1© 2011 Fannie Mae. Trademarks of Fannie Mae. Duty to Serve (DTS): Summary of Proposed Rule CARH January 2016

Confidential Commercial Information - Confidential Treatment and FOIA Exemption Requested2 Title III of the National Housing Act authorizes Fannie Mae & Freddie Mac to: 1.“Provide stability in the secondary market for residential mortgages;” 2.“respond appropriately to the private capital market;” 3.“provide ongoing assistance to the secondary market for residential mortgages (including activities relating to mortgages on housing for low and moderate income families involving a reasonable economic return that may be less than the return on other activities) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing;” 4.“promote access to mortgage credit throughout the Nation (including central cities, rural areas, and underserved areas) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing;” 5.“manage and liquidate federally owned mortgage portfolios in an orderly manner, with a minimum of adverse effect upon the residential mortgage market and minimum loss to the Federal Government.” U.S.C 1716 (1-5) The Charter Defines Our Broader Market Obligations

Confidential Commercial Information - Confidential Treatment and FOIA Exemption Requested3 The Proposed Duty to Serve Rule (found in the Housing and Economic Recovery Act of 2008-HERA) has three specific mandates and asks for input on one important question: 1.Preserve the existing stock of affordable housing for lower- income renters and homeowners 2.Improve access to credit for homeowners living in manufactured housing; and 3.Expand support to renters and homeowners in rural communities – including specifically defined underserved geographic areas and populations. 4.Should Fannie Mae and Freddie Mac be allowed to re-enter the LIHTC Equity Market

Confidential Commercial Information - Confidential Treatment and FOIA Exemption Requested4 How it would work? Under the Proposed DTS Rule, Fannie Mae and Freddie Mac would be required to submit a detailed three year Underserved Markets Plan that would be subject to FHFA’s approval and a brief public comment period. Underserved Markets Plan would contain statutory, regulatory, and additional Activities. 9 categories of statutory activities set forth in HERA, 11 regulatory activities developed by FHFA, and utilize years of experience by Fannie Mae and Freddie Mac to create additional activities Each Activity must contain a specific, measurable Objective. For each of the Duty to Serve markets, we will be required to incorporate one or more of the four HERA statutory assessment factors into each Objective: Purchasing eligible loans via the secondary market Developing innovative product enhancements Increasing our outreach to targeted lenders and market participants; and Making targeted investments (The DTS Rule does not direct the GSEs to again make grants) FHFA has made a specific request for public comment as to whether the GSEs should be allowed back into the LIHTC equity business. Extra Credit – In addition to the four HERA statutory assessment factors, Residential Economic Diversity may be earned as extra credit.

Confidential Commercial Information - Confidential Treatment and FOIA Exemption Requested5 Affordable Preservation activities that will receive DTS credit include: Mandatory Activities: Loans that recapitalize or refinance existing subsidized rental properties o Proposed rule lists 11 federal programs that were in the statute. Existing rental properties financed with LIHTCs or new developments that require LIHTC equity o Proposed rule defines “preservation” to include the creation of new affordable housing supply. Properties financed through state and local affordable housing programs o Must include some form of regulatory agreement. Additional Activities that GSEs may be required to consider: Purchase Pools of small multifamily loans financed by smaller banks and community-based lenders Loans for the preservation of affordable housing through HUD’s Choice Neighborhood initiative Loans for the preservation of affordable housing through HUD’s Rental Assistance Demonstration (RAD) program Loans for improvements on properties resulting in a 15-percent decrease in energy and water consumption Shared equity programs administered by community land trusts, other nonprofits, or State or local governments (SF) Extra Credit will be given for any activity (excluding Manufactured Housing Communities and energy efficient loans) that creates affordable housing in a HUD designated “Difficult Development Area” or supports mixed income development in a high concentrated poverty area.

Confidential Commercial Information - Confidential Treatment and FOIA Exemption Requested6 Manufactured Housing Activities that will receive DTS credit include:  SF Manufactured Housing titled as real estate (not chattel)  Proposed DTS Rule seeks public comment on chattel being ineligible for DTS credit  Mortgages on Manufactured Housing Communities (MHC), provided that the MHC: has 150 or fewer pads; is owned by the residents, a governmental unit or instrumentality, or a nonprofit; or has significant tenant protections in its leases.  Additional activities for this market proposed by GSEs, subject to FHFA approval

Confidential Commercial Information - Confidential Treatment and FOIA Exemption Requested7 Rural Activities that will receive DTS credit include:  Activities that facilitate a secondary market for mortgages (both SF and MF) on residential properties for very-low, low- and moderate-income families in rural areas (as defined under the Proposed Rule)  Activities serving high-needs rural regions or high-needs rural populations High-needs rural regions: Middle Appalachia, Lower Mississippi Delta, the Colonias High-needs rural populations: Members of federally recognized Indian tribes located in an Indian area, or migrant and seasonal agricultural workers  Additional activities for this market proposed by GSEs, subject to FHFA approval Extra Credit will be given for any activity (excluding MHCs and energy efficient loans) that creates affordable housing in a HUD designated “Difficult Development Area” or supports mixed income development in a high concentrated poverty area.

Confidential Commercial Information - Confidential Treatment and FOIA Exemption Requested8 NEXT STEPS: There is a 90 day public comment period for the proposed rule and the deadline for comments is March 17 th. FHFA anticipates that they will publish a final rule by mid year, which would give Fannie Mae and Freddie Mac six months to develop their plans and get them approved by FHFA. Federal eRulemaking Portal: Follow the instructions for submitting comments. If you submit your comment to the Federal eRulemaking Portal, please also send it by to FHFA at to ensure timely receipt by FHFA. Please include “Comments/RIN 2590-AA27” in the subject line of the submission.