The U.S. Department of Housing and Urban Development has finalized a rule that will require the nation’s two largest housing finance companies to increase their purchase of mortgages for low- and moderate-income families and underserved communities.

The new final rule will be published in the Federal Register on Nov. 2 and become effective on Jan. 1, 2005. It will set annual housing goals and new subgoals for Fannie Mae and Freddie Mac for the next four years. These targets will increase year-by-year from 2005 through 2008 and aim to bring Fannie Mae and Freddie Mac to a position of leadership in the mortgage finance industry.

“These new affordable housing goals will help the GSEs achieve the standard that Congress intended–leading the mortgage finance industry in helping low- and moderate-income families afford decent housing,” said HUD Secretary Alphonso Jackson. “These new goals will push the GSEs to genuinely lead the market.”

HUD’s rule establishes new subgoals for low- and moderate-income, underserved areas, and special affordable percentages of home purchase loans that are purchased by the GSEs. The subgoals aim to assure that the GSEs promote the national priority of increasing home ownership. The subgoals are limited to metropolitan areas because of limitations on data needed to set the subgoal levels.

The final rule includes consideration of more than 300 comments received from the GSEs, Congress, and a broad spectrum of organizations within the mortgage finance industry. After analyzing the comments and reviewing Home Mortgage Disclosure Act (HMDA) data, the Department decided to reduce by one percentage point some of the housing goals from the levels contained in HUD’s proposed rule.

In addition, the GSEs’ minimum special affordable multifamily subgoals have been increased-for Fannie Mae, from $2.85 billion per year for 2001-04 to $5.49 billion per year for 2005-08, and for Freddie Mac, from $2.11 billion per year for 2001-04 to $3.92 billion per year for 2005-08.

HUD projects that to attain the new housing goals, the GSEs together will purchase an additional 400,000 goal-qualifying home loans during the four-year period 2005-2008 above what they would purchase without the increase in the housing goals. This projection assumes that the GSEs maintain their 2002-2003 rate of goal-qualifying purchases for all of the loans that they purchase, and that HUD is correct in its analysis that 2005-2008 will not produce an unusually heavy volume of refinances in the mortgage market.

Several of the comments received by HUD said that HUD’s proposed goals would be unattainable in high-refinance periods when higher income homeowners represent a larger share of the market. While HUD believes that the statute and implementing regulations presently contain procedures to address this issue, it is separately seeking specific recommendations from the public about how HUD can more effectively account for high refinance volumes. HUD is publishing with its housing goals rule an Advance Notice of Proposed Rulemaking soliciting ideas from the public on an appropriate regulatory mechanism to address high refinance volumes.

HUD is a federal agency that implements housing policy.


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