FHFA Proposes Major Overhaul of Duty to Serve Regulation
The Federal Housing Finance Agency (FHFA) has taken a significant step toward reshaping how the nation's two largest government-sponsored enterprises (GSEs) — Fannie Mae and Freddie Mac — serve underserved housing markets. In a notice of proposed rulemaking released this week, the FHFA proposed replacing its existing Duty to Serve (DTS) regulation with a modernized, outcome-based framework designed to drive real market impact rather than administrative compliance.
The sweeping proposal places new emphasis on chattel loans for manufactured housing, broadens how Low-Income Housing Tax Credit (LIHTC) activities are treated, and expands coverage for "high-needs" rural populations. Public comments on the proposal are due by July 24, and any final rule is expected to take effect no earlier than January 1, 2028, though that timeline could be extended.
Why the Current Duty to Serve Framework Is Being Replaced
The existing Duty to Serve regulation has been in place since 2016 and was originally designed to direct Fannie Mae and Freddie Mac toward three historically underserved markets: manufactured housing, affordable housing preservation, and rural housing. While the framework represented a meaningful step forward at the time, the FHFA now argues that it has produced a "compliance-centric" approach — one that prioritizes hitting detailed benchmarks over delivering measurable benefits to low- and moderate-income families.
In the agency's own words, the proposed rule "aims to encourage and enable the Enterprises to better serve the needs of very low-, low-, and moderate-income families in the underserved markets through greater innovation and with less administrative burden." The shift signals a recognition that rigid rule-following has limited the GSEs' flexibility to respond to evolving market conditions, particularly in the manufactured housing and rural lending sectors where need is greatest.
Chattel Loans Take Center Stage in Manufactured Housing Push
Perhaps the most consequential element of the proposal is its focus on chattel loans — a type of personal property loan frequently used to finance manufactured homes when the borrower does not own the underlying land. According to the FHFA, chattel loans account for an estimated 70% to 80% of all new manufactured home financing. Despite their prevalence, chattel loans have historically been outside the mainstream of GSE activity, leaving a vast segment of the manufactured housing market without access to the liquidity and standardization that Fannie Mae and Freddie Mac bring to traditional mortgage markets.
By pushing the GSEs to engage more meaningfully with chattel lending, the FHFA is acknowledging a critical gap in the affordable housing finance system. Manufactured homes — often called mobile homes in everyday language — represent one of the most accessible forms of homeownership for working-class Americans. Yet buyers who cannot or do not own the land beneath their home have been largely cut off from GSE-backed financing, forcing them into higher-cost personal property loans with fewer consumer protections.
Expanding GSE participation in the chattel loan market could lower borrowing costs, improve loan terms, and increase access to capital for manufactured housing communities across the country. For millions of low- and moderate-income families, this could be the difference between affordable homeownership and ongoing financial strain.
Broader Treatment of LIHTC Activities
The proposed framework also broadens how Low-Income Housing Tax Credit (LIHTC) activities are treated within the Duty to Serve structure. The LIHTC program is the nation's primary tool for financing the construction and rehabilitation of affordable rental housing, and the GSEs play a vital role in that ecosystem by purchasing tax credit equity and providing debt financing for LIHTC projects.
Under the current regulation, LIHTC-related activities are evaluated narrowly, which critics have argued fails to capture the full breadth of what the GSEs contribute to affordable housing preservation. The new proposal would give the enterprises more credit for a wider range of LIHTC-related activities, potentially incentivizing deeper and more creative engagement with affordable housing developers and investors.
This change is especially timely given the mounting headwinds facing affordable housing developers, including rising construction costs, higher interest rates, and strained tax credit equity pricing. A more flexible and expansive treatment of LIHTC activities could help sustain momentum in a sector that is already under significant financial pressure.
Expanding High-Needs Rural Housing Coverage
Rural housing is the third pillar of the Duty to Serve framework, and the FHFA's proposal would expand what qualifies as a "high-needs" rural area eligible for special consideration. Rural communities have long faced unique housing challenges, including limited inventory, aging housing stock, and thinner mortgage markets that make it harder for lenders to deploy capital efficiently.
By expanding the definition and coverage of high-needs rural areas, the FHFA would push Fannie Mae and Freddie Mac to direct more attention and resources toward communities that have historically been left behind in housing finance discussions. This could facilitate greater access to mortgage credit in small towns, agricultural communities, and other regions that fall outside the urban and suburban markets where GSE activity is most concentrated.
What Comes Next
The FHFA's proposed rulemaking opens a public comment period that runs through July 24, giving lenders, housing advocates, consumer groups, and other stakeholders an opportunity to weigh in on the proposal. The agency will review all comments before issuing a final rule, which is expected to be implemented by January 1, 2028, at the earliest.
For the manufactured housing industry, affordable housing developers, and rural lenders, this proposal represents a potentially transformative shift in how the country's largest housing finance institutions engage with underserved markets. If finalized, the outcome-based Duty to Serve framework could unlock new capital flows, reduce financing costs, and ultimately expand homeownership opportunities for millions of Americans who have long been on the margins of the conventional mortgage market.
Stakeholders should monitor the comment period closely and consider submitting input to help shape a final rule that delivers maximum benefit for the families and communities the Duty to Serve program was always meant to reach.