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 today, and become effective on January 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 bring Fannie Mae and Freddie Mac to a position of leadership in the mortgage finance industry.

"These new affordable housing goals will help the government-sponsored enterprises (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 will help assure that the GSEs promote the national priority of increasing homeownership, HUD says. 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, HUD decided to reduce by one percentage point some of the housing goals from the levels contained in HUD's proposed rule.

In a statement released this week, Mortgage Bankers Association (MBA) Chairman Michael F. Petrie, CMB, said, "While we are still reviewing HUD's final rule on the affordable housing goals for Fannie Mae and Freddie Mac, we are disappointed that HUD did not significantly lower the goals for the percentage of units that must be affordable to low- and moderate- income families."

"MBA believes that this rule will not meet HUD's objective of increasing affordable housing," he added. "As a result of HUD's miscalculation of the market size upon which the goals are based, we are very concerned that especially in the out years-as the goals increase-we will see market disruption. Of particular concern is an unintended but expected increase in insurance premiums for borrowers depending on FHA loans and the threat these goals pose to competition in the multifamily market."

MBA says it looks forward to working with Congress after the election to seek goals that keep GSEs keenly focused on helping America's affordable housing needs without unnecessary market disruptions.

"We also encourage Congress to require that HUD periodically revisit its market size estimates to ensure they are accurate and, if warranted, amend its regulation," according to an MBA statement.

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