[Federal Register Volume 62, Number 50 (Friday, March 14, 1997)]
[Rules and Regulations]
[Pages 12073-12081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-6260]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 935
[No. 97-18]
Advances to Nonmembers
AGENCY: Federal Housing Finance Board.
ACTION: Final rule.
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SUMMARY: The Board of Directors of the Federal Housing Finance Board
(Finance Board) is amending its regulation on Federal Home Loan Bank
(FHLBank) advances to nonmembers. The rule establishes uniform
eligibility requirements and review criteria for determining whether an
entity may be certified as a nonmember mortgagee eligible to receive
FHLBank advances and devolves responsibility for making that
determination from the Finance Board to the FHLBanks. The Finance Board
also is revising the definition of the term ``state housing finance
agency'' (SHFA) to include all tribally designated housing entities
(TDHEs). The rule is part of the Finance Board's continuing effort to
devolve management and governance responsibilities to the FHLBanks and
is consistent with the goals of the National Homeownership Strategy and
the Regulatory Reinvention Initiative of the National Performance
Review.
EFFECTIVE DATE: The final rule will become effective April 14, 1997.
FOR FURTHER INFORMATION CONTACT: Christine M. Freidel, Associate
Director, Financial Management Division, Office of Policy, 202/408-
2976; Laura K. St. Claire, Financial Analyst, Financial Management
Division, Office of Policy, 202/408-2811; or, Janice A. Kaye, Attorney-
Advisor, Office of General Counsel, 202/408-2505, Federal Housing
Finance Board, 1777 F Street, N.W., Washington, D.C. 20006.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
Section 10b of the Federal Home Loan Bank Act (Bank Act)
establishes the requirements for access by nonmember mortgagees to
FHLBank advances. See 12 U.S.C. 1430b. In order to be certified as a
nonmember mortgagee, an entity must: (1) Be approved by the Department
of Housing and Urban Development (HUD) as a ``mortgagee'' under title
II of the National Housing Act; (2) be chartered under law and have
succession; (3) be subject to the inspection and supervision of a
governmental agency; and (4) lend its own funds as its principal
activity in the mortgage field. Id. 1430b(a).
Under section 10b(a) of the Bank Act, advances to nonmember
mortgagees are not subject to the general collateral requirements of
section 10(a) of the Bank Act. Id. Instead, a FHLBank may make advances
to nonmember mortgagees only upon the security of mortgages insured by
the Federal Housing Administration (FHA) of HUD under title II of the
National Housing Act. Id. The amount of any advance may not exceed 90
percent of the unpaid principal of the collateral pledged as security
for the advance. Id.
The Bank Act imposes less restrictive collateral requirements on
certain advances to nonmember mortgagees that are SHFAs. Id. 1430b(b).
Under section 10b(b) of the Bank Act, advances to SHFA nonmember
mortgagees that facilitate mortgage lending to low- or moderate-income
individuals and families (meeting the income requirements in section
142(d) or 143(f) of the Internal Revenue Code, generally up to 115
percent of the area median income) need not be secured by FHA-insured
mortgage loans if the advances otherwise meet the requirements of
section 10(a) of the Bank Act and any real estate collateral pledged to
secure the advances is comprised of single- or multi-family residential
mortgages. Id. 1430b(b), 1430(a); 26 U.S.C. 142(d), 143(f). Under
section 10(a), the four categories of collateral are eligible to secure
advances to members are: (1) Fully disbursed whole first mortgage loans
on improved residential real property that are not more than 90 days
delinquent or securities representing a whole interest in such
mortgages; (2) securities issued, insured, or guaranteed by the United
States government or any agency thereof; (3) deposits of a FHLBank; and
(4) other real estate related collateral if such collateral has a
readily ascertainable value and the FHLBank can perfect its interest
therein.\1\
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\1\ See 12 U.S.C. 1430(a)(1)-(4). Other acceptable real estate
related collateral includes, but is not limited to: privately issued
mortgage-backed securities other than those eligible under category
1; second mortgage loans, including home equity loans; commercial
real estate loans; and mortgage loan participations. See 12 CFR
935.9(a)(4)(ii). The aggregate amount of outstanding advances
secured by such collateral may not exceed 30 percent of a FHLBank
member's GAAP capital. See 12 U.S.C. 1430(a)(4); 12 CFR
935.9(a)(4)(iii).
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In October 1996, the Finance Board published for comment a proposed
rule that would transfer the authority to certify an entity as a
nonmember mortgagee eligible to receive FHLBank advances from the
Finance Board to the FHLBanks subject to uniform review criteria for
determining compliance with statutory and regulatory eligibility
requirements. See 61 FR 52727 (Oct. 8, 1996). The 60-day public comment
period closed on December 9, 1996. See id. The Finance Board received a
total of 12 comments in response to the proposed rule, 6 from FHLBanks,
4 from trade associations, and 1 each from a certified SHFA nonmember
mortgagee and a federal agency. All of the commenters generally
supported the Finance Board's proposal. Specific comments are discussed
in Part II of the Supplementary Information.
II. Analysis of Public Comments and the Final Rule
A. Definitions
The final rule amends the definition of the term ``state housing
finance agency'' that appears in Sec. 935.1 to include TDHEs \2\
established under both tribal and state law as SHFAs. This will permit
every TDHE nonmember mortgagee that makes mortgage loans to low- and
moderate-income members of the Indian community to take advantage of
the more flexible collateral requirements for securing advances to SHFA
nonmember mortgagees. See supra part I; 12 U.S.C. 1430b(b). Each of the
eight commenters addressing this issue expressly supported inclusion of
all TDHEs in the definition and it is being adopted as proposed. A
trade association commenter suggested that entities other than SHFAs
should not be
[[Page 12074]]
eligible for certification as nonmember mortgagees. However, because
section 10b of the Bank Act clearly sets forth two classes of nonmember
mortgagees, one composed of SHFAs and one composed of non-SHFAs, see 12
U.S.C. 1430b, the suggestion would be contrary to the Bank Act and the
Finance Board has not adopted it in the final rule.
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\2\ Congress enacted the Native American Housing Assistance and
Self Determination Act of 1996 in October 1996. See Pub. L. 104-330,
101 Stat. 4016 (Oct. 26, 1996). The Act authorizes Indian tribes to
establish TDHEs to run their housing programs. See id. sec.
102(c)(4)(K), 110 Stat. 4025. TDHEs include all existing Indian
Housing Authorities as well as other entities created by Indian
tribes to provide assistance for affordable housing for tribal
members. See id. sec. 4(21), 110 Stat 4021.
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The Finance Board received two responses to a specific request for
comments regarding the inclusion of other groups in the definition of
SHFA. One commenter noted its belief that the definition as written is
sufficiently broad to cover the Department of Hawaiian Homelands, a
Hawaii state agency with responsibility for administering the Hawaiian
Homes Commission Act on behalf of Native Hawaiians. Without additional
detailed information, the Finance Board cannot determine whether a
particular entity meets the requirements of the SHFA definition. Under
the final rule, the Banks would make this determination at the time an
entity applies for certification as a nonmember mortgagee. The other
commenter suggested including certain nonprofit community development
financial institutions (CDFIs) in the SHFA definition. The Finance
Board based its definition of SHFA on the meaning given that term for
purposes of other provisions in the Bank Act. As defined elsewhere in
the Bank Act, the term SHFA requires the entity to be a government
instrumentality. See id. 1441a(c)(9)(P), 1441a-1(1). Accordingly, the
Finance Board's definition of SHFA requires an entity to be a
government instrumentality. Since nonprofit CDFIs are not government
instrumentalities, they cannot be certified as SHFA nonmember
mortgagees. However, nonprofit CDFIs that meet the eligibility
requirements currently may be certified as nonmember mortgagees.
B. Advances to the Savings Association Insurance Fund
The Finance Board received no comments on Sec. 935.20 and is
adopting the section as proposed. Section 935.20, which implements
section 31(k) of the Bank Act, see id. 1431(k), provides that an
FHLBank may make advances to the Federal Deposit Insurance Corporation
for the use of the Savings Association Insurance Fund under certain
circumstances and subject to specific conditions.
C. Scope
Section 935.21 provides that advances to nonmember mortgagees
generally are subject to subpart A of part 935, which governs advances
to FHLBank members. See 12 CFR 935.1-935.19. A trade association
commenter suggested that the final rule prevent the FHLBanks from
applying requirements, terms, and conditions to nonmember mortgagees
that are not also applied to members. The Finance Board believes that
this provision should achieve that result. One exception to this
general requirement relates to the non-qualified thrift lender (non-
QTL) provisions of the Finance Board's advances regulation. See id.
Sec. 935.13. Since the statutory limit on aggregate FHLBank lending
applies only to advances to non-QTL members, see 12 U.S.C. 1430(e)(2)
(emphasis added), and nonmember mortgagees are not FHLBank members,
advances to nonmember mortgagees need not be included in the aggregate
limit on advances to non-QTLs. A trade association commenter strongly
supported this provision as offering assurance that nonmember
mortgagees would not limit non-QTL members' access to advances.
D. Nonmember Mortgagee Eligibility Requirements
1. Eligibility Criteria
Section 935.22(a) authorizes the FHLBanks to make advances to an
entity that is not a member of the FHLBank if the FHLBank certifies the
entity as a nonmember mortgagee. Section 935.22(b) sets forth the
eligibility requirements an entity must meet in order to be certified
as a nonmember mortgagee. In addition to the four statutory eligibility
criteria discussed in part 1 of the Supplementary Information, to
ensure the safety and soundness of the FHLBanks, the Finance Board has
incorporated a financial condition criterion that requires an
applicant's financial condition to be such that an FHLBank may safely
lend to it. This is the same financial condition criterion that applies
currently to applicants for membership in an FHLBank. See id.
1424(a)(2)(B); 12 CFR 933.6(a)(4). The Finance Board received no
comments on these provisions and is adopting them without change from
the proposal.
2. Review Criteria
Section 935.22(c) establishes uniform review criteria the FHLBanks
must apply to determine whether an applicant meets the eligibility
requirements for certification as a nonmember mortgagee. If an
applicant fulfills each criterion to the satisfaction of the FHLBank to
which it has applied, it will be deemed to meet the eligibility
requirements. Conversely, failure to fulfill each criterion to the
satisfaction of the FHLBank will render the applicant ineligible,
subject to appeal to the Finance Board, to be certified as a nonmember
mortgagee.
Under Sec. 935.22(c)(1), an applicant is deemed to meet the
requirement that it be approved under title II of the National Housing
Act if it submits a current HUD Yearly Verification Report or other
documentation issued by HUD stating that the applicant is an approved
FHA mortgagee.
Under Sec. 935.22(c)(2), an applicant is deemed to meet the
requirement that it be a chartered institution having succession if it
provides evidence satisfactory to the FHLBank that it is a government
agency, or is chartered under state, federal, local, tribal, or Alaska
Native village law as a corporation or other entity that has rights,
characteristics, and powers similar to those granted a corporation. An
FHLBank commenter noted that satisfactory evidence, such as statutory
and regulatory materials, is usually readily available to the FHLBanks,
and therefore suggested that the final rule require an applicant to
provide only a citation to, rather than copies of, appropriate
documents. For that reason, and to reduce the paperwork burden imposed
on nonmember mortgagee applicants, the Finance Board has deleted the
requirement that an applicant provide ``documentary'' evidence in the
final rule. Of course, if an FHLBank should require copies of statutes,
regulations, or other relevant documents, it has authority to require
their submission under Sec. 935.23(c)(1). See infra. In any case, an
FHLBank must include copies of all documents upon which it relied in
making its certification decision as part of the certification file
required under Sec. 935.23(c)(3). See infra.
Under Sec. 935.22(c)(3), an applicant is deemed to meet the
requirement that it be subject to the inspection and supervision of
some governmental agency if it provides evidence satisfactory to the
FHLBank that, pursuant to statute or regulation, it is subject to the
inspection and supervision of a federal, state, local, tribal, or
Alaska Native village governmental agency. Satisfactory evidence
generally consists of a citation to, or copies of, relevant statutory
and regulatory materials. For the same reasons as discussed above for
Sec. 935.22(c)(2), the Finance Board has deleted the requirement that
an applicant provide ``documentary'' evidence in the final rule.
In order to establish an appropriate standard for the FHLBanks to
determine whether an applicant meets the
[[Page 12075]]
inspection and supervision requirement, the Finance Board recast the
illustrative examples in the proposal as standards for meeting the
inspection and supervision requirements. The rule provides that an
applicant will be deemed to meet the subject to inspection by a
governmental agency requirement if there is a statutory or regulatory
requirement that the applicant's books and records be audited or
examined periodically by a governmental agency or an external auditor.
This audit factor was listed as an example of inspection by a
governmental agency in the proposed rule. The rule provides that an
applicant will be deemed to meet the supervision by a governmental
agency requirement if the governmental agency has statutory or
regulatory authority to remove an applicant's officers or directors for
malfeasance or misfeasance or otherwise exercise enforcement or
administrative control over actions of the applicant. This removal
factor was identified as an example of supervision by a governmental
agency in the proposed rule.
Three commenters addressed the inspection and supervision
requirement. A trade association commenter asked the Finance Board to
include expressly legislative audits to meet the inspection requirement
and removal by the governor to meet the supervision requirement. To
accomplish the same end, a FHLBank commenter suggested defining the
term ``governmental agency'' broadly to include the legislature and the
governor. In response to these comments and to afford greater
flexibility, the Finance Board has added a definition of the term
``governmental agency'' for purposes of this paragraph that includes
the governor, legislature, and any other component of a federal, state,
local, tribal, or Alaska Native village government with authority to
act for or on behalf of that government. The third commenter asked
whether a specific lender consortium that is examined jointly by
federal and state financial institution regulators satisfies the
supervision and inspection requirement. Without additional detailed
information, the Finance Board cannot determine whether a particular
entity meets the requirement. Under the final rule, the Banks would
make this determination at the time an entity applies for certification
as a nonmember mortgagee.
Under Sec. 935.22(c)(4), an applicant is deemed to meet the
mortgage activity requirement if it provides documentary evidence
satisfactory to the FHLBank that it lends its own funds as its
principal activity in the mortgage field. A financial statement that
includes mortgage loan assets and their funding liabilities generally
will provide adequate documentary evidence. Since this type of
financial information is not readily available to the FHLBanks, the
requirement for an applicant to submit documentation remains in the
final rule. For purposes of this requirement, the Finance Board
considers the purchase of whole mortgage loans tantamount to
``lending'' an applicant's funds. In the case of a federal, state,
local, tribal, or Alaska Native village government agency, the Finance
Board considers appropriated funds to be an applicant's ``own funds.''
An applicant will be deemed to satisfy this requirement even though the
majority of its operations are unrelated to mortgage lending if its
mortgage activity conforms to the regulatory criteria. A trade
association commenter expressly supported the provision, stating that
an applicant that acts principally as a broker for others making
mortgage loans, or whose principal activity is to make mortgage loans
for the account of others, does not meet this requirement.
Under Sec. 935.22(c)(5), an applicant is deemed to meet the
financial condition requirement if the FHLBank determines that advances
may be extended safely to the applicant. In order to make that
determination, the final rule requires an applicant to submit its most
recent regulatory audit or examination report and external audit
report. The Finance Board added a requirement to submit these specific
financial documents in the final rule because a FHLBank commenter
pointed out that applicants for FHLBank membership generally must
submit such documents as part of their membership application, see 12
CFR 933.11, and that the information provided is often critical to
analysis of an applicant's financial condition. The Bank also can
require the applicant to submit additional documentary evidence, such
as financial or other information.
3. State Housing Finance Agencies
In addition to meeting the eligibility requirements in
Sec. 935.22(b), any applicant seeking to take advantage of the more
flexible collateral requirements for advances used to facilitate
residential or commercial mortgage lending to certain low- and
moderate-income families or individuals, must provide evidence
satisfactory to the FHLBank that it is a SHFA as defined in Sec. 935.1.
See supra part II(A). Under Sec. 935.22(d), satisfactory evidence
generally consists of a copy of, or a citation to, the statutory and/or
regulatory provisions outlining the applicant's structure and
responsibilities. For the same reasons as discussed above for
Sec. 935.22(c)(2), the Finance Board has deleted the requirement that
an applicant provide ``documentary'' evidence in the final rule.
E. Nonmember Mortgagee Applications
1. Devolution
As part of the Finance Board's continuing effort to devolve
management and governance responsibilities to the FHLBanks,
Sec. 935.23(a) authorizes the FHLBanks to approve or deny all
applications for certification as a nonmember mortgagee, subject to the
requirements of the Bank Act and Finance Board regulations. Although
all six commenters addressing this issue expressly supported devolution
of decision making authority to the FHLBanks, one trade association
commenter suggested delaying devolution until the FHLBanks have some
experience in administering the final rule. Since the basis for the
review criteria in the final rule is the standards previously applied
by the FHLBanks and the Finance Board, no delay in devolution is
required.
Four FHLBank commenters requested the authority to delegate
application approvals to a committee of the FHLBank's board of
directors, the FHLBank president, or a senior officer who reports
directly to the president other than an officer responsible for
business development. This would be consistent with the Finance Board's
membership regulation and such authority is included in the final rule.
See 12 CFR 933.3(a). Also consistent with the membership regulation,
the final rule requires that only the FHLBanks' board of directors may
deny certification as a nonmember mortgagee.
2. Application Process
The remainder of Sec. 935.23 sets forth the procedures for
submission and review of nonmember mortgagee applications. Section
935.23(b) requires an applicant to submit an application that satisfies
the requirements of the Bank Act and this subpart to the FHLBank of the
district in which the applicant's principal place of business, as
determined in accordance with 12 CFR 933.18, is located.
To ensure expeditious action on applications for certification as a
nonmember mortgagee, Sec. 935.23(c)(1) requires a FHLBank to act on an
application within 60 calendar days of the date the FHLBank deems the
application complete. To make certain that the time period provided for
review
[[Page 12076]]
is not unduly restrictive, an application is deemed complete, thus
triggering the 60-day time period, only after the FHLBank has obtained
all required information and any other information it considers
necessary to process the application. The rule permits the FHLBank to
stop the 60-day period if it determines during the review process that
additional information is necessary to process the application. The
FHLBank must restart the 60-day time period where it stopped upon
receiving the additional required information. The FHLBank must notify
applicants in writing when the 60-day time period begins, stops, and
starts again. One FHLBank commenter pointed out that under a parallel
provision in the Finance Board's membership regulation, written notices
are not required and requested similar treatment in this regulation.
See 12 CFR 933.3(c). Written notice is necessary in order to provide an
appropriate record for appellate and compliance review, therefore, the
Finance Board is adopting the written notice requirement as proposed.
Further, the Finance Board intends to clarify its membership regulation
by including a written notice requirement in any future amendment.
Section 935.23(c)(2) requires the board of directors of the
FHLBank, a duly delegated committee of the FHLBank's board of
directors, the FHLBank president, or a senior officer who reports
directly to the FHLBank president other than an officer with
responsibility for business development to approve, or the board of
directors of the FHLBank to deny, each application for certification as
a nonmember mortgagee by a written decision resolution that states the
grounds for the decision. In the proposed rule, the FHLBanks could not
delegate certification approvals. As stated above, see supra part
II(E)(1), the final rule prohibits delegation only of certification
denials. The FHLBank must provide a copy of the decision resolution to
the applicant and the Finance Board within three business days of the
date of the decision on an application.
In order to provide an appropriate record for consideration of
certification denial appeals and for determination by Finance Board
examiners of a FHLBank's compliance with statutory and regulatory
requirements, the Finance Board has added a new Sec. 935.23(c)(3) that
requires a FHLBank to maintain a certification file for each applicant.
At a minimum, the certification file must include all documents
submitted by the applicant or otherwise obtained or generated by the
FHLBank concerning the applicant, all documents the Bank relied upon in
making its certification determination, including copies of statutes
and regulations, and the decision resolution. The FHLBank must retain
the certification file for at least three years after the date of its
decision to approve or deny certification or the date the Finance Board
resolves any appeal, whichever is later. The Finance Board's membership
rule includes a similar recordkeeping requirement. See 12 CFR 933.2(c).
To ensure that the FHLBanks apply the nonmember mortgagee
eligibility requirements and review criteria uniformly and fairly and
treat similarly situated applicants in a consistent manner,
Sec. 935.23(c)(4) establishes a process by which applicants may appeal
FHLBank certification denials to the Finance Board. This provision
appeared at Sec. 935.23(c)(3) in the proposed rule. Within 90 calendar
days of the date of a FHLBank's certification denial, an applicant may
submit a written appeal to the Finance Board with a copy to the
FHLBank. The appeal must include the FHLBank's decision resolution and
a statement of the basis for the appeal with sufficient facts,
information, analysis, and explanation to support the applicant's
position. The FHLBank whose action has been appealed must submit to the
Finance Board a complete copy of the applicant's certification file as
well as any relevant new materials it receives while the appeal is
pending. The rule authorizes the Finance Board to request any
additional information or supporting arguments it may require to decide
the appeal. The Finance Board must make its decision within 90 calendar
days of the date the applicant files an appeal.
F. Advances to Nonmember Mortgagees
Section 935.24 establishes the terms and conditions under which a
FHLBank may make advances to a nonmember mortgagee. Under
Sec. 935.24(a), a FHLBank may lend only to a nonmember mortgagee whose
principal place of business is located in the FHLBank's district.
1. Collateral Requirements in General
Section 935.24(b) sets forth the collateral requirements for
advances to nonmember mortgagees. Pursuant to section 10b(a) of the
Bank Act, 12 U.S.C. 1430b(a), and Sec. 935.24(b)(1) of the final rule,
a FHLBank may make advances to any nonmember mortgagee upon the
security of FHA-insured mortgages, including securities representing a
whole interest in a pool of FHA-insured mortgages, if the nonmember
mortgagee provides evidence satisfactory to the FHLBank that the
securities are backed solely by qualifying mortgages.
2. SHFA Collateral Requirements
Section 935.24(b)(2) implements the less restrictive collateral
requirements applicable to advances to a SHFA nonmember mortgagee, the
proceeds of which will be used to facilitate mortgage lending that
benefits certain low- and moderate-income individuals or families. See
supra part I; 12 U.S.C. 1430b(b). Under Sec. 935.24(b)(2)(i), a FHLBank
may secure qualifying advances with: the collateral described in
Sec. 935.24(b)(1); collateral eligible under categories 1 or 2 of Bank
Act section 10(a), 12 U.S.C. 1430(a)(1)-(2), as described in 12 CFR
935.9(a)(1) or (2); or, collateral eligible under category 4 of Bank
Act section 10(a), 12 U.S.C. 1430(a)(4), as described in 12 CFR
935.9(a)(4), provided that such collateral is comprised of mortgage
loans on one-to-four or multi-family residential property and the
acceptance of such collateral will not increase the total amount of
advances outstanding to the SHFA secured by such collateral beyond 30
percent of its GAAP capital, as computed by the FHLBank. A FHLBank
commenter recommended that the rule specifically include as acceptable
collateral for SHFA advances, collateral pledged by a FHLBank member to
secure its obligations under a standby letter of credit issued for the
benefit of a FHLBank that makes a SHFA nonmember mortgagee advance. The
current Finance Board regulation concerning collateral for advances
does not address this type of collateral. See 12 CFR 935.9. The Finance
Board plans to consider this issue as part of a future rulemaking
concerning FHLBank advances.
The proposed rule asserted that SHFA nonmember mortgagees would not
have any Bank Act section 10(a) category 3 collateral available to
secure FHLBank advances since a FHLBank may accept deposits only from
FHLBank members, other FHLBanks, or other instrumentalities of the
United States. See 12 U.S.C. 1430(a)(3), 1431(e)(1); 61 FR 52731. Three
FHLBank commenters found this interpretation of the Bank Act overly
restrictive. For the following reasons, the Finance Board agrees.\3\
Section 10b(b) of the Bank Act
[[Page 12077]]
authorizes the FHLBanks to accept collateral that meets the
requirements of section 10(a) to secure qualifying advances to SHFA
nonmember mortgagees. See 12 U.S.C. 1430b(b). Section 10(a) of the Bank
Act includes specifically deposits in a FHLBank as acceptable
collateral. See id. 1430(a). The Finance Board believes that there is
statutory authority to allow SHFA nonmember mortgagees to secure
qualifying advances with cash collateral in the form of FHLBank
deposits. Accordingly, the Finance Board has added a new paragraph,
Sec. 935.24(b)(2)(B), authorizing the FHLBanks to accept deposits in a
FHLBank as security for SHFA nonmember mortgagee advances. Pursuant to
the FHLBanks' incidental authority to do all things necessary to carry
out the provisions of the Bank Act, see 12 U.S.C. 1431(a), (e)(1), and
to facilitate acceptance of such collateral, the rule permits the
FHLBanks to establish cash collateral accounts for SHFA nonmember
mortgagees. This interpretation is consistent with the restriction on
acceptance of deposits by the FHLBanks contained in section 11(e)(1) of
the Bank Act, see id. 1431(e)(1), since the SHFA nonmember mortgagee
will use the cash collateral account at the FHLBank only to secure
advances and not to take advantage of FHLBank deposit programs, i.e.,
SHFA nonmember mortgagees will not be able to use a FHLBank as a
substitute for a commercial bank.
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\3\ The statement in the preamble to the proposed rule regarding
acceptance of deposits from nonmember mortgagees was not meant to
preclude a FHLBank from accepting deposits under section 11(e)(2) of
the Bank Act for the purpose of providing correspondent banking
services, provided that the nonmember mortgagee is an institution
eligible to make application to become a FHLBank member. See 12
U.S.C. 1431(e)(2).
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If a SHFA nonmember mortgagee wishes to pledge other than FHA-
insured collateral, Sec. 935.24(b)(2)(ii) requires it to certify first
in writing to the FHLBank that it will use the proceeds of the advance
so secured to facilitate qualifying mortgage lending. The final rule
clarifies that qualifying mortgage lending includes both residential
and commercial mortgage lending. A trade association commenter
expressly supported this provision because it will allow SHFA nonmember
mortgagees to help small businesses and promote economic development
efforts.
3. Terms and Conditions for Advances
Section 935.24(c) outlines the terms and conditions for advances to
nonmember mortgagees. Under Sec. 935.24(c)(1), a FHLBank may exercise
its discretion to determine whether, and on what terms, it will make
advances to nonmember mortgagees. Section 935.24(c)(2) addresses
advance pricing. The provision in the proposed rule requiring the
FHLBanks to apply pricing criteria other than cost and credit risk to
nonmember mortgagee advances in the same manner as they apply those
criteria to member advances was intended to make clear that the
FHLBanks must treat all of their member and nonmember borrowers
equally. One commenter thought the rule should expressly require the
FHLBanks to price advances to SHFA nonmember mortgagees, given their
public purpose, at the same rate as member advances. To ensure equal
treatment, the final rule specifically applies the advance pricing
requirements applicable to member advances to nonmember mortgagee
advances. Accordingly, paragraph (c)(2)(i) requires a FHLBank to price
advances to nonmember mortgagees in accordance with the requirements of
Sec. 935.6(b), the advance pricing requirements for member advances. It
provides that the term ``member'' as used in Sec. 935.6(b), also means
``nonmember'' for purposes of this section. Paragraph (c)(2)(ii) of the
final rule requires a FHLBank to apply the pricing criteria that appear
in Sec. 935.6(b)(2), including credit and other risks of lending to a
particular borrower and other reasonable differential pricing criteria,
equally to all of its member and nonmember borrowers. The pricing
criteria that appeared in the proposed rule are included in
Sec. 935.6(b).
The Finance Board proposed deleting the current requirement that
nonmember mortgagee advances be priced to compensate a FHLBank for the
lack of a capital stock investment in the FHLBank by the nonmember
mortgagee. See 12 CFR 935.22(e)(2)(B)(ii); 61 FR 52731. The preamble to
the proposed rule stated that such compensation was unnecessary since
the additional earnings achieved through advances not supported by
capital should enhance a FHLBank's return on equity. Seven commenters
addressed this issue. Two commenters supported the proposal because the
compensation mark-up strongly discourages nonmember mortgagees from
using FHLBank advances. Four commenters recommended deletion of the
requirement and replacement with a provision giving the FHLBanks
discretion to adjust nonmember mortgagee advance prices by either
requiring a compensating balance or including compensation for the lack
of a capital stock investment as a reasonable pricing differential
criteria in Sec. 935.24(c)(3)(iii). One commenter believed that the
requirement should remain in the rule.
The comments advocating a special mark-up on nonmember mortgagee
advances generally highlighted three concerns. The first concern was
that the added leverage associated with nonmember mortgagee advances
creates additional risk for which members should be compensated. For
the following reasons, the Finance Board finds this argument to be
unpersuasive. In order for nonmember lending to have a material impact
on a FHLBank's leverage, the amount of advances outstanding to
nonmember mortgagees would have to increase significantly over current
levels. For example, advances to nonmember mortgagees at the FHLBank
with the largest volume of such advances outstanding at the end of 1996
represented 0.1 percent of the FHLBank's total assets and 2 percent of
its capital. In addition, fully secured nonmember mortgagee advances
involve minimal credit risk. Therefore, the mark-up necessary to
compensate members for any increased risk resulting from greater
leverage would almost certainly be de minimis.
The second concern expressed generally by commenters was that,
depending upon the relationship between the return paid on FHLBank
stock, a member's alternative investments, and the cost of debt, a
nonmember mortgagee might have a financial advantage from FHLBank
borrowings that would allow it to compete for mortgages with members.
For the following reasons, the Finance Board finds this argument to be
unpersuasive. On the basis of the strong growth in voluntary membership
since 1990, it appears that FHLBank dividend rates generally exceed the
alternative investment rates available to members. For example, the
average FHLBank dividend rate in 1996 was 120 basis points over the
average one-year Treasury security and, since fourth quarter 1989, only
two FHLBanks on eight occasions have paid a quarterly dividend rate
below the average federal funds rate. Accordingly, investing in FHLBank
stock typically should not put a member at a competitive disadvantage
relative to nonmember mortgagees.
The third concern advanced by commenters in support of a
compensation mark-up is that funding nonmember mortgagee advances may
be more expensive to the extent that the cost of debt is higher than
the mixture of debt and equity used to fund member advances. This
argument also is unpersuasive. With few exceptions, FHLBank debt has
been less expensive than equity, thus, advances funded solely with debt
should be less expensive than those funded with a mix of equity and
debt. In addition, under Sec. 935.24(c)(2)(i), the FHLBanks must price
a nonmember mortgagee advance to cover the funding, operating, and
[[Page 12078]]
administrative costs associated with making the advance.
After consideration of the comments, the Finance Board has
determined that, given the current financial operations of the
FHLBanks, there do not appear to be compelling economic circumstances
to justify an additional compensation mark-up on nonmember mortgagee
advances. Further, eliminating the mark-up should enhance the FHLBanks'
statutory housing finance mission by providing more attractively priced
funds to entities that specialize in affordable housing finance.
Accordingly, the lack of a capital stock investment in a FHLBank by a
nonmember borrower is not an acceptable other risk or differential
pricing factor. If a FHLBank is able to show in a particular case that
it will suffer financial hardship as a result of lending to a nonmember
mortgagee, and is able to quantify the harm, it may request a
regulatory waiver. See 61 FR 64613 (Dec. 6, 1996), codified at 12 CFR
902.6.
Two commenters asked the Finance Board to clarify whether a FHLBank
is required or has discretion to allow a nonmember mortgagee to
participate in a FHLBank's Community Investment Program (CIP). Both
commenters thought that the FHLBanks should grant SHFA nonmember
mortgagees access to advances at CIP rates. Section 10(i) of the Bank
Act requires each FHLBank to ``establish a program to provide funding
for members to undertake community-oriented mortgage lending.'' See id.
1430(i)(1) (emphasis added). Since the final rule gives the FHLBanks
discretion in pricing nonmember mortgagee advances, the FHLBanks could
make advances at CIP rates available to nonmember mortgagees. However,
because section 10(i)(1) requires establishment of a CIP only for
members, the FHLBanks are not required to do so. The Finance Board
plans to consider this issue as part of a future rulemaking concerning
CIP advance programs.
Section 935.24(c)(3) limits the principal amount of any advance
made to a nonmember mortgagee to 90 percent of the unpaid principal of
the mortgage loans or securities pledged as security for the advance.
This limit does not apply to advances made to SHFA nonmember mortgagees
for the purpose of facilitating qualifying low- and moderate-income
mortgage lending. A trade association commented that a principal reason
limiting nonmember borrowing is that most FHLBanks value nonmember
mortgagee collateral at levels below the 90 percent limit. The Finance
Board believes that the FHLBanks should develop the technical capacity
to evaluate more precisely the risks of multi-family mortgages. This
potentially will lower the over-collateralization factor assigned to
such collateral.
4. Transaction Accounts
A FHLBank commenter suggested that the rule be revised to include
authority for the FHLBanks to establish transaction accounts with
nonmember mortgagees in order to facilitate the funding of advances.
Since the FHLBanks have incidental authority to establish limited
purposes deposit accounts, see supra part II(F)(2), the Finance Board
has added a new paragraph Sec. 935.24(d) to provide the suggested
authorization.
5. Ineligibility
Under certain circumstances certified nonmember mortgagees may
become ineligible to receive FHLBank advances. Section 935.24(e)(1)
requires a nonmember mortgagee that applies for an advance to agree
first in writing that it will promptly notify the FHLBank of any change
in its status as a nonmember mortgagee. Section 935.24(e)(2) permits a
FHLBank, from time to time, to require a nonmember mortgagee to provide
evidence that it continues to satisfy all of the statutory and
regulatory eligibility requirements. If the FHLBank determines that the
nonmember mortgagee no longer meets the eligibility requirements,
Sec. 935.24(e)(3) prohibits the FHLBank from extending a new advance or
renewing an existing advance until the entity provides evidence
satisfactory to the FHLBank that it is in compliance with such
requirements. The Finance Board received no comments regarding these
provisions and is adopting them without change from the proposal.
III. Regulatory Flexibility Act
The rule largely implements statutory requirements binding on all
FHLBanks, nonmember mortgagee applicants, and certified nonmember
mortgagees. The Finance Board is not at liberty to make adjustments in
the requirements to accommodate small entities. The Finance Board has
not imposed any additional regulatory requirements that will have a
disproportionate impact on small entities. Thus, in accordance with the
provisions of the Regulatory Flexibility Act, the Board of Directors of
the Finance Board hereby certifies that this final rule will not have a
significant economic impact on a substantial number of small entities.
5 U.S.C. 605(b).
IV. Paperwork Reduction Act
As part of the notice of proposed rulemaking, the Finance Board
published a request for comments concerning the collection of
information contained in Secs. 935.22 through 935.24 of the proposed
rule. See 61 FR 52731. The Finance Board received no comments regarding
the collection of information. The Finance Board also submitted an
analysis of the information collection to the Office of Management and
Budget (OMB) for review in accordance with section 3507(d) of the
Paperwork Reduction Act of 1995. See 44 U.S.C. 3507(d). OMB assigned a
control number, 3069-0005, and approved the information collection
without conditions with an expiration date of November 30, 1999.
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 id. 3512(a).
The final rule does not substantively or materially modify the approved
information collection. The title, description of need and use, and a
description of the information collection requirements in the final
rule are discussed in parts I and II of the Supplementary Information.
The following table discloses the estimated annual reporting and
recordkeeping burden:
The estimated annual reporting and recordkeeping hour burden
is:
a. Number of respondents..................................... 10
b. Total annual responses.................................... 10
Percentage collected electronically...................... 0
c. Total annual hours requested.............................. 100
d. Current OMB inventory..................................... 100
e. Difference................................................ 0
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........................... 6,250
d. Current OMB inventory..................................... 6,250
e. Difference................................................ 0
Any comments concerning the information collection should be
submitted to Elaine L. Baker, Executive Secretary, Federal Housing
Finance Board, 1777 F Street, N.W., Washington, D.C. 20006, and the
Office of Information and Regulatory Affairs of the Office of
Management and Budget, Attention: Desk Officer for Federal Housing
Finance Board, Washington, D.C. 20503.
[[Page 12079]]
List of Subjects in 12 CFR Part 935
Credit, Federal home loan banks, Reporting and recordkeeping
requirements.
Accordingly, the Board of Directors of the Federal Housing Finance
Board hereby amends part 935, chapter IX, title 12 of the Code of
Federal Regulations, as follows:
PART 935--ADVANCES
1. The authority citation for part 935 is revised to read as
follows:
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1426, 1429, 1430,
1430b, and 1431.
2. Section 935.1 is amended by revising the definition of ``State
housing finance agency'' to read as follows:
Sec. 935.1 Definitions.
* * * * *
State housing finance agency or SHFA means:
(1) A public agency, authority, or publicly sponsored corporation
that serves as an instrumentality of any state or political subdivision
of any state, and functions as a source of residential mortgage loan
financing in that state; or
(2) A legally established agency, authority, corporation, or
organization that serves as an instrumentality of any Indian tribe,
band, group, nation, community, or Alaska Native village recognized by
the United States or any state, and functions as a source of
residential mortgage loan financing for the Indian or Alaska Native
community.
* * * * *
3. Subpart B is revised to read as follows:
Subpart B--Advances to Nonmembers
Sec.
935.20 Advances to the Savings Association Insurance Fund.
935.21 Scope.
935.22 Nonmember mortgagee eligibility requirements.
935.23 Nonmember mortgagee application process.
935.24 Advances to nonmember mortgagees.
Subpart B--Advances to Nonmembers
Sec. 935.20 Advances to the Savings Association Insurance Fund.
(a) Authority. Upon receipt of a written request from the FDIC, a
Bank may make advances to the FDIC for the use of the
SavingsAssociation Insurance Fund. The Bank shall provide a copy of
such request to the Board.
(b) Requirements. Advances to the FDIC for the use of the Savings
Association Insurance Fund shall:
(1) Bear a rate of interest not less than the Bank's marginal cost
of funds, taking into account the maturities involved and reasonable
administrative costs;
(2) Have a maturity acceptable to the Bank;
(3) Be subject to any prepayment, commitment, or other appropriate
fees of the Bank; and
(4) Be adequately secured by collateral acceptable to the Bank.
Sec. 935.21 Scope.
With the exception of Sec. 935.13, and except as otherwise provided
in Sec. 935.20 and Sec. 935.24, the requirements of subpart A of this
part apply to this subpart.
Sec. 935.22 Nonmember mortgagee eligibility requirements.
(a) Authority. Subject to the provisions of the Act and this
subpart, a Bank may make advances to an entity that is not a member of
the Bank if the Bank has certified the entity as a nonmember mortgagee.
(b) Eligibility requirements. A Bank may certify as a nonmember
mortgagee any applicant that meets the following requirements:
(1) The applicant is approved under title II of the National
Housing Act (12 U.S.C. 1707, et seq.);
(2) The applicant is a chartered institution having succession;
(3) The applicant is subject to the inspection and supervision of
some governmental agency;
(4) The principal activity of the applicant in the mortgage field
consists of lending its own funds; and
(5) The financial condition of the applicant is such that advances
may be safely made to it.
(c) Satisfaction of eligibility requirements--(1) HUD approval
requirement. An applicant shall be deemed to meet the requirement in
section 10b(a) of the Act and paragraph (b)(1) of this section that it
be approved under title II of the National Housing Act if it submits a
current HUD Yearly Verification Report or other documentation issued by
HUD stating that the Federal Housing Administration of HUD has approved
the applicant as a mortgagee.
(2) Charter requirement. An applicant shall be deemed to meet the
requirement in section 10b(a) of the Act and paragraph (b)(2) of this
section that it be a chartered institution having succession if it
provides evidence satisfactory to the Bank, such as a copy of, or a
citation to, the statutes and/or regulations under which the applicant
was created, that:
(i) The applicant is a government agency; or
(ii) The applicant is chartered under state, federal, local,
tribal, or Alaska Native village law as a corporation or other entity
that has rights, characteristics, and powers under applicable law
similar to those granted a corporation.
(3) Inspection and supervision requirement. An applicant shall be
deemed to meet the inspection and supervision requirement in section
10b(a) of the Act and paragraph (b)(3) of this section if it provides
evidence satisfactory to the Bank, such as a copy of, or a citation to,
relevant statutes and/or regulations, that, pursuant to statute or
regulation, the applicant is subject to the inspection and supervision
of a federal, state, local, tribal, or Alaska native village
governmental agency. An applicant shall be deemed to meet the
inspection requirement if there is a statutory or regulatory
requirement that the applicant be audited or examined periodically by a
governmental agency or by an external auditor. An applicant shall be
deemed to meet the supervision requirement if the governmental agency
has statutory or regulatory authority to remove an applicant's officers
or directors for cause or otherwise exercise enforcement or
administrative control over actions of the applicant. For purposes of
this paragraph (c)(3), the term ``governmental agency'' includes the
governor, legislature, and any other component of a federal, state,
local, tribal, or Alaska native village government with authority to
act for or on behalf of that government.
(4) Mortgage activity requirement. An applicant shall be deemed to
meet the mortgage activity requirement in section 10b(a) of the Act and
paragraph (b)(4) of this section if it provides documentary evidence
satisfactory to the Bank, such as a financial statement or other
financial documents that include the applicant's mortgage loan assets
and their funding liabilities, that it lends its own funds as its
principal activity in the mortgage field. Lending funds includes, but
is not limited to, the purchase of whole mortgage loans. In the case of
a federal, state, local, tribal, or Alaska Native village government
agency, appropriated funds shall be considered an applicant's own
funds. An applicant shall be deemed to satisfy this requirement
notwithstanding that the majority of its operations are unrelated to
mortgage lending if its mortgage activity conforms to this requirement.
An applicant that acts principally as a broker for others making
mortgage loans, or whose principal activity is to make mortgage loans
for the account of others, does not meet this requirement.
(5) Financial condition requirement. An applicant shall be deemed
to meet the financial condition requirement in
[[Page 12080]]
paragraph (b)(5) of this section if the Bank determines that advances
may be safely made to the applicant. The applicant shall submit to the
Bank copies of its most recent regulatory audit or examination report,
or external audit report, and any other documentary evidence, such as
financial or other information, that the Bank may require to make the
determination.
(d) State housing finance agencies. In addition to meeting the
requirements in paragraph (b) of this section, any applicant seeking
access to advances as a SHFA pursuant to Sec. 935.24(b)(2) shall
provide evidence satisfactory to the Bank, such as a copy of, or a
citation to, the statutes and/or regulations describing the applicant's
structure and responsibilities, that the applicant is a state housing
finance agency as defined in Sec. 935.1.
(e) Ineligibility. Except as otherwise provided in this subpart, if
an applicant does not satisfy the requirements of this subpart, the
applicant is ineligible to be certified as a nonmember mortgagee.
(The Office of Management and Budget approved the information
collection requirements contained in this section and assigned
control number 3069-0005 with an expiration date of November 30,
1999)
Sec. 935.23 Nonmember mortgagee application process.
(a) Authority. The Banks are authorized to approve or deny all
applications for certification as a nonmember mortgagee, subject to the
requirements of the Act and this subpart. A Bank may delegate the
authority to approve applications for certification as a nonmember
mortgagee only to a committee of the Bank's board of directors, the
Bank president, or a senior officer who reports directly to the Bank
president other than an officer with responsibility for business
development.
(b) Application requirements. An applicant for certification as a
nonmember mortgagee shall submit an application that satisfies the
requirements of the Act and this subpart to the Bank of the district in
which the applicant's principal place of business, as determined in
accordance with part 933 of this chapter, is located.
(c) Application process--(1) Action on applications. A Bank shall
approve or deny an application for certification as a nonmember
mortgagee within 60 calendar days of the date the Bank deems the
application to be complete. A Bank shall deem an application complete,
and so notify the applicant in writing, when it has obtained all of the
information required by this subpart and any other information it deems
necessary to process the application. If a Bank determines during the
review process that additional information is necessary to process the
application, the Bank may deem the application incomplete and stop the
60-day time period by providing written notice to the applicant. When
the Bank receives the additional information, it shall again deem the
application complete, so notify the applicant in writing, and resume
the 60-day time period where it stopped.
(2) Decision on applications. The Bank or a duly delegated
committee of the Bank's board of directors, the Bank president, or a
senior officer who reports directly to the Bank president other than an
officer with responsibility for business development shall approve, or
the board of directors of a Bank shall deny, each application for
certification as a nonmember mortgagee by a written decision resolution
stating the grounds for the decision. Within three business days of a
Bank's decision on an application, the Bank shall provide the applicant
and the Board with a copy of the Bank's decision resolution.
(3) File. The Bank shall maintain a certification file for each
applicant for at least three years after the date the Bank decides
whether to approve or deny certification or the date the Board resolves
any appeal, whichever is later. At a minimum, the certification file
shall include all documents submitted by the applicant or otherwise
obtained or generated by the Bank concerning the applicant, all
documents the Bank relied upon in making its determination regarding
certification, including copies of statutes and regulations, and the
decision resolution.
(4) Appeals. Within 90 calendar days of the date of a Bank's
decision to deny an application for certification as a nonmember
mortgagee, the applicant may submit a written appeal to the Board that
includes the Bank's decision resolution and a statement of the basis
for the appeal with sufficient facts, information, analysis, and
explanation to support the applicant's position. Appeals shall be sent
to the Federal Housing Finance Board, 1777 F Street, N.W., Washington
D.C. 20006, with a copy to the Bank.
(i) Record for appeal. Upon receiving a copy of an appeal, the Bank
whose action has been appealed shall provide to the Board a complete
copy of the applicant's certification file maintained by the Bank under
paragraph (c)(3) of this section. Until the Board resolves the appeal,
the Bank shall promptly provide to the Board any relevant new materials
it receives. The Board may request additional information or further
supporting arguments from the applicant, the Bank, or any other party
that the Board deems appropriate.
(ii) Deciding appeals. Within 90 calendar days of the date an
applicant files an appeal with the Board, the Board shall consider the
record for appeal described in paragraph (c)(4)(i) of this section and
resolve the appeal based on the requirements of the Act and this
subpart.
(The Office of Management and Budget approved the information
collection requirements contained in this section and assigned
control number 3069-0005 with an expiration date of November 30,
1999)
Sec. 935.24 Advances to nonmember mortgagees.
(a) Authority. Subject to the provisions of the Act and this
subpart, a Bank may make advances only to a nonmember mortgagee whose
principal place of business, as determined in accordance with part 933
of this chapter, is located in the Bank's district.
(b) Collateral requirements--(1) Advances to nonmember mortgagees.
A Bank may make an advance to any nonmember mortgagee upon the security
of the following collateral:
(i) Mortgage loans insured by the Federal Housing Administration of
HUD under title II of the National Housing Act; or
(ii) Securities representing a whole interest in the principal and
interest payments due on a pool of mortgage loans insured by the
Federal Housing Administration of HUD under title II of the National
Housing Act. A Bank may only accept as collateral the securities
described in this paragraph (b)(1)(ii) if the nonmember mortgagee
provides evidence that such securities are backed solely by mortgages
of the type described in paragraph (b)(1)(i) of this section.
(2) Certain advances to SHFAs. (i) In addition to the collateral
described in paragraph (b)(1) of this section, a Bank may make an
advance to a nonmember mortgagee that has satisfied the requirements of
Sec. 935.22(d) for the purpose of facilitating residential or
commercial mortgage lending that benefits individuals or families
meeting the income requirements in section 142(d) or 143(f) of the
Internal Revenue Code (26 U.S.C. 142(d) or 143(f)) upon the security of
the following collateral:
(A) The collateral described in Sec. 935.9(a)(1) or (2).
(B) The collateral described in Sec. 935.9(a)(3). Solely for the
purpose of facilitating acceptance of such collateral, a Bank may
establish a cash collateral account for a nonmember
[[Page 12081]]
mortgagee that has satisfied the requirements of Sec. 935.22(d).
(C) The real estate related collateral described in
Sec. 935.9(a)(4), provided that such collateral is comprised of
mortgage loans on one-to-four family or multifamily residential
property and the acceptance of such collateral will not increase the
total amount of advances outstanding to the SHFA secured by such
collateral beyond 30 percent of its GAAP capital, as computed by the
Bank.
(ii) Prior to making an advance pursuant to this paragraph (b)(2),
a Bank shall obtain a written certification from the nonmember
mortgagee that it shall use the proceeds of the advance for the
purposes described in paragraph (b)(2)(i) of this section.
(c) Terms and conditions--(1) General. Subject to the provisions of
this paragraph (c), a Bank, in its discretion, shall determine whether,
and on what terms, it will make advances to a nonmember mortgagee.
(2) Advance pricing. (i) A Bank shall price advances to nonmember
mortgagees in accordance with the requirements for pricing advances to
members set forth in Sec. 935.6(b). Wherever the term ``member''
appears in Sec. 935.6(b), the term shall be construed also to mean
``nonmember mortgagee.''
(ii) A Bank shall apply the pricing criteria identified in
Sec. 936.5(b)(2) equally to all of its member and nonmember mortgagee
borrowers.
(3) Limit on advances. The principal amount of any advance made to
a nonmember mortgagee may not exceed 90 percent of the unpaid principal
of the mortgage loans or securities pledged as security for the
advance. This limit does not apply to an advance made to a nonmember
mortgagee under paragraph (b)(2) of this section.
(d) Transaction accounts. Solely for the purpose of facilitating
the making of advances to a nonmember mortgagee, a Bank may establish a
transaction account for each nonmember mortgagee.
(e) Loss of eligibility--(1) Notification of status changes. A Bank
shall require a nonmember mortgagee that applies for an advance to
agree in writing that it will promptly inform the Bank of any change in
its status as a nonmember mortgagee.
(2) Verification of eligibility. A Bank may, from time to time,
require a nonmember mortgagee to provide evidence that it continues to
satisfy all of the eligibility requirements of the Act and this
subpart.
(3) Loss of eligibility. A Bank shall not extend a new advance or
renew an existing advance to a nonmember mortgagee that no longer meets
the eligibility requirements of the Act and this subpart until the
entity has provided evidence satisfactory to the Bank that it is in
compliance with such requirements.
(The Office of Management and Budget approved the information
collection requirements contained in this section and assigned
control number 3069-0005 with an expiration date of November 30,
1999)
By the Board of Directors of the Federal Housing Finance Board.
Dated: February 19, 1997.
Bruce A. Morrison,
Chairperson.
[FR Doc. 97-6260 Filed 3-13-97; 8:45 am]
BILLING CODE 6725-01-P
