[Federal Register Volume 83, Number 213 (Friday, November 2, 2018)]
[Proposed Rules]
[Pages 55114-55133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-23890]
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FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1281
RIN 2590-AA82
Federal Home Loan Bank Housing Goals Amendments
AGENCY: Federal Housing Finance Agency.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Federal Housing Finance Agency (FHFA) is proposing to
amend the existing Federal Home Loan Bank Housing Goals regulation.
FHFA proposes to replace the existing four separate retrospective
housing goals with a single prospective mortgage purchase housing goal
as well as establish a separate small member participation housing
goal. The proposed rule would also allow the Banks to request FHFA
approval of alternative target levels for the proposed goals. Finally,
FHFA is proposing to eliminate the existing $2.5 billion volume
threshold that triggers the application of housing goals for each Bank.
DATES: Written comments must be received on or before January 31, 2019.
ADDRESSES: You may submit your comments, identified by regulatory
information number (RIN) 2590-AA82, by any of the following methods:
Agency website: 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.
Please include ``Comments/RIN 2590-AA82'' in the subject line of the
submission.
Hand Delivered/Courier: The hand delivery address is:
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA82,
Federal Housing Finance Agency, Eighth Floor, 400 7th Street SW,
Washington, DC 20219. The package should be delivered at the 7th 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-AA82, Federal
Housing Finance Agency, Eighth Floor, 400 7th Street SW, Washington, DC
20219. Please note that all mail sent to FHFA via U.S. Mail is
[[Page 55115]]
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, (202) 649-3157 or Ethan Handelman, Senior Policy
Analyst, Office of Housing and Community Investment, (202) 649-3264.
These are not toll-free numbers. The telephone number for the Hearing
Impaired is (800) 877-8339. The mailing address for each contact is:
Federal Housing Finance Agency, 400 7th Street SW, Washington, DC
20219.
SUPPLEMENTARY INFORMATION:
I. Comments
FHFA invites comments on all aspects of the proposed rule and will
consider all comments before issuing the final rule. FHFA will post for
public inspection all comments received by the deadline without change,
including any personal information you provide, such as your name,
address, email address, and telephone number. All comments received
will be available for examination by the public through the electronic
rulemaking docket for this proposed rule located on the FHFA website at
http://www.fhfa.gov.
II. Background
A. The Federal Home Loan Bank System
The eleven Federal Home Loan Banks (Banks) are wholesale financial
institutions organized under the Federal Home Loan Bank Act (Bank
Act).\1\ The Banks are cooperatives; only members of a Bank may
purchase the capital stock of a Bank, and only members or certain
eligible housing associates (such as state housing finance agencies)
may obtain access to secured loans, known as advances, or other
products provided by a Bank.\2\ Any eligible institution (generally, a
federally insured depository institution or state-regulated insurance
company) may become a member of a Bank if it satisfies certain criteria
and purchases a specified amount of the Bank's capital stock.\3\
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\1\ See 12 U.S.C. 1423, 1432(a).
\2\ See 12 U.S.C. 1426(a)(4), 1430(a), 1430b.
\3\ See 12 U.S.C. 1424; 12 CFR part 1263.
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As government-sponsored enterprises, the Banks have certain
privileges under federal law, which allow them to borrow funds at
spreads over the rates on U.S. Treasury securities of comparable
maturity that are narrower than those available to corporate borrowers
generally. The Banks pass along their funding advantage to their
members and housing associates--and ultimately to consumers--by
providing advances \4\ and other financial services at rates that would
not otherwise be available to their members. Among those financial
services are the Banks' Acquired Member Assets (AMA) programs, under
which the Banks provide financing for members' housing finance
activities by purchasing mortgage loans.
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\4\ Members are required to pledge specific collateral, mainly
mortgages or other real estate related assets, to secure any advance
taken down from a Bank. See 12 CFR 1266.7.
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B. AMA Programs
FHFA's AMA regulation authorizes the Banks to acquire certain
assets from their members and housing associates as a means of
advancing their housing finance mission, and prescribes the parameters
within which the Banks may do so.\5\ Through the acquisition of AMA,
the Banks provide a source of liquidity to their members and housing
associates, to further mission-related lending.
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\5\ See 12 CFR part 1268.
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FHFA's AMA regulation authorizes each Bank, at its discretion, to
invest in assets that qualify as AMA subject to the requirements of the
rule. Currently, each of the eleven Banks except the Atlanta Bank
offers an AMA program to its members, albeit at varying levels. As of
June 30, 2018, the System's total outstanding AMA mortgages were $57.3
billion and represented 5 percent of total System assets. In contrast,
the System's outstanding advances, their primary business line,
represented 65 percent of total assets. Outstanding mortgages relative
to total assets at the Banks offering AMA programs to its members
ranged from a high of 17 percent and 15 percent at the Indianapolis and
Topeka Banks, respectively, to less than 2 percent at the New York and
Dallas Banks. Further, as a point of comparison, in 2017 the
Enterprises' mortgage purchases represented 62 percent of the secondary
mortgage market comprising the Federal National Mortgage Association
(Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac),
the Government National Mortgage Association (Ginnie Mae), and the
Banks, while the Banks' share represented less than 1 percent.
The two AMA programs that the Banks are currently offering to their
members are the Mortgage Purchase Program (MPP) and the Mortgage
Partnership Finance (MPF) program. The Banks generally acquire 15- to
30-year conventional conforming fixed-rate mortgage loans secured by 1-
to 4-unit residential mortgages in addition to loans guaranteed or
insured by a department or agency of the U.S. government.
C. Overview of the Existing Bank Housing Goals Regulation
The existing Bank housing goals regulation has been in effect since
January 2011.\6\ The regulation implements section 10C(a) of the Bank
Act, which requires the Director of FHFA to ``establish housing goals
with respect to the purchase of mortgages, if any, by the [Banks].''
\7\ Section 10C(b) requires that the Bank housing goals be ``consistent
with'' the housing goals established by FHFA for Fannie Mae and Freddie
Mac (collectively, the Enterprises) under sections 1331 through 1334 of
the Federal Housing Enterprises Financial Safety and Soundness Act of
1992 (Safety and Soundness Act), taking into consideration ``the unique
mission and ownership structure of the [Banks].'' \8\
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\6\ 75 FR 81096 (Dec. 27, 2010).
\7\ 12 U.S.C. 1430c(a).
\8\ 12 U.S.C. 1430c(b).
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The existing Bank housing goals regulation provides that a Bank
will be subject to the housing goals if its AMA mortgage purchases in a
given year exceed a volume threshold of $2.5 billion. The regulation
establishes three single-family owner-occupied purchase money mortgage
goals and one single-family refinancing mortgage goal applicable to the
Banks' purchases under their AMA programs. The goals for purchase money
mortgages separately measure performance on purchase money mortgages
for (1) low-income families, (2) families in low-income areas, and (3)
very low-income families. The goal for refinancing mortgages measures
performance on refinancing mortgages for low-income families. The
levels of the housing goals are established retrospectively using Home
Mortgage Disclosure Act (HMDA) data to calculate the percentage of
single-family originations in the Bank's district that qualify for each
of the housing goals.
Each year, FHFA determines whether any of the Banks have exceeded
the volume threshold. For each Bank that has exceeded the volume
threshold, FHFA determines the Bank's performance under the housing
goals. FHFA evaluates performance by calculating the percentage share
of a Bank's AMA mortgage purchases that qualify for each housing goal.
A Bank meets a housing goal if its performance is equal to or greater
than the level of the housing goal established by FHFA based on HMDA
data for that year.
[[Page 55116]]
III. Summary of Proposed Rule
This proposed rule would replace the existing Bank housing goals
with new, streamlined goals that reflect the Banks' unique mission
while supporting affordable lending. The proposed rule would provide
certainty for the Banks by informing them of the housing goal levels in
advance and would provide clarity and flexibility for the Banks by
consolidating multiple goals into a more straightforward measurement of
performance. The proposed rule would also establish a new housing goal
that would measure the extent to which smaller members are
participating in AMA programs.
A. New Process for Setting Housing Goal Levels
The proposed rule would revise the Bank housing goals regulation to
remove the existing process for FHFA to establish the levels of the
housing goals retrospectively based on HMDA data. The proposed rule
would establish levels for each of the housing goals in advance, in the
regulation itself. This would eliminate any uncertainty about the
levels of the housing goals from year-to-year. The proposed rule would
also allow the Banks to request FHFA approval of an alternative goal
level. Finally, the proposed rule would eliminate the existing $2.5
billion volume threshold that triggers the application of housing goals
for each Bank.
B. Prospective Mortgage Purchase Housing Goal
The proposed rule would revise the Bank housing goals regulation to
remove the separate housing goals for home-purchase mortgages for low-
income families, home-purchase mortgages for low-income areas, home-
purchase mortgages for very low-income families, and refinancing
mortgages for low-income families. The proposed rule would replace the
four separate housing goals with a single, overall measurement of
performance. This new housing goal would include each of the categories
currently covered by the Bank housing goals, but it would not include
separate targets for each category. The proposed rule would establish
the prospective mortgage purchase housing goal target level at 20
percent of a Bank's AMA mortgage purchases.
C. New Housing Goal for Small Member Participation
The proposed rule would establish a separate goal for participation
by smaller members in Bank AMA programs.
The proposed rule would establish the small member participation
housing goal target level at 50 percent.
D. Phase-in of New Housing Goals
The proposed rule would establish a three-year phase-in for
enforcement of the new housing goals.
E. Other Changes
The proposed rule would revise and simplify the criteria and
requirements under which mortgages are either included or excluded from
FHFA's measurement of a Bank's performance under the housing goals. The
proposed rule would also revise the reporting requirements to reflect
the new structure of the Bank housing goals.
IV. New Process for Setting Target Levels for Housing Goals
The proposed rule would revise the Bank housing goals regulation to
establish a specific annual target level for each housing goal. The
proposed rule would also allow a Bank to request FHFA approval of a
different target level for either of the new housing goals. The Bank
would be required to submit its proposed target level for the housing
goal to FHFA for review and approval. Finally, the proposed rule would
also remove the volume threshold from the Bank housing goals
regulation. The new housing goals would apply to each Bank every year.
A. Target Levels for Housing Goals Established in Advance
Under the existing Bank housing goals regulation, FHFA establishes
the target level for each of the housing goals retrospectively using
data collected and maintained pursuant to HMDA. This data typically
becomes publicly available in September of the following year, although
in 2018 the Bureau of Consumer Financial Protection released 2017 HMDA
data in May, subject to possible revision.\9\
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\9\ See Federal Financial Institutions Examination Council,
``FFIEC Announces Availability of 2017 Data on Mortgage Lending,''
(May 7, 2018), available at https://www.ffiec.gov/press/pr050818.htm.
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A Bank meets a housing goal under the existing rule if its mortgage
purchases that meet the counting requirements established in the rule,
as a percentage of its overall AMA purchases, equals or exceeds the
percentage originated in its district. For example, if 23 percent of
mortgages originated in a Bank's district were for low-income
borrowers, then the low-income share of the Bank's purchases must be 23
percent or greater.
Because the level of the housing goals is not known until after the
end of the year being evaluated, it is more difficult for a Bank to
assess its performance relative to the goal during the year. A Bank may
therefore have more difficulty adjusting its activities based on its
performance relative to the goals.
By setting the target levels for the housing goals in advance, the
proposed rule would provide certainty for the Banks and would allow the
Banks to monitor their own performance and, if necessary, take steps in
advance to ensure that they meet the housing goals.
B. Bank-Proposed Housing Goal Levels
Under the existing Bank housing goals regulation, FHFA evaluates
the feasibility of the target levels for the housing goals for a
particular Bank after the fact. For each Bank that has exceeded the
volume threshold in a year, FHFA determines whether the Bank met each
housing goal. If FHFA determines that a Bank has not met one of the
housing goals, FHFA will also determine whether achievement of the
target level for the housing goal was feasible, taking into
consideration any information provided by the Bank, along with market
and economic conditions. While this process provides FHFA the ability
to evaluate facts and circumstances for not meeting a goal that may
weigh against adverse supervisory actions against the Banks, the Banks
face uncertainty because the feasibility evaluation does not happen
until FHFA makes its final determination on the Bank's performance,
after the year being measured is over.
The proposed rule would address this uncertainty by setting a
prospective goal, as described above, and by allowing a Bank to propose
an alternate level for the housing goal. If a Bank's district,
membership, or affordable housing needs do not fit the proposed goal
and the Bank believes the goal is infeasible, the Bank would be able to
propose an alternate level for FHFA review and approval. The Bank would
be required to provide a justification for the alternate level by
submitting any information it considers relevant to the feasibility of
the proposed goal level. FHFA would review the Bank proposal to verify
the Bank's showing of infeasibility, and to ensure: (1) That the
proposed goal demonstrates a meaningful contribution to affordable
housing, and (2) that the proposed goal would be feasible for the
Bank's AMA program.
To illustrate, the proposed rule would establish target levels for
each of the housing goals in advance. The target
[[Page 55117]]
level for the prospective mortgage purchase housing goal would be 20
percent of a Bank's AMA mortgage purchases, and a 50 percent
participation rate by small members delivering mortgages to the Bank's
AMA programs. If a Bank determines that the 20 percent prospective
mortgage purchase housing goal and the 50 percent small member
participation housing goal are both feasible for the Bank to achieve,
the Bank would not need to take any additional action. However, each
Bank would have the option to propose an alternative for one or both
goals. The proposed alternatives would address only the target levels
for the housing goals. A Bank would not be able to change how a goal is
defined and measured or how the loans meet the counting requirements
established by the rules. FHFA would consider the Bank's request and
notify the Bank if the request is approved.
The proposed rule would establish a three-year cycle for setting
alternate target levels for the Bank housing goals. In other words, the
Bank's proposal would cover the target levels for the housing goals for
the next three years. For the initial three-year housing goals cycle,
the Bank would submit its request by October 31, 2019. Under special
circumstances that would trigger application of housing goals, such as
starting a new AMA program, a Bank would have an opportunity to propose
a goal alternative.
If FHFA approves an alternate target level for one or both of the
housing goals for a Bank, the evaluation process would remain the same.
At the end of the year, FHFA would evaluate the Bank based on the FHFA
approved alternative target level and make its determination based on
whether the Bank's performance met the approved target level for the
housing goal or goals.
This new alternative process for setting the target levels of the
housing goals would ensure that the target levels for the housing goals
are feasible for each Bank, taking into account the particular programs
and activities of the Bank.
C. Removing the Volume Threshold
Under the existing Bank housing goals regulation, a Bank is subject
to the housing goals only if the total unpaid principal balance (UPB)
of the Bank's purchases of AMA mortgages in a year exceeds $2.5 billion
(the ``volume threshold''). Since the 2010 housing goals rule became
effective, there have been only three instances where a Bank exceeded
the $2.5 billion annual volume threshold. The three instances were in
2015 (Indianapolis Bank) and in 2016 (Indianapolis Bank and Cincinnati
Bank).
The proposed rule would eliminate the annual volume threshold for
triggering the application of the housing goals. The housing goals
would apply to each of the Banks each year, either at the target level
established by FHFA in the housing goals regulation or a Bank-proposed
alternative target level approved by FHFA.
The volume threshold was adopted to avoid adverse impact on Bank
AMA programs, particularly programs focused on providing liquidity for
smaller Bank members described at the time of adoption as being a
relatively low level. Over time, however, the volume threshold has
instead operated as an upper limit on Bank AMA programs. Banks below
the volume threshold in effect avoid the housing goals, while Banks
above the threshold face application of housing goals that AMA programs
were not designed to, and typically did not, meet.
Housing goals will better serve their public purpose if they are
flexible enough to be meaningful and achievable for a variety of Bank
AMA programs. Instead of the housing goals being a simple binary on-or-
off based on a volume threshold, the proposed rule offers a mechanism
for goals to apply to all Banks in ways that fit their unique mission.
The new process for setting the levels of the housing goals would
accomplish the purpose of the volume threshold by allowing the Banks to
propose meaningful and achievable target levels based on the nature of
the AMA program at each Bank.
D. FHFA Discretion and Feasibility Review
The proposed rule would retain existing provisions that allow FHFA
to exercise discretion when events out of a Bank's control occur, such
as unexpected market shifts or member mergers. It would also retain the
feasibility review that FHFA would undertake before exercising remedies
if a Bank did not meet either housing goal.
V. Prospective Mortgage Purchase Housing Goal
The proposed rule would replace the four housing goals in the
existing Bank housing goals regulation with a prospective mortgage
purchase housing goal. The new housing goal would include mortgage
loans that met the criteria for any of the current housing goals. The
proposed rule would establish the target level for the new goal in the
regulation at 20 percent of each Bank's total purchases of AMA
mortgages. The proposed rule would also limit the number of loans to
higher-income borrowers that could be counted toward this goal. This
new prospective mortgage purchase housing goal would encourage
affordable home lending as part of safe, sound, and sustainable
business growth for the Banks, while providing flexibility to the Banks
in how they serve borrowers by working with members.
A. Structure of the Prospective Mortgage Purchase Housing Goal
Under the existing Bank housing goals regulation, there are four
separate housing goals. Three of the goals measure Bank purchases of
AMA purchase money mortgages on owner-occupied, single-family housing.
The current home purchase housing goals require a Bank to meet separate
targets for mortgages for low-income families (i.e., families with
incomes at or below 80 percent of area median income), mortgages for
very low-income families (i.e., families with incomes at or below 50
percent of area median income), and mortgages for families in low-
income areas. The regulation defines ``families in low-income areas''
to include families in low-income census tracts regardless of family
income, as well as moderate-income families in minority census tracts
(i.e., census tracts with minority population of at least 30 percent
and a tract median income less than the area median income) and
moderate-income families in designated disaster areas. The fourth
housing goal under the existing Bank housing goals regulation measures
Bank purchases of AMA refinancing mortgages on owner-occupied, single-
family housing for low-income families.
The categories of the current Bank housing goals are the same as
the housing goals for Fannie Mae and Freddie Mac (the Enterprises). The
Enterprise housing goals include the same single-family housing goals
as the Bank housing goals, along with separate single-family subgoals
and multifamily goals that are not included in the Bank housing goals.
The separate categories for the individual single-family housing goals
are established by statute for the Enterprises and are designed to
encourage the Enterprises to target activity in each of the separately
defined areas. Multiple housing goals targeting specific segments of
the market are appropriate for the Enterprises, which are large
institutions operating nationwide and are able to design products and
programs to support many different segments of the mortgage market.
The Banks are smaller institutions with mortgage purchase programs
that
[[Page 55118]]
are much more limited in scope than the broad-based purchase activities
of the Enterprises. Thus, it is more difficult for the Banks to develop
products and programs targeting each of the market segments covered by
the existing Bank housing goals. The proposed rule would replace the
four separate housing goals for the Banks with a new prospective
mortgage purchase housing goal including mortgage purchases that meet
any of the existing housing goal categories. This new goal would
greatly reduce the complexity of the housing goals and would make it
easier for the Banks to appropriately target their AMA purchase
activity based on their individual needs and the needs of their
members.
The proposed rule would establish a prospective mortgage purchase
housing goal, which would include all single-family, first lien AMA
mortgages purchased by a Bank. Eligible mortgages meeting the income or
geographic eligibility requirements for any of the current four housing
goals would continue to be eligible under the proposed goal. This would
include mortgages for low- or very low-income borrowers and mortgages
for borrowers living in low-income areas.
The new housing goal would also include both purchase money
mortgages and refinancing mortgages. This would include refinancing
mortgages for low-income families, which currently count only for the
separate low-income families refinancing goal. By combining the
different categories into a single, overall goal the proposed rule
would make refinancing mortgages for families of any income level who
reside in low-income areas meet the counting requirements established
by the rule.
B. Proposed Level for the Prospective Mortgage Purchase Housing Goal
The proposed rule would establish the target level for the new
prospective mortgage purchase housing goal at 20 percent of the Bank's
AMA mortgage purchases. In proposing a 20 percent target for the new
housing goal, FHFA considered how the Banks would have performed under
this new overall goal in recent years, the ability of the Banks to meet
the new prospective mortgage purchase housing goal, as well as the
needs of underserved borrowers.
Past performance of the Banks. Historically, most of the Banks have
exceeded the 20 percent goal level. Table 1 below shows how the Banks
would have performed under the proposed prospective mortgage purchase
housing goal using 2017 data. For each Bank, the Table shows the
percent of all AMA loans that were to very low-income (at or below 50
percent of area median income) borrowers, the percent of all AMA loans
that were to low-income (above 50 percent and at or below 80 percent of
area median income) borrowers, and the percent of loans to borrowers
above low-income but that meet the low-income areas criteria. The low-
income areas contribution to the housing goal is further limited by the
requirement that no more than 25 percent of the loans counting toward
the housing goal can be to borrowers above the low-income level.
The following Chart 1 shows a time series of each Bank's total
percentage of loans meeting the prospective mortgage purchase housing
goal over the period 2011-2017. Note that the tables and charts in this
proposed rule mask the identity of individual Banks to maintain
confidentiality of Bank data. The letters have been randomized for each
table and chart (i.e., Bank A may refer to different Banks in different
tables). Rows may not appear to total due to rounding.
BILLING CODE 8070-01-P
[GRAPHIC] [TIFF OMITTED] TP02NO18.011
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[GRAPHIC] [TIFF OMITTED] TP02NO18.012
BILLING CODE 8070-01-C
In 2017, the combined housing goals performance for the Bank System
as a whole (shown as SYS in Chart 1) would have reached 25 percent of
all AMA mortgages. The performance of the individual Banks varies
significantly. The variation in performance likely results from the
volumes of AMA purchased by individual Banks, different focuses by
different Banks, district-level differences in the housing markets, and
that Banks under the $2.5 billion threshold are not motivated to meet
the affordable housing goals. Note that for the three Banks at zero for
some years, Chart 1 reflects that these Banks did not have active AMA
programs in those years. The same three Banks are the only Banks that
would have not met the proposed 20 percent housing goal target in 2017,
which may be related to having more recent AMA program initiation.
Feasibility of the proposed goal. In proposing the 20 percent
target for the new prospective mortgage purchase housing goal, FHFA
seeks to ensure that the proposed target level for the housing goal
demonstrates a meaningful contribution to affordable housing while also
being feasible given the structure of AMA programs. Striking the
appropriate balance is challenging in part because of the variation in
performance of the different Banks. A target level for the housing goal
that is high enough to be meaningful for one Bank may not be feasible
for another Bank to achieve based on differences between the Bank
districts and the individual Bank prudential limits on AMA purchases.
Eight of the eleven Banks would have achieved the proposed housing
goal level of 20 percent each year since 2011, though the performance
for several Banks was very close to the 20 percent target in some
years. The 20 percent housing goal level would be high enough to be
meaningful for those Banks, while still being feasible for the Banks to
achieve.
For the three Banks whose performance would have been below the 20
percent target level in 2017, it may be possible for the Banks to
increase their performance. Alternatively, these Banks may elect to
propose alternate target levels if the 20 percent target is infeasible
based on the specific circumstances in their respective districts and
under their existing AMA programs.
Needs of underserved borrowers. In determining the target level to
propose, FHFA considered the Nation's affordable housing needs, which
affect both homeowners and renters, while focusing on homeownership as
the policy area most directly connected to the Bank housing goals. The
national homeownership rate declined every year from 2004 to 2017, with
particularly sharp declines for younger households and African American
households.\10\ Tight access to mortgage credit is an ongoing factor in
the lack of access to homeownership, particularly
[[Page 55120]]
in places with lower-cost homes.\11\ Workers in growing sectors like
healthcare often cannot afford to purchase even modestly priced homes
in most metropolitan statistical areas. As an example, a typical
emergency medical technician could afford the median home price in only
17 out of 203 metropolitan statistical areas in a recent analysis.\12\
Improved financing opportunities can help mitigate homeownership
difficulties for underserved borrowers.
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\10\ See Joint Center for Housing Studies of Harvard University,
``The State of the Nation's Housing 2017,'' 23 (2015), available at
http://www.jchs.harvard.edu/sites/default/files/harvard_jchs_state_of_the_nations_housing_2017_0.pdf.
\11\ Id.
\12\ National Housing Conference, ``Paycheck to Paycheck 2017,''
3 (Sept. 2017), available at http://www.nhc.org/wp-content/uploads/2017/09/2017-Paycheck-to-Paycheck-Final.pdf.
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FHFA recognizes these challenges and has considered them in
proposing a target level for the AMA home purchase housing goal of 20
percent. The proposed target level encourages the Banks to continue to
make meaningful contributions to affordable housing, while recognizing
the limited ability of the Banks to affect the overall housing market.
C. Cap on Mortgages to Higher-Income Borrowers in Low-Income Areas
As discussed above, the proposed rule would combine each of the
categories for the four current Bank housing goals into a single
overall housing goal. These categories include mortgages on properties
in low-income areas, which may include some mortgages for families with
incomes above the low-income maximum of 80 percent of area median
income. The proposed rule would include a limit on the extent to which
a Bank could rely on mortgages for higher-income families in these
areas to meet the new housing goal.
The proposed prospective mortgage purchase housing goal would
include mortgages for families in low-income areas as one of the
criteria for loans to be counted toward the new housing goal. The
proposed rule remains unchanged from the current rule in that it would
continue to define ``families in low-income areas'' to include (a)
families in low-income census tracts regardless of family income, (b)
moderate-income families in minority census tracts (i.e., census tracts
with minority population of at least 30 percent and a tract median
income less than the area median income), and (c) moderate-income
families in designated disaster areas. These criteria are summarized in
Table 2:
Table 2--Low-Income Areas Components
------------------------------------------------------------------------
Income requirement Geographic requirement
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Path 1............ None..................... Tract Income.
<=80% AMI.
Path 2............ <=100% AMI............... Minority Census Tract.
(>=30% minority + Tract
Income <100% AMI
Path 3............ <=100% AMI............... Designated Disaster Area.
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The definition of families in low-income areas is different from
the other components included in the proposed housing goal because it
can include mortgages for families with higher incomes. For properties
located in low-income census tracts, each mortgage purchase would count
toward a Bank's achievement of the housing goal, regardless of family
income. For properties in minority census tracts and for properties in
designated disaster areas, mortgage purchases would count if family
income is lower than the area median income, which would include
families with incomes between 80 percent and 100 percent of area median
income.
As a result, it is possible for loans to higher-income households
in low-income areas to count toward achievement of the housing goal.
While the proposed rule would not exclude such mortgages for higher-
income families from counting entirely, the proposed rule would limit
the extent to which a Bank could rely on such loans as the primary
means of meeting the housing goal. FHFA recognizes an unresolved
tension between the need for homeownership investment in communities
that have lacked consistent, large-scale homeownership investment, on
one hand, and concern about the impact of an influx of higher-income
households on existing residents, on the other hand.\13\
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\13\ For information on the effects of gentrification, see
generally Federal Reserve Bank of Philadelphia, ``Research Symposium
on Gentrification and Neighborhood Change'' (May 25, 2016),
available at https://www.philadelphiafed.org/community-development/events/2016/research-symposium-on-gentrification; Diane K. Levy,
Jennifer Comey & Sandra Padilla, ``IN THE FACE OF GENTRIFICATION:
Case Studies of Local Efforts to Mitigate Displacement'' (Urban
Institute 2006), available at https://www.urban.org/sites/default/files/publication/50791/411294-In-the-Face-of-Gentrification.PDF.
---------------------------------------------------------------------------
HMDA data on mortgage lending overall suggest that lending to
higher-income borrowers in low-income census tracts is already a
growing segment. There is a rising trend from 2010 to 2016 of mortgages
originated for borrowers with incomes greater than 120 percent of area
median income in low-income census tracts. This reached a high of 33.4
percent of all borrowers in low-income census tracts in 2016, as Table
3 below shows:
[GRAPHIC] [TIFF OMITTED] TP02NO18.013
[[Page 55121]]
To limit the extent to which a Bank can rely on mortgages for
higher-income families in meeting the prospective mortgage purchase
housing goal, the proposed rule would establish a cap on how much of
the goal a Bank can satisfy with loans to borrowers above the low-
income threshold (i.e., 80 percent of area median income).
Specifically, the proposed rule would require that at least 75 percent
of all mortgage purchases that count toward achievement of the
prospective mortgage purchase housing goal be for borrowers with
incomes at or below 80 percent of area median income. Stated
differently, no more than 25 percent of the mortgages a Bank uses to
qualify for the prospective mortgage purchase housing goal could be to
borrowers above 80 percent of AMI. This cap would allow Banks to
provide significant support for low-income areas, including minority
census tracts and designated disaster areas, while ensuring an overall
focus on low-income and very low-income borrowers.
Note that the proposed cap would not prohibit the Banks from
purchasing mortgages for borrowers with incomes above 80 percent of
AMI. Rather, it would simply limit the extent to which such mortgages
could be counted toward achievement of the housing goals.
D. Comparison to Enterprise Housing Goals
FHFA considered the similarities and differences between the
Enterprises' mortgage purchases and the Banks' mortgage purchases when
proposing Bank housing goals. Both the Enterprises and the Banks
provide valuable sources of liquidity for the secondary mortgage market
and support for affordable housing. Key differences, however, informed
the goal structure and levels in this proposed rule.
The Enterprises are chartered to provide stability and liquidity in
the secondary market for residential mortgages by purchasing and making
commitments to purchase residential mortgages. The Banks, in contrast,
operate AMA programs at their discretion. If a Bank believes housing
goals are too onerous or require unacceptable risks, it may cease
purchasing mortgages entirely.
The Banks' AMA purchases are so small compared to other secondary
market participants that they do not shape the market in the way the
Enterprises do. Combined Bank AMA purchases constituted only 1 percent
of the total unpaid principal balance of secondary market activity
comprising Fannie Mae, Freddie Mac, Ginnie Mae, and the Banks. The
Enterprises together represented 62 percent. The Banks are therefore
market-takers, not market-makers.
Additionally, unlike Fannie Mae and Freddie Mac, the Banks hold in
portfolio nearly all loans they purchase and must manage the related
market risk exposure. While FHFA considers AMA mortgage loans a mission
asset, it also advises each Bank's board of directors to establish
prudential limits for the mortgage purchases. The combination of the
AMA regulatory requirements, the fact that the Banks hold the loans in
portfolio, and the fact that the decision to offer an AMA program to
members is at a Bank's discretion (with FHFA approval) all contribute
to the AMA programs being market-takers.
Goal levels reflect these differences. The Enterprises have
different percentage benchmarks for each of their goals and subgoals.
FHFA also compares Enterprise performance retrospectively to market
levels. If an Enterprise meets either the benchmark or the market level
in a particular year, FHFA determines that it has met the goal. These
goals are appropriate for entities with a market position like the
Enterprises. In contrast, the goal level for the Banks combines all of
the eligible categories from the Enterprise goals and reflects the
market niche the Banks occupy. It is difficult to compare the benchmark
levels for the Enterprise goals to the proposed target level for the
prospective Bank housing goal. The Enterprise housing goals measure
performance in four separate categories. Table 4 below illustrates the
benchmark levels from 2017 for the Enterprise housing goals (market
levels are published in the 2018 Annual Housing Report).
Table 4--Enterprise Goal Levels, 2017
------------------------------------------------------------------------
Benchmark
Goal Level, 2017
(%)
------------------------------------------------------------------------
Low-Income Home Purchase Goal........................... 24
Very Low-Income Home Purchase Goal...................... 6
Low-Income Areas Home Purchase Goal..................... 18
Low-Income Areas Home Purchase Subgoal.................. 14
Low-Income Refinance Goal............................... 21
------------------------------------------------------------------------
The prospective Bank housing goal would combine these four
categories into a single overall goal, but it is not possible to add
the benchmark levels together because the categories measured by the
Enterprise housing goals have significant overlap.
FHFA invites comment on all proposed changes related to the
prospective mortgage purchase housing goal including but not limited to
the following specific questions (please identify the question answered
by the number assigned below):
1. Is a prospective mortgage purchase housing goal measured as a
percentage of each Bank's AMA purchases the optimal way to meaningfully
and achievably encourage affordable home mortgage purchases? If not,
what other options would more likely result in attainment of that goal?
Why?
2. Is 20 percent the appropriate level? Why or why not? Please
provide quantitative analysis to support your position when possible.
3. Is a single percentage goal that includes purchase and refinance
loans to low-income borrowers, very low-income borrowers, and families
in low-income areas an appropriate mechanism? Why or why not?
4. Is the 25 percent cap on AMA mortgages to higher-income
borrowers in low-income areas that count towards the goal the
appropriate level? Why or why not? Please provide quantitative analysis
to support your position when possible.
5. What changes could Banks make to their AMA products to encourage
more purchases of affordable home mortgages if needed to meet a goal?
6. Should the Banks have an additional opportunity to propose a
revision to the target level for either housing goal, either annually
or at some other interval? Why or why not?
VI. Proposed Housing Goal for Small Member Participation
The proposed rule would establish a new small member participation
housing goal that would require each Bank to ensure that a certain
percentage of the members participating in the Bank's AMA programs are
smaller members. The new small member participation housing goal would
recognize that smaller lenders are well-positioned to reach borrowers
with affordable housing needs.
Across the Bank System, a majority of the members participating in
AMA programs are small with respect to asset size, but a majority of
the number of AMA mortgages purchased by the Banks come from members
with larger assets. In 2017, 87 percent of AMA users had total assets
below $1.173 billion, the current threshold for community financial
institutions. Those AMA users sold 57 percent of the total number of
loans purchased by the Banks. Charts 2 and 3 below show the
distribution of each Bank's AMA users by asset size
[[Page 55122]]
and share of the number of loans purchased. Note that most Banks have a
large majority of AMA users below the community financial institutions
threshold--Chart 2 shows the Bank System as a whole had roughly 85
percent of its AMA users in that category in 2017. Chart 3 shows, for
instance, that in the Bank System nearly 45 percent of the AMA loans in
2017 came from AMA users larger than the community financial
institutions threshold.
[GRAPHIC] [TIFF OMITTED] TP02NO18.014
In proposing the new small member participation housing goal, FHFA
considered that one of the benefits of Bank AMA programs is connecting
members with the secondary mortgage market. This connection has the
potential to particularly benefit borrowers in rural communities or
places of persistent poverty where borrowers have less access to
credit. Small institutions appear more likely to originate loans to
low-income and very low-income households, as Table 5 below documents.
It shows that in 2017, participating financial institutions (PFIs)
above the community financial institutions asset cap produced 17
percent of their loans for low-income or very low-income borrowers,
while PFIs that were also community financial institutions produced 21
percent.
[[Page 55123]]
[GRAPHIC] [TIFF OMITTED] TP02NO18.015
The proposed small member participation housing goal would align
with FHFA's policy position embodied in the AMA regulation, which
considers the cooperative structure of the Banks and that the Banks, as
government-sponsored enterprises, pass along their funding advantage to
their members by providing financial services, including AMA programs.
FHFA recognizes that adding new members to participate in AMA,
especially smaller members with less staff capacity, requires active
marketing and outreach with a long sales cycle. As individual AMA user
participation may vary year-to-year, Banks would have to maintain
outreach efforts to ensure that small member participation continues at
or above the target level. Nevertheless, the investment of time and
effort to bring new members to the program should pay off both in new
lending to borrowers that may not otherwise receive access to credit
and in safe and sound business growth for the Banks.
A. Structure of the Small Member Participation Housing Goal
The existing Bank housing goals regulation does not include a goal
specifically targeting smaller member participation in the Bank AMA
programs. However, the Bank housing goals have long recognized the
importance of smaller members for the Banks, and conversely, the
importance of the Bank AMA programs for some smaller members. For
example, the final rule establishing the Bank housing goals included a
volume threshold in part ``to avoid adverse impact on Bank AMA
programs, particularly with respect to CFIs [community financial
institutions].'' \14\
---------------------------------------------------------------------------
\14\ 75 FR 81096, 81098 (Dec. 27, 2010).
---------------------------------------------------------------------------
The proposed rule would establish for the first time a new housing
goal for smaller member participation in Bank AMA programs. The new
goal would encourage Banks to maintain a focus in their AMA programs on
small members that are more likely to produce affordable home loans to
low-income households. Small institutions often rely on their Bank
membership for a connection to the secondary mortgage market. It is
reasonable to require the Banks to deploy their federally supported
funding-cost advantage for the benefit of small members that might
otherwise have difficulty accessing national capital markets, rather
than primarily to augment the financial results of large members that
have no such difficulty.\15\ Small institutions are also an important
source of credit access for rural areas, places of persistent poverty,
and other underserved populations.
---------------------------------------------------------------------------
\15\ For this reason, FHFA grounds the small-member goal not
just in the housing goals section of the Bank Act, 12 U.S.C. 1430c,
but also in the statutory basis for the AMA program more generally.
See 12 U.S.C. 1430, 1430b, 1431; Texas Savings & Community Bankers
Ass'n v. Federal Housing Finance Board, 201 F.3d 551 (5th Cir.
2000).
---------------------------------------------------------------------------
The Banks already serve many small members, so the small member
participation housing goal would encourage them to maintain that focus
over time. FHFA anticipates that the working relationships between
Banks and small members will result in ongoing purchases of mortgages
to benefit borrowers in need of financing for affordable housing.
B. Proposed Level for the Small Member Participation Housing Goal
The proposed rule would establish the target level for the new
small member participation housing goal as having at least 50 percent
of ``AMA users'' be small members. The proposed rule would define ``AMA
user'' to include any PFI that sells one or more AMA mortgage(s) to a
Bank during the year being measured. The proposed rule would define the
small member participation housing goal by incorporating the definition
of ``community financial institution'' in the Bank membership
regulation, which includes institutions with total assets below the
community financial institution threshold, currently $1.173
billion.\16\
---------------------------------------------------------------------------
\16\ 12 CFR 1263.1.
---------------------------------------------------------------------------
In proposing a 50 percent target for the new small member
participation housing goal, FHFA considered how the Banks would have
performed under this goal in recent years and the ability of the Banks
to meet the new goal.
Past performance of the Banks. Table 6 below shows how each Bank
would have performed under the new small member participation housing
goal in 2017.
[[Page 55124]]
[GRAPHIC] [TIFF OMITTED] TP02NO18.016
In 2017, nine of the eleven Banks would have met the new small
member participation housing goal as proposed, with most of the Banks
being significantly over the proposed 50 percent goal level. Two of the
eleven Banks would have fallen below the 50 percent goal level. The two
Banks that would not have met the goal in 2017 are also noteworthy in
that they had very few AMA users during 2017.
Feasibility of the proposed goal. In proposing the 50 percent
target for the new small member participation housing goal, FHFA
considered the ability of the Banks to meet the new proposed goal.
Recognizing that some Banks may currently have performance that would
fall below the proposed goal level, the proposed rule would provide an
alternate means of achieving the goal. If a Bank's performance under
the goal falls below the 50 percent goal level, the Bank could also
comply by increasing its performance under the goal by 300 basis points
compared to the preceding year. For example, if only 33 percent of a
Bank's AMA users had been small members in the preceding year, the next
year the Bank could satisfy the goal if at least 36 percent of its AMA
users are small members. Once a Bank reaches the 50 percent
participation rate, it would no longer need to demonstrate annual
growth.
FHFA also retains its supervisory discretion if a percentage
changed due to events outside of a Bank's control, such as a sudden
drop in participation due to member mergers or failures.
FHFA invites comments on all aspects of the small member
participation housing goal and specifically solicits comments on the
following questions (please identify the question answered by the
number assigned below):
7. Is the small member participation housing goal an effective way
to encourage access to mortgage credit in rural communities or places
of persistent poverty, or would other approaches be more effective?
8. Should FHFA consider an alternative level (other than the
community financial institutions threshold, currently $1.173 billion)
for defining ``small member?''
9. Are there any issues that FHFA should consider related to the
proposed 300 basis point growth rate under the small member
participation housing goal? If so, please suggest and explain an
alternative approach.
10. Is the 50 percent goal too low, considering that nine of the 11
Banks already meet it?
VII. Phase-in of New Housing Goals
The proposed rule would establish a phase-in period for enforcement
of the new housing goals. Although many Banks would be on track for
immediate compliance based on their 2017 performance, FHFA acknowledges
that it may take substantial effort for some Banks to comply. A phase-
in period would help the Banks adjust to the
[[Page 55125]]
housing goals and manage risk appropriately.
The existing Bank housing goals regulation sets forth procedures
for how FHFA enforces the housing goals.\17\ For each Bank that is
subject to housing goals, the Director determines whether a Bank
achieved the goal(s), provides notice to the Bank of the Director's
preliminary determination, receives a response from the Bank, and
determines whether goal(s) achievement was feasible.\18\ If the
Director finds that a Bank has not achieved a goal and the goal was
feasible, the Director may require the Bank to submit a housing
plan.\19\
---------------------------------------------------------------------------
\17\ See 12 CFR 1281.14 and 1281.15.
\18\ See 12 CFR 1281.14.
\19\ See 12 CFR 1281.15.
---------------------------------------------------------------------------
The proposed rule would modify these provisions to specify that not
meeting a goal in the first or second year in which the new regulation
is in effect will not result in the Director requiring a housing plan.
During the first and second year, FHFA would monitor performance using
existing AMA data collection, notify the Banks of its preliminary
determination, and then make a final determination as described above,
including determining whether the goal was feasible. FHFA would not,
however, require a housing plan for not meeting a goal in the first or
second year. The Banks should expect full implementation of the rule
including the possibility of a housing plan if a Bank does not meet a
housing goal in 2022.
The phase-in period would not limit the Director's remedies apart
from imposition of a housing plan due to the housing goals, such as
through supervisory criticism in the examination process, nor would it
limit FHFA's discretion with respect to feasibility determinations.
VIII. Other Changes
The proposed rule would make a number of changes to provisions in
the current Bank housing goals regulation that address which mortgages
count for purposes of the housing goals. The proposed rule would revise
the Bank housing goals regulation to: (a) Permit mortgages guaranteed
or insured by a department or agency of the U.S. government to count
for purposes of the Bank housing goals; (b) address the treatment of
participations among different Banks under the Bank housing goals; and
(c) remove provisions related to Home Ownership and Equity Protection
Act (HOEPA) mortgages and mortgages with unacceptable terms and
conditions.
A. Counting Requirements for Federally Backed Mortgages
The proposed rule would revise the existing Bank housing goals
regulation to allow mortgages guaranteed or insured by a department or
agency of the U.S. government to count for purposes of the Bank housing
goals.
The Enterprise housing goals are defined by statute to include only
conventional loans, i.e., those that are not government-backed. The
existing Bank housing goals regulation includes the same provisions
excluding loans guaranteed or insured by a department or agency of the
U.S. government from counting for purposes of the Bank housing goals.
The proposed rule would change this provision so that these mortgages
would be counted for purposes of the Bank housing goals. Non-
conventional loans would continue to be excluded from the Enterprise
housing goals.
Federal Housing Administration (FHA), Veterans Administration (VA),
and Rural Housing Service (RHS) provide mortgage options that can help
lower-income borrowers and borrowers in low-income areas achieve
homeownership, for instance, with lower down payments. Some lenders--
and particularly smaller lenders--may lack the economy of scale needed
for efficiently participating in multiple secondary market options.
Some depositories have dropped federally backed mortgages from their
product lines, while nonbanks--which are generally ineligible to be
members--originate an increasing share of this market.\20\ For many
PFIs, the Banks are their preferred means of access to the secondary
market because of the high level of service Bank staff provide and the
longstanding member relationships. Allowing small institutions to use
their preferred secondary market channel along with government backing
through FHA, VA, or RHS means those institutions do not have to choose
between secondary market executions and loan type and can therefore
better serve their borrowers.
---------------------------------------------------------------------------
\20\ According to Ginnie Mae, nonbanks' overall share of Ginnie
Mae MBS issuances more than doubled from 36 percent in early 2013 to
over 77 percent as of November 2016. See Ginnie Mae, ``The Role of
Nonbanks in Expanding Access to Credit,'' 3 (Jan. 2017), available
at https://www.ginniemae.gov/newsroom/publications/Documents/expand_role_nonbanks.pdf. See also Christopher Whalen, ``No good
reason for banks to offer more government-backed mortgages,''
American Banker (Jan. 22, 2018), available at https://www.americanbanker.com/opinion/no-good-reason-for-banks-to-offer-more-government-backed-mortgages.
---------------------------------------------------------------------------
The Banks acquire federally backed mortgages through products under
both the MPF and MPP programs. Under the MPF program, the Banks acquire
federally backed loans for their ``MPF Government'' and ``MPF
Government MBS'' products. With ``MPF Government,'' the Bank serves as
investor and holds the loans on its balance sheet. With ``MPF
Government MBS,'' the Bank essentially serves as an aggregator,
purchasing federally backed mortgages (MPF Government loans) and then
issuing Ginnie Mae securities backed by the mortgages.
The Banks' purchases of federally backed mortgages have varied
greatly. In 2017, the Bank System's purchases of federally backed loans
represented 10 percent of total AMA loans (less than 8 percent measured
by UPB), but the purchases by individual Banks ranged from 0 percent to
100 percent, as detailed in the Table 7 below:
[[Page 55126]]
[GRAPHIC] [TIFF OMITTED] TP02NO18.017
The proposed rule would simplify the rules under which mortgages
may be counted by including purchases of federally backed mortgages
under AMA products. This approach would also complement FHFA's AMA
regulation, provide better secondary market execution for many PFIs,
and support the needs of underserved borrowers.
B. Counting Participations
The current Bank housing goals regulation does not explicitly
address the treatment of ``participations.'' A participation exists
where two or more institutions each acquire a percentage interest in a
mortgage. The proposed rule would incorporate existing FHFA guidance on
the treatment of participations into the regulation.
FHFA has addressed the Bank housing goals treatment of
participations under two different scenarios. Under the first scenario,
a Bank would purchase a mortgage and later sell a participation
interest in the mortgage to another Bank. FHFA addressed this scenario
in the Supplementary Information to the 2010 final rule establishing
the Bank housing goals. In this scenario, FHFA stated that ``each
mortgage will be assigned to the Bank that initially acquired the
mortgage regardless of whether an interest in the mortgage was later
sold to another Bank.'' \21\ The proposed rule would codify in the
regulation that participations among Banks that are executed after the
mortgage was first acquired by a Bank should not be counted as
``mortgage purchases'' for purposes of the Bank housing goals
regulation. This exclusion would apply even if the participation were
executed on the same day as the original acquisition by a Bank.
---------------------------------------------------------------------------
\21\ See 75 FR 81096, 81103 (Dec. 27, 2010), available at
https://www.gpo.gov/fdsys/pkg/FR-2010-12-27/pdf/2010-32350.pdf.
---------------------------------------------------------------------------
Under a second scenario, two or more Banks would each purchase
participation interests in the same mortgage simultaneously. FHFA has
interpreted the existing Bank housing goals regulation to require that
such transactions be counted on a pro rata basis according to each
Bank's percentage interests in the mortgage. The proposed rule would
codify in the regulation that participations among Banks that are
entered simultaneously pursuant to an existing participation agreement
should be counted as ``mortgage purchases'' based on the pro rata
number of mortgages according to each Bank's percentage interests for
purposes of the Bank housing goals regulation.
C. HOEPA Mortgages and Mortgages With Unacceptable Terms and Conditions
The current Bank housing goals regulation counts purchases of
``HOEPA mortgages'' and ``mortgages with unacceptable terms and
conditions'' in the housing goals denominator, but makes them
ineligible for the numerator.\22\ This category generally encompasses
mortgages with excessive points and fees, the financing of single
premium, credit life insurance, and high prepayment penalties.\23\
---------------------------------------------------------------------------
\22\ See 12 CFR 1281.1.
\23\ Id.
---------------------------------------------------------------------------
FHFA has issued other guidance to the Banks covering purchases of
mortgages with predatory features or accepting such mortgages as
collateral for advances.\24\ The prohibition on goals eligibility in
the current regulation is largely redundant with that guidance, and the
Banks have demonstrated no interest in purchasing such mortgages. The
proposed rule would remove the restriction from the Bank housing goals
regulation. FHFA would instead rely on existing supervisory and
regulatory authorities and procedures to address any concerns about
particular types of mortgages.
---------------------------------------------------------------------------
\24\ See generally ``Federal Home Loan Bank Collateral for
Advances and Interagency Guidance on Nontraditional Mortgage
Products, Notice of study and recommendations and request for
comment,'' 74 FR 38618 (Aug. 4, 2009), available at https://www.gpo.gov/fdsys/pkg/FR-2009-08-04/pdf/E9-18545.pdf. In removing
the exclusion for ``mortgages with unacceptable terms and
conditions'' from the Enterprises' housing goals regulation, FHFA
noted that it ``has regulatory authority to directly prohibit
purchases by the Enterprises of any types of mortgages it determines
are unsuitable.'' See ``2015-2017 Enterprise Housing Goals,'' 80 FR
53392, 53427 (Sept. 3, 2015), available at https://www.gpo.gov/fdsys/pkg/FR-2015-09-03/pdf/2015-20880.pdf.
---------------------------------------------------------------------------
IX. Section-by-Section Analysis of Proposed Rule
The proposed rule would also revise other provisions of the Bank
housing goals regulation, as discussed below.
A. Changes to Definitions--Proposed Sec. 1281.1
The proposed rule includes changes to definitions used in the
current Bank housing goals regulation. The proposed rule would add new
definitions of ``AMA mortgage,'' ``AMA program,'' ``AMA user,'' ``CFI
asset cap,'' and ``community financial institution or CFI,'' and would
revise the definitions of ``dwelling unit,'' ``families in low-income
areas,'' ``median income,'' ``metropolitan area,'' ``mortgage,'' and
[[Page 55127]]
``non-metropolitan area.'' The proposed rule would also remove the
definitions of ``Acquired Member Assets (AMA) program,'' ``AMA-approved
mortgage,'' ``conforming mortgage,'' ``conventional mortgage,''
``HMDA,'' ``HOEPA mortgage,'' ``HUD,'' ``mortgage data,'' ``mortgage
with unacceptable terms or conditions,'' ``owner-occupied housing,''
``residential mortgage,'' and ``second mortgage.''
1. Definition of ``AMA Mortgage''
The current Bank housing goals regulation defines ``AMA-approved
mortgage'' as a mortgage that meets the requirements of an AMA program,
with cross-references to the Acquired Member Assets regulation (12 CFR
part 1268) and the New Business Activities regulation (12 CFR part
1272). The proposed rule would replace the term ``AMA-approved
mortgage'' with ``AMA mortgage'' as a technical, non-substantive
change. ``AMA mortgage'' is more consistent with typical usage for the
AMA program. In addition, because the proposed rule would define the
term ``AMA program'' by cross-referencing the Acquired Member Assets
regulation, it is not necessary to include additional cross-references
in the proposed definition of ``AMA mortgage.''
2. Definition of ``AMA program''
The current Bank housing goals regulation defines ``Acquired Member
Assets (AMA) program'' as a program that authorizes a Bank to hold
assets acquired from a member by a purchase or funding transaction
subject to the requirements of parts 1268 (Acquired Member Assets) and
1272 (New Business Activities). At the time the current Bank housing
goals regulation was adopted, the term ``AMA program'' was not a
defined term in the Acquired Member Assets regulation. A definition for
the term ``AMA program'' was added to the Acquired Member Assets
regulation in 2016.\25\ There is no substantive difference between the
definition of ``Acquired Member Assets (AMA) program'' under the Bank
housing goals regulation and the definition of ``AMA program'' under
the Acquired Member Assets regulation. The proposed rule would replace
the definition of ``Acquired Member Assets (AMA) program'' in the Bank
housing goals regulation with a new definition of ``AMA program'' that
would cross-reference the definition in the Acquired Member Assets
regulation.
---------------------------------------------------------------------------
\25\ 12 CFR 1268.1.
---------------------------------------------------------------------------
3. Definition of ``AMA user''
The proposed rule would add a new definition for the term ``AMA
user,'' to mean any participating financial institution from which a
Bank purchased at least one AMA mortgage during the year being
measured.
The Acquired Member Assets regulation generally defines
``participating financial institution'' as a member or housing
associate of a Bank that is authorized to sell, credit enhance, or
service mortgage loans to or for a Bank through an AMA program. This
definition includes all members that are authorized to sell mortgages
through an AMA program, regardless of whether the member actually sells
such a mortgage in any particular year. The proposed rule would define
the term ``AMA user'' more narrowly than the definition of a
participating financial institution. An ``AMA user'' would be defined
as a participating financial institution from which the Bank purchased
at least one AMA mortgage during the year being measured. The proposed
new small member participation housing goal would be limited only to
AMA users, i.e., those participating financial institutions that sold
at least one mortgage loan to the Bank in question in the year being
measured.
4. Definition of ``CFI Asset Cap''
The proposed rule would add a new definition for the term ``CFI
asset cap.'' The proposed rule would define the term ``CFI asset cap''
to have the same meaning as defined in the Bank membership
regulation.\26\ The term ``CFI asset cap'' is defined in the Bank
membership regulation to mean $1 billion, as adjusted annually by FHFA
based on changes in the Consumer Price Index.
---------------------------------------------------------------------------
\26\ See 12 CFR 1263.1.
---------------------------------------------------------------------------
The new small member participation housing goal would measure the
percentage of AMA users for a Bank with assets that are below the CFI
asset cap. The proposed rule would define the term ``CFI asset cap'' by
cross-referencing the existing definition in the Bank membership
regulation.
5. Definition of ``Community Financial Institution or CFI''
The proposed rule would add a new definition for the term
``community financial institution or CFI.'' The proposed rule would
define the term ``community financial institution or CFI'' to have the
same meaning as defined in the Bank membership regulation.\27\ The term
``community financial institution or CFI'' is defined in the Bank
membership regulation to mean an institution (1) the deposits of which
are insured under the Federal Deposit Insurance Act (12 U.S.C. 1811 et
seq.); and (2) the total assets of which, as of the date of a
particular transaction, are less than the CFI asset cap, with total
assets being calculated as an average of total assets over three years,
with such average being based on the institution's regulatory financial
reports filed with its appropriate regulator for the most recent
calendar quarter and the immediately preceding 11 calendar quarters.
The proposed rule would define the term ``community financial
institution or CFI'' by cross-referencing the existing definition in
the Bank membership regulation.
---------------------------------------------------------------------------
\27\ Id.
---------------------------------------------------------------------------
6. Definition of ``Conforming Mortgage''
The current Bank housing goals regulation defines ``conforming
mortgage'' as a conventional, AMA-approved single-family mortgage with
an original principal obligation that does not exceed the dollar
limitation under the Acquired Member Assets regulation or under the
Freddie Mac conforming loan limits. The Bank housing goals are already
limited to purchases of mortgages under AMA programs, which include
limits on the size of mortgages that can be purchased by a Bank. It is
not necessary for the Bank housing goals to include a separate limit on
the size of mortgages that may be counted for purposes of the Bank
housing goals. The proposed rule would remove the definition of
``conforming mortgage'' from the Bank housing goals regulation as
unnecessary.
7. Definition of ``Conventional Mortgage''
The current Bank housing goals regulation defines ``conventional
mortgage'' as any mortgage that does not include a guaranty, insurance
or other obligation by the United States or any of its agencies or
instrumentalities. The definition of ``conventional mortgage'' is
included in the Bank housing goals regulation because the Bank housing
goals are currently limited to conventional mortgages. The proposed
rule would expand the coverage of the Bank housing goals to include all
AMA mortgages, including both conventional mortgages and non-
conventional mortgages. Because the proposed rule would no longer limit
the Bank housing goals to conventional mortgages, the proposed rule
would remove the definition of ``conventional mortgage'' from the Bank
housing goals regulation as unnecessary.
[[Page 55128]]
8. Definition of ``Dwelling Unit''
The current Bank housing goals regulation defines ``dwelling unit''
to mean a room or unified combination of rooms intended for use, in
whole or in part, as a dwelling by one or more persons, and includes a
dwelling unit in a single-family property, multifamily property, or
other residential or mixed-use property. In its 2015 final rule
amending the Enterprise housing goals regulation, FHFA revised the
analogous definition in the Enterprise housing goals regulation to
exclude a combination of rooms without plumbing or kitchen
facilities.\28\ The proposed rule would revise the definition of
``dwelling unit'' to align with the definition of ``dwelling unit''
provided in the Enterprise housing goals regulation.
---------------------------------------------------------------------------
\28\ See 80 FR 53392 (Sept. 3, 2015), codified at 12 CFR 1282.1.
---------------------------------------------------------------------------
9. Definition of ``Families in Low-income Areas''
The current Bank housing goals regulation defines ``families in
low-income areas'' to mean (1) any family that resides in a census
tract or block numbering area in which the median income does not
exceed 80 percent of the area median income; (2) any family with an
income that does not exceed area median income that resides in a
minority census tract; and (3) any family with an income that does not
exceed area median income that resides in a designated disaster area.
In its 2015 final rule amending the Enterprise housing goals
regulation, FHFA amended the analogous provision in the Enterprise
housing goals regulation (12 CFR 1282.1) by removing the reference to
``block numbering areas'' to conform to the terminology used by the
U.S. Census Bureau.\29\ The proposed rule would amend the Bank housing
goals regulation by making a conforming revision to the definition of
``families in low-income areas.''
---------------------------------------------------------------------------
\29\ Id. at 53423.
---------------------------------------------------------------------------
10. Definition of ``HMDA''
The current Bank housing goals regulation defines ``HMDA'' as the
Home Mortgage Disclosure Act of 1975, as amended. The definition of
``HMDA'' is included in the current Bank housing goals regulation
because the Bank housing goals are currently evaluated based on a
retrospective market measurement calculated using HMDA data. The
proposed rule would remove the retrospective market measurement from
the Bank housing goals and instead establish goal levels prospectively
in the regulation. Because the proposed rule would no longer include a
market calculation based on HMDA data, the proposed rule would remove
the definition of ``HMDA'' from the Bank housing goals regulation as
unnecessary.
11. Definition of ``HOEPA Mortgage''
The current Bank housing goals regulation defines ``HOEPA
mortgage'' as a mortgage covered by the definition of ``high-cost
mortgage'' under the Truth in Lending Act. The definition of ``HOEPA
mortgage'' is included in the current Bank housing goals regulation
because the Bank housing goals do not allow HOEPA mortgages to be
counted toward achievement of the Bank housing goals. The proposed rule
would remove the provision excluding HOEPA mortgages from counting for
purposes of the Bank housing goals. Therefore, the proposed rule would
remove the definition of ``HOEPA mortgages'' from the Bank housing
goals regulation as unnecessary.
12. Definition of ``HUD,'' ``Median Income,'' ``Metropolitan Area,''
and ``Non-Metropolitan Area''
The current Bank housing goals regulation defines ``median
income,'' with respect to an area, as the unadjusted median family
income for the area as determined by HUD. The current definition
further provides that FHFA will provide the Banks annually with
information specifying how the median family income estimates for
metropolitan areas are to be applied for the purposes of determining
median family income. FHFA's practice is to calculate the applicable
median income figures for both metropolitan and non-metropolitan areas
and to provide the median income information to the Banks. The proposed
rule would align the definition of ``median income'' with FHFA's
practice, by revising it to mean, with respect to an area, the
unadjusted median family income for the area as determined by FHFA. The
proposed rule would also revise the definition to provide that FHFA
will provide the Banks 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.
The current Bank housing goals regulation defines ``metropolitan
area'' as a metropolitan statistical area (MSA), or a portion of such
an area, including Metropolitan Divisions, for which median family
income estimates are determined by HUD. The regulation defines ``non-
metropolitan area'' as a county, or a portion of a county, including
those counties that comprise Micropolitan Statistical Areas, located
outside any metropolitan area for which median family income estimates
are published annually by HUD. The proposed rule would align the
definition of ``metropolitan area'' with FHFA's practice by revising it
to mean an MSA, or a portion of such an area, including Metropolitan
Divisions, for which median incomes are determined by FHFA. The
proposed rule would align the definition of ``non-metropolitan area''
with FHFA's practice by revising it to mean 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.
The current Bank housing goals regulation defines ``HUD'' as the
United States Department of Housing and Urban Development. The term
``HUD'' is used only in the definitions of ``median income,''
``metropolitan area,'' and ``non-metropolitan area'' in the current
Bank housing goals regulation. The proposed rule would revise those
definitions to remove each reference to ``HUD,'' and the proposed rule
would therefore remove the definition of ``HUD'' from the Bank housing
goals regulation as unnecessary.
13. Definition of ``Mortgage''
The current Bank housing goals regulation defines ``mortgage'' to
include all loans secured by real estate and any interests in such
mortgages. The current definition is based on the definition of
``mortgage'' in the Enterprise housing goals regulation and excludes
chattel loans on manufactured housing. The proposed rule would revise
the definition of ``mortgage'' in the Bank housing goals regulation to
include chattel loans on manufactured housing. The AMA regulation
allows the Banks to acquire chattel loans on manufactured housing.
Adding such loans to the definition of ``mortgage'' in the Bank housing
goals regulation would further align the coverage of the Bank housing
goals with the AMA regulation and would make it easier for the Banks to
assess their own housing goals performance during the year. Chattel
mortgages on manufactured housing are a significant means by which
lower-income households obtain housing, and are therefore appropriate
to be included in the Bank housing goals calculation.
14. Definition of ``Mortgage With Unacceptable Terms or Conditions''
The current Bank housing goals regulation defines ``mortgage with
unacceptable terms or conditions'' as a
[[Page 55129]]
mortgage that has one or more of a series of terms or conditions that
FHFA determined to be harmful to borrowers. The definition of
``mortgage with unacceptable terms or conditions'' is included in the
current Bank housing goals regulation because the Bank housing goals do
not allow mortgages with unacceptable terms or conditions to be counted
toward achievement of the Bank housing goals. The proposed rule would
remove the provision excluding mortgages with unacceptable terms or
conditions from counting for purposes of the Bank housing goals.
Therefore, the proposed rule would remove, as unnecessary, the
definition of ``mortgage with unacceptable terms or conditions'' from
the Bank housing goals regulation.
15. Definition of ``Owner-Occupied Housing''
The current Bank housing goals regulation defines ``owner-occupied
housing'' as single-family housing in which a mortgagor resides,
including two- to four-unit owner-occupied properties where one or more
units are used for rental purposes. The definition of ``owner-occupied
housing'' is included in the Bank housing goals regulation because the
Bank housing goals are currently limited to mortgages on owner-occupied
housing. The proposed rule would expand the coverage of the Bank
housing goals to include all AMA mortgages, including mortgages on
owner-occupied and investor-owned single-family properties. The
proposed rule would not establish separate criteria for evaluating
whether a mortgage on an investor-owned property could be counted for
purposes of the housing goals. Any such mortgages would be evaluated
based on the income of the mortgagor in the same manner as the
evaluation of a mortgage on an owner-occupied property. Because the
proposed rule would no longer limit the Bank housing goals to mortgages
on owner-occupied housing, the proposed rule would remove the
definition of ``owner-occupied housing'' from the Bank housing goals
regulation as unnecessary.
16. Definition of ``Residential Mortgage''
The current Bank housing goals regulation defines ``residential
mortgage'' as a mortgage on single-family housing. The term
``residential mortgage'' is not used anywhere else in the current Bank
housing goals regulation, and the proposed rule would not include any
use of the term either. The proposed rule would remove the definition
of ``residential mortgage'' from the Bank housing goals regulation as
unnecessary.
17. Definition of ``Second Mortgage''
The current Bank housing goals regulation defines ``second
mortgage'' as any mortgage that has a lien position subordinate only to
the lien of the first mortgage. This term is used in Sec.
1281.13(b)(8), which provides that ``purchases of subordinate lien
mortgages (second mortgages),'' do not count for purposes of housing
goals credit. The proposed rule would clarify that this prohibition
would apply to all mortgages that are subordinate to the first
mortgages, not only second mortgages. Because ``second mortgage'' would
no longer appear in the regulation, this definition is unnecessary and
would be removed.
B. Changes to General--Proposed Sec. 1281.10
The proposed rule would revise Sec. 1281.10 to reflect the new
housing goals that would be defined by the proposed rule.
The current regulation states that the subpart establishes three
single-family housing goals for purchase money mortgages and one
single-family housing goal for refinancing mortgages. The current
regulation also states that the subpart establishes a volume threshold
for the Bank housing goals.
The proposed rule would revise the structure of the Bank housing
goals to remove the volume threshold and to replace the existing
housing goals with a new prospective mortgage purchase housing goal and
a new small member participation housing goal. The proposed rule would
revise Sec. 1281.10 to reflect these changes.
C. Changes to Bank Housing Goals--Proposed Sec. Sec. 1281.11 and
1281.14
The proposed rule would revise Sec. 1281.11 to define the new
prospective mortgage purchase housing goal and small member
participation housing goal, and would make conforming changes to Sec.
1281.14.
The current regulation establishes three single-family housing
goals for purchase money mortgages and one single-family housing goal
for refinancing mortgages. The proposed rule would revise Sec. 1281.11
in its entirety to replace the existing Bank housing goals with two new
housing goals: a prospective mortgage purchase housing goal and a small
member participation housing goal.
The current regulation establishes a volume threshold that a Bank
must exceed before it is subject to the housing goals. The threshold is
$2.5 billion in unpaid principal balance in a single year. The proposed
rule would remove the volume threshold provision so that the new Bank
housing goals would apply to each Bank regardless of the volume of AMA
mortgages purchased by the Bank. The proposed rule would also make a
conforming change to Sec. 1281.14(a) by eliminating Bank volume
thresholds as a consideration in determining whether the Director
evaluates annual performance of Bank performance under each housing
goal.
The current regulation establishes criteria for determining the
target level for each goal based on HMDA data for the year being
measured, i.e., retrospectively. The proposed rule would define the
prospective mortgage purchase housing goal as the percentage of a
Bank's AMA mortgages acquired during the calendar year that are for
very low-income families, low-income families, or families in low-
income areas. The proposed rule would establish a target level of 20
percent for the prospective mortgage purchase housing goal. The
proposed rule would also require that at least 75 percent of the
mortgages that are counted toward a Bank's achievement of the
prospective mortgage purchase housing goal must be for low-income or
very low-income families.
The proposed rule would define the small member participation
housing goal as the percentage of AMA users with assets that do not
exceed the CFI asset cap. The proposed rule would establish the target
level for the small member participation housing goal as the lesser of
50 percent or 300 basis points greater than the percentage of the
Bank's AMA users with assets that do not exceed the CFI cap from the
preceding year.
The proposed rule would also establish a process for a Bank to
propose a different target level for the prospective mortgage purchase
housing goal, the small member participation housing goal, or both. The
proposed rule would require that this Bank-specific housing goal
proposal be submitted to FHFA by October 31, 2019, and by October 31
every third year thereafter, or at some other appropriate time as may
be determined by FHFA, for example if a Bank, in the middle of a three-
year cycle, resumes purchasing AMA mortgages under a dormant AMA
program. The proposed rule would require that a Bank-specific housing
goal proposal include proposed targets for each of the three years
following the year in which the Bank's proposal is submitted, and that
the proposal include a detailed explanation of (i) why the
corresponding housing goal
[[Page 55130]]
provided in the regulation is infeasible, (ii) why the proposed goal is
achievable, and (iii) how the proposed goal meaningfully furthers
affordable housing mortgage lending in the Bank's district.
D. Changes to General Counting Eequirements--Proposed Sec. 1281.12
The current Bank housing goals regulation defines the ``numerator''
and ``denominator'' used to calculate performance under the current
housing goals. The new housing goals are clearly defined in the
proposed rule. The proposed rule would delete paragraph (a) as
unnecessary in light of the mortgage goal calculation standards
reflected in proposed Sec. 1281.11. The current Bank housing goals
regulation also provides that mortgages with missing data or
information necessary for counting would be included in the denominator
when calculating a Bank's performance, but not in the numerator. This
effectively penalizes a Bank's performance by treating mortgages with
missing data or information as if they were loans that did not meet the
applicable criteria. The proposed rule would remove paragraph (b)(1),
so that mortgages with missing data or information would be disregarded
for purposes of measuring a Bank's performance on the housing goals.
Finally, paragraph (c), which provides that a mortgage may only count
once towards achievement of a current housing goal even if it satisfies
more than one goal, would be redesignated as paragraph (b) and revised
to permit each mortgage to be counted only once toward achievement of
the prospective mortgage purchase housing goal, even if it satisfies
multiple criteria. The changes to this paragraph would be consistent
with the revised structure of the prospective mortgage purchase housing
goal established in proposed Sec. 1281.11. The proposed rule would
make conforming redesignations of paragraphs throughout the remainder
of Sec. 1281.12.
E. Changes to Special Counting Requirements--Proposed Sec. 1281.13
Paragraph (b) of Sec. 1281.13 currently enumerates categories of
transactions or activities that are not counted for purposes of the
housing goals and are not included in the numerator or the denominator
in calculating a Bank's housing goals performance. The proposed rule
would amend this paragraph by removing the references to ``numerator''
and ``denominator.'' This language would be unnecessary in light of the
simplified calculation methodology provided in proposed Sec. 1281.11.
Paragraph (b)(1) currently excludes non-conventional single family
mortgages from counting towards housing goals credit. The proposed rule
would allow loans guaranteed or insured by a department or agency of
the U.S. government to count towards housing goals credit for the
prospective mortgage purchase housing goal. Paragraph (b)(1) would be
revised to codify FHFA's current treatment of mortgage participation
interests. The proposed rule would exclude participation interests in
AMA mortgages that are purchased from another Bank, except where two or
more Banks acquire a participation interest in the same mortgage
simultaneously. The proposed rule would add new paragraph (e) to
clarify that where two or more Banks acquire a participation interest
in the same mortgage simultaneously, the mortgage would be counted on a
pro rata basis for each Bank.
Paragraph (b)(8) would be revised to clarify that all mortgages
which are subordinate to the first mortgage are excluded from counting
for purposes of the Bank housing goals.
F. Changes to Determination of Compliance With Housing Goals; Notice of
Determination--Proposed Sec. 1281.14
The proposed rule would amend Sec. 1281.14(a) by removing the
reference to the volume threshold, which would be moot in light of the
threshold's elimination under proposed Sec. 1281.11. The proposed rule
would also amend Sec. 1281.14(a) to require that FHFA publish the
annual determination of compliance. The proposed rule would describe
the data that would be included in the published determination.
G. Changes to Housing Plans--Proposed Sec. 1281.15
The proposed rule would revise Sec. 1281.15 to provide that the
Director may only require that a Bank submit a housing plan for any
year after 2021. This would reflect the phase-in period for the new
housing goals, eliminating possibility of a housing plan during the
first two years in which the proposed prospective and small member
participation housing goals are operative. Because a Bank may be
required to submit a housing plan while awaiting FHFA's response to a
Bank-specific housing goal proposal, the proposed rule would amend
Sec. 1281.15 by adding new paragraph (b)(5) to require that the
housing plan address any Bank-specific housing goals the Bank is
proposing.
H. Changes to Reporting Requirements--Proposed Sec. Sec. 1281.1 and
1281.20.
The proposed rule would revise Subpart C to simplify and clarify
the reporting requirements for the Banks under the new housing goals.
The current Bank housing goals regulation sets out a number of
specific reporting requirements for the Banks. Section 1281.20 of the
current regulation describes the matters that are covered by Subpart C,
``Reporting Requirements.'' Section 1281.21 of the current regulation
describes the reporting requirements including the required timing and
format of the data to be submitted. Section 1281.22 of the current
regulation permits FHFA to require additional reports, information, and
data as it determines appropriate. Finally, Sec. 1281.23 of the
current regulation requires a senior officer of each Bank to certify
the data submitted under the Bank housing goals regulation and allows
FHFA to address errors, omissions or discrepancies in data reported by
a Bank by adjusting the Bank's official housing goals performance
figures and in certain circumstances increasing a Bank's housing goal
in a later year.
The proposed rule would revise the reporting requirements in
Subpart C to reflect the new housing goals structure and to eliminate
provisions that are either duplicative of or potentially inconsistent
with the existing Bank reporting requirements under FHFA's Data
Reporting Manual (DRM). The DRM is issued by FHFA containing reporting
requirements for the Banks and is amended from time to time. The DRM
includes detailed requirements about the data elements that the Banks
must report and the timing and format of the required reporting. The
proposed rule would remove reporting requirements from the Bank housing
goals regulation that are duplicative of and potentially inconsistent
with the DRM.
The proposed rule would consolidate the four sections that
currently exist in Subpart C of the Bank housing goals regulation into
a single section. Sections 1281.21, 1281.22 and 1281.23 would be
removed from the regulation. Section 1281.20 would include the new
reporting requirements for the Bank housing goals regulation. As
revised, Sec. 1281.20(a) would require the Banks to submit to FHFA any
data that FHFA determines to be necessary to evaluate transactions and
activities under the Bank housing goals. Section 1281.20(b)
[[Page 55131]]
and (c) would set out the data reporting requirements for the
prospective mortgage purchase housing goal and the small member
participation housing goal, respectively, and would require such
submissions to be made in accordance with the DRM. Section 1281.20(d)
would continue to permit FHFA to require a Bank to provide such
additional reports, information, and data as FHFA may request from time
to time.
In addition to the above clarifications of the existing Bank
reporting requirements, the proposed rule would also remove the
provision in the current Bank housing goals regulation that addresses
errors, omissions or discrepancies in the data reported by a Bank. This
provision is unnecessary in light of FHFA's existing supervisory and
regulatory authorities and procedures, and the proposed rule would
remove the provision.
Finally, the proposed rule would remove the definition of
``mortgage data'' from Sec. 1281.1. The current Bank housing goals
regulation defines ``mortgage data'' as data obtained from the Banks
under the Data Reporting Manual. The revisions to the reporting
requirements in Subpart C would remove all references to the term
``mortgage data.'' The proposed rule would therefore remove the
definition of ``mortgage data'' from the Bank housing goals regulation
as unnecessary.
X. Considerations of Differences Between the Banks and the Enterprises
When promulgating regulations relating to the Banks, section
1313(f) of the Safety and Soundness Act requires the Director of FHFA
to consider the differences between the Banks and the Enterprises with
respect to the Banks' cooperative ownership structure; mission of
providing liquidity to members; affordable housing and community
development mission; capital structure; and joint and several
liability. FHFA, in preparing this proposed rule, considered the
differences between the Banks and the Enterprises as they relate to the
above factors. FHFA also considered these differences in light of
section 10C of the Bank Act, which requires that the Bank housing goals
be consistent with the Enterprise housing goals, with consideration of
the unique mission and ownership structure of the Banks.\30\ FHFA
requests comments from the public about whether these differences
should result in any revisions to the proposed rule.
---------------------------------------------------------------------------
\30\ See 12 U.S.C. 1430c.
---------------------------------------------------------------------------
XI. Paperwork Reduction Act
The proposed rule would not contain any information collection
requirement that would require the approval of OMB under the Paperwork
Reduction Act (44 U.S.C. 3501 et seq.). Therefore, FHFA has not
submitted any information to OMB for review.
XII. 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 the Federal
Home Loan Banks, which are not small entities for purposes of the
Regulatory Flexibility Act.
List of Subjects in 12 CFR Part 1281
Credit, Federal home loan banks, Housing, Mortgages, Reporting and
recordkeeping requirements.
Authority and Issuance
For the reasons stated in the SUPPLEMENTARY INFORMATION, under the
authority of 12 U.S.C. 4526, FHFA proposes to amend part 1281 of Title
12 of the Code of Federal Regulations as follows:
CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY
SUBCHAPTER E--HOUSING GOALS AND MISSION
PART 1281--FEDERAL HOME LOAN BANK HOUSING GOALS
0
1. Revise the authority citation for part 1281 to read as follows:
Authority: 12 U.S.C. 1430, 1430b, 1430c, 1431.
0
2. Amend Sec. 1281.1 by:
0
a. Removing the definitions of ``Acquired Member Assets (AMA) program''
and ``AMA-approved mortgage'';
0
b. Adding definitions for ``AMA mortgage'', ``AMA program'', and ``AMA
user'' in alphabetical order;
0
c. Removing the definitions of ``Conforming mortgage'' and
``Conventional mortgage'';
0
d. Adding definitions for ``CFI asset cap'' and ``Community financial
institution or CFI'' in alphabetical order;
0
e. Revising the definition of ``Dwelling unit'' and paragraph (1) of
the definition of ``Families in low-income areas'';
0
f. Removing the definitions of ``HMDA'', ``HOEPA mortgage'', and
``HUD'';
0
g. Revising the definitions of ``Median income'', ``Metropolitan
area'', and ``Mortgage'';
0
h. Removing the definitions of ``Mortgage data'' and ``Mortgage with
unacceptable terms or conditions'';
0
i. Revising the definition of ``Non-metropolitan area''; and
0
j. Removing the definitions of ``Owner-occupied housing'',
``Residential mortgage'', and ``Second mortgage''.
The revisions and additions read as follows:
Sec. 1281.1 Definitions.
* * * * *
AMA mortgage means a mortgage that was purchased by a Bank under an
AMA program.
AMA program has the meaning set forth in Sec. 1268.1 of this
chapter.
AMA user means any participating financial institution, as defined
in Sec. 1268.1 of this chapter, from which the Bank purchased at least
one AMA mortgage during the year for which the housing goals are being
measured.
* * * * *
CFI asset cap has the meaning set forth in Sec. 1263.1 of this
chapter.
Community financial institution or CFI has the meaning set forth in
Sec. 1263.1 of this chapter.
* * * * *
Dwelling unit means a room or unified combination of rooms with
plumbing and kitchen facilities intended for use, in whole or in part,
as a dwelling by one or more persons, and includes a dwelling unit in a
single-family property, multifamily property, or other residential or
mixed-use property.
Families in low-income areas * * *
(1) Any family that resides in a census tract in which the median
income does not exceed 80 percent of the area median income;
* * * * *
Median income means, with respect to an area, the unadjusted median
family income for the area as determined by FHFA. FHFA will provide the
Banks annually with information specifying how the median family income
estimates for
[[Page 55132]]
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.
* * * * *
Mortgage means a member of such classes of liens, including
subordinate liens, as are commonly given or are legally effective to
secure advances on, or the unpaid purchase price of, real estate under
the laws of the State in which the real estate is located, or a
manufactured home that is personal property under the laws of the State
in which the manufactured home is located, together with the credit
instruments, if any, secured thereby, and includes interests in
mortgages. Mortgage includes a mortgage, lien, including a subordinate
lien, or other security interest on the stock or membership certificate
issued to a tenant-stockholder or resident-member by a cooperative
housing corporation, as defined in section 216 of the Internal Revenue
Code of 1986, and on the proprietary lease, occupancy agreement, or
right of tenancy in the dwelling unit of the tenant-stockholder or
resident-member in such cooperative housing corporation.
* * * * *
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. Amend Sec. 1281.10 by revising paragraphs (a) and (b) to read as
follows:
Sec. 1281.10 General.
* * * * *
(a) A prospective mortgage purchase housing goal;
(b) A small member participation housing goal;
* * * * *
0
4. Revise Sec. 1281.11 to read as follows:
Sec. 1281.11 Bank housing goals.
(a) Prospective mortgage purchase housing goal. For each calendar
year, the percentage of a Bank's AMA mortgages acquired during the
calendar year that are for very low-income families, low-income
families, or families in low-income areas must meet or exceed either:
(1) 20 percent; or
(2) A percentage target approved under paragraph (d) of this
section.
(b) Cap on low-income areas loans counted toward goal. At least 75
percent of the mortgages that are counted toward a Bank's achievement
of the prospective mortgage purchase housing goal must be for low-
income or very low-income families.
(c) Small member participation housing goal. For each calendar
year, the percentage of all AMA users that are AMA users with assets
that do not exceed the CFI asset cap must meet or exceed either:
(1) 50 percent;
(2) A percentage that is three percentage points greater than the
percentage of the Bank's AMA users with assets that do not exceed the
CFI cap from the preceding year; or
(3) A percentage target approved under paragraph (d) of this
section.
(d) Bank-specific housing goals. (1) A Bank may submit a written
request for FHFA approval of different target percentages for the
prospective mortgage purchase housing goal, the small member
participation housing goal, or both. A Bank request under this
paragraph must include proposed target percentages for three
consecutive years following the calendar year in which the proposal is
submitted. A Bank is not required to propose the same target percentage
for each of the three years.
(2) A Bank's request under this paragraph must include a detailed
explanation of:
(i) Why the goal in paragraphs (a) and (b) of this section, as
applicable, is infeasible;
(ii) Why the Bank's proposed goal is achievable; and
(iii) How the Bank's proposed goal meaningfully furthers affordable
housing mortgage lending in its district.
(3) A proposal under this paragraph may only be submitted once
every three years, or under the circumstances described in paragraph
(d)(4) of this section. The deadline for submitting a proposal under
this section is October 31, 2019, and October 31 for every third year
after 2019. FHFA will review each Bank proposal that is received by the
deadline and will notify the Bank in writing if the Bank proposal is
approved. If FHFA does not notify a Bank that its proposal is approved,
the Bank will remain subject to the percentage goals in paragraphs (a)
and (b) of this section, as applicable.
(4) FHFA may require a Bank to propose a target percentage for
either or both housing goals to address discontinuation of an AMA
program or approval of a new AMA program.
0
5. Revise Sec. 1281.12 to read as follows:
Sec. 1281.12 General counting requirements.
(a) General. Mortgage purchases financing single-family properties
shall be evaluated based on the income of the mortgagors and the area
median income at the time the mortgage was originated. To determine
whether mortgages may be counted under a particular family income level
(i.e., low- or very low-income), the income of the mortgagor is
compared to the median income for the area at the time the mortgage was
originated, using the appropriate percentage factor provided under
Sec. 1281.1.
(b) No double-counting. A mortgage may be counted only once toward
the achievement of the prospective mortgage purchase housing goal, even
if it satisfies multiple criteria for the prospective mortgage purchase
housing goal.
(c) Application of median income. For purposes of determining an
area's median income under Sec. 1281.1, the area is:
(1) The metropolitan area, if the residence that secures 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.
(d) Sampling not permitted. Performance under the housing goals for
each year shall be based on a tabulation of each mortgage during that
year; a sampling of such purchases is not acceptable.
0
6. Amend Sec. 1281.13 by:
0
a. Revising the introductory text of paragraph (b);
0
b. Revising paragraphs (b)(1) and (b)(8);
0
c. Removing paragraph (d);
0
d. Redesignating paragraph (e) as paragraph (d); and
0
e. Adding new paragraph (e).
The revisions and additions read as follows:
Sec. 1281.13 Special counting requirements.
* * * * *
(b) Not counted. The following transactions or activities shall not
be counted for purposes of the housing goals, even if the transaction
or activity would otherwise be counted under paragraph (c) of this
section:
(1) Purchases of participation interests in AMA mortgages from
another Bank, except as provided in paragraph (e) of this section;
* * * * *
(8) Purchases of subordinate lien mortgages;
* * * * *
[[Page 55133]]
(e) Mortgage participation transactions. Where two or more Banks
acquire a participation interest in the same mortgage simultaneously,
the mortgage will be counted on a pro rata basis for the prospective
mortgage purchase housing goal for each Bank with a participation
interest.
0
7. Amend Sec. 1281.14 by revising paragraph (a) to read as follows:
Sec. 1281.14 Determination of compliance with housing goals; notice
of determination.
(a) Determination of compliance with housing goals. On an annual
basis, the Director shall determine each Bank's performance under each
housing goal and will publish the final determinations. FHFA will
publish its final determination including the numbers and percentages
for each Bank's AMA purchases that meet each of the housing goals
criteria, including loans to low-income families, loans to very low-
income families, and loans to families in low-income areas, including
by each of the defined categories. FHFA's determination will include
these numbers in total and separated into purchase money mortgages,
refinancing mortgages, conventional mortgages, and non-conventional
mortgages.
* * * * *
0
8. Amend Sec. 1281.15 by revising paragraphs (a) and (b) to read as
follows:
Sec. 1281.15 Housing plans.
(a) Housing plan requirement. For any year after 2021, if the
Director determines that a Bank has failed to meet any housing goal and
that the achievement of the housing goal was feasible, the Director may
require the Bank to submit a housing plan for approval by the Director.
(b) Nature of plan. If the Director requires a housing plan, the
housing plan shall:
(1) Be feasible;
(2) Be sufficiently specific to enable the Director to monitor
compliance periodically;
(3) Describe the specific actions that the Bank will take to
achieve the housing goal for the next calendar year;
(4) Address any additional matters relevant to the housing plan as
required, in writing, by the Director; and
(5) Address any Bank-specific housing goals the Bank is proposing.
* * * * *
0
9. Revise Subpart C to read as follows:
Subpart C--Reporting Requirements
Sec. 1281.20 Reporting requirements.
(a) General. Each Bank must collect and submit to FHFA any data
that FHFA determines to be necessary for FHFA to evaluate transactions
and activities under the Bank housing goals.
(b) Reporting for prospective mortgage purchase housing goal. Each
Bank must collect data on each AMA mortgage purchased by the Bank. The
data must include any data elements specified by FHFA. On no less
frequent than an annual basis, each Bank must submit such data to FHFA
in accordance with the DRM.
(c) Reporting for small member participation housing goal. Each
Bank must collect data on AMA user asset size. On no less frequent than
an annual basis, each Bank must submit such data to FHFA in accordance
with the DRM.
(d) Other reporting. Each Bank must provide to FHFA such additional
reports, information and data as FHFA may request from time to time.
Dated: October 29, 2018.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2018-23890 Filed 11-1-18; 8:45 am]
BILLING CODE 8070-01-P