In addition, FHFA proposes the following downward adjustments to the home purchase subgoal levels for 2009 consistent with current market conditions:

The proposed overall housing goals, while generally below those set by HUD for calendar years 2006 through 2008, are higher than the goals for calendar
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year 2004 and almost identical to the 2005 goals. In 2005, the low and moderateincome housing goal was 52 percent, the underserved areas housing goal was 37 percent, and the special affordable housing goal was 22 percent. The proposed goals are well in excess of those in effect in 2000, when the low and moderateincome housing goal was 42 percent, the underserved areas housing goal was 24 percent,\4\ and the special affordable housing goal was 14 percent.
\4\ The underserved areas housing goal in 20012004 was based on the 1990 Census. The underserved areas housing goal for 20052008 was based on the 2000 Census. This switch from the 1990 to 2000 Census had the effect of adding several percentage points to the goal.

At the time the 2004 Rule was implemented, mortgage markets were still evidencing significant expansion. However, as discussed further below, based on current market conditions, FHFA estimates that market shares for certain goals and home purchase subgoals have declined significantly. Adjusting the 2009 housing goals and home purchase subgoals to levels that reflect market conditions consistent with current projections is necessary to ensure that the Enterprises continue to serve their secondary market purposes at feasible and appropriate levels that reflect their capacity to lead the market. Even so, as described below, the proposed 2009 goals are generally at the upper end of FHFA's market estimates for 2009.

Notably, this proposed rule, for the first time, would allow housing goals credit for certain loan modifications, which would tend to improve the Enterprises' performance on the housing goals. By adjusting the goals and home purchase subgoals to challenging levels for 2009, and by allowing housing goals credit for important activities that directly affect the 2009 housing market, FHFA seeks to ensure that the Enterprises place a high priority on the achievement of their affordable housing mission based on performance standards that align with current market conditions.
2. Special Affordable Multifamily SubgoalsProposed Sec. 1282.14

The 2004 Rule also established minimum dollarbased special affordable multifamily subgoals for each Enterprise. 24 CFR 81.14. These were established as a percentage of the aggregate dollar volume of total mortgage purchases by each Enterprise in a base period (2000, 2001 and 2002). The subgoal applicable to 2009 is $5.49 billion for Fannie Mae and $3.92 billion for Freddie Mac. FHFA is not proposing to adjust these levels downward for 2009 because both Enterprises have exceeded their respective multifamily subgoals by wide margins in recent years, especially in 2007. FHFA also is not proposing to increase the subgoal levels for 2009 because the prospects for multifamily mortgage market volume in 2009 are significantly less favorable than in recent years. Accordingly, proposed Sec. 1282.14 would retain these subgoal levels for 2009.

FHFA will monitor the size of the refinance market closely in 2009. Refinances may be a very large part of the market in 2009, with the likely effect of a lower percentage of goalsqualifying loans available for purchase by the Enterprises, thus making it more difficult to achieve the goals proposed in this rule. FHFA will consider the size of the refinance market in any determination as to the feasibility of any goal an Enterprise fails to achieve in 2009.
3. Market Conditions
a. Market Conditions Do Not Support the Current Goal and Home Purchase Subgoal Levels

FHFA has determined that the current turmoil in the housing and mortgage markets has created less than favorable conditions for expansions in credit to borrowers on the margins of homeownership. The adverse market conditions considered in setting the proposed goal levels for 2009 include: (1) Tightened credit underwriting practices; (2) the sharply increased standards of private mortgage insurance companies; (3) the increased role of the Federal Housing Administration (FHA) in the marketplace; (4) the collapse of the mortgage private label securities (PLS) market; (5) increasing unemployment; (6) multifamily market volatility; and (7) the prospect of a refinancing surge in 2009. FHFA finds that while the existence of lower home prices and lower mortgage interest rates has increased affordability, there is ample evidence to support a conclusion that the housing goal and home purchase subgoal levels for 2009 that were set in 2004 are not attainable.

Tightened underwriting practices. In general, tighter underwriting standards result in fewer goalsqualifying loans and a lower percentage of goalsqualifying loans in the market. Underwriting standards in the mortgage market generally, and at Fannie Mae and Freddie Mac, tightened considerably in 2008 in response to declining market conditions and early payment defaults, among other factors. For example, in May 2008, responding to private mortgage insurance underwriting changes, Fannie Mae revised its down payment policy to lower the maximum loantovalue (LTV) for loans underwritten by Desktop Underwriter and for manually underwritten loans. Freddie Mac similarly tightened its underwriting standards. These industrywide underwriting standards are expected to remain in place for 2009.

Sharply increased standards of private mortgage insurers. Much like tighter underwriting standards generally, higher underwriting standards of private mortgage insurance (MI) result in fewer goalsqualifying loans and a lower percentage of goalsqualifying loans in the market. Beginning in late 2007, MI providers implemented profound and sweeping changes in the types of risk they were willing to insure. Most MI providers faced substantial ratings downgrades and acted to minimize losses by imposing stricter underwriting standards on loans with high LTVs. For example, on February 12, 2009, Moody's downgraded the internal strength rating of the Mortgage Guaranty Insurance Corporation (MGIC) to Ba1 from A1, and downgraded the ratings of other mortgage insurers. These actions may limit the ability of MI providers to write new business in 2009 and reduce the overall mortgage lending volume, particularly for higher LTV mortgages, which tend to be more goals rich. By increasing the cost of borrowing and the difficulty in obtaining loan approval, the tighter underwriting standards limit the number of goalsqualifying mortgages. This has an adverse effect on highLTV loan purchases by the Enterprises, which generally require some form of credit enhancement.

MI providers have implemented measures in ``declining markets'' that have sharply limited the insurability of certain higher LTV mortgage loans. Generally, the availability of MI for high LTV or low FICO loans is much reduced relative to a few years ago. The proportion of goalsqualifying loans in the market is thereby reduced as it becomes more difficult and more expensive for borrowers requiring mortgages with lower down payments to qualify for mortgages eligible for purchase by the Enterprises.

Increased role of FHA in the marketplace. Another factor having a much greater impact on the Enterprises' housing goals in 2009 than in recent years is the increase in the share of the mortgage market of mortgages insured by FHA and guaranteed by the Veterans Administration (VA). These loans generally are pooled into mortgage
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backed securities issued by the Government National Mortgage Association (GNMA). Purchases of mortgages insured by FHA and VA ordinarily do not receive goals credit. In general, the impact of the FHA market on the goalrichness of the conventional market depends on: (1) The goalrichness of the overall market (conventional plus FHA); (2) the share of the market accounted for by FHA mortgages; and (3) the goalrichness of FHA mortgages.

The market share of mortgages insured by FHA and VA has risen dramatically from 3 percent in 2006 to 35 percent in the fourth quarter of 2008. A key reason for this growth is that Fannie Mae and Freddie Mac generally cannot buy loans with original LTV ratios greater than 80 percent without some form of credit enhancement. With the stresses on private mortgage insurers, borrowers without substantial down payments are increasingly dependent on government insurance programs.

In order to assess the impact that the increased FHA share is likely to have on the housing goals for 2009, FHFA analyzed mortgages originated in 2007 with loan amounts no greater than the conforming loan limit for Fannie Mae and Freddie Mac for 1unit properties in that year$417,000 for most areas, but 50 percent higher in Alaska, Hawaii, Guam, and the Virgin Islands. Loans guaranteed by VA or the Rural Housing Service were excluded from this analysis, as were loans with missing information necessary to determine whether they qualified for the housing goals. The remaining loans included both conventional and FHA loans with information about whether they qualified for the housing goals, resulting in a total of 2.7 million home purchase mortgages and 3.3 million refinance mortgages.

The shares of FHA mortgages that would have qualified for the Enterprises' housing goals were much higher than the goalqualifying shares of conventional mortgages, especially for the two incomebased goals (low and moderateincome housing and special affordable housing). Specifically, 60 percent of FHA home purchase mortgages qualified for the low and moderateincome housing goal in 2007, but only 40 percent of conventional home purchase mortgages so qualified. Similarly, 23 percent of FHA home purchase mortgages qualified for the special affordable housing goal, but only 15 percent of conventional home purchase mortgages so qualified. The discrepancy was comparable for underserved areas, where 46 percent of FHA home purchase mortgages qualified for the underserved areas housing goal versus 34 percent of conventional home purchase mortgages.

The discrepancies between the goalqualifying shares of FHA refinance mortgages and conventional refinance mortgages were similar to those for home purchase mortgages. For example, 56 percent of FHA refinance mortgages qualified for the low and moderateincome housing goal, but only 42 percent of conventional refinance mortgages so qualified.

This analysis measures the degree to which FHA mortgages ``siphon off'' goalrich mortgages from the overall mortgage market. That is, in 2007, 42 percent of all home purchase mortgages were for low and moderateincome families, but because 60 percent of FHA home purchase mortgages were for such families, only 40 percent of conventional conforming mortgages were in this category. While in 2007 the goal qualifying shares of FHA mortgages were much higher than the corresponding shares of conventional mortgages, the impact on the goal qualifying shares of conventional mortgages was mitigated by the fact that in 2007, FHA accounted for only 9.9 percent of home purchase mortgages and only 4.7 percent of refinance mortgages. Although Home Mortgage Disclosure Act (HMDA) data for 2008 is not yet available, this data will likely show a much larger impact of FHA mortgages because FHA's share of the mortgage market was much higher in 2008 than it was in 2007.

Based on FHA's estimated market share in late 2008, its shares of both the home purchase mortgage and refinance mortgage markets may be significantly higher in 2009 than they were for 2008. The impact of these higher shares may again be mitigated to some extent by reduced goalrichness of FHA mortgages as higherincome borrowers obtain FHA loans. The net impact of the FHA market on the goalrichness of the conventional mortgage market in 2009, however, is likely to be greater than it was in either 2007 or 2008. Accordingly, the projected increase in the size of the FHA market was a major factor taken into account in adjusting the Enterprises' housing goals for 2009.

Collapse of PLS market. The lack of PLS backed by mortgages will make it more difficult for the Enterprises to achieve the existing housing goals in 2009. Future rulemaking will determine whether, and if so, under what conditions PLS investment may contribute to meeting housing goals.

Between 2005 and 2008, the period covered by the 2004 Rule, Fannie Mae and Freddie Mac were major purchasers of the AAArated tranches of PLS that included substantial amounts of subprime mortgages. These purchases were due in part to the goalrichness of the securities and, particularly, their subgoalrichness.

While the size and nature of the Enterprises' subprime holdings differed, such purchases had an impact on the achievement of the housing goals for each Enterprise, particularly for the home purchase subgoals. Such loans were not a large factor in the mortgage marketplace in 2008, and are unlikely to be a major factor in 2009. FHFA guidance incorporating interagency policy guidance from the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the National Credit Union Administration now restricts the purchase of such securities by the Enterprises when certain terms of mortgages backing those securities are harmful to the borrower.\5\
\5\ In 2007, OFHEO issued letters directing the Enterprises to apply the principles and practices of the interagency Statement on Subprime Mortgage Lending to their purchases of subprime loans in the regular flow of business, including bulk purchases. OFHEO directed that, not later than September 13, 2007, nontraditional and subprime loans purchased by Fannie Mae and Freddie Mac as part of PLS transactions comply with the Interagency Guidance on
Nontraditional Mortgage Product Risks and the Statement on Subprime Mortgage Lending. This application to PLS conforms to the
underwriting provisions of the guidance. Further, OFHEO directed that the Enterprises adopt such business practices and take such quality control steps as necessary to ensure the orderly and effective implementation of the guidance with respect to the purchase of PLS.

Increasing unemployment. Unemployment increased significantly during 2008 and in early 2009, which added to demands on mortgage servicers to address increasing delinquencies and foreclosures. Unemployment and underemployment have an effect on mortgage default rates and on the number of borrowers seeking and obtaining a purchase money mortgage or a refinance.

NeighborWorks, a national network of approximately 230 community based organizations actively involved in foreclosure mitigation counseling, has estimated that as of January 14, 2009, the two leading causes of mortgage default rates were a reduction in income (28 percent of defaults) and loss of income (17 percent of defaults).\6\ While a reduction in income by itself does not necessarily lead to a mortgage default, with falling home prices it is difficult for the home owner with little or no
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home equity to either sell the home or refinance into an affordable mortgage. The high rates of unemployment and underemployment are likely to continue to have a significant impact on the size of the mortgage market in 2009.
\6\ NeighborWorks, National Foreclosure Mitigation Counseling Program Update, January 23, 2009.

Multifamily market volatility. The multifamily housing market faces great uncertainty in 2009. Recent housing data suggests that multifamily housing activity (new construction and refinances) will continue to decline in 2009 after slowing significantly in 2008. Because multifamily housing tends to have high percentages of units that qualify for one or more housing goals, declines in multifamily housing activity make it more difficult for the Enterprises to achieve the housing goals.

As a result of the financial crisis and ensuing credit crunch, important sources of affordable multifamily financing have all but disappeared or have been severely diminished, including Commercial MortgageBacked Securities (CMBS) and LowIncome Housing Tax Credits (LIHTC). Other traditional providers of financing for multifamily housing, including thrifts, commercial banks and life insurance companies, have drastically reduced their multifamily financing activities. The Enterprises, FHA and GNMA are the principal sources of multifamily financing now.

New multifamily construction will not provide a significant source of goalseligible units in 2009. In February 2009, the U.S. Census Bureau released preliminary data showing that multifamily starts plunged from 404,000 units annualized in June 2008 to 114,000 units annualized in November 2008.\7\ Some markets, such as New York City, Los Angeles, and Miami, have seen rents fall substantially as vacancy rates have risen sharply. Declining rents, increasing vacancy rates and decreasing multifamily property values in many markets will be significant obstacles confronting Enterprise multifamily activity in 2009. Additional fees and tighter underwriting standards may make it difficult for many multifamily investors to qualify for financing. Declining multifamily prices will especially impact owners who financed with interest only loans over the past decade. As these loans come due, properties with interest only loans will not have accumulated additional equity over the term of the loan to counter the effects of declining property values. The lack of new CMBS issuances will also significantly affect the number of multifamily units financed by the Enterprises, thereby making the housing goals more difficult to achieve.
\7\ New Residential Construction in January 2009, Joint Release of Census Bureau and Department of Housing and Urban Development, February 18, 2009.

Prospect of a refinancing surge in 2009. A significant increase in the volume of refinancings of singlefamily mortgages would make it more difficult for the Enterprises to achieve the housing goals. Higher income borrowers are more likely to take advantage of falling interest rates and refinance. Furthermore, when singlefamily owneroccupied refinance loans dominate both the market and the Enterprises' purchases, the share of goalsrich multifamily mortgages declines, which hampers the ability of the Enterprises to meet goal targets. The extent to which these historical effects of high refinance rates might repeat in 2009 is uncertain, and numerous variables may affect these historical patterns. Unlike in previous years, borrowers experiencing payment difficulties may have fewer refinancing options because falling house prices reduce the amount of homeowner equity, while tighter lending standards limit the range of mortgages available, particularly for nonprime borrowers.

Many forecasters expect significantly high rates of refinancing in 2009. The Mortgage Bankers Association, for example, forecasts a singlefamily refinance rate of 69 percent.\8\ Fannie Mae also forecasts a singlefamily refinance rate of 69 percent.\9\ Freddie Mac estimates a refinance rate for 2009 of 67%.\10\ In addition, HASP includes an initiative to allow more borrowers with loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance into a new mortgage that will be held or guaranteed by Fannie Mae or Freddie Mac. \8\ MBA Mortgage Finance Forecast, March 24, 2009.
\9\ Fannie Mae Economics and Mortgage Market Analysis, March 10, 2009.
\10\ Freddie Mac Economic and Housing Market Outlook, March 10, 2009.

b. Size of the Mortgage Market that Qualifies for the Housing Goals

FHFA's estimates of the size of the conventional mortgage market for the incomebased housing goals and subgoals are lower than HUD's estimates for the 2004 Rule. As noted by HUD in prior rules, FHFA recognizes that there still is no single, comprehensive data set for estimating the size of the affordable lending market, and that available databases on different sectors of the market must be combined in order to implement FHFA's market share model. The major public data sources from which these market estimates were developed are: (1) Market originations data submitted by lenders in accordance with HMDA for the years 2003 through 2007; (2) the 2000 Decennial Census; (3) the American Community Survey (ACS) for years 2005 and 2006; (4) the American Housing Survey (AHS); and (5) the 2001 Residential Finance Survey (RFS). To a lesser extent, other privately available data and information, including market forecasts, were also used. Sources included the Mortgage Bankers Association,\11\ Inside Mortgage Finance Publications, Inc.,\12\ First American Loan Performance,\13\ Global Insight,\14\ Fannie Mae, and Freddie Mac.
\11\ The Mortgage Bankers Association (MBA) is a national association representing the real estate finance industry.
\12\ Inside Mortgage Finance Publications, Inc. is a company providing businesstobusiness news and statistics on the
residential mortgage market.
\13\ First American Loan Performance databases track the delinquency and prepayment performance of 50 million active individual mortgage payments per month, and provide loanlevel information on more than $2.0 trillion in nonagency mortgagebacked and assetbacked securities.
\14\ Global Insight is a privatelyheld company formed from two former economic and financial information and forecasting companies: DRI (Data Resources, Inc.) and WEFA (Wharton Econometric Forecasting Associates).

FHFA's market size estimates for the three housing goal categories for 2009 are as follows:

For each home purchase subgoal category, FHFA's market size estimates for 2009 are:

The Economic Stimulus Act of 2008 (Stimulus Act) temporarily increased the conforming loan limits for certain highcost areas for loans originated between July 1, 2007 and December 31,
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2008. Public Law 110185, section 201, 122 Stat. 618, 619. The Stimulus Act also excluded purchases of jumbo conforming loans (those which exceed the nationwide conforming loan limits in certain highcost areas and exceed 150% of the nationwide conforming loan limits in Alaska, Guam, Hawaii and the Virgin Islands) from counting towards the housing goals for 2008. The limit for each highcost area was set at 125% of the area median price of a residence, up to a limit of $729,750 for oneunit properties (175% of the overall conforming loan limit for 2008). HERA established the 2009 conforming loan limit at $417,000 for oneunit properties and correspondingly higher for two to fourunit properties. Public Law 110289, section 1124, 122 Stat. 2654, 2691 (2008) (to be codified at 12 U.S.C. 1717, 1454). HERA also established permanent increases in the loan limit for certain highcost areas, at 115% of the area median price of a residence, up to a limit of $625,500 for oneunit properties in 2009 (150% of the overall conforming loan limit for 2009). The American Recovery and Reinvestment Act of 2009 (Recovery Act), signed into law by the President on February 17, 2009, generally established the limits that were in place in 2008 as a floor for the 2009 limits. Public Law 1115, section 1203, 123 Stat. 115.

FHFA has determined that the treatment of jumbo conforming loans in 2008 should remain in effect for 2009, i.e., that purchases of such loans should not be counted toward the housing goals in 2009. This treatment is consistent with section 1336(a)(2) of the Safety and Soundness Act, which provides FHFA with authority to exclude certain categories of mortgage purchases from counting towards the housing goals. See 12 U.S.C. 4566(a)(2). Accordingly, in determining the market share estimates for the three housing goal categories for 2009, FHFA has excluded all jumbo conforming loans on one to fourunit properties.
4. Past Performance of the Enterprises on the Housing Goals

This section describes the Enterprises' past performance on the three overall housing goals, the three home purchase subgoals, and the special affordable multifamily subgoals as determined by HUD for 2005 and 2006 and by FHFA for 2007. In addition, performance for 2008, as preliminarily reported by the Enterprises, is discussed.\15\ Although HERA does not explicitly require consideration of the Enterprises' past performance on the housing goals in determining whether to adjust the 2009 goals, FHFA believes that the Enterprises' past performance is relevant to this determination. Consideration of past performance was required in establishing the goals for 2008 and prior years, and is required in establishing the goals for 2010 and thereafter. See 12 U.S.C. 4562(e)(2)(B)(iii). Current market conditions depend in part on the Enterprises' loan purchase activities, including their goal performance, in previous years. For example, if the Enterprises purchased a substantial volume of a certain type of loan to meet the housing goals in 2008, lenders might be induced to originate more loans of that type in 2009. In addition, in 2008, the Enterprises' combined shares of the singlefamily conventional conforming market and the multifamily market were likely at record levels. Given these high levels and the collapse of the subprime market, combined Enterprise past performance on the goals is likely a good measure of the goal qualifying shares of the primary market. Thus, FHFA has analyzed combined Enterprise past performance, and finds that it approximates FHFA's estimates of the goalqualifying shares of the 2008 market. \15\ The Enterprises submitted their Annual Housing Activities Reports (AHARs), tables on 2008 goals performance, and loanlevel data on mortgages purchased to FHFA on March 16, 2009. FHFA will make its official determination on their 2008 goals performance later this year based on review of loanlevel data.

a. Housing Goals

The goal levels for 2005 through 2008 were set to increase each year so that by 2008 the goal levels would correspond with the top end of the range of estimates for the goalqualifying shares of units financed in the primary mortgage market. Analysis of loanlevel data for 2005 through 2007 and preliminary results for 2008, as reported by the Enterprises, indicates the following results for overall goal performance:

These results are shown in Table 1.
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b. Special Affordable Multifamily Subgoals

In order to encourage the Enterprises to play a significant role in the multifamily mortgage market, HUD established minimum dollarbased special affordable multifamily subgoals. These were established based on a percentage of the aggregate dollar volume of total mortgage purchases by each Enterprise in a base period. Unlike the overall goals, these subgoals differ between the Enterprises. Specifically, for 2005 through 2008, the subgoal was established at $5.49 billion per year for Fannie Mae, and $3.92 billion per year for Freddie Mac.

Results for these dollarbased special affordable multifamily subgoals are also presented in Table 1. As indicated, the Enterprises surpassed these subgoals by wide margins in each year through 2008. In 2008, Fannie Mae's performance was 244 percent of its subgoal ($13.42 billion compared with its subgoal of $5.49 billion), and Freddie Mac's performance was 196 percent of its subgoal ($7.68 billion compared with its subgoal of $3.92 billion).

c. Home Purchase Subgoals

In the 2004 Rule, HUD established home purchase subgoals for the first time. The overall housing goals are expressed in terms of minimum qualifying shares of all dwelling units financed by the Enterprises, combining mortgages on both singlefamily and multifamily, owner occupied and rental housing. They include all mortgages, whether for home purchase, refinancing, or some other purpose. The home purchase subgoals are expressed in terms of minimum qualifying shares of each Enterprise's acquisitions of singlefamily home purchase mortgages in metropolitan areas. The subgoals specify minimum shares of home purchase mortgages that the Enterprises must purchase under each category of the housing goals. The home purchase subgoals are expressed in terms of mortgages, rather than dwelling units.

Analysis of loanlevel data for 2005 through 2007 and preliminary results for 2008, as reported by the Enterprises, indicate the following results for home purchase subgoal performance:

Since 2005, the market's goalqualifying share for the two borrower incomebased goals has decreased, as shown in Table 3, and the market's goalqualifying share for the underserved areas housing goal has decreased in 2007 and most likely also in 2008. Following the methodology HUD used in 2004 and prior rulemakings, there are three steps involved in sizing the market. The first step is to estimate the number of conventional conforming units expected to be financed with new mortgages in the overall market each year, broken out by property type, loan purpose, and ownertype. The second step is to estimate the percentage ranges of goal and subgoalqualifying units among the number of conventional conforming units expected to be financed for each propertytype, loan purpose and ownertype. The third step is to multiply the estimates from the first step by the percentage ranges in the second step and sum the result, giving FHFA's goalqualifying shares of the overall market. This process is repeated for each goal. BILLING CODE 807001P
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Several issues need to be taken into account when producing the market estimates for 2009. The temporary increase in the FHA loan limits will affect the share of the governmentbacked market in 2009. A corresponding reduction in the conventional share is expected, affecting the goalqualifying proportion of the conforming conventional market as FHA serves more of the goalqualifying market than it has in the recent past. In addition, FHFA is projecting that refinance loans will account for 59 percent of the singlefamily conventional conforming market.

To accomplish the first step noted above, FHFA analyzed the single family and multifamily mortgage markets separately. Singlefamily refers to 1 to 4unit properties, and multifamily refers to 5 or more unit properties. The process began by estimating the total dollar volume of the singlefamily mortgage origination market, and separating out the estimated portion that is expected to comprise conforming, conventional loans.

FHFA then broke out the conforming conventional loan volumes by loan purpose (home purchase or refinance), after which FHFA converted the home purchase and refinance dollar volumes to mortgage volumes using data and trend information on average loan sizes for home purchase and refinance loans. FHFA separated the mortgages into three propertytype groups (for both home purchase and refinance loans): (1) Owneroccupied 1unit; (2) owneroccupied 24 unit; and (3) investor owned 14 unit properties. Using historical patterns from HMDA data and expected market conditions, the mortgages were divided between the owneroccupied and investorowned properties. Based on the 2001 RFS data, the owneroccupied units were divided between 1unit and 24 unit properties. Finally, using information from the 2001 RFS, the mortgages by property type were converted to units, and units from singlefamily owneroccupied 24 unit properties were divided between the owner occupied and rental units. The unit counts were converted into owner occupied unit and rental unit shares of the conventional conforming mortgage market.

FHFA then projected the multifamily unit share, or ``multifamily mix,'' of the total (singlefamily and multifamily) mortgage market. The multifamily mix is an important parameter in FHFA's model because the multifamily segment of the mortgage market has a disproportionate importance for the housing goals, given that most multifamily rental units are occupied by households with low or moderate incomes. FHFA arrived at the multifamily mix estimate through an analysis of historical trends in multifamily dollar volumes and average mortgage amount per unit to calculate historical multifamily mixes. The multifamily mortgage volume was then projected for 2009 based on expected market conditions and then converted to the multifamily mix. The multifamily market was then combined with the singlefamily market to obtain singlefamily owneroccupied unit, singlefamily rental unit and multifamily unit shares of the total mortgage market (not including jumbo and governmentinsured mortgages).

Later in the process, FHFA removed noninvestment grade loans (B or Cgrade subprime loans) to further refine the conforming market estimates. In the economic environment for this proposed rule, the exclusion of the B and C (B&C) subprime segment of the market is especially important because subprime and other nonconforming loans were an increasing share of the total singlefamily market between 2004 and mid2007, but are expected to be greatly reduced in volume for the foreseeable future.

The second major step in FHFA's market model, estimating the goal and subgoalqualifying performance of the market for all three goal categories, was accomplished as follows: FHFA first projected the expected goalqualifying shares for singlefamily rental and multifamily units. FHFA then estimated expected ranges of singlefamily owneroccupied units that would qualify for the housing goals for home purchase and refinance mortgages, including B&C loans.\17\ FHFA proceeded to project the overall goals performance by combining the singlefamily owneroccupied segment with the projected goal performances of singlefamily rental and the multifamily segments. \17\ In a high refinance activity environment, as FHFA expects for 2009, it is anticipated that refinance goalqualifying shares will be significantly lower than home purchase goalqualifying shares.

As described above, the market model required estimates to be made of the investor mortgage share (i.e., 79 percent of the overall singlefamily market), and the multifamily mix (i.e., 913 percent of the total conventional market). Also, in this step, units associated with B&Cgrade loans (singlefamily owneroccupied and investorowned) were removed from the overall goals and subgoalsqualifying estimates. The results of the market model for 2009 are presented in Table 4. The market and subgoalqualifying ranges in Table 4 reflect the uncertainty in projecting singlefamily owneroccupied goal richness, investor owned property mortgage volume and multifamily mortgage volume, given the anticipated economic environment in 2009. Also, there is considerable uncertainty in the refinance rate for 2009. As noted above, the market estimates in Table 4 are based on the expectation that refinance loans will be 59 percent of the singlefamily conventional conforming market. Table 5 provides the following three scenarios of alternative refinance activity assumptions:
Scenario Alow and moderateincome share for home purchase units of 36 percent and 32 percent for refinance loans, and a refinance rate of 50 percent;
Scenario Blow and moderateincome share for home purchase units of 36 percent and 32 percent for refinance loans, and a refinance rate of 70 percent; and
Scenario Clow and moderateincome share for home purchase units of 36 percent and 29 percent for refinance loans, and a refinance rate of 70 percent.
This analysis assumes an investor mortgage share of 9.0 percent. BILLING CODE 807001P
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The impact of alternative refinance assumptions is illustrated with the low and moderatehousing income goal. The low and moderateincome share decreases by 0.5 to 0.8 percent for every 1.0 percent decrease in the multifamily mix. Under scenario B, the low and moderateincome percentages are all 60 basis points lower than those of scenario A when the refinance rate is increased 20 percent to 70 percent. The results under the higher spread between home purchase and refinance single family owneroccupied low and moderateincome, scenario C, are lower by approximately 170 basis points from comparable numbers in scenario B. The scenario C low and moderateincome market shares are 200 basis points lower than comparable low and moderateincome shares produced from FHFA's market model.

Comparing results across all three scenarios, increasing the low and moderateincome spread between home purchase and refinances from 400 to 700 basis points has a larger negative impact on the low and moderateincome share than increasing the refinance rate from 50 percent to 70 percent. As the amount of refinance loans increases and singlefamily owneroccupied units dominate the model, the decrease in low and moderateincome shares can be significant. The key to updating the estimated market ranges for the incomebased goals and subgoals lies in: (1) An analysis of data on recent actual market experience; and (2) making adjustments to recent experience to account for known but not empirically quantifiable market trends. As noted above, FHFA's 2009 market estimates for the housing goals and subgoals are lower than projected in HUD's 2004 Rule. The data available to FHFA show a decline in the goalsqualifying market for singlefamily owneroccupied mortgages through 2007. However, the extensive market turmoil during 2008 is not fully captured in the empirical data.

FHFA's analysis of the mortgage market for 2009 that is the basis for this market forecast, as well as a detailed description of FHFA's market model, are provided in a document entitled ``Estimating the Size of the Conventional Conforming Market for each Housing Goal in 2009,'' which is available at http://www.fhfa.gov. D. General RequirementsProposed Sec. 1282.15

Proposed Sec. 1282.15 would set forth general requirements for the counting of mortgage purchases toward the achievement of the housing goals. These requirements are generally consistent with those in 24 CFR 81.15.

E. Special Counting RequirementsProposed Sec. 1282.16

Proposed Sec. 1282.16 would set forth special counting requirements for the receipt of full, partial or no credit for a transaction toward achievement of the housing goals. These requirements are generally consistent with those in 24 CFR 81.16, with the addition of two counting requirements discussed below. In some provisions, where the HUD regulatory language cites to specific statutory provisions that no longer appear in the statute due to amendment by HERA, the proposed rule incorporates the applicable statutory language.
1. Exclusion of Jumbo Conforming LoansProposed Sec. 1282.16(b)(10)

The Stimulus Act excluded purchases of jumbo conforming loans from counting towards the housing goals for 2008. Under section 1336(a)(2) of the Safety and Soundness Act, FHFA has authority to exclude certain categories of mortgage purchases from counting towards the housing goals. See 12 U.S.C. 4566(a)(2). Consistent with the treatment of jumbo conforming loans in 2008, proposed Sec. 1282.16(b)(10) would exclude purchases of jumbo conforming loans from counting towards the 2009 housing goals.

2. HASP Loan ModificationsProposed Sec. 1282.16(c)(10)

Currently, Enterprise purchases of loans that have been modified by third parties are eligible for goals credit. To address the increasing importance of loan modifications, proposed Sec. 1282.16(c)(10) would provide that an Enterprise's modification of a loan in accordance with HASP that is held in portfolio, or in a pool backing a security guaranteed by the Enterprise, would be treated as a mortgage purchase and count for purposes of the housing goals. Many homeowners face the prospect of sharp increases in monthly mortgage costs as a result of rate resets. While loan modifications cannot prevent all defaults or foreclosures from occurring, they can help some existing homeowners stay in their homes, which will enhance the stability and liquidity of the housing and credit markets. In addition, such loan modifications may help to stabilize local communities and preserve the home values of homeowners who are not in danger of losing their jobs. HASP is designed to help families restructure or refinance their troubled mortgages to achieve an affordable payment and avoid foreclosure. HASP includes access to lowcost refinance loans for borrowers with loans that are owned or guaranteed by the Enterprises. Many borrowers may also be eligible for loan modification assistance under HASP. Allowing goals credit for HASP loan modifications may encourage the Enterprises to modify more loans in their portfolios. FHFA requests comment on whether other types of loan modifications in addition to those made in accordance with HASP should receive goals credit.

The general rule for counting mortgages in proposed Sec. 1282.16(a), consistent with 24 CFR 81.16(a), permits FHFA to assign goals credit upon its determination that a transaction or activity is substantially equivalent to a mortgage purchase, adds liquidity to an existing market, and fulfills an Enterprise's purpose and is in accordance with its Charter Act. FHFA believes that the proposed loan modifications meet the standards in Sec. 1282.16(a) for goals credit. In today's unique market conditions, the largest threat to home ownership, including for the low and moderateincome borrowers and communities at whom the housing goals are targeted, is the risk of default and foreclosure. The Administration's HASP loan modification initiative is a principal means of combating that risk. Therefore, during these unique conditions, FHFA finds that loan modifications within the HASP initiative are ``substantially equivalent to a mortgage purchase'' for purposes of the ho

FOR FURTHER INFORMATION CONTACT

Brian Doherty, Acting Manager, Housing Mission and GoalsPolicy, (202) 4082991, or Paul Manchester, Acting Manager, Housing Mission and GoalsQuantitative Analysis, (202) 408 2946 (these are not tollfree numbers); Sharon Like, Associate General Counsel, (202) 4148950, Lyn Abrams, AttorneyAdvisor, (202) 4148951, or Kevin Sheehan, AttorneyAdvisor, (202) 4148952 (these are not toll free numbers), Office of General Counsel, Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The telephone number for the Telecommunications Device for the Hearing Impaired is (800) 8778339.