FHFA Seeks Input on Modifications to Fannie Duty-to-Serve Plan, Including Increased Housing Credit Investments

The Federal Housing Finance Agency (FHFA) today released a Request for Input (RFI) seeking public input on several changes Fannie Mae has proposed to its Underserved Markets Plan for years 2018-2020. One of proposed modifications would substantially increase Fannie Mae’s Housing Credit equity investments during the three-year period.

The Underserved Markets Plan outlines how Fannie Mae intends to fulfill its obligations under the Federal Housing Finance Agency’s (FHFA) Enterprise Duty-to-Serve rule. As NCSHA previously reported, the Duty-to-Serve rule requires Fannie Mae and Freddie Mac (the GSEs) to support lending for housing for very low-, low-, and moderate-income families (those earning 100 percent of area median income or below) in three underserved segments of the housing finance market: manufactured housing, affordable housing preservation, and rural areas. For each underserved market segment, the rule outlines a number of activities the GSEs may support to fulfill their Duty-to-Serve obligations.

As part of FHFA’s implementation and oversight of the Duty-to-Serve rule, each GSE is required to draft an Underserved Markets Plan every three years. The plans are subject to public comment and final review and approval from FHFA. Once the Underserved Markets Plans are in effect, Fannie Mae and Freddie Mac may modify their plans each year, subject to FHFA approval. Such modification requests may be subject to public comment at FHFA’s discretion.

According to FHFA, Fannie Mae recently proposed 22 modifications to its plan, of which FHFA believes four merit public consideration. Freddie Mac submitted one modification to its plan this year, which FHFA determined did not require public comment.

Increased Housing Credit Investments

The Duty-to-Serve Rule allows Fannie Mae and Freddie Mac to receive Duty-to-Serve credit for Housing Credit equity investments in rural areas. In its current plan, Fannie Mae says it will research the Housing Credit market in 2018, including outreach to at least 10 HFAs with rural regions. It will then acquire at least five Housing Credit investments on projects in rural areas in 2019 and at least 10 such investments in 2020.

Fannie Mae has proposed to modify its plan to reflect what it characterizes as its enhanced market insight and the strong syndicator relationships it has developed since reentering the Housing Credit equity market this year. According to the modifications, Fannie Mae expects to make equity investments in 20 Housing Credit projects, through either proprietary or multi-investor syndicated funds, in rural areas by the end of 2018. Fannie Mae also proposes to increase its goals for Housing Credit investments for projects in rural areas to 30 for both 2019 and 2020.

Other Proposals

In addition, Fannie Mae is seeking to increase its loan purchase targets for single-family loans in rural areas that are originated by small financial institutions. Overall, Fannie Mae hopes to increase its purchase of such loans by 6,869 to 8,569 from 2018-2020, up from an increase of 4,873 to 6,623 in its initial plan. Fannie Mae says that, when putting together its initial plan, it underestimated its historical level of support for such loans. The firm is also proposing to reduce its targets for loan purchases financing purchase or rehabilitation of certain distressed properties, arguing that updated industry reports show there is currently a lower inventory of distressed properties than when the initial plan was developed.

Finally, Fannie Mae requests to modify its pilot program supporting manufactured housing loans titled as personal property, known as chattel loans. The Duty-to-Serve Rule allows the GSEs to receive credit for setting up such pilots. Specifically, Fannie Mae proposes that it receive credit for purchasing or guaranteeing securities backed by chattel loans and not just for purchasing chattel loans wholesale. Fannie Mae says that, through its research and industry outreach, it has learned there is very little lender interest in selling chattel loans wholesale.

FHFA will accept comments on the proposed modifications until November 2. If you have any input you would like NCSHA to consider as it drafts comments on behalf of all HFAs, please send it to NCSHA by Friday, October 26.