Vol. 80 Friday, No. 243 December 18, 2015

Part III

Federal Housing Finance Agency

12 CFR Part 1282 Enterprise Duty To Serve Underserved Markets; Proposed Rule

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FEDERAL HOUSING FINANCE • Hand Delivered/Courier: The hand 20219. To make an appointment to AGENCY delivery address is: Alfred M. Pollard, inspect comments, please call the Office General Counsel, Attention: Comments/ of General Counsel at (202) 649–3804. 12 CFR Part 1282 RIN 2590–AA27, Federal Housing II. Background RIN 2590–AA27 Finance Agency, Eighth Floor, 400 7th Street SW., Washington, DC 20219. The A. Statutory Background Enterprise Duty To Serve Underserved package should be delivered at the 7th The Safety and Soundness Act Markets Street entrance Guard Desk, First Floor, provides that the Enterprises ‘‘have an on business days between 9 a.m. and 5 affirmative obligation to facilitate the AGENCY: Federal Housing Finance p.m. financing of affordable housing for low- Agency. • U.S. Mail, United Parcel Service, and moderate-income families.’’ 1 ACTION: Notice of proposed rulemaking; Federal Express, or Other Mail Service: Section 1129 of HERA amended section request for comments. The mailing address for comments is: 1335 of the Safety and Soundness Act Alfred M. Pollard, General Counsel, SUMMARY: The Housing and Economic to establish a duty for the Enterprises to Attention: Comments/RIN 2590–AA27, serve three specified underserved Recovery Act of 2008 (HERA) amended Federal Housing Finance Agency, the Federal Housing Enterprises markets, to increase the liquidity of Eighth Floor, 400 7th Street SW., mortgage investments and improve the Financial Safety and Soundness Act of Washington, DC 20219. Please note that 1992 (Safety and Soundness Act) to distribution of investment capital all mail sent to FHFA via U.S. Mail is available for mortgage financing for establish a duty for the Federal National routed through a national irradiation Mortgage Association (Fannie Mae) and certain categories of borrowers in those facility, a process that may delay markets.2 Specifically, the Enterprises the Federal Home Loan Mortgage delivery by approximately two weeks. Corporation (Freddie Mac) (collectively, are required to provide leadership in FOR FURTHER INFORMATION CONTACT: Jim the Enterprises) to serve three specified developing loan products and flexible Gray, Manager, Office of Housing and underserved markets—manufactured underwriting guidelines to facilitate a Regulatory Policy, (202) 649–3124, or housing, affordable housing secondary market for mortgages on Mike Price, Senior Policy Analyst, preservation, and rural markets—to housing for very low-, low-, and Office of Housing and Regulatory increase the liquidity of mortgage moderate-income families for Policy, (202) 649–3134. These are not investments and improve the manufactured housing, affordable toll-free numbers. The mailing address distribution of investment capital housing preservation, and rural for each contact is: Federal Housing 3 available for mortgage financing for very markets. In addition, section 1335(d)(1) Finance Agency, 400 7th Street SW., low-, low-, and moderate-income requires FHFA to establish, by Washington, DC 20219. The telephone families in those markets. The Federal regulation, a method for evaluating and number for the Telecommunications Housing Finance Agency (FHFA) is rating the Enterprises’ compliance with Device for the Hearing Impaired is (800) 4 issuing and seeking comments on a the Duty to Serve underserved markets. 877–8339. proposed rule that would provide Duty FHFA is required to separately evaluate to Serve credit for eligible Enterprise SUPPLEMENTARY INFORMATION: each Enterprise’s compliance with respect to each underserved market, activities that facilitate a secondary I. Comments market for mortgages related to: taking into consideration the following: Manufactured homes titled as real FHFA invites comments on all aspects (i) The Enterprise’s development of property; blanket loans for certain of this proposed rule, in addition to loan products, more flexible categories of manufactured housing specific questions provided throughout, underwriting guidelines, and other communities; preserving the and will take all comments into innovative approaches to providing affordability of housing for renters and consideration before issuing the final financing to each of the underserved homebuyers; and housing in rural rule. Commenters do not need to answer markets (hereafter, the ‘‘loan product markets. The proposed rule would each question. While FHFA has assessment factor’’); (ii) The extent of the Enterprise’s establish a method for evaluating and considered the views commenters outreach to qualified loan sellers and rating the Enterprises’ compliance with submitted on the Duty to Serve other market participants in each of the the Duty to Serve each underserved proposed rule issued in 2010 in underserved markets (hereafter, the market. preparing this proposed rule, in view of the significant differences between this ‘‘outreach assessment factor’’); DATES: Written comments must be proposed rule and the 2010 Duty to (iii) The volume of loans purchased received on or before March 17, 2016. Serve proposed rule, commenters on the by the Enterprise in each underserved ADDRESSES: You may submit your previous proposed rule must submit a market relative to the market comments, identified by regulatory new comment letter on this new opportunities available to the information number (RIN) 2590–AA27, proposed rule for their comments to be Enterprise, except that the Director shall by any of the following methods: further considered. Copies of all not establish specific quantitative • Agency Web site: www.fhfa.gov/ comments received will be posted targets or evaluate the Enterprise based open-for-comment-or-input. without change, including any personal solely on the volume of loans purchased • Federal eRulemaking Portal: http:// information you provide, such as your (hereafter, the ‘‘loan purchase www.regulations.gov. Follow the name, address, email address and assessment factor’’); and instructions for submitting comments. If telephone number, on FHFA’s Web site (iv) The amount of investments and you submit your comment to the at http://www.fhfa.gov. In addition, grants by the Enterprise in projects Federal eRulemaking Portal, please also copies of all comments received will be send it by email to FHFA at available for examination by the public 1 12 U.S.C. 4501(7). 2 [email protected] to ensure on business days between the hours of 12 U.S.C. 4565. 3 12 U.S.C. 4565(a). The terms ‘‘very low- timely receipt by FHFA. Please include 10 a.m. and 3 p.m., at the Federal income,’’ ‘‘low-income,’’ and ‘‘moderate-income’’ ‘‘Comments/RIN 2590–AA27’’ in the Housing Finance Agency, Eighth Floor, are defined in 12 U.S.C. 4502. subject line of the submission. 400 7th Street, SW., Washington, DC 4 12 U.S.C. 4565(d)(1).

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which assist in meeting the needs of the proposed rule on the Duty to Serve.8 would be otherwise inconsistent with underserved markets (hereafter, the The 45-day comment period for the its Charter Act or the Safety and ‘‘investments and grants assessment proposed rule closed on July 22, 2010. Soundness Act. factor’’).5 FHFA received 4,019 comments on Although the Enterprises are in The Duty to Serve provisions and the proposed rule. Commenters conservatorships, FHFA expects them to issues for consideration are discussed included: Individuals, including owners show tangible results in each further below. of manufactured homes; trade underserved market and to be a catalyst associations, including manufactured for mortgage lending to very low-, B. Conservatorship housing trade groups and lender trade low-, and moderate-income families in On September 6, 2008, the Director of groups; policy and housing advocacy each underserved market consistent FHFA appointed FHFA as conservator groups, including rural housing with their obligations for safety and of the Enterprises in accordance with advocacy groups, organizations soundness. The Enterprises should the Safety and Soundness Act to representing manufactured home expect mortgage purchases and maintain the Enterprises in a safe and residents, and national and state activities pursuant to the Duty to Serve sound financial condition and to help consumer law organizations; nonprofit to earn a reasonable economic return, assure performance of their public organizations; corporations, including which may be less than the return mission. Since the establishment of manufactured housing construction earned on activities that do not serve FHFA as conservator, the Enterprises companies; federal, state, and local these underserved markets.9 have returned to profitability. Through government entities, including state and B. Underserved Markets Plans December 31, 2014, the Enterprises have local housing finance agencies; property paid a total of $225 billion in dividends services groups, including property 1. Requirement for Underserved Markets payments to the U.S. Department of the management companies; manufactured Plans—Proposed § 1282.32 6 Treasury on the senior preferred stock. home community homeowners’ Section 1282.32 of the proposed rule While the Enterprises are in associations; affordable housing would require each Enterprise to conservatorships, the law requires and developers and preservation lenders; a prepare an Underserved Markets Plan FHFA expects them to continue to fulfill legal services group; Members of identifying the activities and related their core statutory purposes, which Congress; and both Enterprises. objectives in each underserved market include their support for affordable FHFA has taken a new look at the that it will pursue to serve that housing. The Enterprise affordable issues for this new proposed rule, with market.10 Each Plan would be housing goals have continued the benefit of the comments received on mandatory and have a three-year term. throughout the conservatorships, with the 2010 Duty to Serve proposed rule The extent to which the Enterprises modifications to the levels of the goals. and subsequent input from diverse comply with their Plan obligations FHFA now proposes a rule to stakeholder groups. The comments and would form the basis for FHFA’s implement the Enterprises’ Duty to input received and the agency’s evaluation of each Enterprise’s Duty to Serve underserved markets. Consistent intervening years of experience with the Serve performance. with the conservatorships, Enterprise Enterprises and their operations in the support for affordable housing must be underserved markets have suggested a 2. Eligible Activities for Underserved accomplished within the confines of different approach, sufficiently so that Markets—Proposed §§ 1282.33(b), safety and soundness and the goals of further notice and comment is necessary 1282.34(b), 1282.35(b), 1282.37 conservatorship. The Enterprises’ 2015 through this new proposed rule. Sections 1282.33(b), 1282.34(b), Conservatorship Scorecard requires the As before, the new proposed rule 1282.35(b), and 1282.37 of the proposed Enterprises to make progress in would not itself authorize or prohibit rule would specifically define the scope preparing to implement the Duty to the Enterprises from engaging in any of the activities that could be included Serve, prior to this rulemaking. activity. Instead, it would authorize in an Underserved Markets Plan for an Duty to Serve credit for certain C. Regulatory History underserved market and, thus, be Enterprise activities in furtherance of eligible for Duty to Serve credit as 1. Advance Notice of Proposed their Duty to Serve obligations and follows: Rulemaking would propose a framework for Manufactured housing market— The rulemaking for the Duty to Serve evaluating the Enterprises’ performance. Activities that facilitate a secondary commenced in August 2009 with III. Duty To Serve Underserved market for mortgages on residential FHFA’s publication in the Federal Markets properties for very low-, low-, and Register of an Advance Notice of moderate-income families consisting of: Proposed Rulemaking (ANPR) on the A. Implementing the Duty To Serve (1) Manufactured homes titled as real Enterprise Duty to Serve underserved The Enterprises’ public purposes estate; and (2) manufactured housing markets.7 FHFA received 100 comment include a broad obligation to serve communities; letters in response to the ANPR. lower- and moderate-income borrowers. Affordable housing preservation The Safety and Soundness Act market—Activities that facilitate a 2. 2010 Duty To Serve Proposed Rule establishes a duty for the Enterprises to secondary market for mortgages on After reviewing the comment letters serve very low-, low-, and moderate- residential properties for very low-, on the ANPR, FHFA published in the income families in three specific low-, and moderate-income families Federal Register on June 7, 2010, a underserved markets. All activities an consisting of affordable rental housing Enterprise undertakes in furtherance of preservation and affordable 5 12 U.S.C. 4565(d)(2). its Duty to Serve must be consistent homeownership preservation; and 6 See White House, ‘‘Fiscal Year 2016 of the U.S. with its Charter Act. Nothing in this Government Analytical Perspectives,’’ at 307 rulemaking would permit or require an 9 See 12 U.S.C. 4513(a)(1)(B)(ii). (2015), available at https://www.whitehouse.gov/ 10 The 2010 Duty to Serve proposed rule also sites/default/files/omb/budget/fy2016/assets/ Enterprise to engage in any activity that would have required that the Enterprises identify ap_20_credit.pdf. their Duty to Serve activities in Underserved 7 See 74 FR 38572 (Aug. 4, 2009). 8 See 75 FR 32099 (June 7, 2010). Markets Plans.

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Rural market—Activities that finance agency projects and local would not be mandatory, but in order to facilitate a secondary market for government initiatives that seek to qualify for the extra credit, the mortgages on residential properties for provide affordable housing and for Enterprises would need to describe in very low-, low-, and moderate-income which Duty to Serve credit could be their Plans the activities in the families in a ‘‘rural area,’’ which would available. underserved markets they intend to be defined to mean: (1) A census tract • While overall the Enterprises must undertake to promote residential outside of a metropolitan statistical area serve very low-, low-, and moderate- economic diversity. (MSA), as designated by the Office of income families in each underserved Requests for Comments Management and Budget (OMB); or (2) market, any one activity may, but need a census tract that is in an MSA but not, serve more than one of the FHFA specifically requests comments outside of the MSA’s Urbanized Areas qualifying income categories. The on the following questions (please and Urban Clusters, as designated by the Underserved Markets Plans must identify the question answered by the U.S. Department of Agriculture’s include a mix of activities serving all number assigned below): (USDA’s) Rural Urban Commuting Area three income categories. 1. How much discretion should the (RUCA) codes. Statutory Activities and Regulatory Enterprises have in selecting activities— Activities eligible for Duty to Serve Activities are collectively referred to as Core Activities and Additional credit that also promote residential ‘‘Core Activities’’ in this SUPPLEMENTARY Activities—to serve the underserved economic diversity would be eligible for INFORMATION. markets? extra credit under § 1282.37 of the The proposed rule would not require 2. Should FHFA establish specific proposed rule. an Enterprise to include every Core Regulatory Activities for the Each of these activities must be in full Activity in its Underserved Markets underserved markets, or should the compliance with applicable federal and Plan, but the Plan must describe how Enterprises have broad discretion to state law. The underserved markets and the Enterprise considered each Core decide how to serve these markets? related definitions are further discussed Activity. If an Enterprise elects not to 3. Are the proposed Regulatory below. include a Core Activity in its Plan, it Activities, as identified in the proposed rule for each of the underserved markets 3. Underserved Markets Plan must provide a detailed explanation for and described further below, Activities—Proposed § 1282.32(c)(1) its decision in the Plan. There would be no restriction on the number of appropriate for accomplishing the Duty Under § 1282.32(c)(1) of the proposed Additional Activities that an Enterprise to Serve objectives? rule, each Underserved Markets Plan may include in its Plan. would include activities delineated 4. Objectives for Each Activity— FHFA believes that specifying Core Proposed § 1282.32(c)(2) under one of the following categories: Activities for the Enterprises to consider • Statutory Activities—Activities that in developing their Underserved Under § 1282.32(c)(2) of the proposed assist affordable housing projects under Markets Plans, as well as providing the rule, for each activity set forth in the the eight affordable housing programs Enterprises the option to designate Underserved Markets Plan, the Plan specifically enumerated in the Safety Additional Activities, will provide the would be required to describe one or and Soundness Act, and any most efficient ways to increase the more ‘‘Objectives’’—specific, comparable state and local affordable Enterprises’ presence in the three measureable tasks to be accomplished housing programs (a category that is also underserved markets and encourage by the Enterprise. Objectives would be specified in the Safety and Soundness healthy competition between the central to FHFA’s Duty to Serve Act); Enterprises. When one Enterprise is able evaluation and rating process. • Regulatory Activities—Activities in Examples of Objectives might include to marshal its resources to better serve the underserved markets that are an Enterprise’s plans and timetable for an underserved market, this may designated as Regulatory Activities in achieving certain goals for one of its encourage the other Enterprise and the proposed rule; and existing activities in an underserved other institutions to also consider how • Additional Activities—Other market, or an Enterprise’s specific they could assist that market, and would activities identified by the Enterprises outreach plans for working with lenders demonstrate that certain products and in their Plans that are determined by to develop innovative programs under a services can be reasonably provided in FHFA, in reviewing the proposed Plans, particular activity. Objectives would the market. to be eligible for that underserved largely take narrative form but, where Additionally, as described in this market. appropriate, could include quantitative SUPPLEMENTARY INFORMATION and in Proposed Additional Activities may benchmarks. If quantitative benchmarks proposed § 1282.37, the proposed rule include activities that support other form part of an Objective, FHFA’s would include an opportunity for the federal, state and local programs not evaluation criteria may include Enterprises to earn extra Duty to Serve specifically enumerated in the proposed comparing the Objective’s quantitative credit when a qualifying activity in an rule that would benefit from such benchmark at the beginning of the underserved market also serves to support. Any such program must be evaluation period with a new reduce the economic isolation of very eligible under one of the three specified quantitative benchmark for the underserved markets. If an Enterprise low-, low-, and moderate-income proposes activities to support other households by promoting residential 11 housing that is part of a strategy to end isolation federal, state or local programs in its economic diversity. These activities of very low-income households by providing Underserved Markets Plan, the economic diversity though mixed-income housing 11 In a separate context, the Federal Home Loan in low- or moderate-income neighborhoods, or Enterprise must provide FHFA with Banks’ Affordable Housing Program has long providing very low- or low- or moderate-income clear information that defines the recognized the role of reducing economic isolation households with housing opportunities in program and its eligibility under one of in housing affordability and provides incentives for neighborhoods or cities where the median income the three underserved markets the development of projects that promote economic equals or exceeds the median income for the larger diversity in the housing market. Under the surrounding area, such as the city, county, or consistent with the purpose and scope applicable regulation, a Federal Home Loan Bank Primary Metropolitan Statistical Area, in which the of this proposed rule. Such programs may award scoring points for projects that promote neighborhood or city is located.’’ See 12 CFR include, for example, state housing ‘‘economic diversity,’’ defined as ‘‘[t]he financing of 1291.5(d)(5)(vi)(H).

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Objective calculated at the end of the requires evaluation of an Enterprise’s Enterprise’s Charter Act.18 FHFA has evaluation period. This comparison ‘‘development of loan products, more directed the Enterprises to refrain from would not create specific quantitative flexible underwriting guidelines, and making grants because they are in targets or evaluate an Enterprise based other innovative approaches to conservatorship. Accordingly, during solely on the volume of loans providing financing to each’’ the period of conservatorship, FHFA purchased, which are prohibited by the underserved market.14 A Plan Objective does not intend to provide credit to the Safety and Soundness Act.12 Rather, could describe, for example, how the Enterprises for making grants. quantitative benchmarks would be a Enterprise would reevaluate its In addition to the four statutory measurement component of the underwriting guidelines, which could assessment factors, the proposed rule evaluation process, authorized by the include empirical testing of different includes a non-mandatory criterion for Safety and Soundness Act’s parameters and modification of loan evaluating the Enterprises’ performance establishment of the loan purchase products in an effort to increase the on qualifying activities (described in assessment factor. Objectives may cover availability of loans to families targeted this SUPPLEMENTARY INFORMATION and in a single year or multiple years and must by the Duty to Serve, consistent with § 1282.37 of the proposed rule), for meet all of the following requirements: prudent lending practices. FHFA which the Enterprises could earn • Strategic. Directly or indirectly expects the Enterprise to identify additional Duty to Serve credit when maintain or increase liquidity to an underwriting obstacles that could they include qualifying activities that underserved market; prevent service to very low-, low-, and promote residential economic diversity • Measurable. Provide measureable moderate-income families. in their Underserved Markets Plans. benchmarks, which may include • Loan Purchase Assessment Factor. Under this criterion, FHFA would numerical targets, that enable FHFA to The loan purchase assessment factor evaluate the Enterprises on the extent to determine whether the Enterprise has requires FHFA to consider ‘‘the volume which their qualifying activities achieved the Objective; promote residential economic diversity • of loans purchased in each of such Realistic. Calibrated so that the underserved markets relative to the in an underserved market in connection Enterprise has a reasonable chance of market opportunities available to the with mortgages on: (1) Affordable housing in high opportunity areas; or (2) meeting the Objective with appropriate [E]nterprise.’’ 15 The Safety and mixed-income housing in areas of effort; Soundness Act further states that FHFA • concentrated poverty. This would be a Time-bound. Subject to a specific ‘‘shall not establish specific quantitative criterion for which extra credit may be timeframe for completion by being tied targets nor evaluate the [E]nterprises given for planned activities, but the to Plan calendar year evaluation based solely on the volume of loans activities associated with the criterion periods; and purchased.’’ 16 A Plan Objective could • Tied to analysis of market would not be mandatory activities for include the Enterprise’s plans for opportunities. Based on assessments the Plans. FHFA specifically requests purchasing loans in particular and analyses of market opportunities in comments on all aspects of the proposed underserved markets, including its each underserved market, taking into criterion, including how the residential assessments and analyses of the market account safety and soundness economic diversity activities for extra opportunities available for each considerations. credit should be defined and assessed. underserved market and its expected Activities in each of the underserved 5. Assessment Factors Incorporated Into volume of loan purchases for a given markets would be eligible for extra Objectives—Proposed § 1282.32(c)(3) year. credit for residential economic diversity Under § 1282.32(c)(3) of the proposed Although the proposed rule would (‘‘qualifying activities’’) except for rule, each Underserved Markets Plan not establish quantitative targets, FHFA manufactured housing communities Objective would be required to would consider the Enterprise’s past activities, energy efficiency incorporate one or more of the following performance on the volume of loans improvement activities, and any four statutory assessment factors: purchased in a particular underserved Additional Activities determined by • Outreach Assessment Factor. The market relative to the volume of loans FHFA as ineligible. FHFA proposes outreach assessment factor requires the Enterprise actually purchases in that excluding manufactured housing evaluation of ‘‘the extent of outreach [by underserved market in a given year community activities because of the lack the Enterprises] to qualified loan sellers pursuant to its Plan. In reviewing the of information on tenants’ total monthly and other market participants’’ in each Plan and the loan purchase assessment housing costs, which would be of the three underserved markets.13 A factor, FHFA would take into account necessary for FHFA to assess the Plan Objective could describe how an difficulties in forecasting future affordability of the units. Nor is the Enterprise would engage market performance and the need for flexibility proposed proxy for determining participants, such as through in dealing with unexpected market manufactured housing community conducting meetings and conferences changes. affordability, which relies on the with current and prospective seller/ • Investments and Grants Assessment income level of the census tract instead servicers and providing technical Factor. The investments and grants of on monthly housing costs, useful for support to seller/servicers, in order to assessment factor requires evaluation of estimating whether a manufactured accomplish a Plan activity. Market ‘‘the amount of investments and grants housing community contributes to participants could include traditional in projects which assist in meeting the residential economic diversity. FHFA participants in Enterprise programs, as needs of such underserved markets.’’ 17 also proposes to exclude activities well as non-traditional participants such A Plan Objective could include related to energy efficiency as consortia sponsored by banks, and investments. As with all activities, the improvements as they typically do not local and state governments. investments must comply with the relate to the siting of housing and, thus, • Loan Product Assessment Factor. do not appear to further residential The loan product assessment factor 14 Id. at (d)(2)(A). economic diversity. 15 Id. at (d)(2)(C). 12 12 U.S.C. 4565(d)(2)(C). 16 Id. 18 12 U.S.C. 1451 et seq. and 12 U.S.C. 1716 et 13 Id. at (d)(2)(B). 17 Id. at (d)(2)(D). seq.

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Requests for Comments can be implemented that would Underserved Markets Plans during the FHFA specifically requests comments promote transparency and increase the period of the Plans. The 2010 Duty to on the following questions (please opportunity for productive stakeholder Serve proposed rule would not have identify the question answered by the input in the Underserved Markets Plan permitted modifications. In their comments on the 2010 proposed rule, number assigned below): process, while preserving the proprietary and confidential nature of both Enterprises stated that they should 4. Are the requirements for Objectives Enterprise data and information. be able to modify their Plans, citing the discussed above appropriate, and Soliciting public input could help the uncertainty and volatility in the should there be any additional Enterprises to develop information mortgage markets, and the Enterprises’ requirements? about underserved market needs and need to determine whether their market 5. Should Duty to Serve credit be how they might be met so that the estimates are accurate, assess given under the loan products Enterprises can make better judgments performance against goals, and update assessment factor for an Enterprise’s in formulating their Underserved business forecasting. FHFA finds these research and development activities that Markets Plan Activities and Objectives. comments persuasive. may not show results in their initial Accordingly, the proposed rule would Accordingly, the proposed rule would phase, but which may be necessary for provide that as soon as practical after an permit an Enterprise to modify its final long-term product planning and Enterprise submits its proposed Plan to Plan during its three-year term, subject development for underserved markets? FHFA for review, FHFA will post on to FHFA non-objection. It would also 6. Has FHFA adequately defined the FHFA’s Web site a public version of the permit FHFA, in its sole discretion, to scope of extra credit for the proposed proposed Plan that omits proprietary require an Enterprise to modify a final residential economic diversity and confidential data and information. Plan. Instances in which FHFA might activities? Has FHFA chosen the correct The public would have 45 days to permit or require an Enterprise to activities that should be excluded from provide input on the public version of modify its Plan include changes in qualifying for extra credit for residential the proposed Plan. Seeking public input market conditions (including obstacles economic diversity activities? Also, see on the proposed Plans would encourage and opportunities) or significant safety description of proposed § 1282.37 and participation by stakeholders, including and soundness concerns that arise after Requests for Comments. lenders, industry participants, local an Enterprise implements its Plan. 6. Underserved Markets Plan government, community groups, and the FHFA and the Enterprises may seek Submission and FHFA Review— broader public. In its discretion, each public input on any proposed Proposed § 1282.32(d)(1) Enterprise would make revisions to its modifications to a final Plan if FHFA proposed Plan based on the public determines that public input would Section 1282.32(d)(1) of the proposed input. assist its consideration of the proposed rule would require the Enterprises to modifications. Should a final Plan be submit their proposed Underserved b. FHFA Plan Review Process— modified, the modified Plan with Markets Plans to FHFA at least 180 days Proposed §§ 1282.32(d)(4), confidential and proprietary before the termination date of the 1282.32(d)(5), 1282.32(e), 1282.32(f) information omitted would be posted on Enterprise’s existing Plan, except that The proposed rule would provide that the Enterprise’s and FHFA’s Web sites. the Enterprise’s first proposed Plan after within 60 days after the end of the the effective date of this regulation must public input period, FHFA will inform 8. Enterprise New Products and New be submitted to FHFA pursuant to each Enterprise of any FHFA comments Activities FHFA-established timeframes and on its proposed Plan. The Enterprise Enterprise new products and new procedures. would be required to address those activities are subject to the prior a. Posting of Proposed Underserved comments, as appropriate, through approval and prior notice requirements, Markets Plans, Public Input and revisions to its proposed Plan pursuant respectively, that FHFA established by Enterprise Review—Proposed to timeframes and procedures regulation pursuant to the Safety and 19 § 1282.32(d)(2), 1282.32(d)(3) established by FHFA. Soundness Act. FHFA expects the After FHFA is satisfied that all of its Enterprises to meet the loan product Section 1282.32(d)(2) of the proposed comments have been addressed, FHFA assessment factor through activities that rule would provide a process for public would issue a ‘‘non-objection’’ to the do not rise to the level of new products. input on the Enterprises’ proposed Plan. The effective date of the Plan For example, an Enterprise could Underserved Markets Plans. A number would be January 1st of the first modify its underwriting guidelines for of commenters on the 2010 Duty to evaluation year for which the Plan is existing loan products and develop Serve proposed rule suggested that the applicable, except for the Enterprise’s innovative approaches to financing that Enterprises’ proposed Plans be first Plan after the effective date of the do not constitute new products, published for comment because doing final rule, whose term and effective date consistent with safety and soundness so could improve the Enterprises’ and would be determined by FHFA. and the requirements of FHFA’s assessment of the adequacy of After receiving FHFA’s non-objection conservatorship. However, if an the Plans. Commenters stated that to its Plan, an Enterprise would post the Enterprise determines that a new public comment could add to the final Plan on the Enterprise’s Web site product or activity would facilitate its innovation and impact of the Duty to with confidential and proprietary duty to serve obligations and would be Serve obligations on the underserved information omitted. FHFA would also consistent with safety and soundness, it markets. Both Enterprises opposed post the final Plan with confidential and may propose such product or activity publishing the proposed Plans for proprietary information omitted on for FHFA consideration. public comment on the basis that the FHFA’s Web site. Plans would contain proprietary and Requests for Comments confidential data and other information. 7. Modifying Final Underserved Markets FHFA specifically requests comments After taking into account the Plans—Proposed § 1282.32(g) on the following questions (please commenters’ opposing views, FHFA has Section 1282.32(g) of the proposed concluded that a public input process rule would permit modifications of final 19 See 12 U.S.C. 4541; 12 CFR part 1253.

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identify the question answered by the In developing specific proposals for market for mortgages on residential numbers assigned below): Enterprise support of activities for the properties for very low-, low- and 7. Is there an alternative mechanism manufactured housing market that moderate-income families consisting of to an Underserved Markets Plan that would receive Duty to Serve credit, manufactured homes titled as real would better enable FHFA to evaluate FHFA took into account the needs of property and manufactured the Enterprises’ Duty to Serve very low-, low-, and moderate-income communities, subject to FHFA obligations? families, the particular importance of determination of whether such activities 8. Should the Enterprises be required manufactured housing, and the are eligible for Duty to Serve credit. to prepare Underserved Markets Plans availability of its financing for these i. Manufactured Homes—Proposed for terms with a period other than three households. In determining eligible § 1282.33(c)(1) years? activities for the manufactured housing 9. Should public input be sought on market, FHFA considered the safety and Under proposed § 1282.1, the Enterprises’ proposed Underserved soundness implications for the ‘‘manufactured home’’ would mean a Markets Plans and, if so, is there a more Enterprises. manufactured home as defined in effective approach than the proposed section 603(6) of the National approach? b. Regulatory and Additional Manufactured Housing Construction Activities—Proposed §§ 1282.33(c), C. Underserved Markets and Safety Standards Act of 1974, and 1282.33(d) implementing regulations. 1. Manufactured Housing Market— The Safety and Soundness Act Manufactured homes are built entirely Proposed § 1282.33 provides that the Enterprises ‘‘shall in the factory, transported to the site, a. Background develop loan products and flexible and installed under a federal building underwriting guidelines to facilitate a Very low-, low-, and moderate-income code administered by the U.S. secondary market for mortgages on households have significant housing Department of Housing and Urban manufactured homes for very low-, 25 needs in the current environment. Development (HUD). Activities related low-, and moderate-income families.’’ 24 Manufactured housing is widely to homes manufactured before June 15, recognized as a significant source of The statute does not enumerate specific 1976, generally referred to as ‘‘mobile 26 housing for such households. In the activities or programs that the homes,’’ would not receive Duty to United States, as of 2013, 6.7 million Enterprises must undertake in support Serve credit. households resided in manufactured of the manufactured housing market. Different ownership, titling, and housing, or 5.8 percent of all Section 1282.33(b) of the proposed rule financing structures are available for households, according to the 2013 would specify eligible activities for the manufactured housing, and this has a American Community Survey.20 In underserved manufactured housing major impact on loan origination, many cases, manufactured housing may market as activities that facilitate a servicing, and securitization offer the only affordable secondary market for mortgages on requirements and practices. The unit homeownership opportunity for lower- residential properties for very low-, may be titled and owned as personal income households.21 In 2013, the low-, and moderate-income families property (chattel) or as real estate, average sales price of a manufactured consisting of: i. Manufactured homes depending on factors such as the home was $64,000, while the average titled as real property; and ii. property characteristics and state law. sales price of a site-built home, less the manufactured housing communities. The borrower may or may not own the cost of the land, was $249,429.22 Manufactured homes titled as personal land underlying the unit. About three- Adjusted for size, manufactured homes property are excluded from eligibility. fifths of manufactured housing residents still have significantly lower average Section 1282.33(c) of the proposed who own their home also own the land costs per square foot than site-built rule would provide Duty to Serve credit on which it is sited.27 For example, homes: $43.54 as compared with for four specific types of activities, $93.70.23 which would constitute Regulatory 25 See 42 U.S.C. 5402(6), and implementing Activities that the Enterprises must regulations. address in their Underserved Markets 26 See Manufactured Housing Institute, 20 Freddie Mac, ‘‘2015 Multifamily Outlook— ‘‘Frequently Asked Questions’’ (Web site), available Executive Summary, Multifamily Research Plans by either indicating how they at http://www.manufacturedhousing.org/lib/ Perspectives,’’ at 16 (Feb. 2015), available at http:// choose to undertake the Regulatory showtemp_detail.asp?id=208&cat. www.freddiemac.com/multifamily/pdf/ 27 _ Activity or the reasons why they will See CFPB, ‘‘Manufactured-housing consumer 2015 outlook.pdf. not undertake the Regulatory Activity. finance in the United States,’’ at 6 (Sept. 2014) 21 Both Delaware and North Carolina have The proposed Regulatory Activities are: [hereinafter ‘‘CFPB White Paper’’], available at statutes that cite the importance of manufactured http://files.consumerfinance.gov/f/201409_cfpb_ housing as the only affordable option for many low- 1. Mortgages on manufactured homes report_manufactured-housing.pdf. See Foremost and moderate-income households and the impetus titled as real property under the laws of Insurance Group, ‘‘2012 Mobile Home Market for requiring various protections for owners of the state where the home is located; and Facts’’ at 8 (2012), available at http://www.foremost. manufactured housing units. See 25 Del. C. § 7040; 2. Mortgages on manufactured com/mobile-home-market-facts/2012-Market- N.C. Gen. Stat. 160A–383.1 (2001). See also, R.I. housing communities provided that: Facts.pdf. But see L.A. Kovach, ‘‘CFPB Report Gen. Laws 31–44.1–1. Congress has also found that alleges Manufactured Housing Lending is manufactured homes provide a significant resource i. The community has 150 pads or Expensive, sparks controversial comments from for affordable homeownership. See 42 U.S.C. less; CFED, MHI and other MH industry professionals,’’ 5401(a)(2). ii. The community is government-, available at http://www.mhmarketingsales 22 See U.S. Commerce Department, Census nonprofit-, or resident-owned; or management.com/home/industry-news/industry-in- Bureau, ‘‘Cost & Size Comparisons For New iii. The community has certain focus/8460-cfpb-report-alleges-manufactured- Manufactured Homes and New Single-Family Site- housing-lending-is-expensive-sparks-controversial- Built Homes’’ (2007–2013) [hereinafter ‘‘Census minimum specified pad lease comments-from-cfed-mhi-and-other-mh-industry- Table’’], available at http://www.census.gov/ protections for tenants. professionals. According to this article, the construction/mhs/pdf/sitebuiltvsmh.pdf. The figure The Enterprises’ Underserved Markets President of 21st Mortgage Corporation disputes for site-built homes was arrived at by subtracting Plans may also include Additional CFPB’s figure for land ownership by manufactured the ‘‘Derived Average Land Price’’ ($75,071) from housing borrowers, stating instead that about 26 the average sales price for a new single-family site Activities that facilitate a secondary percent of its chattel loan borrowers reported built home ($324,500). See id. owning their land. Id. Further, he states that some 23 Id. 24 12 U.S.C. 4565(a)(1)(A). Continued

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most new manufactured homes are sited financing by the Enterprises, generally calculation varied dramatically from on private land and not in manufactured via form letters. Many emphasized their dealer to dealer and made analysis and housing communities.28 Loans inability to sell their homes due to a statistical modeling extremely financing manufactured homes may be scarcity of chattel financing for potential challenging. In addition, the secured by a lien solely on the unit, buyers. transactions also had much higher separate liens on the unit and the The SUPPLEMENTARY INFORMATION for default rates and loss severities, which underlying land, or a single lien the 2010 Duty to Serve proposed rule may be aggravated because the units covering both the unit and the highlighted performance concerns about depreciate substantially, and channels underlying land. The units themselves chattel lending and also discussed their for reselling repossessed units can be tend to depreciate in value.29 After high interest rates, disadvantageous loan limited.36 Moreover, chattel-titled units about three years, the typical features, and relative paucity of sited in manufactured housing manufactured home has a wholesale borrower protections.32 These concerns communities may further lose value if value of about half its original price.30 remain, and some bear reiteration. they are subject to continuously The Safety and Soundness Act There is no current secondary market increasing rents for the land on which provides that in determining whether an for recent-vintage, conventional chattel the units are located.37 Enterprise has complied with the Duty loans 33 and the Enterprises do not buy A 2014 white paper by the Consumer to Serve the manufactured housing them.34 Thus, analyzing performance Financial Protection Bureau (CFPB) market, FHFA may consider loans data for conventional chattel loans is found that chattel loans have had higher secured by both real and personal challenging. However, in Fannie Mae’s interest rates (range from 50 to 500 basis property.31 As with the 2010 Duty to limited experience with chattel loans, points higher) and ‘‘APRs on chattel Serve proposed rule, § 1282.33(c)(1) of the loans performed poorly.35 Despite loans are about 150 basis points higher this proposed rule would provide credit Fannie Mae’s efforts, the chattel on average than for mortgages on for Enterprise activities that facilitate a transactions revealed high levels of manufactured homes,’’ despite the lack secondary market for manufactured inconsistency in the quality and of economically substantial differences homes titled as real property but not as standardization of loan documentation. in income, debt-to-income ratios, credit chattel. For example, something as basic as the scores, and loan-to-value ratios with real FHFA received comments on the 2010 value used in the loan-to-value estate-titled borrowers.38 These Duty to Serve proposed rule favoring disparities in rates might result in large Enterprise support for chattel financing 32 See 75 FR 32099, 32103–32104 (June 7, 2010). measure from the significant from the manufactured housing For a discussion of borrower protections inapplicable to chattel borrowers, see generally depreciation in the value of chattel industry, Members of Congress, and collateral, but the question remains some consumer advocates. Many of CFPB, ‘‘Manufactured-housing consumer finance in the United States,’’ at 6 (Sept. 2014), available at whether this fully accounts for the these commenters noted that chattel is _ _ http://files.consumerfinance.gov/f/201409 cfpb differential in loan pricing. Chattel the far greater part of the manufactured report_manufactured-housing.pdf; Ann M. loans also lack the benefit of many housing market and that most Burkhart, Bringing Manufactured Housing into the federal laws and programs that assist manufactured housing borrowers would Real Estate Finance System, 37 Pepp. L. Rev. 427 (Mar. 2010). For a discussion of the benefits of real estate-titled borrowers, including in not have received any assistance under chattel financing, see generally Letter from part or in whole, the Making Home the 2010 Duty to Serve proposed rule. Manufactured Housing Association for Regulatory Affordable Program of 2009, the Helping In addition, more than 3,700 individuals Reform to Cong. Johnson & Cong. Crapo (Oct. 28, Families Save Their Homes Act of 2009, commented in support of chattel 2013), available at http:// www.mhmarketingsalesmanagement.com/blogs/ the Fraud Enforcement and Recovery daily-business-news/wp-content/uploads/2014/03/ Act of 2009, and the Real Estate people report owning their land when the land is MHARRO1-sent-to-Ohio-Association-member- 39 actually owned by a family member. Id. addressed-to-Senate-Banking-Committee-1.pdf. Settlement Procedures Act (RESPA). 28 In 2013, 70 percent of new manufactured 33 See generally CFPB White Paper, supra note 27, homes for residential use were placed on private at 38 (‘‘It is likely that most of the loans held in 36 See Martin V. Lavin, ‘‘Guerrilla Servicing, land but only 30 percent were placed in portfolio are chattel loans, for which secondary Manufactured Home Merchandiser,’’ at 31–32 (Apr. manufactured housing communities. See Census market demand has been depressed over the last 2001), available at http://www.martylavin.com/ Table, supra note 22. decade.’’). But see Bloomberg, ‘‘Manufactured writings/4.01%20lavin%20guerilla.pdf. By contrast, 29 See Martin V. Lavin, Prologue to Saving Chattel Housing May Be a Key to Unraveling Affordability the mortgages purchased by Freddie Mac on real Lending, Industry Voices—Letters to the Editor and Puzzle,’’ BloombergBrief/Real Estate (Mar. 6, 2015), estate-financed manufactured housing units have OpEd by & for MH Industry Pros (June 23, 2011), available at http:// performed within Freddie Mac’s expectations. available at http://www.mhmarketingsales newsletters.briefs.bloomberg.com/document/ Fannie Mae reports that its mortgages on real estate- management.com/blogs/industryvoices/tag/saving- 2lz149ood4qz14ihabp/qampa-stephen-wheeler-of- financed manufactured housing units, which meet chattel-lending/; Asset-Backed Certificates, Series has-capital-?hootPostID=fcb6a370a97507fc different eligibility requirements than Fannie Mae’s 2006–OPT2, Registration Statement No. 333– 986a2e855f0ecf76. A new market entrant, HAS standard products, are performing similarly to 127352 (Mar. 13, 2006) (Prospectus) (‘‘Because Capital, has a goal of bringing new asset-backed single-family mortgages overall, although in the manufactured homes generally depreciate in value, securities collateralized by chattel-financed units to event of default, manufactured housing generally it is unlikely that repossession and resale of a the capital markets within the next 12 to 18 months. results in higher loss severity than other single- manufactured home will result in the full recovery See id. family property types. of the outstanding principal and unpaid interest on 34 See Fannie Mae, ‘‘Manufactured Housing 37 See Martin V. Lavin, ‘‘Saving Chattel Lending, the related defaulted Manufactured Housing Requirements, Clarifications, and New Forms,’’ at 6 Manufactured Home Merchandiser,’’ at 22 (Dec. Contract.’’), available at http://www.sec.gov/ (June 15, 2007), available at https:// 2007), available at http://www.martylavin.com/ Archives/edgar/data/1356081/000088237706 www.efanniemae.com/sf/guides/ssg/annltrs/pdf/ writings/saving-chattel-lending.pdf; Kevin Jewell, 000772/d454063_fwp.htm. 2007/0706.pdf; Freddie Mac, ‘‘Manufactured Homes Consumers Union Southwest Regional Office, 30 See Katherine MacTavish, Michelle Eley & Underwriting Reminders,’’ at 1 (Dec. 2008), ‘‘Manufactured Housing Appreciation: Stereotypes Sonya Salamon, ‘‘Policy and Practitioner available at http://www.FreddieMac.com/learn/ and Data’’ (Apr. 2003), available at http:// Perspective: Housing Vulnerability Among Rural pdfs/uw/manuf_home.pdf. consumersunion.org/pdf/mh/Appreciation.pdf. Trailer-Park Households,’’ 13 Georgetown J. Poverty 35 See Fannie Mae, ‘‘Manufactured Housing 38 See CFPB White Paper, supra note 27, at 6, 36. Law & Policy at 95, 99 (Spring 2006) [hereinafter Securities Status Report’’ (Apr. 15, 2003) (This 39 See Ann M. Burkhart, Bringing Manufactured ‘‘Rural Trailer-Park Households’’]. See generally document is a part of the ‘‘Resource Library’’ of the Housing into the Real Estate Finance System, 37 Ohio Department of Taxation, Property Taxation of Financial Crisis Inquiry Commission), available at Pepp. L. Rev. 427, 429–430 (Mar. 1, 2010); CFPB Manufactured and Mobile Homes (Bulletin 11, Rev. http://fcic-static.law.stanford.edu/cdn_media/fcic- White Paper, supra note 27, at 24. CFPB’s revised Dec. 2002), available at http://www.tax.ohio.gov/ docs/2003-04-15%20Fannie%20 borrower disclosures under the Truth in Lending portals/0/government/dte_bulletin11rev.pdf. Mae%20Manufactured%20Housing%20 Act and RESPA will not cover ‘‘chattel-dwelling 31 See 12 U.S.C. 4565(d)(3). Securities%20Status%20Report.pdf. loans.’’ See CFPB, TILA–RESPA Integrated

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Also, except in those states where the and Fannie Mae, is generally estate and, therefore, being eligible for debtor must receive notice of the right unavailable for chattel loans. Duty to Serve credit under the rule as to cure a default, a lender can repossess FHFA has considered the relative proposed. The National Conference of a chattel-titled unit immediately upon opportunities, needs, and risks in Commissioners on Uniform State Laws default, without prior notice.40 These addressing affordable housing needs has adopted a model law for enactment repossessions have included through the chattel and real estate by the states that would allow a circumstances in which units were financing channels and has concluded purchaser to elect to title the towed with the residents still in them 41 that, under the proposed rule, the manufactured home as real property and and of significant damage to the unit’s Enterprises may only receive Duty to benefit from many of the same legal porch, deck, air conditioner, plumbing Serve credit for activities related to protections as owners of site-built 48 and septic system.42 facilitating a secondary market for homes. Providing secondary market There are also additional concerns mortgages on individual manufactured support to the real estate-financed about chattel loans from a secondary homes titled as real estate. While chattel manufactured home market raises the market perspective. The risks posed to loans may have some benefits for a potential for very low-, low-, and secondary market investors by bankrupt borrower, such as being easier for the moderate-income families to benefit chattel borrowers are greater than the borrower to qualify for financing and from the associated lower rates, APRs, risks posed by bankrupt real property having lower closing costs 44 than real federal loan modification and borrowers. As discussed in a Fannie estate loans, FHFA believes that the refinancing programs, and enhanced Mae prospectus: disadvantages to the borrower and the consumer protections. Despite these possibilities for real Under certain circumstances, the security safety and soundness considerations for estate-financing of manufactured homes, interest assigned to the trust [for the chattel the Enterprises of currently available FHFA is mindful that some chattel loan] may become subordinate to the chattel loan programs outweigh benefits borrowers have significant financing interests of other parties or may be to the borrower in many instances. needs now. Many current owners of vulnerable to the creditors of [the loan seller] The Enterprises may be able to use in a bankruptcy situation. Further, even if chattel-financed homes are in distress their market presence to expand the use steps are taken initially to perfect the security because of their inability to sell their of real estate financing for manufactured interests in certain of the manufactured homes or refinance into more affordable homes. CFPB estimates that 65 percent homes, if borrowers relocate or sell their loans because chattel financing is of borrowers who own their land manufactured homes, the related security unavailable.49 Moreover, the majority of interests could cease to be perfected. Certain financed their units as chattel rather the manufactured housing market is other laws, including federal and state than as real estate,45 and the bankruptcy and insolvency laws and general chattel-financed, with 78 percent of new Manufactured Housing Institute states manufactured housing units placed in equity principles may limit or delay a that growing numbers of buyers are lender’s ability to repossess and resell the 2013 titled as chattel.50 In view of the 43 opting to place their homes on land they collateral. 46 significant financing needs of chattel are purchasing or already own. borrowers, the safety and soundness and Moreover, insurance comparable to Currently, about three-quarters of the borrower protection concerns discussed private mortgage insurance protecting states have statutorily-defined processes above, FHFA specifically requests the lender, and therefore Freddie Mac for converting a manufactured home’s comments on what improvements could 47 title from chattel to real property. be made in originating and servicing Disclosure rule—Small entity compliance guide, at Improvements and changes in titling 19 (Sept. 2014), available at http:// that would make chattel loans safer for files.consumerfinance.gov/f/201409_cfpb_tila- practices and laws could result in more purchase by the Enterprises. respa-integrated-disclosure-rule_compliance- manufactured homes financed as real The Enterprises could pilot an guide.pdf. initiative to purchase chattel loans, 40 See Asset-Backed Certificates, Series 2006– 44 See CFPB White Paper, supra note 27, at 36. which could familiarize them with the OPT2, Registration Statement No. 333–127352 (Mar. 45 CFPB White Paper, supra note 27, at 6. The 13, 2006) (Prospectus), available at http:// Foremost Insurance Group estimates that 46 percent risk and rewards of chattel financing www.sec.gov/Archives/edgar/data/1356081/ of manufactured homes that they insure are titled and familiarize their counterparties with 000088237706000772/d454063_fwp.htm; Ann M. and financed as chattel even though the borrower the types of origination, servicing, and Burkhart, ‘‘Bringing Manufactured Housing into the owns the underlying land. See Foremost Insurance consumer protection standards that Real Estate Finance System,’’ 37 Pepp. L. Rev. 427, Group, ‘‘2012 Mobile Home Market Facts’’ 8 (2012), 449–450 (Mar. 1, 2010). See also, Amy J. Schmitz, available at http://www.foremost.com/mobile- would be required for any permanent ‘‘Promoting the Promise Manufactured Homes home-market-facts/2012-Market-Facts.pdf. But see Provide for Affordable Housing,’’ at 393, 13 Journal L.A. Kovach, ‘‘CFPB Report alleges Manufactured 48 See National Conference of Commissioners on of Affordable Housing 449 (No. 3) (Spring 2004), Housing Lending is Expensive, sparks controversial Uniform State Laws (Uniform Law Commission), available at http://lawweb.colorado.edu/profiles/ comments from CFED, MHI and other MH industry ‘‘Uniform Manufactured Housing Act’’ (Oct. 1, pubpdfs/schmitz/SchmitzAHCDL.pdf (‘‘MH lenders professionals,’’ available at http:// 2012), available at http://www.uniformlaws.org/ may be especially eager to grab an MH as quickly www.mhmarketingsalesmanagement.com/home/ shared/docs/manufactured_housing/2012_mha_ after default as possible, in light of the perceived industry-news/industry-in-focus/8460-cfpb-report- final.pdf. The model act contains an anti-steering high risks of MH lending and fear that MHs decline alleges-manufactured-housing-lending-is- provision designed to prevent retailers from in value while the loans that they secure go expensive-sparks-controversial-comments-from- steering borrowers towards chattel or real estate ‘underwater’ ’’). cfed-mhi-and-other-mh-industry-professionals. titling. See id. at section 3(b). For a critique of the 41 In re Smith, 296 B.R. 46 (Bnkr. M.D. Ala. 2003); According to this article, the President of 21st model act, see Marc J. Lifset, ‘‘Proposed ULC Consumers Union, ‘‘Manufactured Housing: A Mortgage Corporation disputes CFPB’s figure for Manufactured Home Titling Act’’ (rev. Oct. 31, Home That the Law Still Treats Like a Car,’’ at 2– land ownership by manufactured housing 2011), available at https://www.aba.com/aba/ 3 (2005). See also In re Daniel, 137 B.R. 884 (Mar. borrowers, stating instead that about 26 percent of documents/GeneralCounsel/UniformLaws/ 10, 1992). its chattel loan borrowers reported owning their LifsetReport.pdf. 42 See Giese v. NCNB Tex. Forney Banking Ctr., land. Id. Further, he states that some people report 49 The unavailability of financing for chattel-titled 881 SW.2d 776, 1994 Tex. App. LEXIS 2084 (Tex. owning their land when it is actually owned by a units can, in turn, cause deterioration of App. Dallas 1994). family member. Id. manufactured housing communities and hinder 43 Fannie Mae, Prospectus Supplement, 46 See Manufactured Housing Institute, ‘‘2014 their ability to obtain financing. See Tony Petosa, ‘‘Guaranteed REMIC Pass-Through Certificates Quick Facts—Trends and Information About the Nick Bertino & Creighton Weber, ‘‘Wells Fargo Fannie Mae REMIC Trust 2000–14,’’ at S–10 (Apr. Manufactured Housing Industry’’ (2014). Multifamily Capital, Manufactured Home 10, 2000), available at http://www.fanniemae.com/ 47 CFPB White Paper, supra note 27, at 10. Community Financing Handbook,’’ at 5, 17 (9th ed. syndicated/documents/mbs/remicsupp/2000- Generally, manufactured homes are treated as Spring 2015). 014.pdf. chattel by default. Id. 50 See Census Table, supra note 22.

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chattel financing initiative. However, 11. Should Enterprise support for c. Support for blanket mortgages on there may be substantial difficulties manufactured home loans titled as real manufactured housing communities that with establishing the protections and property be a Regulatory Activity? have certain specified minimum disclosures necessary to make chattel 12. Should the Duty to Serve rule only protections for tenants in the pad leases. loans appropriate for Enterprise give credit for support to manufactured A single manufactured housing support. For example, there may be home borrowers with specific needs, community that fits more than one of substantial difficulties in developing such as current borrowers with real these categories would be eligible for disclosures for borrowers analogous to estate mortgages with excessive coupon additional Duty to Serve credit. those required under RESPA, rates (and what should be considered Proposed § 1282.1 would define particularly the prohibition on unearned ‘‘excessive’’), or current borrowers with ‘‘manufactured housing community’’ as referral fees and the requirements for chattel loans who could benefit from a tract of land under unified ownership disclosures to borrowers of closing conversion to real estate financing? If so, and developed for the purpose of costs,51 and in institutionalizing these what kinds of needs would be providing individual rental spaces for disclosures among market participants. appropriate? the placement of manufactured homes Beyond these operational concerns, 13. Should the Enterprises receive within its boundaries. The homes, developing RESPA-like protections may credit for purchasing chattel loans, on which may be owner-occupied, i.e., require legislative and regulatory an ongoing or pilot basis? If so what chattel-owned, or leased from the changes. The same may be true for improvements should be made in the community owner, are sited on pads. A mandating that chattel borrowers have process for originating and servicing unit owner leases the pad on which the protections and remedies analogous to that would make chattel loans safer for owner-occupied unit is located, adding those that state law affords real estate purchase by the Enterprises and safer this cost to monthly payments on the borrowers in foreclosure. Given the for borrowers? chattel loan for the unit. Leased units considerable challenges and 14. Should Duty to Serve credit be may include the pad in the rent, or may considerable investment an Enterprise available for Enterprise support of require a separate rent for the pad. The chattel pilot would entail, the overall chattel-titled manufactured homes total housing costs for any benefits of a pilot may be uncertain. where the units are sited in manufactured housing community Under § 1282.38(b)(2) of the proposed manufactured housing communities for resident typically include monthly rule, Duty to Serve credit would not be which an Enterprise has purchased the utility payments, which can be provided under any of the three blanket loan and the blanket loan significant.54 underserved markets for Enterprise purchase qualifies for Duty to Serve There are an estimated 50,000 to purchases of Home Ownership and credit? 60,000 manufactured home Equity Protection Act (HOEPA) loans, 15. If FHFA allows Duty to Serve communities nationwide, and they which are not currently eligible for sale credit for Enterprise support of chattel typically have fewer than 200 pads.55 to the Enterprises in any event.52 lending, should the tenant protections Manufactured housing communities as described in ‘‘Manufactured Housing tend to be in rural and lower-income Requests for Comments Communities with Tenant Protections— areas.56 More than 50 percent of rental FHFA specifically requests comments Proposed § 1282.33(c)(2)(iii)’’ below also manufactured homes are concentrated on the following questions (please be required? How could compliance in eight states.57 identify the question answered by the with borrower and tenant protections be The development of new affordable number assigned below): implemented and monitored within the manufactured housing communities 10. What existing Enterprise criteria operational systems and capacities of faces challenges, and the continued (contained in Freddie Mac’s the Enterprises and those of their seller/ existence of many communities that are Manufactured Homes, Publication servicers and other counterparties? located closer to urban areas is Number 387B and Fannie Mae’s Selling ii. Manufactured Housing threatened. Zoning constraints, permit Guide, B5–2 53) for support of Communities—Proposed § 1282.33(c)(2) requirements, and rising land values manufactured home loans titled as real deter the development of new affordable Section 1282.33(c)(2) of the proposed property could be modified to expand communities, while providing rule would provide Duty to Serve credit support for very low-, low-, and for Enterprise activities related to moderate-income families, consistent 54 Rural Trailer-Park Households, supra note 30, facilitating a secondary market for with Enterprise safety and soundness? at 95, 101. mortgages on certain categories of 55 Rural Trailer-Park Households, supra note 30, manufactured housing communities. at 95, 97. See also Manufactured Housing 51 For an overview of RESPA and its protections Under the proposed rule, three specific Association for Regulatory Reform, Letter to FHFA, and requirements, see generally CFPB Consumer 6–7 (Sept. 2, 2009) (comment letter on FHFA’s Duty Laws and Regulations—RESPA (Aug. 2013), types of activities would constitute to Serve Advance Notice of Proposed Rulemaking). available at http://files.consumerfinance.gov/f/ Regulatory Activities that the This trade association advised that 85 percent of 201308_cfpb_respa_narrative-exam-procedures.pdf. Enterprises would have to address in manufactured housing communities have fewer For information on payments that may be improper their Underserved Markets Plans by than 100 units. Id. under RESPA, see generally ‘‘Resolving RESPA’s 56 See Rural Trailer-Park Households, supra note § 8(b) Circuit Split,’’ 73 U. Chi. L. Rev. 1487 (Fall indicating how they will undertake one 30, at 95; Housing Assistance Council, Rural 2006). For information on required disclosures, see or more of the activities or the reasons Housing Research Note, Preserving Affordable 12 U.S.C. 2603; Bureau of Consumer Financial why they will not undertake each of the Manufactured Home Communities in Rural Protection—Real Estate Settlement Procedures Act activities. These three Regulatory America: A Case Study at 3 (Mar. 2011), available (Regulation X), 12 CFR 1024.1 et seq. at http://www.ruralhome.org/storage/documents/ 52 See FHFA, 2014 Annual Housing Report, at 15, Activities are: rcbi_manufactured.pdf. Fn. 22 (Oct. 30, 2014), available at http:// a. Support for blanket mortgages on 57 Freddie Mac, ‘‘2015 Multifamily Outlook— www.fhfa.gov/AboutUs/Reports/ReportDocuments/ manufactured housing communities Executive Summary,’’ Multifamily Research Annual_Housing_Report_2014.pdf. with 150 pads or less; Perspectives, at 16–17 (Feb. 2015), available at 53 See generally Freddie Mac, 1 Single-Family b. Support for blanket mortgages on http://www.freddiemac.com/multifamily/pdf/2015_ Seller/Servicer Guide H33 (Sept. 1, 2015); Fannie outlook.pdf. The states, in order of highest number Mae, Selling Guide, B5–2 (Aug. 25, 2015), available government-, nonprofit-, or resident- of rental manufactured housing units, are North at https://www.fanniemae.com/content/guide/ owned manufactured housing Carolina, Texas, Florida, California, Georgia, South selling/b/index.html. communities; and Carolina, Tennessee and Alabama. Id.

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incentives for owners to convert existing available to communities in secondary the manufactured housing market, and communities to uses other than and tertiary markets, or those that use are likely to be located in lower-income affordable housing.58 Rent controls on septic systems and wells.63 or rural areas.64 Experience suggests communities in some jurisdictions Fannie Mae has been purchasing that, much like small multifamily rental benefit households, but may also blanket loans on manufactured housing properties, small manufactured housing contribute to a community owner’s communities for more than 15 years. communities are more likely to have decision to sell or convert affordable The blanket mortgages purchased by lower pad or unit rents and, therefore, communities.59 At the same time, high- Fannie Mae on manufactured housing may be more affordable to very low-, end communities are becoming more communities have performed as well as low-, and moderate-income families. popular with investors,60 and the other multifamily loans in its portfolio. Small manufactured housing demand for the limited supply of high- Freddie Mac only recently entered the communities often have fewer, if any, end communities for sale has driven up manufactured housing community amenities, have less developed site community prices.61 Some types of market, but its blanket loan program is infrastructure, and tend to have long- manufactured housing communities now fully operational. To date, the term residents.65 While these factors have become highly desirable blanket mortgages purchased by Freddie make smaller manufactured housing investments and have abundant Mac on manufactured housing communities an important source of financing options 62 that may not be communities have performed affordable housing, they can also make consistently with Freddie Mac’s financing more difficult to obtain. 58 See generally Casey J. Dawkins, C. Theodore multifamily portfolio as a whole. Industry observation also indicates Koebel, Marilyn Cavell, Steve Hullibarger, David B. Commenters on the 2010 Duty to that local banks or credit unions Hattis & Howard Weissman, ‘‘Regulatory Barriers to Serve proposed rule were divided as to frequently originate the loans obtained Manufactured Housing Placement in Urban whether the Enterprises should receive Communities,’’ at 107 (Jan. 2011) (Report to HUD), by smaller manufactured housing available at http://www.huduser.org/Publications/ Duty to Serve credit for supporting communities and hold the loans in pdf/mfghsg_HUD_2011.pdf (‘‘Manufactured manufactured housing communities. portfolio. Although permanent housing placements, on the other hand, are Some commenters favored giving credit financing may be available on relatively influenced by a variety of regulatory barriers, only for support of resident-owned favorable terms in the current market, including the lack of by-right zoning, burdensome fees, permits, snow load standards, fire codes, manufactured housing communities, including less expensive loans with zoning codes, subdivision regulations, architectural other commenters recommended giving fixed interest rates for 5-year terms,66 design standards, and environmental regulations.’’). credit for not-for-profit-owned this has not been the case in all market See also Larry Harwood, ‘‘Manufactured Success communities, while other commenters conditions and for all community Today’s land-lease communities provide an alternative niche for investment dollars,’’ CIRE favored giving credit for both types of owners. Similar to the financing options Magazine (Mar.–Apr. 2008), available at http:// communities. FHFA has considered available to small multifamily property www.ccim.com/cire-magazine/articles/ these comments, market changes since owners, the financing more commonly manufactured-success. This article describes 2010, and the housing needs of very available to owners of small incentives for investors to convert manufactured housing communities as follows: low-, low-, and moderate-income manufactured housing communities has The other advantage of owning the land rather households in developing the proposed not been fully amortizing and loan than the homes is that land potentially can be sold requirements for the Duty to Serve the terms have often been short, at the end or developed for another, more profitable, purpose. manufactured housing market, as of which time a balloon payment is due. If located in a developing area, an older mobile The interest rates for loans on small home community can become a very valuable infill further discussed below. manufactured housing communities location sought after by home builders or (1) Small Manufactured Housing commercial property developers and easily can be were more likely to be adjustable and repurposed with minimum demolition expense. An Communities—Proposed may likely have been higher than the institutional owner may have the wherewithal to § 1282.33(c)(2)(i) rates available to owners of larger undertake a redevelopment of the land when the time is right. In fact, today’s stable cash flows Section 1282.33(c)(2)(i) of the communities. coupled with the possibility of a long-term land proposed rule would provide Duty to The manufactured housing play is what motivates some institutional investors Serve credit for Enterprise activities community blanket loans that the to acquire manufactured-home communities. Id. related to facilitating a secondary Enterprises have purchased to date have 59 See Sandy Mazza, ‘‘State Supreme Court rejects market for mortgages on blanket loans tended to be loans on larger Carson mobile home park owner’s rent-control challenge,’’ Daily Breeze (Feb. 3, 2014), available at on small manufactured housing manufactured housing communities. http://www.dailybreeze.com/general-news/ communities, defined as communities Many of the blanket loans purchased are 20140202/state-supreme-court-rejects-carson- with 150 pads or less, which would for age-restricted communities, and are mobile-home-park-owners-rent-control-challenge; constitute a Regulatory Activity. Duty to for properties located in only a few Matt Kettmann, ‘‘California’s Trailer-Parks War: Owners vs. Renters’’ (Jan. 15, 2011), available at Serve credit would be available for these states. Duty to Serve credit is not http://content.time.com/time/nation/article/ communities regardless of the type of needed to provide an incentive for 0,8599,2042710,00.html. ownership—for-profit, government, Enterprise support for blanket loans for 60 See Nancy Olmsted, Marcus & Millichap, nonprofit or resident. well-served manufactured housing ‘‘Investor Demand Strong for Manufactured Small manufactured housing communities that are less likely to have Housing Near Urban Areas,’’ Second Half 2015, Manufactured Housing Research Report, at 1 (2015). communities compose the great bulk of very low-, low-, or moderate-income 61 See Nancy Olmsted, Marcus & Millichap, ‘‘Investors Competing for Limited Supply of Manufactured Home Communities,’’ First Half 64 See generally Rural Trailer-Park Households, Manufactured Home Communities,’’ First Half 2015, Manufactured Housing Research Report supra note 30, at 95–97. 2015, Manufactured Housing Research Report, at 1 (2015). See also, Larry Harwood, ‘‘Manufactured 65 See generally Larry Harwood, ‘‘Manufactured (2015). Success Today’s land-lease communities provide an Success Today’s land-lease communities provide an 62 See Tony Petosa, Nick Bertino & Creighton alternative niche for investment dollars,’’ CIRE alternative niche for investment dollars,’’ CIRE Weber, ‘‘Wells Fargo Multifamily Capital, Magazine (Mar–Apr. 2008), available at http:// Magazine (Mar.-Apr. 2008), available at http:// Manufactured Home Community Financing www.ccim.com/cire-magazine/articles/ www.ccim.com/cire-magazine/articles/ Handbook,’’ at 7 (9th ed. Spring 2015). For a manufactured-success. manufactured-success. discussion of the high desirability of manufactured 63 See Nancy Olmsted, Marcus & Millichap, 66 In steep yield curve environments, such as the housing communities as an investment, see ‘‘Investor Demand Strong for Manufactured current market, interest rates are higher for longer- generally, Nancy Olmsted, Marcus & Millichap, Housing Near Urban Areas,’’ Second Half 2015, term loans. Some buyers opt for shorter-term loans ‘‘Investors Competing for Limited Supply of Manufactured Housing Research Report, at 1 (2015). to take advantage of the lower interest rate.

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families. Although the Enterprises’ nonprofit-, and resident-owned power may lead to ‘‘abuses’’ by the underwriting guides do not exclude communities currently make up a very manufactured housing community small manufactured housing small portion of the overall owner.74 communities, the Enterprises have not manufactured housing community Manufactured housing community been significantly active in this market market, more active support by the tenants face significant costs and segment. Enterprises for these types of ownership difficulties in relocating their units.75 FHFA understands that extra efforts may encourage more manufactured Relocation costs can total between by the Enterprises may be necessary to housing communities to convert to this $3,00076 and $5,000.77 Tenants are support small manufactured housing form of ownership, with the attendant usually responsible for removing their communities due to economies of scale benefits for the residents. own skirting, deck, steps, and and operational considerations.67 landscaping prior to moving their Nevertheless, the Enterprises could play (3) Manufactured Housing Communities units.78 The tenant may not be able to a role in supporting fixed rate, longer- With Tenant Pad Lease Protections— find a new manufactured housing term, fully amortizing financing than is Proposed § 1282.33(c)(2)(iii) community in which to live because currently available for some small Section 1282.33(c)(2)(iii) of the many communities are full or will not manufactured housing communities. proposed rule would provide Duty to accept used units.79 Zoning regulations Serve credit for Enterprise activities in some counties and municipalities (2) Manufactured Housing Communities related to facilitating a secondary prevent the placement of older units.80 Owned by Governmental Units or market for blanket loans on Currently, neither Enterprise will Instrumentalities, Nonprofits, or manufactured housing communities that purchase a mortgage secured by a Residents—Proposed § 1282.33(c)(2)(ii) have certain specified minimum pad manufactured home that has been Section 1282.33(c)(2)(ii) of the lease protections for tenants, which moved.81 proposed rule would provide Duty to would constitute a Regulatory Activity. Serve credit for Enterprise activities Business practices of manufactured 74 See Kingston Mobile Home Park v. Strashnick, related to facilitating a secondary housing rental community owners with 774 A.2d 847, 853 (R.I. 2001), noted in Brown v. market for mortgages on manufactured their tenants vary widely, as with all Shumpert, 2003 R.I. Super. LEXIS 125, Superior Court of Rhode Island, Providence (Oct. 2, 2003, housing communities owned by forms of rental housing. For example, Filed C.A. NO.: PC99–5926, C.A. NO.: PC02–2594). governmental units or instrumentalities, some manufactured housing community 75 Frank Rolfe, ‘‘Why Mobile Home Parks Have nonprofits, or residents, which would owners have sharply raised pad rents or Such An Unfair Advantage in Commercial Real constitute a Regulatory Activity. unexpectedly canceled leases, Estate,’’ available at http:// www.mobilehomeuniversity.com/articles/why- The purpose of these types of particularly where the land has mobile-home-parks-have-an-unfair-advantage-in- manufactured housing communities is appreciated in value due to urban commercial-real-restate.php. See also Drew usually to serve lower-income residents. sprawl.71 Some community owners Harwell, ‘‘Mobile home park investors bet on older, These communities tend to preserve the have reportedly suppressed tenant poorer America,’’ Tampa Bay Times (May 17, 2014), available at http://www.tampabay.com/news/ continued existence of the community, complaints and organizing efforts for business/realestate/mobile-home-park-investors- promote fair treatment of tenants, and tenant associations. Tenants have been bet-on-older-poorer-america/2180277. help preserve permanent affordability.68 displaced as a result of sales of their 76 William Apgar, Allegra Calder, Michael Collins However, these communities often have communities or conversions of their & Mark Duda, Neighborhood Reinvestment 72 Corporation, ‘‘An Examination of Manufactured difficulty obtaining financing due to communities to other uses. A Housing as a Community—and Asset—Building typically lower profitability relative to nationwide scarcity of available sites for Strategy,’’ at 5 (Sept. 2002), available at http:// communities with higher-income relocation of existing manufactured www.jchs.harvard.edu/sites/jchs.harvard.edu/files/ _ _ _ residents.69 One study found that housing units has also allowed some w02-11 apgar et al.pdf. residents of resident-owned 77 See Jessica Nicklos, ‘‘Frank & Dave—Their Life manufactured housing community in the Affordable Housing Industry and Predictions communities ‘‘have consistent economic owners or managers to enforce for the Future,’’ at 9. advantages over their counterparts in restrictive community regulations.73 78 See Tony Guerra, ‘‘The Average Cost to Deliver investor-owned communities, as The Rhode Island Supreme Court has and Set Up a Mobile Home,’’ available at http:// evidenced by lower lot fees, higher homeguides.sfgate.com/average-cost-deliver-set-up- noted that ‘‘special circumstances’’ exist mobile-home-96554.html. average home sales prices, faster home with manufactured housing 79 See Consumers Union, ‘‘Manufactured sales, and access to fixed rate home communities, and unequal bargaining Homeowners Who Rent Lots Lack Security of Basic financing.’’ 70 Although government-, Tenants Rights’’ (Feb. 21, 2001), available at http:// consumersunion.org/pdf/manhome.pdf. But see (rev. 2010), available at http://scholars.unh.edu/ Harold D. Hunt, ‘‘Keys to Successful Manufactured 67 cgi/viewcontent.cgi?article=1009&context=carsey. See George Allen, ‘‘Manufactured-Home Housing Communities,’’ Publication 2101, at 4 71 Communities Come of Age,’’ CCIM Institute (Oct. Rural Trailer-Park Households, supra note 30, (June 4, 2015), available at http:// 1996), available at http://www.ccim.com/cire- at 95, 100. See generally Laura Flanders, recenter.tamu.edu/pdf/2101.pdf. magazine/articles/manufactured-home- ‘‘Affordable Housing for Seniors in the Cross Hairs 80 See Schanzenbach v. Town of La Barge, 706 communities-come-age (‘‘It takes 50 to 75—or even in Chicago,’’ The Nation (May 15, 2012), available F.3d 1277 (10th Cir. 2013); Five C’s, Inc. v. County 100—rental home sites to generate an economy of at http://www.thenation.com/article/affordable- of Pasquotank, 195 N.C. App. 410, 672 SE.2d 737 scale that adequately rewards a passive investor, housing-seniors-cross-hairs-chicago/. (2009). See generally David W. Owens, funds a centralized property management operation 72 Regarding displacement of residents, see ‘‘Manufactured Housing, Modular Housing, and for a syndicator or real estate investment trust Shannon Sims, ‘‘The odd legal limbo for mobile Zoning’’ (May 2014) (School of Government, The (REIT), and provides a satisfactory comfort factor home owners,’’ USA Today (May 4, 2015), available University of North Carolina at Chapel Hill), for most lenders.’’). at http://www.usatoday.com/story/money/2015/05/ available at https://www.sog.unc.edu/resources/ 68 See generally Millennium Housing—Mission 04/ozy-odd-limbo-mobile-home-owners/26866693/. legal-summaries/manufactured-housing-modular- Statement, available at http:// For a discussion of unequal bargaining power housing-and-zoning. www.millenniumhousing.net/asp/Site/About/ between manufactured community owners and 81 See Fannie Mae, Selling Guide, ‘‘B2–3–02: Mission/index.asp. tenants, and related legislative responses, see Special Property Eligibility and Underwriting 69 See generally Millennium Housing—Our ‘‘Validity, construction, and application of mobile Considerations: Factory-Built Housing (04/15/ History, available at http:// home eviction statutes,’’ 43 A.L.R.5th 705 (1996); 2014)’’ (Apr. 15, 2014) (‘‘The unit must not have www.millenniumhousing.net/asp/Site/About/ Bailey H. Kuklin, ‘‘Housing and Technology: The been previously installed or occupied at any other History/index.asp. Mobile Home Experience,’’ 44 Tenn. L. Rev. 765 site or location.’’), available at https:// 70 Sally K. Ward, Charlie French & Kelly Giraud, (Spring 1977). www.fanniemae.com/content/guide/selling/b2/3/ ‘‘Resident Ownership in New Hampshire’s ‘Mobile 73 Rural Trailer-Park Households, supra note 30, 02.html; Freddie Mac, 1 Single-Family Seller/ Home Parks:’ A Report on Economic Outcomes’’ at 95, 99–100. Servicer Guide H33.3(b) (Sept.1, 2015).

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Pad lease protections in manufactured e. Tenants must receive at least 120 Enterprise, the Enterprise may verify housing communities are generally a days advance notice of a planned sale or that such laws apply to the community. matter of state or local law and, thus, closure of the community within which c. Evaluating Affordability for these protections can vary widely.82 In time the tenants, or an organization Manufactured Housing Communities— light of concerns raised about the acting on behalf of a group of tenants, Proposed § 1282.39(g) treatment of tenants in some may match any bona fide offer for sale. manufactured housing communities,83 The community owner shall consider The Safety and Soundness Act the proposed rule would include a list the tenants’ offer and negotiate with provides that the Enterprises’ Duty to of pad lease protections that FHFA them in good faith. Serve manufactured housing activities believes would be appropriate for Duty FHFA recognizes that an individual must be for very low-, low-, and to Serve credit. Specifically, the tenant is unlikely to be able to purchase moderate-income families.85 Under the proposed rule would provide that a community by himself or herself. For statute, ‘‘very low-income’’ is defined as Enterprise support for a manufactured this reason, the pad lease protections having an income of 50 percent or less housing community that has, at a would allow tenants 120 days to match of the area median income, adjusted for minimum, all of the following pad lease any bona fide offer for sale, giving household size; ‘‘low-income’’ is protections would receive Duty to Serve tenants time to form a homeowners’ defined as having an income of 80 credit: association or tenants’ association to percent or less of the area median a. The lease term must be for a purchase the community. income, adjusted for household size; minimum of one year and renewable FHFA believes that the Enterprises and ‘‘moderate-income’’ is defined as absent good cause; 84 can use their market influence in having an income of 100 percent or less b. There must be at least 30 days support of the pad lease protection of the area median income, adjusted for advance written notice of a rent standards described here becoming household size.86 increase; more of a norm in the industry. An Owners of manufactured housing c. There must be at least a five-day Enterprise may verify that the pad leases communities are unlikely to know the grace period for rent payments, and in a manufactured housing community incomes of all of their residents at the tenants must have a right to cure being served by the Enterprise contain, time a blanket loan for the community defaults on rent payments; at a minimum, the specified tenant is originated or sold to an Enterprise. In d. If the tenant defaults on rent protections at the time the Enterprise order for an Enterprise’s purchase of a payments, the tenant must have the purchases the blanket loan by obtaining blanket loan on a manufactured housing right to: a certification to this effect from the community to receive credit under the i. Sell the tenant’s unit without seller/servicer. Sellers and servicers loan purchase assessment factor, an having to first relocate it out of the would not be expected to oversee alternative to requiring the Enterprises community; compliance by the manufactured to obtain the income of the tenants in ii. Sublease or assign the lease for the housing community borrowers with the community is needed. FHFA has unexpired term to the new buyer of the these pad lease provisions. Likewise, previously established a proxy tenant’s unit without any unreasonable FHFA would not require that the methodology for determining restraint; covenants in the blanket loan provide affordability for the Enterprises’ housing iii. Post ‘‘For Sale’’ signs; and for default in the event of non- goals that uses total monthly housing iv. Have a reasonable period of time compliance with the tenant protections costs (rents plus utility costs) instead of 87 after an eviction to sell the unit; and, by the manufactured housing incomes. That methodology would be community borrower. The tenants, in used for determining affordability of 82 See United States Government Accountability their discretion, would be responsible multifamily properties under this Office, Report to Congressional Requesters, proposed rule. However, total monthly ‘‘Federal Housing Administration—Agency Should for pursuing any private relief in those Assess the Effects of Proposed Changes to the instances that may be available under housing costs (unit owners’ total Manufactured Home Loan Program,’’ GAO–07–879, state law. monthly note payments plus pad rent at 5 (Aug. 2007), available at http://www.gao.gov/ Some commenters on the 2010 Duty payments adjusted for bedroom size) in new.items/d07879.pdf. The National Consumer Law manufactured housing communities are Center reports, for example, that only 16 states to Serve proposed rule favored tenant require that manufactured housing community pad protections for any loan that receives generally not known to the owners of leases have some minimum lease term, and only 33 Duty to Serve credit. Although the the communities. Accordingly, to states require grounds for evicting residents from a Enterprises are major participants in the determine affordability for community. See National Consumer Law Center, manufactured housing communities, ‘‘Manufactured Housing Resource Guide— manufactured housing community Protecting Fundamental Freedoms in market and have some degree of § 1282.39(g) of the proposed rule would Communities,’’ at 4–5 (Oct. 2010), available at influence, this is currently a highly set forth a methodology that would http://cfed.org/assets/pdfs/groundwork.pdf. apply to manufactured housing 83 See United States Government Accountability competitive market. Requiring the tenant protections for the Duty to Serve communities, regardless of the type of Office, Report to Congressional Requesters, ownership or size of the community. ‘‘Federal Housing Administration—Agency Should eligibility of every manufactured Assess the Effects of Proposed Changes to the housing community loan may simply The methodology would compare the Manufactured Home Loan Program,’’ GAO–07–879, median income for the census tract in at 5 (Aug. 2007), available at http://www.gao.gov/ incentivize community owners to seek funding elsewhere. which the community is located with new.items/d07879.pdf; National Consumer Law the median income for the entire Center, ‘‘Manufactured Housing Resource Guide— Manufactured housing communities metropolitan area in which the census Protecting Fundamental Freedoms in subject to federal, state or local laws Communities,’’ at 4–5 (Oct. 2010), available at tract is located. providing pad lease protections equal to http://cfed.org/assets/pdfs/groundwork.pdf. For example, for a community located 84 or greater than those listed above would For a discussion of the effects of month-to- in a census tract where the median month and annual leases, see Rupert Neate, ‘‘Trailer meet the requirements of the proposed park king sued by residents in Texas for raising rule. As an alternative to obtaining a rents,’’ theguardian (May 11, 2015), available at 85 12 U.S.C. 4565(a)(1)(A). http://www.theguardian.com/us-news/2015/may/ seller/servicer certification of the pad 86 12 U.S.C. 4502. 11/trailer-park-king-sued-by-residents-in-texas-for- lease protections for a community 87 See 80 FR 53392, 53432 (Sept. 3, 2015), to be raising-rents. securing a loan purchased by an codified at 12 CFR 1282.15(d)(1).

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income does not exceed 100 percent of series, the American Housing Survey, Requests for Comments the median income of the area in which shows that, as of 2013, the median FHFA specifically requests comments the census tract is located, all residents income for ‘‘manufactured housing/ on the following questions (please of the community would be deemed to mobile home’’ households was 89 identify the question answered by the have incomes not exceeding 100 percent $28,400, while the estimated median number assigned below): of the area median income and, thus, income nationwide of all homeowners 90 16. Are there other segments of the would meet the definition of ‘‘moderate- was $64,400. In 2009, 22 percent of manufactured housing market besides income’’ in the Safety and Soundness manufactured housing residents had those discussed above that warrant Act. In this case, the entire unpaid incomes at or below the federal poverty 91 Enterprise support under the Duty to principal balance of the loan on such a level. While the data do not indicate Serve, such as communities located in community would receive credit, whether these borrowers reside in lower-income or economically provided the loan meets all other manufactured housing communities, distressed areas? requirements of the regulation. they are indicative generally of the 17. Is the proposed limit of 150 pads For a manufactured housing lower incomes of manufactured housing for an eligible small manufactured community located in a census tract residents and suggest a higher housing community appropriate? Is where the median income exceeds the likelihood that residents of there a different threshold that could median income of the area in which the manufactured housing communities better achieve the purposes of the Duty census tract is located, the area median have lower incomes.92 At the same time, to Serve? income would be divided by the median giving Duty to Serve credit for a 18. Are the proposed pad lease income of the census tract to generate a manufactured housing community that protections appropriate? Should any percentage, which would then be serves both lower-income and higher- additional pad lease protections be multiplied by the unpaid principal income households may be desirable required for an Enterprise to receive balance of the blanket loan. For because it may contribute significant Duty to Serve credit? example, if the census tract’s median benefits to the low- and moderate- 19. Should the proposed pad lease income is $125,000, the area median income households in the community protections be required for any income is $100,000, and the unpaid and to the success and sustainability of manufactured housing community, principal balance of the loan is the community. There is substantial regardless of its ownership or size, to be $1,000,000, the Enterprise would research on the benefits of mixed- eligible for Duty to Serve credit? receive partial Duty to Serve credit of income housing.93 $800,000, as calculated in the following 20. Would the proposed methodology for determining affordability effectively manner: borrowers would disproportionately have incomes approximate the incomes of the Step 1: $100,000 ÷ $125,000 = 80% over 100 percent of area median income. The Step 2: 80% × $1,000,000 = $800,000 figures presented include home purchase and community’s tenants? Are there other refinance loans, but not rehabilitation loans. approaches that could effectively FHFA recognizes that under this 89 U.S. Census Bureau, American Housing Survey approximate the incomes of proposed methodology, the Enterprises (2013, Last Revised: May 14, 2015), Table C–09A– manufactured housing community could receive Duty to Serve credit for AO, available at http://www.census.gov/programs- surveys/ahs/data/2013/national-summary-report- tenants to comply with the Duty to purchases of mortgages on _ and-tables mdash;ahs-2013.html. Serve family income requirements, e.g., manufactured housing communities that 90 See U.S. Department of Housing and Urban the size of the blanket loan on the may have some residents with incomes Development, Notice PDR 2013–01, at 1 (Dec. 11, community or the size of the exceeding the area median income. The 2012), available at http://www.huduser.org/portal/ datasets/il/il13/Medians2013.pdf. community? proposed methodology takes this into 91 See Howard Banker & Robin LeBaron, Fair 21. Could governing or financing account through the partial credit Mortgage Collaborative, ‘‘Toward a Sustainable and documents for the community provide a Responsible Expansion of Affordable Mortgages for component of the methodology. FHFA proxy for resident incomes? For believes that the proposed methodology Manufactured Homes,’’ at 9 (Mar. 2013), available at http://cfed.org/assets/pdfs/IM_HOME_Loan_ communities owned by governmental is a reasonable approach that will result Data_Collection_Project_Report.pdf. units or instrumentalities, would in Duty to Serve credit being provided 92 Some states have made legislative regulations, handbooks or financing for manufactured housing communities determinations finding that manufactured housing serves lower- and moderate-income households that documents specifying income criteria that largely serve income-eligible for the residents be an appropriate households. might otherwise go without housing. See generally N.C. Gen. Stat. 160A–383.1 (2001). See also R.I. indicator of tenant incomes? For Home Mortgage Disclosure Act Gen. Laws section 31–44.1–1; 25 Del. C. section nonprofit-owned and resident-owned (HMDA) data for 2013 show that 64 7040. communities, would the founding percent of originations of loans on 93 See HUD Community Planning and documents for the community, which manufactured housing units were for Development, ‘‘Mixed-Income Housing and the HOME Program’’ (2003), available at http:// describe its mission as serving lower- borrowers with incomes at or below 100 portal.hud.gov/hudportal/documents/ income families, or financing percent of area median income. Forty- _ huddoc?id=19790 200315.pdf. See generally Diane agreements or other documents from eight percent of these borrowers were K. Levy, Zach McDade & Kassie Dumlao, ‘‘Effects funding sources specifying the required very low- or low-income.88 Another data from Living in Mixed-Income Communities for Low-Income Families—A Review of the Literature’’ income levels of intended beneficiaries, (Nov. 2010) (Urban Institute), available at http:// be appropriate indicators of tenant 88 These percentages come from 2013 HMDA data www.urban.org/research/publication/effects-living- on manufactured housing unit loan originations, mixed-income-communities-low-income-families/ incomes? Is there any comparable including borrowers residing in manufactured view/full_report; Robert Chaskin & Mark Joseph, documentation that could be applicable housing communities as well as borrowers who The University of Chicago School of Social Service to communities with for-profit owners, owned the land on which their units were located. Administration, ‘‘Mixed-Income Development e.g., where they have accepted income Borrower income was not reported in HMDA on 14 Study’’ (Spring 2009), available at https:// percent of originations. To arrive at the figures ssascholars.uchicago.edu/mixed-income- restrictions in order to accept Section 8 presented (64 percent at or below area median development-study/content/overview-0. But see vouchers? income and 36 percent above area median income), Robert C. Ellickson, ‘‘The False Promise of the 22. Where the loan seller knows the this 14 percent figure was subtracted from the total Mixed-Income Housing Project,’’ 57 UCLA L. Rev. incomes of the tenants of a and the remainder adjusted proportionately as 983 (2010) (concluding that many recent social- between originations above and below the median. scientific studies weaken the case for government manufactured housing community at FHFA is unaware of any reason the 14 percent of support of mixed-income projects). the time an Enterprise purchases the

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blanket loan on the community, should properties; affordable homeownership desirable markets face particular the incomes be used to determine preservation through shared equity upward rent pressure.99 One way to affordability, and what operational homeownership programs; HUD’s preserve affordability is to give credit concerns might be associated with Choice Neighborhoods Initiative; and for newly constructed rental units transferring the income data to the HUD’s Rental Assistance Demonstration where long-term affordability is Enterprises? program. Under the proposed rule, each required by regulatory agreements, such 23. Are there other loan programs, of these activities would constitute a as for at least 15 years, the standard terms or lending criteria that, if adopted, Regulatory Activity that the Enterprises affordability retention period for rental could increase Enterprise purchases of must address in their Underserved housing. In addition, some of the blanket loans on manufactured housing Markets Plans by describing how they specifically enumerated programs under communities? will undertake the activity or explaining the affordable housing preservation 24. Should FHFA address geographic the reasons why they will not undertake market in the Safety and Soundness Act diversity of the Enterprises’ assistance the activity. The Plans may also include involve new construction, arguably for manufactured housing as part of the Additional Activities that support indicating congressional intent that Duty to Serve manufactured housing housing for very low-, low-, or support for new construction be community financing needs, and if so, moderate-income families consisting of included under this market, although how? affordable rental housing preservation Congress may have intended only that 25. Since manufactured housing and affordable homeownership support for existing properties under community acquisition loans may preservation, subject to FHFA these programs at the point of their support large sales prices on existing determination of whether such activities expiring regulatory agreements be communities which, in turn, may drive are eligible for Duty to Serve credit. included in this market. increases in pad rents and render the FHFA specifically requests comments b. Interpreting ‘‘Preservation’’ communities unaffordable to lower- on whether the term ‘‘preservation’’ income households, should acquisition The Safety and Soundness Act does should be interpreted to allow Duty to loans be ineligible for Duty to Serve not define the term ‘‘preservation’’ for Serve credit for Enterprise support for credit? Are there particular instances the affordable housing preservation both the purchase of permanent where acquisition loans benefit very market. Preservation strategies for construction take-out loans 100 on rental low-, low-, and moderate-income affordable rental housing and properties with long-term affordability households? homeownership differ. regulatory agreements and the purchase 26. Would Enterprise refinance loans i. Affordable Rental Housing of refinanced mortgages on existing be particularly helpful to residents rental properties with long-term because they are long-term, fixed rate For affordable rental housing, affordability regulatory agreements. and relatively low-cost, which reduces preservation is generally understood among affordable housing practitioners ii. Energy Efficiency Improvements on the pressure on community owners to Existing Multifamily Rental Properties increase pad rents? to mean preserving the affordability of the rents to tenants in existing Lowering energy and water use in 2. Affordable Housing Preservation properties, including preventing multifamily buildings will reduce the Market—Proposed § 1282.34 conversion of the properties to market total amount that tenants spend for the a. Background rents at the end of the required long- energy and water that they do use, thus term affordability retention periods, reducing their utility consumption. This The Safety and Soundness Act typically 15 years, which is also the can be considered ‘‘preservation’’ under provides that the Enterprises ‘‘shall time at which major rehabilitation of the the affordable housing preservation develop loan products and flexible properties is usually needed.95 This is market because housing costs are underwriting guidelines to facilitate a consistent with the plain meaning of the typically defined as rent plus utility secondary market to preserve housing term ‘‘preservation,’’ which is costs. Thus, savings in utility affordable to very low-, low-, and maintaining something in its existing consumption that reduce utility moderate-income families,’’ including state.96 The concept of ‘‘preservation’’ expenses may help maintain the overall housing projects subsidized under in the rental housing context is not affordability of rental housing for certain specified federal grant, subsidy generally understood to include new tenants. Accordingly, under the and mortgage insurance programs construction of rental properties. proposed rule, Enterprise support for enumerated in the Act.94 Section However, the population has been energy and water efficiency 1282.34(c) of the proposed rule would expanding while the stock of affordable improvements on existing multifamily provide Duty to Serve credit for rental housing has been shrinking.97 properties affordable to very low-, low- Enterprise activities related to The rate of new construction of , and moderate-income families would facilitating a secondary market for affordable rental housing has not kept be a Regulatory Activity, provided there mortgages on housing under any of pace with the demand.98 Further, more are verifiable, reliable projections or these statutorily-enumerated programs. expectations that the improvements In addition, § 1282.34(d) of the 95 This is the focus of HUD’s Office of Affordable financed by the loan will reduce energy proposed rule would provide Duty to Housing Preservation (recently renamed the Office and water consumption by the tenant by Serve credit for Enterprise activities of Recapitalization). 96 at least 15 percent. The reduced utility related to facilitating a secondary See Cambridge Dictionaries Online, definition of ‘‘preserve.’’ costs derived from the reduced market for mortgages for: Existing small 97 See Evidence Matters, Policy Development and consumption must not be offset by multifamily properties; energy Research, Department of Housing and Urban higher rents or other charges imposed efficiency improvements on existing Development, ‘‘Preserving Affordable Rental by the property owner, and the reduced multifamily rental properties; energy Housing: A Snapshot of Growing Need, Current Threats, and Innovative Solutions,’’ Summer 2013, efficiency improvements on existing available athttp://www.huduser.gov/portal/ 99 Id. owner-occupied single-family periodicals/em/em_newsletter_summer_2013_ 100 The Enterprises purchase permanent fnl.pdf. construction take-out loans but not acquisition/ 94 12 U.S.C. 4565(a)(1)(B). 98 Id. development/construction loans.

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utility costs must offset the upfront supported affordable housing. CNI develop loan products and flexible costs of the improvements within a focuses on creating mixed-income underwriting guidelines to facilitate a reasonable time period. housing and investing in neighborhood secondary market to preserve housing improvements and upgrades. The affordable to very low-, low-, and iii. Energy Efficiency Improvements on proposed rule would provide Duty to moderate-income families, including Single-Family, First-Lien Properties Serve credit for Enterprise activities housing subsidized under’’ the As with multifamily rental properties, supporting permanent financing under following government programs: preservation of affordable single-family CNI. • The project-based and tenant-based properties (homeownership or rental) rental assistance programs under vi. Rental Assistance Demonstration may also encompass lowering home Program Section 8 of the United States Housing energy costs. Lowering energy costs can Act of 1937 (42 U.S.C. 1437f); help a homeowner to continue to afford The proposed rule would establish as • The program under Section 236 of mortgage payments and other housing a Regulatory Activity Enterprise support the National Housing Act (rental and costs and remain in the home or help a for HUD’s Rental Assistance cooperative housing for lower-income tenant afford rent. Under the proposed Demonstration (RAD) program.102 Also families) (12 U.S.C. 1715z–1); rule, Enterprise support for energy created after the enactment of HERA, • The program under Section efficiency improvements on existing the RAD program seeks to improve and 221(d)(4) of the National Housing Act single-family, first-lien properties would preserve distressed, HUD-supported (housing for moderate-income and be a Regulatory Activity provided there affordable housing. The program displaced families) (12 U.S.C. 1715l); are verifiable, reliable projections or enables public housing authorities to • The supportive housing for the expectations that the improvements tap outside sources of capital to elderly program under Section 202 of financed by the loan will reduce utility renovate and preserve housing the Housing Act of 1959 (12 U.S.C. consumption by the homeowner or affordable to very low-income 1701q); tenant by at least 15 percent. The households. The proposed rule would • The supportive housing program for reduced utility costs derived from the provide Duty to Serve credit for persons with disabilities under Section reduced consumption must offset the Enterprise activities supporting 811 of the Cranston-Gonzalez National upfront costs of the improvements permanent financing under the RAD Affordable Housing Act (42 U.S.C. within a reasonable time period, and in program. 8013); • the case of a single-family rental Requests for Comments The programs under title IV of the property, the reduced utility costs must McKinney-Vento Homeless Assistance FHFA specifically requests comments not be offset by higher rents or other Act (42 U.S.C. 11361 et seq.), but only on the following questions (please charges imposed by the property owner. permanent supportive housing projects identify the question answered by the subsidized under such programs; iv. Shared Equity Programs number assigned below): • The rural rental housing program 27. Are there other options on how to under Section 515 of the Housing Act of For affordable homeownership, there interpret preservation of multifamily or 1949 (42 U.S.C. 1485); are no regulatory agreements similar to single-family affordable housing that • The low-income housing tax credit those with affordable rental properties FHFA should consider? (LIHTC) under Section 42 of the Internal that expire at the 15-year point, when 28. Should FHFA require that preservation of the units as affordable preservation activities extend the Revenue Code of 1986 (26 U.S.C. 42); units to lower-income tenants is in property’s regulatory agreement that and • Comparable state and local jeopardy and rehabilitation of the restricts household incomes and rents affordable housing programs.103 property is often needed. Rather, for some minimum number of years, Under § 1282.34(c) of the proposed preservation for affordable such as 10 years, beyond the date of the rule, Duty to Serve credit would be homeownership entails ensuring that Enterprises’ loan purchase? If so, what provided for Enterprise activities related the price of the home is affordable over would be an appropriate minimum to facilitating a secondary market for a long-term period to initial and period of long-term affordability for the mortgages on housing under these subsequent purchasers, whether extended use regulatory agreement? purchasing a newly constructed home 29. Should Enterprise purchases of statutorily-enumerated programs. The or an existing home. Shared equity permanent construction takeout loans Enterprises would be required to programs offer this type of sustainable on new affordable multifamily rental address all of the statutory programs in affordable homeownership. Under the properties with extended-use regulatory their Underserved Markets Plans by proposed rule, Enterprise support of agreements that will keep rents either indicating how they choose to financing under shared equity programs affordable for a specified long-term undertake activities under these that involve the creation of long-term period, such as 15 years or more, receive programs or the reasons why they will affordable homeownership would be a credit under the affordable housing not undertake activities under the Regulatory Activity, as further discussed preservation market? What would be an programs. below. appropriate period of long-term Almost all the subsidized rental units covered by the statutorily-enumerated v. Choice Neighborhoods Initiative affordability for the extended-use regulatory agreements? programs are targeted to very low- or The proposed rule would establish as low-income families. Across the a Regulatory Activity Enterprise support c. Statutory Activities—Proposed country, thousands of multifamily for HUD’s Choice Neighborhoods § 1282.34(c) properties with federal, state or local Initiative (CNI).101 Created after the The Safety and Soundness Act subsidies that serve very low- and low- enactment of HERA, CNI seeks to provides that the Enterprises ‘‘shall income families are at risk of conversion preserve and transform distressed, HUD- to market rate rents.104 Properties 102 Consolidated and Further Continuing 101 42 U.S.C. 1437v; see also http:// Appropriations Act of 2012 (PL 112–55), as 103 12 U.S.C. 4565(a)(1)(B). portal.hud.gov/hudportal/HUD?src=/program_ amended, 42 U.S.C. 1437f note; see also http:// 104 See Joint Center for Housing Studies of offices/public_indian_housing/programs/ph/cn. portal.hud.gov/hudportal/HUD?src=/RAD. Harvard University, ‘‘The State of the Nation’s

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become at risk when rent affordability represent a significant portion of the rehabilitation of multifamily properties, restrictions in the regulatory agreements Enterprises’ existing affordable housing and for permanent financing when or subsidies expire upon loan maturity loan purchases. construction is completed. The program or contract expiration, or upon early Several commenters on the 2010 Duty does not require affordability sale or refinancing of the property, or to Serve proposed rule stated that the restrictions on the rents and there are no when properties have deteriorated and Enterprises’ underwriting guidelines income limits for tenants, thus become unsafe or uninhabitable.105 The were unnecessarily strict and limit their properties financed under this program Enterprises play an important role in ability to provide adequate support for may, and often do, provide market-rate helping to preserve subsidized rental financing of Section 8-assisted housing. housing by purchasing first lien properties. That is because the There is no obvious role for the mortgages that combine refinancing of Enterprises do not recognize all of the Enterprises to support projects funded existing debt with additional financing Section 8 rental income in their loan under the Section 221(d)(4) program for rehabilitation, which enables the underwriting and also require high other than to refinance the original subsidies and the regulatory agreements reserves to protect against annual loans and remove the properties from to be extended. FHFA will pay appropriations risk on HAP contracts.106 the FHA insurance program. In their particular attention to the number of In the commenters’ view, the comments on the 2010 Duty to Serve rental properties nationwide that are at Enterprises’ requirements make proposed rule, both Enterprises stated risk of losing their subsidies and the refinancing more difficult or infeasible, that activities related to refinancing extent of the Enterprises’ support for or result in smaller loan amounts with Section 221(d)(4) loans on affordable helping to preserve this housing fewer funds available for property housing properties should count resource. rehabilitation. Under the Request for towards the Duty to Serve as The Enterprises currently offer Comments section below, FHFA preservation activities if the properties specialized loan purchase programs that specifically requests comments on are affordable and if the use agreement are designed to provide permanent whether there are ways the Enterprises is extended. financing for several of the statutorily- can extend their support for Section 8- Under the Requests for Comments enumerated programs and, in particular, assisted properties, including potential section below, FHFA specifically the Section 8 rental assistance and changes to their underwriting and requests comments on whether there are LIHTC programs, and they actively reserve requirements that are consistent other ways the Enterprises can support participate in the preservation of this with safety and soundness. properties currently funded under the housing stock. However, some of the ii. HUD Section 236 Interest Rate Section 221(d)(4) program. other statutorily-enumerated programs Subsidy Program are either grant programs or FHA full iv. HUD Section 202 Housing Program insurance programs for which there is Under the Section 236 program, HUD for Elderly Households subsidizes the interest rate down to one no known role for the Enterprises’ loan HUD’s Section 202 program for low- percent on mortgages on multifamily purchase programs and no history of income elderly households is a capital properties, known as Interest Reduction their participation. The status of each advance program under which HUD Payments (IRP), in exchange for program and the role that the provides construction or rehabilitation restrictions on the rents to affordable Enterprises could play in assisting each funds and rental subsidies. Properties levels for the term of the mortgage, but is discussed below. financed under this program have long- no fewer than 20 years. HUD data term use agreements for the term of the i. HUD Section 8 Rental Assistance indicate that approximately 110 loan, which can expire upon early sale Program properties have subsidized interest rate or refinancing or at loan maturity and Under HUD’s Section 8 rental loans that will mature in 2015, 2016 and put the properties at risk of conversion assistance program, property owners 2017.107 HUD permits the optional to market-rate rents. Refinancing receive rent payment subsidies from continuation of IRP assistance when Section 202 properties allows the HUD covering the difference between projects assisted under Section 236 are owners to obtain additional funds for the market rent for a unit and the refinanced. Both Enterprises currently rehabilitation and to extend the rental tenant’s rent contribution. This program have specialized programs to purchase subsidies and use agreements.108 has a rent affordability requirement, refinanced mortgages on Section 236 which is that 30 percent of the tenant’s subsidized loans that maintain the Most Section 202 properties are adjusted gross income contribute to rent interest rate subsidy in accordance with refinanced through FHA insurance and utilities. HUD provides rental HUD requirements. Under the Request programs, which offer favorable assistance in the form of vouchers or for Comments section below, FHFA financing terms, including lower debt certificates that move with the specifically requests comments on service coverage ratios, more favorable individual household, or through whether there are ways the Enterprises underwriting treatment of the rental contractual obligations with the can extend their support for the Section subsidy income, higher loan-to-value property owner, known as Housing 236 program. ratios, and longer loan terms than are Assistance Payment (HAP) contracts. offered by conventional mortgage Both Enterprises purchase loans on iii. HUD Section 221(d)(4) FHA lenders. Thus, refinancing under the properties with Section 8 HAP contracts Insurance Programs FHA insurance programs usually results or with units supported by Section 8 HUD’s Section 221(d)(4) FHA in a larger loan amount and more funds vouchers or certificates. Properties insurance program provides financing available to the owner for rehabilitation supported by Section 8 rental assistance for the new construction or substantial and reserves. By actively pursuing Section 202 Housing 2015,’’ at 33–34 (2015), available at http:// 106 ‘‘Appropriations risk’’ is the possibility that refinancing opportunities, the www.jchs.harvard.edu/sites/jchs.harvard.edu/files/ Congress will appropriate no or less funds for a jchs-sonhr-2015-full.pdf. program than requested by the executive branch. 108 See Vincent F. O’Donnell, ‘‘Prepayment and 105 Stewards of Affordable Housing for the Future, 107 HUD Insured Multifamily Mortgages Database, Refinancing of Section 202 Direct Loans—A ‘‘Housing ‘at risk,’’’ available at http:// available at http://www.hud.gov/offices/hsg/comp/ Summary of HUD Notices H 2002–16 and H 2004– www.poah.org/about/at-risk.htm. rpts/mfh/mf_f47.cfm. 21’’ (Feb. 25, 2005).

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Enterprises would provide owners with vii. USDA Sections 515 Rural Housing whether such programs are eligible for more refinancing options and give Programs Duty to Serve credit. Examples of such owners access to adjustable-rate Under USDA’s Section 515 program, comparable programs for multifamily mortgages with lower interest rates and USDA provides direct loans and rental housing that could receive Duty to Serve shorter maturities. In 2011, legislative assistance to develop rental housing for credit include support for properties changes to further facilitate refinancing low-income households in rural that restrict all or a portion of their units of Section 202 properties were enacted locations. Both Enterprises currently for very low-, low-, or moderate-income into law. These changes could further purchase loans originated under the families due to participation in density increase Enterprise opportunities to Section 515 program. Under the Request bonuses or property tax abatements, state or local affordable housing support the recapitalization and for Comments section below, FHFA programs, state LIHTC programs, preservation of Section 202 housing. specifically requests comments on whether there are ways the Enterprises programs for redevelopment of Under the Requests for Comments government-owned land or buildings as section below, FHFA specifically can extend their support for the Section 515 program. affordable housing, and inclusionary requests comments on whether there are zoning requirements.111 other ways the Enterprises can support viii. Federal Low-Income Housing Tax Examples of comparable state and properties currently funded under the Credits (LIHTC) local programs for single-family Section 202 program. Under the LIHTC program, investors affordable housing that could receive Duty to Serve credit include local v. HUD Section 811 Housing Program purchase tax credits to provide equity to neighborhood stabilization programs for Disabled Households off-set the development costs of rental housing properties with long-term (NSP) that enable communities to HUD’s Section 811 program is a regulatory agreements that require the address problems related to mortgage capital advance and rental assistance housing to remain affordable for very foreclosure and abandonment through program for low-income disabled low- or low-income households. The the purchase and redevelopment of persons. Section 811 properties carry no Enterprises offer specialized loan foreclosed or abandoned homes for very low-, low-, or moderate-income debt, and HUD rental subsidies cover purchase programs to refinance and households. After the financial crisis, the difference between operating rehabilitate existing LIHTC properties in state and local government NSPs were expenses and rental income; 109 excess conjunction with extension of their regulatory use agreements, and are an partially funded by HUD. Most cash flow produced by the properties is commenters on the 2010 Duty to Serve minimal. There is no obvious role for important source of financing for preservation of older LIHTC projects. proposed rule that addressed the issue the Enterprises to support projects The Enterprises were significant supported giving credit for Enterprise funded under this program and the LIHTC equity investors from the assistance to the HUD-funded NSP, as Enterprises have never supported inception of the LIHTC program until well as for other state and local mortgage financing under this program. the mid-2000s, but ceased investing foreclosure and abandonment However, under the Request for before entering conservatorship in 2008. prevention programs. FHFA believes Comments section below, FHFA To date, FHFA has not approved that any NSP or other state or local specifically requests comments on Enterprise resumption of this activity. foreclosure and abandonment whether there are ways the Enterprises The LIHTC equity investment market prevention programs that benefit very could support the Section 811 program. has also changed and is now highly low-, low-, or moderate-income families liquid and dominated by bank and could receive Duty to Serve credit. vi. McKinney-Vento Homeless insurance company investors. The Requests for Comments Assistance Act Programs Safety and Soundness Act provides for FHFA specifically requests comments Programs under title IV of the an investment and grants assessment factor when evaluating compliance with on the following questions (please McKinney-Vento Homeless Assistance identify the question answered by the Act provide supportive housing grants the Duty to Serve, and permitting the Enterprises to resume equity number assigned below): to help homeless persons, especially investments in LIHTCs would be one 30. Are there other ways the homeless families with children, way to meet that assessment factor. Enterprises can support the statutorily- transition to independent living. Not- Under the Requests for Comments enumerated programs in addition to for-profit organizations that develop this section below, FHFA specifically those discussed above? supportive housing use a combination requests comments on whether the 31. In what ways, including potential of grant and financing sources, and the Enterprises should resume equity responsible changes to their projects typically do not involve debt investments in LIHTC projects. underwriting and reserve requirements, financing. There is no obvious role for could the Enterprises prudently extend the Enterprises to support projects ix. Comparable State and Local their support for Section 8-assisted Affordable Housing Programs funded under this program and the properties? Enterprises have never supported In addition to the specifically 32. Are there ways in which the mortgage financing under this program. enumerated programs in the Safety and Enterprises could extend their support for the HUD Section 236 Interest Rate However, under the Request for Soundness Act, the Act provides that Subsidy Program? Comments section below, FHFA the Enterprises shall facilitate a secondary market for ‘‘comparable state 33. Are there additional ways in specifically requests comments on which the Enterprises could support whether there are ways the Enterprises and local affordable housing 110 properties currently funded under HUD can support this program. programs.’’ Under the proposed rule, an Enterprise may include such programs in its Underserved Markets 111 Inclusionary zoning refers to local government 109 See HUD, ‘‘Section 811 Supportive Housing planning ordinances that require a specified portion for Persons with Disabilities’’ (HUD Web site), Plan subject to FHFA determination of of the units in newly constructed housing to be available at http://www.hud.gov/offices/hsg/mfh/ reserved for and affordable to very low- to progdesc/disab811.cfm. 110 See 12 U.S.C. 4565(a)(1)(B)(ix). moderate-income households.

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Section 221(d)(4) FHA Insurance 44. If FHFA allows the Enterprises to why they will not undertake the Program? resume LIHTC investments, should activity. 34. Are there other ways in which the FHFA limit such investments to those Both Enterprises support financing for Enterprises could support properties that promote residential economic small multifamily properties through currently funded the HUD Section 202 diversity, for example, by investing in specialized retail loan programs offered Housing Program for Elderly LIHTC properties located in high through their lenders. The housing goals Households? opportunity areas, as proposed to be regulation publicly released in August 35. Are there ways in which the defined in § 1282.1, to address concerns 2015 established, for the first time, a Enterprises could support the HUD raised about the disproportionate siting subgoal for Enterprise purchases of Section 811 Housing Program for of LIHTC housing (non-senior) in low- loans on small multifamily properties Disabled Households? income areas and the effect on that are affordable to low-income 36. Are there ways in which the residential segregation? households. FHFA expects the subgoal Enterprises could support McKinney- 45. Should FHFA consider permitting to be met through the Enterprises’ retail Vento Homeless Assistance Act the Enterprises to act as the guarantor of loan purchase activities. However, programs? equity investments in projects by third- several commenters on the 2010 Duty to 37. Are there other ways in which the party investors provided any such Serve proposed rule stated that the Enterprises could extend their support guarantee is safe and sound and Enterprises should do more to support for the USDA Section 515 Rural consistent with the Enterprise’s Charter the financing needs of small multifamily Housing Program? Act? If so, what types of guarantees properties. 38. Are there other federal affordable should the Enterprises offer? Small multifamily properties are often housing programs that the Enterprises older than larger properties, have fewer, could support that should receive Duty d. Regulatory and Additional Activities if any, amenities, and tend to have more to Serve credit but that are not Section 1282.34(d) of the proposed affordable rents. These factors make enumerated in § 1282.34(c) of the rule identifies four additional affordable small multifamily properties an proposed rule? housing preservation activities that important source of affordable rental 39. What safety and soundness would receive Duty to Serve credit. housing and they can also make concerns should be considered in Under the proposed rule, these activities financing more difficult to obtain. As determining Enterprise participation in would constitute Regulatory Activities discussed in the Notice accompanying any of the programs discussed above? which the Enterprises must address in the final housing goals rule, much of the 40. Are there other state or local their Underserved Markets Plans by financing needs of small multifamily affordable housing programs for indicating how they plan to undertake property owners are met through loans multifamily or single-family housing the activity or stating the reasons why provided by smaller local and regional that the Enterprises could support that they will not. Each proposed Regulatory banks, and by community-based should be eligible to receive Duty to Activity addresses market segments for lenders. Most of these loans are Serve credit in addition to those which the Enterprises already provide originated for the lenders’ own discussed above? some level of support. Proposed portfolios and the lenders may cease 41. Should FHFA allow the § 1282.34(e) would provide that the making small multifamily property Enterprises to resume LIHTC equity Enterprises may also propose loans when their portfolio capacity has investments? Would the resumption of Additional Activities that support the been reached. LIHTC equity investments by the financing of mortgages on residential To encourage the Enterprises to Enterprises benefit the financial properties for very low-, low-, or expand their support for this market feasibility of certain LIHTC projects or moderate-income families consisting of segment, the proposed rule would would it substitute Enterprise equity affordable rental housing preservation provide Duty to Serve credit for funding for private investment capital or affordable homeownership, subject to Enterprise purchases and securitization without materially benefiting the FHFA determination of whether such of loan pools from non-depository projects? activities are eligible for Duty to Serve community development financial 42. If FHFA allows the Enterprises to credit. institutions, community financial resume LIHTC investments, should institutions, and federally insured credit FHFA limit investments to support for i. Small Multifamily Rental Properties— unions meeting an asset cap applicable difficult to develop projects in segments Proposed § 1282.34(d)(1) to community financial institutions, of the market with less investor Section 1282.34(d)(1) of the proposed where the loan pools are backed by demand, such as projects in markets rule would provide Duty to Serve credit existing small multifamily rental outside of the assessment areas of large for Enterprise purchase and properties consisting of five to not more banks or in rural markets or for securitization of loan pools from smaller than fifty units. preservation of projects with expiring banks and community-based lenders, Section 1282.1 of the proposed rule subsidies? Are there other issues that specifically, non-depository community would define ‘‘community development FHFA should consider if limiting the development financial institutions, financial institution’’ and ‘‘community types of LIHTC projects appropriate for community financial institutions, and financial institution’’ in accordance equity investment by the Enterprises? federally insured credit unions meeting with the definitions in FHFA’s 43. If FHFA permits the resumption of an asset cap applicable to community regulation on Federal Home Loan Bank LIHTC equity investments, should Duty financial institutions, where the loan membership. The membership to Serve credit be provided only for pools are backed by existing small regulation defines a ‘‘community LIHTC equity investments in projects multifamily rental properties consisting development financial institution’’ as an with expiring subsidies or projects in of five to not more than fifty units. This institution that is certified as a need of refinancing, or should Duty to activity would constitute a Regulatory community development financial Serve credit also be given for LIHTC Activity that the Enterprises would have institution by the Community equity investments in new construction to address in their Underserved Markets Development Financial Institutions projects with regulatory agreements that Plans by indicating how they choose to Fund under the Community assure long-term rental affordability? undertake the activity or the reasons Development Banking and Financial

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Institutions Act of 1994, other than a multifamily properties? Should another HUD study found that while average bank or savings association insured type of support for small multifamily rents increased by 7.6 percent from 2001 under the Federal Deposit Insurance properties be a specific Regulatory to 2009, energy costs to renters Act, a holding company for such a bank Activity? increased by almost 23 percent during or savings association, or a credit union 49. How could the Enterprises this same period.118 insured under the Federal Credit Union provide support for the liquidity needs Lowering energy and water use in Act.112 The membership regulation of smaller banks and community-based multifamily buildings will reduce the defines a ‘‘community financial lenders that finance small multifamily total amount that tenants spend for the institution’’ generally as an institution properties, for example by buying and energy and water that they do use, thus whose deposits are insured under the securitizing loan pools these lenders reducing their utility consumption. This Federal Deposit Insurance Act,113 and have originated? What kind of can be considered ‘‘preservation’’ under whose total assets are less than $1 Enterprise support would encourage the affordable housing preservation billion, as adjusted annually by FHFA these types of lenders to increase their market because housing costs are for inflation, beginning in 2009, with financing of these properties? typically defined as rent plus utility total assets being calculated as an 50. Do the proposed definitions of costs. Thus, savings in utility average over the previous three years.114 ‘‘community development financial consumption that reduce utility Based on FHFA’s most recent inflation institution,’’ ‘‘community financial expenses may help maintain the overall adjustment, the asset cap is now institution,’’ and ‘‘federally insured affordability of rental housing for $1,123,000,000.115 credit union’’ subject to the asset cap tenants. Owners of multifamily Section 1282.1 of the proposed rule sufficiently capture smaller banks and properties also benefit from energy would define a ‘‘federally insured credit community-based lenders for Duty to efficiency improvements through union’’ in accordance with the Serve purposes? reduced common area utility expenses, definition of ‘‘insured credit union’’ in ii. Energy Efficiency Improvements on which could relieve pressure on owners the Federal Credit Union Act.116 The Multifamily Properties—Proposed to raise rents to cover increased utility Federal Credit Union Act defines an § 1282.34(d)(2) costs. Owners also derive indirect ‘‘insured credit union’’ as a credit union benefits from unit-based energy Section 1282.34(d)(2) of the proposed efficiency improvements, including the member accounts of which are rule would provide Duty to Serve credit rendering a property more marketable to insured under the Federal Credit Union for Enterprise support for energy and 117 potential tenants. Act. water efficiency improvements on Over time, a reliable secondary Enterprise support for energy existing multifamily properties efficiency improvements could include market for loans on small multifamily affordable to very low-, low-, and specialized loan programs or efforts to properties could develop to provide moderate-income families, provided educate lenders about the benefits of these originating lenders with there are verifiable, reliable projections energy improvements and conservation. additional liquidity. Thus, the Duty to or expectations that the improvements Given the Enterprises’ market reach, Serve regulation could complement the financed by the loan will reduce energy they could have a significant impact on housing goals regulation by encouraging and water consumption by the tenant by promoting energy efficiency greater and more comprehensive at least 15 percent, the reduced utility improvements and conservation in a Enterprise support for the liquidity costs derived from reduced broad range of multifamily properties if needs of small multifamily properties. consumption must not be offset by lenders were properly educated and Requests for Comments higher rents or other charges imposed by the property owner, and the reduced incented. FHFA specifically requests comments utility costs will offset the upfront costs Requests for Comments on the following questions (please of the improvements within a identify the question answered by the FHFA specifically requests comments reasonable time period. This activity number assigned below): on the following questions (please would constitute a Regulatory Activity 46. Are there other affordable housing identify the question answered by the that the Enterprises would have to preservation activities for small number assigned below): address in their Underserved Markets multifamily properties beyond those 51. Should Enterprise support for Plans by indicating how they choose to discussed above that should receive multifamily properties that include undertake the activity or the reasons Duty to Serve credit? energy improvements resulting in a why they will not undertake the 47. Should an Enterprise’s purchase reduction in the tenant’s energy and activity. water consumption and utility costs be and securitization of loan pools from Improved energy efficiency and non-depository community a Regulatory Activity? reduced energy consumption in 52. How can the Enterprises provide development financial institutions, multifamily housing is a broadly community financial institutions, and more outreach to lenders regarding the acknowledged public policy goal. Enterprises’ energy improvement federally insured credit unions subject Energy expenses, principally in the form to the asset cap, where the loan pools products? of heating, cooling, water consumption 53. Should the Enterprises require the are backed by existing small multifamily and electricity use (collectively, properties, be a Regulatory Activity? lender to verify before the closing of an utilities) consume a growing part of the energy improvement loan that there are 48. How could the Enterprises incomes of very low-, low-, and provide further support for the reliable and verifiable projections or moderate-income households. When expectations that the proposed energy financing or liquidity needs of small these high utility costs are added to the cost of rent, multifamily housing 118 112 See 12 CFR 1263.1. See Evidence Matters, Policy Development and Research, Department of Housing and Urban 113 Id.; 12 U.S.C. 1811 et seq. becomes increasingly unaffordable. In Development, ‘‘Quantifying Energy Efficiency in 114 recent years, energy cost increases in See 12 CFR 1263.1. Multifamily Rental Housing,’’ Summer 2011, 115 See 80 FR 6712 (Feb 6, 2015). multifamily housing have outpaced rent available at http://www.huduser.gov/portal/ 116 12 U.S.C. 1752(7). increases (which have significantly periodicals/em/EM_Newsletter_Summer_2011_ 117 Id. exceeded the rate of inflation). A 2011 FNL.pdf.

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improvements will likely reduce the homeowners at these income levels Finally, because identifying energy tenant’s energy and water consumption likely parallels those of the broader efficiency as the loan purpose can and utility costs and, if so, what consumer category. complicate automated underwriting, standards of reliability, verifiability and Enterprise support for single-family borrowers may choose not to specify likelihood of reduced consumption and energy efficiency loans with resulting that the home improvements are costs should be required? savings accruing to the homeowners or intended for energy efficiency purposes. 54. Should the Enterprises be required tenants may help lower their total Fannie Mae currently supports the to verify, after the closing of an energy housing costs and thereby help preserve financing of single-family energy improvement loan, that the energy affordable housing. In addition, savings efficiency improvements through its improvements financed actually from energy efficiency upgrades may be ‘‘Energy Improvement Feature’’ (EI reduced the tenant’s energy and water correlated with better borrower loan Feature) and HomeStyle Renovation consumption and utility costs and, if so, performance. A 2013 study found that, mortgage.124 EI Feature loans cover both how can they verify this? controlling for other loan determinants, purchase money loans and refinances of 55. What if any ongoing monitoring default risks are on average 32 percent preexisting loans. Borrowers can use should be required to measure the lower in energy efficient homes; some of purchase or refinance proceeds, of up to effectiveness of financed energy these lower default risks may benefit 10% of the ‘‘as completed’’ appraised improvements in reducing tenants’ very low-, low-, and moderate-income value, to finance both the property and energy and water consumption and borrowers. The study also found that energy improvements, as long as certain utility costs? borrowers in energy efficient homes are conditions are met. In all cases, the EI 56. For the proposed requirement that 25 percent less likely to prepay their Feature loan must be in first lien the reduced utility costs will offset the mortgages,120 a loan characteristic that position. The EI Feature has seen upfront costs of the improvements investors generally find appealing.121 limited borrower participation, which within a reasonable time period, should However, as comprehensive home could be due to one or more of the a reasonable time period be defined and, energy improvements cost between factors described above or because if so, how? $5,000 and $15,000, the upfront costs of financing for energy efficiency energy efficiency improvements improvements is already occurring in iii. Energy Efficiency Improvements on constitute a significant barrier to very Fannie Mae’s standard business. Single-Family, First-Lien Properties— low-, low-, and moderate-income The HomeStyle Renovation mortgage Proposed § 1282.34(d)(3) homeowners, who generally lack enables a borrower to obtain a purchase Section 1282.34(d)(3) of the proposed significant financial resources to pay for transaction or cash-out refinance rule would provide Duty to Serve credit such improvements.122 Financing for mortgage to cover the costs of energy for Enterprise support of energy single-family energy efficiency loans improvements to the property. efficiency improvement loans on single- can be further hampered by lender Borrowers can use purchase or refinance family (homeownership or rental), first- reluctance to consider energy savings in proceeds, of up to 50% of the ‘‘as lien properties affordable to very low-, their loan underwriting procedures.123 completed’’ appraised value, to finance low-, or moderate-income households, both the property and the energy provided that there are verifiable, Homeowners overall spend 7.5 percent of their improvements, as long as certain income for utilities, fuels, and public services. See reliable projections or expectations that conditions are met. In all cases, the U.S. Bureau of Labor Statistics, ‘‘Table 1202: HomeStyle Renovation mortgage must the improvements financed by the loans Income before taxes: Annual expenditure means, will reduce energy and water shares, standard errors, and coefficients of be in first lien position. Freddie Mac does not currently offer consumption by the homeowner or variation, Consumer Expenditure Survey, 2014’’ (Sept. 2015), available at http://www.bls.gov/cex/ loan products specifically for single- tenant by at least 15 percent, the 2014/combined/income.pdf. family energy efficiency loans, but like reduced utility costs derived from the 120 See Institute for Market Transformation, Fannie Mae, likely purchases loans with reduced consumption will offset the ‘‘Research Report: Home Energy Efficiency and Mortgage Risks,’’ University of North Carolina energy efficiency components as part of upfront costs of the improvements its standard business. within a reasonable time period, and in Center for Community Capital (March 2013), available at http://www.imt.org/uploads/resources/ Given the difficulty of developing the case of a single-family rental files/IMT_UNC_HomeEEMortgageRisksfinal.pdf. functional single-family energy property, the reduced utility costs must 121 For a discussion of the risks that prepayment efficiency mortgage products, possible not be offset by higher rents or other poses to investors, see generally The Bond Market Objectives that could be included in an charges imposed by the property owner. Association, ‘‘An Investor’s guide to Pass-Through and Collateralized Mortgage Securities,’’ at 4–6, Underserved Markets Plan might focus This activity would constitute a 13–14, available at http://www.freddiemac.com/ initially on developmental actions such Regulatory Activity that the Enterprises mbs/docs/about_MBS.pdf. as: (i) Working with lenders to develop would have to address in their 122 See Mark Zimring, Ian Hoffman, Annika Todd, education programs to encourage energy Underserved Markets Plans by & Megan Billingsley, ‘‘Delivering Energy Efficiency to Middle Income Single Family Households,’’ efficiency improvement loans, including indicating how they choose to Lawrence Berkeley National Laboratory (December conservation programs, for very low-, undertake the activity or the reasons 11, 2011), available at http://emp.lbl.gov/ low-, or moderate-income households in why they will not undertake the publications/delivering-energy-efficiency-middle- single-family properties; (ii) working activity. income-single-family-households. with a wider range of locally-based Studies have found that consumers 123 See Institute for Market Transformation, ‘‘Research Report: Home Energy Efficiency and lenders to encourage energy efficiency earning below $20,000 a year spend 10 Mortgage Risks,’’ University of North Carolina components in purchase money loans or percent of their income on utilities Center for Community Capital (March 2013), limited cash-out refinances; and (iii) compared to 6 percent spent by available at http://www.imt.org/uploads/resources/ developing products that result in the consumers with incomes above files/IMT_UNC_HomeEEMortgageRisksfinal.pdf. 119 Lenders may not want to put the additional time $70,000. The experience of needed in in order to adjust underwriting for energy Banking Housing and Urban Affairs, 111th Cong., savings. See generally ‘‘Green Housing for the 21st 2d Sess., at 23 (2010) (S. HRG. 111–6,93), available 119 See U.S. Bureau of Labor Statistics, Century: Retrofitting the Past and Building an at http://www.gpo.gov/fdsys/pkg/CHRG- ‘‘Consumer Expenditure Survey,’’ (July 2013–June Energy-Efficient Future,’’ Hearings Before the 111shrg61989/pdf/CHRG-111shrg61989.pdf. 2014), available at http://www.bls.gov/cex/#tables_ Subcomm. On Housing Transportation, and 124 Fannie Mae also participated in the FHA long. These percentages are for all consumers. Community Development of the Committee on PowerSaver pilot program, which ended in 2013.

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introduction of energy efficiency (1) Ensure affordability for at least 30 greater residential control and components into loans that meet the years or as long as permitted under state stability,125 although it also bears risks proposed rule’s requirements. law through a ground lease, deed for lower-income households.126 restriction, subordinate loan or similar Requests for Comments Homeownership continues to be the legal mechanism that makes residential primary source of wealth among lower- FHFA specifically requests comments real property affordable to very low-, income households.127 A on the following questions (please low-, or moderate-income families. The comprehensive approach to affordable identify the question answered by the legal instrument ensuring affordability housing preservation should include number assigned below): must also stipulate a preemptive option strategies that preserve not only 57. How can the Enterprises work to purchase the homeownership unit with potential lenders to facilitate from the homeowner at resale to financing for energy efficiency 125 See Eric S. Belsky, Christopher E. Herbert, and preserve the affordability of the unit for Jennifer H. Molinksy (Eds), ‘‘Homeownership Built improvement loans on single-family successive very low-, low-, or moderate- to Last’’ (2014), Cambridge, MA: Joint Center for properties? income families; Housing Studies, Harvard University & Washington, 58. What is a reasonable time period (2) Monitor the homeownership unit DC: Brookings Institution Press, available at for the reduced utility costs from energy to ensure affordability is preserved over http://www.brookings.edu/research/books/2014/ homeownership-built-to-last. See also Christopher efficiency improvements to offset the resales; and E. Herbert & Eric S. Belsky, ‘‘The Homeownership upfront costs of the improvements? (3) Support the homeowners to Experience of Low-Income and Minority 59. Should Enterprise support for promote successful homeownership for Households: A Review and Synthesis of the single-family properties that include very low-, low-, or moderate-income Literature,’’ Vol. 10, No. 2, Cityscape: A Journal of energy improvements resulting in a families. Policy Development and Research (2008), available at http://www.huduser.org/periodicals/cityscpe/ reduction in the homeowner’s or Under the proposed rule, this activity vol10num2/ch1.pdf. Herbert and Belsky note that tenant’s energy and water consumption would constitute a Regulatory Activity homeownership is a vehicle for wealth and utility costs be a Regulatory that the Enterprises would have to accumulation both through appreciation and the Activity? address in their Underserved Markets forced savings that come with paying down the 60. How can the Enterprises provide Plans by indicating how they choose to principal on a loan. They note that homeownership is one of the few leveraged investments available to more outreach to lenders regarding the undertake the activity or the reasons families with limited wealth. They list other Enterprises’ energy improvement loan why they will not undertake the financial advantages of ownership including: (1) products? activity. Tax law provisions that shield most appreciation in 61. Should the Enterprises require the Affordability of homeownership home value from capital gains taxes; (2) insulating through shared equity programs is buyers from rapidly increasing housing costs; (3) lender to verify before the closing of a deductibility of mortgage interest and property tax single-family energy improvement loan preserved either by: payments which lowers the after-tax cost of that there are reliable and verifiable (1) Resale restrictions through deed homeownership; and (4) permitting secured lending projections or expectations that the restrictions or ground leases against home equity. Homeownership also arguably proposed energy improvements will administered by governmental units or offers a range of non-financial benefits, at 7–8. instrumentalities, or nonprofit entities 126 See, e.g., Carolina Katz Reid, Center for likely reduce energy and water Studies in Demography and Ecology, University of consumption and utility costs and, if so, and designed to keep the home Washington, ‘‘Achieving the American Dream? A what standards of reliability, affordable over resales; or Longitudinal Analysis of the Homeownership verifiability and likelihood of reduced (2) Subordinate loan programs, often Experiences of Low-Income Households,’’ (CSDE called ‘‘shared appreciation loan Working Paper 04–04) (Apr. 2004), available at consumption and costs should be https://csde.washington.edu/downloads/04-04.pdf. required? programs,’’ that are administered by Reid discusses the following risks of 62. Should the Enterprises be required governmental units or instrumentalities, homeownership for low-income households: (1) to verify, after the closing of a single- or nonprofit entities where second The risk of leaving homeownership, usually due to family energy improvement loan, that mortgage loans are due upon sale and divorce or unemployment; (2) high mortgage typically structured with zero percent payments in relation to income; and (3) low-income the energy improvements financed and minority homeowners have not benefitted as actually reduced energy and water interest. Upon sale at market value, the much from homeownership as wealthier, Caucasian consumption and utility costs and, if so, homeowner repays the loan amount and buyers. Reid concludes that more emphasis is how can they verify this? a portion of the appreciation. The needed on supporting low-income households after 63. For the proposed requirement that government or nonprofit entity uses its they become homeowners. While Reid did not consider the non-financial benefits of the reduced utility costs will offset the share of the appreciation to make the homeownership, Reid notes that almost every upfront costs of the improvements same home affordable to a subsequent person she interviewed expressed satisfaction with within a reasonable time period, should income-eligible homebuyer. Shared having become a homeowner, citing various non- a reasonable time period be defined and, equity programs utilize various legal financial benefits. Reid concludes that the challenge in homeownership is developing policies that make if so, how? mechanisms to preserve affordability, homeownership achievable and sustainable. See but all shared equity programs make iv. Preservation of Long-Term also Christopher E. Herbert, Daniel T. McCue & home purchase affordable for a very Rocio Sanchez-Moyano, Joint Center for Housing Affordable Homeownership Through low-, low-, or moderate-income buyer Studies, Harvard University, ‘‘Is Homeownership Shared Equity Programs—Proposed and limit the homeowner’s proceeds Still an Effective Means of Building Wealth for § 1282.34(d)(4) Low-income and Minority Households? (Was it upon resale to make the same home Ever?),’’ (Sept. 2013), available at http:// Section 1282.34(d)(4) of the proposed affordable to a subsequent income- www.jchs.harvard.edu/sites/jchs.harvard.edu/files/ rule would provide Duty to Serve credit eligible buyer. hbtl-06.pdf. for Enterprise activities related to While much of the affordable housing 127 ‘‘. . . home equity contributes a preservation emphasis is on rental disproportionate share (81 percent) of net wealth affordable homeownership preservation among the typical owner in the lowest income through shared equity homeownership housing, homeownership preservation quartile, compared with just under a quarter (24 programs. Shared equity programs is also important. Homeownership can percent) among those in the highest income include programs administered by offer advantages over renting, such as quartile.’’ Joint Center for Housing Studies, Harvard the opportunity to accumulate wealth University, ‘‘State of the Nation’s Housing Report community land trusts, other nonprofit 2015’’ (2015), at 17, available at http:// organizations, or State or local from tenure, including repaying www.jchs.harvard.edu/sites/jchs.harvard.edu/files/ governments that: principal through forced savings, and jchs-sonhr-2015-full.pdf.

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affordable rental housing, but also second way is to use a shared assistance does not preserve long-term affordable homeownership. appreciation loan agreement, in which affordability of the home for subsequent The 2010 Duty to Serve proposed rule the resale price remains at the market purchasers, because these programs do focused primarily on preserving value, but the amount of subsidy not restrict the initial homebuyer’s affordable rental housing and not increases in a self-sustaining way to return from the sale of the property.129 affordable homeownership. One keep pace with the gap between the Hence, under the traditional commenter, a nonprofit engaged in market value and the lower price at downpayment/closing cost assistance homeownership work, recommended which the home is affordable to low- model, additional public subsidy would crediting shared equity homeownership and moderate-income households. Each often be required to help subsequent activities under the Duty to Serve, citing time the home is sold, at market rate, lower-income homebuyers purchase the importance of broadening the the program’s share of equity, in the homes. availability of homeownership. Another form of the shared appreciation, is The three most common contractual commenter, a nonprofit focused on retained as ‘‘public investment’’, i.e., the arrangements for achieving shared rental housing, opposed giving subsidy, and passed along to the new equity homeownership preservation are preservation credit to homeownership buyer of the same home in the form of deed restricted covenants, ground programs on the basis that it might a second mortgage. This second leases, and shared appreciation loans, divert attention from rental housing. mortgage is typically at zero percent which are described below. Without detracting from the interest and is fully due upon sale. • Deed Restricted Covenants. A importance of preserving affordable While this subsidy retention vehicle is restricted covenant that is appended to rental housing, FHFA seeks to technically a second mortgage, it does an owner-occupied property’s deed encourage enhanced Enterprise support not have many of the features when a home is purchased at below- for a variety of shared equity options so commonly associated with mortgage market value. The covenant stipulates that communities would have the debt. resale restrictions to ensure the home is flexibility to determine which, if any, Shared equity programs usually have sold at an affordable price, usually shared equity approach best suits their requirements that the buyer use the below-market value, to another eligible needs and have that option eligible for home as a primary residence and qualify household in the future. Restricted Duty to Serve credit for the Enterprises. for financing, and many allow the covenants are in effect for 30 years or The Enterprises are uniquely positioned administering government or nonprofit longer, depending upon state law. to help increase financing for the entity to charge modest fees that cover Restricted covenants are frequently used preservation of affordable the cost of operating the program. The for single-family units (e.g., homeownership units over the long- government or nonprofit entity is condominium and cooperative units) in term by developing infrastructure that sometimes referred to as a ‘‘sponsor.’’ multifamily homeownership would make it easier for lenders to Under the proposed rule, the buildings,130 which would also be deliver mortgage loans on shared equity government or nonprofit sponsor would eligible for Duty to Serve credit. homes to the Enterprises for purchase. have the ongoing responsibility to Restricted covenants are also frequently Shared equity homes remain monitor the home to ensure that used by inclusionary housing affordable for very low-, low-, or affordability is preserved over resales, programs.131 moderate-income households for at least and support the homeowner where • Ground Leases. Ground leases are 30 years or as long as permitted under possible. Having a sponsor may also most frequently used by community state law, for the initial purchaser as have the effect of minimizing/mitigating land trusts, which are nonprofit well as for any successive income- potential foreclosures. The proposed organizations that provide shared equity eligible owners of the home during that rule would require the sponsor to homes. Land trusts retain ownership of period. Shared equity homeownership stipulate a preemptive right to purchase the land, so the homeowner only needs programs are administered by either the unit from the homeowner at resale to purchase the home on that land at an government or nonprofit entities. These for a price determined by a contractual affordable price. A resale formula in the entities make home purchase affordable formula that would preserve ground lease preserves affordability by to the initial low- or moderate-income affordability of the unit. stipulating a below-market value price household, and ensure the home In contrast, downpayment or closing for which the current owner may sell remains affordable to subsequent lower- cost assistance programs, which the home to an income-eligible buyer in or moderate-income purchasers, sale represent another mechanism for the future. Leases typically run for 50 to after sale.128 In return for being able to making homeownership affordable to 99 years, depending upon state law. purchase homes that are affordable, lower-income households, would not homeowners contractually agree to limit meet the purpose of long-term 129 The initial homebuyer may be required to the proceeds they receive upon resale to preservation of affordability under the repay a portion of the subsidy under certain keep their homes affordable for Duty to Serve. In downpayment and circumstances if the property is sold during a subsequent income-eligible purchasers. closing cost assistance programs, the specified time period. The program may use that The affordability of the home is program sponsor provides a subsidy to repaid subsidy to assist another eligible household maintained for subsequent purchasers with downpayment or closing cost assistance to the initial homebuyer as a grant, or purchase a home. in one of two ways. One way is to sometimes as a forgivable loan that 130 While many consumers, developers, realtors restrict the resale price of the home converts to a grant generally between and other market participants think of through a deed restriction or a ground five and 15 years after purchase. This condominiums and cooperatives as multifamily lease designed to keep the resale price assistance helps to make the purchase of homeownership, loans for individual units are treated as part of the single-family business by below market value so the home a home affordable by lowering the lenders and the Enterprises. remains affordable over resales. A buyer’s downpayment or closing costs, 131 Robert Hickey, Lisa Sturvent & Emily Thaden, usually by a smaller amount than is ‘‘Achieving Lasting Affordability through 128 John Emmeus Davis, National Housing available through shared equity Inclusionary Housing’’ (Working Paper WP14RH1) Institute, ‘‘Shared Equity Homeownership—The programs. While the initial homebuyer (July 2014), Cambridge, MA: Lincoln Institute of Changing Landscape of Resale-Restricted, Owner- Land Policy, available at https:// Occupied Housing’’ (2006), available at http:// benefits from any appreciation in the www.lincolninst.edu/pubs/2428_Achieving-Lasting- www.nhi.org/pdf/SharedEquityHome.pdf. value of the home, this type of Affordability-through-Inclusionary-Housing.

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• Shared Appreciation Loans. Shared • Reduced likelihood of foreclosure: nonprofit community land trust with appreciation loan programs sell homes Shared equity homeowners, all of whom extensive experience developing and at fair market value to income-eligible were lower-income, were one-tenth as preserving homeownership preservation purchasers, but to make the purchase likely to be in foreclosure as units has reported that it is having affordable, the program provides a no- homeowners in the conventional market increasing difficulty finding lenders to payment second mortgage loan that is across all incomes. originate loans with shared equity fully due upon sale and typically at zero • Built wealth for homeowners: The features. According to the land trust, percent interest. The loan documents or annual rate of return on the lenders have advised that shared equity an accompanying deed-restricted homeowners’ downpayments was 7.97 loans are too difficult and expensive to covenant stipulate the homeowner’s percent. Approximately 62 percent of originate because the loans are ineligible share of appreciation upon resale and the households went on to buy a for Enterprise automated underwriting ensure the home will be sold to another market-rate home in the conventional and often require the lenders to provide eligible household. The share of the market. the Enterprises with additional appreciation that goes to the program • Preserved affordable representations and warranties. Shared sponsor is used to increase the shared homeownership: The programs retained equity programs across the country appreciation loan amount to make the the affordability of the homes to serve report similar experiences.136 Fannie purchase of the home affordable for the the same income levels, sale after Mae has recently made automated subsequent buyer. The mortgages sale.134 underwriting available for some shared typically have terms of 30 years or Shared equity transactions also help equity loans.137 longer, depending upon state law. to stabilize property values and Both Enterprises have loan purchase Proprietary shared appreciation loans, communities. They can provide housing products that can be used to varying where an investor receives part of the at affordable prices for long-standing degrees with shared equity mechanisms, equity in exchange for making the home homeowners in the area that help to including deed-restricted housing and affordable for a single buyer only, do not counter price escalation in gentrifying community land trusts. However, the preserve affordability of the unit for communities. In addition, shared equity Enterprises could simplify their subsequent buyers. Section transactions often provide a loss buffer requirements for these products and 1282.38(b)(6) of the proposed rule in the form of the difference between make a greater effort to ensure that the would specifically provide that shared the market value and the amount the requirements are widely understood. appreciation loans that fail to meet the buyer pays, which can reduce Encouraging Enterprise support for requirements discussed above would foreclosures, while reducing the relative shared equity homeownership could not receive credit under the Duty to amount of loss in the value of the home help spur this important market. Serve underserved markets. if foreclosure does occur. By reducing Preserving homeownership through foreclosures, shared equity transactions Requests for Comments shared equity programs helps to address not only improve the outcomes for FHFA specifically requests comments the growing gap between what people homebuyers, but also help maintain on the following questions (please can afford to pay for housing given what values of other homes in the identify the question by the number they earn and what they must actually neighborhood, thereby enhancing assigned below): pay for housing given what it costs. A outcomes for the entire community. longitudinal study 132 of 53 shared Shared equity transactions may also 64. Are there additional ways that the equity programs representing 3,678 permit a household to afford a home in Enterprises could support long-term homes found in 2014 that the programs: a neighborhood with better schools or affordable homeownership • Increased access to other amenities that would otherwise be preservation? homeownership: The average household unaffordable for the household. In 65. Should affordable homeownership income at the time of purchase under particular, shared equity programs can be preserved for longer than 30 years to the programs was 65 percent of the area make it possible for teachers, qualify for Duty to Serve credit and, if median income and 82 percent were firefighters, police and other modest- so, for how long? first-time homebuyers. On average, the income workers to buy homes in the 66. Should Enterprise support for homes sold for 25 percent below their community where they work. affordable homeownership preservation fair market value to make the purchase One of the greatest challenges for be a Regulatory Activity? affordable. expanding shared equity • 67. How can the Enterprises provide Improved likelihood that homeownership has been the difficulty further support for affordable homeownership would be sustained: of accessing conventional mortgage homeownership preservation beyond Over 93 percent of households under lending for first mortgages on homes those specified above or in the proposed the programs remained homeowners for purchased through shared equity rule? at least five years. This contrasts with a mechanisms.135 For example, a more limited longitudinal study of 136 See Emily Thaden, ‘‘Results of The 2011 households in non-shared equity Washington, ‘‘Achieving the American Dream?: A Comprehensive CLT Survey’’ (January, 2012). purchases, which found that less than Longitudinal Analysis of the Homeownership Portland, OR: National Community Land Trust 50 percent of the first-time, low-income Experiences of Low-Income Households,’’ (CSDE Network, available at http://cltnetwork.org/wp- Working Paper 04–04) (Apr. 2004), at 20, available content/uploads/2014/01/2011-Comprehensive- homebuyers in the study maintained at https://csde.washington.edu/downloads/04- 133 CLT-Survey.pdf; Robert Hickey, Lisa Sturvent & ownership for five years. 04.pdf. Emily Thaden, ‘‘Achieving Lasting Affordability 134 Cornerstone Partnership, ‘‘Social Impact through Inclusionary Housing’’ (Working Paper 132 A ‘‘longitudinal study’’ is a research study that Report’’ (2014), available at http:// WP14RH1) (July 2014), Cambridge, MA: Lincoln involves repeated observations of the same myhomekeeper.org/socialimpact. Institute of Land Policy, available at https:// variables over long periods of time. In this study, 135 Jeffrey Lubell, Bipartisan Policy Center, www.lincolninst.edu/pubs/2428_Achieving-Lasting- the median age of the 53 programs was 15 years, ‘‘Housing More People More Effectively through a Affordability-through-Inclusionary-Housing. and 15 of the 53 programs were at least 15 years Dynamic Housing Policy’’ (2015), at 10, available at 137 See Fannie Mae Desktop Underwriter Version old. http://bipartisanpolicy.org/library/housing-more- 9.2 from Aug. 15, 2015, available at https:// 133 Carolina Katz Reid, Center for Studies in people-more-effectively-through-a-dynamic- www.fanniemae.com/content/release_notes/du-do- Demography and Ecology, University of housing-policy/. release-notes-08152015.pdf.

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v. Preservation of Affordable Housing 3. Rural Markets—Proposed § 1282.35 Thus, lenders operating in rural markets Through the Choice Neighborhoods a. Background may be apt to charge more, provide Initiative—Proposed § 1282.34(d)(5) fewer products and services, or incur i. Overview of Rural Housing inefficiently high expenses.145 Section 1282.34(d)(5) of the proposed According to the 2010 U.S. Census, Another obstacle for rural rule would provide Duty to Serve credit 19.3 percent of the U.S. population lives communities is the lack of local for Enterprise activities supporting in rural America.140 Although urban capacity to build new homes and financing for HUD’s Choice housing needs tend to draw more renovate existing housing stock. There Neighborhoods Initiative (CNI).138 This attention, the housing needs in rural may be few or no local organizations in program seeks to preserve and transform areas are also significant. High rural rural areas, especially in areas with the distressed affordable housing by poverty rates and a declining greatest needs that have the resources creating mixed-income housing and employment base have led to rural and expertise to undertake rural housing investing in neighborhood unemployment and underemployment. projects. Low density and the lack of improvements and upgrades, with the While the average homeownership rate volume in rural communities make it ultimate goal of deconcentrating poverty in rural areas (73 percent) is higher than difficult for organizations to develop and creating higher-opportunity the national average homeownership housing, particularly more cost-effective 141 neighborhoods. The program allows for rate (64 percent), housing in rural multifamily housing. the location of replacement housing areas is more likely to be substandard. Rural housing stock has unique offsite in lower-poverty neighborhoods Rural housing stock, both owner- features and challenges. Rural occupied and rental, exhibits two and assistance to tenants in moving to communities are widely scattered, as are common characteristics: (1) It is such neighborhoods to promote the individual housing units within those comprised primarily of single-family communities. Dwellings may be sited on deconcentration of poverty. The homes (82 percent),142 excluding Enterprises can support the CNI by large parcels and have unique manufactured housing; and (2) a higher construction and design characteristics. purchasing mortgages that provide percentage of the stock is in substandard permanent financing on housing Rural housing markets also tend to have condition (6.3 percent) compared to slower housing turnover, and many preservation activities that support very 143 metropolitan areas (5.3 percent). have seasonal housing needs. Because of low-, low-, and moderate-income Substandard housing is likely due to the low density of rural markets, a households. aging homes, fewer housing code general lack of homogeneity in housing enforcement efforts, lower homeowner vi. Preservation of Affordable Housing quality and features, and slower or turnover rates, and less disposable Through the Rental Assistance seasonal market turnover, appraisals can income available for dwelling Demonstration Program—Proposed be difficult because suitable comparable rehabilitation. sales may be few and far between. § 1282.34(d)(6) Rural communities have more limited Manufactured housing continues to Section 1282.34(d)(6) of the proposed access to mortgage credit than urban areas,144 which severely limits options grow in importance as a rural housing rule would provide Duty to Serve credit for decent, clean, and affordable rural choice. Most rural manufactured homes for Enterprise activities supporting housing. Interest rates on home are financed as personal property financing for HUD’s Rental Assistance mortgages tend to be higher in rural (chattel), which often features higher 139 Demonstration (RAD) program. The areas than in urban areas. Those interest rates with shorter repayment program seeks to improve and preserve differences may reflect varying expenses terms. However, chattel-financed public housing and other affordable associated with mortgage lending and manufactured homes offer an affordable housing supported by older HUD the competitiveness and efficiency of option for many people in rural markets programs by converting the properties’ mortgage markets. The smaller because the cost of a manufactured unit operating funds to project-based population size and the remoteness of is typically lower than that of a site- vouchers or Section 8 rental assistance many rural areas can raise lender costs. built unit and does not include the cost contracts. By converting the funds, Additionally, rural financial markets, of the underlying land, which the public housing authorities can access including mortgage markets, generally household may rent or already own. A other sources of public and private have fewer competitors than urban household may also save money capital for repair and preservation. markets, and rural communities may because it does not pay real estate taxes While the RAD program is primarily a lack sufficient internet service that on chattel property, although it may pay personal property taxes on the unit. preservation program for housing would allow households to access more affordable to very low-income tenants, competitive financing options online. USDA mortgage programs help fill some housing needs in rural areas,146 the program can also support mixed- 140 See U.S. Census Bureau, Frequently Asked income housing as long as all affordable Questions, ‘‘What percentage of the U.S. population 145 See U.S. Department of Agriculture Economic units are replaced. The program is rural?,’’ available at https://ask.census.gov/ Research Service, ‘‘Can Federal Policy Changes includes the use of tenant-based faq.php?id=5000&faqId=5971. Improve the Performance of Rural Mortgage vouchers to support the deconcentration 141 See U.S. Census Bureau, ‘‘American Housing Markets?,’’ Agriculture Information Bulletin No. Survey for the United States: 2011,’’ at 2, Issued 724–12, at 1 (Aug. 1998), available at http:// of poverty and movement of low-income September 2013, available at https:// www.ers.usda.gov/media/564761/aib72412_1_.pdf. tenants to high opportunity areas. The www.census.gov/content/dam/Census/programs- 146 The Millennial Housing Commission Enterprises can support the RAD surveys/ahs/data/2011/h150-1.pdf. concluded that rural areas are often neglected by 142 program by supporting permanent Id. at 3. major federal housing production programs such as 143 Id. at 15. HOME, CDBG, and the Low-Income Housing Tax financing on properties that take 144 See Adam Wodka, ‘‘Landscapes of Credit, and that as a result, USDA programs have advantage of this program. Foreclosure: The Foreclosure Crisis in Rural been the primary source of rural housing assistance America,’’ NeighborWorks America and the Joint since 1949. See Millennial Housing Commission, Center for Housing Studies of Harvard University, ‘‘Meeting Our Nation’s Housing Challenges—Report November 2009, available at http:// of the Bipartisan Millennial Housing Commission 138 42 U.S.C. 1437v. www.jchs.harvard.edu/sites/jchs.harvard.edu/files/ Appointed by the Congress of the United States,’’ 139 42 U.S.C. 1437f note. w10-2_wodka.pdf. Continued

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and benefit from having local agency for families with incomes at or below markets discussed above. However, in administrative infrastructure to support 100 percent of area median income. all cases, the appraisal must contain the programs. The USDA Section 502 Difficulties in underwriting loans for adequate reasoning and justification for loan program provides very low- and rural areas can arise from slower or the analysis and conclusions to produce low-income families in rural areas seasonal market turnover, widely a credible and reliable result. earning no more than 80 percent of area scattered home sites, large lot sizes, and As part of their Duty to Serve rural median income up to 100 percent a general lack of homogeneity in the markets, the Enterprises would be financing to purchase existing or newly housing stock.149 In response, the required to evaluate their current constructed dwellings or to purchase Enterprises have clarified and activities in rural areas and identify sites and construct dwellings in rural developed flexible collateral opportunities to increase those areas. underwriting guidelines for rural activities. This evaluation could include The USDA Section 515 rental housing markets in guidance released to the Enterprises’ working through federal program provides funding to finance the creditors and appraisers in 2014.150 The and state programs and with local construction of affordable multifamily Enterprise guidelines state that they stakeholders to address liquidity needs rental housing in rural areas for very provide clarifications and dispel in rural markets. At the same time, low-, low-, and moderate-income common industry misconceptions about FHFA recognizes that Enterprise Duty to families, elderly persons, and persons acceptable appraisal practices and Serve efforts will not be able to address with disabilities. An ongoing challenge property eligibility requirements for all housing finance needs in rural is keeping these rental units in rural homes in small towns and rural markets because of safety and areas affordable and available for low- areas.151 Consistent with HUD, U.S. soundness, property eligibility income families for two reasons in Department of Veterans Affairs (VA), requirements, and other constraints. particular. First, a number of building and USDA-Rural Development policies, b. Regulatory and Additional Activities owners that received Section 515 loans the Enterprises’ guidelines remain broad The Safety and Soundness Act prior to December 15, 1989, are to allow appraisers to accurately provides that the Enterprises ‘‘shall prepaying their mortgages and observe, analyze and report actual rural develop loan products and flexible terminating the government market and property conditions. underwriting guidelines to facilitate a affordability requirements before the Further, the guidelines allow the secondary market for mortgages on end of the original loan term. (Loans appraisers discretion to select housing for very low-, low-, and made through contracts entered into on comparable sales that may be dated, moderate-income families in rural or after December 15, 1989 cannot be distant, or dissimilar to a subject areas.’’ 153 The statutory language is prepaid).147 USDA offers incentives to property but that best reflect the broad and does not enumerate specific owners not to prepay and continue to appraiser’s conclusions and opinion of 152 activities or programs that the restrict the property to low-income value. This approach recognizes the Enterprises must undertake in support occupancy. These incentives include unique appraisal problems in rural of the rural market; as a result, FHFA equity loans, reduced interest rates, and has specified only one Core Activity for 149 See generally Kerry D. Vandell, ‘‘Improving additional rental assistance. Second, this market, as further described below. aging properties financed with Section Secondary Markets in Rural America,’’ Proceedings—Rural and Agricultural Conferences, Section 1282.35(b) of the proposed 515 loans are physically deteriorating. Federal Reserve Bank of Kansas City, 85–120 (Apr. rule would define eligible activities for USDA offers preservation assistance to 1997), available at https://www.kansascityfed.org/ the rural market as Enterprise activities owners or purchasers of Section 515 publicat/fra/fra97van.pdf. that facilitate a secondary market for properties through its Multifamily 150 See Laurie Redmond, ‘‘Freddie Mac Property and Appraisal Requirements for Properties Located mortgages on residential properties for Housing Preservation and Revitalization in Rural Market Areas,’’ Letter to Freddie Mac very low-, low-, or moderate-income (MPR) demonstration program, which Sellers, Freddie Mac Bulletin (Apr. 1, 2014), families in rural areas. Section 1282.1 of provides no-interest loans, grants to available at http://www.freddiemac.com/ the proposed rule would define ‘‘rural singlefamily/guide/bulletins/pdf/bll1405.pdf. See non-profit owners, soft second loans, area’’ as (1) a census tract outside of a 148 also Carlos T. Perez, ‘‘Property and Appraisal and debt deferral. Requirements for Properties Located in Small metropolitan statistical area (MSA), as ii. Enterprise Activities in Rural Areas Towns and Rural Areas,’’ Lender Letter LL–2014– designated by OMB, or (2) a census tract 02, Letter to All Fannie Mae Single-Family Sellers, that is in an MSA but outside of the Fannie Mae (Mar. 25, 2014), available at https:// Under the definition of ‘‘rural area’’ in MSA’s Urbanized Areas (UAs) and this proposed rule, which is discussed www.fanniemae.com/content/announcement/ ll1402.pdf. Urban Clusters (UCs), as designated by below, as of the end of 2009, 12.7 151 See Laurie Redmond, ‘‘Freddie Mac Property USDA’s RUCA codes. The proposed percent of Enterprise total residential and Appraisal Requirements for Properties Located definition of ‘‘rural area,’’ which is mortgage loan purchases were in rural in Rural Market Areas,’’ Letter to Freddie Mac Sellers, Freddie Mac Bulletin (Apr. 1, 2014), further discussed below, is intended to areas. As of the end of 2014, 18.5 give the Enterprises broad flexibility to percent of loans purchased by the available at http://www.freddiemac.com/ singlefamily/guide/bulletins/pdf/bll1405.pdf. See undertake and receive Duty to Serve Enterprises were in rural areas, also, Carlos T. Perez, ‘‘Lender Letter LL–2014–02,’’ credit for activities in rural markets. representing a 46 percent increase from Letter to All Fannie Mae Single-Family Sellers, The Enterprises are an important 2009. Of these loans, 36 percent were Fannie Mae (Mar. 25, 2014), available at https:// www.fanniemae.com/content/announcement/ source of liquidity to rural markets. As ll1402.pdf. noted above, the Enterprises have at 78 (May 30, 2002), available at http:// 152 See Laurie Redmond, ‘‘Freddie Mac Property increased their purchases of mortgage govinfo.library.unt.edu/mhc/MHCReport.pdf. and Appraisal Requirements for Properties Located loans in rural markets over the past five 147 See Rural Rental Housing Loans (Section 515), in Rural Market Areas,’’ Letter to Freddie Mac September 2002, available at http://portal.hud.gov/ Sellers, Freddie Mac Bulletin (Apr. 1, 2014), years and have expanded their outreach hudportal/documents/huddoc?id=19565_515_ available at http://www.freddiemac.com/ to community banks and other rural RuralRental.pdf. singlefamily/guide/bulletins/pdf/bll1405.pdf. See lenders over the past year. Nevertheless, 148 See Housing Preservation & Revitalization also, Carlos T. Perez, ‘‘Lender Letter LL–2014–02,’’ there continues to be a need for Demonstration Loans & Grants, available at Letter to All Fannie Mae Single-Family Sellers, http://www.rd.usda.gov/programs-services/housing- Fannie Mae (Mar. 25, 2014), available at https:// outreach, support and capacity-building preservation-revitalization-demonstration-loans- www.fanniemae.com/content/announcement/ grants. ll1402.pdf. 153 12 U.S.C. 4565(a)(1)(C).

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for rural lenders to facilitate their definitions identify people living in definition is implemented and updated origination of loans for housing in rural rural locations, but the methodologies by USDA, FHFA would not need to areas, which the Enterprises could for defining ‘‘rural areas’’ may be based update the areas included in the purchase. Local lenders may lack on differing geographic units that are definition with successive Censuses if expertise, volume, or resources to sometimes combined with population the definition were used for the Duty to participate in Enterprise mortgage characteristics. Serve. programs, while larger regional and FHFA considered several criteria in Commenters on the 2010 Duty to national lenders that serve as developing a ‘‘rural area’’ definition. Serve proposed rule generally favored aggregators for Enterprise-eligible loans Many rural residents live in the outlying using the USDA definition for the Duty purchased from smaller financial counties of metropolitan areas. to Serve. Several nonprofit institutions are often not active in rural Accordingly, FHFA’s ‘‘rural area’’ organizations stated that the USDA markets. definition for Duty to Serve purposes definition is sufficiently broad to cover The Enterprises’ Underserved Markets should be broad enough to include such almost all rural areas, and some stated Plan Activities could include, for counties. Additionally, because of the that it should be used for the sake of example, modifying their underwriting effect the definition would have on the consistency. However, one Enterprise of guidelines for rural loans eligible for Enterprises’ three-year Underserved commented that the USDA definition purchase, increasing their rural loan Markets Plans and activities creditable presents unacceptable operational risks purchases, and developing strategies for under those Plans, a ‘‘rural area’’ and recommended consideration of extending education, outreach and definition for the Duty to Serve must other methodologies, possibly using a technical assistance to small and rural allow areas under the definition to combination of classifications. The lenders and other entities, including remain stable over time. Other agencies’ Enterprise stated that unless the USDA nonprofit and for-profit organizations, definitions of rural areas may be subject maintains accessible archives, the serving rural markets. Plan Activities to annual or more frequent changes that USDA definition would prohibit could also include Enterprise marketing may revise the definition and the areas replication and verification of results of their products to lenders in rural included in the definition, based on once USDA data are updated. areas in an effort to increase the number policy objectives for particular The Government Accountability of approved lenders in those areas, or programs. A ‘‘rural area’’ definition Office (GAO) found that because MSAs contain both urban and rural areas and Enterprise purchases or other assistance suitable for the Duty to Serve should have increased substantially in both size with mortgages guaranteed under USDA also be census tract-based to allow for and number in recent decades, they may programs or other residential mortgages customization, ease of implementation not be good determinants of urban-rural in rural areas. and operational use by incorporating distinctions.156 Adoption of the USDA The Enterprises’ Underserved Markets existing Enterprise geocoding systems, definition would also pose significant Plans may also include Additional which use census tracts. In developing its definition of ‘‘rural implementation challenges for the Activities that support the financing of area,’’ FHFA considered the criteria Enterprises as the definition splits residential properties for very low-, discussed above, other agency census tracts into rural and urban low-, or moderate-income families in definitions of ‘‘rural,’’ and comments components, increasing the difficulty of rural areas, subject to FHFA received on the 2010 Duty to Serve use because the Enterprises’ existing determination of whether such activities proposed rule, as discussed below. geocoding programs use whole census are eligible for Duty to Serve credit. tracts. In addition, the Enterprises USDA Definition of ‘‘Rural’’ Requests for Comments would have to automate the coding of The Housing Act of 1949 defines urban-rural designations based on FHFA specifically requests comments ‘‘rural’’ and ‘‘rural area’’ generally as: information currently available only on the following questions (please Any open country, or any place, town, through the USDA Web site. The USDA identify the question answered by the village, or city which is not part of or Web site is designed for loan number assigned below): associated with an urban area and underwriters and originators, which 68. What types of barriers exist to which: (1) Has a population not in deal in much smaller numbers of rural lending for housing and how can excess of 2,500 inhabitants, or (2) has a transactions than the Enterprises. the Enterprises best address them? population in excess of 2,500 but not in Because of the significantly larger 69. What types of Enterprise activities excess of 10,000 if it is rural in volume of the Enterprises’ transactions, could help build institutional capacity character, or (3) has a population in the Enterprises would need the and expertise among market excess of 10,000 but not in excess of capability to automate the rural-urban participants serving rural areas? 20,000, and (A) is not contained within designations for large numbers of Definition of ‘‘Rural Area’’ a standard MSA, and (B) has a serious properties. This would be a costly and lack of mortgage credit for lower and time-consuming process for the A definition of ‘‘rural area’’ is moderate-income families, as Enterprises. Moreover, USDA revises its necessary so that FHFA can evaluate the determined by the Secretaries of rural-designated areas throughout the Enterprises’ activities in rural markets 155 Agriculture and HUD. Because this year at the state and local field office and measure their performance under level, which would further complicate their Underserved Markets Plans. There dozen-answers/2013/06/08/377469e8-ca26-11e2- the use of USDA’s definition in is no single, universally accepted 9c79-a0917ed76189_story.html. determining Duty to Serve-creditable definition of ‘‘rural area’’ because 155 42 U.S.C. 1490. The Agricultural Act of 2014 amended the Housing Act of 1949 definition of varying definitions achieve different § 6208, 128 Stat. 861 (2014), available at https:// 154 ‘‘rural’’ so that areas deemed rural between 2000 policy objectives. The ‘‘rural area’’ and 2010 would retain that designation until USDA www.congress.gov/113/plaws/publ79/PLAW- receives data from the 2020 decennial Census. The 113publ79.pdf. 154 See generally David A. Fahrenthold, ‘‘What amendments also raised the population threshold 156 See United States Government Accountability does rural mean? Uncle Sam has more than a dozen for eligibility from 25,000 to 35,000 if the area is Office, GAO–05–110, ‘‘Rural Housing—Changing answers,’’ Washington Post (June 8, 2013), available rural in nature and has a serious lack of mortgage the Definition of Rural Could Improve Eligibility at http://www.washingtonpost.com/politics/what- credit for lower- and moderate-income families. See Determinations’’ (Dec. 2004), available at http:// does-rural-mean-uncle-sam-has-more-than-a- Agricultural Act of 2014, Public Law 113–79, www.gao.gov/new.items/d05110.pdf.

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Enterprise activity in a given U.S. Census Bureau Definition of measures of population density, Underserved Markets Plan year. ‘‘Rural’’ urbanization, and daily commuting, are However, one USDA indicator of FHFA also considered the U.S. clear and meaningful, and would be rurality was found to be particularly Census Bureau’s metropolitan/urban easy for the Enterprises to incorporate useful in constructing FHFA’s definition and non-metropolitan/rural areas into their current operating of ‘‘rural area’’ in the proposed rule. designations. The U.S. Census Bureau’s infrastructures. In short, the Enterprises This is USDA’s RUCA codes urban areas designations represent should be able to easily implement designation.157 RUCA designations are densely developed territory, FHFA’s proposed definition using their census tract-based and classify census encompassing residential, commercial existing geocoding systems and the tracts using measures of population and other non-residential urban land proposed definition should provide density, urbanization, and daily uses. The U.S. Census Bureau stability to support the multi-year commuting. RUCA designations are designates urban areas after each Underserved Markets Plans. clear, meaningful, and easy to decennial Census by applying specified Requests for Comments operationalize. As further discussed criteria to decennial Census and other below, FHFA has incorporated RUCA data and identifies two types of urban FHFA specifically requests comments codes in its proposed definition of areas: (i) UAs of 50,000 or more people; on the following questions (please ‘‘rural area.’’ and (ii) UCs of at least 2,500 and less identify each question by the number assigned below): CFPB Definition of ‘‘Rural’’ than 50,000 people. The U.S. Census Bureau designates rural areas as those 70. Would one of the four definitions FHFA also considered CFPB’s areas encompassing all population, discussed above better serve Duty to definition of ‘‘rural’’ used for escrow housing and territory not included Serve objectives, and if so, why? 71. How could operational concerns account requirements on higher-priced within a UA or UC.162 The U.S. Census about Enterprise implementation under mortgage loans. CFPB defines ‘‘rural’’ as Bureau’s designation of rural areas is each of the definitions be addressed? counties outside of all MSAs and stable over time, does not require outside of all micropolitan statistical reliance on external Web sites or High-Needs Rural Regions and High- areas that are adjacent to MSAs, as those published lists, and is census tract- Needs Rural Populations—Proposed terms are defined by OMB and as they based. Its designations of UAs and UCs § 1282.35(c) are currently applied under USDA allow for identification of rural census Section 1282.35(c) of the proposed ‘‘Urban Influence Codes’’ (UICs) tracts even within counties located rule would provide Duty to Serve credit established by the USDA-Economic within MSAs, which are based on 158 for Enterprise support of financing of Research Service (ERS). Additionally, county information, and are appropriate income-eligible housing for high-needs CFPB considers a rural area a census for purposes of the Duty to Serve. rural regions and high-needs rural block that is designated as ‘‘rural’’ by FHFA Proposed Definition of ‘‘Rural populations. Under the proposed rule, the U.S. Census Bureau in the urban- Area’’—Proposed § 1282.1 this activity would constitute a rural classification it completes after Regulatory Activity which the 159 After considering the various criteria, each decennial Census. Enterprises would have to address in The first component of the CFPB other agencies’ definitions of ‘‘rural,’’ and the comments received on the 2010 their Underserved Markets Plans by definition for rural 160 uses counties as indicating how they choose to the geographic unit. Counties are the Duty to Serve proposed rule, discussed above, FHFA is proposing to define undertake the activity or the reasons most commonly used geographic why they will not undertake the component of definitions of ‘‘rural.’’ 161 ‘‘rural area’’ in § 1282.1 by combining two different geographic designations activity. They are simple to understand and Section 1282.1 of the proposed rule that would incorporate nonmetropolitan since county boundaries are stable over would define a ‘‘high-needs rural areas. Specifically, the proposed rule time, the definition of ‘‘rural’’ remains region’’ as any of the following regions, would define ‘‘rural area’’ as (1) a stable. CFPB maintains a list of counties provided it is located in a rural area as census tract outside of an MSA, as eligible under its definition of ‘‘rural’’ defined in the proposed rule: (i) Middle designated by OMB, or (2) a census tract on its Web site and updates the list Appalachia; (ii) The Lower Mississippi that is in an MSA but outside of the annually. Delta; or (iii) a colonia. Section 1282.1 MSA’s UAs and UCs, as designated by The second component of the CFPB would define a ‘‘high-needs rural USDA’s RUCA codes.163 definition for rural may pose FHFA’s proposed definition would be population’’ as any of the following implementation and operational issues census tract-based, which would be populations, provided the population is for the Enterprises, as the Enterprises more specific than county-based or located in a rural area as defined in the rely on geocoding using census tracts MSA-based definitions and should proposed rule: (i) members of a rather than census blocks. better distinguish between rural areas Federally recognized Indian tribe and non-rural areas without excluding located in an Indian area; or (ii) migrant 157 http://www.ers.usda.gov/data-products/rural- outlying counties of metropolitan areas. and seasonal agricultural workers. urban-commuting-area-codes/documentation.aspx. As discussed above, USDA’s RUCA FHFA chose these rural regions and 158 See 80 FR 59944, 59968 (Oct. 2, 2015) to be populations because they are codified at 12 CFR 1026.35(b)(2)(iv)(A), effective codes classify census tracts using January 1, 2016. characterized by a high concentration of 159 Id. 162 See United States Census Bureau, ‘‘Urban and poverty and substandard housing 160 See 80 FR 59944, 59968 (Oct. 2, 2015) to be Rural Classification,’’ Web. 20 (Feb. 2015), available conditions. codified at 12 CFR 1026.35(b)(2)(iv)(A)(1), effective at http://www.census.gov/geo/reference/ua/urban- The economic distress experienced in January 1, 2016. rural-2010.html. these regions and by these populations 161 See Andrew F. Coburn, A. Clinton 163 Primary RUCA code 1 indicates an UA, and is evident in their poor housing MacKinney, Timothy D. McBride, Keith J. Mueller, primary RUCA codes 4 and 7 indicate UCs; census 164 Rebecca T. Slifkin, & Mary K. Wakefield, ‘‘Choosing tracts with these codes would not be included in conditions and unaffordable housing. Rural Definitions: Implications for Health Policy,’’ the Duty to Serve definition of ‘‘rural area.’’ A at 2 (Mar. 2007), available at http://www.rupri.org/ dataset based on this proposed definition is posted 164 See Housing Assistance Council, ‘‘Taking Forms/RuralDefinitionsBrief.pdf. at www.fhfa.gov. Stock: Rural People, Poverty, and Housing at the

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Manufactured housing is prevalent in percent of Middle Appalachia’s counties efforts, the absence of adequate these regions and is a significant option being non-metropolitan.167 resources and financing mechanisms, for affordable housing. Substandard housing is a particularly and the lack of collaboration among While these regions and populations prevalent problem in Middle ongoing efforts in the region.174 share common housing problems, Appalachia. Eighty percent of counties c. Colonias. In Latin America, the unique challenges in some regions in the region have higher levels of word ‘‘colonia’’ means ‘‘neighborhood’’ include: A scarcity of suitable building housing units with inadequate or ‘‘community.’’ The Cranston- lots and high costs of site development plumbing than the national level.168 Gonzalez National Affordable Housing and access in Middle Appalachia; Manufactured housing (not on Act (NAHA) has two definitions of a particular affordability problems in the permanent foundations) is also very ‘‘colonia’’ depending on the applicable Lower Mississippi Delta; title issues common in the region, accounting for 18 housing program. NAHA defines a with contract-for-deed (installment percent of all housing units. This is due ‘‘colonia’’ as an ‘‘identifiable financing) for land purchases in to limited suitable land (e.g., to support community’’ that: (A) is in the State of colonias; and title issues on Native foundations and provide wells or septic Arizona, California, New Mexico, or American lands, which are tribal- systems) for site-built homes as well as Texas; (B) is in an area of the United owned. These regions and populations low incomes that make other types of States within 150 miles of the U.S.- are typically assisted by government housing unaffordable.169 Mexico border (not including any agencies, local community development b. The Lower Mississippi Delta. As standard MSA with a population corporations, housing finance agencies, defined by the Lower Mississippi Delta exceeding 1 million), or is in the United and nonprofit organizations, which have Development Act and the former Lower States-Mexico border region (the helped promote economic growth and Mississippi Delta Development applicable criterion depends on the improvements in housing conditions Commission, the Lower Mississippi particular housing program); (C) is through various projects and programs. Delta region is comprised of counties determined to be a colonia on the basis However, these regions and populations and parishes in portions of Arkansas, of objective criteria, including lack of tend to lack the public-private Louisiana, Mississippi, Missouri, potable water supply, lack of adequate Illinois, Tennessee, Kentucky, and sewage systems, and lack of decent, safe development and financing 170 infrastructure necessary to sustain Alabama. Technically, the region is and sanitary housing; and (D) was in improvements in housing conditions. not a delta but a 200-mile plain that existence as a colonia before November Enterprise focus on these regions and covers more than 90,000 miles of rivers 28, 1990.175 Previous statutory and streams and more than 3 million definitions of ‘‘colonia’’ also included a populations could help provide 171 increased financial infrastructure that acres. requirement that the identifiable In considering the Lower Mississippi facilitates improvements in housing community be designated by the state or Delta Development Act, the U.S. Senate conditions and affordability. county in which it is located as a found that the lower Mississippi River 176 The high-need regions in the colonia. The definitions used in HUD valley is the poorest, most proposed definition are discussed and USDA programs include criteria underdeveloped region in the United further below. from the previous and current statutory States, ranking lowest by almost every a. Middle Appalachia. As defined by definitions, depending on the particular economic and social indicator.172 It has 177 the Appalachian Regional Commission housing program. The NAHA an overwhelming need for the (ARC), the Appalachia region includes definition as used by HUD and USDA development of decent, affordable all of West Virginia, and parts of programs also includes other types of housing.173 Challenges in assisting this Alabama, Georgia, Kentucky, Maryland, colonia communities, such as dense region have included insufficient local Mississippi, New York, North Carolina, settlements of modular or manufactured capacity to undertake development 178 Ohio, Pennsylvania, South Carolina, homes. In many cases, state and local Tennessee, and Virginia. The 167 See HAC 2002 Study, supra note 164, at 56. Appalachia region is home to more than jurisdictions play an important role in 168 See HAC 2002 Study, supra note 164, at 60. the level of public controls related to 25 million people and covers 420 169 See Id. factors such as the initial designation of counties and almost 205,000 square 170 See Lower Mississippi Delta Development Act, miles.165 Middle Appalachia is a sub- Oct. 1, 1988, Public Law 100–460, Title II, § 201; the colonias, their ongoing conditions, region of Appalachia, which ARC HAC 2002 Study, supra note 164, at 87. The State and the political initiative to improve of Alabama was added in 2000 as a provision of the defines as the 230 ARC-designated their conditions. Some colonias are Consolidated Appropriations Act of 2001, Public incorporated communities under the counties in Kentucky, North Carolina, Law 106–554 (114 Stat. 2763A–252). See generally Ohio, Tennessee, Virginia, and West Eugene Boyd, Congressional Research Service, control of a city, some are Virginia.166 Middle Appalachia is Federal Regional Authorities and Commissions: unincorporated under the control of the Their Function and Design, at 15–25 (Order Code predominantly rural, with over 80 county, and others may be in extra- RL33076 (Sept. 21, 2006), available at https:// jurisdictional territories of cities which www.hsdl.org/?view&did=467086. The Lower Turn of the 21st Century,’’ at 37 (2002) [hereinafter Mississippi Delta Commission’s operations were ‘‘HAC 2002 Study’’], available at http:// terminated on September 30, 1990. See id. at 16. 174 See HAC 2002 Study, supra note 164, at 89. www.ruralhome.org/sct-information/mn-hac- 171 See HAC 2002 Study, supra note 164, at 84. See generally Chico Harlan, ‘‘An opportunity gamed research/mn-rrr/245-taking-stock-2000. 172 S. Rep. No. 557, 100th Cong., 2d Sess., at 2 away—For a county in the Deep South that reaped 165 See Appalachian Regional Commission, (1988). See also The Economist, ‘‘The Hellhound’s millions from casino business, poverty is still its FINANCIAL STATEMENTS—As of And For The Trail—A Delta town starts to make good,’’ (May 4, spin of the wheel,’’ The Washington Post (July 11, Years Ended September 30, 2013 and 2012, Note 1 2013), available at http://www.economist.com/ 2015), available at http:// at 8 (Jan. 29, 2014), available at http://www.arc.gov/ node/21577093/print. www.washingtonpost.com/sf/business/2015/07/11/ an-opportunity-gamed-away/. images/aboutarc/members/IG/Report14- 173 HAC 2002 Study, supra note 164, at 89. See 175 09FiscalYear2013FinancialStatementAudit.pdf. generally Chico Harlan, ‘‘An opportunity gamed 42 U.S.C. 1479(f)(8); 42 U.S.C. 5306note. 166 See Appalachian Regional Commission, away—For a county in the Deep South that reaped 176 Public Law 101–625, 104 Stat. 4290, 4396. Subregions in Appalachia (Nov. 2009), available at millions from casino business, poverty is still its 177 24 CFR 570.411, 7 CFR 1777.4. http://www.arc.gov/research/ spin of the wheel,’’ The Washington Post (July 11, 178 24 CFR 570.411, 7 CFR 1777.4. See ‘‘Colonias MapsofAppalachia.asp?MAP_ID=31. Middle 2015), available at http:// History,’’ available at https:// Appalachia comprises the North Central, Central www.washingtonpost.com/sf/business/2015/07/11/ www.hudexchange.info/cdbg-colonias/colonias- and South Central subregions of Appalachia. an-opportunity-gamed-away/. history/.

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share some level of control with the which are generally much higher than like a leasehold estate, deterring county. The political motivation to residential mortgage rates. traditional lenders from financing improve conditions for colonia residents If the full NAHA definition were mortgages for home purchases because has led to an assortment of projects that applied for the Duty to Serve, the they cannot perfect the lien on the combine funding from multiple federal Enterprises would likely be able to collateral. Despite the high rate of and non-federal sources including local receive little or no Duty to Serve credit homeownership, there is a demand for resources.179 Colonias typically have for colonias. This is because to be rental housing on tribal and Alaska been formed in response to a need for eligible for purchase by the Enterprises, Native Villages Land. However, a affordable housing that gives people a mortgages on residential properties shortage of decent, affordable rental sense of ownership. must meet the Enterprises’ property properties on such land makes renting Lack of decent, affordable single- eligibility requirements, including less common. This shortage is due in family and rental housing continues to project access and infrastructure, part to many villages being located on be a major problem in colonias. While presence of site utilities, acceptable rivers or in coastal areas subject to homeownership rates in colonias are property condition, and marketability. erosion and flooding.184 Coastal area similar to national homeownership The NAHA definition of colonia locations prone to flooding may rates, the percentage of vacant includes a requirement that the contribute to a lack of incentive to properties in colonias (12 percent) is community lack a potable water supply develop rental housing due to higher higher than the percentage of vacant and adequate sewage systems. The costs and risks associated with building properties nationally (8.4 percent). This Enterprises’ property eligibility in such areas. In addition, housing may reflect a lack of affordability for requirements would not permit them to project development may not be cost acquiring or sustaining ownership by a purchase mortgages on properties that effective because costs are generally population characterized by significant lack potable water supplies and more expensive on tribal and Alaska poverty, household migration for adequate sewage systems. A broader Native Village lands due to increased available farm work, and abandonment definition of ‘‘colonia’’ that incorporates costs to transport construction of substandard housing. Many colonia some but not all of the elements of the equipment, labor and materials to residents typically purchase NAHA definitions would provide the isolated, rural locations.185 unimproved land rather than improved broadest scope for Duty to Serve credit Under the proposed rule, Enterprise property, and rely on financing methods for Enterprise purchases of mortgage activities serving members of Native such as a contract for deed rather than loans and conducting of other activities American tribes or Alaska Native a traditional mortgage.180 This may be in colonias. Villages (hereafter referred to as Accordingly, FHFA proposes to because traditional lenders are Federally recognized Indian tribes to be define ‘‘colonia’’ for Duty to Serve unwilling to make standard mortgages consistent with the legal definition used purposes as an identifiable community on land without certain infrastructure or by the Bureau of Indian Affairs (BIA)) in that (A) is designated by a State or on which the improvements may be an Indian area that is located in a rural county in which it is located as a self-built. Non-traditional lenders may area would be a Regulatory Activity. colonia; (B) is located in the State of not offer alternatives to contract-for- Section 1282.1 would define a Arizona, California, New Mexico, or deed financing even when financing ‘‘Federally recognized Indian tribe’’ in Texas; and (C) is located in a U.S. improvements to the land. A contract accordance with the BIA definition. BIA census tract with some portion of the for deed is a form of installment sale in defines a ‘‘Federally recognized Indian tract within 150 miles of the U.S.- which the seller does not transfer legal tribe’’ as ‘‘an entity listed on the Mexico border. title to the buyer until after the buyer Department of Interior’s list under the has paid the entire purchase price.181 As The high-needs populations in the proposed definition are discussed Federally Recognized Indian Tribe List with most installment financing, the Act of 1994, which the Secretary homebuyer is usually responsible for further below. a. Members of a Federally Recognized currently acknowledges as an Indian maintenance of the property and Indian Tribe Located in an Indian Area. tribe and with which the United States payment of the taxes and insurance The federal government now recognizes maintains a government-to-government during the contract term and typically 186 337 Native American tribes, relationship.’’ Section 1282.1 would loses the right to recover the value of predominantly in the Plains region and define ‘‘Indian area’’ in accordance with any improvements made to the the American Southwest, and 229 the HUD definition. HUD defines an property. Consequently, a contract for Alaska Native Villages.182 183 ‘‘Indian area’’ as the area within which deed lacks some of the borrower Approximately 70 percent of homes on an Indian tribe operates affordable protections that a mortgage provides housing programs or the area in which through lengthier default and Native American lands are owner- occupied; however, Native American a Tribally Designated Housing Entity is foreclosure processes and, in some authorized by one or more Indian tribes cases, redemption periods. Contracts for tribes and Alaska Native Villages generally own the underlying land to to operate affordable housing deed are also more likely to carry 187 ensure the land is not sold to non-tribal programs. interest rates applicable to consumer b. Migrant and Seasonal Agricultural loans, such as 12 percent to 18 percent, members or non-Alaskan Natives. Consequently, the land and Workers. The United States has an improvements may not have the same estimated 1.4 million agricultural 179 Id. 180 See Housing Assistance Council, ‘‘Housing in transfer rights and may function more the Border Colonias’’ (Aug. 2013), available at 184 See GAO, Alaska Native Villages Report (Dec. http://www.ruralhome.org/storage/documents/rpts_ 182 See U.S. Department of Interior Indian Affairs, 2003), available at http://www.gao.gov/products/ pubs/ts10_border_colonias.pdf. ‘‘Tribal Directory,’’ available at http://www.bia.gov/ A08981. 181 Peter M. Ward, Heather K. Way & Lucille WhoWeAre/BIA/OIS/TribalGovernmentServices/ 185 See Housing Assistance Council, ‘‘Housing on Wood, ‘‘The Contract for Deed Prevalence Project— TribalDirectory/index.htm. Native American Lands’’ (Sept. 2013), available at _ A Final Report to the Texas Department of Housing 183 See National Conference of State Legislators http://www.ruralhome.org/storage/documents/rpts _ _ and Community Affairs (TDHCA),’’ at IV (Aug. (NCSL) Web site (Updated Feb. 2015), available at pubs/ts10 native lands.pdf. 2012), available at http://www.tdhca.state.tx.us/ http://www.ncsl.org/research/state-tribal-institute/ 186 See 25 CFR 83.1. housing-center/docs/CFD-Prevalence-Project.pdf. list-of-federal-and-state-recognized-tribes.aspx. 187 See 24 CFR 1000.10.

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workers.188 Approximately 25 percent be group quarters, individual homes or as an individual with agricultural of agricultural workers have family manufactured homes provided and employment of a seasonal or other incomes below the poverty line, which controlled by the employer.198 The temporary nature, who is not required to is roughly twice the national rate.189 housing may be part of the worker’s be absent overnight from his permanent Because of instability in their work compensation.199 Concerns about some place of residence when employed on a situation, many agricultural workers employer-provided housing have farm or ranch performing certain have atypical and significant housing included overcrowding, inadequate or specified types of agricultural work, and needs.190 Migrant agricultural workers dysfunctional bathroom and shower who is transported, or caused to be travel from place to place to work in facilities, leaky roofs, lack of heat or transported, to or from the place of agriculture and move into temporary ventilation, inadequate or no laundry employment by means of a day-haul housing while working.191 Seasonal facilities, insect or rodent infestations, operation. agricultural workers typically live in a lack of security (locks), and inadequate permanent community year-round.192 cooking facilities.200 The proximity of Requests for Comments Today, fewer agricultural workers the housing to insecticide-laced farm FHFA specifically requests comments follow traditional patterns of migration fields, and the exposure to mold and on the following questions (please and instead stay in one place year- dirty drinking water, can raise health identify the question answered by the round.193 Nevertheless, inadequate and concerns.201 number assigned below): substandard housing conditions for Unlike their East Coast counterparts, 72. Should Enterprise support for many agricultural workers have most agricultural workers in California housing for high-needs rural regions and remained unchanged over time.194 find their own housing 202 as employers high-needs rural populations be a According to HAC, 85 percent of offload the costs of their workers’ Regulatory Activity? agricultural workers nationwide obtain housing.203 Increasingly, this housing is 73. What activities could the their housing through the private market located in cities.204 The workers Enterprises undertake to provide rather than through employers or public commute to farms, where they labor liquidity and other support to high- 195 programs. More than 60 percent of year round rather than seasonally.205 needs rural regions and high-needs rural agricultural worker-occupied housing Their housing stock sometimes includes populations? units are rented, and approximately 35 unfinished garages, work sheds, barns, 196 74. How should FHFA define percent are owner-occupied. vehicles and shacks.206 It can also ‘‘colonia’’ for Duty to Serve purposes? Housing arrangements for agricultural include informal clusters of dwellings 75. How should FHFA define workers tend to vary by region, with the on a single lot, typically a main house ‘‘member of an Indian tribe,’’ ‘‘Federally majority of East Coast agricultural 207 and one or more ‘‘back houses.’’ recognized Indian tribe,’’ and ‘‘Indian workers living in employer-provided Section 1282.1 of the proposed rule housing.197 The housing stock tends to Area’’ for Duty to Serve purposes? would define ‘‘migrant agricultural 76. What specific actions could the workers’’ and ‘‘seasonal agricultural Enterprises take to assist the needs of 188 See Oxfam America & Farm Labor Organizing workers’’ in accordance with the U.S. Committee, ‘‘A state of fear: Human rights abuses migrant and seasonal agricultural in North Carolina’s tobacco industry,’’ at 17 (2011), Department of Labor’s (DOL) workers? definitions.208 DOL defines a ‘‘migrant available at http://www.oxfamamerica.org/static/ 77. Are there high-needs rural regions oa3/files/a-state-of-fear.pdf. agricultural worker’’ generally as an and/or high needs rural populations in 189 See Housing Assistance Council, ‘‘Housing individual with agricultural addition to those identified above that Conditions for Farmworkers,’’ Research Report, at 1 employment of a seasonal or other (Sept. 2013) [hereinafter ‘‘HAC Farmworker should be included in this section, and, temporary nature, who is required to be Report’’], available at http://www.ruralhome.org/ if so, how should they be defined to storage/documents/rpts_pubs/ts10- absent overnight from his permanent receive Duty to Serve credit? farmworkers.pdf. place of residence. DOL defines a 190 78. How might loan sellers and the For a discussion of housing difficulties facing ‘‘seasonal agricultural worker’’ generally migrant farmworkers, see, e.g., Lauren Mills, ‘‘Poor Enterprises collect data establishing that Housing, Wage Cheats Still Plague Midwest Migrant housing to be financed would Farm Workers,’’ IowaWatch.org (Dec. 30, 2013), 198 Id. available at http://iowawatch.org/2013/12/30/poor- 199 Id. specifically benefit migrant and housing-wage-hassles-still-plague-midwest-migrant- 200 See Housing Health Study, supra note 197. seasonal agricultural workers? farm-workers/; Murrow, ‘‘Harvest of Shame’’ (1960) 201 See Housing Health Study, supra note 197, at 79. Should FHFA define ‘‘high-needs (broadcast), available at https://www.youtube.com/ watch?v=yJTVF_dya7E. 8–11. populations’’ to include other categories 202 191 See Student Action with Farmworkers, Home See Housing Health Study, supra note 197, at of agricultural workers with high-needs United States Farmworker Factsheet, at 1 (2007), 2. housing issues in addition to seasonal 203 available at https://saf-unite.org/sites/default/files/ See Don Villarejo, ‘‘California’s Hired Farm and migrant agricultural workers? usfarmworkerfactsheet.pdf. Workers Move to the Cities: The Outsourcing of 192 Id. Responsibility for Farm Labor Housing,’’ at 1 (Jan. Should FHFA include agricultural 193 See HAC Farmworker Report, supra note 189, 24, 2014) [hereinafter ‘‘Move to Cities Study’’], workers in permanent annual at 3. available at http://www.crla.org/sites/all/files/u6/ employment in the definition? 2014/rju0214/VillarejoFrmLbrHsngHlth_CRLA_ 194 See HAC Farmworker Report, supra note 189, 012414.pdf. at 1. IV. Evaluating and Rating Enterprise 204 195 See HAC Farmworker Report, supra note 189, See generally Move to Cities Study, supra note Duty To Serve Performance—Proposed at 4. 203. 205 § 1282.36 196 HAC Farmworker Report, supra note 189, at 4. See Move to Cities Study, supra note 203, at This report does not specify the housing types for 15, 17, 18, 27. The Safety and Soundness Act the remaining 5 percent of farmworkers who are not 206 See Don Villarejo, ‘‘The Status of Farm Labor requires FHFA to separately evaluate Housing—And the Health of Workers,’’ at 12 (Cal. renters or owner-occupants. whether each Enterprise has complied 197 See J. Keim-Malpass, C.R. Spears-Johnson, Inst. For Rural Studies, Mar. 6, 2015), available at S.A. Quandt, & T.A. Arcury, ‘‘Perceptions of http://www.cirsinc.org/phocadownload/ with its Duty to Serve each underserved _ _ _ housing conditions among migrant farmworkers userupload/housing-status health us hired-farm- market and to annually ‘‘rate the _ and their families: implications for health, safety workers 2015.pdf. performance of each [E]nterprise as to 207 and social policy,’’ Rural and Remote Health See Move to Cities Study, supra note 203, at the extent of compliance.’’ 209 15:3076, at 2 (Feb. 13, 2015) [hereinafter ‘‘Housing 19. Health Study’’], available at http://www.rrh.org.au/ 208 DOL’s definitions are at 29 CFR 500.20(p) & publishedarticles/article_print_3076.pdf. (r). 209 12 U.S.C. 4565(d).

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Under the proposed rule, FHFA’s numbers from 0 to 100 with no overlap. Enterprises’ performance for each criteria for evaluating an Enterprise’s An Enterprise’s overall rating for each underserved market, FHFA would also annual Duty to Serve compliance would underserved market would be grade qualifying activities within each be set forth in an evaluation guide. determined by the numerical range of these markets on any activities the FHFA would prepare a separate within which the Enterprise’s overall Enterprises planned under a non- evaluation guide for each Enterprise for composite score falls. For example, if mandatory residential economic each evaluation year. FHFA would the table provides that an overall diversity criterion. To qualify for extra develop the evaluation guide using the composite score of between 90 and 100 credit, an activity first must be an contents of the Enterprise’s Plan and the corresponds to an ‘‘Exceeds’’ rating, eligible activity that contributes to an assessment factors. FHFA would then an overall composite score of 93 for Enterprise’s Duty to Serve an provide the evaluation guide to the a particular underserved market would underserved market. Under this Enterprise at least 30 days before receive an ‘‘Exceeds’’ rating for that criterion, FHFA would evaluate the January 1st of the evaluation year for underserved market in that evaluation Enterprises on the extent to which their which the guide is applicable, except year. The same table range would apply qualifying activities promote residential that the evaluation guide for the first to each underserved market. A rating of economic diversity in an underserved evaluation year after the effective date of ‘‘Exceeds,’’ ‘‘High Satisfactory,’’ or market in connection with mortgages this regulation would be delivered on a ‘‘Low Satisfactory’’ would constitute on: (1) Affordable housing in a high date to be determined by FHFA. The compliance with the Duty to Serve the opportunity area; or (2) mixed-income evaluation guide would be required to underserved market. A rating of ‘‘Fails’’ housing in an area of concentrated be posted on the respective Enterprise’s would constitute noncompliance with poverty. Web site and on FHFA’s Web site. the Duty to Serve the underserved The scoring points awarded for these The evaluation guide would allocate a market. qualifying activities would be treated as range of potential scoring points, e.g., a The 2010 Duty to Serve proposed rule extra credit for an underserved market maximum of 10 and a minimum of 0, to would have established a two-tier (extra credit could not move the each Plan activity. The evaluation guide evaluation system of ‘‘In compliance’’ or composite score within such a market would allocate a higher number of ‘‘Noncompliance’’ for Enterprise above 100 points). FHFA specifically potential scoring points to Plan performance under each underserved requests comments on how the extra activities that are expected to require market. In addition, it would have credit should be applied. greater Enterprise resources and effort required FHFA to annually assign a In § 1282.1, FHFA proposes to define and to have a greater impact on the rating of ‘‘Satisfactory’’ or ‘‘high opportunity area’’ as an area particular underserved market. The ‘‘Unsatisfactory’’ to Enterprise designated by HUD as a ‘‘Difficult aggregate maximum number of scoring performance for each of the four Development Area’’ (DDA).210 DDAs points that would be allocated to all of statutory assessment factors in each of identify areas where it is difficult to the Plan activities grouped under a the underserved markets. The create affordable housing due to high particular underserved market would be evaluation approach in this proposed rents relative to area median income. 100 points. rule differs from the approach in the The HUD DDAs are generally seen as a At the end of the evaluation period, 2010 proposed rule. The proposed rule’s proxy for higher opportunity FHFA would compare the evaluation new approach to evaluations would neighborhoods that offer good schools, guide criteria to an Enterprise’s actual enhance specificity by providing four access to transportation and labor performance under its Plan and assign distinct rating tiers instead of two, and markets, and other amenities. Beginning a score to each Plan activity. The score would give FHFA the flexibility to make in 2016, HUD will define DDAs within could not exceed the number of necessary refinements to the evaluation metropolitan areas at the zip code level potential scoring points allocated to the guide scoring process. This would (also known as ‘‘Small Area Difficult Plan activity in the evaluation guide. enable the Enterprises to better focus Development Areas’’), rather than the For example, for a Plan activity that had their resources on areas of highest Duty current practice which identifies them been allocated a maximum of 10 points to Serve value in a particular evaluation based on larger geographic areas. HUD’s in the evaluation guide, FHFA might year and better understand FHFA’s DDAs are updated annually and are award 4 points for modest performance expectations. publicly available on HUD’s Web site. and 8 points for good performance. Outside of metropolitan areas, HUD After FHFA has awarded a score to each Requests for Comments designates DDAs at the county level, Plan activity, FHFA would sum the FHFA specifically requests comments which in many instances follow single scoring points for all of the Plan on the following questions (please census tracts. Given the size of many activities that are grouped under each identify the question answered by the counties and census tracts outside of underserved market. The sum of those number assigned below): metropolitan areas, these DDAs often scores would produce an overall 80. Is there an alternative approach to would not be as useful as those in composite score ranging from 0 to 100 evaluation of Enterprise Duty to Serve metropolitan areas for purposes of for each underserved market. Therefore, compliance that would enable FHFA to identifying high opportunity areas and each Enterprise would have three better measure the Enterprises’ Duty to are even less useful for counties overall composite scores, one for each Serve compliance? comprised of multiple census tracts. underserved market. 81. Should FHFA consider a different FHFA specifically requests comments The evaluation guide would contain a rating structure (e.g., a rating structure on how to define high opportunity areas table that assigns overall composite with fewer or more ratings tiers)? outside of metropolitan areas. Analysts score numerical ranges for each V. Extra Credit for Residential have proposed a number of possible underserved market to each of the definitions that FHFA could utilize, for following four overall ratings: Economic Diversity Activities— Proposed § 1282.37 example, suggesting it may be possible ‘‘Exceeds,’’ ‘‘High Satisfactory,’’ ‘‘Low to measure higher opportunity census Satisfactory,’’ and ‘‘Fails.’’ The four While FHFA would rely under the numerical ranges assigned to the overall proposed rule on the statutory 210 26 U.S.C. 42(d)(5)(B)(iii). For the 2016 DDAs, ratings would include all whole assessment factors for scoring the see 80 FR 73201 (Nov. 24, 2015).

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tracts or block groups based on their the revitalization of areas of low-, low-, or moderate-income rates of poverty, labor force concentrated poverty. States are households in its definition? participation, minority concentration required by the LIHTC statute to give 86. How should the extra credit and/or assisted housing preference to projects located in QCTs activities be evaluated and weighed concentration.211 In choosing a when their development ‘‘contributes to generally? How should FHFA evaluate definition, FHFA would have to balance a concerted community revitalization and weigh activities related to mixed- the comprehensiveness of a definition plan.’’ 214 FHFA considered providing income housing in areas of concentrated with its ease of Enterprise credit for activities as supporting poverty to incentivize a good mix of implementation, geographic depth, and residential economic diversity if they such housing? ability to be updated regularly. are part of a concerted community 87. How could FHFA determine FHFA also wishes to explore whether revitalization plan in a state QAP. whether Enterprise activities are part of the Enterprises can support state efforts However, few states define such plans or contribute to revitalization plans in to increase affordable housing in high and it may be difficult to implement the areas of concentrated poverty? Are there opportunity areas. A number of states diverse definitions set out by states. consistent criteria FHFA could apply to define such areas and provide It may be feasible to utilize other determine what constitutes such a plan incentives to locate housing in these federal definitions or designations of and whether such a plan is being areas in their Low-Income Housing Tax areas with comprehensive revitalization implemented in an area of concentrated Credit Qualified Allocation Plans plans. For example, FHFA could award poverty? Are existing federal (QAPs),212 but definitions are not credit for activities in areas that have designations useful, such as the Promise uniform, and incorporating them into an received Choice Neighborhood Planning Zones designation or neighborhoods FHFA definition of ‘‘high opportunity or Implementation grants, or in that receive a CNI grant? area’’ may introduce operational neighborhoods designated by HUD or 88. Should FHFA incorporate challenges for the Enterprises. USDA as Promise Zones, which denotes Enterprise efforts supporting CNI as a In § 1282.1, FHFA proposes to define that they are undertaking residential economic diversity activity, ‘‘area of concentrated poverty’’ as a comprehensive community rather than as a Regulatory Activity census tract designated by HUD as a revitalization.215 under the affordable housing ‘‘Qualified Census Tract’’ (QCT) preservation market? pursuant to 26 U.S.C. 42(d)(5)(B)(ii), Requests for Comments which is generally a tract in which 50 82. Is FHFA’s proposed definition of VI. General Requirements for Credit percent of households have incomes ‘‘high opportunity area’’ the most and General Requirements for Loan below 60 percent of the area median appropriate? Should the rule use DDAs Purchases—Proposed §§ 1282.38, income or that has a poverty rate of 25 to define high opportunity areas outside 1282.39 213 percent or more. FHFA proposes to of metropolitan areas, or is there a better Sections 1282.38 and 1282.39 of the consider activities in these areas that definition, such as a factor-based proposed rule would set forth general facilitate financing of mixed-income definition, that would be preferable for counting requirements for whether and housing as addressing residential these areas? how activities will receive credit under economic diversity. 83. How could FHFA incorporate the Duty to Serve regulation. With some In § 1282.1, FHFA proposes to define state-defined high opportunity areas (or exceptions, the counting rules and other ‘‘mixed-income housing,’’ for purposes similar terms) into its definition of high requirements would be similar to those of residential economic diversity opportunity area? If such state-defined in FHFA’s housing goals regulation. For activities for which extra credit may be areas are included, how could this be example, under appropriate available, as a multifamily property or implemented by the Enterprises? circumstances, a single loan purchase 84. Should FHFA consider other or development that may include or could count toward the achievement of additional definitions of ‘‘area of comprise single-family units and serves multiple housing goals, and in the same concentrated poverty?’’ For example, very low-, low-, or moderate-income way, a single loan purchase could should FHFA consider adopting a households where at least 25 percent of receive credit under more than one definition similar to HUD’s proposed the units are affordable only to underserved market for Duty to Serve designation of census tracts by racial households with incomes above purposes. Also, consistent with the and ethnic concentrations of poverty moderate-income levels. comments received on the 2010 Duty to FHFA also recognizes the benefit of (RCAPs and ECAPs), which are census Serve proposed rule, in most instances, Enterprise support for financing of tracts with a non-white population of 50 FHFA would measure performance affordable housing that contributes to percent or more and a poverty rate that under the loan purchase assessment exceeds 40 percent or is three times the factor by the number of units financed 211 For examples of definitions, see Margery average tract poverty rate for the metro/ by the loan purchase. Turner et al., ‘‘Helping Poor Families Gain and micro area (whichever is lower)? 216 Sustain Access to High-Opportunity Neighborhoods,’’ (Washington: The Urban Institute, 85. Should FHFA consider an A. No Credit Under Any Assessment 2011), available at http://www.urban.org/sites/ alternative definition of ‘‘mixed- Factor default/files/alfresco/publication-pdfs/412455- income?’’ For example, should FHFA Enterprise activities under proposed Helping-Poor-Families-Gain-and-Sustain-Access-to- incorporate minimum thresholds for the § 1282.38(b) would not receive credit High-Opportunity-Neighborhoods.PDF; and Kirk amount of housing affordable to very McClure, ‘‘Housing Choice Voucher Marketing under any assessment factor. Opportunity Index: Analysis of Data at the Tract and Block Group Level,’’ (Washington: U.S. 214 26 U.S.C. 42(m)(1)(B)(ii)(III). Under proposed § 1282.38(b)(1), Department of Housing and Urban Development, 215 See http://portal.hud.gov/hudportal/ contributions to the Housing Trust 2011), available at http://www.huduser.gov/portal/ HUD?src=/program_offices/comm_planning/ Fund 217 and the Capital Magnet publications/pdf/Housing_Choice_Voucher_ economicdevelopment/programs/pz/overview. Fund,218 and mortgage purchases Report.pdf. 216 This proposed approach is laid out in U.S. funded with such grant amounts, would 212 States create their plans pursuant to 26 U.S.C. Department of Housing and Urban Development, 42(m)(1)(B). ‘‘AFFH Data Documentation Draft’’ (2013), available 213 HUD designates QCTs on an annual basis. For at http://www.huduser.gov/portal/publications/pdf/ 217 12 U.S.C. 4568. the 2016 QCTs, see 80 FR 73201 (Nov. 24, 2015). FR-5173-P-01_AFFH_data_documentation.pdf. 218 12 U.S.C. 4569.

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not receive credit under the Duty to towards the Duty to Serve, in light of the Enterprise in each census tract by the Serve regulation. specificity of the needs targeted by the percentage of all moderate-income Under proposed § 1282.38(b)(2), Duty to Serve and the desirability of rental dwelling units in the respective HOEPA mortgages 219 would not receive providing the Enterprises with multiple tracts, as determined by FHFA based on credit under the Duty to Serve tools to address those needs. the most recent decennial census. The regulation. housing goals regulation 220 applies a 5 Under proposed § 1282.38(b)(3), B. No Credit Under Loan Purchase Assessment Factor percent limit on the number of rental mortgages on manufactured homes that units with missing data for which an are not titled as real property under the Enterprise activities under proposed Enterprise may estimate affordability of laws of the state where the property is § 1282.38(c) would not receive credit rents. Under the proposed rule, there located would not receive credit under under the loan purchase assessment would not be a limit on the number of the Duty to Serve regulation. factor. rental units for which an Enterprise The proposed rule is tailored to the C. General Requirements for Loan could estimate affordability each year. unique features of certain specialized Purchases activities. As previously discussed, Under proposed § 1282.39(f), FHFA energy efficiency improvement loans for In order to receive credit for loan would evaluate an Enterprise’s volume existing multifamily rental properties purchases, a loan must be on housing of loans purchased on manufactured would be eligible for Duty to Serve affordable to very low-, low-, or housing communities using unpaid credit where there are reliable and moderate income families, regardless of principal balance instead of the number verifiable projections or expectations whether the property is owner-occupied of dwelling units. As previously that the financed improvements will or rental. Sections 1282.17, 1282.18 and discussed, due to the lack of data on reduce energy and water consumption 1282.19 of part 1282 define manufactured housing community by the tenant by at least 15 percent, the ‘‘affordability’’ for owner occupied and residents’ incomes and monthly housing reduced utility costs derived from the rental units. The tables in these sections costs, under proposed § 1282.39(f), the reduced consumption are not offset by adjust the maximum percentage of area affordability of a manufactured housing higher rents or other charges imposed median income based on family size community would be evaluated based by the property owner, and the reduced and the size of the dwelling unit, as on the median income of the census utility costs will offset the upfront costs measured by the number of bedrooms. tract in which the manufactured of the improvements within a Under § 1282.39(c) of the proposed housing community is located. An reasonable time period. Generally, rule, Enterprise mortgage purchases Enterprise would receive credit for subordinate liens on multifamily financing owner-occupied, single-family either the total amount or a percentage properties would not receive credit properties would be evaluated based on of the unpaid principal balance of the under the Duty to Serve regulation. the income of the mortgagor(s) and the mortgage financing the community. However, because subordinate liens for area median income at the time the VII. Special Requirements for Loan energy efficiency improvements on mortgage was originated. Where the Purchases—Proposed § 1282.40 existing multifamily properties address income of the mortgagor(s) is not a specific need, under proposed available, the mortgage purchase would Under proposed § 1282.40, activities § 1282.38(b)(4), such liens would not receive credit under the loan such as Enterprise purchases or receive credit under the Duty to Serve purchase assessment factor. guarantees of mortgage revenue bonds regulation provided they meet all other Under proposed § 1282.39(d)(1), and purchases of participations in requirements in the regulation. mortgage purchases financing single- mortgages would be treated as mortgage Under § 1282.38(b)(5), subordinate family rental units and multifamily purchases in the same manner as they liens on single-family properties would rental units would be evaluated based would be counted under the housing not receive credit under the Duty to on rent and whether the rent is goals regulation. Serve regulation. This exclusion applies affordable to the income groups targeted Requests for Comments to all single-family subordinate loans by the Duty to Serve. including energy efficiency Under § 1282.39(d)(2), where a FHFA specifically requests comments improvement loans. multifamily property is subject to an on the following questions (please As previously discussed, shared affordability restriction that establishes identify the question answered by the appreciation loans that meet the the maximum permitted income level number assigned below): requirements of proposed for a tenant or a prospective tenant or 89. Under the proposed rule, when an § 1282.34(d)(4) would be eligible for the maximum permitted rent, the Enterprise lacks sufficient information Duty to Serve credit. Proprietary shared affordability of units in the property to determine whether a rental unit is appreciation loans, where an investor may be determined based on the affordable, the Enterprise may estimate receives part of the equity in exchange maximum permitted income level or affordability for the rental unit using the for making the home affordable for a maximum permitted rent established estimation methodology set forth in the single buyer only, do not preserve under such housing program for those proposed rule. Are better methods affordability of the unit for subsequent units. available for estimating affordability buyers and, therefore, would not meet Under proposed § 1282.39(e), when when rent information is missing? the requirements of proposed an Enterprise lacks sufficient § 1282.34(d)(4). Accordingly, under information on the rents, the 90. Unlike the housing goals proposed § 1282.38(b)(6), such loans Enterprise’s performance regarding the regulation, the proposed rule would not would not receive credit under the Duty rental units may be evaluated using limit the number of units with missing to Serve regulation. estimated affordability information. The data for which an Enterprise could Government-insured and government- estimated affordability information estimate affordability. Should FHFA guaranteed mortgages that are otherwise would be calculated by multiplying the impose a limit, and if so, what limit eligible for inclusion would count number of rental units with missing should be imposed? affordability information in properties 219 See 15 U.S.C. 1602(bb). securing the mortgages purchased by the 220 12 CFR 1282.15(e)(3).

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VIII. Enforcement of Duty To Serve— quarterly reporting under the Duty to Enterprises’ Duty to Serve progress on a Proposed §§ 1282.41, 1282.42 Serve would pose significant additional timely basis, the proposed rule would The Safety and Soundness Act burdens on the Enterprise and its provide that the quarterly and semi- provides that the Duty to Serve resources. annual reports would be due within 60 In consideration of these comments, underserved markets is enforceable to days of the end of the respective quarter. the proposed rule would require each the same extent and under the same Enterprise to provide to FHFA two X. Paperwork Reduction Act enforcement provisions as are quarterly reports, one semi-annual The proposed rule would not contain applicable to the Enterprise housing any information collection requirement 221 report, and an annual report. To lessen goals, except as otherwise provided. operational concerns, FHFA would that would require the approval of OMB Accordingly, under § 1282.41 of the require the quarterly reports to address under the Paperwork Reduction Act (44 proposed rule, if an Enterprise receives only performance under the loan U.S.C. 3501 et seq.). Therefore, FHFA a ‘‘Fails’’ rating for a particular purchase assessment factor for each has not submitted any information to underserved market in a given year, or underserved market. The Enterprises OMB for review. if there is a substantial probability that already have experience providing XI. Regulatory Flexibility Act an Enterprise will receive a ‘‘Fails’’ similar reports for their performance rating for a particular underserved under the housing goals. The Regulatory Flexibility Act (5 market in a given year, FHFA would The proposed rule would require an U.S.C. 601 et seq.) requires that a determine whether the activities in the Enterprise to report on its Duty to Serve regulation that has a significant Enterprise’s Underserved Markets Plan performance for each underserved economic impact on a substantial are or were feasible. In determining market in its semi-annual and annual number of small entities, small feasibility, FHFA would consider factors reports. These two reports would be businesses, or small organizations must such as market conditions and the required to contain both narrative and include an initial regulatory flexibility financial condition of the Enterprise. If summary statistical information for the analysis describing the regulation’s FHFA determines that compliance is or Plan Objectives, supported by impact on small entities. Such an was feasible, FHFA would follow the appropriate transaction-level data. In analysis need not be undertaken if the procedures in 12 U.S.C. 4566(b). addition, an Enterprise’s annual report agency has certified that the regulation Section 1282.42 of the proposed rule would be required to describe the will not have a significant economic includes requirements for an Enterprise Enterprise’s market opportunities for impact on a substantial number of small to submit to FHFA a housing plan, in purchasing loans in each underserved entities. (5 U.S.C. 605(b)). FHFA has the Director’s discretion, if the Director market during the evaluation year, to considered the impact of the proposed determines that the Enterprise did not the extent data is available. These rule under the Regulatory Flexibility comply with its Duty to Serve a opportunities could include market or Act. The General Counsel of FHFA particular underserved market. regulatory factors that may affect certifies that the proposed rule, if IX. Enterprise Duty To Serve Reporting lenders’ decisions to retain loans in adopted as a final rule, is not likely to to FHFA—Proposed § 1282.66 portfolio or sell them, the availability have a significant economic impact on and pricing of credit enhancements a substantial number of small entities Section 1282.66 of the proposed rule from third parties, and competition from because the regulation applies to the would require each Enterprise to other secondary market participants. Enterprises, which are not small entities provide to FHFA two quarterly reports, In their comments on the 2010 Duty for purposes of the Regulatory one semi-annual report, and an annual to Serve proposed rule, both Enterprises Flexibility Act. report on its performance and progress requested that the due date for toward meeting its Duty to Serve each submission of their annual Duty to List of Subjects in 12 CFR Part 1282 undeserved market. Serve report to FHFA be at least 30 days Mortgages, Reporting and Under the 2010 Duty to Serve later than the due date for submission recordkeeping requirements. proposed rule, each Enterprise would of their Annual Housing Activities Authority and Issuance have been required to provide three Report for the housing goals to FHFA. quarterly reports and one annual report One Enterprise commented that the 60- For the reasons stated in the to FHFA on its Duty to Serve day deadline proposed for year-end preamble, under the authority of 12 performance and progress, consistent reporting on Duty to Serve performance U.S.C. 4501, 4502, 4511, 4513, 4526, with the reporting requirements for the would impact its operations and end-of- and 4561–4566, FHFA proposes to Enterprise housing goals. One year transactions, because the timeline amend part 1282 of subchapter E of 12 Enterprise commented that because for completing transactions and CFR chapter XII, as follows: reporting on progress toward meeting collecting data would not only be the Duty to Serve underserved markets compressed, but would occur at the PART 1282—ENTERPRISE HOUSING will take more time than reporting on same time that housing goals reporting GOALS AND MISSION the housing goals and will require input and financial reporting are taking place. ■ 1. The authority citation for part 1282 from business units throughout the The other Enterprise commented that a continues to read as follows: Enterprise, reporting should be limited staggered schedule would allow the to annual submissions and the proposed Enterprise to strengthen the controls Authority: 12 U.S.C. 4501, 4502, 4511, quarterly reporting requirements should and processes that govern both 4513, 4526, 4561–4566. be eliminated. The other Enterprise regulatory submissions and efficiently ■ 2. In § 1282.1(b), add the definitions commented that semi-annual reporting allocate resources between them. of ‘‘Area of concentrated poverty’’, on Duty to Serve progress would be In recognition of these operational ‘‘Colonia’’, ‘‘Community development appropriate. The Enterprise added that, concerns, the proposed rule would set financial institution’’, ‘‘Community coupled with the existing quarterly the due date for the annual Duty to financial institution’’, ‘‘Federally reporting under the housing goals, Serve report as the date 75 days after the insured credit union’’, ‘‘Federally end of the calendar year. Because it is recognized Indian tribe’’, ‘‘High-needs 221 12 U.S.C. 4566(a)(4). important that FHFA monitor the rural population’’, ‘‘High-needs rural

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region’’, ‘‘High opportunity area’’, Indian area, for purposes of subpart C Seasonal agricultural workers, for ‘‘Indian area’’, ‘‘Manufactured home’’, of this part, has the meaning in 24 CFR purposes of subpart C of this part, has ‘‘Manufactured housing community’’, 1000.10. the meaning in 29 CFR 500.20(r). ‘‘Migrant agricultural workers’’, ‘‘Mixed- * * * * * * * * * * income housing’’, ‘‘Residential Manufactured home, for purposes of ■ 3. Add subpart C to read as follows: economic diversity activity’’, ‘‘Resident- subpart C of this part, means a Subpart C—Duty To Serve owned manufactured housing manufactured home as defined in Underserved Markets community’’, ‘‘Rural area’’, and section 603(6) of the National ‘‘Seasonal agricultural workers’’ in Manufactured Housing Construction alphabetical order to read as follows: Sec. and Safety Standards Act of 1974, as 1282.31 General. § 1282.1 Definitions. amended, 42 U.S.C. 5401 et seq., and 1282.32 Underserved Markets Plan. implementing regulations. 1282.33 Manufactured housing market. * * * * * 1282.34 Affordable housing preservation (b) * * * Manufactured housing community, for purposes of subpart C of this part, market. Area of concentrated poverty, for 1282.35 Rural markets. purposes of subpart C of this part, means a tract of land under unified 1282.36 Evaluations and assigned ratings. means a census tract designated by HUD ownership and developed for the 1282.37 Extra credit for qualifying as a Qualified Census Tract pursuant to purposes of providing individual rental residential economic diversity activities. 26 U.S.C. 42(d)(5)(B)(ii). spaces for the placement of 1282.38 General requirements for credit. manufactured homes for residential 1282.39 General requirements for loan * * * * * purposes within its boundaries. purchases. Colonia, for purposes of subpart C of Migrant agricultural workers, for 1282.40 Special requirements for loan this part, means any identifiable purchases. purposes of subpart C of this part, has community that— 1282.41 Failure to comply. the meaning in 29 CFR 500.20(p). (i) Is designated by the State or county 1282.42 Housing plans. Mixed-income housing, for purposes in which it is located as a colonia; § 1282.31 General. (ii) Is located in the State of Arizona, of subpart C of this part, means a (a) This subpart sets forth the California, New Mexico, or Texas; and multifamily property or development that may include or comprise single- Enterprise duty to serve three (iii) Is located in a U.S. census tract family units that serves very low-, underserved markets as required by with some portion of the tract within low-, or moderate-income households section 1335 of the Safety and 150 miles of the U.S.-Mexico border. where at least 25 percent of the units are Soundness Act, 12 U.S.C. 4565. This Community development financial affordable only to households with subpart also establishes standards and institution, for purposes of subpart C of incomes above moderate-income levels. procedures for annually evaluating and this part, has the meaning in 12 CFR * * * * * rating Enterprise compliance with the 1263.1. duty to serve underserved markets. Residential economic diversity Community financial institution, for (b) Nothing in this subpart permits or activity, for purposes of subpart C of this purposes of subpart C of this part, has requires an Enterprise to engage in any part, means an Enterprise activity in the meaning in 12 CFR 1263.1. activity that would be otherwise connection with mortgages on: * * * * * inconsistent with its Charter Act or the Federally insured credit union, for (i) Affordable housing in a high Safety and Soundness Act. purposes of subpart C of this part, has opportunity area; or the meaning in 12 U.S.C. 1752(7). (ii) Mixed-income housing in an area § 1282.32 Underserved Markets Plan. Federally recognized Indian tribe, for of concentrated poverty. (a) General. Each Enterprise must purposes of subpart C of this part, has * * * * * submit to FHFA an Underserved the meaning in 25 CFR 83.1. Resident-owned manufactured Markets Plan describing the activities * * * * * housing community, for purposes of and objectives that it will undertake to meet its duty to serve each underserved High-needs rural population, for subpart C of this part, means a market. purposes of subpart C of this part, manufactured housing community for (b) Term of Plan. The Plan must cover means any of the following populations which the terms and conditions of a period of three years except for the provided the population is located in a residency, policies, operations and Enterprise’s first Plan which shall have rural area: management are controlled by at least the term as provided for in paragraph 50 percent of the residents, either (i) Members of a Federally recognized (d)(1) of this section. Indian tribe located in an Indian area; or directly or through an entity formed (c) Plan content—(1) Activities. The (ii) Migrant and seasonal agricultural under the laws of the state. Plan must address how the Enterprise workers. Rural area, for purposes of subpart C will undertake each statutory and High-needs rural region, for purposes of this part, means: regulatory activity associated with each of subpart C of this part, means any of (i) A census tract outside of a underserved market, as provided in the following regions provided the metropolitan statistical area as §§ 1282.33, 1282.34 and 1282.35, or region is located in a rural area: designated by the Office of Management identify reasons for not undertaking the (i) Middle Appalachia; and Budget; or statutory or regulatory activity. Any (ii) The Lower Mississippi Delta; or (ii) A census tract in a metropolitan residential economic diversity activities (iii) A colonia. statistical area as designated by the and objectives that the Enterprise will High opportunity area, for purposes of Office of Management and Budget that undertake for extra credit under subpart C of this part, means an area is outside of the metropolitan statistical § 1282.37 must also be described in the designated by HUD as a ‘‘Difficult area’s Urbanized Areas and Urban Plan. Plans may also include additional Development Area’’ pursuant to 26 Clusters, as designated by the U.S. eligible activities that serve an U.S.C. 42(d)(5)(B)(iii). Department of Agriculture’s Rural- underserved market. Activities may * * * * * Urban Commuting Area codes. cover a single year or multiple years.

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(2) Objectives. Plan activities must be comments have been addressed, FHFA owned by a nonprofit, or resident- comprised of objectives, which may will issue a non-objection to the Plan. owned; or cover a single year or multiple years. (e) Effective date of Plans. The (iii) The community’s pad leases have Objectives must meet all of the effective date of the final Plan will be the following pad lease protections at a following requirements: January 1st of the first evaluation year minimum: (i) Strategic. Directly or indirectly for which the Plan is applicable, except (A) Minimum one-year renewable maintain or increase liquidity to an for the Enterprise’s first Plan whose lease term unless there is good cause for underserved market; term and effective date will be nonrenewal; (ii) Measurable. Provide measureable determined by FHFA. (B) Minimum thirty-day written benchmarks, which may include (f) Posting of final Plans. Each notice of rent increases; numerical targets, that enable FHFA to Enterprise’s final Plan will be posted on (C) Minimum five-day grace period determine whether the Enterprise has the respective Enterprise’s Web site and for rent payments, and right to cure achieved the objective; on FHFA’s Web site. Confidential and defaults on rent payments; (iii) Realistic. Be calibrated so that the proprietary data and information will be (D) If a tenant defaults on rent Enterprise has a reasonable chance of omitted from the posted final Plans. payments, the tenant has the right to: meeting the objective with appropriate (g) Modification of final Plans. At any Sell the manufactured home without effort; time after implementation of a final (iv) Time-bound. Be subject to a having to first relocate it out of the Plan, an Enterprise may request to community; sublease or assign the pad specific timeframe for completion by modify its final Plan, subject to FHFA being tied to Plan calendar year lease for the unexpired term to the new non-objection, or FHFA may require an buyer of the tenant’s manufactured evaluation periods; and Enterprise to modify its final Plan. (v) Tied to analysis of market home without any unreasonable FHFA and the Enterprise may seek opportunities. Be based on assessments restraint; post ‘‘For Sale’’ signs; and public input on any proposed and analyses of market opportunities in have a reasonable time period after modifications if FHFA determines that each underserved market, taking into eviction to sell the manufactured home; public input would assist its account safety and soundness (E) Right for tenants to receive at least consideration of the proposed considerations. 120 days advance notice of a planned (3) Assessment Factors. Each Plan modifications. If a final Plan is sale or closure of the community, within objective must meet one of the modified, the modified Plan with which time the tenants, or an assessment factors set forth in confidential and proprietary organization acting on behalf of a group § 1282.36(b). information omitted will be posted on of tenants, may match any bona fide (d) Plan Procedures—(1) Submission the Enterprise’s and FHFA’s Web sites. offer for sale. The community owner of proposed Plans. Each Enterprise must § 1282.33 Manufactured housing market. shall consider the tenants’ offer and submit a proposed Plan to FHFA at least negotiate with them in good faith. (a) Duty in general. Each Enterprise 180 days before the termination date of (d) Additional activities. An must develop loan products and flexible the Enterprise’s existing Plan, except Enterprise may include in its underwriting guidelines to facilitate a that the Enterprise’s first proposed Plan Underserved Markets Plan other secondary market for eligible mortgages must be submitted to FHFA pursuant to activities to serve very low-, low-, or on manufactured homes for very low-, the timeframe and procedures moderate-income families in the low-, and moderate-income families. established by FHFA after the effective manufactured housing market Enterprise activities under this section date of this part. consistent with paragraph (b) of this (2) Posting of proposed Plans and must serve each such income group in section, subject to FHFA determination public input. As soon as practical after the year for which the Enterprise is of whether such activity is eligible to an Enterprise submits its proposed Plan evaluated and rated. receive credit. to FHFA for review, FHFA will post on (b) Eligible activities. Enterprise FHFA’s Web site a public version of the activities eligible to be included in an § 1282.34 Affordable housing preservation market. proposed Plan that omits proprietary Underserved Markets Plan for the and confidential data and information. manufactured housing market are (a) Duty in general. Each Enterprise The public will have 45 calendar days activities that facilitate a secondary must develop loan products and flexible from the date the proposed Plan is market for mortgages on residential underwriting guidelines to facilitate a posted on FHFA’s Web site to provide properties for very low-, low-, or secondary market to preserve housing input to FHFA on the proposed Plan. moderate-income families consisting of: affordable to very low-, low-, and (3) Enterprise review. In its discretion, (1) Manufactured homes titled as real moderate-income families under eligible each Enterprise may make revisions to property; and housing programs or activities. its proposed Plan based on the public (2) Manufactured housing Enterprise activities under this section input. communities. must serve each such income group in (4) FHFA review. FHFA will review (c) Regulatory activities. Enterprise the year for which the Enterprise is each Enterprise’s proposed Plan and activities related to the following will evaluated and rated. within 60 days of the end of the public receive credit under the manufactured (b) Eligible activities. Enterprise input period, will inform each housing market: activities eligible to be included in an Enterprise of any FHFA comments on (1) Mortgages on manufactured homes Underserved Markets Plan for the the Enterprise’s proposed Plan. The titled as real property under the laws of affordable housing preservation market Enterprise must address those the state where the home is located; and are activities that facilitate a secondary comments, as appropriate, through (2) Mortgages on manufactured market for mortgages on residential revisions to its proposed Plan pursuant housing communities provided that: properties for very low-, low-, or to timeframes and procedures (i) The community has 150 pads or moderate-income families consisting of established by FHFA. less; affordable rental housing preservation (5) Non-objection to Plans. After (ii) The community is owned by a and affordable homeownership FHFA is satisfied that all of its governmental unit or instrumentality, preservation.

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(c) Statutory activities. Enterprise reduced consumption must not be offset § 1282.35 Rural markets. activities related to housing projects by higher rents or other charges (a) Duty in general. Each Enterprise under the following programs will imposed by the property owner, and the must develop loan products and flexible receive credit under the affordable reduced utility costs will offset the underwriting guidelines to facilitate a housing preservation market: upfront costs of the improvements secondary market for eligible mortgages (1) The project-based and tenant- within a reasonable time period; on housing for very low-, low-, and based rental assistance housing (3) Energy efficiency improvements moderate-income families in rural areas. programs under section 8 of the U.S. on existing single-family, first-lien Enterprise activities under this section Housing Act of 1937, 42 U.S.C. 1437f; properties, provided that there are must serve each such income group in (2) The rental and cooperative verifiable, reliable projections or the year for which the Enterprise is housing program for lower income expectations that the improvements evaluated and rated. families under section 236 of the financed by the loan will reduce energy (b) Eligible activities. Enterprise National Housing Act, 12 U.S.C. and water consumption by the activities eligible to be included in an 1715z–1; homeowner or tenant by at least 15 Underserved Markets Plan for the rural (3) The housing program for percent, the reduced utility costs market are activities that facilitate a moderate-income and displaced families derived from the reduced consumption secondary market for mortgages on under section 221(d)(4) of the National will offset the upfront costs of the residential properties for very low-, Housing Act, 12 U.S.C. 1715l; improvements within a reasonable time low-, or moderate-income families in (4) The supportive housing program period, and in the case of a single-family rural areas. for the elderly under section 202 of the rental property, the reduced utility costs (c) Regulatory activities. Enterprise Housing Act of 1959, 12 U.S.C. 1701q; must not be offset by higher rents or activities serving high-needs rural (5) The supportive housing program other charges imposed by the property regions or high-needs rural populations for persons with disabilities under owner; will receive credit under the rural section 811 of the Cranston-Gonzalez (4) Affordable homeownership market. National Affordable Housing Act, 42 (d) Additional activities. An preservation through shared equity U.S.C. 8013; Enterprise may include in its homeownership programs. Shared (6) Permanent supportive housing Underserved Markets Plan other equity programs include programs projects subsidized under Title IV of the activities to serve very low-, low-, or administered by community land trusts, McKinney-Vento Homeless Assistance moderate-income families in rural areas other nonprofit organizations, or State Act, 42 U.S.C. 11361, et seq.; consistent with paragraph (b) of this or local governments or (7) The rural rental housing program section, subject to FHFA determination instrumentalities that: under section 515 of the Housing Act of of whether such activities are eligible to 1949, 42 U.S.C. 1485; (i) Ensure affordability for at least 30 receive credit. (8) Low-income housing tax credits years or as long as permitted under state under section 42 of the Internal Revenue law through a ground lease, deed § 1282.36 Evaluations and assigned Code of 1986, 26 U.S.C. 42; and restriction, subordinate loan or similar ratings. (9) Other comparable affordable legal mechanism that makes residential (a) Evaluation of compliance. In housing programs administered by a real property affordable to very low-, determining whether an Enterprise has state or local government that preserve low-, or moderate-income families. The complied with the duty to serve each housing affordable to very low-, low-, legal instrument ensuring affordability underserved market, FHFA will and moderate-income families. An must also stipulate a preemptive option annually evaluate and rate the Enterprise may include in its to purchase the homeownership unit Enterprise’s duty to serve performance Underserved Markets Plan programs from the homeowner at resale to based on the Enterprise’s pursuant to this paragraph (c)(9), subject preserve the affordability of the unit for implementation of its Underserved to FHFA determination of whether such successive very low-, low-, or moderate- Markets Plan during the relevant programs are eligible to receive credit. income families; evaluation year. FHFA’s evaluation will (d) Regulatory activities. Enterprise (ii) Monitor the homeownership unit be in accordance with evaluation activities related to the following will to ensure affordability is preserved over criteria set forth in a separate, FHFA- receive credit under the affordable resales; and prepared evaluation guide. housing preservation market: (iii) Support the homeowners to (b) Assessment factors. (1) FHFA’s (1) Purchasing and securitizing loan promote successful homeownership for evaluation of each Enterprise’s pools from a community development very low-, low-, or moderate-income performance will take into financial institution, community families; consideration four assessment factors, as financial institution, or federally provided in paragraphs (b)(2) through (5) Choice Neighborhoods Initiative, insured credit union whose total assets (5) of this section. are within the asset cap set forth in the as authorized by 42 U.S.C. 1437v; and (2) Outreach assessment factor. FHFA definition of ‘‘community financial (6) HUD’s Rental Assistance will evaluate the Enterprise on the institution’’ in § 1282.1, where the loan Demonstration program, as authorized extent of its outreach to qualified loan pools are backed by existing small by 42 U.S.C.1437f note. sellers and other market participants in multifamily rental properties consisting (e) Additional activities. An each underserved market. of five to not more than fifty units; Enterprise may include in its (3) Loan product assessment factor. (2) Energy efficiency improvements Underserved Markets Plan other FHFA will evaluate the Enterprise on its on existing multifamily rental properties activities to serve very low-, low-, or development of loan products, more provided there are verifiable, reliable moderate-income families in the flexible underwriting guidelines and projections or expectations that the affordable housing preservation market other innovative approaches to improvements financed by the loan will consistent with paragraph (b) of this providing financing in each reduce energy and water consumption section, subject to FHFA determination underserved market. by the tenant by at least 15 percent, the of whether such activities are eligible to (4) Loan purchase assessment factor. reduced utility costs derived from the receive credit. FHFA will evaluate the Enterprise on

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the volume of loans it purchases in each of ‘‘Fails’’ will constitute activity will receive such credit under underserved market relative to the noncompliance with the duty to serve the relevant assessment factor for each market opportunities available to the the underserved market. underserved market it serves. Enterprise. (4) Delivery of evaluation guide. (b) No credit under any assessment (5) Investments and grants assessment FHFA will provide the evaluation guide factor. Enterprise activities related to factor. FHFA will evaluate the to the Enterprise at least 30 days before the following will not receive credit Enterprise on the amount of its January 1st of the evaluation year for under the duty to serve underserved investments and grants in projects that which the guide is applicable, except markets under any assessment factor, assist in meeting the needs of each that the evaluation guide for the first even if the activity otherwise would underserved market. evaluation year after the effective date of receive credit under any other section of (c) Evaluation guide—(1) Annual this part will be provided to the this subpart: evaluation guides. FHFA will prepare a Enterprise on a date to be determined by (1) Contributions to the Housing Trust separate evaluation guide for each FHFA. Fund (12 U.S.C. 4568) and the Capital Enterprise for each evaluation year. (5) Posting of evaluation guide. The Magnet Fund (12 U.S.C. 4569), and FHFA will develop the evaluation guide evaluation guide will be posted on the mortgage purchases funded with such using the contents of the Enterprise’s respective Enterprise’s Web site and on grant amounts; Plan and the assessment factors FHFA’s Web site. (2) HOEPA mortgages; provided in paragraph (b) of this (3) Mortgages on manufactured homes section. The evaluation guide will § 1282.37 Extra credit for qualifying not titled as real property under the allocate a maximum number of potential residential economic diversity activities. laws of the state where the property is scoring points to each Plan activity that (a) Where an Enterprise includes a located; an Enterprise will pursue during the qualifying activity to promote (4) Subordinate liens on multifamily evaluation year covered by the residential economic diversity in its properties, except for subordinate liens evaluation guide. Each evaluation guide Underserved Markets Plan, FHFA will originated for energy efficiency will allocate a total of 100 potential evaluate the extent to which the activity improvements on existing multifamily scoring points to all of the Plan promotes residential economic diversity rental properties that meet the activities grouped under a particular in an underserved market in connection requirements in § 1282.34(d)(2); underserved market. with mortgages on: Affordable housing (5) Subordinate liens on single-family (2) Determination of overall in a high opportunity area; or mixed- properties; composite scores for each underserved income housing in an area of (6) Shared appreciation loans that do market. At the end of the evaluation concentrated poverty. This criterion will not satisfy all of the requirements in year covered by the evaluation guide, be considered in connection with § 1282.34(d)(4) of this part; and FHFA will award a score to each Plan activities for which extra credit may be (7) Any combination of factors in activity covered by the evaluation guide. given, but the activities associated with paragraphs (b)(1) through (b)(6) of this The score for each Plan activity will be this criterion are not mandatory. To section. (c) No credit under loan purchase based on FHFA’s assessment of how qualify for extra credit, an activity first assessment factor. The following well the Enterprise performed the Plan must be an eligible activity that activities will not receive credit under activity and associated objectives during contributes to an Enterprise’s duty to the loan purchase assessment factor, the evaluation year. FHFA will also serve an underserved market. Eligible even if the activity otherwise would award any extra credit it determines is activities in each of the underserved appropriate for qualifying residential receive credit under § 1282.40: markets may qualify for extra credit for (1) Purchases of mortgages to the economic diversity activities as residential economic diversity except extent they finance any dwelling units provided for in § 1282.37. The score for manufactured housing communities that are secondary residences; cannot exceed the maximum number of activities, energy efficiency (2) Single-family refinancing potential scoring points allocated to the improvement activities, and any mortgages that result from conversion of Plan activity in the evaluation guide. additional activities determined by balloon notes to fully amortizing notes, After FHFA has awarded a score to each FHFA to be ineligible. if the Enterprise already owns or has an Plan activity, FHFA will sum the (b) FHFA’s evaluation of residential interest in the balloon note at the time scoring points for all of the Plan economic diversity activities under this conversion occurs; activities that are grouped under each section will occur as part of its review (3) Purchases of mortgages or interests underserved market. The sum of those under § 1282.36. in mortgages that previously received scores will produce an overall § 1282.38 General requirements for credit. credit under any underserved market composite score ranging from zero to within the five years immediately 100 for each underserved market. (a) General. FHFA will determine preceding the current performance year; (3) Determination of overall rating whether an activity will receive credit (4) Purchases of mortgages where the and compliance. The evaluation guide under the duty to serve underserved property or any units within the will contain a table that allocates overall markets. In this determination, FHFA property have not been approved for composite score numerical ranges to will consider whether the activity occupancy; each of the following four overall facilitates a secondary market for (5) Any interests in mortgages that the ratings: ‘‘Exceeds,’’ ‘‘High Satisfactory,’’ financing mortgages: on manufactured Director determines, in writing, will not ‘‘Low Satisfactory,’’ and ‘‘Fails.’’ An homes for very low-, low-, and be treated as interests in mortgages; Enterprise’s overall rating for each moderate-income families; to preserve (6) Purchases of State and local underserved market will be determined housing affordable to very low-, low-, government housing bonds except as by the numerical range within which and moderate-income families; and on provided in § 1282.40(h); and the Enterprise’s overall composite score housing for very low-, low-, and (7) Any combination of factors in falls. A rating of ‘‘Exceeds,’’ ‘‘High moderate-income families in rural areas. paragraphs (c)(1) through (6) of this Satisfactory’’ or ‘‘Low Satisfactory’’ will If FHFA determines that an activity will section. constitute compliance with the duty to receive credit or extra credit under the (d) FHFA review of activities. FHFA serve the underserved market. A rating duty to serve underserved markets, the may determine whether and how any

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activity will receive credit under the receive credit under the loan purchase mortgage purchased by the Enterprise duty to serve underserved markets, assessment factor. receives credit under the loan purchase including treatment of missing data. (d) Credit for rental units—(1) Use of assessment factor because rental data FHFA will notify each Enterprise in rent. Except as provided in paragraph are not available, the Enterprise’s writing of any determination regarding (g) of this section, mortgage purchases performance with respect to such unit the treatment of any activity. financing single-family rental units and may be evaluated using estimated (e) The year in which an activity will multifamily rental units will be affordability information. The estimated receive credit. An activity will receive evaluated based on rent and whether the affordability information is calculated credit under the duty to serve rent is affordable to the income groups by multiplying the number of rental underserved markets in the year in targeted by the duty to serve. A rent is units with missing affordability which the activity is completed. FHFA affordable if the rent does not exceed information in properties securing the may determine that partial credit is the maximum levels as provided in mortgages purchased by the Enterprise appropriate for an activity that begins in § 1282.19. in each census tract by the percentage a particular year but is not completed (2) Affordability of rents based on of all moderate-income rental dwelling until a subsequent year, except that housing program requirements. Where a units in the respective tracts, as activities under the loan purchase multifamily property is subject to an determined by FHFA based on the most assessment factor will receive credit in affordability restriction under a housing recent decennial census. the year in which the Enterprise program that establishes the maximum (f) Credit for manufactured housing purchased the mortgage. permitted income level for a tenant or communities. Performance under the a prospective tenant or the maximum (f) Credit under one assessment loan purchase assessment factor for permitted rent, the affordability of units factor. An activity or objective will manufactured housing communities in the property may be determined receive credit only under one will be measured based on the unpaid based on the maximum permitted assessment factor in a particular principal balance of the mortgage at the income level or maximum permitted underserved market. time of acquisition. rent established under such housing (g) Determining affordability for (g) Credit under multiple underserved program for those units. If using income, manufactured housing communities. markets. An activity, including dwelling the maximum income level must be no Affordability for a manufactured units financed by an Enterprise’s greater than the maximum income level housing community will be evaluated mortgage purchase, will receive credit for each income group targeted by the based on the median income of the for each underserved market for which duty to serve, adjusted for family or unit census tract in which the manufactured such activity qualifies in that year. size as provided in § 1282.17 or housing community is located as § 1282.39 General requirements for loan § 1282.18, as appropriate. If using rent, provided below. purchases. the maximum rent level must be no (1) If the median income of the census greater than the maximum rent level for (a) General. This section applies to tract in which the manufactured each income group targeted by the duty Enterprise mortgage purchases that may housing community is located is less to serve, adjusted for unit size as receive credit under the loan purchase than or equal to area median income, provided in § 1282.19. assessment factor for a particular the Enterprise will receive credit for the (3) Unoccupied units. Anticipated full unpaid principal balance of the underserved market. Only dwelling rent for unoccupied units may be the units securing a mortgage purchased by loan. market rent for similar units in the (2) If the median income of the census the Enterprise in that year and not neighborhood as determined by the tract in which the manufactured specifically excluded under § 1282.38(b) lender or appraiser for underwriting housing community is located exceeds and (c), may receive credit. purposes. A unit in a multifamily the area median income, the Enterprise (b) Counting dwelling units. Except as property that is unoccupied because it will receive partial credit for the loan provided in paragraph (f) of this section, is being used as a model unit or rental purchase. The percentage of the unpaid performance under the loan purchase office may receive credit only if the principal balance of the loan that will assessment factor will be measured by Enterprise determines that the number receive credit will be determined by counting dwelling units affordable to of such units is reasonable and minimal dividing the area median income by the very low-, low-, and moderate-income considering the size of the multifamily median income of the census tract and families. property. multiplying the quotient by the unpaid (c) Credit for owner-occupied units. (4) Timeliness of information. In principal balance of the loan. (1) Mortgage purchases financing evaluating affordability for single-family (h) Application of median income. (1) owner-occupied single-family properties rental properties, an Enterprise must use To determine an area’s median income will be evaluated based on the income tenant income and area median income under §§ 1282.17 through 1282.19 and of the mortgagor(s) and the area median available at the time the mortgage was the definitions in § 1282.1, the area is: income at the time the mortgage was originated. For multifamily rental (i) The metropolitan area, if the originated. To determine whether properties, the Enterprise must use property which is the subject of the mortgages may receive credit under a tenant income and area median income mortgage is in a metropolitan area; and particular family income level, i.e., very available at the time the mortgage was (ii) In all other areas, the county in low-, low-, or moderate-income, the acquired. which the property is located, except income of the mortgagor(s) is compared (e) Missing data or information for that where the State non-metropolitan to the median income for the area at the rental units. (1) When calculating unit median income is higher than the time the mortgage was originated, using affordability, rental units for which county’s median income, the area is the the appropriate percentage factor bedroom data are missing will be State non-metropolitan area. provided under § 1282.17. considered efficiencies. (2) When an Enterprise cannot (2) Mortgage purchases financing (2) When an Enterprise lacks precisely determine whether a mortgage owner-occupied single-family properties sufficient information to determine is on dwelling unit(s) located in one for which the income of the whether a rental unit in a single-family area, the Enterprise must determine the mortgagor(s) is not available will not or multifamily property securing a median income for the split area in the

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manner prescribed by the Federal (d) Participations. Participations serve the income groups targeted by the Financial Institutions Examination purchased by an Enterprise will be duty to serve. Council for reporting under the Home treated as mortgage purchases only (i) Seller dissolution option. (1) Mortgage Disclosure Act (12 U.S.C. 2801 when the Enterprise’s participation in Mortgages acquired through transactions et seq.), if the Enterprise can determine the mortgage is 50 percent or more. involving seller dissolution options will that the mortgage is on dwelling unit(s) (e) Cooperative housing and be treated as mortgage purchases only located in: condominiums. (1) The purchase of a when: (i) A census tract; or mortgage on a cooperative housing unit (i) The terms of the transaction (ii) A census place code. (‘‘a share loan’’) or a mortgage on a provide for a lockout period that (i) Newly available data. When an condominium unit will be treated as a prohibits the exercise of the dissolution Enterprise uses data to determine mortgage purchase. Such a purchase option for at least one year from the date whether a dwelling unit receives credit will receive credit in the same manner on which the transaction was entered under the loan purchase assessment as a mortgage purchase of single-family into by the Enterprise and the seller of factor and new data is released after the owner-occupied units, i.e., affordability the mortgages; and start of a calendar quarter, the is based on the income of the (ii) The transaction is not dissolved Enterprise need not use the new data mortgagor(s). during the one-year minimum lockout until the start of the following quarter. (2) The purchase of a blanket period. mortgage on a cooperative building or a (2) FHFA may grant an exception to § 1282.40 Special requirements for loan mortgage on a condominium project the one-year minimum lockout period purchases. will be treated as a mortgage purchase. described in paragraphs (i)(1)(i) and (ii) (a) General. Subject to FHFA’s The purchase of a blanket mortgage on of this section, in response to a written determination of whether an activity a cooperative building will receive request from an Enterprise, if FHFA will receive credit under a particular credit in the same manner as a mortgage determines that the transaction furthers underserved market, the activities purchase of a multifamily rental the purposes of the Enterprise’s Charter identified in this section will be treated property, except that affordability must Act and the Safety and Soundness Act. as mortgage purchases as described and be determined based solely on the (3) For purposes of paragraph (i) of receive credit under the loan purchase comparable market rents used in this section, ‘‘seller dissolution option’’ assessment factor. An activity that is underwriting the blanket loan. If the means an option for a seller of covered by more than one paragraph underwriting rents are not available, the mortgages to the Enterprises to dissolve below must satisfy the requirements of loan will not be treated as a mortgage or otherwise cancel a mortgage purchase each such paragraph. purchase. The purchase of a mortgage agreement or loan sale. (b) Credit enhancements. (1) Dwelling on a condominium project will receive § 1282.41 Failure to comply. units financed under a credit credit in the same manner as a mortgage If the Director determines that an enhancement entered into by an purchase of a multifamily rental Enterprise has not complied with, or Enterprise will be treated as mortgage property. there is a substantial probability that an purchases only when: (3) Where an Enterprise purchases Enterprise will not comply with, the (i) The Enterprise provides a specific both a blanket mortgage on a duty to serve a particular underserved contractual obligation to ensure timely cooperative building and share loans for market in a given year and the Director payment of amounts due under a units in the same building, both the determines that such compliance is or mortgage or mortgages financed by the mortgage on the cooperative building was feasible, the Director will follow the issuance of housing bonds (such bonds and the share loans will be treated as procedures in 12 U.S.C. 4566(b). may be issued by any entity, including mortgage purchases. Where an a State or local housing finance agency); Enterprise purchases both a mortgage on § 1282.42 Housing plans. and a condominium project and mortgages (a) General. If the Director determines (ii) The Enterprise assumes a credit on individual dwelling units in the that an Enterprise did not comply with, risk in the transaction substantially same project, both the mortgage on the or there is a substantial probability that equivalent to the risk that would have condominium project and the mortgages an Enterprise will not comply with, the been assumed by the Enterprise if it had on individual dwelling units will be duty to serve a particular underserved securitized the mortgages financed by treated as mortgage purchases. market in a given year, the Director may such bonds. (f) Seasoned mortgages. An require the Enterprise to submit a (2) When an Enterprise provides a Enterprise’s purchase of a seasoned housing plan for approval by the specific contractual obligation to ensure mortgage will be treated as a mortgage Director. timely payment of amounts due under purchase. (b) Nature of housing plan. If the any mortgage originally insured by a (g) Purchase of refinancing mortgages. Director requires a housing plan, the public purpose mortgage insurance The purchase of a refinancing mortgage housing plan must: entity or fund, the Enterprise may, on a by an Enterprise will be treated as a (1) Be feasible; case-by-case basis, seek approval from mortgage purchase only if the (2) Be sufficiently specific to enable the Director for such transactions to refinancing is an arms-length the Director to monitor compliance receive credit under the loan purchase transaction that is borrower-driven. periodically; assessment factor for a particular (h) Mortgage revenue bonds. The (3) Describe the specific actions that underserved market. purchase or guarantee by an Enterprise the Enterprise will take: (c) Risk-sharing. Mortgages purchased of a mortgage revenue bond issued by a (i) To comply with the duty to serve under risk-sharing arrangements State or local housing finance agency a particular underserved market for the between an Enterprise and any federal will be treated as a purchase of the next calendar year; or agency under which the Enterprise is underlying mortgages only to the extent (ii) To make such improvements and responsible for a substantial amount of the Enterprise has sufficient information changes in its operations as are the risk will be treated as mortgage to determine whether the underlying reasonable in the remainder of the year, purchases. mortgages or mortgage-backed securities if the Director determines that there is

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a substantial probability that the not acceptable to the Director, the (c) Annual report. To comply with the Enterprise will fail to comply with the Director may afford the Enterprise 15 requirements in sections 309(n) of the duty to serve a particular underserved days to submit a new housing plan. Fannie Mae Charter Act and 307(f) of market in such year; and ■ 4. Add § 1282.66 to subpart D to read the Freddie Mac Act and for purposes (4) Address any additional matters as follows: of FHFA’s Annual Housing Report to relevant to the housing plan as required, § 1282.66 Enterprise reports on duty to Congress, each Enterprise must submit in writing, by the Director. to FHFA an annual report on all of the (c) Deadline for submission. The serve. activities and objectives in its Enterprise must submit the housing (a) First and third quarter reports. plan to the Director within 45 days after Each Enterprise must submit to FHFA a Underserved Markets Plan for each issuance of a notice requiring the first and third quarter report on its underserved market no later than 75 Enterprise to submit a housing plan. activities and objectives in its days after the end of each calendar year. The Director may extend the deadline Underserved Markets Plan for the loan For each underserved market, the for submission of a housing plan, in purchase assessment factor for each annual report must include, at a writing and for a time certain, to the underserved market. The report must minimum: A description of the extent the Director determines an include detailed information on the Enterprise’s market opportunities for extension is necessary. Enterprise’s progress towards meeting loan purchases during the evaluation (d) Review of housing plans. The the activities and objectives. The year to the extent data is available; the Director will review and approve or Enterprise must submit the first and volume of qualifying loans purchased disapprove housing plans in accordance third quarter reports within 60 days of by the Enterprise; a comparison of the with 12 U.S.C. 4566(c)(4) and (5). the end of the respective quarter. Enterprise’s loan purchases with its loan (e) Resubmission. If the Director (b) Semi-annual report. Each purchases in prior years; and a disapproves an initial housing plan Enterprise must submit to FHFA a semi- comparison of market opportunities submitted by an Enterprise, the annual report on all of the activities and with the size of the relevant markets in objectives in its Underserved Markets Enterprise must submit an amended the past, to the extent data are available. housing plan acceptable to the Director Plan for each underserved market. The not later than 15 days after the report must include detailed Dated: December 10, 2015. Director’s disapproval of the initial information on the Enterprise’s progress Melvin L. Watt, housing plan. The Director may extend towards meeting the activities and Director, Federal Housing Finance Agency. the deadline if the Director determines objectives. The Enterprise must submit [FR Doc. 2015–31811 Filed 12–17–15; 8:45 am] that an extension is in the public the semi-annual report within 60 days BILLING CODE 8070–01–P interest. If the amended housing plan is of the end of the second quarter.

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