[Federal Register Volume 61, Number 218 (Friday, November 8, 1996)]
[Proposed Rules]
[Pages 57799-57830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28319]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 960
[No. 96-72]
Amendment of Affordable Housing Program Regulation
AGENCY: Federal Housing Finance Board.
ACTION: Proposed rule.
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SUMMARY: The Federal Housing Finance Board (Finance Board) is proposing
to amend its regulation governing the operation of the Affordable
Housing Program (AHP or Program). Among the significant changes made by
the proposed rule are: Transfer of approval authority for AHP
applications from the Finance Board to the Federal Home Loan Banks
(Banks); modification of the competitive scoring process under which
AHP subsidies are allocated among housing projects; establishment of
specific standards and retention periods for monitoring of AHP-assisted
housing projects; and clarification and expansion of the types of
remedies available in the event of noncompliance with AHP requirements.
The proposed rule is in furtherance of the Finance Board's
continuing effort to devolve management and governance authority to the
Banks. It also is consistent with the goals of the Regulatory
Reinvention Initiative of the National Performance Review.
DATES: Comments on this proposed rule must be received in writing on or
before February 6, 1997.
ADDRESSES: Comments should be mailed to: Elaine L. Baker, Secretary to
the Board, Federal Housing Finance Board, 1777 F Street, N.W.,
Washington, D.C. 20006. Comments will be available for public
inspection at this address.
FOR FURTHER INFORMATION CONTACT: Charles E. McLean, Deputy Director,
Housing and Community Development, (202) 408-2537, Richard Tucker,
Associate Director, Housing and Community Development, (202) 408-2848,
or Diane E. Dorius, Associate
[[Page 57800]]
Director, Housing and Community Development, (202) 408-2576, Office of
Policy; or Sharon B. Like, Senior Attorney-Advisor, (202) 408-2930, or
Brandon B. Straus, Attorney-Advisor, (202) 408-2589, Office of General
Counsel, Federal Housing Finance Board, 1777 F Street, N.W.,
Washington, D.C. 20006.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
Section 10(j)(1) of the Federal Home Loan Bank Act (Act) requires
each 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.
See 12 U.S.C. 1430(j)(1). The Finance Board is required to promulgate
regulations governing the Program. See id. The Finance Board's existing
regulation governing the operation of the Program is set forth in part
960 of the Finance Board's regulations. See 12 CFR part 960. The
Program has been operating successfully for approximately six years.
As a result of the Finance Board's and the Banks' experience in
administering the Program, on January 10, 1994, the Finance Board
issued a notice of proposed rulemaking that proposed changes to improve
operation of the Program. See 59 FR 1323 (Jan. 10, 1994). The Finance
Board received over 100 comment letters. During the following 18-month
period, the Finance Board was without a quorum and was unable to take
action on the proposed rule. On November 1, 1995, the Finance Board
published for comment a proposal to amend the existing AHP regulation
to authorize the Banks, in their discretion, to establish limits on the
maximum amount of AHP subsidy that may be requested per member, per
project application, or per project unit, for a given funding period.
See 60 FR 55487 (Nov. 1, 1995) (Subsidy Limits Proposal). The Finance
Board received 25 comment letters on the Subsidy Limits Proposal.
Given the passage of time since the 1994 notice of proposed
rulemaking, and the experience of the Finance Board and the Banks in
overseeing and administering the Program, the Finance Board is issuing
a new comprehensive proposal to revise the Program. The Finance Board
will consider all comments it receives before taking final action,
including comments received in response to the proposed rules published
in January 1994 and November 1995 and this notice of proposed
rulemaking. However, those who submitted comments in response to the
previous proposed rules may wish to update their earlier submissions.
As further discussed below in the Analysis of Proposed Rule
section, the proposed rule makes changes to a number of the existing
regulatory provisions governing the Program, including: (1) scoring and
approval of AHP applications for funding; (2) retention of AHP-assisted
housing; (3) monitoring of AHP-assisted housing; (4) and remedies for
noncompliance with AHP requirements. These changes are intended to
provide clearer standards for operation of the Program and reduce
regulatory burden, while continuing to identify and prevent misuse of
AHP subsidies. Many of the changes codify successful practices
developed by the Banks in implementing the Program.
The proposed amendments also should make the Program more
responsive to low- and moderate-income housing needs in each of the
twelve Bank Districts (Districts), increase efficiency in the
administration of the Program, and enhance coordination of the Program
with other housing programs whose funds are used in conjunction with
AHP subsidies. The proposed rule also reorganizes and streamlines the
text of the regulation.
The Finance Board is proposing these changes in the larger context
of its proposal to decentralize the authority to make final funding
decisions for AHP projects. While section 10(j) of the Act requires
each Bank to establish a Program, and vests in the Finance Board broad
authority to supervise the Banks' AHP activities through regulations
implementing the Act, section 10(j) does not specifically assign the
responsibility for operating the Program to the Finance Board. See 12
U.S.C. 1430(j). Under the existing regulation, each Bank is largely
responsible for the administration of its Program, including the
evaluation and processing of applications for AHP funding. See 12 CFR
960.5 (a) through (e). However, final funding decisions for AHP
projects currently are made by the Finance Board. See id.
Sec. 960.5(f)(3). The proposed rule makes a fundamental change to the
Program by vesting the Banks, instead of the Finance Board, with the
authority to make final funding decisions for AHP projects, subject to
regulatory limitations. See proposed Sec. 960.8(b). Decentralization of
funding decisions under the Program is consistent with the Finance
Board's ongoing efforts to transfer to the Banks those functions
performed by the Finance Board that are related to Bank management and
governance. Further, the Finance Board believes that, in light of the
Banks' six years of experience evaluating and processing AHP
applications, the Banks are fully prepared to take on this new
authority. The Finance Board will continue to exercise its supervisory
oversight role through examinations of each Bank's Program.
II. Analysis of Proposed Rule
A. Definitions--Sec. 960.1
Changes to individual definitions in Sec. 960.1 of the existing AHP
regulation, see 12 CFR 960.1, are discussed below in the context of
specific regulatory requirements, with the exception of the definitions
of ``direct subsidy,'' ``subsidized advance,'' ``subsidy,'' and ``cost
of funds,'' which are discussed here.
1. Definition and Calculation of AHP Subsidy
a. In general. Under the Program, the Banks provide subsidies to
finance AHP-eligible housing through: (1) advances with reduced
interest rates, known as ``subsidized advances;'' and (2) direct cash
grants, known as ``direct subsidies.'' See id. Sec. 960.3. Under the
existing regulation, the terms ``subsidized advance'' and ``direct
subsidy'' are not defined. However, the existing regulation defines the
term ``subsidy'' as ``direct cash payments under the Program or the net
present-value of the foregone interest revenues to the Bank from making
funds available under the Program at rates below the cost of funds.''
See id. Sec. 960.1(n).
The existing rule defines ``cost of funds'' as ``the estimated cost
of issuing Bank System consolidated obligations with maturities
comparable to those of the subsidized advances, as published from time
to time by the Federal Home Loan Bank System's Office of Finance.'' See
id. Sec. 960.1(f).
Based on the Finance Board's and the Banks' experience over the
past six years in calculating subsidies in the context of the various
kinds of financing structures used by members and AHP projects, the
Finance Board is proposing to add definitions of ``subsidized advance''
and ``direct subsidy'' and to amend the definitions of ``subsidy'' and
``cost of funds'' to provide clearer guidance to the Banks in
calculating the amount of AHP subsidy necessary for a proposed project.
These changes also are intended to ensure that the AHP subsidy is
passed through from the Bank to the ultimate borrower. See 12 U.S.C.
1430(j)(9)(E).
b. ``Direct subsidy''. The proposed rule defines ``direct subsidy''
as ``an AHP subsidy in the form of a direct cash
[[Page 57801]]
payment.'' See proposed Sec. 960.1. Direct subsidies may be used either
as cash grants to projects or to write down the interest rate on a loan
to the project. The new definition of ``subsidy'' includes language
that clarifies how direct subsidies are to be calculated when they are
used to write down the interest rate on a loan to a project. See id.
Specifically, if a direct subsidy is used to write down the interest
rate on a loan extended by a member, sponsor, or other party to a
project, the direct subsidy must equal the net present value of the
interest foregone from making the loan below the lender's market
interest rate (calculated as of the date the AHP application is
submitted to the Bank, and subject to adjustment under
Sec. 960.9(c)(1)). See id.
c. ``Subsidized advance''. The proposed rule defines ``subsidized
advance'' as ``an advance to a member at an interest rate reduced below
the Bank's cost of funds, by use of a subsidy.'' See id.
The proposed rule defines ``subsidy,'' for purposes of determining
the amount of the interest rate subsidy incorporated in a subsidized
advance, as ``the net present value of the interest revenue foregone
from making a subsidized advance at a rate below the Bank's cost of
funds, determined as of the date of disbursement of the subsidized
advance or the date prior to disbursement on which the Bank first
manages the funding to support the subsidized advance through its
asset/liability management system, or otherwise. See id.
d. ``Cost of funds''. The proposed rule defines ``cost of funds''
as ``for purposes of a subsidized advance, the estimated cost of
issuing Bank System consolidated obligations with maturities comparable
to that of the subsidized advance.'' See id. The Finance Board
specifically requests comments on whether the interest rate subsidy
incorporated in a subsidized advance should be defined by reference to
a Bank's market advance rate, rather than the Bank's cost of funds.
This would allow a Bank to use AHP subsidies to pay its regular advance
mark-up where AHP subsidy is delivered to a project through a
subsidized advance. Arguably, this eliminates a perceived disincentive
to the Banks to make subsidized advances, versus direct subsidies.
However, an argument can be made that the form in which AHP subsidies
are delivered to projects, i.e., subsidized advances versus direct
subsidies, is determined by the financing structures used by proposed
projects, not by the preferences of Banks in funding such projects.
Consequently, it is argued that allowing Banks to use AHP subsidies to
pay their regular advance mark-up would not affect the level of
subsidized advances made by Banks and would use more AHP subsidies to
produce the same amount of affordable housing.
B. Operation of Program and AHP Implementation Plans--Sec. 960.2
1. Program Operation
Proposed Sec. 960.2(b) provides that each Bank's Program shall be
governed solely by the requirements set forth in 12 U.S.C. 1430(j) and
part 960, and a Bank shall not adopt any additional substantive AHP
requirements, except as expressly provided in part 960. This is
intended to make clear that the Finance Board intends its AHP
regulation to ``occupy the field'' with regard to substantive
requirements governing the Program. A Bank is prohibited from adopting
additional substantive rules or policies governing its Program, unless
expressly authorized to do so by a provision of the AHP regulation.
2. AHP Implementation Plans
The existing regulation requires each Bank's board of directors to
adopt an AHP implementation plan annually, a copy of which must be
submitted to the Finance Board annually. See 12 CFR 960.2(b). Proposed
Sec. 960.2(c) requires adoption of the plan by December 1 of each year,
and prohibits the board of directors from delegating responsibility for
adoption of the plan to Bank officers or other Bank employees.
A Bank's implementation plan must set forth: (1) the Bank's project
cost guidelines, adopted pursuant to proposed Sec. 960.3(b); (2) the
Bank's schedule for AHP funding periods, adopted pursuant to proposed
Sec. 960.6(a); (3) any District threshold requirements, adopted
pursuant to proposed Sec. 960.7(b); (4) the Bank's AHP scoring
guidelines, adopted pursuant to proposed Sec. 960.8(a); (5) the Bank's
procedures for verifying a project's use of AHP subsidies within a
reasonable period of time pursuant to proposed Sec. 960.9(a); (6) the
Bank's procedures for verifying compliance upon disbursement of AHP
subsidies pursuant to Sec. 960.9(b); (7) the requirements for any
homeownership assistance program adopted pursuant to proposed
Sec. 960.12; and (8) the Bank's policies and procedures for carrying
out the Bank's monitoring obligations under proposed Sec. 960.13.
A Bank must give its Advisory Council a reasonable period of time
to review the Bank's plan and any subsequent amendments and provide its
recommendations to the Bank's board of directors prior to adoption.
This provision is intended to expand the Advisory Councils' role in
advising the Banks on how AHP subsidies should be allocated to meet the
low- and moderate-income housing and community development programs and
needs in their Districts. A Bank's plan, and any amendments, must be
made available to members of the public, upon request.
Proposed Sec. 960.2(d) carries forward the requirement in
Sec. 960.6(a) of the existing regulation that each Bank shall provide
reports and documentation concerning the Program as the Finance Board
may request from time to time. See id. Sec. 960.6(a). A Bank must
provide promptly to the Finance Board and the Advisory Council a copy
of the AHP implementation plan and any amendments.
C. Eligible Costs--Sec. 960.3
1. General
The proposed rule revises Sec. 960.3 of the existing regulation by
clarifying the kinds of activities and costs that are eligible to be
financed with AHP subsidies. See id. Sec. 960.3. The Act requires each
Bank to establish a Program ``to subsidize the interest rate on
advances to members engaged in lending for long term, low- and
moderate-income, owner-occupied and affordable rental housing * * *.''
See 12 U.S.C. 1430(j)(1). The Act further provides that AHP subsidized
advances are to be used to: (1) finance homeownership by families with
incomes at or below 80 percent of the median income for the area (i.e.,
low- or moderate-income households); or (2) 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. See id. Sec. 1430(j)(2).
Proposed Sec. 960.3(a) implements this statutory requirement. It
provides that AHP subsidies may be used to finance: (1) the purchase,
construction, or rehabilitation of owner-occupied housing by or for
very low- or low- or moderate-income households; and (2) the purchase,
construction, or rehabilitation of rental projects where at least 20
percent of the units in the project are occupied by and affordable for
very low-income households. The Finance Board wishes to make clear that
those units in excess of 20 percent are not required to be, but may be
committed to be, occupied by and
[[Page 57802]]
affordable for very low- or low- or moderate-income households.
2. Definitions of ``Low- and 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 that has an income of 80
percent or less of the area median. See id. Sec. 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. See id. Sec. 1430(j)(13)(B).
The Finance Board's existing 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 [(HUD)].'' 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).
Under section 3 of the United States Housing Act of 1937, the
Secretary of HUD annually publishes median income limits for 2,700
metropolitan statistical areas (MSAs), counties, and nonmetropolitan
statistical areas, and makes adjustments to these limits for various
local conditions as well as for household size. See 42 U.S.C.
1437a(b)(2). In some areas, the Secretary adjusts the income limit
downward to take into account prevailing construction costs, low
housing costs, or unusually high household incomes.
To date, the Finance Board has interpreted Sec. 960.1 (c) and (h)
of the existing regulation to require the use of the income limits
published by HUD, including HUD's adjustments for household size, in
determining household eligibility under the Program. On November 5,
1993, the Finance Board published for comment a proposal to amend the
definitions of the terms described above in order to redefine the AHP
income limits without certain adjustments incorporated in the HUD
income limits. See 58 FR 58988 (Nov. 5, 1993). This proposal also was
part of the Finance Board's January 10, 1994 proposal. See 59 FR 1323
(Jan. 10, 1994).
Proposed Sec. 960.1 continues to require the use of HUD income
limits, including adjustments for household size, in determining
household eligibility under the Program. One reason for this approach
is that arguably, in more affluent areas, limited AHP resources should
go to those households that have greater need for housing assistance
relative to households at the higher end of the median income scale.
Failure to use HUD downward adjustments may create a preference for
relatively affluent areas over other areas within a state.
On the other hand, the HUD adjustment may result in an
inappropriate exclusion of certain relatively higher income households
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. Although using HUD's income
limits, including the downward adjustment, decreases the number of
households in an area that are eligible to receive assistance under the
Program, such areas may continue to have many households with incomes
below HUD's adjusted income limits who are ready and able to qualify
for AHP-assisted housing.
By adopting the HUD program standards, including regional caps and
variations for family size, the Finance Board has made it obligatory to
use the HUD schedule for all AHP projects, even where no HUD money is
involved. There are other legitimate federal, state, and local
government sources for area median income data which may be valid and
more accurate measures of local economic conditions than the HUD
schedule, which reflects internal adjustments to the data furnished by
the U.S. Department of Commerce.
There has been concern that the current regulation has precluded
AHP participation in any state or local, public or private program that
does not conform to the HUD schedule or formula for adjusting for
family size. In some cases, a member may not be able to generate an AHP
project in an area where it offers banking services, simply because the
member's market area is a higher-cost area that is not compatible with
HUD's program limits.
The alternatives discussed below would not change the income
eligibility standards of 80 percent and 50 percent of area median
income, but would provide greater flexibility in determining the basis
on which these percentages are calculated.
In light of the Finance Board's statutory mandate to ensure that
the AHP regulation coordinates the Program with other federal and
federally-subsidized affordable housing activities to the maximum
extent possible, see 12 U.S.C. 1430(j)(9)(G), a more flexible
definition would allow the Program to continue to conform with HUD
programs while improving its compatibility with other housing programs,
such as state mortgage revenue bond programs, that use different income
statistics or different household size adjustments.
The alternatives would allow: (1) median income to be established
using any reliable source for current area information and be
determined for counties and other applicable state and local
subdivisions as well as MSAs; (2) any adjustment for family size to be
made in conformance with the requirements of the lead or controlling
funding source or program; and (3) the use of whatever median income
standard and adjustment is being used by the sponsoring or funding
entity for the project, provided that the standard is from a legitimate
state or federal source that regularly provides such information on
income. The Finance Board specifically requests comments on these
alternatives.
3. Definition of ``Affordable''
The proposed rule eliminates the existing definition of
``affordable for very low-income households,'' see 12 CFR 960.1(b), and
replaces it with a definition of ``affordable,'' which is defined to
mean that the monthly housing costs charged to a household for an AHP-
assisted rental unit cannot exceed 30 percent of the income of a
household of the maximum income and size expected, under the commitment
made in the approved AHP application, to occupy the unit (assuming
occupancy of 1.5 persons per bedroom or 1.0 person per unit without a
separate bedroom). See proposed Sec. 960.1. Under the revised
definition, the affordability concept can now be applied not only to
very low-income households, but also to low- or moderate-income
households. In addition, the revisions clarify that the rent for those
units designated for occupancy by households with a specific income
level cannot exceed 30 percent of the income of a household of the
maximum income and size expected, under the commitment made in the
approved AHP application, to occupy the unit (assuming occupancy of 1.5
persons per bedroom or 1.0 person per unit without a separate bedroom).
See id. For example, if a unit is designated for occupancy by a four-
person household with a maximum income equal to 40 percent of the
median income for the area and the household occupying the unit is a
three-person household whose income is 35 percent of the median income
for the
[[Page 57803]]
area, the rent should be equal to 30 percent of 40 percent of the
median income for the area for a four-person household. This is
necessary because project rent projections, which determine, in part,
the amount of subsidy needed by a project, are based on the assumption
that rents will be set based on the maximum income and size of
households expected to occupy designated very low-income units. The
proposed definition of ``affordable'' also incorporates the new
proposed definition of ``monthly housing costs.'' See id.
4. Eligible Costs
Proposed Sec. 960.3(b) clarifies the language in the existing
regulation describing the costs that are eligible to be paid with AHP
subsidies. See 12 CFR 960.3(c). Proposed Sec. 960.3(b) provides that
AHP subsidies may be used to pay only for the customary and standard
costs typically incurred, at fair market prices, to purchase,
construct, or rehabilitate AHP-eligible housing. In addition, the Banks
are required to evaluate the reasonableness of project costs, based
upon project cost guidelines adopted by the Bank. Section 10(j)(9)(F)
of the Act requires the Finance Board to establish maximum subsidy
limitations under the Program, and section 10(j)(9)(D) of the Act
requires the Finance Board to ensure that a preponderance of assistance
provided under the Program is ultimately received by low- and moderate-
income households. See 12 U.S.C. 1430(j)(9)(D), (F). Requiring that
project costs be reasonable is one way of keeping projects from being
over-subsidized, ensuring that a preponderance of the funds are
received by the targeted households, through the lowering of their
housing costs and avoiding any undue benefit to the intermediaries in
the development process. The proposal that Banks undertake a project
cost review of each application merely codifies the existing practice
of many of the Banks.
5. Ineligible Costs
Proposed Sec. 960.3(c) sets forth the following costs that may not
be paid using AHP subsidies.
a. Pre-development expenses. Proposed Sec. 960.1 defines ``pre-
development expenses'' as ``expenses for the purpose of determining the
feasibility of a proposed project.'' Examples of such expenses include
architectural, legal, and engineering fees and survey costs incurred to
determine the feasibility of a proposed project. The Finance Board
believes that, based on its experience with the Program, there is a
great likelihood that expenses incurred during the pre-feasibility
period, rather than the post-feasibility period, of a project will not
result in the actual purchase, construction, or rehabilitation of
housing. Further, since the inception of the Program, demand for AHP
subsidies for projects in the post-feasibility stage has significantly
exceeded available funds. Thus, if AHP subsidies were to be approved
for use during the pre-feasibility period, potentially significant
amounts of subsidies that currently go toward completing projects might
instead be paying for activities that never result in the financing or
production of housing. Proposed Sec. 960.3(c)(1), therefore, prohibits
the use of AHP subsidies for pre-development expenses not yet incurred
by a proposed project as of the date the AHP application is submitted
to the Bank. Nonetheless, projects in the post-feasibility stage may
apply for AHP subsidies to reimburse the pre-development expenses they
incurred during the pre-feasibility period.
b. Prepayment and cancellation fees. Proposed Sec. 960.3(c) (2) and
(3) prohibit the use of AHP subsidies for prepayment and cancellation
fees and penalties imposed by a Bank on a member for a subsidized
advance or advance commitment that is prepaid or canceled,
respectively. The Finance Board believes that funding such fees is an
unproductive use of AHP subsidies and does not meet the statutory
requirement that AHP subsidies be used to finance housing. See 12
U.S.C. 1430(j)(2).
c. Counseling costs. Counseling can play an important role in the
development and success of affordable housing projects. The Finance
Board specifically requests comments on whether AHP subsidies should be
permitted to pay for counseling costs, generally, and whether they
should be used to pay only for counseling for homebuyers, homeowners,
or tenants of AHP-assisted units. The Finance Board believes that if
AHP subsidies are to be used for counseling, they should be used to
expand the pool of resources available for counseling, rather than
replace existing sources of funding. The Finance Board wishes to
prevent AHP subsidies from being used to pay for counseling that, in
the absence of the AHP subsidy, would customarily be financed by
another source of funding for a project. Therefore, proposed
Sec. 960.3(c)(4) prohibits the use of AHP subsidies for costs incurred
in connection with counseling of homebuyers, homeowners, or tenants
except for costs of homebuyer counseling where: (1) the counseling is
provided to a household that actually purchases an AHP-assisted unit;
and (2) the cost of the counseling has not been covered by another
funding source, including the member.
d. Direct subsidy processing fees. Members do not conduct the same
level of underwriting and processing when providing direct subsidies to
projects as they do when making loans to projects. Therefore, proposed
Sec. 960.3(c)(5) prohibits the use of AHP subsidies for processing fees
charged by members for providing direct subsidies to AHP-assisted
projects. This would not preclude a member from using AHP subsidies to
pay for an origination fee in cases where the member receives both a
subsidized advance and a direct subsidy, or only a direct subsidy, from
a Bank, and in turn makes both a loan and a grant to the project,
provided the AHP subsidies are used to pay only for the loan
origination fee and not for any fee associated with providing the
direct subsidy.
6. Refinancing
Proposed Sec. 960.3(d) provides that AHP subsidies may be used to
refinance an existing single-family or multifamily mortgage loan,
provided the equity proceeds of the refinancing are used only for the
purchase, construction, or rehabilitation of AHP-eligible housing. This
provision is intended to prevent the owner of an existing housing
project from using AHP subsidies to liquidate the owner's equity stake
in the project, for the sole benefit of the owner. Such use of AHP
subsidies would be contrary to the Act, because there would be no
resulting purchase, construction, or rehabilitation of AHP-eligible
housing. See 12 U.S.C. 1430(j)(2).
D. Retention of AHP-Assisted Housing--Sec. 960.4
Under the existing regulation, there is no specified minimum
retention period for AHP-assisted owner-occupied or rental housing.
Projects that commit to longer retention periods receive more points in
the scoring process. See 12 CFR 960.5(d)(2). Further, the existing
regulation does not provide specific requirements governing the kinds
of retention mechanisms that are to be used to ensure that AHP-assisted
housing continues to meet AHP statutory and regulatory requirements and
the obligations committed to in applications for AHP subsidies. The
proposed rule establishes minimum threshold retention periods for AHP-
assisted housing and clarifies the kinds of retention mechanisms that
must be used for such housing.
[[Page 57804]]
a. Owner-occupied units. The Finance Board believes that the
purpose of the language in the Act directing AHP subsidies to be used
to ``finance homeownership by families with incomes at or below 80
percent of the median income for the area,'' is to assist low- and
moderate-income households in achieving homeownership, and then
permitting the households to have rights in a home to the same extent
as other homeowners, including the benefit of appreciation of the value
of the home. See 12 U.S.C. 1430(j)(2)(A). Unlike the statutory
provision governing AHP-assisted rental housing, see id.
Sec. 1430(j)(2)(B), the provision governing AHP-assisted owner-occupied
housing does not mandate continued affordability for subsequent
purchasers of owner-occupied units, nor does it impose restrictions on
the resale price of such units. Therefore, the retention provisions of
the proposed rule do not impose such requirements on owner-occupied
units. However, to minimize opportunities for speculation, proposed
Sec. 960.4(a) requires each AHP-assisted owner-occupied unit to be
subject to a deed restriction, ``soft'' second mortgage, or other
legally enforceable mechanism facilitating recovery of a portion of the
AHP subsidy if, prior to the end of the retention period, the owner
sells the unit to a household that is not a low- or moderate-income
household or refinances the unit and fails to ensure that it continues
to be subject to a retention mechanism for the remainder of the
retention period. In the latter case, the homeowner is required to
repay the full amount of the direct subsidy.
Proposed Sec. 960.1 defines ``retention period'' as the period
during which the sponsor or owner of an AHP-assisted project commits to
comply with the requirements of 12 U.S.C. 1430(j), the AHP regulation,
and the terms of the approved AHP application. Proposed Sec. 960.1
provides that the minimum retention period for an owner-occupied unit
is 5 years, and for a rental unit is 15 years from the date of project
completion. Under proposed Sec. 960.8(a)(2)(v)(E), a Bank may establish
a scoring priority for applications for projects with retention periods
in excess of the required minimums.
Proposed Sec. 960.4(a)(1) provides specifically that an owner-
occupied unit financed by a direct subsidy under the Program must be
subject to a deed restriction, ``soft'' second mortgage, or other
legally enforceable mechanism requiring that the Bank or its designee
is to be given notice of any sale or refinancing of the unit occurring
prior to the end of the retention period. In the case of a sale prior
to the end of the retention period, a pro rata share of the direct
subsidy, reduced for every year the seller owned the unit, must be
repaid to the Bank from any net gain realized upon the sale of the unit
after deduction for sales expenses, unless the purchaser is a low- or
moderate-income household. In the case of a refinancing prior to the
end of the retention period, the full amount of the direct subsidy must
be repaid to the Bank from any net gain realized upon the refinancing
of the unit, unless the unit continues to be subject to a retention
mechanism for the remainder of the retention period. This is intended
to ensure that the owner of an AHP-assisted unit does not circumvent
the retention requirement by refinancing the unit.
Proposed Sec. 960.4(a)(2) provides specifically that an owner-
occupied unit financed by a loan from the proceeds of a subsidized
advance under the Program must be subject to a deed restriction or
other legally enforceable mechanism requiring that the Bank or its
designee is to be given notice of any sale or refinancing of the unit
occurring prior to the end of the retention period. In the case of a
refinancing prior to the end of the retention period, the full amount
of the interest rate subsidy received by the owner, based on the pro
rata portion of the interest rate subsidy imputed to the subsidized
advance during the period the owner occupied the unit prior to
refinancing, must be repaid to the Bank from any net gain realized upon
the refinancing, unless the unit continues to be subject to a retention
mechanism for the remainder of the retention period.
Where a member uses the proceeds of a subsidized advance to make
loans financing owner-occupied units, the Bank must require the member
to agree in writing that if such loans are prepaid by the borrower, the
member may, at its option, either: (1) repay to the Bank that portion
of the subsidized advance used to make the loan to the borrower, and be
subject to a fee imposed by the Bank sufficient to compensate the Bank
for any loss the Bank experiences in reinvesting the repaid amount at a
rate of return below the cost of funds originally used by the Bank to
calculate the interest rate subsidy incorporated in the subsidized
advance; or (2) continue to maintain the subsidized advance
outstanding, subject to the Bank resetting the interest rate on that
portion of the subsidized advance used to make the loan to the borrower
to a rate equal to the cost of funds originally used by the Bank to
calculate the interest rate subsidy incorporated in the subsidized
advance.
The Finance Board specifically requests comments on whether
repayment of AHP subsidy should be triggered in all cases of
refinancing by the owner prior to the end of the retention period, not
just in cases where the owner fails to ensure that the unit continues
to be subject to a retention mechanism after the refinancing.
Refinancing may allow the owner of an AHP-assisted unit, in effect, to
take the subsidy out of the unit prior to the end of the 5-year
retention period, which, arguably, is a windfall to the owner. However,
homeowners, generally, can take advantage of lower interest rates by
refinancing their homes, and households that purchase AHP-assisted
homes should not be denied this opportunity. As long as the owner of an
AHP-assisted home ensures that after the refinancing, the home
continues to be subject to the AHP retention requirement, the goal of
the Program is met.
b. Rental projects. The Act provides that AHP-assisted rental
housing must be occupied by and affordable for very low-income
households ``for the remaining useful life of such housing or the
mortgage term.'' See id. Sec. 1430(j)(2). The Finance Board believes
that the statutory requirement that AHP-assisted rental housing be
affordable for the ``mortgage term'' should not be interpreted to refer
to the term of the mortgage loan actually financing a particular
housing project, because this would encourage owners to obtain the
shortest term financing available in order to limit the time that units
must remain affordable. The Finance Board believes that 15 years
reflects a reasonable period of time for the imposition of
affordability requirements on AHP-financed rental units and is within a
reasonable range of the average mortgage terms for affordable rental
housing. Project sponsors continue to have the option of maintaining
the affordability of units in the project for the remaining useful life
of the housing, see id. Sec. 1430(j)(2), but the regulatory minimum
under the proposed rule is 15 years.
Proposed Sec. 960.4(b)(1) provides that a rental project financed
with a direct subsidy must be subject to a deed restriction or other
legally enforceable mechanism requiring that the project's rental
units, or applicable portion thereof, must remain occupied by and
affordable for households with incomes at or below the levels committed
to be served in the AHP application for the duration of the retention
period, and the Bank or its designee is to be given notice of any sale
or refinancing of the project occurring prior to the end of the
[[Page 57805]]
retention period. In the case of a sale prior to the end of the
retention period, an amount equal to the entire amount of any direct
subsidy received must be repaid to the Bank, unless the subsequent
owner agrees in writing to comply with the income-eligibility and
affordability restrictions committed to in the AHP application. In the
case of a refinancing prior to the end of the retention period, an
amount equal to the entire amount of any direct subsidy received must
be repaid to the Bank, unless the project continues to be subject to a
deed restriction or other legally enforceable mechanism requiring the
project's rental units, or applicable portion thereof, to remain
occupied by and affordable for households with incomes at or below the
levels committed to be served in the AHP application for the duration
of the retention period.
Proposed Sec. 960.4(b)(2) provides that a rental project financed
with a subsidized advance must be subject to a deed restriction or
other legally enforceable mechanism requiring that the project's rental
units, or applicable portion thereof, must remain occupied by and
affordable for households with incomes at or below the levels committed
to be served in the AHP application for the duration of the retention
period, and the Bank or its designee is to be given notice of any sale
or refinancing of the project occurring prior to the end of the
retention period. In the case of a sale prior to the end of the
retention period, the full amount of the interest rate subsidy received
by the seller, based on the pro rata portion of the interest rate
subsidy imputed to the subsidized advance during the period the seller
owned the project prior to the sale, must be repaid to the Bank, unless
the subsequent owner agrees in writing to comply with the income-
eligibility and affordability restrictions committed to in the AHP
application. In the case of a refinancing prior to the end of the
retention period, the full amount of the interest rate subsidy received
by the owner, based on the pro rata portion of the interest rate
subsidy imputed to the subsidized advance during the period the owner
owned the project prior to refinancing, must be repaid to the Bank,
unless the project continues to be subject to a deed restriction or
other legally enforceable mechanism requiring the project's rental
units, or applicable portion thereof, to remain occupied by and
affordable for households with incomes at or below the levels committed
to be served in the AHP application for the duration of the retention
period.
Where a member uses the proceeds of a subsidized advance to make
loans financing a rental project, the Bank must require the member to
agree in writing that if such loans are prepaid by the borrower, the
member may, at its option, either: (1) repay to the Bank that portion
of the subsidized advance used to make the loan to the borrower, and be
subject to a fee imposed by the Bank sufficient to compensate the Bank
for any loss the Bank experiences in reinvesting the repaid amount at a
rate of return below the cost of funds originally used by the Bank to
calculate the interest rate subsidy incorporated in the subsidized
advance; or (2) continue to maintain the subsidized advance
outstanding, subject to the Bank resetting the interest rate on that
portion of the subsidized advance used to make the loan to the borrower
to a rate equal to the cost of funds originally used by the Bank to
calculate the interest rate subsidy incorporated in the subsidized
advance.
The Finance Board specifically requests comments on whether an
owner of an AHP-assisted rental project should be required to repay the
entire amount of the AHP subsidy, versus a pro rata share, where the
project is sold prior to the end of the retention period and the
subsequent owner fails to agree in writing to comply with the income-
eligibility and affordability restrictions committed to in the AHP
application. This requirement arguably serves to discourage the
conversion of AHP-assisted rental projects into projects that charge
market rents, prior to the end of the retention period.
E. Timing of Household Income Qualification--Sec. 960.5
Proposed Sec. 960.5 adds new provisions intended to clarify the
time at which a household's income should be examined to determine
whether it meets the income eligibility requirements for AHP-assisted
housing.
1. Owner-Occupied Projects
Proposed Sec. 960.5(a) provides that in order to qualify as a very
low- or a low- or moderate-income household for purposes of an AHP-
assisted owner-occupied project, a household must have an income at or
below the level committed to in the AHP application at the time the
household is qualified by the sponsor for participation in the project,
but no earlier than the date on which the AHP application was submitted
to the Bank for approval.
2. Rental Projects
Proposed Sec. 960.5(b) provides that in order to qualify as a very
low- or a low- or moderate-income household for purposes of an AHP-
assisted rental project, a household must have an income at or below
the level committed to in the AHP application for a particular unit
upon initial occupancy only. The household may continue to occupy such
designated unit even if its income subsequently increases above the
income-eligibility requirement for that unit. The unit may continue to
count toward meeting the targeted income-eligibility requirement,
provided the rent charged remains affordable, as defined in proposed
Sec. 960.1, for the targeted household.
F. Funding Periods--Sec. 960.6
1. Definition of Member
Proposed Sec. 960.1 revises the definition of ``member'' in the
existing AHP regulation, see 12 CFR 960.1(i), to conform the definition
to that used in the Finance Board's regulation on membership. See id.
Sec. 933.1(s).
2. District-Wide Competitions
Proposed Sec. 960.6(a) continues the existing requirement that each
Bank: (1) administer a District-wide competition for its AHP subsidies;
(2) announce the application due dates by December 1 of the preceding
year; and (3) offer comparable amounts of AHP subsidies in each funding
period. See id. Sec. 960.4(a). Proposed Sec. 960.6(a) revises the
existing regulation by permitting the Banks to accept applications from
members for AHP funding during a specified number of funding periods
each year, as determined by the Bank, instead of only twice a year as
required under the existing regulation. See id. The Finance Board
specifically requests comments on whether the Banks should be permitted
to accept AHP applications on a rolling basis, and, if so, how
applications would be scored under such a process.
3. Funding Availability; Notification to Members
Proposed Sec. 960.6(b) requires each Bank to notify its members and
other interested parties of: (1) the approximate amount of annual AHP
subsidies available for the Bank's District; and (2) the approximate
amount of AHP subsidies to be offered in each funding period. See id.
Sec. 960.4(b).
Proposed Sec. 960.6(b) also adds three new Bank notification
requirements. Each Bank must notify its members and other interested
parties of: (1) the applicability of any District threshold
requirements established pursuant to proposed Sec. 960.7(b); (2) the
scoring guidelines contained in the Bank's AHP
[[Page 57806]]
implementation plan; and (3) the application due dates. The term
``interested parties'' in proposed Sec. 960.6(b) is meant to refer to
those parties that have expressed an interest to the Bank in receiving
information about AHP funding periods.
G. Application Requirements--Sec. 960.7
Proposed Sec. 960.7(a) consolidates, streamlines, and revises the
AHP application requirements in Secs. 960.4(c) and 960.5(a)(1) and (2)
of the existing regulation. See 12 CFR 960.4(c), 960.5(a)(1), (2).
1. Mandatory Requirements
Under proposed Secs. 960.7(a)(1) through (3), each Bank must
require members to include in their AHP applications: (1) a concise
description of the proposed project; (2) the estimated amount of AHP
subsidy required for the proposed project; and (3) a disclosure of the
member's direct or indirect interest, if any, in the property or
proposed project. These requirements generally reiterate application
requirements in the existing regulation. See id. Sec. 960.4(c) (1),
(5), (6). However, proposed Sec. 960.7(a)(2) adds a new requirement
that in the case of an application for a subsidized advance, the member
shall include in its application the interest rate on the member's loan
to the proposed project, and, for purposes of scoring the application,
the Bank shall estimate the subsidy required for the proposed project
based on the Bank's cost of funds as of the date on which all AHP
applications are due for the funding period in which the application is
submitted. This is intended to address the fact that the actual amount
of AHP subsidy that will be incorporated in the subsidized advance for
which the member is applying will not be determined until after the
member submits its application to the Bank. Therefore, in order to
treat all members applying for subsidized advances in a given funding
period on an equal basis, the proposed rule requires that the estimate
of the subsidy in a subsidized advance be based on the Bank's cost of
funds as of the date on which all AHP applications are due for the
funding period in which the application is submitted.
Proposed Sec. 960.7(a)(4) requires that AHP applications include an
explanation of how the proposed project will comply with the eligible
costs provision of proposed Sec. 960.3(b). In order to meet this
requirement, applications should include an explanation of how the AHP
subsidy will be used. The proposed requirement is consistent with the
existing application requirements for eligible uses of AHP subsidies.
See id. Secs. 960.4(c)(1), 960.5(a)(1).
Proposed Sec. 960.7(a)(5) requires that AHP applications include an
explanation of how the proposed project will comply with the retention
requirements of proposed Sec. 960.4. In order to meet this requirement,
applications should include an explanation of what legal agreements,
deed restrictions, or other legally enforceable mechanisms are or will
be in place to ensure retention of the project in accordance with the
requirements of proposed Sec. 960.4. This is consistent with the
requirement in the existing regulation that the Bank consider the
extent to which the project facilitates the maximum retention of such
housing as evidenced through the existence of long-term guarantees,
covenants, and similar techniques. See id. Sec. 960.5(d)(2).
Proposed Sec. 960.7(a)(6) requires that AHP applications include an
explanation of how the proposed project is financially viable and
likely to be completed within a reasonable period of time, and why the
requested AHP subsidy is needed. In evaluating the application for
compliance with this requirement, a Bank must analyze all project
sources and uses of funds (including the value of any donated land,
materials, and professional labor), multi-year operating pro formas for
rental projects, sale prices for owner-occupied units, and local market
conditions and review the reasonableness of information relating to
available sources and uses of funding and financing capacity, such as
operating pro formas, to verify the proposed project's need for AHP
subsidy.
This provision amends the feasibility requirement in the existing
regulation by specifying the types of information that must be included
in the project feasibility analysis and by adding an explicit
requirement that the Banks analyze a proposed project's need for the
requested AHP subsidy. See id. Secs. 960.4(c)(3), 960.5(a)(2)(ii). This
change would make clear that the Banks, in addition to reviewing the
reasonableness of project costs, must review the reasonableness of
operating pro formas for the proposed project to ensure that
representations regarding the financing capacity of the project (such
as debt servicing capacity and equity market value), and the consequent
need for AHP subsidy, are reasonable.
The requirement that the project is likely to be completed within a
reasonable period of time replaces the requirement in
Sec. 960.5(a)(2)(iv) of the existing regulation that projects be
evaluated for their ability to begin using AHP subsidies within 12
months of approval. See id. Sec. 960.5(a)(2)(iv).
Proposed Sec. 960.7(a)(7) requires that AHP applications include an
explanation of the project sponsor's qualifications and ability to
perform its responsibilities as committed to in the AHP application.
This provision is consistent with the sponsor qualification requirement
in the existing regulation. See id. Sec. 960.4(c)(4). Proposed
Sec. 960.1 defines a ``sponsor'' as a not-for-profit or for-profit
organization or public entity that is: (1) An owner of a rental
project; or (2) integrally involved in an owner-occupied project, such
as by exercising control over the planning, development or management
of such project, or by qualifying borrowers and providing or arranging
financing for the owners of the units. This definition revises the
definition in the existing regulation to clarify the different roles of
sponsors in rental as opposed to owner-occupied projects.
Proposed Sec. 960.7(a)(8) requires that AHP applications include a
statement that the project sponsor and owner will comply with any
applicable fair housing law requirements, and an explanation of how the
project sponsor and owner intend to affirmatively market the proposed
project and otherwise comply with such requirements. This provision is
consistent with the fair housing requirements in the existing
regulation. See id. Secs. 960.4(c)(2), 960.5(a)(2)(i).
The proposed rule does not include the existing regulatory
requirement that AHP applications be evaluated to ensure the member's
ability to qualify for a subsidized advance. See id.
Sec. 960.5(a)(2)(iii). Since a Bank is always required to determine a
member's creditworthiness before providing funds to the member, see 12
CFR part 935, it is not necessary to repeat this requirement in the AHP
regulation.
Proposed Sec. 960.7(a)(9)(i) requires that AHP applications include
a statement that the proposed project will satisfy the maximum subsidy
requirement, i.e., that no subsidized household in the proposed project
shall pay less than 20 percent of such household's gross monthly income
toward monthly housing costs, as defined in proposed Sec. 960.1 (the 20
percent requirement), unless an exception applies. This provision
carries forward, in revised form, the provisions of Sec. 960.9 of the
existing regulation, which were issued by the Finance Board as an
interim rule. See id. Sec. 960.9. The maximum subsidy provisions
implement the maximum subsidy limitation requirement
[[Page 57807]]
contained in section 10(j)(9)(F) of the Act. See 12 U.S.C.
1430(j)(9)(F).
Proposed Sec. 960.7(a)(9)(ii)(A) provides that the 20 percent
requirement shall not apply where an AHP-assisted rental 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, and the households in the
project meet such requirements. This provision is consistent with the
similar exception in the existing regulation. See 12 CFR 960.9(b)(1).
Proposed Sec. 960.7(a)(9)(ii)(B) also provides that the 20 percent
requirement shall not apply where the total amount of the AHP subsidies
provided to the project to finance rehabilitation of housing units
owned by very low-income households is $10,000 or less per household,
and for housing units owned by low- or moderate-income households,
$5,000 or less per such household. This provision is a change from the
existing regulation which permits an exception to the 20 percent
requirement for rehabilitation only of units owned by very low-income
households. See id. Sec. 960.9(b)(2).
Proposed Sec. 960.7(a)(9)(ii)(C) further provides that the 20
percent requirement shall not apply where the total amount of AHP
subsidies provided to the project to finance the purchase of housing
units is $5,000 or less per household. This is a change from the
existing regulation, which permits an exception to the 20 percent
requirement for purchase of units only by 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. See
id. Sec. 960.9(b)(3).
In addition, proposed Sec. 960.7(a)(9)(ii)(D) provides that the 20
percent requirement shall not apply where AHP subsidies are used to
assist a household 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. This provision is
consistent with the similar exception in the existing regulation. See
id. Sec. 960.9(b)(4).
Proposed Sec. 960.7(a)(9)(ii) also deletes the annual Consumer
Price Index adjustments required in the existing regulation, in order
to simplify implementation of the exceptions. See id. Sec. 960.9(b)
(2), (3), (4).
Proposed Sec. 960.7(a)(10) requires that AHP applications include
an explanation of how the proposed project meets any applicable
District threshold requirements adopted by the Bank pursuant to
proposed Sec. 960.7(b), discussed further below.
Proposed Sec. 960.7(a)(11) requires that AHP applications include
an explanation of how the proposed project meets the priorities and
objectives identified in proposed Sec. 960.8(a). This provision carries
forward the similar provision in the existing regulation. See id.
Sec. 960.4(c)(1).
Proposed Sec. 960.7(a)(12) requires that AHP applications include a
certification from the member, project sponsor, and project owner
committing to comply with the requirements of 12 U.S.C. 1430(j), part
960, and all obligations committed to in the AHP application. This
provision incorporates the certification requirements in Secs. 960.4(c)
(8) and (9) of the existing regulation into a general requirement for
certification of compliance with all applicable AHP requirements and
commitments, and requires sponsors and owners, as well as members, to
make such certification. See 12 CFR 960.4(c) (8), (9).
Proposed Sec. 960.7(a)(13) requires that AHP applications include
such other information as the Bank may reasonably require in order to
verify compliance of the AHP applications with the requirements of part
960. This provision carries forward the comparable provision in the
existing regulation, but establishes a standard for when the Banks may
require other additional information not identified in proposed
Sec. 960.7(a). See id. Sec. 960.4(c)(10).
The proposed rule eliminates the requirement in existing
Sec. 960.4(c)(7), see id. Sec. 960.4(c)(7), that a member must explain
in its application how it will monitor the proposed project, because,
as discussed further below, the proposed rule establishes specific
monitoring requirements for all members. See proposed Sec. 960.13.
The proposed rule also eliminates the requirement in existing
Sec. 960.4(c)(8) that a member must explain how any excess AHP subsidy
will be recaptured. See 12 CFR 960.4(c)(8). As discussed further below,
the proposed rule establishes specific requirements for all members
governing the recapture of AHP subsidies as well as other remedies for
noncompliance. See proposed Sec. 960.14.
2. District Threshold Requirements
As discussed in part I of the SUPPLEMENTARY INFORMATION, the
Finance Board published a Subsidy Limits Proposal on November 1, 1995,
see 60 FR 55487 (Nov. 1, 1995), and received 25 comment letters.
Commenters included ten Banks, four Bank Advisory Councils, five Bank
members, three trade associations, one private housing developer, one
not-for-profit sponsor, and one housing authority sponsor. A majority
of the commenters supported the Subsidy Limits Proposal. Three
commenters opposed member subsidy limits, four commenters opposed
project application subsidy limits, and four commenters opposed project
unit subsidy limits.
As discussed below, Sec. 960.7(b) of the proposed rule incorporates
the Finance Board's Subsidy Limits Proposal, taking into account public
comments received. Specifically, the proposed rule permits the Banks,
in their discretion, to establish certain application threshold
requirements in addition to those expressly set forth in Sec. 960.7(a).
a. Member, project, and unit subsidy limits. Proposed
Sec. 960.7(b)(1) provides that a Bank's board of directors, after
consultation with its Advisory Council, may establish limits on the
maximum amount of AHP subsidy available per member per year; or per
member, per project, or per project unit in a single funding period,
provided that such subsidy limits must apply equally to all members.
See 12 U.S.C. 1427(j).
Member subsidy limits may prevent a small number of members,
especially larger members with competitive advantages, from receiving
all of the AHP subsidy available in a given funding period. This would
encourage participation by a greater number of members in the Program.
The benefits of the Program may be distributed across a wider
geographic area and among a broader variety of projects.
There may be an effect on the AHP regulatory program goal of
promoting competition if highly competitive projects have difficulty
finding available members that have not exceeded their limits to submit
AHP applications for them. However, the Finance Board believes that
sufficient numbers of members should be available to accommodate all
AHP applications. Any noncompetitive effect likely would be minimal in
comparison to the benefit of greater member participation in the
Program. Several Banks already unilaterally have adopted member subsidy
limits.
[[Page 57808]]
Project application and project unit subsidy limits may prevent a
small number of projects from receiving all or most of the available
AHP subsidies in a given funding period. This would encourage funding
of a greater number of AHP projects. Funding more projects may serve
housing needs in more areas of the Bank's District, and promote greater
participation by members, especially small members that cannot handle
large projects, in the Program. Such limits would not prevent
competitive projects from being funded. Those projects merely would be
funded at lower levels, with the gaps in funding made up from other
funding sources, thereby enabling the funding of additional AHP
projects.
There may be an effect on the AHP regulatory program goal of
promoting competition if otherwise highly competitive projects that
need a large amount of subsidy, such as some rural or homeownership
projects, have difficulty finding other available sources of funding,
and therefore, remain financially unfeasible. There also could be an
impact on the AHP statutory and regulatory program goal of promoting
funding of units for very low-income households, which often need
larger subsidies to make the projects financially feasible. See 12
U.S.C. 1430(j)(2)(B); 12 CFR 960.5(d)(1). However, the Finance Board
believes that any noncompetitive effect or impact on very low-income
targeting may be outweighed by the benefit of funding a greater number
of AHP projects, and the ability to receive additional scoring points
under the AHP regulatory scoring criterion for very low-income
targeting. Project unit subsidy limits also conform with the goal of
the effectiveness scoring criterion in the existing regulation and
proposed rule to encourage lower levels of AHP subsidy per unit by
giving additional scoring points for projects with lower ratios. See 12
CFR 960.5(d)(3); proposed Sec. 960.8(a)(3)(ii). Several Banks already
unilaterally have adopted project application and project unit subsidy
limits.
Limits on the amount of direct subsidy per project may promote
greater member involvement in the Program by encouraging more members
to borrow AHP subsidized advances and, in turn, lend their own funds to
project borrowers. This would build greater member affordable housing
lending capacity and expertise. If members' own funds were at risk as a
result of such limits, members may have greater incentive to underwrite
and monitor projects for financial feasibility and AHP compliance,
respectively. Direct subsidies, which, in some cases, are passed on by
members to borrowers without members putting any of their own funds at
risk, do not promote these goals. Several Banks already unilaterally
have adopted project direct subsidy limits.
The proposed rule provides that establishment of member, project,
or unit subsidy limits would be optional with the Banks. The Banks
would be required to consult with their Advisory Councils in
establishing such limits, since Advisory Council members typically have
affordable housing expertise that may be very useful to the Banks in
determining the affordable housing needs of the District and how any
subsidy limit would promote those needs. Thus, if a Bank determines
that imposition of particular subsidy limits will have specific
negative impacts on members or projects (e.g., as described by some
commenters in their comments on the Subsidy Limits Proposal) that
outweigh the benefits to the Program, the Bank can choose not to adopt
such limits. The proposed rule, thus, provides flexibility to the
Banks, which best understand their markets, including the availability
of other subsidy sources and affordability levels, to respond to
individual District needs.
b. Sponsor subsidy limits. In the Subsidy Limits Proposal, the
Finance Board requested comments on whether the Banks should be
permitted to establish maximum subsidy limits per project sponsor. See
60 FR 55489.
One commenter supported such authority. Sponsor subsidy limits
might encourage greater participation by sponsors in the Program,
increase the affordable housing development capacity of more sponsors,
and encourage the creation of more sponsors. Such limits might be
especially beneficial where one large or particularly active sponsor in
a District is winning a large portion of the Bank's AHP subsidies.
However, the Finance Board believes that the competitive and market
aspects of the Program will preclude any one sponsor from dominating
the AHP funding process. Accordingly, the proposed rule does not
authorize the Banks to establish a limit on the maximum amount of AHP
subsidy that may be requested per project sponsor.
c. Subsidy limits based on member capital stock investment. Several
commenters proposed that the Banks be permitted to establish subsidy
limits based on the level of a member's capital stock investment in the
Bank. Members are required by the Act to maintain a specified amount of
Bank capital stock to support their advance borrowings. See 12 U.S.C.
1426(b)(2), 1430(e)(1). The argument was made that encouraging member
advance borrowings and the corresponding investment in Bank capital
stock would further the goal of increasing Bank earnings and,
therefore, the AHP fund, which is derived from Bank earnings. However,
such limits may not enlarge the AHP fund by increasing member borrowing
because small member institutions, by virtue of their limited asset
size, would be incapable of increasing or unwilling to increase their
borrowings (due to the increased cost of borrowing resulting from
investing in additional Bank stock) just to receive ``preferred
treatment'' under such a subsidy limits policy. Accordingly, the
proposed rule does not authorize the Banks to establish subsidy limits
based on members' levels of capital stock investment in the Bank.
d. Limitation on access to AHP subsidies based on member's use of
Bank credit products. Proposed Sec. 960.7(b)(3) authorizes a Bank to
require that members submitting AHP applications have made use of a
credit product offered by the Bank within the previous 12 months, other
than AHP or Community Investment Program (CIP) (see 12 U.S.C. 1430(i))
credit products, provided that the requirement is applied equally to
all members.
In the Subsidy Limits Proposal, the Finance Board specifically
requested comments on whether the Banks should be permitted to
establish AHP subsidy limits based on the level of a member's regular
advance borrowings from a Bank. See 60 FR 55490-91. One Bank already
unilaterally has adopted such a policy. Ten commenters supported such
authority, while five commenters opposed it. One reason expressed for
imposing such limits was that they would encourage broader
participation by members in the Program, thereby giving sponsors more
options for financing AHP projects, and providing experience and
education to more members that could help them develop additional
capacity to engage in affordable housing lending. However, such limits
may not achieve this goal if members with high levels of borrowing who
already participate in the Program are allowed to apply for and win the
additional AHP subsidies no longer available to those members subject
to the limits. Uniform limits on the amount of AHP subsidy for which
each member may apply may have a greater likelihood of increasing
member participation in the Program.
It also was argued that credit-based subsidy limits may increase
the pool of available AHP funds by encouraging greater borrowing from
the Bank and, therefore, increasing Bank earnings,
[[Page 57809]]
from which AHP funds are derived. The argument also was made that
members that contribute to Bank earnings by borrowing should have
greater access than non-borrowing members to AHP subsidies derived from
such earnings.
The Act does not restrict availability of AHP subsidies to
``borrowing'' members. Nor does it specify any correlation between the
member's contribution to Bank earnings and its access to AHP subsidies.
Bank earnings are affected by economic factors other than the amount of
outstanding advances of members participating in the Program. Thus,
even non-borrowing members contribute to Bank earnings and, therefore,
to the AHP fund. The limits also may not enlarge the AHP fund by
increasing member borrowing because, as discussed above, small member
institutions, by virtue of their limited asset size, would be incapable
of increasing or unwilling to increase their borrowings (due to the
increased cost of borrowing resulting from investing in additional Bank
stock) just to receive ``preferred treatment'' under an AHP subsidy
limits policy.
Instead, proposed Sec. 960.7(b)(3) authorizes a Bank to require
that members submitting AHP applications have made use of a Bank credit
product within the previous 12 months, other than AHP or CIP credit
products, provided that the requirement is applied equally to all
members. The Finance Board believes that there is some merit in tying
access to AHP subsidies to a member's contribution to the Bank's
housing finance mission through its use of one or more of the Bank's
regular credit products. This type of limitation would not discriminate
against a member based on its asset size, as all members would have the
capability to borrow some amount from the Bank.
e. Subsidy limits based on the level of a member's mortgage-related
assets. The Finance Board requested comments in the Subsidy Limits
Proposal on whether the Banks should be permitted to establish AHP
subsidy limits based on the level of a member's mortgage-related
assets. See 60 FR 55490-91. Seven commenters supported such authority,
while six commenters opposed it.
Commenters argued that such subsidy limits may encourage members to
increase their mortgage-related lending, consistent with the provisions
of the Act that impose less burdensome advances and stock requirements
on institutions that devote a greater percentage of their assets to
housing finance (qualified thrift lenders). See 12 U.S.C. 1430(e)(1),
(2); 12 CFR 935.13. However, the Finance Board believes that such
limits would defeat this goal since members, especially commercial
banks, with lower levels of mortgage-related assets would have limited
access to AHP subsidies which they could use for such housing finance
purposes. Accordingly, the proposed rule does not authorize the Banks
to establish AHP subsidy limits based on the level of a member's
mortgage-related assets.
f. Limiting or prohibiting AHP applications for out-of-District
projects. Proposed Sec. 960.7(b)(2) authorizes the Banks, at their
option, to establish a threshold requirement prohibiting applications
for AHP subsidies for projects located outside the Bank's District.
Proposed Sec. 960.8(a)(2)(v)(M) also authorizes the Banks to adopt as
an optional Bank District scoring priority a priority for projects
located within the Bank's District.
In the Subsidy Limits Proposal, the Finance Board specifically
requested comments on whether the Banks should be permitted to limit or
prohibit members from submitting AHP applications for projects located
outside of the Bank's District. See 60 FR 55489. Several Banks already
unilaterally have adopted a prohibition or a scoring priority for
projects located within a Bank's District. Seven commenters supported
allowing the Banks to adopt a limit or prohibition, four commenters
opposed a limit or prohibition, and three commenters supported limits
only. Two commenters supported allowing the Banks to adopt a District
scoring priority for projects located within the District, while one
commenter opposed such a priority.
The Finance Board believes that the Banks should have authority to
prohibit AHP applications for out-of-District projects, or to give
scoring priority to applications for in-District projects, because a
few large multistate members could win AHP subsidies for out-of-
District projects, thereby resulting in less AHP subsidies available
for use by other members and sponsors within the District. A
prohibition or priority would help ensure that a Bank can adequately
serve the affordable housing needs within its District. A priority
would not preclude members from competing for AHP subsidies for out-of-
District projects, but would require that they score highly on other
scoring factors in order to qualify for AHP funding. Sponsors of out-
of-District projects would not be precluded from participating in the
Program, as they could apply for AHP subsidies through a member of
another Bank. In addition, it may be more difficult and costly for a
Bank to monitor projects located outside the District for compliance
with AHP requirements.
A prohibition or priority could limit or prevent access to AHP
subsidies by members' out-of-District branches, which would deny that
member the opportunity to take advantage, on behalf of a customer, of a
source of funds it was, in part, responsible for generating. However,
since adopting a prohibition or priority would be optional with the
Bank, the Bank, in consultation with its Advisory Council, would
determine whether the advantages outweigh any disadvantages. The
proposed rule provides flexibility to the Banks to determine whether to
adopt a prohibition or priority in response to their individual
District needs.
g. Member financial involvement as a threshold requirement or
scoring criterion. Proposed Sec. 960.8(a)(2)(v)(D) provides that a Bank
may adopt a District scoring priority for projects involving member
financial participation (excluding the pass-through of AHP subsidy),
such as providing market rate or concessionary financing, fee waivers,
or donations.
In the Subsidy Limits Proposal, the Finance Board specifically
requested comments on whether the Banks should have authority to
require certain types of member financial involvement in a project as a
threshold requirement that a project must satisfy in order to be
considered for scoring and approval for AHP funding, or whether such
member financial involvement should be included as a scoring criterion.
See 60 FR 55490. Six commenters supported a threshold requirement,
while nine commenters supported a scoring criterion.
The Finance Board believes that where a member's own funds and
contributions are at risk in a project, the member has a greater
incentive to underwrite the project for financial feasibility and
monitor the project for AHP compliance. Greater member involvement in
projects builds member affordable housing lending capacity and
expertise. However, the Finance Board does not believe member financial
involvement should be a threshold requirement because some projects may
not require or be able to sustain additional debt related to member
financial involvement, but still may contribute toward the objectives
of the Program, particularly by those members that are not large enough
to finance a project loan, waive fees or donate funds. In addition,
such a threshold requirement could discourage member participation in
the Program. Accordingly, the proposed rule permits a Bank to adopt
member financial involvement in the project as a scoring priority, as
further discussed below.
[[Page 57810]]
H. Application Scoring and Approvals--Sec. 960.8
1. In General
Proposed Sec. 960.8 carries forward the existing regulatory
framework governing the scoring of AHP applications, with revisions
based on a new allocation of points among revised scoring categories,
and additional discretion provided to the Banks, as further discussed
below. The Finance Board specifically requests comments on the proposed
scoring provisions. In particular, comments are requested on ways in
which the scoring system can be simplified, such as by creating
discrete scoring categories containing criteria required by the Act,
criteria established by the Finance Board, and criteria established by
the Banks.
Proposed 960.8(a)(1) provides that a Bank shall score only those
applications meeting the application requirements of proposed
Sec. 960.7. Applications shall be scored based on the extent to which
they meet the scoring priorities and objectives set forth in proposed
Sec. 960.8. The Banks are required to adopt written guidelines
implementing these scoring requirements.
The total possible score an AHP application may receive is 100
points. In determining the number of points to award an application for
any given scoring category, the Bank shall evaluate applications
relative to each other.
2. Revised Scoring Priorities Categories
Applications that meet the application requirements of proposed
Sec. 960.7 are scored according to the priorities in proposed
Sec. 960.8(a)(2). Proposed Sec. 960.8(a)(2) makes the following changes
to the existing regulatory provisions governing scoring priorities. The
Finance Board's existing regulation contains seven priority categories:
homeownership projects; rental projects; projects using federal
government properties; projects with a not-for-profit or state or local
agency sponsor; projects promoting empowerment; homeless permanent
housing projects; and projects meeting a Bank District priority. See 12
CFR 960.5(b). Under the existing regulation, applications meeting at
least three of the seven priorities are scored and ranked, as a group,
before applications meeting fewer than three of the priorities. See id.
Sec. 960.5(a)(3).
Proposed Sec. 960.8(a)(2) contains only six priority categories.
The total points available for the priority categories are increased
from 25 to 60, with the Bank required to allocate the 60 points among
the six priority categories as discussed below. The priority categories
are either fixed-point priorities or variable-point priorities.
Variable-point priorities, which are listed in paragraphs (a)(2)(i)
through (iv), and (v)(A) through (E), are those where there are varying
degrees to which an application can satisfy the priority. Each
variable-point priority category must be allocated at least 8 points.
The number of points that may be awarded to an application for meeting
a variable-point priority will vary, depending on the extent to which
the application satisfies the priority, compared to the other
applications being scored. The application(s) best achieving each
variable-point priority shall receive the maximum point score available
for that priority category, with the remaining applications scored on a
declining scale. An application receiving at least half of the points
allocated to a variable-point priority category shall be considered to
have met that priority.
Fixed-point priority categories, which are listed in paragraphs
(a)(2)(v)(F) through (M), are those which an application must meet in
order to receive the allocated points. Each fixed-point priority
category must be allocated 8 points. An application meeting a fixed-
point priority shall be awarded 8 points.
The priority selected by a Bank under paragraph (a)(2)(vi) may be
either a variable-point or fixed-point priority, depending on the
nature of the priority, and points must be allocated and awarded
accordingly.
Applications meeting at least two of the six priorities shall be
considered priority applications, and, as a group, shall be scored
before applications meeting fewer than two of the priorities.
Priority applications shall be scored against each other, based on
the extent to which they meet the priorities and the scoring objectives
contained in paragraph (a)(3).
As under the existing regulation, the remaining applications are
scored only if there are insufficient priority applications to exhaust
the total AHP subsidy amount available for the funding period. See id.
Sec. 960.5(a)(3).
Proposed Sec. 960.8(a)(2) eliminates the existing priority
categories for homeownership and rental projects because a project must
be either a rental or homeownership project in order to qualify for AHP
funding.
Proposed Sec. 960.8(a)(2)(i) revises the existing priority category
for projects involving federal government properties by including
properties owned or held by state and local governments, agencies, or
instrumentalities thereof, and by requiring that at least 20 percent of
the units in such projects meet this requirement. See id.
Sec. 960.5(b)(3); 12 U.S.C. 1430(j)(3)(B). State and local government
properties are included under this priority category because the stock
of available federal government properties is decreasing. The 20
percent of units requirement is intended to ensure that a reasonable
number of units in a project previously were government owned in order
for an AHP application to receive credit under this priority category.
Proposed Sec. 960.8(a)(2)(ii) retains the priority category for
projects sponsored by not-for-profit organizations, or state or local
government entities in the existing regulation. See 12 CFR 960.5(b)(4);
12 U.S.C. 1430(j)(3)(C).
The existing priority category for projects that empower the poor
is subsumed under proposed Sec. 960.7(a)(2)(v)(B), as further discussed
below. See 12 CFR 960.5(b)(5).
Proposed Sec. 960.8(a)(2)(iii) revises the existing homeless
housing priority category to provide that in order to meet this
priority, projects financing permanent or transitional housing for the
homeless must reserve at least 20 percent of their units for occupancy
by homeless households. See id. Sec. 960.5(b)(6). Proposed Sec. 960.1
defines ``permanent or transitional housing'' as housing with six-month
minimum occupancy, but excluding overnight shelters.
Proposed Sec. 960.8(a)(2)(iv) adds a new priority category for
projects meeting housing needs documented as part of a community
revitalization or economic development strategy approved by a unit of
state or local government.
Proposed Sec. 960.8(a)(2)(v) retains the existing Bank District
priority category but requires the Bank to select the priority, as
recommended by the Bank's Advisory Council, for each funding period,
from the specific priorities listed in paragraphs (a)(2)(v)(A) through
(M) in the proposed rule, most of which are derived from priorities
Banks have chosen in the past. The priority category in paragraph
(a)(2)(v)(B) replaces the priority category in Sec. 960.5(b)(5) of the
existing regulation for projects empowering the poor with a priority
for housing incorporating the following elements of empowerment:
programs offering employment, education, training, homeownership
counseling, or daycare services that assist AHP-eligible residents to
move toward better economic opportunities. See id. Sec. 960.5(b)(5).
As discussed above, among the priority categories that a Bank may
select are priorities for: projects involving member financial
participation; projects with retention
[[Page 57811]]
periods in excess of 5 and 15 years for owner-occupied and rental
projects, respectively; and projects located within the Bank's
District. See proposed Sec. 960.7(a)(2)(v) (B), (E), (M).
Proposed Sec. 960.8(a)(2)(vi) adds a new Bank District priority
category under which a Bank may adopt a priority for projects meeting a
housing need in the Bank's District, as defined and recommended by the
Bank's Advisory Council. The priority may be chosen from the list of
priorities in proposed paragraph (a)(2)(v), provided the priority is
different from the Bank District priority adopted under that paragraph.
The Finance Board specifically requests comments on whether a
seventh priority category should be added for projects involving member
financing (excluding the pass-through of AHP subsidies). Proposed
Sec. 960.8(a)(2)(v)(D) permits the Banks to adopt member financial
involvement as a Bank District priority. Although members have played a
critical role in the Program, their participation has not generally
involved lending their own funds. Where a member lends its own funds to
a project, it is more likely to underwrite the project for financial
feasibility and monitor the project for AHP compliance. Greater member
financial involvement in projects also builds member affordable housing
lending capacity and expertise. Adding a permanent seventh priority for
applications submitted by members that will have a financial stake in
the AHP project may serve to encourage more of such activity. The
Finance Board also requests comments on whether a member should be
deemed to meet such a priority for member financial involvement based
on the member's record of affordable housing lending activities apart
from its lending under the Program.
3. Revised Scoring Objectives
The Finance Board's existing regulation contains the following six
scoring ``objectives'' categories: targeting; long-term retention;
effectiveness (subsidy per unit); community involvement; community
stability; and innovation. See 12 CFR 960.5(d), (e). Proposed
Sec. 960.8(a)(3) eliminates the need for long-term retention as a
scoring objective because proposed Sec. 960.1 establishes minimum
retention periods of 5 and 15 years as threshold requirements for
owner-occupied and rental projects, respectively.
Proposed Sec. 960.8(a)(3) also eliminates the innovation objective
category. See 12 CFR 960.5(e)(3). The Finance Board believes that
innovation is an important part of producing affordable housing in many
cases, but is not an objective in itself. In some cases, reliance on
well-established approaches may better serve a project, and the project
should not be penalized for this. Further, innovation is a highly
subjective element that is difficult to assess consistently among
projects.
Proposed Sec. 960.8(a)(3) also makes the following revisions to the
remaining four objectives categories. The total points available for
the objectives categories are reduced from 75 to 40, with a Bank
required to allocate the 40 points among the four objectives
categories, provided that the targeting objective category is allocated
no less than 8 points. The application(s) best achieving each objective
shall receive the maximum point score available for that objective
category, with the remaining applications scored on a declining scale.
Under the targeting objective category in the existing regulation,
applications for projects serving the greatest number of very low-
income households are awarded the most points. See id.
Sec. 960.5(d)(1). Applications targeting 100 percent of the units in a
project to very low-income households generally receive the most
points. The Finance Board believes that this scoring practice creates
an inappropriate bias against mixed-income rental projects. Under the
Act, a minimum of 20 percent of the units in an AHP rental project must
be occupied by, and affordable for, very low-income households. See 12
U.S.C. 1430(j)(2)(B). In order to reduce the emphasis on funding
projects that are occupied solely by very low-income households,
proposed Sec. 960.8(a)(3)(i) provides that applications for rental
projects shall be awarded the maximum number of points available for
the targeting objective category if at least 60 percent of the units in
a project are reserved for occupancy by households with incomes at or
below 50 percent of the area median income.
The Finance Board specifically requests comments on ways in which
the targeting objective may be structured so that it is more closely
compatible with the monitoring requirements for AHP projects, discussed
below under proposed Sec. 960.13.
Proposed Sec. 960.8(a)(3)(ii) clarifies the subsidy-per-unit
objective (effectiveness) category in the existing regulation. See 12
CFR 960.5(d)(3). The proposed rule provides that applications are
awarded points based on the extent to which a project proposes to use
the least amount of AHP subsidy per AHP-targeted unit. The Finance
Board wishes to clarify that in calculating subsidy per unit, only AHP-
targeted units should be counted. Further, 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. The subsidy-per-unit
objective, in effect, favors projects with a shallower subsidy. Under
the proposed scoring system, a Bank may de-emphasize this effect and
promote deeper subsidies per unit by allocating as few as one point to
this objective. The Finance Board specifically requests comments on
whether this gives the Banks adequate flexibility in applying the
subsidy-per-unit objective in their Districts.
Proposed Sec. 960.8(a)(3) (i) and (ii) provide that applications
for owner-occupied projects and rental projects must be scored
separately for purposes of the targeting and subsidy-per-unit
objectives, because these two objectives inherently favor rental
projects, which, in general, have more units targeted to lower income
households and lower amounts of subsidy per unit than do owner-occupied
projects.
Proposed Sec. 960.8(a)(3) (iii) and (iv) clarify the community
involvement and community stability objectives in the existing
regulation, respectively, by adding examples of activities satisfying
the objectives. See id. Sec. 960.5(e) (1), (2).
4. Application Approvals
Proposed Sec. 960.8(b) provides that the board of directors of each
Bank (without delegation to Bank officers or other Bank employees)
shall approve promptly the AHP applications in descending order
starting with the highest scoring application until the total funding
amount for the particular funding period, except for any amount
insufficient to fund the next highest scoring application, has been
allocated. The board also must 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
subsidies become available.
I. Disbursement of AHP Subsidies--Sec. 960.9
1. Failure to Use AHP Subsidies Within Reasonable Period of Time
Proposed Sec. 960.9(a) adds a new provision requiring a Bank to
determine whether a member or project sponsor draws down and begins
using AHP subsidies for an approved project within a reasonable period
of time after application approval. If a member or project sponsor
fails to draw down and
[[Page 57812]]
begin using AHP subsidies within a reasonable period of time, the Bank
shall cancel its approval of the project's application, and those
subsidies approved for the project shall be made available for other
AHP-eligible projects.
2. Compliance Upon Disbursement of AHP Subsidies
Proposed Sec. 960.9(b) adds provisions codifying the Banks' duty to
verify that the member and project sponsor are in compliance with AHP
statutory requirements, regulatory requirements, and the obligations
committed to in the approved application, prior to initial disbursement
of AHP subsidies by the Bank for an approved project, and prior to each
disbursement thereafter. The Bank is required to obtain, and maintain
in its project file, documents sufficient to demonstrate such
compliance prior to making such disbursement, including, but not
limited to, an independent, current (6 months or less) appraisal (or
recertification of a prior independent appraisal, if appropriate)
provided by the member indicating the fair market value of the property
or project if the member has a direct or indirect interest in such
property or project.
3. Changes in Approved AHP Subsidy Amount Where a Direct Subsidy is
Used For a Principal or Interest Rate Write-Down
Proposed Sec. 960.9(c) adds a new provision addressing changes in a
project's approved AHP subsidy amount where the Banks provide direct
subsidies to write down the principal amount or the interest rates on
loans provided by members to projects. The proposed rule provides that
if a member is approved to receive a direct subsidy to write down the
principal amount or the interest rate on a loan to a project and the
amount of subsidy required to maintain the debt service cost required
by the project varies from the amount of subsidy initially approved by
the Bank due to a change in interest rates between the time of approval
and the time the lender commits to the interest rate to finance the
project, the Bank shall modify the subsidy amount accordingly. For
example, if, in the interim period, interest rates rise, thereby
requiring more direct subsidy for the lender to write down its loan to
the project (keeping the loan's interest rate constant), the Bank must
increase the amount of direct subsidy for the project accordingly.
Under proposed Sec. 960.9(c)(2), the amount of such increase shall
be drawn first from any uncommitted or recaptured AHP subsidies for the
current year and then from the Bank's required AHP contribution for the
next year.
Proposed Sec. 960.9(c) transfers the interest rate risk associated
with the lag time between AHP application approval and funding from the
AHP projects to the AHP fund in cases where direct subsidies are used
for interest rate write-downs. The practical effect of this is to
guarantee AHP-assisted financing at a specific interest rate in such
cases. The Finance Board believes this is necessary to help ensure that
changes in lenders' market interest rates do not render approved AHP
projects financially infeasible at the time they are ready for funding.
4. Banks' Responsibility to Ensure Proper Use of AHP Subsidies
a. In general. Proposed Sec. 960.9(d)(1) carries forward the
existing regulatory requirements reiterating the statutory requirements
that each Bank shall ensure that: (1) AHP subsidies provided by the
Bank to members are passed on to the ultimate borrower; and (2) the
preponderance of AHP subsidies provided by the Bank ultimately is
received by very low- and low- or moderate-income households. See 12
CFR 960.3(d); 12 U.S.C. 1430(j)(9) (D), (E).
b. Fairness in transactions. Proposed Sec. 960.9(d)(2) adds a new
requirement that each Bank shall ensure that the terms of any member's
participation in a transaction benefiting from an AHP subsidy are fair
to the Program. This provision is intended to highlight the public
purpose of the Program--providing housing to benefit low- and moderate-
income households--and to put the Banks and members on notice that they
should view all transactions involving the Program in light of this
purpose.
c. Market interest rate and charges. Proposed Sec. 960.9(d)(3)
requires each Bank to ensure, with respect to any loan financing an AHP
project, that the rate of interest, fees, points, and any other charges
by the lender shall not exceed a reasonable market rate of interest,
fees, points, and charges for a loan of similar maturity, terms, and
risk. This provision is intended to prevent a lender from recouping
part of the direct subsidy provided to the project by coupling the
direct subsidy with an above-market rate loan to the project.
Accordingly, Sec. 960.9(c) of the existing regulation, which provides
that ``a member receiving a subsidized advance shall extend credit to
qualified borrowers at a rate of interest discounted at least to the
same extent as the subsidy granted to the member by the Bank,'' is
eliminated. See 12 CFR 960.9(c).
d. Lending direct subsidies. For various tax reasons, sponsors
prefer to structure projects involving federal Low-Income Housing Tax
Credits so that AHP direct subsidies are loaned to the project, with
principal and interest payments deferred until the end of the loan
term. This use of direct subsidies raises the question whether the
direct subsidies, which are grants, are being passed on to the ultimate
recipients, as required under section 10(j)(9)(E) of the Act, since
they ultimately may be repaid by the recipients. See 12 U.S.C.
1430(j)(9)(E).
Proposed Sec. 960.9(d)(4) is intended to accommodate the needs of
sponsors and the statutory requirement governing the pass-through of
AHP subsidies. It provides that a member or a sponsor may lend a direct
subsidy in connection with an AHP rental project involving federal Low-
Income Housing Tax Credits, provided that all payments by the borrower
are deferred until the end of the loan term and no interest is charged.
Upon repayment of the loan, the entire amount of the direct subsidy
must be repaid to the Bank.
e. Matched repayment schedules. Proposed Sec. 960.9(d)(5) requires
the term of a subsidized advance to be no longer than the term of the
member's loan to the AHP project funded by the advance, and the
scheduled principal repayments for the subsidized advance to be
reasonably related to the scheduled principal repayments for the
member's loan to the AHP project, such that at least once in every 12-
month period, the member must pay to the Bank the principal repayments
received by the member on its loan to the project. This new requirement
is intended to ensure that the repayment schedules of subsidized
advances and the loans that they fund are closely matched, because the
closer the match, the more efficient the use of the AHP subsidy.
Furthermore, without a close match, a portion of the interest rate
subsidy, in effect, is retained by the member each time the project
makes a scheduled repayment of principal. For example, if the member's
loan to the project is fully amortizing with level periodic payments
over the term of the loan, less subsidy is needed for a subsidized
advance that is also fully amortizing with level periodic payments over
the term of the advance, than for a subsidized advance with the same
term as the member's loan, but with all principal payments due at
maturity (a bullet advance). If a member makes a non-amortizing loan to
a project, the member typically would match its loan structure by
borrowing a non-amortizing, or bullet, advance.
[[Page 57813]]
Since a member's loan typically involves an interest rate mark-up
to cover the member's cost and profit, it is not possible to match
perfectly the scheduled principal repayments of a member's equal-
payment amortizing loan to the AHP project with the scheduled principal
repayments of the equal-payment amortizing advance with a similar term.
However, the Finance Board will consider such repayments to be
reasonably related if both the member's loan and the subsidized advance
are fully amortized with level periodic payments over the term of the
loan, and the member makes principal repayments on the advance no less
frequently than once in every 12-month period. As a practical matter,
requiring the member to make principal repayments to the Bank at least
annually will avoid requiring the establishment of complicated systems
to account for monthly principal repayments.
Proposed Sec. 960.9(e) adds a new provision requiring a Bank to
provide in its advances agreement with each member receiving a
subsidized advance that upon prepayment of a subsidized advance, the
Bank shall charge a prepayment fee only to the extent the Bank suffers
an economic loss from the prepayment.
J. Modifications of Approved AHP Applications--Sec. 960.10
The Finance Board's existing regulation does not directly address
project modifications after approval. Under Decision Memorandum 94-DM-
27, dated July 22, 1994, the Banks, subject to certain standards, have
authority to approve modifications to previously approved AHP
applications, except for modifications involving increases in the
amount of AHP subsidy approved for a project. Proposed Sec. 960.10
establishes a procedure and standards under which a member may request
approval by the Bank of a modification prior to completion of the
project. The proposed procedures and standards largely codify the
Finance Board's current procedure and standards for approving
modifications, except that changes to a project after completion, full
occupancy, and closing of permanent financing no longer will be
considered modifications.
Proposed Sec. 960.1 defines a ``project modification'' as any
change in the project prior to the project's completion, full occupancy
and closing of permanent financing, that materially affects the facts
under which the project's AHP application was originally scored under
proposed Sec. 960.8 and approved.
K. Avoidance of Actual or Apparent Conflicts of Interest--Sec. 960.11
Proposed Sec. 960.11 adds a new requirement that the board of
directors of each Bank, without delegation to Bank officers or other
Bank employees, must adopt a written policy preventing a Bank director,
officer, employee, or contractor who has a personal interest in, or who
is a director, officer or employee of an organization involved in a
project that is the subject of a pending or approved AHP application,
from participating in or attempting to influence the evaluation,
approval, funding, monitoring, or any remedial process for such project
under the Program.
L. Homeownership Assistance Programs--Sec. 960.12
Proposed Sec. 960.12 revises the homeownership set-aside provisions
of Sec. 960.5(g) of the existing regulation to allow the Banks more
flexibility in establishing AHP-funded programs targeted specifically
to promote homeownership. See 12 CFR 960.5(g). Existing
Sec. 960.5(g)(1) of the AHP regulation allows the Banks to establish
such homeownership assistance programs based on a matched savings
model, in which a Bank provides its members with matching funds for
first-time homebuyers who are saving to pay for a downpayment and
closing costs on the purchase of a home. See id. Sec. 960.5(g)(1).
Under the existing regulation, Banks must establish their programs in
accordance with the specific requirements set forth in
Sec. 960.5(g)(1), unless they obtain Finance Board approval to
establish ``nonconforming'' programs. See id. Sec. 960.5(g)(2).
In the seven months following the establishment of the
homeownership set-aside provisions of Sec. 960.5(g), five Banks
requested and were granted Finance Board approval to establish
nonconforming homeownership set-asides that vary from the matched
savings model to some degree. For instance, some Banks do not have a
matched savings requirement and do not require participating households
to qualify as first-time homebuyers. Some Banks give priority to
certain categories of households, such as those with incomes below
specified levels or households located in rural areas.
The purpose of proposed Sec. 960.12 is to revise the homeownership
set-aside requirements in order to encompass the variations adopted by
the Banks in their ``nonconforming'' set-asides and to allow the Banks
flexibility to adopt new variations, within the general framework of
Sec. 960.12, without having to obtain prior Finance Board approval.
Among the changes made by proposed Sec. 960.12 is elimination of the
requirement that participating households be first-time homebuyers. See
id. Sec. 960.5(g)(1). Under proposed Sec. 960.12(b), Banks may now
provide funds under their programs for rehabilitation by current
homeowners, as well as for home purchases. The proposed rule clarifies
that, notwithstanding proposed Sec. 960.3(c)(4), which permits AHP
subsidies to be used for homebuyer counseling costs under certain
limited circumstances, homeownership assistance program funds may not
be used for homebuyer or homeowner counseling costs. In addition, the
proposed rule eliminates the existing requirement that participating
households provide matching funds through dedicated savings accounts
with members. See 12 CFR 960.5(g)(1)(iii)(B). Under proposed
Sec. 960.12(d)(2), Banks are free to establish their own fair and
reasonable procedures and criteria for allocating funds under their
programs. The proposed rule also no longer gives a Bank the option to
extend the retention period for homes financed under the program beyond
5 years. See 12 CFR Sec. 960.5(g)(1)(xi). Instead, proposed
Sec. 960.12(f) provides that such homes are subject to the same 5-year
retention period as owner-occupied units financed through the Banks'
District-wide AHP competitions. See proposed Sec. 960.3(b)(1)(i).
M. Monitoring Requirements--Sec. 960.13
1. In General
Section 10(j)(9)(C) of the Act requires the Finance Board to issue
regulations ensuring ``that advances made under this program will be
used only to assist projects for which adequate long-term monitoring is
available to guarantee that affordability standards and other
requirements of [section 10(j) of the Act] are satisfied.'' See 12
U.S.C. 1430(j)(9)(C).
The existing regulation requires each Bank to monitor member and
project compliance with the AHP requirements, but does not establish
procedures, standards or documentation to assist the Banks in meeting
that requirement. See 12 CFR 960.7 (b), (c). Sections 960.6 (b) and (c)
of the existing regulation require members to file annual reports and
certifications on the use of AHP subsidies. See id. Sec. 960.6 (b),
(c).
In the absence of specific regulatory guidance, over the six years
that the Program has been in operation, the Banks have attempted to
comply with
[[Page 57814]]
their monitoring obligations by developing their own individual
approaches to monitoring. This practice has led to uncertainty about
the sufficiency of any one monitoring procedure. In addition, some
members consider the certification and reporting requirements of the
existing regulation to be too burdensome. As discussed below, the
Finance Board is proposing to establish clear, uniform monitoring
procedures and standards that take into account the costs of monitoring
relative to the benefits, and reduce the overall monitoring burden,
including eliminating the annual certification requirement for members
under the existing regulation. The Finance Board's proposal is based on
the principles that: (1) monitoring a project closely in its initial
stages of development will ensure that less monitoring is necessary in
the project's later stages of operation; (2) the degree of monitoring
of AHP-assisted projects should be directly related to the amount of
AHP subsidy invested in such projects; and (3) the Banks should be
permitted to rely, to the extent feasible, on monitoring by housing
credit agencies.
2. AHP Monitoring Agreements Between Members and Project Sponsors and
Owners
Under proposed Sec. 960.13(a), a Bank must require each member
receiving an AHP subsidy to have in place an AHP monitoring agreement
with each project sponsor--in the case of owner-occupied projects--or
project owner--in the case of rental projects--under which the project
sponsor or owner agrees to monitor the AHP project as discussed below.
a. Owner-occupied projects. Under proposed Sec. 960.13(a)(1),
during the period of construction or rehabilitation of an owner-
occupied project, the project sponsor must report to the member
semiannually on whether reasonable progress is being made towards
completion. Until all approved AHP subsidies are provided to eligible
households in a project, the project sponsor must certify annually to
the member and the Bank that the AHP subsidies have been used according
to the commitments made in the AHP application, and such certifications
shall be supported by household income verification documentation
maintained by the project sponsor and available for review by the
member or the Bank.
b. Rental projects. Under proposed Sec. 960.13(a)(2), during the
period of construction or rehabilitation of a rental project, the
project owner must report to the member semiannually on whether
reasonable progress is being made towards completion. Within the first
year after project completion, the project owner must certify to the
member and the Bank that the services and activities committed to in
the AHP application have been provided in connection with the project.
Within the first year after project completion to the end of the
project's retention period, the project owner annually must provide a
list of tenant rents and incomes to the Bank and certify that: (1) the
tenant rents and incomes are accurate and in compliance with the rent
and income targeting commitments made in the AHP application; (2) the
project is habitable; and (3) the project owner regularly informs
households applying for and occupying AHP-assisted units of the address
of the Bank that provided the AHP subsidy to finance the project. A
project owner must maintain tenant income verification documentation,
available for review by the member or the Bank, to support such
certifications.
3. AHP Monitoring Agreements Between Banks and Members
Under proposed Sec. 960.13(b), a Bank must have in place an AHP
monitoring agreement with each member receiving an AHP subsidy, under
which the member agrees to monitor the AHP project as discussed below.
a. Owner-occupied projects. Under Sec. 960.13(b)(1), during the
period of construction or rehabilitation of an owner-occupied project,
the member must take the steps necessary to determine whether
reasonable progress is being made towards completion and report to the
Bank semiannually on the status of the project. Within one year after
disbursement to a project of all approved AHP subsidies, the member
must review the project documentation and certify to the Bank that: (1)
the AHP subsidies have been used according to the commitments made in
the AHP application; and (2) the AHP-assisted units are subject to deed
restrictions, ``soft'' second mortgages, or other legally enforceable
mechanisms pursuant to the requirements of proposed Sec. 960.4(a).
b. Rental projects. Under proposed Sec. 960.13(b)(2), during the
period of construction or rehabilitation of a rental project, the
member must take the steps necessary to determine whether reasonable
progress is being made towards completion and report to the Bank
semiannually on the status of the project. Within the first year after
project completion, the member must review the project documentation
and certify to the Bank that: (1) the project is habitable; (2) the
project meets its low- and moderate-income targeting commitments; and
(3) the rents charged for income-targeted units do not exceed the
maximum levels committed to in the AHP application. For projects
receiving $500,000 or less in AHP subsidy, during the period from the
second year after project completion to the end of the retention
period, the member must certify to the Bank biennially that, based on
an exterior visual inspection, the project continues to be occupied and
appears habitable.
4. Monitoring Requirements for Banks
a. Owner-occupied projects. Proposed Sec. 960.13(c)(1) provides
that each Bank must establish a monitoring procedure that provides
reasonable assurances that, based on a review of the documentation for
a sample of projects and units within one year of receiving the
certification from a member described in proposed
Sec. 960.13(b)(1)(ii): (1) the incomes of the households that own the
AHP-assisted units did not exceed the levels committed to in the AHP
application at the time the households qualified for the AHP subsidy;
(2) the AHP subsidies were used for eligible purposes; and (3) the AHP-
assisted units are subject to deed restrictions, ``soft'' second
mortgages, or other legally enforceable mechanisms pursuant to the
requirements of proposed Sec. 960.4(a)(1).
b. Rental projects. Proposed Sec. 960.13(c)(2) provides that each
Bank must establish a monitoring procedure providing reasonable
assurances that: (1) within the first year after completion of an AHP-
assisted rental project, the services and activities committed to in
the AHP application have been provided; and (2) during the period from
the second year after project completion to the end of the retention
period: (i) the project is habitable; (ii) the project meets its low-
and moderate-income targeting commitments; and (iii) the rents charged
for income-targeted units do not exceed the maximum levels committed to
in the AHP application.
A Bank must use the following monitoring procedure, depending on
the amount of AHP subsidy received by a project. For all projects, the
Bank shall make reasonable efforts to investigate any complaints
received about a specific project. For projects receiving $50,001 to
$250,000 of AHP subsidies, the Bank must review tenant rent and income
documentation, including tenant income verification documents, for a
sample of the project's units at least once every six years, to verify
compliance with the rent and income targeting commitments in the AHP
application. Currently, approximately 330 projects have received
between $0 and $50,000 of AHP subsidy, and
[[Page 57815]]
approximately 1,000 projects have received between $50,001 and $250,000
of AHP subsidy. For projects receiving $250,001 to $500,000 of AHP
subsidies, the Bank must review tenant rent and income documentation,
including tenant income verification documents, for a sample of the
project's units at least once every four years, to verify compliance
with the rent and income targeting commitments in the AHP application.
Currently, approximately 200 projects have received between $250,001 to
$500,000 of AHP subsidies. For projects receiving over $500,000 of AHP
subsidies, the Bank must perform an annual on-site inspection of the
project, including review of tenant rent and income verification
documentation, for a sample of the project's units, to verify
compliance with the rent and income targeting commitments in the AHP
application. Currently, only 60 projects have received over $500,000 of
AHP subsidy.
A Bank may use a reasonable sampling plan to select the projects
monitored each year and to review the documentation supporting the
certifications made by members and project sponsors and owners.
5. Monitoring by a Housing Credit Agency
In order to take advantage of opportunities to reduce the costs of
monitoring where there are multiple funders of AHP-assisted projects,
the Finance Board is proposing to permit the Banks to rely on
monitoring by state or local housing agencies that have provided
federal Low-Income Housing Tax Credits to an AHP project. Under 26 CFR
1.42-5, housing credit agencies administering such Tax Credits must
establish a procedure for monitoring for compliance with the applicable
provisions of the Internal Revenue Code governing use of federal Low-
Income Housing Tax Credits. See 26 U.S.C. 42; 26 CFR 1.42-5. The
Finance Board believes that where a housing credit agency undertakes
such monitoring, it would be unnecessarily duplicative for the Banks to
undertake independent monitoring if the income targeting requirements,
the rent requirements, and the retention period requirements being
monitored by the housing credit agency are the same as, or more
restrictive than, those committed to for purposes of the Program.
Therefore, proposed Sec. 960.13(c)(iv) provides that for projects
receiving $500,000 or less of AHP subsidies, a Bank may rely on
monitoring by a housing credit agency that also has provided funds to
the project if: (1) the income targeting requirements, the rent
requirements, and the retention period monitored by the housing credit
agency are the same as, or more restrictive than, those committed to in
the AHP application; (2) the housing credit agency agrees to inform the
Bank of instances where tenant rents or incomes are found to be in
noncompliance with the rent and income targeting requirements being
monitored by the housing credit agency or where the project is not in a
habitable condition; (3) the Bank does not have information that
monitoring by such housing credit agency is not occurring or is
inadequate; and (4) the Bank makes reasonable efforts to investigate
any complaints received about the project. In projects involving more
than $500,000 in AHP subsidies, the Finance Board believes that
monitoring should remain the responsibility of the Bank, rather than a
third party, in light of the substantial amount of the AHP subsidy.
In cases where a Bank relies on a housing credit agency to monitor
a project, the project owner annually must provide a list of tenant
rents and incomes to the Bank and certify that they are accurate and in
compliance with the rent and income targeting commitments made in the
AHP application.
The Finance Board specifically requests comments on whether there
are any other state or local government entities, in addition to
housing credit agencies, that monitor rental projects for compliance
with requirements comparable to AHP requirements. In order to be able
to rely on the monitoring of another government housing program that
also has funded an AHP project, that program's income targeting, rent,
and retention requirements must be the same as, or more restrictive
than, those committed to by the project for purposes of the AHP. The
Act requires that AHP subsidies be used to finance homeownership by
low- or moderate-income households, or finance rental housing where at
least 20 percent of the units are occupied by and affordable for very
low-income households. See 12 U.S.C. 1430(j)(2). On their face, these
statutory minimum income targeting and rent requirements are consistent
with the requirements of certain other government housing programs that
also fund AHP projects, such as the federal Low-Income Housing Tax
Credit, HOME, and Section 8 programs. However, the targeting scoring
criterion in the existing and proposed AHP regulation appears to
encourage projects to target greater numbers of very low-income
households in order to receive higher scores and AHP funding. See 12
CFR 960.5(d)(1); proposed Sec. 960.8(a)(3)(i). Most AHP projects have
AHP income targeting and rent commitments that are more restrictive
than those required and monitored by other government housing programs
also funding the project, thereby preventing reliance on such third
parties for monitoring of AHP compliance.
Under the Act, the Finance Board's AHP regulation must ``coordinate
activities under [the Program] with other Federal or federally-
subsidized affordable housing activities to the maximum extent
possible.'' See 12 U.S.C. 1430(j)(9)(G). The Finance Board specifically
requests comments on ways in which the targeting scoring objective in
the proposed rule may be modified, or whether it should be eliminated,
so that the income targeting and rent requirements for AHP projects
will be compatible with those required and monitored by other
government housing entities.
The following table summarizes the proposed monitoring framework
discussed above for AHP-assisted rental projects:
Rental Project Monitoring Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
(2) Projects for which there is no Projects monitored by All projects receiving
qualifying 3rd party monitoring a qualifying 3rd over $500,000 of AHP
party monitor subsidy
--------------------------------------------------------------------------------------------------------------------------------------------------------
Project Construction or
Rehabilitation.
(4)--Member and owner submit semi-
annual progress reports for each
project.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Within First Year After
(4)--Owner certifies project
habitability, provision of
services promised in AHP
application, compliance of project
rents
Project Completion...............
(4) and tenant incomes
(4)--Member certifies compliance of
project rents and tenant incomes
[[Page 57816]]
(4)--Bank monitors compliance with
provision of services promised in
AHP application, and compliance of
project rents
(4) and tenant incomes
--------------------------------------------------------------------------------------------------------------------------------------------------------
2nd Year After Project
(4)--Bank responds to any
complaints about projects
Completion to the
(4)--Owner certifies annually to
project habitability, accuracy of
tenant rents and incomes, and that
tenants of, and
End of the Retention
(4) applicants for, project units
are notified of the Bank's
address.
Period
(4)
--------------------------------------------------------------------------------------------------------------------
(2)Member visually inspects
exterior of project every 2 years
-----------------------------------------------------------------------
(2)$AHP Subsidy in Project
-----------------------------------------------------------------------
$0-$50,000 $50,001-$250,000 $250,001-$500,000
-----------------------------------------------------------------------
No Bank review........ Bank reviews tenant Bank reviews tenant 3rd party reports to Bank performs annual
incomes and rents incomes and rents Bank on any failure on-site inspection
every 6 years. every 4 years. to meet rent and of project, and
income requirements reviews tenant rents
and on habitability. and incomes
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Finance Board specifically requests comments on the proposed
monitoring requirements.
N. Corrective and Remedial Actions for Noncompliance--Sec. 960.14
Section 10(j) of the Act is silent on what specific corrective and
remedial actions should be imposed when there is noncompliance with the
requirements of the Program. See 12 U.S.C. 1430(j). The existing
regulation provides that, where funds provided under the Program 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: (1) 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; (2) call the advance; (3) assess a prepayment fee; or (4)
require the member to reimburse the Bank for the amount of the unused
or improperly used subsidy on the advance or other assistance. See 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 noncompliance with the requirements of the AHP
regulation.
A number of concerns have been raised about the recapture
provisions of the existing regulation. Given the range of potential
circumstances of noncompliance, limiting the universe of remedies to
one--recapture--is by necessity assuring that the remedy will be too
harsh in some cases, and too liberal in others. For instance, it may
not always be equitable to require the member to reimburse the Bank
when the project sponsor is in noncompliance with AHP requirements.
Requiring recapture of the AHP subsidy could in some situations result
in the member 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 Program that recapture
will not be the appropriate remedial action in all circumstances. Other
less severe remedial actions may be more appropriate depending on the
nature of the noncompliance that has occurred. In addition, the
remedial actions should be directed only at the parties that are in
noncompliance. Accordingly, the proposed rule contains a wider range of
remedies and tailors the remedial actions required to the nature of the
noncompliance and the party committing the noncompliance, as discussed
further below.
1. Noncompliance by Project Sponsors and Project Owners
Proposed Sec. 960.14(a) provides that a Bank shall require a member
receiving an AHP subsidy to have in place a recapture agreement with
each sponsor of an owner-occupied project and each owner of a rental
project, under which the sponsor or owner agrees: (1) to ensure that
the AHP subsidy is used in compliance with the requirements of 12
U.S.C. 1430(j), part 960, and the obligations committed to in the AHP
application; (2) to make reasonable efforts to cure any noncompliance,
pursuant to a compliance plan approved by the Bank; and (3) to repay
the amount of any misused AHP subsidy (plus interest, if appropriate)
resulting from the sponsor's or owner's noncompliance, if the
noncompliance is not cured within a reasonable period of time.
2. Noncompliance by Members
Proposed Sec. 960.14(b) requires a Bank to have in place a
recapture agreement with each member receiving an AHP subsidy under
which the member agrees: (1) to ensure that the AHP subsidy is used in
compliance with the requirements of 12 U.S.C. 1430(j), part 960, and
the obligations committed to, and to be performed, by the member in its
AHP application; (2) to make reasonable efforts to cure any
noncompliance by the member; (3) to repay the amount of any misused AHP
subsidy (plus interest, if appropriate) resulting from the member's
noncompliance, if the noncompliance is not cured within a reasonable
period of time; (4) to recover any misused AHP subsidy from a project
sponsor or owner under the terms of the member's recapture agreement
with the project sponsor or owner, provided that the member shall not
be liable to the Bank for failure to return amounts that cannot be
recovered from the project sponsor or owner despite reasonable
collection efforts by the member; and (5) to return any misused subsidy
recovered by the
[[Page 57817]]
member from a project sponsor or owner to the Bank.
3. Noncompliance by Banks
Proposed Sec. 960.14(c)(1) provides that the Finance Board, upon
determining that a misuse of AHP subsidy, or the failure to recover
misused AHP subsidy, is attributable to the action or inaction of a
Bank, may order the Bank to reimburse its AHP fund in an amount equal
to the misused subsidy, plus interest, if appropriate.
Proposed Sec. 960.14(c)(2) is intended to eliminate uncertainty
about the sufficiency of a Bank's recovery of misused subsidies in
cases of noncompliance by members or project sponsors or owners,
including cases where misuse results from ``acts of God'' or from
personal or financial hardship. If a Bank enters into a settlement
agreement or other arrangement with a member resulting in the return of
a sum that is less than the full amount of any misused AHP subsidy, the
Finance Board may, in its sole discretion, require the Bank to
reimburse its AHP fund in an amount equal to the difference between the
full amount of the misused subsidy and the sum actually recovered by
the Bank, plus interest, if appropriate, unless: (1) the Bank has
sufficient documentation showing that the sum agreed to be repaid under
any settlement agreement or other arrangement is reasonably justified,
based on the facts and circumstances of the noncompliance (including
the degree of culpability of the noncomplying parties and the extent of
the Bank's recovery efforts); or (2) the Bank obtains a determination
from the Finance Board that the sum agreed to be repaid under any
settlement agreement or other arrangement is reasonably justified,
based on the facts and circumstances of the noncompliance (including
the degree of culpability of the noncomplying parties and the extent of
the Bank's recovery efforts). The latter provision would avoid a later
determination by the Finance Board that such recovery was legally
insufficient.
Proposed Sec. 960.14(d) provides that AHP subsidies recovered by a
Bank under this section shall be made available for other AHP projects.
This is a change from the requirement of Sec. 960.8(a) of the existing
regulation that recaptured subsidies must be made available for future
AHP projects. See 12 CFR 960.8(a). The change is intended to make clear
that recovered subsidies may be made available for alternate projects
previously approved by a Bank pursuant to proposed Sec. 960.8(b), as
well as other AHP projects.
Proposed Sec. 960.14(e) provides that a Bank or the Finance Board,
after notice and opportunity for a hearing, may suspend or debar a
member, project sponsor, or project owner from participation in the
Program if such party shows a pattern of noncompliance, or engages in a
single instance of flagrant noncompliance, with the requirements of 12
U.S.C. 1430(j), part 960, or the obligations committed to in AHP
applications. Under the existing regulation, each AHP application must
include a general statement of the project sponsor's qualifications.
See 12 CFR 960.4(c)(4). However, the existing regulation does not
expressly require those members, project sponsors, and project owners
that previously have received AHP subsidies to be in compliance with
AHP requirements in order to receive additional AHP subsidies. Proposed
Sec. 960.8(e) expressly allows the Banks and the Finance Board to use
their experience with a member's or project sponsor's or owner's
compliance with AHP requirements on an ongoing basis to bar those
participants with a pattern of noncompliance, or who have committed a
single instance of flagrant noncompliance, from future participation in
the Program.
Under proposed Sec. 960.14(f), without limitation on other
remedies, the Finance Board, upon determining that a Bank has engaged
in mismanagement of its Program, may designate another Bank to
administer all or a portion of the first Bank's annual AHP
contribution, for the benefit of the first Bank's members, under such
terms and conditions as the Finance Board may prescribe. The Finance
Board has broad powers under the Act to issue remedial orders directing
a Bank to take action in response to a situation that the Finance Board
considers mismanagement of the Bank's Program. See 12 U.S.C.
1422b(a)(1). Proposed Sec. 960.14(f) describes one of several actions
the Finance Board could take in response to a Bank's mismanagement of
its Program, depending on the relevant facts and circumstances.
O. Required Annual AHP Contributions--Sec. 960.15
Proposed Sec. 960.15 revises Sec. 960.10 of the existing
regulation, which provides for the Banks' annual contributions to their
Program, to delete obsolete language regarding required contributions
for 1990 through 1994. See 12 CFR 960.10. Proposed Sec. 960.1 revises
the definition of the term ``net earnings of a Bank'' in the existing
regulation, to conform it to the definition of that term in the Act.
See 12 U.S.C. 1430(j)(8); 12 CFR 960.1(j).
P. Temporary Suspension of AHP Contributions--Sec. 960.16
Proposed Sec. 960.16 sets forth the provisions governing temporary
suspensions by Banks of their required annual AHP contributions. A
number of revisions have been made to the provisions in the existing
regulation in order to more accurately track the language in section
10(j)(6) of the Act and to provide greater clarity. See 12 U.S.C.
1430(j)(6); 12 CFR 960.11.
1. Application for Temporary Suspension
Proposed Sec. 960.16(a)(1) provides that if a Bank finds that the
contributions required pursuant to proposed Sec. 960.15 are
contributing to the financial instability of the Bank, the Bank shall
notify the Finance Board promptly, and may apply in writing to the
Finance Board for a temporary suspension of such contributions.
Proposed Sec. 960.16(a)(2) provides that a Bank's application for a
temporary suspension of contributions shall include: (1) the period of
time for which the Bank seeks a suspension; (2) the grounds for a
suspension; (3) a plan for returning the Bank to a financially stable
position; and (4) the Bank's annual financial report for the preceding
year, if available, and the Bank's most recent quarterly and monthly
financial statements and any other financial data the Bank wishes the
Finance Board to consider.
The requirement in proposed Sec. 960.16(a)(2)(ii) to include the
grounds for a suspension is not explicitly required in the existing
regulation. See 12 CFR 960.11(a).
The provision in proposed Sec. 960.16(a)(2)(iv) that a Bank may
include any other financial data it wishes the Finance Board to
consider is not required in the existing regulation.
2. Finance Board Review of Application for Temporary Suspension
a. Grounds for approval of application. Proposed Sec. 960.16(b)(1)
provides that, in determining the financial instability of a Bank, the
Finance Board shall consider such factors as: (1) whether the Bank's
earnings are severely depressed; (2) whether there has been a
substantial decline in the Bank's membership capital; and (3) whether
there has been a substantial reduction in the Bank's advances
outstanding.
b. Limitations on grounds for approval of application. Proposed
Sec. 960.16(b)(2) provides that the Finance
[[Page 57818]]
Board shall disapprove an application for a temporary suspension if it
determines that the Bank's reduction in earnings is a result of: (1) a
change in the terms of advances to members which is not justified by
market conditions; (2) inordinate operating and administrative
expenses; or (3) mismanagement.
The ``reduction in earnings'' language replaces the term
``financial instability'' used in the existing regulation, because the
former is the term used in the Act. See 12 U.S.C. 1430(j)(6); 12 CFR
960.11(c).
In addition, the requirement in Sec. 960.11(c)(5) of the existing
regulation that the Finance Board 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. See
12 U.S.C. 1430(j)(6); 12 CFR 960.11(c)(5).
3. Finance Board Decision
Proposed Sec. 960.16(c) provides that the Finance Board's decision
shall be in writing and shall be accompanied by specific findings and
reasons for its action. If the Finance Board approves a Bank's
application for a temporary suspension, the Finance Board's written
decision shall specify the period of time such suspension shall remain
in effect. The proposed rule removes the 30-day requirement for Finance
Board action in the existing regulation, which is not required by the
Act. See 12 U.S.C. 1430(j)(6)(C); 12 CFR 960.11(d).
4. Monitoring
Proposed Sec. 960.16(d) provides that during the term of a
temporary suspension approved by the Finance Board, the affected Bank
shall provide to the Finance Board such financial reports as the
Finance Board shall require to monitor the financial condition of the
Bank.
5. Termination of Suspension
Proposed Sec. 960.16(e) provides that if, prior to the conclusion
of the temporary suspension period, the Finance Board determines that
the Bank has returned to a position of financial stability, the Finance
Board may, upon written notice to the Bank, terminate the temporary
suspension.
6. Application for Extension of Temporary Suspension Period
Proposed Sec. 960.16(f) 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. The proposed rule removes the 30-day
requirement for Finance Board action in the existing regulation, which
is not required by the Act. See 12 U.S.C. 1430(j)(6); 12 CFR 960.11(f).
The proposed rule deletes the provisions in the existing regulation
on Finance Board notice to Congress, which are governed by the Act and
need not be included in the regulation. See 12 U.S.C. 1430(j)(6)(F); 12
CFR 960.11(f), (g).
Q. Affordable Housing Reserve Fund--Sec. 960.17
Consistent with the existing regulation and the Act, proposed
Sec. 960.17(a) provides that if a Bank fails to use or commit the full
amount of its required annual contribution to the Program, 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 Finance Board. See 12 U.S.C. 1430(j)(7); 12 CFR
960.12(a). The remaining 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. See id. Approval of
AHP applications sufficient to exhaust the amount a Bank is required to
contribute pursuant to proposed Sec. 960.15 shall constitute use or
commitment of funds.
Proposed Sec. 960.17(b) provides that by January 15 of each year,
each Bank shall provide to the Finance 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. 960.17(c) provides that by January 31 of each year,
the Finance 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 existing regulation governing how funds in
an Affordable Housing Reserve Fund 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 Finance Board. See 12 U.S.C. 1430(j)(7). Since there
currently are no such funds and it is not anticipated that there will
be any such funds in the near future, it is not necessary at this time
to include provisions in the proposed rule dealing with this issue. The
Finance Board can issue regulations on this issue at a future date if
such eventuality should arise.
R. Advisory Councils--Sec. 960.18
Proposed Sec. 960.18 implements section 10(j)(11) of the Act
governing the appointment and operations of Bank Advisory Councils. See
12 U.S.C. 1430(j)(11). Proposed Sec. 960.18(a) requires each Bank to
appoint an Advisory Council of 7 to 15 persons, who reside in the
Bank's District and are drawn from community and not-for-profit
organizations actively involved in providing or promoting low- and
moderate-income housing in the District.
Proposed Sec. 960.18(b) continues the existing regulatory
requirement that each Bank shall solicit nominations for membership on
the Advisory Council from community and not-for-profit organizations
pursuant to a nomination process that is as broad and as participatory
as possible, allowing sufficient lead time for responses. See 12 CFR
960.14(d). The Bank shall appoint Advisory Council members giving
consideration to the size of the District and the diversity of low- and
moderate-income housing needs and activities within the District. See
id. Sec. 960.14(b).
Under Sec. 960.14(c) of the existing regulation, state and local
housing officials are considered to qualify as persons drawn from
``community and nonprofit organizations,'' and, therefore, are
permitted to serve on Advisory Councils, provided such officials do not
constitute an ``undue proportion'' of any Advisory Council's
membership. See id. Sec. 960.14(c). Proposed Sec. 960.14(c) broadens
the ``undue proportion requirement'' to apply to all groups represented
on an Advisory Council and adds an affirmative requirement that the
membership of Advisory Councils include persons drawn from a diverse
range of organizations. While the Finance Board does not believe that
there should be absolute limits on the membership of any one group on
the Advisory Councils, the Finance Board wishes to ensure a diversity
of viewpoints so that no one group consistently has a dominant voice on
an Advisory Council. In appointing Advisory Council members, the Banks
are to draw from a diverse range of organizations, provided that
representatives of no one group shall constitute an undue proportion of
the membership of an Advisory Council.
Proposed Sec. 960.18(d) provides that Advisory Council members
shall serve for terms of three years, and such terms shall be staggered
to provide continuity
[[Page 57819]]
in experience and service to theAdvisory Council. This is a change from
the two-year terms required under the existing regulation. See id.
Sec. 960.14(f). The Finance Board believes that extending Advisory
Council members' terms by a year will allow the Banks to benefit from
the experience and familiarity with the Program that Advisory Council
members develop the longer they serve on an Advisory Council.
Proposed Sec. 960.18(d) also provides that an Advisory Council
member may not serve for more than two consecutive terms. This
provision is intended to ensure that the membership of the Advisory
Councils reflects the diverse and changing viewpoints of private sector
community and not-for-profit organizations on the housing and community
development programs and needs of the Bank Districts.
Proposed Sec. 960.18(e) provides that each Advisory Council may
elect from among its members a chairperson, a vice chairperson, and any
other officers the Advisory Council deems appropriate. The Finance
Board believes that allowing the Advisory Council members to elect
their own officers, rather than having their officers appointed by each
Bank, will enhance each Advisory Council's ability to assess
independently the Bank's low- and moderate-income housing and community
development activity.
Proposed Sec. 960.18(f)(1) carries forward the requirement in the
existing regulation that representatives of the board of directors of
the Bank shall meet with the Advisory Council at least quarterly to
obtain the Advisory Council's advice on the low- and moderate-income
housing programs and needs in the Bank's District, and expands the
Advisory Council's role to include providing advice on ways in which
the Bank can better carry out its housing finance mission, including
the utilization of AHP subsidies, Bank advances, and other Bank credit
products for community development programs and needs. The Finance
Board expects that the Advisory Councils will assume a central role in
advising the Banks on carrying out their overall housing finance
mission, in addition to their specific focus on affordable housing and
community development. Further, nothing in the proposed rule precludes
Advisory Councils from meeting with representatives of the board of
directors of the Bank more frequently than quarterly.
Proposed Sec. 960.14(f)(2) adds a new requirement that a Bank shall
comply with requests from the Advisory Council for summary information
regarding AHP applications from prior funding periods. Upon the request
of the Advisory Council, the Bank shall allow Advisory Council members
to examine, on the Bank's premises, any AHP applications from prior
funding periods. The Finance Board believes that this will aid the
Advisory Council members in evaluating how the AHP application scoring
guidelines adopted by the Bank affect the allocation of AHP subsidies
among different types of housing projects. Due to cost considerations,
the Banks are not required to distribute copies of the applications to
the Advisory Councils, but may do so, at their discretion. In making
AHP applications available for inspection, the Banks are subject to any
confidentiality requirements of other laws that may apply. The Banks
should take adequate precautions to maintain confidentiality and avoid
conflicts of interest. Such precautions may include redacting portions
of the AHP applications, as well as requiring Advisory Council members
to agree not to disclose information from AHP applications.
Proposed Sec. 960.14(f)(3) carries forward the annual reporting
requirement in Sec. 960.14(j) of the existing regulation, see id.
Sec. 960.14(j), but moves back the date of submission to the Finance
Board from January 31 to March 1, and requires that the Advisory
Council's report include an analysis of the community development
activity of its Bank, in addition to its low- and moderate-income
housing activity. The change in the reporting date 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 Finance Board.
Proposed Sec. 960.18(g) continues the existing regulatory
requirement that the Bank shall pay Advisory Council members travel
expenses, including transportation and subsistence, for each day
devoted to attending meetings with representatives of the board of
directors of the Bank. Nothing in the proposed rule precludes the Banks
from paying fees to Advisory Council members for attending meetings
with representatives of the Banks' boards of directors. The Banks may
do so at their discretion. Advisory Council members often are employed
by organizations that make a financial sacrifice to lend housing and
community development expertise to a Bank. Therefore, individual Banks
should consider payment of fees to Advisory Council members.
Proposed Sec. 960.18(h) adds a new requirement that an Advisory
Council member who has a personal interest in, or who is a director,
officer or employee of an organization involved in a project that is
the subject of a pending or approved AHP application, may not
participate in or attempt to influence the evaluation, approval,
funding, monitoring, or any remedial process for such project under the
Program. Each Bank's board of directors shall adopt a written policy
applicable to the Bank's Advisory Council members to prevent actual or
apparent conflicts of interest under the Program.
The Finance Board specifically requests comments on the role,
selection, compensation, and all other aspects of Advisory Councils.
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 current information collection has been approved by the Office
of Management and Budget (OMB) and assigned OMB control number 3096-
0006. The Finance Board has submitted to OMB for its approval an
analysis of the proposed changes to the collection of information
resulting from the proposed rule. The collection of information, as
proposed to be revised, is described more fully in part II of the
SUPPLEMENTARY INFORMATION. The information collection is necessary to
enable the Banks and, where appropriate, the Finance Board, to
determine: (1) whether AHP applications satisfy the statutory and
regulatory requirements for the award of AHP subsidies; and (2) whether
the use of AHP subsidies awarded to members is consistent with
applicable requirements. See 12 U.S.C. 1430(j).
Likely respondents and/or recordkeepers will be financial
institutions that are members of a Bank, housing developers, and owners
of multifamily housing projects. Respondents are required to meet the
collection and recordkeeping requirements in order to obtain and retain
a benefit. Confidentiality of information obtained from respondents
pursuant to this proposed revision of the currently approved
information collection will be maintained by the Finance Board as
required by applicable
[[Page 57820]]
statute, regulation, and agency policy.Potential respondents are not
required to respond to the collection of information unless the
regulation collecting the information displays a currently valid
control number assigned by the OMB. See 44 U.S.C. 3512(a).
The estimated annual reporting and recordkeeping hour burden is:
a. Number of respondents--7462
b. Total annual responses--9949
Percentage of these responses collected electronically--0%
c. Total annual hours requested--64,274
d. Current OMB inventory--33,067
e. Difference--31,207
The estimated annual reporting and recordkeeping cost burden is:
a. Total annualized capital/startup costs--0
b. Total annual costs (O&M)--0
c. Total annualized cost requested--$2,117,450.00
d. Current OMB inventory--0
e. Difference--$2,117,450.00
The current OMB inventory for the estimated annual reporting and
recordkeeping hour burden is based on the information collection
contained in the proposed amendments to the AHP regulation that were
issued by the Finance Board on January 10, 1994, but were never
finalized. See 59 FR 1323 (Jan. 10, 1994). Comments concerning the
accuracy of the burden estimates and suggestions for reducing the
burden may be submitted to the Finance Board in writing at the address
listed above.
The collections of information have been submitted to OMB for
review in accordance with section 3507(d) of the Paperwork Reduction
Act of 1995, 44 U.S.C. 3507(d). Comments regarding the proposed
collections of information may be submitted in writing to the Office of
Information and Regulatory Affairs of OMB, Attention: Desk Officer for
Federal Housing Finance Board, Washington, DC 20503, by February 6,
1996.
List of Subjects in 12 CFR Part 960
Credit, Federal home loan banks, Housing, Reporting and
recordkeeping requirements. Accordingly, the Finance Board hereby
proposes to revise title 12, chapter IX, part 960, Code of Federal
Regulations, to read as follows:
PART 960--AFFORDABLE HOUSING PROGRAM
Sec.
960.1 Definitions.
960.2 Operation of Program and adoption of AHP implementation plan.
960.3 Eligible costs.
960.4 Retention of AHP-assisted housing.
960.5 Timing of household income qualification.
960.6 Funding periods.
960.7 Application requirements.
960.8 Application scoring and approvals.
960.9 Disbursement of AHP subsidies.
960.10 Modifications of approved AHP applications.
960.11 Avoidance of actual or apparent conflicts of interest.
960.12 Homeownership assistance programs.
960.13 Monitoring requirements.
960.14 Corrective and remedial actions for noncompliance.
960.15 Required annual AHP contributions.
960.16 Temporary suspension of AHP contributions.
960.17 Affordable Housing Reserve Fund.
960.18 Advisory Councils.
Authority: 12 U.S.C. 1430(j).
Sec. 960.1 Definitions.
As used in this part:
Act means the Federal Home Loan Bank Act, as amended (12 U.S.C.
1421 et seq.).
Advance means a loan to a member 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 means, for purposes of an AHP-assisted rental unit, that
the monthly housing costs charged to a household for such unit not
exceed 30 percent of the income of a household of the maximum income
and size expected, under the commitment made in the approved AHP
application, to occupy the unit (assuming occupancy of 1.5 persons per
bedroom or 1.0 person per unit without a separate bedroom).
AHP or Program means the Affordable Housing Program established
pursuant to 12 U.S.C. 1430(j) and this part.
Area has the same meaning as that used by the Department of Housing
and Urban Development for purposes of determining its annually
published area median income limits.
Bank means a Federal Home Loan Bank established under the authority
of the Act.
CIP means a Bank's Community Investment Program established under
section 10(i) of the Act (12 U.S.C. 1430(i)).
Cost of funds means, for purposes of a subsidized advance, the
estimated cost of issuing Bank System consolidated obligations with
maturities comparable to that of the subsidized advance.
Direct subsidy means an AHP subsidy in the form of a direct cash
payment.
Finance Board means the agency established as the Federal Housing
Finance Board.
Homeless means an individual, other than an individual imprisoned
or otherwise detained pursuant to state or federal law, who:
(1) Lacks a fixed, regular, and adequate nighttime residence; or
(2) Has a primary nighttime residence that is:
(i) A supervised publicly or privately operated shelter designed to
provide temporary living accommodations (including welfare hotels,
congregate shelters, and transitional housing for the mentally ill);
(ii) An institution that provides a temporary residence for
individuals intended to be institutionalized; or
(iii) A public or private place not designed for, or ordinarily
used as, a regular sleeping accommodation for human beings.
Housing credit agency means a state or local government agency
authorized to allocate federal Low-Income Housing Tax Credits under 26
U.S.C. 42.
Low-or moderate-income household means a household which has an
income of 80 percent or less of the median income for the area,
adjusted for family size, as published annually by the U.S. Department
of Housing and Urban Development.
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. 933.20 and 933.24 of this chapter.
Monthly housing costs means:
(1) For households in AHP-assisted owner-occupied 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 units, rent payments, and
where they are not already included in rent payments, a reasonable
estimate of utility costs, excluding telephone service.
Net earnings of a Bank means the net earnings of a Bank for a
calendar year after deducting the Bank's pro rata share
[[Page 57821]]
of the annual contribution to the Resolution Funding Corporation
required under sections 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).
Owner-occupied project means a project involving the purchase,
construction, or rehabilitation of owner-occupied housing.
Permanent or transitional housing means housing with six-month
minimum occupancy, but excluding overnight shelters.
Pre-development expenses means expenses for the purpose of
determining the feasibility of a proposed project.
Project modification means any change in the project prior to the
project's completion, full occupancy and closing of permanent
financing, that materially affects the facts under which the project's
AHP application was originally scored under Sec. 960.8 and approved.
Rental project means a project involving the purchase,
construction, or rehabilitation of rental housing.
Retention period means the period during which the sponsor or owner
of an AHP-assisted project commits to comply with the requirements of
12 U.S.C. 1430(j), this part, and the terms of the approved AHP
application. The minimum retention period for an owner-occupied unit is
5 years, and for a rental unit is 15 years from the date of project
completion.
Sponsor means a not-for-profit or for-profit organization or public
entity that is:
(1) An owner of a rental project; or
(2) Integrally involved in an owner-occupied project, such as by
exercising control over the planning, development, or management of 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 to a member at an interest rate
reduced below the Bank's cost of funds, by use of a subsidy.
Subsidy means:
(1) A direct subsidy, provided that if a direct subsidy is used to
write down the interest rate on a loan extended by a member, sponsor,
or other party to a project, the subsidy shall equal the net present
value of the interest foregone from making the loan below the lender's
market interest rate (calculated as of the date the AHP application is
submitted to the Bank, and subject to adjustment under
Sec. 960.9(c)(1)); or
(2) The net present value of the interest revenue foregone from
making a subsidized advance at a rate below the Bank's cost of funds,
determined as of the date of disbursement of the subsidized advance or
the date prior to disbursement on which the Bank first manages the
funding to support the subsidized advance through its asset/liability
management system, or otherwise.
Very low-income household means a household which has an income of
50 percent or less of the median income for the area, adjusted for
family size, as published annually by the U.S. Department of Housing
and Urban Development.
Sec. 960.2 Operation of Program and adoption of AHP implementation
plan.
(a) Policy of the Finance Board. It is the policy of the Finance
Board and the Banks to promote decent and safe affordable housing and
to address critical affordable housing needs through use of subsidized
advances and direct subsidies.
(b) Program operation. Each Bank's Program shall be governed solely
by the requirements set forth in 12 U.S.C. 1430(j) and this part. A
Bank shall not adopt any additional substantive AHP requirements,
except as expressly provided in this part.
(c) AHP implementation plan.--(1) Adoption of plan. Consistent with
the requirements of this part, each Bank's board of directors by
December 1 each year shall adopt a written AHP implementation plan for
the subsequent year, and any subsequent amendments thereto, which shall
set forth:
(i) The Bank's project cost guidelines, adopted pursuant to
Sec. 960.3(b);
(ii) The Bank's schedule for AHP funding periods, adopted pursuant
to Sec. 960.6(a);
(iii) Any District threshold requirement, adopted by the Bank
pursuant to Sec. 960.7(b);
(iv) The Bank's AHP scoring guidelines, adopted by the Bank
pursuant to Sec. 960.8(a);
(v) The Bank's procedures for verifying a project's use of AHP
subsidies within a reasonable period of time pursuant to Sec. 960.9(a);
(vi) The Bank's procedures for verifying compliance upon
disbursement of AHP subsidies pursuant to Sec. 960.9(b);
(vii) The requirements for any homeownership assistance program
adopted by the Bank pursuant to Sec. 960.12; and
(viii) The Bank's policies and procedures for carrying out the
Bank's monitoring obligations under Sec. 960.13.
(2) No delegation. A Bank's board of directors shall not delegate
to Bank officers or other Bank employees the responsibility for
adopting the AHP implementation plan, or any subsequent amendments
thereto.
(3) Advisory Council review. Prior to adoption of the Bank's AHP
implementation plan, and any subsequent amendments thereto, the Bank
shall provide its Advisory Council a reasonable period of time to
review the plan and any subsequent amendments, and the Advisory Council
shall provide its recommendations to the Bank's board of directors.
(4) Public Access. A Bank's AHP implementation plan, and any
amendments, shall be made available to members of the public, upon
request.
(d) Reporting. Each Bank shall provide reports and documentation
concerning the Program as the Finance Board may request from time to
time. The Bank shall provide promptly copies of its AHP implementation
plan and any subsequent amendments to the Finance Board and the Bank's
Advisory Council.
Sec. 960.3 Eligible costs.
(a) Owner-occupied and rental housing. AHP subsidies may be used to
finance:
(1) The purchase, construction, or rehabilitation of owner-occupied
housing by or for very low-or low- or moderate-income households; and
(2) The purchase, construction, or rehabilitation of rental
projects where at least 20 percent of the units in the project are
occupied by and affordable for very low-income households.
(b) Eligible costs. AHP subsidies may be used to pay only for the
customary and standard costs typically incurred, at fair market prices,
to purchase, construct, or rehabilitate housing meeting the
requirements of paragraph (a) of this section. A Bank shall evaluate
the reasonableness of project costs, based upon project cost guidelines
adopted by the Bank.
(c) Ineligible costs. AHP subsidies may not be used to pay for:
(1) Pre-development expenses not yet incurred by the proposed
project as of the date the AHP application is submitted to the Bank;
(2) Prepayment fees and penalties imposed by a Bank on a member for
a subsidized advance that is prepaid;
(3) Cancellation fees and penalties imposed by a Bank on a member
for a subsidized advance commitment that is canceled;
(4) Costs incurred in connection with counseling of homebuyers,
homeowners, or tenants, except for costs of homebuyer counseling where:
[[Page 57822]]
(i) The counseling is provided to a household that actually
purchases an AHP-assisted unit; and
(ii) The cost of the counseling has not been covered by another
funding source, including the member; or
(5) Processing fees charged by members for providing direct
subsidies to AHP-assisted housing projects.
(d) Refinancing. AHP subsidies may be used to refinance an existing
single-family or multifamily mortgage loan, provided the equity
proceeds of the refinancing are used only for the purchase,
construction, or rehabilitation of AHP-eligible housing.
Sec. 960.4 Retention of AHP-assisted housing.
(a) Owner-occupied units.--(1) Unit assisted by direct subsidy. An
owner-occupied unit financed by a direct subsidy under the Program must
be subject to a deed restriction, ``soft'' second mortgage, or other
legally enforceable mechanism requiring that:
(i) The Bank or its designee is to be given notice of any sale or
refinancing of the unit occurring prior to the end of the retention
period;
(ii) In the case of a sale prior to the end of the retention
period, an amount equal to a pro rata share of the direct subsidy,
reduced for every year the seller owned the unit, shall be repaid to
the Bank from any net gain realized upon the sale of the unit after
deduction for sales expenses, unless the purchaser is a low- or
moderate-income household; and
(iii) In the case of a refinancing prior to the end of the
retention period, the full amount of the direct subsidy shall be repaid
to the Bank from any net gain realized upon the refinancing of the
unit, unless the unit continues to be subject to a deed restriction,
``soft'' second mortgage, or other legally enforceable mechanism
described in this paragraph (a)(1).
(2) Unit assisted by a subsidized advance. (i) An owner-occupied
unit financed by a loan from the proceeds of a subsidized advance under
the Program must be subject to a deed restriction or other legally
enforceable mechanism requiring that:
(A) The Bank or its designee is to be given notice of any sale or
refinancing of the unit occurring prior to the end of the retention
period; and
(B) In the case of a refinancing prior to the end of the retention
period, the full amount of the interest rate subsidy received by the
owner, based on the pro rata portion of the interest rate subsidy
imputed to the subsidized advance during the period the owner occupied
the unit prior to refinancing, shall be repaid to the Bank from any net
gain realized upon the refinancing, unless the unit continues to be
subject to a deed restriction, ``soft'' second mortgage, or other
legally enforceable mechanism described in this paragraph (a)(2).
(ii) Where a member uses the proceeds of a subsidized advance to
make loans financing owner-occupied units, the Bank must require the
member to agree in writing that if such loans are prepaid by the
borrower, the member may, at its option, either:
(A) Repay to the Bank that portion of the subsidized advance used
to make the loan to the borrower, and be subject to a fee imposed by
the Bank sufficient to compensate the Bank for any loss the Bank
experiences in reinvesting the repaid amount at a rate of return below
the cost of funds originally used by the Bank to calculate the interest
rate subsidy incorporated in the subsidized advance; or
(B) Continue to maintain the subsidized advance outstanding,
subject to the Bank resetting the interest rate on that portion of the
subsidized advance used to make the loan to the borrower to a rate
equal to the cost of funds originally used by the Bank to calculate the
interest rate subsidy incorporated in the subsidized advance.
(b) Rental projects.--(1) Project assisted by direct subsidy. (i) A
rental project financed with a direct subsidy must be subject to a deed
restriction or other legally enforceable mechanism requiring that:
(A) The project's rental units, or applicable portion thereof, must
remain occupied by and affordable for households with incomes at or
below the levels committed to be served in the AHP application for the
duration of the retention period;
(B) The Bank or its designee is to be given notice of the sale or
refinancing of the project occurring prior to the end of the retention
period;
(C) In the case of a sale prior to the end of the retention period,
an amount equal to the entire amount of any direct subsidy received
must be repaid to the Bank, unless the subsequent owner agrees in
writing to comply with the income-eligibility and affordability
restrictions committed to in the AHP application; and
(D) In the case of a refinancing prior to the end of the retention
period, an amount equal to the entire amount of any direct subsidy
received must be repaid to the Bank, unless the project continues to be
subject to a deed restriction or other legally enforceable mechanism
requiring the project's rental units, or applicable portion thereof, to
remain occupied by and affordable for households with incomes at or
below the levels committed to be served in the AHP application for the
duration of the retention period.
(2) Project assisted by a subsidized advance. (i) A rental project
financed with a subsidized advance must be subject to a deed
restriction or other legally enforceable mechanism requiring that:
(A) The project's rental units, or applicable portion thereof, must
remain occupied by and affordable for households with incomes at or
below the levels committed to be served in the AHP application for the
duration of the retention period;
(B) The Bank or its designee is to be given notice of the sale or
refinancing of the project occurring prior to the end of the retention
period;
(C) In the case of a sale prior to the end of the retention period,
the full amount of the interest rate subsidy received by the seller,
based on the pro rata portion of the interest rate subsidy imputed to
the subsidized advance during the period the seller owned the project
prior to the sale, shall be repaid to the Bank, unless the subsequent
owner agrees in writing to comply with the income-eligibility and
affordability restrictions committed to in the AHP application; and
(D) In the case of a refinancing prior to the end of the retention
period, the full amount of the interest rate subsidy received by the
owner, based on the pro rata portion of the interest rate subsidy
imputed to the subsidized advance during the period the owner owned the
project prior to the refinancing, shall be repaid to the Bank, unless
the project continues to be subject to a deed restriction or other
legally enforceable mechanism requiring the project's rental units, or
applicable portion thereof, to remain occupied by and affordable for
households with incomes at or below the levels committed to be served
in the AHP application for the duration of the retention period.
(ii) Where a member uses the proceeds of a subsidized advance to
make loans financing a rental project, the Bank must require the member
to agree in writing that if such loans are prepaid by the borrower, the
member may, at its option, either:
(A) Repay to the Bank that portion of the subsidized advance used
to make the loan to the borrower, and be subject to a fee imposed by
the Bank sufficient to compensate the Bank for any loss the Bank
experiences in reinvesting the repaid amount at a rate of return below
the cost of funds originally used by the Bank to calculate the interest
rate
[[Page 57823]]
subsidy incorporated in the subsidized advance; or
(B) Continue to maintain the subsidized advance outstanding,
subject to the Bank resetting the interest rate on that portion of the
subsidized advance used to make the loan to the borrower to a rate
equal to the cost of funds originally used by the Bank to calculate the
interest rate subsidy incorporated in the subsidized advance.
(c) Use of recovered subsidies. AHP subsidies recovered by a Bank
pursuant to this section shall be made available for other AHP
projects.
Sec. 960.5 Timing of household income qualification.
(a) Owner-occupied projects. In order to qualify as a very low- or
a low- or moderate-income household for purposes of an AHP-assisted
owner-occupied project, a household must have an income at or below the
level committed to in the AHP application at the time the household is
qualified by the sponsor for participation in the project, but no
earlier than the date on which the AHP application was submitted to the
Bank for approval.
(b) Rental projects. In order to qualify as a very low- or a low-
or moderate-income household for purposes of an AHP-assisted rental
project, a household must have an income at or below the level
committed to in the AHP application for a particular unit upon initial
occupancy only. The household may continue to occupy such designated
unit even if its income subsequently increases above the income-
eligibility requirement for that unit. The unit may continue to count
toward meeting the targeted income-eligibility requirement, provided
the rent charged remains affordable, as defined in Sec. 960.1, for the
targeted household.
Sec. 960.6 Funding periods.
(a) District-wide competition. Except as provided in Sec. 960.12,
each Bank shall administer a District-wide competition for its AHP
subsidies. Banks may accept applications from members for funding
during a specified number of funding periods each year, as determined
by the Bank, and shall announce the application due dates for such
periods no later than December 1 of the preceding year. The amount of
subsidies offered in each funding period shall be comparable.
(b) Funding availability; notification to members. Each Bank shall
notify its members and other interested parties of:
(1) The approximate amount of annual AHP subsidies available for
the Bank's District;
(2) The approximate amount of AHP subsidies to be offered in each
funding period;
(3) The applicability of any District threshold requirements
established pursuant to Sec. 960.7(b);
(4) The scoring guidelines contained in the Bank's AHP
implementation plan; and
(5) The application due dates.
Sec. 960.7 Application requirements.
(a) Mandatory requirements. Each Bank shall require members to
include in their AHP applications:
(1) Description of project. A concise description of the proposed
project;
(2) Amount of AHP subsidy. The estimated amount of AHP subsidy
required for the proposed project. In the case of an application for a
subsidized advance, the member shall include in its application the
interest rate on the member's loan to the proposed project, and, for
purposes of scoring the application, the Bank shall estimate the
subsidy required for the proposed project based on the Bank's cost of
funds as of the date on which all AHP applications are due for the
funding period in which the application is submitted;
(3) Member interest in property or project. A disclosure of the
member's direct or indirect interest, if any, in the property or
proposed project;
(4) Eligible costs. An explanation of how the proposed project will
comply with the eligible costs provision of Sec. 960.3(b);
(5) Retention requirements. An explanation of how the proposed
project will comply with the retention requirements of Sec. 960.4;
(6) Project feasibility and need for subsidy. An explanation of how
the proposed project is financially viable and likely to be completed
within a reasonable period of time; and why the requested AHP subsidy
is needed, based on:
(i) The Bank's analysis of all project sources and uses of funds
(including the value of any donated land, materials, and professional
labor), multi-year operating pro formas for rental projects, sale
prices for owner-occupied units, and local market conditions; and
(ii) A review of the reasonableness of information relating to
available sources and uses of funding and financing capacity, such as
operating pro formas, to verify the proposed project's need for AHP
subsidy;
(7) Project sponsor qualifications. An explanation of the project
sponsor's qualifications and ability to perform its responsibilities as
committed to in the AHP application;
(8) Fair housing law requirements. A statement that the project
sponsor and owner will comply with any applicable fair housing law
requirements, and an explanation of how the project sponsor and owner
intend to affirmatively market the proposed project and otherwise
comply with such requirements;
(9) Maximum subsidy requirement. (i) A statement that, except as
otherwise provided in paragraph (a)(9)(ii) of this section, no
subsidized household in the proposed project shall pay less than 20
percent of such household's gross monthly income toward monthly housing
costs, as defined in Sec. 960.1.
(ii) Exceptions. The requirement in paragraph (a)(9)(i) of this
section shall not apply where:
(A) An AHP-assisted rental 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, and the households in the project meet such
requirements;
(B) The total amount of the AHP subsidies provided to the project
to finance rehabilitation of housing units owned by very low-income
households is $10,000 or less per such household and for housing units
owned by low- or moderate-income households is $5,000 or less per such
household;
(C) The total amount of the AHP subsidies provided to the project
to finance the purchase of housing units is $5,000 or less per
household; or
(D) AHP subsidies are used to assist a household 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;
(10) District threshold requirements. An explanation of how the
proposed project meets any applicable District threshold requirements
adopted by the Bank pursuant to paragraph (b) of this section;
(11) Scoring requirements. An explanation of how the proposed
project meets the priorities and objectives identified in
Sec. 960.8(a);
(12) Certification. A certification from the member, project
sponsor, and project owner committing to comply with all requirements
of 12 U.S.C. 1430(j), this part, and all obligations
[[Page 57824]]
committed to in the AHP application; and
(13) Other information. Such other information as the Bank may
reasonably require in order to verify compliance of the AHP
applications with the requirements of this part.
(b) District threshold requirements. A Bank's board of directors,
after consultation with its Advisory Council, may establish one or more
of the following additional threshold requirements for AHP
applications, provided that any such additional threshold requirements
must apply equally to all members:
(1) A maximum amount of AHP subsidy available per member each year;
or per member, per project, or per project unit in a single funding
round;
(2) An exclusion of applications for funding for projects located
outside the Bank's District; or
(3) A requirement that the member submitting the application has
made use of a credit product offered by the Bank within the previous 12
months, other than AHP or CIP credit products.
Sec. 960.8 Application scoring and approvals.
(a) Application scoring.--(1) General. A Bank shall score only
those applications meeting the application requirements of Sec. 960.7.
Applications shall be scored based on the extent to which they meet the
scoring priorities and objectives set forth in this section. A Bank
shall adopt written guidelines implementing the scoring requirements of
this section. The total possible score an AHP application may receive
is 100 points. In determining the number of points to award an
application for any given scoring category, the Bank shall evaluate
applications relative to each other.
(2) Priority applications--60 points. A Bank shall allocate 60
points among the six priority categories identified in this paragraph
(a)(2). The priority categories are either fixed-point priorities or
variable-point priorities. Variable-point priorities, which are listed
in paragraphs (a)(2)(i) through (iv) and (a)(2)(v)(A) through (E) of
this section, are those where there are varying degrees to which an
application can satisfy the priority. Each variable-point priority
category must be allocated at least 8 points. The number of points that
may be awarded to an application for meeting a variable-point priority
will vary, depending on the extent to which the application satisfies
the priority, compared to the other applications being scored. The
application(s) best achieving each variable-point priority shall
receive the maximum point score available for that priority category,
with the remaining applications scored on a declining scale. An
application receiving at least half of the points allocated to a
variable-point priority category shall be considered to have met that
priority. Fixed-point priority categories, which are listed in
paragraphs (a)(2)(v)(F) through (M) of this section, are those an
application must meet in order to receive the allocated points. Each
fixed-point priority category must be allocated 8 points. An
application meeting a fixed-point priority shall be awarded 8 points.
The priority selected by a Bank under paragraph (a)(2)(vi) of this
section may be either a variable-point or fixed-point priority,
depending on the nature of the priority. Applications meeting at least
two of the six priorities shall be considered priority applications,
and, as a group, shall be scored before applications meeting fewer than
two of the priorities. Priority applications shall be scored against
each other, based on the extent to which they meet the priorities of
this paragraph (a)(2) and the scoring objectives contained in paragraph
(a)(3) of this section. The remaining applications shall be scored only
if there are insufficient priority applications to exhaust the AHP
subsidy amount available for the funding period. The six priority
categories are as follows:
(i) Government-owned properties (variable point). Projects
financing the purchase or rehabilitation of housing, at least 20
percent of the units of which are owned or held by federal, state, or
local governments or any agency or instrumentality thereof;
(ii) Not-for-profit or state or local government sponsored projects
(variable point). Projects financing the purchase, construction, or
rehabilitation of housing, the sponsor of which is a not-for-profit
organization, a state or political subdivision of a state, a local
housing authority, or a state housing agency;
(iii) Permanent or transitional housing for the homeless (variable
point). Projects financing permanent or transitional housing for the
homeless by reserving at least 20 percent of units for occupancy by
homeless households;
(iv) Community development (variable point). Projects meeting
housing needs documented as part of a community revitalization or
economic development strategy approved by a unit of state or local
government;
(v) District priority. Projects meeting one of the following
criteria, as recommended by the Bank's Advisory Council and adopted by
the Bank's board of directors for a particular funding period:
(A) Variable point. Projects in which at least 20 percent of the
units are reserved for occupancy by households who have special needs,
such as the elderly, mentally or physically disabled persons, persons
recovering from physical abuse or alcohol or drug abuse, or persons
with AIDS;
(B) Variable point. Projects providing housing in combination with
a program offering employment, education, training, homeownership
counseling, or daycare services that assist AHP-eligible residents to
move toward better economic opportunities;
(C) Variable point. Projects financing housing for first-time
homebuyers;
(D) Variable point. Projects involving member financial
participation (excluding the pass-through of AHP subsidy), such as
providing market rate or concessionary financing, fee waivers, or
donations;
(E) Variable point. Projects with retention periods in excess of 5
and 15 years for owner-occupied and rental housing, respectively;
(F) Fixed point. Projects financing housing located in federally
declared disaster areas;
(G) Fixed point. Projects financing housing located in rural areas;
(H) Fixed point. Projects financing urban in-fill and/or urban
rehabilitation housing;
(I) Fixed point. Projects that are part of a strategy to end
isolation of very low-income households by providing economic diversity
through mixed-income housing in low- or moderate-income neighborhoods,
or providing very low- or low- or moderate-income households with
housing opportunities in areas where the median household income
exceeds 80 percent of the area median income;
(J) Fixed point. Projects financing housing as part of a remedy
undertaken by a jurisdiction adjudicated by a federal, state, or local
court to be in violation of title VI of the Civil Rights Act of 1964
(42 U.S.C. 2000d et seq.), the Fair Housing Act (42 U.S.C. 3601 et
seq.), or any other federal state, or local fair housing law, or as
part of a settlement of such claims;
(K) Fixed point. Projects involving sweat-equity and/or self-help
housing;
(L) Fixed point. Projects involving financing by a consortium of at
least two financial institutions; or
(M) Fixed point. Projects located within the Bank's District; and
(vi) District priority--defined housing need in the District.
Projects meeting a housing need in the Bank's District, as defined and
recommended by the Bank's Advisory Council and adopted by the Bank's
board of directors for a
[[Page 57825]]
particular funding period. The Bank may use one of the criteria listed
in paragraph (a)(2)(v) of this section, provided it is different from
the District priority adopted by the Bank under paragraph (a)(2)(v) of
this section.
(3) Objectives--40 points. A Bank shall allocate 40 points among
the four objectives categories identified in this paragraph (a)(3),
provided that no less than 8 points are allocated to the targeting
objective category. The application(s) best achieving each objective
shall receive the maximum point score available for that objective
category, with the remaining applications scored on a declining scale.
The four objectives categories are as follows:
(i) Targeting. A Bank shall award points to applications based on
the extent to which units in a project are to be sold initially to, or
rehabilitated by, households with incomes at or below 80 percent of the
area median income, in the case of owner-occupied housing projects, or
occupied by and affordable for households with incomes at or below 50
percent of the area median income, in the case of rental housing
projects. More points shall be awarded to applications for projects
with greater numbers of units targeted to households with lower income
levels. An application for a rental housing project shall be awarded
the maximum number of points available under this scoring category if
60 percent or more of the units in the project are reserved for
occupancy by households with incomes at or below 50 percent of the area
median income. For purposes of this scoring category, applications for
owner-occupied projects and rental projects shall be scored separately;
(ii) AHP subsidy per unit. A Bank shall award points to
applications based on the extent to which a project proposes to use the
least amount of AHP subsidy per AHP-targeted unit. For purposes of this
scoring category, applications for owner-occupied projects and rental
projects shall be scored separately;
(iii) Community involvement. A 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; and
(iv) Community stability. A Bank shall award points to applications
based on the extent to which a project maximizes community stability,
such as by: Revitalizing vacant or abandoned properties; being
integrally part of a neighborhood stabilization plan; 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.
(b) Application approvals.--(1) Approval by Bank's board. The board
of directors of each Bank shall approve promptly the AHP applications
in descending order starting with the highest scoring application until
the total funding amount for the particular funding period, except for
any amount insufficient to fund the next highest scoring application,
has been allocated. The board of directors also shall approve the next
four highest scoring applications as alternates and, within one year of
approval, may fund such alternates if any previously committed AHP
subsidies become available.
(2) No delegation. A Bank's board of directors may not delegate to
Bank officers or other Bank employees the responsibility to approve or
disapprove AHP applications.
Sec. 960.9 Disbursement of AHP subsidies.
(a) Failure to use AHP subsidies within reasonable period of time.
A Bank shall determine whether a member or project sponsor draws down
and begins using AHP subsidies for an approved project within a
reasonable period of time after application approval. If a member or
project sponsor fails to draw down and begin using AHP subsidies within
a reasonable period of time, the Bank shall cancel its approval of the
application, and those subsidies approved for the project shall be made
available for other AHP-eligible projects.
(b) Compliance upon disbursement of AHP subsidies. The Bank shall
verify prior to initial disbursement of AHP subsidies by the Bank for
an approved project, and prior to each disbursement thereafter, that
the member and project sponsor are in compliance with all applicable
requirements of 12 U.S.C. 1430(j), this part, and all obligations
committed to in the approved application. The Bank shall obtain, and
maintain in its project file, documents sufficient to demonstrate such
compliance prior to making such disbursement, including, but not
limited to, an independent, current (6 months or less) appraisal (or
recertification of a prior independent appraisal, if appropriate)
provided by the member indicating the fair market value of the property
or project if the member has a direct or indirect interest in such
property or project.
(c) Changes in approved AHP subsidy amount where a direct subsidy
is used for a principal or interest rate write-down.--(1) Change in
subsidy amount. If a member is approved to receive a direct subsidy to
write down the principal amount or the interest rate on a loan to a
project and the amount of subsidy required to maintain the debt service
cost required by the project varies from the amount of subsidy
initially approved by the Bank due to a change in interest rates
between the time of approval and the time the lender commits to the
interest rate to finance the project, the Bank shall modify the subsidy
amount accordingly.
(2) Reconciliation of AHP fund. If a Bank increases the amount of
AHP subsidy approved for a project, the amount of such increase shall
be drawn first from any uncommitted or recaptured AHP subsidies for the
current year and then from the Bank's required AHP contribution for the
next year. If a Bank reduces the amount of AHP subsidy approved for a
project, the amount of such reduction shall be returned to the Bank's
AHP fund.
(d) Bank's responsibility to ensure proper use of AHP subsidies.--
(1) In general. Each Bank shall ensure that the AHP subsidies provided
by the Bank to members are passed on to the ultimate borrower, and that
the preponderance of AHP subsidies provided by the Bank is ultimately
received by very low- and low- or moderate-income households.
(2) Fairness in transactions. Each Bank shall ensure that the terms
of any member's participation in a transaction benefiting from an AHP
subsidy are fair to the Program.
(3) Market interest rate and charges. Each Bank shall ensure that,
with respect to any loan financing an AHP project, the rate of
interest, fees, points, and any other charges by the lender shall not
exceed a reasonable market rate of interest, fees, points, and charges
for a loan of similar maturity, terms, and risk.
(4) Lending direct subsidies. A member or a project sponsor may
lend a direct subsidy in connection with an AHP rental project
involving federal Low-Income Housing Tax Credits, provided that all
payments by the borrower are deferred until the end of the loan term
and no interest is charged. Upon repayment of the loan, the entire
amount of the direct subsidy must be repaid to the Bank.
(5) Matched repayment schedules. The term of a subsidized advance
shall be no longer than the term of the member's loan to the AHP
project funded by the advance, and the scheduled principal repayments
for the subsidized advance shall be reasonably related to the scheduled
principal
[[Page 57826]]
repayments for the member's loan to the AHP project, such that at least
once in every 12-month period, the member must pay to the Bank the
principal repayments received by the member on its loan to the project.
(e) Prepayment fees charged by the Banks. A Bank shall provide in
its advances agreement with each member receiving a subsidized advance
that upon prepayment of a subsidized advance, the Bank shall charge a
prepayment fee only to the extent the Bank suffers an economic loss
from the prepayment.
Sec. 960.10 Modifications of approved AHP applications.
(a) Modification request. A member seeking a modification of its
approved AHP application due to a project modification, as defined in
Sec. 960.1, must submit a request for such modification in writing to
the Bank for review and approval. A modification request must include,
at a minimum:
(1) A description of any changes in the terms of the approved
application;
(2) The reason for the proposed modification;
(3) In cases of requests for additional AHP subsidies, revised
financial statements, sources and uses of funds, development budgets,
and, in the case of rental housing projects, operating pro formas; and
(4) Any other information that the Bank determines is necessary to
take action on the proposed modification.
(b) Approval of modification request. (1) In the case of a
modification request other than for an increase in AHP subsidy, the
Bank's board of directors shall approve such request, in writing, if
the project:
(i) Continues to meet all of the requirements of 12 U.S.C. 1430(j)
and this part; and
(ii) Continues to score high enough, as proposed to be modified, to
have been approved in its original application funding period.
(2) In the case of a modification request for an increase in AHP
subsidy, the Bank's board of directors may, in its discretion, approve
such request, in writing, if the project satisfies the requirements of
paragraph (b)(1)(i) and (ii) of this section.
(c) No delegation. A Bank's board of directors may not delegate to
Bank officers or other Bank employees the responsibility to take action
on AHP modification requests.
Sec. 960.11 Avoidance of actual or apparent conflicts of interest.
(a) In general. A Bank director, officer, employee, or contractor
who has a personal interest in, or who is a director, officer or
employee of an organization involved in a project that is the subject
of a pending or approved AHP application, may not participate in or
attempt to influence the evaluation, approval, funding, monitoring, or
any remedial process for such project under the Program.
(b) Adoption of written policy. Each Bank's board of directors
shall adopt a written policy applicable to the Bank's directors,
officers, employees, and contractors to prevent actual or apparent
conflicts of interest under the Program.
(c) No delegation. A Bank's board of directors may not delegate to
Bank officers or other Bank employees the responsibility to adopt such
policy.
Sec. 960.12 Homeownership assistance programs.
(a) A Bank, after consultation with its Advisory Council, may set
aside annually up to the greater of $1 million or 10 percent of its
annual required AHP contribution to fund a homeownership assistance
program, pursuant to the requirements of this section. Homeownership
assistance programs established by a Bank under this section shall be
considered priority projects under section 10(j)(3) of the Act (12
U.S.C. 1430(j)(3)).
(b) Use of program funds. Pursuant to written policies established
by each Bank, a Bank may provide homeownership assistance program funds
to members as grants to be used to provide downpayment, closing cost,
or rehabilitation assistance to participating households in connection
with a household's purchase of a one-to-four family property (including
a condominium or cooperative housing unit) to be used as the
household's primary residence. Notwithstanding Sec. 960.3(c)(4),
homeownership assistance program funds shall not be used for homebuyer
or homeowner counseling costs. A Bank may administer its homeownership
assistance program through independent not-for-profit organizations
with a demonstrated ability to administer program funds effectively and
impartially.
(c) Household eligibility criteria. In order to be eligible to
receive homeownership assistance program funds from a member
participant, a household must:
(1) Be a low- or moderate-income household, as defined in
Sec. 960.1, at the time the household is approved for participation in
the program;
(2) In the case of home purchase, complete a homebuyer counseling
program provided by the member or another organization that is based on
those offered by or in conjunction with a not-for-profit housing agency
or other organization recognized as experienced in homebuyer
counseling; and
(3) Meet such other eligibility criteria as may be established by
the Bank, in its discretion, such as a matching funds or matched
savings requirement on the part of the household, provided that such
criteria are consistent with, and in furtherance of, the requirements
and goals of the Program and the National Homeownership Strategy
coordinated by the Department of Housing and Urban Development.
(d) Notification of availability and allocation of program funds to
member participants. (1) A Bank shall notify its members of the amount
of funds available under its homeownership assistance program within a
reasonable period of time prior to the date that applications for such
funds are due from members.
(2) A Bank may allocate homeownership assistance program funds
among its members on a first-come-first-served basis, or pursuant to
such other fair and reasonable procedures and criteria established by
the Bank and disclosed to members, including but not limited to:
(i) Priorities for specific kinds of housing, such as housing for
first-time homebuyers or housing in rural areas;
(ii) Maximum amounts of homeownership assistance program funds
available to each member participant; and
(iii) Maximum amounts of homeownership assistance program funds
available to each participating household.
(3) The maximum amount of homeownership assistance program funds
allocated per participating household shall not exceed $5,000.
(4) In cases where the amount of homeownership assistance program
funds applied for by members in a given year exceeds the amount of set-
aside funds available for that year, a Bank may:
(i) Make available up to an additional $1 million from the next
year's set-aside of funds for the homeownership assistance program;
(ii) Allocate funds among member participants by a random selection
process;
(iii) Reduce each member participant's allocation of funds and the
maximum amount of funds available to each participating household,
based on fair and reasonable criteria established by the Bank and
disclosed to member participants; or
(iv) Establish a waiting list by which member participants would be
allocated
[[Page 57827]]
funds on a household-by-household basis, as funds become available.
(5) After determining the allocation of homeownership assistance
program funds among member participants, the Bank shall notify each
member participant of the amount of its allocation.
(e) Disbursement of funds to member participants. Prior to
disbursement of funds by the Bank to a member participant, the Bank
shall require the member to certify that:
(1) The funds received from the Bank will be provided to a
participating household meeting the eligibility requirements of
paragraph (c) of this section; and
(2) If the member is providing mortgage financing to the
participating household, the member has provided financial or other
incentives in connection with such mortgage financing, and the interest
rate, fees, points, and any other charges by the member do not exceed a
reasonable market interest rate, fees, points, and charges for a loan
of similar maturity, terms, and risk.
(f) Retention requirements. A home purchased or rehabilitated using
homeownership assistance program funds is subject to the retention
requirements of Sec. 960.4(a)(1).
(g) Use of recaptured funds. Recaptured homeownership assistance
program funds shall be returned to the Bank to be made available to
other participating households under its homeownership assistance
program or to other AHP projects.
Sec. 960.13 Monitoring requirements.
(a) AHP monitoring agreements between members and project sponsors
and owners. A Bank shall require a member to have in place an AHP
monitoring agreement with each project sponsor or owner, as applicable,
under which the project sponsor or owner agrees to monitor the AHP
project according to the following requirements:
(1) Owner-occupied projects. (i) During the period of construction
or rehabilitation of an owner-occupied project, the project sponsor
must report to the member semiannually on whether reasonable progress
is being made towards completion; and
(ii) Until all approved AHP subsidies are provided to eligible
households in a project, the project sponsor must certify annually to
the member and the Bank that the AHP subsidies have been used according
to the commitments made in the AHP application, and such certifications
shall be supported by household income verification documentation
maintained by the project sponsor and available for review by the
member or the Bank; and
(2) Rental projects. (i) During the period of construction or
rehabilitation of a rental project, the project owner must report to
the member semiannually on whether reasonable progress is being made
towards completion;
(ii) Within the first year after project completion, the project
owner must certify to the member and the Bank that the services and
activities committed to in the AHP application have been provided in
connection with the project;
(iii) Within the first year after project completion to the end of
the project's retention period, the project owner annually must provide
a list of tenant rents and incomes to the Bank and certify that:
(A) The tenant rents and incomes are accurate and in compliance
with the rent and income targeting commitments made in the AHP
application;
(B) The project is habitable; and
(C) The project owner regularly informs households applying for and
occupying AHP-assisted units of the address of the Bank that provided
the AHP subsidy to finance the project; and
(iv) A project owner must maintain tenant income verification
documentation, available for review by the member or the Bank, to
support such certifications.
(b) AHP monitoring agreements between Banks and members. A Bank
shall have in place an AHP monitoring agreement with each member
receiving an AHP subsidy, under which the member agrees to monitor the
AHP project according to the following requirements:
(1) Owner-occupied projects. (i) During the period of construction
or rehabilitation of an owner-occupied project, the member must take
the steps necessary to determine whether reasonable progress is being
made towards completion and must report to the Bank semiannually on the
status of the project; and
(ii) Within one year after disbursement to a project of all
approved AHP subsidies, the member must review the project
documentation and certify to the Bank that:
(A) The AHP subsidies have been used according to the commitments
made in the AHP application; and
(B) The AHP-assisted units are subject to deed restrictions,
``soft'' second mortgages, or other legally enforceable mechanisms
pursuant to the requirements of Sec. 960.4(a); and
(2) Rental projects. (i) During the period of construction or
rehabilitation of a rental project, the member must take the steps
necessary to determine whether reasonable progress is being made
towards completion and must report to the Bank semiannually on the
status of the project;
(ii) Within the first year after project completion, the member
must review the project documentation and certify to the Bank that:
(A) The project is habitable;
(B) The project meets its low- and moderate-income targeting
commitments; and
(C) The rents charged for income-targeted units do not exceed the
maximum levels committed to in the AHP application; and
(iii) For projects receiving $500,000 or less in AHP subsidy,
during the period from the second year after project completion to the
end of the retention period, the member must certify to the Bank
biennially that, based on an exterior visual inspection, the project
continues to be occupied and appears habitable.
(c) Monitoring requirements for Banks.--(1) Owner-occupied
projects. Each Bank must take the steps necessary to determine that,
based on a review of the documentation for a sample of projects and
units within one year of receiving the certification described in
paragraph (b)(1)(ii) of this section:
(i) The incomes of the households that own the AHP-assisted units
did not exceed the levels committed to in the AHP application at the
time the households qualified for the AHP subsidy;
(ii) The AHP subsidies were used for eligible purposes; and
(iii) The AHP-assisted units are subject to deed restrictions,
``soft'' second mortgages, or other legally enforceable mechanisms
pursuant to the requirements of Sec. 960.4(a)(1).
(2) Rental projects.--(i) In general. Each Bank must take the steps
necessary to determine that:
(A) Within the first year after completion of an AHP-assisted
rental project, the services and activities committed to in the AHP
application have been provided; and
(B) During the period from the second year after project completion
to the end of the retention period:
(1) The project is habitable;
(2) The project meets its low- and moderate-income targeting
commitments; and
(3) The rents charged for income-targeted units do not exceed the
maximum levels committed to in the AHP application.
(ii) Monitoring schedule. A Bank's monitoring procedure shall
include the following elements:
[[Page 57828]]
(A) All projects. For all projects, the Bank shall make reasonable
efforts to investigate any complaints received about a specific
project;
(B) $50,001 to $250,000. For projects receiving $50,001 to $250,000
of AHP subsidies, the Bank must review tenant rent and income
documentation, including tenant income verification documents, for a
sample of the project's units at least once every six years, to verify
compliance with the rent and income targeting commitments in the AHP
application;
(C) $250,001 to $500,000. For projects receiving $250,001 to
$500,000 of AHP subsidies, the Bank must review tenant rent and income
documentation, including tenant income verification documents, for a
sample of the project's units at least once every four years, to verify
compliance with the rent and income targeting commitments in the AHP
application; and
(D) Over $500,000. For projects receiving over $500,000 of AHP
subsidies, the Bank must perform an annual on-site inspection of the
project, including review of tenant rent and income verification
documentation, for a sample of the project's units, to verify
compliance with the rent and income targeting commitments in the AHP
application.
(iii) Sampling plan. A Bank may use a reasonable sampling plan to
select the projects monitored each year and to review the documentation
supporting the certifications made by members and project sponsors and
owners.
(iv) Monitoring by a housing credit agency--for projects receiving
$500,000 or less of AHP subsidy. (A) In general. For projects receiving
$500,000 or less of AHP subsidies, a Bank may rely on monitoring by a
housing credit agency that also has provided funds to the project if:
(1) The income targeting requirements, the rent requirements, and
the retention period monitored by the housing credit agency are the
same as, or more restrictive than, those committed to in the AHP
application;
(2) The housing credit agency agrees to inform the Bank of
instances where tenant rents or incomes are found to be in
noncompliance with the requirements being monitored by the housing
credit agency or where the project is not in a habitable condition;
(3) The Bank does not have information that monitoring by such
housing credit agency is not occurring or is inadequate; and
(4) The Bank makes reasonable efforts to investigate any complaints
received about the project.
(B) Annual certification requirement for project owner. In cases
where a Bank relies on a housing credit agency to monitor a project,
the project owner annually must provide a list of tenant rents and
incomes to the Bank and certify that they are accurate and in
compliance with the rent and income targeting commitments made in the
AHP application.
Sec. 960.14 Corrective and remedial actions for noncompliance.
(a) Noncompliance by project sponsors and owners. A Bank shall
require a member receiving an AHP subsidy to have in place a recapture
agreement with each sponsor of an owner-occupied project and each owner
of a rental project, under which the sponsor or owner agrees:
(1) To ensure that the AHP subsidy is used in compliance with the
requirements of 12 U.S.C. 1430(j), this part, and the obligations
committed to in the AHP application;
(2) To make reasonable efforts to cure any noncompliance, pursuant
to a compliance plan approved by the Bank; and
(3) To repay the amount of any misused AHP subsidy (plus interest,
if appropriate) resulting from the sponsor's or owner's noncompliance,
if the noncompliance is not cured within a reasonable period of time.
(b) Noncompliance by members. A Bank shall have in place with each
member receiving an AHP subsidy a recapture agreement under which the
member agrees:
(1) To ensure that the AHP subsidy is used in compliance with the
requirements of 12 U.S.C. 1430(j), this part, and the obligations
committed to, and to be performed, by the member in its AHP
application;
(2) To make reasonable efforts to cure any noncompliance by the
member;
(3) To repay the amount of any misused AHP subsidy (plus interest,
if appropriate) resulting from the member's noncompliance, if the
noncompliance is not cured within a reasonable period of time;
(4) To recover any misused AHP subsidy from a project sponsor or
owner under the terms of the member's recapture agreement with the
project sponsor or owner, provided that the member shall not be liable
to the Bank for failure to return amounts that cannot be recovered from
the project sponsor or owner despite reasonable collection efforts by
the member; and
(5) To return any misused subsidy recovered by the member from a
project sponsor or owner to the Bank.
(c) Noncompliance by Banks--(1) In general. The Finance Board, upon
determining that the misuse of AHP subsidy, or the failure to recover
misused AHP subsidy, is attributable to the action or inaction of a
Bank, may order the Bank to reimburse its AHP fund in an amount equal
to the misused subsidy, plus interest, if appropriate.
(2) Adequacy of settlements. If, in a case of noncompliance by a
member or a project sponsor or owner, a Bank enters into a settlement
agreement or other arrangement with a member resulting in the return of
a sum that is less than the full amount of any misused AHP subsidy, the
Finance Board may, in its sole discretion, require the Bank to
reimburse its AHP fund in an amount equal to the difference between the
full amount of the misused subsidy and the sum actually recovered by
the Bank, plus interest, if appropriate, unless:
(i) The Bank has sufficient documentation showing that the sum
agreed to be repaid under any settlement agreement or other arrangement
is reasonably justified, based on the facts and circumstances of the
noncompliance (including the degree of culpability of the noncomplying
parties and the extent of the Bank's recovery efforts); or
(ii) The Bank obtains a determination from the Finance Board that
the sum agreed to be repaid under any settlement agreement or other
arrangement is reasonably justified, based on the facts and
circumstances of the noncompliance (including the degree of culpability
of the noncomplying parties and the extent of the Bank's recovery
efforts).
(d) Use of recovered subsidies. AHP subsidies recovered by a Bank
pursuant to this section shall be made available for other AHP
projects.
(e) Suspension and debarment. A Bank or the Finance Board, after
notice and opportunity for a hearing, may suspend or debar a member,
project sponsor, or owner from participation in the Program if such
party shows a pattern of noncompliance, or engages in a single instance
of flagrant noncompliance, with the requirements of 12 U.S.C. 1430(j),
this part, or the obligations committed to in AHP applications.
(f) Transfer of Program administration. Without limitation on other
remedies, the Finance Board, upon determining that a Bank has engaged
in mismanagement of its Program, may designate another Bank to
administer all or a portion of the first Bank's annual AHP
contribution, for the benefit of the first Bank's members,
[[Page 57829]]
under such terms and conditions as the Finance Board may prescribe.
Sec. 960.15 Required annual AHP contributions.
Each Bank shall contribute annually to its Program the greater of:
(a) 10 percent of the Bank's net earnings for the previous year; or
(b) 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. 960.16 Temporary suspension of AHP contributions.
(a) Application for temporary suspension--(1) Notification to
Finance Board. If a Bank finds that the contributions required pursuant
to Sec. 960.15 are contributing to the financial instability of the
Bank, the Bank shall notify the Finance Board promptly, and may apply
in writing to the Finance Board for a temporary suspension of such
contributions.
(2) Contents. A Bank's application for a temporary suspension of
contributions shall include:
(i) The period of time for which the Bank seeks a suspension;
(ii) The grounds for a suspension;
(iii) A plan for returning the Bank to a financially stable
position; and
(iv) The Bank's annual financial report for the preceding year, if
available, and the Bank's most recent quarterly and monthly financial
statements and any other financial data the Bank wishes the Finance
Board to consider.
(b) Finance Board review of application for temporary suspension--
(1) Determination of financial instability. In determining the
financial instability of a Bank, the Finance Board shall consider such
factors as:
(i) Whether the Bank's earnings are severely depressed;
(ii) Whether there has been a substantial decline in the Bank's
membership capital; and
(iii) Whether there has been a substantial reduction in the Bank's
advances outstanding.
(2) Limitations on grounds for suspension. The Finance 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 to members which is not
justified by market conditions;
(ii) Inordinate operating and administrative expenses; or
(iii) Mismanagement.
(c) Finance Board decision. The Finance Board's decision shall be
in writing and shall be accompanied by specific findings and reasons
for its action. If the Finance Board approves a Bank's application for
a temporary suspension, the Finance Board's written decision shall
specify the period of time such suspension shall remain in effect.
(d) Monitoring. During the term of a temporary suspension approved
by the Finance Board, the affected Bank shall provide to the Finance
Board such financial reports as the Finance Board shall require to
monitor the financial condition of the Bank.
(e) Termination of suspension. If, prior to the conclusion of the
temporary suspension period, the Finance Board determines that the Bank
has returned to a position of financial stability, the Finance Board
may, upon written notice to the Bank, terminate the temporary
suspension.
(f) Application for extension of temporary suspension period. 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.
Sec. 960.17 Affordable Housing Reserve Fund.
(a) Deposits. If a Bank fails to use or commit the full amount it
is required to contribute to the Program in any year pursuant to
Sec. 960.15, 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 Finance Board.
The remaining 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. Approval of AHP applications
sufficient to exhaust the amount a Bank is required to contribute
pursuant to Sec. 960.15 shall constitute use or commitment of funds.
(b) Annual statement. By January 15 of each year, each Bank shall
provide to the Finance 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) Annual notification. By January 31 of each year, the Finance
Board shall notify the Banks of the total amount of funds, if any,
available in the Affordable Housing Reserve Fund.
Sec. 960.18 Advisory Councils.
(a) In general. Each Bank shall appoint an Advisory Council of 7 to
15 persons, who reside in the Bank's District and are drawn from
community and not-for-profit organizations actively involved in
providing or promoting low- and moderate-income housing in the
District.
(b) Nominations and appointments. Each Bank shall solicit
nominations for membership on the Advisory Council from community and
not-for-profit organizations pursuant to a nomination process that is
as broad and as participatory as possible, allowing sufficient lead
time for responses. The Bank shall appoint Advisory Council members
giving consideration to the size of the District and the diversity of
low- and moderate-income housing needs and activities within the
District.
(c) Diversity of membership. In appointing its Advisory Council, a
Bank shall ensure that the membership includes persons drawn from a
diverse range of organizations, provided that representatives of no one
group shall constitute an undue proportion of the membership of the
Advisory Council.
(d) Terms of Advisory Council members. The Bank shall appoint
Advisory Council members to serve for no more than two consecutive
terms of three years each, and such terms shall be staggered to provide
continuity in experience and service to the Advisory Council.
(e) Election of officers. Each Advisory Council may elect from
among its members a chairperson, a vice chairperson, and any other
officers the Advisory Council deems appropriate.
(f) Duties.--(1) Meetings with the Banks. Representatives of the
board of directors of the Bank shall meet with the Advisory Council at
least quarterly to obtain the Advisory Council's advice on ways in
which the Bank can better carry out its housing finance mission,
including, but not limited to, advice on the low- and moderate-income
housing and community development programs and needs in the Bank's
District, and on the utilization of AHP subsidies, Bank advances, and
other Bank credit products for these purposes.
(2) Review of prior AHP applications. The Bank shall comply with
requests from the Advisory Council for summary information regarding
AHP applications from prior funding periods. Upon the request of the
Advisory Council, the Bank shall allow Advisory Council members to
examine, on the Bank's
[[Page 57830]]
premises, any AHP applications from prior funding periods.
(3) Annual report to the Finance Board. Each Advisory Council shall
submit to the Finance Board annually by March 1 its analysis of the
low- and moderate-income housing and community development activity of
the Bank by which it is appointed.
(g) Expenses. The Bank shall pay Advisory Council members travel
expenses, including transportation and subsistence, for each day
devoted to attending meetings with representatives of the board of
directors of the Bank.
(h) Avoidance of actual or apparent conflicts of interest.--(1) In
general. An Advisory Council member who has a personal interest in, or
who is a director, officer or employee of an organization involved in a
project that is the subject of a pending or approved AHP application,
may not participate in or attempt to influence the evaluation,
approval, funding, monitoring, or any remedial process for such project
under the Program.
(2) Adoption of written policy. Each Bank's board of directors
shall adopt a written policy applicable to the Bank's Advisory Council
members to prevent actual or apparent conflicts of interest under the
Program.
(3) No delegation. A Bank's board of directors may not delegate to
Bank officers or other Bank employees the responsibility to adopt such
policy.
Dated: October 9, 1996.
By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.
[FR Doc. 96-28319 Filed 11-7-96; 8:45 am]
BILLING CODE 6725-01-U
