Continuation of Federal Home Loan Mortgage Corporation and Federal National Mortgage Association Housing Goals; Final Rule DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

SUMMARY: Under the Federal Housing Enterprises Financial Safety and

Soundness Act of 1992, the Secretary is required to establish housing

goals to direct the purchase of mortgages by the Federal Home Loan

Mortgage Corporation (Freddie Mac) and the Federal National Mortgage

Association (Fannie Mae) on: housing for low- and moderate-income

families; housing located in central cities, rural areas and other

underserved areas; and housing meeting the needs of and affordable to

low-income families in low-income areas and very low-income families.

By Notices published on October 13, 1993, the Secretary established

housing goals for 1993 and 1994. This final rule temporarily extends

into 1995 the 1994 housing goals that were established by the Secretary

for Freddie Mac and Fannie Mae. The Secretary will soon propose

regulations that will include adjusted housing goals for 1995. When

these new 1995 goals are established by final regulation, the 1994

goals extended through this action will be superseded for the remainder

of the year, i.e., the new goals will be established ``short year,'' so

that the Freddie Mac and Fannie Mae are not expected to perform under

the new goals for the entire year. The goals shall be applied using the

same requirements set forth in the Notices of Interim Housing Goals and

as clarified subsequently by the Department.

EFFECTIVE DATE: December 30, 1994.

FOR FURTHER INFORMATION CONTACT: Harold Bunce, Acting Director,

Financial Institutions Regulation, Office of Policy Development and

Research, telephone (202) 708-2770 or (202) 708-0770 (TDD). For legal

questions, contact Kenneth A. Markison, Assistant General Counsel for

Government-Sponsored Enterprises/RESPA, Office of General Counsel,

telephone (202) 708-3137. The address for both of these persons is:

Department of Housing and Urban Development, 451 Seventh Street, SW,

Washington, DC 20410. A telecommunications device for deaf persons

(TDD) is available at (202) 708-9300. (These are not toll-free

telephone numbers.)

SUPPLEMENTARY INFORMATION:

Justification for Final Rulemaking

In general, the Department publishes a rule for public comment

before issuing a rule for effect, in accordance with its own

regulations on rulemaking, 24 CFR part 10. However, the Administrative

Procedure Act (see 5 U.S.C. 553) and part 10 provide for exceptions

from that general rule where the agency finds good cause to omit

advance notice and public participation. The good cause requirement is

satisfied when prior public procedure is ``impracticable, unnecessary,

or contrary to the public interest.'' (24 CFR 10.1)

The Department finds that good cause exists to publish this rule

for effect without first soliciting public comment, in that prior

public procedure is impracticable, unnecessary, and contrary to public

interest. The rule merely ensures that housing goals are established

under which the Federal Home Loan Mortgage Corporation and the Federal

National Mortgage Association (together, Fannie Mae and Freddie Mac are

referenced throughout this text as ``Government-Sponsored Enterprises''

or ``GSEs'') will be accountable for carrying out their statutory and

charter responsibilities. A critical need exists to ensure continued

applicability of housing goals pending the establishment of new housing

goals through notice-and-comment rulemaking.

The Secretary currently is in the process of issuing a proposed

regulation that will establish housing goals from the date established

when such regulation becomes final, some time in 1995. That final

regulation will replace this rule. Accordingly, the housing goals

extended through this rule will only apply to that portion of 1995 that

precedes the effective date of that rule.

This Rule

This rule extends the housing goals for the GSEs' purchase of

mortgages on housing for low- and moderate-income families, housing

located in central cities, and housing meeting the needs of and

affordable to low-income families in low-income areas and very low-

income families. The housing goals being extended were established by

the Secretary and promulgated as Notices of Interim Housing Goals (58

FR 53048 and 53072; October 13, 1993). The requirements of the Notices,

including any clarifications issued by the Secretary, will also apply

to the housing goals continued for 1995 by this action.

For the housing goals for low- and moderate-income families and for

housing located in central cities, this rule extends the Notices' goals

into 1995. Accordingly, the housing goal for each GSE's purchases of

mortgages financing housing for low- and moderate-income families is 30

percent of the total number of dwelling units financed by each GSE's

mortgage purchases. For central cities, the housing goal for each GSE's

purchases of mortgages financing housing located in central cities is

30 percent of the total number of dwelling units financed by each GSE's

mortgage purchases. These goals shall apply on a proportional basis for

that portion of 1995 before permanent goals are established and

effective following rulemaking.

The goals for special affordable housing (i.e., housing meeting the

needs of and affordable to low-income families in low-income areas and

very low-income families) applicable to each GSE were established under

the Federal Housing Enterprises Financial Safety and Soundness Act of

1992, 12 U.S.C. 4501-4641 (the 1992 Act), and the Interim Notices as

two-year goals covering 1993 and 1994. This rule extends the 1993-1994

special affordable housing goals for each GSE into 1995 and provides

that the goals for 1995 shall be as described below. The special

affordable housing goals established under this rule also shall apply

on a proportional basis to that portion of 1995 before permanent goals

are established and effective following rulemaking.

The level of the two-year (1993-1994) special affordable housing

goal for each GSE was established at a dollar amount above and beyond a

1992 baseline. The GSEs were asked to provide the Secretary with a

good-faith estimate of the dollar amount of each enterprise's 1992

mortgage purchases that would have qualified under the special

affordable housing goal if the goal had applied to 1992 purchases.

Fannie Mae estimated that in 1992 it purchased $7.1965 billion of

mortgages that would have qualified toward the special affordable

housing goal had it applied. Freddie Mac estimated that in 1992 it

purchased $5.214 billion of mortgages that would have qualified toward

the special affordable housing goal had it applied.

The 1993-1994 special affordable housing goal for Fannie Mae was

then established as twice the 1992 baseline ($14.393 billion) plus $2

billion--the minimum amount of the goal for the transition period

established for Fannie Mae under the 1992 Act--for a two-year goal of

$16.393 billion. The 1993-1994 special affordable housing goal for

Freddie Mac was then established as twice the 1992 baseline ($10.428

billion) plus $1.5 billion--the minimum amount of the goal for the

transition period established for Freddie Mac under the 1992 Act--for a

two-year goal of $11.928 billion.

The Secretary recognizes that in 1995 the dollar amount of

conventional mortgages originated will be substantially lower than the

amount originated in 1992. HUD estimates that there will be a reduction

in conventional originations of at least one-third between the 1992

market ($819 billion) and the 1995 mortgage market (an estimated $510

billion). In addition, seasonality is an important factor in the

mortgage markets--fewer mortgages are originated in the first quarter

of the year than in any other quarter. These goals are likely to be in

place for only a portion of 1995, including that quarter for which

mortgage originations are the lowest.

Because of these two factors--the large reduction in the size of

the mortgage market and the seasonality of originations--the Secretary

has appropriately revised the baseline applicable to the special

affordable housing goals that will be in place for 1995. The Secretary

has reduced the baselines for each enterprise by 50 percent. The 1995

goal for Fannie Mae is $4.598 billion (the revised baseline plus $1

billion, half of the two-year goal under the 1992 Act). The 1995 goal

for Freddie Mac is $3.357 billion (the revised baseline plus $750

million, half of the goal for Freddie Mac under the 1992 Act).

Background

Since 1968, the Secretary has had general regulatory authority and

specific regulatory authorities respecting Fannie Mae. Since 1989,

pursuant to the Financial Institution Reform Recovery and Enforcement

Act of 1989 (Pub.L. 101-73, approved August 9, 1989) (``FIRREA''), the

Secretary has had the same regulatory authorities respecting Freddie

Mac.

The 1992 Act substantially changed the Secretary's regulatory

authorities respecting the GSEs. The 1992 Act increased and detailed

the Secretary's authority to establish, monitor performance under, and

enforce annual goals for mortgage purchases by the GSEs of mortgages

financing: (1) housing for low- and moderate-income families; (2)

housing located in central cities, rural areas, and other underserved

areas; and (3) housing meeting the needs of and affordable to low-

income families in low-income areas and very low-income families. (See

generally sections 1331-49 of the 1992 Act.)

The 1992 Act provided for a transition period of 1993 and 1994, for

which the Act established annual targets for the purchases by both GSEs

of mortgages financing housing for low- and moderate-income families

and housing located in central cities. These transition targets were

set at the same percentages provided under HUD regulations applicable

to Fannie Mae that were issued in 1978. Accordingly, the 1992 Act set

the transition targets at 30 percent of the mortgage purchases of the

GSEs.

The 1992 Act provided that, for the transition period, in cases

where a GSE was not meeting its 30 percent target as of January 1,

1993, the Secretary was to establish annual goals so that the GSE would

improve its performance relative to the target annually and, to the

maximum extent feasible, would meet the target at the conclusion of the

transition period. The 1992 Act also established dollar goals for the

GSEs' purchases of mortgages financing special affordable housing.

On July 22, 1993, in accordance with requirements in the 1992 Act,

the Secretary provided the GSEs with an opportunity to review and

comment on the proposed interim goals. Subsequently, HUD staff met with

representatives of both GSEs for discussion of the comments received,

after which the GSEs provided additional comments to the Department.

Pursuant to sections 1332(d)(3), 1333(d)(4), and 1334(d)(3) of the

1992 Act, on October 13, 1993 (58 FR 53048 and 53061) (``October 13

Notice''), the Secretary published two notices in the Federal Register

establishing the interim goals for each GSE--applicable to the

transition years of 1993 and 1994--and requirements for implementation

of the goals. Since neither GSE was meeting its targets as of the

beginning of the transition period, the goals were established so that

the GSEs would, to the maximum extent feasible, meet the targets by the

end of the transition period.

The October 13 Notice established Fannie Mae's low- and moderate-

income housing goal at 30 percent of the units financed by mortgages

purchased by Fannie Mae in 1993 and 1994. The notice also established

Fannie Mae's central cities goal at 28 percent of units financed by

mortgages purchased by Fannie Mae in 1993, and 30 percent in 1994.

The October 13 Notice established Freddie Mac's low- and moderate-

income housing goal at 28 percent for 1993 and 30 percent for 1994. The

notice also established Freddie Mac's goal for purchases of mortgages

financing housing located in central cities at 26 percent for 1993 and

30 percent for 1994.

The October 13 Notice established the Special Affordable Housing

Goals as two-year goals for the GSEs' purchases of conventional

mortgages on rental and owner-occupied housing meeting the then-

existing unaddressed needs of, and affordable to, low-income families

in low-income areas and very low-income families. This goal for Fannie

Mae was established as not less than 2 billion dollars ($2,000,000,000)

above Fannie Mae's existing performance and commitments. This goal for

Freddie Mac was established as not less than 1\1/2\ billion dollars

($1,500,000,000) above Freddie Mac's existing performance and

commitments.

Basis for Secretary's Action

The Secretary is empowered to extend the housing goals under

section 1321 of the 1992 Act, which confers on the Secretary general

regulatory authority and the authority to ``make such rules and

regulations as shall be necessary and proper'' to ensure that the

purposes of the 1992 Act and the purposes of the Fannie Mae Charter Act

and the Freddie Mac Act are accomplished.

Section 1331 of the 1992 Act provides that the Secretary shall

establish housing goals by regulation. Section 1331 also provides that

from year to year the Secretary may adjust any housing goal by

regulation. Section 1349 of the 1992 Act provides that any final

regulations necessary to implement the provisions of the 1992 Act

relating to the housing goals shall be issued after notice and

opportunity for public comment.

This rule does not involve either an establishment of goals or an

adjustment of existing goals; it involves an extension of established

goals for which the GSEs were invited to comment. (In the case of the

special affordable housing goal, only the baseline is revised

appropriately to reflect market conditions and seasonality.) The

Secretary will soon propose final regulations implementing the

Secretary's responsibilities under the 1992 Act, including establishing

new housing goals. Those regulations will be proposed for public

comment. However, those regulations will not be effective by the

beginning of 1995.

Therefore, issuance of this final rule is essential to assure that

the GSEs continue carrying out their Charter purposes pending

rulemaking. The Fannie Mae Charter Act (12 U.S.C. 1716 et seq.) and the

Freddie Mac Act (12 U.S.C. 1451 et seq.) establish identical purposes

for Fannie Mae and Freddie Mac, including ``provid[ing] ongoing

assistance to the secondary market for residential mortgages (including

activities relating to mortgages on housing for low- and moderate-

income families involving a reasonable economic return that may be less

than the return earned on other activities) by increasing the liquidity

of mortgage investments and improving the distribution of investment

capital available for residential mortgage financing;'' and

``promot[ing] access to mortgage credit throughout the Nation

(including central cities, rural areas, and other underserved areas) by

increasing the liquidity of mortgage investments and improving the

distribution of investment capital available for residential mortgage

financing.'' (See section 301 (3) and (4) of the Fannie Mae Charter Act

and section 301(b) (3) and (4) of the Freddie Mac Act.)

Other Matters

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed this rule before publication and by

approving it certifies that this rule does not have a significant

economic impact on a substantial number of small entities. The rule is

limited to ensuring the continuation of established housing goals for

Fannie Mae and Freddie Mac pending the specification of new housing

goals through notice-and-comment rulemaking.

Environmental Impact Statement

In accordance with 40 CFR 1508.4 of the regulations of the Council

on Environmental Quality and 24 CFR 50.20(l) of the HUD regulations,

the policies and procedures contained in this rule relate only to the

extension of statutorily required housing goals and, therefore, are

categorically excluded from the requirements of the National

Environmental Policy Act.

Executive Order 12612, Federalism

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12612, Federalism, has determined that the policies

contained in this rule do not have substantial direct effects on states

or their political subdivisions, or the relationship between the

Federal Government and the states, or on the distribution of power and

responsibilities among the various levels of government. As a result,

the rule is not subject to review under the Order. Promulgation of this

rule merely ensures the continuation of established housing goals for

the GSEs pending the specification of new housing goals through notice-

and-comment rulemaking.

Executive Order 12606, the Family

The General Counsel, as the Designated Official under Executive

Order 12606, the Family, has determined that this rule does not have

potential for significant impact on family formation, maintenance, and

general well-being, and thus, is not subject to review under the Order.

No significant change in existing HUD policies or programs will result

from promulgation of this rule, as those policies and programs relate

to family concerns.

Regulatory Agenda

This rule was not listed in the Department's Semiannual Agenda of

Regulations published on November 14, 1994, (59 FR 57632) in accordance

with Executive Order 12866 and the Regulatory Flexibility Act.

List of Subjects in 24 CFR Part 81

Accounting, Federal Reserve System, Mortgages, Reporting and

recordkeeping requirements, Securities.

Accordingly, title 24 of the Code of Federal Regulations is amended

by adding a new subpart F to part 81, as follows.

PART 81--REGULATIONS IMPLEMENTING THE AUTHORITY OF THE SECRETARY OF

THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT OVER THE CONDUCT OF

THE SECONDARY MARKET OPERATIONS OF THE FEDERAL NATIONAL MORTGAGE

ASSOCIATION (FNMA)

1. The authority citation for part 81 is revised to read as

follows:

Authority: 12 U.S.C. 4501-4641; 42 U.S.C. 3535(d).

2. Subpart F is added, to read as follows:

Subpart F--Extension of Housing Goals for the Federal National

Mortgage Association and the Federal Home Loan Mortgage Corporation

Sec. 81.51 Extension of Housing Goals for 1995.

(a) Low- and moderate-income families and central cities. The

housing goals for 1994 for purchases by the Federal National Mortgage

Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation

(Freddie Mac) of mortgages on housing for low- and moderate-income

families and housing located in central cities provided in the Notices

of Interim Housing Goals, 58 FR 53048 and 53072 (October 13, 1993),

shall apply to 1995. The goals established under this paragraph shall

apply on a proportional basis to that portion of 1995 before goals are

established and effective following notice and comment rulemaking.

(b) Special affordable housing goals. The housing goals for 1993

and 1994 for purchases by Fannie Mae and Freddie Mac of mortgages on

special affordable housing provided in the Notices of Interim Housing

Goals, 58 FR 53048 and 53072 (October 13, 1993), shall apply to 1995

with appropriate revisions to the 1992 baseline for the goals as set

forth herein. In establishing the levels of these housing goals for

1995, the Secretary has considered the level of estimated mortgage

originations in 1995 and that these goals will be in place for only a

portion of the year. Consequently, the Secretary has adjusted the

baselines applicable to the special affordable housing goals, from the

1992 baselines, so that the goals result in the following dollar

amounts: The 1995 goal for Fannie Mae shall be $4.598 billion and the

1995 goal for Freddie Mac shall be $3.357 billion. The goals

established under this paragraph shall apply on a proportional basis to

that portion of 1995 before goals are established and effective

following notice and comment rulemaking.

(c) Applicability of clarifications. The requirements contained in

the Notices of Interim Housing Goals at 58 FR 53048 and 53072 (October

13, 1993), including any clarifications issued by the Secretary or the

Secretary's designee(s), shall apply to the housing goals under this

section.

Dated: November 23, 1994.

Henry G. Cisneros,

Secretary.

[FR Doc. 94-29433 Filed 11-25-94; 9:08 am]

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