The Federal Housing Finance Agency proposed amending its Enterprise Duty to Serve Underserved Markets regulation to add a definition of 'colonia census tract,' which would serve as a census tract-based proxy for a 'colonia,' and to amend the definition of 'high-needs rural region' in the regulation by substituting colonia census tract for colonia.

The proposed rule, released today, would also revise the definition of 'rural area' in the regulation to include all colonia census tracts regardless of their location. These changes would make activities by Fannie Mae and Freddie Mac in all colonia census tracts eligible for duty to serve credit. The intent of the changes is to facilitate the enterprises' ability to operationalize their activities and help increase liquidity in underserved communities.

According to Fannie Mae's Housing Assistance Council, the term colonias has been applied generally to unincorporated communities along the U.S.-Mexico border in California, Arizona, New Mexico and Texas that are characterized by high poverty rates and substandard living conditions.

FHFA has identified two main challenges that have hindered Fannie and Freddie's activities in colonias. The first challenge is an operational one that prevents the enterprises from easily identifying and verifying duty to serve-eligible loan purchases and outreach activities in colonias. The second challenge is related to the ability of the duty to serve program to effectively target households in colonias due to their under-inclusion in the regulation's current rural area definition. As a result, the number of single-family and multifamily loan purchases in colonias that received duty to serve credit has been 'limited or non-existent,' according to FHFA's proposed rulemaking notice.

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