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



[[Page 53391]]

Vol. 80

Thursday,

No. 171

September 3, 2015

Part II





Federal Housing Finance Agency





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12 CFR Part 1282





2015-2017 Enterprise Housing Goals; Final Rule

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

[[Page 53392]]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1282

RIN 2590-AA65


2015-2017 Enterprise Housing Goals

AGENCY: Federal Housing Finance Agency.

ACTION: Final rule.

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

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

FOR FURTHER INFORMATION CONTACT: Ted Wartell, Manager, Housing & 
Community Investment, Division of Housing Mission and Goals, at (202) 
649-3157. This is not a toll-free number. The mailing address is: 
Federal Housing Finance Agency, 400 Seventh Street SW., Washington, DC 
20024. The telephone number for the Telecommunications Device for the 
Hearing Impaired is (800) 877-8339.

SUPPLEMENTARY INFORMATION: 

I. Description of the Enterprise Affordable Housing Goals

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

[[Page 53393]]

qualifying share of the overall conventional multifamily mortgage 
market.

II. Proposed Rule and Comments

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

A. Single-Family Housing Goals

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

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

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

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

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

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

IV. Affordability

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

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

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

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

[[Page 53396]]

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

[[Page 53397]]

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

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

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

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

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

    Section 1332(e)(2) of the Safety and Soundness Act requires FHFA to 
consider the following seven factors in setting the single-family 
housing goal levels:
    1. National housing needs;
    2. Economic, housing, and demographic conditions, including 
expected market developments;
    3. The performance and effort of the Enterprises toward achieving 
the housing goals under this section in previous years;
    4. The ability of the Enterprise to lead the industry in making 
mortgage credit available;
    5. Such other reliable mortgage data as may be available;
    6. The size of the purchase money conventional mortgage market, or 
refinance conventional mortgage market, as applicable, serving each of 
the types of families described, relative to the size of the overall 
purchase money mortgage market or the overall refinance mortgage 
market, respectively; and
    7. The need to maintain the sound financial condition of the 
Enterprises.\23\
---------------------------------------------------------------------------

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

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

[[Page 53398]]

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

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

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

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

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

[[Page 53399]]

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

[[Page 53400]]

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

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

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

3. Other Factors

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

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

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

C. Single-Family Benchmark Levels

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

[[Page 53401]]

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

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


[[Page 53402]]

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

[[Page 53403]]

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

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

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

[[Page 53404]]

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

[[Page 53405]]

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

Past Performance of the Enterprises

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

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

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

[[Page 53406]]

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

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

[[Page 53407]]

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

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

    \28\ The Home Affordable Refinance Program (HARP), which became 
effective in March 2009 and was expanded in 2011, is an effort to 
enhance the opportunity for many homeowners to refinance. Homeowners 
with LTV ratios above 80 percent whose mortgages are owned or 
guaranteed by Fannie Mae or Freddie Mac and who are current on their 
mortgages have the opportunity to reduce their monthly mortgage 
payments to take advantage of historically low mortgage interest 
rates.
---------------------------------------------------------------------------

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

[[Page 53408]]



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

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

[[Page 53409]]

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

VI. Reporting Requirements for Single-Family Rental Units

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

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

VII. Multifamily Housing Goals

A. Multifamily Housing Goals Benchmark Levels in Final Rule

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

[[Page 53410]]

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

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

    Section 1333(a)(4) of the Safety and Soundness Act requires FHFA to 
consider the following six factors in setting the multifamily housing 
goals:
    1. National multifamily mortgage credit needs and the ability of 
the Enterprise to provide additional liquidity and stability for the 
multifamily mortgage market;
    2. The performance and effort of the Enterprise in making mortgage 
credit available for multifamily housing in previous years;
    3. The size of the multifamily mortgage market for housing 
affordable to low-income and very low-income families, including the 
size of the multifamily markets for housing of a smaller or limited 
size;
    4. The ability of the Enterprise to lead the market in making 
multifamily mortgage credit available, especially for multifamily 
housing affordable to low-income and very low-income families;
    5. The availability of public subsidies; and
    6. The need to maintain the sound financial condition of the 
Enterprise.\30\
---------------------------------------------------------------------------

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

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

C. Analysis of Considerations in Setting the Multifamily Benchmark 
Levels

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

[[Page 53411]]

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

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

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

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

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

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

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

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

[[Page 53412]]

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

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

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

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

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

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

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

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

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

[[Page 53413]]

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

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

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

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

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

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

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

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

[[Page 53414]]

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

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

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

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

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

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

[[Page 53415]]

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

[[Page 53416]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 53417]]

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

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

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

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


[[Page 53418]]

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

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

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

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

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

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

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

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

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

[[Page 53419]]

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

[[Page 53420]]

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

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

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

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

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

A. Changes to Definitions--Sec.  1282.1

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

[[Page 53421]]

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

[[Page 53422]]



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

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

[[Page 53423]]

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

B. General Counting Requirements--Sec.  1282.15

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

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

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

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

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

[[Page 53424]]

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

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

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

[[Page 53425]]

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

[[Page 53426]]

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

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

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

[[Page 53427]]

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

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

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

[[Page 53428]]

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

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

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

X. Seniors Housing Units and Skilled Nursing Units

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

[[Page 53429]]

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

XI. Blanket Loans on Manufactured Housing Communities

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

XII. Paperwork Reduction Act

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

[[Page 53430]]

XIII. Regulatory Flexibility Act

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

List of Subjects in 12 CFR Part 1282

    Mortgages, Reporting and recordkeeping requirements.

Authority and Issuance

    For the reasons stated in the SUPPLEMENTARY INFORMATION, under the 
authority of 12 U.S.C. 4511, 4513, and 4526, FHFA amends part 1282 of 
Title 12 of the Code of Federal Regulations as follows:

PART 1282--ENTERPRISE HOUSING GOALS AND MISSION

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

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


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


Sec.  1282.1  Definitions.

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

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


Sec.  1282.11  General.

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

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


Sec.  1282.12  Single-family housing goals.

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

[[Page 53431]]

Disclosure Act data shall be excluded; and
    (6) All mortgages that are missing information necessary to 
determine appropriate counting under the housing goals shall be 
excluded.
    (c) Low-income families housing goal. The percentage share of each 
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for low-
income families shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) The benchmark level, which for 2015, 2016, and 2017 shall be 24 
percent of the total number of purchase money mortgages purchased by 
that Enterprise in each year that finance owner-occupied single-family 
properties.
    (d) Very low-income families housing goal. The percentage share of 
each Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for very low-
income families shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) The benchmark level, which for 2015, 2016, and 2017 shall be 6 
percent of the total number of purchase money mortgages purchased by 
that Enterprise in each year that finance owner-occupied single-family 
properties.
    (e) Low-income areas housing goal. The percentage share of each 
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for families 
in low-income areas shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) A benchmark level which shall be set annually by FHFA notice 
based on the benchmark level for the low-income areas housing subgoal, 
plus an adjustment factor reflecting the additional incremental share 
of mortgages for moderate-income families in designated disaster areas 
in the most recent year for which such data is available.
    (f) Low-income areas housing subgoal. The percentage share of each 
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for families 
in low-income census tracts or for moderate-income families in minority 
census tracts shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) The benchmark level, which for 2015, 2016, and 2017 shall be 14 
percent of the total number of purchase money mortgages purchased by 
that Enterprise in each year that finance owner-occupied single-family 
properties.
    (g) Refinancing housing goal. The percentage share of each 
Enterprise's total purchases of refinancing mortgages on owner-occupied 
single-family housing that consists of refinancing mortgages for low-
income families shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) The benchmark level, which for 2015, 2016, and 2017 shall be 21 
percent of the total number of refinancing mortgages purchased by that 
Enterprise in each year that finance owner-occupied single-family 
properties.

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


Sec.  1282.13  Multifamily special affordable housing goal and 
subgoals.

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


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


Sec.  1282.15  General counting requirements.

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

[[Page 53432]]

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

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


Sec.  1282.16  Special counting requirements.

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


Sec.  1282.17  [Amended]

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


Sec.  1282.19  [Amended]

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

[[Page 53433]]


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


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

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

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