[Federal Register Volume 87, Number 192 (Wednesday, October 5, 2022)]
[Proposed Rules]
[Pages 60331-60338]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-21404]
=======================================================================
-----------------------------------------------------------------------
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1282
RIN 2590-AB22
Enterprise Duty To Serve Underserved Markets Amendments
AGENCY: Federal Housing Finance Agency.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Federal Housing Finance Agency (FHFA or Agency) is
proposing to amend its Enterprise Duty to Serve Underserved Markets
regulation to add a definition of ``colonia census tract,'' which would
serve as a census tract-based proxy for a ``colonia,'' and to amend the
definition of ``high-needs rural region'' in the regulation by
substituting ``colonia census tract'' for ``colonia.'' The proposed
rule would also revise the definition of ``rural area'' in the
regulation to include all colonia census tracts regardless of their
location. These changes would make activities by the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
Corporation (Freddie Mac) (collectively, the Enterprises) in all
colonia census tracts eligible for Duty to Serve credit. The intent of
the changes is to facilitate the Enterprises' ability to operationalize
their Duty to Serve activities and thereby help increase liquidity in
these underserved communities.
DATES: FHFA will accept written comments on the proposed rule on or
before December 5, 2022.
ADDRESSES: You may submit your comments on the proposed rule,
identified by regulatory information number (RIN) 2590-AB22, by any one
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.
Include the following information in the subject line of your
submission: Comments/RIN 2590-AB22.
Hand Delivered/Courier: The hand delivery address is:
Clinton Jones,
[[Page 60332]]
General Counsel, Attention: Comments/RIN 2590-AB22, Federal Housing
Finance Agency, 400 Seventh Street SW, Washington, DC 20219. Deliver
the package at the Seventh Street, SW 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: Clinton Jones,
General Counsel, Attention: Comments/RIN 2590-AB22, Federal Housing
Finance Agency, 400 Seventh Street SW, Washington, DC 20219. Please
note that all mail sent to FHFA via U.S. Mail is routed through a
national irradiation facility, a process that may delay delivery by
approximately two weeks. For time sensitive correspondence, please plan
accordingly.
FOR FURTHER INFORMATION CONTACT: Ted Wartell, Associate Director,
Office of Housing and Community Investment, 202-649-3157,
[email protected]; Marcea Barringer, Supervisory Policy Analyst,
Office of Housing and Community Investment, 202-649-3275,
[email protected]; or Dinah Knight, Assistant General Counsel,
Office of General Counsel, (202) 748-7801, [email protected],
Federal Housing Finance Agency, 400 Seventh Street SW, Washington, DC
20219. These are not toll-free numbers. For TTY/TRS users with hearing
and speech disabilities, dial 711 and ask to be connected to any of the
contact numbers above.
SUPPLEMENTARY INFORMATION:
I. Comments and Access
FHFA invites comments on all aspects of the proposed rule, in
addition to specific requests for comments provided throughout, and
will take all comments into consideration before issuing a final rule.
Commenters do not need to answer each question. Copies of all comments
will be posted without change and will include any personal information
you provide such as your name, address, email address, and telephone
number, on the FHFA website at http://www.fhfa.gov. In addition, copies
of all comments received will be available for examination by the
public through the electronic rulemaking docket for this proposed rule
also located on the FHFA website.
II. Background
A. Statutory Background
The Federal Housing Enterprises Financial Safety and Soundness Act
of 1992 (Safety and Soundness Act) provides generally that the
Enterprises ``have an affirmative obligation to facilitate the
financing of affordable housing for low- and moderate income
families.\1\ Section 1129 of the Housing and Economic Recovery Act of
2008 (HERA) amended section 1335 of the Safety and Soundness Act to
establish a duty for the Enterprises to serve three specified
underserved markets in order to increase the liquidity of mortgage
investments and improve the distribution of investment capital
available for mortgage financing for certain categories of borrowers in
those markets.\2\ Specifically, the Enterprises are required to provide
leadership in developing loan products and flexible underwriting
guidelines to facilitate a secondary market for mortgages on housing
for very low-, low-, and moderate-income families for the manufactured
housing, affordable housing preservation, and rural housing markets.\3\
In addition, section 1335(d)(1) of the Safety and Soundness Act
requires FHFA to establish, by regulation, a method for evaluating and
rating the Enterprises' compliance with the Duty to Serve underserved
markets.\4\
---------------------------------------------------------------------------
\1\ See 12 U.S.C. 4501(7).
\2\ See 12 U.S.C. 4565.
\3\ See 12 U.S.C. 4565(a). The terms ``very low-income,'' ``low-
income,'' and ``moderate-income'' are defined in 12 U.S.C. 4502.
\4\ See 12 U.S.C. 4565(d)(1).
---------------------------------------------------------------------------
B. Duty To Serve Regulation and Policy Guidance
FHFA's regulation on the Enterprise Duty to Serve Underserved
Markets implements the Duty to Serve statutory requirements in the
Safety and Soundness Act.\5\ Under the regulation, each Enterprise is
required to prepare an Underserved Markets Plan (Plan) describing the
specific activities and objectives it will undertake to fulfill its
Duty to Serve in each underserved market over a three-year period.\6\
The regulation identifies specific types of activities that are
eligible to receive Duty to Serve credit and that an Enterprise may
include in its Plan.\7\ The regulation also provides a general
framework for FHFA to annually evaluate and rate the Enterprises'
compliance with their Duty to Serve.\8\
---------------------------------------------------------------------------
\5\ See 12 CFR part 1282, subpart C; 81 FR 96242 (Dec. 29,
2016).
\6\ See 12 CFR 1282.32(a), (b).
\7\ See 12 CFR 1282.33(c) for eligible activities in the
manufactured housing market; 12 CFR 1282.34(c), (d) for eligible
activities in the affordable housing preservation market; and 12 CFR
1282.35(c) for eligible activities in the rural housing market. An
Enterprise may include in its Plan other activities (referred to as
``Additional Activities'') to serve eligible households, subject to
FHFA determination of whether the Additional Activities are eligible
to receive Duty to Serve credit.
\8\ See 12 CFR 1282.36.
---------------------------------------------------------------------------
In addition to the regulation, FHFA has released, and periodically
updates, guidance addressing implementation and operational issues the
Enterprises have encountered while developing and executing their
Plans, referred to as the Evaluation Guidance.\9\ The Evaluation
Guidance describes: the procedures for preparing the Plans; the
standards for FHFA issuance of Non-Objections to the Plans; and the
process by which and standards for FHFA's annual evaluation of each
Enterprise's compliance with its Plan and FHFA's rating of the extent
of such compliance and its impact on each underserved market.\10\
---------------------------------------------------------------------------
\9\ See 12 CFR 1282.36(d).
\10\ The current Duty to Serve Evaluation Guidance is available
at: https://www.fhfa.gov/PolicyProgramsResearch/Programs/Documents/Evaluation-Guidance_2022-5.pdf.
---------------------------------------------------------------------------
Under the regulation, activities eligible for Duty to Serve credit
and for inclusion in the Plans for each underserved market are grouped
into three categories--Statutory Activities (which are specified in the
Safety and Soundness Act), Regulatory Activities (which are specified
in the regulation), and Additional Activities (which are proposed by an
Enterprise and subject to FHFA determination of whether they are
eligible to receive Duty to Serve credit). While no single Statutory or
Regulatory Activity is mandatory, an Enterprise is required to consider
a minimum number of Statutory or Regulatory Activities for each
underserved market, as designated by FHFA in the Evaluation
Guidance.\11\
---------------------------------------------------------------------------
\11\ See 12 CFR 1282.32(d)(1).
---------------------------------------------------------------------------
C. The Rural Housing Market Under the Duty To Serve Regulation
Under the regulation, activities eligible for Duty to Serve credit
for the rural housing market must be in a ``rural area.'' Section
1282.1 of the regulation defines ``rural area'' as: (i) a census tract
outside of a metropolitan statistical area (MSA) as designated by the
Office of Management and Budget (OMB); or (ii) a census tract in an MSA
but outside of the MSA's Urbanized Areas as designated by the U.S.
Department of Agriculture's (USDA) Rural-Urban Commuting Area (RUCA)
Code #1 and outside of tracts with a housing density of more than 64
housing units per square mile in USDA's RUCA Code #2.
[[Page 60333]]
The regulation identifies certain regions within rural areas that
have particularly acute financing needs for affordable housing for low-
income households as ``high-needs rural regions,'' and designates
Enterprise support for these high-needs rural regions as a Regulatory
Activity.\12\ Specifically, Sec. 1282.1(b) of the regulation defines a
``high-needs rural region'' as any of the following regions located in
a rural area: (i) Middle Appalachia; (ii) the Lower Mississippi Delta;
(iii) a colonia; or (iv) a tract located in a persistent poverty county
and not included in Middle Appalachia, the Lower Mississippi Delta, or
a colonia. FHFA stated in the preamble to its 2016 Duty to Serve final
rule that it selected the rural regions identified in the definition
because they are characterized by a high concentration of poverty and
substandard housing conditions.\13\ The preamble also acknowledged
comments received on FHFA's 2015 Duty to Serve proposed rule from
policy advocacy organizations, nonprofit organizations, government
entities, and a trade association supporting the inclusion of the
proposed high-needs rural regions as a Regulatory Activity, stating
that there are extensive challenges to serving these regions and
populations, and that these regions and populations have historically
lacked necessary investment.\14\ Additionally, the preamble referred to
discussions with both Enterprises highlighting that certain regions and
populations, such as colonias, were unique and would likely take
significant time and resources in order to make meaningful improvement
in housing conditions in such communities.\15\
---------------------------------------------------------------------------
\12\ See 12 CFR 1282.35(c).
\13\ 81 FR 96242, 96274 (Dec. 29, 2016).
\14\ Id.
\15\ Id. Families in colonias have been found to lack safe,
sanitary, and sound housing and basic services such as potable
water, adequate sewage systems, drainage, utilities, and paved
roads.'' See https://www.tdhca.state.tx.us/oci/background.htm.
---------------------------------------------------------------------------
FHFA originally proposed a definition of ``colonia'' in its 2015
Duty to Serve proposed rule that would have included a requirement that
the community be located in a U.S. census tract with some portion of
the tract within 150 miles of the U.S.-Mexico border.\16\ After
analysis of existing federal, state, and local definitions of
``colonia'' and in response to commenters' concerns that the proposed
definition was too narrow in scope, FHFA adopted a broader definition
of ``colonia'' in the 2016 final rule with the intent to encourage
Enterprise support for colonias.\17\ Accordingly, Sec. 1282.1 of the
regulation defines a ``colonia'' as an identifiable community that
meets the definition of a colonia under a federal, State, tribal, or
local program. However, FHFA noted in the preamble to the 2016 final
rule that this broader definition of ``colonia'' could present
challenges for the Enterprises in their efforts to target colonias.\18\
The preamble specifically noted that by adopting the broader definition
of ``colonia,'' the Agency would be unable, at the time the final rule
was issued, to provide the Enterprises with a data file listing all of
the census tracts containing colonias eligible for Duty to Serve
credit, as it planned to do for the other high-needs rural regions.\19\
In an effort to address the data challenges associated with
specifically identifying the census tracts that contain a colonia, the
preamble encouraged the Enterprises to collect and share granular data
with researchers, lenders, and housing providers.\20\
---------------------------------------------------------------------------
\16\ 80 FR 79181, 79216 (Dec. 18, 2015).
\17\ 81 FR 96242, 96276 (Dec. 29, 2016).
\18\ Id.
\19\ Id.
\20\ Id.
---------------------------------------------------------------------------
D. Challenges Associated With Targeting Colonias
As previously noted, each Enterprise is required to develop and
implement a three-year Plan describing the specific activities and
objectives it plans to undertake to fulfill its Duty to Serve in each
underserved market. Under their 2018-2021 Plans,\21\ both Enterprises
engaged in activities designed to increase access to mortgage credit by
households residing in high-needs rural regions, including colonias.
Despite these efforts, the Enterprises have had little success
acquiring loans originated in colonias. To date, Enterprise purchases
of single-family and multifamily loans originated in colonias that
received Duty to Serve credit are low relative to their loan purchases
from other high-needs rural regions that received Duty to Serve credit.
Figure 1 below shows that the Enterprises reported purchasing 123
single-family loans originated in colonias during the period 2018
through 2021 that received Duty to Serve credit. During the same
period, the Enterprises reported purchasing 62,011 single-family loans
originated in rural tracts in Middle Appalachia, 41,174 single-family
loans originated in rural tracts in the Lower Mississippi Delta, and
28,752 single-family loans originated in persistent poverty counties
not already included in one of the other high-needs rural regions that
received Duty to Serve credit.
---------------------------------------------------------------------------
\21\ Due to the coronavirus pandemic, the initial three-year
Plan cycle was extended by one year, on an exception basis.
\22\ The information presented in Figure 1 regarding single-
family loan purchases does not take into account the differences in
the geographic size or population of the high-needs rural regions.
\23\ Colonias and rural tracts in Middle Appalachia and the
Lower Mississippi Delta may also be located in persistent poverty
counties. If a single-family loan purchase is in a persistent
poverty county and another high-needs rural region, it is counted
under the other high-needs rural region. Single-family loan
purchases counted under a persistent poverty county only are those
not located in any of the other high-needs rural regions.
Figure 1--Enterprise Single-Family Loan Purchases in High-Needs Rural Regions
----------------------------------------------------------------------------------------------------------------
Enterprise single-Family loan purchases in high-needs rural regions that
received duty to serve credit
High-needs rural region \22\ -------------------------------------------------------------------------------
Total, 2018-
2018 2019 2020 2021 2021
----------------------------------------------------------------------------------------------------------------
Rural Tract in Middle Appalachia 9,471 10,280 18,339 23,921 62,011
Rural Tract in Lower Mississippi 6,783 6,794 11,887 15,710 41,174
Delta..........................
Colonia......................... 24 26 29 44 123
Persistent Poverty County Only 4,624 4,842 8,044 11,242 28,752
\23\...........................
----------------------------------------------------------------------------------------------------------------
Source: FHFA Analysis of Enterprise Data.
[[Page 60334]]
Figure 2 below shows that the Enterprises reported no purchases of
multifamily loans originated in colonias that received Duty to Serve
credit during the period 2018 through 2021. Figure 2 also shows that
the Enterprises reported purchasing 43 multifamily loans originated in
rural tracts in Middle Appalachia, 65 multifamily loans originated in
rural tracts in the Lower Mississippi Delta, and 91 multifamily loans
originated in persistent poverty counties not already included in one
of the other high-needs rural regions that received Duty to Serve
credit.
Figure 2--Enterprise Multifamily Loan Purchases in High-Needs Rural Regions
----------------------------------------------------------------------------------------------------------------
Enterprise multifamily loan purchases in high-needs rural regions that
received duty to serve credit
High-needs rural region \24\ -------------------------------------------------------------------------------
Total, 2018-
2018 2019 2020 2021 2021
----------------------------------------------------------------------------------------------------------------
Rural Tract in Middle Appalachia 7 10 14 12 43
Rural Tract in Lower Mississippi 8 22 23 11 64
Delta..........................
Colonia......................... 0 0 0 0 0
Persistent Poverty County Only 9 29 17 36 91
\25\...........................
----------------------------------------------------------------------------------------------------------------
Source: FHFA Analysis of Enterprise Data.
FHFA has identified two main challenges that have hindered the
Enterprises' Duty to Serve activities in colonias. The first challenge
is an operational one that prevents the Enterprises from easily
identifying and verifying Duty to Serve-eligible loan purchases and
outreach activities in colonias. The second challenge is related to the
ability of the Duty to Serve program to effectively target households
in colonias due to their under-inclusion in the Duty to Serve
regulation's current ``rural area'' definition. As a result, the number
of single-family and multifamily loan purchases in colonias that
received Duty to Serve credit has been limited or non-existent to date,
as indicated in Figures 1 and 2 above. These challenges and proposed
amendments to the Duty to Serve regulation to address them are further
discussed below.
---------------------------------------------------------------------------
\24\ The information presented in Figure 2 regarding multifamily
loan purchases does not take into account the differences in the
geographic size or population of the high-needs rural regions.
\25\ Colonias and rural tracts in Middle Appalachia and the
Lower Mississippi Delta may also be located in persistent poverty
counties. If a multifamily loan purchase is in a persistent poverty
county and another high-needs rural region, it is counted under the
other high-needs rural region. Multifamily loan purchases counted
under a persistent poverty county only are those not located in any
of the other high-needs rural regions.
---------------------------------------------------------------------------
1. Operational Challenges With Verifying Duty To Serve-Eligible
Activities in Colonias
As noted above, the identification of a colonia under the Duty to
Serve regulation relies, in the first instance, on the identification
of the community as a colonia using federal, State, tribal, or local
definitions. These definitions are based on varied criteria and
boundaries. Some rely on descriptive terms that may be meaningful only
at the local level, such as neighborhood names, and are generally not
tied to any standard geographic identifiers used by lenders such as
census tracts. There is no specific, uniform definition of colonia that
can be easily operationalized at the regional or national level through
inclusion in a public database that the Enterprises and lenders could
check to determine if a particular loan is located in an eligible
colonia. Instead, the Enterprises and lenders must first determine, for
each loan, the applicable federal, State, tribal, or local definition
of colonia, and then confirm that a particular loan falls within the
specified boundary of a colonia that meets the definition. This is a
time-consuming process that is labor-intensive and susceptible to user
error. In light of these constraints, the Enterprises cannot provide
clear guidance to lenders and other providers about where to target
Duty to Serve-eligible lending and outreach activities in colonias.
The Enterprises have adopted various approaches that aim to support
lending activity and mitigate the operational challenges of verifying
Duty to Serve-eligible activities in colonias. For example, Freddie Mac
has engaged partners to implement initiatives to improve homebuyer
readiness in colonias through homeownership fairs, housing counseling
and homebuyer education, and credit-building activities. Freddie Mac
has also directed its efforts to purchase single-family loans from
colonias to the six counties in Texas that have both the largest number
of colonias and the largest colonia populations in order to efficiently
deploy and target its resources.\26\ This strategy has enabled Freddie
Mac to leverage the efforts of the Texas Secretary of State to map
colonias identified under Texas state law. However, the strategy is not
easily replicated in other parts of the country where colonias that
meet the applicable definition have not been mapped.
---------------------------------------------------------------------------
\26\ See Freddie Mac 2018-2021 Plan, page RH8 (https://www.fhfa.gov/PolicyProgramsResearch/Programs/Documents/Freddie-Mac-Clean-2018-2021-UMP-Sept2021.pdf), and Freddie Mac 2022-2024 Plan,
page RH11 (https://www.fhfa.gov/PolicyProgramsResearch/Programs/Documents/FreddieMac2022-24DTSPlan-April2022.pdf).
---------------------------------------------------------------------------
Fannie Mae took a different approach under its Plan, in response to
FHFA's encouragement in the preamble to the 2016 final rule that the
Enterprises collect and share granular data with researchers, lenders,
and housing providers to address the data challenges associated with
specifically identifying the census tracts that contained colonias.\27\
Fannie Mae engaged a nonprofit organization with research capacities,
the Housing Assistance Council (HAC), to conduct research and analysis
in an effort to develop a nation-wide, usable and programmatic
methodology that would enable accurate targeting and tracking of loans
in these communities.\28\ The research culminated in a report by HAC
that proposed using census tracts that contain a colonia as the
relevant geographic unit for Duty to Serve credit, which would enable
mortgage lenders and other financial service providers to more
efficiently and effectively serve such communities.\29\ The report
highlighted the uncertainty that lenders face in targeting colonias
that are
[[Page 60335]]
eligible for Duty to Serve credit given the lack of a census tract-
based definition, as well as the effort and expense associated with
verifying that a loan qualifies for Duty to Serve credit. The report
concluded that the absence of a widely accepted and standardized
definition creates disincentives for the Enterprises to target support
for colonias in their Plans.
---------------------------------------------------------------------------
\27\ 81 FR 96242, 96276 (Dec. 29, 2016).
\28\ Fannie Mae 2018-2021 Plan for the Rural Housing Market,
page RH23 (https://www.fhfa.gov/PolicyProgramsResearch/Programs/Documents/Fannie-Mae-2021-Plan-Mod-Clean-Redacted.pdf).
\29\ See Housing Assistance Council, ``Colonias Investment
Areas: Working Toward a Better Understanding of Colonia Communities
for Mortgage Access and Finance,'' (November 2020), available at
https://www.fanniemae.com/media/37566/display.
---------------------------------------------------------------------------
Proposed Revisions to Regulation To Add Colonia Census Tracts--Sec.
1282.1(b)
FHFA finds merit in adopting a census tract-based approach that
would serve as a proxy for colonias for purposes of identifying and
verifying Duty to Serve-eligible activities. Accordingly, the proposed
rule would amend Sec. 1281.1(b) of the Duty to Serve regulation by
substituting the term ``colonia census tract'' for the term ``colonia''
in the definition of ``high-needs rural region,'' and adding a
definition of ``colonia census tract'' to mean a census tract that
contains a colonia.
The use of census tracts would greatly enhance the Enterprises' and
lenders' ability to identify lending and outreach activities in areas
containing colonias that would be eligible for Duty to Serve credit.
Census tracts are easily obtained geographic identifiers that are
widely used by businesses and governments to classify locations. FHFA
publishes and regularly updates on its website a Rural Areas Data file
that specifies the census tracts in the other high-needs rural regions
where lending and outreach activities are eligible for Duty to Serve
credit. To date, colonia census tracts have not been included in the
Rural Areas Data file due to the absence of a comprehensive list of
census tracts containing colonias, as many of the federal, State,
tribal, and local definitions of colonias were not mapped to census
tracts. Now that such information is available, FHFA would be able to
expand the Rural Areas Data file to include the colonia census tracts.
The availability of this information in the Rural Areas Data file would
make it easier for the Enterprises and lenders to target outreach and
loan purchases in these locations, and to assess the impact of efforts
to improve housing conditions in these areas.
A census tract-based approach also would align FHFA's treatment of
colonias under the Duty to Serve regulation with other census tract-
based standards for Enterprise reporting to FHFA. For example, FHFA
collects data at the census tract level to assess compliance with the
Duty to Serve and Enterprise Housing Goals. Specifically, census tracts
serve as the basis for identifying other geographically-based
underserved areas, including low-income areas, and area median income
to determine affordability and compliance with Duty to Serve and
Enterprise Housing Goals objectives.
Request for Comments
FHFA specifically requests comments on the following questions
(please identify the question answered by the number assigned below):
1. What are the advantages and disadvantages, if any, to using
colonia census tracts instead of colonias, for purposes of identifying
and verifying Duty to Serve-eligible activities?
2. Are there other ways to identify the geographic areas in which
the Enterprises should receive Duty to Serve credit for eligible
activities addressing colonias? If so, describe the alternative
approach(es) and any advantages and disadvantages over the proposed
census tract-based methodology.
2. Challenges Related to Colonias and the ``Rural Area'' Definition
Under the Duty to Serve regulation, an Enterprise is eligible to
receive Duty to Serve credit for activities supporting colonias if the
activities (e.g., loan purchases) are located in a ``colonia,'' as
defined in the regulation, and the colonia is located in a ``rural
area,'' as defined in the regulation. As noted above, Sec. 1282.1(b)
of the regulation currently defines a ``rural area'' as: (i) a census
tract outside of an MSA; or (ii) a census tract in an MSA but outside
of the MSA's Urbanized Areas as designated by the USDA RUCA Code #1 and
outside of tracts with a housing density of more than 64 housing units
per square mile in USDA's RUCA Code #2. The HAC report identified 446
census tracts that contain colonias (based on 2010 census data), with
213 of these census tracts, or less than one-half, meeting the Duty to
Serve ``rural area'' definition. HAC subsequently determined that,
based on the 2020 census, 577 census tracts contain colonias, with 260
of these census tracts, or less than one-half, meeting the Duty to
Serve ``rural area'' definition.\30\ Specifically, the 260 colonia
census tracts would satisfy par. (i) of the ``rural area'' definition
because they are located outside of an MSA, but the remaining 317
colonia census tracts, which are located within an MSA, would not meet
the additional qualifying parameters of par. (ii) of the ``rural area''
definition.
---------------------------------------------------------------------------
\30\ The sizeable increase in census tracts containing colonias
using the 2020 geography, from the initial count of 446 using 2010
geography, reflects the increase in the number of census tracts in
the region due to population growth. Housing Assistance Council
communication with FHFA (August 15, 2022).
---------------------------------------------------------------------------
FHFA noted in the preamble to its 2016 Duty to Serve final rule
that it rejected several definitions of ``colonia'' because they were
too restrictive and would result in the Enterprises receiving little or
no Duty to Serve credit for activities in colonias.\31\ As a result of
the recent mapping of federal, State, tribal, and local definitions of
colonia to census tracts, FHFA has learned that its definition of
``rural area'' has unintentionally excluded a large share of colonia
census tracts from eligibility for Duty to Serve credit. FHFA is
proposing to revise the definition of ``rural area'' to include all
colonia census tracts (and, therefore, all colonias) to address this
oversight. This would enable the Enterprises to receive Duty to Serve
credit for purchases of loans located in any colonia census tract,
thereby enhancing the ability of the Duty to Serve program to
incentivize the Enterprises to support the financing of affordable
housing for very low-, low-, and moderate-income households in colonia
census tracts.
---------------------------------------------------------------------------
\31\ 81 FR 96242, 96275 (Dec. 29, 2016).
---------------------------------------------------------------------------
In the 2015 proposed rule, FHFA had proposed and evaluated various
ways to define ``rural area.'' In considering definitions used by other
agencies, FHFA noted that there was no single, universally accepted
definition of ``rural area'' because the varying definitions were
intended to achieve different policy objectives.\32\ FHFA explained in
the preamble to the 2016 final rule that its ultimate selection for the
definition of ``rural area'' was based on three primary criteria that
would best support the objectives of the Duty to Serve program: (1) the
definition should be broad enough to include rural residents living in
outlying counties of metropolitan areas; (2) the definition should
remain stable over time to support the Enterprises' Plans; and (3) the
definition should remain easy to implement and operationalize by the
Enterprises.\33\
---------------------------------------------------------------------------
\32\ 80 FR 79181, 79207 (Dec. 18, 2015).
\33\ 81 FR 96242, 96273 (Dec. 29, 2016).
---------------------------------------------------------------------------
Revising the ``rural area'' definition to include all colonia
census tracts regardless of location, i.e., whether within or outside
an MSA, would be consistent with these three criteria. Regarding the
first criterion, in the 2015 proposed rule, FHFA took into
consideration a finding that MSAs may no longer be a good way to
distinguish
[[Page 60336]]
urban territory from rural territory.34 35 Similarly,
several commenters on the 2015 proposed rule stated that the proposed
definition of ``rural area'' was overly inclusive within metropolitan
areas by including suburban/exurban communities that are not truly
rural in character, and overly restrictive within metropolitan areas by
excluding some small towns, particularly in the Western U.S., that are
truly rural in character.\36\ The qualifying parameters in the second
component of the ``rural area'' definition (par. (ii)) were added to
the definition in the 2016 final rule in an effort to more accurately
target areas that are truly rural in character and exclude those that
are more realistically classified as suburban/exurban communities,
which do not share the challenges to accessing credit that rural
markets face.\37\
---------------------------------------------------------------------------
\34\ 80 FR 79207 (Dec. 18, 2015) (citing United States
Government Accountability Office, GAO-05-110, ``Rural Housing--
Changing the Definition of Rural Could Improve Eligibility
Determinations'' (December 2004), available at http://www.gao.gov/new.items/d05110.pdf).
\35\ See also The Urban Institute ``In Search of `Good' Rural
Data: Measuring Rural Prosperity'' (April 2020) available at https://www.urban.org/sites/default/files/publication/102134/in-search-of-good-rural-data.pdf.
\36\ 81 FR 96242, 96273 (Dec. 29, 2016).
\37\ Id.
---------------------------------------------------------------------------
FHFA has reviewed the characteristics of the colonia census tracts
and believes that all colonia census tracts--regardless of where they
are located--share important characteristics with census tracts that
already meet the ``rural area'' definition. Colonia census tracts--
regardless of whether they are located within or outside an MSA--have
high poverty rates and low housing density, which contribute to limited
access to credit for the households in those communities. In fact, as
Figure 3 below demonstrates, the estimated poverty rate for all colonia
census tracts is higher than the estimated poverty rate in Duty to
Serve rural areas in general, and even higher than the estimated
poverty rate in other Duty to Serve high-needs rural regions, including
the Lower Mississippi Delta and Middle Appalachia. Figure 3 further
demonstrates that the estimated housing density, as measured by housing
units per square mile, in all colonia census tracts is lower than the
estimated housing density in rural areas in general, and even lower
than the estimated housing density in other high-needs rural regions,
including the Lower Mississippi Delta and Middle Appalachia. In
general, areas with both high poverty rates and low housing density are
likely to lack resources and experience credit challenges.\38\
---------------------------------------------------------------------------
\38\ Durst, Noah J. and Peter M. Ward, ``Colonia Housing
Conditions in Model Subdivisions: A D[eacute]j[agrave] Vu for Policy
Makers,'' Housing Policy Debate 26 (2): 316-333 (2015) available at
https://www.tandfonline.com/doi/abs/10.1080/10511482.2015.1068826?journalCode=rhpd20.
Figure 3--Estimated Housing Density and Poverty Rate by Colonia Census Tract and High-Needs Rural Region \39\
----------------------------------------------------------------------------------------------------------------
Housing
Area Number of density (units Poverty rate
census tracts per sq. mile) (percent)
----------------------------------------------------------------------------------------------------------------
All Colonia Census Tracts (DTS ``Rural Area'' Census Tracts and 446 7 28
Other Colonia Census Tracts)...................................
Lower Mississippi Delta (DTS ``Rural Area'' Census Tracts)...... 1,386 17 23
Middle Appalachia (DTS ``Rural Area'' Census Tracts)............ 1,342 30 21
All DTS ``Rural Area'' Census Tracts............................ 19,227 10 17
----------------------------------------------------------------------------------------------------------------
Source: FHFA Analysis of 2020 FFIEC data based on the 2015 American Community Survey 5-year estimates.
Households residing in colonia census tracts often lack access to
affordable home financing and standard mortgage financing.\40\ Recent
research indicates that census tracts containing colonias have
substantially lower rates of mortgage lending than nearly any other
market nationally.\41\ Figure 4 below shows that the average annual
ratio of conventional loan originations per 1,000 owner-occupied units
in colonia census tracts during the period 2015-2017 was 33.5, or less
than half the average annual ratio of 73.7 loan originations per 1,000
owner-occupied units in the United States as a whole. The average
annual ratio of conventional loans and government-backed (FHA, VA,
USDA) loan originations per 1,000 owner-occupied units in colonia
census tracts during the same period was 61.5, compared to an average
annual ratio of 100.8 loans per 1,000 owner-occupied units in the
United States as a whole.
---------------------------------------------------------------------------
\39\ FHFA used Federal Financial Institutions Examination
Council (FFIEC) census reports to calculate housing densities and
poverty rates for these underlying census tracts, and then tabulated
estimates of these measures for the respective high-needs rural
regions.
\40\ Housing Assistance Council, ``Colonias Investment Areas:
Working Toward a Better Understanding of Colonia Communities for
Mortgage Access and Finance,'' p. 9 (November 2020), available at
https://www.fanniemae.com/media/37566/display.
\41\ See Wiley, Keith, George, Lance and Lipshutz, Sam,
``Colonias Investment Areas: A More Focused Approach,'' p. 27,
CityScape, Vol. 23, Number 3 (November 2021), available at https://www.huduser.gov/portal/periodicals/cityscpe/vol23num3/Cityscape-November-2021.pdf.
Figure 4--Ratio of Home Loans Originated to Owner-Occupied Units (Annual
Average 2015-2017)
------------------------------------------------------------------------
Total loans
Conventional (conventional and
loans originated FHA, VA, USDA)
per 1,000 owner- originated per
Area occupied units 1,000 owner-
(annual average occupied units
2015-2017) (annual average
2015-2017)
------------------------------------------------------------------------
All Colonia Census Tracts (DTS 33.5 61.5
``Rural Area'' Census Tracts and
Other Colonia Census Tracts).....
[[Page 60337]]
United States..................... 73.7 100.8
------------------------------------------------------------------------
Source: Wiley, Keith, George, Lance and Lipshutz, Sam, ``Colonias
Investment Areas: A More Focused Approach,'' Figure 20, p. 34,
CityScape, Vol. 23, Number 3 (November 2021), available at https://www.huduser.gov/portal/periodicals/cityscpe/vol23num3/Cityscape-November-2021.pdf.
Further, high-cost loans are more common in colonia census tracts
than in the United States as a whole. HAC research based on tabulations
of 2017 Home Mortgage Disclosure Act data showed that 14.4 percent of
loans in colonia census tracts were classified as high-cost, compared
to 5.9 percent of loans in the United States as a whole.\42\
---------------------------------------------------------------------------
\42\ Housing Assistance Council, ``Colonias Investment Areas:
Working Toward a Better Understanding of Colonia Communities for
Mortgage Access and Finance,'' p. 36 (November 2020), available at
https://www.fanniemae.com/media/37566/display.
---------------------------------------------------------------------------
There are indications that access to credit in colonias
specifically may be even more limited than in other parts of the
colonia census tract.\43\ Because of the lack of access to standard
mortgage financing, colonia residents often purchase lots through a
contract for deed, a property financing method whereby developers
typically offer a low down payment and low monthly payments but no
title to the property until the final payment is made.\44\ If contract-
for-deed borrowers miss a payment, they run the risk of losing all of
the investment they made in the home, in addition to the danger of
losing the home itself.\45\ Many residents also rely on self-help
strategies, rehabilitating their properties incrementally over time
when they have available funds, instead of using conventional financing
to make improvements on their homes, because they lack conventional
financing options.\46\
---------------------------------------------------------------------------
\43\ Id. at 9.
\44\ See The Federal Reserve Bank of Dallas, ``Las Colonias in
the 21st Century: Progress Along the Texas-Mexico Border,'' p. 6
(2015), available at https://www.dallasfed.org/~/media/documents/cd/
pubs/lascolonias.pdf; and The Federal Reserve Bank of Dallas,
``Texas Colonias: A Thumbnail Sketch of the Conditions, Issues,
Challenges and Opportunities,'' p. 3 (1996), available at https://
www.dallasfed.org/~/media/documents/cd/pubs/colonias.pdf.
\45\ See Pew Charitable Trusts, ``Less Than Half of States Have
Laws Governing `Land Contracts': Statutes provide limited consumer
protection for widely used alternative home financing,'' (April 30,
2021), available at https://www.pewtrusts.org/en/research-and-analysis/white-papers/2022/02/less-than-half-of-states-have-laws-governing-land-contracts.
\46\ Durst, Noah J. and Ward, Peter M., ``Measuring self-help
home improvements in Texas colonias: A ten year `Snapshot' study,''
pp. 2143-2159, Urban Studies, Vol. 51, No. 10 (August 2014),
available at https://www.jstor.org/stable/26145856?socuuid=ecc189e2-293e-42c2-83ca-8ff6b40c6e43.
---------------------------------------------------------------------------
Regarding the second criterion discussed in the 2016 final rule
preamble--that the ``rural area'' definition should remain stable over
time to support the Enterprises' Plans--the proposed change to the
``rural area'' definition would, in line with other components of the
definition, be based on census tracts and, therefore, remain stable.
Since census tract boundaries are updated every ten years to reflect
changes in population following the decennial U.S. census, FHFA would
comprehensively update the colonia census tracts on a similar timeline
and include them in FHFA's Rural Areas Data file. Any intervening
changes to federal, State, tribal, or local definitions of colonia, or
to the identification of colonias under those definitions, that impact
the designation of colonia census tracts could be reflected, as
appropriate, as an update to FHFA's Rural Areas Data file. FHFA would
not expect to make any such updates during a Plan cycle, to ensure that
the Enterprises and market participants can base their decisions on a
stable definition.
Regarding the third criterion in the 2016 final rule preamble--that
the ``rural area'' definition should remain easy to implement and
operationalize by the Enterprises--the proposed definition would
improve the Enterprises' ability to implement and operationalize their
loan purchase and outreach efforts in colonia census tracts. FHFA would
be able to amend the Duty to Serve Rural Areas Data file to include all
colonia census tracts regardless of their location. The update of this
file would streamline the process of identifying Duty to Serve-eligible
loans and enhance certainty for lenders and the Enterprises, who would
know from the outset which colonia census tracts to target for loan
purchases and outreach and would be certain that those activities would
be eligible for Duty to Serve credit. In this manner, the proposed
changes to the ``rural area'' definition would promote the achievement
of the objectives of the Duty to Serve program.
Proposed Revision of Regulation's ``Rural Area'' Definition--Sec.
1282.1(b)
For the reasons discussed above, FHFA is proposing to amend the
definition of ``rural area'' in Sec. 1282.1(b) to include all colonia
census tracts regardless of their location. Specifically, the proposed
rule would amend the second component of the ``rural area'' definition
(par. (ii)) to include colonia census tracts that would not otherwise
satisfy the current ``rural area'' definition.
Request for Comments
FHFA specifically requests comments on the following question
(please identify the question answered by the number assigned below):
3. What are the advantages and disadvantages, if any, to revising
the Duty to Serve ``rural area'' definition to incorporate all census
tracts that contain a colonia regardless of their location?
III. 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. FHFA need not undertake such an
analysis if the Agency has certified that the regulation
[[Page 60338]]
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 and FHFA certifies
that the proposed rule, if adopted as a final rule, will not have a
significant economic impact on a substantial number of small entities
because the regulation only applies to Fannie Mae and Freddie Mac,
which are not small entities for purposes of the Regulatory Flexibility
Act.
IV. Paperwork Reduction Act
The proposed rule would not contain any information collection
requirement that would require the approval of the Office of Management
and Budget (OMB) under the Paperwork Reduction Act (44 U.S.C. 3501 et
seq.). Therefore, FHFA has not submitted the proposed rule to OMB for
review.
List of Subjects in 12 CFR Part 1282
Mortgages; Reporting and recordkeeping requirements.
Authority and Issuance
For the reasons stated in the preamble, under the authority of 12
U.S.C. 4501, 4502, 4511, 4513, 4526, and 4561-4566, FHFA proposes to
amend part 1282 of subchapter E of 12 CFR chapter XII, as follows:
CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY
SUBCHAPTER E--HOUSING GOALS AND MISSION
PART 1282--ENTERPRISE HOUSING GOALS AND MISSION
0
1. The authority citation for part 1282 continues to read as follows:
Authority: 12 U.S.C. 4501, 4502, 4511, 4513, 4526, 4561-4566.
0
2. Amend Sec. 1282.1(b) by:
0
a. Adding, in alphabetical order, the definition of ``Colonia census
tract'';
0
b. In paragraph (iii) of the definition ``High-needs rural region''
removing the term ``colonia'' and adding the term ``colonia census
tract'' in its place; and
0
c. Revising the definition of ``Rural area''.
The additions and revisions read as follows:
Sec. 1282.1 Definitions.
* * * * *
Colonia census tract, for purposes of subpart C of this part, means
a census tract that contains a colonia.
* * * * *
Rural area, for purposes of subpart C of this part, means:
(i) A census tract outside of a metropolitan statistical area as
designated by the Office of Management and Budget; or
(ii) A census tract in a metropolitan statistical area as
designated by the Office of Management and Budget that is:
(A) Outside of the metropolitan statistical area's Urbanized Areas
as designated by the U.S. Department of Agriculture's (USDA) Rural-
Urban Commuting Area (RUCA) Code #1, and outside of tracts with a
housing density of over 64 housing units per square mile for USDA's
RUCA Code #2; or
(B) A colonia census tract that does not satisfy paragraphs (i) or
(ii)(A) of this definition.
* * * * *
Sandra L. Thompson,
Director, Federal Housing Finance Agency.
[FR Doc. 2022-21404 Filed 10-4-22; 8:45 am]
BILLING CODE 8070-01-P