FHFA Proposes Rule on GSEs’ Requirements for Underserved Markets

The ""Federal Housing Finance Agency"":http://www.fhfa.gov/ (FHFA) announced Tuesday that it has sent a ""proposed rule"":http://www.fhfa.gov/webfiles/15804/DutytoServeNPR6110.pdf to the Federal[IMAGE]

Register implementing provisions of the Housing and Economic Recovery Act of 2008 (HERA), which establish a duty for ""Fannie Mae"":http://www.fanniemae.com/kb/index?page=home and ""Freddie Mac"":http://www.freddiemac.com/ to serve very low-, low-, and moderate-income families in three specified underserved markets -- manufactured housing, affordable housing preservation, and rural markets.

Implementing HERA's pre-conservatorship provisions, the proposed rule would require the government-sponsored enterprises (GSEs) to take actions to increase the liquidity of mortgage investments and improve the distribution of investment capital available for mortgage financing for underserved markets, while also adhering to the requirements of conservatorship. As described in the proposed rule, although Fannie Mae and Freddie Mac remain in conservatorship, they are expected to continue to fulfill their core statutory purposes, including support for affordable housing.

According to FHFA, its approach to implementing the duty to serve provisions of HERA, consistent with the requirements of conservatorship, is to limit the proposed

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rule to existing core business activities at the GSEs and to require that they not engage in new lines of business as a result of the requirement to serve the provisions.

The proposed rule would also establish a method for evaluating and rating the enterprises' performance in each underserved market for 2010 and subsequent years. In its proposal, the FHFA described the transactions and activities that would be considered for compliance.

Under this rating process, Fannie Mae and Freddie Mac would be evaluated on four statutory assessment factors:
# The development of loan products, more flexible underwriting guidelines, and other innovative approaches to providing financing;
# The extent of outreach to qualified loan sellers and other market participants;
# The volume of loans purchased relative to the market opportunities available, subject to the statutory condition that FHFA not establish specific quantitative targets; and
# The amount of investments and grants in projects that assist in meeting the needs of the underserved markets.

In addition, the proposed rule would require each GSE to provide an underserved markets plan against which the enterprise would be evaluated and rated ""satisfactory"" or ""unsatisfactory"" for assessment factors in each underserved market on an annual basis. Then, FHFA would rate the enterprise's overall duty to serve performance for each underserved market as ""in compliance"" or ""noncompliance.""

FHFA said enforcement provisions for the duty to serve requirement would be similar to the enforcement provisions applicable to the GSEs' housing goals.