[Federal Register Volume 63, Number 97 (Wednesday, May 20, 1998)]
[Rules and Regulations]
[Pages 27668-27674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13428]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 960
[No. 98-18]
RIN 3069-AA73
Amendment of Affordable Housing Program Regulation
AGENCY: Federal Housing Finance Board.
ACTION: Interim final rule.
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SUMMARY: The Federal Housing Finance Board (Finance Board) is amending
its regulation governing the operation of the Affordable Housing
Program (AHP or Program) to make certain technical revisions to the
regulation that would clarify Program requirements and improve the
operation of the AHP.
EFFECTIVE DATE: The interim final rule shall be effective on June 19,
1998. The Finance Board will accept written comments on this interim
final rule on or before July 20, 1998.
ADDRESSES: Mail comments 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: Richard Tucker, Deputy Director,
Compliance Assistance Division, Office of Policy, (202) 408-2848, or
Sharon B. Like, Senior Attorney-Advisor, (202) 408-2930, or Roy S.
Turner, Attorney-Advisor, (202) 408-2512, 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 Federal Home Loan Bank (Bank) to establish a Program to subsidize
the interest rate on advances to members of the Federal Home Loan Bank
System (Bank System) engaged in lending for long-term, low- and
moderate-income, owner-occupied and affordable rental housing at
subsidized interest rates. 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
(AHP regulation). See 12 CFR part 960.
On August 4, 1997, the Finance Board published a final rule
adopting comprehensive revisions to the AHP regulation, which, among
other changes, authorized the 12 Banks, rather than the Finance Board,
to approve applications for AHP subsidies beginning January 1, 1998.
See 62 FR 41812 (Aug. 4, 1997).
In the course of implementing the changes to the Program under the
recent revisions to the AHP regulation, the Banks and Finance Board
staff have identified a number of technical issues whose resolution
would clarify Program requirements and improve the effectiveness of the
Program. The Finance Board previously published a list of Questions and
Answers prepared by Finance Board staff in order to provide guidance on
some of these issues. See 62 FR 66977 (Dec. 23, 1997). This interim
final rule codifies portions of the Finance Board staff guidance
contained in the Questions and Answers and addresses additional
technical issues that have arisen in the course of implementing the
1997 revisions to the AHP regulation. Although the interim final rule
will become effective 30 days after publication in the Federal
Register, the Finance Board requests comment on all aspects of the rule
during a 60-day comment period.
II. Analysis of Interim Final Rule
A. Definitions--Section 960.1
1. Definition of ``Affordable''
Under Sec. 960.5(b)(1) of the current AHP regulation, in order for
rental housing to be eligible to be financed by an AHP subsidy, at
least 20 percent of the units must be occupied by and affordable for
very low-income households. See 12 CFR 960.1, 960.5(b)(1). Section
960.1 of the current AHP regulation provides that ``affordable'' means
that ``the rent charged to a household for a unit that is committed to
be affordable in an AHP application does not exceed 30 percent of the
income of a household of the maximum income and size expected, under
the commitment made in the 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. Sec. 960.1 This definition is
intended to make clear that the 30 percent-of-income limitation on rent
applies to all units in a project which, according to the commitments
made in the AHP application, are to be reserved for occupancy by
households with incomes at or below 80 percent of the median income for
the area. However, subsequent to the adoption of the definition,
questions have arisen as to which units in a rental project are subject
to the 30 percent-of-income limitation. The revised definition of
``affordable'' is intended to clarify this issue. The interim final
rule defines ``affordable'' to mean that ``the rent charged for a unit
which is to be reserved for occupancy by a household with an income at
or below 80 percent of the median income for the area, does not exceed
30 percent of the income of a household of the maximum income and size
expected, under the commitment made in the AHP application, to occupy
the unit (assuming occupancy of 1.5 persons per bedroom or 1.0 person
per unit without a separate bedroom).''
[[Page 27669]]
2. Definitions of ``Low- or Moderate-Income Household'' and ``Very Low-
Income Household'' for Housing With Current Occupants
Under Sec. 960.1 of the current AHP regulation, in the case of
projects involving the purchase or rehabilitation of occupied rental
housing, a household occupying such housing is deemed to be a ``very
low-income household'' if, at the time the purchase or rehabilitation
of the housing is completed, the household has an income at or below 50
percent of the median income for the area. See id. This provision may
make it difficult for the sponsor of such a project to commit to
reserve a specific proportion of units for very low-income households
because of the uncertainty as to how many of the current occupants will
qualify as very low-income households at some future date when the
project purchase or rehabilitation is completed. Consequently, the
interim final rule provides that current occupants will be deemed to by
very low-income households if they have incomes at or below 50 percent
of the median income for the area at the time the application for AHP
subsidy is submitted to the Bank. The interim final rule makes a
parallel change to the definition of ``low- or moderate-income
household'' in Sec. 960.1 of the current AHP regulation.
3. Definition of ``Owner-Occupied Unit'' as Including Two-to-Four
Family Housing
Section 960.1 of the current AHP regulation defines ``owner-
occupied unit'' as a unit in an ``owner-occupied project,'' which is
defined as a project involving the purchase, construction, or
rehabilitation of owner-occupied housing, including condominiums and
cooperative housing, by or for very low- or low- or moderate-income
households. See id. Sec. 960.1. The interim final clarifies that two-
to-four family owner-occupied housing consisting of one owner-occupied
unit and one or more rental units constitutes a single owner-occupied
unit for purposes of the AHP. The income eligibility and affordability
requirements of the AHP regulation do not apply to the rental units in
two-to-four family housing.
4. Definition of ``Rental Project'' as Including Overnight Shelters for
Homeless Households
Under Sec. 960.1 of the current AHP regulation, a ``rental
project'' is defined to include ``transitional housing for homeless
households.'' See id. The interim final rule clarifies that overnight
shelters for homeless households also are considered rental housing
under the AHP.
B. Terms of Advisory Council Members--Section 960.4(d)
Section 960.4(d) of the current AHP regulation provides that a
Bank's board of directors shall appoint Advisory Council members to
serve for no more than three consecutive terms of three years each, and
such terms shall be staggered to provide continuity in experience and
service to the Advisory Council. See id. Sec. 960.4(d). The interim
final rule restates this requirement to make clear that, as intended by
the current AHP regulation, an Advisory Council member's individual
term must be three years. The interim final rule also adds language to
clarify that an Advisory Council member appointed to fill a vacancy
shall be appointed for the unexpired term of his or her predecessor in
office and that appointments for the unexpired term of a predecessor
shall not count toward the three-term limit.
C. Minimum Eligibility Standards For AHP Projects--Section 960.5
1. Fair Housing Compliance--Sec. 960.5(b)(9)
Section 960.5(b)(9) of the interim final rule clarifies the
requirement in the current AHP regulation that projects, as proposed,
must comply with applicable fair housing law requirements and
demonstrate how the project will be affirmatively marketed in order to
be eligible to receive AHP funds. See id. Sec. 960.5(b)(9). The interim
final rule is intended to clarify that compliance with any applicable
fair housing laws includes compliance with applicable federal and state
laws on housing accessibility for the disabled, as well as affirmative
marketing requirements under the Fair Housing Act, as they relate to
disabled persons.
There are a number of federal and state fair housing laws relating
to persons with disabilities that may apply to AHP projects, depending
upon: the type of housing or housing design (single-family,
multifamily, homeless shelters, buildings with or without elevators, or
mixed use buildings); whether the project involves acquisition,
rehabilitation or new construction; and whether the project involves
federal or state funds. Given the number of different laws governing
fair housing and accessibility requirements for the disabled, it is
recommended that the appropriate enforcing agencies be consulted for
clarification on any specific issue relating to compliance.
2. District Eligibility Requirements--Section 960.5(b)(10)
Section 960.5(b)(10)(i) of the current AHP regulation authorizes a
Bank, after consultation with its Advisory Council, to establish one or
more of the following additional eligibility requirements for AHP
applications: (1) A requirement that the amount of subsidy requested
for the project does not exceed limits established by the Bank as to
the maximum amount of AHP subsidy available per member each year; or
per member, per project, or per project unit in a single funding
period; (2) a requirement that the project is located in 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, other
than AHP or Community Investment Program (CIP) credit products, within
the previous 12 months. See id. Sec. 960.5(b)(10)(i). Section
960.5(b)(10)(ii) further provides that District eligibility
requirements must apply equally to all members. See id.
Sec. 960.5(b)(10)(ii).
Several of the Banks would like to have the option to make the use
of a minimum amount of Bank credit products a prerequisite for applying
for large amounts of AHP subsidy. Under Sec. 960.5(b)(10)(i)(C) of the
current AHP regulation, which authorizes the Banks to condition the
availability of AHP subsidy upon a member's use of ``a'' credit
product, this option is not now available. See id.
Sec. 960.5(b)(10)(i)(C). Further, these Banks have proposed that the
required level of credit product usage be linked to a member's asset
size. For example, a Bank proposes to allow all members to have access
to up to $50,000 of AHP subsidy per year, but require members wishing
to apply for more than $50,000 to have outstanding average daily
balances of Bank credit products in an amount equal to at least 1.5
percent of the member's total assets. In support of this kind of
requirement, the Banks have argued that because AHP subsidies are
derived from a Bank's earnings, fairness requires that availability of
subsidies be linked to the extent to which a member contributes to the
Bank's earnings through the purchase of other Bank credit products.
These Banks argue that a member's use of a single Bank credit product
does not make a meaningful contribution to Bank earnings.
Accordingly, the interim final rule revises the language of
Sec. 960.5(b)(10)(i)(C) of the current AHP regulation to permit a Bank
to establish a requirement that a member submitting an AHP application
has made use of a minimum amount of a credit product
[[Page 27670]]
offered by the Bank, other than AHP or CIP credit products, within the
previous 12 months, provided that such a minimum threshold for credit
product usage established by a Bank shall not exceed 1.5 percent of a
member's total assets, and all members shall have access to some amount
of AHP subsidy, as determined by the Bank, regardless of whether they
meet the Bank's minimum threshold for credit product usage.
Section 960.5(b)(10)(ii) of the current AHP regulation provides
that ``District eligibility requirements must apply equally to all
members.'' See id. Sec. 960.5(b)(10)(ii). The interim final rule
revises this language to clarify that ``[a]ny limit on the amount of
AHP subsidy available per member must result in equal amounts of AHP
subsidy available to all members.'' This requirement is intended to
ensure that such limits are not structured or applied in a
discriminatory manner.
D. Procedure for Approval of Applications for Funding--Section 960.6
1. Instructions for the Competitive Scoring Process--Section
960.6(b)(4)(ii) and (iii)
The interim final rule adds specific references to the targeting
and subsidy-per-unit scoring criteria to clarify the cross references
in Secs. 960.6(b)(4)(ii) and (iii) of the current AHP regulation. See
id. Secs. 960.6(b)(4)(ii), (iii).
2. Scoring Criterion on Use of Donated Government-Owned or Other
Properties--Section 960.6(b)(4)(iv)(A)
Under Sec. 960.6(b)(4)(iv)(A) of the current AHP regulation, an
application may receive points if it involves the creation of housing
using a significant proportion of units or land donated or conveyed for
a nominal price by the federal government or any agency or
instrumentality thereof, or by any other party. See id.
Sec. 960.6(b)(4)(iv)(A). Questions have arisen as to what should be
considered a ``nominal price.'' The interim final rule adds language to
Sec. 960.6(b)(4)(iv)(A) clarifying that a nominal price is a small,
negligible amount, most often one dollar, and may be accompanied by
modest expenses related to the conveyance of the property.
3. Targeting Score for Owner-Occupied Projects--Section
960.6(b)(4)(iv)(C)(2)
The first sentence of Sec. 960.6(b)(4)(iv)(C)(2) of the current AHP
regulation provides that applications for owner-occupied projects shall
be awarded points based on the percentage of units in the project to be
provided to households with incomes at or below 80 percent of the
median income for the area. See id. Sec. 960.6(b)(4)(iv)(C)(2). The
wording of this sentence creates the erroneous implication that an AHP
owner-occupied project may contain one or more units for households
with incomes above 80 percent of the median income for the area. Under
the Act, AHP subsidies may be used only to finance owner-occupied
housing for households with incomes at or below 80 percent of the
median income for the area. See 12 U.S.C. 1430(j)(2)(A). Consequently,
the interim final rule deletes the first sentence of
Sec. 960.6(b)(4)(iv)(C)(2) of the current AHP regulation. Applications
for owner-occupied projects shall be awarded points based on a
declining scale, with projects having the highest percentage of units
targeted to households with the lowest percentage of median income for
the area awarded the highest number of points.
4. Scoring Criterion for Housing for Homeless Households--Section 960.6
(b)(4)(iv)(D)
Under Sec. 960.6(b)(4)(iv)(D) of the current AHP regulation, an
application may receive points if it involves ``[t]he creation of
transitional housing, excluding overnight shelters, for homeless
households permitting a minimum of six months occupancy, or the
creation of rental housing reserving at least 20 percent of the units
for homeless households.'' Id. Sec. 960.6(b)(4)(iv)(D). The interim
final rule restates this provision in order to clarify the language. No
substantive change is intended. The revised language omits the express
exclusion of overnight shelters contained in the current language,
because it is clear that overnight shelters do not come within the
category of housing permitting a minimum of six months occupancy.
5. Scoring Criterion for Economic Diversity--Section
960.6(b)(4)(iv)(F)(8)
Under Sec. 960.6(b)(4)(iv)(F)(8) of the current AHP regulation,
applications for AHP subsidy may receive points for meeting the
``Economic Diversity'' scoring criterion if they involve the creation
of housing that either: (1) is 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 (2)
provides very low- or low- or moderate-income households with housing
opportunities in areas where the median household income exceeds 80
percent of the median income for the area. Id.
Sec. 960.6(b)(4)(iv)(F)(8).
One of the Banks has pointed out an ambiguity in the second
alternative described above, which makes that alternative unworkable.
Specifically, assuming the word ``area'' refers to the same area each
time it appears in the following phrase, it will always be the case
that a project provides ``housing opportunities in areas where the
median household income exceeds 80 percent of the median income for the
area,'' because the median income for an area, by definition, always
exceeds 80 percent of the median income for that area.
The general intent of the second alternative requirement in the
``Economic Diversity'' criterion is to promote housing opportunities
for very low- and low- or moderate-income households in areas that are
wealthier relative to the surrounding areas. Therefore, the interim
final rule revises the second alternative to provide that applications
may receive points for ``Economic Diversity'' if they involve the
creation of housing that provides very low- or low- or moderate-income
households with housing opportunities in neighborhoods or cities where
the median income exceeds the median income for the larger area--such
as the city, county, or Primary Metropolitan Statistical Area--in which
the neighborhood or city is located.
6. Scoring Criterion for Community Involvement--Section
960.6(b)(4)(iv)(F)(10)
Under Sec. 960.6(b)(4)(iv)(F)(10) of the current AHP regulation, an
application for AHP subsidy may receive points for meeting the
``Community Involvement'' scoring criterion if it shows demonstrated
support for the AHP project by local government, community
organizations, or individuals, other than as project sponsors, through
the commitment by such entities or individuals of donated goods and
services, or volunteer labor. Id. Sec. 960.6 (b)(4)(iv)(F)(10). Several
of the Banks have requested clarification of what constitutes a donated
good or service from a local government. For example, local governments
may provide support to housing projects in the form of property tax
deferment or abatement, zoning changes or variances, infrastructure
improvements, or fee waivers. Each of these forms of local government
initiatives constitutes the kind of non-cash support for the project
that merits scoring credit under the ``Community Involvement''
criterion. Therefore, the interim final rule specifies that these items
and any similar types of non-cash support for a project by local
government are to be
[[Page 27671]]
considered under the ``Community Involvement'' criterion.
E. Modifications of Applications--Sections 960.7 and 960.9
Sections 960.7 and 960.9 of the current AHP regulation govern
modifications to approved AHP applications prior to and subsequent to
project completion, respectively. See id. Sec. Sec. 960.7, 960.9. Each
of these sections provides that as a threshold requirement for the
approval of a modification, it must be shown that ``there is or will be
a change in the project that materially affects the facts under which
the application was originally scored and approved under the Bank's
competitive application program * * * .'' See id. Sec. Sec. 960.7(a),
960.9. A number of the Banks have requested clarification of what
constitutes a ``material change'' affecting the facts under which the
application was originally scored and approved. Accordingly, the
interim final rule revises Sec. Sec. 960.7 and 960.9 of the current AHP
regulation by replacing the ``material change'' requirement with
language clarifying that a modification is triggered where there is or
will be a change to a project that would change the score that the
project application received in the funding period in which it was
originally scored and approved, had the changed facts been operative at
that time.
F. Use of Repaid Subsidies--Section 960.12(e)
Under Secs. 960.12(a) and (b) of the current AHP regulation, which
set forth the requirements for the recovery of AHP subsidy in cases of
noncompliance with AHP requirements, interest on AHP subsidies must be
recovered, where appropriate. See id. Sec. 960.12(a), (b). Section
960.12(e) of the current AHP regulation provides that amounts repaid to
a Bank as a result of noncompliance with AHP requirements shall be made
available for other AHP-eligible projects. See id. Sec. 960.12(e). The
interim final rule clarifies that any recovered interest on such
amounts also must be made available for other AHP-eligible projects.
G. Agreements--Section 960.13
1. Retention Agreements for Owner-Occupied Units Constructed or
Rehabilitated With AHP-Assisted Financing--Sections 960.13(c)(4) and
(d)(1)
Section 960.13(c)(4) of the current AHP regulation sets forth the
required elements for retention agreements for AHP-assisted owner-
occupied units financed by a loan from the proceeds of a subsidized
advance. See id. Sec. 960.13(c)(4). Specifically, it requires such
units to be subject to a deed restriction or other legally enforceable
retention agreement or mechanism requiring that: (1) 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 (2) 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 or other legally enforceable retention agreement or
mechanism for the remainder of the 5-year retention period. See id.
The retention agreement described in Sec. 960.13(c)(4) is intended
to be used in situations where a member uses the proceeds of a
subsidized advance to provide permanent financing for the purchase of
individual units. Because each permanent loan is funded by a subsidized
advance, the permanent loan incorporates some level of interest rate
subsidy that the household purchasing a unit benefits from during the
term of the loan. Thus, there is a direct link between the subsidized
advance and the permanent financing for the unit.
Section 960.13(c)(4) does not address the situation where a member
uses a subsidized advance to finance a loan to a housing developer to
build or rehabilitate owner-occupied units, which then are purchased by
households with permanent financing from another source. In this
situation, the purchaser essentially receives a pro rata portion of the
interest rate subsidy in the construction or rehabilitation loan in the
form of a lump-sum reduction in the purchase price resulting from the
subsidized financing. The amount of the reduction in the purchase price
can be determined by spreading the total value of the AHP subsidy
across all the units financed by the construction or rehabilitation
loan, and apportioning the subsidy on a pro rata basis based upon the
relative prices of the units. In effect, the units are financed with
AHP subsidy in a similar manner to units purchased by homebuyers who
receive a direct subsidy in the form of downpayment assistance.
Under Sec. 960.13(d)(1) of the current AHP regulation, where a
purchaser uses a direct subsidy in the form of downpayment assistance
to purchase a unit, the unit must be subject to a deed restriction or
other legally enforceable retention agreement or mechanism requiring
that: (1) 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; (2) 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 (3) in the case of a refinancing 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 occupying household
has owned the unit, 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 or other legally enforceable retention agreement
or mechanism for the remainder of the retention period. See id.
Sec. 960.13(d)(1).
In sum, the AHP interest rate subsidy in a construction or
rehabilitation loan can be viewed as the functional equivalent of a
lump-sum reduction in the ultimate purchase prices of all the units
financed by such loan. This is similar to the situation where units are
purchased by homebuyers who receive a direct subsidy in the form of
downpayment assistance. Therefore, the Finance Board proposes to add a
new paragraph (c)(4)(ii) to Sec. 960.13(c)(4) of the current AHP
regulation requiring owner-occupied units financed by AHP-subsidized
construction or rehabilitation loans to be subject to retention
agreements similar to those required by Sec. 960.13(d)(1) for owner-
occupied units financed by a direct subsidy.
The interim final rule also revises the language of
Sec. 960.13(d)(1) to address situations parallel to those discussed
above, but which involve an AHP direct subsidy. For example, in some
situations, a housing developer may receive the proceeds of a direct
subsidy to finance the construction or rehabilitation of owner-occupied
units, which then are purchased by households with permanent financing
from another source. As in the case where such units are constructed or
rehabilitated with an AHP-subsidized loan, the purchasers of the units
essentially receive a pro rata portion of the direct subsidy used to
finance the construction or rehabilitation of the units, in the form of
a lump-sum reduction in the units' purchase price. The interim final
rule is intended to make clear that, although the purchasers
[[Page 27672]]
of the units do not directly receive the proceeds of the direct
subsidy, the units must be subject to AHP retention/recapture
mechanisms.
2. Termination of AHP Income-Eligibility and Affordability Restrictions
After Foreclosure--Sections 960.13(c)(5)(iv) and (d)(2)(iv)
Under Secs. 960.13(c)(5)(iv) and (d)(2)(iv) of the current AHP
regulation, a retention agreement for an AHP rental project must
incorporate a provision providing that the income-eligibility and
affordability restrictions applicable to the project may terminate upon
foreclosure or transfer in lieu of foreclosure. See id.
Secs. 960.13(c)(5)(iv), (d)(2)(iv). The purpose of this provision is to
ensure that in cases where an AHP project goes into foreclosure, the
AHP income-eligibility and affordability restrictions do not impede
transfer of the project after foreclosure. As currently worded,
Secs. 960.13(c)(5)(iv) and (d)(2)(iv) could be read mistakenly to mean
that upon the initiation of foreclosure, AHP income-eligibility and
affordability restrictions automatically terminate. This is not the
intended meaning of these provisions. Rather, the Finance Board intends
that AHP income-eligibility and affordability restrictions incorporated
in any lien on a project will be extinguished in the foreclosure
process in connection with the repayment, if any, of AHP subsidy.
Similarly, the Finance Board intends that any deed restriction on the
project incorporating AHP income-eligibility and affordability
requirements will be extinguished after foreclosure. Consequently, the
interim final rule replaces the word ``upon'' in Secs. 960.13(c)(5)(iv)
and (d)(2)(iv) of the current AHP regulation with ``after,'' so that
the regulation provides for the termination of AHP income-eligibility
and affordability restrictions after foreclosure.
In addition, the interim final rule deletes the reference to
transfers in lieu of foreclosure, because transfers in lieu of
foreclosure do not extinguish liens on the property transferred other
than the lien of the transferee. Consequently, when an AHP project is
transferred in lieu of foreclosure, the transferee must foreclose on
the project to remove any remaining AHP lien and the income-eligibility
and affordability restrictions incorporated in the lien. After such
foreclosure, Secs. 960.13(c)(5)(iv) and (d)(2)(iv) provide for the
termination of the AHP income-eligibility and affordability
restrictions. The interim final rule adds similar language to the
provisions of the AHP regulation governing retention agreements for
AHP-assisted owner-occupied projects. See id. Secs. 960.13(c)(4),
(d)(1).
III. Regulatory Flexibility Act
Because no notice of proposed rulemaking is required for this
regulation, the provisions of the Regulatory Flexibility Act (5 U.S.C.
601 et seq.) do not apply.
List of Subjects in 12 CFR Part 960
Credit, Federal home loan banks, Housing, Reporting and
recordkeeping requirements. Accordingly, the Finance Board hereby
amends title 12, chapter IX, part 960, Code of Federal Regulations, as
follows.
PART 960--AFFORDABLE HOUSING PROGRAM
1. The authority citation for part 960 continues to read as
follows:
Authority: 12 U.S.C. 1430(j).
2. Amend Sec. 960.1, by revising the definitions of ``Affordable'',
``Low-or moderate-income household'' paragraph (2)(ii), ``Owner-
occupied unit'', ``Rental project'', and ``Very low-income household''
paragraph (2)(ii) to read as follows:
Sec. 960.1 Definitions.
* * * * *
Affordable means that the rent charged for a unit which is to be
reserved for occupancy by a household with an income at or below 80
percent of the median income for the area, does not exceed 30 percent
of the income of a household of the maximum income and size expected,
under the commitment made in the AHP application, to occupy the unit
(assuming occupancy of 1.5 persons per bedroom or 1.0 person per unit
without a separate bedroom).
* * * * *
Low- or moderate-income household.
* * * * *
(2) * * *
(ii) Housing with current occupants. In the case of projects
involving the purchase or rehabilitation of rental housing with current
occupants, low- or moderate-income household means an occupying
household with an income at or below 80 percent of the median income
for the area at the time an application for AHP subsidy is submitted to
the Bank.
* * * * *
Owner-occupied unit means a unit in an owner-occupied project.
Housing with two to four dwelling units consisting of one owner-
occupied unit and one or more rental units shall be considered a single
owner-occupied unit.
Rental project means a project involving the purchase,
construction, or rehabilitation of rental housing, including overnight
shelters and transitional housing for homeless households and mutual
housing, where at least 20 percent of the units in the project are
occupied by and affordable for very low-income households.
* * * * *
Very low-income household.
* * * * *
(2) * * *
(ii) Housing with current occupants. In the case of projects
involving the purchase or rehabilitation of rental housing with current
occupants, very low-income household means an occupying household with
an income at or below 50 percent of the median income for the area at
the time an application for AHP subsidy is submitted to the Bank.
* * * * *
3. Section 960.4 is amended by revising paragraph (d) to read as
follows:
Sec. 960.4 Advisory Councils.
* * * * *
(d) Terms of Advisory Council members. Advisory Council members
shall be appointed by the Bank's board of directors to serve for terms
of three years, and such terms shall be staggered to provide continuity
in experience and service to the Advisory Council. An Advisory Council
member appointed to fill a vacancy shall be appointed for the unexpired
term of his or her predecessor in office. No Advisory Council member
may be appointed to serve for more than three consecutive terms.
Appointments for the unexpired term of a predecessor shall not count
toward the three-term limit.
* * * * *
4. Section 960.5 is amended by revising paragraphs (b)(9),
(b)(10)(i)(C), and (b)(10)(ii) to read as follows:
Sec. 960.5 Minimum eligibility standards for AHP projects.
* * * * *
(b) * * *
(9) Fair housing. The project, as proposed, must comply with
applicable federal and state laws on fair housing and housing
accessibility, including, but not limited to, the Fair Housing Act, the
Rehabilitation Act of 1973, the Americans with Disabilities Act of
1990, and the Architectural Barriers Act of 1969, and must demonstrate
how the project will be affirmatively marketed.
(10) District eligibility requirements. (i) * * *
(C) A requirement that the member submitting the application has
made use of a minimum amount of a credit
[[Page 27673]]
product offered by the Bank, other than AHP or CIP credit products,
within the previous 12 months, provided that such a minimum threshold
for credit product usage established by a Bank shall not exceed 1.5
percent of a member's total assets, and all members shall have access
to some amount of AHP subsidy, as determined by the Bank, regardless of
whether they meet the Bank's minimum threshold for credit product
usage.
(ii) Any limit on the amount of AHP subsidy available per member
must result in equal amounts of AHP subsidy available to all members.
5. Section 960.6 is amended by revising the second sentence of
paragraph (b)(4)(ii), the fourth sentence of paragraph (b)(4)(iii), and
paragraphs (b)(4)(iv)(A), (b)(4)(iv)(C)(2), (b)(4)(iv)(D),
(b)(4)(iv)(F)(8), and (b)(4)(iv)(F)(10) to read as follows:
Sec. 960.6 Procedure for approval of applications for funding.
* * * * *
(b) * * *
(4) * * *
(ii) Point allocations. * * * The scoring criterion for targeting
identified in paragraph (b)(4)(iv)(C) of this section shall be
allocated at least 20 points. * * *
(iii) Satisfaction of scoring criteria. * * * A Bank shall
designate the targeting and subsidy-per-unit scoring criteria
identified in paragraphs (b)(4)(iv)(C) and (H), respectively, of this
section as variable-point criteria. * * *
(iv) * * *
(A) Use of donated government-owned or other properties. The
creation of housing using a significant proportion of units or land
donated or conveyed for a nominal price by the federal government or
any agency or instrumentality thereof, or by any other party. For
purposes of this paragraph, a nominal price is a small, negligible
amount, most often one dollar, and may be accompanied by modest
expenses related to the conveyance of the property for use by the
project.
* * * * *
(C) * * *
(2) Owner-occupied projects. Applications for owner-occupied
projects shall be awarded points based on a declining scale, with
projects having the highest percentage of units targeted to households
with the lowest percentage of median income for the area awarded the
highest number of points.
* * * * *
(D) Housing for homeless households. The creation of rental housing
reserving at least 20 percent of the units for homeless households, or
the creation of transitional housing for homeless households permitting
a minimum of six months occupancy.
* * * * *
(F) * * *
(8) Economic diversity. The creation of housing that is 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 neighborhoods or cities where
the median income exceeds the median income for the larger surrounding
area--such as the city, county, or Primary Metropolitan Statistical
Area--in which the neighborhood or city is located;
* * * * *
(10) Community involvement. Demonstrated support for the project by
local government, other than as a project sponsor, in the form of
property tax deferment or abatement, zoning changes or variances,
infrastructure improvements, fee waivers, or other similar forms of
non-cash assistance, or demonstrated support for the project by
community organizations or individuals, other than as project sponsors,
through the commitment by such entities or individuals of donated goods
and services, or volunteer labor;
* * * * *
6. Section 960.7 is amended by revising paragraph (a) to read as
follows:
Sec. 960.7 Modifications of applications prior to project completion.
(a) Modification procedure. If, prior to final disbursement of
funds to a project from all funding sources, there is or will be a
change in the project that would change the score that the project
application received in the funding period in which it was originally
scored and approved, had the changed facts been operative at that time,
a Bank, in its discretion, may approve in writing a modification to the
terms of the approved application, provided that:
* * * * *
7. Section 960.9 is amended by revising the introductory text to
read as follows:
Sec. 960.9 Modifications of applications after project completion.
Modification procedure. If, after final disbursement of funds to a
project from all funding sources, there is or will be a change in the
project that would change the score that the project application
received in the funding period in which it was originally scored and
approved, had the changed facts been operative at that time, a Bank, in
its discretion, may approve in writing a modification to the terms of
the approved application, provided that:
* * * * *
8. Section 960.12 is amended by revising paragraph (e) to read as
follows:
Sec. 960.12 Remedial actions for noncompliance.
* * * * *
(e) Use of repaid subsidies. Amounts repaid to a Bank pursuant to
this section, including any interest, shall be made available for other
AHP-eligible projects.
* * * * *
9. Section 960.13 is amended by revising paragraphs (c)(4),
(c)(5)(iv), (d)(1), and (d)(2)(iv) to read as follows:
Sec. 960.13 Agreements.
* * * * *
(c) * * *
(4) Retention agreements for owner-occupied units. (i) Units with
AHP-assisted permanent financing. The member shall ensure that an
owner-occupied unit with permanent financing obtained from the proceeds
of a subsidized advance is subject to a deed restriction or other
legally enforceable retention agreement or 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;
(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 or other legally enforceable retention
agreement or mechanism described in this paragraph (c)(4)(i); and
(C) The obligation to repay AHP subsidy to the Bank shall terminate
after any foreclosure.
(ii) Units constructed or rehabilitated with AHP-assisted
financing. The member shall ensure that an owner-occupied unit
constructed or rehabilitated with a loan from the proceeds of a
subsidized advance but which does not have permanent financing from the
proceeds of a subsidized advance, is subject to a deed restriction or
other legally enforceable retention agreement or mechanism requiring
that:
[[Page 27674]]
(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;
(B) In the case of a sale prior to the end of the retention period,
an amount equal to the pro rata portion of the interest rate subsidy
imputed to the subsidized advance that financed the construction or
rehabilitation loan for the unit, 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;
(C) In the case of a refinancing prior to the end of the retention
period, an amount equal to the pro rata portion of the interest rate
subsidy imputed to the subsidized advance that financed the
construction or rehabilitation loan for the unit, reduced for every
year the owner occupied the unit, 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 or other legally enforceable retention
agreement or mechanism described in this paragraph (c)(4)(ii); and
(D) The obligation to repay AHP subsidy to the Bank shall terminate
after any foreclosure.
(5) * * *
(iv) The income-eligibility and affordability restrictions
applicable to the project terminate after any foreclosure.
* * * * *
(d) Special provisions where members obtain direct subsidies. (1)
Retention agreements for owner-occupied units. The member shall ensure
that an owner-occupied unit that is purchased, constructed, or
rehabilitated with the proceeds of a direct subsidy is subject to a
deed restriction or other legally enforceable retention agreement or
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 that
financed the purchase, construction, or rehabilitation of the unit,
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;
(iii) In the case of a refinancing prior to the end of the
retention period, an amount equal to a pro rata share of the direct
subsidy that financed the purchase, construction, or rehabilitation of
the unit, reduced for every year the occupying household has owned the
unit, 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 or other legally enforceable retention agreement or
mechanism described in this paragraph (d)(1); and
(iv) The obligation to repay AHP subsidy to the Bank shall
terminate after any foreclosure.
(2) * * *
(iv) The income-eligibility and affordability restrictions
applicable to the project terminate after any foreclosure.
* * * * *
Dated: April 22, 1998.
By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.
[FR Doc. 98-13428 Filed 5-19-98; 8:45 am]
BILLING CODE 6725-01-P
