FHFA Proposes Rule to Increase Lending to Underserved Markets

The Federal Housing Finance Agency (FHFA) has posted a proposed new rule for comment that seeks to provide greater access to affordable housing for three underserved markets.  The rule would require the two government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac to devise a three year plan to improve lending to manufactured housing, rural markets, and affordable housing preservation. In all three markets the targets would be very low- low- and moderate-income families.  The rule would implement the Duty to Serve provisions of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 as amended by the Housing and Economic Recovery Act (HERA) of 2008.  Both GSEs have been in conservatorship under FHFA since 2008.

The proposed rule, which will be published for comment in the Federal Register, would give Duty to Serve credits to the GSEs for activities they undertake to provide safe and sound financing opportunities for manufactured homes financed as real property (rather than as the traditional chattel financing) and blanket loans to some categories of manufactured housing communities.

Credits would also be provided for activities related to financing existing small multifamily rental properties, energy efficiency improvements on existing multifamily rental and single-family first-lien properties, shared equity homeownership programs and the U.S. Department of Housing and Urban Development's Choice Neighborhoods Initiative and Rental Assistance Demonstration program.  

For rural markets FHFA would like to see lending increased through modified underwriting guidelines, increased GSE rural loan purchases and through technical assistance to small rural lenders.

The proposed rule would also provide Duty to Serve credit for eligible Enterprise activities that facilitate a secondary market for mortgages on residential properties in the specified underserved markets and for activities that promote residential economic diversity in one or more of them. It would also establish a method for evaluating and rating the Enterprises' performance each year, on which FHFA would report annually to Congress.   

Reuters notes that unlike an earlier proposal in 2010 which generated over 4,000 public comments, the new proposed rule neither requires nor prohibits lending activities, instead providing the credits reflecting that a GSE had upheld obligations in underserved markets as required by federal law.  It is unclear from FHFA's press release exactly what the Duty to Serve credit would be, the benefits that would accrue to the GSEs from earning them, or why they would incentivize the companies.