Fannie and Freddie Hear Call of Duty (to Serve)

By: Jann Swanson •

Under a final rule issued on Tuesday by the Federal Housing Finance Agency (FHFA) has set forth three underserved markets for activities the GSEs Freddie Mac and Fannie Mae can undertake to fulfill their Duty to Serve requirements. Under 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 of 2008 (HERA) the GSEs are required to improve the distribution and availability of mortgage financing for residential properties that serve very low, low-and moderate income families.

The final rule in effect makes three markets eligible for satisfying those requirements and creates a process for the GSEs to establish plans to fulfill their Duty to Serve.  FHFA will, in turn, annually evaluate, rate, and report to Congress on the compliance of each of the GSEs.

The final rule allows the GSEs to consider undertaking service to:

  • The manufactured housing market. The GSEs can receive Duty to Serve credit for activities supporting manufactured homes titled as real property or as personal property (or chattel). They can also provide blanket loans for certain categories of manufactured housing communities.
  • The affordable housing preservation.  Also eligible is GSE activity supporting the preservation of affordable rental housing and affordable homeownership opportunities.  These categories include activities under the programs specified in the Safety and Soundness Act, as well as activities supporting small multifamily rental properties, energy efficiency improvements on multifamily rental and single-family first-lien properties, shared equity homeownership programs, purchase or rehabilitation of certain distressed properties, and activities under the U.S. Department of Housing and Urban Development's Choice Neighborhoods Initiative and Rental Assistance Demonstration program.
  • The rural housing market. Credit can be received for GSE activity supporting housing in high-needs rural regions and for high-needs rural populations, financing of housing by small rural financial institutions, and activities related to small multifamily rental properties in rural areas.

The final rule does not mandate that the GSEs undertake any specific activities but requires them to consider ways to better serve families in those three underserved markets.  It also allows the GSEs to propose additional activities

Each GSE must submit a three-year plan to FHFA describing the activities and objectives they will undertake to meet their Duty to Serve requirements.  The Plans will become effective January 2018.  FHFA will evaluate compliance by taking into consideration the following factors; development of loan products, use of more flexible underwriting guidelines and other innovative approaches, the extent of the GSEs' outreach to qualified loan sellers and other market participants, the volume of loans purchased by the GSEs relative to available market opportunities, and the amount of investments in eligible projects.

"With this final rule, which reflects extensive input from a wide variety of stakeholders, FHFA is fulfilling its statutory requirement to implement the Duty to Serve provisions in the Housing and Economic Recovery Act," said FHFA Director Melvin L. Watt.  "We look forward to working with Fannie Mae and Freddie Mac to help meet the critical housing needs for very low-, low-, and moderate-income American families around the country in the manufactured housing, affordable housing preservation, and rural housing markets.  As we do so, we of course will evaluate each Enterprise proposal to ensure that it will not compromise safety and soundness." 

FHFA and the GSEs will host public listening sessions to obtain stakeholder input on the GSEs Underserved Markets Plans.  The sessions will be held:

  • January 25 at the Federal Reserve Bank of Chicago;
  • February 1 at the Federal Reserve Bank of San Francisco; 
  • February 8 at FHFA in Washington, D.C.; and 
  • February 9  webinar hosted at FHFA.

Information on how to participate in these sessions will be available on the FHFA website after December 19.

Freddie Mac's CEO Donald H. Layton, issued the following statement about the Duty to Service final rule.  "We look forward to working with the Federal Housing Finance Agency (FHFA) and stakeholders to implement the Duty to Serve provisions. We're proud to responsibly increase our activities involving manufactured housing, affordable housing preservation and rural housing to help more American families. This is an opportunity for the entire mortgage industry to work together to address some of the toughest issues in housing, including the distribution and availability of both mortgage financing and affordable rental housing for working families."