The Federal Home Finance Agency FHFA) has issued the final rules for the three financial entities it oversees and an advance notice of proposed rulemaking for the Federal Home Loan Banks (Banks.)  The three final rules, all of which have been through a period of public comment, concern GSE portfolio holdings, FHLBank and GSE inclusion of women and minorities, and FHLBank goals.  The proposed rule pertains to membership in the FHLBanks and will be outlined in a separate article.

GSE Portfolios

FHFA is adopting without change the interim rule on portfolio limits promulgated in January 2009.  This rule is identical to the portfolio limits specified in each of the Enterprise's Senior Preferred Stock Purchase Agreement (PSPA) with the Department of the Treasury which governs the terms of the conservatorship of each of the failed institutions.

The PSPAs have identical portfolio criteria for both Enterprises.  Starting on December 31, 2010 and each year thereafter as long as the Enterprises are subject to their respective PSPAs, each must reduce its mortgage assets to 90 percent of the level of assets it held on December 31 of the previous year until the maximum size of each portfolio reaches $250 billion.  The Enterprise's cannot have a portfolio as of December 31, 2010 that exceeds $810 billion.  

Under the rule, Treasury and FHFA as conservator of the Enterprises has the right to amend the PSPAs and the Director of FHFA is authorized to order an Enterprise to dispose of or acquire any asset under terms and conditions determined by the Director.

Minority and Women Inclusion

This rule establishes minimum standards for the inclusion of women, minorities, individuals with disabilities and the businesses owned by any of these groups in employment, contracts, and business activities of all kinds. However, the final rule only addresses Part A dealing with general applicability topics.  Because of possible conflicts with provisions of the Dodd-Frank Financial Reform Act that have not yet been promulgated, final rules Parts B and C governing inclusion and diversity at FHFA, the Enterprises, FHLBank, and the Office of Finance are reserved to a later date.

During the comment period for this rule there were objections to FHFA's expansion of the Housing and Economic Recovery Act (HERA) diversity requirement to include persons with disabilities.  FHFA has determined that HERA language allows FHFA and its director the latitude to do this, and the expansion stands in the final regulation.   However, FHFA has reduced the reporting requirements for persons with disabilities because of comments from stakeholders regarding privacy issues that if found sufficiently compelling.

The rule mandates that the Office of Finance, the Enterprises, and FHLBank establish an Office of Minority and Women Inclusion and publish a statement confirming its commitment to the principles of equal opportunity and employment and contracting.  Each shall also:

  • develop policies and procedures to ensure inclusion and utilization of women, minorities, persons with disabilities, and businesses under their ownership;
  • confirm its adherence to the principles of equal opportunity and non-discrimination;
  • describe its policy against discrimination in employment and contracting;
  • establish internal procedures to receive and attempt to resolve complaints;
  • establish effective procedures for handling requests for reasonable accommodations of disabilities;
  • encourage consideration of diversity in nominating or soliciting nominees for positions on boards of directors or for employment in the Office of Finance;
  • require that each contract it enters contain a material clause committing the contractor to adhere to principal of equal opportunity and to include the clause in any subcontracts it lets;
  • establish a program for outreach to ensure as much as possible the inclusion in contracting opportunities minorities, women, individuals with disabilities and their owned businesses.

FHLBank Goals

FHFA is required to set goals for the Enterprises and FHLBank for 2011 and beyond.  There are similar goals for the three, but some goals apply only to FHLBanks.  Those are addressed in the final rules.  

A Bank that, in a calendar year purchased AMA-approved mortgages with a total unpaid principal balance greater than $2.5 billion will be subject to the housing goals for that year.  This threshold is currently equal to about 0.25 percent of the overall single-family market.

Unlike goals for the Enterprises, FHFA will not establish benchmarks to measure housing goal's performance.  Performance under the housing goals will be measured relative to the actual goals-qualifying shares of the district-level primary mortgage market during the year in each district.  FHFA will calculate the actual goals-qualifying shares of the market using all mortgages originated in the district by members and non-members.  A Bank meets a housing goal if its annual performance meets or exceeds the actual share of the market in that district that fits the criteria for a particular housing goal.  All mortgages purchased by a Bank that meet the final requirements will count toward the Bank's performance regardless of where the property securing the loan is located. 

The final rule establishes four single-family housing goals for any Bank that exceeds the volume threshold of $2.5 billion in a calendar year.  These goals will cover:

  • purchase money mortgages for low income families;
  • purchase money mortgages of families in low-income areas;
  • purchase money mortgages for very low income families;
  • refinancing mortgages for low-income families.

The final rule specifically prohibits the counting of home equity loans, secondary liens, construction-to-permanent loans, and mortgages for second homes in achieving the housing goals.