A proposed rule from the Federal Housing Finance Agency (FHFA) would significantly rewrite its regulations on Fannie Mae’s and Freddie Mac’s Duty to Serve (DTS) Underserved Markets.

In Context: DTS applies to three areas: rural housing markets, manufactured housing, and affordable housing preservation.

The proposed rule would:

  • Eliminate the Activities framework, including the lists of Statutory and Regulatory Activities, as well as the related concepts of Additional Activities, “extra credit,” and consideration of a “minimum number” of Activities that must be addressed in their three-year plans;
    • Instead, FHFA proposes to permit an Enterprise to undertake any action that (1) is consistent with its DTS and (2) has not been deemed ineligible by FHFA by regulation or after case-by-case review.
    • FHFA intends to list ineligible actions and conditions or characteristics that would make an action ineligible in the regulation to the greatest extent practicable.
    • Extra Credit: Specific incentives for “residential economic diversity” activities would no longer be necessary; the Enterprises could pursue such activities where they advance statutory objectives, and FHFA would evaluate them based on the results achieved.
  • Remove conditions on eligible loan purchases, revising the method for calculating median income to more appropriately address families in areas of concentrations of low-income families, updating the approach to determining affordability for manufactured housing communities, and reducing procedural requirements for developing and reviewing Plans;
  • Remove the restriction at § 1282.37(b)(3) on subordinate multifamily liens (which, for Duty to Serve purposes, were limited to subordinate liens originated for certain energy and water improvements) to instead provide the Enterprises with expanded flexibility to support financing multifamily properties; and
    • Expand DTS credit for Low-Income Housing Tax Credit investments to cover all three underserved markets, not only rural places.
  • Remove requirements, such as evaluation guidance, and relocating regulatory requirements.
  • The proposed rule would not change the definition of colonias that FHFA adopted in 2023.

FHFA intends the regulatory changes to take effect by January 1, 2028 with comments due on the proposed rule by July 24.

Note: A small correction was posted on June 26 affecting refinancing mortgages that are not arms-length transactions or borrower driven.