On June 24, the FHFA proposed to rescind its existing “Duty to Serve Underserved Markets” regulation and replace it with a new rule. According to the FHFA, the proposed rule would enable Fannie Mae and Freddie Mac (collectively, “the Enterprises”) to better serve very low-, low-, and moderate-income families in the manufactured housing, affordable housing preservation, and rural housing markets through greater innovation and reduced administrative burden. The proposal removes the existing framework of prescribed statutory and regulatory activities that the Enterprises must address in their three-year plans — including the related concepts of additional activities, “extra credit,” and the requirement that each Enterprise address a minimum number of activities — and replaces it with authority to take “any eligible action” consistent with the statutory duty to serve that has not been deemed ineligible by the FHFA by regulation or after case-by-case review. The FHFA stated that the current approach may have incentivized a “compliance-centric” mindset that prioritizes satisfying granular regulatory benchmarks over meaningful market impact, and that it intends to encourage the Enterprises to focus on innovative, high-impact initiatives rather than a high volume of disparate, small-scale activities.

The proposed rule also: (i) revises the method for calculating median income to better address families in areas with concentrations of low-income families, particularly in rural areas; (ii) removes the existing restriction on subordinate multifamily liens to provide the Enterprises with expanded flexibility to finance multifamily properties; (iii) updates the approach to determining affordability for manufactured housing communities; (iv) expands eligibility for Low-Income Housing Tax Credit equity investments from rural areas only to all underserved markets; (v) removes energy- and water-efficiency-related regulatory activities consistent with Executive Order 14394; (vi) revises the evaluation and rating process to focus on whether the Enterprise met the needs of each underserved market rather than whether it met its self-identified plan goals; and (vii) relocates all Duty to Serve requirements from 12 CFR part 1282 to a new part 1283. The FHFA intends the regulatory changes to take effect by January 1, 2028. Comments on the proposal are due by July 24.