E5-7890. Notice of Annual Adjustment of the Cap on Average Total Assets That Defines Community Financial Institutions, the Limits on Annual Compensation for Federal Home Loan Bank Directors, and the Maximum Dollar Limits on Certain Allocations by a ...

AGENCY:

Federal Housing Finance Board.

ACTION:

Notice.

SUMMARY:

Based on the annual percentage increase in the Consumer Price Index for all urban consumers (CPI-U), as published by the Department of Labor (DOL), the Federal Housing Finance Board (Finance Board) has adjusted the cap on average total assets that defines a “Community Financial Institution”, the limits on annual compensation for Federal Home Loan Bank (Bank) directors, and the maximum dollar limits on certain allocations by a Bank of its annual required Affordable Housing Program (AHP) contributions. These changes will become effective on January 1, 2006.

FOR FURTHER INFORMATION CONTACT:

Scott L. Smith, Associate Director, Research, Office of Supervision, by telephone at 202-408-2991, by electronic mail at [e-mail], or by regular mail at the Federal Housing Finance Board, 1625 Eye Street NW., Washington DC 20006.

SUPPLEMENTARY INFORMATION:

A. Statutory and Regulatory Background

Section 2(13) of the Federal Home Loan Bank Act (Bank Act) and § 925.1 of the Finance Board regulations define a member that is a “Community Financial Institution” (CFI) by the member's total asset size. See 12 U.S.C. 1422(13)(A) and 12 CFR 925.1. The Bank Act requires the Finance Board annually to adjust the CFI asset cap to reflect any percentage increase in the preceding year's CPI-U, as published by the DOL. See 12 U.S.C. 1422(13)(B).

Section 7(i)(2)(B) of the Bank Act and § 918.3(a)(1) of the Finance Board regulations require the Finance Board to make similar annual adjustments to the annual compensation limits for members of the boards of directors of the Banks. See 12 U.S.C. 1427(i)(2) and 12 CFR 918.3(a).

Under the AHP regulation, the Finance Board must make three similar annual adjustments that may affect how a Bank allocates its yearly required AHP contributions. See 12 CFR 951.3(a)(1)-(2). The first annual adjustment sets the maximum dollar limit a Bank may set aside annually for the current year and the subsequent year towards homeownership set-aside programs. The second adjustment sets the maximum dollar limit a Bank may set aside annually for the current year and the subsequent year towards an additional first-time homebuyer set-aside program. The third adjustment sets the maximum dollar limit a Bank may allocate from its annual required AHP contribution for the subsequent year to the current year's competitive application program.

B. Calculating the Annual Adjustments

All of these annual adjustments—to the CFI asset cap, annual Bank director compensation limits, and maximum dollar limits on Bank allocations from annual required AHP contributions—reflect the percentage by which the CPI-U published for November of the preceding calendar year exceeds the CPI-U published for November of the year before the preceding calendar year (if at all). For example, the adjustments that will become effective on January 1, 2006, are based on the percentage increase in the CPI-U from November 2004 to November 2005. The Finance Board uses November data to ensure publication of the changes to the annual limits before the January 1st effective date. This practice is consistent with that of other federal agencies.

The DOL encourages use of CPI-U data that has not been seasonally adjusted in “escalation agreements” because seasonal factors are updated annually and seasonally adjusted data are subject to revision for up to 5 years following the original release. Unadjusted data are not routinely subject to revision, and previously published unadjusted data are only corrected when significant calculation errors are discovered. Accordingly, the Finance Board is using data that has not been seasonally adjusted.

The unadjusted CPI-U increased 3.5 percent between November 2004 and November 2005. Based on this change, and effective on January 1, 2006, the Finance Board has made the following adjustments:

CFI Asset Cap: The CFI Asset Cap, which was $567 million for 2005, will be $587 million in 2006. The Finance Board arrived at the adjusted limit of $587 million by rounding to the nearest million.

Annual compensation limits: The annual compensation limits for members of the Bank boards of directors will be as follows in 2006: For a Chairperson—$29,357; for a Vice-Chairperson—$23,486; for any other member of a Bank's board of directors—$17,614. The Finance Board arrived at the adjusted annual compensation limits by rounding to the nearest dollar.

Dollar limits on Bank allocations from annual required AHP contributions. The maximum dollar limit on the amount a Bank may set aside from its annual required AHP contributions, for the current year and the subsequent year, toward homeownership set-aside programs, which was $3.2 million in 2005, will be $3.3 million in 2006.

The maximum dollar limit on the amount a Bank may set aside from its annual required AHP contributions towards an additional first-time homebuyer set-aside program, for the current year and subsequent year, which was $1.6 million in 2005, will be $1.7 million in 2006.

The maximum dollar limit on the amount a Bank may allocate from its annual required AHP contribution, for the subsequent year to the current year's competitive application program, which was $3.2 million in 2005, will be $3.3 million in 2006.

The Finance Board arrived at the adjusted AHP limits by rounding to the nearest $100,000.^[1]

Dated: December 21, 2005.

By the Federal Housing Finance Board.

Ronald A. Rosenfeld,

Chairman.

Footnotes

1.  While all adjusted limits in this Notice have been rounded to some dollar level, the calculations of new limits are based on cumulative CPI-U changes applied to the limits as they first appeared in Finance Board regulations, and hence are not distorted over time by rounding.