FHFA Issues Final Rule on Duty to Serve Statute

The Federal Housing Finance Agency (FHFA) recently released a final rule titled, “Enterprise Duty to Serve Underserved Markets.” The rule came about because the Housing and Economic Recovery Act of 2008 (HERA) amended the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to establish a duty for Fannie Mae and Freddie Mac (collectively, the Enterprises) to serve three specified underserved markets. These underserved markets are manufactured housing, affordable housing preservation, and rural markets. The rule provides a points-based framework for FHFA’s method for evaluating and rating the enterprises’ compliance with the duty to serve each underserved market.  

Since going into conservatorship in 2008, Fannie Mae and Freddie Mac have been absent from the LIHTC equity market. However, the final rule stated that Fannie Mae and Freddie Mac are eligible to receive credit towards Duty to Serve requirements for LIHTC investments in rural areas only. The FHFA gave greater importance to rural areas because it deemed that certain markets in the country currently have a healthy LIHTC demand. For example, cities such as New York and San Francisco have avoided the sharp decrease in LIHTC demand and prices, and, according to the FHFA, affordable housing construction in these areas have continued on pace, while other parts of the country, particularly rural ones, greatly lack demand for LIHTC equity investments. In addition, it deemed rural projects lacked economies of scale and profit potential necessary for attracting LIHTC equity investment from large commercial lenders.

In summary, FHFA will consider the extent to which an Enterprise’s LIHTC equity investments serve high-needs rural regions and populations during the evaluation process and may provide greater Duty to Serve credit for such investments. Any Enterprise LIHTC equity investments are conditioned on receiving a separate approval of the investments by the FHFA as conservator.