FHFA urged to balance flexibility, oversight in Duty to Serve rule

A proposed Federal Housing Finance Agency (FHFA) overhaul of its Duty to Serve (DTS) regulation drew its final industry comments Friday, with lenders, bankers and community advocates expressing caution as a public comment period ended.

The comments broadly support preserving the program’s mission while urging the FHFA to maintain accountability, transparency and measurable outcomes as it considers replacing its current structure with a more flexible framework.

DTS is the federal framework that requires government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac to improve access to mortgage financing in historically underserved housing markets. This includes financing for manufactured housing, rural housing (including for Native American populations and agricultural workers) and affordable housing preservation.

Industry groups including the Mortgage Bankers Association (MBA), American Bankers Association (ABA) and National Community Reinvestment Coalition (NCRC) submitted comments to the agency, emphasizing the importance of DTS while urging the FHFA to preserve the program’s reach as it considers a more flexible rule.

In its letter to FHFA Director Bill Pulte, the MBA advocated for a “do no harm” approach “to ensure that the proposed rule does not lead to unintended consequences.”

MBA senior vice presidents Pete Mills and Jamie Woodwell cautioned that “FHFA should take steps to ensure that the new rule and its removal of prescribed activities, once implemented, have no material adverse effects.”

Their letter also recommended developing a process to compare results under new DTS regulations with previous outcomes “to ensure that the program continues to carry out its intended mission and does not narrow the scope, impact, or effectiveness.”

While the MBA focused on avoiding unintended consequences, the ABA urged the FHFA to finalize a rule that “balances flexibility with clear expectations.”

G. Joseph Pigg, ABA’s senior vice president of sustainable finance and mortgage policy, said the recently enacted 21st Century ROAD to Housing Act makes the DTS framework especially important.

“As the Administration develops the rules and guidance to implement that Act, the DTS framework remains an important tool to promote urban and rural housing preservation and affordable entry-level housing,” Pigg wrote.

The ABA also said transparency is critical to ensuring the framework reaches its intended outcomes.

“ABA strongly recommends that the FHFA continue to require robust public reporting on Enterprise activities, including market-specific outcomes; year-over-year performance by the Enterprises; and metrics on the extent to which DTS activities reach the targeted underserved populations,” Pigg wrote. “Such reporting supports accountability, informs market participants, and enables policymakers to assess the effectiveness of DTS implementation.”

NCRC took a more critical view, urging the FHFA to “reconsider major aspects of the proposed rule,” which it said “could reduce financing for the populations with the most pressing needs by relaxing income targets and instituting a vague ratings regime.”

Its letter, written by senior fellow Josh Silver and submitted by CEO Jesse Van Tol, cautioned that “the proposed ratings system could make it easier for the GSEs to pass their DTS requirements while not increasing and possibly reducing their financing of lending activity to the DTS underserved markets.”