Proposed Rule: Affordable Housing Program Amendments

Wednesday,
December 28, 2005
Part III
Federal Housing
Finance Board
12 CFR Part 951
Affordable Housing Program
Amendments; Proposed Rule
sroberts on PROD1PC70 with PROPOSALS
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76938 Federal Register / Vol. 70, No. 248 / Wednesday, December 28, 2005 / Proposed Rules
FEDERAL HOUSING FINANCE BOARD 1625 Eye Street, NW., Washington, DC Board believes, based in part on its
20006. review of the AHP on a Bank System
12 CFR Part 951 SUPPLEMENTARY INFORMATION: level conducted in 2003–2005, Report of
the Horizontal Review of the Affordable
[No. 2005–23] I. Background Housing Programs of the Federal Home
RIN 3069–AB26 Section 10(j)(1) of the Federal Home Loan Banks (March 15, 2005)
Loan Bank Act (Bank Act) requires each (Horizontal Review), that there are a
Affordable Housing Program Federal Home Loan Bank (Bank) to number of areas in which the regulation
Amendments establish an affordable housing program can be further revised to enhance the
(AHP), the purpose of which is to enable success of the program.1
AGENCY: Federal Housing Finance Bank members to provide subsidized In proposing these amendments, the
Board. financing for long-term, low- and Finance Board intends to address seven
ACTION: Proposed rule. moderate-income, owner-occupied and principal factors. First, additional
affordable rental housing. See 12 U.S.C. definitions would be incorporated into
SUMMARY: The Federal Housing Finance
1430(j)(1). The AHP has played an the regulation at § 951.1. These
Board (Finance Board) is proposing to important role in allowing the Banks to definitions would serve to establish the
amend its Affordable Housing Program support their members’ efforts to meet precise use of key terms that are
regulation to remove prescriptive the housing needs of their communities. included in the regulation. Second, the
requirements, clarify certain operational Although the AHP is a shallow subsidy proposal would reorganize the
requirements, remove certain program, its strength lies in its capacity regulatory text so that operational
authorities, and otherwise streamline to leverage additional public and private provisions relating to the competitive
and reorganize the regulation. resources for housing. Since the application program and the
DATES: The Finance Board will accept inception of the program in 1990, the homeownership set-aside program,
written comments on the proposed rule Banks have awarded more than $2 respectively, would be fully contained
that are received on or before April 27, billion in AHP subsidies to assist nearly within separate sections of the
2006. 437,000 housing units. Seventy percent regulation. Proposed § 951.5 would
ADDRESSES: Submit comments by any of of the units receiving AHP subsidies address the competitive application
the following methods: were for very low-income households. program, while § 951.6 would address
E-mail: comments@fhfb.gov. AHP subsidies have proven to be useful the homeownership set-aside program.
Fax: 202–408–2580. in financing projects that present The proposed reorganization is intended
Mail/Hand Delivery: Federal Housing underwriting challenges, such as to make it easier for program sponsors
Finance Board, 1625 Eye Street, NW., projects for the homeless and special and other interested parties to
Washington, DC 20006, ATTENTION: needs populations, which may include understand the operation of the
Public Comments. persons with disabilities and the competitive application and
Federal eRulemaking Portal: http:// elderly. The AHP also has been used homeownership set-aside programs.
www.regulations.gov. Follow the effectively with Low-Income Housing Third, the use of AHP subsidy by loan
instructions for submitting comments. If Tax Credits (LIHTC or tax credits) by pools and revolving loan funds would
you submit your comments to the filling financing gaps, thereby enabling be permitted under the competitive
Federal eRulemaking Portal, please also a larger percentage of very low-income application program, at the discretion of
send it by e-mail to the Finance Board households to be served. the particular Bank. This proposed
at comments@fhfb.gov to ensure timely The AHP also serves as an important change is intended to expand the range
receipt by the agency. resource for low- or moderate-income of eligible means of supporting
Include the following information in homeowners and first-time homebuyers. affordable housing through the program.
the subject line of your submission: From 1990 through 2004, the program Fourth, restrictions on the use of AHP
Federal Housing Finance Board. has assisted in the financing of 102,810 funds by projects located outside a
Proposed Rule: Affordable Housing owner-occupied units under the Banks’ Bank’s district and scoring preferences
Program Amendments. RIN Number competitive application programs, and for in-district projects, which the
3069–AB26. Docket Number 2005–23. 47,813 units under their current regulation permits at the Bank’s
We will post all public comments we homeownership set-aside programs. discretion, would no longer be
receive on this rule without change, Some of the units address specific permissible. This proposed change is in
including any personal information you housing needs, such as expanding response to the expansion of interstate
provide, such as your name and homeownership opportunities for banking among Bank member
address, on the Finance Board Web site underserved households. institutions, which has resulted in many
The Finance Board has promulgated members serving markets outside a
at http://www.fhfb.gov/pressroom/
regulations implementing these Bank’s district boundaries. Fifth,
pressroom_regs.htm.
provisions of the Bank Act, which are provisions in the current regulation that
FOR FURTHER INFORMATION CONTACT: codified at 12 CFR part 951. These allow a Bank to accelerate AHP
Charles E. McLean, Associate Director, regulations generally have reflected a contributions from the following year
Office of Supervision, by electronic mail prescriptive approach, which was into the current year would be deleted.
at mcleanc@fhfb.gov or by telephone at appropriate for rules implementing a The Banks have not often used this
202–408–2537; Sylvia C. Martinez, newly created program. As the program authority, and it also may present some
Senior Advisor, Office of Supervision, has matured, however, the Finance operational difficulties. Sixth,
by electronic mail at martinezs@fhfb.gov Board has revised the AHP regulations
provisions in the regulation that would

or by telephone at 202–408–2825; or a number of times, in part to provide increase annually the maximum
Sharon B. Like, Senior Attorney, Office greater responsibility to the Banks in allowable dollar amount of a Bank’s
of General Counsel, by electronic mail at managing the program and in part to
likes@fhfb.gov or by telephone at 202– implement improvements based on 1 The Horizontal Review is available on the
408–2930. You can send regular mail to lessons learned in overseeing the Housing Programs page of the Finance Board’s Web
the Federal Housing Finance Board, operation of the program. The Finance site: http://www.fhfb.gov/Default.aspx?Page=47.
Federal Register / Vol. 70, No. 248 / Wednesday, December 28, 2005 / Proposed Rules 76939
allocation to its homeownership set- occupancy under proposed § 951.7(a)(3) remove the language ‘‘for purposes of
aside program and maximum allowable (which is re-designated from current that entity’s housing programs.’’ This
dollar acceleration amount under a §§ 951.10(d) and 951.11(b)). would enable the Finance Board to
Bank’s competitive application program, AHP project. The proposed rule approve, upon a Bank’s request, median
based on the annual inflation rate, would add a new definition, which income standards from sources, such as
would be deleted. This change would would apply to both owner-occupied the Census Bureau, that publish median
address the potential for inflation to and rental projects that have been income data but do not have their own
increase the allocation of AHP awarded or have received AHP subsidy housing programs.
contributions to the homeownership set- through the competitive application Owner-occupied project and rental
aside program relative to the program. This is intended to codify project. The proposed rule would
competitive application program. existing practice and clarify that the amend the existing definitions by
Finally, prescriptive monitoring term ‘‘project’’ does not apply to direct clarifying that they apply only to the
requirements in the current regulation, subsidies, i.e., grants, to households competitive application program and by
which detail specific monitoring and made pursuant to the homeownership deleting language requiring the project
control processes with which a Bank set-aside program. The term would to involve ‘‘the purchase, construction,
must comply, would be replaced by apply to both single-family and or rehabilitation’’ of owner-occupied
standards based on required outcomes multifamily projects. The proposed rule housing or rental housing, respectively.
rather than prescribed control processes. also would make conforming changes to That requirement would be relocated to
The Finance Board invites comments on the definitions of ‘‘owner-occupied the provisions addressing the eligibility
all aspects of the proposed rule. project’’ and ‘‘rental project.’’ requirements for the use of AHP
Low- or moderate-income household subsidy, at proposed § 951.5(c)(1)(i) and
II. Analysis of the Proposed Rule and very low-income household. The (ii). The proposed rule also would add
A. Definitions: Proposed § 951.1 existing regulation defines ‘‘low- or manufactured housing to the types of
moderate-income household’’ to mean a owner-occupied housing and emergency
The proposed rule would revise household that has an income of 80
certain of the existing AHP definitions shelters and single-room occupancy
percent or less of the median income for
and would define a number of other (SRO) housing as types of rental
the area, with the income limit adjusted
terms that are used throughout the housing, which are explicitly referenced
for family (i.e., household) size, in a
regulation. See 12 CFR 951.1. Proposed in the rule.
Bank’s discretion, in accordance with
new definitions are discussed in the the methodology of the applicable Retention period. The proposed rule
context of specific regulatory median income standard. The proposed would amend the existing definition to
requirements. The more substantive rule would amend the household-size clarify that, in the case of rehabilitated
changes are described below. adjustment provisions in paragraph (3) units that currently are occupied by the
Affordable. The existing definition of the existing definition of ‘‘low- or owner and do not involve a closing, the
would be revised by adding a reference, moderate-income household’’ and (and retention period would commence on
consistent with the AHP statutory term, similarly for the definition of ‘‘very low- the date of completion of the
to ‘‘rent charged to a household,’’ which income household’’) by changing the rehabilitation.
would be defined to mean the rent that household-size adjustment from an Sponsor. The proposed rule would
is actually paid by the household optional to a mandatory requirement, amend the existing definition by
occupying the unit. See 12 U.S.C. provided that if the source for the area authorizing a Bank to define certain
1430(j)(13)(D). The existing regulatory median income data has no terms in its AHP Implementation Plan
language may not be clear on this point methodology to adjust the household and by adding 2 entities to the
and could be read to mean the amount income limit for household size, the definition. The terms ‘‘ownership
of rent charged by the owner for the Bank is not required to make such an interest’’ and ‘‘integrally involved’’ are
unit, which would be greater than the adjustment. This change would bring key terms in the existing definition of
rent actually paid by the occupants if the AHP into conformance with other ‘‘sponsor.’’ The proposed rule would
the occupants receive financial federal programs that adjust for retain those terms but would require
assistance for rent payments from other household size. each Bank to define what they mean in
sources. As further discussed below, the its AHP Implementation Plan. Under the
The proposed rule also would add a proposed rule would relocate certain existing definition, a Bank must
new paragraph (2), which would provisions of the existing definitions consider a ‘‘sponsor’’ to include any
address units that are subsidized with relating to when a household’s income entity that has an ownership interest in
low-income housing assistance under must be determined, to proposed a rental project, regardless of how small
the Department of Housing and Urban §§ 951.5(c)(1) and 951.6(c)(2)(i) for the or temporary such ownership interest is.
Development (HUD) Section 8 program. competitive application program and Requiring a Bank to define ‘‘ownership
See 42 U.S.C. 1437f. This provision is the homeownership set-aside program, interest’’ in its AHP Implementation
intended to clarify that rents charged to respectively. Plan would allow it to address concerns
a household under a Section 8 Median income for the area. The that some rental projects may
agreement will be deemed to be existing definition lists a number of manipulate ownership interests in order
‘‘affordable’’ for AHP purposes, even if median income standards that a Bank to receive points as not-for-profit
the rent increases after initial may adopt for purposes of determining sponsors under the competitive
occupancy, if the rent met the AHP household income eligibility. The application program’s scoring system.
definition of ‘‘affordable’’ upon initial regulation also provides that a Bank The proposed rule also would expand
household occupancy and thereafter has may request Finance Board approval of the definition to include revolving loan
continued to comply with the Section 8 a median income for any definable funds or entities that establish loan
agreement for that household. This geographic area, as published by a pools. Those terms would be used for
provision would be applicable for federal, state, or local government entity purposes of implementing proposed
purposes of the annual adjustment of for purposes of that entity’s housing amendments to the competitive
targeting commitments after initial programs. The proposed rule would application program rules, which would
deal with revolving loan funds and loan capital stock subject to a mandatory following year’s AHP contribution, up
pools, respectively. redemption request as a liability on the to the greater of $1.5 million or 10
Subsidy. The proposed rule would statement of condition and requires that percent of the Bank’s projected
revise the existing definition, they treat the dividends on capital stock contribution for the following year, to
principally by deleting the provisions subject to a mandatory redemption the current year’s first-time homebuyer
that specify the dates as of which the request as interest expense. The Bank set-aside program. These maximum
amount of the subsidy is to be Act provisions related to the AHP allowable dollar amounts are adjusted
determined. The substance of those provide that each Bank shall make an annually by the Finance Board to reflect
provisions would be incorporated into annual contribution equal to 10 percent any percentage increase in the
the section that sets forth the eligibility of its net earnings for the previous year preceding year’s Consumer Price Index
requirements relating to the competitive after reduction for any payment (CPI). See 12 CFR 951.3(a)(1)(iii).
application program, at proposed required under 12 U.S.C. 1441b The proposed rule would remove the
§ 951.5(c)(12). The proposed rule also (regarding the Resolution Funding annual CPI adjustment of the caps on
would remove the term Corporation) and before declaring any the dollar amounts that may be
‘‘homeownership set-aside funds’’ from dividend. 12 U.S.C. 1430(j)(8). Because allocated to the set-aside programs,
the definition of ‘‘subsidy’’ because they the Bank Act requires that the AHP principally because it has the potential
are direct subsidies, which are included contribution be calculated before the over time to increase the amounts
within the definition of ‘‘subsidy.’’ declaration of dividends, net earnings allocated to the set-aside programs at
for purposes of calculating the AHP the expense of the competitive
B. Required Annual AHP Contributions;
contribution should not be reduced by application program. As such, the CPI
Allocation of Contributions: Proposed
any dividend declaration, including adjustment could potentially affect the
§ 951.2
those associated with mandatorily- balance between amounts allocated to
Annual AHP contributions: Proposed redeemable stock, even though those owner-occupied housing and rental
§ 951.2(a). Under the Bank Act, each dividends may be treated as interest housing, respectively. Similarly,
Bank annually must contribute to its expense in the calculation of GAAP net because the provision allowing
AHP an amount equal to the greater of income. acceleration of the maximum allowable
10 percent of the Bank’s previous year’s Allocation of contributions: Proposed dollar allocation under the competitive
net income or such prorated amount as § 951.2(b). The proposed rule would application program into the current
is required to assure that the aggregate relocate the allocation of contributions year from the subsequent year would be
contribution of the 12 Banks is no less provisions for the competitive eliminated, the provision authorizing a
than $100 million. 12 U.S.C. application program and CPI adjustment of the accelerated
1430(j)(5)(C). In recent years, the Banks homeownership set-aside program in amount, as provided under existing
have not used the pro rata allocation existing § 951.3(a) to proposed § 951.3(a)(2), would be eliminated as a
method because the annual § 951.2(b), as they relate to the conforming amendment.
contributions based on the 10 percent of requirements for AHP contributions, The Finance Board is proposing to
income formula have exceeded $100 which are set forth in proposed § 951.2. make a number of other changes
million. Nonetheless, proposed Homeownership set-aside allocation: regarding the allocation of AHP funds to
§ 951.2(a)(2) would revise the existing Proposed § 951.2(b)(2). AHP subsidies the homeownership set-aside programs,
provisions to clarify that if the pro rata are disbursed through a Bank’s as noted below.
formula were to be used in any future competitive application program and its Consolidation of separate program
year, the required annual contribution homeownership set-aside program. authorities: Proposed § 951.2(b)(2).
for any Bank could not exceed its net Under the existing rules, a Bank may set Proposed § 951.2(b)(2) would retain the
earnings for the previous year. This is aside annually up to the greater of $3 maximum allowable aggregate
primarily intended as a safety and million or 25 percent of its annual allocation of AHP dollars to the
soundness measure to avoid the required AHP contribution to provide homeownership set-aside programs, i.e.,
possibility that a Bank might otherwise funds to members through its the greater of $4.5 million or 35 percent
be required to contribute an amount in homeownership set-aside programs. See of a Bank’s annual required AHP
excess of its income, thereby reducing 12 CFR 951.3(a)(1)(i). If member contribution, but would eliminate the
its regulatory capital. demand in a given year exceeds the first-time homebuyer set-aside program
Net earnings of a Bank. Proposed AHP subsidy amount available for that authority as a separate and distinct
§ 951.1 would revise the existing year, a Bank may accelerate or ‘‘borrow’’ authority. See 12 CFR 951.3(a)(1). The
definition to clarify existing practice additional amounts from the following proposed rule would replace the
with respect to how a Bank’s earnings year’s AHP contribution, up to the separate first-time homebuyer set-aside
are determined for purposes of greater of $3 million or 25 percent of the program provision with a requirement
calculating its required AHP Bank’s projected contribution for the that at least one-third of a Bank’s
contribution. See 12 CFR 951.1. following year, to the current year’s set- aggregate annual homeownership set-
Pursuant to registration of its equity aside program. aside allocation be targeted for first-time
securities with the Securities and In addition to those amounts, a Bank homebuyers, which should be
Exchange Commission (SEC), each Bank may set aside annually up to the greater functionally equivalent to the results
must present its financial statements in of $1.5 million or 10 percent of its under the current structure. The
its SEC filings in accordance with annual required AHP contribution to Finance Board understands that most of
Generally Accepted Accounting fund a set-aside program to be used the Banks currently dedicate a
Principles in the United States (GAAP). solely to provide financial assistance to substantial portion of their general
The application of Statement of first-time homebuyers. See 12 CFR homeownership set-aside allocation to
Financial Accounting Standards No. 951.3(a)(1)(ii). If member demand for first-time homebuyers before setting
150, Accounting for Certain Financial that set-aside program exceeds the aside funds under the separate
Instruments with Characteristics of Both amount of available AHP subsidy for a homeownership set-aside authority that
Liabilities and Equity (SFAS 150), to the particular year, a Bank may accelerate or specifically targets first-time
Banks requires them to categorize ‘‘borrow’’ additional amounts from the homebuyers. Therefore, the Finance
Board believes the proposed change D. Advisory Councils: Proposed § 951.4 extend that deadline from March 1 to
would simplify the regulation but The proposed rule would make a May 1 and would require each Bank to
would not cause a substantive change in number of revisions to the provisions publish the analysis on a publicly
the allocation of homeownership set- dealing with the Advisory Councils of available website within 30 days of its
aside funds to first-time homebuyers. the Banks, many of which are intended submission to the Finance Board. The
Removal of acceleration authority. proposed change in the due date
to clarify but not change the substance
The Finance Board also is proposing to responds to requests received from some
of the existing rule. See 12 CFR 951.4.
remove the existing provisions that of the Advisory Councils, which meet
The provisions that have a substantive
permit a Bank to accelerate or ‘‘borrow’’ quarterly, for additional time after the
effect are described below.
AHP funds from the subsequent year to end of each calendar year to prepare,
Terms of Advisory Council members:
fund the current year’s homeownership review, and approve their report.
Proposed § 951.4(b). Section 951.4(b) of
set-aside programs. See 12 CFR Making the Advisory Councils’ analyses
the proposed rule is intended to
951.3(a)(1)(i) and (ii). The Banks have available to the public through the
enhance the effectiveness of the
not often used that authority (in 2004 Banks’ websites is intended to promote
Advisory Councils by lessening the
only two Banks did so) and it presents greater transparency and accountability
likelihood that the terms of more than
operational difficulties because it in the Banks’ AHP and in the work of
one-third of the Advisory Council
requires the Banks to project future the Banks’ Advisory Councils.
earnings in order to determine how members will expire in any 1 year. To
that end, the proposed rule would No delegation: Proposed § 951.4(f).
much they may accelerate into the Proposed § 951.4(f) would prohibit a
current year, and these projections may require each Bank to adopt policies
governing how it would conduct the Bank’s board of directors from
not prove to be accurate. Deleting this delegating to Bank officers or other Bank
provision would eliminate some appointment process and would require
each Bank to appoint members to terms employees its responsibility for
unnecessary complexity to the appointing Advisory Council members
administration and monitoring of the of ‘‘up to’’ 3 years. The intent of the
latter change is to allow the Banks to or for meeting with the Advisory
AHP fund as well as to a Bank’s balance Council. This provision is intended to
sheet. For much the same reason, the appoint some individuals to terms of 1
or 2 years as a means of ensuring an ensure that each board of directors
Finance Board is proposing to eliminate fulfills its statutory obligations with
the provision allowing acceleration of appropriate balance of experience and
service among members of the Council regard to its interaction with the
competitive application program Advisory Council and is consistent with
allocations, as provided under existing as a whole. Under the current rules, the
Banks must appoint members of the findings of the Finance Board’s
§ 951.3(a)(2). Horizontal Review, which indicated that
Council for a 3 year term. See 12 CFR
C. AHP Implementation Plan: Proposed 951.4(d). Bank boards in general could improve
§ 951.3 Election of officers: Proposed how they interact with their Advisory
Proposed § 951.3(a) would reorganize § 951.4(c). Section 951.4(c) would Councils. See 12 U.S.C. 1430(j)(11).
and streamline requirements for a impose on the Advisory Council an E. Competitive Application Program:
Bank’s AHP Implementation Plan to affirmative obligation to elect certain Proposed § 951.5
conform them to amendments that are officers, which is intended to ensure
being proposed to other parts of the that each Advisory Council has in place The proposed rule would consolidate
AHP regulation. See 12 CFR 951.3(b). a chairman and vice chairman. The existing regulatory provisions governing
The proposed amendments to the current rule permits, but does not the operation of the competitive
specific program operating requirements require, such officers. See 12 CFR application program into a single
for AHP Implementation Plans are 951.4(e). section of the AHP rule—proposed
discussed elsewhere in this preamble in Duties: meetings with the Banks: § 951.5. Under the current regulation, a
the context of the particular operating Proposed § 951.4(d)(1). Section number of those provisions are located
requirements. The proposed rule also 951.4(d)(1) of the proposed rule would in different sections of the AHP
would add a requirement that the AHP revise the duties of the Advisory regulations. The principal revisions to
Implementation Plan include the Banks’ Council principally by adding a list of the existing regulatory structure are
retention agreement requirements. specific matters on which the Advisory described below.
Proposed § 951.3(c) would require a Council must provide recommendations Eligible applicants: Proposed
Bank to notify the Finance Board within to the Bank’s board of directors. See 12 § 951.5(b)(2). Section 951.5(b)(2) of the
30 days of amending its AHP CFR 951.4(f)(1). Those matters include: proposed rule would eliminate the
Implementation Plan and proposed the relative allocation of AHP subsidy current provision that allows a Bank to
§ 951.3(d) would require a Bank to make between the competitive application accept AHP applications from
the amended Plan publicly available and homeownership set-aside programs; institutions that are not members of the
through its Web site within 30 days after eligibility criteria for each program; Bank, but that have applied for
adoption of the amendments. Under the scoring criteria and related definitions membership. See 12 CFR 951.6(b)(1). At
current rules, the Bank must submit all for the competitive application program; one time, that provision may have
amendments to the Finance Board and any priority criteria for the encouraged institutions to become
must make its Plan available to homeownership set-aside program; and members of their district Bank but the
members of the public upon request. the AHP Implementation Plan. Finance Board believes that given the
See 12 CFR 951.3(b)(4)–(5). Making the Proposed § 951.4(d)(3) also would growth in membership in recent years
AHP Implementation Plan available extend the deadline by which the such an incentive is no longer
through the Banks’ websites is intended Advisory Council must submit its necessary.
to provide the public with easy access annual analysis of the low- and Eligibility requirements: Proposed
to important information about the AHP moderate-income housing and § 951.5(c). Under the proposed rule,
as well as to promote greater community lending activity of the Bank § 951.5(c) would set out all of the
transparency and accountability in the to the Finance Board. See 12 CFR various eligibility requirements that
program. 951.4(f)(3). The proposed rule would may apply in connection with the
receipt of AHP subsidies under the Section 951.5(c)(3)(i) of the proposed clarify that the requirement regarding
competitive application program. rule would clarify that the use of the equity proceeds applies only
Timing of household income- determination of project costs is a to an amount of equity proceeds that is
eligibility determination: Proposed separate eligibility requirement and at least equal to the amount of AHP
§ 951.5(c)(1). With regard to the timing would remove a requirement that subsidy in the project.
project costs be ‘‘customary’’ and Project sponsor qualifications:
of when a household’s income
determined according to ‘‘industry Proposed § 951.5(c)(10). Proposed
eligibility must be determined, the
standards’’ in accordance with the § 951.5(c)(10) would revise existing
proposed rule would relocate the
Bank’s project feasibility guidelines. See § 951.5(b)(8) by requiring a Bank to
current provisions from the definitions
12 CFR 951.5(b)(2)(ii). In lieu of that adopt written policies regarding the
of ‘‘low- or moderate-income project sponsor qualifications for
requirement, the proposal would require
household’’ and ‘‘very low-income revolving loan funds and loan pools,
a Bank to determine whether a project’s
household’’ in § 951.1 to proposed which issues are discussed separately
costs are reasonable by taking into
§ 951.5(c)(1). The proposed rule also below. See 12 CFR 951.5(b)(8).
account the location of the project,
would incorporate into this section, Calculation of AHP subsidy: Proposed
development conditions, and other non-
without change, the requirements in the § 951.5(c)(12). Proposed § 951.5(c)(12),
financial household or project
existing definitions of ‘‘owner-occupied which relates to the calculation of the
characteristics, such as housing for the
project’’ and ‘‘rental project’’ that the AHP subsidy, would incorporate,
elderly or for persons with disabilities.
AHP subsidy be used for the purchase, The changes are intended to make the without change, the provisions
construction, or rehabilitation of owner- eligibility review process more adaptive regarding the time at which the
occupied or rental housing. to deeply subsidized projects such as calculation of subsidy is to be made.
Need for subsidy, project costs, those serving special needs populations. Those provisions are currently included
project feasibility: Proposed The existing regulation does not as part of the definition of ‘‘subsidy’’ in
§§ 951.5(c)(2), 951.5(c)(3), and differentiate between the developmental § 951.1.
951.5(c)(4). The proposed rule would feasibility of a project and, in the case Use of AHP subsidy by revolving loan
make several changes to the project of rental housing, the operational funds and loan pools: Proposed
eligibility requirements applicable to feasibility of the project over time. The §§ 951.5(c)(13) and 951.5(c)(14). The
the Banks in determining whether a proposed rule, at § 951.5(c)(4), would proposed rule would explicitly
project is eligible for funding. The separate these two aspects of project authorize the Banks, at their discretion,
Banks currently review projects to feasibility. Proposed § 951.5(c)(4)(i) to allow two uses of AHP subsidy under
assess their ‘‘need for subsidy,’’ would require that a project be their competitive application program,
reasonableness of ‘‘project costs,’’ and developmentally feasible, which is which would be for revolving loans
‘‘feasibility.’’ In determining a project’s defined as the likelihood that the project funds and loan pools. The current rule
eligibility, the existing regulation will be completed and occupied, based defines the term ‘‘sponsor’’ to include
requires that the project demonstrate a on relevant factors contained in the certain organizations or public entities
need for the subsidy, based on its Bank’s project feasibility guidelines, that have an ownership interest in a
estimated total sources and uses of including the project’s development rental project, or that are integrally
funds. See 12 CFR 951.5(b)(2). The budget, market analysis, and the involved in an owner-occupied project.
proposed rule would maintain this sponsor’s experience in providing the See 12 CFR 951.1. As noted previously,
requirement but eliminate a related requested assistance to households. the proposed rule would expand that
requirement that the estimated sources Proposed § 951.5(c)(4)(ii) would require definition to add revolving loan funds
and uses of funds analysis include that a rental project be operationally and entities that establish loan pools to
estimates of the market value of in-kind feasible, which is defined as the ability the list of eligible sponsors. A revolving
donations and volunteer professional of the project to operate in a financially loan fund is a capital fund that makes
labor or services. See 12 CFR sound manner, in accordance with the loans that comply with the requirements
951.5(b)(2)(i)(B). Experience since 1998 Bank’s project feasibility guidelines, as of the AHP rule, and then uses the
indicates that estimates of non-cash projected in the project’s operating pro proceeds received from principal
costs generally do not affect the amount forma or similar statement of payments on those loans to make
of subsidy needed for a project. operational feasibility. additional loans to other borrowers. A
Elimination of this requirement also Financing costs: Proposed loan pool is a group of AHP-eligible
would obviate the need for the Finance § 951.5(c)(5). The proposed rule would loans that are purchased, held in trust,
Board’s Regulatory Interpretation 1999– make a technical reorganizing change by and pledged as security for a financial
03, which addresses non-cash sources relocating the provision regarding instrument, such as a mortgage-backed
and uses.2 The proposed rule also interest rates, points, fees, and other security. Definitions of the two terms
charges for loans financing the project would be added in proposed § 951.1.
would make the need for subsidy
from existing § 951.5(b)(2)(iii) to Such entities that specialize in
requirement independent of the project
proposed § 951.5(c)(5). See 12 CFR community development lending are
developmental and operational
951.5(b)(2)(iii). able to leverage additional funds for
feasibility requirements. The changes
Refinancing: Proposed § 951.5(c)(8). low-income borrowers or bring added
are intended to provide the Banks with
Proposed § 951.5(c)(8) would make a value to the services provided by non-
more opportunities to assist smaller
technical change regarding the use of profit corporations and local
projects and projects with higher
AHP subsidies in connection with a governments. These entities also may
production or operating costs, such as
refinancing of a project. See 12 CFR provide technical assistance in
projects with services or more common

951.5(b)(6). The proposal would clarify packaging loans, or may service loans,
space.
that such refinancing is permitted only manage affordable housing revolving
2 Regulatory Interpretation 199–03 is available in
if it generated equity proceeds and if the loan funds, or purchase and sell loans
the Freedom of Information Act Reading Room on
proceeds are used to purchase, that cannot otherwise be sold in the
the Finance Board’s Web site: http://www.thib.gov/ construct, or rehabilitate eligible mainstream secondary market due to
Default.aspx?Page=59&ListCategory=8#8. housing units. The proposal also would their unique characteristics. Proposed
§ 951.5(c)(13) and (c)(14) would in the pool of loans, such as through amount of the AHP subsidy. The
establish limitations on how such loan participations or a mortgage-backed Finance Board requests comment on
revolving loan funds and loan pools, security. For example, the proposed rule whether it is preferable to establish a
respectively, may use the AHP would allow a Bank to make a time limit by regulation and if so, the
subsidies, as described below. subsidized advance to a member with duration of that time limit, or to allow
Use of AHP subsidy by revolving loan the understanding that the member a Bank to establish a time limit as part
funds: Proposed § 951.5(c)(13). The would make a subsidized loan to of its AHP Implementation Plan, as
proposal would authorize the Banks to another entity, which would commit to proposed.
accept applications from members for purchase similarly subsidized loans In the alternative, the loan pool would
projects in which the sponsor would use from other originators. In order to be permitted to purchase an initial
the AHP subsidy in a revolving loan exercise this authority, a Bank first must round of loans that are not purchased
fund, which in turn would make AHP consult with its Advisory Council, and pursuant to a forward commitment,
loans to eligible projects. In order to then must adopt written policies and provided that the entities from which
exercise this authority, a Bank first must procedures governing the disbursement the loans are purchased are required to
consult with its Advisory Council and of the AHP subsidy through this type of use the proceeds from the initial loan
then must adopt written policies and arrangement. The proposed rule purchases within time limits specified
procedures governing the disbursement includes a number of provisions that are in the Bank’s AHP Implementation Plan.
of the AHP subsidy through this type of intended to ensure that subsidies The proceeds must assist households
entity. Both the initial loans made by disbursed through a loan pool actually that are income-eligible under the
the revolving loan fund, as well as any benefit AHP-eligible households. approved AHP application during
subsequent loans made with amounts Specifically, the proposal would require subsequent rounds of lending, and the
received from repayments of the initial that a loan pool sponsor demonstrate assistance must be provided in the form
loans, must meet all of the applicable that its use of the subsidy will meet all of a principal reduction or a below-
AHP eligibility requirements. The intent applicable eligibility requirements market AHP subsidized interest rate, as
in referring to ‘‘applicable’’ AHP under the AHP regulation. The loan specified in the approved AHP
eligibility requirements is to make clear pool sponsor must provide to the Bank application.
that those regulatory requirements that the acceptance standards that it intends In addition, each AHP-assisted owner-
apply to AHP applications that involve to use in determining which loans to occupied unit receiving AHP direct
a specific project, such as cost and include in the pool, as well as the subsidy would be required to be subject
feasibility requirements, will not underwriting characteristics for such to an AHP 5-year retention agreement.
automatically be applied to an AHP loans, and the number of eligible As currently written, the proposed rule
application from a revolving loan fund, explicitly permits the use of AHP
households (including their income
which may not have identified a subsidy in loan pools backed by owner-
levels) that have obtained loans over a
specific project at the outset. occupied units. The Finance Board
given time period. The proposal would
The revolving loan fund also must requests comment on whether, in
prohibit the use of AHP funds for the
assure that the initial loans are made to addition to loans for AHP-assisted
loan pool’s operating costs, for
projects and households that meet the owner-occupied units, rental housing
secondary market transaction costs, or
commitments in the approved AHP loans should also be eligible under the
for providing liquidity to the originators
application and that they will be met for AHP loan pool authority, and if so, what
or holders of the purchased loans.
the full AHP retention period. Any kinds of loans and activities, consistent
subsequent lending of repaid AHP In order to ensure that the AHP with the AHP requirements, should be
subsidy must be used for low-or subsidy benefits eligible households, the eligible.
moderate-income households (in the proposed rule would require that the Out-of-district projects eligibility
case of owner-occupied projects) or for manager or trustee of the loan pool requirement: Proposed § 951.5(c)(15).
rental projects where 20 percent or more purchase the loans pursuant to a The proposed rule would remove the
of the units are occupied by and forward commitment that identifies the existing provision that allows a Bank, at
affordable for very low-income characteristics of the loans to be its discretion, to require as an eligibility
households, subject to the AHP originated with principal or interest rate requirement that a project assisted with
retention period, monitoring and reductions, as specified in the approved AHP subsidy must be located in the
recapture requirements that the Bank AHP application. Where AHP direct Bank’s district. See 12 CFR
must adopt. As a result of those subsidy is being used, the AHP subsidy 951.5(b)(10)(i)(B). Proposed
requirements, AHP funds disbursed must be used for a standard upfront § 951.5(c)(17) also would prohibit a
through a revolving loan fund may not buy-down of the interest rate or a Bank from establishing an eligibility
be used for other purposes, such as to reduction in the principal of the loans requirement that a project must be
pay for operating costs or other uses in the pool, as specified in the approved located in the Bank’s district. See the
unrelated to the purchase, construction, AHP application. All loans purchased further discussion of this issue below,
or rehabilitation of housing. In general, by the loan pool, including both the under AHP projects outside the district.
the Finance Board requests comment on initial loans and any subsequent loans Minimum Bank credit product usage
how the revolving loan fund authority that are intended to replace loans that requirement: Proposed § 951.5(c)(15).
could be used within the requirements have been paid off, must conform to the The current rule authorizes a Bank to
of the AHP. terms of the forward commitment. In require its members to have used a
Use of AHP subsidy in loan pools: general, the Finance Board requests minimum amount of the Bank’s other
Proposed § 951.5(c)(14). The proposed comment on how the loan pool credit products within the previous 12
rule would authorize a Bank to provide authority could be used within the months as a condition to applying for
AHP subsidies to its members under requirements of the AHP. The proposed additional amounts of AHP subsidy. See
circumstances in which another entity rule is silent on the length of time that 12 CFR 951.5(b)(10)(i)(C). The Finance
would receive the subsidy and then a project sponsor would have, as Board is proposing to remove this
commit to purchase AHP-eligible loans specified in the forward commitment, requirement in the belief that AHP
in order to pool them and sell interests for the sponsor to expend the full funding should go, without restriction,
to applications from members that score located at § 951.5(d)(3)(ii) of the and 951.6(b)(4)(iv)(F)(12). The proposed
highest under a Bank’s competitive proposed rule. rule would rescind the Banks’’ authority
application scoring criteria. Section 951.5(d)(5)(iii)(A) of the to prohibit or restrict applications to
Counseling requirement: Proposed proposed rule would remove a fund projects located outside a Bank’s
§ 951.5(c)(15)(ii). The proposed rule provision of the existing rule, which district. This authority may have been
would authorize a Bank to require allows a Bank to score rental projects appropriate when all Bank members did
homebuyer or homeowner counseling as according to the targeting commitments business only within the boundaries of
an optional eligibility requirement for made by the project to a governmental a state within the Bank’s district. As a
owner-occupied projects under the or tax-credit allocating entity that result of interstate branching, however,
competitive application program. Under provides funds or tax credits, many members now do business in
such a requirement, the Banks could respectively, to the project. See 12 CFR communities outside their Bank district.
limit AHP subsidies to owner-occupied 951.6(b)(4)(iv)(C)(1). That provision The authority to restrict AHP projects to
projects that provide this resource for would no longer be necessary because of the Bank’s district, if exercised, would
low- or moderate-income households. other proposed changes to the rule, to be limit a member’s ability to support
Such counseling can contribute to located at § 951.7(a)(2)(ii)(B), discussed otherwise eligible AHP projects in
successful, long-term homeownership, further below, which would allow a certain of the communities that it serves
which the Finance Board has recognized Bank to rely on monitoring by solely because those communities were
in supporting such counseling for low- governmental or tax-credit monitoring located outside the Bank’s district
or moderate-income households agencies. boundaries.
receiving home purchase assistance The proposed rule also would clarify The Bank Act does not set up the AHP
under the AHP homeownership set- regulatory practice relating to the as a geographically targeted program.
aside program. See 12 CFR scoring criterion for income targeting in Rather, it requires each Bank to
951.5(a)(2)(ii). owner-occupied projects. That establish a program to provide
provision, which would be located at subsidized funding to its members. See
Prohibited use of AHP subsidy:
§ 951.5(d)(5)(iii)(B), would clarify that a 12 U.S.C. 1430(j)(1). Restrictions on out-
prepayment fees: Proposed
Bank may determine in its AHP of-district projects can disadvantage
§ 951.5(c)(16)(i). The current rule allows
Implementation Plan how to award members with geographically dispersed
a project to use AHP subsidy to pay
scoring points on a declining scale, operations to the extent the Bank limits
prepayment fees imposed by a Bank on
taking into consideration the funding of projects outside of its
a member if the member prepays a
percentages of units and targeted boundaries, irrespective of the market
subsidized advance, provided that the
income levels. areas served by its members. Such
project continues to comply with the Disaster areas and displaced restrictions could also serve to
terms of the approved AHP application households scoring criterion: Proposed disadvantage communities that are
for the duration of the original retention § 951.5(d)(5)(vi)(E). The current served by financial institutions
period and any unused AHP subsidy is regulation permits the Banks to award headquartered in a state located in a
returned to the Bank and made available scoring points to the financing of different Bank district. The Finance
for other AHP projects. See 12 CFR housing that is located in federally Board believes that AHP projects should
951.5(b)(4)(i). The proposed rule would declared disaster areas. See 12 CFR be awarded funds based on the merits
eliminate this provision, consistent with 951.6(b)(4)(iv)(F)(5). Because disasters of each particular application. If an
the principle that AHP funds should be may displace families from their homes, application has sufficient merit to
used for purchase, construction, or the Finance Board believes that this compete successfully, it should be
rehabilitation of housing. criterion should be expanded to address awarded AHP funds irrespective of the
Changes to the scoring system: such situations. Accordingly, in order to project location, so long as the project
Proposed § 951.5(d). The proposed rule accommodate families that have been is within a community served by a
would retain the current provisions that displaced from a disaster area, member.
require each Bank to adopt written § 951.5(d)(5)(vi)(E) of the proposed rule Finally, the existing authority in the
scoring guidelines for its AHP would permit a Bank to award scoring current AHP regulation has not been
applications and to allocate 100 points points for applications that would extensively invoked by the Banks. In
among 9 scoring criteria. See 12 CFR provide housing for persons located in 2004, only one Bank prohibited the use
951.6(b)(4). The proposal would not a disaster area, as well as for of AHP funds for out-of-district projects
make any substantive changes to those applications proposing to provide and only two Banks elected to give
criteria, except for those relating to housing for low- or moderate-income scoring preference to in-district projects.
disaster areas and out-of-district households that have been displaced Nor has there been a significant outflow
projects, but would make a number of from a federally declared disaster area of AHP funds as a result of member
technical revisions to the current rules due to a disaster, irrespective of the financing of projects outside the district.
and would codify certain staff household’s current residential location. Out of 10,391 AHP projects funded
interpretations. AHP projects outside the district: since the beginning of the program in
The proposed rule would retain the Proposed §§ 951.5(c)(17) and 1990, only 323 projects, or 3.1 percent,
provisions relating to fixed-point and 951.5(d)(5)(vii). Under the current have been located outside a Bank’s
variable-point scoring criteria, but regulation, a Bank may, at its discretion, district. These findings support a
would make technical changes to the deny consideration of applications to conclusion that funding of out-of-
latter, the effect of which would be to the AHP competitive application district projects has a minimal impact
codify a current staff interpretation that program from members proposing to on the AHP. Therefore, a prohibition
allows a Bank to implement variable- fund projects located outside a Bank’s against out-of-district projects or a
point scoring criteria either through a district. Another provision of the preference for projects within a district
fixed scale or on a scale relative to the current rule permits a Bank to give may not be warranted.
other applications that are to be scored scoring point preference to the creation As a result of all these considerations,
in the same funding round. See 12 CFR of housing located within the Bank’s the proposed rule would eliminate the
951.6(b)(4)(iii). That provision would be district. See 12 CFR 951.5(b)(10)(i)(B) two provisions in the existing regulation
that preclude or limit the ability of a initial disbursement of AHP subsidy, household’s income eligibility is to be
member to receive AHP subsidies for and prior to subsequent disbursement if determined at the time that it is enrolled
projects located outside its district, and the need for AHP subsidy has changed, in the set-aside program. This change is
proposed § 951.5(c)(17) would expressly whether the project continues to meet intended to address confusion with
prohibit a Bank from requiring that a the applicable eligibility requirements respect to the income eligibility, for
project be located within its district. In and all obligations committed to in the example, of a household that is enrolled
addition, proposed § 951.5(d)(5)(vii) approved AHP application. The Bank’s in a matched savings account program,
would prohibit a Bank from adopting as requirements must be included in its an Individual Development Account
its Second District Priority a scoring AHP Implementation Plan. Under the program, a Welfare-to-Work program, or
preference for projects located in the current AHP regulation, a Bank is any other similar empowerment
Bank’s district. See 12 CFR required to verify compliance with program designed to assist low-income
951.6(b)(4)(iv)(G). eligibility requirements and application households accumulate assets. The
Modifications of approved commitments prior to each existing regulation has been interpreted
applications: Proposed § 951.5(f). The disbursement of AHP subsidy. See 12 by some Banks as requiring that the
proposed rule would codify current CFR 951.8(c)(2). The requirement to household’s income qualification for
practice by adding a requirement that a repeatedly verify project compliance purposes of the AHP be determined at
Bank must document in writing its during every stage of the disbursement the time that the household is qualified
analysis and justification for any process may be more than is necessary for a loan. See 12 CFR 951.1 and
modification of a previously approved to ensure compliance with the rules, 951.5(a)(2)(i). The proposal would
project. See 12 CFR 951.7(a). and effectively precludes a Bank from permit income eligibility to be
Progress towards use of AHP using its best judgment to determine determined at the time that the
subsidies: Proposed § 951.5(g)(2). The whether the circumstances of a household is accepted by the member
proposed rule would require each Bank particular AHP project warrant repeated and the Bank to enroll in the AHP set-
to establish policies and procedures, verification of compliance with the aside program, even though at that time
such as time limits, for determining rules. The proposed amendment would the household may not qualify for a
whether progress is being made towards give the Banks greater latitude in mortgage. This clarification is consistent
drawdown and use of AHP subsidies by determining when it is appropriate to with existing Finance Board policy and
approved projects, and whether to verify compliance prior to disbursing reflects the Finance Board’s
cancel an application approval for lack AHP funds. understanding that the purpose of these
of such progress. Progress requirements Bank board of directors duties and programs is to prepare households for
must be included in the Bank’s AHP delegation: Proposed § 951.5(h). The homeownership. Activities designed to
Implementation Plan. Affordable proposed rule would set forth the Bank qualify low- or moderate-income
housing projects often may encounter board of directors’ various duties households for mortgages should be
delays due to changes in funding, legal, regarding establishment and encouraged. Such programs, however,
or community challenges, or other implementation of the competitive require careful administration by a Bank
events. These delays may affect the application program requirements in and the participating member and
ability of a project to progress towards one section, proposed § 951.5(h), and should be subject to reasonable Bank
its scheduled drawdown and use of the would reiterate that the Bank’s board policies and procedures on the timely
AHP subsidy. The current AHP cannot delegate these responsibilities to use of AHP subsidy. Moreover, it is the
regulation requires a Bank to specify a Bank officers or other Bank employees. Finance Board’s expectation that Bank
time period in its AHP Implementation
F. Homeownership Set-Aside Program: policies will preclude use of the
Plan for the drawdown and use of the
AHP subsidy. If a project does not do so Proposed § 951.6 program by individuals whose low- or
within such period, the Bank must The proposed rule would reorganize moderate-income eligibility is a
cancel its approval of the application. the existing regulation, generally by temporary condition, such as students,
See 12 CFR 951.8(c)(1). The rigidity of combining various homeownership set- who would ordinarily have a reasonable
this requirement sometimes has aside program provisions into one prospect for a substantial increase in
impaired the ability of the Banks to section, to be located at proposed income upon entering the workforce.
determine whether the delays are § 951.6. Counseling: Proposed § 951.6(c)(2)(ii).
significant enough to affect a particular Eligible applicants: Proposed Under the existing regulation, all
project’s ability to draw down and use § 951.6(b). The existing AHP regulations households receiving AHP funds under
the subsidy. While the Banks have permit a Bank to accept applications for a Bank’s homeownership set-aside
extended the time period for certain homeownership set-aside program program must complete a homeowner or
projects in an effort to take into account subsidies from an institution that is not homebuyer counseling program. See 12
such delays, the requirement that a a member of the Bank, but which has CFR 951.5(a)(2)(ii). The Finance Board
fixed time period be stated in the AHP pending an application for membership. is proposing to make this an option
Implementation Plan limits a Bank’s See 12 CFR 951.6(a). The proposed rule rather than a requirement, for obtaining
ability to manage this process. would eliminate this provision and subsidies under the homeownership set-
Accordingly, the proposed rule would would require an applicant to be a aside program. As a practical matter, not
give the Banks greater capacity to member of the Bank at the time that it all households will necessarily require
manage this process by requiring them submits an AHP application. The such counseling. Moreover, there are
to adopt policies and procedures that rationale for this revision was discussed some areas of the country in which such
address how they will make such in connection with a similar counseling may not be readily available,
determinations. amendment that is proposed for the and the quality of the counseling can
Compliance upon disbursement: competitive application program. also vary. Accordingly, § 951.6(c)(2)(ii)
Proposed § 951.5(g)(3). Section Timing of household income- of the proposed rule would allow each
951.5(g)(3) of the proposed rule would eligibility determination: Proposed Bank to determine whether to include
require a Bank to establish policies and § 951.6(c)(2)(i). Section 951.6(c)(2)(i) of counseling as an eligibility requirement
procedures for determining, prior to the proposed rule would clarify that a in its AHP Implementation Plan. These
revisions are consistent with the of interest, points, fees, and other eligible households, and whether to
proposed change that would allow a charges imposed by the member not cancel application approvals for lack of
Bank to adopt such a counseling exceed a reasonable market rate. See 12 such progress. See 12 CFR 951.8(b)(1).
requirement under its competitive CFR 951.5(a)(6). As currently worded, The requirements must be specified in
application program, which is located at the requirement applies only to the Bank’s AHP Implementation Plan. A
proposed § 951.5(c)(15)(ii). situations in which the member Bank would be required to determine,
Notwithstanding the change, the provides the financing, but not if a third pursuant to such policies and
Finance Board encourages the Banks to party does so. The Finance Board is procedures, whether progress is being
consider requiring homeowner and concerned that the existing language has made by eligible households, and
homebuyer counseling when they the potential to create opportunities for whether to cancel any application
believe it to be appropriate. Proposed using AHP funds in conjunction with approvals for lack of progress.
§ 951.6(c)(8) would retain the current the origination of loans with interest
G. Monitoring: Proposed § 951.7
provision that allows homeownership rates, points, fees, and other charges that
set-aside funds to be used to pay for the exceed a reasonable market rate, if the The proposed rule would retain the
costs of obtaining such counseling for loans are originated by a nonmember. In current requirement for annual
those homebuyers that actually order to avoid that possibility, certifications by rental project owners to
purchase an AHP-assisted unit. See 12 § 951.6(c)(7) of the proposed rule would the Bank under the competitive
CFR 951.5(a)(7). revise the regulation to state that such application program, but would make a
Member financial incentives: charges that are ‘‘used directly or number of changes to the monitoring
Proposed § 951.6(c)(6). The proposed indirectly in conjunction with the AHP provisions under both the competitive
rule would revise the existing regulation direct subsidy’’ must not exceed a application and homeownership set-
by requiring a Bank to establish reasonable market rate. That revision is aside programs. A number of the current
incentives for members to provide consistent with the statutory monitoring provisions are prescriptive
financial or other assistance in requirement that Finance Board in nature and set deadlines by which
connection with providing the regulations must ‘‘ensure that subsidies the Bank and other parties must
homeownership set-aside subsidy. provided by Banks to member undertake certain actions. See 12 CFR
Under existing § 951.5(a)(6), a member institutions * * * are passed on to the 951.10 and 951.11. The proposed rule
that provides mortgage financing to a ultimate borrower.’’ See 12 U.S.C. would replace those provisions with
participating household under the set- 1430(j)(9)(E). more broadly stated performance
aside program must also provide Progress towards use of AHP subsidy: objectives, which are intended to allow
financial or other incentives in Proposed § 951.6(c)(9). For reasons the Banks more latitude in determining
connection with the mortgage financing. similar to those discussed above under the type and frequency of reports and
See 12 CFR 951.5(a)(6). Some Banks the competitive application program, certifications that are best suited for
have observed that this requirement proposed § 951.6(c)(9) would revise the monitoring a particular project’s
may place small members, such as those existing regulation by requiring that compliance with the AHP rules. The
located in rural areas, at a disadvantage progress be made towards draw-down proposed amendments would
and may encourage them to pass the and use of the AHP direct subsidies by accomplish this goal by requiring the
AHP subsidy to a larger institution, eligible households pursuant to policies Banks to adopt policies and procedures
which may or may not be a member of and procedures adopted by the Bank. for monitoring progress made towards
that Bank. The existing requirement See 12 CFR 951.5(a)(8). project completion and compliance with
may thus place a greater obligation to Cash backs: Proposed § 951.6(c)(10). other AHP requirements.
provide subsidized financing on a The Finance Board’s Horizontal Review
1. Monitoring Requirements for the
member than on a nonmember mortgage identified problems in the operations of
Competitive Application Program:
provider and may result in a the homeownership set-aside programs
Proposed § 951.7(a)
disincentive for member financing. The at some of the Banks. Although those
Finance Board specifically requests problems were limited to a few Initial monitoring policies and
comment on: (1) Whether it should situations, the proposed rule seeks to procedures: Proposed § 951.7(a)(1). For
require all originators of AHP-assisted address them by clearly identifying both owner-occupied and rental projects
mortgage loans to provide financial or ineligible uses of AHP set-aside funds. under the competitive application
other incentives in connection with the Therefore, § 951.6(c)(10) of the proposed program, the proposed rule would
mortgage financing, irrespective of rule would expressly prohibit a member require each Bank to adopt written
whether the originator is a member or from providing cash back to a policies and procedures for monitoring
nonmember; (2) whether the current household at the closing on the AHP projects prior to, and within a
financial incentive requirement should mortgage loan and would require a reasonable period of time after, project
remain as a mandatory requirement or member to use any AHP subsidy beyond completion. Specifically, a Bank’s
be made a matter of discretion for the what is needed for closing costs and the monitoring polices and procedures must
Bank, as a preferential selection approved mortgage amount to further enable it to determine: Whether the
criterion for its homeownership set- reduce the principal of the mortgage construction or rehabilitation is
aside program(s); and (3) whether loan. progressing satisfactorily; whether a
additional incentives should be Progress towards use of AHP completed project is progressing
required, such as a matching funds subsidies: Proposed § 951.6(e)(2). For satisfactorily toward occupancy by
requirement, member-provided reasons similar to those discussed above eligible households; and whether a
financing, or preference to a member under the competitive application project is meeting the commitments
working in partnership with a nonprofit program, proposed § 951.6(e)(2) would made in the approved AHP application
sponsor assisting first-time homebuyers require a Bank to establish policies and and is otherwise in compliance with
to qualify for a mortgage. procedures, such as time limits, for applicable AHP requirements within a
Financing costs: Proposed determining whether progress is being reasonable time after the project has
§ 951.6(c)(7). Section 951.5(a)(6) of the made towards drawdown and use of been completed. The proposed rule
current regulations requires that the rate homeownership set-aside funds by would remove the existing requirement
that the Banks must monitor project specific monitoring and certification monitoring conducted by the federal,
habitability, and also would remove the duties for the parties and includes state, or local government entity
definition of ‘‘habitable’’ from the deadlines for submission of specific providing the tax credits or funds, or by
existing definitions. See 12 CFR 951.1 monitoring reports. These deadlines certain third parties, provided that the
and 951.10(a)(2)(ii)(B)(2) and (c). may not comport with construction and income targeting, rents, and retention
Proposed § 951.7(a)(1)(ii) would require development schedules and can result period requirements monitored by such
a Bank’s monitoring policies and in regulatory noncompliance for reasons entities for their own programs are the
procedures to include provisions that do not reflect the actual same as, or more restrictive than, those
requiring Bank review of back-up performance of a project. The existing committed to in the approved AHP
documentation regarding household regulation requires a Bank to review application. See 12 CFR 951.11(a)(1).
incomes and rents that are maintained project documentation and verify The LIHTC, which often is used by
by the project sponsor or owner, and compliance with rent, income, and projects that receive some form of AHP
would allow a Bank to include project habitability requirements subsidy, has two elective eligibility
requirements for maintenance and Bank according to a schedule based on the standards related to the units in the
review of other project documentation, amount of AHP subsidy received by a project and the income of the
at the Bank’s discretion. project, such that projects receiving households occupying the units: (1) that
Long-term monitoring policies and greater amounts of subsidy have more 20 percent of the units must be
procedures: Proposed § 951.7(a)(2). The stringent and frequent monitoring occupied by households with incomes
proposed rule would require a Bank to requirements. See 12 CFR at or below 50 percent of the area
adopt written policies and procedures 951.11(a)(3)(iii). median income; or (2) that 40 percent of
for monitoring completed rental Such prescriptive monitoring the units must be occupied by
projects, commencing in the second requirements do not necessarily households with incomes at or below 60
year after project completion and promote accurate assessments of percent of the area median income. See
continuing for the full 15-year retention program effectiveness or take into 26 U.S.C. 42(g)(1). The Bank Act
period. The monitoring polices must account the true risks to the Bank’s imposes similar limits on the use of
enable a Bank to determine whether AHP. The existing monitoring AHP subsidies for rental housing, i.e.,
household income, rents, and requirements also may fail to capture eligible rental projects must have at
populations served comply with the adequately the operational risk, least 20 percent of the units occupied by
respective commitments made in the financial performance risk, location risk, households with incomes at or below 50
AHP application. The proposed rule or other relevant performance factors
percent of the area median income. See
would remove the existing requirement affecting the Bank’s AHP project
12 U.S.C. 1430(j)(2)(B). Because this
that the Banks monitor project portfolio. Moreover, the prescriptive
AHP standard is identical to the first tax
habitability for the full AHP retention nature of the regulations implies that
credit standard, the Finance Board has
period. See 12 CFR 951.11(a)(3). The the particular approach to monitoring
deemed it to be substantively equivalent
policies also must take into account that is embodied in the regulation is the
to the income eligibility standard
various risk factors and could allow the optimal approach for such matters,
required for an LIHTC project. For AHP-
Bank to use a reasonable risk-based irrespective of the risk characteristics
assisted tax credit projects that employ
sampling plan. that may be associated with a particular
Proposed § 951.7(a)(2)(iii) would the first standard, the current AHP
AHP project or the compliance record of
require that monitoring policies include the participating member, sponsor, or regulation permits a Bank to accept the
provisions addressing: Bank review of owner. project monitoring that is conducted by,
annual certifications by project owners Proposed § 951.7(a)(2) would require or on behalf of, the government agencies
that household incomes and rents a Bank to develop written policies and that have provided the tax credits.
comply with commitments made in the procedures for long-term monitoring of With respect to AHP-assisted tax
AHP application and other AHP rental projects, taking into account credit projects that employ the second
requirements; Bank review of back-up various risk factors. Those policies and standard, under which 40 percent of the
project documentation regarding procedures would be subject to Finance units must be occupied by households
household incomes and rents, as Board examination annually. A Bank’s with incomes at or below 60 percent of
maintained by the project owner; and policies and procedures would be the area median income, the current
maintenance and Bank review of such required to take into account certain risk AHP regulation allows a Bank to rely on
other project documentation that the factors, such as the amount of AHP monitoring conducted by or on behalf of
Bank deems necessary. subsidy in the project, the type, size, other governmental agencies only if
The current regulation requires the and location of the project, sponsor those entities also monitor the project
Banks to select from 1of 3 approved experience, and any monitoring for compliance with the AHP standard.
methods for long-term monitoring of provided by a federal, state, or local Because this tax credit standard differs
rental projects: (1) Monitoring by a entity, as discussed further in the from the AHP standard, a Bank may be
federal, state, or local government entity following section. required to negotiate agreements with
in connection with a project that also is Reliance on other monitoring: various state agencies or contractors to
receiving tax credits or funds from that Proposed § 951.7(a)(2)(ii)(B). Section conduct their monitoring of the project
entity, subject to certain other limits 951.7(a)(2)(ii)(B) of the proposed rule in accordance with the AHP standard,
stated in the rule; (2) monitoring of such would expand the ability of the Banks which is common to both programs.
projects by a contractor; or (3) to rely on the monitoring of AHP- Such additional monitoring entails
monitoring by the Bank, its members, assisted rental projects by other additional costs to the Bank, which a
and project owners. See 12 CFR governmental agencies that are number of the Banks have contended is
951.11(a). The existing regulation providing tax credits or other funds to not an effective means of monitoring the
contains prescriptive procedural the projects. In the case of AHP projects project, as it is largely duplicative of
requirements for projects monitored by that also receive tax credits or other existing monitoring conducted by other
the Banks, their members, and project governmental funds, the existing parties. A number of AHP users also
owners under the third option. It details regulation permits a Bank to rely on the have contended that this level of
monitoring is superfluous and adds Bank reviews the reports from the 951.12(c)(2)(ii). As revised, the rule
unnecessary burdens to the project. monitoring entity to confirm that they would allow the Bank to obtain the
After reviewing several studies on the comply with the Bank’s monitoring approval from ‘‘the Finance Board,’’
performance of the LIHTC, the Finance policies and procedures. which would allow Finance Board staff
Board has concluded that the to approve the Bank’s proposed
overwhelming majority of these tax 2. Monitoring Requirements for the
settlements relating to the AHP subsidy.
credit projects—irrespective of their Homeownership Set-Aside Program: Bank reimbursement of AHP fund:
income eligibility standard—meet the Proposed § 951.7(b) Proposed § 951.8(e)(1). The proposed
AHP income eligibility standard in a The proposed rule would retain the rule would add a provision requiring a
substantially equivalent manner. A 1997 member certification requirements from Bank to reimburse its AHP fund in the
General Accounting Office study found the existing regulation and would amount of any AHP subsidies (plus
that 75 percent of households in tax require a Bank to adopt and implement interest, if appropriate) misused as a
credit projects had incomes under 50 its own written monitoring policies and result of the Bank’s actions or
percent of the area median income, procedures for determining compliance omissions, even without a Finance
which would be well within the AHP with the requirements of its Board order to do so. See 12 CFR
requirement that 20 percent of units be homeownership set-aside programs. See 951.12(c)(3). Where noncompliance
occupied by households with incomes 12 CFR 951.8(b)(2). The Banks would be with AHP requirements is the result of
at or below 50 percent of the area allowed to use a reasonable sampling a Bank’s actions or omissions, the Bank
median income. Other subsequent plan to select the households to be should reimburse its AHP fund without
studies, such as those prepared by Abt monitored and to review the back-up the Finance Board having to order it to
Associates for HUD, and one by Ernst and any other documentation received do so.
and Young, have come to similar by the Bank. The proposed rule also Parties to enforcement proceedings.
conclusions regarding the targeting of would provide that the Bank’s The proposed rule would remove an
tax credit projects to very low-income monitoring policies and procedures existing regulatory provision, located at
households. Moreover, the Finance must include requirements for the Bank 12 CFR 951.12(d), that allows a Bank to
Board notes that the length of the to review back-up documentation enter into a written agreement with a
retention periods for AHP rental regarding household incomes member, project sponsor, or project
projects and tax credit projects is the maintained by the member, and may owner under which it consents to be a
same, and that noncompliance with the include requirements for maintenance party to a Finance Board enforcement
income-eligibility requirements by tax and Bank review of other action regarding the repayment of AHP
credit projects is relatively rare, as it documentation, in the Bank’s discretion. subsidies that it has received or to
would lead to adverse tax consequences suspension or debarment, provided that
H. Remedial Actions for
for investors in such projects. The it has agreed to be bound by the Finance
Noncompliance: Proposed § 951.8
Finance Board also notes that the Board’s final determination in the
affordability standard for tax credit Proposed § 951.8 would reorganize enforcement proceeding. This provision
projects, i.e., the rent requirement, is and streamline the language in the would be removed because regulatory
substantially equivalent to the AHP rent existing regulations regarding remedial authorization is not necessary for a Bank
requirement that the rents charged may actions for noncompliance with the to enter into such an agreement.
not exceed 30 percent of the targeted AHP regulations in order to eliminate Re-use of repaid AHP direct subsidies
household income. See 12 U.S.C. redundancy and provide greater clarity. in same project: Proposed § 951.8(f)(2).
1430(j)(13)(D) and 26 U.S.C. 42(g)(2). See 12 CFR 951.12. The proposed rule would clarify that a
Accordingly, the Finance Board is Repayment of AHP subsidy by project Bank must consult with its Advisory
proposing to amend the AHP regulation sponsor or owner: Proposed Council in determining whether to
to allow a Bank to rely on the § 951.8(b)(2). Proposed § 951.8(b)(2) allow the re-use of AHP direct subsidies
monitoring by the state-designated would add a provision allowing a Bank in the same project, as is authorized
housing credit agency administering the to determine whether a project sponsor under this section. See 12 CFR
tax credits of the income targeting, rent, or owner must repay AHP subsidies 951.12(e)(2). That provision also would
and retention period requirements directly to the Bank or to the member, clarify that a Bank’s board of directors
applicable under the LIHTC, provided which would then repay the Bank, in cannot delegate to Bank officers or other
that the compliance profiles of the AHP the event that the project fails to comply Bank employees the responsibility to
and the LIHTC continue to be with any of the AHP requirements. adopt any Bank policies on re-use of
substantively equivalent. Under the existing regulation, project repaid AHP direct subsidies in the same
In addition, for AHP projects that sponsors or owners are required to project under this section.
receive funds from federal, state, or repay AHP subsidies to the member,
local government entities, the proposed which in turn is required to repay the I. Agreements: Proposed § 951.9
rule would allow a Bank to rely on the subsidies to the Bank. See 12 CFR The existing regulations require each
monitoring by such entities of the 951.12(b). The proposed change would Bank to have in place with each member
income targeting, rent, and retention give the Banks greater flexibility in that receives AHP subsidies a written
period requirements applicable under managing how AHP subsidies are agreement that includes certain
their programs, provided that: The required to be repaid in the event of a provisions set out in the regulation. See
income targeting, rent, and retention failure to comply with the rules. 12 CFR 951.13. The proposed rule, at
period requirements for those programs Finance Board approval of § 951.9, would revise the provisions of
are substantively equivalent to those of settlements: Proposed § 951.8(d)(2). The the existing regulation in order to
the AHP; the entity has demonstrated proposed rule also would revise eliminate redundancy and provide
and continues to demonstrate its ability provisions of the existing regulation that greater clarity.
to monitor the project; the entity agrees allow a Bank to obtain approval from Notification of member: Proposed
to provide reports to the Bank on the the Board of Directors of the Finance § 951.9(a)(1). The proposed rule, at
project’s incomes and rents for the full Board to settle a disputed claim § 951.9(a)(1), would add a provision
15-year AHP retention period; and the regarding an AHP subsidy. See 12 CFR requiring the AHP agreements to
acknowledge that the member has been households are relocated to another J. Conflicts of Interest: Proposed
notified of the AHP requirements and property that is made subject to a deed § 951.10
all Bank policies relevant to the restriction or other legally enforceable The proposed rule would relocate the
member’s approved AHP application. retention agreement or mechanism provisions governing the adoption of
Monitoring agreements: Proposed incorporating the income-eligibility and conflict of interest policies from existing
§ 951.9(a)(5). Proposed § 951.9(a)(5) affordability restrictions committed to § 951.3(c) to proposed § 951.10. See 12
would revise the provisions relating to in the approved AHP application for the CFR 951.3(c). The proposed rule also
monitoring in order to conform them to remainder of the retention period. See would add new provisions that would
the changes proposed elsewhere to the 12 CFR 951.13(c)(5)(iii) and prohibit Bank directors or employees or
substantive monitoring requirements. 951.13(d)(2)(iii). The proposed change Advisory Council members, and their
See 12 CFR 951.13(b)(4). Under the would allow Banks to deal with family members, from engaging in the
proposed change, the Banks’ agreements situations where approved rental conflicts of interest prohibited by the
with their members would have to set projects are forced to relocate for conflict of interest policies. Proposed
forth the members’ specific monitoring reasons such as the exercise of eminent § 951.10(c) would prohibit a Bank’s
responsibilities, as required under the domain or a need for additional units or board of directors from delegating to any
Banks’ monitoring policies and services, and the project sponsors will Bank officers or other Bank employees
procedures. In addition, these be transferring the same residents to a its responsibility to adopt the conflict of
agreements would have to require the new building. Currently, the AHP interest policies.
member to have in place its own regulation treats these situations as a
agreement with each project sponsor sale that requires the repayment of the K. Temporary Suspension of AHP
and project owner setting forth the entire amount of AHP subsidy, thereby Contributions: Proposed § 951.11
specific monitoring responsibilities of releasing the project from its AHP Proposed § 951.11 would remove
those sponsors and owners, as required commitments and making the AHP various procedural requirements in
under the Banks’ monitoring policies subsidy available for other AHP-eligible existing § 951.14, leaving these
and procedures. projects, unless the property continues decisions to the discretion of the
Refinancing of owner-occupied units: to be subject to a deed restriction or Finance Board in the event an
Proposed § 951.9(a)(7)(ii)(A). Proposed other legally enforceable retention application is received from a Bank for
§ 951.9(a)(7)(ii)(A) would revise existing agreement or mechanism incorporating a temporary suspension of its required
§ 951.13(c)(4)(i)(B) by providing that, in the income-eligibility and affordability annual AHP contribution. See 12 CFR
the case of a refinancing prior to the end restrictions committed to in the AHP 951.14. In addition, certain of the
of the 5-year retention period of a application for the remainder of the information required to be provided by
permanent mortgage loan that was retention period. Allowing project the Banks is readily obtainable by the
funded by an AHP subsidized advance, sponsors to transfer the AHP subsidies, Finance Board without the necessity of
the household would not have to repay along with the corresponding income- a regulatory requirement.
the AHP subsidy it already used in the eligibility and affordability
unit. See 12 CFR 951.13(c)(4)(i)(B). The commitments, to a new building would L. Affordable Housing Reserve Fund:
existing regulation requires the result in the retention of the affordable Proposed § 951.12
household to repay the full amount of units for the duration of the original Proposed § 951.12 would remove the
the AHP subsidy received (i.e., the value retention period and ensure that requirements in existing § 951.15 that a
of the interest rate subsidy for the time existing tenants are not adversely Bank report by January 15th of each year
the household has been paying on the affected. the amount of any unused and
mortgage loan) from any net gain Agreements between Banks and uncommitted AHP funds from the prior
realized upon the refinancing, unless project sponsors or owners: Proposed year that will be deposited in an
the unit continues to be subject to a § 951.9(b). As discussed above, Affordable Housing Reserve Fund
retention agreement. The proposed proposed § 951.8(b)(2) would allow a (Reserve Fund), and that the Finance
change would be consistent with the Bank to determine whether to require a Board notify the Banks of the total
existing regulatory provision providing project sponsor or owner to repay AHP amount of funds, if any, available in the
that a household subsidized with AHP subsidies directly to the Bank in the Reserve Fund. See 12 CFR 951.15. The
direct subsidy that refinances an owner- event of noncompliance, in contrast to amount of any unused and
occupied unit must repay only the the existing regulation which requires uncommitted AHP funds is readily
amount of AHP subsidy that has not project sponsors or owners to repay obtainable by the Finance Board
been used (i.e., the subsidy required to AHP subsidies to the member, which in without imposing such a regulatory
be repaid is reduced for every year the turn repays the subsidies to the Bank. mandate. Moreover, the Finance Board
household owned the unit). See 12 CFR Under proposed § 951.9(b), if a Bank has never had to establish a Reserve
951.13(d)(1)(iii). In addition, the intends to require project sponsors or Fund and does not expect to in the
proposed change would help remove a owners to repay AHP subsidies directly future, given the high demand for AHP
possible deterrent to refinancing by to the Bank, the Bank first must have in funds that has always exceeded the
households that seek to make their units place an agreement with each project amount of AHP funds available.
more affordable or obtain equity for sponsor or project owner under which
purposes of their economic betterment. the party agrees to repay the AHP III. Paperwork Reduction Act
Relocation of households in rental subsidies directly to the Bank. The information collection contained
projects: Proposed § 951.9(a)(8)(iii)(B). Application to existing projects: in the current AHP regulation, entitled
Proposed § 951.9(a)(8)(iii)(B) would Proposed § 951.9(c). The proposed rule ‘‘Affordable Housing Program (AHP),’’
revise the existing regulation by would streamline the language in has been assigned control number 3069–
providing that, in the case of a sale or existing § 951.16, which addresses the 0006 by the Office of Management and
refinancing of an AHP-assisted rental application of the regulation to existing Budget (OMB). The OMB control
project prior to the end of the retention AHP projects, and relocate the provision number is due to expire on July 31,
period, the AHP subsidy would not to proposed § 951.9(c). See 12 CFR 2007. This proposed rule, if adopted as
have to be repaid to the Bank if the 951.16. a final rule, will not substantively or
materially modify the approved (2) The rent charged to a household, limit adjusted for household size in
information collection. Consequently, for rental units subsidized with Section accordance with the methodology of the
the Finance Board has not submitted 8 assistance under 42 U.S.C. 1437f, if applicable median income standard,
any information to OMB for review the rent complied with this § 951.1 at unless such median income standard
under the Paperwork Reduction Act of the time of the household’s initial has no household size adjustment
1995 (PRA).3 occupancy and continues to comply methodology.
IV. Regulatory Flexibility Act with the Section 8 agreement for that Low- or moderate-income
household. neighborhood means any neighborhood
The proposed rule, if adopted as a AHP project means a single-family or in which 51 percent or more of the
final rule, will apply only to the Banks, multifamily housing project for owner- households have incomes at or below 80
which do not come within the meaning occupied or rental housing that has been percent of the median income for the
of ‘‘small entities,’’ as defined in the awarded or has received AHP subsidy area.
Regulatory Flexibility Act (RFA). See 5 under the competitive application Median income for the area means
U.S.C. 601(6). Therefore, in accordance program. one or more of the following median
with section 605(b) of the RFA, 5 U.S.C. Competitive application program income standards as determined by a
605(b), the Finance Board hereby means a program established by a Bank Bank, after consultation with its
certifies that the proposed rule, if under which the Bank awards and
promulgated as a final rule, will not Advisory Council, in its AHP
disburses AHP subsidy through a implementation plan:
have a significant economic impact on competitive application scoring process
a substantial number of small entities. (1) The median income for the area,
pursuant to the requirements of § 951.5. as published annually by HUD;
List of Subjects in 12 CFR Part 951 Cost of funds means, for purposes of
a subsidized advance, the estimated cost (2) The median income for the area
Community development, Credit, of issuing Bank System consolidated obtained from the Federal Financial
Federal home loan banks, Housing, obligations with maturities comparable Institutions Examination Council;
Reporting and recordkeeping to that of the subsidized advance. (3) The applicable median family
requirements. Direct subsidy means an AHP subsidy income, as determined under 26 U.S.C.
For the reasons stated in the in the form of a direct cash payment. 143(f) (Mortgage Revenue Bonds) and
preamble, the Finance Board proposes Eligible household means a household published by a state agency or
to revise 12 CFR, chapter IX, part 951, that meets the income limits and other instrumentality;
to read as follows: requirements specified by a Bank for its (4) The median income for the area,
competitive application program and as published by the United States
PART 951—AFFORDABLE HOUSING homeownership set-aside programs, Department of Agriculture; or
PROGRAM provided that: (5) The median income for an
Sec. (1) In the case of owner-occupied applicable definable geographic area, as
951.1 Definitions. housing, the household’s income may published by a federal, state, or local
951.2 Required annual AHP contributions; not exceed 80 percent of the median government entity, and approved by the
allocation of contributions. income for the area; and Finance Board, at the request of a Bank,
951.3 AHP implementation plan. (2) In the case of rental housing, the for use under the AHP.
951.4 Advisory Councils. household’s income in at least 20
951.5 Competitive application program. Multifamily building means a
percent of the units may not exceed 50 structure with five or more dwelling
951.6 Homeownership set-aside programs.
951.7 Monitoring. percent of the median income for the units.
951.8 Remedial actions for noncompliance. area. Net earnings of a Bank means the net
951.9 Agreements. Eligible project means a project
earnings of a Bank for a calendar year
951.10 Conflicts of interest. eligible to receive AHP subsidy
after deducting the Bank’s annual
951.11 Temporary suspension of AHP pursuant to the requirements of this
contributions. contribution to the Resolution Funding
part.
951.12 Affordable Housing Reserve Fund. Corporation required under section 21B
Family member means any individual
of the Act (12 U.S.C. 1441b), and before
Authority: 12 U.S.C. 1430(j). related to a person by blood, marriage,
declaring or paying any dividend under
or adoption.
§ 951.1 Definitions. Funding period means a time period, section 16 of the Act (12 U.S.C. 1436).
As used in this part: as determined by a Bank, during which For purposes of this part, ‘‘dividend’’
Affordable means that: the Bank accepts AHP applications for includes any dividends on capital stock
(1) The rent charged to a household subsidy. subject to a redemption request even if
for a unit that is to be reserved for Homeownership set aside program under GAAP, those dividends are
occupancy by a household with an means a program established by a Bank treated as an ‘‘interest expense.’’
income at or below 80 percent of the under which the Bank disburses AHP Owner-occupied project means, for
median income for the area, does not direct subsidy pursuant to the purposes of the competitive application
exceed 30 percent of the income of a requirements of § 951.6. program, one or more owner-occupied
household of the maximum income and Household means one or more units in a single-family or multifamily
size expected, under the commitment persons living in a dwelling unit. building, including condominiums,
made in the AHP application, to occupy Loan pool means a group of mortgage cooperative housing, and manufactured
the unit (assuming occupancy of 1.5 or other loans meeting the requirements housing.
persons per bedroom or 1.0 persons per of this part that are purchased, held in Owner-occupied unit means a
unit without a separate bedroom); or trust, and pledged as security for a dwelling unit occupied by the owner of
financial instrument. the unit. Housing with two to four
3 See 44 U.S.C. 3501 et seq. This proposed rule
Low- or moderate-income household dwelling units consisting of one owner-
does not incorporate the proposed changes to AHP
data reporting discussed in detail in the PRA notice
means a household that has an income occupied unit and one or more rental
published in April 2005. See 70 FR 21411 (Apr. 26, of 80 percent or less of the median units is considered a single owner-
2005). income for the area, with the income occupied unit.
Program means the Affordable Very low-income household means a policies adopted by the Bank’s board of
Housing Program established pursuant household that has an income at or directors.
to this part. below 50 percent of the median income (ii) No delegation. A Bank’s board of
Rental project means, for purposes of for the area, with the income limit directors shall not delegate to Bank
the competitive application program, adjusted for household size in officers or other Bank employees the
one or more dwelling units for accordance with the methodology of the responsibility for adopting its
occupancy by tenants or households applicable median income standard, homeownership set-aside program
that are not owner-occupants, including unless such median income standard policies.
overnight and emergency shelters, has no household size adjustment
transitional housing for homeless methodology. § 951.3 AHP implementation plan.
households, mutual housing, and single- Visitable means, in either owner- (a) Adoption; no delegation. Each
room occupancy housing. occupied or rental housing, at least one Bank, after consultation with its
Retention period means the following entrance is at-grade (no steps) and Advisory Council, shall adopt a written
period of time during which AHP- approached by an accessible route such AHP implementation plan, and shall not
assisted owner-occupied units or rental as a sidewalk, and the entrance door amend the plan without first consulting
projects must meet the applicable and all interior passage doors are at least its Advisory Council. The Bank’s board
income targeting and rent commitments 2 feet, 10 inches wide, offering 32 of directors shall not delegate to Bank
in the approved AHP application for inches of clear passage space. officers or other Bank employees the
subsidy: responsibility to consult with the
(1) Five years from closing for an § 951.2 Required annual AHP Advisory Council prior to adopting or
AHP-assisted owner-occupied unit, or contributions; allocation of contributions.
amending the AHP implementation
in the case of rehabilitation of a unit (a) Annual AHP contributions. Each plan. The AHP implementation plan
currently occupied by the owner where Bank shall contribute annually to its shall set forth, at a minimum:
there is no closing, 5 years from the date Program the greater of: (1) The applicable median income
of completion of the rehabilitation; and (1) 10 percent of the Bank’s net standard or standards adopted by the
(2) Fifteen years from the date of earnings for the previous year; or Bank consistent with the definition of
project completion for a rental project. (2) That Bank’s pro rata share of an
median income for the area in § 951.1;
Revolving loan fund means a capital aggregate of $100 million to be
contributed in total by the Banks, such (2) The Bank’s requirements for its
fund established to make mortgage or competitive application program
other loans meeting the requirements of proration being made on the basis of the
net earnings of the Banks for the established pursuant to § 951.5,
this part whereby loan principal is re- including the schedule for AHP funding
paid into the fund and re-lent to other previous year, except that the required
annual AHP contribution for a Bank periods, definition of sponsor, project
borrowers. cost, and feasibility guidelines, any
Single-family building means a shall not exceed its net earnings in the
previous year. additional optional District eligibility
structure with one to four dwelling requirements, scoring guidelines, and
units. (b) Allocation of contributions. Each
Bank, after consultation with its related definitions, requirements for
Sponsor means a not-for-profit or for- timely use of AHP subsidies, and
profit organization or public entity that: Advisory Council and pursuant to
written policies adopted by the Bank’s requirements for determining
(1) Has an ownership interest compliance upon disbursement of AHP
(including any partnership interest), as board of directors, shall allocate its
annual required AHP contribution as subsidies;
defined by the Bank in its AHP
follows: (3) The Bank’s requirements for any
implementation plan, in a rental project;
(1) Competitive application program. homeownership set-aside programs
(2) Is integrally involved, as defined
Each Bank shall allocate annually that established by the Bank pursuant to
by the Bank in its AHP implementation
portion of its annual required AHP § 951.6, including eligibility
plan, in an owner-occupied project,
contribution that is not set aside to fund requirements and priority criteria and
such as by exercising control over the
homeownership set-aside programs related definitions, AHP funding
planning, development, or management
under paragraph (b)(2) of this section, to requirements, and requirements for
of the project, or by qualifying
provide funds to members through a timely use of the AHP subsidy;
borrowers and providing or arranging
competitive application program, (4) The Bank’s requirements for
financing for the owners of the units;
(3) Establishes a loan pool; or pursuant to the requirements of this funding revolving loan funds, if adopted
(4) Is a revolving loan fund. part. by the Bank pursuant to § 951.5(c)(13);
Subsidized advance means an (2) Homeownership set-aside (5) The Bank’s requirements for
advance to a member at an interest rate programs. (i) Allocation amount; first- funding loan pools, if adopted by the
reduced below the Bank’s cost of funds, time homebuyers. A Bank, at its Bank pursuant to § 951.5(c)(14);
by use of a subsidy. discretion, may set aside annually, in (6) The Bank’s requirements for
Subsidy means: the aggregate, up to the greater of $4.5 monitoring under its competitive
(1) A direct subsidy, provided that if million or 35 percent of the Bank’s application program and any Bank
a direct subsidy is used to write down annual required AHP contribution to homeownership set-aside programs,
the interest rate on a loan extended by provide funds to members participating adopted pursuant to § 951.7;
a member, sponsor, or other party to a in homeownership set-aside programs (7) The Bank’s requirements,
project, the subsidy must equal the net established by the Bank, provided that including time limits, for re-use of
present value of the interest foregone at least one-third of the Bank’s aggregate repaid AHP direct subsidy, if adopted
from making the loan below the lender’s annual set-aside allocation to such by the Bank pursuant to § 951.8(f)(2);
market interest rate; or programs shall be to assist first-time and
(2) The net present value of the homebuyers, pursuant to the (8) Retention agreement requirements
interest revenue foregone from making a requirements of this part. A Bank may for projects and households under the
subsidized advance at a rate below the establish one or more homeownership competitive application program and
Bank’s cost of funds. set-aside programs pursuant to written any Bank homeownership set-aside
programs, pursuant to § 951.9(a)(7) and vacancy shall be appointed for the meet with the Advisory Council at least
(a)(8). unexpired term of his or her predecessor quarterly.
(b) Advisory Council review. Prior to in office.
the adoption or amendment of a Bank’s § 951.5 Competitive application program.
(c) Election of officers. Each Advisory
AHP implementation plan, the Bank Council shall elect from among its (a) Establishment of program. A Bank
shall provide its Advisory Council an members a chairperson, a vice shall establish a competitive application
opportunity to review the document, chairperson, and any other officers the program pursuant to the requirements of
and the Advisory Council shall provide Advisory Council deems appropriate. this part.
its recommendations to the Bank’s (d) Duties. (1) Meetings with the (b) Funding periods and application
board of directors. Banks. (i) The Advisory Council shall process. (1) Funding periods. A Bank
(c) Notification of plan amendments meet with representatives of the Bank’s may accept applications for AHP
to the Finance Board. A Bank shall board of directors at least quarterly to subsidy under its competitive
notify the Finance Board of any provide advice on ways in which the application program during a specified
amendments made to its AHP Bank can better carry out its housing number of funding periods each year, as
implementation plan within 30 days finance and community lending determined by the Bank.
after the date of their adoption by the mission, including, but not limited to, (2) Eligible applicants. A Bank shall
Bank’s board of directors. advice on the low- and moderate- accept applications for AHP subsidy
(d) Public access. A Bank shall income housing and community lending under its competitive application
publish its current AHP implementation programs and needs in the Bank’s program only from institutions that are
plan on a publicly available website, District, and on the use of AHP members of the Bank at the time the
and shall publish any amendments to subsidies, Bank advances, and other application is submitted to the Bank.
the plan on the website within 30 days (3) Submission of applications. A
Bank credit products for these purposes.
after the date of their adoption by the Bank shall require applications for AHP
(ii) The Advisory Council’s advice
Bank’s board of directors. subsidy to contain information
shall include recommendations on:
sufficient for the Bank to:
§ 951.4 Advisory Councils. (A) The amount of AHP subsidies to (i) Determine that the proposed AHP
(a) Appointment. (1) Each Bank’s be allocated to the Bank’s competitive project meets the eligibility
board of directors shall appoint an application program and any Bank requirements of paragraph (c) of this
Advisory Council of from 7 to 15 homeownership set-aside programs; section; and
persons who reside in the Bank’s (B) The AHP implementation plan (ii) Evaluate the application pursuant
District and are drawn from community and any subsequent amendments to the scoring guidelines adopted by the
and not-for-profit organizations that are thereto; Bank pursuant to paragraph (d) of this
actively involved in providing or (C) The scoring criteria, related section.
promoting low- and moderate-income definitions, and any additional optional (4) Review of applications submitted.
housing, and community and not-for- District eligibility requirements for the A Bank shall review the applications for
profit organizations that are actively competitive application program; and AHP subsidy to determine that the
involved in providing or promoting (D) The eligibility requirements and proposed AHP project meets the
community lending, in the District. any priority criteria for any Bank eligibility requirements of paragraph (c)
(2) Each Bank shall solicit homeownership set-aside programs. of this section, and shall evaluate the
nominations for membership on the (2) Summary of AHP applications. applications pursuant to the Bank’s
Advisory Council from community and The Bank shall comply with requests scoring guidelines adopted pursuant to
not-for-profit organizations pursuant to from the Advisory Council for summary paragraph (d) of this section.
a nomination process that is as broad information regarding AHP applications (c) Minimum eligibility requirements.
and as participatory as possible, from prior funding periods. Projects receiving AHP subsidies
allowing sufficient time for responses. (3) Annual analysis; public access. (i) pursuant to a Bank’s competitive
(3) The Bank’s board of directors shall Each Advisory Council shall submit to application program must meet the
appoint Advisory Council members the Finance Board annually by May 1 its following eligibility requirements:
from a diverse range of organizations so analysis of the low- and moderate- (1) Owner-occupied or rental housing.
that representatives of no one group income housing and community lending The AHP subsidy shall be used
shall constitute an undue proportion of activity of the Bank by which it is exclusively for:
the membership of the Advisory appointed. (i) Owner-occupied housing. The
Council, giving consideration to the size (ii) Within 30 days after the date the purchase, construction, or rehabilitation
of the Bank’s District and the diversity Advisory Council’s annual analysis is of an owner-occupied project by or for
of low- and moderate-income housing submitted to the Finance Board, the very low-income or low- or moderate-
and community lending needs and Bank shall publish the analysis on a income households. A household must
activities within the District. publicly available website. have an income meeting the income
(b) Terms of Advisory Council (e) Expenses. The Bank shall pay targeting commitments in the approved
members. Pursuant to policies adopted Advisory Council members’ travel AHP application at the time it is
by the Bank’s board of directors, expenses, including transportation and qualified by the project sponsor for
Advisory Council members shall be subsistence, for each day devoted to participation in the project; or
appointed by the Bank’s board of attending meetings with representatives (ii) Rental housing. The purchase,
directors to serve for terms of up to 3 of the board of directors of the Bank and construction, or rehabilitation of a rental
years, and such terms shall be staggered meetings requested by the Finance project, where at least 20 percent of the
to provide continuity in experience and Board. units in the project are occupied by and
service to the Advisory Council. No (f) No delegation. A Bank’s board of affordable for very low-income
Advisory Council member may be directors shall not delegate to Bank households. A household must have an
appointed to serve for more than three officers or other Bank employees the income meeting the income targeting
full consecutive terms. An Advisory responsibility to appoint persons as commitments in the approved AHP
Council member appointed to fill a members of the Advisory Council or to application upon initial occupancy of
the rental unit, or for projects involving (5) Financing costs. The rate of (iii) Loan pool. Pursuant to written
the purchase or rehabilitation of rental interest, points, fees, and any other policies adopted by a Bank’s board of
housing that already is occupied, at the charges for all loans financing the directors, a project sponsor that
time the application for AHP subsidy is project shall not exceed a reasonable establishes a loan pool shall:
submitted to the Bank for approval. market rate of interest, points, fees, and (A) Provide evidence of sound asset/
(2) Need for subsidy. The project’s other charges for loans of similar liability management practices and
estimated cash uses of funds shall equal maturity, terms, and risk. fiscal sustainability;
its estimated cash sources of funds as (6) Timing of AHP subsidy use. The (B) Provide audited statements or
reflected in the project’s development AHP subsidy must be likely to be drawn equivalent evidence that its operations
budget. A project’s cash sources of down by the project or used by the are consistent with acceptable business
funds shall include estimates of funds project to procure other financing practices; and
the project sponsor intends to obtain commitments within 12 months of the (C) Demonstrate the ability to track
from other sources but which have not date of approval of the application for the use of the AHP subsidy.
yet been committed to the project. AHP subsidy funding the project. (11) Fair housing. The project, as
(7) Counseling costs. AHP subsidies proposed, must comply with applicable
(3) Project costs. (i) In general. Project
may be used to pay for counseling costs federal and state laws on fair housing
costs, as reflected in the project’s
only where: and housing accessibility, including, but
development budget, must be
not limited to, the Fair Housing Act, the
reasonable, in accordance with the (i) Such costs are incurred in
Rehabilitation Act of 1973, the
Bank’s project cost guidelines, taking connection with counseling of
Americans with Disabilities Act of 1990,
into consideration the geographic homebuyers who actually purchase an
and the Architectural Barriers Act of
location of the project, development AHP-assisted unit; and
1969, and must demonstrate how the
conditions, and other non-financial (ii) The cost of the counseling has not
project will be affirmatively marketed.
household or project characteristics. been covered by another funding source, (12) Calculation of AHP subsidy. (i)
(ii) Cost of property and services including the member. Where an AHP direct subsidy is
provided by a member. The purchase (8) Refinancing. The project may use provided to a project to write down the
price of property or services, as reflected AHP subsidies to refinance an existing interest rate on a loan extended by a
in the project’s development budget, single-family or multifamily mortgage member, sponsor, or other party to a
sold to the project by a member loan, provided that the refinancing project, the net present value of the
providing AHP subsidy to the project, produces equity proceeds and such interest foregone from making the loan
or, in the case of property, upon which equity proceeds up to the amount of the below the lender’s market interest rate
such member holds a mortgage or lien, AHP subsidy in the project shall be used shall be calculated as of the date the
may not exceed the market value of only for the purchase, construction, or application for AHP subsidy is
such property or services as of the date rehabilitation of housing units meeting submitted to the Bank, and subject to
the purchase price was agreed upon. In the eligibility requirements of this adjustment under paragraph (g)(4) of
the case of real estate owned property paragraph (c). this section.
sold to a project by a member providing (9) Retention. The AHP-assisted (ii) Where an AHP subsidized
AHP subsidy to the project, or property projects are, or are committed to be, advance is provided to a project, the net
sold to the project upon which the subject to retention agreements as present value of the interest revenue
member holds a mortgage or lien, the follows: foregone from making a subsidized
market value of such property is (i) Owner-occupied projects. Each advance at a rate below the Bank’s cost
deemed to be the ‘‘as-is’’ or ‘‘as- AHP-assisted unit in an owner-occupied of funds shall be determined as of the
rehabilitated’’ value of the property, project is, or is committed to be, subject earlier of the date of disbursement of the
whichever is appropriate. That value to a 5-year retention agreement subsidized advance or the date prior to
shall be reflected in an independent described in § 951.9(a)(7). disbursement on which the Bank first
appraisal of the property performed by (ii) Rental projects. AHP-assisted manages the funding to support the
a state certified or licensed appraiser, as rental projects are, or are committed to subsidized advance through its asset/
defined in 12 CFR 564.2(j) and (k), be, subject to a 15-year retention liability management system, or
within 6 months prior to the date the agreement described in § 951.9(a)(8). otherwise.
Bank disburses AHP subsidy to the (10) Project sponsor qualifications. (i) (13) Use of AHP subsidy by revolving
project. In general. A project’s sponsor must be loan funds. Pursuant to written policies
(4) Project feasibility. (i) qualified and able to perform its adopted by a Bank’s board of directors
Developmental feasibility. The project responsibilities as committed to in the after consultation with its Advisory
must be likely to be completed and application for AHP subsidy funding the Council, a Bank, in its discretion, may
occupied, based on relevant factors project. provide AHP subsidies to members for
contained in the Bank’s project (ii) Revolving loan fund. Pursuant to lending by revolving loan funds to
feasibility guidelines, including, but not written policies adopted by a Bank’s eligible projects and households under
limited to, the development budget, board of directors, a project sponsor that a Bank’s competitive application
market analysis, and project sponsor’s is a revolving loan fund shall: program, provided the following
experience in providing the requested (A) Provide evidence of sound requirements are met:
assistance to households. business practices and fiscal (i) Initial use of subsidy. (A) The
(ii) Operational feasibility of rental sustainability; revolving loan fund’s initial lending of
projects. A rental project must be able (B) Provide audited statements or the AHP subsidy shall meet all
to operate in a financially sound equivalent evidence that its operations applicable eligibility requirements
manner, in accordance with the Bank’s are consistent with acceptable business under this paragraph (c).
project feasibility guidelines, as practices; and (B) The revolving loan fund’s initial
projected in the project’s operating pro (C) Demonstrate the ability to revolve lending of the AHP subsidy shall be to
forma or similar statement of subsidy repayments on a timely basis projects and households meeting the
operational feasibility. and track the use of the AHP subsidy. commitments in the approved
application for AHP subsidy, and the subsidy as specified by the Bank in its a member for a subsidized advance
income eligibility and affordability AHP implementation plan under commitment that is canceled.
commitments in such application shall § 951.3(a)(2) and the Bank’s agreement (iii) Processing fees. Processing fees
be met for the full AHP retention period. with the loan pool sponsor. charged by members for providing
(ii) Revolving uses of repaid subsidy. (B) In the alternative, the loan pool direct subsidies to a project.
(A) The revolving loan fund’s shall purchase an initial round of loans (17) Prohibited eligibility requirement
subsequent lending of repaid AHP that are not purchased pursuant to a for in-District projects. A Bank shall not
subsidy shall meet all applicable forward commitment, provided that the establish a requirement that a project be
eligibility requirements under this originator or holder of the loans is located in the Bank’s District.
paragraph (c). required to use the proceeds from the (d) Scoring of applications. (1) In
(B) The revolving loan fund’s initial loan purchases within time limits general. A Bank shall adopt written
subsequent lending of repaid AHP on use of the AHP subsidy as specified scoring guidelines setting forth the
subsidy shall be for low- or moderate- by the Bank in its AHP implementation Bank’s AHP competitive application
income households in the case of plan under § 951.3(a)(2) and the Bank’s program scoring criteria and related
owner-occupied projects, or for rental agreement with the loan pool sponsor. definitions and point allocations, and
projects where at least 20 percent of the The proceeds shall assist households implementing other applicable
units are occupied by and affordable for that are income-eligible under the requirements pursuant to this paragraph
very low-income households, subject to approved AHP applications for subsidy (d). A Bank shall not adopt additional
retention period, monitoring and during subsequent rounds of lending, scoring criteria or point allocations,
recapture requirements that the Bank and such assistance shall be provided in except as specifically authorized under
shall adopt. the form of a principal reduction or a this paragraph (d).
(iii) The revolving loan fund shall below-market AHP-subsidized interest (2) Point allocations. (i) A Bank shall
return to the Bank any repaid AHP allocate 100 points among the 9 scoring
rate as specified in the approved AHP
subsidy that will not be used according criteria identified in paragraph (d)(5) of
application.
to the requirements in this paragraph this section.
(iii) Each AHP-assisted owner-
(c)(13). (ii) The scoring criterion for targeting
(14) Use of AHP subsidy in loan occupied unit receiving AHP direct
subsidy shall be subject to an AHP 5- identified in paragraph (d)(5)(iii) of this
pools. Pursuant to written policies section shall be allocated at least 20
adopted by a Bank’s board of directors year retention agreement as required
under paragraph (c)(9)(i) of this section. points.
after consultation with its Advisory (iii) The remaining scoring criteria
Council, a Bank, at its discretion, may (iv) Where AHP direct subsidy is
shall be allocated at least five points
provide AHP subsidies to members for being used in connection with the
each.
projects involving the purchase of purchase of a loan or loans from a (3) Fixed point and variable point
eligible AHP-assisted loans to AHP- member or other party, the loan pool scoring criteria. A Bank shall designate
eligible households for inclusion in a sponsor shall use the AHP direct each scoring criterion as either a fixed-
loan pool under a Bank’s competitive subsidy for a standard upfront buy- point or a variable-point criterion,
application program, provided the down of the interest rate on such loan defined as follows:
following requirements are met: or loans, or a reduction in the principal (i) Fixed-point scoring criteria are
(i) Eligibility requirements. The loan of the loans. those which cannot be satisfied in
pool’s use of the AHP subsidies shall (15) Optional District eligibility varying degrees and are either satisfied
meet all applicable eligibility requirements. A Bank may require a or not, with the total number of points
requirements under this paragraph project receiving AHP subsidies to meet allocated to the criterion awarded by the
(c)(14), and shall not be for the sole one or more of the following additional Bank to an application meeting the
purpose of providing liquidity to the eligibility requirements adopted by the criterion.
originator or holder of the loans. The Bank’s board of directors after (ii) Variable-point criteria are those
loan pool sponsor must provide to the consultation with its Advisory Council: where there are varying degrees to
Bank proposed loan acceptance (i) AHP subsidy limits. A requirement which an application can satisfy the
standards for the pool, the number of that the amount of AHP subsidy criteria, with the number of points that
eligible households and income levels requested for the project does not may be awarded to an application for
of loans served in a given time period, exceed limits established by the Bank as meeting the criterion varying,
and the sponsor must make available to to the maximum amount of AHP depending on the extent to which the
the Bank for its review and approval the subsidy available per member each year, application satisfies the criterion, based
underwriting characteristics of loans or per member, per project, or per on a fixed scale or on a scale relative to
that the loan pool will purchase. project unit in a single funding period. the other applications being scored. A
(ii) Forward commitment. (A) The (ii) Counseling. A requirement that a Bank shall designate the targeting and
loan pool sponsor shall purchase the household must complete a homebuyer subsidy-per-unit scoring criteria
loans pursuant to a forward or homeowner counseling program identified in paragraphs (d)(5)(iii) and
commitment that identifies the loans to provided by, or based on one provided (d)(5)(viii), respectively, of this section,
be originated with principal or interest by, an organization recognized as as variable-point criteria.
rate reductions as specified in the experienced in homebuyer or (4) Satisfaction of scoring criteria. A
approved AHP applications to the homeowner counseling, respectively. Bank shall award scoring points to
targeted low- or moderate-income (16) Prohibited uses of AHP subsidies. applications for proposed projects based
households. Both initial purchases of The project shall not use AHP subsidies on satisfaction of the scoring criteria
loans for the AHP loan pool and to pay for: adopted by the Bank pursuant to
subsequent purchases of loans to (i) Prepayment fees. Prepayment fees paragraph (d)(5) of this section.
substitute for repaid loans in the pool imposed by a Bank on a member for a (5) Scoring criteria. An application for
shall be made pursuant to the terms of subsidized advance that is prepaid. a proposed project may receive scoring
such forward commitment and subject (ii) Cancellation fees. Cancellation points based on satisfaction of the
to time limits on the use of the AHP fees and penalties imposed by a Bank on following nine scoring criteria:
(i) Use of donated or conveyed reserving at least 20 percent of the units diversity through mixed-income
government-owned or other properties. for homeless households, with the term housing in low- or moderate-income
The financing of housing using a ‘‘homeless households’’ as defined by neighborhoods, or providing very low-
significant proportion of: the Bank in its AHP implementation or low- or moderate-income households
(A) Land or units donated or plan. with housing opportunities in
conveyed by the federal government or (v) Promotion of empowerment. The neighborhoods or cities where the
any agency or instrumentality thereof; provision of housing in combination median income equals or exceeds the
or with a program offering employment; median income for the larger
(B) Land or units donated or conveyed education; training; homebuyer, surrounding area, such as the city,
by any other party for an amount homeownership, or tenant counseling; county, or Primary Metropolitan
significantly below the fair market value daycare services; resident involvement Statistical Area, in which the
of the property, as defined by the Bank in decision making affecting the neighborhood or city is located.
in its AHP implementation plan. creation or operation of the project; or (I) Fair housing remedy. The financing
(ii) Sponsorship by a not-for-profit other services that assist residents to of housing as part of a remedy
organization or government entity. move toward better economic undertaken by a jurisdiction adjudicated
Project sponsorship by a not-for-profit opportunities, such as welfare to work by a federal, state, or local court to be
organization, a state or political initiatives. in violation of title VI of the Civil Rights
subdivision of a state, a state housing (vi) First District priority. The Act of 1964 (42 U.S.C. 2000d et seq.),
agency, a local housing authority, a satisfaction of one of the following the Fair Housing Act (42 U.S.C. 3601 et
Native American Tribe, an Alaskan criteria, or one of a number of the seq.), or any other federal, state, or local
Native Village, or the government entity following criteria, as recommended by fair housing law, or as part of a
for Native Hawaiian Home Lands. the Bank’s Advisory Council and settlement of such claims.
(iii) Targeting. The extent to which a adopted by the Bank’s board of directors
project provides housing for very low- (J) Community involvement.
and set forth in the Bank’s AHP Demonstrated support for the project by
and low- or moderate-income implementation plan, as long as the
households, as follows: local government, other than as a project
total points available for meeting the sponsor, in the form of property tax
(A) Rental projects. An application for criterion or criteria adopted under this
a rental project shall be awarded the deferment or abatement, zoning changes
category do not exceed the total points or variances, infrastructure
maximum number of points available allocated to this category:
under this scoring criterion if 60 percent improvements, fee waivers, or other
(A) Special needs. The financing of similar forms of non-cash assistance, or
or more of the units in the project are housing in which at least 20 percent of
reserved for occupancy by households demonstrated support for the project by
the units are reserved for occupancy by community organizations or
with incomes at or below 50 percent of households with special needs, such as
the median income for the area. individuals, other than as project
the elderly, mentally or physically sponsors, through the commitment by
Applications for projects with less than disabled persons, persons recovering
60 percent of the units reserved for such entities or individuals of donated
from physical abuse or alcohol or drug goods and services, or volunteer labor.
occupancy by households with incomes abuse, or persons with AIDS; or the
at or below 50 percent of the median (K) Lender consortia. The
financing of housing that is visitable by involvement of financing by a
income for the area shall be awarded persons with physical disabilities who
points on a declining scale based on the consortium of at least two financial
are not occupants of such housing. institutions.
percentage of units in a project that are (B) Community development. The
reserved for households with incomes at (vii) Second District priority: defined
financing of housing meeting housing
or below 50 percent of the median housing need in the District. The
needs documented as part of a
income for the area, and on the satisfaction of a housing need in the
community revitalization or economic
percentage of the remaining units Bank’s District, as defined and
development strategy approved by a
reserved for households with incomes at recommended by the Bank’s Advisory
unit of a state or local government.
or below 80 percent of the median (C) First-time homebuyers. The Council and adopted by the Bank’s
income for the area. financing of housing for first-time board of directors. The Bank may, but is
(B) Owner-occupied projects. homebuyers. not required to, use one of the criteria
Applications for owner-occupied (D) Member financial participation. listed in paragraph (d)(5)(vi) of this
projects shall be awarded points based Member financial participation section, provided it is different from the
on a declining scale to be determined by (excluding the pass-through of AHP criterion or criteria adopted by the Bank
the Bank in its AHP implementation subsidy) in the project, such as under such paragraph. The Bank may
plan, taking into consideration providing market rate or concessionary not adopt as its scoring criterion under
percentages of units and targeted financing, fee waivers, or donations. this paragraph (d)(5)(vii) the financing
income levels. (E) Disaster areas and displaced of housing located in the Bank’s District.
(C) Separate scoring. For purposes of households. The financing of housing (viii) AHP subsidy per unit. (A)
this scoring criterion, applications for located in federally declared disaster Amount of subsidy. The extent to which
owner-occupied projects and rental areas, or for households displaced from a project proposes to use the least
projects may be scored separately. federally declared disaster areas due to amount of AHP subsidy per AHP-
(iv) Housing for homeless households. a disaster. targeted unit. In the case of an
The financing of rental housing, (F) Rural. The financing of housing application for a project financed by a
excluding overnight shelters, reserving located in rural areas. subsidized advance, the total amount of
at least 20 percent of the units for (G) Urban. The financing of urban in- AHP subsidy used by the project shall
homeless households, the creation of fill or urban rehabilitation housing. be estimated based on the Bank’s cost of
transitional housing for homeless (H) Economic diversity. The financing funds as of the date on which all
households permitting a minimum of 6 of housing that is part of a strategy to applications are due for the funding
months occupancy, or the creation of end isolation of very low-income period in which the application is
permanent owner-occupied housing households by providing economic submitted.
(B) Separate scoring. For purposes of members. (i) A Bank may disburse AHP approved for a project, the amount of
this scoring criterion, applications for subsidies only to institutions that are such reduction shall be returned to the
owner-occupied projects and rental members of the Bank at the time they Bank’s AHP fund. If a Bank increases
projects may be scored separately. request a draw-down of the subsidies. the amount of AHP subsidy approved
(ix) Community stability. The (ii) If an institution with an approved for a project, the amount of such
promotion of community stability, such application for AHP subsidy loses its increase shall be drawn first from any
as by rehabilitating vacant or abandoned membership in a Bank, the Bank may currently uncommitted or repaid AHP
properties, being an integral part of a disburse AHP subsidies to a member of subsidies and then from the Bank’s
neighborhood stabilization plan such Bank to which the institution has required AHP contribution for the next
approved by a unit of state or local transferred its obligations under the year.
government, and not displacing low- or approved application, or the Bank may (6) Project sponsor notification of re-
moderate-income households, or if such disburse AHP subsidies through another use of repaid AHP direct subsidy. Prior
displacement will occur, assuring that Bank to a member of that Bank that has to disbursement by a project sponsor of
such households will be assisted to assumed the institution’s obligations AHP direct subsidy repaid to and
minimize the impact of such under the approved AHP application. retained by such project sponsor
displacement. (2) Progress towards use of AHP pursuant to a subsidy re-use program
(e) Approval of AHP applications. (1) subsidies. A Bank shall establish authorized by the Bank under
A Bank shall approve applications for policies and procedures, such as time § 951.8(f)(2), the project sponsor shall
AHP subsidy in descending order limits, for determining whether progress provide written notice to the member
starting with the highest scoring is being made towards draw-down and and the Bank of its intent to disburse the
application until the total funding use of AHP subsidies by approved repaid AHP subsidy to a household
amount for the particular funding projects, and whether to cancel AHP satisfying the requirements of this part
period, except for any amount application approvals for lack of such and the commitments in the approved
insufficient to fund the next highest progress. Pursuant to such policies and AHP application.
scoring application, has been allocated. procedures, a Bank shall determine (h) Bank board duties and delegation.
(2) The Bank also shall approve at whether progress is being made by (1) Duties. A Bank’s board of directors,
least the next four highest scoring approved projects, and whether to after consultation with its Advisory
applications as alternates and, within 1 cancel any AHP application approvals. Council, shall be responsible for:
year of approval, may fund such If a Bank cancels any AHP application (i) The establishment of any optional
alternates if any previously committed approvals, it shall make the AHP District eligibility requirements;
AHP subsidies become available. subsidies available for other AHP- (ii) The establishment of any policies
(f) Modifications of approved AHP eligible projects. and procedures for use of AHP subsidies
applications. (1) Modification (3) Compliance upon disbursement of by revolving loan funds or loan pools;
procedure. If, prior to or after final AHP subsidies. A Bank shall establish (iii) The establishment of scoring
disbursement of funds to a project from policies and procedures for criteria and related definitions and
all funding sources, there is or will be determining, prior to its initial point allocations; and
a change in the project that would disbursement of AHP subsidies for an (iv) Approving or disapproving the
change the score that the project approved project, and prior to applications for AHP subsidy.
application received in the funding subsequent disbursement if the need for (2) No delegation. The Bank’s board of
period in which it was originally scored AHP subsidy has changed, that the directors shall not delegate to Bank
and approved, had the changed facts project meets the eligibility officers or other Bank employees the
been operative at that time, a Bank, in requirements of paragraph (c) of this responsibilities set forth in paragraph
its discretion, may approve in writing a section and all obligations committed to (h)(1) of this section.
modification to the terms of the in the approved AHP application.
approved application, provided that: (4) Changes in approved AHP subsidy § 951.6 Homeownership set-aside
(i) The project, incorporating any such amount where a direct subsidy is used programs.
changes, would meet the eligibility to write down prior to closing the (a) Establishment of program. A Bank
requirements of paragraph (c) of this principal amount or interest rate on a may establish one or more
section; loan. If a member is approved to receive homeownership set-aside programs
(ii) The application, as reflective of AHP direct subsidy to write down prior pursuant to the requirements of this
such changes, continues to score high to closing the principal amount or the part.
enough to have been approved in the interest rate on a loan to a project and (b) Eligible applicants. A Bank shall
funding period in which it was the amount of AHP subsidy required to accept applications for AHP direct
originally scored and approved by the maintain the debt service cost for the subsidy under its homeownership set-
Bank; and loan decreases from the amount of AHP aside programs only from institutions
(iii) There is good cause for the subsidy initially approved by the Bank that are members of the Bank at the time
modification, and the analysis and due to a decrease in market interest the application is submitted to the Bank.
justification for the modification are rates between the time of approval and (c) Minimum eligibility requirements.
documented by the Bank in writing. the time the lender commits to the A Bank’s homeownership set-aside
(2) AHP subsidy increases; no interest rate to finance the project, the programs must meet the following
delegation. Modifications involving an Bank shall reduce the AHP subsidy eligibility requirements:
increase in AHP subsidy shall be amount accordingly. If market interest (1) Member allocation criteria. AHP
approved or disapproved by a Bank’s rates rise between the time of approval direct subsidies shall be provided to
board of directors. The authority to and the time the lender commits to the members pursuant to allocation criteria
approve or disapprove such requests interest rate to finance the project, the established by the Bank in its AHP
shall not be delegated to Bank officers Bank, in its discretion, may increase the implementation plan.
or other Bank employees. AHP subsidy amount accordingly. (2) Eligible households. Members
(g) Procedure for funding. (1) (5) AHP outlay adjustment. If a Bank shall provide AHP direct subsidies only
Disbursement of AHP subsidies to reduces the amount of AHP subsidy to households that:
(i) Have incomes at or below 80 pursuant to the requirements in the commitments in the approved AHP
percent of the median income for the Bank’s policies and procedures. applications, Bank policies, and the
area at the time the household is (10) No cash back to household. A requirements of this part.
accepted for enrollment by the member member shall not provide cash back to (B) Following completion of projects,
and the Bank in the Bank’s a household at closing on the mortgage satisfactory progress is being made
homeownership set-aside program; and loan, and shall use any AHP subsidy towards occupancy of the projects by
(ii) Meet the first-time homebuyer beyond what is needed at closing for eligible households.
requirement, in the case of households closing costs and the approved mortgage (C) Within a reasonable period of time
receiving funds pursuant to the first- amount to further reduce the principal after project completion, the projects
time homebuyer requirement in of the mortgage loan. meet the following requirements, at a
§ 951.2(b)(2), and meet such other (d) Approval of AHP applications. minimum:
eligibility criteria that may be The Bank shall approve applications for (1) The AHP subsidy was used for
established by the Bank in its AHP AHP direct subsidy in accordance with eligible purposes according to the
implementation plan, such as a the Bank’s criteria governing the commitments in the approved AHP
matching funds requirement, counseling allocation of funds. applications;
requirement, or criteria that give priority (e) Procedure for funding. (1) (2) The household incomes and rents
for the purchase or rehabilitation of Disbursement of AHP subsidies to comply with the income targeting and
housing in particular areas or as part of members. (i) A Bank may disburse AHP rent commitments in the approved AHP
a disaster relief effort. direct subsidies only to institutions that applications;
(3) Maximum grant amount. Members are members of the Bank at the time (3) The projects’ actual costs were
shall provide AHP direct subsidies to they request a draw-down of the reasonable in accordance with the
households as a grant, in an amount up subsidies. Bank’s project cost guidelines, and the
to a maximum of $15,000 per (ii) If an institution with an approved AHP subsidies were necessary for the
household, as established by the Bank application for AHP direct subsidy loses completion of the project as currently
in its AHP implementation plan, which its membership in a Bank, the Bank may structured;
limit shall apply to all households. disburse AHP direct subsidies to a
(4) The AHP-assisted units are subject
(4) Eligible uses of AHP direct member of such Bank to which the
to retention agreements meeting the
subsidy. Households shall use the AHP institution has transferred its obligations
requirements of § 951.9(a)(7) or (a)(8), as
direct subsidies to pay for down under the approved AHP application, or
applicable; and
payment, closing cost, counseling, or the Bank may disburse AHP direct
(5) In the case of rental projects, the
rehabilitation assistance in connection subsidies through another Bank to a
services and activities committed to in
with the household’s purchase or member of that Bank that has assumed
the approved AHP applications have
rehabilitation of an owner-occupied the institution’s obligations under the
been provided in connection with the
unit, including a condominium or approved AHP application.
(2) Progress towards use of AHP projects.
cooperative housing unit, to be used as (ii) Back-up documentation. A Bank’s
subsidies. A Bank shall establish
the household’s primary residence. written monitoring policies and
policies and procedures, such as time
(5) Retention agreement. An owner- procedures shall include requirements
limits, for determining whether progress
occupied unit purchased or for:
is being made towards draw-down and
rehabilitated using AHP direct subsidy (A) Bank review of back-up project
use of the AHP direct subsidies by
shall be subject to a 5-year retention documentation regarding household
eligible households, and whether to
agreement described in § 951.9(a)(7). incomes and rents maintained by the
cancel AHP application approvals for
(6) Member financial incentives. The project sponsor or owner; and
lack of such progress. Pursuant to such
Bank shall establish incentives for (B) Maintenance and Bank review of
policies and procedures, a Bank shall
members to provide financial or other other project documentation in the
determine whether progress is being
assistance in connection with providing Bank’s discretion.
made towards such draw-down and use,
the AHP direct subsidy. (2) Long-term monitoring policies and
and whether to cancel any AHP
(7) Financing costs. The rate of procedures. (i) A Bank shall adopt and
application approvals. If the Bank
interest, points, fees, and any other implement written policies and
cancels any AHP application approvals,
charges for loans used directly or procedures for monitoring of approved
it shall make the AHP direct subsidies
indirectly in conjunction with the AHP rental projects commencing in the
available for other applicants for AHP
direct subsidy shall not exceed a second year after project completion to
direct subsidies under the
reasonable market rate of interest, determine, at a minimum, whether
homeownership set-aside program or for
points, fees, and other charges for loans during the full 15-year retention period,
other AHP-eligible projects.
of similar maturity, terms, and risk. the household incomes, rents, and
(8) Counseling costs. The AHP direct § 951.7 Monitoring. populations served comply with the
subsidies may be used to pay for (a) Competitive application program. income targeting, rent, and targeted
counseling costs only where: (1) Initial monitoring policies and population commitments, respectively,
(i) Such costs are incurred in procedures. (i) A Bank shall adopt and in the approved AHP applications.
connection with counseling of implement written policies and (ii) Risk factors and reliance on other
homebuyers who actually purchase an procedures for monitoring of owner- monitoring. (A) Risk factors. A Bank’s
AHP-assisted unit; and occupied and rental projects prior to, monitoring policies and procedures
(ii) The cost of the counseling has not and within a reasonable period of time shall take into account risk factors such
been covered by another funding source, after, project completion to determine, as the amount of AHP subsidy in the
including the member. at a minimum, whether: project, type of project, size of project,
(9) Progress towards use of AHP (A) Construction or rehabilitation of location of project, sponsor experience,
subsidy. Progress shall be made towards projects that are underway is making and any monitoring provided by a
draw-down and use of the AHP direct satisfactory progress towards federal, state, or local entity as
subsidies by eligible households completion, in compliance with the described in this paragraph (a)(2)(ii).
(B) Reliance on other monitoring. (1) Bank’s competitive application program, subsidies (plus interest, if appropriate)
Tax credit monitoring. For AHP projects such commitments shall be considered that are not used in compliance with the
that are allocated Federal Low-Income to adjust annually according to the terms of the approved application for
Housing Tax Credits (tax credits), a current applicable median income data. AHP subsidy and the requirements of
Bank may rely on the monitoring by the A rental unit may continue to count this part, if the misuse is the result of
state-designated housing credit agency toward meeting the targeting the actions or omissions of the member,
administering the tax credits of the commitment of an approved AHP the project sponsor, or the project
income targeting, rent, and retention application as long as the rent charged owner.
period requirements applicable under to a household remains affordable, as (b) Responsible party for repayment of
the Low-Income Housing Tax Credit defined in § 951.1, for the household AHP subsidies. Except as provided in
Program, provided that the compliance occupying the unit. paragraph (c) of this section:
profiles of the AHP and the Low-Income (b) Homeownership set-aside (1) If the member causes the AHP
Housing Tax Credit program continue to programs: Monitoring policies and subsidies to be misused through its
be substantively equivalent. procedures. (1) A Bank shall adopt and actions or omissions, the member shall
(2) Other governmental monitoring. implement written policies and repay the AHP subsidies to the Bank.
For AHP projects that receive funds procedures for monitoring compliance (2) If the project sponsor or owner
from Federal, State, or local government with the requirements of its causes the AHP subsidies to be misused
entities, a Bank may rely on the homeownership set-aside programs, through its actions or omissions, the
monitoring by such entities of the including monitoring to determine, at a following shall apply, as determined by
income targeting, rent, and retention minimum, whether: the Bank in its discretion:
period requirements applicable under (i) The AHP subsidy was provided to (i) The member shall recover the AHP
their programs, provided that: households meeting all applicable subsidies from the project sponsor or
(i) The income targeting, rent, and eligibility requirements in § 951.6(c)(2) owner and repay them to the Bank; or
retention period requirements for those and the Bank’s homeownership set- (ii) The project sponsor or owner shall
programs are substantively equivalent to aside program policies; and repay the AHP subsidies directly to the
those of the AHP; (ii) All other applicable eligibility Bank.
(ii) The entity has demonstrated and requirements in § 951.6(c) and the (c) Recovery not required. Recovery of
continues to demonstrate its ability to Bank’s homeownership set-aside the AHP subsidies is not required if:
monitor the project; program policies are met, including that (1) The member, project sponsor, or
(3) The entity agrees to provide the AHP-assisted units are subject to project owner cures the noncompliance
reports to the Bank on the project’s retention agreements required under within a reasonable period of time;
incomes and rents for the full 15-year § 951.6(c)(5). (2) The circumstances of
AHP retention period; and (2) Sampling plan. A Bank may use a noncompliance are eliminated through a
(4) The Bank reviews the reports from reasonable sampling plan to select the modification of the terms of the
the monitoring entity to confirm that households to be monitored, and to approved application for AHP subsidy
they comply with the Bank’s monitoring review the back-up and any other pursuant to § 951.5(f); or
policies and procedures. documentation received by the Bank. (3) The member is unable to collect
(C) Risk-based sampling plan. A Bank The sampling plan and its basis shall be the AHP subsidy after making
may use a reasonable, risk-based in writing. reasonable efforts to collect it.
sampling plan to select the rental (3) Member certifications and back-up (d) Settlements. A Bank may settle a
projects to be monitored and to review documentation. A Bank’s written claim for AHP subsidies that it has
the back-up and any other project monitoring policies and procedures against a member, project sponsor, or
documentation received by the Bank. shall include requirements for: project owner for less than the full
The risk-based sampling plan and its (i) Bank review of certifications by amount due. If a Bank enters into such
basis shall be in writing. members to the Bank, prior to a settlement, the Finance Board may
(iii) Annual certifications and back- disbursement of the AHP subsidy, that require the Bank to reimburse its AHP
up documentation. A Bank’s written the subsidy will be provided in fund in the amount of any shortfall
monitoring policies and procedures compliance with all applicable under paragraph (e)(2) of this section,
shall include requirements for: eligibility requirements in § 951.6(c); unless:
(A) Bank review of annual (ii) Bank review of back-up (1) The Bank has sufficient
certifications by project owners to the documentation regarding household documentation showing that the sum
Bank that household incomes and rents incomes maintained by the member; agreed to be repaid under the settlement
are in compliance with the and is reasonably justified, based on the
commitments in the approved AHP (iii) Maintenance and Bank review of facts and circumstances of the
application and the requirements of this other documentation in the Bank’s noncompliance (including the degree of
part; discretion. culpability of the non-complying parties
(B) Bank review of back-up project (c) No delegation. A Bank’s board of and the extent of the Bank’s recovery
documentation regarding household directors shall not delegate to Bank efforts); or
incomes and rents maintained by the officers or other Bank employees the (2) The Bank obtains a determination
project owner; and responsibility to adopt the Bank’s from the Finance Board that the sum
(C) Maintenance and Bank review of monitoring policies and procedures agreed to be repaid under the settlement
other project documentation in the under its competitive application is reasonably justified, based on the
Banks’ discretion. facts and circumstances of the
program and homeownership set-aside

(3) Annual adjustment of targeting programs. noncompliance (including the degree of
commitments. For purposes of culpability of the non-complying parties
determining compliance with the § 951.8 Remedial actions for and the extent of the Bank’s recovery
targeting commitments in an approved noncompliance. efforts).
AHP application for both initial and (a) Recovery of AHP subsidies. A Bank (e) Reimbursement of AHP fund. (1)
long-term monitoring purposes under a shall recover the amount of any AHP By the Bank. A Bank shall reimburse its
AHP fund in the amount of any AHP the same project in accordance with the member shall use the AHP subsidy in
subsidies (plus interest, if appropriate) terms of the approved AHP application. accordance with the terms of the
misused as a result of the actions or (ii) No delegation. A Bank’s board of member’s approved application for the
omissions of the Bank. directors shall not delegate to Bank subsidy, and the requirements of this
(2) By Finance Board order. The officers or other Bank employees the part.
Finance Board may order a Bank to responsibility to adopt any Bank (ii) Use of AHP subsidy by the project
reimburse its AHP fund in an policies on re-use of repaid AHP direct sponsor or owner. The member shall
appropriate amount upon determining subsidies in the same project pursuant have in place an agreement with each
that: to paragraph (f)(2)(i) of this section. project sponsor and project owner, in
(i) The Bank has failed to reimburse (g) Suspension and debarment. (1) At which the project sponsor and project
its AHP fund as required under a Bank’s initiative. A Bank may suspend owner agree to use the AHP subsidy in
paragraph (e)(1) of this section; or or debar a member, project sponsor, or accordance with the terms of the
(ii) The Bank has failed to recover project owner from participation in the member’s approved application for the
AHP subsidy from a member, project Program if such party shows a pattern subsidy, and the requirements of this
sponsor, or project owner pursuant to of noncompliance, or engages in a single part.
the requirements of paragraph (a) of this instance of flagrant noncompliance, (4) Repayment of AHP subsidies in
section, and has not shown that such with the terms of an approved case of noncompliance. (i)
failure is reasonably justified, application for AHP subsidy or the Noncompliance by the member. The
considering factors such as the extent of requirements of this part. member shall repay AHP subsidies to
the Bank’s recovery efforts. (2) At the Finance Board’s initiative. the Bank in accordance with the
(f) Use of repaid AHP subsidies. (1) The Finance Board may order a Bank to requirements of § 951.8(b)(1).
suspend or debar a member, project (ii) Noncompliance by a project
Use of repaid AHP subsidies in other
sponsor, or project owner from sponsor or owner. (A) Agreement. The
AHP-eligible projects. Except as
participation in the Program if such member shall have in place an
provided in paragraph (f)(2) of this
party shows a pattern of agreement with the each project sponsor
section, amounts of AHP subsidy,
noncompliance, or engages in a single and project owner, in which the project
including any interest, repaid to a Bank
instance of flagrant noncompliance, sponsor and project owner agree to
pursuant to this part shall be made
with the terms of an approved repay AHP subsidies to the member or
available by the Bank for other AHP-
application for AHP subsidy or the the Bank in accordance with the
eligible projects.
requirements of this part. requirements of § 951.8(b)(2)(i) or
(2) Re-use of repaid AHP direct
(h) Transfer of Program (b)(2)(ii), respectively (as applicable).
subsidies in same project. (i) (B) Recovery of AHP subsidies. The
Requirements. AHP direct subsidy, administration. Without limitation on
other remedies, the Finance Board, member shall recover from the project
including any interest, repaid to a sponsor or project owner and repay to
member or project sponsor under a upon determining that a Bank has
engaged in mismanagement of its the Bank any AHP subsidy in
homeownership set-aside program or accordance with the requirements of
the competitive application program, Program, may designate another Bank to
administer all or a portion of the first § 951.8(b)(2)(i) (if applicable).
respectively, may be repaid by such (5) Project monitoring. (i) Monitoring
parties to the Bank for subsequent Bank’s annual AHP contribution, for the
benefit of the first Bank’s members, by the member. The member shall
disbursement to and re-use by such comply with the monitoring
parties, or retained by such parties for under such terms and conditions as the
Finance Board may prescribe. requirements applicable to such party,
subsequent re-use, as authorized by the as established by the Bank in its
(i) Finance Board actions under this
Bank, in its discretion, after monitoring policies and procedures
section. Except as provided in
consultation with its Advisory Council, (and set forth in the agreement)
paragraph (d)(2) of this section, actions
in its AHP implementation plan, pursuant to § 951.7.
taken by the Finance Board under this
provided all of the following (ii) Agreement. The member shall
section are reviewable under § 907.9 of
requirements are satisfied: have in place an agreement with each
this chapter.
(A) The member or the project project sponsor and project owner, in
sponsor originally provided the AHP § 951.9 Agreements. which the project sponsor and project
direct subsidy as down payment, (a) Agreements between Banks and owner agree to comply with the
closing cost, rehabilitation, or interest members. A Bank shall have in place monitoring requirements applicable to
rate buy down assistance to an eligible with each member receiving an AHP such parties, as established by the Bank
household to purchase or rehabilitate an subsidized advance or AHP direct in its monitoring policies and
owner-occupied unit pursuant to an subsidy, an agreement or agreements procedures (and set forth in the
approved AHP application. containing, at a minimum, the following agreement) pursuant to § 951.7.
(B) The AHP direct subsidy, including provisions, where applicable: (6) Transfer of AHP obligations. (i) To
any interest, was repaid to the member (1) Notification of Program another member. The member shall
or project sponsor as a result of a sale requirements and policies. The member make best efforts to transfer its
by the household of the unit prior to the has been notified of the requirements of obligations under the approved
end of the retention period to a this part and all Bank policies relevant application for AHP subsidy to another
purchaser that is not a low- or moderate- to the member’s approved application member in the event of its loss of
income household. for AHP subsidy. membership in the Bank prior to the
(C) The repaid AHP direct subsidy is (2) AHP subsidy pass-through. The Bank’s final disbursement of AHP
made available by the member or project member shall pass on the full amount of subsidies.
sponsor, within the period of time the AHP subsidy to the project or (ii) To a nonmember. If, after final
specified by the Bank in its AHP household, as applicable, for which the disbursement of AHP subsidies to the
implementation plan, to another AHP- subsidy was approved. member, the member undergoes an
eligible household to purchase or (3) Use of AHP subsidy. (i) Use of acquisition or a consolidation resulting
rehabilitate an owner-occupied unit in AHP subsidy by the member. The in a successor organization that is not a
member of the Bank, the nonmember enforceable retention agreement or (iii) Treatment of loan prepayment by
successor organization assumes the mechanism requiring that: project. If all or a portion of the loan or
member’s obligations under its (i) The project’s rental units, or loans financed by an AHP subsidized
approved application for AHP subsidy, applicable portion thereof, must remain advance are prepaid by the project to
and where the member received an AHP occupied by and affordable for the member, the member may, at its
subsidized advance, the nonmember households with incomes at or below option, either:
assumes such obligations until the levels committed to be served in the (A) Repay to the Bank that portion of
prepayment or orderly liquidation by approved AHP application for the the advance used to make the loan or
the nonmember of the subsidized duration of the retention period. loans to the project, and be subject to a
advance. (ii) The Bank or its designee is to be fee imposed by the Bank sufficient to
(7) Retention agreements for owner- given notice of any sale or refinancing compensate the Bank for any economic
occupied units. The member shall of the project occurring prior to the end loss the Bank experiences in reinvesting
ensure that an AHP-assisted owner- of the retention period. the repaid amount at a rate of return
occupied unit is subject to a deed (iii) In the case of a sale or refinancing below the cost of funds originally used
restriction or other legally enforceable of the project prior to the end of the by the Bank to calculate the interest rate
retention agreement or mechanism retention period, the full amount of the subsidy incorporated in the advance.
requiring that: AHP subsidy received by the owner (B) Continue to maintain the advance
(i) The Bank or its designee is to be shall be repaid to the Bank, unless: outstanding, subject to the Bank
given notice of any sale or refinancing (A) The project continues to be resetting the interest rate on that portion
of the unit occurring prior to the end of subject to a deed restriction or other of the advance used to make the loan or
the retention period. legally enforceable retention agreement loans to the project to a rate equal to the
(ii) In the case of a sale or refinancing or mechanism incorporating the cost of funds originally used by the
of the unit prior to the end of the income-eligibility and affordability Bank to calculate the interest rate
retention period, an amount equal to a restrictions committed to in the subsidy incorporated in the advance.
pro rata share of the AHP subsidy that approved AHP application for the (b) Agreements between Banks and
financed the purchase, construction, or duration of the retention period; or project sponsors and owners. A Bank
rehabilitation of the unit, reduced for shall have in place an agreement with
(B) The households are relocated to
every year the seller owned the unit, each project sponsor and project owner,
another property that is made subject to
shall be repaid to the Bank from any net in which the project sponsor and project
the terms of the approved AHP
gain realized upon the sale or owner agree to repay AHP subsidies
application as well as a deed restriction
refinancing, unless: directly to the Bank in accordance with
or other legally enforceable retention
(A) The unit was assisted with a the requirements of § 951.8(b)(2)(ii) (if
agreement or mechanism incorporating
permanent mortgage loan funded by an applicable).
the income-eligibility and affordability
AHP subsidized advance; (c) Application to existing AHP
restrictions committed to in the
(B) The unit is sold to a very low-, or projects. The requirements of section
approved AHP application, for the
low- or moderate-income household; or 10(j) of the Act (12 U.S.C. 1430(j)) and
(C) Following a refinancing, the unit remainder of the retention period.
the provisions of this part, as amended,
continues to be subject to a deed (iv) The income-eligibility and are incorporated into all agreements
restriction or other legally enforceable affordability restrictions applicable to between Banks, members, project
retention agreement or mechanism the project shall terminate after any sponsors, or project owners receiving
described in this paragraph (a)(7). foreclosure. AHP subsidies. To the extent the
(iii) In the case of a direct subsidy, (9) Lending of AHP direct subsidies. If requirements of this part are amended
such repayment of AHP subsidy shall be a member or a project sponsor lends from time to time, such agreements are
made: AHP direct subsidy to a project, any deemed to incorporate the amendments
(A) To the Bank. If the Bank has not repayments of principal and payments to conform to any new requirements of
authorized re-use of the repaid AHP of interest received by the member or this part. No amendment to this part
subsidy or has authorized re-use of the the project sponsor must be paid shall affect the legality of actions taken
repaid subsidy but not retention of such forthwith to the Bank, unless the direct prior to the effective date of such
repaid subsidy by the member or project subsidy is being lent by a revolving loan amendment.
sponsor, pursuant to § 951.8(f)(2), or has fund pursuant to § 951.5(c)(13).
authorized retention and re-use of such (10) Special provisions where § 951.10 Conflicts of interest.
repaid subsidy by the member or project members obtain AHP subsidized (a) Bank directors and employees. (1)
sponsor, pursuant to such section and advances. (i) Repayment schedule. The Each Bank’s board of directors shall
the repaid subsidy is not re-used in term of an AHP subsidized advance adopt a written policy providing that if
accordance with the requirements of the shall be no longer than the term of the a Bank director or employee, or such
Bank and such section. member’s loan to the project funded by person’s family member, has a financial
(B) To the member or project sponsor. the advance, and at least once in every interest in, or is a director, officer, or
To the member or project sponsor for re- 12-month period, the member shall be employee of an organization involved in
use by such member or project sponsor, scheduled to make a principal a project that is the subject of a pending
if the Bank has authorized retention and repayment to the Bank equal to the or approved AHP application, the Bank
re-use of such subsidy by the member or amount scheduled to be repaid to the director or employee shall not
project sponsor pursuant to § 951.8(f)(2). member on its loan to the project in that participate in or attempt to influence
(iv) The obligation to repay AHP period. decisions by the Bank regarding the
subsidy to the Bank shall terminate after (ii) Prepayment fees. Upon a evaluation, approval, funding,
any foreclosure. prepayment of an AHP subsidized monitoring, or any remedial process for
(8) Retention agreements for rental advance, the Bank shall charge a such project.
projects. The member shall ensure that prepayment fee only to the extent the (2) If a Bank director or employee, or
an AHP-assisted rental project is subject Bank suffers an economic loss from the such person’s family member, has a
to a deed restriction or other legally prepayment. financial interest in, or is a director,
officer, or employee of an organization § 951.11 Temporary suspension of AHP by the Bank during the following year,
involved in an AHP project such that he contributions. and any remaining portion shall be
or she is subject to the requirements in (a) Request to Finance Board. If a deposited in the Affordable Housing
paragraph (a)(1) of this section, such Bank finds that the contributions Reserve Fund.
person shall not participate in or required pursuant to § 951.2 are (b) Use or commitment of funds.
attempt to influence decisions by the contributing to the financial instability Approval of applications for AHP
Bank regarding the evaluation, approval, of the Bank, the Bank may apply in subsidies from members sufficient to
funding, monitoring, or any remedial writing to the Finance Board for a exhaust the amount a Bank is required
temporary suspension of such to contribute pursuant to § 951.2(a) shall
process for such project.
contributions. constitute use or commitment of funds.
(b) Advisory Council members. (1) (b) Board of Directors review. (1) In Amounts remaining unused or
Each Bank’s board of directors shall determining the financial instability of a
uncommitted at year-end are deemed to
adopt a written policy providing that if Bank, the Board of Directors shall
be used or committed if, in combination
an Advisory Council member, or such consider such factors as:
(i) Severely depressed Bank earnings; with AHP subsidies that have been
person’s family member, has a financial returned to the Bank or de-committed
interest in, or is a director, officer, or (ii) A substantial decline in Bank
membership capital; and from canceled projects, they are
employee of an organization involved in insufficient to fund:
a project that is the subject of a pending (iii) A substantial reduction in Bank
advances outstanding. (1) The next highest scoring AHP
or approved AHP application, the (2) Limitations on grounds for application in the Bank’s final funding
Advisory Council member shall not suspension. The Board of Directors shall period of the year for its competitive
participate in or attempt to influence not suspend a Bank’s annual AHP application program;
decisions by the Bank regarding the contributions if it determines that the (2) Pending applications for funds
approval for such project. Bank’s reduction in earnings is due to: under the Bank’s homeownership set-
(2) If an Advisory Council member, or (i) A change in the terms of advances aside programs; and
such person’s family member, has a to members that is not justified by
(3) Project modifications approved by
financial interest in, or is a director, market conditions;
(ii) Inordinate operating and the Bank pursuant to the requirements
officer or employee of an organization of this part.
involved in an AHP project such that he administrative expenses; or
(iii) Mismanagement. (c) Carryover of insufficient amounts.
or she is subject to the requirements in Such insufficient amounts as described
paragraph (b)(1) of this section, such § 951.12 Affordable Housing Reserve in paragraph (b) of this section shall be
person shall not participate in or Fund.
carried over for use or commitment in
attempt to influence decisions by the (a) Deposits. If a Bank fails to use or the following year in the Bank’s
Bank regarding the approval for such commit the full amount it is required to competitive application program or
project. contribute to the Program in any year homeownership set-aside programs.
(c) No delegation. A Bank’s board of pursuant to § 951.2(a), 90 percent of the
unused or uncommitted amount shall be Dated: December 14, 2005.
directors shall not delegate to Bank By the Board of Directors of the Federal
deposited by the Bank in an Affordable
officers or other Bank employees the Housing Finance Board.
Housing Reserve Fund established and
responsibility to adopt the conflict of administered by the Finance Board. The Ronald A. Rosenfeld,
interest policies required by this remaining 10 percent of the unused and Chairman.
section. uncommitted amount retained by the [FR Doc. 05–24396 Filed 12–27–05; 8:45 am]
Bank should be fully used or committed BILLING CODE 6725–01–P

Proposed Rule: Affordable Housing Program Amendments

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Proposed Rule: Affordable Housing Program Amendments

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December 28, 2005

provisions in the regulation that would

projects with services or more common

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