FHFA Updates Evaluation Criteria for Duty to Serve Program

The Federal Housing Finance Agency yesterday announced modifications to evaluation criteria of its Duty to Serve Underserved Markets program for Fannie Mae and Freddie Mac.

FHFA said the updated guidance (www.FHFA.gov/DTS) “will ensure the Enterprises’ DTS programs have a significant impact in underserved communities.”

The Housing and Economic Recovery Act of 2008 established a duty for Fannie Mae and Freddie Mac to serve three specified underserved markets–manufactured housing, affordable housing preservation and rural housing–by increasing liquidity of mortgage investments and improving distribution of investment capital available for mortgage financing for very low-, low- and moderate-income families in those markets. Under the Duty to Serve regulation, Fannie Mae and Freddie Mac must prepare an Underserved Markets Plan (Plan) describing the specific activities and, objectives it will undertake to fulfill its Duty to Serve obligations in each underserved market over a three-year period.

The revised version of the Guidance (2020-4) is effective beginning with the 2021-2023 Plan cycle and incorporates the following changes to the Duty to Serve program:

–Revised ratings framework: The revisions establish four ratings to describe Enterprise performance: Does Not Comply, Complies/Needs Improvement, Complies/Acceptable Results, and Complies/Excellent Results. These ratings replace the five-tiered ratings framework. In addition, the size of the extra credit upward adjustment is reduced to 5 percent, and the threshold for receiving extra credit for an eligible activity is increased to a cumulative impact score of 80.

–Higher expectations for impactful Plans: The revisions require a minimum concept score of 30 for each objective, rather than the previous requirement that the concept scores of all objectives average a 30, in order for a proposed Plan to receive a Non-Objection from FHFA. The revisions also increase the required minimum number of activities that include at least one loan purchase objective in the Affordable Housing Preservation and Rural Housing markets, in order for a proposed Plan to receive a Non-Objection. In addition, the revisions clarify FHFA’s expectations for each objective to be structured as a commitment to a specific target, with any implementation steps describing how the Enterprise plans to accomplish that target.

–Increased threshold for determining compliance: The revisions increase the threshold for compliance from a score of 7 to a score of 8. The revisions also reduce and simplify the calculation for partial credit applied to objectives that were not fully accomplished. In addition, the revisions allow the Enterprises to earn partial credit for objectives without a baseline that were not fully accomplished.

The updated Guidance also includes technical changes to reflect current practices that have streamlined processes and improved program administration.