18      8.62     17.74     13.18      8.20
227..    1981/1982  AR, AZ, LA, NM, OK, SD, UT, WY....................       7.13      58.84     63.52     61.18      9.60     17.19     13.40      8.20
228..    1981/1982  AZ, IA, MT, NE, NM, OK, SD, UT, WY................       6.59      61.15     63.44     62.29      8.69     17.62     13.16      8.19
229..    1982/1983  AR, KS, MS, MT, ND, NE, OK, SD, UT, WY............       6.99      59.24     63.21     61.22      9.38     17.39     13.38      8.19
230..    1982/1983  AR, KS, MS, NE, OK, SD, UT, WY....................       6.35      59.29     63.20     61.25      9.40     17.36     13.38      8.19
231..    1981/1982  AZ, ID, NM, OK, OR, SD, UT, WY....................       5.85      60.07     62.91     61.49      8.86     17.79     13.32      8.19
232..    1981/1982  AZ, LA, MT, NM, OK, UT, WY........................       6.17      58.76     63.41     61.09      9.53     17.29     13.41      8.19
233..    1981/1982  AZ, IA, LA, NM, OK, SD, UT, WY....................       7.41      58.76     63.43     61.10      9.53     17.28     13.40      8.19
234..    1981/1983  AZ, ID, MT, ND, NM, OK, SD, UT, WY................       5.32      57.75     62.49     60.12      9.42     17.82     13.62      8.19
235..    1982/1983  AR, AZ, MS, NM, OK, UT, WY........................       6.08      59.89     62.16     61.02      9.29     17.54     13.41      8.19
236..    1981/1984  IA, KS, MT, NE, OK, UT, WY........................       5.56      59.78     64.65     62.22      8.52     17.80     13.16      8.19
237..    1981/1984  IA, KS, MT, ND, NE, OK, SD, UT, WY................       6.15      59.72     64.67     62.20      8.58     17.73     13.16      8.18
238..    1981/1982  AR, KS, MS, MT, ND, NE, OK, UT, WY................       6.68      59.80     65.01     62.41      9.28     16.95     13.11      8.18
239..    1982/1983  AZ, LA, MT, ND, NM, OK, UT, WY....................       6.45      59.16     62.15     60.66      9.94     17.04     13.49      8.18
240..    1982/1983  IA, ID, KS, NE, OK, UT, WY........................       5.63      58.50     63.74     61.12      9.19     17.58     13.39      8.18
241..    1982/1983  AR, KS, MS, MT, NE, OK, UT, WY....................       6.39      59.24     63.20     61.22      9.31     17.42     13.37      8.18
242..    1982/1984  AR, KS, NE, OK, SD, UT, WY........................       5.24      59.89     64.37     62.13      8.79     17.55     13.17      8.18
243..    1982/1983  AZ, LA, NM, OK, SD, UT, WY........................       6.12      59.21     62.14     60.68      9.97     16.99     13.48      8.18
244..    1981/1984  AR, KS, MT, ND, NE, OK, UT, WY....................       5.57      59.28     64.55     61.91      8.84     17.58     13.21      8.18
245..    1981/1983  AR, AZ, IA, ND, NM, OK, SD, UT, WY................       6.85      59.18     62.53     60.85      9.00     17.87     13.44      8.18
246..    1981/1982  AR, IA, KS, MS, NE, OK, UT, WY....................       7.33      59.80     65.03     62.42      9.25     16.95     13.10      8.18
247..    1981/1982  AZ, ID, MT, ND, NM, OK, OR, UT, WY................       6.18      60.07     62.91     61.49      8.79     17.80     13.30      8.18
248..    1982/1983  AZ, ID, ND, NE, NM, OK, SD, UT, WY................       5.67      59.07     62.62     60.84      9.45     17.42     13.44      8.18
249..    1981/1982  AR, AZ, LA, MT, ND, NM, OK, UT, WY................       7.46      58.84     63.52     61.18      9.52     17.20     13.36      8.17
250..    1981/1982  AR, AZ, IA, LA, ND, NM, OK, SD, UT, WY............       8.71      58.84     63.54     61.19      9.52     17.19     13.36      8.17
251..    1982/1984  AR, KS, MT, NE, OK, SD, UT, WY....................       5.59      59.94     64.36     62.15      8.75     17.55     13.15      8.17
252..    1981/1984  IA, KS, NE ,OK, SD, UT, WY........................       5.52      59.67     64.68     62.17      8.55     17.73     13.14      8.17
253..    1981/1982  AR, AZ, ID, ND, NM, OK, OR, SD, UT, WY............       7.14      60.15     63.08     61.62      8.86     17.66     13.26      8.17
254..    1981/1982  AR, KS, MS, MT, ND, NE, OK, SD, UT, WY............       6.99      59.80     65.01     62.41      9.25     16.92     13.09      8.17
255..    1981/1983  AZ, ID, MT, NM, OK, SD, UT, WY....................       5.03      57.75     62.48     60.12      9.36     17.81     13.58      8.17
256..    1981/1982  AR, AZ, ID, NM, OK, OR, UT, WY....................       6.55      60.15     63.08     61.61      8.84     17.67     13.25      8.17
257..    1981/1984  AR, KS, ND, NE, OK, SD, UT, WY....................       5.53      59.16     64.58     61.87      8.88     17.51     13.20      8.16
258..    1981/1983  ID, KS, ND, NE, OK, OR, SD, UT, WY................       6.10      57.08     63.70     60.39      9.57     17.47     13.52      8.16
259..    1981/1982  AZ, ID, ND, NE, NM, OK, SD, UT, WY................       5.67      60.16     63.21     61.69      8.96     17.51     13.23      8.16
260..    1981/1982  AR, AZ, LA, MT, ND, NM, OK, SD, UT, WY............       7.77      58.84     63.52     61.18      9.50     17.19     13.34      8.16
261..    1982/1983  AZ, LA, MT, NM, OK, UT, WY........................       6.17      59.16     62.14     60.65      9.89     17.03     13.46      8.16
262..    1981/1982  AR, KS, MS, MT, NE, OK, UT, WY....................       6.39      59.80     65.01     62.40      9.23     16.93     13.08      8.16
263..    1982/1983  AZ, ID, NE, NM, OK, UT, WY........................       5.07      59.07     62.60     60.84      9.38     17.45     13.42      8.16
264..    1981/1983  AR, AZ, NE, NM, OK, UT, WY........................       5.66      59.17     62.44     60.81      9.19     17.65     13.42      8.16
265..    1981/1982  AR, AZ, LA, MT, NM, OK, UT, WY....................       7.18      58.84     63.51     61.18      9.48     17.19     13.34      8.16
266..    1981/1982  AZ, ID, NE, NM, OK, UT, WY........................       5.07      60.16     63.20     61.68      8.94     17.51     13.23      8.16

[[Page 29611]]

                                                                                                                                                        
267..    1981/1982  AR, AZ, IA, LA, NM, OK, SD, UT, WY................       8.42      58.84     63.53     61.19      9.48     17.18     13.33      8.16
268..    1981/1984  IA, KS, MT, NE, OK, SD, UT, WY....................       5.86      59.72     64.66     62.19      8.51     17.72     13.12      8.16
269..    1983/1984  IA, KS, MT, NE, OK, UT, WY........................       5.50      59.42     63.35     61.38      8.26     18.31     13.29      8.15
270..    1981/1983  ID, KS, NE, OK, OR, UT, WY........................       5.50      57.08     63.69     60.38      9.51     17.50     13.50      8.15
271..    1981/1983  AR, AZ, IA, NM, OK, SD, UT, WY....................       6.56      59.18     62.52     60.85      8.94     17.86     13.40      8.15
272..    1981/1983  AR, AZ, IA, MT, ND, NM, OK, SD, UT, WY............       7.20      59.13     62.52     60.83      8.93     17.87     13.40      8.15
273..    1981/1984  AR, KS, MT, NE, OK, UT, WY........................       5.28      59.27     64.54     61.91      8.76     17.57     13.17      8.15
274..    1981/1984  AR, KS, MT, ND, NE, OK, SD, UT, WY................       5.87      59.22     64.56     61.89      8.83     17.51     13.17      8.15
275..    1982/1983  AZ, ID, NE, NM, OK, SD, UT, WY....................       5.38      59.07     62.60     60.84      9.39     17.41     13.40      8.15
276..    1982/1983  ID, KS, ND, NE, OK, OR, SD, UT, WY................       6.10      58.08     63.58     60.83      9.60     17.19     13.40      8.15
277..    1982/1983  AZ, ID, MT, ND, NE, NM, OK, SD, UT, WY............       6.01      59.02     62.61     60.82      9.37     17.43     13.40      8.15
278..    1983/1984  IA, KS, NE, OK, UT, WY............................       5.15      59.33     63.35     61.34      8.27     18.30     13.28      8.15
279..    1981/1983  ID, KS, MT, ND, NE, OK, OR, UT, WY................       6.14      57.05     63.69     60.37      9.48     17.51     13.50      8.15
280..    1982/1983  AR, AZ, IA, NE, NM, OK, UT, WY....................       6.95      60.75     62.46     61.60      8.85     17.60     13.23      8.15
281..    1981/1983  AZ, MS, ND, NM, OK, SD, UT, WY....................       5.67      58.59     62.05     60.32      9.31     17.69     13.50      8.15
282..    1981/1982  AZ, ID, NE, NM, OK, SD, UT, WY....................       5.38      60.16     63.20     61.68      8.91     17.49     13.20      8.14
283..    1981/1982  IA, ID, MT, ND, NV, OR, SD, UT, WY................       5.01      53.95     54.79     54.37      8.45     21.51     14.98      8.14
284..    1981/1983  IA, ID, KS, NE, OK, UT, WY........................       5.63      57.57     64.03     60.80      9.19     17.60     13.39      8.14
285..    1981/1983  ID, KS, NE, OK, OR, SD, UT, WY....................       5.81      57.08     63.69     60.38      9.51     17.45     13.48      8.14
286..    1981/1982  AZ, LA, NE, NM, OK, UT, WY........................       6.51      58.82     63.38     61.10      9.53     17.12     13.32      8.14
287..    1982/1983  AZ, IA, ID, NM, OK, SD, UT, WY....................       5.97      59.12     62.59     60.85      9.10     17.65     13.37      8.14
288..    1981/1982  AR, AZ, ID, MT, ND, NM, OK, OR, UT, WY............       7.19      60.15     63.07     61.61      8.75     17.66     13.21      8.14
289..    1982/1983  ID, KS, NE, OK, OR, UT, WY........................       5.50      58.08     63.57     60.82      9.54     17.22     13.38      8.14
290..    1982/1983  ID, KS, MT, ND, NE, OK, OR, UT, WY................       6.14      58.04     63.57     60.81      9.51     17.25     13.38      8.14
291..    1981/1984  AR, KS, NE, OK, SD, UT, WY........................       5.24      59.15     64.57     61.86      8.81     17.50     13.15      8.14
292..    1982/1983  AZ, ID, MT, NE, NM, OK, UT, WY....................       5.42      59.02     62.60     60.81      9.30     17.46     13.38      8.14
293..    1981/1983  AZ, LA, ND, NM, OK, SD, UT, WY....................       6.41      58.07     62.15     60.11      9.84     17.22     13.53      8.13
294..    1981/1983  ID, KS, MT, ND, NE, OK, OR, SD, UT, WY............       6.44      57.05     63.69     60.37      9.48     17.47     13.48      8.13
295..    1981/1982  AR, AZ, IA, ID, ND, NM, OK, OR, SD, UT, WY........       8.43      60.15     63.10     61.63      8.75     17.65     13.20      8.13
296..    1983/1984  IA, KS, MT, ND, NE, OK, SD, UT, WY................       6.07      59.33     63.39     61.36      8.34     18.17     13.25      8.13
297..    1982/1983  AZ, ID, ND, NM, OK, OR, SD, UT, WY................       6.13      58.69     62.47     60.58      9.49     17.35     13.42      8.13
298..    1981/1982  AZ, LA, NE, NM, OK, SD, UT, WY....................       6.82      58.82     63.38     61.10      9.50     17.10     13.30      8.13
299..    1981/1982  AZ, ID, LA, NM, OK, UT, WY........................       6.24      57.99     63.27     60.63      9.62     17.20     13.41      8.13
300..    1981/1983  AZ, MS, MT, ND, NM, OK, UT, WY....................       5.71      58.55     62.04     60.30      9.23     17.73     13.48      8.13
301..    1982/1983  AR, AZ, NM, NV, OK, UT, WY........................       5.32      59.63     61.70     60.67      9.10     17.70     13.40      8.13
302..    1981/1983  AR, AZ, IA, MT, NM, OK, SD, UT, WY................       6.91      59.13     62.51     60.82      8.87     17.86     13.36      8.13
303..    1981/1982  AR, AZ, IA, LA, MT, ND, NM, OK, SD, UT, WY........       9.06      58.84     63.53     61.18      9.38     17.18     13.28      8.13
304..    1982/1983  AZ, MS, NE, NM, OK, UT, WY........................       5.77      59.83     62.29     61.06      9.18     17.43     13.31      8.13
305..    1983/1984  IA, KS, ND, NE, OK, SD, UT, WY....................       5.73      59.24     63.39     61.32      8.35     18.15     13.25      8.13
306..    1981/1982  AR, AZ, ID, MT, ND, NM, OK, OR, SD, UT, WY........       7.49      60.15     63.07     61.61      8.73     17.64     13.19      8.12
307..    1981/1983  ID, KS, MT, NE, OK, OR, UT, WY....................       5.85      57.05     63.68     60.36      9.42     17.50     13.46      8.12
308..    1981/1983  AR, KS, MS, ND, NE, OK, SD, UT, WY................       6.64      58.40     63.31     60.86      9.43     17.27     13.35      8.12
309..    1982/1983  ID, KS, NE, OK, OR, SD, UT, WY....................       5.81      58.08     63.57     60.82      9.54     17.17     13.36      8.12
310..    1982/1983  ID, KS, MT, ND, NE, OK, OR, SD, UT, WY............       6.44      58.04     63.57     60.81      9.52     17.20     13.36      8.12
311..    1982/1983  AR, AZ, LA, ND, NM, OK, SD, UT, WY................       7.42      59.26     62.04     60.65      9.91     16.87     13.39      8.12
312..    1981/1984  AR, KS, MT, NE, OK, SD, UT, WY....................       5.59      59.21     64.56     61.88      8.76     17.49     13.13      8.12
313..    1981/1983  AZ, MS, NM, OK, SD, UT, WY........................       5.38      58.59     62.04     60.31      9.26     17.68     13.47      8.12
314..    1982/1983  AR, CO, ND, OK, SD, UT, WY........................       5.07      59.32     62.38     60.85      9.44     17.26     13.35      8.12

[[Page 29612]]

                                                                                                                                                        
315..    1981/1982  AR, AZ, ID, MT, NM, OK, OR, UT, WY................       6.90      60.15     63.06     61.61      8.71     17.65     13.18      8.12
316..    1981/1982  AZ, IA, ID, NE, NM, OK, UT, WY....................       6.36      60.16     63.22     61.69      8.82     17.50     13.16      8.12
317..    1981/1983  AR, AZ, ID, NM, OK, UT, WY........................       5.39      57.85     62.38     60.11      9.34     17.67     13.51      8.12
318..    1982/1983  AZ, ID, NM, OK, OR, UT, WY........................       5.54      58.69     62.45     60.57      9.43     17.38     13.40      8.12
319..    1982/1983  AZ, ID, MT, ND, NM, OK, OR, UT, WY................       6.18      58.65     62.46     60.55      9.41     17.40     13.41      8.12
320..    1981/1983  AZ, LA, MT, ND, NM, OK, UT, WY....................       6.45      58.04     62.15     60.09      9.76     17.25     13.51      8.12
321..    1981/1983  AZ, LA, NM, OK, SD, UT, WY........................       6.12      58.07     62.15     60.11      9.80     17.21     13.50      8.12
322..    1983/1984  AR, KS, LA, MT, ND, NE, OK, UT, WY................       7.42      59.14     63.99     61.57      8.92     17.44     13.18      8.11
323..    1982/1983  AZ, MS, NE, NM, OK, SD, UT, WY....................       6.07      59.83     62.29     61.06      9.19     17.39     13.29      8.11
324..    1982/1983  AR, KS, LA, ND, NE, OK, SD, UT, WY................       7.38      58.73     62.73     60.73     10.02     16.70     13.36      8.11
325..    1981/1982  AZ, ID, MT, ND, NE, NM, OK, SD, UT, WY............       6.01      60.16     63.19     61.68      8.82     17.49     13.16      8.11
326..    1981/1983  AR, KS, MS, NE, OK, UT, WY........................       6.05      58.40     63.30     60.85      9.37     17.30     13.33      8.11
327..    1980/1983  AR, KS, ND, NE, OK, SD, UT, WY....................       5.53      57.40     63.11     60.26      9.68     17.24     13.46      8.11
328..    1982/1983  AR, AZ, LA, NM, OK, UT, WY........................       6.83      59.26     62.03     60.64      9.86     16.89     13.38      8.11
329..    1982/1983  ID, KS, MT, NE, OK, OR, UT, WY....................       5.85      58.04     63.56     60.80      9.45     17.23     13.34      8.11
330..    1981/1983  AZ, IA, ND, NE, NM, OK, SD, UT, WY................       6.54      59.16     62.57     60.86      8.90     17.76     13.33      8.11
331..    1981/1982  AZ, ID, MT, NE, NM, OK, UT, WY....................       5.42      60.16     63.19     61.67      8.80     17.50     13.15      8.11
332..    1981/1983  AR, KS, MS, MT, ND, NE, OK, UT, WY................       6.68      58.36     63.30     60.83      9.34     17.32     13.33      8.11
333..    1982/1983  AR, AZ, LA, MT, ND, NM, OK, UT, WY................       7.46      59.21     62.04     60.63      9.83     16.91     13.37      8.11
334..    1982/1983  AZ, ID, NM, OK, OR, SD, UT, WY....................       5.85      58.69     62.45     60.57      9.43     17.34     13.38      8.11
335..    1981/1983  AR, KS, LA, ND, NE, OK, SD, UT, WY................       7.38      57.89     62.99     60.44      9.95     16.87     13.41      8.11
336..    1981/1983  AZ, MS, MT, NM, OK, UT, WY........................       5.42      58.55     62.03     60.29      9.17     17.72     13.44      8.11
337..    1983/1984  IA, KS, MT, NE, OK, SD, UT, WY....................       5.79      59.33     63.37     61.35      8.26     18.16     13.21      8.10
338..    1982/1983  AR, AZ, MT, NM, NV, OK, UT, WY....................       5.67      59.58     61.70     60.64      9.02     17.71     13.36      8.10
339..    1982/1983  AR, AZ, LA, NM, OK, SD, UT, WY....................       7.13      59.26     62.03     60.64      9.86     16.86     13.36      8.10
340..    1981/1982  AZ, IA, LA, NE, NM, OK, UT, WY....................       7.80      58.82     63.39     61.11      9.41     17.12     13.26      8.10
341..    1982/1983  AR, KS, LA, NE, OK, UT, WY........................       6.79      58.73     62.72     60.72      9.97     16.72     13.34      8.10
342..    1982/1983  AZ, MS, MT, NE, NM, OK, UT, WY....................       6.12      59.78     62.29     61.03      9.11     17.45     13.28      8.10
343..    1982/1984  AR, KS, LA, MT, ND, NE, OK, UT, WY................       7.43      59.36     64.65     62.00      9.17     16.96     13.06      8.10
344..    1981/1983  AR, KS, MS, NE, OK, SD, UT, WY....................       6.35      58.40     63.30     60.85      9.37     17.26     13.31      8.10
345..    1981/1983  AZ, IA, NE, NM, OK, UT, WY........................       5.94      59.16     62.55     60.86      8.83     17.78     13.31      8.10
346..    1982/1983  AR, AZ, LA, MT, ND, NM, OK, SD, UT, WY............       7.77      59.21     62.04     60.63      9.83     16.88     13.36      8.10
347..    1981/1983  AZ, LA, MT, NM, OK, UT, WY........................       6.17      58.04     62.14     60.09      9.72     17.24     13.48      8.10
348..    1982/1983  AR, KS, LA, MT, ND, NE, OK, UT, WY................       7.43      58.68     62.72     60.70      9.94     16.75     13.34      8.10
349..    1983/1984  IA, KS, NE, OK, SD, UT, WY........................       5.44      59.24     63.37     61.31      8.27     18.14     13.21      8.10
350..    1982/1984  AR, IA, KS, MT, ND, NE, OK, UT, WY................       6.86      60.35     64.26     62.31      8.40     17.60     13.00      8.10
351..    1981/1983  AR, KS, LA, NE, OK, UT, WY........................       6.79      57.89     62.98     60.44      9.91     16.89     13.40      8.10
352..    1981/1983  AR, KS, MS, MT, ND, NE, OK, SD, UT, WY............       6.99      58.36     63.30     60.83      9.34     17.27     13.31      8.10
353..    1981/1983  AZ, MS, MT, NM, OK, SD, UT, WY....................       5.73      58.55     62.03     60.29      9.17     17.68     13.43      8.09
354..    1982/1983  AR, KS, LA, NE, OK, SD, UT, WY....................       7.09      58.73     62.72     60.72      9.97     16.69     13.33      8.09
355..    1983/1984  AR, KS, LA, MT, NE, OK, UT, WY....................       7.14      59.14     63.99     61.56      8.86     17.43     13.15      8.09
356..    1981/1982  AZ, LA, MT, NE, NM, OK, UT, WY....................       6.86      58.82     63.37     61.09      9.39     17.11     13.25      8.09
357..    1983/1984  AR, KS, LA, NE, OK, UT, WY........................       6.79      59.06     63.99     61.52      8.88     17.42     13.15      8.09
358..    1982/1983  AR, KS, LA, MT, ND, NE, OK, SD, UT, WY............       7.73      58.68     62.72     60.70      9.94     16.71     13.33      8.09
359..    1982/1984  AR, KS, LA, NE, OK, UT, WY........................       6.79      59.31     64.65     61.98      9.15     16.95     13.05      8.09
360..    1982/1984  AR, KS, LA, ND, NE, OK, SD, UT, WY................       7.38      59.26     64.66     61.96      9.21     16.90     13.05      8.09
361..    1981/1983  AR, KS, LA, MT, ND, NE, OK, UT, WY................       7.43      57.85     62.99     60.42      9.87     16.90     13.39      8.09
362..    1980/1983  AR, KS, NE, OK, SD, UT, WY........................       5.24      57.48     63.09     60.29      9.60     17.23     13.41      8.09

[[Page 29613]]

                                                                                                                                                        
363..    1981/1983  AZ, IA, NE, NM, OK, SD, UT, WY....................       6.25      59.16     62.55     60.86      8.83     17.74     13.29      8.09
364..    1982/1983  AR, AZ, LA, MT, NM, OK, UT, WY....................       7.18      59.21     62.02     60.62      9.78     16.90     13.34      8.09
365..    1981/1982  AZ, MS, ND, NM, OK, SD, UT, WY....................       5.67      60.35     62.69     61.52      8.67     17.62     13.15      8.09
366..    1981/1983  AR, KS, LA, NE, OK, SD, UT, WY....................       7.09      57.89     62.98     60.44      9.90     16.86     13.38      8.09
367..    1981/1982  AZ, ID, NE, NM, OK, OR, UT, WY....................       6.23      60.14     62.86     61.50      8.74     17.56     13.15      8.09
368..    1981/1983  AR, KS, MS, MT, NE, OK, UT, WY....................       6.39      58.36     63.29     60.82      9.28     17.30     13.29      8.08
369..    1981/1983  AZ, ID, ND, NM, OK, OR, SD, UT, WY................       6.13      57.36     62.24     59.80      9.34     17.69     13.52      8.08
370..    1983/1984  AR, KS, LA, MT, ND, NE, OK, SD, UT, WY............       7.72      59.07     64.01     61.54      8.92     17.35     13.13      8.08
371..    1983/1984  AR, KS, MT, ND, NE, OK, UT, WY....................       5.57      58.54     62.99     60.77      8.60     17.99     13.30      8.08
372..    1982/1984  AR, KS, LA, MT, NE, OK, UT, WY....................       7.14      59.36     64.64     62.00      9.11     16.95     13.03      8.08
373..    1982/1984  AR, KS, LA, MT, ND, NE, OK, SD, UT, WY............       7.73      59.31     64.66     61.98      9.17     16.90     13.03      8.08
374..    1983/1984  AR, KS, LA, ND, NE, OK, SD, UT, WY................       7.37      59.00     64.01     61.50      8.94     17.34     13.14      8.08
375..    1980/1982  IA, KS, ND, NE, OK, SD, UT, WY....................       5.80      58.14     64.10     61.12      9.75     16.68     13.22      8.08
376..    1981/1983  AR, KS, LA, MT, ND, NE, OK, SD, UT, WY............       7.73      57.85     62.99     60.42      9.87     16.87     13.37      8.08
377..    1982/1983  AR, KS, LA, MT, NE, OK, UT, WY....................       7.14      58.68     62.71     60.70      9.88     16.73     13.31      8.08
378..    1981/1984  AR, KS, LA, MT, ND, NE, OK, UT, WY................       7.43      58.84     64.49     61.66      9.15     17.05     13.10      8.08
379..    1982/1984  AR, IA, KS, NE, OK, UT, WY........................       6.22      60.31     64.25     62.28      8.35     17.58     12.97      8.08
380..    1981/1983  AZ, IA, MT, NE, NM, OK, UT, WY....................       6.29      59.12     62.55     60.83      8.76     17.78     13.27      8.07
381..    1982/1984  AR, IA, KS, ND, NE, OK, SD, UT, WY................       6.81      60.24     64.28     62.26      8.43     17.50     12.97      8.07
382..    1981/1983  AZ, ID, NM, OK, OR, UT, WY........................       5.54      57.36     62.23     59.80      9.29     17.71     13.50      8.07
383..    1981/1984  AR, KS, LA, ND, NE, OK, SD, UT, WY................       7.38      58.75     64.50     61.62      9.19     17.00     13.10      8.07
384..    1982/1983  CO, IA, ND, OK, SD, UT, WY........................       5.34      59.30     62.51     60.91      9.10                              
                                                                                                                     17.40     13.25      8.07          
385..    1982/1984  AR, IA, KS, MT, NE, OK, UT, WY....................       6.57      60.36     64.25     62.30      8.32     17.58     12.95      8.07
386..    1982/1983  AZ, NE, NM, NV, OK, UT, WY........................       5.01      59.57     61.82     60.70      8.99     17.60     13.29      8.07
387..    1982/1983  AR, KS, LA, MT, NE, OK, SD, UT, WY................       7.44      58.68     62.71     60.70      9.89     16.70     13.29      8.07
388..    1981/1983  AR, KS, LA, MT, NE, OK, UT, WY....................       7.14      57.85     62.98     60.42      9.82     16.89     13.36      8.07
389..    1981/1983  AR, AZ, LA, ND, NM, OK, SD, UT, WY................       7.42      58.12     62.09     60.11      9.74     17.11     13.42      8.07
390..    1981/1984  AR, KS, LA, NE, OK, UT, WY........................       6.79      58.78     64.49     61.64      9.14     17.04     13.09      8.07
391..    1981/1982  AZ, MS, NM, OK, SD, UT, WY........................       5.38      60.35     62.68     61.52      8.62     17.61     13.11      8.07
392..    1981/1983  AR, ID, KS, ND, NE, OK, OR, SD, UT, WY............       7.11      57.14     63.55     60.34      9.45     17.29     13.37      8.07
393..    1980/1982  AR, KS, ND, NE, OK, SD, UT, WY....................       5.53      57.87     64.28     61.08      9.79     16.63     13.21      8.07
394..    1981/1983  AZ, ID, MT, ND, NM, OK, OR, UT, WY................       6.18      57.33     62.24     59.78      9.26     17.72     13.49      8.07
395..    1982/1984  AR, KS, LA, NE, OK, SD, UT, WY....................       7.09      59.25     64.66     61.96      9.15     16.89     13.02      8.07
396..    1980/1982  IA, KS, NE, OK, UT, WY............................       5.21      58.26     64.09     61.18      9.68     16.70     13.19      8.07
397..    1982/1984  AR, IA, KS, MT, ND, NE, OK, SD, UT, WY............       7.16      60.29     64.27     62.28      8.40     17.50     12.95      8.07
398..    1980/1983  AR, KS, MT, ND, NE, OK, UT, WY....................       5.57      57.32     63.10     60.21      9.52     17.27     13.39      8.06
399..    1981/1983  AZ, IA, MT, NE, NM, OK, SD, UT, WY................       6.59      59.12     62.55     60.83      8.76     17.74     13.25      8.06
400..    1981/1983  AZ, ID, ND, NE, NM, OK, SD, UT, WY................       5.67      57.83     62.43     60.13      9.28     17.53     13.41      8.06
401..    1982/1983  AZ, LA, NE, NM, OK, UT, WY........................       6.51      59.21     62.12     60.66      9.76     16.81     13.29      8.06
402..    1982/1984  ID, KS, MT, ND, NE, OK, SD, UT, WY................       5.28      58.62     64.35     61.49      8.90     17.32     13.11      8.06
403..    1981/1983  AZ, ID, NM, OK, OR, SD, UT, WY....................       5.85      57.36     62.23     59.80      9.29     17.68     13.48      8.06
404..    1983/1984  AR, KS, LA, MT, NE, OK, SD, UT, WY................       7.43      59.06     64.00     61.53      8.86     17.34     13.10      8.06
405..    1981/1983  AR, KS, LA, MT, NE, OK, SD, UT, WY................       7.44      57.85     62.98     60.42      9.82     16.86     13.34      8.06
406..    1981/1984  AR, KS, LA, MT, ND, NE, OK, SD, UT, WY............       7.73      58.80     64.49     61.65      9.15     17.00     13.07      8.06
407..    1981/1984  AR, IA, KS, MT, ND, NE, OK, UT, WY................       6.86      59.63     64.52     62.07      8.42     17.54     12.98      8.06
408..    1981/1983  AR, AZ, LA, NM, OK, UT, WY........................       6.83      58.12     62.08     60.10      9.69     17.12     13.41      8.06

[[Page 29614]]

                                                                                                                                                        
409..    1982/1984  AR, KS, LA, MT, NE, OK, SD, UT, WY................       7.44      59.30     64.65     61.98      9.11     16.89     13.00      8.06
410..    1982/1983  AZ, NE, NM, NV, OK, SD, UT, WY....................       5.31      59.57     61.82     60.70      9.00     17.56     13.28      8.06
411..    1980/1983  IA, KS, ND, NE, OK, SD, UT, WY....................       5.80      57.66     63.24     60.45      9.33     17.33     13.33      8.06
412..    1983/1984  AR, KS, LA, NE, OK, SD, UT, WY....................       7.09      58.99     64.00     61.50      8.88     17.33     13.10      8.06
413..    1981/1983  AR, ID, KS, NE, OK, OR, UT, WY....................       6.51      57.14     63.54     60.34      9.40     17.31     13.35      8.06
414..    1981/1984  AR, KS, LA, MT, NE, OK, UT, WY....................       7.14      58.84     64.48     61.66      9.10     17.03     13.07      8.06
415..    1983/1984  AR, CO, LA, MT, OK, WY............................       6.11      57.89     63.92     60.90      9.04     17.41     13.23      8.06
416..    1981/1982  AZ, ID, LA, NM, OK, OR, UT, WY....................       7.40      58.01     63.04     60.53      9.38     17.24     13.31      8.06
417..    1981/1982  AZ, MS, MT, ND, NM, OK, UT, WY....................       5.71      60.35     62.67     61.51      8.56     17.63     13.09      8.05
418..    1980/1982  IA, KS, ND, NE, OK, SD, WY........................       5.16      58.40     65.54     61.97      9.08     16.91     13.00      8.05
419..    1982/1983  AZ, LA, NE, NM, OK, SD, UT, WY....................       6.82      59.21     62.12     60.66      9.77     16.78     13.27      8.05
420..    1981/1984  ID, KS, MT, ND, NE, OK, SD, UT, WY................       5.28      58.04     64.45     61.24      8.90     17.39     13.15      8.05
421..    1981/1983  AR, ID, KS, MT, ND, NE, OK, OR, UT, WY............       7.15      57.11     63.54     60.32      9.37     17.33     13.35      8.05
422..    1983/1984  AR, KS, MT, NE, OK, UT, WY........................       5.29      58.53     62.98     60.75      8.53     17.98     13.25      8.05
423..    1980/1982  IA, KS, NE, OK, SD, UT, WY........................       5.52      58.26     64.09     61.18      9.66     16.67     13.16      8.05
424..    1981/1983  AR, AZ, LA, MT, ND, NM, OK, UT, WY................       7.46      58.09     62.09     60.09      9.66     17.14     13.40      8.05
425..    1982/1983  AZ, IA, NM, NV, OK, SD, UT, WY....................       5.91      59.62     61.81     60.71      8.73     17.79     13.26      8.05
426..    1980/1983  AR, KS, MT, ND, NE, OK, SD, UT, WY................       5.87      57.32     63.10     60.21      9.51     17.23     13.37      8.05
427..    1981/1983  AR, AZ, LA, NM, OK, SD, UT, WY....................       7.13      58.12     62.08     60.10      9.69     17.10     13.39      8.05
428..    1981/1983  AZ, ID, NE, NM, OK, UT, WY........................       5.07      57.83     62.41     60.12      9.22     17.56     13.39      8.05
429..    1981/1984  AR, KS, LA, NE, OK, SD, UT, WY....................       7.09      58.74     64.50     61.62      9.14     16.99     13.06      8.05
430..    1981/1983  AR, AZ, MS, NM, OK, UT, WY........................       6.08      58.64     61.94     60.29      9.15     17.55     13.35      8.05
431..    1980/1983  IA, KS, NE, OK, UT, WY............................       5.21      57.74     63.22     60.48      9.26     17.36     13.31      8.05
432..    1981/1983  AZ, IA, ID, NM, OK, SD, UT, WY....................       5.97      57.84     62.50     60.17      8.98     17.77     13.37      8.05
433..    1982/1983  AZ, MT, NE, NM, NV, OK, UT, WY....................       5.36      59.52     61.82     60.67      8.92     17.61     13.26      8.05
434..    1982/1984  AR, IA, KS, NE, OK, SD, UT, WY....................       6.52      60.25     64.27     62.26      8.35     17.49     12.92      8.04
435..    1981/1983  AR, AZ, LA, MT, ND, NM, OK, SD, UT, WY............       7.77      58.09     62.09     60.09      9.66     17.11     13.39      8.04
436..    1981/1984  AR, IA, KS, ND, NE, OK, SD, UT, WY................       6.81      59.52     64.54     62.03      8.45     17.48     12.97      8.04
437..    1981/1984  AR, IA, KS, NE, OK, UT, WY........................       6.22      59.57     64.52     62.05      8.39     17.54     12.96      8.04
438..    1982/1983  AR, ID, KS, ND, NE, OK, OR, SD, UT, WY............       7.11      58.15     63.36     60.75      9.49     16.99     13.24      8.04
439..    1981/1982  AR, AZ, MS, NM, OK, UT, WY........................       6.08      60.43     62.85     61.64      8.60     17.49     13.05      8.04
440..    1981/1983  AR, ID, KS, MT, ND, NE, OK, OR, SD, UT, WY........       7.45      57.11     63.54     60.32      9.37     17.29     13.33      8.04
441..    1980/1983  AR, KS, MT, NE, OK, UT, WY........................       5.28      57.39     63.08     60.24      9.44     17.26     13.35      8.04
442..    1981/1983  AZ, ID, NE, NM, OK, SD, UT, WY....................       5.38      57.83     62.41     60.12      9.22     17.52     13.37      8.04
443..    1981/1984  AR, KS, LA, MT, NE, OK, SD, UT, WY................       7.44      58.79     64.49     61.64      9.10     16.99     13.04      8.04
444..    1982/1984  AR, IA, KS, MT, NE, OK, SD, UT, WY................       6.87      60.30     64.26     62.28      8.32     17.49     12.91      8.04
445..    1982/1983  AZ, LA, MT, NE, NM, OK, UT, WY....................       6.86      59.16     62.12     60.64      9.69     16.82     13.25      8.04
446..    1980/1982  AR, KS, NE, OK, SD, UT, WY........................       5.24      57.99     64.27     61.13      9.68     16.61     13.15      8.04
447..    1982/1983  AZ, ID, MS, NM, OK, UT, WY........................       5.49      58.35     62.24     60.30      9.33     17.33     13.33      8.04
448..    1980/1982  AR, IA, KS, ND, NE, OK, SD, UT, WY................       6.81      58.12     64.26     61.19      9.72     16.55     13.13      8.04
449..    1982/1983  AR, AZ, ID, ND, NM, OK, OR, SD, UT, WY............       7.14      58.75     62.30     60.53      9.38     17.17     13.28      8.04
450..    1982/1983  AR, IA, KS, MS, NE, OK, UT, WY....................       7.33      59.34     63.13     61.24      8.90     17.34     13.12      8.04
451..    1981/1982  AZ, MS, MT, NM, OK, UT, WY........................       5.42      60.35     62.67     61.51      8.52     17.61     13.06      8.04
452..    1981/1982  AR, LA, MS, OK....................................       5.31      59.66     64.99     62.32     10.64     15.15     12.89      8.03
453..    1981/1983  AZ, ID, MT, ND, NE, NM, OK, SD, UT, WY............       6.01      57.79     62.42     60.11      9.20     17.53     13.37      8.03
454..    1980/1983  IA, KS, NE, OK, SD, UT, WY........................       5.52      57.74     63.22     60.48      9.26     17.31     13.28      8.03
455..    1981/1982  AZ, ID, LA, NE, NM, OK, UT, WY....................       6.93      58.05     63.23     60.64      9.47     17.02     13.25      8.03
456..    1981/1983  AR, AZ, LA, MT, NM, OK, UT, WY....................       7.18      58.09     62.08     60.08      9.62     17.12     13.37      8.03
457..    1983/1984  AR, KS, MT, ND, NE, OK, SD, UT, WY................       5.86      58.45     63.02     60.74      8.60     17.85     13.22      8.03
458..    1981/1984  AR, IA, KS, MT, NE, OK, UT, WY....................       6.57      59.63     64.51     62.07      8.35     17.53     12.94      8.03
459..    1981/1984  AR, IA, KS, MT, ND, NE, OK, SD, UT, WY............       7.16      59.57     64.53     62.05      8.42     17.47     12.94      8.03

[[Page 29615]]

                                                                                                                                                        
460..    1982/1983  AR, ID, KS, MT, ND, NE, OK, OR, UT, WY............       7.15      58.10     63.35     60.73      9.40     17.05     13.22      8.03
461..    1982/1983  AZ, NM, NV, OK, OR, UT, WY........................       5.48      59.17     61.68     60.43      9.05     17.53     13.29      8.03
462..    1982/1983  AR, ID, KS, NE, OK, OR, UT, WY....................       6.51      58.15     63.34     60.75      9.42     17.02     13.22      8.03
463..    1982/1983  AZ, IA, LA, NM, OK, SD, UT, WY....................       7.41      59.25     62.11     60.68      9.51     16.95     13.23      8.03
464..    1981/1983  AR, ID, KS, MT, NE, OK, OR, UT, WY................       6.86      57.11     63.52     60.32      9.31     17.31     13.31      8.03
465..    1982/1983  AZ, ID, MS, NM, OK, SD, UT, WY....................       5.80      58.35     62.24     60.30      9.33     17.29     13.31      8.03
466..    1983/1984  AR, KS, ND, NE, OK, SD, UT, WY....................       5.52      58.34     63.02     60.68      8.62     17.83     13.23      8.03
467..    1980/1983  AR, KS, MT, NE, OK, SD, UT, WY....................       5.59      57.39     63.08     60.24      9.44     17.21     13.32      8.03
468..    1980/1982  AR, IA, KS, NE, OK, UT, WY........................       6.22      58.24     64.26     61.25      9.64     16.56     13.10      8.02
469..    1982/1983  AR, AZ, ID, MT, ND, NM, OK, OR, UT, WY............       7.19      58.71     62.29     60.50      9.30     17.23     13.26      8.02
470..    1982/1983  AR, AZ, ID, NM, OK, OR, UT, WY....................       6.55      58.75     62.28     60.52      9.32     17.20     13.26      8.02
471..    1981/1982  AZ, MS, MT, NM, OK, SD, UT, WY....................       5.73      60.35     62.67     61.51      8.50     17.59     13.04      8.02
472..    1981/1983  AZ, ID, MT, NE, NM, OK, UT, WY....................       5.42      57.79     62.41     60.10      9.14     17.56     13.35      8.02
473..    1981/1982  AR, AZ, NM, NV, OK, UT, WY........................       5.32      59.85     62.05     60.95      8.52     17.79     13.16      8.02
474..    1980/1983  AR, LA, MS, OK....................................       5.31      57.99     62.81     60.40     11.31     15.24     13.28      8.02
475..    1982/1983  AZ, NM, NV, OK, OR, SD, UT, WY....................       5.78      59.17     61.68     60.43      9.05     17.49     13.27      8.02
476..    1980/1982  ID, KS, ND, NE, OK, OR, SD, UT, WY................       6.10      57.27     63.32     60.30      9.78     16.81     13.30      8.02
477..    1982/1983  AR, ID, KS, MT, ND, NE, OK, OR, SD, UT, WY........       7.45      58.10     63.35     60.73      9.40     17.00     13.20      8.02
478..    1981/1984  AR, IA, KS, NE, OK, SD, UT, WY....................       6.52      59.52     64.54     62.03      8.38     17.46     12.92      8.02
479..    1981/1983  AR, AZ, IA, NE, NM, OK, UT, WY....................       6.95      59.21     62.45     60.83      8.74     17.61     13.18      8.01
480..    1982/1983  AZ, ID, MS, MT, NM, OK, UT, WY....................       5.84      58.30     62.24     60.27      9.25     17.34     13.30      8.01
481..    1982/1983  AR, AZ, ID, MT, ND, NM, OK, OR, SD, UT, WY........       7.49      58.71     62.29     60.50      9.30     17.19     13.24      8.01
482..    1980/1982  AR, IA, KS, NE, OK, SD, UT, WY....................       6.52      58.24     64.26     61.25      9.62     16.53     13.08      8.01
483..    1982/1984  AR, AZ, LA, NM, OK................................       5.98      59.25     64.72     61.99      9.39     16.45     12.92      8.01
484..    1981/1982  AZ, IA, NM, NV, OK, SD, UT, WY....................       5.91      59.77     61.91     60.84      8.44     17.89     13.16      8.01
485..    1982/1983  AZ, MT, NM, NV, OK, OR, UT, WY....................       5.83      59.12     61.68     60.40      8.98     17.54     13.26      8.01
486..    1980/1982  ID, KS, NE, OK, OR, UT, WY........................       5.50      57.37     63.32     60.34      9.72     16.82     13.27      8.01
487..    1982/1983  AR, ID, KS, MT, NE, OK, OR, UT, WY................       6.86      58.10     63.34     60.72      9.34     17.03     13.18      8.01
488..    1981/1983  IA, ID, KS, NE, OK, OR, UT, WY....................       6.79      57.14     63.69     60.41      9.04     17.46     13.25      8.00
489..    1981/1984  AR, IA, KS, MT, NE, OK, SD, UT, WY................       6.87      59.57     64.52     62.05      8.35     17.45     12.90      8.00
490..    1981/1983  IA, ID, KS, MT, ND, NE, OK, OR, UT, WY............       7.42      57.11     63.69     60.40      9.03     17.47     13.25      8.00
491..    1981/1983  AZ, LA, NE, NM, OK, UT, WY........................       6.51      58.11     62.10     60.10      9.59     17.04     13.31      8.00
492..    1983/1984  AR, KS, MT, NE, OK, SD, UT, WY....................       5.58      58.43     63.00     60.72      8.53     17.83     13.18      8.00
493..    1980/1983  IA, KS, MT, ND, NE, OK, SD, UT, WY................       6.15      57.57     63.23     60.40      9.19     17.31     13.25      8.00
494..    1981/1983  AR, AZ, ID, ND, NM, OK, OR, SD, UT, WY............       7.14      57.42     62.15     59.79      9.24     17.53     13.38      8.00
495..    1982/1983  AR, AZ, ID, MT, NM, OK, OR, UT, WY................       6.90      58.71     62.28     60.49      9.24     17.21     13.22      8.00
496..    1982/1984  AZ, LA, MT, ND, NM, OK, UT, WY....................       6.45      58.20     63.79     60.99      9.17     17.06     13.11      8.00
497..    1981/1983  AR, AZ, NM, NV, OK, UT, WY........................       5.32      57.78     61.49     59.63      8.99     17.84     13.41      8.00
498..    1983/1984  AR, KS, NE, OK, SD, UT, WY........................       5.23      58.32     63.00     60.66      8.54     17.82     13.18      8.00
499..    1981/1982  AZ, NM, NV, OK, OR, UT, WY........................       5.48      59.75     61.57     60.66      8.41     17.96     13.18      8.00
500..    1981/1983  AZ, LA, NE, NM, OK, SD, UT, WY....................       6.82      58.11     62.10     60.10      9.59     17.01     13.30      7.99
--------------------------------------------------------------------------------------------------------------------------------------------------------



House Price Indexes

Introduction

    In implementing the risk-based capital stress test, the 1992 Act 
requires OFHEO to take seasoning of mortgages into account, in 
accordance with the CQHPI or any index of similar quality, authority, 
and public availability that is regularly used by the Federal 
Government.46 The 1992 Act defines ``seasoning'' as the change in 
the LTV ratio of a mortgage over time.47 Such changes result from 
changes in the principal balance of the mortgage and changes in the 
value of the property. Changes in the value of the underlying property 
usually will have a much greater impact than scheduled amortization or 
curtailments on the seasoning of mortgages, particularly during the 
early years of the loan. OFHEO proposes to use its house price

[[Page 29616]]

index, HPI,48 which is a weighted repeat transactions index based 
on Enterprise data, rather than the CQHPI.
---------------------------------------------------------------------------

    \46\ Section 1361(d)(1) (12 U.S.C. 4611(d)(1)).
    \47\ See note 20 above.
    \48\ ``House Price Index'' is a collective term that refers to 
all the subindexes described below.
---------------------------------------------------------------------------

Using an Index to Adjust for Seasoning

    The 1992 Act does not specify how an index should be used to 
account for the seasoning of Enterprise mortgages in the stress test. 
OFHEO proposes to account for the impact of changes in individual 
property values on the seasoning of single-family mortgages in the 
stress test based upon changes in the index used for the particular 
geographical area in which the property is located. In accounting for 
the changes in the distribution of current LTV ratios, OFHEO will also 
make adjustments for the scheduled amortization of the principal of the 
loan.
    In general, a house price index provides estimates of changes in 
the general level of values over time based on observations of the 
values of specific properties in a particular geographic area. The 
accuracy of an adjustment to the value of an individual property based 
on an index will depend significantly on the accuracy of the index for 
the particular market area in which the property is located. It also 
will depend upon the degree of similarity between the value-determining 
characteristics of that property and the properties from which the 
index is estimated.
    No matter how accurate an index, however, individual house values 
will appreciate at greater or lesser rates than the index over time. 
The longer the time period, the greater is the dispersion in changes of 
individual house values. That is one major reason why house prices can 
appreciate on the average, but mortgages on individual properties still 
default. OFHEO is studying alternative means to account for the 
increasing dispersion of rates of house price change that occur within 
a group of loans over time. OFHEO will address this issue in the second 
NPR.

Description of the HPI

    OFHEO began publishing the HPI in March 1996 using data provided by 
the Enterprises. The HPI is released approximately 2 months after the 
end of each quarter. This index is reported for the nation, and 
subindexes are reported for 9 U.S. Census Divisions, 50 states, and the 
District of Columbia.
    OFHEO calculates the HPI for each specified geographic area using 
repeated observations of housing values for individual single-family 
properties on which mortgages were originated and purchased by either 
Enterprise since 1975.49 There are now more than 6.9 million 
repeat transaction pairs in the national sample. The use of house price 
differentials computed from repeat transactions on the same properties 
controls for differences in the quality of the houses over time. For 
this reason, the HPI is described as a ``constant quality'' house price 
index. The HPI is updated each quarter as additional mortgages are 
purchased by the Enterprises through the identification of additional 
repeat transactions for the most recent quarter and all earlier 
quarters.
---------------------------------------------------------------------------

    \49\ A technical description of the HPI and the methodology used 
to create it has been published by OFHEO and is available from the 
agency upon request. Charles A. Calhoun, OFHEO House Price Indexes: 
HPI Technical Description (March 1996) (HPI Technical Description).
---------------------------------------------------------------------------

    The HPI provides broad geographic coverage by virtue of the 
national operations of the two Enterprises. There are, however, some 
limitations on the coverage of the HPI because it is produced using 
data on single-family, detached properties financed by conforming 
conventional mortgages purchased by the Enterprises. Thus, the HPI is 
not based upon any mortgage transactions on properties financed by 
government-insured loans, properties financed by mortgages exceeding 
the conforming loan limits determining eligibility for purchase by 
Freddie Mac or Fannie Mae, or multifamily properties.
    Quarterly HPI reports include a summary of recent developments, 
frequently asked questions and answers, and statistical reports for 
each geographic area. The most recent HPI report is included as Exhibit 
1 to this NPR.

Issues, Alternatives Considered, and Comments Received

1. Use of the HPI Versus the CQHPI and Other Alternatives
    OFHEO has concluded that the HPI is superior to the CQHPI for 
purposes of determining current values of single-family properties 
securing Enterprise loans. This conclusion is consistent with 
Congressional intent. During consideration of the 1992 Act, Congress 
recognized that the CQHPI might not be the most suitable index and 
provided OFHEO discretion to use another index.50 The legislative 
history also indicates Congress expected OFHEO to develop its own index 
for the stress test.51 The Senate report stated: ``As no existing 
data series is fully satisfactory for this purpose, the Director is 
encouraged to conduct research necessary to produce and publish a 
suitable index.'' 52
---------------------------------------------------------------------------

    \50\ Section 1361(d)(1) (12 U.S.C. 4611(d)(1)).
    \51\ Congress indicated that use by OFHEO would satisfy the 
requirement at section 1361(d)(1) of the 1992 Act (12 U.S.C. 
4611(d)(1)) that an appropriate index would ``be regularly used by 
the Federal Government.'' See 138 Cong. Rec. S 17920 (Chairman 
Riegle explaining that the index ``should be * * * used consistently 
by the Director or other Federal agencies * * *.'').
    \52\ S. Rep. No. 282, at 20.
---------------------------------------------------------------------------

    The CQHPI is based on data from the Housing Sales Survey conducted 
by the Bureau of the Census. Information on the physical 
characteristics and sales prices of new one-family houses are obtained 
through interviews with a national sample of the houses' builders and 
owners. The sample includes about 13,000 houses per year. The Commerce 
Department divides the data for detached houses into four regional 
samples. For each region, a statistical model is used to estimate how 
much the current average prices of new houses would have changed from 
the preceding period if the physical characteristics of new houses in 
both periods remained the same as they were in 1987. These regional 
estimates are published annually. The Commerce Department also 
publishes quarterly a national index that is a weighted average of the 
four regional indexes and a national index for attached houses.
    In the ANPR, OFHEO expressed the view that a weighted repeat 
transactions index based on Enterprise data was more appropriate for 
purposes of the risk-based capital test than the CQHPI.53 The HPI 
is such an index. By relying entirely upon Enterprise data, the HPI 
provides a more appropriate measure of average house price changes for 
the mix of properties securing the Enterprises' mortgages than does the 
CQHPI, which is based on a different mix of houses. A particularly 
important difference is that the HPI measures changes in values of 
existing houses, while the CQHPI measures price changes of new houses.
---------------------------------------------------------------------------

    \53\ 60 FR 7475 (Feb. 8, 1995).
---------------------------------------------------------------------------

    The CQHPI's small sample size results in other limitations that are 
undesirable for OFHEO's purposes. Because of limited data, the CQHPI 
provides national estimates by quarter, but only annual estimates for 
the four Census regions. Using either the quarterly, national estimates 
or the annual, regional estimates would present difficulties in 
accurately modeling the seasoning of Enterprise mortgages because house 
prices vary widely within Census regions and OFHEO must assess the 
Enterprises' capital on a quarterly basis. Such difficulties are 
avoided through the use of the HPI. With an existing database of more 
than

[[Page 29617]]

6.9 million transaction pairs, the weighted repeat sales approach 
provides sufficient data to estimate quarterly house price changes by 
states and by Census divisions.
    The implications of these and other statistical issues of house 
price index construction are reviewed in more detail in the HPI 
Technical Description.
    The Enterprises currently publish jointly the Conforming Mortgage 
House Price Index (CMHPI), a weighted repeat transactions index, using 
the same data as the HPI and a very similar methodology. OFHEO decided 
to produce its own index, rather than rely on the Enterprises' index, 
because of the important role of the house price index in determining 
capital requirements. By producing the HPI, OFHEO ensures that the 
index will meet the statutory requirements of quality, authority, and 
public availability. Additionally, OFHEO believes its index uses a 
statistical methodology that is more appropriate for its purposes (see 
issue 4. ``Statistical Methodology'' below).
    OFHEO also considered other existing house price indexes. NAR has 
published indexes for existing single-family houses for metropolitan 
areas since 1968, using data on transactions reported by member boards. 
The NAR indexes represent the change in the median transaction price 
with no adjustment for variations in the composition of the properties 
that make up the sample in each period. The National Association of 
Home Builders reports mean and median prices for both existing and new 
houses derived from county records. FHA issues a median value index for 
single-family houses financed under the Section 203(b) program.54 
This index is available as a time series back to 1936 and is based on 
appraisal values.
---------------------------------------------------------------------------

    \54\ 12 U.S.C. 1709(b).
---------------------------------------------------------------------------

    For OFHEO's purposes, these mean and median house price indexes are 
subject to a number of statistical shortcomings. In particular, changes 
in the composition of the sample of properties with a given set of 
attributes, such as square footage, number of rooms, lot size, 
fixtures, etc., contributing to these indexes causes them to be less 
reliable than the HPI as indicators of changes in the actual mean or 
median property value over time. A constant quality index, such as the 
HPI, which controls for this particular source of bias by comparing the 
same or similar properties, is a better source of information 
concerning the rate of house price inflation than these other indexes.
    All of the commenters who addressed this issue favored using a 
weighted repeat transactions index, such as the HPI, rather than the 
CQHPI. ACB, for example, stated that ``[t]he weighted repeat sales 
approach currently used by the [Enterprises] as a house price index is 
clearly preferable to other approaches since its purpose is . . . 
targeted to the population of properties where the [Enterprises] can 
assume risk.''
2. Geographic Aggregation
    OFHEO sought comment in the ANPR concerning the appropriate level 
of geographic aggregation for the index that will be used to adjust 
house prices in the risk-based capital stress test. The HPI is 
published for 9 Census divisions, 50 states, and the District of 
Columbia. A second NPR will address the level or levels of geographic 
aggregation that will be used in the stress test.
3. Bias and Volatility in the HPI
    OFHEO sought comment in the ANPR about whether to adjust for sample 
selection bias, appraisal bias, or other possible sources of bias in a 
weighted repeat transactions index of house prices. After considering 
comments on the matter, the Director decided not to adjust the HPI for 
such possible biases. Likewise, OFHEO requested comments about whether 
revision volatility in house price indexes should be reflected in the 
risk-based capital test.55 The Director also determined not to 
adjust the indexes for revision volatility. However, OFHEO is studying 
both the appropriateness and the practicality of adjusting for biases 
and revision volatility in the stress test, and will address these 
issues in a second NPR.
---------------------------------------------------------------------------

    \55\ Revision volatility is the change in past index values that 
occurs as a result of current transactions. Current transactions can 
change index values for prior quarters, because every repeat sale of 
a property provides additional information about house price changes 
during the time since the prior transaction on that property.
---------------------------------------------------------------------------

4. Statistical Methodology
    The HPI is based upon a geometric repeat transactions estimator 
derived from a stochastic model of individual housing values. A 
geometric repeat transaction estimator estimates the average rate of 
change in housing values, with each house weighted equally regardless 
of dollar value. The Enterprises use an adjustment to the geometric 
estimator to approximate an arithmetic repeat sales procedure in 
calculating the CMHPI.56 Arithmetic repeat transactions indexes 
have been shown to be more accurate for computing the change in the sum 
of the values of a fixed portfolio of properties. Because OFHEO plans 
to apply the index to loan-level data to update the distribution of 
current LTV ratios, OFHEO believes a geometric estimator is more 
suitable for use in the stress test. The publication of the HPI 
includes both the geometric index estimates and the adjustment factors 
needed to approximate an arithmetic index. Thus, the HPI publication 
provides the information needed to relate changes in the index to 
changes in the values of individual properties or portfolios of 
properties.57
---------------------------------------------------------------------------

    \56\ See HPI Technical Description, at 10-11 (discussion of 
ideal indexes, geometric versus arithmetic repeat sales estimators, 
and the Enterprises' approach in the CMHPI).
    \57\ Also, the adjustment used to produce the CMHPI depends on 
the base period of the index and the time elapsed since that period. 
Reporting the adjustment factors separately preserves the ability to 
adjust between any two dates covered by the index.
---------------------------------------------------------------------------

Section by Section Analysis

    As noted in the preamble, at a later date OFHEO will issue a second 
NPR to propose all the remaining aspects of the stress test and to 
describe how the stress test will be used to determine the Enterprises' 
risk-based capital requirements.

Proposed Section 1750.5 Notice of Capital Classification

    This section will be amended to add to the notice of capital 
classification, which OFHEO issues at least quarterly for each 
Enterprise, the risk-based capital level and the summary computation of 
that level.

Proposed Section 1750.10 General

    This section identifies a ``Subpart B'' to the capital regulation, 
which establishes risk-based capital requirements for each Enterprise. 
This section also requires the board of directors of an Enterprise to 
ensure that the Enterprise maintains total capital at a level that is 
sufficient to ensure the continued financial viability of the 
Enterprise and is equal to or greater than the risk-based capital level 
specified in the regulation.

Proposed Section 1750.11 Definitions

    This section defines various terms used in Subpart B and provides 
that, except where a term is explicitly defined differently in Subpart 
B, all terms defined at Sec. 1750.2 of Subpart A (the minimum capital 
regulation) shall have the same meanings for purposes of Subpart B.

[[Page 29618]]

Proposed Section 1750.12 Procedures and Timing

    This section will specify the timing and procedures for filing and 
the content of risk-based capital reports by each Enterprise. These 
reports will provide OFHEO with the information necessary to determine 
the risk-based capital level of each Enterprise. The section also 
requires that whenever an Enterprise makes an adjustment to the data 
contained in the risk-based capital report that may cause an adjustment 
to the risk-based capital determination, the Enterprise shall file with 
the Director an amended risk-based capital report not later than 3 
business days after the date of such adjustment. Finally, the section 
requires that each risk-based capital report or amended risk-based 
capital report contain a declaration by an officer, authorized by the 
board of directors to do so, that the report is true and correct to the 
best of such officer's knowledge and belief.

Proposed Section 1750.13 Risk-Based Capital Level Computation

    This section implements by regulation the provisions of the 1992 
Act that describe risk-based capital. Together with Appendix A to 
Subpart B of the regulation, proposed section 1750.13 describes how 
OFHEO calculates the risk-based capital requirement for an Enterprise.
    This section of the regulation implements the requirements of the 
1992 Act that requires OFHEO to create a stress test that relates 
losses of each Enterprise during the stress period to the historical 
benchmark loss experience in which losses on mortgages were the 
highest.58 The methodology that OFHEO uses to determine the 
benchmark area and period are referred to in proposed section 1750.13, 
and explained in greater detail in proposed Appendix A to Subpart B.
---------------------------------------------------------------------------

    \58\ Section 1361(a) (12 U.S.C. 4611(a)).
---------------------------------------------------------------------------

    The 1992 Act also describes aspects of the interest rate 
environment that OFHEO must apply during the stress period and makes 
frequent use of the term ``the preceding [period].'' Proposed section 
1750.13 implements that requirement and provides that when referring to 
a ``preceding'' period, the reference is to the period immediately 
preceding the beginning of the stress period.
    In constructing the stress test, OFHEO initially must assume that 
new business of the Enterprises will be limited to fulfilling 
contractual commitments of each Enterprise to purchase mortgages or 
issue securities.59 Proposed section 1750.13(a)(3) implements this 
requirement of the 1992 Act. The 1992 Act limits new business as 
described above until completion of two studies, one by the Director of 
the Congressional Budget Office and the other by the Comptroller 
General of the United States, on the advisability and appropriate form 
of any new business assumptions. The 1992 Act requires these studies to 
be completed within 1 year after issuance of the final risk-based 
capital regulation. The 1992 Act further provides that any new business 
assumptions incorporated by OFHEO into the stress test shall not become 
effective until 4 years after issuance of the final risk-based capital 
regulation.
---------------------------------------------------------------------------

    \59\ 1992 Act, section 1361(a)(3) (12 U.S.C. 4611(a)(3)).
---------------------------------------------------------------------------

    The 1992 Act also requires that the stress test incorporate losses 
or gains on activities, other than those specifically identified in the 
statute, in an amount and manner to be determined by the Director to be 
consistent with the stress period.60
---------------------------------------------------------------------------

    \60\ Section 1361(a)(4) (12 U.S.C. 4611(a)(4)).
---------------------------------------------------------------------------

    The risk-based capital test must take into account other 
considerations, including distinctions among the types of mortgage 
products, differences in seasoning, and any other factors the Director 
considers appropriate.61 Proposed paragraph 1750.13(a)(1) 
implements this provision of the 1992 Act and specifies that the 
detailed description of these factors and the methodology by which they 
shall be taken into account are included in Appendix A to Subpart B of 
the regulation.
---------------------------------------------------------------------------

    \61\ 1992 Act, section 1361(b)(1) (12 U.S.C. 4611(b)(1)).
---------------------------------------------------------------------------

    Proposed paragraph 1750.13(a)(5) also implements the requirement of 
the 1992 Act that characteristics of the stress period, other than 
those specifically set forth in that Act, will be determined by the 
Director to be most consistent with the stress period.62 The 
subsection also indicates that the details of these characteristics are 
provided in Appendix A to Subpart B of the regulation.
---------------------------------------------------------------------------

    \62\ Section 1361(b)(2) (12 U.S.C. 4611(b)(2)).
---------------------------------------------------------------------------

    Proposed subsection 1750.13(b) implements the 1992 Act's 
requirement that the total risk-based capital requirement include an 
additional amount equal to 30 percent of the capital determined by 
applying the risk-based capital test.63
---------------------------------------------------------------------------

    \63\ Id.
---------------------------------------------------------------------------

Proposed Appendix A: Risk-Based Capital Test Methodology and 
Assumptions

    Appendix A to Subpart B of the capital regulation will provide a 
detailed description of the stress test. In this NPR, OFHEO proposes 
the part of Appendix A that defines the methodology OFHEO uses to 
identify the benchmark loss experience. The other aspects of the stress 
test by which OFHEO will relate Enterprise losses in the stress period 
to the benchmark loss experience will be the subject of a second NPR.
    Appendix A also includes a proposal to use the House Price Index 
(HPI), published by OFHEO, to calculate the change over time in the 
value of houses that secure mortgages purchased by the Enterprises. The 
1992 Act requires OFHEO to calculate this change in value in accordance 
with the CQHPI, published by the Secretary of Commerce, or any index of 
similar quality, authority, and public availability that is regularly 
used by the Federal Government.64 Under proposed Appendix A, OFHEO 
uses the HPI, which is a weighted repeat transactions index based on 
Enterprise data, rather than the CQHPI, as the basic measure of changes 
in the value of house prices.
---------------------------------------------------------------------------

    \64\ Sections 1361(b)(1), 1361(d)(1) (12 U.S.C. 4611(b)(1), 
4611(d)(1)).
---------------------------------------------------------------------------

Regulatory Impact

Executive Order 12606, The Family

    This proposed regulation does not have potential for significant 
impact on family formulation, maintenance, and general well-being, and 
thus is not subject to review under Executive Order 12606.

Executive Order 12612, Federalism

    This proposed regulation has no federalism implications that 
warrant the preparation of a Federalism Assessment in accordance with 
Executive Order 12612.

Executive Order 12866, Regulatory Planning and Review

    This proposed regulation has been reviewed by the Office of 
Management and Budget pursuant to Executive Order 12866.

Executive Order 12988, Civil Justice Reform

    This proposed regulation meets the applicable standards of sections 
3(a) and (b) of Executive Order 12988.

Unfunded Mandates Reform Act of 1995

    This proposed regulation does not include a federal mandate that 
may

[[Page 29619]]

result in the expenditure by State, local, and tribal governments, in 
the aggregate, or by the private sector, of $100,000,000 or more 
(adjusted annually for inflation) in any one year.
    Consequently, the proposed regulation does not warrant the 
preparation of an assessment statement in accordance with the Unfunded 
Mandates Reform Act of 1995.

Regulatory Flexibility Act

    This proposed regulation is applicable only to the Enterprises, 
which are not small entities for purposes of the Regulatory Flexibility 
Act, and does not have a significant effect on a substantial number of 
small entities. Therefore, the General Counsel of OFHEO has certified 
that the proposed regulation would not have significant economic impact 
on a substantial number of small entities.

Paperwork Reduction Act

    This proposed regulation contains no information collection 
requirements that require the approval of the Office of Management and 
Budget pursuant to the Paperwork Reduction Act of 1980, 44 U.S.C. 3501 
et seq.

List of Subjects in 12 CFR Part 1750

    Risk-based capital, capital classifications.

    Accordingly, for the reasons set forth in the preamble, OFHEO 
proposes to amend Part 1750 of Chapter XVII of Title 12 of the Code of 
Federal Regulations, as proposed at 60 FR 30201 (June 8, 1995), as 
follows:

PART 1750--[AMENDED]

    1. The Authority section for Part 1750 is revised to read as 
follows:

    Authority: 12 U.S.C. 4513, 4514, 4611, 4612, 4614, 4618.

    2. Section 1750.5 of Subpart A is amended by deleting the ``and'' 
at the end of paragraph (b)(1)(ii) and by deleting the period at the 
end of paragraph (b)(1)(iii) and inserting a semicolon in lieu of the 
period. The section is further amended by adding the following 
paragraphs after paragraph (b)(1)(iii):


Sec. 1750.5   Notice of Capital Classification

* * * * *
    (b)(1) * * *
    (iv) the proposed risk-based capital level; and
    (v) the summary computation of the proposed risk-based capital 
level.
* * * * *
    3. Subpart B is added to read as follows:

Subpart B--Risk-Based Capital

Sec.
1750.10  General.
1750.11  Definitions.
1750.12  Procedures and Timing.
1750.13  Risk-Based Capital Level Computation.

Appendix A to Subpart B of Part 1750--Risk-Based Capital Test 
Methodology and Assumptions

Subpart B--Risk-Based Capital


Sec. 1750.10  General.

    The regulation contained in this Subpart B establishes the risk-
based capital requirement for each Enterprise. The board of directors 
of an Enterprise is responsible for ensuring that the Enterprise 
maintains total capital at a level that is sufficient to ensure the 
continued financial viability of the Enterprise and is equal to or 
exceeds the risk-based capital level contained in this Subpart B.


Sec. 1750.11  Definitions.

    Except where a term is explicitly defined differently in Subpart B, 
all terms defined at Sec. 1750.2 of Subpart A shall have the same 
meanings for purposes of Subpart B. For purposes of Subpart B, the 
following definitions shall apply:
    Benchmark loss experience means the default and severity behavior 
of mortgage loans that:
    (1) Were originated during a period of 2 or more consecutive 
calendar years in contiguous areas that together contain at least 5 
percent of the population of the United States, and
    (2) Experienced the highest loss rate for any period of such 
duration in comparison with the loans originated in any other 
contiguous areas that together contain at least 5 percent of the 
population of the United States.
    Constant maturity Treasury yield means the constant maturity 
Treasury yield, published by the Board of Governors of the Federal 
Reserve System.
    Contiguous areas means all the areas within a state or a group of 
two or more states sharing common borders. ``Sharing common borders'' 
does not mean meeting at a single point. Colorado, for example, is 
contiguous with New Mexico, but not with Arizona.
    Credit risk means the risk of financial loss to an Enterprise from 
nonperformance by borrowers or other obligors on instruments in which 
an Enterprise has a financial interest, or as to which the Enterprise 
has a financial obligation.
    The default rate of a given group of loans means the ratio of the 
aggregate original principal balance of the defaulted loans in the 
group to the aggregate original principal balance of all loans in the 
group.
    Defaulted loan means a loan that, within 10 years following its 
origination:
    (1) Resulted in pre-foreclosure sale,
    (2) Completed foreclosure,
    (3) Resulted in REO, or
    (4) Resulted in a credit loss to an Enterprise.
    Financing costs of property acquired through foreclosure means the 
product of:
    (1) The number of years (including fractions) of the period from 
the completion of foreclosure through disposition of the property,
    (2) The average of the Enterprises' short-term funding costs, and
    (3) The unpaid principal balance at the time of foreclosure.
    Interest rate risk means the risk of financial loss due to the 
sensitivity of earnings and net worth of an Enterprise to changes in 
interest rates.
    Loss on any defaulted loan in category 1, 2, or 3 of the definition 
of defaulted loan means the difference between:
    (1) The sum of the principal and interest owed when the borrower 
lost title to the property securing the mortgage; REO financing costs 
1 through the date of property disposition; and cash expenses 
incurred during the foreclosure process, REO holding period, and 
property liquidation process; and
---------------------------------------------------------------------------

    \1\ The financing costs associated with properties acquired 
through foreclosure from the time of foreclosure through property 
disposition were calculated using the average from 1982 through 1992 
of the 12-month Federal Agency constant maturity yield computed by 
Bank of America.
---------------------------------------------------------------------------

    (2) The sum of the property sales price and any other liquidation 
proceeds (except those resulting from private mortgage insurance 
proceeds or other third-party credit enhancements).

Losses on defaulted loans not in categories 1, 2, or 3 of the 
definition were defined as the amount of the financial loss to the 
Enterprise.
    Mortgage means any loan secured by such classes of liens as are 
commonly given or are legally effective to secure advances on, or the 
unpaid purchase price of, real estate under the laws of the State in 
which the real estate is located, or a manufactured house that is 
personal property under the laws of the State in which the manufactured 
house is located, together with the credit instruments, if any, secured 
thereby, and includes interests in mortgages.
    Seasoning means the change over time in the ratio of the unpaid 
principal balance of a mortgage to the value of the

[[Page 29620]]

property by which such mortgage loan is secured.
    Severity rate for any group of defaulted loans means the aggregate 
losses on all loans in that group divided by the aggregate original 
principal balances of those loans.
    Stress period means a hypothetical 10-year period immediately 
following the day for which capital is being measured, which is a 
period marked by severely adverse economic circumstances.
    Total capital means, with respect to an Enterprise, the sum of the 
following:
    (1) The core capital of the Enterprise;
    (2) A general allowance for foreclosure losses, which--
    (i) shall include an allowance for portfolio mortgage losses, an 
allowance for non-reimbursable foreclosure costs on government claims, 
and an allowance for liabilities reflected on the balance sheet for the 
Enterprise for estimated foreclosure losses on mortgage-backed 
securities; and
    (ii) shall not include any reserves of the Enterprise made or held 
against specific assets.
    (3) Any other amounts from sources of funds available to absorb 
losses incurred by the Enterprise, that the Director by regulation 
determines are appropriate to include in determining total capital.
    Type of mortgage product means a classification of one or more 
mortgage products, as established by the Director, that have similar 
characteristics from each set of characteristics under the following 
paragraphs:
    (1) The property securing the mortgage is--
    (i) a residential property consisting of 1 to 4 dwelling units; or
    (ii) a residential property consisting of more than 4 dwelling 
units.
    (2) The interest rate on the mortgage is--
    (i) fixed; or
    (ii) adjustable.
    (3) The priority of the lien securing the mortgage is--
    (i) first; or
    (ii) second or other.
    (4) The term of the mortgage is--
    (i) 1 to 15 years;
    (ii) 16-30 years; or
    (iii) more than 30 years.
    (5) The owner of the property is--
    (i) an owner-occupant; or
    (ii) an investor.
    (6) The unpaid principal balance of the mortgage--
    (i) will amortize completely over the term of the mortgage, and 
will not increase significantly at any time during the term of the 
mortgage;
    (ii) will not amortize completely over the term of the mortgage, 
and will not increase significantly at any time during the term of the 
mortgage; or
    (iii) may increase significantly at some time during the term of 
the mortgage.
    (7) Any other characteristics of the mortgage, as specified in 
Appendix A.


Sec. 1750.12  Procedures and Timing.

    (a) Each Enterprise shall file with the Director a risk-based 
capital report each quarter, or at such other times as the Director 
requires. The report shall contain information identified by OFHEO in 
written instructions to each Enterprise, including, but not limited to:
    (1) all data required to implement the risk-based capital test, as 
specified more fully at Appendix A to Subpart B of Part 1750; and
    (2) such other information as may be required by the Director.
    (b) The quarterly risk-based capital report for the last day of the 
preceding quarter shall be submitted not later than April 30, July 30, 
October 30, and January 30 of each year.
    (c) Each risk-based capital report shall be submitted in such 
format or media as may be required by the Director.
    (d) If an Enterprise makes an adjustment to the data contained in 
the risk-based capital report for a quarter or a date for which the 
report was previously supplied that may cause an adjustment to the 
risk-based capital determination, the Enterprise shall file with the 
Director an amended risk-based capital report not later than 3 business 
days after the date of such adjustment.
    (e) Each risk-based capital report or any amended risk-based 
capital report shall contain a declaration by the president, vice-
president, treasurer, or any other officer designated by the board of 
directors of the Enterprise to make such a declaration that the report 
is true and correct to the best of such officer's knowledge and belief.


Sec. 1750.13  Risk-Based Capital Level Computation.

    (a) Risk-Based Capital Test--OFHEO shall compute a risk-based 
capital level for each Enterprise at least quarterly by applying a 
risk-based capital test to determine the amount of total capital 
required for each Enterprise to maintain positive capital during the 
stress period. In making this determination, the Director shall take 
into account any appropriate distinctions among types of mortgage 
products, differences in seasoning of mortgages, and other factors 
determined appropriate by the Director in accordance with the 
methodology specified in Appendix A to this subpart. The stress period 
has the following characteristics:
    (1) Credit risk--With respect to mortgages owned or guaranteed by 
the Enterprise and other obligations of the Enterprise, losses occur 
throughout the United States at a rate of default and severity 
reasonably related, in accordance with Appendix A to this subpart, to 
the rate and severity of losses in the benchmark loss experience.
    (2) Interest rate risk--
    (i) In general--Interest rates decrease as described in paragraph 
(a)(2)(ii) of this section or increase as described in paragraph 
(a)(2)(iii) of this section, whichever would require more capital in 
the stress test for the Enterprise. Appendix A contains a description 
of the methodology applied to implement the interest rate scenarios 
described in those subparagraphs.
    (ii) Decreases--The 10-year constant maturity Treasury yield 
decreases during the first year of the stress period and remains at the 
new level for the remainder of the stress period. The yield decreases 
to the lesser of--
    (A) 600 basis points below the average yield during the 9 months 
immediately preceding the stress period, or
    (B) 60 percent of the average yield during the 3 years immediately 
preceding the stress period,

but in no case to a yield less than 50 percent of the average yield 
during the 9 months immediately preceding the stress period.
    (iii) Increases--The 10-year constant maturity Treasury yield 
increases during the first year of the stress period and will remain at 
the new level for the remainder of the stress period. The yield 
increases to the greater of--
    (A) 600 basis points above the average yield during the 9 months 
immediately preceding the stress period, or
    (B) 160 percent of the average yield during the 3 years immediately 
preceding the stress period,

but in no case to a yield greater than 175 percent of the average yield 
during the 9 months immediately preceding the stress period.
    (iv) Different terms to maturity--Yields of Treasury instruments 
with terms to maturity other than 10 years will change relative to the 
10-year constant maturity Treasury yield in patterns and for durations 
that are reasonably related to historical experience and are judged 
reasonable by the Director. The methodology used by the Director to 
adjust the yields of those other instruments is specified in Appendix A 
to this subpart.
    (v) Large increases in yields--If the 10-year constant maturity 
Treasury yield is assumed to increase by more than 50 percent over the 
average yield

[[Page 29621]]

during the 9 months immediately preceding the stress period, the 
Director shall adjust the losses resulting from the conditions 
specified in paragraphs (a)(2) (i) and (ii) of this section to reflect 
a correspondingly higher rate of general price inflation. The method of 
such adjustment by the Director is specified in Appendix A to this 
subpart.
    (3) New business--Any contractual commitments of the Enterprise to 
purchase mortgages or issue securities will be fulfilled. The 
characteristics of resulting mortgages purchased, securities issued, 
and other financing will be consistent with the contractual terms of 
such commitments, recent experience, and the economic characteristics 
of the stress period, as more fully specified in Appendix A to this 
subpart. No other purchases of mortgages shall be assumed.
    (4 ) Other activities--Losses or gains on other activities, 
including interest rate and foreign exchange hedging activities, shall 
be determined by the Director, in accordance with Appendix A to this 
subpart and on the basis of available information, to be consistent 
with the stress period.
    (5) Consistency--Characteristics of the stress period other than 
those specifically set forth in this paragraph (a), such as prepayment 
experience and dividend policies, will be determined by the Director, 
in accordance with Appendix A, on the basis of available information, 
to be most consistent with the stress period.
    (b) Risk-Based Capital Level--The risk-based capital level of an 
Enterprise, to be used in determining the appropriate capital 
classification of each Enterprise, as required by section 1364 of the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 
(12 U.S.C. 4614), shall be equal to the sum of the following amounts:
    (1) Credit and Interest Rate Risk--The amount of total capital 
determined by applying the risk-based capital test under paragrpah (a) 
of this section to the Enterprise.
    (2) Management and Operations Risk--To provide for management and 
operations risk, 30 percent of the amount of total capital determined 
by applying the risk-based capital test under paragraph (a) of this 
section to the Enterprise.

Appendix A to Subpart B of Part 1750--Risk-Based Capital Test 
Methodology and Assumptions

    1. Identifying the Benchmark Loss Experience.--OFHEO will use 
the definitions, data, and methodology described below to identify 
the benchmark loss experience.
    A. Definitions.--In addition to the terms defined at section 
1750.11, the following definition shall apply for this Appendix A:
    Origination year means the year in which a loan is originated.
    B. Data.
    OFHEO identifies the benchmark loss experience using historical 
loan-level data required to be submitted by each of the two 
Enterprises. OFHEO's analysis is based entirely on the most current 
data available on conventional, 30-year, fixed-rate loans secured by 
first liens on single-unit, owner-occupied, detached properties. 
Detached properties are defined as single-family properties 
excluding condominiums, planned urban developments, and 
cooperatives. The data includes only loans that were purchased by an 
Enterprise within 12 months after loan origination and loans for 
which the Enterprise has no recourse to the lender.
    OFHEO organizes the data from each Enterprise to create two 
substantially consistent data sets. OFHEO separately analyzes 
default and severity data from each Enterprise. Default rates are 
calculated from loan records meeting the criteria specified above. 
Severity rates are calculated from the subset of defaulted loans for 
which loss data are available.
    C. Procedures.
    i. Cumulative 10-year default rates for each combination of 
states and origination years (state/year combination) that OFHEO 
examines are calculated for each Enterprise by grouping all of the 
Enterprise's loans originated in that combination of states and 
years. For origination years with less than 10 years of loss 
experience, cumulative-to-date default rates are used. The two 
Enterprise default rates are averaged, yielding an ``average default 
rate'' for that state/year combination.
    ii. An ``average severity rate'' for each state/year combination 
is determined in the same manner as the average default rate. For 
each Enterprise, the aggregate severity rate is calculated for all 
loans in the relevant state/year combination and the two Enterprise 
severity rates are averaged.
    iii. The ``loss rate'' for any state/year combination examined 
is calculated by multiplying the average default rate for that 
state/year combination by the average severity rate for that 
combination.
    iv. The default and severity behavior of loans in the state/year 
combination containing at least 2 consecutive origination years and 
contiguous areas with a total population equal to or greater than 5% 
of the population of the United States with the highest loss rate 
constitutes the benchmark loss experience.
    2. Identification of a New Benchmark Loss Experience.--OFHEO 
will periodically monitor available data and reevaluate the 
benchmark loss experience using the methodology set forth in this 
Appendix A. Using this methodology, OFHEO may identify a new 
benchmark loss experience that has a higher rate of loss than the 
benchmark experience identified at the time of the issuance of this 
regulation. In the event such a benchmark is identified, OFHEO may 
incorporate the resulting higher loss rates in the stress test.
    3. Contents of the Risk-Based Capital Report.--(This space 
deliberately left blank.)
    4. Computation of Risk-Based Capital Level.--(This space 
deliberately left blank.)
    A. Seasoning Methodology.--OFHEO will determine the rate of 
change over time in the values of single-family properties securing 
mortgages using the House Price Index published by OFHEO or any 
successor index. (The remainder of this paragraph deliberately left 
blank.)
Aida Alvarez,
Director, Office of Federal Housing Enterprise Oversight.
[FR Doc. 96-14496 Filed 6-10-96; 8:45 am]
BILLING CODE 4220-01-P