[Federal Register Volume 82, Number 129 (Friday, July 7, 2017)]
[Proposed Rules]
[Pages 31514-31535]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14286]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1282

RIN 2590-AA81


2018-2020 Enterprise Housing Goals

AGENCY: Federal Housing Finance Agency.

ACTION: Proposed rule.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing a 
proposed rule with request for comments on the housing goals for Fannie 
Mae and Freddie Mac (the Enterprises) for 2018 through 2020. The 
Federal Housing Enterprises Financial Safety and

[[Page 31515]]

Soundness Act of 1992 (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 existing housing goals for the Enterprises include benchmark 
levels for each housing goal through the end of 2017. This proposed 
rule would establish benchmark levels for each of the housing goals and 
subgoals for 2018 through 2020. In addition, the proposed rule would 
make a number of clarifying and conforming changes, including revisions 
to the requirements for the housing plan that an Enterprise may be 
required to submit in response to a failure to achieve one or more of 
the housing goals.

DATES: FHFA will accept written comments on the proposed rule on or 
before September 5, 2017.

ADDRESSES: You may submit your comments on the proposed rule, 
identified by regulatory information number (RIN) 2590-AA81, by any one 
of the following methods:
     Agency Web site: www.fhfa.gov/open-for-comment-or-input.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comment to the Federal eRulemaking Portal, please also send it by email 
to FHFA at [email protected] to ensure timely receipt by FHFA. 
Include the following information in the subject line of your 
submission: Comments/RIN 2590-AA81.
     Hand Delivered/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA81, 
Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., 
Washington, DC 20219. Deliver the package at the Seventh Street 
entrance Guard Desk, First Floor, on business days between 9 a.m. and 5 
p.m.
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel, Attention: Comments/RIN 2590-AA81, Federal 
Housing Finance Agency, Eighth Floor, 400 Seventh Street SW., 
Washington, DC 20219. Please note that all mail sent to FHFA via U.S. 
Mail is routed through a national irradiation facility, a process that 
may delay delivery by approximately two weeks.

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 
20219. The telephone number for the Telecommunications Device for the 
Deaf is (800) 877-8339.

SUPPLEMENTARY INFORMATION: 

I. Comments

    FHFA invites comments on all aspects of the proposed rule and will 
take all comments into consideration before issuing the final rule. 
Copies of all comments will be posted without change, including any 
personal information you provide such as your name, address, email 
address, and telephone number, on the FHFA Web site at http://www.fhfa.gov. In addition, copies of all comments received will be 
available for examination by the public on business days between the 
hours of 10 a.m. and 3 p.m., at the Federal Housing Finance Agency, 400 
Seventh Street SW., Washington, DC 20219. To make an appointment to 
inspect comments, please call the Office of General Counsel at (202) 
649-3804.
    Commenters are encouraged to review and comment on all aspects of 
the proposed rule, including the single-family benchmark levels, the 
multifamily benchmark levels, and other changes to the regulation.

II. Background

A. Statutory and Regulatory Background for the Existing Housing Goals

    The Safety and Soundness Act requires FHFA to establish annual 
housing goals for several categories of both single-family and 
multifamily mortgages purchased by Fannie Mae and Freddie Mac.\1\ The 
annual housing goals are one measure of 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.'' \2\
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    \1\ See 12 U.S.C. 4561(a).
    \2\ See 12 U.S.C. 4501(7).
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    The housing goals provisions of the Safety and Soundness Act were 
substantially revised in 2008 with the enactment of the Housing and 
Economic Recovery Act, which amended the Safety and Soundness Act.\3\ 
Under this revised structure, FHFA established housing goals for the 
Enterprises for 2010 and 2011 in a final rule published on September 
14, 2010.\4\ FHFA established housing goals levels for the Enterprises 
for 2012 through 2014 in a final rule published on November 13, 
2012.\5\ In a final rule published on September 3, 2015, FHFA announced 
the housing goals for the Enterprises for 2015 through 2017, including 
a new small multifamily low-income housing subgoal.\6\
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    \3\ Housing and Economic Recovery Act of 2008, Public Law 110-
289, 122 Stat. 2654 (July 30, 2008).
    \4\ See 75 FR 55892.
    \5\ See 77 FR 67535.
    \6\ See 80 FR 53392.
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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 purchased by an Enterprise each year that 
qualify 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 one to four 
units total. The single-family goals cover conventional, conforming 
mortgages, defined as mortgages that are not insured or guaranteed by 
the Federal Housing Administration (FHA) or another government agency 
and with principal balances that do not exceed the loan limits for 
Enterprise mortgages.
    Two-part approach. The performance of the Enterprises on the 
housing goals is evaluated using a two-part approach, which compares 
the goal-qualifying share of the Enterprise's mortgage purchases to two 
separate measures: A benchmark level and a market level. FHFA 
considered alternatives to this method in the 2015-2017 housing goals 
rulemaking and determined that the two-part approach continued to be 
the most appropriate method for evaluating performance on the single-
family goals. FHFA is proposing to continue that approach in this rule.
    In order to meet a single-family housing goal or subgoal, the 
percentage of mortgage purchases by an Enterprise that meet each goal 
or subgoal must exceed either the benchmark level or the market level 
for that year. The

[[Page 31516]]

benchmark level is set prospectively by rulemaking based on various 
factors, including FHFA's forecast of the goal-qualifying share of the 
overall market. The market level is determined retrospectively each 
year, based on the actual goal-qualifying share of the overall market 
as measured by FHFA based on Home Mortgage Disclosure Act (HMDA) data 
for that year. The overall mortgage market that FHFA uses for both the 
prospective market forecasts and the retrospective market measurement 
consists of all single-family owner-occupied conventional conforming 
mortgages 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. It also includes 
comparable loans that are part of a private label security (PLS), 
although very few such securities have been issued for conventional 
conforming mortgages since 2008.
    While both the benchmark and the retrospective market measure are 
designed to measure the current year's mortgage originations, the 
performance of the Enterprises on the housing goals includes all 
Enterprise purchases in that year, regardless of the year in which the 
loan was originated. This provides housing goals credit when the 
Enterprises acquire qualified seasoned loans. (Seasoned loans are loans 
that were originated in prior years and acquired by the Enterprise in 
the current year.) The Enterprises' acquisition of seasoned loans 
provides an important source of liquidity for this market segment.
    Recent changes to the HMDA regulations will result in the HMDA data 
covering a greater portion of the single-family mortgage market.\7\ The 
changes will also provide more detailed information about the loans 
included in the HMDA data. The changes to the HMDA regulations 
generally take effect at the start of 2018, so the new, more detailed 
information will not be available until after the 2018 performance 
year.
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    \7\ See Home Mortgage Disclosure Act final rule, 80 FR 66128 
(Oct. 28, 2015).
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    For example, the Enterprise housing goals currently count all loans 
purchased by an Enterprise with original principal balances that are 
within the conforming loan limits. The conforming loan limits are 
different for single-family properties depending on the number of units 
in the property. However, the definition of the retrospective market 
excludes all loans with original principal balances above the 
conforming loan limits for single unit properties because the current 
HMDA data do not identify the number of units for each loan. Starting 
with the new HMDA data reported, it will be possible to identify the 
number of units for each loan. This may allow FHFA to revise the 
definition of the retrospective market to exclude only those loans 
above the conforming loan limits applicable to the size of the 
property, instead of excluding all loans above the conforming loan 
limit applicable to a single unit property.
    FHFA has considered the possible impact that certain changes to the 
HMDA regulations may have on the Enterprise housing goals. However, at 
this time the impact that such changes might have on the retrospective 
measure of the market is uncertain. FHFA is not proposing to make any 
changes to the Enterprise housing goals in anticipation of the upcoming 
changes to the HMDA data. FHFA will assess the impact of the changes 
and, if necessary, may propose changes to the housing goals regulation 
at a later date.
    Multifamily goals. The multifamily goals defined under the Safety 
and Soundness Act include separate categories for mortgages on 
multifamily properties (properties with five or more units) with rental 
units affordable to low-income families and on multifamily properties 
with rental units affordable to very low-income families, as well as a 
small multifamily low-income subgoal for properties with 5-50 units. 
The multifamily goals established by FHFA in 2010, 2012, and 2015 
evaluated the performance of the Enterprises based on numeric targets, 
not percentages, 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, due in part to a lack of comprehensive data about 
the multifamily market such as that provided by HMDA for single-family 
mortgages. As a result, FHFA currently measures Enterprise multifamily 
goals performance against the benchmark levels only. The expanded HMDA 
fields that will be available for the 2018 performance year are 
expected to include information on the number of units for each 
multifamily loan and should be helpful in evaluating performance for 
this market segment.

B. Adjusting the Housing Goals

    Under the housing goals regulation first established by FHFA in 
2010, as well as under this proposed rule, FHFA may reduce the 
benchmark levels for any of the single-family or multifamily housing 
goals in a particular year without going through notice and comment 
rulemaking based on a determination by FHFA that (1) market and 
economic conditions or the financial condition of the Enterprise 
require a reduction, or (2) ``efforts to meet the goal or subgoal would 
result in the constraint of liquidity, over-investment in certain 
market segments, or other consequences contrary to the intent of the 
Safety and Soundness Act or the purposes of the Charter Acts.'' \8\ The 
proposal also takes into account the possibility that achievement of a 
particular housing goal may or may not have been feasible for the 
Enterprise. If FHFA determines that a housing goal was not feasible for 
the Enterprise to achieve, then the regulation provides for no further 
enforcement of that housing goal for that year.\9\
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    \8\ 12 CFR 1282.14(d).
    \9\ 12 CFR 1282.21(a).
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    If, after publication of a final rule establishing the housing 
goals for 2018 through 2020, FHFA determines that any of the single-
family or multifamily housing goals should be adjusted in light of 
market conditions, to ensure the safety and soundness of the 
Enterprises, or for any other reason, FHFA will take steps as necessary 
and appropriate to adjust that goal. Such steps could include adjusting 
the benchmark levels through the processes in the existing regulation 
or establishing revised housing goal levels through notice and comment 
rulemaking.

C. Housing Goals Under Conservatorship

    On September 6, 2008, FHFA placed each Enterprise into 
conservatorship. Although the Enterprises remain in conservatorship at 
this time, they continue to have the mission of supporting a stable and 
liquid national market for residential mortgage financing. FHFA has 
continued to establish annual housing goals for the Enterprises and to 
assess their performance under the housing goals each year during 
conservatorship.

III. Summary of Proposed Rule

A. Benchmark Levels for the Single-Family Housing Goals

    This proposed rule would establish the benchmark levels for the 
single-family housing goals and subgoal for 2018-2020 as follows:

[[Page 31517]]



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                                                                Current benchmark level     Proposed benchmark
               Goal                          Criteria                for 2015-2017         level for 2018-2020
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Low-Income Home Purchase Goal.....  Home purchase mortgages on  24 percent.............  24 percent.
                                     single-family, owner-
                                     occupied properties with
                                     borrowers with incomes no
                                     greater than 80 percent
                                     of area median income.
Very Low-Income Home Purchase Goal  Home purchase mortgages on  6 percent..............  6 percent.
                                     single-family, owner-
                                     occupied properties with
                                     borrowers with incomes no
                                     greater than 50 percent
                                     of area median income.
Low-Income Areas Home Purchase      Home purchase mortgages on  14 percent.............  15 percent.
 Subgoal.                            single-family, owner-
                                     occupied properties with:.
                                     Borrowers in
                                     census tracts with tract
                                     median income of no
                                     greater than 80 percent
                                     of area median income; or.
                                     Borrowers with
                                     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    21 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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B. Multifamily Housing Goal Levels

    The proposed rule would establish the levels for the multifamily 
goal and subgoals for 2018-2020 as follows:

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                                                                 Current goal level for  Proposed goal level for
               Goal                          Criteria                     2017                  2018-2020
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Low-Income Goal...................  Units affordable to         300,000 units..........  315,000 units.
                                     families with incomes no
                                     greater than 80 percent
                                     of area median income in
                                     multifamily rental
                                     properties with mortgages
                                     purchased by an
                                     Enterprise.
Very Low-Income Subgoal...........  Units affordable to         60,000 units...........  60,000 units.
                                     families with incomes no
                                     greater than 50 percent
                                     of area median income in
                                     multifamily rental
                                     properties with mortgages
                                     purchased by an
                                     Enterprise.
Low-Income Small Multifamily        Units affordable to         10,000 units...........  10,000 units.
 Subgoal.                            families with incomes no
                                     greater than 80 percent
                                     of area median income in
                                     small multifamily rental
                                     properties (5 to 50
                                     units) with mortgages
                                     purchased by an
                                     Enterprise.
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C. Other Proposed Changes

    The proposed rule would make changes and clarifications to the 
existing rules, including minor technical changes to some regulatory 
definitions. The proposed rule also would revise the requirements 
applicable to the housing plan an Enterprise may be required to submit 
based on a failure to achieve one or more of the housing goals.

IV. Single-Family Housing Goals

    This proposed rule sets out FHFA's views about benchmark levels for 
the single-family housing goals from 2018-2020. In making this 
proposal, FHFA has considered the required statutory factors described 
below. FHFA's analysis and goal setting process includes developing 
market forecast models for each of the single-family housing goals, as 
well as considering a number of other variables that impact affordable 
homeownership. Many of these variables indicate that low-income and 
very low-income households are facing, and will continue to face, 
difficulties in achieving homeownership or in refinancing an existing 
mortgage. These factors, such as rising property values and stagnant 
household incomes, also impact the Enterprises' ability to meet their 
mission and facilitate affordable homeownership for low-income and very 
low-income households. Nevertheless, FHFA expects and encourages the 
Enterprises to work toward meeting their housing goal requirements in a 
safe and sound manner. This may include steps the Enterprises take to 
fulfill FHFA's access to credit expectations expressed in the most 
recent Conservatorship Scorecard, which requires the Enterprises to 
undertake a number of research and related efforts including the 
development of pilots and initiatives.\10\
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    \10\ See 2017 Scorecard for Fannie Mae, Freddie Mac, and Common 
Securitization Solutions, December 2016, available at https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/2017-Scorecard-for-Fannie-Mae-Freddie-Mac-and-CSS.pdf.
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A. Setting the Single-Family Housing Goal Levels

FHFA Process for Setting the Single-Family 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 goals:
    1. National housing needs;
    2. Economic, housing, and demographic conditions, including 
expected market developments;
    3. The performance and effort of the Enterprises toward achieving 
the housing goals in previous years;
    4. The ability of the Enterprises 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

[[Page 31518]]

money mortgage market or the overall refinance mortgage market, 
respectively; and
    7. The need to maintain the sound financial condition of the 
Enterprises.\11\
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    \11\ 12 U.S.C. 4562(e)(2).
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    FHFA has considered each of these seven statutory factors in 
setting the proposed benchmark levels for each of the single-family 
housing goals and subgoal.
    Recognizing that some of the factors required by statute to be 
considered can be readily captured using reliable data series while 
others cannot, FHFA implemented the following approach: FHFA's 
statistical market models considered factors that are captured through 
well-known and established data series and these are then used to 
generate a point forecast for each goal as well as a confidence 
interval for the point forecast. FHFA then considered the remaining 
statutory factors, as well as other relevant policy factors, in 
selecting the specific point forecast within the confidence interval as 
the proposed benchmark level. FHFA's market forecast models incorporate 
four of the seven statutory factors: National housing needs; economic, 
housing, and demographic conditions; other reliable mortgage data; and 
the size of the purchase money conventional mortgage market or 
refinance conventional mortgage market for each single-family housing 
goal. The market forecast models generate a point estimate, as well as 
a confidence interval. FHFA then considered the remaining three 
statutory factors (historical performance and effort of the Enterprises 
toward achieving the housing goal; ability of the Enterprises to lead 
the industry in making mortgage credit available; and need to maintain 
the sound financial condition of the Enterprises), as well as other 
relevant policy factors in selecting the specific point forecast within 
the confidence interval as the proposed benchmark level for the goal 
period.
    Market forecast models. The purpose of FHFA's market forecast 
models is to forecast the market share of the goal-qualifying mortgage 
originations in the market for the 2018-2020 period. The models are 
intended to generate reliable forecasts rather than to test various 
economic hypotheses about the housing market or to explain the 
relationship between variables. Following standard practice among 
forecasters and economists at other federal agencies, FHFA estimated a 
reduced-form equation for each of the housing goals and fit an 
Autoregressive Integrated Moving Average (or ARIMA) model to each goal 
share. The models look at the statistical relationship between (a) the 
historical market share for each single-family housing goal or subgoal, 
as calculated from monthly HMDA data, and (b) the historical values for 
various factors that may influence the market shares, e.g., interest 
rates, inflation, house prices, home sales, the unemployment rate, and 
other factors. The models then project the future value of the 
affordable market share using forecast values of the model inputs. 
Separate models were developed for each of the single-family housing 
goals and subgoals.
    FHFA has employed similar models in past housing goals rulemakings 
to generate market forecasts. The models were developed using monthly 
series generated from HMDA and other data sources, and the resulting 
monthly forecasts were then averaged into an annual forecast for each 
of the three years in the goal period. The models rely on 12 years of 
HMDA data, from 2004 to 2015, the latest year for which HMDA data are 
available. Additional discussion of the market forecast models can be 
found in a research paper, available at http://www.fhfa.gov/PolicyProgramsResearch/Research/.\12\
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    \12\ Details on FHFA's single-family market models will be 
available in the technical paper ``The Size of the Affordable 
Mortgage Market: 2018-2020 Enterprise Single-Family Housing Goals.''
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    In the final rule establishing the housing goals for 2015-2017, 
FHFA stated that it would engage directly with commenters to obtain 
detailed feedback on FHFA's econometric models for the housing goals. 
Throughout 2016, FHFA met with industry modeling experts about 
potential improvements to the econometric models. Considering input 
received, FHFA has revised the market forecast models to include better 
specifications and new variables for all goal-qualifying shares, while 
still following and adhering to generally accepted practices and 
standards adopted by economists, including those at other federal 
agencies. During the model development process, FHFA grouped factors 
that are expected by housing market economists to have an impact on the 
market share of affordable housing into seven broad categories. For 
each category of variables, many variables were tested but only 
retained when they exhibited predictive power. The new set of models 
includes new driver variables that reflect factors that impact the 
affordable housing market--for example, household debt service ratio, 
labor force participation rate, and underwriting standards.
    As is the case with any forecasting model, the accuracy of the 
forecast will vary depending on the accuracy of the inputs to the model 
and the length of the forecast period. FHFA has attempted to minimize 
the first variable by using third party forecasts published by Moody's 
and other accredited mortgage market forecasters. The second variable 
is harder to address. The proposed rule relies on the most up-to-date 
data available as of December 2016, and uses forecasted input values 
for 2017 to produce the forecasts for 2018-2020. The confidence 
intervals for the benchmark levels become wider as the forecast period 
lengthens. In other words, it becomes more likely that the actual 
market levels will be different from the forecasts the farther into the 
future the forecasts attempt to make predictions. Predicting four years 
out is not the usual practice in forecasting. A number of industry 
forecasters, including Fannie Mae, Freddie Mac, and the Mortgage 
Bankers Association (MBA), do not publish forecasts beyond two years 
because accuracy of forecasts decreases substantially beyond a two year 
period.
    Market outlook. There are many factors that impact the affordable 
housing market as a whole, and changes to any one of them may 
significantly impact the ability of the Enterprises to meet the goals. 
In developing our market models, FHFA used Moody's forecasts, where 
available, as the source for macroeconomic variables.\13\ In cases 
where Moody's forecasts were not available (for example, the share of 
government-guaranteed home purchases and the share of government-
guaranteed refinances), FHFA generated and tested its own 
forecasts.\14\ Elements that impact the models and the determination of 
benchmark levels are discussed below.
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    \13\ The macroeconomic outlook described here is based on 
Moody's and other forecasts as of September 2016.
    \14\ This refers to the mortgages insured/guaranteed by 
government agencies such as the FHA, Department of Veterans Affairs 
(VA), and the Rural Housing Service (RHS).
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    Interest rates are arguably one of the most important variables in 
determining the trajectory of the mortgage market. The Federal Reserve 
launched its interest rate normalization process in December 2015 with 
a 0.25-percentage point increase. At the July 2016 meeting of the 
Federal Open Market Committee (FOMC), policymakers indicated their 
commitment to a low federal funds rate for the time being, signaling a 
pause in the interest rate normalization path. However, there is broad 
consensus among economists that the Federal Reserve will resume rate 
hikes if the economy performs as expected. Based

[[Page 31519]]

on Moody's January 2017 forecast, mortgage interest rates--in 
particular the 30-year fixed rate, which is closely tied to the federal 
funds rate and the 10-year Treasury note yield--are projected to rise 
gradually from the current historic low of 3.6 percent in 2016 to 5.5 
percent by 2020.
    The unemployment rate has steadily fallen over the last few years 
and according to Moody's is expected to remain at 4.7 percent over the 
next four years, given expected growth of the economy at the modest 
range of 1.5 to 2.9 percent per year (January 2017 forecast). Moody's 
also forecasts a modest increase in per capita disposable nominal 
income growth--from $43,100 in 2016 to $50,300 in 2020. Moody's 
estimates that the inflation rate will remain flat at 2.0 percent 
throughout the same period, although this also depends on Federal 
Reserve policy.
    Industry analysts generally expect the overall housing market to 
continue its recovery, although the growth of house prices may slow 
down, assuming continued increases in interest rates. According to 
Moody's forecast (as of January 2017) based on FHFA's purchase-only 
House Price Index (HPI), house prices are expected to increase at the 
annual rates of 3.9, 1.8, and 2.0 percent in 2018, 2019, and 2020, 
respectively.
    The expected increase in mortgage interest rates and house prices 
will likely impact the ability of low- and very low-income households 
to purchase homes. Housing affordability, as measured by Moody's 
forecast of the National Association of Realtors' Housing Affordability 
Index, is projected to decline from an index value of 162.2 in 2016 to 
152.5 in 2020. Low interest rates coupled with rising house prices 
usually create incentives for homeowners to refinance, and the 
refinance share of overall mortgage originations increased from 39.9 
percent in 2014 to 50 percent in 2016. However, assuming that interest 
rates rise in the near future, the refinance rate is expected to fall 
below 21.4 percent by 2019, according to the Moody's forecast.
Additional Factors Reflecting Affordability Challenges in the Single-
Family Market
    While FHFA's models can address and forecast many of the statutory 
factors that can make affordability for single-family homeownership 
more challenging for low-income and very low-income households, 
including increasing interest rates and rising property values, some 
factors are not captured in the models. FHFA, therefore, considers 
additional factors when selecting the benchmark point within the model-
generated confidence interval for each of the single-family housing 
goals. Some of these factors may affect a subset of the market rather 
than the market as a whole. Some of these additional factors include an 
uneven economic recovery, stagnant wages even where unemployment is 
decreasing, demographic trends, and the Enterprises' share of the 
mortgage market. Variability in these factors can also have substantial 
impacts on the ability of the Enterprises to meet housing goals. 
Consequently, as discussed further below, FHFA will carefully monitor 
these factors and consider the potential impact of market shifts or 
larger trends on the ability of the Enterprises to achieve the housing 
goals.
    Throughout 2016, the economy and the housing market continued to 
recover from the financial crisis, but the recovery has been uneven 
across the country. In some areas, economic growth, job gains, and 
demand are outpacing housing supply, sparking rapidly rising property 
values, while other areas of the country have not regained pre-crisis 
home values and are not projected to do so in the near future.
    Trends in factors such as area median income (AMI) point to an 
uneven recovery. FHFA uses census-tract level AMIs published by the 
U.S. Department of Housing and Urban Development (HUD) to determine 
affordability for the Enterprise single-family and multifamily mortgage 
acquisitions. AMI is a measure of median family income derived from the 
Census Bureau's American Community Survey (ACS). Since the 1990s, AMIs 
have been used widely by HUD, state housing finance agencies, the 
Federal Deposit Insurance Corporation (FDIC), the U.S. Department of 
Treasury, and local governments across the nation to determine 
eligibility for various affordable housing and public assistance 
programs. The HUD-published AMIs are considered the standard benchmark 
in the affordable housing industry. HUD changed the methodology for 
determining AMIs in 2015 because of changes in the Census Bureau's data 
collection methodology and changes in the reporting schedules of the 
ACS data.
    AMI shifts reflect changes in borrower income levels at the census 
tract level. In general, a decrease in an area's AMI represents a 
decline in housing affordability in the area because the households 
will have relatively less income with which to purchase a home where 
property values have either remained the same or increased during the 
same time period.\15\ This can make it more challenging for the 
Enterprises to meet the housing goals. Conversely, increases in AMIs 
would make it easier for the Enterprises to meet the housing goals. 
Overall, while there are annual fluctuations in AMI, the trends over a 
longer period (for instance, over four years) indicate that the economy 
is recovering, albeit in an uneven manner. For instance, from 2014 to 
2016, over 80 percent of census tracts experienced an AMI increase. 
Over the four-year period from 2012 to 2016, AMI increased in about 51 
percent of census tracts. This unevenness of the economic recovery is 
particularly evident geographically. For instance, the census tracts 
that experienced more than a 10 percent decline in AMIs in 2016 are 
concentrated in the southern and midwestern regions of the country.
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    \15\ The supply of single-family homes at the more affordable 
end of the market also impacts a low-income or very low-income 
household's ability to purchase a home. See The State of the 
Nation's Housing 2017, Joint Center on Housing Studies, June 2017.
---------------------------------------------------------------------------

    In addition to the uneven recovery reflected in changing AMI 
levels, many households have experienced stagnant wages or limited wage 
growth even though unemployment levels have decreased significantly 
since the peak of the financial crisis. Data released by the U.S. 
Census Bureau last year for the most recent year available reflected 
that while median household income increased by 5.2 percent in 2015, 
the first annual increase in median household income since 2007, median 
wages remained 1.6 percent lower than the median in 2007, the year 
before the most recent recession, and 2.4 percent lower than the median 
household income peak that occurred in 1999.\16\ Constrained wages, in 
addition to rising interest rates and increasing property values, could 
make it difficult for many low-income and very low-income households to 
achieve homeownership.
---------------------------------------------------------------------------

    \16\ See Income and Poverty in the United States: 2015, United 
States Census Bureau, September 2016 https://www.census.gov/content/dam/Census/library/publications/2016/demo/p60-256.pdf.
---------------------------------------------------------------------------

    Demographic changes, such as the housing patterns of millennials or 
the growth of minority households, also reflect challenges in the 
affordable homeownership market. The homeownership rate among 
millennials is lower than other demographic groups, but household 
formation will likely increase as this group ages. However, many 
millennials will face multiple challenges, including difficulty finding 
affordable homes to buy and building enough wealth for a down payment 
and closing costs, particularly in light of

[[Page 31520]]

student loan and other debt burdens. In addition, another continuing 
demographic trend is the growth of minority households, which is 
projected to be over 70 percent of net household growth through 
2025.\17\ In light of the fact that the median net worth of minority 
households has been historically low, building the necessary wealth to 
meet down payment and closing costs will likely also be a challenge for 
many of these new households. FHFA is committed to identifying new 
market conditions and challenges and working with the Enterprises to 
identify solutions to help meet these challenges. The effectiveness of 
these solutions, however, cannot be accounted for in a model.
---------------------------------------------------------------------------

    \17\ Daniel McCue, Christopher Herbert, Working Paper: Updated 
Household Projections, 2015-2035: Methodology and Results, Harvard 
Joint Center for Housing Studies, December 2016.
---------------------------------------------------------------------------

    Another factor that can affect the Enterprises' ability to support 
affordable homeownership for low-income and very low-income households 
is the Enterprises' overall share of the mortgage market. The 
Enterprises' share of the market is continually subject to fluctuation. 
During the mortgage market bubble, the Enterprises' share of the market 
dropped to about 46 percent in the last quarter of 2005. The other 
significant low point occurred in 2008, when the Enterprises' 
acquisitions accounted for less than 45 percent of the mortgage market. 
Since then, the Enterprises' share has risen overall but declined 
slightly in recent years, accounting for about 52 percent of the market 
in 2015. As shown in Graph 1, over the same time period, the total 
government share of the mortgage market (including FHA, VA, and RHS) 
has been expanding. In 2015, the total government share accounted for 
28 percent of overall mortgage originations, up from 24 percent in 
2014. This is likely an impact of the FHA mortgage insurance premium 
reduction announced in January 2015. As seen in Graph 1, the increase 
in government share came from decreases in the other two segments.
[GRAPHIC] [TIFF OMITTED] TP07JY17.016

    Both Enterprises' charter acts require that all mortgages the 
Enterprises acquire have mortgage insurance (or one of the other forms 
of credit enhancement specified in the charter acts) if the loan-to-
value (LTV) ratio for the loan at acquisition is greater than 80 
percent. Private mortgage insurance rates are dependent on 
characteristics of the mortgage such as loan term, type of mortgage 
(purchase, type of refinance), LTV ratio, and credit score of the 
borrower. Lenders may also be able to negotiate and obtain lower 
private mortgage insurance directly from the mortgage insurer. 
Therefore, for certain market segments, the choice between government 
mortgage insurance or private mortgage insurance depends on the net 
impact of these factors.
    In recent years private mortgage insurance rates have increased 
relative to government mortgage insurance rates, but the increase has 
not been uniform across the credit score and LTV spectrum. Changes in 
the mortgage insurance market can impact the cost of mortgage insurance 
and, consequently, may influence whether the mortgage is originated 
with private mortgage insurance or with FHA insurance. For example, FHA 
decreased its rates for mortgage insurance from 1.35 percent to 0.85 
percent in January 2015. If FHA decreased or increased its mortgage 
insurance premiums, it would be

[[Page 31521]]

reasonable to expect further shifts in the market that would not be 
uniform across the credit score and LTV spectrum. Reductions in the FHA 
insurance premium are likely to have two impacts on the conforming 
segment of the market: (1) The substitution effect--some borrowers will 
switch from private mortgage insurance to FHA insurance due to the 
lower premium rate; and (2) the expanded homeownership effect--new 
borrowers, especially those with lower credit scores seeking higher LTV 
loans, will enter the mortgage market because they are now able to meet 
the debt-to-income threshold due to the lower monthly mortgage payment. 
Analysis conducted by Federal Reserve Board staff indicates that both 
effects existed after the last FHA reduction.\18\ Increases in FHA 
premiums would likely result in reverse shifts.
---------------------------------------------------------------------------

    \18\ Bhutta, Neil and Ringo, Daniel (2016). ``Changing FHA 
Mortgage Insurance Premiums and the Effects on Lending,'' FEDS 
Notes. Washington: Board of Governors of the Federal Reserve System, 
September 29, 2016, http://dx.doi.org/10.17016/2380-7172.1843.
---------------------------------------------------------------------------

    As discussed above, multiple factors impact the Enterprises' 
ability to meet their mission and support affordable homeownership 
through the housing finance market. Nevertheless, FHFA expects the 
Enterprises to continue efforts in a safe and sound manner to support 
affordable homeownership under the single-family housing goals 
categories.

B. Proposed Single-Family Benchmark Levels

1. Low-Income Home Purchase Goal
    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 AMI. The proposed rule 
would set the annual low-income home purchase housing goal benchmark 
level for 2018-2020 at 24 percent, the same as the current 2015-2017 
benchmark level. FHFA believes that, despite the various challenges to 
affordability highlighted above, the Enterprises will be able to take 
steps to maintain or increase their performance on this goal.

                                                                        Table 1--Enterprise Low-Income Home Purchase Goal
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Historical performance                                                          Projected performance
               Year                -------------------------------------------------------------------------------------------------------------------------------------------------------------
                                       2013       2014       2015              2016                     2017                     2018                     2019                     2020
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Actual Market.....................      24.0%      22.8%      23.6%  .......................  .......................  .......................  .......................  .......................
Benchmark.........................        23%        23%        24%  24%                      24%                      .......................  .......................  .......................
Current Market Forecast...........  .........  .........  .........  23.9% +/-2.5%            24.9% +/-4.3%            25.5% +/-5.6%            24.0% +/-6.6%            23.0% +/-7.4%
Fannie Mae Performance:
    Low-Income Home Purchase          193,712    177,846    188,891  221,249                  .......................  .......................  .......................  .......................
     Mortgages.
    Total Home Purchase Mortgages.    814,137    757,870    802,432  964,847                  .......................  .......................  .......................  .......................
    Low-Income % of Home Purchase       23.8%      23.5%      23.5%  22.9%                    .......................  .......................  .......................  .......................
     Mortgages.
Freddie Mac Performance:
    Low-Income Home Purchase           93,478    108,948    129,455  153,435                  .......................  .......................  .......................  .......................
     Mortgages.
    Total Home Purchase Mortgages.    429,158    519,731    579,340  644,991                  .......................  .......................  .......................  .......................
    Low-Income % of Home Purchase       21.8%      21.0%      22.3%  23.8%                    .......................  .......................  .......................  .......................
     Mortgages.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    As shown in Table 1, performance at both Enterprises has fallen 
short of the market in the low-income purchase goal almost every year 
since 2013 (with the exception of Fannie Mae in 2014), although the 
Enterprises have sometimes missed the market look-back goal only by 
one- or two-tenths of a percentage point. Performance at both 
Enterprises fell short of both the benchmark and the market level in 
2015. The past performance of the Enterprises indicates that it has 
been difficult for the Enterprises to consistently lead this market 
segment in making credit available.
    From 2013 to 2014, the low-income home purchase market decreased 
from 24.0 percent to 22.8 percent. In 2015, the actual market rebounded 
to 23.6 percent. FHFA's current model forecasts that the market for 
this goal will increase slightly to 23.9 percent in 2016 and then to 
24.9 percent in 2017. (Actual market levels for 2016 will not be 
available until HMDA data are published in September 2017.) Although 
the Enterprises have been challenged in meeting the percentage single-
family housing goal levels in recent years, FHFA notes that each 
Enterprise has increased the number of single-family home purchase 
loans made to low-income households. Fannie Mae's eligible single-
family loan purchases increased from 193,712 loans in 2013 to 221,249 
in 2016. Freddie Mac's eligible single-family loan purchases increased 
from 93,478 in 2013 to 153,435 in 2016.
    From 2018 to 2020, the proposed goals period, the current forecast 
peaks at 25.5 percent in 2018, before decreasing to 24.0 percent in 
2019 and 23.0 percent in 2020. The average of these projections is 24.1 
percent. This forecast is based on the latest data available and will 
be updated before the release of the final housing goals rule. The 
confidence intervals for the 2018-2020 goal period are wide, but they 
will narrow before the final rule is published.
    FHFA is proposing a benchmark level for the low-income home 
purchase housing goal that is close to the market forecast, to 
encourage the Enterprises to continue to find ways to support lower 
income borrowers while not compromising safe and sound lending 
standards. FHFA notes that the proposed benchmark is close to the 
average of its market forecast for this goal. FHFA recognizes that 
there may be challenges to meeting this goal, including uneven growth 
in AMI and the relative affordability of private mortgage insurance, 
that may be beyond the control of the Enterprises and impact their 
ability to achieve these goals. FHFA will continue to monitor the 
Enterprises, both as regulator and as conservator, and if FHFA 
determines in later years that the benchmark level for the low-income 
home purchase housing

[[Page 31522]]

goal is no longer feasible for the Enterprises to achieve in light of 
market conditions or for any other reason, FHFA can take appropriate 
steps to adjust the benchmark level.
2. Very Low-Income Home Purchase Goal
    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. The proposed rule would set the annual very low-income 
home purchase housing goal benchmark level for 2018 through 2020 at 6 
percent, also unchanged from the current 2015 to 2017 benchmark level.

                                                                           Table 2--Very Low-Income Home Purchase Goal
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Historical performance                                                          Projected performance
               Year                -------------------------------------------------------------------------------------------------------------------------------------------------------------
                                       2013       2014       2015              2016                     2017                     2018                     2019                     2020
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Actual Market.....................       6.3%       5.7%       5.8%
Benchmark.........................         7%         7%         6%  6%                       6%
Current Market Forecast...........  .........  .........  .........  5.9% +/-0.8%             6.4% +/-1.4%             6.7% +/-1.8%             6.3% +/-2.1%             6.2% +/-2.4%
Fannie Mae Performance:
    Very Low-Income Home Purchase      48,810     42,872     45,022  49,852
     Mortgages.
    Total Home Purchase Mortgages.    814,137    757,870    802,432  964,847
    Very Low-Income % of Home            6.0%       5.7%       5.6%  5.2%
     Purchase Mortgages.
Freddie Mac Performance:
    Very Low-Income Home Purchase      23,705     25,232     31,146  36,838
     Mortgages.
    Total Home Purchase Mortgages.    429,158    519,731    579,340  644,991
    Very Low-Income % of Home            5.5%       4.9%       5.4%  5.7%
     Purchase Mortgages.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Since 2013, the market for very low-income home purchase loans has 
also been declining, as reflected in HMDA data, although there was a 
slight uptick in 2015. FHFA has gradually lowered the benchmark for 
this goal from 8 percent in 2010 to 6 percent in 2015. Despite this 
reduction, the performance of both Enterprises has fallen below the 
benchmark and the market levels in each year since 2013. In addition, 
both Enterprises are projected to fall below the 6 percent benchmark 
level in 2016.
    FHFA market analysis reflects a relatively flat trend for this 
segment, at 5.7 percent in 2014 and 5.8 percent in 2015. FHFA's current 
model forecasted the market to increase slightly to 5.9 percent in 2016 
and then to 6.4 percent in 2017. For the 2018-2020 goal period, FHFA's 
forecast indicates an increase to 6.7 percent in 2018, followed by 
declines to 6.3 percent and 6.2 percent in 2019 and 2020, respectively. 
As noted earlier, the confidence intervals widen as the forecast period 
lengthens, and will reduce somewhat as FHFA incorporates more 
information before publishing the final rule.
    Similar to the low-income home purchase goal, FHFA is proposing a 
benchmark level that is near the market forecast to encourage the 
Enterprises to continue their efforts to promote safe and sustainable 
lending to very low-income families. As noted in the low-income 
purchase goal discussion, FHFA believes that there are significant 
challenges to housing affordability that may be beyond the control of 
the Enterprises that could make the proposed benchmark a challenge for 
the Enterprises. As each Enterprise has been struggling to meet the 
current benchmark and market levels, the proposed benchmark will 
continue to encourage the Enterprise to safely and soundly innovate in 
this area. FHFA, as regulator and as conservator, will continue to 
monitor the Enterprises' performance, and if FHFA determines in later 
years that the benchmark level for the very low-income areas home 
purchase housing goal is no longer feasible for the Enterprises to 
achieve in light of market conditions or for any other reason, FHFA may 
take appropriate steps to adjust the benchmark level.
3. Low-Income Areas Home Purchase Subgoal
    Background. The low-income areas home purchase subgoal is based on 
the percentage of all single-family, owner-occupied home purchase 
mortgages purchased 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 AMI; or (2) for families 
with incomes less than or equal to AMI 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 AMI). 
Borrowers could qualify under either or both conditions. As noted in 
Table 3, mortgages satisfying condition (1) above (borrowers in low-
income areas) are almost typically double the share of mortgages 
satisfying condition (2) (moderate-income borrowers in minority census 
tracts). For example, in 2015, 12.2 percent of mortgages met only 
condition (1), 7.6 percent met only condition (2), and 4.6 percent of 
mortgages met both conditions.

[[Page 31523]]



                                    Table 3--Composition of Low-Income Areas Home Purchase Subgoal Based on HMDA Data
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Low-income     High minority   High minority
                                                                                           census tracts  areas that are  areas that are     All high
                          Year                              Low-income    All low-income   that are not      also low-       not low-     minority areas
                                                            area goal %       areas %      high minority   income census   income census         %
                                                                                              areas %        tracts %        tracts %
                                                                     (A)             (B)             (C)             (D)             (E)             (F)
                                                             Grand Total              LI      LI, not HM       HM and LI      HM, not LI              HM
--------------------------------------------------------------------------------------------------------------------------------------------------------
Distribution of HMDA Borrowers By Census Tract Location
    2004................................................            16.8            13.3             8.1             5.3             3.5             8.7
    2005................................................            15.3            12.5             8.3             4.2             2.8             7.0
    2006................................................            15.8            13.1             8.9             4.3             2.7             6.9
    2007................................................            16.2            13.3             8.5             4.8             3.0             7.7
    2008................................................            14.3            11.6             7.4             4.2             2.7             6.9
    2009................................................            13.1            10.0             5.9             4.1             3.0             7.2
    2010................................................            12.1             9.2             5.6             3.6             2.9             6.5
    2011................................................            11.4             8.8             5.5             3.3             2.6             5.9
    2012................................................            13.5            10.3             6.0             4.3             3.2             7.5
    2013................................................            14.1            10.9             6.6             4.3             3.1             7.4
    2014................................................            15.0            12.0             7.5             4.6             3.0             7.5
    2015................................................            15.1            12.2             7.6             4.6             2.9             7.5
Enterprises' Performance:
    2010................................................            11.6             8.7             5.2             3.5             2.9             6.4
    2011................................................            10.7             8.1             5.1             3.1             2.6             5.7
    2012................................................            12.6             9.3             5.4             3.9             3.3             7.2
    2013................................................            13.4            10.2             6.2             4.0             3.2             7.2
    2014................................................            14.7            11.6             7.0             4.5             3.2             7.7
    2015................................................            15.1            12.1             7.4             4.6             3.0             7.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: FHFA's tabulation of Home Mortgage Disclosure Act (HMDA) and Enterprises' data. Conventional conforming single-family owner-occupied 1st lien
  non-HOEPA originations.

    The forecast for this subgoal is obtained by generating separate 
forecasts for the two sub-populations (the low-income areas component 
and the high-minority income component). For this proposed rulemaking, 
FHFA has tested alternate model specifications for this subgoal and 
determined that aligning the overlapping portion with the low-income 
area component yields forecast estimates that are more precise (in 
terms of a narrower confidence interval).\19\
---------------------------------------------------------------------------

    \19\ Details are available in the market model paper, ``The Size 
of the Affordable Mortgage Market: 2018-2020 Enterprise Single-
Family Housing Goals,'' available at http://www.fhfa.gov/PolicyProgramsResearch/Research/PaperDocuments/Market-Estimates_2018-2020.pdf.
---------------------------------------------------------------------------

    FHFA sought to understand how the markets in low-income areas and 
high minority census tracts have evolved in recent years and who was 
being served by the Enterprises' efforts in these areas. FHFA's 
analysis found that the mortgage market in both low-income areas and in 
high-minority census tracts has been moving towards borrowers with 
higher incomes in recent years. As noted in Table 4, HMDA data show 
that both the low-income areas and the high-minority areas have 
increasing shares of borrowers with incomes at or above 100 percent of 
AMI, although loans to borrowers with incomes over 100 percent of AMI 
do not qualify for the minority areas component of the goal. For 
instance, the share of loans made to borrowers with incomes less than 
50 percent of AMI and residing in low-income areas decreased from 17.8 
percent in 2010 to 14.1 percent in 2015, after peaking at 19 percent in 
2012. Over the same period, the share of loans made to borrowers with 
incomes greater than 100 percent of AMI and residing in these low-
income census tracts increased from 38.8 percent in 2010 to 42.1 
percent in 2015, after dipping to 36.5 percent in 2012. Thus, borrowers 
with higher incomes have made up an increasing share of the mortgage 
market in the low-income areas. A similar trend exists among borrowers 
residing in high minority census tracts. While borrowers with incomes 
greater than 100 percent of AMI represented 42.5 percent of borrowers 
in these census tracts in 2010, the share increased to 49.2 percent in 
2015.

                                          Table 4--Borrower Income Relative to AMI for Low-Income Areas Subgoal
                                                                         [HMDA]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             2010 (%)        2011 (%)        2012 (%)        2013 (%)        2014 (%)        2015 (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Borrowers Residing in Low-Income Census Tracts:
    Borrower Income <= 50% AMI..........................            17.8            17.7            19.0            15.4            14.1            14.1
    Borrower Income > 50% and <= 60% AMI................             9.6             9.0            10.5             9.8             9.3             9.3
    Borrower Income > 60% and <= 80% AMI................            18.4            17.6            18.8            18.6            18.6            18.6

[[Page 31524]]

 
    Borrower Income > 80% and <= 100% AMI...............            14.3            13.9            13.9            14.7            14.9            14.9
    Borrower Income > 100% and <= 120% AMI..............            10.1            10.0            10.0            10.8            11.3            11.3
    Borrower Income > 120% AMI..........................            28.7            30.5            26.5            29.3            30.9            30.8
    Income Missing......................................             1.0             1.4             1.3             1.3             0.9             1.0
                                                         -----------------------------------------------------------------------------------------------
        Total...........................................           100.0           100.0           100.0           100.0           100.0           100.0
Borrowers Residing in High-Minority Census Tracts:
    Borrower Income <= 50% AMI..........................            14.9            15.0            14.6            11.3            10.1            10.3
    Borrower Income > 50% and <= 60% AMI................             9.0             8.7             9.1             8.1             7.6             7.6
    Borrower Income > 60% and <= 80% AMI................            18.0            17.7            17.7            16.9            16.8            17.0
    Borrower Income > 80% and <= 100% AMI...............            14.6            14.3            14.1            14.7            14.8            14.9
    Borrower Income > 100% and <= 120% AMI..............            10.9            10.6            11.0            11.7            12.0            12.2
    Borrower Income > 120% AMI..........................            31.6            32.4            32.3            36.0            37.8            37.0
    Income Missing......................................             1.0             1.3             1.3             1.4             0.9             1.0
                                                         -----------------------------------------------------------------------------------------------
        Total...........................................           100.0           100.0           100.0           100.0           100.0           100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Definitions:
Low-income census tracts = Census tracts with median income <= 80% Area Median Income (AMI).
High-minority census tracts = Census tracts where (i) tract median income <= 100% Area Median Income (AMI); and (ii) minorities comprise at least 30
  percent of the tract population.
Source: FHFA's tabulation of HMDA data.

    The presence of higher income borrowers in lower income and higher 
minority areas may be a sign of economic diversity in those areas and 
may be related to the possibility of improved economic indicators for 
the community, but there is nevertheless some concern that such a trend 
could displace lower income households in these areas. Change in the 
mix of renters to owner-occupied households often precedes and 
accompanies these trends. FHFA is aware that this particular subgoal 
may encourage the Enterprises to focus on purchasing loans for higher 
income households in low-income and high-minority areas, and FHFA is 
also aware of concerns about the impact of rising housing costs on 
existing households in lower-income or higher-minority areas. FHFA 
welcomes input on all aspects of the low-income areas goal and subgoal, 
and in particular how best to satisfy the policy objectives of the 
various components of the goal and subgoal.
    Table 5 shows similar trends in Enterprise acquisitions of 
mortgages in low-income areas and high-minority areas. In 2015, 42.5 
percent of Enterprise acquisitions were of loans made to borrowers with 
incomes greater than or equal to 100 percent of the AMI, up from 40.7 
percent in 2010. Also in 2015, 48.3 percent of Enterprise acquisitions 
in high-minority census tracts were acquisitions of loans made to 
borrowers with incomes greater than or equal to 100 percent of AMI, up 
from 45.4 percent in 2010.

                                          Table 5--Borrower Income Relative to AMI for Low-Income Areas Subgoal
                                                                 [Enterprise loans only]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             2010 (%)        2011 (%)        2012 (%)        2013 (%)        2014 (%)        2015 (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Borrowers Residing in Low-Income Census Tracts:
    Borrower Income <= 50% AMI..........................            16.7            16.3            18.2            14.5            13.4            13.4
    Borrower Income > 50% and <= 60% AMI................             9.2             8.8            10.0             9.6             9.4             9.4
    Borrower Income > 60% and <= 80% AMI................            18.4            17.5            18.6            18.6            19.0            19.1
    Borrower Income > 80% and...........................            14.8            14.4            14.6            15.3            15.5            15.6
    <= 100% AMI.........................................
    Borrower Income > 100% and <= 120% AMI..............            10.8            10.9            10.8            11.5            11.7            11.8
    Borrower Income > 120% AMI..........................            29.9            32.0            27.7            30.5            31.0            30.7
    Income Missing......................................             0.2             0.0             0.0             0.0             0.0             0.0
                                                         -----------------------------------------------------------------------------------------------
        Total...........................................           100.0           100.0           100.0           100.0           100.0           100.0

[[Page 31525]]

 
Borrowers Residing in High-Minority Census Tracts:
    Borrower Income <= 50% AMI..........................            13.3            12.9            15.2            11.5            10.3            10.3
    Borrower Income > 50% and <= 60% AMI................             8.4             8.0             9.0             8.3             8.0             7.9
    Borrower Income > 60% and <= 80% AMI................            17.7            16.9            18.0            17.7            17.7            17.7
    Borrower Income > 80% and <= 100% AMI...............            15.1            14.7            14.9            15.5            15.7            15.9
    Borrower Income > 100% and <= 120% AMI..............            11.6            11.4            11.5            12.4            12.6            12.8
    Borrower Income > 120% AMI..........................            33.8            36.2            31.3            34.6            35.7            35.5
    Income Missing......................................             0.2             0.1             0.0             0.0             0.0             0.0
                                                         -----------------------------------------------------------------------------------------------
        Total...........................................           100.0           100.0           100.0           100.0           100.0           100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Definitions:
Low-income census tracts = Census tracts with median income <= 80% Area Median Income (AMI).
High-minority census tracts = Census tracts where (i) tract median income <= 100% Area Median Income (AMI); and (ii) minorities comprise at least 30
  percent of the tract population.
Source: FHFA's tabulation of Enterprises' data.

    Proposed rule. The proposed rule would raise the annual low-income 
areas home purchase subgoal benchmark level for 2018 through 2020 to 15 
percent from the 14 percent level set for the current goal period 
(2015-2017).

                                                                         Table 6--Low-Income Areas Home Purchase Subgoal
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Historical performance                                                          Projected performance
               Year                -------------------------------------------------------------------------------------------------------------------------------------------------------------
                                       2013       2014       2015              2016                     2017                     2018                     2019                     2020
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Actual Market.....................      14.2%      15.2%      15.2%  .......................  .......................  .......................  .......................  .......................
Benchmark.........................        11%        11%        14%  14%                      14%                      .......................  .......................  .......................
Current Market Forecast...........  .........  .........  .........  14.7% +/- 1.2%           15.6% +/- 2.0%           15.8% +/- 2.6%           16.1% +/- 3.1%           15.7% +/- 3.5%
Fannie Mae Performance:
    Low-Income Area Home Purchase      86,430     91,691     99,723  n/a
     Mortgages.
    High-Minority Area Home            27,425     25,650     25,349  n/a
     Purchase Mortgages.
    Subgoal-Qualifying Total Home     113,855    117,341    125,072  156,441
     Purchase Mortgages.
    Total Home Purchase Mortgages.    814,137    757,870    802,432  964,847
    Low-Income Area % of Home           14.0%      15.5%      15.6%  16.2%
     Purchase Mortgages.
Freddie Mac Performance:
    Low-Income Area Home Purchase      40,444     55,987     67,172  n/a
     Mortgages.
    High-Minority Area Home            12,177     14,808     16,601  n/a
     Purchase Mortgages.
    Subgoal-Qualifying Total Home      52,621     70,795     83,773  100,608
     Purchase Mortgages.
    Total Home Purchase Mortgages.    429,158    519,731    579,340  644,991
    Low-Income Area % of Home           12.3%      13.6%      14.5%  15.6%
     Purchase Mortgages.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Both Enterprises have met this subgoal every year since 2013, 
regularly exceeding both the market and the benchmark levels. Fannie 
Mae's performance exceeded both the market and the benchmark in 2014 
and 2015, although its performance was lower than that of the market in 
2013. From 2013 through 2015, Freddie Mac's performance exceeded the 
benchmark but was below the market level. FHFA's forecast indicates 
that the market will increase slightly in the coming years, reaching a 
maximum level of 16.1 in 2019.
    FHFA is proposing only a modest increase in the benchmark level 
that reflects the recent performance levels of the Enterprises while 
FHFA continues to evaluate whether the measure meets policy objectives. 
FHFA, as regulator and as conservator, will continue to monitor the 
Enterprises' performance,

[[Page 31526]]

and if FHFA determines in later years that the benchmark level for the 
low-income areas home purchase housing subgoal is no longer feasible 
for the Enterprises to achieve in light of market conditions or for 
other reasons, FHFA may take appropriate steps to adjust the benchmark 
level.
4. Low-Income Areas Home Purchase Goal
    The low-income areas home purchase goal covers the same categories 
as the low-income areas home purchase subgoal, but it also includes 
moderate income families in designated disaster areas. As a result, the 
low-income areas home purchase goal is based on the percentage of all 
single-family, owner-occupied home purchase mortgages purchased by an 
Enterprise that are: (1) For families in low-income areas, defined to 
include census tracts with median income less than or equal to 80 
percent of AMI; (2) for families with incomes less than or equal to AMI 
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 AMI); or (3) for families with incomes less 
than or equal to 100 percent of AMI who reside in designated disaster 
areas.
    The low-income areas goal benchmark level is established by a two-
step process. The first step is setting the benchmark level for the 
low-income areas subgoal, as established by this proposed rule. The 
second step is establishing an additional increment for mortgages to 
families located in federally-declared disaster areas with incomes less 
than or equal to AMI.\20\ Each year, FHFA sets the disaster area 
increment separately from this rule and notifies the Enterprises by 
letter of the benchmark level for that year. The proposed rule would 
set the annual low-income areas home purchase goal benchmark level for 
2018 through 2020 at the subgoal benchmark level of 15 percent plus a 
disaster areas increment that FHFA will set separately each year.
---------------------------------------------------------------------------

    \20\ Disaster declarations are listed on the Federal Emergency 
Management Agency (FEMA) Web site at https://www.fema.gov/disasters.

                                                      Table 7--Low-Income Areas Home Purchase Goal
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Historical performance
                             Year                             ------------------------------------------------------------------------------------------
                                                                   2010         2011         2012         2013         2014         2015         2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
Actual Market................................................        24.0%        22.0%        23.2%        22.1%        22.1%        19.8%          n/a
Benchmark....................................................          24%          24%          20%          21%          18%          19%          17%
Fannie Mae Performance:
    Subgoal-Qualifying Home Purchase Mortgages...............       59,281       54,285       83,202      113,855      117,341      125,072      156,441
    Disaster Areas Home Purchase Mortgages...................       56,076       50,209       58,085       62,314       54,548       38,885       38,545
    Goal-Qualifying Total Home Purchase Mortgages............      115,357      104,494      141,287      176,169      171,889      163,957      194,986
                                                              ------------------------------------------------------------------------------------------
        Total Home Purchase Mortgages........................      479,200      467,066      633,627      814,137      757,870      802,432      964,847
    Goal Performance.........................................        24.1%        22.4%        22.3%        21.6%        22.7%        20.4%        20.2%
Freddie Mac Performance:
    Subgoal-Qualifying Home Purchase Mortgages...............       32,089       23,902       32,750       52,621       70,795       83,773      100,608
    Disaster Areas Home Purchase Mortgages...................       38,898       26,232       26,486       33,123       33,923       26,411       27,709
    Goal-Qualifying Total Home Purchase Mortgages............       70,987       50,134       59,236       85,744      104,718      110,184      128,317
                                                              ------------------------------------------------------------------------------------------
        Total Home Purchase Mortgages........................      307,555      260,796      288,007      429,158      519,731      579,340      644,991
    Goal Performance.........................................        23.1%        19.2%        20.6%        20.0%        20.1%        19.0%        19.9%
--------------------------------------------------------------------------------------------------------------------------------------------------------

5. Low-Income Refinancing Goal
    The low-income refinancing goal is based on the percentage of all 
single-family, owner-occupied refinance mortgages purchased by an 
Enterprise that are for low-income families, defined as families with 
incomes less than or equal to 80 percent of AMI. The proposed rule 
would set the annual low-income refinancing housing goal benchmark 
level for 2018 through 2020 at 21 percent. While this proposed 
benchmark level is unchanged from the current 2015 to 2017 benchmark 
level, FHFA believes that this level will nevertheless be challenging 
for the Enterprises given the current level of interest rates (which 
are at historic low levels) and the likelihood of interest rate hikes. 
Because of the significant impacts interest rate changes have on this 
market, Enterprise and market performance on this goal are particularly 
susceptible to fluctuation. Moderation in the setting of this goal is 
also supported by the fact that many borrowers have already refinanced 
during the recent extended period of historically low interest rates.

                                                                              Table 8--Low-Income Refinancing Goal
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Historical performance                                                          Projected performance
               Year                -------------------------------------------------------------------------------------------------------------------------------------------------------------
                                       2013       2014       2015              2016                     2017                     2018                     2019                     2020
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Actual Market.....................      24.3%      25.0%      22.5%  .......................  .......................  .......................  .......................  .......................

[[Page 31527]]

 
Benchmark.........................        20%        20%        21%  21%                      21%                      .......................  .......................  .......................
Current Market Forecast...........  .........  .........  .........  21.1% +/- 2.9%           23.4% +/- 4.9%           24.3% +/- 6.2%           25.5% +/- 7.3%           24.8% +/- 8.3%
Fannie Mae Performance:
    Low-Income Refinance Mortgages    519,753    215,826    227,817  247,663                  .......................  .......................  .......................  .......................
    Total Refinance Mortgages.....  2,170,063    831,218  1,038,663  1,268,648                .......................  .......................  .......................  .......................
    Low-Income % of Refinance           24.0%      26.0%      21.9%  19.5%                    .......................  .......................  .......................  .......................
     Mortgages.
    Low-Income HAMP Modification       11,858      6,503      3,563  n/a                      .......................  .......................  .......................  .......................
     Mortgages.
    Total HAMP Modification            16,478      9,288      6,595  n/a                      .......................  .......................  .......................  .......................
     Mortgages.
    Low-Income % of HAMP                72.0%      70.0%      54.0%  n/a                      .......................  .......................  .......................  .......................
     Modification Mortgages.
    Low-Income Refinance & HAMP       531,611    222,329    231,380  n/a                      .......................  .......................  .......................  .......................
     Modification Mortgages.
    Total Refinance & HAMP          2,186,541    840,506  1,045,258  n/a                      .......................  .......................  .......................  .......................
     Modification Mortgages.
    Low-Income % of Refinance &         24.3%      26.5%      22.1%  n/a                      .......................  .......................  .......................  .......................
     HAMP Modification Mortgages.
Freddie Mac Performance:
    Low-Income Refinance Mortgages    306,205    131,921    179,530  174,664                  .......................  .......................  .......................  .......................
    Total Refinance Mortgages.....  1,309,435    514,936    795,936  830,824                  .......................  .......................  .......................  .......................
    Low-Income % of Refinance           23.4%      25.6%      22.6%  21.0%                    .......................  .......................  .......................  .......................
     Mortgages.
    Low-Income HAMP Modification       14,757      6,795      3,064  n/a                      .......................  .......................  .......................  .......................
     Mortgages.
    Total HAMP Modification            21,599     10,335      4,433  n/a                      .......................  .......................  .......................  .......................
     Mortgages.
    Low-Income % of HAMP                68.3%      65.7%      69.1%  n/a                      .......................  .......................  .......................  .......................
     Modification Mortgages.
    Low-Income Refinance & HAMP       320,962    138,716    182,594  n/a                      .......................  .......................  .......................  .......................
     Modification Mortgages.
    Total Refinance & HAMP          1,331,034    525,271    800,369  n/a                      .......................  .......................  .......................  .......................
     Modification Mortgages.
    Low-Income % of Refinance &         24.1%      26.4%      22.8%  n/a                      .......................  .......................  .......................  .......................
     HAMP Modification Mortgages.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Both Enterprises have met this goal since 2013. The performance of 
the Enterprises on this goal has historically been very close to actual 
market levels. In 2014, when the market figure was at its highest 
point, both Enterprises met the goal and exceeded the market. In 2015, 
Freddie Mac exceeded the market and the benchmark level, and Fannie Mae 
exceeded the benchmark level.
    The low-income share of the refinance market as measured by HMDA 
data has changed dramatically in recent years, increasing from 20.2 
percent in 2010 to a peak of 25.0 percent in 2014. FHFA's model for 
this goal forecasts that this market will decrease in 2016, with a 
sharp rise in 2017-2019, followed by slight moderation in 2020. 
However, the confidence intervals around the forecasts are very wide, 
reflecting the uncertainty about interest rates. Recent macroeconomic 
forecasts have predicted interest rate hikes that have not 
materialized.
    Since 2010 the low-income refinancing housing goal has included 
modifications under the Home Affordable Modification Program 
(HAMP).\21\ HAMP modifications, however, are not included in the data 
used to calculate the market levels. Including HAMP modifications in 
the Enterprise performance numbers increases the measured performance 
of the Enterprises on the low-income refinancing housing goal because 
lower income borrowers make up a greater proportion of the borrowers 
receiving HAMP modifications than the low-income share of the overall 
refinancing mortgage market. However, HAMP modifications have been 
declining over time, and the program stopped taking applications at the 
end of 2016.\22\ The expiration of the HAMP program may make it 
slightly more difficult for the Enterprises to meet the low-income 
refinancing goal.
---------------------------------------------------------------------------

    \21\ The goal has included permanent HAMP modifications to low-
income borrowers in the numerator and all HAMP permanent 
modifications in the denominator.
    \22\ The HAMP program expired at the end of 2016. There will be 
some HAMP modifications that will count toward the Enterprise 
housing goals in 2017 as applications that were initiated before the 
end of the program are converted to permanent modifications.
---------------------------------------------------------------------------

    FHFA, as regulator and conservator, will continue to monitor the 
Enterprises and if FHFA determines in later years that the benchmark 
level for the low-income refinancing housing goal needs to be revised, 
FHFA may take appropriate steps to adjust the benchmark level.

V. Multifamily Housing Goals

    This proposed rule also sets out FHFA's views about benchmark 
levels for the multifamily housing goals from 2018-2020. FHFA has 
considered the required statutory factors described below. Despite the 
strength of the multifamily mortgage market, data indicates a continued 
supply gap of

[[Page 31528]]

units affordable to lower-income households. However, FHFA expects and 
encourages the Enterprises to fully support affordable multifamily 
housing, in part by fulfilling the multifamily housing goals in a safe 
and sound manner.

A. Factors Considered in Setting the Proposed Multifamily Housing Goal 
Levels

    In setting the proposed benchmark levels for the multifamily 
housing goals, FHFA has considered the statutory factors outlined in 
Section 1333(a)(4) of the Safety and Soundness Act. These factors 
include:
    1. National multifamily mortgage credit needs and the ability of 
the Enterprises to provide additional liquidity and stability for the 
multifamily mortgage market;
    2. The performance and effort of the Enterprises 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 Enterprises 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 
Enterprises.\23\
---------------------------------------------------------------------------

    \23\ 12 U.S.C. 4563(a)(4).
---------------------------------------------------------------------------

    Unlike the single-family housing goals, performance on the 
multifamily housing goals is measured solely against a benchmark level, 
without any retrospective market measure. The absence of a 
retrospective market measure for the multifamily housing goals results, 
in part, from the lack of comprehensive data about the multifamily 
mortgage market. Unlike the single-family market, for which HMDA 
provides a reasonably comprehensive dataset about single-family 
mortgage originations each year, the multifamily market (including the 
affordable multifamily market segment) has no comparable source. 
Consequently, it can be difficult to correlate different datasets that 
usually rely on different reporting formats. For example, some data are 
available by dollar volume while other data are available by unit 
production.\24\
---------------------------------------------------------------------------

    \24\ CFPB is planning to collect and release additional data 
fields (including the number of units for each multifamily loan that 
is reported) beginning in 2018 that likely will be useful in 
creating a retrospective market measure for the multifamily market.
---------------------------------------------------------------------------

    Another difference between the single-family and multifamily goals 
is that there are separate single-family housing goals for home 
purchase and refinancing mortgages, while the multifamily goals include 
all Enterprise multifamily mortgage purchases, regardless of the 
purpose of the loan. In addition, unlike the single-family housing 
goals, the multifamily housing goals are measured based on the total 
volume of affordable multifamily mortgage purchases rather than on a 
percentage of multifamily mortgage purchases. The use of total volumes, 
which FHFA measures by the number of eligible units, rather than 
percentages of each Enterprises' overall multifamily purchases, 
requires that FHFA take into account the expected size of the overall 
multifamily mortgage market and the affordable share of the market, as 
well as the expected volume of the Enterprises' overall multifamily 
purchases and the affordable share of those purchases.
    The lack of comprehensive data for the multifamily mortgage market 
is even more acute with respect to the segments of the market that are 
targeted to low-income families, defined as families with incomes at or 
below 80 percent of AMI, and very low-income families, defined as 
families with incomes at or below 50 percent of AMI. As required by the 
Safety and Soundness Act, FHFA determines affordability of multifamily 
units based on a unit's rent and utility expenses not exceeding 30 
percent of the area median income standard for low- and very low-income 
families.\25\ While much of the analysis that follows discusses trends 
in the overall multifamily mortgage market, FHFA recognizes that these 
general trends may not apply to the same extent to all segments of the 
multifamily market. Notwithstanding these challenges, FHFA has 
considered each of the required statutory factors (a number of which 
are related) as discussed below.
---------------------------------------------------------------------------

    \25\ 12 U.S.C. 4563(c).
---------------------------------------------------------------------------

    Multifamily mortgage market. FHFA's consideration of the 
multifamily mortgage market addresses the size of and competition 
within the multifamily mortgage market, as well as the subset of the 
multifamily market affordable to low-income and very low-income 
families. In 2015, the multifamily mortgage origination market 
experienced remarkable growth--year-over-year origination volume grew 
28 percent over the prior year to nearly $250 billion, fueled largely 
by a recovery in multifamily construction. The overall market grew 
modestly in 2016. Forecasts from various industry experts indicate that 
overall multifamily growth in mortgage market volumes and mortgage 
originations are expected to increase only modestly in 2017, both for 
refinancing activity and for financing new multifamily units, and 
remain level in 2018.
    According to the National Multifamily Housing Council's tabulation 
of American Community Survey microdata, in 2015 about 43 percent of 
renter households (18.7 million households) lived in multifamily 
properties, defined as structures with five or more rental units.\26\ 
More generally, the population of renters continued to grow from 35 
million in 2005 to 44 million in 2015, an increase of about one 
quarter.\27\ This growth led to an increase in demand for rental units 
that has only partially been met by expansions in supply. Vacancy rates 
hit a 30-year low in 2016, and are especially low in lower-priced 
segments of the market, while climbing in the high-end segment of many 
markets.\28\ As a result of these factors, rents continued to rise 
nationally and outpaced inflation in 2016.\29\
---------------------------------------------------------------------------

    \26\ Accessed on 9/22/2016 at http://www.nmhc.org/Content.aspx?id=4708#Type_of_Structure.
    \27\ ``America's Rental Housing: Expanding Options for Diverse 
and Growing Demand'' Joint Center on Housing Studies of Harvard 
University, December 2015.
    \28\ ``State of the Nation's Housing 2017,'' Joint Center on 
Housing Studies of Harvard University, June 2017.
    \29\ Id.
---------------------------------------------------------------------------

    Affordability in the multifamily market. There are several factors 
that make it difficult to accurately forecast the affordable share of 
the multifamily mortgage market. First, the portion of the overall 
multifamily mortgage market that provides housing units affordable to 
low-income and very low-income families varies from year to year. 
Second, competition between purchasers of mortgages within the 
multifamily market overall may differ from the competition within the 
affordable multifamily market segment. Finally, the volume for the 
affordable multifamily market segment will depend on the availability 
of affordable housing subsidies.
    Using the measure under which affordable rent and utilities do not 
exceed 30 percent of AMI, affordability for families living in rental 
units has decreased for many households in recent years. The Joint 
Center for Housing Studies (JCHS) 2016 State of the Nation's Housing 
Report notes some

[[Page 31529]]

concerning trends in the supply of affordable multifamily units. For 
example, the report found that the majority of growth in the 
multifamily housing stock has been the result of new construction. 
Moreover, most of the new construction consists of apartments with 
fewer bedrooms and has been concentrated in urban areas with higher 
median rents. In the same report, JCHS also noted, ``the steep rent for 
new units reflect rising land and development costs, which push 
multifamily construction to the high end of the market.'' \30\
---------------------------------------------------------------------------

    \30\ ``The State of the Nation's Housing 2016,'' Joint Center 
for Housing Studies of Harvard University, June 2016, available at 
http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs_2016_state_of_the_nations_housing_lowres.pdf.
---------------------------------------------------------------------------

    JCHS has also noted the significant prevalence of cost-burdened 
renters. In 2015, nearly half of all tenants paid more than 30 percent 
of household income for rental housing, especially in high-cost urban 
markets where most renters reside and where Fannie Mae and Freddie Mac 
have focused their multifamily lending. Among lower-income households, 
cost burdens are especially severe.\31\ In addition, a recent study 
showed that the median incomes of renter households have experienced 
slight declines in some large metropolitan areas in recent years, 
leading to increased cost burdens for these households.\32\
---------------------------------------------------------------------------

    \31\ ``State of the Nation's Housing 2017,'' Joint Center on 
Housing Studies of Harvard University, June 2017.
    \32\ ``Renting in America's Largest Metropolitan Areas,'' NYU 
Furman Center, March 2016.
---------------------------------------------------------------------------

    One source of growth in the stock of lower-rent apartments is 
``filtering,'' a process by which existing units become more affordable 
as they age. However, in recent years, this downward filtering of 
rental units has occurred at a slow pace in most markets. Coupled with 
the permanent loss of affordable units, as these units fall into 
disrepair or units are demolished to create new higher-rent or higher-
valued ownership units, this trend has severely limited the supply of 
lower rent units. As a result, there is an acute shortfall of 
affordable units for extremely low-income renters (earning up to 30 
percent of AMI) and very low-income renters (earning up to 50 percent 
of AMI). This supply gap is especially wide in certain metropolitan 
areas in the southern and western United States.\33\
---------------------------------------------------------------------------

    \33\ ``The Gap: The Affordable Housing Gap Analysis 2017,'' 
National Low Income Housing Coalition, March 2017.
---------------------------------------------------------------------------

    The combination of the supply gap in affordable units which 
resulted in significant increases in rental rates, and the prevalence 
of cost-burdened renters resulting from largely flat real incomes has 
led to an erosion of affordability with fewer units qualifying for the 
housing goals.\34\ This challenge of affordability is also reflected in 
the falling share of low-income multifamily units financed by loans 
purchased by the Enterprises. While 77 percent of the multifamily units 
financed by Fannie Mae in 2011 were low-income, that ratio dropped 
steadily in the intervening years to 64 percent in 2016. At Freddie 
Mac, the low-income share also peaked in 2011 and 2012 at 79 percent, 
and decreased gradually to 68 percent in 2016. For the very low-income 
goal, the share at Fannie Mae peaked in 2012 at 22 percent before 
falling to 12 percent in 2016, and at Freddie Mac the share peaked at 
17 percent in 2013 before falling to 12 percent in 2016.
---------------------------------------------------------------------------

    \34\ ``State of the Nation's Housing 2017,'' Joint Center on 
Housing Studies of Harvard University, June 2017.
---------------------------------------------------------------------------

    Small multifamily properties with 5 to 50 units are also an 
important source of affordable rental housing and represent 
approximately one-third of the affordable rental market. Because they 
have different operating and ownership characteristics than larger 
properties, small multifamily properties often have different financing 
needs. For example, 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.\35\ Likewise, the 
affordability of small multifamily units means they generate less 
revenue per unit than larger properties. These factors can make 
financing more difficult to obtain for small multifamily property 
owners. While the volume of Enterprise-supported loans on small 
multifamily properties has been inconsistent in recent years, each 
Enterprise continues to refine its approach to serving this market.
---------------------------------------------------------------------------

    \35\ ``2012 Rental Housing Finance Survey,'' U.S. Census Bureau 
and U.S. Department of Housing and Urban Development, Tables 2b, 2c, 
2d and 3.
---------------------------------------------------------------------------

    Availability of public subsidies. Multifamily housing assistance is 
primarily available in two forms--demand-side subsidies that either 
assist low-income tenants directly (e.g., Section 8 vouchers) or 
provide project-based rental assistance (Section 8 contracts), and 
supply-side subsidies that support the creation and preservation of 
affordable housing (e.g., public housing and Low-Income Housing Tax 
Credit (LIHTC)). The availability of public subsidies impacts the 
overall affordable multifamily housing market, and changes to historic 
programs could significantly impact the ability of the Enterprises to 
meet the goals.
    Financing for affordable multifamily buildings--particularly those 
affordable to very low-income families--often uses an array of state 
and federal supply-side housing subsidies, such as LIHTC, tax-exempt 
bonds, project-based rental assistance, or soft subordinate 
financing.\36\ In recent years, competition for affordable housing 
subsidy has been intense and investor interest in tax credit equity 
projects of all types and in all markets has been strong, especially in 
markets in which bank investors are seeking to meet Community 
Reinvestment Act (CRA) goals. By contrast, in recent months, the 
subsidy provided by the LIHTC program has been volatile and much more 
uncertain, as policymakers consider a broader range of potential tax 
reform legislation that could adversely impact the LIHTC program.
---------------------------------------------------------------------------

    \36\ LIHTC is a supply-side subsidy created under the Tax Reform 
Act of 1986 and is the main source of new affordable housing 
construction in the United States today. Tax credits are used for 
the acquisition, rehabilitation, and/or new construction of rental 
housing for low-income households. LIHTC has facilitated the 
creation or rehabilitation of approximately 2.4 million affordable 
units since inception in 1986.
---------------------------------------------------------------------------

    Subject to the continuing availability of these subsidies, there 
should continue to be opportunities in the multifamily market to 
provide permanent financing for properties with LIHTC during the 2018-
2020 period. There should also be opportunities for market 
participants, including the Enterprises, to purchase mortgages that 
finance the preservation of existing affordable housing units 
(especially for restructurings of older properties that reach the end 
of their initial 15-year LIHTC compliance periods and for refinancing 
properties with expiring Section 8 rental assistance contracts).
    In recent years, demand-side public subsidies and the availability 
of public housing have not kept pace with the growing number of low-
income and very low-income households in need of federal housing 
assistance. As a result, the number of renter households with ``worst 
case needs'' has grown to 8.19 million, an increase of one-third since 
2005.\37\
---------------------------------------------------------------------------

    \37\ ``Preview of 2015 Worst Case Housing Needs,'' U.S. 
Department of Housing and Urban Development, January 2017. Renters 
with worse case needs have very low incomes, lack housing 
assistance, and have either severe rent burdens or severely 
inadequate housing (or both).
---------------------------------------------------------------------------

    Role of the Enterprises. In setting the proposed multifamily 
housing goals, FHFA has considered the ability of the Enterprises to 
lead the market in making multifamily mortgage credit available.

[[Page 31530]]

The share of the overall multifamily market purchased by the 
Enterprises increased in the years immediately following the financial 
crisis but has declined more recently in response to growing private 
sector participation. The Enterprise share of the multifamily 
origination market was approximately 70 percent of the market in 2008 
and 2009 compared to 38 percent in 2015.\38\ The total share is 
expected to remain at around the 2015 level in 2016, 2017, and 2018 in 
light of the Scorecard cap imposed by FHFA in its role as conservator 
(discussed below).
---------------------------------------------------------------------------

    \38\ Urban Institute, ``The GSEs' Shrinking Role in the 
Multifamily Market,'' April 2015.
---------------------------------------------------------------------------

    Despite the Enterprises' reduced market share in the overall 
multifamily market, FHFA expects the Enterprises to continue to 
demonstrate leadership in multifamily affordable housing by providing 
liquidity and supporting housing for tenants at different income levels 
in various geographic markets and in various market segments.
    Conservatorship limits on multifamily mortgage purchases 
(Conservatorship Scorecard cap). As conservator of the Enterprises, 
FHFA has established a yearly cap in the Conservatorship Scorecard that 
limits the amount of conventional (market-rate) multifamily loans that 
each Enterprise can purchase. The multifamily lending cap is intended 
to further FHFA's conservatorship goal: maintaining the presence of the 
Enterprises as a backstop for the multifamily finance market, while not 
impeding the participation of private capital. This target for the 
Enterprise share of the multifamily origination market reflect what is 
generally considered by the industry as an appropriate market share for 
the Enterprises during normal market conditions. The cap prevents the 
Enterprises from crowding out other capital sources and restrains the 
rapid growth of the Enterprises' multifamily businesses that started in 
2011.\39\
---------------------------------------------------------------------------

    \39\ MBA, 2015 Annual Report on Multifamily Lending, October 
2016.
---------------------------------------------------------------------------

    In 2015, FHFA established a cap of $30 billion on new conventional 
multifamily loan purchases for each Enterprise in response to increased 
participation in the market from private sector capital. In 2016, the 
cap was initially set at $30 billion, raised in May 2016 to $35 
billion, and further increased to $36.5 billion in August, in response 
to growth of the overall multifamily origination market throughout the 
year. These increases maintained the Enterprises' current market share 
at about 40 percent. FHFA has announced that for 2017, the cap will 
remain at $36.5 billion.
    FHFA reviews the market size estimates quarterly, using current 
market data provided by Fannie Mae, Freddie Mac, the MBA, and the 
National Multifamily Housing Council. If FHFA determines that the 
actual market size is greater than was projected, the agency will 
consider an approximate increase to the capped (conventional market-
rate) category of the Conservatorship Scorecard for each Enterprise. In 
light of the need for market participants to plan sales of mortgages 
during long origination processes, if FHFA determines that the actual 
market size is smaller than projected, there will be no reduction to 
the capped volume for the current year from the amount initially 
established under the Conservatorship Scorecard.
    In order to encourage affordable lending activities, FHFA excludes 
many types of loans in underserved markets from the Conservatorship 
Scorecard cap on conventional loans. The Conservatorship Scorecard has 
no volume targets in the market segments excluded from the cap. There 
is significant overlap between the types of multifamily mortgages that 
are excluded from the Conservatorship Scorecard cap and the multifamily 
mortgages that contribute to the performance of the Enterprises under 
the affordable housing goals. The 2017 Conservatorship Scorecard 
excludes either the entirety of the loan amount or a pro rata share of 
the loan on the following categories: (1) Targeted affordable housing; 
(2) small multifamily properties; (3) blanket loans on manufactured 
housing communities; (4) blanket loans on senior housing and assisted 
living communities; (5) loans in rural areas; (6) loans to finance 
energy or water efficiency improvements; and (7) market rate affordable 
units in standard (60 percent AMI), high cost (80 percent AMI), and 
very high cost (100 percent AMI) markets. By excluding the underserved 
market categories from the cap, the Conservatorship Scorecard continues 
to encourage the Enterprises to support affordable housing in their 
purchases of multifamily mortgages.\40\
---------------------------------------------------------------------------

    \40\ For more information on the Conservatorship Scorecard, see 
https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/2017-Scorecard-for-Fannie-Mae-Freddie-Mac-and-CSS.pdf.
---------------------------------------------------------------------------

B. Proposed Multifamily Housing Goal Benchmark Levels

    In setting the proposed multifamily housing goals, FHFA encourages 
the Enterprises to provide liquidity and to support various multifamily 
finance market segments while doing so in a safe and sound manner. The 
Enterprises have served as a stabilizing force in the multifamily 
market in the years since the financial crisis. During the 
conservatorship period, the Enterprise portfolios of loans on 
multifamily affordable housing properties have experienced low levels 
of delinquency and default, similar to the performance of Enterprise 
loans on market rate properties. In light of this performance, the 
Enterprises should be able to sustain or increase their volume of 
purchases of loans on affordable multifamily housing properties without 
adversely impacting the Enterprises' safety and soundness or negatively 
affecting the performance of their total loan portfolios.
    FHFA continues to monitor the activities of the Enterprises, both 
in FHFA's capacity as regulator and as conservator. If necessary, FHFA 
will make appropriate changes in the multifamily housing goals to 
ensure the Enterprises' continued safety and soundness.
    The proposed rule establishes benchmark levels for the multifamily 
housing goals for the Enterprises. Before finalizing the benchmark 
levels for the low-income and very low-income multifamily goals in the 
final rule, FHFA will review any additional data that become available 
about the multifamily performance of the Enterprises in 2016, updated 
projections of the size of the multifamily market and affordable market 
share, and any public comments received on the proposed multifamily 
housing goals.
1. Multifamily Low-Income Housing Goal
    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 AMI.

[[Page 31531]]



                                  Table 9--Multifamily Low-Income Housing Goal
----------------------------------------------------------------------------------------------------------------
                                                              Historical performance
              Year               -------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Fannie Mae Goal.................         285,000         265,000         250,000         300,000         300,000
Freddie Mac Goal................         225,000         215,000         200,000         300,000         300,000
Fannie Mae Performance:
    Low-Income Multifamily Units         375,924         326,597         260,124         307,510         351,235
    Total Multifamily Units.....         501,256         430,751         372,089         468,798         551,666
    Low-Income % Total..........           75.0%           75.8%           69.9%           65.6%           63.7%
Freddie Mac Performance:
    Low-Income Multifamily Units         298,529         254,628         273,807         379,043         407,340
    Total Multifamily Units.....         377,522         341,921         366,377         514,275         597,033
    Low-Income % of Total Units.           79.1%           74.5%           74.7%           73.7%           68.2%
----------------------------------------------------------------------------------------------------------------

    From 2012 through 2016, both Enterprises exceeded their low-income 
multifamily goals. Prior to 2015, Fannie Mae had higher goals than 
Freddie Mac. For the 2015-2017 goal period, FHFA set the same goal 
level for both Enterprises for the first time, reflecting parity 
between Freddie Mac and Fannie Mae multifamily market share in terms of 
unit counts.
    In 2016, the goal for each Enterprise was 300,000 units. Fannie Mae 
purchased mortgages financing 351,235 low-income units, and Freddie Mac 
purchased mortgages financing 407,340 low-income units. While total 
volumes have increased, the share of low-income units financed at each 
Enterprise has been declining from peak levels in 2012.
    As noted above, the forecast for the multifamily originations 
market increases slightly and then levels off after 2017. The 
Conservatorship Scorecard cap for each Enterprise was raised from an 
initial $30 billion cap to $36.5 billion in August 2016 in response to 
growth of the multifamily origination market throughout the year. This 
change allowed the Enterprises to pursue purchases of a greater volume 
of multifamily originations and support the overall market and may seem 
to support an increase in the proposed goal levels for both 
Enterprises. However, the gap between the supply of low-income and very 
low-income units and the needs of low-income households, as described 
in the affordability discussion above, is expected to continue in the 
next goal period. Moreover, the forecast for the multifamily 
originations market for 2017 and 2018 is relatively flat, and securing 
housing subsidies will likely continue to be challenging. These trends 
suggest moderation in any increase in the proposed goal levels. 
Therefore, balancing these considerations, the proposed rule sets the 
annual low-income multifamily housing goal for each Enterprise at 
315,000 units in each year from 2018 through 2020, a modest increase 
from the 300,000 unit goal for each Enterprise in 2015-2017.
2. Multifamily Very Low-Income Housing Subgoal
    The multifamily very low-income housing subgoal includes units 
affordable to very low-income families, defined as families with 
incomes no greater than 50 percent of AMI.

                                  Table 10--Multifamily Very Low-Income Subgoal
----------------------------------------------------------------------------------------------------------------
                                                              Historical performance
              Year               -------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Fannie Mae Goal.................          80,000          70,000          60,000          60,000          60,000
Freddie Mac Goal................          59,000          50,000          40,000          60,000          60,000
Fannie Mae Performance:
    Very Low-Income Multifamily          108,878          78,071          60,542          69,078          65,445
     Units......................
    Total Multifamily Units.....         501,256         430,751         372,089         468,798         551,666
    Very Low-Income % of Total             21.7%           18.1%           16.3%           14.7%           11.9%
     Units......................
Freddie Mac Performance:
    Very Low-Income Multifamily           60,084          56,752          48,689          76,935          73,032
     Units......................
    Total Home Purchase                  377,522         341,921         366,377         514,275         597,033
     Mortgages..................
    Very Low-Income % of Total             15.9%           16.6%           13.3%           15.0%           12.2%
     Units......................
----------------------------------------------------------------------------------------------------------------

    From 2012 through 2016, both Enterprises met and exceeded their 
very low-income multifamily goals. In 2016, the goal for each 
Enterprise was 60,000 units. Fannie Mae purchased mortgages financing 
65,445 very low-income units, while Freddie Mac purchased mortgages 
financing 73,032 very low-income units. Similar to the low-income 
multifamily goal, the share of very low-income units financed at each 
Enterprise has been declining in recent years.
    The market for very low-income multifamily housing faces even 
larger challenges than the market for low-income multifamily housing, 
given the need for lower rents--often requiring deeper subsidies--to 
make units affordable to these households. These factors suggest 
moderation in the setting of the very low-income multifamily subgoal 
for the Enterprises. Therefore, the proposed rule maintains the annual 
very low-income multifamily subgoal for each Enterprise at 60,000 units 
each year from 2018 through 2020.
3. Small Multifamily Low-Income Housing Subgoal
    A small multifamily property is defined as a property with 5 to 50 
units. The small multifamily low-income housing subgoal is based on the 
total number of units in small multifamily properties financed by 
mortgages purchased by the Enterprises that are affordable to low-
income families,

[[Page 31532]]

defined as families with incomes less than or equal to 80 percent of 
AMI.

                                 Table 11--Small Multifamily Low-Income Subgoal
----------------------------------------------------------------------------------------------------------------
                                                              Historical performance
              Year               -------------------------------------------------------------------------------
                                       2012            2013            2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Small Low-Income Multifamily      ..............  ..............  ..............           6,000           8,000
 Goal...........................
Fannie Mae Performance:
    Small Low-Income Multifamily          16,801          13,827           6,732           6,731           9,310
     Units......................
    Total Small Multifamily               26,479          21,764          11,880          11,198          15,230
     Units......................
    Low-Income % of Total Small            63.5%           63.5%           56.7%           60.1%           61.1%
     Multifamily Units..........
Freddie Mac Performance:
    Small Low-Income Multifamily             829           1,128           2,076          12,802          22,101
     Units......................
    Total Small Multifamily                2,194           2,375           4,659          21,246          33,984
     Units......................
    Low-Income % of Total Small            37.8%           47.5%           44.6%           60.3%           65.0%
     Multifamily Units..........
----------------------------------------------------------------------------------------------------------------

    This was a new subgoal created in the 2015-2017 goal period. The 
goal was set at 6,000 units in 2015, 8,000 units in 2016, and 10,000 
units in 2017. In 2016, both Enterprises exceeded the goal of 8,000 
units. Fannie Mae purchased mortgages financing 9,310 units, and 
Freddie Mac purchased mortgages financing 22,101 units.
    The proposed rule would set the annual small multifamily subgoal 
for each Enterprise at 10,000 units for each year from 2018 through 
2020, the same as the 2017 goal. The Enterprises continue to innovate 
in their approaches to serving this market. FHFA is still monitoring 
the trends in this market segment as well as Enterprise performance for 
this new subgoal, and will consider all input in preparation of the 
final rule. However, FHFA is proposing to maintain the same benchmark 
level for 2018 through 2020 as the 2017 benchmark level for both 
Enterprises. Maintaining the current goal should continue to encourage 
the Enterprises' participation in this market and ensure the 
Enterprises have the expertise necessary to serve this market should 
private sources of financing become unable or unwilling to lend on 
small multifamily properties.

VI. Section-by-Section Analysis of Other Proposed Changes

    The proposed rule would also revise other provisions of the housing 
goals regulation, as discussed below.

A. Changes to Definitions--Proposed Sec.  1282.1

    The proposed rule includes changes to definitions used in the 
current housing goals regulation. The proposed rule would revise the 
definitions of ``median income,'' ``metropolitan area,'' and ``non-
metropolitan area'' and would remove the definition of ``AHS.''
1. Definition of ``Median Income''
    The current regulation defines ``median income'' as the unadjusted 
median family income for an area as most recently determined by HUD. 
While this definition accurately identifies the source that FHFA uses 
to determine median incomes each year, the definition does not reflect 
the longstanding practice FHFA has followed in providing the 
Enterprises with the median incomes that the Enterprises must use each 
year. The proposed rule would revise the definition to be clear that 
the Enterprises are required to use the median incomes provided by FHFA 
each year in determining affordability for purposes of the housing 
goals.
    The proposed rule would also make two additional technical changes 
to the definition of ``median income.'' First, the proposed rule would 
add a reference to ``non-metropolitan areas'' in the definition because 
FHFA determines median incomes for both metropolitan areas and non-
metropolitan areas each year. Second, the proposed rule would remove 
the word ``family'' in one place so that the term ``median income'' is 
used consistently throughout the regulation.
    The revised definition would read: ``Median income means, with 
respect to an area, the unadjusted median family income for the area as 
determined by FHFA. FHFA will provide the Enterprises annually with 
information specifying how the median family income estimates for 
metropolitan and non-metropolitan areas are to be applied for purposes 
of determining median income.''
2. Definitions of ``Metropolitan Area'' and ``Non-Metropolitan Area''
    The proposed rule would revise the definitions of ``metropolitan 
area'' and ``non-metropolitan area'' to be consistent with each other 
and to reflect the proposed changes to the definition of ``median 
income'' discussed above.
    The current regulation defines both ``metropolitan area'' and 
``non-metropolitan area'' based on the areas for which HUD defines 
median family incomes. The definition of ``metropolitan area'' refers 
to median family incomes ``determined by HUD,'' while the definition of 
``non-metropolitan area'' refers to median family incomes ``published 
annually by HUD.''
    To be consistent with the proposed changes to the definition of 
``median income,'' the proposed rule would revise the definition of 
``metropolitan area'' by replacing the phrase ``for which median family 
income estimates are determined by HUD'' with the phrase ``for which 
median incomes are determined by FHFA.'' For the same reason, the 
proposed rule would revise the definition of ``non-metropolitan area'' 
by replacing the phrase ``for which median family income estimates are 
published annually by HUD'' with the phrase ``for which median incomes 
are determined by FHFA.''
3. Definition of ``AHS'' (American Housing Survey)
    The proposed rule would remove the definition of ``AHS'' from Sec.  
1282.1 because the term is no longer used in the Enterprise housing 
goals regulation.
    Prior to the 2015 amendments to the Enterprise housing goals 
regulation, the term ``AHS'' was used to specify the data source from 
which FHFA derives the utility allowances used to determine the total 
rent for a rental unit which, in turn, is used to determine the 
affordability of the unit when actual utility costs are not available. 
The 2015 amendments consolidated and simplified the definitions 
applicable to determining the total rent and eliminated the reference 
to AHS in the part of the definition related to utility

[[Page 31533]]

allowances, providing FHFA with flexibility in how it determines the 
nationwide utility allowances. The current nationwide average utility 
allowances are still fixed numbers based on AHS data, but the 
regulation does not require FHFA to rely solely on AHS data to 
determine those utility allowances. The term ``AHS'' is not used 
anywhere else in the regulation, so the proposed rule would remove the 
definition from Sec.  1282.1.

B. Data Source for Estimating Affordability of Multifamily Rental 
Units--Proposed Sec.  1282.15(e)(2)

    The proposed rule would revise Sec.  1282.15(e)(2) to update the 
data source used by FHFA to estimate affordability where actual 
information about rental units in a multifamily property is not 
available.
    Section 1282.15(e) permits the Enterprises to use estimated 
affordability information to determine the affordability of multifamily 
rental units for up to 5 percent of the total multifamily rental units 
in properties securing mortgages purchased by the Enterprise each year 
when actual information about the units is not available. The 
estimations are based on the affordable percentage of all rental units 
in the census tract in which the property for which the Enterprise is 
estimating affordability is located.
    The current regulation provides that the affordable percentage of 
all rental units in the census tract will be determined by FHFA based 
on the most recent decennial census. However, the 2000 decennial census 
was the last decennial census that collected this information. The U.S. 
Census Bureau now collects this information through the ACS. Since 
2011, FHFA has used the most recent data available from the ACS to 
determine the affordable percentage of rental units in a census tract 
for purposes of estimating affordability. The proposed rule would 
revise Sec.  1282.15(e)(2) to reflect this change. To take into account 
possible future changes in how rental affordability data is collected, 
the revised sentence would not refer specifically to data derived from 
the ACS. Section 1282.15(e)(2) would be revised to replace the phrase 
``as determined by FHFA based on the most recent decennial census'' 
with the phrase ``as determined by FHFA.''

C. Determination of Median Income for Certain Census Tracts--Proposed 
Sec.  1282.15(g)(2)

    The proposed rule would revise Sec.  1282.15(g) to remove paragraph 
(g)(2), an obsolete provision describing the method that the 
Enterprises were required to use to determine the median income for a 
census tract where the census tract was split between two areas with 
different median incomes.
    Current Sec.  1282.15(g)(2) requires the Enterprises to use the 
method prescribed by the Federal Financial Institutions Examination 
Council to determine the median income for certain census tracts that 
were split between two areas with different median incomes. This 
provision was put in place by the 1995 final rule published by HUD to 
establish the Enterprise housing goals under the Safety and Soundness 
Act.\41\
---------------------------------------------------------------------------

    \41\ See 60 FR 61846 (Dec. 1, 1995).
---------------------------------------------------------------------------

    As discussed above regarding the definition of ``median income,'' 
the process of determining median incomes has changed over the years, 
so that the Enterprises are now required to use median incomes provided 
by FHFA each year when determining affordability for purposes of the 
housing goals. Because FHFA provides median incomes for every location 
in the United States, it is no longer necessary for the regulation to 
set forth a process for the Enterprises to use when it is not certain 
what the applicable median income would be for a particular location. 
Consequently, the proposed rule would remove Sec.  1282.15(g)(2) from 
the regulation.

D. Housing Plan Timing--Proposed Sec.  1282.21(b)(3)

    The proposed rule would revise Sec.  1282.21(b)(3) to provide the 
Director with discretion to determine the appropriate period of time 
that an Enterprise may be subject to a housing plan to address a 
failure to meet a housing goal.
    Section 1336 of the Safety and Soundness Act provides for the 
enforcement of the Enterprise housing goals. If FHFA determines that an 
Enterprise has failed to meet a housing goal and that achievement of 
the goal was feasible, FHFA may require the Enterprise to submit a 
housing plan describing the actions it will take ``to achieve the goal 
for the next calendar year.'' \42\ The Safety and Soundness Act has 
similar provisions for requiring a housing plan if FHFA determines, 
during the year in question, that there is a substantial probability 
that an Enterprise will fail to meet a housing goal and that 
achievement of the goal is feasible. In such cases, the housing plan 
would describe the actions the Enterprise will take ``to make such 
improvements and changes in its operations as are reasonable in the 
remainder of such year.'' The current regulation generally mirrors the 
statutory language on the requirements for a housing plan, except that 
the regulation makes clear that the housing plan must also ``[a]ddress 
any additional matters relevant to the plan as required, in writing, by 
the Director.'' \43\
---------------------------------------------------------------------------

    \42\ See 12 U.S.C. 4566(c)(2).
    \43\ See 12 CFR 1282.21(b).
---------------------------------------------------------------------------

    FHFA required an Enterprise to submit a housing plan for the first 
time in late 2015 in response to Freddie Mac's failure to achieve the 
single-family low-income and very low-income home purchase goals in 
2014. FHFA required Freddie Mac to submit a housing plan setting out 
the steps Freddie Mac would take in 2016 and 2017 to achieve the two 
goals that it failed to achieve in 2013 and 2014. The requirement for 
the plan to address actions taken in both 2016 and 2017 was based on 
FHFA's authority under Sec.  1282.21(b) to require a housing plan to 
address any additional matters required by the Director and was 
intended to address an issue of timing.
    FHFA's final determination on Freddie Mac's performance on the 
housing goals for 2014 was issued on December 17, 2015. As described in 
more detail below, that timing was driven by procedural steps required 
by the Safety and Soundness Act and FHFA's own regulation. If FHFA 
interpreted narrowly the statutory and regulatory provisions stating 
that the housing plan should address the steps the Enterprise would 
take in the following year, the housing plan itself would become 
irrelevant because the year it would cover would have ended before the 
housing plan was even submitted to FHFA.
    The extended time required to reach a final determination housing 
goals performance will occur every year as a result of the procedural 
steps required by the Safety and Soundness Act. Under those procedures, 
if FHFA determines that an Enterprise has failed to achieve a housing 
goal in a particular year, FHFA is first required to issue a 
preliminary determination that generally provides at least 30 days for 
the Enterprise to respond. FHFA must then consider any information 
submitted by the Enterprise before making a final determination on 
whether the Enterprise failed to meet the goal and whether achievement 
of the goal was feasible. If FHFA determines that the Enterprise should 
be required to submit a housing plan, the statute provides for up to 45 
days for the

[[Page 31534]]

Enterprise to submit its housing plan.\44\ FHFA must then evaluate the 
housing plan, generally within 30 days. The time necessary for FHFA's 
review and determination at each step of this procedural process is 
generally four to six months.
---------------------------------------------------------------------------

    \44\ See 12 U.S.C. 4566(c)(3).
---------------------------------------------------------------------------

    These procedural steps cannot begin until FHFA has the information 
necessary to make a determination on whether the Enterprise has met the 
housing goals. The Enterprises are required to submit their official 
performance numbers to FHFA within 75 days after the end of the year, 
usually March 15 of the following year. Therefore, the earliest that 
FHFA would be able to approve a housing plan from an Enterprise would 
be mid-July of the year following the performance year. For the single-
family housing goals, this time period is extended even further because 
the HMDA data necessary to determine if an Enterprise met the 
retrospective market measurement portion of the single-family housing 
goals are not available until September of the year following the 
performance year.
    Based on (1) FHFA's experience in overseeing the housing goals, in 
particular the experience in requiring Freddie Mac to submit a housing 
plan based on its failure to achieve certain housing goals in 2014, (2) 
the inherent conflict in the timeframes set out in the Safety and 
Soundness Act, and (3) the importance of ensuring that any housing 
plans are focused on sustainable improvements in Enterprise goals 
performance, FHFA is proposing to amend Sec.  1282.21(b)(3) to state 
explicitly that a housing plan that is required based on an 
Enterprise's failure to achieve a housing goal will be required to 
address a time period determined by the Director. If FHFA requires an 
Enterprise to submit a housing plan, FHFA will notify the Enterprise of 
the applicable time period in FHFA's final determination on the 
performance of the Enterprise for a particular year.

VII. Paperwork Reduction Act

    The proposed rule would 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.

VIII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities, small businesses, or small organizations must 
include an initial regulatory flexibility analysis describing the 
regulation's impact on small entities. Such an analysis need not be 
undertaken if the agency has certified that the regulation will not 
have a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 605(b). FHFA has considered the impact of the 
proposed rule under the Regulatory Flexibility Act. The General Counsel 
of FHFA certifies that the proposed rule, if adopted as a final rule, 
is not likely to have a significant economic impact on a substantial 
number of small entities because the regulation 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 preamble, under the authority of 12 
U.S.C. 4511, 4513 and 4526, FHFA proposes to amend part 1282 of Title 
12 of the Code of Federal Regulations as follows:

CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY

SUBCHAPTER E--HOUSING GOALS AND MISSION

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.


Sec.  1282.1   [Amended]

0
2. Amend Sec.  1282.1 by revising the definitions of ``AHS'', ``Median 
income,'' ``Metropolitan area,'' and ``Non-metropolitan area'' to read 
as follows:


Sec.  1282.1   Definitions.

* * * * *
    Median income means, with respect to an area, the unadjusted median 
family income for the area as determined by FHFA. FHFA will provide the 
Enterprises annually with information specifying how the median family 
income estimates for metropolitan and non-metropolitan areas are to be 
applied for purposes of determining median income.
    Metropolitan area means a metropolitan statistical area (MSA), or a 
portion of such an area, including Metropolitan Divisions, for which 
median incomes are determined by FHFA.
* * * * *
    Non-metropolitan area means a county, or a portion of a county, 
including those counties that comprise Micropolitan Statistical Areas, 
located outside any metropolitan area, for which median incomes are 
determined by FHFA.
* * * * *
0
3. 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 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 2018, 2019 and 2020 shall be 24 
percent of the total number of purchase money mortgages purchased by 
that Enterprise

[[Page 31535]]

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 2018, 2019 and 2020 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 2018, 2019 and 2020 shall be 15 
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 2018, 2019 and 2020 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
4. 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 315,000 
dwelling units affordable to low-income families in multifamily 
residential housing financed by mortgages purchased by the Enterprise 
in each year for 2018, 2019, and 2020.
    (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 2018, 2019, and 2020.
    (d) Small multifamily low-income housing subgoal. 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 in each 
year for 2018, 2019, and 2020.


Sec.  1282.15   [Amended]

0
5. Amend Sec.  1282.15 as follows:
0
a. In paragraph (e)(2) remove the phrase ``based on the most recent 
decennial census''; and
0
b. Revise paragraph (g).
    The revision reads as follows:


Sec.  1282.15   General counting requirements.

* * * * *
    (g) Application of median income. For purposes of determining an 
area's median income under Sec. Sec.  1282.17 through 1282.19 and the 
definitions in Sec.  1282.1, the area is:
    (1) The metropolitan area, if the property which is the subject of 
the mortgage is in a metropolitan area; and
    (2) In all other areas, the county in which the property is 
located, except that where the State non-metropolitan median income is 
higher than the county's median income, the area is the State non-
metropolitan area.
* * * * *
0
6. Amend Sec.  1282.21 by revising paragraph (b)(3), to read as 
follows:


Sec.  1282.21   Housing plans.

* * * * *
    (b) * * *
    (3) Describe the specific actions that the Enterprise will take in 
a time period determined by the Director to improve the Enterprise's 
performance under the housing goal; and
* * * * *

    Dated: June 28, 2017.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2017-14286 Filed 7-6-17; 8:45 am]
 BILLING CODE 8070-01-P