[Federal Register Volume 59, Number 6 (Monday, January 10, 1994)]
[Proposed Rules]
[Pages 1323-1360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-412]
[[Page Unknown]]
[Federal Register: January 10, 1994]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 960
[No. 93-94]
Affordable Housing Program
AGENCY: Federal Housing Finance Board.
ACTION: Proposed rule.
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SUMMARY: The Federal Housing Finance Board (Board) is proposing to
amend in its entirety its regulation governing the operation of the
Affordable Housing Program (AHP or Program). The proposed rule modifies
or carries forward requirements of the Board's existing AHP regulation,
adds new provisions, and incorporates, with modifications, the
provisions of the Board's existing policy guidelines governing the
award of funds to loan funds and loan consortia.
DATES: Comments on this proposed rule must be received in writing on or
before March 11, 1994.
ADDRESSES: Comments should be mailed to: Federal Housing Finance Board,
Executive Secretary, 1777 F Street, NW., Washington, DC 20006. Comments
will be available for public inspection at this address.
FOR FURTHER INFORMATION CONTACT: Diane E. Dorius, Deputy Director, or
Sylvia C. Martinez, Director, Housing Finance Directorate, (202) 408-
2576, or Sharon B. Like, Attorney-Advisor, (202) 408-2930, or Brandon
B. Straus, Attorney-Advisor, (202) 408-2589, Office of Legal & External
Affairs-Legal Division, Federal Housing Finance Board, 1777 F Street,
NW., Washington, DC 20006.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
A. General
Section 10(j)(1) of the Federal Home Loan Bank Act (Act) requires
each Federal Home Loan Bank (Bank) to establish a Program to subsidize
the interest rate on advances to members of the Federal Home Loan Bank
System (Bank System) engaged in lending for long-term, low- and
moderate-income, owner-occupied and affordable rental housing at
subsidized interest rates. The Board is required to promulgate
regulations governing the Program. 12 U.S.C. 1430(j)(1). The Board's
existing regulation governing the operation of the AHP appears at part
960 of the Board's regulations. 12 CFR part 960.
This proposed rule amends the Board's existing AHP regulation to
address operational issues that have arisen during the three and one-
half years that the AHP has been in existence. The proposed amendments
are intended to make the AHP more responsive to low-income housing
needs in each of the twelve Federal Home Loan Bank Districts
(Districts), to increase efficiency in the administration of the
Program, and to enhance coordination of the AHP with other housing
programs whose funds are used in conjunction with AHP funds. These
issues are discussed in greater detail below in the Analysis of
Proposed Rule section.
II. Analysis of Proposed Rule
A. AHP Application Approval Process
The proposed rule makes a fundamental change to the AHP by vesting
the Banks, instead of the Board, with the authority to approve AHP
applications. The current application approval process implemented by
the Board's existing AHP regulation may be briefly described as
follows. The Banks receive AHP applications and first evaluate them for
satisfaction of certain threshold requirements contained in the
existing regulation. See 12 CFR 960.5(a)(1), (2). Those applications
meeting the threshold requirements are evaluated by the Banks to
determine if they meet at least three of the priorities contained in
the existing regulation. If they do, they are scored by the Banks on
the priorities and on other scoring objectives contained in the
existing regulation before applications that meet fewer than three
priorities. See id. Sec. 960.5(a)(3), (b) through (e). Under the
existing regulation, the Bank then forwards to the Board the highest
scoring applications, and submits a summary of such applications. See
id. Sec. 960.5(f)(1), (2). The Board reviews the applications to ensure
consistency with the threshold, priorities and scoring requirements,
and makes final funding decisions on the applications. See id.
Sec. 960.5(f)(3).
While section 10(j) of the Act requires each Bank to establish an
AHP, and vests in the Board broad authority to regulate the Banks' AHP
activities through regulations implementing the Act, section 10(j) does
not specifically assign the responsibility of operating the AHP to the
Board. See 12 U.S.C. 1430(j). The Board does have other statutorily
designated duties, including issuing regulations that specify
activities eligible to receive subsidized advances under the AHP,
ensuring advances are used to assist projects for which adequate long-
term monitoring is available, ensuring that a preponderance of
assistance provided under the AHP is ultimately received by low- and
moderate-income households, and ensuring that AHP subsidies provided by
Banks to members are passed on to the ultimate borrower. See id.
Section 1430(j)(9) (A), (C), (D), (E). However, section 10(j) does not
specify what entity is responsible for administering the AHP, and what
entity is responsible for determining which AHP applications are
approved for funding.
For the following reasons, the Board is proposing that the Banks
assume the responsibility for determining which AHP applications are
approved for funding. First, the Banks have had three and one-half
years of experience with the AHP, which experience has included
processing AHP applications, scoring the applications, and recommending
applications for approval to the Board as described above.
Consequently, the Banks are already processing and reviewing
applications under the existing system.
Second, decentralization of the AHP is consistent with the Bank
System's Strategic Plan, which calls for decentralization of a number
of functions currently conducted by the Board, with the exception of
those Board activities involving oversight and supervision of the
Banks. See ``System 2000: A Long-Term Strategic Plan For The Federal
Home Loan Bank System.''
The details of the proposed new application approval process are
discussed further below.
The Board specifically requests comments as to whether the Banks
should be given the authority to approve and disapprove AHP
applications.
The proposed rule also revises the Board's existing AHP regulation
by allowing each Bank to define more specifically its own priorities
and scoring criteria, subject to certain overall priority and scoring
parameters established in the proposed rule. The Bank would be required
to include such proposed priorities and scoring criteria in its AHP
implementation plan which must be approved by the Board. Under the
Board's existing AHP regulation, the Banks have much less flexibility
in defining priorities and scoring criteria. See 12 CFR 960.5 (a)
through (e). In addition, under the proposed rule, certain point values
for scoring categories would be revised.
The details of the proposed revisions for adopting priorities and
scoring criteria are discussed further below under the scoring of AHP
applications section.
B. Bank Establishment of AHP and Adoption of AHP Implementation Plan
Section 960.2(a) of the proposed rule generally reiterates the
statement in Sec. 960.2(a) of the Board's existing AHP regulation that
it is the policy of the Board and the Banks to promote decent and safe
affordable housing and to address critical affordable housing needs
through providing subsidized advances and direct subsidies to members
pursuant to the AHP. See 12 CFR 960.2(a).
Section 960.2(b) of the proposed rule provides that each Bank's
board of directors shall establish an AHP, which shall be funded
pursuant to the requirements of Sec. 960.18 of the proposed rule. (See
discussion below under the required annual AHP contributions section.)
The Bank is required to make subsidized advances to applicants pursuant
to its AHP and to operate its AHP in conformity with an annual AHP
implementation plan and the requirements of this part. Direct subsidies
provided by a Bank to applicants pursuant to its AHP also shall be
provided in conformity with the Bank's AHP implementation plan and the
requirements of this part. Each Bank's AHP implementation plan shall be
approved by the Board before it is effective.
Section 960.2(b) of the proposed rule further provides that the AHP
implementation plan must meet the requirements of this part, and shall
include:
(1) The Bank's AHP funding cycle schedule, including application
due dates, as required by proposed Sec. 960.6(a)(1);
(2) The Bank's priorities, and scoring criteria for applications,
as required by proposed Secs. 960.8(a) and 960.10;
(3) The Bank's procedures to ensure satisfaction of the long-term
requirement, as required by proposed Sec. 960.5 (a)(1) and (b);
(4) The Bank's requirements for and verification procedures
concerning (i) the use of subsidized advances or direct subsidies
within a reasonable period of time after approval of an AHP
application, as required by proposed Sec. 960.12(a), or (ii) the use of
loans or grants within a reasonable period of time after repayment of
such funds to a loan fund or loan consortium, as required by proposed
Sec. 960.17(c)(5);
(5) The Bank's verification procedures upon initial disbursement of
subsidized advances or direct subsidies, as required by proposed
Sec. 960.13;
(6) The Bank's monitoring plan, as required by proposed
Sec. 960.14(b);
(7) The Bank's reporting requirements for applicants during the
construction or rehabilitation phase, as required by proposed
Sec. 960.15(b)(2);
(8) An explanation of circumstances justifying undue hardship
waivers by the Bank of imposition of remedial actions, as required by
proposed Sec. 960.16 (c)(1) and (d)(1); and
(9) The Bank's determination regarding the number of persons that
may serve on the Bank's Advisory Council and their terms, as required
by proposed Sec. 960.21(a)(1) and (4).
Section 960.2(c) of the proposed rule provides that the Bank's
proposed AHP implementation plan shall be submitted to its Advisory
Council at least 45 calendar days before it is considered by the Bank's
board of directors. The Advisory Council shall review the proposed plan
and submit its recommendations to the Bank's board of directors at
least seven calendar days before the Bank's board of directors is
scheduled to vote on the proposed plan. The Bank's board of directors
shall vote on the proposed AHP implementation plan, and shall submit
its approved plan to the Board for action. The Board shall approve or
disapprove the proposed plan within 60 calendar days of receipt. The
Bank's plan is not effective until it is approved by the Board, and it
must become effective at least 45 calendar days before the due date for
AHP applications established by the Bank. Each Bank must submit its AHP
implementation plan to the Board for approval no later than 180
calendar days after the publication of this rule as a final rule in the
Federal Register.
Section 960.2(d) of the proposed rule provides that the Bank's
approved AHP implementation plan shall be made available by the Bank to
the public upon request.
Section 960.2(e) of the proposed rule provides that the Board will
approve or disapprove proposed amendments to a Bank's approved AHP
implementation plan submitted by the Bank within 60 calendar days of
receipt.
C. Authorized and Required Uses of AHP Subsidized Advances or Direct
Subsidies
Section 960.3 of the proposed rule states the general authorized
uses of AHP subsidized advances and direct subsidies by applicants,
Sec. 960.4 provides specific examples of such authorized and
unauthorized uses and other use requirements, and Sec. 960.5 sets forth
the long-term income-eligibility, affordability and income-targeting
requirements for such uses. These proposed sections are discussed
further below.
1. Authorized Uses of Subsidized Advances or Direct Subsidies
Section 960.3 of the proposed rule, consistent with Sec. 960.3(b)
(1) and (2) of the Board's existing AHP regulation, provides that
applicants may use subsidized advances or direct subsidies received
from a Bank under the AHP to either:
(a) Finance the purchase, construction or rehabilitation of owner-
occupied housing units by or for low- or moderate-income households; or
(b) Finance the purchase, construction or rehabilitation of rental
housing units, at least 20 percent of the units of which will be
occupied by and affordable for very low-income households. See 12 CFR
960.3(b) (1) and (2).
2. Specific Use Requirements for Subsidized Advances or Direct
Subsidies
Section 960.3(c) of the Board's existing AHP regulation provides
that ``Program funds may only be used for direct costs required to
produce and/or finance affordable housing units.'' 12 CFR 960.3(c). A
number of questions have arisen as to whether specific types of costs
associated with the financing or production of housing may be
considered ``direct costs'' for purposes of the Board's regulation.
Because of the confusion in this area, the Board believes that it would
be helpful to set forth in the rule examples of specific types of costs
it considers to be authorized and unauthorized for AHP purposes.
Accordingly, Sec. 960.4(a) (1) and (2) of the proposed rule sets forth
examples of specific costs related to the purchase, construction or
rehabilitation of housing that are authorized and unauthorized uses of
AHP subsidized advances or direct subsidies. However, because it is
impossible to anticipate all types of costs that may arise in the
course of financing or producing housing, the list of authorized and
unauthorized costs in proposed Sec. 960.4(a) is not exclusive. Other
costs not included arguably may or may not qualify as costs of
financing the purchase, construction or rehabilitation of housing. If
an applicant seeks to use funds under the AHP to pay for costs not
specifically included in this rule, it should consult with the Bank
before submitting its application for approval. The Board specifically
asks for comments as to whether these authorized and unauthorized costs
are appropriate.
Specifically, Sec. 960.4(a)(1) of the proposed rule provides that
authorized uses of subsidized advances or direct subsidies include, but
are not limited to, the following costs related to the purchase,
construction or rehabilitation of housing:
(i) Real property purchase and improvement costs;
(ii) Construction or rehabilitation costs, including labor and
materials, and contractor profit and overhead allowances;
(iii) Costs integral to the purchase or development of housing
including, but not limited to, project-related: Architectural,
inspection and engineering fees; local building permit and planning
fees; accounting costs; survey costs; appraisal fees; title insurance
and other insurance costs; performance bond and other bond fees;
recording fees; credit report fees; property taxes; residential
relocation costs where such costs are part of a relocation plan; legal
fees; syndication fees; costs of translating resident documents to
another language; loan commitment, loan origination and other loan
financing fees for administrative costs other than costs of
administering the AHP award; developer's fees; and marketing costs;
(iv) Prepayment fees imposed by the Bank on an applicant for a
subsidized advance that is prepaid in connection with the purchase,
construction or rehabilitation of housing, if the applicant requires
the borrower to pay such fee;
(v) Capitalization of reserve fund(s) necessary for the successful
operation of rental housing projects, including replacement reserves,
rent-up reserves, operating deficit reserves, and sinking fund reserves
used for the transfer of the project to nonprofit ownership when
associated with a low income housing tax credit transaction (26 U.S.C.
42);
(vi) Cancellation fees imposed by the Bank on an applicant for a
subsidized advance commitment that is canceled and converted to and
disbursed as a direct subsidy in connection with the purchase,
construction or rehabilitation of housing, if the applicant requires
the borrower to pay such fee;
(vii) Refinancing of an existing loan in conjunction with the
purchase, construction or rehabilitation of housing, provided the
subsidized advance or direct subsidy and the proceeds of the
refinancing are used only to retire existing debt and to benefit low-
or moderate-income households and, in the case of refinancing in order
to rehabilitate a project, there is a minimum of $2,500 per unit spent
on such rehabilitation; and
(viii) Tenant services, tenant counseling and homeowner counseling
costs that are a condition imposed by a lender to obtain financing from
such lender and which are necessary for the successful operation of the
project.
Cancellation fees identified in paragraph (vi) above, where there
is purchase, construction or rehabilitation of housing and the borrower
is required to pay the fee, are a cost of financing such purchase,
construction or rehabilitation and therefore are authorized uses of
funds under the AHP. Because the advance would be converted to a direct
subsidy, such cancellation fees would be payable only if the
application also meets the requirements for modification of
applications contained in Sec. 960.11 of the proposed rule. (These
requirements are discussed in greater detail in the modification
section below.) However, AHP subsidized advances or direct subsidies
may not be used to pay for cancellation fees in situations where the
cancellation of the advance is not part of a restructuring that results
in the purchase, construction or rehabilitation of housing.
The conditions identified in paragraph (vii) above on the use of
funds under the AHP for refinancing are intended to ensure that the
funds are not used by the borrower to take out its equity in the
project and to ensure that the funds are used for authorized purposes
under the AHP. The Board specifically requests comments on whether the
$2,500 minimum per unit is a reasonable minimum amount to be required
to be spent on rehabilitation in conjunction with a refinancing.
Questions have arisen as to whether funds under the AHP should be
used to pay for pre-development costs that may or may not result in the
purchase, construction or rehabilitation of AHP housing. Pre-
development costs are costs incurred prior to the closing of a
purchase, construction or rehabilitation loan for the purpose of
determining the feasibility of a proposed project. Examples of pre-
development costs include architectural and engineering fees, legal
fees, the costs of surveys and appraisals, local building permit and
planning fees, and earnest money deposits. Since AHP applications are
required to meet the threshold feasibility requirement provided in
proposed Sec. 960.9(d) in order to be scored, authorizing the use of
funds for pre-development costs raises the question how applications
for such costs can or should be scored since the funds would be
disbursed to applicants before the feasibility of a proposed project
could be established.
In addition, there is a greater likelihood that costs incurred
during the pre-feasibility period, rather than during the post-
feasibility period, will not result in the purchase, construction or
rehabilitation of housing. Thus, if applications for AHP funds to
finance pre-development costs are approved, AHP funds in perhaps
significant amounts could go towards pre-development costs that do not
result in the financing or production of housing. If such costs are
authorized, one option for dealing with this concern could be to cap
the total amount of AHP funds that may be used for pre-development
costs at a specific dollar amount or percentage, such as the lesser of
$200,000 or 5 percent of the Bank's total AHP contributions for the
year. These funds could be set aside and disbursed in a separate
competitive process.
The Board specifically requests comments on whether funds under the
AHP should be used for pre-development costs, how applications for such
costs can or should be scored, and what limits, if any, should be
placed on the amount of funds used for such purposes under the AHP.
3. Use of Funds Requirements
Section 960.4(b)(1)(i) of the proposed rule provides that the total
amount of a direct subsidy provided by the Bank to an applicant under
the AHP must be passed on by the applicant to the recipient. Consistent
with Sec. 960.9(c) of the Board's existing AHP regulation,
Sec. 960.4(b)(1)(ii) of the proposed rule provides that an applicant
receiving a subsidized advance shall extend credit to the borrower at a
rate of interest equal to the rate of interest charged on the
subsidized advance plus an interest rate spread approved by the Bank.
See 12 CFR 960.9(c). These provisions implement section 10(j)(9)(E) of
the Act, which provides that the Board's AHP regulation shall ensure
that AHP subsidies provided by Banks to applicants are passed on to the
ultimate borrower. See 12 U.S.C. 1430(j)(9)(E).
Section 960.4(b)(2) of the proposed rule provides that if an
applicant receives a subsidized advance or direct subsidy from a Bank
or prepayment of a loan originally made under the AHP, any interest or
other income earned by the applicant on such funds, not including any
approved fee or interest rate spread charged to the borrower, must be
forwarded to the Bank to be used for additional AHP projects, except
for interest or other income earned by the applicant within 30 calendar
days of receiving the subsidized advance or direct subsidy or of
receiving prepayment of a loan originally made under the AHP.
Section 960.4(b)(3) of the proposed rule provides that a direct
subsidy received by an applicant from a Bank that is provided by such
applicant to a sponsor may be lent by the sponsor in connection with an
AHP rental housing project involving low-income housing tax credits
(LIHTC), provided the subsidy is lent by the sponsor for a term of not
less than 30 years, with all principal and interest payments deferred
until the end of such term. If such a loan is repaid before the end of
the 30-year term, the entire amount of the direct subsidy must be
repaid to the Bank.
For various tax reasons, sponsors prefer to structure LIHTC
projects so that the AHP direct subsidy is lent to the project for a
specific long-term period, with principal and interest payments
deferred until the end of such term. The lending of a direct subsidy by
a sponsor raises the question whether the subsidy is being passed on to
the ultimate recipient, as required under section 10(j)(9)(E) of the
Act and proposed Sec. 960.4(b)(1)(i), since the subsidy ultimately is
being repaid to the Bank. See 12 U.S.C. 1430(j)(9)(E). The Board
believes that the lending of a direct subsidy for the long-term period
of income eligibility and affordability required by Sec. 960.5 of the
proposed rule, with all principal and interest payments deferred until
the end of such term, satisfies section 10(j)(9)(E) and proposed
Sec. 960.4(b)(1)(i), because the project will have had the use of such
funds for the period the project must remain occupied by and affordable
for low- or moderate-income households, even though the funds may be
repaid at the end of such term. As discussed below, Sec. 960.5(a)(1) of
the proposed rule defines this long-term period generally as not less
than 30 years for rental housing projects. Accordingly, the direct
subsidy must be lent for a term of 30 years or more, with all principal
and interest payments deferred until the end of such term.
Section 960.4(b)(4) of the proposed rule provides that if an
applicant receives a subsidized advance or a direct subsidy from a
Bank, and in turn provides both a loan and a grant to a borrower and
charges an origination fee for providing the loan, then any fee charged
by the applicant for providing the grant may not be paid with the AHP
subsidized advance or direct subsidy. The fee may not be paid with the
AHP subsidized advance because the applicant has already covered the
underwriting costs for the loan and the grant in its origination fee
for the loan. The fee may not be paid with the direct subsidy because
otherwise the entire amount of the AHP subsidy would not be passed
through to the borrower, as required by section 10(j)(9)(E) of the Act
and proposed Sec. 960.4(b)(1)(i). See 12 U.S.C. 1430(j)(9)(E).
4. Long-term Requirements
a. Owner-occupied housing units. (1) Long-term requirement. Section
10(j)(1) of the Act states that pursuant to regulations promulgated by
the Board, each Bank shall establish a Program to subsidize the
interest rate on advances to members engaged in lending for long-term,
low- and moderate-income, owner-occupied housing at subsidized interest
rates. Id. Sec. 1430(j)(1). In addition, section 10(j)(2)(A) of the Act
states that the Board's regulations shall permit Bank members to use
subsidized advances received from the Banks to finance homeownership by
families with incomes at or below 80 percent of the median income for
the area. Id. Sec. 1430(j)(2)(A).
The Act permits more than one possible interpretation of the
requirement that owner-occupied housing must be ``long-term.'' One way
to interpret this requirement is that owner-occupied housing units
assisted under the AHP must be added to and retained as part of the
stock of affordable housing for a long-term period. Alternatively, the
Act may be interpreted to require that under the AHP, assistance must
be provided to low- or moderate-income households to make owner-
occupied housing units affordable to such households for as long as
they own the unit. These two possible interpretations are incorporated
in options A and B described below. The Board specifically requests
comments on these two options.
Option A. Under option A, the long-term requirement would be met by
providing that owner-occupied housing units be required to be retained
as affordable units for 30 years or, at the election of the sponsor,
the remaining useful life of the units, regardless of changes in
occupancy. In order to enforce this retention requirement, owner-
occupied units assisted with a loan or a grant under the AHP would have
to be subject to a deed restriction or other legally enforceable
mechanism restricting transfer of the unit to a low- or moderate-income
household if the unit were sold within 30 years of the purchase,
construction, or rehabilitation or prior to the end of the remaining
useful life of the unit, as the case may be.
A household purchasing such a unit would have to qualify as a low-
or moderate-income household only at the time of purchase or at the
time of closing on the financing for the unit. A household
rehabilitating a unit would have to qualify as a low- or moderate-
income household only at the time the household received a commitment
for funding through the AHP.
If an owner-occupied unit assisted by a loan under the AHP were
sold prior to the end of the 30-year period or the remaining useful
life of the unit, as the case may be, to a household that was not a
low- or moderate-income household, then the applicant would have to
either: (1) Repay to the Bank that portion of the advance used to make
the loan to the seller, or (2) convert that portion of the advance used
to make the loan to the seller to a market rate advance with an
interest rate equal to the market rate of interest at the time the
advance was made, and any unused AHP subsidy which had been set aside
by the Bank to subsidize that portion of the advance used to make the
loan to the seller would be made available by the Bank for additional
AHP projects.
If an owner-occupied unit assisted by a grant under the AHP were
sold prior to the end of the 30-year period or the remaining useful
life of the unit, as the case may be, to a household that was not a
low- or moderate-income household, then the seller would have to repay
to the applicant a pro rata portion of the grant from any profit
realized upon the sale of the unit, and any amount repaid to the
applicant would have to be forwarded to the Bank and made available for
additional AHP projects. The Bank would have the discretion to waive
this recapture requirement if imposition of the requirement would cause
undue hardship on the seller, as defined in the Bank's AHP
implementation plan. In addition, for owner-occupied units assisted by
a grant, the Bank would have to monitor the unit during the required
long-term period by reviewing land title records or reports or
certifications from the sponsor or a regulatory agency, as determined
by each Bank in its AHP implementation plan, to determine whether the
unit had been sold to a household whose income exceeded a low-or
moderate-income.
As an alternative to requiring that each owner-occupied unit
assisted by a grant be subject to a restriction on transfer, the Bank
could have a legally binding agreement with the sponsor providing that
if such unit were sold prior to the end of the required long-term
period to a household that was not a low- or moderate-income household,
the sponsor would make another unit available to a low- or moderate-
income household.
Option B. Under option B, the long-term requirement would be met by
providing that an owner-occupied unit assisted by a grant or a loan
under the AHP must be affordable for the initial household for the
duration of that household's occupancy of the unit. However, to
minimize opportunities for speculation, the unit would have to be
subject to a deed restriction or other legally enforceable mechanism
restricting transfer of the unit to a low- or moderate-income household
if the unit were sold within five years of the purchase, construction,
or rehabilitation of the unit.
As under option A, a household purchasing such a unit under option
B would have to qualify as a low- or moderate-income household only at
the time of purchase or at the time of closing on the financing for the
unit, and a household rehabilitating a unit would have to qualify as a
low- or moderate-income household only at the time the household
received a commitment for funding through the AHP.
If an owner-occupied unit assisted by a loan under the AHP were
sold prior to the end of the five-year period to a household that was
not a low- or moderate-income household, then the applicant would have
to either: (1) Repay to the Bank that portion of the advance used to
make the loan to the seller, or (2) convert that portion of the advance
used to make the loan to the seller to a market rate advance with an
interest rate equal to the market rate of interest at the time the
advance was made, and any unused AHP subsidy which had been set aside
by the Bank to subsidize that portion of the advance used to make the
loan to the seller would be made available by the Bank for additional
AHP projects.
If an owner-occupied unit assisted by a grant under the AHP were
sold prior to the end of the five-year period to a household that was
not a low- or moderate-income household, then the seller would have to
repay to the applicant a pro rata portion of the grant from any profit
realized upon the sale of the unit, and any amount repaid to the
applicant would have to be forwarded to the Bank and made available for
additional AHP projects. The Bank would have the discretion to waive
this recapture requirement if imposition of the requirement would cause
undue hardship on the seller, as defined in the Bank's AHP
implementation plan. In addition, for owner-occupied units assisted by
a grant, the Bank would have to monitor the unit during the required
long-term period by reviewing land title records or reports or
certifications from the sponsor or a regulatory agency, as determined
by each Bank in its AHP implementation plan, to determine whether the
unit had been sold to a household whose income exceeded a low or
moderate income.
As under option A, as an alternative to requiring that each owner-
occupied unit assisted by a grant be subject to a restriction on
transfer, the Bank under option B could have a legally binding
agreement with the sponsor providing that if such unit were sold prior
to the end of the required long-term period to a household that was not
a low- or moderate-income household, the sponsor would make another
unit available to a low- or moderate-income household.
(2) Definitions of ``low- or moderate-income household'' and ``very
low-income household''. Section 10(j)(13)(A) of the Act defines the
term ``low- or moderate-income household'' as a household which has an
income of 80 percent or less of the area median. 12 U.S.C.
1430(j)(13)(A). Section 10(j)(13)(B) of the Act defines the term ``very
low-income household'' as a household that has an income of 50 percent
or less of the area median. Id. section 1430(j)(13)(B). Thus, the term
low- or moderate-income household incorporates households that meet the
definition of very low-income household.
The Board's existing AHP regulation defines ``low- and moderate-
income households'' as households for which the aggregate income is 80
percent or less of the area median income, and ``very low-income
households'' as households for which the aggregate income is 50 percent
or less of the area median income. See 12 CFR 960.1(g), (o). ``Median
income'' is defined as ``the median family income for an area as
determined and published by the U.S. Department of Housing and Urban
Development.'' Id. Sec. 960.1(h). ``Area'' is defined as ``a
metropolitan statistical area, a county, or a nonmetropolitan area, as
established by the U.S. Office of Management and Budget.'' Id.
Sec. 960.1(c).
(i) Adjustments of income limit. On November 5, 1993, the Board
published a proposed rule to amend the definitions of these terms. See
58 FR 58988 (November 5, 1993). As discussed in the preamble to the
proposed amendment, under section 3 of the United States Housing Act of
1937, the Secretary of the U.S. Department of Housing and Urban
Development (Secretary) establishes income limits to be used in
determining whether a family qualifies as a ``low-income family'' or as
a ``very low-income family'' that is eligible to receive assistance
under the Department of Housing and Urban Development's (HUD) housing
programs. See 42 U.S.C. 1437a(b)(2). These income limits are calculated
as a percentage of the median income of a four-person family living in
a particular area. In general, the income limit for qualifying as a
``low-income family'' is set at 80 percent of the area median income,
and the income limit for qualifying as a ``very low-income family'' is
set at 50 percent of the area median income.
The Secretary may adjust the income limits for very low-income
families and low-income families upward or downward to take into
account unusually high or low family incomes in an area. See id. In
addition, the income limit for low-income families may be adjusted to
take into account prevailing levels of construction costs. See id. Then
an adjustment in this figure is made to establish the comparable income
limits for larger and smaller families living in the area. See id.
In 31 higher-income metropolitan statistical areas (MSAs) and 18
counties, the Secretary adjusts the area-based income limit for a four-
person, low-income family downward if it would otherwise exceed the
U.S. median income for a four-person family. In these areas, the
Secretary caps the income limit for a four-person, low-income family at
the U.S. median income for a four-person family.
In four MSAs and 107 counties, the Secretary adjusts the area-based
income limit for four-person, very low- and low-income families
downward because housing costs are low compared to incomes.
Adjusting the income limit downward decreases the number of
households in an area that are eligible to receive assistance under
HUD's housing programs.
As discussed in the proposed amendment, the Board believes that
affordable housing financed through the AHP should be available to the
greatest number of households possible, within the limits established
by the Act. Further, households should not be excluded from affordable
housing in a particular local market on the basis that housing costs
are lower or household incomes are higher in that market than in other
regions of the United States.
Applying the income limits that have been adjusted downward for
prevailing construction costs, low housing costs, or unusually high
household incomes for purposes of administering the AHP reduces the
number of households eligible to live in affordable housing financed
through the AHP. This limits a member's ability to use funds under the
AHP to fulfill its obligation under the Community Reinvestment Act. See
12 U.S.C. 2901 et seq. It also limits a member's ability to use funds
under the AHP to meet the ``community investment or service''
requirement of section 10(g) of the Act, 12 U.S.C. 1430(g), and the
Board's Community Support Regulation, 12 CFR part 936.
Accordingly, the Board is proposing that in administering the AHP
and in defining the standards governing the ``community investment or
service'' requirement of the Act, the income limits used to determine
whether a household in a particular area qualifies as a ``very low-
income household'' or as a ``low- or moderate-income household'' should
not be adjusted downward based on prevailing construction costs, low
housing costs, or unusually high household incomes.
Therefore, as set forth in the Board's proposed amendment,
Sec. 960.1 of this proposed rule defines ``low- or moderate-income
household'' as a household which has an income of 80 percent or less of
the median income for the area, as adjusted and published by HUD,
except in areas where the Secretary adjusts this figure downward
because of prevailing construction costs, low housing costs, or
unusually high household incomes. For areas where the Secretary makes
this downward adjustment, ``low- or moderate-income household'' would
be defined to mean a household which has an income of 80 percent or
less of the median income for the area, as published by HUD, with
adjustment for household size, but without the adjustments made by the
Secretary for prevailing construction costs, low housing costs, or
unusually high household incomes.
In addition, as set forth in the Board's proposed amendment,
Sec. 960.1 of this proposed rule defines ``very low-income household''
as a household which has an income of 50 percent or less of the median
income for the area, as adjusted and published by HUD, except in areas
where the Secretary adjusts this figure downward because of prevailing
construction costs, low housing costs, or unusually high household
incomes. For areas where the Secretary makes this downward adjustment,
``very low-income household'' would be defined to mean a household
which has an income of 50 percent or less of the median income for the
area, as published by HUD, with adjustment for household size, but
without the adjustments made by the Secretary for prevailing
construction costs, low housing costs, or unusually high household
incomes.
While HUD publishes tables with adjusted income information that
incorporates the adjustments for family size, prevailing construction
costs, low housing costs, and unusually high family incomes, it does
not publish tables with income information that adjusts only for family
size and not these other factors. Therefore, as set forth in the
Board's proposed amendment, Sec. 960.1 of this proposed rule adds a
definition of ``adjustment for household size'' in order to provide
additional guidance in calculating this adjustment.
An adjustment for household size is made by taking a specified
percentage of the income limit of a four-person household for a
particular area, according to the following scale:
------------------------------------------------------------------------
No. persons Percent adjustment
------------------------------------------------------------------------
1.................................. 70.
2.................................. 80.
3.................................. 90.
4.................................. Base.
5.................................. 108.
6.................................. 116.
7.................................. 124.
8.................................. 132.
------------------------------------------------------------------------
For each person in excess of eight, eight percent of the four-
person household base income limit should be added to the income limit
for an eight-person household for the area. These adjustment factors
are the same as those used by HUD in administering its housing
programs.
Section 960.1 of the proposed rule retains the definition of
``area'' from the Board's existing AHP regulation. See 12 CFR 960.1(c).
``Area'' means, for purposes of defining ``median income for the
area,'' a metropolitan statistical area, a county, or a nonmetropolitan
area, as established by the U.S. Office of Management and Budget.
Consistent with the proposed amendment, Sec. 960.1 of this proposed
rule does not include a definition of ``median income'' because it is
included in the proposed definitions of ``very low-income household''
and ``low- or moderate-income household.''
(ii) Definition of ``income''. The Act is silent on how to define
the term ``income,'' i.e., what are eligible sources of household
income that should be considered in determining whether the household
satisfies the definition of ``low- or moderate-income household'' or
``very low-income household.'' The Board has determined not to define
the term ``income'' in the proposed rule. Homeownership projects
typically involve the participation of a lender which provides
permanent financing for the homeowner over an extended period of time.
The lender generally verifies a household's income prior to issuing a
financing commitment during the underwriting of the loan. Eligible
sources of income are identified by the lender during the mortgage
underwriting process. Identifying eligible sources of income in the
rule could cause inconsistency with lenders' customary and usual
underwriting practices, or with the standards applied by the entity
providing the major source of financing for the project.
b. Rental housing units. Section 960.5(a)(1) of the proposed rule
provides generally that at least 20 percent of the rental housing units
in a project financed under the AHP with subsidized advances or direct
subsidies shall remain affordable for and occupied by very low-income
households for a minimum period of 30 years or, at the election of the
sponsor, the remaining useful life of such units.
Proposed Sec. 960.5(a)(1) implements section 10(j)(2)(B) of the
Act, which provides that Bank members may use subsidized advances
received from the Banks to finance the purchase, construction, or
rehabilitation of rental housing, at least 20 percent of the units of
which will be occupied by and affordable for very low-income households
for the remaining useful life of such housing or the mortgage term. 12
U.S.C. 1430(j)(2)(B).
Proposed Sec. 960.5(a)(1) provides that the applicant and project
sponsor shall state in the AHP application their commitment regarding
satisfaction of the long-term income-eligibility, affordability and
income-targeting requirements. In addition, an applicant may commit to
maintain additional units as affordable for and occupied by low- or
moderate-income households, which commitment shall be a minimum period
of 30 years or, at the election of the sponsor, the remaining useful
life of such units.
(1) Long-term requirement. Section 10(j) of the Act does not define
``remaining useful life'' as used in section 10(j)(2)(B) of the Act.
See 12 U.S.C. 1430(j). However, the legislative history of section
21A(c) of the Act regarding residential properties sold by the
Resolution Trust Corporation (RTC), which was enacted as part of the
same legislation that enacted section 10(j), states that the remaining
useful life of such RTC property is intended to cover the property as
long as it is habitable and assumes good faith efforts by the purchaser
to maintain the property and to rehabilitate it as necessary. See Joint
Explanatory Statement of the Committee of the Conference, H.R. Conf.
Rep. No. 101-222, 101st Cong., 1st Sess., 419 (1989) (FIRREA Conference
Report); 12 U.S.C. 1441a(c). The RTC has in fact adopted a specific
uniform period of useful life for all buildings instead of a period of
useful life based on physical habitability. See 12 CFR 1609.2(kk). The
legislative history of a recently enacted affordable housing statute,
the Low Income Housing Preservation and Residential Homeownership Act
(LIHPRHA), provides further support for a definition of ``remaining
useful life'' based on the period of physical habitability of a
property by explicitly rejecting the RTC's regulatory definition.
Accordingly, Sec. 960.1 of the proposed rule defines ``remaining
useful life'' as the period during which the housing remains in a
condition suitable for occupancy, assuming normal maintenance and
repairs are made and major systems and capital components are replaced
or repaired as becomes necessary.
Section 10(j) of the Act does not define ``mortgage term'' as used
in section 10(j)(2)(B) of the Act. See 12 U.S.C. 1430(j). The
legislative history of section 10(j) states that the conferees expect
that the Board will encourage the use of the longest practicable
mortgage term in order to aid in making the housing affordable for very
low-income households. See FIRREA Conference Report at 431.
Accordingly, the Board believes that ``mortgage term'' should be
defined as the mortgage term only of long-term mortgage loans and
believes that 30 years is consistent with Congress' intent in section
10(j)(2)(B) of the Act to ensure that AHP-assisted rental housing
projects remain occupied by and affordable for income-eligible
households for a long-term period.
(2) Definitions of ``low- or moderate-income household'' and ``very
low-income household''. The definitions of ``low- or moderate-income
household'' and ``very low-income household'' discussed above for AHP-
assisted owner-occupied housing projects apply for AHP-assisted rental
housing projects as well.
With respect to the definition of ``income,'' rental housing
projects typically have multiple providers of financing, each of which
may specify the eligible sources of income, which sometimes conflict
with each other. However, as with AHP-assisted owner-occupied housing
projects, the Board has determined that the proposed rule should not
specify the eligible sources of income for rental housing projects, but
rather that applicants should be permitted to follow their usual
underwriting guidelines, or may follow those of the predominant source
of financing in the project.
(3) Increase in household income or sale of project before end of
required long-term period. (i) Increase in household income. Section
960.5(a)(2) of the proposed rule provides that all households occupying
a rental housing unit subject to the income-targeting requirement of
paragraph (a)(1) of this section must satisfy the income-eligibility
requirement applicable to such income-targeted unit, as committed to in
the AHP application, upon initial occupancy. The household may continue
to occupy the income-targeted unit even if its income increases above
the income-eligibility requirement for such unit. The unit may continue
to count toward meeting the income-targeting requirement committed to
in the AHP application, provided the rent charged remains affordable to
the household as defined in proposed Sec. 960.1 (as further discussed
below). However, if the household's income rises above 140 percent of
the income-targeting level committed to in the AHP application, the
sponsor must make the next available rental housing unit in the project
affordable to and available for occupancy by a household whose income
is at or below the income-targeting level committed to in the AHP
application for the original unit. Once the next available rental
housing unit is so occupied, the rent charged on the unit occupied by
the household whose income has risen shall no longer be subject to the
requirement that it be affordable for households at the income-
targeting level committed to in the AHP application.
This approach is consistent with the approach followed in the LIHTC
program. Under the LIHTC program, a unit is in compliance with the
occupancy requirements until the tenant's income has risen to 140
percent of the qualifying income. See 26 U.S.C. Sec. 42(g)(2)(D)(i).
The next available unit must then be rented to an income-eligible
tenant at an affordable rent. See id. Section 42(g)(2)(D)(ii). This
approach allows the household to achieve stability by allowing
increases in income without fear of displacement or increased rents. In
addition, it does not cause destabilization of the project's cash flow
by having the project sponsor provide additional income-eligible units
with reduced rents that may reduce the income of the project. It also
would be consistent with the treatment of rents under the AHP's 20
percent requirement (also known as the maximum subsidy rule), which is
currently an interim rule of the Board, and which is incorporated in
Sec. 960.9(c) of this proposed rule. (See discussion of 20 percent
requirement below.)
Section 960.1 of the proposed rule defines ``affordable for very
low-income households'' to mean:
(1) For purposes of rental housing units, that rents, including
reasonable utility costs, charged to households for such units do not
exceed 30 percent of the income of a household (assuming a household
size of 1.5 persons per bedroom or 1.0 person per unit without a
separate bedroom) which has an income of 50 percent of the median
income for the area, as adjusted and published by HUD, except that in
areas where the Secretary adjusts this income figure downward because
of prevailing construction costs, low housing costs, or unusually high
household incomes, then ``affordable for very low-income households''
means that rents, including reasonable utility costs, charged to
households for such units do not exceed 30 percent of the income of a
household which has an income of 50 percent of the median income for
the area, as published by HUD, with adjustment for household size, but
without the adjustments made by the Secretary for prevailing
construction costs, low housing costs, or unusually high household
incomes;
(2) If a rental unit is targeted to a household whose income is
less than 50 percent of the median income for the area, then
``affordable for very low-income households'' means that the rent,
including reasonable utility costs, charged to a household for such
unit does not exceed 30 percent of the maximum qualifying income of the
targeted households of the size expected to occupy the unit.
This proposed definition implements section 10(j)(13)(D) of the
Act, which defines ``affordable for very low-income households'' to
mean that rents charged to tenants for units made available for
occupancy by low-income families shall not exceed 30 percent of the
adjusted income of a family whose income equals 50 percent of the
income for the area (as determined by the Secretary of HUD) with
adjustment for family size. 12 U.S.C. 1430(j)(13)(D). Section 960.1(b)
of the Board's existing AHP regulation contains a definition of the
term that is similar to the statutory definition. See 12 CFR 960.1(b).
The Board has determined that an estimate for reasonable utility
costs should be included in the determination of rents charged to
households under this section, if they are not already included in the
projected rents. Including utility costs would reduce the housing cost
burden for very low-income households under the AHP, and would allow
all rental projects to be treated equally, since some projects include
the cost of utilities in the rent, while others do not include such
costs in the rent. Including utility costs would be consistent with the
treatment of rents in other federal housing programs, such as HUD's
Section 8 program and the LIHTC program. It also would be consistent
with the treatment of rents under the AHP's 20 percent requirement,
which is currently an interim rule of the Board, and which is
incorporated in Sec. 960.9(c) of this proposed rule. (See discussion of
20 percent requirement below.)
The definition of ``affordable for low- or moderate-income
households'' in Sec. 960.1 of the proposed rule is similar to the above
definition, except that the household must have an income of 80
percent, instead of 50 percent, of the median income for the area,
since the Act defines a ``low- or moderate-income household'' as any
household which has an income of 80 percent or less of the area median.
12 U.S.C. 1430(j)(13)(A).
(ii) Sale of AHP-assisted rental housing project. Section
960.5(a)(3) of the proposed rule provides that an owner of an AHP-
assisted rental housing project may sell the project prior to the end
of the long-term period during which the project's rental units, or
applicable portion thereof, must remain affordable for and occupied by
households with incomes at or below the levels committed to in the AHP
application; however, either:
a. The purchaser must agree to continue the project's rental units,
or applicable portion thereof, as affordable for and occupied by
households with incomes at or below the levels committed to in the AHP
application for the remainder of the long-term period committed to in
the AHP application, and must agree to be subject to the same
restrictions on resale that applied to the seller; or
b. If the purchaser does not satisfy the requirements in paragraph
a. above, and if the Bank provided a direct subsidy to the applicant
which was passed on as a grant to the seller, the seller must repay a
pro rata portion of the grant as provided in Sec. 960.16(d)(1); or
c. If the purchaser does not satisfy the requirements in paragraph
a. above, and if the Bank provided a subsidized advance to the
applicant which in turn provided a below market rate loan to the
seller, then the provisions of Sec. 960.16(d)(2) shall apply.
Proposed Sec. 960.5(b) further provides that the Bank's AHP
implementation plan shall permit the owner of an AHP-assisted rental
housing project to sell such project as provided for in paragraph
(a)(3).
D. Establishment of AHP Funding Cycles and Available AHP Subsidies
Section 960.6(a)(1) of the proposed rule requires each Bank to
establish at least two but no more than four AHP funding cycles per
year during which applications for AHP subsidized advances or direct
subsidies will be accepted. This is a change from the Board's existing
AHP regulation, which provides that the Banks may accept AHP
applications during two of four quarterly periods each year. See 12 CFR
960.4(a).
Section 960.6(a)(1) of the proposed rule also provides that the AHP
funding cycle schedule, including application due dates, is to be
determined by the Bank in its discretion, but shall allow for
sufficient time intervals to ensure an adequate pool of applicants to
compete in each funding cycle. The funding cycles schedule, including
application due dates, shall be described in detail in the Bank's AHP
implementation plan. This is also a change from the Board's existing
AHP regulation, which sets forth specific application due dates. See 12
CFR 960.4(a).
Section 960.6(a)(2) of the proposed rule provides that each Bank
shall inform the general public and its members of the number and dates
of its AHP funding cycles for the year and the approximate amount of
available AHP subsidies for each funding cycle at least 45 calendar
days before the due date for AHP applications for the first funding
cycle for the year. This is a change from the Board's existing AHP
regulation, which requires each Bank to announce its funding cycles by
December 1 of the preceding year, and to notify only its members of the
approximate amount of AHP subsidies to be offered in each funding
cycle. See 12 CFR 960.4(a), (b).
Consistent with Sec. 960.4(b) of the Board's existing AHP
regulation, Sec. 960.6(b) of the proposed rule provides that each Bank
shall allocate comparable amounts of AHP subsidies for each AHP funding
cycle during the year. See 12 CFR 960.4(b).
E. Specific Application and Scoring Requirements
1. Application Requirements
The proposed rule does not mandate use of a uniform AHP application
form by all of the Banks. Rather, the Board believes that, consistent
with current practice under the AHP, each Bank should continue to
devise its own AHP application form, because each Bank will have its
own special information requirements as a result of the specific
priorities and scoring criteria adopted by the Bank.
However, as discussed further below, all AHP applications must
satisfy certain threshold requirements in order to be considered for
scoring under the proposed rule. Thus, certain information from
applicants must be received by all Banks in order for the Banks to be
able to determine whether the applications satisfy the threshold
requirements in the proposed rule and to score the applications under
the scoring criteria. Accordingly, Sec. 960.7(a) of the proposed rule
provides that each Bank shall require applicants for subsidized
advances or direct subsidies under the AHP to submit to the Bank an
application which, at a minimum, contains all of the information
described below and any other information which the Bank determines is
necessary in order to take action on such application, including the
following:
(1) A concise description of the purpose of the request and
proposed uses of the funds, and its relationship to the priorities
identified in proposed Sec. 960.10(d), the targeting criterion
identified in proposed Sec. 960.10(e), and the other objectives
identified in proposed Sec. 960.10(f);
(2) A statement of how the project will satisfy the authorized uses
and long-term requirements, including a description of legal mechanisms
to be used to ensure compliance by the project with such requirements,
contained in proposed Secs. 960.3 and 960.5;
(3) A statement of how the project will comply with the fair
housing law requirement contained in proposed Sec. 960.9(b);
(4) A statement of how the project will satisfy the feasibility
requirement contained in proposed Sec. 960.9(d);
(5) A statement of how the project's sponsor satisfies the
qualification requirement contained in proposed Sec. 960.9(e);
(6) A statement of whether a subsidized advance or direct subsidy
has been requested and the amount of such funds requested;
(7) A disclosure of whether or not the applicant has a direct or
indirect interest in the property or project. If the applicant has an
interest in the property and the application is approved, then prior to
the transfer of AHP funds to the project, an independent current
appraisal of the fair market value of such property must be provided,
unless the applicant demonstrates that the property is being sold or
otherwise transferred to the sponsor at a price substantially below the
fair market value;
(8) A statement of the project's costs; and
(9) A certification from the applicant's, the sponsor's and the
loan fund's or loan consortium's board of directors, or president or
senior officer if so delegated by the board of directors, that the
applicant, the sponsor and the loan fund or loan consortium will comply
with all requirements of this part and all obligations committed to in
the AHP application.
Section 960.4(c) of the Board's existing AHP regulation also
generally requires an applicant to include in its AHP application the
information identified in paragraphs (3) through (6) above, as well as
any other information the Bank may require. See 12 CFR 960.4(c).
Section 960.4(c)(6) of the Board's existing AHP regulation also
requires an applicant to disclose in its AHP application any direct or
indirect interest of the applicant in the property or project. See 12
CFR 960.4(c)(6). Under Sec. 960.7(a)(7) of the proposed rule, if such
an interest exists and the application is approved, then prior to the
transfer of AHP funds to the project, the applicant generally is
required to provide an appraisal of the property or project. This is to
ensure that the sales price of such property or project owned by the
applicant has not been inflated and that the applicant is not receiving
the benefit of the AHP subsidy.
Section 960.4(c)(7) of the Board's existing AHP regulation requires
the applicant to include in its AHP application an explanation of how
the applicant intends to monitor the use of any funds received under
the AHP, including an explanation of how the structure of the project
ensures that a preponderance of the subsidy is ultimately received by
the targeted beneficiaries. See 12 U.S.C. 1430(j)(9)(D); 12 CFR
960.4(c)(7). As discussed in greater detail in the monitoring section
below, as long as adequate monitoring is otherwise provided for, the
proposed rule does not require the applicant in all instances to
monitor the AHP-assisted project for compliance with the long-term
requirement of the proposed rule. Accordingly, this provision of the
existing regulation is deleted in the proposed rule.
Section 960.4(c)(8) of the Board's existing AHP regulation requires
the applicant to certify that the maximum subsidy limitation
requirements of the AHP rule will not be violated. See 12 CFR
960.4(c)(8). However, since the maximum subsidy limitation requirements
are threshold requirements that all AHP applications must satisfy (see
discussion below of the 20 percent requirement), this requirement is
incorporated into proposed Sec. 960.7(a)(9), which provides generally
that the applicant and sponsor must certify that all requirements of
the AHP regulation will be satisfied.
Section 960.4(c)(8) of the Board's existing AHP regulation also
requires the applicant to explain in its AHP application how any AHP
subsidy that exceeds the maximum subsidy requirements will be
recaptured. See 12 CFR 960.4(c)(8). Since AHP applications must satisfy
the threshold maximum subsidy limitation requirements at the outset in
order to be scored and approved for AHP funding, this issue does not
arise and therefore has been deleted in the proposed rule.
As discussed above, the requirement in Sec. 960.4(c)(9) of the
Board's existing AHP regulation that the applicant's managing officer
must certify that the AHP subsidy shall be only for authorized uses is
expanded in proposed Sec. 960.7(a)(9) to require a certification by the
applicant, the sponsor and the loan fund or loan consortium not only
that funds received under the AHP will be used for authorized uses, but
also a certification of compliance with all requirements of the AHP
regulation and all obligations committed to in the AHP application. See
12 CFR 960.4(c)(9). In addition, the proposed rule requires the
applicant, the sponsor and the loan fund or loan consortium, not just
the applicant, as in the Board's existing AHP regulation, to make the
certification in the AHP application. This change is proposed because
the applicant, the sponsor and the loan fund or loan consortium are all
subject to specific requirements under the AHP and therefore should be
required to certify that they will comply with such requirements.
2. Action on Applications
As discussed above, the proposed rule makes a major change in the
Board's existing AHP regulation by taking the Board out of the approval
process for AHP applications. Section 960.7(b)(1) of the proposed rule
provides that each Bank shall review, score and take action on an AHP
application pursuant to the requirements contained in proposed
Secs. 960.8, 960.9 and 960.10, and shall notify the applicant of such
action no later than 60 calendar days after the application due date
for the AHP funding cycle. Section 960.5(f)(1) of the existing
regulation requires the Banks to forward to the Board their recommended
applications no later than 30 days after each offering deadline. See 12
CFR 960.5(f)(1). Since the Banks would have greater responsibilities in
the approval process under the proposed rule, the 30-day period is
proposed to be extended to 60 calendar days.
Section 960.7(b)(2) of the proposed rule provides specifically that
the board of directors of each Bank shall have the authority to approve
or disapprove AHP applications received, and may delegate such
authority to the president or other senior officers of the Bank.
Section 960.7(b)(3) of the proposed rule provides that within 30
calendar days of each Bank's approval of the AHP applications for a
given AHP funding cycle, the Bank shall forward to the Board a summary
of each approved AHP application. The summary shall:
(i) Briefly describe the project, including the applicant, the loan
fund or loan consortium, if applicable, and the sponsor--whether
nonprofit, for-profit or public agency, the type of housing, the
location, the long-term period committed to, the number of housing
units including the number of units affordable for very low-, low- or
moderate-income households or for households at any other income levels
committed to in the AHP application, the development cost, other
financing sources, and special needs populations served;
(ii) State the reason for the points awarded under each of the
Bank's scoring criteria for the project;
(iii) Indicate whether a subsidized advance or direct subsidy was
approved by the Bank for the project, the use of such funds, and the
amount of such funds approved; if a subsidized advance was approved,
the summary shall indicate the amount of the advance, the advance rate,
the amortization schedule for the advance, the term to maturity, the
applicable cost of funds, and the date as of which the cost of funds
was determined;
(iv) Indicate whether the project received approval in a prior AHP
funding cycle, or whether the project is an extension, expansion,
continuation or reconfiguration of a previously approved AHP project;
(v) Describe how the project will be monitored and by what entity;
(vi) Describe the legal mechanisms to be used to ensure compliance
by the project with the long-term requirement contained in Sec. 960.5
of the proposed rule;
(vii) Include a summary in chart form showing all AHP applications
received by the Bank in the particular AHP funding cycle, with the
score each application received for each scoring criterion, and the
total score received by each project; and
(viii) Include any other information required by the Board.
The Board has general oversight responsibility over the AHP under
section 10(j) of the Act. See 12 U.S.C. 1430(j). In addition, section
10(j)(12)(A) of the Act requires the Board to monitor and report
annually to the Congress and the Advisory Council for each Bank the
support of low-income housing and community development by the Banks
and the utilization of advances for these purposes. Id.
Sec. 1430(j)(12)(A). Since the Board would no longer be receiving and
approving AHP applications under the proposed rule, the Board would no
longer have these applications as a source of data to assist the Board
in exercising its oversight and monitoring responsibilities and
preparing the annual report to the Congress and the Advisory Councils.
Accordingly, the Board will need the Banks to provide this additional
information to the Board in the summary, as required in proposed
Sec. 960.7(b)(3).
F. Requirements For Approval of AHP Applications
1. General
Section 960.8(a) of the proposed rule provides that each Bank shall
evaluate the AHP applications received to determine if they satisfy the
threshold criteria in proposed Sec. 960.9. All applications that meet
the threshold criteria shall be scored pursuant to the criteria
contained in proposed Sec. 960.10 as set forth in the Bank's approved
AHP implementation plan.
Section 960.8(b) of the proposed rule provides that the Bank shall
approve the applications in descending order starting with the highest
scoring application until the total AHP funding amount for the
particular funding cycle, except for any amount insufficient to fund
the next highest scoring project, has been allocated. The Bank also may
approve the next four highest scoring applications as alternates and,
within one year of approval by the Bank, may fund such alternates if
any previously committed AHP funds become available.
2. Threshold Criteria for Approval of AHP Applications
Section 960.9 of the proposed rule provides that an AHP application
must meet all of the threshold criteria set forth in a. through f.
below in order to be considered for scoring under proposed Sec. 960.10
and for AHP funding approval. These criteria are discussed in detail
below.
a. Authorized and required uses requirements. The AHP application
must indicate that the use of the subsidized advance or direct subsidy
set forth in the AHP application for the proposed project will comply
with the requirements for authorized and required uses of such funds
contained in proposed Secs. 960.3, 960.4 and 960.5. See proposed
Sec. 960.9(a).
This proposed provision is consistent with the intent of
Sec. 960.5(a)(1) of the Board's existing AHP regulation. See 12 CFR
960.5(a)(1).
b. Fair housing law requirements. The AHP application must indicate
that the project sponsor will comply with any applicable fair housing
law requirements and must indicate how the sponsor proposes to
affirmatively further compliance with such requirements. See proposed
Sec. 960.9(b).
This proposed provision is consistent with the requirement of
compliance with fair housing laws contained in Sec. 960.5(a)(2)(i) of
the Board's existing AHP regulation, and the requirement under existing
practice that applications indicate how the sponsor proposes to
affirmatively further such compliance. See 12 CFR 960.5(a)(2)(i).
c. The twenty percent requirement and alternatives. Section
960.9(c) of the proposed rule incorporates the existing maximum subsidy
limitation requirement and alternatives contained in Sec. 960.9 of the
Board's interim rule, with minor changes in language and one
substantive modification discussed below. See 12 CFR 960.9 (58 FR 17968
(April 7, 1993)). The 20 percent requirement and the alternatives
discussed below implement the maximum subsidy limitation requirement
contained in section 10(j)(9)(F) of the Act. See 12 U.S.C.
1430(j)(9)(F). Since the 20 percent requirement or an alternative must
be satisfied by all AHP applications to avoid over-subsidization of a
project, it is set forth as a threshold requirement in the proposed
rule.
(i) The twenty percent requirement. Section 960.9(c)(1)(i) of the
proposed rule provides generally that a Bank shall not offer subsidized
advances or direct subsidies to applicants in excess of that amount
needed to reduce the monthly housing costs for income-eligible
households, as committed to in the AHP application, to 20 percent of
the household's gross monthly income (the 20 percent requirement). In
projects where other forms of federal, state, local or private
subsidized assistance are being used in conjunction with AHP subsidized
advances or direct subsidies, the total amount of subsidized
assistance, including funds provided under the AHP, shall not be in
excess of the amount needed to reduce the monthly housing costs for the
income-eligible households, as committed to in the AHP application, to
20 percent of the household's gross monthly income.
Monthly housing costs are defined in proposed Sec. 960.9(c)(1)(ii)
as:
(1) For households in AHP-assisted owner-occupied housing units,
mortgage principal and interest payments, real property taxes,
homeowners' insurance, a reasonable estimate of utility costs excluding
telephone service, and for households in AHP-assisted condominium,
cooperative, mutual housing or other housing projects involving common
ownership, those portions of any regular operating assessment or fee
allocated for principal and interest payments, taxes, insurance and a
reasonable estimate of utilities attributable to the household's share
of the common area and/or the individual unit; and
(2) For households in AHP-assisted rental housing units, rent
payments, and where they are not already included in rent payments, a
reasonable estimate of utility costs excluding telephone service.
Section 960.9(c)(1)(iii) of the proposed rule provides that a
household subject to the 20 percent requirement is required to meet
such requirement only at the time it initially purchases or occupies a
unit.
(ii) Alternative requirements. Section 960.9(c)(2)(i) of the
proposed rule provides that the 20 percent requirement shall not apply
where a Bank provides subsidized advances or direct subsidies to an
applicant for a rental housing project, which project also receives
funds from a federal or state rental housing program that requires
qualifying households to pay as rent a certain percentage of their
monthly income or a designated amount, provided that the household
meets the housing payment requirements of the other program.
Section 960.9(c)(2)(ii)(A) of the proposed rule provides that the
20 percent requirement shall not apply where the total amount of AHP
funds provided through a Bank subsidized advance or direct subsidy used
to finance rehabilitation of a housing unit by a very low-income
household that already owns and occupies the housing unit is $10,000 or
less per such household. In addition, proposed Sec. 960.9(c)(2)(ii)(B)
provides that the 20 percent requirement shall not apply where the
total amount of AHP funds provided through a Bank subsidized advance or
direct subsidy used to finance the purchase of a housing unit by a very
low-income household is $5,000 or less per such household. This is a
change from the interim rule which permits this alternative to the 20
percent requirement only for households that are above the threshold
income level for very low-income households and at or below the income
level to qualify as low- or moderate-income households. The Board did
not intend to exclude very low-income households from taking advantage
of this alternative when it adopted the interim rule. Accordingly,
proposed Sec. 960.9(c)(2)(ii)(B) corrects this error.
Section 960.9(c)(2)(iii) of the proposed rule provides that the 20
percent requirement shall not apply where the total amount of AHP funds
provided through a Bank subsidized advance or direct subsidy used to
finance rehabilitation or purchase of a housing unit by a low- or
moderate-income household is $5,000 or less per such household.
Section 960.9(c)(2)(iv) of the proposed rule provides that the 20
percent requirement shall not apply where a Bank provides subsidized
advances or direct subsidies ultimately benefiting a household with an
income at or below the level committed to in the AHP application, which
is participating in a self-help, sweat equity or similar housing
program. Under the proposed rule, the household is required to
contribute its skilled or unskilled labor valued at a minimum of $2,000
per household. The household must work cooperatively with others to
construct or rehabilitate housing which the household or other program
participants are purchasing or already own and occupy, and the program
must involve supervision of the work performed by skilled builders or
rehabilitators.
d. Project feasibility. The AHP application must indicate that the
proposed project is feasible. This determination must be based on an
analysis of project sources and uses of funds, project multi-year
operating pro formas for rental housing projects, projections of sales
and prices for owner-occupied housing units, and local market
conditions. The analysis must show that the project is financially
viable and likely to be completed within a reasonable period of time,
and is likely to operate or sell and remain affordable to the
designated income-eligible households over the long-term period
committed to in the AHP application. See proposed Sec. 960.9(d).
A feasibility requirement also is contained in Sec. 960.5(a)(2)(ii)
of the Board's existing AHP regulation. See 12 CFR 960.5(a)(2)(ii).
e. Qualifications of sponsor. The AHP application must indicate
that the sponsor has the qualifications and ability to perform its
responsibilities as committed to in the AHP application. See proposed
Sec. 960.9(e).
This proposed provision is not included as a threshold requirement
in the Board's existing AHP regulation, although it is required under
the regulation to be included by an applicant in its AHP application.
See 12 CFR 960.4(c)(4). The Board believes that this provision should
be included as a threshold requirement, since a project should not be
funded if the sponsor lacks the qualifications and ability to undertake
the project.
f. Creditworthiness of applicant. Consistent with the Board's
existing AHP regulation, Sec. 960.9(f) of the proposed rule provides
that the applicant must have the ability to qualify for an advance from
the Bank to fund the project described in the AHP application. See 12
CFR 960.5(a)(2)(iii).
The Board's existing AHP regulation also includes as a threshold
requirement the ability of the project to begin using Bank assistance
within 12 months. See 12 CFR 960.5(a)(2)(iv). Since this involves the
use of funds after a project has been approved for funding, it does not
belong as a threshold requirement and has been omitted in this section
of the proposed rule. The requirements under the proposed rule for use
of funds under the AHP within a reasonable period of time after
approval of the application are discussed below in the use and
verification section.
Finally, it has been suggested that a threshold criterion should be
added requiring that the project costs set forth in the AHP application
are reasonable and appropriate for the type and location of the
housing.
Section 10(j)(9)(F) of the Act requires the Board to establish
maximum subsidy limitations under the AHP. 12 U.S.C. 1430(j)(9)(F).
Section 10(j)(9)(D) of the Act also requires the Board to ensure that a
preponderance of assistance provided under the AHP is ultimately
received by low- and moderate-income households. Id. Section
1430(j)(9)(D). Requiring that project costs be reasonable is one way of
controlling the amount of AHP subsidies that fund a project in order to
keep the project from being over-subsidized, and to ensure that a
preponderance of the funds are being received by the ultimate
households by lowering their housing costs and not providing undue
benefit to the intermediaries in the development process.
A project costs requirement is not explicitly prescribed in the
threshold requirements under the Board's existing AHP regulation,
although some Banks do currently review project costs to determine if
they are reasonable under the feasibility requirement in the existing
regulation. See 12 CFR 960.5(a)(2)(ii). The feasibility requirement as
defined in the proposed rule would not incorporate a project costs
limit requirement.
The Board specifically requests comments on how the Banks currently
deal with applications with excessive project costs, whether the
project costs option discussed above should be required as a threshold
criterion in approving AHP applications, and how such a requirement
could be implemented by the Banks.
3. Scoring of AHP Applications
Section 960.10(a) of the proposed rule provides that the Bank shall
score AHP applications that satisfy all of the threshold criteria in
proposed Sec. 960.9 according to the scoring methodology set forth in
proposed Sec. 960.10, which shall be included in the Bank's approved
AHP implementation plan. Section 960.10 of the proposed rule modifies
the existing scoring methodology, and the Board specifically requests
comments on this proposed new scoring methodology.
a. Priority treatment and scoring. Section 960.10(b) of the
proposed rule provides that each application is first evaluated to
determine if it will receive priority treatment. The Board's existing
AHP regulation contains seven priorities: Homeownership projects;
rental projects; projects using government properties; projects with a
non-profit or public agency sponsor; projects promoting empowerment;
homeless housing projects; and projects meeting a Bank priority. Under
the existing AHP regulation, an application must meet at least three of
the seven priorities to receive priority treatment. The proposed rule
would contain only five priorities. The proposed rule would eliminate
the priorities for homeownership and rental properties because a
project must be either a rental or homeownership project in order to
qualify for AHP funding. The proposed rule would replace the
empowerment and homeless housing priorities with a priority for
``special needs'' housing. In addition, the proposed rule would add a
new priority for projects promoting economic mobility.
Under Sec. 960.10(b) of the proposed rule, for purposes of
determining priority, an application can receive a maximum of eight
points for each of the five priority categories described below. A Bank
in its AHP implementation plan shall define more specifically each of
the five priority categories and explain specifically how points will
be awarded for satisfying each category. An application will be deemed
to meet a particular priority category if it is awarded at least four
points for that priority category. Applications meeting at least two
priority categories shall receive priority treatment.
Section 960.10(c) of the proposed rule provides that applications
that qualify for such priority treatment shall be scored before
applications that do not qualify for priority treatment. The
applications that do not qualify for priority treatment will not be
scored unless there are insufficient priority treatment applications to
utilize the total AHP funding amount for the funding cycle. Under the
proposed rule, the total points available for the priorities would be
increased from 25 to 40. Section 960.10(d) of the proposed rule
provides that the Bank shall total the points received by each
applicant for purposes of determining priority for all of the five
priority categories and shall award 40 points to the application(s)
that receive the highest number of total points, and the remaining
application scores shall be adjusted and awarded points on a declining
scale basis.
The five priority categories are set forth below.
(1) Government-owned properties. Applications for projects that
finance the purchase or rehabilitation of housing owned or held by the
United States Government or any agency or instrumentality of the United
States, including but not limited to HUD, the RTC, Farmers Home
Administration, Veterans Administration, Federal National Mortgage
Association, or Federal Home Loan Mortgage Corporation. (See proposed
Sec. 960.10(d)(1).)
(2) Nonprofit or state or local government sponsored projects.
Applications for projects that finance the purchase, construction or
rehabilitation of housing sponsored by a nonprofit organization, a
state or political subdivision of a state, a local housing authority or
a state housing finance agency. (See proposed Sec. 960.10(d)(2).)
(3) Special needs projects. Applications for projects that address
special needs, which shall be defined by the Bank in its AHP
implementation plan, which special needs may include but are not
limited to:
(i) Empowering the households or residents through programs such as
resident management of the property, self-help housing, homesteading,
and sweat equity;
(ii) Providing housing for special needs populations such as
homeless persons, abused or battered persons, persons with AIDS,
mentally or physically disabled persons, or persons with substance
abuse problems;
(iii) Providing housing in rural areas or areas targeted by local,
state or federal governments for community development or
revitalization through the development of affordable housing or
economic investment; or
(iv) Providing housing with special services to meet the needs of
low- or moderate-income households including, but not limited to, child
care, job training, medical care, substance abuse programs, independent
living skill training, and rental household and homeowner household
counseling. (See proposed Sec. 960.10(d)(3).)
In defining the special needs priority in its AHP implementation
plan, a Bank is not required to include all of the special needs listed
as examples above. Rather, a Bank may be selective in giving priority
to some special needs and not others in devising its scoring system. In
addition, the Bank may select other special needs not listed as
examples above if the special needs chosen are similar in nature to
such examples.
(4) District Bank priority. Applications for projects that meet one
or more priorities recommended by the Bank's Advisory Council and
adopted by the Bank's board of directors that each address a housing
need in the Bank's district and are consistent with the purposes of
this part. The Bank shall describe in its AHP implementation plan how
the points for the priority or priorities will be distributed. (See
proposed Sec. 960.10(d)(4).)
(5) Economic mobility priority. Applications for projects that
provide housing for low- or moderate-income households that move from
low- or moderate-income neighborhoods or housing projects to
neighborhoods, mixed-income buildings or owner-occupied housing
developments in which at least 50 percent of the households have
incomes above the median income for the area, as published by the U.S.
Department of Housing and Urban Development. (See proposed
Sec. 960.10(d)(5).)
b. Scoring for objectives. The Board's existing AHP regulation
contains the following ``objectives'' scoring criteria: Targeting;
long-term retention; effectiveness; community involvement; community
stability; and innovation. The proposed rule makes long-term retention
a threshold criteria and adds a new objective called ``applicant
participation.'' A description of this new objective and the other
criteria are set forth below.
c. Scoring for targeting objective. Section 960.10(e) of the
proposed rule provides that an application can receive a maximum of 20
points for the targeting objective category. This is an increase from
15 points under the existing regulation. The proposed rule provides
that the Bank shall award points to applications based on the extent to
which the project(s) serve(s) the greatest percentage of very low-,
low- and moderate-income households, in that priority order. In the
alternative, if a weighted-average scoring methodology is provided in
the Bank's AHP implementation plan, the Bank shall award points to an
application based on the extent to which the project has the lowest
weighted-average income determined by multiplying the percentage of
units reserved for households at certain income levels by those incomes
expressed as a percentage of median income, and adding the totals.
Applications shall be scored relative to each other with the maximum
number of points allowable awarded to the application(s) that best
achieve(s) the targeting objective, and the remaining application
scores shall be adjusted and awarded points on a declining scale basis.
However, owner-occupied housing projects shall be scored as one group
and rental housing projects shall be scored as a separate group.
d. Scoring for other objectives. Section 960.10(f) of the proposed
rule sets forth five other objectives categories for scoring AHP
applications. The proposed rule requires the Bank in its AHP
implementation plan to define more specifically each of the five other
objectives categories and explain specifically how points will be
awarded for satisfying each category. For each category, the Bank shall
award the maximum number of points allowable for such category to the
application(s) that best achieve(s) the objective, and the remaining
application scores shall be adjusted and awarded points on a declining
scale basis. The five other objectives categories are set forth below.
(1) AHP subsidy per unit. An application can receive a maximum of
10 points for this category. The Bank shall award points to
applications based on the extent to which the project proposes to use
the least amount of AHP subsidy per AHP-subsidized unit. Projects
should be scored relative to each other; however, owner-occupied
housing projects shall be scored as one group and rental housing
projects shall be scored as a separate group. This scoring criterion
may not include a leveraging criterion whereby the application is
scored based on the percentage of the project's total development cost
that is to be financed with the AHP subsidy. This replaces the
effectiveness criterion that can receive a maximum of 15 points in the
existing scoring methodology.
(2) Applicant participation. An application can receive a maximum
of five points for this category. The Bank shall award points to
applications based on the extent to which the project involves
participation by applicants other than the receipt of a subsidized
advance or direct subsidy under the AHP. Such participation can be
financial or non-financial, including but not limited to debt or equity
financing of the project, grants to the project, applicant involvement
on the boards of nonprofit sponsors, and applicant provision of
technical assistance to the nonprofit sponsors for the project. This is
a new scoring criterion.
(3) Community involvement. An application can receive a maximum of
10 points for this category. The Bank shall award points to
applications based on the extent to which there is demonstrated support
for the project by local community organizations and individuals other
than as project sponsors, such as through the commitment by such
organizations and individuals of funds, goods and services, and
volunteer labor. The Banks should not award points for this category
based solely on the number of letters of support received for the
project.
(4) Community stability. An application can receive a maximum of 10
points for this category. The Bank shall award points to applications
based on the extent to which the project(s) maximize(s) community
stability, such as by: committing to maintain a greater long-term
period pursuant to Sec. 960.5; revitalizing vacant or abandoned
properties or being integrally part of a neighborhood stabilization
plan, if such revitalization or stabilization is not identified as a
special needs category by the Bank pursuant to Sec. 960.10(d)(3)(iii);
and not displacing low- or moderate-income households, or if such
displacement will occur, indicating how such households will be
assisted to minimize the impact of such displacement.
(5) Innovation. An application can receive a maximum of five points
for this category. This is a reduction from 10 points under the
existing regulation. The Bank shall award points to applications based
on the extent to which the project(s) involve(s) a particularly new or
unusual approach, either financial or non-financial, for meeting the
requirements of this part.
G. Modifications of Approved AHP Applications
Section 960.11(a) of the proposed rule provides that an applicant
that seeks a modification of an approved AHP application before
completion and occupancy of the project must submit a request for such
modification in writing to the Bank for review and approval. A
modification is any change that affects or could potentially affect the
material facts under which the application was originally evaluated and
scored. Modifications are changes in the specifics of an application
such as requests for additional AHP subsidy or changes in approved
income targeting.
Section 960.11(b) of the proposed rule provides that a request for
a modification of an approved AHP application must include, at a
minimum:
1. A description of how the proposed modification differs from the
original application;
2. The reason for the proposed modification; and
3. Any other information that the Bank determines is necessary to
review the proposed modification.
Section 960.11(c)(1) of the proposed rule provides that the Bank
shall review the request for modification, shall re-score the
application as proposed to be modified according to the scoring
criteria used in the AHP funding cycle in which the application was
originally approved, and may approve such request if the following
factors are satisfied:
1. The project as proposed to be modified continues to meet all of
the requirements of this part; and
2. The project as proposed to be modified continues to score high
enough that it would have been approved in its AHP funding cycle.
Section 960.11(c)(2) of the proposed rule provides that if the
application does not satisfy the requirements in paragraph (c)(1), the
Bank in its discretion may approve the request for modification if the
reason for the modification is due to circumstances outside the control
of the applicant or sponsor.
Section 960.11(d) of the proposed rule provides that the Bank shall
forward to the Board a detailed summary of any modification of an AHP
application approved by the Bank, including how the Bank re-scored the
project, within 30 calendar days of the approval of such modification.
H. Use, Calculation and Verification at Initial Disbursement of AHP
Subsidized Advances or Direct Subsidies
1. Use of Subsidized Advances or Direct Subsidies Within Reasonable
Period of Time and Verification of Reasonable Progress
As discussed above, the threshold requirement in the Board's
existing AHP regulation that the project have the ability to begin
using Bank assistance within 12 months is omitted as a threshold
requirement in the proposed rule. See 12 CFR 960.5(a)(2)(iv). In
addition, setting a fixed period of 12 months may not be appropriate in
all cases, because what is a reasonable period of time will vary from
project to project depending on the type of project and the
circumstances of the project. However, the Board does believe that
funds received under the AHP should be used within a reasonable period
of time after approval of an AHP application. Because what is a
reasonable period of time is so project specific, the Board believes
that the determination of such periods should be left to the discretion
of the Banks.
Accordingly, Sec. 960.12(a) of the proposed rule provides that the
Bank shall in its AHP implementation plan identify what constitutes
reasonable progress by the sponsor towards using subsidized advances or
direct subsidies within a reasonable period of time after the approval
of an AHP application for different types of projects, and explain how
it intends to verify such reasonable progress.
Section 960.12(b) of the proposed rule provides that the sponsor
must demonstrate that reasonable progress is being made towards using
the requested funds within a reasonable period of time after approval
of the AHP application, as determined by the Bank.
Section 960.12(c) of the proposed rule provides that the Bank shall
verify the efforts of the sponsor to determine whether it has satisfied
the requirement in paragraph (b).
Section 960.12(d) of the proposed rule provides that if the sponsor
fails to satisfy the requirement in paragraph (b), the Bank shall
cancel the AHP award, and shall not disburse any subsidized advances or
direct subsidies through the applicant to the sponsor, and the full
amount of any previously disbursed subsidized advances or direct
subsidies shall be returned to the Bank.
2. Calculation of AHP Subsidy
The Board is considering adopting rules on the calculation of AHP
subsidies for subsidized advances and specifically requests comments on
the following proposals. Under consideration is whether AHP application
approvals should commit to provide a dollar amount of subsidy, or
should commit to make a subsidized advance at a specific interest rate.
Another possibility is that the Bank can select on a case-by-case basis
to do one or the other or both but the choice must be specified in its
approval. The rule could require the Bank's AHP implementation plan to
describe the Bank's procedures in this area.
The Board specifically requests comments as to whether an AHP
approval should commit to provide a specific dollar amount of subsidy
for a subsidized advance. If interest rates rise after the approval,
should the interest rate on the subsidized advance be increased so that
the present value of the amount needed to subsidize the reduction in
interest rate is equal to the subsidy amount originally approved?
Should the applicant be given the option of either reducing the
principal amount of the loan and keeping the originally requested
interest rate unchanged, or increasing the interest rate on the loan
and keeping the principal amount of the loan unchanged? If interest
rates fall after the approval, should the specific dollar amount of
approved subsidy stay the same, or be adjusted?
Alternatively, if the AHP approval commits to make a subsidized
loan at a specified interest rate, then a number of issues are raised.
First, should the amount of the subsidy to be charged against the AHP
fund be calculated at the time the application is approved, or at the
time of disbursement. If the calculation is not done at the time the
application is approved but is done at the time of funding and interest
rates have fallen since the approval, the amount of the subsidy
provided to subsidize the advance would decrease and the amount of
subsidy charged against the AHP fund would decrease. If the calculation
is done at the time of funding and interest rates have risen since the
approval, the amount of the subsidy provided to subsidize the advance
would increase and the amount of subsidy charged against the AHP fund
would increase. If the increase in subsidy is permitted to be charged
against the AHP fund, should there be any limits on the amount of
increase in subsidy? If the amount that could be charged against the
AHP fund could be increased without limit, these charges could reduce
the amount of funds available for future cycles of AHP funding. One
option would be to put an upper limit, for example a specified number
of basis points, as the maximum amount by which additional AHP funds
would be provided to cover the interest rate increase. Another option
would be to approve the amount of the subsidy as well as the interest
rate on the advance at the time the advance is approved and permit the
subsidy to be increased up to a specified amount. Another issue is
whether funds from future AHP funding cycles should be used to pay for
increased subsidies due to interest rate increases. The Board
specifically requests comments on these options.
The Board is concerned about the calculation of subsidies where
non-amortizing subsidized advances are used by members to fund
amortizing AHP loans from members to sponsors. Since principal is
repaid on a different schedule for amortizing loans than non-amortizing
loans, the Banks must adjust their subsidy calculation methodologies to
ensure that they have properly adjusted for these differences. As AHP
principal is repaid to a member but not repaid to the Bank, the benefit
of these subsidized funds may not be passed on to the ultimate
borrower, as required in section 10(j)(9)(E) of the Act. See 12 U.S.C.
1430(j)(9)(E). Without proper adjustment for differences in the cash
flows for an amortizing loan and an interest-only advance, the amount
of subsidy actually received by a project will be less than the amount
incurred by the Bank as an AHP expense. The Board specifically requests
comments as to whether an amortizing advance structure is required to
assure that the subsidy amount incurred by the Bank as an AHP expense
matches the amount of the subsidy actually received by a sponsor. In
addition, the Board requests comments as to whether there are
alternative appropriate methods to deal with the discrepancy in the
subsidy amounts where such advances are used to fund amortizing loans.
3. Verification at Initial Disbursement of Subsidized Advances or
Direct Subsidies
Section 960.13 of the proposed rule provides that at the time of
initial disbursement of a subsidized advance or a direct subsidy by a
Bank for an approved AHP application, the Bank shall verify in writing
that the project complies with all applicable requirements contained in
proposed Sec. 960.9 and all obligations committed to in the approved
AHP application. The Bank shall verify the amount of subsidy being
provided in connection with the application and being charged against
the AHP fund. The Bank shall include in its AHP implementation plan its
verification procedures for such purposes.
I. Monitoring Requirements
Section 960.14 of the proposed rule sets forth the requirements for
monitoring AHP-assisted housing projects. Section 960.14 is intended to
implement the statutory requirement of section 10(j)(9)(C) of the Act,
which provides that the Board's regulations shall ensure that advances
made under the AHP be used only to assist projects for which adequate
long-term monitoring is available. See 12 U.S.C. 1430(j)(9)(C).
The Board's existing AHP regulation provides that each Bank must
monitor housing projects funded through its AHP. See 12 CFR 960.7(b).
Section 960.14(a) of the proposed rule carries forward this
requirement, and Sec. 960.14(e) through (h) of the proposed rule sets
forth the specific monitoring requirements for the Banks, which are
discussed further below. Section 960.14(b) of the proposed rule
provides that each Bank shall include in its AHP implementation plan an
explanation of how it intends to meet the monitoring requirements of
Sec. 960.14 of the proposed rule.
Under Sec. 960.14(c) of the proposed rule, a Bank may contract with
an applicant, a state housing finance agency, or another entity to
perform the tasks required to carry out the Bank's monitoring
responsibilities; however, the Bank remains ultimately responsible for
meeting the monitoring requirements set forth in Sec. 960.14 (e)
through (h) of the proposed rule. Thus, a Bank may decide in its
monitoring plan that applicants will have no long-term monitoring
responsibilities. Alternatively, the Bank may decide to require
applicants to perform long-term monitoring as a condition of approval
of an AHP award, or the Bank may determine what entity has the
responsibility for monitoring on a project-by-project basis.
1. Applicant Monitoring of Construction or Rehabilitation
Section 960.14(d) of the proposed rule adds a new requirement that
if a subsidized advance or direct subsidy is used to finance
construction or rehabilitation of a project, the Bank shall require the
applicant to monitor the construction or rehabilitation until
completion, and to make progress reports to the Bank. Where an
applicant finances construction or rehabilitation, the applicant
usually monitors the progress of the project in connection with
approving disbursements of funds to the borrower. Therefore, the Board
believes that where an applicant uses a subsidized advance or direct
subsidy to make loans for construction or rehabilitation of an AHP-
assisted project, the applicant is in the best position to monitor the
progress of such construction or rehabilitation and to make progress
reports to the Bank.
2. Bank Monitoring Requirements
Section 960.14 (e) through (h) of the proposed rule sets forth the
specific aspects of an AHP project that a Bank is required to monitor.
Section 960.14(e) of the proposed rule sets for the monitoring
responsibilities that are long-term in nature, as required by section
10(j)(9)(C) of the Act. See 12 U.S.C. 1430(j)(9)(C). Section 960.14(f)
and (h) of the proposed rule sets forth the short-term monitoring
responsibilities for compliance with the special needs and economic
mobility priorities. Section 960.14(g) sets forth the monitoring
responsibilities for the District Bank priority or priorities, which
may or may not be long-term, depending on the nature of the priority
selected by the Bank.
a. Monitoring of long-term requirements. Section 960.14(e) of the
proposed rule sets forth the requirements for monitoring the long-term
requirements for owner-occupied and rental housing projects assisted
under the AHP.
(i) Owner-occupied housing units. Section 960.14(e)(1)(i) of the
proposed rule provides that at the time a household enters into a
purchase contract for an AHP-assisted housing unit or by the closing on
the financing for such unit, or at the time a household that already
owns the housing unit receives a commitment of a loan or a grant
pursuant to the AHP, the Bank or its designee shall obtain a
certification from the sponsor that the household has an income at or
below the level committed to in the AHP application.
Section 960.14(e)(1)(ii)(A) of the proposed rule provides that
during the required long-term period applicable to an owner-occupied
housing unit assisted by a grant provided under the AHP, the Bank or
its designee shall monitor the unit to determine whether it has been
sold to a household with an income that exceeds the level committed to
in the AHP application.
The Board requests comments on two proposed options for
implementing this requirement. These options incorporate the use of
sampling to monitor AHP-assisted projects. The Board recognizes that as
the number of AHP-assisted projects in existence grows, the costs of
monitoring these projects may place an undue financial burden on the
Banks and the AHP. Monitoring AHP-assisted projects on a sample basis
may be one way to minimize the costs of monitoring while continuing to
meet the monitoring requirements of the Act.
Section 960.14(e)(1)(ii)(B) of the proposed rule proposes that
monitoring shall include, but is not limited to, periodic review of
relevant reports or certifications obtained from the sponsor, including
any reports or certifications received pursuant to
Sec. 960.15(c)(1)(ii) of the proposed rule and, at least on a sample
basis, periodic review of land title records at intervals determined by
the Bank, based on the amount of funds received by the project pursuant
to the AHP, the type and complexity of the project, or other factors
deemed relevant by the Bank.
An alternative option would be to require that the Bank only would
have to review land title records on a sample basis, as determined by
the Bank.
(ii) Rental housing projects. Section 960.14(e)(2)(i) of the
proposed rule provides that the Bank shall require an AHP-assisted
rental housing project to be subject to a deed restriction or other
legally enforceable mechanism which requires that upon sale of the
project prior to the end of the long-term period during which the
project's rental units, or portion thereof, must remain affordable for
and occupied by households with incomes at or below the level committed
to in the AHP application, the Bank or its designee must receive notice
of the sale, and:
(1) The project's rental units, or portion thereof, must continue
to be affordable for and occupied by households with incomes at or
below the levels committed to in the AHP application for the remainder
of the long-term period committed to in the AHP application, and the
purchaser agrees to be subject to the same restrictions on resale that
applied to the seller; or
(2) If the purchaser does not satisfy the requirements in (1)
above, and if the Bank provided a direct subsidy to the applicant which
was passed on as a grant to the seller, the seller must repay a pro
rata portion of the grant to the applicant, as provided in
Sec. 960.16(d)(1) of the proposed rule; or
(3) If the purchaser does not satisfy the requirements in (1)
above, and if the Bank provided a subsidized advance to the applicant
which in turn provided a below market rate loan to the seller, then the
provisions of Sec. 960.16(d)(2) shall apply.
Section 960.14(e)(2)(ii) of the proposed rule provides that upon
initial full occupancy of the units in an AHP-assisted rental housing
project or one year after initial disbursement of the subsidized
advance or direct subsidy, whichever occurs first, the Bank or its
designee shall obtain a certification from the sponsor or the owner
that the project's units, or portion thereof, are affordable for and
occupied by households with incomes at initial occupancy at or below
the levels committed to in the AHP application.
Section 960.14(e)(2)(iii)(A) of the proposed rule provides that
during the long-term period for which the units, or portion thereof, of
a rental housing project must remain affordable for and occupied by
households with incomes at or below the levels committed to in the AHP
application, the Bank or its designee shall monitor the project to
determine whether the project's units, or portion thereof, remain
affordable for and occupied by households with incomes at or below the
levels committed to in the AHP application. The Board requests comments
on several options for implementing this requirement.
Section 960.14(e)(2)(iii)(B) of the proposed rule proposes that
monitoring shall include, but is not limited to, periodic review of
relevant household income and rent reports or certifications obtained
from the sponsor or the owner and, at least on a sample basis, periodic
inspections of the project at intervals to be determined by the Bank,
based on the amount of AHP assistance received by the project, the type
and complexity of the project, and other factors deemed relevant by the
Bank.
Another option would be that where funds other than funds provided
under the AHP are the predominant source of financing for an AHP-
assisted rental housing project and the monitoring activities of such
other funding source are sufficient to determine the project's
compliance with the requirements of the AHP, as committed to in the AHP
application, the monitoring requirement would be deemed to be
fulfilled. However, if the monitoring activities of such other funding
source are not sufficient to determine the project's compliance with
the requirements of the AHP, as committed to in the AHP application,
the Bank would be required to monitor the project by conducting
inspections, at least on a sample basis, as determined by the Bank,
based on the amount of the funds received by the project under the AHP,
the type and complexity of the project, or other factors deemed
relevant by the Bank. In the alternative, if the monitoring activities
of such other funding source are not sufficient to determine the
project's compliance with the requirements of the AHP, as committed to
in the AHP application, could the Bank rely on monitoring activities of
the predominant funding source as long as it is monitoring for
compliance with requirements that are substantially similar to the AHP
requirements?
The Board specifically requests comments on how random sampling
could be used to monitor AHP-assisted rental housing projects to
determine whether, during the long-term period committed to in the AHP
application, the project's units continue to be affordable for and
occupied by households with incomes at or below the levels committed to
in the AHP application. For example, sampling could involve monitoring
a portion of AHP-assisted rental projects at fixed intervals. The
sampling method could be devised so that each project is monitored at
least once during the long-term period committed to in the AHP
application. Alternatively, the sampling method might be structured so
that some, but not all, AHP-assisted rental projects are monitored
during the long-term period committed to in the AHP application.
The Act requires that the AHP regulation must ensure that the AHP
will be used only to assist projects for which adequate long-term
monitoring is available to guarantee that affordability standards and
other requirements of the Act are satisfied. See 12 U.S.C.
1430(j)(9)(C). The Board requests comments as to whether it is
appropriate to interpret this requirement in a manner that permits
monitoring to be done by sampling that could result in some AHP-
assisted rental projects not being monitored during the long-term
period committed to in the AHP application. In addition, the Board
specifically requests comments on whether there are sampling techniques
that would ensure that each project is monitored in satisfaction of the
monitoring requirement in the Act.
b. Monitoring of special needs projects. Section 960.14(f) of the
proposed rule sets forth the requirements for monitoring a project that
commits to meet a special need pursuant to proposed Sec. 960.10(d)(3),
either through providing units for persons with a special need or
through providing a special service to occupants, as defined in the
Bank's AHP implementation plan. If an applicant commits to fund a
project that provides owner-occupied or rental housing units for
persons with a special need, as defined in the Bank's AHP
implementation plan, Sec. 960.14(f)(1) of the proposed rule requires
the Bank or its designee to obtain a certification from the sponsor or
the owner upon completion and occupancy of the project that the
project's units, or portion thereof, are occupied by persons with such
special need.
If an applicant in its AHP application commits to fund a project
that will provide a continuing special service to its occupants, as
defined in the Bank's AHP implementation plan, such as child care, job
training, medical care, or other services designed to meet the special
needs of occupants, then Sec. 960.14(f)(1) of the proposed rule
provides that the Bank or its designee shall obtain a certification
from the sponsor or owner upon completion and occupancy of the project
that the special service is being provided to the occupants, as
committed to in the AHP application.
Section 960.14(f)(2) of the proposed rule provides that, where an
applicant in its AHP application commits to fund a housing project that
will provide a continuing special service, the Bank or its designee
shall monitor the project, as determined by the Bank in its AHP
implementation plan, for at least one year from the date of initial
full occupancy of the project to verify that the special service
continues to be provided to the occupants, as committed to in the AHP
application.
c. Monitoring of District Bank priority or priorities. Section
960.14(g) of the proposed rule sets forth the requirement for
monitoring compliance with the District Bank priority or priorities
established pursuant to proposed Sec. 960.10(d)(4). Section
960.14(g)(1) of the proposed rule provides that if an applicant in its
AHP application commits to fund a project that meets a District Bank
priority or priorities, the Bank or its designee shall monitor the
project to verify that it continues to meet the priority or priorities.
Section 960.14(g)(2) of the proposed rule provides that the Bank shall
set forth in its AHP implementation plan the nature, frequency and
duration for monitoring compliance with the District Bank priority or
priorities.
d. Monitoring of economic mobility priority. Section 960.14(h) of
the proposed rule sets forth the requirement for monitoring compliance
with the economic mobility priority set forth under Sec. 960.5(d)(5) of
the proposed rule. Section 960.14(h) provides that if an applicant in
its AHP application commits to fund a project that meets the
requirements of Sec. 960.5(d)(5), the Bank or its designee shall obtain
a certification from the sponsor or the owner upon completion and full
occupancy of the project, as required under Sec. 960.15(c)(4), that the
sponsor or the owner has met such requirements, as committed to in the
AHP application.
J. Reporting Requirements
Section 960.15 of the proposed rule sets forth the reporting
requirements for the Banks, the applicants, and the sponsors or owners
of AHP-assisted projects. Section 960.15(a) of the proposed rule
provides that each Bank shall provide accurate and timely reports and
documentation to, and in the format requested by, the Board concerning
the Bank's AHP, as the Board may from time to time require. See 12 CFR
960.6(a).
1. Applicant Reporting Requirements
Section 960.15(b)(1) of the proposed rule carries forward the
requirement in the Board's existing AHP regulation that each Bank shall
require an applicant receiving a subsidized advance or direct subsidy
to report at least annually to the Bank on the manner in which it has
used the funds, with such reports continuing until the funds have been
fully disbursed by the applicant. See 12 CFR 960.6(b).
The proposed rule eliminates the requirement in the Board's
existing AHP regulation that the applicant certify that the AHP subsidy
has been passed through to the borrower and continues to be used for
approved purposes because, as discussed previously in the section on
monitoring requirements, under the proposed rule applicants are not
required to monitor the use of a subsidy in AHP-assisted projects,
except during the period when a subsidized advance or direct subsidy is
used to finance construction or rehabilitation of a project or where
the applicant has agreed to undertake monitoring. See 12 CFR 960.6(c).
Section 960.15(b)(2) of the proposed rule adds a new requirement
that if subsidized advances or direct subsidies are used to finance
construction or rehabilitation of an AHP-assisted project, the Bank
shall require the applicant to report to the Bank at reasonable
intervals determined by the Bank, and described in the Bank's AHP
implementation plan, on the progress of the construction or
rehabilitation, until completion. This reporting requirement coincides
with the requirement in Sec. 960.14(d) of the proposed rule that the
Bank shall require the applicant to monitor the construction or
rehabilitation of an AHP-assisted project and make progress reports to
the Bank where AHP subsidized advances or direct subsidies are used to
finance such construction or rehabilitation.
2. Sponsor and Owner Reporting Requirements
Section 960.15(c) of the proposed rule sets forth the reporting
requirements for sponsors and owners. These requirements coincide with
the monitoring requirements set forth in Sec. 960.14(e) through (h) of
the proposed rule. Section 960.15(c)(1)(i) of the proposed rule
provides that where a subsidized advance or direct subsidy is used to
finance the purchase of an owner-occupied housing unit, the Bank shall
require the sponsor to certify at the time a household enters into a
purchase contract for such unit or at the closing on the financing for
such unit that the unit has been sold to a household with an income at
or below the level committed to in the AHP application. Where a
subsidized advance or direct subsidy is used to finance the
rehabilitation of an owner-occupied housing unit, the Bank shall
require the sponsor to certify at the time a loan or grant is committed
to fund such rehabilitation that the household that owns and occupies
the unit has an income at or below the level committed to in the AHP
application.
Section 960.15(c)(1)(ii) of the proposed rule provides that if an
owner-occupied housing unit assisted by a grant provided under the AHP
is not subject to a deed restriction or other legally enforceable
mechanism restricting transfer of ownership to a household with an
income at or below the level committed to in the AHP application, the
Bank shall require the sponsor to report to the Bank or its designee,
at least annually for the required long-term period, the number of any
such units that are sold to households whose incomes exceed the level
committed to in the AHP application, and to certify to the Bank that it
is continuing to satisfy its commitment pursuant to its legally binding
agreement with the Bank.
Section 960.15(c)(2) of the proposed rule provides that the Bank
shall require the sponsor or the owner to certify upon initial full
occupancy of the units in an AHP-assisted rental housing project, but
no later than one year after initial disbursement of the subsidized
advance or direct subsidy, and annually thereafter, that the project's
units, or portion thereof, are affordable for and occupied by
households with incomes at or below the levels committed to in the AHP
application.
Section 960.15(c)(3) of the proposed rule provides that if an
applicant in its AHP application commits to fund a project that will
provide housing units for persons with a special need, or will provide
a continuing special service to occupants pursuant to Sec. 960.10(d)(3)
of the proposed rule, the Bank shall require the sponsor or the owner
to certify upon completion and full occupancy of the project that the
project's units, or portion thereof, are occupied by persons with such
special needs or that a special service is being provided to occupants,
as committed to in the AHP application.
Section 960.15(c)(4) of the proposed rule provides that if an
applicant in its AHP application commits to fund a housing project that
meets the requirements of the economic mobility priority under
Sec. 960.10(d)(5) of the proposed rule, the Bank shall require the
sponsor or the owner to certify upon completion and full occupancy of
the project that the sponsor or owner has met such requirements, as
committed to in the AHP application.
Section 960.15(d) of the proposed rule provides that each Bank
shall require applicants or sponsors to provide such other reports to
the Bank, in addition to the reports and documentation required by
Sec. 960.15 of the proposed rule, as the Bank deems necessary in order
to fulfill its monitoring obligations under Sec. 960.14 of the proposed
rule.
K. Corrective and Remedial Actions for Fraud or Non-Compliance With AHP
Requirements
Section 10(j) of the Act is silent on what specific corrective and
remedial actions should be imposed when there is fraud or non-
compliance with the requirements of the AHP. See 12 U.S.C. 1430(j).
Accordingly, the Board has the discretion to determine, as a matter of
policy, what those requirements should be.
The Board's existing AHP regulation provides that, where funds
provided under the AHP will not be or are no longer being used for
their approved purposes, the amount of committed but unused subsidy or
improperly used subsidy shall be recovered and made available by the
Bank for future AHP projects. See 12 CFR 960.8(a). The existing
regulation requires the Bank, in recapturing such funds, to take any or
all of the following actions, without limitation on other remedies, in
its discretion:
a. Reprice the advance at the interest rate charged to members on
non-subsidized advances of comparable type and maturity at the time of
the original advance;
b. Call the advance;
c. Assess a prepayment fee; or
d. Require the member to reimburse the Bank for the amount of the
unused or improperly used subsidy on the advance or other assistance.
Id. Sec. 960.8(b). In addition, some Banks have adopted procedures
that require a direct subsidy to be converted to an advance if the
project is found to be in non-compliance with the requirements of the
AHP regulation.
A number of concerns have been raised about this recapture
requirement. First, it may not be equitable to require the applicant to
reimburse the Bank when it is the sponsor that is in non-compliance
with the AHP requirements. Second, requiring recapture of the AHP
subsidy could in some situations result in the applicant having to
foreclose against a property in order to recover the funds to repay an
advance to the Bank, thereby eliminating affordable housing units even
when only a few of the units in the project may be out of compliance
with AHP requirements.
In short, it has become clear through the operation of the AHP that
the recapture remedy may not be the appropriate remedial action in all
circumstances. Other less severe remedial actions may be more
appropriate depending on the nature of the non-compliance that has
occurred. In addition, the remedial actions should be directed only at
the parties that are in non-compliance. Accordingly, the proposed rule
contains provisions that tailor the remedial actions required to the
nature of the non-compliance and the party committing the non-
compliance, which are discussed further below.
1. Fraud or Willful Non-Compliance
Fraud and willful non-compliance are the most extreme examples of
non-compliance with the AHP requirements. Accordingly, the proposed
rule applies the most severe remedial actions--exclusion or suspension
from future participation in the AHP and recovery of the full amount of
the AHP subsidy--to parties that have committed fraud or are in willful
non-compliance with respect to the AHP requirements.
Specifically, Sec. 960.16(a)(1) of the proposed rule provides that
in the event of an applicant's, sponsor's or owner's fraud with respect
to the AHP requirements, the Bank shall exclude the applicant, sponsor
or owner, respectively, on a permanent basis, from future participation
in the AHP. In the event of an applicant's, sponsor's or owner's
willful non-compliance with the AHP requirements, the Bank shall
suspend the applicant, sponsor or owner, respectively, at least on a
temporary basis, from future participation in the AHP during the period
such willful non-compliance continues, and may exclude such party
permanently from future participation in the AHP. The Board
specifically requests comments as to whether the Banks should be able
to determine whether fraud or willful non-compliance has occurred, or
whether such determination should be made by the Board, or by either
the Bank or the Board.
In addition, Sec. 960.16(a)(2) of the proposed rule provides that
in the event of an applicant's fraud or willful non-compliance with
respect to the AHP requirements, the Bank shall recover from the
applicant the full amount of the AHP subsidy provided to the project.
Section 960.16(a)(3)(i) of the proposed rule provides that in the
event of a sponsor's or owner's fraud or willful non-compliance with
respect to the AHP requirements, the full amount of the AHP subsidy
shall be recovered from the sponsor or owner by the applicant and
returned to the Bank or, if previously agreed to by the Bank, shall be
recovered by the Bank from the sponsor or owner. If efforts to recover
the AHP subsidy from the sponsor or owner are unsuccessful, the
applicant shall not be liable for such funds.
In order to be able to implement this recapture requirement, the
applicant is required, under proposed Sec. 960.16(a)(3)(ii), to have in
place either:
(1) A legally binding agreement or other legally enforceable
mechanism that permits it to recover these funds from the sponsor or
owner; or
(2) If the Bank agrees and such an agreement is legally
enforceable, a three-party agreement that includes the Bank, the
sponsor or owner and the applicant that permits the Bank to recover
these funds from the sponsor or owner.
Section 960.16(a)(4) of the proposed rule provides that the Board
in its discretion may grant a waiver of any required remedial actions
under this paragraph (a) upon written request by the Bank, applicant,
sponsor or owner.
2. Other Types of Non-Compliance
Non-compliance by a party with the AHP requirements, such as due to
inadvertent errors by such party or changes in circumstances that are
outside such party's control, does not warrant imposition of the most
severe remedial actions since the party lacked the intent to violate
such requirements. In addition, in many such cases, the non-compliance
can be rectified within a reasonable period of time.
Accordingly, Sec. 960.16(b) of the proposed rule provides that in
the event of inadvertent non-compliance by an applicant, sponsor or
owner, the Bank shall provide such party with a reasonable period of
time in which to take reasonable efforts, pursuant to a compliance plan
approved by the Bank, to remedy the non-compliance. The Bank in its
discretion may exclude such party from participation in the AHP while
it is under a compliance plan, or in its discretion may require the
applicant to increase the long-term period committed to in its AHP
application for the project by the amount of time the project has been
in non-compliance.
Section 960.16(b) of the proposed rule further provides that if the
applicant, sponsor or owner takes no reasonable efforts to comply with
the compliance plan, then such party is in willful non-compliance with
the requirements of this part and is subject to the remedial actions
contained in paragraph (a) of this section. If the applicant, sponsor
or owner takes reasonable efforts pursuant to the compliance plan to
remedy the non-compliance under paragraph (b) and such efforts are
unsuccessful, the applicant, sponsor or owner would be subject to the
remedial actions for fraud or willful non-compliance, but may apply to
the Bank for a waiver of any such required remedial actions. The Bank
shall report to the Board in writing on any waivers approved pursuant
to paragraph (b) within 30 calendar days of such approval.
3. Sale of AHP-assisted Owner-Occupied Housing Unit to Income-
Ineligible Household
a. Recapture requirement. Section 960.16(c) of the proposed rule
provides generally that in the event that a household sells its AHP-
assisted owner-occupied housing unit to a household whose income
exceeds the level committed to in the AHP application prior to the end
of the required long-term period, then:
(i) If the Bank provided a direct subsidy to the applicant which
was passed on as a grant to the seller, the Bank shall require the
seller to repay a pro rata share, except for de minimis amounts, of the
grant received by such seller. The amount to be repaid shall be reduced
for every year the seller owned the unit, to be repaid from any net
gain from the sale of the unit after deduction for sales expenses, and
to be returned to the Bank. The proposed rule provides, however, that
the Bank in its discretion may waive such requirement if the imposition
of such requirement will cause undue hardship on the seller, as defined
by the Bank in its AHP implementation plan; or
(ii) If the Bank provided a subsidized advance to the applicant and
the applicant provided a below market rate loan to the seller, then the
applicant shall either repay to the Bank that portion of the advance
used to make the loan to the seller or the Bank shall convert that
portion of the advance used to make the loan to the seller to a market
rate advance with an interest rate equal to the market rate of interest
at the time the advance was made, and any unused AHP subsidy which had
been set aside by the Bank to subsidize that portion of the advance
used to make the loan to the seller shall be made available by the Bank
for additional AHP projects.
b. Exception to recapture requirement. Section 960.16(c)(3) of the
proposed rule provides that the recapture requirements described above
shall not apply provided the sponsor, pursuant to a legally binding
agreement with the Bank, assists another household with an income at or
below the level committed to in the AHP application in the manner
originally committed to in the AHP application.
This alternative approach is discussed in greater detail above
under the monitoring section.
4. Sale of AHP-Assisted Rental Housing Project
Section 960.16(d) of the proposed rule provides that in the event
that the owner of an AHP-assisted rental housing project sells the
project prior to the end of the long-term period during which the
project's rental units, or portion thereof, must remain affordable for
and occupied by households with incomes at or below the levels
committed to in the AHP application, and the purchaser does not agree
to maintain the project according to such commitments and to be subject
to the same restrictions on resale that applied to the seller, then:
(i) If the Bank provided a direct subsidy to the applicant which
was passed on as a grant to the seller, the Bank shall require the
seller to repay a pro rata share, except for de minimis amounts, of the
grant received by such seller, reduced for every year the seller owned
the unit, to be repaid from any net gain from the sale of the project
after deduction for sales expenses, and to be returned to the Bank,
except that the Bank in its discretion may waive such requirement if
the imposition of such requirement will cause undue hardship on the
seller, as defined by the Bank in its AHP implementation plan; or
(ii) If the Bank provided a subsidized advance to the applicant and
the applicant provided a below market rate loan to the seller, then the
applicant shall either repay the advance to the Bank or the Bank shall
convert the advance to a market rate advance with an interest rate
equal to the market rate of interest at the time the advance was made,
and any unused AHP subsidy which had been set aside by the Bank to
subsidize the advance shall be made available by the Bank for
additional AHP projects.
L. AHP Applications Involving Loan Funds and Loan Consortia
Section 960.17 of the proposed rule sets forth specific
requirements governing the use of loans and grants received by loan
funds and loan consortia pursuant to the AHP. The Board's existing AHP
regulation does not address specifically the use of loans or grants by
loan funds or loan consortia pursuant to the AHP. See 12 CFR part 960.
However, the Board has adopted policy guidelines for the Banks
governing the award of subsidized advances and direct subsidies to
applicants that then make loans or grants to loan funds and loan
consortia (policy guidelines). See Board Resolution No. 93-54, June 23,
1993. The provisions in Sec. 960.17 of the proposed rule, if adopted in
final form by the Board, would incorporate the policy guidelines, with
some modifications.
Section 960.17(a)(1) of the proposed rule provides generally that
an applicant may use a subsidized advance or a direct subsidy to make a
loan or a grant to a loan fund or loan consortium. Section 960.17(a)(2)
of the proposed rule provides that AHP applications involving the use
of loans or grants by loan funds or loan consortia are governed by the
provisions of part 960, except as provided in Sec. 960.17 of the
proposed rule.
Section 960.17(b) of the proposed rule provides that the
requirements for approval of an AHP application that proposes to use
subsidized advances or direct subsidies to make a loan or a grant to a
loan fund or loan consortium are the same as the requirements for
approval applicable to all other AHP applications under Sec. 960.8 of
the proposed rule, except that an AHP application that involves a loan
fund or loan consortium will be scored on the criteria that the loan
fund or loan consortium proposes to use to select projects that will
ultimately receive a loan or grant from the loan fund or loan
consortium that is subsidized by the AHP.
This provision is intended to address the fact that loan funds and
loan consortia do not have specific proposed projects in place at the
time they apply for funds under the AHP. Section 960.17(b)(1) of the
proposed rule therefore requires the Banks to score AHP applications
involving loan funds or loan consortia based on the criteria that the
loan fund or loan consortium commits to use when selecting the projects
it will fund. This provision carries forward a requirement of the
Board's existing policy guidelines.
In addition, Sec. 960.17(b)(2) of the proposed rule provides that
the Bank shall review and shall require the applicant to review each
new rental housing project funded by a loan fund or loan consortium
prior to disbursing a loan or grant to ensure that the project meets
the threshold requirements of Sec. 960.9 of the proposed rule and the
project selection criteria committed to in the approved AHP
application.
This is a change from the provision in the Board's existing policy
guidelines that requires the Bank and the applicant to review both
rental and owner-occupied housing projects prior to funding by a loan
fund or loan consortium under the AHP. This change is intended to
eliminate duplicative review of loan fund or loan consortium activities
where funds are used to finance owner-occupied housing units under the
AHP. However, since rental housing projects are more complex than
owner-occupied housing projects, the Board believes that the applicant
and the Bank should continue to review each rental housing project
funded by a loan fund or loan consortium prior to disbursement of any
funds to ensure that the project meets the feasibility, maximum
subsidy, and other threshold requirements of Sec. 960.9 of the proposed
rule.
Section 960.17(c)(1) of the proposed rule carries forward the
requirement in the Board's existing policy guidelines that if an
applicant receives a subsidized advance and uses the proceeds of the
advance to make a loan to a loan fund or loan consortium, the total
value of the interest rate subsidy must be passed on to the borrower of
the funds. Thus, Sec. 960.17(c)(1) provides that a loan fund or loan
consortium shall extend credit to the borrower at a rate of interest
equal to the rate of interest charged on the subsidized advance plus a
reasonable interest rate spread approved by the Bank. The applicant and
the loan fund or loan consortium may determine between themselves what
proportion of the interest rate spread the applicant and the loan fund
or loan consortium will share.
Section 960.17(c)(2)(i) of the proposed rule provides that a loan
fund or loan consortium that receives a grant from an applicant
pursuant to the AHP must either:
(A) Pass the entire grant on to the recipient;
(B) Use the entire grant to lower the interest rate on a loan to
the borrower; or
(C) Lend the entire grant to the borrower to finance a rental
housing project for a term of not less than 30 years, with all
principal and interest payments deferred until the end of such term. If
such loan is repaid before the end of the 30-year term, the entire
amount of the grant must be repaid to the applicant, which in turn must
forward the funds to the Bank to be used for additional AHP projects.
This is a change from the provision in the Board's existing policy
guidelines that prohibits a loan fund or loan consortium from using a
grant from an applicant to make a loan to the borrower. The Board
believes that if a loan fund or loan consortium lends a grant to a
sponsor to finance rental housing units that will remain affordable for
and occupied by income-eligible households for not less than 30 years,
with all principal and interest payments deferred until the end of the
loan term, then the loan fund or loan consortium has passed on the full
amount of the AHP subsidy to the recipient or borrower of the funds, as
required by section 10(j)(9)(E) of the Act. See 12 U.S.C.
1430(j)(9)(E). However, if the borrower repays the loan before
maturity, the entire amount of the subsidy must be repaid to the
applicant and forwarded by the applicant to the Bank to be returned to
the AHP fund. Therefore, a loan fund or loan consortium may use a grant
under the AHP to make a loan to the borrower under the conditions
specified in Sec. 960.17(c)(2)(i)(C) of the proposed rule.
Section 960.17(c)(2)(ii) of the proposed rule provides that if a
loan fund or loan consortium provides both a loan and a grant to the
borrower and the loan fund or loan consortium charges an origination
fee for providing the loan, then any fee charged by the loan fund or
loan consortium for providing the grant may not be paid with AHP
subsidized advances or direct subsidies. The Board does not believe
that such funds should be used to pay a fee for providing a grant to a
project if the loan fund or loan consortium charges a fee for
underwriting a loan to the same project.
Section 960.17(c)(2)(iii) of the proposed rule provides that when a
loan fund or loan consortium receives a grant from an applicant
pursuant to the AHP and uses the grant to lower the interest rate on a
loan to the borrower, the interest rate calculation must be consistent
with the procedure used by the Bank for calculating the amount of AHP
subsidy needed for a subsidized advance, taking into account the source
of funds used by the loan fund or loan consortium for its loans and the
rate that normally would be charged for a loan of the type and term
that is provided to the borrower.
Section 960.17(c)(3) of the proposed rule provides that any
interest or other income earned by a loan fund or loan consortium on a
loan or a grant received from an applicant, other than any approved fee
or interest rate spread charged to the borrower, either (i) must be
used by the loan fund or loan consortium to provide funds for
additional projects meeting the threshold requirements in Sec. 960.9 of
the proposed rule and the criteria committed to in the approved AHP
application, or (ii) must be forwarded to the applicant, which in turn
must forward the funds to the Bank to be used for additional AHP
projects. This is a change from the provision in the Board's existing
policy guidelines that allows loan funds and loan consortia to earn and
retain de minimis amounts of income on loans or grants received from
applicants. The Board believes that accounting for de minimis amounts
of interest or other income earned on loans or grants received from an
applicant is no less of an administrative burden than accounting for
all such interest or other income earned. Therefore, the proposed rule
requires all interest or other income earned on loans or grants
received from an applicant to be used by the loan fund or loan
consortium for additional AHP projects or returned to the applicant.
Section 960.17(c)(4) of the proposed rule provides that if loans or
grants received by a loan fund or loan consortium pursuant to one AHP
funding cycle are combined with loans or grants received by such entity
pursuant to another AHP funding cycle in a single rental housing
project, the loan fund or loan consortium shall require the recipient
of the funds to follow the requirements for the use of such funds from
the AHP funding cycle that is more restrictive as to the approved AHP
criteria. This requirement does not apply when loans or grants received
by a loan fund or loan consortium pursuant to separate AHP funding
cycles are combined to finance a single owner-occupied housing project.
The reason for this provision is that funds are more easily traceable
to separate units in an owner-occupied housing project than to separate
units in a rental housing project. Therefore, for purposes of owner-
occupied housing projects, it is possible to use loans or grants from
different AHP funding cycles according to the different criteria
approved by the Bank in each of the respective funding cycles. However,
the loan fund or loan consortium in its discretion may require the
recipient of the funds to follow the requirements for the use of such
funds from the AHP funding cycle that is more restrictive as to the
approved AHP criteria.
Section 960.17(c)(5) of the proposed rule provides that any loans
provided by a loan fund or loan consortium pursuant to the AHP that are
repaid to such entity must be re-lent or provided as grants by such
entity within a reasonable period of time after such repayments, or
must be repaid to the applicant, which in turn must repay such funds to
the Bank, and must be made available by the Bank for additional AHP
projects. The Bank shall in its AHP implementation plan identify what
constitutes a reasonable period of time for such purposes.
Section 960.17(d) of the proposed rule sets forth the monitoring
and reporting requirements where an applicant makes loans or grants
pursuant to the AHP to a loan fund or loan consortium which uses the
funds to finance owner-occupied or rental housing units. Section
960.17(d)(1)(i) of the proposed rule requires the Bank to monitor such
units, according to the monitoring requirements of Sec. 960.14(e)
through (h) of the proposed rule, to determine compliance with the
long-term requirements, as well as compliance with the special needs
priority, the District Bank priority or priorities, and the economic
mobility priority, where applicable. In addition, Sec. 960.17(d)(1)(ii)
of the proposed rule provides that the Bank shall require the sponsor
or owner of a project receiving a loan or grant from the loan fund or
loan consortium to submit to the Bank such reports and certifications
as are required under Sec. 960.15(c) of the proposed rule. Section
960.17(d)(1)(iii) of the proposed rule provides that the Bank shall
require the loan fund or loan consortium to report to the Bank any new
loan or grant made using repayments of loans by the borrower. If a loan
fund or loan consortium receives loans or grants from an applicant
pursuant to separate AHP funding cycles, the use of such funds must be
reported separately.
Section 960.17(d)(2) of the proposed rule provides that the Bank
may contract with either the applicant or the loan fund or loan
consortium to meet the monitoring requirements of Sec. 960.14(e)
through (h). Under Sec. 960.17(d)(2)(i) of the proposed rule, if the
Bank contracts with the applicant to meet such monitoring requirements,
the Bank shall require the applicant to monitor the AHP-assisted
housing units according to the monitoring requirements of
Sec. 960.14(e) through (h) of the proposed rule. The Bank also shall
require the applicant to require the sponsor or owner of the project to
submit to the applicant such reports and certifications as are required
under Sec. 960.15(c) of the proposed rule. In addition, the applicant
shall require the loan fund or loan consortium to report to the
applicant any new loan or grant made using repayments of loans by the
borrower. If a loan fund or loan consortium receives loans or grants
from an applicant pursuant to separate AHP funding cycles, the use of
such funds must be reported separately.
Under Sec. 960.17(d)(2)(ii) of the proposed rule, if the Bank
contracts with the loan fund or loan consortium to meet the monitoring
requirements in Sec. 960.14(e) through (h) of the proposed rule, the
Bank shall require the loan fund or loan consortium to monitor the AHP-
assisted housing units according to the monitoring requirements of
Sec. 960.14(e) through (h) of the proposed rule. The Bank also shall
require the loan fund or loan consortium to require the sponsor or
owner of the project to submit to the loan fund or loan consortium such
reports and certifications as are required under Sec. 960.15(c) of the
proposed rule. In addition, the loan fund or loan consortium shall
report to the Bank any new loan or grant made using repayments of loans
by the borrower. If a loan fund or loan consortium receives loans or
grants from an applicant pursuant to separate AHP funding cycles, the
use of such funds must be reported separately.
The monitoring and reporting requirements in Sec. 960.17(d) of the
proposed rule are a change from the provisions on monitoring and
reporting in the Board's existing policy guidelines, which require the
applicant to monitor the loan fund or loan consortium and require the
Bank to monitor the applicant. This change is intended to conform the
monitoring and reporting requirements for projects involving loan funds
or loan consortia with the proposed monitoring and reporting
requirements applicable to AHP-assisted housing projects generally
under Secs. 960.14 and 960.15 of this proposed rule.
Section 960.17(e)(1) of the proposed rule provides that a loan fund
or loan consortium receiving loans or grants from applicants pursuant
to the AHP and the project sponsors and owners receiving loans or
grants from loan funds or loan consortia are subject to the corrective
and remedial actions contained in Sec. 960.16 of the proposed rule for
fraud and non-compliance with respect to the AHP requirements.
Section 960.17(e)(2)(i) of the proposed rule provides that in the
event of a loan fund's or loan consortium's fraud or willful non-
compliance with respect to the requirements of this part, the full
amount of the AHP subsidy shall be recovered from the loan fund or loan
consortium by the applicant and returned to the Bank, or if previously
agreed to by the Bank, shall be recovered by the Bank from the loan
fund or loan consortium.
Section 960.17(e)(2)(ii) of the proposed rule requires an applicant
that provides a loan or a grant to a loan fund or loan consortium
pursuant to the AHP to have in place either:
(1) A legally binding agreement or other legally enforceable
mechanism that permits the applicant to recover from the loan fund or
loan consortium, in the event of fraud or willful non-compliance by the
loan fund or loan consortium with respect to the AHP requirements, the
full amount of the AHP subsidy; or
(2) If the Bank agrees and such an agreement is legally
enforceable, a three-party agreement that includes the Bank, the
applicant, and the loan fund or loan consortium, that permits the Bank
to recover from the loan fund or loan consortium, in the event of fraud
or willful non-compliance by the loan fund or loan consortium with
respect to the AHP requirements, the full amount of the AHP subsidy.
Section 960.17(e)(3)(i) of the proposed rule provides that in the
event of a sponsor's or owner's fraud or willful non-compliance with
respect to the AHP requirements, the full amount of the AHP subsidy
shall be recovered by the loan fund or loan consortium from the sponsor
or owner to be used for additional AHP projects.
Section 960.17(e)(3)(ii)(A) of the proposed rule provides that the
loan fund or loan consortium shall have in place a legally binding
agreement or other legally enforceable mechanism that permits it to
recover from the sponsor or owner the full amount of the AHP subsidy
provided to the project in the event of the sponsor's or owner's fraud
or willful non-compliance with respect to the AHP requirements, and the
applicant shall have in place a legally binding agreement or other
legally enforceable mechanism that permits it to recover from the loan
fund or loan consortium such amount recovered by the loan fund or loan
consortium from the sponsor or owner.
Section 960.17(e)(3)(ii)(B) of the proposed rule also provides that
the applicant shall have in place, if the Bank agrees and such
agreement is legally enforceable, a four-party agreement that includes
the Bank, the applicant, the loan fund or loan consortium, and the
sponsor or owner, that permits the Bank to recover from the sponsor or
owner the full amount of the AHP subsidy provided to the project in the
event of the sponsor's or owner's fraud or willful non-compliance with
respect to the AHP requirements.
Section 960.17(e)(4) of the proposed rule provides that the Board
in its discretion may grant a waiver of any required remedial actions
for fraud or willful non-compliance with respect to the AHP
requirements, upon written request by the Bank, applicant, loan fund or
loan consortium, sponsor or owner.
M. Required Annual AHP Contributions
Section 960.18 of the proposed rule requires each Bank to fund its
AHP annually in accordance with the formula set forth in section
10(j)(5) of the Act. See 12 U.S.C. 1430(j)(5). Proposed Sec. 960.18 is
consistent with Sec. 960.10 of the Board's existing AHP regulation,
except for minor wording changes and deletion of language regarding
required funding in 1990 through 1993 which is no longer necessary. See
12 CFR 960.10.
Specifically, proposed Sec. 960.18 provides that each Bank shall
fund its AHP in accordance with the following formula:
(a) In 1994, the greater of:
(1) 6 percent of the Bank's net earnings for the previous year; or
(2) That Bank's pro rata share of an aggregate of $75 million to be
contributed in total by the Banks, such proration being made on the
basis of the net earnings of the Banks for the previous year.
(b) In 1995 and each year thereafter, the greater of:
(1) 10 percent of the Bank's net earnings for the previous year; or
(2) That Bank's pro rata share of an aggregate of $100 million to
be contributed in total by the Banks, such proration being made on the
basis of the net earnings of the Banks for the previous year.
The term ``net earnings of a Bank'' is defined in proposed
Sec. 960.1. The definition has been revised from the definition in the
Board's existing AHP regulation in order to more accurately track its
definition in section 10(j)(8) of the Act. See 12 CFR 960.1(j); 12
U.S.C. 1430(j)(8).
N. Temporary Suspension of AHP Contributions
Section 960.19 of the proposed rule sets forth the provisions
governing temporary suspensions by Banks of their required annual AHP
contributions. A number of revisions have been made to this section in
the Board's existing AHP regulation in order to more accurately track
the language in section 10(j)(6) of the Act concerning this section and
to provide greater clarity. See 12 CFR 960.11; 12 U.S.C. 1430(j)(6).
1. Application for Temporary Suspension
Section 960.19(a)(1) of the proposed rule provides that if a Bank
finds that the contributions required pursuant to proposed Sec. 960.18
are contributing to the financial instability of the Bank, the Bank
shall notify the Board promptly, and may apply in writing to the Board
for a temporary suspension of such contributions.
Section 960.19(a)(2) of the proposed rule provides that a Bank's
application for a temporary suspension of contributions shall:
(i) State the period of time for which the Bank seeks a suspension;
(ii) State the grounds for a suspension;
(iii) Include a plan for returning the Bank to a financially stable
position; and
(iv) Be accompanied by the Bank's preceding year's annual financial
report, if available, and the Bank's most recent quarterly and monthly
financial statements and any other financial data the Bank wishes the
Board to consider.
The requirement in paragraph (ii) above is not explicitly required
in the Board's existing AHP regulation. See 12 CFR 960.11(a).
Paragraph (iv) above adds to the Board's existing regulation that
the Bank may include any other financial data it wishes the Board to
consider.
2. Board Review of Application for Temporary Suspension
a. Grounds for approval of application. Section 960.19(b)(1) of the
proposed rule provides that, in reviewing a Bank's application for a
temporary suspension of contributions to determine the Bank's financial
instability, the Board shall consider the following factors:
(i) Whether the Bank's earnings are severely depressed. This
language was added to track the statutory standard in section 10(j)(6)
of the Act. See 12 U.S.C. 1430(j)(6). In addition, the Board shall
consider the extent to which the Bank's quarterly or annual net
earnings have decreased from the preceding quarter or year, and whether
such decline is projected to continue;
(ii) Whether there has been a substantial decline in the Bank's
membership capital. The Board shall consider the extent to which the
Bank's paid-in membership capital has declined in any given quarter or
year, and whether such decline is projected to continue;
(iii) Whether there has been a substantial reduction in the Bank's
advances outstanding. The Board shall consider the extent to which the
Bank's level of advances has declined in any given quarter or year, and
whether such decline is projected to continue; and
(iv) Whether any other financial condition exists with respect to
the Bank which has resulted in, or is likely to result in, the
financial instability of the Bank.
b. Limitations on grounds for approval of application. Section
960.19(b)(2) of the proposed rule provides that the Board shall
disapprove an application for a temporary suspension if it determines
that the Bank's reduction in earnings is a result of:
(i) A change in the terms of advances (other than subsidized
advances) to members which is not justified by market conditions;
(ii) Inordinate operating and administrative expenses; or
(iii) Mismanagement.
The ``reduction in earnings'' language replaces the term
``financial instability'' used in the Board's existing regulation,
because the former is the term used in the Act. See 12 CFR 960.11(c);
12 U.S.C. 1430(j)(6).
In addition, the requirement in Sec. 960.11(c)(5) of the Board's
existing regulation that the Bank shall disapprove an application if
for any other reason the temporary suspension is not warranted, is
deleted in the proposed rule because it is not required by the Act, and
limits the Board's discretion to balance reasons warranting approval of
an application for a temporary suspension. See 12 CFR 960.11(c)(5); 12
U.S.C. 1430(j)(6).
3. Board Decision
Section 960.19(c) of the proposed rule provides that the Board
shall approve or disapprove a Bank's application for a temporary
suspension within 30 calendar days of receipt of such application, and
the Board's decision shall be in writing and shall be accompanied by
specific findings and reasons for its action. A copy of the Board's
decision shall be forwarded to each of the Banks.
4. Board Approval of Application for Temporary Suspension
Section 960.19(d)(1) of the proposed rule provides that if the
Board approves a Bank's application for a temporary suspension, the
Board's written decision shall specify the period of time such
suspension shall remain in effect.
Section 960.19(d)(2) of the proposed rule provides that during the
term of a temporary suspension approved by the Board, the affected Bank
shall provide to the Board such financial reports as the Board shall
require to monitor the financial condition of the Bank, and the Board
shall continue to monitor the Bank's financial condition. The
requirement that the Board shall monitor the Bank's financial condition
is added because it is required by the Act. See 12 U.S.C.
1430(j)(6)(D).
Section 960.19(d)(3) of the proposed rule provides that if, prior
to the conclusion of the temporary suspension period, the Board
determines that the Bank has returned to a position of financial
stability, the Board may, upon written notice to the Bank, terminate
the temporary suspension.
5. Application for Extension of Temporary Suspension Period
Section 960.19(e)(1) of the proposed rule provides that if a Bank's
board of directors determines that the Bank has not returned to, or is
not likely to return to, a position of financial stability at the
conclusion of the temporary suspension period, the Bank may apply in
writing for an extension of the temporary suspension period, stating
the grounds for such extension.
Proposed Sec. 960.19(e)(2) provides that the Board shall approve or
disapprove a Bank's application for an extension of a temporary
suspension period within 30 calendar days of receipt of such
application.
Proposed Sec. 960.19(e)(3) provides that the Board's decision on an
application for an extension of a temporary suspension period shall be
in writing, shall be accompanied by specific findings and reasons for
such action, and shall state the effective date and time period if an
extension is approved.
6. Notice to Congress
Section 960.19(f)(1) of the proposed rule provides that the Board
shall notify the Committee on Banking, Finance and Urban Affairs of the
House of Representatives and the Committee on Banking, Housing and
Urban Affairs of the Senate not less than 60 calendar days before any
temporary suspension (or extension of such suspension) approved
pursuant to this section takes effect.
Deleted from this provision is the requirement in the Board's
existing regulation that a copy of the Board's suspension decision
shall be forwarded to the Congress since, as discussed above, the Act
only requires that the Board provide notice to Congress of the
suspension decision. See 12 CFR 960.11(f); 12 U.S.C. 1430(j)(6)(F).
Proposed Sec. 960.19(f)(2) provides that a temporary suspension (or
extension of such suspension) shall become effective as determined by
the Board, unless a joint resolution of Congress is enacted
disapproving such suspension (or extension thereof). The proposed rule
deletes the provision in the Board's existing regulation that a
temporary suspension extension may not take effect until at least 30
days after the Board gives the required notice to Congress, because
this is inconsistent with the requirement in the existing regulation
that the Board must notify the Congress at least 60 days before such
extension takes effect. See 12 CFR 960.11(g).
Proposed Sec. 960.19(f)(2) also deletes from the Board's existing
regulation the requirement that a joint resolution of Congress
disapproving a suspension or extension of a suspension must be enacted
prior to the Board's determined effective date, in order to track more
closely the actual language in the Act. See 12 U.S.C. 1430(j)(6)(F).
O. Affordable Housing Reserve Fund
Consistent with the Board's existing AHP regulation, Sec. 960.20(a)
of the proposed rule provides that if a Bank fails to use or commit the
full amount of its required annual contribution to the AHP, 90 percent
of the amount that has not been used or committed in that year shall be
deposited by the Bank in an Affordable Housing Reserve Fund established
and administered by the Board. See 12 CFR 960.12. The 10 percent of the
unused and uncommitted amount retained by the Bank should be fully used
or committed by the Bank during the following year, and any remaining
portion must be deposited in the Affordable Housing Reserve Fund. A
Bank is deemed to have used or committed its required contribution
where amounts are remaining at the end of the year because funding the
next highest ranking project would exceed the Bank's required AHP
contribution for the year. Such amounts remaining shall be combined
with returned AHP funds to fund the next highest scoring AHP project or
projects, or carried over by the Bank to the next year's AHP funding
cycles.
The language allowing these amounts to remain at the end of the
year is added in the proposed rule to take into account situations
where amounts remain uncommitted at the end of the year because the
balance of required AHP contributions remaining is too small to fund
the Bank's next highest scoring AHP application.
The last sentence in proposed paragraph (a) also is new, making
explicit that such amounts remaining and funds returned to the Bank
shall fund other AHP projects and need not be transferred to the
Affordable Housing Reserve Fund.
Section 960.20(b) of the proposed rule provides that by January 15
of each year, each Bank shall provide to the Board a statement
indicating the amount of unused and uncommitted funds from the prior
year, if any, which will be deposited in the Affordable Housing Reserve
Fund.
Proposed Sec. 960.20(c) provides that by January 31 of each year,
the Board will notify the Banks of the total amount of funds, if any,
available in the Affordable Housing Reserve Fund.
Section 960.12(d) of the Board's existing regulation governing how
any Reserve Funds would be made available to the Banks, is deleted in
the proposed rule. See 12 CFR 960.12(d). The Act states that such
provisions would be determined pursuant to regulations issued by the
Board. See 12 U.S.C. 1430(j)(7). Since there currently are no Reserve
Funds and it is not anticipated that there will be any Reserve Funds in
the near future, it is not necessary at this time to include provisions
in the proposed rule dealing with this issue. The Board can issue
regulations on this issue at a future date if such eventuality should
arise.
P. Advisory Councils
Section 960.21 of the proposed rule sets forth provisions governing
the appointment, operation, and responsibilities of the Advisory
Councils to the Banks.
Section 960.21(a)(1) of the proposed rule carries forward the
requirement in the Board's existing AHP regulation that each Bank shall
appoint an Advisory Council of seven to 15 persons who shall reside in
the Bank's District and shall be drawn from community and nonprofit
organizations actively involved in providing or promoting low- or
moderate-income housing in the Bank's District. See 12 CFR 960.14(a).
In addition, Sec. 960.21(a)(1) of the proposed rule provides that the
size of the Advisory Council shall be stated in the Bank's AHP
implementation plan.
Section 960.21(a)(2) of the proposed rule carries forward the
requirement in the Board's existing AHP regulation that the Bank must
actively solicit nominations from Bank members and community and
nonprofit organizations and shall allow sufficient time for response,
so that the nomination and appointment process is as broad and as
participatory as possible. See 12 CFR 960.14(b), (d). The Bank also
should solicit nominations from any other interested parties. In
addition, Sec. 960.21(a)(3) of the proposed rule provides that Advisory
Council members shall be appointed by the Banks giving consideration to
the size of the District and the diversity of low-income housing needs
within the District.
The Board's existing AHP regulation provides that officials of
state and local housing finance agencies may serve as members of an
Advisory Council, provided that such officials do not constitute an
undue proportion of the membership of the Advisory Council. See 12 CFR
960.14(c). It has been suggested that such officials should only be
able to serve as non-voting members of an Advisory Council, unless the
officials also are employed or associated with a private community or
nonprofit organization actively involved in providing or promoting low-
or moderate-income housing in the Bank's District. This suggestion is
based on the view that the Advisory Councils are intended to serve as
vehicles for private sector community and nonprofit organizations, not
public agencies, to advise the Banks on low- and moderate-income
housing programs and needs in the District and on the utilization of
Bank advances for such purposes. See 12 U.S.C. 1430(j)(11). While
acknowledging that officials of state and local housing finance
agencies make valuable contributions to the Advisory Councils, the
supporters of this viewpoint argue that these agencies have
opportunities to influence the allocation of housing finance credit
through means other than by voting representation on the Advisory
Councils.
The Board specifically requests comments on whether or not
officials of state and local housing finance agencies should be able to
vote on the Advisory Councils and whether their representation should
be limited so that it does not constitute an undue proportion of the
Advisory Council membership.
Section 960.21(a)(4) of the proposed rule provides that Advisory
Council members shall serve for terms of two or three years, as
determined by the Bank and set forth in its AHP implementation plan.
The Board is proposing to give the Banks the option of appointing
Advisory Council members for three-year terms in order to allow the
Banks to benefit from the experience and familiarity with the AHP that
Advisory Council members develop the longer they serve on an Advisory
Council. In addition, Sec. 960.21(a)(4) of the proposed rule carries
forward the requirement in the Board's existing AHP regulation that
terms of Advisory Council members shall be staggered to provide
continuity and experience in service. See 12 CFR 960.14(f). The
proposed rule requires the Banks to explain in their AHP implementation
plans how Advisory Council member terms will be staggered.
Section 960.21(a)(4) of the proposed rule contains a new provision
limiting an Advisory Council member to six years of consecutive
service. The Bank may set its own limits on consecutive terms within
the six-year limit. This provision is intended to ensure that the
membership of the Advisory Councils reflects the diverse and changing
viewpoints of private sector community and nonprofit organizations on
the low-income housing programs and needs of the Bank Districts.
Section 960.21(a)(5) of the proposed rule provides that an Advisory
Council member who, subsequent to appointment, is no longer employed by
or associated with a community or nonprofit organization actively
involved in providing or promoting low- or moderate-income housing in
the Bank's District may continue to serve on the Advisory Council until
the end of his or her term. Allowing the Advisory Council member to
serve out the remainder of his or her term promotes continuity in the
collective experience of the Advisory Council. Further, the member may
still have relevant experience related to low-income housing needs in
the District, which may continue to benefit the Advisory Council.
However, the Board recognizes that the Advisory Council member may no
longer represent the interests of the community and nonprofit sector.
Therefore, the Board specifically requests comments on this provision
of the proposed rule. The Board also specifically requests comments on
whether a member who is no longer employed by or associated with a
community or nonprofit organization should be entitled to vote on the
Advisory Council if he or she becomes a state or local housing finance
agency official.
Section 960.21(b) of the proposed rule provides that each Advisory
Council shall elect from among its voting members a chairperson and a
vice chairperson.
Section 960.21(c) of the proposed rule carries forward the
requirement of the Board's existing AHP regulation that each Advisory
Council shall designate a member, or request that a member of the
Bank's staff be designated, to act as secretary to the Advisory
Council. See 12 CFR 960.14(g). The secretary shall record and maintain
the minutes of the meetings of the Advisory Council, which shall
contain, among other things, a record of the persons present, a
description of the matters discussed, and recommendations made. The
person acting as secretary at a meeting shall certify to the accuracy
of the minutes of that meeting.
Section 960.21(d)(1) of the proposed rule adds a new requirement
that, prior to the approval of the Bank's proposed AHP implementation
plan by the Bank's board of directors, the Bank's Advisory Council
shall review the proposed AHP implementation plan and provide its
recommendations to the Bank's board of directors pursuant to the
requirements of Sec. 960.2(c) discussed above under the section on the
adoption of the AHP implementation plan. This provision is intended to
give the Advisory Councils a greater role in advising the Banks on how
AHP funds should be allocated to meet the low-income housing needs in
their Districts.
Section 960.21(d)(2) of the proposed rule adds a new requirement
that upon request of the Advisory Council, the Bank shall provide the
Advisory Council with copies of any AHP applications from prior AHP
funding cycles. The Board is aware that some Banks have already adopted
this practice. This requirement is intended to aid the Advisory Council
members in evaluating how the AHP application priorities and scoring
criteria adopted by the Bank in its AHP implementation plan affect the
allocation of AHP funds among different types of housing projects.
Further, this requirement is subject to any limitations of other laws
that may require the Bank to keep information in an AHP application
confidential. The Bank may require Advisory Council members to agree to
keep all or parts of AHP applications confidential. The Board
specifically requests comments on the advantages and disadvantages of
allowing Advisory Council members to examine AHP applications received
by the Bank in prior AHP funding cycles.
Section 960.21(e) of the proposed rule carries forward the
requirement in the Board's existing AHP regulation that the Advisory
Council shall meet with representatives of the board of directors of
the Bank at least quarterly to advise the Bank on low- and moderate-
income housing programs and needs in the Bank's District and on the
utilization of AHP subsidized advances and direct subsidies for these
purposes. See 12 CFR 960.14(a).
Section 960.21(f) of the proposed rule requires each Advisory
Council to submit to the Board annually by March 1 its analysis of the
low-income housing activity of its Bank. This is a change from the
January 31 date in the Board's existing AHP regulation, and is intended
to give the Advisory Councils sufficient time after the end of the year
to compile and evaluate year-end data in order to prepare their reports
to the Board. See 12 CFR 960.14(j).
Section 960.21(g)(1) of the proposed rule carries forward the
requirement in the Board's existing AHP regulation that each Bank shall
reimburse members of its Advisory Council for transportation and
subsistence expenses they incur for each day devoted to attending
quarterly meetings with representatives of the board of directors of
the Bank. See 12 CFR 960.14(e). Section 960.21(g)(2) of the proposed
rule adds a new requirement that each Bank shall pay members of its
Advisory Council a fee for each day devoted to attending quarterly
meetings with representatives of the board of directors of the Bank.
The Board is proposing this change in light of the additional
responsibility given to Advisory Council members under the proposed
rule to advise the Banks on preparation of the AHP implementation
plans. The Board specifically requests comments as to whether the Banks
should be required to pay fees, and whether the amount to be paid
should be set forth in the final AHP rule so that a uniform fee is paid
to all Advisory Council members, or whether the fees should be set by
the board of directors of each Bank.
Q. Effective Dates
Section 960.22 of the proposed rule provides that, if published as
a final rule, this part shall become effective 30 days from such
publication in the Federal Register. In addition, the provisions of
this part, or portion thereof, may be applied to projects approved for
AHP funding prior to the effective date of the final rule to the extent
all relevant parties agree thereto in writing. The Finance Board would
not need to approve any such retroactive application of the final rule.
This proposed provision is intended to allow the retroactive
application to existing AHP projects of provisions of the revised AHP
rule that are less restrictive than existing AHP requirements, to the
extent all relevant parties (the Bank, the applicant, the sponsor, the
owner, and if applicable, the loan fund or loan consortium) agree to
such application of the new provisions. The Board specifically requests
comments on this proposed provision.
III. Regulatory Flexibility Act
The proposed rule applies only to the Banks, which do not come
within the meaning of ``small entities,'' as defined in the Regulatory
Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance
with section 605(b) of the RFA, see id. section 605(b), the Finance
Board hereby certifies that this proposed rule, if promulgated as a
final rule, will not have a significant economic impact on a
substantial number of small entities.
IV. Paperwork Reduction Act
The information collection requirements contained in this proposed
rule have been submitted to the Office of Management and Budget (OMB)
for review under section 3504(h) of the Paperwork Reduction Act of
1980, 44 U.S.C. chapter 35. The title, description of need and use, and
the respondent description for the information collection requirements
are discussed in the SUPPLEMENTARY INFORMATION.
Any comments on the proposed information collections should be sent
to Gary Waxman, Paperwork Reduction Project, OMB, room 3208, New
Executive Office Building, Washington, DC 20503.
In accordance with 5 CFR 1320.12 and 1320.15, the following table
discloses the estimated annual reporting burden for each collection of
information in the proposed rule:
Estimated Annual Reporting Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average No. of
Description of information collected Average No. of x responses per = Total average x Average hours = Total average
respondents respondent responses per response hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. AHP application.................................... 1800 ... 1 .. 1800 ... 16.00 .. 28,800.0
2. Summary of approved AHP applications............... 12 ... 3 .. 36 ... 20.00 .. 720.0
3. Request for modification of approved AHP 100 ... 1 .. 100 ... 2.00 .. 200.0
application.
4. Summary of approved modifications to approved AHP 12 ... 4 .. 48 ... 4.00 .. 192.0
applications.
5. Request for waiver of AHP remedial actions......... 75 ... 1 .. 75 ... 10.00 .. 750.0
6. Advisory council report............................ 12 ... 1 .. 12 ... 200.00 .. 2,400.0
-------------------------------------------------------------------------------------------------
Totals............................................ 2,011 ... 2 .. 3,872 ... 8.54* .. 33,066.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Weighted average hours per response.
List of Subjects in 12 CFR Part 960
Credit, Federal home loan banks, Housing, Reporting and
recordkeeping requirements.
Accordingly, the Federal Housing Finance Board hereby proposes to
amend chapter IX, title 12, subchapter E, Code of Federal Regulations,
by revising part 960 to read as follows:
SUBCHAPTER E--AFFORDABLE HOUSING
PART 960--AFFORDABLE HOUSING PROGRAM
Subpart A--Definitions
Sec.
960.1 Definitions.
Subpart B--Establishment of AHP
960.2 Bank establishment of AHP and adoption of AHP implementation
plan.
Subpart C--Authorized and Required Uses of AHP Subsidized Advances or
Direct Subsidies
960.3 Authorized uses of AHP subsidized advances or direct
subsidies.
960.4 Specific use requirements for AHP subsidized advances or
direct subsidies.
960.5 Long-term requirements.
Subpart D--Applications for AHP Subsidized Advances or Direct Subsidies
960.6 Establishment of AHP funding cycles and available AHP
subsidies.
960.7 AHP application approval process.
Subpart E--Requirements for Approval of AHP Applications
960.8 General requirements for approval of AHP applications.
960.9 Threshold criteria for approval of AHP applications.
960.10 Scoring of AHP applications.
960.11 Modifications of approved AHP applications.
Subpart F--Use and Verification at Initial Disbursement of AHP
Subsidized Advances or Direct Subsidies
960.12 Use of AHP subsidized advances or direct subsidies within
reasonable period of time and verification of reasonable progress.
960.13 Verification at initial disbursement of AHP subsidized
advances or direct subsidies.
Subpart G--Monitoring and Reporting Requirements
960.14 Monitoring requirements.
960.15 Reporting requirements.
Subpart H--Corrective and Remedial Actions for Fraud or Non-Compliance
With AHP Requirements
960.16 Corrective and remedial actions for fraud or non-compliance.
Subpart I--AHP Applications Involving Loan Funds and Loan Consortia
960.17 AHP applications involving loan funds and loan consortia.
Subpart J--Required AHP Contributions
960.18 Required annual AHP contributions.
960.19 Temporary suspension of AHP contributions.
Subpart K--Affordable Housing Reserve Fund
960.20 Affordable Housing Reserve Fund.
Subpart L--Advisory Councils
960.21 Advisory Councils.
Subpart M--Effective Dates
960.22 Effective dates.
Authority: 12 U.S.C. 1430(j).
Subpart A--Definitions
Sec. 960.1 Definitions.
As used in this part:
Act means the Federal Home Loan Bank Act, as amended (12 U.S.C.
1421 through 1449).
Adjustment for household size means:
(1) Adjusting the household income limit according to the following
adjustment factors for households of more than or fewer than four
persons:
------------------------------------------------------------------------
No persons Percent adjustment
------------------------------------------------------------------------
1.................................. 70.
2.................................. 80.
3.................................. 90.
4.................................. Base.
5.................................. 108.
6.................................. 116.
7.................................. 124.
8.................................. 132.
------------------------------------------------------------------------
(2) For each person in excess of eight, eight percent of the four-
person household base income limit shall be added to the income limit
for an eight-person household for the area.
Advance means a loan from a Bank that is:
(1) Provided pursuant to a written agreement;
(2) Supported by a note or other written evidence of the borrower's
obligation; and
(3) Fully secured by collateral in accordance with the Act and part
935 of this chapter.
Affordable for low- or moderate-income households means:
(1) For purposes of rental housing units, that rents, including
reasonable utility costs, charged to households for such units do not
exceed 30 percent of the income of a household (assuming a household
size of 1.5 persons per bedroom or 1.0 person per unit without a
separate bedroom) which has an income of 80 percent of the median
income for the area, as adjusted and published by the U.S. Department
of Housing and Urban Development, except that in areas where the
Secretary of Housing and Urban Development adjusts this income figure
downward because of prevailing construction costs, low housing costs,
or unusually high household incomes, then ``affordable for low- or
moderate-income households'' means that rents, including reasonable
utility costs, charged to households for such units do not exceed 30
percent of the income of a household which has an income of 80 percent
of the median income for the area, as published by the U.S. Department
of Housing and Urban Development, with adjustment for household size,
but without the adjustments made by the Secretary of Housing and Urban
Development for prevailing construction costs, low housing costs, or
unusually high household incomes; or
(2) If a rental housing unit is targeted to households whose income
is less than 80 percent of the median income for the area, then
``affordable for low- or moderate-income households'' means that the
rent, including reasonable utility costs, charged to a household for
such unit does not exceed 30 percent of the maximum qualifying income
of the targeted households of the size expected to occupy the unit.
Affordable for very low-income households means:
(1) For purposes of rental housing units, that rents, including
reasonable utility costs, charged to households for such units do not
exceed 30 percent of the income of a household (assuming a household
size of 1.5 persons per bedroom or 1.0 person per unit without a
separate bedroom) which has an income of 50 percent of the median
income for the area, as adjusted and published by the U.S. Department
of Housing and Urban Development, except that in areas where the
Secretary of Housing and Urban Development adjusts this income figure
downward because of prevailing construction costs, low housing costs,
or unusually high household incomes, then ``affordable for very low-
income households'' means that rents, including reasonable utility
costs, charged to households for such units do not exceed 30 percent of
the income of a household which has an income of 50 percent of the
median income for the area, as published by the U.S. Department of
Housing and Urban Development, with adjustment for household size, but
without the adjustments made by the Secretary of Housing and Urban
Development for prevailing construction costs, low housing costs, or
unusually high household incomes.
(2) If a rental housing unit is targeted to a household whose
income is less than 50 percent of the median income for the area, then
``affordable for very low-income households'' means that the rent,
including reasonable utility costs, charged to a household for such
unit does not exceed 30 percent of the maximum qualifying income of the
targeted households of the size expected to occupy the unit.
AHP means the Affordable Housing Program established pursuant to
this part.
Applicant means a member that applies to the Bank of which it is a
member for AHP funds to be used pursuant to the requirements of this
part.
Area means, for purposes of defining ``median income for the
area,'' a metropolitan statistical area, a county, or a nonmetropolitan
area, as established by the U.S. Office of Management and Budget.
Bank means a Federal Home Loan Bank established under the authority
of the Act.
Board means the Federal Housing Finance Board.
Cost of funds means the estimated cost of issuing Bank System
consolidated obligations with maturities comparable to the maturity of
the AHP subsidized advance, as published from time to time by the Bank
System's Office of Finance.
Direct subsidy means the direct cash payments of AHP funds made to
the applicant by the Bank.
Loan consortium means:
(1) A nonprofit or for-profit corporation whose members are
regulated financial institutions including at least one Bank member and
that provides housing loans that benefit low- or moderate-income
households; or
(2) A group of regulated financial institutions including at least
one Bank member that have entered into a legal agreement with each
other to jointly make loans to finance housing for low- or moderate-
income households.
Loan fund means a nonprofit or for-profit organization that is not
owned or controlled by a regulated financial institution and which
aggregates capital from public and private sources to provide financing
for housing for low- or moderate-income households.
Low- or moderate-income household means a household which has an
income of 80 percent or less of the median income for the area, as
adjusted and published by the U.S. Department of Housing and Urban
Development, except that in areas where the Secretary of Housing and
Urban Development adjusts this figure downward because of prevailing
construction costs, low housing costs, or unusually high household
incomes, then ``low- or moderate-income household'' means a household
which has an income of 80 percent or less of the median income for the
area, as published by the U.S. Department of Housing and Urban
Development, with adjustment for household size, but without the
adjustments made by the Secretary of Housing and Urban Development for
prevailing construction costs, low housing costs, or unusually high
household incomes.
Low- or moderate-income neighborhood means any neighborhood in
which 51 percent or more of the households are low- or moderate-income
households.
Member means an institution that has been approved for membership
in a Bank and has purchased capital stock in the Bank in accordance
with Secs. 933.7 and 933.11 of this chapter.
Neighborhood means a census tract; a combination of census tracts;
or a geographic location designated in comprehensive plans, ordinances
or other local documents as a neighborhood, village or similar
geographical designation that is within the boundary but does not
encompass the entire area of a unit of general local government and for
which income information is available to determine the percentage of
households with incomes satisfying the requirements of
Sec. 960.10(d)(5). If the unit of general local government has a
population under 25,000, the neighborhood may, but need not, encompass
the entire area of a unit of general local government.
Net earnings of a Bank means the net earnings of a Bank for a
calendar year after deducting the Bank's pro rata share of the annual
contribution to the Resolution Funding Corporation required under
section 21A or 21B of the Act (12 U.S.C. 1441a, 1441b), and before
declaring any dividend under section 16 of the Act (12 U.S.C. 1436).
Nonprofit organization means a private organization that is a tax-
exempt entity under section 501(c) of the Internal Revenue Code of 1986
(26 U.S.C. 501(c)), or a private nonprofit organization that is
organized or chartered under state or local laws and has no part of its
net earnings inuring to the benefit of any member, founder, contributor
or individual.
Remaining useful life means the period during which the housing
remains in a condition suitable for occupancy, assuming normal
maintenance and repairs are made and major systems and capital
components are replaced or repaired as becomes necessary.
Sponsor means a nonprofit or for-profit organization or public
entity that is integrally involved in a rental housing project by
owning or being the general partner of a partnership that owns the
project, or that is integrally involved in exercising control over an
owner-occupied housing project by developing the project or by
qualifying borrowers and providing or arranging financing for the
owners of the housing units.
State means a state of the United States, the District of Columbia,
Guam, Puerto Rico, or the U.S. Virgin Islands.
Subsidized advance means an advance whose interest rate is reduced
below the cost of funds, with the interest rate differential subsidized
using AHP funds in the amount of the net present value of the
difference between the cost of funds and the rate charged on the
subsidized advance over the term of the advance.
Subsidy means:
(1) The direct cash payments of AHP funds provided by the Bank to
the applicant; or
(2) The amount of AHP funds necessary to compensate the Bank for
the net present value of the difference between the cost of funds and
the rate charged on the subsidized advance to the applicant over the
term of the advance.
Very low-income household means a household which has an income of
50 percent or less of the median income for the area, as adjusted and
published by the U.S. Department of Housing and Urban Development,
except that in areas where the Secretary of Housing and Urban
Development adjusts this figure downward because of prevailing
construction costs, low housing costs, or unusually high household
incomes, then ``very low-income household'' means a household which has
an income of 50 percent or less of the median income for the area, as
published by the U.S. Department of Housing and Urban Development, with
adjustment for household size, but without the adjustments made by the
Secretary of Housing and Urban Development for prevailing construction
costs, low housing costs, or unusually high household incomes.
Subpart B--Establishment of AHP
Sec. 960.2 Bank establishment of AHP and adoption of AHP
implementation plan.
(a) It is the policy of the Board and the Banks to promote decent
and safe affordable housing and to address critical affordable housing
needs through providing subsidized advances and direct subsidies to
members pursuant to this part.
(b) Each Bank's board of directors shall establish an AHP, which
shall be funded pursuant to the requirements of Sec. 960.18. The Bank
shall make subsidized advances to applicants pursuant to its AHP and
shall operate its AHP in conformity with an annual AHP implementation
plan and the requirements of this part. Direct subsidies provided by a
Bank to applicants pursuant to its AHP shall be provided in conformity
with the Bank's AHP implementation plan and the requirements of this
part. Each Bank's AHP implementation plan shall be approved by the
Board before it is effective. The Bank's AHP implementation plan shall
meet the requirements of this part, and shall include:
(1) The Bank's AHP funding cycle schedule, including application
due dates, as required by Sec. 960.6(a)(1);
(2) The Bank's priorities, and scoring criteria for applications,
as required by Secs. 960.8(a) and 960.10;
(3) The Bank's procedures to ensure satisfaction of the long-term
requirement, as required by Sec. 960.5 (a)(1) and (b);
(4) The Bank's requirements for and verification procedures
concerning:
(i) The use of subsidized advances or direct subsidies within a
reasonable period of time after approval of an AHP application, as
required by Sec. 960.12(a); or
(ii) The use of loans or grants within a reasonable period of time
after repayment of such funds to a loan fund or loan consortium, as
required by Sec. 960.17(c)(5);
(5) The Bank's verification procedures upon initial disbursement of
subsidized advances or direct subsidies, as required by Sec. 960.13;
(6) The Bank's monitoring plan, as required by Sec. 960.14(b);
(7) The Bank's reporting requirements for applicants during the
construction or rehabilitation phase, as required by Sec. 960.15(b)(2);
(8) An explanation of circumstances justifying undue hardship
waivers by the Bank of imposition of remedial actions, as required by
Sec. 960.16 (c)(1) and (d)(1); and
(9) The Bank's determination regarding the number of persons that
may serve on the Bank's Advisory Council and their terms, as required
by Sec. 960.21(a) (1) and (4).
(c) The Bank's proposed AHP implementation plan shall be submitted
to its Advisory Council at least 45 calendar days before it is
considered by the Bank's board of directors. The Advisory Council shall
review the proposed AHP implementation plan and submit its
recommendations to the Bank's board of directors at least seven
calendar days before the Bank's board of directors is scheduled to vote
on the AHP implementation plan. The Bank's board of directors shall
vote on the proposed AHP implementation plan, and shall submit its
approved plan to the Board for action. The Board shall approve or
disapprove any proposed AHP implementation plan it receives within 60
calendar days of receipt. A Bank's AHP implementation plan must be
effective at least 45 calendar days before the due date for AHP
applications. Each Bank shall submit its AHP implementation plan to the
Board for approval no later than 180 calendar days after [the
publication of the final rule in the Federal Register].
(d) The Bank's AHP implementation plan adopted pursuant to this
section shall be made available by the Bank to the public upon request.
(e) The Board will approve or disapprove proposed amendments to a
Bank's approved AHP implementation plan submitted by the Bank within 60
calendar days of receipt.
Subpart C--Authorized and Required Uses of AHP Subsidized Advances
or Direct Subsidies
Sec. 960.3 Authorized uses of AHP subsidized advances or direct
subsidies.
(a) General. Applicants may use subsidized advances or direct
subsidies received from a Bank pursuant to this part only for the uses
set forth in paragraphs (b) and (c) of this section and subject to the
long-term requirements set forth in Sec. 960.5.
(b) Owner-occupied housing units. Applicants may use subsidized
advances or direct subsidies received from a Bank pursuant to this part
to finance the purchase, construction or rehabilitation of owner-
occupied housing units by or for low- or moderate-income households.
(c) Rental housing units. Applicants may use subsidized advances or
direct subsidies received from a Bank pursuant to this part to finance
the purchase, construction or rehabilitation of rental housing units,
at least 20 percent of the units of which will be occupied by and
affordable for very low-income households.
Sec. 960.4 Specific use requirements for AHP subsidized advances or
direct subsidies.
(a) Examples of specific authorized and unauthorized uses. (1)
Authorized uses of subsidized advances or direct subsidies include, but
are not limited to, the following costs related to the purchase,
construction or rehabilitation of housing:
(i) Real property purchase and improvement costs;
(ii) Construction or rehabilitation costs, including labor and
materials, and contractor profit and overhead allowances;
(iii) Costs integral to the purchase or development of housing
including, but not limited to, project-related: Architectural,
inspection and engineering fees; local building permit and planning
fees; accounting costs; survey costs; appraisal fees; title insurance
and other insurance costs; performance bond and other bond fees;
recording fees; credit report fees; property taxes; residential
relocation costs where such costs are part of a relocation plan; legal
fees; syndication fees; costs of translating resident documents to
another language; loan commitment, loan origination and other loan
financing fees for administrative costs other than costs of
administering the AHP award; developer's fees; and marketing costs;
(iv) Prepayment fees imposed by the Bank on an applicant for a
subsidized advance that is prepaid in connection with the purchase,
construction or rehabilitation of housing, if the applicant requires
the borrower to pay such fee;
(v) Capitalization of reserve fund(s) necessary for the successful
operation of rental housing projects, including replacement reserves,
rent-up reserves, operating deficit reserves, and sinking fund reserves
used for the transfer of the project to nonprofit ownership when
associated with a low income housing tax credit transaction (26 U.S.C.
42);
(vi) Cancellation fees imposed by the Bank on an applicant for a
subsidized advance commitment that is canceled and converted to and
disbursed as a direct subsidy in connection with the purchase,
construction or rehabilitation of housing, if the applicant requires
the borrower to pay such fee;
(vii) Refinancing of an existing loan in conjunction with the
purchase, construction or rehabilitation of housing, provided the
subsidized advance or direct subsidy and the proceeds of the
refinancing are used only to retire existing debt and to benefit low-
or moderate-income households and, in the case of refinancing in order
to rehabilitate a project, there is a minimum of $2,500 per unit spent
on such rehabilitation; and
(viii) Tenant services, tenant counseling and homeowner counseling
costs that are a condition imposed by a lender to obtain financing from
such lender and which are necessary for the successful operation of the
project.
(2) Uses of subsidized advances or direct subsidies that are not
authorized include, but are not limited to, AHP administrative costs of
the applicant or the Bank.
(b) Use of funds requirements. (1)(i) The total amount of a direct
subsidy provided by the Bank to an applicant under this section must be
passed on by the applicant to the recipient.
(ii) An applicant receiving a subsidized advance from a Bank shall
extend credit to the borrower at a rate of interest equal to the rate
of interest charged on the subsidized advance plus an interest rate
spread approved by the Bank.
(2) If an applicant receives a subsidized advance or direct subsidy
from a Bank or prepayment of a loan originally made under the AHP, any
interest or other income earned by the applicant on such funds, not
including any approved fee or interest rate spread charged to the
borrower, must be forwarded to the Bank to be used for additional AHP
projects, except for interest or other income earned by the applicant
within 30 calendar days of receiving the subsidized advance or direct
subsidy or of receiving prepayment of a loan originally made under the
AHP.
(3) A direct subsidy received by an applicant from a Bank that is
provided by such applicant to a sponsor may be lent by the sponsor in
connection with an AHP rental housing project involving low-income
housing tax credits, provided the subsidy is lent by the sponsor for a
term of not less than 30 years, with all principal and interest
payments deferred until the end of such term. If such a loan is repaid
before the end of the 30-year term, the entire amount of the direct
subsidy must be repaid to the Bank.
(4) If an applicant receives a subsidized advance or direct subsidy
from a Bank, and in turn provides both a loan and a grant to a borrower
and charges an origination fee for providing the loan, then any fee
charged by the applicant for providing the grant may not be paid with
the AHP subsidized advance or direct subsidy.
Sec. 960.5 Long-term requirements.
(a) Rental housing units. (1) At least 20 percent of the rental
housing units in a project financed under the AHP with subsidized
advances or direct subsidies shall remain affordable for and occupied
by very low-income households for a minimum period of 30 years or, at
the election of the sponsor, the remaining useful life of such units,
except as provided in paragraph (a)(3) of this section. An applicant
and the project sponsor shall state in the AHP application their
commitment regarding satisfaction of the long-term income-eligibility,
affordability and income-targeting requirements contained in this
paragraph (a)(1). An applicant may commit to maintain additional units
as affordable for and occupied by low- or moderate-income households,
which commitment shall be for a minimum period of 30 years or, at the
election of the sponsor, the remaining useful life of such units,
except as provided in paragraph (a)(3) of this section. The Bank's AHP
implementation plan shall set forth the procedures that the Bank will
follow to effectively implement the requirements of this paragraph
(a)(1).
(2) A household occupying a rental housing unit subject to the
income-targeting requirement of paragraph (a)(1) of this section is
required to satisfy the income-eligibility requirement of such
paragraph applicable to such income-targeted unit, as committed to in
the AHP application, upon initial occupancy. The household may continue
to occupy the income-targeted unit even if its income increases above
the income-eligibility requirement for such unit. The unit may continue
to count toward meeting the income-targeting requirement committed to
in the AHP application, provided the rent charged remains affordable to
the household as defined in Sec. 960.1; however, if the household's
income rises above 140 percent of the income-targeting level committed
to in the AHP application, the sponsor must make the next available
rental housing unit in the project affordable to and available for
occupancy by a household whose income is at or below the income-
targeting level committed to in the AHP application for the original
unit, and once the next available rental housing unit is so occupied,
the rent charged on the unit occupied by the household whose income has
risen shall no longer be subject to the requirement that it be
affordable for households at the income-targeting level committed to in
the AHP application.
(3) An owner of an AHP-assisted rental housing project may sell the
project prior to the end of the long-term period during which the
project's rental units, or applicable portion thereof, must remain
affordable for and occupied by households with incomes at or below the
levels committed to in the AHP application; however, either:
(i) The purchaser must agree to continue the project's rental
units, or applicable portion thereof, as affordable for and occupied by
households with incomes at or below the levels committed to in the AHP
application for the remainder of the long-term period committed to in
the AHP application, and must agree to be subject to the same
restrictions on resale that applied to the seller; or
(ii) If the purchaser does not satisfy the requirements of
paragraph (a)(3)(i) of this section, and if the Bank provided a direct
subsidy to the applicant which was passed on as a grant to the seller,
the seller must repay a pro rata portion of the grant as provided in
Sec. 960.16(d)(1); or
(iii) If the purchaser does not satisfy the requirements of
paragraph (a)(3)(i) of this section, and if the Bank provided a
subsidized advance to the applicant which in turn provided a below
market rate loan to the seller, then the provisions of
Sec. 960.16(d)(2) shall apply.
(b) The Bank's AHP implementation plan shall permit the owner of an
AHP-assisted rental housing project to sell such project as provided
for in paragraph (a)(3) of this section.
Subpart D--Applications for AHP Subsidized Advances or Direct
Subsidies
Sec. 960.6 Establishment of AHP funding cycles and available AHP
subsidies.
(a) Establishment of AHP funding cycles. (1) Each Bank shall
establish at least two but no more than four AHP funding cycles per
year during which applications for subsidized advances or direct
subsidies will be accepted. The schedule for such funding cycles,
including application due dates, is to be determined by the Bank in its
discretion, but shall allow for sufficient time intervals to ensure an
adequate pool of applicants to compete in each funding cycle. The
funding cycle schedule, including application due dates, shall be
described in detail in the Bank's AHP implementation plan.
(2) Each Bank shall inform the general public and its members of
the number and dates of its AHP funding cycles for the year and the
approximate amount of available AHP subsidies for each funding cycle at
least 45 calendar days before the due date for AHP applications for the
first funding cycle for the year.
(b) Available AHP subsidies. Each Bank shall allocate comparable
amounts of AHP subsidies for each AHP funding cycle during the year.
Sec. 960.7 AHP application approval process.
(a) Application. Each Bank shall require applicants for subsidized
advances or direct subsidies to submit to the Bank an application
which, at a minimum, contains all of the information described in this
paragraph and any other information which the Bank determines is
necessary in order to take action on such application pursuant to this
part, including the following:
(1) A concise description of the purpose of the request and
proposed uses of the funds, and its relationship to the priorities
identified in Sec. 960.10(d), the targeting criterion identified in
Sec. 960.10(e), and the other objectives identified in Sec. 960.10(f);
(2) A statement of how the project will satisfy the authorized uses
and long-term requirements, including a description of legal mechanisms
to be used to ensure compliance by the project with such requirements,
contained in Secs. 960.3 and 960.5;
(3) A statement of how the project will comply with the fair
housing law requirement contained in Sec. 960.9(b);
(4) A statement of how the project will satisfy the feasibility
requirement contained in Sec. 960.9(d);
(5) A statement of how the project's sponsor satisfies the
qualification requirement contained in Sec. 960.9(e);
(6) A statement of whether a subsidized advance or direct subsidy
has been requested and the amount of such funds requested;
(7) A disclosure of whether or not the applicant has a direct or
indirect interest in the property or project. If the applicant has an
interest in the property and the application is approved, then prior to
the transfer of AHP funds to the project, an independent current
appraisal of the fair market value of such property must be provided,
unless the applicant demonstrates that the property is being sold or
otherwise transferred to the sponsor at a price substantially below the
fair market value;
(8) A statement of the project's costs; and
(9) A certification from the applicant's, the sponsor's and the
loan fund's or loan consortium's board of directors, or president or
senior officer if so delegated by the board of directors, that the
applicant, the sponsor and the loan fund or loan consortium will comply
with all requirements of this part and all obligations committed to in
the AHP application.
(b) Action on applications. (1) The Bank shall review, score and
take action on an AHP application pursuant to the requirements
contained in Secs. 960.8, 960.9 and 960.10, and shall notify the
applicant of such action no later than 60 calendar days after the
application due date for the AHP funding cycle.
(2) The board of directors of each Bank shall have the authority to
approve or disapprove AHP applications received, and may delegate such
authority to the president or other senior officers of the Bank.
(3) Within 30 calendar days of each Bank's approval of the AHP
applications for a given AHP funding cycle, the Bank shall forward to
the Board a summary of each approved AHP application. The summary
shall:
(i) Briefly describe the project, including the applicant, the loan
fund or loan consortium, if applicable, and the sponsor--whether
nonprofit, for-profit or public agency, the type of housing, the
location, the long-term period committed to, the number of housing
units including the number of units affordable for very low-, low- or
moderate-income households or for households at any other income levels
committed to in the AHP application, the development cost, other
financing sources, and special needs populations served;
(ii) State the reason for the points awarded under each of the
Bank's scoring criteria for the project;
(iii) Indicate whether a subsidized advance or direct subsidy was
approved by the Bank for the project, the use of such funds, and the
amount of such funds approved; if a subsidized advance was approved,
the summary shall indicate the amount of the advance, the advance rate,
the amortization schedule for the advance, the term to maturity, the
applicable cost of funds, and the date as of which the cost of funds
was determined;
(iv) Indicate whether the project received approval in a prior AHP
funding cycle, or if the project is an extension, expansion,
continuation or reconfiguration of a previously approved AHP project;
(v) Describe how the project will be monitored and by what entity;
(vi) Describe the legal mechanisms to be used to ensure compliance
by the project with the long-term requirement contained in Sec. 960.5;
(vii) Include a summary in chart form showing all AHP applications
received by the Bank in the particular AHP funding cycle, with the
score each application received for each scoring criterion, and the
total score received by each project; and
(viii) Include any other information required by the Board.
Subpart E--Requirements for Approval of AHP Applications
Sec. 960.8 General requirements for approval of AHP applications.
(a) Each Bank shall evaluate the AHP applications received to
determine if they satisfy the threshold criteria in Sec. 960.9. All
applications that meet the threshold criteria shall be scored pursuant
to the criteria contained in Sec. 960.10, as set forth in the Bank's
approved AHP implementation plan.
(b) The Bank shall approve the applications in descending order
starting with the highest scoring application until the total AHP
funding amount for the particular funding cycle, except for any amount
insufficient to fund the next highest scoring project, has been
allocated. The Bank also may approve the next four highest scoring
applications as alternates and, within one year of approval by the
Bank, may fund such alternates if any previously committed AHP funds
become available.
Sec. 960.9 Threshold criteria for approval of AHP applications.
Threshold criteria. An AHP application must meet all of the
threshold criteria set forth in this section in order to be considered
for scoring under Sec. 960.10 and for AHP funding approval.
(a) Authorized and required uses requirements. The AHP application
must indicate that the use of the subsidized advance or direct subsidy
set forth in the AHP application for the proposed project will comply
with the requirements for authorized and required uses of such funds
contained in Secs. 960.3, 960.4 and 960.5.
(b) Fair housing law requirements. The AHP application must
indicate that the project sponsor will comply with any applicable fair
housing law requirements and must indicate how the sponsor proposes to
affirmatively further compliance with such requirements.
(c) Twenty percent requirement and alternatives.--(1) General. (i)
Except as provided in paragraph (c)(2) of this section, a Bank shall
not offer subsidized advances or direct subsidies to applicants in
excess of that amount needed to reduce the monthly housing costs (as
defined in paragraph (c)(1)(ii) of this section) for income-eligible
households, as committed to in the AHP application, to 20 percent of
the household's gross monthly income. In projects where other forms of
federal, state, local or private subsidized assistance are being used
in conjunction with AHP subsidized advances or direct subsidies, the
total amount of subsidized assistance, including funds provided under
the AHP, shall not be in excess of the amount needed to reduce the
monthly housing costs (as defined in paragraph (c)(1)(ii) of this
section) for the income-eligible households, as committed to in the AHP
application, to 20 percent of the household's gross monthly income.
(ii) For purposes of paragraph (c)(1) of this section, monthly
housing costs are defined as:
(A) For households in AHP-assisted owner-occupied housing units,
mortgage principal and interest payments, real property taxes,
homeowners' insurance, a reasonable estimate of utility costs excluding
telephone service, and for households in AHP-assisted condominium,
cooperative, mutual housing or other housing projects involving common
ownership, those portions of any regular operating assessment or fee
allocated for principal and interest payments, taxes, insurance and a
reasonable estimate of utilities attributable to the household's share
of the common area and/or the individual unit; and
(B) For households in AHP-assisted rental housing units, rent
payments, and where they are not already included in rent payments, a
reasonable estimate of utility costs excluding telephone service.
(iii) A household subject to the 20 percent requirement set forth
in paragraph (c)(1) of this section is required to meet such
requirement only at the time it initially purchases or occupies a unit.
(2) Alternative requirements. (i) The requirement in paragraph
(c)(1) of this section shall not apply where a Bank provides subsidized
advances or direct subsidies to an applicant for a rental housing
project, which project also receives funds from a federal or state
rental housing program that requires qualifying households to pay as
rent a certain percentage of their monthly income or a designated
amount, provided that the household meets the housing payment
requirements of the other program.
(ii) The requirement in paragraph (c)(1) of this section shall not
apply where:
(A) The total amount of the AHP funds provided through a subsidized
advance or direct subsidy used to finance rehabilitation of a housing
unit by a very low-income household that already owns and occupies the
housing unit is $10,000 or less per such household; or
(B) The total amount of the AHP funds provided through a subsidized
advance or direct subsidy used to finance the purchase of a housing
unit by a very low-income household is $5,000 or less per such
household.
(iii) The requirement in paragraph (c)(1) of this section shall not
apply where the total amount of the AHP funds provided through a
subsidized advance or direct subsidy used to finance rehabilitation or
purchase of a housing unit by a low- or moderate-income household is
$5,000 or less per such household.
(iv) The requirement in paragraph (c)(1) of this section shall not
apply where a Bank provides subsidized advances or direct subsidies
ultimately benefiting a household with an income at or below the level
committed to in the AHP application, which is participating in a self-
help, sweat equity or similar housing program that requires the
household to contribute its skilled or unskilled labor valued at a
minimum of $2,000 per household, working cooperatively with others, to
construct or rehabilitate housing which the household or other program
participants are purchasing or already own and occupy, and that
involves supervision of the work performed by skilled builders or
rehabilitators.
(d) Project feasibility. The AHP application must indicate that the
proposed project is feasible in that, based on an analysis of project
sources and uses of funds, project multi-year operating pro formas for
rental housing projects, projections of sales and prices for owner-
occupied housing units, and local market conditions, the project is
financially viable and likely to be completed within a reasonable
period of time, and is likely to operate or sell and remain affordable
to the designated income-eligible households over the long-term period
committed to in the AHP application.
(e) Qualifications of sponsor. The AHP application must indicate
that the sponsor has the qualifications and ability to perform its
responsibilities as committed to in the AHP application.
(f) Creditworthiness of applicant. The applicant must have the
ability to qualify for an advance from the Bank to fund the project
described in the AHP application.
Sec. 960.10 Scoring of AHP applications.
(a) General. The Bank shall score AHP applications that satisfy all
of the threshold criteria in Sec. 960.9 according to the scoring
methodology set forth in this section which shall be included in the
Bank's approved AHP implementation plan.
(b) Priority treatment. Each application is first evaluated to
determine if it will receive priority treatment. For purposes of
determining priority, an application can receive a maximum of eight
points for each of the five priority categories set forth in paragraph
(d) of this section. A Bank in its AHP implementation plan shall define
more specifically each of the five priority categories and explain
specifically how points will be awarded for satisfying each category.
An application will be deemed to meet a particular priority category if
it is awarded at least four points for that priority category.
Applications meeting at least two priority categories shall receive
priority treatment.
(c) Order of scoring. Applications that qualify for priority
treatment pursuant to paragraph (b) of this section shall be scored
before applications that do not qualify for priority treatment. The
applications that do not qualify for priority treatment will not be
scored unless there are insufficient priority treatment applications to
utilize the total AHP funding amount for the funding cycle.
(d) Priorities--40 point category. The Bank shall total the points
received by each applicant for purposes of determining priority for all
of the five priority categories set forth in this paragraph (d); it
shall award 40 points to the application(s) that receive the highest
number of total points, and the remaining application scores shall be
adjusted and awarded points on a declining scale basis. The five
priority categories are as set forth in the following paragraphs (d)(1)
through (5) of this section.
(1) Government-owned properties. Applications for projects that
finance the purchase or rehabilitation of housing owned or held by the
United States Government or any agency or instrumentality of the United
States, including but not limited to the Department of Housing and
Urban Development, Resolution Trust Corporation, Farmers Home
Administration, Veterans Administration, Federal National Mortgage
Association, or Federal Home Loan Mortgage Corporation.
(2) Nonprofit or state or local government sponsored projects.
Applications for projects that finance the purchase, construction or
rehabilitation of housing the sponsor of which is a nonprofit
organization, a state or political subdivision of a state, a local
housing authority or a state housing finance agency.
(3) Special needs projects. Applications for projects that address
special needs, which shall be defined by the Bank in its AHP
implementation plan, which special needs may include but are not
limited to:
(i) Empowering the households or residents through programs such as
resident management of the property, self-help housing, homesteading,
and sweat equity;
(ii) Providing housing for special needs populations such as
homeless persons, abused or battered persons, persons with AIDS,
mentally or physically disabled persons, or persons with substance
abuse problems;
(iii) Providing housing in rural areas or areas targeted by local,
state or federal governments for community development or
revitalization through the development of affordable housing or
economic investment; or
(iv) Providing housing with special services to meet the needs of
low- or moderate-income households including, but not limited to, child
care, job training, medical care, substance abuse programs, independent
living skill training, and rental household and homeowner household
counseling.
(4) District Bank priority. Applications for projects that meet one
or more priorities recommended by the Bank's Advisory Council and
adopted by the Bank's board of directors that each address a housing
need in the Bank's district and are consistent with the purposes of
this part. The Bank shall describe in its AHP implementation plan how
the points for the priority or priorities will be distributed.
(5) Economic mobility priority. Applications for projects that
provide housing for low- or moderate-income households that move from
low- or moderate-income neighborhoods or housing projects to
neighborhoods, mixed-income buildings or owner-occupied housing
developments in which at least 50 percent of the households have
incomes above the median income for the area, as published by the U.S.
Department of Housing and Urban Development.
(e) Targeting--20-point category. An application can receive a
maximum of 20 points for this category. The Bank shall award points to
applications based on the extent to which the project(s) serve(s) the
greatest percentage of very low-, low- and moderate-income households,
in that priority order. In the alternative, if a weighted-average
scoring methodology is provided in the Bank's AHP implementation plan,
the Bank shall award points to an application based on the extent to
which the project has the lowest weighted-average income determined by
multiplying the percentage of units reserved for households at certain
income levels by those incomes expressed as a percentage of median
income, and adding the totals. Applications shall be scored relative to
each other with the maximum number of points allowable awarded to the
application(s) that best achieve(s) the targeting objective, and the
remaining application scores shall be adjusted and awarded points on a
declining scale basis. However, owner-occupied housing projects shall
be scored as one group and rental housing projects shall be scored as a
separate group.
(f) Other objectives. The five other objectives categories are as
set forth in the following paragraphs (f)(1) through (5) of this
section. The Bank in its AHP implementation plan shall define more
specifically each of the five other objectives categories and explain
specifically how points will be awarded for satisfying each category.
For each category, the Bank shall award the maximum number of points
allowable for such category to the application(s) that best achieve(s)
the objective, and the remaining application scores shall be adjusted
and awarded points on a declining scale basis.
(1) AHP subsidy per unit--10-point category. An application can
receive a maximum of 10 points for this category. The Bank shall award
points to applications based on the extent to which the project
proposes to use the least amount of AHP subsidy per AHP-subsidized
unit. Projects should be scored relative to each other; however, owner-
occupied housing projects shall be scored as one group and rental
housing projects shall be scored as a separate group. This scoring
criterion may not include a leveraging criterion whereby the
application is scored based on the percentage of the project's total
development cost that is to be financed with the AHP subsidy.
(2) Applicant participation--5-point category. An application can
receive a maximum of 5 points for this category. The Bank shall award
points to applications based on the extent to which the project
involves participation by applicants other than the receipt of a
subsidized advance or direct subsidy under the AHP. Such participation
can be financial or non-financial, including but not limited to debt or
equity financing of the project, grants to the project, applicant
involvement on the boards of nonprofit sponsors, and applicant
provision of technical assistance to the nonprofit sponsors for the
project.
(3) Community involvement--10-point category. An application can
receive a maximum of 10 points for this category. The Bank shall award
points to applications based on the extent to which there is
demonstrated support for the project by local community organizations
and individuals other than as project sponsors, such as through the
commitment by such organizations and individuals of funds, goods and
services, and volunteer labor.
(4) Community stability--10-point category. An application can
receive a maximum of 10 points for this category. The Bank shall award
points to applications based on the extent to which the project(s)
maximize(s) community stability, such as by: committing to a greater
long-term period pursuant to Sec. 960.5; revitalizing vacant or
abandoned properties or being integrally part of a neighborhood
stabilization plan, if such revitalization or stabilization is not
identified as a special needs category by the Bank pursuant to
Sec. 960.10(d)(3)(iii); and not displacing low- or moderate-income
households, or if such displacement will occur, indicating how such
households will be assisted to minimize the impact of such
displacement.
(5) Innovation--5-point category. An application can receive a
maximum of 5 points for this category. The Bank shall award points to
applications based on the extent to which the project(s) involve(s) a
particularly new or unusual approach, either financial or non-
financial, for meeting the requirements of this part.
Sec. 960.11 Modifications of approved AHP applications.
(a) An applicant that seeks a modification of an approved AHP
application before completion and occupancy of the project must submit
a request for such modification in writing to the Bank for review and
approval. A modification is any change that affects or could
potentially affect the material facts under which the application was
originally evaluated and scored.
(b) A request for a modification of an approved AHP application
must include, at a minimum:
(1) A description of how the proposed modification differs from the
original application;
(2) The reason for the proposed modification; and
(3) Any other information that the Bank determines is necessary to
review the proposed modification.
(c)(1) The Bank shall review the request for modification, shall
re-score the application as proposed to be modified according to the
scoring criteria used in the AHP funding cycle in which the application
was originally approved, and may approve such request if the following
factors are satisfied:
(i) The project as proposed to be modified continues to meet all of
the requirements of this part; and
(ii) The project as proposed to be modified continues to score high
enough that it would have been approved in its AHP funding cycle.
(2) If the application does not satisfy the requirements in
paragraph (c)(1) of this section, the Bank in its discretion may
approve the request for modification if the reason for the modification
is due to circumstances outside the control of the applicant or
sponsor.
(d) The Bank shall forward to the Board a detailed summary of any
modification of an AHP application approved by the Bank, including how
the Bank re-scored the project, within 30 calendar days of the approval
of such modification.
Subpart F--Use and Verification at Initial Disbursement of AHP
Subsidized Advances or Direct Subsidies
Sec. 960.12 Use of AHP subsidized advances or direct subsidies within
reasonable period of time and verification of reasonable progress.
(a) The Bank shall in its AHP implementation plan identify what
constitutes reasonable progress by the sponsor towards using subsidized
advances or direct subsidies within a reasonable period of time after
the approval of an AHP application for different types of projects, and
explain how it intends to verify such reasonable progress.
(b) The sponsor must demonstrate that reasonable progress is being
made towards using the requested funds within a reasonable period of
time after approval of the AHP application, as determined by the Bank
under paragraph (a) of this section.
(c) The Bank shall verify the efforts of the sponsor to determine
whether it has satisfied the requirement in paragraph (b) of this
section.
(d) If the sponsor fails to satisfy the requirement in paragraph
(b) of this section, the Bank shall cancel the AHP award, and shall not
disburse any subsidized advances or direct subsidies through the
applicant to the sponsor, and the full amount of any previously
disbursed subsidized advances or direct subsidies shall be returned to
the Bank.
Sec. 960.13 Verification at initial disbursement of AHP subsidized
advances or direct subsidies.
At the time of initial disbursement of a subsidized advance or a
direct subsidy by a Bank for an approved AHP application, the Bank
shall verify in writing that the project complies with all applicable
requirements contained in Sec. 960.9 and all obligations committed to
in the approved AHP application. The Bank shall verify the amount of
subsidy being provided in connection with the application and being
charged against the AHP fund. The Bank shall include in its AHP
implementation plan its verification procedures for such purposes.
Subpart G--Monitoring and Reporting Requirements
Sec. 960.14 Monitoring requirements.
(a) Monitoring by the Banks. Each Bank has the responsibility to
monitor the projects funded through its AHP according to the monitoring
requirements described in this section.
(b) Monitoring plan. Each Bank shall include in its AHP
implementation plan an explanation of how it intends to meet the
monitoring requirements of this section.
(c) Monitoring by Bank's designee. A Bank may contract with an
applicant, a state housing finance agency, or other entity to perform
the tasks required to meet the monitoring requirements described in
paragraphs (e) through (h) of this section; however, the Bank remains
ultimately responsible for compliance with the monitoring requirements
of this section.
(d) Monitoring during construction or rehabilitation. If subsidized
advances or direct subsidies are used to finance construction or
rehabilitation of a project, the Bank shall require the applicant to
monitor the construction or rehabilitation until completion, and to
make progress reports to the Bank, as required under Sec. 960.15(b)(2).
(e) Monitoring long-term requirements.--(1) Owner-occupied
housing.--(i) Initial certification. At the time a household enters
into a purchase contract for an AHP-assisted housing unit or at the
closing on the financing for such unit, or at the time a household that
already owns a housing unit receives a commitment of a loan or a grant
pursuant to the AHP, the Bank or its designee shall obtain a
certification from the sponsor, as required under Sec. 960.15(c)(1)(i),
that the household has an income at or below the level committed to in
the AHP application.
(ii) Monitoring after initial sale. (A) During the required long-
term period applicable to an owner-occupied housing unit assisted by a
grant provided under the AHP, the Bank or its designee shall monitor
the unit to determine whether it has been sold to a household with an
income that exceeds the level committed to in the AHP application.
(B) Monitoring shall include, but is not limited to, periodic
review of relevant reports or certifications obtained from the sponsor,
including reports and certifications received pursuant to
Sec. 960.15(c)(1)(ii) and, at least on a sample basis, periodic review
of land title records at intervals to be determined by the Bank, based
on the amount of funds received by the project pursuant to the AHP, the
type and complexity of the project, or other factors deemed relevant by
the Bank.
(2) Rental housing.--(i) Restriction on transfer. The Bank shall
require an AHP-assisted rental housing project to be subject to a deed
restriction or other legally enforceable mechanism which requires that
upon sale of the project prior to the end of the long-term period
during which the project's rental units, or portion thereof, must
remain affordable for and occupied by households with incomes at or
below the levels committed to in the AHP application, the Bank or its
designee receives notice of the sale, and:
(A) The project's rental units, or portion thereof, must continue
to be affordable for and occupied by households with incomes at or
below the levels committed to in the AHP application for the remainder
of the long-term period committed to in the AHP application, and the
purchaser agrees to be subject to the same restrictions on resale that
applied to the seller; or
(B) If the purchaser does not satisfy the requirements in paragraph
(e)(2)(i)(A) of this section, and if the Bank provided a direct subsidy
to the applicant which was passed on as a grant to the seller, the
seller must repay the grant as provided in Sec. 960.16(d)(1); or
(C) If the purchaser does not satisfy the requirements in paragraph
(e)(2)(i)(A) of this section, and if the Bank provided a subsidized
advance to the applicant which in turn provided a below market rate
loan to the seller, then the provisions of Sec. 960.16(d)(2) shall
apply.
(ii) Initial certification. Upon initial full occupancy of the
units in an AHP-assisted rental housing project, or one year after
initial disbursement of the subsidized advance or direct subsidy,
whichever occurs first, the Bank or its designee shall obtain a
certification from the sponsor or the owner, as required under
Sec. 960.15(c)(2), that the project's units, or portion thereof, are
affordable for and occupied by households with incomes at initial
occupancy at or below the levels committed to in the AHP application.
(iii) Monitoring after initial occupancy. (A) During the long-term
period for which the units, or portion thereof, of an AHP-assisted
rental housing project must remain affordable for and occupied by
households with incomes at or below the levels committed to in the AHP
application, the Bank or its designee shall monitor the project to
determine whether the project's units, or portion thereof, remain
affordable for and occupied by households with incomes at or below the
levels committed to in the AHP application.
(B) Monitoring shall include, but is not limited to, periodic
review of relevant household income and rent reports or certifications
obtained from the sponsor or the owner, including certifications
received pursuant to Sec. 960.15(c)(2) and, at least on a sample basis,
periodic inspections of the project at intervals to be determined by
the Bank, based on the amount of funds received by the project pursuant
to the AHP, the type and complexity of the project, or other factors
deemed relevant by the Bank.
(f) Monitoring compliance with the special needs priority. If an
applicant in its AHP application commits to fund a housing project that
will address a special need pursuant to Sec. 960.10(d)(3), either
through providing units for persons with a special need, or through
providing a special service for occupants, as defined in the Banks AHP
implementation plan:
(1) The Bank or its designee shall obtain a certification from the
sponsor or owner upon completion and occupancy of the project, as
required under Sec. 960.15(c)(3), that the project's units, or portion
thereof, are occupied by persons with such special need, as committed
to in the AHP application, or that a special service is being provided,
as committed to in the AHP application; and
(2) In the case of a special service being provided pursuant to
Sec. 960.10(d)(3), the Bank or its designee shall monitor the project,
as determined by the Bank in its AHP implementation plan, for at least
one year from the date of initial full occupancy of the project, to
verify that such special service continues to be provided to the
households, as committed to in the AHP application.
(g) Monitoring compliance with the District Bank priority or
priorities. (1) If an applicant in its AHP application commits to fund
a project that meets a District Bank priority or priorities established
by the Bank pursuant to Sec. 960.10(d)(4), the Bank or its designee
shall monitor the project to verify that it continues to meet the Bank
priority or priorities.
(2) The Bank shall set forth in its AHP implementation plan the
nature, frequency and duration for monitoring compliance with the
District Bank priority or priorities.
(h) Monitoring compliance with the economic mobility priority. If
an applicant in its AHP application commits to fund a project that
meets the requirements of Sec. 960.10(d)(5), the Bank or its designee
shall obtain a certification from the sponsor or the owner upon
completion and full occupancy of the project, as required under
Sec. 960.15(c)(4), that the sponsor or the owner has met such
requirements as committed to in the AHP application.
Sec. 960.15 Reporting requirements.
(a) Reporting by the Banks. Each Bank shall provide accurate and
timely reports and documentation to, and in the format requested by,
the Board concerning the Bank's AHP, as the Board may from time to time
require.
(b) Reporting by applicants. (1) Each Bank shall require an
applicant receiving a subsidized advance or direct subsidy pursuant to
this part to report at least annually to the Bank on the manner in
which it has used the funds, with such reports continuing until the
funds have been fully disbursed by the applicant.
(2) If subsidized advances or direct subsidies are used to finance
construction or rehabilitation of a project, the Bank shall require the
applicant to report to the Bank at reasonable intervals determined by
the Bank, and described in the Bank's AHP implementation plan, on the
progress of the construction or rehabilitation until completion.
(c) Reporting by the sponsor or owner.--(1) Owner-occupied housing
units--(i) Initial certification. Where a subsidized advance or direct
subsidy is used to finance the purchase of an owner-occupied housing
unit, the Bank shall require the sponsor to certify, at the time a
household enters into a purchase contract for such unit or at the
closing on the financing for such unit, that the unit has been sold to
a household with an income at or below the level committed to in the
AHP application. Where a subsidized advance or direct subsidy is used
to finance the rehabilitation of an owner-occupied housing unit, the
Bank shall require the sponsor to certify at the time a loan or grant
is committed to fund such rehabilitation that the household that owns
and occupies the unit has an income at or below the level committed to
in the AHP application.
(ii) Reports of subsequent sale. If an owner-occupied housing unit
assisted by a grant provided under the AHP is not subject to a deed
restriction or other legally enforceable mechanism restricting transfer
of ownership to a household with an income at or below the level
committed to in the AHP application, the Bank shall require the sponsor
to report to the Bank or its designee, at least annually for the
required long-term period, the number of any such units that are sold
to households whose incomes exceed the level committed to in the AHP
application, and to certify to the Bank that it is continuing to
satisfy its commitment, pursuant to its legally binding agreement with
the Bank.
(2) Rental housing units--certification. The Bank shall require the
sponsor or owner to certify, upon initial full occupancy of the units
in an AHP-assisted rental housing project but no later than one year
after initial disbursement of the subsidized advance or direct subsidy,
and annually thereafter, that the project's units, or portion thereof,
are affordable for and occupied by households with incomes at or below
the levels committed to in the AHP application.
(3) Special needs--initial certification. If an applicant in its
AHP application commits to fund a housing project that will provide
housing units for persons with a special need, or will provide a
continuing special service to occupants pursuant to Sec. 960.10(d)(3),
the Bank shall require the sponsor or the owner to certify upon
completion and full occupancy of the project that the project's units,
or portion thereof, are occupied by persons with such special needs or
that a special service is being provided to occupants, as committed to
in the AHP application.
(4) Economic mobility--certification. If an applicant in its AHP
application commits to fund a housing project that meets the
requirements for economic mobility under Sec. 960.10(d)(5), the Bank
shall require the sponsor or the owner to certify upon completion and
full occupancy of the project that the sponsor or owner has met such
requirements, as committed to in the AHP application.
(d) Other reports. The Bank shall require applicants or sponsors to
provide such other reports as the Bank deems necessary in order to
fulfill its monitoring obligations under Sec. 960.14.
Subpart H--Corrective and Remedial Actions for Fraud or Non-
Compliance With AHP Requirements
Sec. 960.16 Corrective and remedial actions for fraud or non-
compliance.
(a) Fraud or willful non-compliance. (1) In the event of an
applicant's, sponsor's or owner's fraud with respect to the
requirements of this part, the Bank shall exclude the applicant,
sponsor or owner, respectively, on a permanent basis, from future
participation in the AHP. In the event of an applicant's, sponsor's or
owner's willful non-compliance with the requirements of this part, the
Bank shall suspend the applicant, sponsor or owner, respectively, at
least on a temporary basis, from future participation in the AHP during
the period such willful non-compliance continues, and may exclude such
party permanently from future participation in the AHP.
(2) In the event of an applicant's fraud or willful non-compliance
with respect to the requirements of this part, the Bank shall recover
from the applicant the full amount of the AHP subsidy provided to the
project.
(3)(i) In the event of a sponsor's or owner's fraud or willful non-
compliance with respect to the requirements of this part, the full
amount of the AHP subsidy shall be recovered from the sponsor or owner
by the applicant and returned to the Bank or, if previously agreed to
by the Bank, shall be recovered by the Bank from the sponsor or owner.
If efforts to recover the AHP subsidy from the sponsor or owner are
unsuccessful, the applicant shall not be liable for such funds.
(ii) The applicant shall have in place either:
(A) A legally binding agreement or other legally enforceable
mechanism that permits it to recover from the sponsor or owner the full
amount of the AHP subsidy provided to the project in the event of a
sponsor's or owner's fraud or willful non-compliance with respect to
the requirements of this part; or
(B) If the Bank agrees and such an agreement is legally
enforceable, a three-party agreement that includes the Bank, the
sponsor or owner and the applicant that permits the Bank to recover
from the sponsor or owner the full amount of the AHP subsidy provided
to the project in the event of a sponsor's or owner's fraud or willful
non-compliance with respect to the requirements of this part.
(4) The Board in its discretion may grant a waiver of any required
remedial actions under this paragraph (a) upon written request by the
Bank, applicant, sponsor or owner.
(b) Other types of non-compliance. In the event of an applicant's,
sponsor's or owner's non-compliance with the requirements of this part
that is not willful, such as due to inadvertent errors by such party or
changes in circumstances that are outside such party's control, the
Bank shall provide the party a reasonable period of time in which to
take reasonable efforts, pursuant to a compliance plan approved by the
Bank, to remedy the non-compliance. The Bank in its discretion may
exclude the applicant, sponsor or owner from participation in the AHP
while such party is under a compliance plan, or in its discretion may
require the applicant to increase the long-term period committed to in
its AHP application for the project by the amount of time the project
has been in non-compliance. If the applicant, sponsor or owner takes no
reasonable efforts to comply with the compliance plan, then such party
is in willful non-compliance with the requirements of this part and is
subject to the remedial actions contained in paragraph (a) of this
section. If the applicant, sponsor or owner takes reasonable efforts
pursuant to the compliance plan to remedy the non-compliance under this
paragraph (b) and such efforts are unsuccessful, the applicant, sponsor
or owner would be subject to the remedial actions contained in
paragraph (a) of this section, but may apply to the Bank for a waiver
of any such required remedial actions. The Bank shall report to the
Board in writing on any waivers approved pursuant to this paragraph (b)
within 30 calendar days of such approval.
(c) Sale of AHP-assisted owner-occupied housing unit to income-
ineligible household. Except as provided in paragraph (c)(3) of this
section, in the event that a household sells its AHP-assisted owner-
occupied housing unit to a household whose income exceeds the level
committed to in the AHP application prior to the end of the required
long-term period, then the provisions of either paragraph (c)(1) or (2)
of this section shall apply.
(1) If the Bank provided a direct subsidy to the applicant which
was passed on as a grant to the seller, the Bank shall require the
seller to repay a pro rata share, except for de minimis amounts, of the
grant received by such seller, reduced for every year the seller owned
the unit, to be repaid from any net gain from the sale of the unit
after deduction for sales expenses, and to be returned to the Bank,
except that the Bank in its discretion may waive such requirement if
the imposition of such requirement will cause undue hardship on the
seller, as defined by the Bank in its AHP implementation plan.
(2) If the Bank provided a subsidized advance to the applicant and
the applicant provided a below market rate loan to the seller, the
applicant shall either repay to the Bank that portion of the advance
used to make the loan to the seller or the Bank shall convert that
portion of the advance used to make the loan to the seller to a market
rate advance with an interest rate equal to the market rate of interest
at the time the advance was made, and any unused AHP subsidy which had
been set aside by the Bank to subsidize that portion of the advance
used to make the loan to the seller shall be made available by the Bank
for additional AHP projects.
(3) The requirements of paragraphs (c)(1) and (2) of this section
shall not apply provided the sponsor, pursuant to a legally binding
agreement with the Bank, assists another household with an income at or
below the level committed to in the AHP application in the manner
originally committed to in the AHP application.
(d) Sale of AHP-assisted rental housing project. In the event that
the owner of an AHP-assisted rental housing project sells the project
prior to the end of the long-term period during which the project's
rental units, or portion thereof, must remain affordable for and
occupied by households with incomes at or below the levels committed to
in the AHP application, and the purchaser does not agree to maintain
the project according to such commitments and to be subject to the same
restrictions on resale that applied to the seller, then the provisions
of either paragraph (d)(1) or (2) of this section shall apply.
(1) If the Bank provided a direct subsidy to the applicant which
was passed on as a grant to the seller, the Bank shall require the
seller to repay a pro rata share, except for de minimis amounts, of the
grant received by such seller, reduced for every year the seller owned
the unit, to be repaid from any net gain from the sale of the project
after deduction for sales expenses, and to be returned to the Bank,
except that the Bank in its discretion may waive such requirement if
the imposition of such requirement will cause undue hardship on the
seller, as defined by the Bank in its AHP implementation plan; or
(2) If the Bank provided a subsidized advance to the applicant and
the applicant provided a below market rate loan to the seller, the
applicant shall either repay the advance to the Bank or the Bank shall
convert the advance to a market rate advance with an interest rate
equal to the market rate of interest at the time the advance was made,
and any unused AHP subsidy which had been set aside by the Bank to
subsidize the advance shall be made available by the Bank for
additional AHP projects.
Subpart I--AHP Applications Involving Loan Funds and Loan Consortia
Sec. 960.17 AHP applications involving loan funds and loan consortia.
(a) General. (1) An applicant may use a subsidized advance or a
direct subsidy to make a loan or a grant to a loan fund or loan
consortium as provided in paragraph (c) of this section.
(2) AHP applications involving the use of loans or grants by loan
funds or loan consortia pursuant to the AHP are governed by the
provisions of this part, except as otherwise provided in this section.
(b) AHP application approval requirements. The requirements for
approval of an AHP application that proposes to use subsidized advances
or direct subsidies to make a loan or a grant to a loan fund or a loan
consortium are governed by the provisions of Sec. 960.8, except that:
(1) The application will be scored on the criteria that the loan
fund or loan consortium proposes to use to select projects that will
ultimately receive a loan or grant from the loan fund or loan
consortium that is subsidized by the AHP; and
(2) The Bank shall review and shall require the applicant to review
each new rental housing project funded by a loan fund or loan
consortium prior to disbursing the loan or grant to ensure that:
(i) The project meets the threshold requirements of Sec. 960.9; and
(ii) The project meets the criteria committed to in the approved
AHP application.
(c) Use of funds.--(1) Subsidized advances. If an applicant
receives a subsidized advance and uses the proceeds of the advance to
make a loan to a loan fund or loan consortium, the loan fund or loan
consortium shall extend credit to the borrower at a rate of interest
equal to the rate of interest charged on the subsidized advance plus a
reasonable interest rate spread approved by the Bank. The applicant and
the loan fund or loan consortium may determine between themselves what
proportion of the interest rate spread the applicant and the loan fund
or loan consortium will share.
(2) Direct subsidies. (i) If an applicant receives a direct subsidy
from a Bank and in turn provides a grant to a loan fund or loan
consortium, the loan fund or loan consortium must either:
(A) Pass the entire grant on to the recipient;
(B) Use the entire grant to lower the interest rate on a loan to
the borrower; or
(C) Lend the entire grant to the borrower to finance a rental
housing project for a term of not less than 30 years, with all
principal and interest payments deferred until the end of such term. If
such loan is repaid before the end of the 30-year term, the entire
amount of the grant must be repaid to the applicant, which in turn must
forward the funds to the Bank to be used for additional AHP projects.
(ii) If a loan fund or loan consortium provides both a loan and a
grant to a borrower and the loan fund or loan consortium charges an
origination fee for providing the loan, then any fee charged by the
loan fund or loan consortium for providing the grant may not be paid
with AHP subsidized advances or direct subsidies.
(iii) Calculation of interest rate. When a loan fund or loan
consortium receives a grant from an applicant pursuant to the AHP and
uses the grant to lower the interest rate on a loan to the borrower,
the interest rate calculation must be consistent with the procedure
used by the Bank for calculating the amount of AHP subsidy needed for a
subsidized advance, taking into account the source of funds used by the
loan fund or loan consortium for its loans and the rate that normally
would be charged for a loan of the type and term that is provided to
the borrower.
(3) Interest or other income earned on loans or grants. If an
applicant receives a subsidized advance or direct subsidy from a Bank
and in turn provides a loan or grant to a loan fund or loan consortium,
any interest or other income earned by the loan fund or loan consortium
on such funds, not including any approved fee or interest rate spread
charged to the borrower, either:
(i) Must be used by the loan fund or loan consortium to provide
funds for additional projects meeting the threshold requirements in
Sec. 960.9 and the criteria committed to in the approved AHP
application; or
(ii) Must be forwarded to the applicant, which in turn must forward
the funds to the Bank to be used for additional AHP projects.
(4) Loans or grants from multiple AHP funding cycles. If loans or
grants received by a loan fund or loan consortium pursuant to one AHP
funding cycle are combined with loans or grants received by such entity
pursuant to another AHP funding cycle in a single rental housing
project, the loan fund or loan consortium shall require the recipient
of the funds to follow the requirements for the use of such funds from
the AHP funding cycle that is more restrictive as to the approved AHP
criteria. The requirement does not apply when loans or grants received
by a loan fund or loan consortium pursuant to separate AHP funding
cycles are combined to finance a single owner-occupied housing project;
however, the loan fund or loan consortium in its discretion may require
the recipient of the funds to follow the requirements for the use of
such funds from the AHP funding cycle that is more restrictive as to
the approved AHP criteria.
(5) Using repayments of loans within reasonable period of time. Any
loans provided by a loan fund or loan consortium pursuant to the AHP
that are repaid to such entity must be re-lent or provided as grants by
such entity within a reasonable period of time after such repayments,
or must be repaid to the applicant, which in turn must repay such funds
to the Bank, and must be made available by the Bank for additional AHP
projects. The Bank shall in its AHP implementation plan identify what
constitutes a reasonable period of time for such purposes.
(d) Monitoring and reporting--(1) General. Where loans or grants
are provided by an applicant pursuant to the AHP to a loan fund or loan
consortium which uses the funds to finance owner-occupied or rental
housing units, the Bank shall:
(i) Monitor such units according to the monitoring requirements of
Sec. 960.14(e) through (h);
(ii) Require the sponsor or owner of a project receiving loans or
grants from the loan fund or loan consortium to submit such reports and
certifications to the Bank as are required under Sec. 960.15(c); and
(iii) Require the loan fund or loan consortium to report to the
Bank any new loan or grant made using the repayments of loans by the
borrower. If a loan fund or loan consortium receives loans or grants
from an applicant pursuant to separate AHP funding cycles, the use of
such funds must be reported separately.
(2) Exceptions. (i) The Bank may contract with the applicant to
meet the monitoring requirements of Sec. 960.14 (e) through (h), in
which case the applicant shall:
(A) Monitor the AHP-assisted housing units according to the
monitoring requirements of Sec. 960.14 (e) through (h);
(B) Require the sponsor or owner of the project to submit to the
applicant such reports and certifications as are required under
Sec. 960.15(c); and
(C) Require the loan fund or loan consortium to report to the
applicant any new loan or grant made using the repayments of loans by
the borrower. If a loan fund or loan consortium receives loans or
grants from an applicant pursuant to separate AHP funding cycles, the
use of such funds must be reported separately.
(ii) The Bank may contract with the loan fund or loan consortium to
meet the monitoring requirements of Sec. 960.14 (e) through (h), in
which case the loan fund or loan consortium shall:
(A) Monitor the AHP-assisted housing units according to the
monitoring requirements of Sec. 960.14 (e) through (h);
(B) Require the sponsor or owner of the project to submit to the
loan fund or loan consortium such reports and certifications as are
required under Sec. 960.15(c); and
(C) Report to the Bank any new loan or grant made using the
repayments of loans by the borrower. If a loan fund or loan consortium
receives loans or grants from an applicant pursuant to separate AHP
funding cycles, the use of such funds must be reported separately.
(e) Corrective and remedial actions for fraud or non-compliance
with AHP requirements. (1) A loan fund or loan consortium receiving
loans or grants from an applicant pursuant to the AHP and the project
sponsors or owners receiving loans or grants from a loan fund or loan
consortium are subject to the corrective and remedial actions contained
in Sec. 960.16 for fraud and non-compliance with respect to the
requirements of this part.
(2)(i) In the event of a loan fund's or loan consortium's fraud or
willful non-compliance with respect to the requirements of this part,
the full amount of the AHP subsidy shall be recovered from the loan
fund or loan consortium by the applicant and returned to the Bank or,
if previously agreed to by the Bank, shall be recovered by the Bank
from the loan fund or loan consortium.
(ii) An applicant that provides loans or grants to a loan fund or
loan consortium pursuant to the AHP shall have in place either:
(A) A legally binding agreement or other legally enforceable
mechanism that permits it to recover from the loan fund or loan
consortium, in the event of fraud or willful non-compliance by the loan
fund or loan consortium with respect to the requirements of this part,
the full amount of the AHP subsidy; or
(B) If the Bank agrees and such an agreement is legally
enforceable, a three-party agreement that includes the Bank, the
applicant and the loan fund or loan consortium that permits the Bank to
recover from the loan fund or loan consortium, in the event of fraud or
willful non-compliance by the loan fund or loan consortium with respect
to the requirements of this part, the full amount of the AHP subsidy.
(3)(i) In the event of a sponsor's or owner's fraud or willful non-
compliance with respect to the requirements of this part, the full
amount the AHP subsidy shall be recovered by the loan fund or loan
consortium from the sponsor or owner, to be used for additional AHP
projects.
(ii)(A) The loan fund or loan consortium shall have in place a
legally binding agreement or other legally enforceable mechanism that
permits it to recover from the sponsor or owner the full amount of the
AHP subsidy provided to the project in the event of the sponsor's or
owner's fraud or willful non-compliance with respect to the
requirements of this part, and the applicant shall have in place a
legally binding agreement or other legally enforceable mechanism that
permits it to recover from the loan fund or loan consortium such amount
recovered by the loan fund or loan consortium from the sponsor or
owner; or
(B) The applicant shall have in place, if the Bank agrees and such
agreement is legally enforceable, a four-party agreement that includes
the Bank, the applicant, the loan fund or loan consortium and the
sponsor or owner, that permits the Bank to recover from the sponsor or
owner the full amount of the AHP subsidy provided to the project in the
event of the sponsor's or owner's fraud or willful non-compliance with
respect to the requirements of this part.
(4) The Board in its discretion may grant a waiver of any required
remedial actions under this paragraph (e) for fraud or willful non-
compliance with respect to the requirements of this part, upon written
request by the Bank, applicant, loan fund or loan consortium, sponsor
or owner.
Subpart J--Required AHP Contributions
Sec. 960.18 Required annual AHP contributions.
Each Bank shall fund its AHP in accordance with the following
formula:
(a) In 1994, the greater of:
(1) 6 percent of the Bank's net earnings for the previous year; or
(2) That Bank's pro rata share of an aggregate of $75 million to be
contributed in total by the Banks, such proration being made on the
basis of the net earnings of the Banks for the previous year.
(b) In 1995 and each year thereafter, the greater of:
(1) 10 percent of the Bank's net earnings for the previous year; or
(2) That Bank's pro rata share of an aggregate of $100 million to
be contributed in total by the Banks, such proration being made on the
basis of the net earnings of the Banks for the previous year.
Sec. 960.19 Temporary suspension of AHP contributions.
(a) Application for temporary suspension. (1) If a Bank finds that
the contributions required pursuant to Sec. 960.18 are contributing to
the financial instability of the Bank, the Bank shall notify the Board
promptly, and may apply in writing to the Board for a temporary
suspension of such contributions.
(2) A Bank's application for a temporary suspension of
contributions shall:
(i) State the period of time for which the Bank seeks a suspension;
(ii) State the grounds for a suspension;
(iii) Include a plan for returning the Bank to a financially stable
position; and
(iv) Be accompanied by the Bank's preceding year's annual financial
report, if available, and the Bank's most recent quarterly and monthly
financial statements and any other financial data the Bank wishes the
Board to consider.
(b) Board review of application for temporary suspension.--(1)
Grounds for approval of application. In reviewing a Bank's application
for a temporary suspension of contributions to determine the Bank's
financial instability, the Board shall consider the following factors:
(i) Whether the Bank's earnings are severely depressed. The Board
shall consider the extent to which the Bank's quarterly or annual net
earnings have decreased from the preceding quarter or year, and whether
such decline is projected to continue;
(ii) Whether there has been a substantial decline in the Bank's
membership capital. The Board shall consider the extent to which the
Bank's paid-in membership capital has declined in any given quarter or
year, and whether such decline is projected to continue;
(iii) Whether there has been a substantial reduction in the Bank's
advances outstanding. The Board shall consider the extent to which the
Bank's level of advances has declined in any given quarter or year, and
whether such decline is projected to continue; and
(iv) Whether any other financial condition exists with respect to
the Bank which has resulted in, or is likely to result in, the
financial instability of the Bank.
(2) Limitations on grounds for approval of application. The Board
shall disapprove an application for a temporary suspension if it
determines that the Bank's reduction in earnings is a result of:
(i) A change in the terms of advances (other than subsidized
advances) to members which is not justified by market conditions;
(ii) Inordinate operating and administrative expenses; or
(iii) Mismanagement.
(c) Board decision. The Board shall approve or disapprove a Bank's
application for a temporary suspension within 30 calendar days of
receipt of such application, and the Board's decision shall be in
writing and shall be accompanied by specific findings and reasons for
its action. A copy of the Board's decision shall be forwarded to each
of the Banks.
(d) Board approval of application for temporary suspension. (1) If
the Board approves a Bank's application for a temporary suspension, the
Board's written decision shall specify the period of time such
suspension shall remain in effect.
(2) During the term of a temporary suspension approved by the
Board, the affected Bank shall provide to the Board such financial
reports as the Board shall require to monitor the financial condition
of the Bank, and the Board shall continue to monitor the Bank's
financial condition.
(3) If, prior to the conclusion of the temporary suspension period,
the Board determines that the Bank has returned to a position of
financial stability, the Board may, upon written notice to the Bank,
terminate the temporary suspension.
(e) Application for extension of temporary suspension period. (1)
If a Bank's board of directors determines that the Bank has not
returned to, or is not likely to return to, a position of financial
stability at the conclusion of the temporary suspension period, the
Bank may apply in writing for an extension of the temporary suspension
period, stating the grounds for such extension.
(2) The Board shall approve or disapprove a Bank's application for
an extension of a temporary suspension period within 30 calendar days
of receipt of such application.
(3) The Board's decision on an application for an extension of a
temporary suspension period shall be in writing, shall be accompanied
by specific findings and reasons for such action, and shall state the
effective date and time period if an extension is approved.
(f) Notice to Congress. (1) The Board shall notify the Committee on
Banking, Finance and Urban Affairs of the House of Representatives and
the Committee on Banking, Housing and Urban Affairs of the Senate not
less than 60 calendar days before any temporary suspension (or
extension of such suspension) approved pursuant to this section takes
effect.
(2) A temporary suspension (or extension of such suspension) shall
become effective as determined by the Board, unless a joint resolution
of Congress is enacted disapproving such suspension (or extension
thereof).
Subpart K--Affordable Housing Reserve Fund
Sec. 960.20 Affordable Housing Reserve Fund.
(a) If a Bank fails to use or commit the full amount it is required
to contribute to the AHP in any year pursuant to Sec. 960.18, 90
percent of the amount that has not been used or committed in that year
shall be deposited by the Bank in an Affordable Housing Reserve Fund
established and administered by the Board. The 10 percent of the unused
and uncommitted amount retained by the Bank should be fully used or
committed by the Bank during the following year, and any remaining
portion must be deposited in the Affordable Housing Reserve Fund. A
Bank is deemed to have used or committed its required contribution
where amounts are remaining at the end of the year because funding the
next highest ranking project would exceed the Bank's required AHP
contribution for the year. Such amounts remaining shall be combined
with returned AHP funds to fund the next highest scoring AHP project or
projects, or carried over by the Bank to the next year's AHP funding
cycles.
(b) By January 15 of each year, each Bank shall provide to the
Board a statement indicating the amount of unused and uncommitted funds
from the prior year, if any, which will be deposited in the Affordable
Housing Reserve Fund.
(c) By January 31 of each year, the Board will notify the Banks of
the total amount of funds, if any, available in the Affordable Housing
Reserve Fund.
Subpart L--Advisory Councils
Sec. 960.21 Advisory Councils.
(a) Appointment. (1) Each Bank shall appoint an Advisory Council of
seven to 15 persons, as provided in the Bank's AHP implementation plan.
Advisory Council members shall reside in the Bank's district and shall
be drawn from community and nonprofit organizations actively involved
in providing or promoting low- or moderate-income housing in the Bank's
District.
(2) The Bank shall actively solicit nominations from Bank members
and community and nonprofit organizations actively involved in
providing or promoting low- or moderate-income housing in the Bank's
District, and shall allow sufficient time for such organizations to
respond, so that the nomination and appointment process is as broad and
as participatory as possible.
(3) Advisory Council members shall be appointed by the Banks giving
consideration to the size of the District and the diversity of low-
income housing needs within the District.
(4) Advisory Council members shall serve for terms of two or three
years, and such terms shall be staggered to provide continuity and
experience in service, as provided in the Bank's AHP implementation
plan. An Advisory Council member may not serve for more than six years
consecutively.
(5) An Advisory Council member who, subsequent to appointment, is
no longer employed by or associated with a community or nonprofit
organization actively involved in providing or promoting low- or
moderate-income housing in the Bank's District, may continue to serve
on the Advisory Council until the end of his or her term.
(b) Election of chairperson and vice chairperson. Each Advisory
Council shall elect from among its voting members a chairperson and a
vice chairperson.
(c) Designation of secretary. Each Advisory Council shall designate
a member, or request that a member of the Bank's staff be designated,
to act as secretary of the Advisory Council. The secretary shall record
and maintain minutes of the meetings of the Advisory Council. Minutes
of each meeting shall contain, among other things, a record of the
persons present, a description of the matters discussed, and
recommendations made. The person acting as secretary at a meeting shall
certify to the accuracy of the minutes of that meeting.
(d) Review of Bank's proposed AHP implementation plan and prior AHP
applications. (1) Prior to approval of the Bank's proposed AHP
implementation plan by the Bank's board of directors, the Bank's
Advisory Council shall review the proposed AHP implementation plan and
provide its recommendations to the Bank's board of directors pursuant
to the requirements in Sec. 960.2(c).
(2) Upon request of the Advisory Council, the Bank shall provide
the Advisory Council with copies of any AHP applications from prior AHP
funding cycles.
(e) Meetings with the Banks. The Advisory Council shall meet with
representatives of the board of directors of the Bank at least
quarterly to advise the Bank on low- and moderate-income housing
programs and needs in the Bank's District and on the utilization of AHP
subsidized advances or direct subsidies for these purposes.
(f) Report to the Board. Each Advisory Council shall submit to the
Board annually by March 1 its analysis of the low-income housing
activity of its Bank.
(g) Payment of expenses and compensation.--(1) Expenses. Each Bank
shall reimburse members of its Advisory Council for transportation and
subsistence expenses they incur for each day devoted to attending
quarterly meetings with representatives of the board of directors of
the Bank.
(2) Fees. Each Bank shall pay members of its Advisory Council a fee
for each day devoted to attending quarterly meetings with
representatives of the board of directors of the Bank.
Subpart M--Effective Dates
Sec. 960.22 Effective dates.
This part shall become effective [30 days after publication of the
final rule in the Federal Register]. The provisions of this part, or
portion thereof, may be applied to projects approved for AHP funding
prior to [30 days after publication of the final rule in the Federal
Register] to the extent all relevant parties (the Bank, the applicant,
the sponsor or the owner, and if applicable, the loan fund or loan
consortium) agree thereto in writing.
Dated: December 15, 1993.
By the Federal Housing Finance Board.
Philip L. Conover,
Managing Director.
[FR Doc. 94-412 Filed 1-7-94; 8:45 am]
BILLING CODE 6725-01-U
