Aug 18 -- The Federal Housing Finance Agency (FHFA or the Agency) is issuing a proposed rule with request for comments on the multifamily housing goals for Fannie Mae and Freddie Mac (the Enterprises) for 2023 and 2024. The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (the Safety and Soundness Act) requires FHFA to establish annual housing goals for mortgages purchased by the Enterprises. Under FHFA's existing housing goals regulation, the multifamily housing goals for the Enterprises include benchmark levels through the end of 2022 based on the total number of affordable units in multifamily properties financed by mortgage loans purchased by the Enterprise each year. This proposed rule would amend the regulation to establish benchmark levels for the multifamily housing goals for 2023 and 2024 based on a new methodology—the percentage of affordable units in multifamily properties financed by mortgages purchased by the Enterprise each year.
FHFA will accept written comments on the proposed rule on or before October 17, 2022.
Proposed Change in Methodology for Measuring the Multifamily Housing Goals:
Since publication of the December 2021 final housing goals rule, FHFA has considered alternative ways to measure Enterprise performance on the multifamily housing goals. As a result, FHFA is now proposing multifamily housing goals for both 2023 and 2024 that would measure Enterprise performance as the percentage of affordable units in multifamily properties financed by mortgages purchased by the Enterprises, rather than using the current methodology of measuring performance based on the absolute number of affordable units in the properties. The requirements for determining which multifamily mortgage purchases are counted, or not counted, continue to be defined in the existing housing goals regulation and this proposed rule would not make any changes to those requirements. This proposed rule specifically requests comment on the proposed new methodology for measuring Enterprise performance on the multifamily housing goals, as well as on the proposed benchmark levels for 2023 and 2024 under this new methodology.
The multifamily goals, as defined under the Safety and Soundness Act, include categories for mortgages on multifamily properties (properties with five or more dwelling units) with rental units affordable to low-income families and mortgages on multifamily properties with rental units affordable to very low-income families. The Enterprise housing goals regulation also includes a small multifamily low-income subgoal for properties with 5 to 50 units. Under the current regulation, the performance of the Enterprises on the multifamily goals is evaluated based on the number of affordable units in properties backing mortgages purchased by an Enterprise.
Under the proposed rule, the Enterprises would continue to report on the number of multifamily units acquired each year, including data on units that are affordable to low-income households, very low-income households, and low-income households in small multifamily properties. In order to meet each of the multifamily goals, each Enterprise would be required to ensure that the percentage of units that are affordable meets or exceeds the benchmark level. By changing to a percentage share of the total multifamily units in properties securing goal-eligible mortgages acquired by each Enterprise in a year, the proposed multifamily housing goals would adjust automatically to the volume of the Enterprise's multifamily business each year, while ensuring that each Enterprise's focus remains on affordable segments.
FHFA is not proposing any changes to the current rules in §§ 1282.13, 1282.15, and 1282.16 of the Enterprise housing goals regulation for determining which multifamily mortgages are eligible to be counted towards the goals, and of those, which meet the affordability criteria. FHFA is proposing technical revisions to § 1282.15 to reflect the new proposed methodology. Section 1282.15(c) would be revised to express the percentage of affordable units in multifamily properties financed by mortgages purchased by the Enterprises in terms of a defined numerator and denominator. Proposed § 1282.15(c) would mirror the description of the single-family housing goals that currently exists in § 1282.15(a), which already measures the single-family housing goals as percentages.
In addition, proposed § 1282.15(e)(3) would clarify the treatment of rental units with missing affordability information. Under the current regulation, an Enterprise is permitted to estimate the affordability of such units, up to a maximum of 5 percent of the total number of rental units in properties securing multifamily mortgages purchased by the Enterprise in the current year. Rental units with missing affordability information are not counted for purposes of the multifamily housing goals to the extent that the number of such units exceeds the nationwide maximum of 5 percent. Rental units also are excluded if it is not possible to estimate the affordability of such units.
The proposed rule would clarify that under the new methodology, any units with missing affordability information in excess of the 5 percent nationwide maximum would be excluded from the numerator of the multifamily goals but would be included in the denominator. This treatment would be consistent with the objective of the current regulation to encourage the Enterprises to obtain affordability information whenever possible. The proposed rule would exclude rental units with missing affordability information from both the numerator and the denominator if it is not possible to estimate the affordability of such units. This treatment would reflect the fact that the availability of information needed to estimate affordability is outside the control of the Enterprises.
In this preamble, “goal-eligible units” is used as a synonym for “denominator,” to refer to all dwelling units that are financed by mortgage purchases that could be counted for purposes of the multifamily housing goals and subgoals. “Goal-qualifying units” is used as a synonym for “numerator,” to refer to the goal-eligible units that meet the respective affordability requirements of each multifamily goal.
The counting rules in § 1282.16(b) exclude certain types of mortgages from eligibility for housing goals credit, such as multifamily mortgages with federal guarantees and subordinate lien multifamily mortgages. FHFA specifically requests comment on whether any other changes to the existing rules for counting multifamily mortgages should be made to address any unintended interactions that the proposed change to the methodology for measuring the multifamily housing goals might have on the market or affordable market segments.
The proposed change to the methodology would address recurring issues that arise under the existing housing goals structure. Under the current methodology, FHFA sets the multifamily housing goal benchmark levels based on the absolute number of units in properties securing goal-eligible mortgages that the Enterprise acquire in order to meet the benchmark levels. This requires FHFA to be able to forecast the multifamily market and the Enterprise volume of multifamily mortgage purchases when setting the benchmark levels. Attempting to forecast multifamily market conditions and Enterprise purchase volumes three or four years into the future is an exceedingly difficult exercise, made even more complicated by the lack of a comprehensive dataset of multifamily loan origination volume similar to the Home Mortgage Disclosure Act (HMDA) data available for the single-family mortgage market.
Under the proposed new methodology, FHFA would set the benchmark levels as a percentage share of the goal-eligible units in properties securing mortgages acquired by each Enterprise in a year. This would encourage the Enterprises to continue focusing on serving low-income renter families in a prudent and deliberate manner within the context of their loan acquisitions. The proposed new percentage-based benchmark levels would also mean that the absolute number of affordable units needed to meet each of the housing goals each year would adjust automatically based on the Enterprise's multifamily loan purchase volume and reflect actual multifamily market conditions, as the number of goal-qualifying units needed would scale up or down in proportion with Enterprise loan acquisitions. Operationally, the proposed change to the methodology would have minimal impact as it would not change the existing counting rules, reporting requirements, or definitions used for the housing goals in the housing goals regulation.
Setting the multifamily goal benchmark levels as the percentage of affordable units among all goal-eligible units backing mortgages acquired by the Enterprise is consistent with the percentage-based methodology followed for the single-family housing goals and should be familiar to both Enterprises and external stakeholders. The proposed change in methodology would continue to allow FHFA to track, report, and verify data on multifamily units backing mortgages purchased by the Enterprises, including data on affordable units by income level.
Although FHFA believes the proposed change to the methodology for measuring the multifamily housing goals will make the multifamily housing goals more responsive to market conditions and minimize operational impact on FHFA and the Enterprises, FHFA recognizes that there may be some drawbacks associated with the proposed change. For example, by setting the benchmark levels as a percentage share of goal-eligible units, the benchmark levels will no longer specify a minimum number of affordable units backing mortgages acquired by the Enterprises.
However, there are a number of other factors that support the proposed change to percentage-based multifamily housing goals. For example, the existing methodology for measuring the multifamily housing goals does not incentivize or require that an Enterprise continue to acquire mortgages backed by goal-qualifying units after the Enterprise has purchased enough mortgages to meet the minimum numeric benchmark levels. The proposed percentage-based benchmark levels would require the Enterprises to continue to support the affordable segment of the market as their mortgage acquisitions increase, rather than potentially reducing their focus on supporting affordable multifamily properties once the minimum numeric benchmark levels are achieved. . . .
FHFA specifically requests comment on the proposal to change the methodology for measuring the multifamily housing goals from a fixed number of goal-qualifying units to a goal-qualifying percentage share of all goal-eligible units, as well as any other changes that might be appropriate if a change to percentage-based multifamily housing goals is adopted in the final rule.
Proposed benchmark for 2023 and 2024 (%):
Low Income Goal 61%
Very Low-Income Subgoal 12%
Small Multi-Family Low-Income Subgoal 2%