FHFA Proposes Rule to Assist U.S. Border States

The Federal Housing Finance Agency (FHFA) has proposed to amend the Agency’s Duty to Serve (DTS) Underserved Markets regulation to facilitate Fannie Mae and Freddie Mac’s (the GSEs) activities related to serving colonias.

Generally, U.S. Department of Housing and Urban Development (HUD) and United States Department of Agriculture (USDA) Rural Development both define "Colonias" as rural communities within the U.S.-Mexico border region that lack adequate water, sewer, or decent housing, or a combination of all three. This definition is broader than the iconic image of a “colonia” as a scattered rural homestead on inappropriately subdivided land, with housing made of salvaged materials, and no utilities. The definition encompasses other types of communities as well, such as dense settlements of modular housing or trailer homes.

Since 1991, HUD has made funding available specifically for colonias communities in the four Border States of Texas, New Mexico, Arizona, and California.

“FHFA is committed to promoting affordability, equity, and sustainability in the nation’s housing finance markets, especially in underserved communities,” said FHFA Director Sandra L. Thompson. “With this rule, we seek to remove barriers that have hindered the Enterprises’ Duty to Serve activities for people living in colonias.”

According to the proposed rule, the FHFA would revise its Enterprise Duty to Serve Underserved Markets regulation to add a definition of “Colonia Census Tract,” which would serve as a census tract-based proxy for a “Colonia,” and amend the definition of “High-Needs Rural Region” in the regulation by substituting “Colonia Census Tract” for the word “Colonia.”

The proposed rule would also update the definition of “Rural Area” in the regulation to include all colonia census tracts regardless of location. These changes would make Enterprise activities in all colonia census tracts eligible for the FHFA’s Duty to Serve credit.

Equally diverse is the siting of colonias in jurisdictional terms; some are incorporated communities under the control of the city, some are unincorporated under control of the county, and others may be in extrajurisdictional territories of cities which share some level of control with the county. Some have even chosen to further expand the definition of colonias, using their own state or local funds in r marginal communities that would otherwise be considered colonias except that they are near large urban areas, over 150 miles from the border, or formed more recently than 1990 (per restrictions on the use of CDBG funds under Section 916). One of the most important factors to consider is that no matter how or where colonias formed, they typically form in response to a need for affordable housing that gives people a sense of ownership.