Rule2024-05194
Exception to Restrictions on Private Transfer Fee Covenants for Loans Meeting Certain Duty To Serve Shared Equity Loan Program Requirements
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 12, 2024
Effective
May 13, 2024
Issuing agencies
Federal Housing Finance Agency
Abstract
The Federal Housing Finance Agency (FHFA) is adopting as final, without substantive change, a proposed rule amending its regulation that restricts its regulated entities--the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the Enterprises), and the Federal Home Loan Banks (Banks)--from purchasing, investing in, accepting as collateral, or otherwise dealing in mortgages on properties encumbered by certain types of private transfer fee covenants (PTFCs), or related securities, subject to certain exceptions (PTFC Regulation). As proposed, the final rule establishes an additional exception that authorizes the Enterprises and Banks to engage in such transactions if the loans meet the shared equity loan program requirements for Resale Restriction Programs in FHFA's Duty to Serve Underserved Markets Regulation (Duty to Serve Regulation), without regard to any household income limit.
Full Text
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<title>Federal Register, Volume 89 Issue 49 (Tuesday, March 12, 2024)</title>
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[Federal Register Volume 89, Number 49 (Tuesday, March 12, 2024)]
[Rules and Regulations]
[Pages 17711-17716]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-05194]
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FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1228
RIN 2590-AB30
Exception to Restrictions on Private Transfer Fee Covenants for
Loans Meeting Certain Duty To Serve Shared Equity Loan Program
Requirements
AGENCY: Federal Housing Finance Agency.
ACTION: Final rule.
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SUMMARY: The Federal Housing Finance Agency (FHFA) is adopting as
final, without substantive change, a proposed rule amending its
regulation that restricts its regulated entities--the Federal National
Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage
Corporation (Freddie Mac) (collectively, the Enterprises), and the
Federal Home Loan Banks (Banks)--from purchasing, investing in,
accepting as collateral, or otherwise dealing in mortgages on
properties encumbered by certain types of private transfer fee
covenants (PTFCs), or related securities, subject to certain exceptions
(PTFC Regulation). As proposed, the final rule establishes an
additional exception that authorizes the Enterprises and Banks to
engage in such transactions if the loans meet the shared equity loan
program requirements for Resale Restriction Programs in FHFA's Duty to
Serve Underserved Markets Regulation (Duty to Serve Regulation),
without regard to any household income limit.
DATES: The final rule is effective May 13, 2024.
FOR FURTHER INFORMATION CONTACT: Ted Wartell, Associate Director,
Office of Housing and Community Investment (OHCI), 202-649-3157,
<a href="/cdn-cgi/l/email-protection#81f5e4e5aff6e0f3f5e4ededc1e7e9e7e0afe6eef7"><span class="__cf_email__" data-cfemail="cfbbaaabe1b8aebdbbaaa3a38fa9a7a9aee1a8a0b9">[email protected]</span></a>; or Sara L. Todd, Assistant General Counsel,
Office of General Counsel (OGC), 202-649-3527, <a href="/cdn-cgi/l/email-protection#50233122317e243f343410363836317e373f26"><span class="__cf_email__" data-cfemail="c2b1a3b0a3ecb6ada6a682a4aaa4a3eca5adb4">[email protected]</span></a>;
Federal Housing Finance Agency, 400 Seventh Street SW, Washington, DC
20219. These are not toll-free numbers. The mailing address for each
contact is: Federal Housing Finance Agency, Fourth Floor, 400 Seventh
Street SW, Washington, DC 20219. For TTY/TRS users with hearing and
speech disabilities, dial 711 and ask to be connected to any of the
contact numbers above.
SUPPLEMENTARY INFORMATION:
I. Background
A. Proposed PTFC Rule
On September 26, 2023, FHFA published a Notice of Proposed
Rulemaking (proposed PTFC rule) in the
[[Page 17712]]
Federal Register to amend FHFA's PTFC Regulation.\1\ The proposed PTFC
rule proposed adding an exception to the PTFC Regulation's restrictions
for loans on properties with PTFCs, and related securities, if the
loans meet the shared equity loan program requirements for Resale
Restriction Programs, other than the 100 percent of area median income
(AMI) limit, in Sec. 1228.34(d)(4)(i)(A) and (d)(4)(ii) of FHFA's Duty
to Serve Regulation.\2\ Thus, the Enterprises and Banks would be
authorized to purchase, invest in, accept as collateral, or otherwise
deal in loans on properties with PTFCs, or related securities, if the
loans met the requirements for Duty to Serve Resale Restriction
Programs, without regard to any household income limit. Relevant
discussion from the proposed PTFC rule's preamble is included below.
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\1\ 88 FR 65827 (Sept. 26, 2023).
\2\ 12 CFR 1282.34(d)(4)(i)(A), (d)(4)(ii).
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FHFA received comments on the proposed PTFC rule from Fannie Mae,
Freddie Mac, three nonprofit organizations, one trade association, and
one individual. The Banks did not submit any comments. The comments are
further discussed in Section VI. below.
B. Statutory and Regulatory Background: Enterprises
The Federal Housing Enterprises Financial Safety and Soundness Act
of 1992, as amended (Safety and Soundness Act), provides that the
Director of FHFA has a duty to ensure that the operations and
activities of the Enterprises foster liquid, efficient, competitive,
and resilient national housing finance markets.\3\ To achieve these
goals, the Enterprises purchase residential mortgages that fall within
the conforming loan limits established pursuant to 12 U.S.C. 1717 and
12 U.S.C. 1454, and issue guaranteed mortgage-backed securities backed
by those loans.
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\3\ 12 U.S.C. 4513(a)(1)(B)(ii).
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In addition, the Safety and Soundness Act provides generally that
the Enterprises ``have an affirmative obligation to facilitate the
financing of affordable housing for low- and moderate-income
families.'' \4\ Section 1129 of the Housing and Economic Recovery Act
of 2008 (HERA) amended section 1335 of the Safety and Soundness Act to
establish a duty for the Enterprises to serve three specified
underserved markets (Duty to Serve) in order to increase the liquidity
of mortgage investments and improve the distribution of investment
capital available for mortgage financing for certain categories of
borrowers in those markets.\5\ Specifically, the Enterprises are
required to provide leadership in developing loan products and flexible
underwriting guidelines to facilitate a secondary market for mortgages
on housing for very low-, low-, and moderate-income families for the
manufactured housing, affordable housing preservation, and rural
housing markets.\6\ FHFA's Duty to Serve Regulation,\7\ which
implements these Duty to Serve statutory requirements, is discussed
further below.
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\4\ 12 U.S.C. 4501(7).
\5\ 12 U.S.C. 4565.
\6\ 12 U.S.C. 4565(a). The terms ``very low-income,'' ``low-
income,'' and ``moderate-income'' are defined in 12 U.S.C. 4502.
\7\ 12 CFR part 1282, subpart C.
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C. Statutory and Regulatory Background: Federal Home Loan Banks
The eleven Banks are wholesale financial institutions organized
under the Federal Home Loan Bank Act to support housing finance and
further affordable housing and community development.\8\ The Banks are
cooperatives and carry out their mission primarily by providing
products and services to their member institutions. Bank members and
eligible housing associates (nonmember mortgagee borrowers such as
state housing finance agencies) may obtain access to secured loans,
known as advances.\9\ These must be fully secured by eligible
collateral at the time of issuance or renewal, which may include, among
other forms of collateral, residential mortgages and mortgage-backed
securities.\10\ In addition, the Banks issue standby letters of credit
on behalf of members and housing associates, which may be secured by
residential mortgages and mortgage-backed securities.
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\8\ See 12 U.S.C. 1421 et seq.
\9\ See 12 U.S.C. 1426(a)(4), 1430(a), 1430b.
\10\ See 12 U.S.C. 1430(a)(3), 1430(b); 12 CFR 1266.7, 1266.17,
part 1269.
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Most Banks also offer Acquired Member Assets (AMA) programs, under
which they acquire eligible mortgages from participating members and
housing associates, subject to parameters set forth in FHFA's AMA
regulation.\11\ The Banks are also authorized to invest in mortgage-
backed securities and other mortgage-related investments meeting
applicable requirements.\12\ Finally, the Banks may serve as pass-
through entities for mortgage loans acquired by another purchaser.
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\11\ See 12 CFR part 1268.
\12\ See 12 CFR 1267.3(a)(4)(iv), (v).
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II. PTFC Regulation
FHFA's PTFC Regulation, which was adopted in 2012, prohibits the
Enterprises and Banks from purchasing, investing in, or otherwise
dealing in any mortgages encumbered by PTFCs, or related securities,
and prohibits the Banks from accepting such mortgages or securities as
collateral for advances, unless such PTFCs are ``excepted transfer fee
covenants.'' \13\ Under the PTFC Regulation, the term ``PTFCs'' means
obligations that purport to ``run with the land'' in the records of
title to real property or to bind current owners of, and successors in
title to, such real property, and that obligate a transferee or
transferor to pay a private transfer fee upon transfer of the
property.\14\ A ``private transfer fee'' is defined in the PTFC
Regulation as ``a transfer fee, including a charge or payment, imposed
by a covenant, restriction, or other similar document and required to
be paid in connection with or as a result of a transfer of title to
real estate, and payable on a continuing basis each time a property is
transferred (except for transfers specifically excepted) for a period
of time or indefinitely.'' \15\
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\13\ 12 CFR 1228.2.
\14\ 12 CFR 1228.1.
\15\ 12 CFR 1228.1. The definition excludes fees, charges,
payments, or other obligations imposed by or payable to the Federal
government or a State or local government, or that defray actual
costs of the transfer of the property, including transfer of
membership in the relevant covered association. The final rule does
not modify this exclusion.
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In adopting the PTFC Regulation, FHFA was concerned that private
transfer fees would: (1) be used to fund purely private continuous
streams of income for select market participants, either directly or
through securitized investment vehicles; (2) not benefit homeowners or
the properties involved; and (3) interfere with accurate determination
of property values. Therefore, FHFA concluded that mortgages on
properties with PTFCs might impair the safety and soundness of the
Enterprises and the Banks that purchase, invest in, or otherwise deal
in, or in the case of the Banks, that accept as collateral, such
mortgages.\16\
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\16\ See 77 FR 15566, 15567 (March 16, 2012).
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The prohibition in the PTFC Regulation does not apply where the
PTFC is an ``excepted transfer fee covenant,'' which is defined in the
regulation as a covenant that requires payment to a ``covered
association'' and that limits the use of such payment to purposes that
provide a ``direct benefit'' to the real property.\17\
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\17\ 12 CFR 1228.1.
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[[Page 17713]]
III. Interaction Between the PTFC Regulation and the Enterprise Duty To
Serve Regulation and Activities
Approximately four years after the adoption of the PTFC Regulation,
FHFA adopted the Duty to Serve Regulation, which applies only to the
Enterprises.\18\ Under the Duty to Serve Regulation, each Enterprise is
required to prepare an Underserved Markets Plan (Plan), which is
subject to Non-Objection by FHFA, and which describes the specific
activities and objectives the Enterprise will undertake over a three-
year period to fulfill its Duty to Serve in each underserved
market.\19\ The regulation identifies specific types of activities that
are eligible to receive Duty to Serve credit and that an Enterprise may
include in its Plan for each underserved market.\20\ An Enterprise may
also include additional activities in its Plan, subject to FHFA
determination of whether they are eligible to receive Duty to Serve
credit.\21\
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\18\ 12 CFR part 1282, subpart C; 81 FR 96242 (Dec. 29, 2016).
\19\ 12 CFR 1282.32(a), (b).
\20\ See 12 CFR 1282.33(c) for eligible activities in the
manufactured housing market; 12 CFR 1282.34(c), (d) for eligible
activities in the affordable housing preservation market; and 12 CFR
1282.35(c) for eligible activities in the rural housing market.
\21\ 12 CFR 1282.32(d)(2).
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Under the Duty to Serve Regulation, one of the activities eligible
for Duty to Serve credit under the affordable housing preservation
market is Enterprise support for shared equity programs for affordable
homeownership preservation in the form of resale restriction programs
administered by community land trusts, other nonprofit organizations,
or state or local governments or instrumentalities (collectively,
Resale Restriction Programs).\22\ The Duty to Serve Regulation further
specifies the following criteria for an eligible Resale Restriction
Program:
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\22\ 12 CFR 1282.34(d)(4)(i)(A).
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(a) Provides homeownership opportunities to very low-, low-, or
moderate-income households;
(b) Utilizes a ground lease, deed restriction, subordinate loan, or
similar legal mechanism that includes provisions stating that the
program will keep the home affordable for subsequent very low-, low-,
or moderate-income households, the affordability term is at least 30
years after recordation, a resale formula applies that limits the
homeowner's proceeds upon resale, and the program administrator or its
assignee has a preemptive option to purchase the homeownership unit
from the homeowner at resale; and
(c) Supports homebuyers and homeowners to promote sustainable
homeownership, including reviewing and pre-approving refinances and
home equity lines of credit.\23\
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\23\ 12 CFR 1282.34(d)(4)(ii).
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The proposed PTFC rule referred to the very low-, low-, and
moderate-income household income limits in these Duty to Serve
regulatory provisions as the ``100 percent of area median income
limit,'' which is the definition of ``moderate-income'' in the Safety
and Soundness Act and the Duty to Serve Regulation. The definitions of
``very low-income'' (50 percent of AMI) and ``low-income'' (80 percent
of AMI) are subsumed within the definition of ``moderate-income.'' \24\
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\24\ 12 CFR 1282.1(b); 12 U.S.C. 4502(14), (16), (24).
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The preamble to the 2015 proposed Duty to Serve rule noted that
many shared equity loan programs allow the program sponsors (also
called administrators) to charge modest fees that cover the cost of
operating the program.\25\ However, the preamble to the final Duty to
Serve rule did not reiterate this discussion of fees, nor did its
regulatory text include a reference to fees.\26\ The final Duty to
Serve rule also did not refer to or amend the PTFC Regulation to
provide an exception to the restriction on PTFCs for loans that meet
Resale Restriction Program requirements in the Duty to Serve
Regulation.
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\25\ 80 FR 79181, 79203 (Dec. 18, 2015).
\26\ 81 FR 96294 (Dec. 29, 2016); 12 CFR 1282.34(d)(4).
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Prior to FHFA's issuance of the proposed PTFC rule, between 2018
(the first year of Duty to Serve program implementation) and 2022, the
Enterprises, collectively, purchased more than 800 shared equity loans
that met Duty to Serve criteria. Both Enterprises' 2022-2024 Duty to
Serve Plans include plans to purchase shared equity loans under Resale
Restriction Programs in each of the Plan years.
During the Enterprises' efforts to implement the shared equity loan
objectives in their current Duty to Serve Plans, the Enterprises
reviewed model organizational documents that were proposed to be used
as templates by Resale Restriction Programs. In preparing to establish
approved templates, the Enterprises determined that, while Resale
Restriction Programs using the templates would meet the criteria for
Resale Restriction Programs in the Duty to Serve Regulation, except for
the household income limit, the programs' possible inclusion of PTFC
payment requirements could cause any loans issued under the terms of
the model organizational documents to be ineligible for purchase by the
Enterprises because of the PTFC Regulation's limitations. The
Enterprises also realized that loans they purchased previously under
many of the Resale Restriction Programs are secured by properties
encumbered by PTFCs that fall within the PTFC Regulation's prohibition
because they bind current owners and successors to pay a fee to the
program administrator (often a community land trust) on a continuing
basis each time the property is transferred, but those PTFCs do not
meet the PTFC Regulation's definition of an ``excepted transfer fee
covenant.'' \27\
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\27\ The fees or payments are used by the program administrator
to pay for its operating costs, including costs of enforcing the
long-term affordability requirements. They are not limited to costs
and activities that are specific to the ``burdened community'' in
which the subject property is located, nor are they otherwise
required to be used for the purpose of providing a ``direct
benefit'' to the property (as these quoted terms are defined in the
PTFC Regulation). See 12 CFR 1228.1.
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IV. Regulatory Waiver of Sec. 1228.2 for the Enterprises--Proposed
Sec. 1228.1
In response to the Enterprises' identification of PTFCs in shared
equity loans under Resale Restriction Programs that otherwise would be
eligible for purchase and qualify for Duty to Serve credit, FHFA
reviewed these types of loans and determined that the private transfer
fees in these programs are not the types of fees that prompted the
concern underlying the PTFC Regulation. Unlike fees paid to the select
market participants that concerned FHFA when the PTFC Regulation was
adopted, the fees in Resale Restriction Programs reimburse the program
administrators, which are typically community land trusts, nonprofits,
or local governments, for their ongoing operating expenses related to
the purchase and sale of affordable homes under the program. The fees
are not used as a method to provide a continuous income stream to the
program administrators with no continuing affordable housing-related
services provided. For example, fees in Resale Restriction Programs may
be used to pay for: maintaining a list of, and qualifying, prospective
program-eligible homebuyers; providing seller representation and
outreach to prospective buyers; ensuring that repairs are incorporated
into the sale transaction; providing potential homebuyers with
homeownership counseling or similar education; exercising the program
administrator's option to purchase the home if the
[[Page 17714]]
homeowner defaults on the first lien or the affordability restriction;
enforcing the long-term affordability requirements (such as calculating
the maximum resale price according to the resale formula); and
executing legal documents with subsequent homebuyers.
The Enterprises and other practitioners familiar with shared equity
programs also provided input that these programs typically set income
limits up to 140 percent of AMI, which is above the Duty to Serve
household income limit of 100 percent of AMI, especially in communities
where housing costs are high relative to incomes. Fannie Mae also noted
that limiting eligibility under the PTFC Regulation to loans that meet
the Duty to Serve household income limit would require lenders and
shared equity program administrators to use a differentiated approach
with borrowers above and below the income limit. Further, it would
require lenders to review each loan to ensure eligibility for purchase
by the Enterprises. FHFA finds these points persuasive, and agrees that
the burden and potential deterrent effect of this differentiated
approach and additional review would undermine the objective of
standardizing the shared equity homeownership market and increasing the
number of Enterprise shared equity loan purchases under the Duty to
Serve program.
Accordingly, FHFA issued a temporary prospective waiver of the
private transfer fee restrictions in Sec. 1228.2 of the PTFC
Regulation for Enterprise purchases or securitizations of shared equity
loans on properties with PTFCs that meet the shared equity loan program
criteria for Resale Restriction Programs, other than the Duty to Serve
100 percent of AMI limit, in 12 CFR 1282.34(d)(4)(i)(A) and (d)(4)(ii)
of the Duty to Serve Regulation, through the remaining term of the
Enterprises' current 2022-2024 Duty to Serve Plans, i.e., through
December 31, 2024.
The waiver also included a retrospective component that waived the
restrictions in the PTFC Regulation for shared equity loans on
properties with private transfer fees purchased or securitized by the
Enterprises with note dates prior to July 1, 2023, regardless of
whether the loans met the Duty to Serve shared equity loan program
criteria for Resale Restriction Program loans that were in effect when
the loans were purchased.
Finally, the waiver provided notice of FHFA's intention to promptly
engage in notice-and-comment rulemaking to propose amending the PTFC
Regulation to codify the waiver provisions. To implement that intent,
FHFA published the proposed PTFC rule referenced in Section I. above,
which proposed to amend the definition of ``excepted transfer fee
covenant'' in Sec. 1228.1 of the PTFC Regulation to add as an
exception a PTFC that encumbers a property for which a shared equity
loan meets the requirements of a Duty to Serve Resale Restriction
Program, other than the 100 percent of AMI limit, in 12 CFR
1282.34(d)(4)(i)(A) and (d)(4)(ii).
V. Interaction Between the PTFC Regulation and the Banks' Activities--
Proposed Sec. 1228.1
As noted above, the PTFC Regulation also prohibits the Banks from
purchasing, investing in, or otherwise dealing in mortgages on
properties encumbered by PTFCs, or related securities, and prohibits
the Banks from accepting such mortgages or securities as collateral for
advances, subject to the exceptions in the regulation.\28\ The Banks
have indicated that, to their knowledge, they have not purchased, or
accepted as collateral, any shared equity loans. The same
considerations discussed above for the Enterprises regarding
differences in the uses of fees payable at resale to administrators of
Resale Restriction Programs and the fees that FHFA was concerned about
when the PTFC Regulation was adopted, also apply to the Banks. However,
because the waiver for the Enterprises derived from their activities
under the Duty to Serve Regulation (which does not apply to the Banks),
the waiver did not address activities of the Banks with respect to
shared equity loans. The Banks might decide in the future to purchase,
invest in, accept as collateral, or otherwise deal in shared equity
loans, or related securities, under Resale Restriction Programs, to
facilitate increased liquidity for affordable homeownership. Therefore,
FHFA proposed in the proposed PTFC rule that the exception added in
Sec. 1228.1 for the Enterprises also apply to the Banks.
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\28\ 12 CFR 1228.2.
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VI. Public Comments Received on the Proposed PTFC Rule
FHFA requested feedback on specific questions posed in the proposed
PTFC rule's preamble, each of which is discussed below. FHFA received
comments on the proposed PTFC rule from Fannie Mae, Freddie Mac, three
nonprofit organizations that are active in the shared equity housing
industry, a home builders trade association, and an individual. None of
the Banks submitted comments. FHFA has reviewed and considered all of
the comments, which overwhelmingly supported the proposed PTFC rule.
The individual commenter expressed general disagreement with
government regulation of the mortgage market and opposed the proposed
PTFC rule on that basis. For the reasons described above, FHFA, as
regulator of the Enterprises and the Banks, is proceeding with this
rulemaking because FHFA believes the original basis for the PTFC
Regulation continues to support the restrictions therein and there is a
reasonable basis to adopt the proposed amendments.
The specific questions that FHFA invited commenters to address were
as follows:
1. Should the proposed PTFC rule apply to the Banks in addition to
the Enterprises? Do differences between the Banks and the Enterprises
warrant additional or other revisions to the proposed PTFC rule as it
relates to the Banks?
The home builders trade association and one nonprofit organization
supported applying the provisions in the proposed PTFC rule to the
Banks in addition to the Enterprises. These commenters stated that this
broad application would remove barriers that might prevent the Banks
from expanding their activities to include shared equity homeownership,
including investing in shared equity loans or related securities, or
accepting these loans as collateral. The other commenters did not
address this question.
2. Should all of the Duty to Serve Resale Restriction Program
criteria, including the 100 percent of AMI limit, apply to the
determination of whether a mortgage loan that is subject to PTFCs, or a
related security, is eligible for purchase, investment, otherwise
dealing in, or acceptance as collateral by the Banks and Enterprises?
If not, which of those specific criteria should apply?
3. Should criteria other than the Duty to Serve Resale Restriction
Program criteria (such as an income limit different from 100 percent of
AMI), apply to the determination of eligibility?
Two of the nonprofit organizations and both Enterprises supported
the proposed approach--applying the Duty to Serve Resale Restriction
Program criteria other than the Duty to Serve household income limit--
to the determination of whether a mortgage loan that is subject to
PTFCs, or a related security, is eligible for purchase, investment,
otherwise dealing in, or acceptance as collateral by the Banks and
Enterprises. The third nonprofit organization stated that it did not
have an opinion on whether to apply the Duty to Serve household income
limit.
[[Page 17715]]
The home builders trade association generally supported applying the
proposed PTFC rule to the Banks, which FHFA construes as support for
not applying the Duty to Serve household income limit.
The two nonprofit organizations that supported the proposed
approach noted that market conditions are leading many shared equity
programs to serve homebuyers with incomes that are higher than the Duty
to Serve household income limit. These commenters stated that applying
a household income limit would unnecessarily limit flexibility and
restrict secondary market access for lenders, shared equity
homeownership programs, and homebuyers. One of these nonprofit
organizations encouraged FHFA to allow the Enterprises to advance
standardization in the shared equity homeownership market, including
for shared equity loans to higher-income homebuyers, whose loans would
be eligible for purchase or investment by an Enterprise or Bank even
though they are ineligible for Duty to Serve credit.
Fannie Mae commented that the proposed PTFC rule would clarify how
the Enterprises can continue to provide liquidity in the shared equity
homeownership market, and Freddie Mac commented that the proposed PTFC
rule would contribute to its ability to increase access to credit for
this underserved market. Fannie Mae suggested that applying a household
income limit would require lenders and shared equity programs to use
different approaches with borrowers above and below the limit, which
could result in additional cost burdens for borrowers below the limit.
FHFA finds this an additional persuasive reason to not apply a
household income limit.
Fannie Mae suggested a technical edit that it stated would better
align the language in Sec. 1228.1 of the proposed PTFC rule with the
language in the Duty to Serve Regulation, making it easier for lenders
and others in the housing industry to interpret and apply the language.
Specifically, Fannie Mae suggested that the proposed PTFC rule's
reference to ``the Duty to Serve 100 percent of area median income
limit'' be changed to the Duty to Serve ``provisions relating to very
low-, low- and moderate-income families and households'' (the
individual income limit components). FHFA agrees that greater clarity
could be provided regarding these references and has adopted a
different, more straightforward technical change to the language in the
final rule. Specifically, rather than refer to the ``100 percent of
area median income limit,'' the final rule states that ``no household
income limit shall apply.'' (Because no household income limit will
apply, it is unnecessary to add references to the individual income
limit components.)
4. Should criteria in addition to the Duty to Serve Resale
Restriction Program criteria apply to the determination of eligibility?
Fannie Mae and one of the nonprofit organizations opposed applying
criteria in addition to the Duty to Serve Resale Restriction Program
criteria when determining eligibility of loans for purchase by the
Enterprises, with the nonprofit organization stating that the Duty to
Serve criteria have worked well to date. The other commenters did not
address this question.
VII. Limitation on Applicability--Proposed Sec. 1228.3
The proposed PTFC rule proposed removing the prospective
application and effective date in Sec. 1228.3 of the PTFC Regulation.
Section 1228.3 currently includes a ``grandfather'' provision for
mortgages on certain properties encumbered by PTFCs if those PTFCs were
created pursuant to an agreement entered into before the July 16, 2012
effective date of the PTFC Regulation. The transitional provision is no
longer necessary because the Enterprises and the Banks have been
operating under the terms of the PTFC Regulation since July 16, 2012,
and the Enterprises subsequently have been operating under the terms of
the regulatory waiver since July 1, 2023. The prospective application
date (i.e., the effective date) of this final rule is May 13, 2024.
This date precedes December 31, 2024, which is the conclusion of the
2022-2024 Duty to Serve Plan cycle and the date on which the temporary
prospective component of the waiver will expire.
The proposed PTFC rule also proposed to revise Sec. 1228.3 to
include the retrospective component of the waiver, by allowing the
Enterprises to retain in their portfolios shared equity loans on
properties with private transfer fees that were purchased or
securitized by the Enterprises with note dates prior to the effective
date of the waiver (July 1, 2023), regardless of whether the loans met
the Duty to Serve shared equity loan program criteria for Resale
Restriction Programs in 12 CFR 1282.34(d)(4)(i)(A) and (d)(4)(ii).
No comments were received on the proposed revisions to Sec.
1228.3. The final rule adopts the proposed revisions to Sec. 1228.3
with technical changes to improve clarity regarding the intent of the
provisions. Specifically, the final rule adds the word ``promissory''
before ``note'' to clarify that the limitation on applicability applies
to promissory notes and not to other types of notes. In addition, the
phrase ``that were purchased or securitized by the Enterprises'' is
removed in the final rule to make clear that the sentence applies
broadly to all of the activities of both the Enterprises and the Banks
encompassed in Sec. 1228.2. In other words, part 1228 is inapplicable
not only to purchases and securitizations of shared equity loans, or
related securities, with promissory note dates prior to July 1, 2023,
but also to investing in, accepting as collateral, or otherwise dealing
in such loans or related securities.
VIII. Final Rule
For the reasons discussed above and after considering the comments
received on the proposed PTFC rule, which overwhelmingly supported the
proposed PTFC rule, FHFA is adopting the proposed PTFC rule as a final
rule with the change to the household income limit language in Sec.
1228.1, and the technical changes in Sec. 1228.3, as summarized below.
A. Sec. 1228.1--Definition of ``Excepted Transfer Fee Covenant''
The final rule revises the definition of ``excepted transfer fee
covenant'' in Sec. 1228.1 to add an exception, in new paragraph (2),
to the regulation's restrictions on loans on properties with PTFCs, and
related securities, if the PTFC requires payment of a private transfer
fee under a program meeting the Duty to Serve shared equity loan
program criteria for Resale Restriction Programs in 12 CFR
1282.34(d)(4)(i)(A) and (d)(4)(ii), except that no household income
limit shall apply.
B. Sec. 1228.3--Limitation on Applicability
The final rule revises Sec. 1228.3 by removing the transitional
provision with prospective application and effective dates that are
long past, and providing instead that this part is not applicable to
shared equity loans, or related securities, with promissory note dates
prior to July 1, 2023, regardless of whether the loans met the Duty to
Serve shared equity loan program criteria for Resale Restriction
Programs in 12 CFR 1282.34(d)(4)(i)(A) and (d)(4)(ii).
IX. Paperwork Reduction Act
The final rule does not contain any information collection
requirement. Thus, it does not require approval of the Office of
Management and Budget (OMB) under the Paperwork Reduction Act (44
U.S.C. 3501 et seq.). Therefore, FHFA has not submitted any information
to OMB for review.
[[Page 17716]]
X. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that
a regulation that has a significant economic impact on a substantial
number of small entities, small businesses, or small organizations must
include an initial regulatory flexibility analysis describing the
regulation's impact on small entities. FHFA need not undertake such an
analysis if the agency has certified that the regulation will not have
a significant economic impact on a substantial number of small
entities. 5 U.S.C. 605(b). FHFA has considered the impact of the final
rule under the Regulatory Flexibility Act and FHFA certifies that the
final rule will not have a significant economic impact on a substantial
number of small entities because the final rule applies only to Fannie
Mae, Freddie Mac, and the Banks, which are not small entities for
purposes of the Regulatory Flexibility Act.
XI. Congressional Review Act
In accordance with the Congressional Review Act (5 U.S.C. 801 et
seq.), FHFA has determined that this final rule is a major rule and has
verified this determination with OMB.
XII. Consideration of Differences Between the Banks and the Enterprises
When promulgating regulations relating to the Banks, section
1313(f) of the Safety and Soundness Act requires the Director of FHFA
to consider the differences between the Banks and the Enterprises with
respect to: the Banks' cooperative ownership structure; mission of
providing liquidity to members and housing associates; affordable
housing and community development mission; capital structure; and joint
and several liability. In the proposed PTFC rule's preamble, FHFA
requested comments regarding whether differences related to those
factors should result in any additional or other revisions to the
proposed PTFC rule. No commenter on the proposed PTFC rule supported
amending the PTFC Regulation to apply different criteria to the Banks
or the Enterprises.
In preparing this final rule, FHFA considered the differences
between the Banks and the Enterprises as they relate to the above
factors and the lack of comments supporting applying different criteria
to the Banks or the Enterprises. FHFA determined that the final rule is
appropriate as it would have no impact on four of the five factors and
could have a modest, positive impact on the fifth factor--the mission
of providing liquidity to Bank members and housing associates.
List of Subjects in 12 CFR Part 1228
Banks, Banking, Condominiums, Cooperatives, Federal Home Loan
Banks, Government-sponsored enterprises, Investments, Loan programs-
housing and community development, Low and moderate income housing,
Mortgages, Nonprofit organizations, Real property acquisition,
Securities.
For the reasons stated in the preamble, and under the authority of
12 U.S.C. 4526, FHFA amends part 1228 of chapter XII of title 12 of the
Code of Federal Regulations as follows:
PART 1228--RESTRICTIONS ON THE ACQUISITION OF, OR TAKING SECURITY
INTERESTS IN, MORTGAGES ON PROPERTIES ENCUMBERED BY CERTAIN PRIVATE
TRANSFER FEE COVENANTS AND RELATED SECURITIES
0
1. The authority citation for part 1228 is revised to read as follows:
Authority: 12 U.S.C. 4511, 4513, 4526, 4565, 4616, 4617, 4631.
0
2. Amend Sec. 1228.1 by revising the definition of ``Excepted transfer
fee covenant'' to read as follows:
Sec. 1228.1 Definitions.
* * * * *
Excepted transfer fee covenant means a private transfer fee
covenant that:
(1) Requires payment of a private transfer fee to a covered
association and limits the use of such transfer fees exclusively to
purposes which provide a direct benefit to the real property encumbered
by the private transfer fee covenants; or
(2) Requires payment of a private transfer fee under a program
meeting the Duty to Serve shared equity loan program criteria for
resale restriction programs in Sec. 1282.34(d)(4)(i)(A) and (d)(4)(ii)
of this chapter, except that no household income limit shall apply.
* * * * *
0
3. Revise Sec. 1228.3 to read as follows:
Sec. 1228.3 Limitation on applicability.
This part is not applicable to shared equity loans, or related
securities, with promissory note dates prior to July 1, 2023,
regardless of whether the loans met the Duty to Serve shared equity
loan program criteria for resale restriction programs in Sec.
1282.34(d)(4)(i)(A) and (d)(4)(ii) of this chapter.
Sandra L. Thompson,
Director, Federal Housing Finance Agency.
[FR Doc. 2024-05194 Filed 3-11-24; 8:45 am]
BILLING CODE 8070-01-P
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