[Federal Register Volume 64, Number 47 (Thursday, March 11, 1999)]
[Rules and Regulations]
[Pages 12079-12084]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-5981]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 64, No. 47 / Thursday, March 11, 1999 / Rules
and Regulations
[[Page 12079]]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 960
[99-RI-6]
Questions and Answers Regarding the Affordable Housing Program--
Part 2
AGENCY: Federal Housing Finance Board.
ACTION: Staff interpretation of affordable housing program regulation.
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SUMMARY: The Federal Housing Finance Board (Finance Board) is
publishing Questions and Answers Regarding The Affordable Housing
Program (AHP or Program) Part 2 (Questions and Answers Part 2). The
Questions and Answers Part 2 have been prepared by staff of the Finance
Board in response to questions about changes in the Finance Board's
regulation governing the AHP (AHP regulation) that went into effect on
January 1, 1998, as amended by an interim final rule effective June 19,
1998. The Questions and Answers Part 2 constitute informal staff
guidance for Finance Board personnel, the Federal Home Loan Banks
(Bank), Bank members, and Program participants. The Answers are
intended to be interpretive of the AHP regulation, and are not
statements of agency policy. The Questions and Answers Part 2 have not
been considered or approved by the Board of Directors of the Finance
Board.
FOR FURTHER INFORMATION CONTACT: Richard Tucker, Deputy Director, (202)
408-2848, or Janet M. Fronckowiak, Associate Director, (202) 408-2575,
Program Assistance Division, Office of Policy, Research and Analysis;
or Sharon B. Like, Senior Attorney-Adviser, (202) 408-2930, Office of
General Counsel, Federal Housing Finance Board, 1777 F Street, N.W.,
Washington, D.C. 20006.
SUPPLEMENTARY INFORMATION: On August 4, 1997, the Finance Board
published a final rule amending its regulation governing the AHP. See
62 FR 41812 (Aug. 4, 1997). The final rule became effective on January
1, 1998. After publication of the final rule, a number of questions of
regulatory interpretation were raised by Bank staff. Finance Board
staff provided answers to the most frequently asked questions in
Questions and Answers published in the Federal Register on December 23,
1997. See 62 FR 66977 (Dec. 23, 1997). The Finance Board subsequently
made certain technical revisions to the AHP regulation to clarify
Program requirements and improve operation of the AHP. See 63 FR 27668
(May 20, 1998) (interim final rule). Bank staff has raised additional
questions regarding interpretation of the AHP regulation, which are
addressed in this Questions and Answers Part 2. The Questions and
Answers Part 2 constitute informal staff interpretive guidance for
Finance Board personnel, the Banks, Bank members, and Program
participants. The Answers are intended to be interpretive of the AHP
regulation, not statements of agency policy, and they have not been
considered or approved by the Board of Directors of the Finance Board.
The Questions and Answers Part 2 are grouped by the provision of
the AHP regulation that they discuss, and are presented in the same
order as the regulatory provisions. The numbering is consecutive with
the numbering in the December 23, 1997 Questions and Answers.
Text of the Questions and Answers Regarding the AHP--Part 2
Questions and Answers Regarding the AHP--Part 2
Definitions (Sec. 960.1)
Q5. May an AHP-assisted owner-occupied unit be subject to an AHP
retention period of longer than five years?
A5. No. Under the AHP regulation, the ``retention period'' for AHP-
assisted owner-occupied units is five years from the closing on the
sale of the unit to the purchaser. Repayment of a pro rata portion of
the AHP subsidy is required if the unit is sold to an ineligible
purchaser within the five-year period or the owner refinances the unit
and removes the retention agreement. Once the five-year period has
expired, the owner's obligation to repay any part of the AHP subsidy
ends, and a retention agreement may not extend this obligation for a
longer period. This does not preclude the unit from being subject to
retention agreements for the benefit of other project funders that
require longer retention periods for the use of their funds. (See
Question 9 in Sec. 960.13 ``Agreements'') (Sec. 960.1)
Q6. May a Bank use the Mortgage Revenue Bond (MRB) median income
standard to determine household income eligibility for projects
approved prior to the effective date of the revised AHP regulation
(January 1, 1998) but not yet fully funded?
A6. Yes. The MRB income standard may be applied to projects
approved before January 1, 1998, that are not fully funded, under both
the competitive application and homeownership set-aside programs,
provided the MRB median income standard is specified in the Bank's
current AHP Implementation Plan and will apply to all owner-occupied
projects with undisbursed funds. (Secs. 960.1, 960.3(b)(1)(i), 960.16)
Q7. In establishing income limits based on the MRB median income
standard, may a Bank use the statistics (raw numbers) published by the
Internal Revenue Service (IRS) for each state instead of the lists of
incomes provided by the states for their MRB programs?
A7. No. If a Bank chooses to use the applicable median family
income under the MRB program as the standard for determining the
``median income for the area'' under the AHP, then the Bank must use
figures for the applicable median family income for non-targeted areas
published by a state agency or instrumentality, not raw figures
published by the IRS. (Sec. 960.1)
Q8. May a Bank use the median income standard allowable under the
Native American Housing Assistance and Self-Determination Act (NAHASDA)
to determine household eligibility for owner-occupied housing in Indian
areas?
A8. Yes. The median income for an Indian area under the NAHASDA is
derived from county median income figures published annually by the
Department of Housing and Urban Development (HUD). Therefore, the
median income for an Indian area under the NAHASDA may be considered a
``median income for the area, as published annually by HUD'' under
Sec. 960.1 of the AHP regulation, and no separate Finance Board
approval is
[[Page 12080]]
necessary. The NAHASDA standard must be identified in the Bank's AHP
Implementation Plan as a median income standard used by the Bank.
(Secs. 960.1, 960.3(b)(1)(i))
Q9. Are there any AHP regulatory requirements regarding what items
should be included or excluded in the calculation of a household's
income when determining the household's eligibility for rental
projects?
A9. The AHP regulation does not address this question. This
determination is at the discretion of the Banks, although it is noted
that the HUD criteria for inclusions and deductions from income are
widely accepted standards in the industry and have been adopted by many
government housing programs as well as private sponsors of rental
projects. The Federal National Mortgage Association (Fannie Mae) and
the Federal Home Loan Mortgage Corporation (Freddie Mac) also both have
established criteria for the calculation of a household's income that
may be used in qualifying tenants for rental projects. The Bank should
specify in its policies and procedures the items that are used or
excluded in its calculation of household income eligibility.
(Sec. 960.1)
Operation of Program and Adoption of AHP Implementation Plan
(Sec. 960.3)
Q1. What kind of amendment to the Bank's AHP Implementation Plan
requires notice to the Finance Board prior to distributing requests for
applications for the next funding period in which the amendments will
be effective?
A1. The Bank must notify the Finance Board of any material change
in the Bank's policy for its AHP, including: changes to scoring
guidelines (including District Priorities); median income standards;
time limits on use of AHP subsidies and procedures for verifying
compliance with AHP requirements; any additional District eligibility
requirements, such as subsidy award limits and in-District location
requirements; project feasibility guidelines; AHP funding period
schedule; homeownership set-aside program requirements; and monitoring
procedures. (Secs. 960.3(b)(1), 960.3(b)(4))
Minimum Eligibility Standards for AHP Projects (Sec. 960.5)
Q6. May AHP funds be used under the competitive AHP application
program to pay homeownership counseling costs for projects approved
prior to the effective date of the revised AHP regulation (January 1,
1998)?
A6. Yes, AHP funds may be used to pay such homeownership counseling
costs under the competitive AHP application program, provided the
counseling meets the conditions set forth in the AHP regulation and the
project continues to meet all other AHP regulatory requirements, such
as the feasibility and need-for-subsidy requirements. If there was
another funding source for counseling costs at the time of the AHP
application, then the Bank must document that this source will no
longer be funding the counseling costs and identify what other costs
the source will be paying instead of counseling, if applicable. If
there were no counseling costs included in the original sources-and-
uses-of-funds statement, the sponsor should submit to the Bank a
revised sources-and-uses-of-funds statement that adds the counseling
costs as a use, and shows the changes in other uses of funds to enable
the funding of the new counseling costs with AHP subsidy. If the
payment of counseling fees requires an increase in the amount of the
AHP award, then the Bank also should review the revised statement to
ensure that there will be no change in the scoring of the AHP
application. (Secs. 960.5(b)(2), (b)(5))
Q7. May a Bank prohibit the use of AHP direct subsidies for
interest rate buydowns?
A7. Yes. This is at the discretion of the Bank. (Secs. 960.5(b),
960.3(a)(2))
Q8. May AHP funds be used to pay for fees per household charged by
a project sponsor or housing authority to process documents in
connection with loan closings?
A8. No. Such fees that pay for administrative costs of the project
and its closing are attributable to the sponsor and, therefore, are not
an eligible use of AHP subsidy. (Secs. 960.5(b), 960.3(a)(2))
Q9. May AHP funds be used to pay for fees charged to households by
a lender to process loan documentation?
A9. Yes. Such fees that represent a cost incurred as part of a
lender's origination of the mortgage loan are a normal cost of
financing and, therefore, are an eligible use of AHP subsidy.
(Secs. 960.5(b), 960.3(a)(2))
Q10. How may financial feasibility be determined for a shelter?
A10. Where a shelter depends upon charitable contributions rather
than rents or other income, a Bank may obtain a history of the
sponsor's fundraising that demonstrates its ability to raise funds, as
well as the sponsor's commitment to make up any shortfall in the
project's annual budget. The Bank may use this information to determine
that the project is financially feasible, even if the project would not
meet the Bank's feasibility guidelines. (Sec. 960.5(b)(2))
Procedures for Approval of AHP Applications for Funding (Sec. 960.6)
Q8. What qualifies as ``donated goods and services'' by a local
government in assessing its support for a project under the ``Community
Involvement'' scoring criterion?
A8. Examples of items that would qualify as donated goods and
services by a local government include: property tax deferment or
abatement; zoning changes or variances; infrastructure improvements;
and fee waivers (such as waivers of building permit fees). Cash
contributions to a project, such as CDBG or HOME funds, provided by a
local government do not qualify as donations of ``goods and services.''
Donations of property by a local government would not be considered
donations of ``goods and services'' under the ``Community Involvement''
criterion, but would be taken into account under the ``use of donated
government-owned or other properties'' scoring criterion.
(Sec. 960.6(b)(4)(iv)(A) and (F)(10))
Q9. Does a project's ground lease of 50 years or more provided by a
government at a rental fee of $1 per year, qualify as ``land donated or
conveyed for a nominal price'' for purposes of the scoring criterion
for the ``use of donated government-owned or other properties''?
A9. Yes. The lease of the land may be viewed as property
``conveyed,'' and the $1 annual rental fee for 50 years or more
constitutes a ``nominal price'' under the scoring criterion. However,
the Bank must determine whether there are any provisions in the ground
lease that would affect the abilities of the Bank, member or sponsor to
satisfy the requirements of the AHP regulation and the terms of the AHP
application. If so, the Bank may need to reject the application or
require execution of further assurances from the various parties, in
order to ensure compliance with the AHP requirements, as well as
provide any additional protections that the Bank deems necessary.
(Sec. 960.6(b)(4)(iv)(A))
Q10. Has the Finance Board defined the term ``first-time
homebuyer'' for purposes of the District scoring priority?
A10. There is no regulatory or policy guidance from the Finance
Board regarding the definition of ``first-time homebuyer'' for District
priority scoring purposes. Thus, the Bank has the discretion to define
this term in its AHP Implementation Plan. (Secs. 960.6(b)(4)(iv)(F)(3),
960.3(b)(1)(vi))
Q11. What ``special needs'' groups are contemplated by the Finance
Board in addition to those specifically named in
[[Page 12081]]
the District scoring priority provision for ``special needs''?
A11. In authorizing a District scoring priority for households with
``special needs,'' the AHP regulation provides an illustrative list of
the types of populations that the Finance Board considers to have
special needs that may be addressed through the AHP. The Bank has the
discretion to include other groups in this priority that the Bank deems
to have special needs similar to the types listed. These groups must be
identified in the Bank's AHP Implementation Plan.
(Secs. 960.6(b)(4)(iv)(F)(1), 960.3(b)(1)(vi))
Q12. May an AHP application receive scoring points for ``member
financial participation'' if another member, rather than the member
applicant itself, is providing qualifying financial assistance to the
project?
A12. No. Points may only be awarded under this scoring criterion if
the financial assistance is provided directly by the member that is
applying for the AHP subsidy. (Sec. 960.6(b)(4)(iv)(F)(4))
Modification of AHP Applications Prior to Project Completion
(Sec. 960.7)
Q2. If a Bank approves the use of unused AHP subsidy to cover a
prepayment fee charged by the Bank, can the amount of subsidy be
increased to cover the entire fee if the amount of unused AHP subsidy
is not sufficient to cover the entire fee?
A2. Yes, provided the project application meets the requirements of
the AHP regulation for a modification involving an increase in AHP
subsidy. (Sec. 960.7)
Procedures for Funding (Sec. 960.8)
Q2. For projects approved prior to January 1, 1998 that committed
in their AHP applications to target a specified number of units for
households at specific income levels, and where the Bank scored such
projects based on a weighted average of the targeting commitment,
should subsequent disbursement of the AHP funds be based on compliance
with the weighted average targeting of the units, or on a unit-by-unit
basis as committed to in the AHP application?
A2. Under the revised AHP regulation, a Bank must determine on a
unit-by-unit basis whether the units being funded meet the targeting
commitment made in the AHP application. While the weighted average
targeting is relevant for scoring purposes, it is not the targeting
commitment made in the AHP application and, therefore, cannot serve as
the targeting standard for measuring compliance upon disbursement of
funds. (Sec. 960.8(c)(2))
Q3. Are homeownership set-aside programs involving the purchase of
owner-occupied units subject to any monitoring or certification
requirements other than those set forth in Sec. 960.8(b)(2)?
A3. No. (Sec. 960.8(b)(2))
Modification of AHP Applications After Project Completion (Sec. 960.9)
Q3. If there is a change in a project's scoring characteristics
(such as failure to provide a service) that does not affect its
financial characteristics, can that project be modified after
completion?
A3. No. A project must be in financial distress, or at substantial
risk of falling into financial distress, in order to qualify for a
modification after completion. If not, it is deemed to be in
noncompliance with its AHP commitments and recapture of AHP subsidy is
required. The sponsor or owner has the option to attempt to cure the
noncompliance within a reasonable period of time before recapture is
required, or the parties may attempt to reach a settlement of the
noncompliance issue if the Bank can show that such a settlement is
reasonably justified. (Secs. 960.9(a), (b), 960.12(b)(1), (c)(2))
Q4. Can a sponsor convert a completed single-family rental project
to an owner-occupied project under the modification provisions of the
AHP regulation?
A4. Yes, provided the project meets the financial distress, best
efforts, minimum eligibility and scoring requirements of the AHP
regulation. The units sold after conversion would be subject to the AHP
income-eligibility, retention and monitoring requirements applicable to
owner-occupied projects. (Sec. 960.9)
Initial Monitoring Requirements (Sec. 960.10)
Q3. Who from a member institution is eligible to execute the
certifications to the Bank required under Secs. 960.10(b)(1) and
(b)(2)?
A3. The certifications may be executed by any individual (such as
an assistant vice president, loan officer or community reinvestment
officer) at the member institution, who is authorized by the member's
board of directors or delegation to do business with the Bank.
(Secs. 960.10(b)(1), (2))
Q4. Do any of the monitoring requirements contained in Sec. 960.10
apply to homeownership set-aside programs involving the purchase of
owner-occupied units?
A4. No. Homeownership set-aside programs involving the purchase of
owner-occupied units are subject only to the certification requirements
contained in Sec. 960.8(b)(2) of the AHP regulation.
(Secs. 960.8(b)(2), 960.10)
Q5. May a Bank use a sampling method authorized for the competitive
AHP application program under Sec. 960.10(c)(1) in monitoring the
certifications received under homeownership set-aside programs
involving the purchase of owner-occupied units?
A5. No. As discussed in A4 above, homeownership set-aside programs
involving the purchase of owner-occupied units are not subject to the
monitoring requirements of Sec. 960.10, which are applicable to the
competitive AHP application program. Moreover, the sampling language in
Sec. 960.10(c)(1), by its terms, applies only to the back-up
documentation supporting the certifications, not to the certifications
themselves. In addition, under Sec. 960.8(b)(2) governing homeownership
set-aside programs, a Bank must review each certification in order to
determine whether the household satisfies the eligibility requirements,
prior to disbursing funds to a member for the closing on the sale of a
unit to a household. (Secs. 960.10(c)(1), 960.8(b)(2))
Q6. May a Bank use a sampling method authorized for owner-occupied
projects under Sec. 960.10(c)(1) for the initial monitoring by the Bank
of rental projects?
A6. No. A Bank must perform the required initial monitoring for
rental projects on all such projects. Sampling during the initial
monitoring period may only be used for the monitoring of owner-occupied
projects. (Sec. 960.10(c)(1), (2))
Q7. What is the definition of ``project owner'' under this section?
A7. A project owner must have an ownership interest in the rental
project. However, the project owner may designate an agent to perform
the owner's responsibilities prescribed by this section. (Sec. 960.10)
Q8. Is a Bank required to review third-party income verifications
at initial monitoring of approved AHP owner-occupied projects?
A8. Yes, a Bank is required to review third-party income
verifications, such as tax returns, W-2 forms or other similar
documentation, for a sample of units and projects as part of the Bank's
initial monitoring of owner-occupied projects. The Bank is not required
to review these kinds of documents during its initial monitoring of
rental projects, but must do so as part of its long-term monitoring of
rental projects. (Secs. 960.10(c)(1)(i), (c)(2), 960.11(a)(3)(iii)(B),
(C))
[[Page 12082]]
Q9. What is the certification requirement for members when
construction of all AHP-assisted owner-occupied units is not completed
within one year after full disbursement of the AHP funds?
A9. A member may certify to the Bank that the AHP subsidies have
been used appropriately and the required retention mechanism is in
place, either one year after disbursement of all AHP subsidies or
within a reasonable time from the date all units in the project are
completed, whichever is later. (Sec. 960.10(b)(1)(ii), (c)(1))
Q10. At the time of the initial monitoring of an owner-occupied
project, what kind of financial review is required to comply with the
AHP regulatory requirements that the project's actual costs be in
accordance with the Bank's feasibility guidelines, and that the
subsidies are necessary for the project's financial feasibility?
A10. Financial reviews should contain the following steps: (1)
validation of actual costs and cost comparison between cost estimates
in the AHP application and the actual costs; (2) comparison of sources
and uses of funds in the application and the final sources-and-uses-of-
funds statement to determine that the AHP subsidy is still required;
and (3) comparison of the sources-and-uses-of-funds statement with the
Bank's established benchmarks for feasibility to determine the
reasonableness of costs and the need for AHP subsidy.
(Sec. 960.10(c)(1)(ii))
Q11. During the period of construction or rehabilitation of an
owner-occupied project, the project sponsor must report to the member
semi-annually on whether reasonable progress is being made towards
completion of the project. Is this semiannual report required for
projects that have not yet received any AHP subsidy?
A11. Yes. Even when no AHP subsidy has been disbursed, the semi-
annual report is required to assist the Bank in ensuring that projects
that will not be able to draw down and use funds within the period of
time established by the Bank are cancelled in accordance with
Sec. 960.8(c)(1). (Secs. 960.10(a)(1)(i), 960.8(c)(1))
Q12. How may a Bank verify income eligibility for occupants of a
shelter?
A12. Because income verification documentation is not readily
available for shelter occupants, a Bank may review income information
from intake forms collected by the shelter. (Sec. 960.10(a)(2)(ii),
(b)(2)(ii), (c)(2))
Q13. Is a certification from the homebuyer acceptable documentation
to show satisfaction of a ``first-time homebuyer'' requirement adopted
by a Bank as a District priority scoring criterion, or is other
documentation required?
A13. The AHP regulation does not establish specific requirements
for documentation that must be provided by homebuyers to the Bank to
demonstrate satisfaction of the ``first-time homebuyer'' requirement.
The particular documentation required will depend on the definition of
``first-time homebuyer'' adopted by the Bank. The Bank has the
discretion to determine what is appropriate documentation, including
self-certification by the homebuyer if such certification provides
adequate verification of satisfaction of its ``first-time homebuyer''
requirement. (Secs. 960.10(c)(1)(ii), 960.6(b)(4)(iv)(F)(3))
Long-Term Monitoring Requirements (Sec. 960.11)
Q2. Are rental projects that receive less than $50,000 in AHP
subsidies subject to the long-term AHP monitoring requirement that the
member institution visually inspect the property every three years?
A2. Yes. For all rental projects receiving $500,000 or less in AHP
subsidy, the member must visually inspect the property at least once
every three years and certify to the Bank that the project appears to
be suitable for occupancy. (Sec. 960.11(a)(3)(ii))
Q3. Are site monitoring visits of AHP projects required regardless
of project size?
A3. For all AHP-assisted projects, the Bank must perform an on-site
review of project documentation for a sample of the project's units at
least once every two years for those projects that receive more than
$500,000 in AHP subsidy. This is not required for projects that receive
$500,000 or less in AHP subsidy, regardless of when they were approved.
(Sec. 960.11(a)(3)(iii)(B)(3))
Q4. What is the definition of ``project owner'' under this section?
A4. A project owner must have an ownership interest in the rental
project. However, the project owner may designate an agent to perform
the owner's responsibilities prescribed by this section. (Sec. 960.11)
Remedial Actions for Noncompliance (Sec. 960.12)
Q3. Where an AHP subsidy provided to a rental project is secured by
a soft second mortgage, if a unit or project goes out of compliance
with AHP requirements during the 15-year retention period, must the
subsidy be recaptured on a pro rata basis, or must the full amount of
subsidy be repaid?
A3. A Bank may forgive repayment of the AHP subsidy on a pro rata
basis for the unit or project, as long as: (1) The mortgage requires
that the forgiveness is contingent upon the project having been in
compliance with the AHP requirements during the period for which
repayment is forgiven; and (2) the mortgage requires full repayment of
subsidy under the conditions set forth in the AHP regulation regarding
the sale or refinancing of the project prior to the end of the
retention period. Prior to a Bank requiring repayment of any subsidy,
the project should be given the opportunity to cure the noncompliance
within a reasonable period of time or eliminate the noncompliance
through a modification of the terms of the AHP application.
(Sec. 960.12(a) through (c))
Q4. In the case of foreclosure, may a member's prepayment fee on a
subsidized advance be waived under Sec. 960.12(a)(2)(ii) as an amount
of AHP subsidy that the member cannot recover from the project sponsor
or owner through reasonable collection efforts or, in the alternative,
may any prepayment fee resulting from foreclosure be paid from AHP
subsidy funds?
A4. No. Although a member is not required to repay any amounts of
AHP subsidy that cannot be recovered from the project sponsor or owner
through reasonable collection efforts, a prepayment fee is not an
``amount of AHP subsidy'' under the AHP regulation. AHP subsidy may
only be used to pay a prepayment fee when the project will continue to
comply with the AHP requirements for the duration of the original
retention period. This would not be the case in a foreclosure.
(Secs. 960.12(a)(2)(i), (ii), 960.5(b)(4)(i))
Agreements (Sec. 960.13)
Q1. Who may act as a Bank's designee for receiving notices of sales
or refinancings of AHP-assisted projects occurring prior to the end of
the retention period?
A1. A Bank's designee may be any entity that is capable of
receiving the notice required by Sec. 960.13 and communicating such
notice to the Bank. (Sec. 960.13(c)(4)(i), (5)(ii),
Sec. 960.13(d)(1)(i), (2)(ii))
Q2. Does the recapture provision required to be included in
retention agreements for owner-occupied units by Sec. 960.13(c)(4)
apply to both sale and refinancing of such units funded by a subsidized
advance?
A2. No, it only applies to refinancing of the units. When a
subsidized advance is used by a member to make a long-term mortgage
loan on the property, the loan incorporates some level of interest rate
subsidy that the purchaser/owner
[[Page 12083]]
benefits from during the term of the loan. When the owner repays the
balance of the loan to the member upon sale of the unit, the owner no
longer receives the benefit of the interest rate subsidy. Because no
AHP subsidy is retained by the owner upon sale of the unit, no
recapture of subsidy from the owner is required. (Sec. 960.13(c)(4))
Q3. Does the requirement for execution of agreements described in
Secs. 960.13(a) and (b) apply to projects approved prior to January 1,
1998 and funded subsequently?
A3. Yes. The revised AHP regulation applies to prospective actions
taken by parties that are affected by the requirements of the
regulation. (Sec. 960.13(a), (b))
Q4. Do the retention and recapture provisions of this section apply
to owner-occupied projects where AHP subsidy is used for minor
rehabilitation costs totaling less than $1,000?
A4. Yes. All projects with AHP subsidy are required to comply with
Sec. 960.13, regardless of the amount of subsidy. (Sec. 960.13)
Q5. Is a Bank required to charge a prepayment fee on a prepaid AHP
subsidized advance, or does the Bank have the discretion to not charge
prepayment fees on such advances?
A5. Under the Finance Board's regulation governing advances (12 CFR
935.8(b)(1)), the Banks are required to establish and charge prepayment
fees pursuant to a specified formula, which sufficiently compensates
the Bank for providing a prepayment option on an advance, and which
acts to make the Bank financially indifferent to the borrower's
decision to repay the advance prior to its maturity date. Prepayment
fees are not required to be charged for certain short-term advances,
advances funded by callable debt, and advances that are appropriately
hedged. A Bank may waive the prepayment fee only if the prepayment will
not result in an economic loss to the Bank. The AHP regulation permits
the Bank to charge a prepayment fee on subsidized AHP advances only to
the extent that the Bank suffers an economic loss from the prepayment.
Thus, a Bank must charge a prepayment fee on a subsidized AHP advance
if there is any economic loss to the Bank, and may not charge a
prepayment fee if there is no economic loss. (Sec. 960.13(c)(2))
Q6. May a member include, in its loan agreement with the borrower,
a provision requiring the borrower to pay any prepayment fee that the
member must pay on a subsidized advance in the event of foreclosure?
A6. The AHP regulation requires the Bank to charge a member a
prepayment fee on a prepaid AHP subsidized advance if the Bank suffers
an economic loss from the prepayment, but the regulation does not
preclude the member from passing through such prepayment fee to the
borrower upon foreclosure. The AHP regulation does not address whether
a loan agreement may include such a pass-through provision, which would
be subject to any applicable state laws. (Sec. 960.13(c)(2))
Q7. When determining the pro rata share of a direct subsidy to be
repaid upon sale or refinancing of an owner-occupied unit, may the
direct subsidy amount be reduced on a monthly basis or must it be
reduced on an annual basis?
A7. The direct subsidy amount may be reduced pro rata on a monthly
basis. (Sec. 960.13(d)(1)(ii), (iii))
Q8. Is a subsequent income-eligible buyer of an owner-occupied unit
sold to such buyer during the original retention period subject to the
retention and recapture provisions for the remainder of such retention
period?
A8. Yes. Therefore, if such subsequent buyer were to sell the unit
during the retention period, he or she would be required to make a pro
rata repayment of the direct subsidy received, unless the unit was sold
to a low- or moderate-income household. (Sec. 960.13(d)(1)(ii))
Q9. May an AHP-assisted owner-occupied property be subject to
retention periods required by other funding sources that are longer
than the five-year period prescribed for the AHP assistance?
A9. Yes. Section 960.13(d)(1) of the AHP regulation requires an
owner-occupied unit financed by an AHP direct subsidy to be subject to
a retention agreement under which the AHP subsidy received by the owner
of the unit is forgiven on a pro rata basis over the duration of the
retention period, i.e., five years. This does not preclude the unit
from being subject to retention agreements for the benefit of other
project funders that require longer retention periods for the use of
their funds. If a single agreement is executed for all funders of the
project, then the agreement should separately specify that the owner's
obligation to repay AHP subsidy ends after five years.
(Secs. 960.13(d)(1), 960.1, 960.16)
Q10. May a Bank use model agreements that were prepared by a
committee of counsels of the Banks?
A10. Yes. A Bank should nevertheless ensure that its own documents
reflect any requirements that are particular to its own AHP as set
forth in its current AHP Implementation Plan, as well as any applicable
state or local law requirements.
Q11. Do the retention requirements of Sec. 960.13(d)(2) apply to a
project sponsor that has no ownership interest in, but rather leases,
the land underlying the project?
A11. Yes. If the sponsor will own the building(s) to be constructed
on the underlying leased land, the sponsor should be considered to be
the owner of the project for purposes of the AHP (i.e., to have an
``ownership interest in the project'') and subject to the retention
requirements of Sec. 960.13(d)(2). However, the Bank should carefully
review the ground lease to determine whether it contains provisions
that would affect the abilities of the Bank, member or sponsor to meet
the requirements of the AHP regulation and the AHP application and, if
so, the Bank may need to require execution of further assurances from
the various parties in order to ensure compliance with the AHP
requirements. (Secs. 960.13(b)(2)(ii), (d)(2), 960.1)
Application to Existing AHP Projects (Sec. 960.16)
Q1. Are AHP projects with agreements and retention mechanisms
executed prior to January 1, 1998 governed by the terms of those
agreements, or do the provisions of the revised AHP regulation
supersede those documents?
A1. AHP agreements and retention documents executed prior to
January 1, 1998 are amended by operation of law to conform with any new
applicable AHP regulatory requirements. To the extent that existing
agreements and retention documents do not on their face reflect the
requirements of the AHP regulation, they are deemed to incorporate such
requirements and to bind the parties accordingly. A Bank does not need
to execute new agreements with affected parties, but may do so if
desired. The revised AHP regulation applies to prospective actions
taken by parties that are affected by the requirements of the
regulation, pursuant to such amended agreements and documents.
(Secs. 960.16, 960.13)
Q2. If a project was approved prior to January 1, 1998 but the AHP
retention and recapture agreements were not executed until on or after
that date, must the agreements conform with the requirements of the
revised AHP regulation?
A2. Yes. All AHP retention and recapture agreements for projects
approved prior to January 1, 1998 that are executed on or after January
1, 1998 must conform with the requirements of
[[Page 12084]]
the revised AHP regulation. (Secs. 960.16, 960.13)
Dated: March 4, 1999.
William W. Ginsberg,
Managing Director.
[FR Doc. 99-5981 Filed 3-10-99; 8:45 am]
BILLING CODE 6725-01-P
