Federal Register: September 19, 2002 (Volume 67, Number 182)
DOCID: FR Doc 02-23823
FEDERAL HOUSING FINANCE BOARD
Federal Housing Finance Board
CFR Citation: 12 CFR Part 951
RIN ID: RIN 3069-AB16
DOCUMENT ID: [No. 2002-52]
NOTICE: RULES
DOCUMENT ACTION: Final rule.
SUBJECT CATEGORY:
Affordable Housing Program Amendments
EFFECTIVE DATES: The final rule shall be effective on October 21, 2002.
DOCUMENT SUMMARY:
The Federal Housing Finance Board (Finance Board) is amending
its regulation governing the operation of the Affordable Housing
Program (AHP) to authorize a Federal Home Loan Bank (Bank), after
consultation with its Advisory Council, to set aside annually an
additional amount, up to the greater of $1.5 million or 10 percent of
the Bank's annual required AHP contribution, to assist low or
moderateincome, firsttime homebuyers under the Bank's homeownership setaside program. This increased discretionary
[[Page 58979]]
funding authority supplements the Banks' current discretionary
authority to fund homeownership setaside programs subject to the $3.0
million or 25 percent allocation cap. The Finance Board also is
amending the regulation to increase the maximum subsidy limit per
household to $15,000 for homeownership setaside programs in general.
Under the Banks' AHP contribution requirement for 2002, the increased
funding authority will enable the twelve Banks to provide an additional
$24.0 million to assist 1,600 to 4,800 additional low or moderate
income, firsttime homebuyers. This additional setaside funding
authority complements national housing policy initiatives to broaden
firsttime homeownership, especially among minority and immigrant
households and households living in rural areas and on Native American
tribal lands.
SUMMARY:
Affordable Housing Program; amendments,
SUPPLEMENTAL INFORMATION
I. Statutory and Regulatory Background
Section 10(j)(1) of the Federal Home Loan Bank Act (Bank Act) requires each Bank to establish a program to subsidize the interest rate on advances to members of the Bank System engaged in lending for longterm, low and moderateincome, owneroccupied and affordable rental housing at subsidized interest rates. See 12 U.S.C. 1430(j)(1). The Finance Board is required to promulgate regulations governing the AHP. See id. The Finance Board's existing regulation governing the operation of the AHP is codified at 12 CFR part 951.
On June 20, 2002, the Finance Board published a proposed rule requesting comment on proposed amendments to the AHP regulation that would authorize a Bank, after consultation with its Advisory Council, to set aside annually an additional amount, up to the greater of $1.5 million or 10 percent of the Bank's annual required AHP contribution, to assist low or moderateincome, firsttime homebuyers (firsttime homebuyer setaside program), under the Bank's homeownership setaside program. See 67 FR 41872 (June 20, 2002). The proposed rule provided for a 60day comment period, which closed on August 19, 2002. The Finance Board received seven comment letters on the proposed rule. Commenters included: two Banks; one Bank member; three trade associations; and one nonprofit housing developer. Comments that raised issues beyond the scope of the proposed rule are not addressed in this final rule, but may be considered by the Finance Board in any future rulemaking under the AHP. The provisions of the proposed rule on which significant comments were received are discussed below.
II. Goal to Broaden Homeownership
It is widely recognized that homeownership contributes to community
stability and upward mobility of homeowners. A key goal of national
housing policy is to broaden homeownership, especially among minority
and immigrant households and households living in rural areas and on
Native American tribal lands. Based on 2000 Census data, the
homeownership rate is approximately 66.3 percent nationwide.\1\ The
homeownership rate for all minority groups is 48.6 percent, compared to
72.4 percent for nonminorities. The homeownership rate for immigrant
households is 47 percent. According to data of the Department of
Housing and Urban Development (HUD), in fiscal year 2001, 45.1 percent
of Federal Housing Administration (FHA) loans to firsttime homebuyers
with incomes at or below 80 percent of area median income were to members of minority groups.
\1\ According to the United States Department of Commerce, U.S
Census Bureau Housing Vacancies and Homeownership Survey, the fourth
quarter 2001 national homeownership rate was approximately 67.8 percent.
To achieve this goal of broadening homeownership, a number of initiatives for assistance to firsttime homebuyers have been proposed or implemented, including: the SelfHelp Homeownership Opportunity Program (SHOP); the Section 8 Homeownership Program vouchers; the HOME American Dream Downpayment Fund; and a new FHA hybrid adjustablerate mortgage for low or moderateincome homebuyers. HUD and state and local housing authorities also are seeking to assist households in achieving homeownership through Family SelfSufficiency (FSS) and Individual Development Account (IDA) savings programs. Two of the Banks currently use part or all of their homeownership setaside funding authority to supplement the savings of households participating in FSS and IDA programs.
The Finance Board believes that, in addition to the Banks' current authority to set aside AHP funds for homeownership assistance, authorizing a Bank to set aside annually up to the greater of $1.5 million or 10 percent of its annual required AHP contribution to assist low or moderateincome, firsttime homebuyers would complement these initiatives to broaden homeownership, especially among minority and immigrant households and households living in rural areas and on tribal lands. An increase in AHP subsidy of 10 percentage points for all twelve Banks would increase the total amount of potential funds available from the twelve Banks for downpayment and closing cost assistance to low or moderateincome, firsttime homebuyers by $24.0 million in 2002.\2\ With an increase in the maximum subsidy limit per household to $15,000, this could assist 1,600 to 4,800 additional low or moderateincome, firsttime homebuyers. According to a recent study in the 2001 Annual Report of the Federal Reserve Bank of Minneapolis, cash assistance has a greater effect than other options on the ability of renters to afford to purchase a home. According to the report, a $5,000 cash grant for downpayment assistance increases the number of minority renters who can afford to purchase a home by as much as 13 percent, while a $10,000 cash grant has nearly twice the effect. \2\ The total required AHP contribution of the twelve Banks in 2002 is $240 million. See 12 U.S.C. 1430(j)(5)(C).
The changes to the AHP regulation are discussed further below under the Analysis of Final Rule section.
III. Analysis of Final Rule
A. Current AHP Homeownership SetAside Program Authority
The current AHP regulation requires each of the twelve Banks to
operate a competitive application program in its district for the
awarding of AHP grants or subsidized advances to members to assist in
the purchase, construction or rehabilitation of housing for very low
and low or moderateincome households. See 12 CFR 951.3(a)(2),
951.5(b), 951.6(b). In addition, the AHP regulation authorizes each
Bank, in its discretion, after consultation with its Advisory Council,
to adopt homeownership setaside programs for the disbursement of AHP
grants to members to assist low or moderateincome households with the purchase or rehabilitation of owneroccupied
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housing units. See 12 CFR 951.3(a), 951.5(a), 951.6(a). ``Low or
moderateincome households'' are defined generally as households with
incomes of 80 percent or less of the median income for the area. See 12
CFR 951.1. Specifically, each Bank, after consultation with its
Advisory Council, may set aside annually, in the aggregate, up to the
greater of $3.0 million or 25 percent of its annual required AHP
contribution to provide funds to members participating in homeownership
setaside programs at the Bank. 12 CFR 951.3(a)(1). In addition, in
cases where the amount of homeownership setaside funds applied for by
members in a given year exceeds the amount available for that year, a
Bank may allocate up to the greater of $3.0 million or 25 percent of
its annual required AHP contribution for the subsequent year to the
current year's homeownership setaside programs. 12 CFR 951.3(a)(1).
The AHP regulation provides that households must use the homeownership setaside grants to pay for downpayment, closing cost, counseling, or rehabilitation assistance in connection with the household's purchase or rehabilitation of an owneroccupied housing unit. See 12 CFR 951.5(a)(4). The AHP regulation also provides that households must complete a homebuyer or homeowner counseling program, and must meet such other allocation and eligibility criteria as may be established by the Bank, such as a matching funds requirement or criteria that give priority for the purchase or rehabilitation of housing in particular areas or as part of a disaster relief effort. See 12 CFR 951.5(a)(1), (2)(ii) and (iii). The Banks have used this authority over the years to adopt a variety of different eligibility requirements and priorities under their homeownership setaside programs. In addition, a housing unit purchased or rehabilitated using homeownership setaside funds must be subject to a fiveyear retention agreement requiring that if the unit is sold to an incomeineligible household or refinanced prior to the end of the fiveyear retention period and is no longer subject to a deed restriction, a pro rata share of the subsidy shall be repaid to the Bank. See 12 CFR 951.5(a)(5), 951.13(d)(1).
B. Amendments to the Regulation
For the reasons discussed above, the Finance Board believes that increasing the Banks' current maximum allowable annual homeownership setaside amount, with the incremental increase targeted to low or moderateincome, firsttime homebuyers, would assist the national housing policy goal of broadening homeownership, including homeownership among minority and immigrant groups and households living in rural areas and on tribal lands. Commenters on the proposed rule generally supported this increased discretionary funding authority. A trade association commenter recommended that the proposed incremental setaside increase of 10 percent of a Bank's annual required AHP contribution should be used only for eligible households buying newly constructed or substantially rehabilitated housing. The commenter stated that new construction technologies result in lower maintenance and energy costs than those associated with older homes. Although the Finance Board agrees that there can be potential benefits of new technologies in terms of longterm operating costs, the Finance Board's objective is to make the purchase of the unit more affordable, whether the housing is new or not. Moreover, the Finance Board does not believe that the AHP should contain requirements that restrict a household's ability to choose its housing under the homeownership setaside program.
Accordingly, consistent with the proposed rule, Sec. 951.3(a)(1)(ii) of the final rule authorizes a Bank, after consultation with its Advisory Council, to set aside annually an additional amount, up to the greater of $1.5 million or 10 percent of its annual required AHP contribution, to assist low or moderateincome, firsttime homebuyers. Section 951.3(a)(1)(ii) also authorizes a Bank, in cases where the amount of funds applied for by members in a given year under the firsttime homebuyer setaside program exceeds the amount available for that year, to set aside an additional amount, up to the greater of $1.5 million or 10 percent of its annual required AHP contribution for the subsequent year, to the current year's firsttime homebuyer set aside program. The increased discretionary funding authority will supplement the Banks' current discretionary authority to fund homeownership setaside programs subject to the existing $3.0 million or 25 percent allocation cap. Consistent with the proposed rule, the final rule also makes a technical amendment to require that the Consumer Price Index (CPI) adjustments of the maximum dollar limits be made beginning in 2003 instead of 2002.
Under the existing AHP regulation, prior to disbursement of homeownership setaside funds by a Bank to a member, the Bank must require the member to certify that, among other things, the funds received from the Bank will be provided to a household meeting the eligibility requirements of Sec. 951.5(a)(2). See 12 CFR 951.8(b)(2). Consistent with the proposed rule, the final rule amends Sec. 951.5(a)(2)(iii) to include the firsttime homebuyer requirement as an eligibility requirement under the firsttime homebuyer setaside program. Therefore, a member is required to certify that funds to be disbursed to households under the firsttime homebuyer setaside program will be provided to eligible firsttime homebuyers. Consistent with the current AHP regulation, the final rule does not define the term ``firsttime homebuyer,'' leaving such determination to the discretion of each Bank, as set forth in its AHP Implementation Plan.
The increased funding authority entails use of the Banks' existing setaside program operations, thereby minimizing additional administrative costs on the Banks, and does not affect the Banks' and Advisory Councils' current discretionary authority regarding funding and operation of existing or new setaside programs under the $3.0 million or 25 percent allocation cap. Thus, the Banks, in consultation with their Advisory Councils, may continue their existing setaside programs, and have the flexibility to adopt new setaside programs based on local needs, subject to the current $3.0 million or 25 percent allocation cap. A determination on whether to use the increased funding authority is in the discretion of each Bank, after consultation with its Advisory Council. However, if a decision is made to use the increased funding authority, such increased funding must be targeted to low or moderateincome, firsttime homebuyers, subject to any additional eligibility criteria adopted by the Bank, in its discretion, for the program. See 12 CFR 951.5(a)(2)(iii). A Bank could, of course, choose, in its discretion, to also target some or all of its existing or new setaside programs operating under the current $3.0 million or 25 percent allocation cap to low or moderateincome, firsttime homebuyers, as some Banks do now.
The Banks' homeownership setaside programs have proven to be an
efficient and effective means for the Banks and their members to
provide homeownership opportunities for low or moderateincome
homebuyers, including firsttime homebuyers. Homeownership setaside
funds help finance affordable housing in underserved areas and for underserved households, and often are the only way
[[Page 58981]]
to effectively meet scatteredsite, affordable housing needs in rural
areas or tribal areas, which have difficulty scoring well under the
competitive AHP application program and where rental projects are not
feasible. Homeownership setaside programs also allow a member to use
AHP funds to finance housing for individual eligible households on an
asneeded basis, even if it is only for one household in the member's
market area. These are households that the competitive AHP application program might not otherwise reach.
In addition, homeownership setaside funds often are the only way to meet the need for homeownership opportunities for lowincome and very lowincome households, which require larger perunit subsidies and, therefore, may not score well under the competitive AHP application program. Setaside funds could be made available, in conjunction with funds offered by other homeownership programs, to assist households purchasing homes under such programs. Many households that meet the eligibility requirements of HUD and FSS and IDA homeownership programs may still have difficulty meeting the financial demands of homeownership. Providing additional setaside funds as downpayment assistance could help lower housing costs to a level that will improve the chances of successful homeownership for such households.
The current AHP regulation requires members to provide homeownership setaside funds as a grant, in an amount up to a maximum of $10,000 per household, as established by the Bank, with such limit applying to all households. See 12 CFR 951.5(a)(3). In the SUPPLEMENTARY INFORMATION section of the proposed rule, the Finance Board raised the question whether this $10,000 limit per household may impede the ability of Banks and members to assist eligible households that have lower incomes or live in high cost areas and that may require larger perunit subsidies in the purchase or rehabilitation of homes. The Finance Board requested comment on whether the regulation should be amended to increase the maximum subsidy limit per household and the amount of such limit, or whether the Banks should be provided the authority to determine, in their discretion, whether to adopt a maximum subsidy limit per household and the amount of any such limit.
Two trade association commenters supported providing the Banks the discretionary authority to adopt maximum subsidy limits per household and the amount of such limits, with one commenter noting that housing and rehabilitation costs can vary significantly by geographic area and the needs of homebuyers can differ significantly within the low or moderateincome targeting range. While most of the Banks have adopted subsidy perhousehold limits below the maximum authorized by the current regulation, several Banks have suggested that the current maximum subsidy limit per household prevents the homeownership set aside program from being an effective tool in helping to make homeownership affordable for the working poor and for households in areas where housing costs are exceptionally high. The Finance Board recognizes that there is a need for additional flexibility in the maximum subsidy limit. Accordingly, the Finance Board is amending Sec. 951.5(a)(3) of the regulation to increase the maximum grant that a Bank is authorized to make under its homeownership setaside programs in general, from $10,000 per household to $15,000 per household.
The member commenter also recommended that the Banks be permitted to pay fees, such as $500 per loan closing, to nonprofit organizations for the administration of the program. Use of homeownership setaside funds by nonprofit organizations for administrative fees would not be an eligible use of AHP subsidies under the Bank Act and AHP regulation. See 12 U.S.C. 1430(j)(2), 12 CFR 951.5(a)(4). Therefore, this suggestion has not been adopted in the final rule.
IV. Paperwork Reduction Act
The final rule does not contain any collections of information pursuant to the Paperwork Reduction Act of 1995. See 44 U.S.C. 3501 et seq. Therefore, the Finance Board has not submitted any information to the Office of Management and Budget for review.
V. Regulatory Flexibility Act
The final rule applies only to the Banks, which do not come within the meaning of ``small entities,'' as defined in the Regulatory Flexibility Act (RFA). See 5 U.S.C. 601(6). Thus, in accordance with section 605(b) of the RFA, 5 U.S.C. 605(b), the Finance Board hereby certifies that the final rule will not have a significant economic impact on a substantial number of small entities.
List of Subjects in 12 CFR Part 951
Community development, Credit, Federal home loan banks, Housing, Reporting and recordkeeping requirements.
Accordingly, the Finance Board hereby amends part 951, title 12, chapter IX, Code of Federal Regulations, as follows:
PART 951AFFORDABLE HOUSING PROGRAM
1. The authority citation for part 951 continues to read as follows:
Authority: 12 U.S.C. 1430(j).
2. Revise Sec. 951.3(a)(1) to read as follows:
Sec. 951.3 Operation of Program and adoption of AHP implementation plan.
(a) Allocation of AHP contributions(1) Homeownership setaside
programs. (i) Homeownership setaside programs subject to $3.0 million
or 25 percent cap. Each Bank, after consultation with its Advisory
Council, and pursuant to written policies adopted by the Bank's board
of directors, may set aside annually, in the aggregate, up to the
greater of $3.0 million or 25 percent of its annual required AHP
contribution to provide funds to members participating in the Bank's
homeownership setaside programs, pursuant to the requirements of this
part. In cases where the amount of homeownership setaside funds
applied for by members in a given year exceeds the amount available for
that year, a Bank may allocate up to the greater of $3.0 million or 25
percent of its annual required AHP contribution for the subsequent year
to the current year's homeownership setaside programs pursuant to
written policies adopted by the Bank's board of directors. A Bank may
establish one or more homeownership setaside programs pursuant to written policies adopted by the Bank's board of directors.
(ii) Additional firsttime homebuyer setaside program subject to
$1.5 million or 10 percent cap. In addition to the authority provided
under paragraph (a)(1)(i) of this section, each Bank, after
consultation with its Advisory Council, and pursuant to written
policies adopted by the Bank's board of directors, may set aside
annually up to the greater of $1.5 million or 10 percent of its annual
required AHP contribution to provide funds to members participating in
a Bank homeownership setaside program to assist firsttime homebuyers,
pursuant to the requirements of this part. In cases where the amount of
homeownership setaside funds applied for by members in a given year
under such a program exceeds the amount available for that year, a Bank
may allocate up to the greater of $1.5 million or 10 percent of its
annual required AHP contribution for the subsequent year to the current year's program pursuant to written policies
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adopted by the Bank's board of directors.
(iii) Requirements applicable to all homeownership setaside
programs. Beginning in 2003 and for subsequent years, the maximum
dollar limits set forth in paragraphs (a)(1)(i) and (a)(1)(ii) of this
section shall be adjusted annually by the Finance Board to reflect any
percentage increase in the preceding year's Consumer Price Index (CPI)
for all urban consumers, as published by the Department of Labor. Each
year, as soon as practicable after the publication of the previous
year's CPI, the Finance Board shall publish notice by Federal Register,
distribution of a memorandum, or otherwise, of the CPIadjusted limits
on the maximum setaside dollar amount. A Bank's board of directors
shall not delegate to Bank officers or other Bank employees the
responsibility for adopting its homeownership setaside program policies.
* * * * *
3. Amend Sec. 951.5 by:
a. Revising paragraph (a)(2)(iii); and
b. In paragraph (a)(3), removing the term ``$10,000'' and adding, in its place, the term ``$15,000'', to read as follows:
Sec. 951.5 Minimum eligibility standards for AHP projects. (a) * * *
(2) * * *
(iii) Meet the firsttime homebuyer requirement, in the case of
households receiving funds pursuant to a firsttime homebuyer setaside
program established pursuant to Sec. 951.3(a)(1)(ii), and meet such
other eligibility criteria that may be established by the Bank, such as
a matching funds requirement or criteria that give priority for the
purchase or rehabilitation of housing in particular areas or as part of
a disaster relief effort, in the case of households receiving funds
pursuant to homeownership setaside programs established pursuant to Sec. 951.3(a)(1)(i) or (ii);
* * * * *
Dated: September 12, 2002.
By the Board of Directors of the Federal Housing Finance Board. John T. Korsmo,
Chairman.
[FR Doc. 0223823 Filed 91802; 8:45 am]
BILLING CODE 672501P
FOR FURTHER INFORMATION CONTACT
Charles E. McLean, Associate Director, (202) 4082537, Melissa L. Allen, Program Analyst, (202) 4082524, Community Investment and Affordable Housing, Office of Supervision; Sylvia C. Martinez, Policy Analyst, (202) 4082825, Strategic and System Research, Office of Supervision; Sharon B. Like, Senior AttorneyAdvisor, (202) 4082930, Office of General Counsel, Federal Housing Finance Board, 1777 F Street, NW, Washington, DC 20006.