FHFA Releases Proposed Duty to Serve Rule for Fannie and Freddie

The Federal Housing Finance Agency (FHFA) recently released its proposed “Duty to Serve” rule, which would require the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac to support housing for lower income families in three underserved segments of the housing finance market. The rule, which was mandated by Congress in 2008 but has yet to be finalized by FHFA, focuses on preserving the existing stock of affordable housing for lower-income renters and homeowners; improving access to credit for homeowners living in manufactured housing; and expanding support to renters and homeowners in rural communities.

Under the proposed rule, both GSEs would be required to submit a plan to FHFA every three years outlining their strategies for increasing the amount of mortgage credit available for sites that provide housing to very low-, low-, and moderate-income families in the specified markets. The GSEs’ plans would be subject to a public comment period and review by FHFA.

As part of the affordable housing preservation mandate, the GSEs would be required to increase their support of the secondary market for loans that finance the preservation of multifamily affordable homes. This includes loans that finance the preservation of affordable housing that was developed through a number of federal housing programs, including the Low Income Housing Tax Credit, Section 8 Rental Assistance, McKinney-Vento Homeless Assistance, and Section 811.

With regard to the LIHTC, typically, Fannie and Freddie support LIHTC sites through mortgage lending. Until 2008, the companies were also major equity investors. But currently they’re not permitted to invest in the low-income housing tax credits. The proposed rule seeks public comment about whether this restriction should be lifted, noting that the tax credit is a valuable tool for supporting affordable housing and also represents a liquid investment. FHFA is seeking public comments on the proposed rule by March 17, 2016.