Federal Register: December 28, 2005 (Volume 70, Number 248)
DOCID: FR Doc 05-24396
FEDERAL HOUSING FINANCE BOARD
Veterans Affairs Department
CFR Citation: 12 CFR Part 951
RIN ID: RIN 3069-AB26
DOCUMENT ID: [No. 2005-23]
NOTICE: Part III
DOCUMENT ACTION: Proposed rule.
SUBJECT CATEGORY:
Affordable Housing Program Amendments
DATES: The Finance Board will accept written comments on the proposed rule that are received on or before April 27, 2006.
DOCUMENT SUMMARY:
The Federal Housing Finance Board (Finance Board) is proposing to amend its Affordable Housing Program regulation to remove prescriptive requirements, clarify certain operational requirements, remove certain authorities, and otherwise streamline and reorganize the regulation.
SUMMARY:
Federal Housing Finance Board,
SUPPLEMENTAL INFORMATION
I. Background
Section 10(j)(1) of the Federal Home Loan Bank Act (Bank Act) requires each Federal Home Loan Bank (Bank) to establish an affordable housing program (AHP), the purpose of which is to enable Bank members to provide subsidized financing for longterm, low and moderate income, owneroccupied and affordable rental housing. See 12 U.S.C. 1430(j)(1). The AHP has played an important role in allowing the Banks to support their members' efforts to meet the housing needs of their communities. Although the AHP is a shallow subsidy program, its strength lies in its capacity to leverage additional public and private resources for housing. Since the inception of the program in 1990, the Banks have awarded more than $2 billion in AHP subsidies to assist nearly 437,000 housing units. Seventy percent of the units receiving AHP subsidies were for very lowincome households. AHP subsidies have proven to be useful in financing projects that present underwriting challenges, such as projects for the homeless and special needs populations, which may include persons with disabilities and the elderly. The AHP also has been used effectively with LowIncome Housing Tax Credits (LIHTC or tax credits) by filling financing gaps, thereby enabling a larger percentage of very lowincome households to be served.
The AHP also serves as an important resource for low or moderate income homeowners and firsttime homebuyers. From 1990 through 2004, the program has assisted in the financing of 102,810 owneroccupied units under the Banks' competitive application programs, and 47,813 units under their homeownership setaside programs. Some of the units address specific housing needs, such as expanding homeownership opportunities for underserved households.
The Finance Board has promulgated regulations implementing these
provisions of the Bank Act, which are codified at 12 CFR part 951.
These regulations generally have reflected a prescriptive approach,
which was appropriate for rules implementing a newly created program.
As the program has matured, however, the Finance Board has revised the
AHP regulations a number of times, in part to provide greater
responsibility to the Banks in managing the program and in part to
implement improvements based on lessons learned in overseeing the
operation of the program. The Finance Board believes, based in part on
its review of the AHP on a Bank System level conducted in 20032005,
Report of the Horizontal Review of the Affordable Housing Programs of
the Federal Home Loan Banks (March 15, 2005) (Horizontal Review), that
there are a number of areas in which the regulation can be further revised to enhance the success of the program.\1\
\1\ The Horizontal Review is available on the Housing Programs
page of the Finance Board's Web site: http://www.fhfb.gov/Default.aspx?Page=47 .
In proposing these amendments, the Finance Board intends to address
seven principal factors. First, additional definitions would be
incorporated into the regulation at Sec. 951.1. These definitions
would serve to establish the precise use of key terms that are included
in the regulation. Second, the proposal would reorganize the regulatory
text so that operational provisions relating to the competitive
application program and the homeownership setaside program,
respectively, would be fully contained within separate sections of the
regulation. Proposed Sec. 951.5 would address the competitive
application program, while Sec. 951.6 would address the homeownership
setaside program. The proposed reorganization is intended to make it
easier for program sponsors and other interested parties to understand
the operation of the competitive application and homeownership set
aside programs. Third, the use of AHP subsidy by loan pools and
revolving loan funds would be permitted under the competitive
application program, at the discretion of the particular Bank. This
proposed change is intended to expand the range of eligible means of
supporting affordable housing through the program. Fourth, restrictions
on the use of AHP funds by projects located outside a Bank's district
and scoring preferences for indistrict projects, which the current
regulation permits at the Bank's discretion, would no longer be
permissible. This proposed change is in response to the expansion of
interstate banking among Bank member institutions, which has resulted
in many members serving markets outside a Bank's district boundaries.
Fifth, provisions in the current regulation that allow a Bank to
accelerate AHP contributions from the following year into the current
year would be deleted. The Banks have not often used this authority,
and it also may present some operational difficulties. Sixth,
provisions in the regulation that would increase annually the maximum allowable dollar amount of a Bank's
[[Page 76939]]
allocation to its homeownership setaside program and maximum allowable
dollar acceleration amount under a Bank's competitive application
program, based on the annual inflation rate, would be deleted. This
change would address the potential for inflation to increase the
allocation of AHP contributions to the homeownership setaside program
relative to the competitive application program. Finally, prescriptive
monitoring requirements in the current regulation, which detail
specific monitoring and control processes with which a Bank must
comply, would be replaced by standards based on required outcomes
rather than prescribed control processes. The Finance Board invites comments on all aspects of the proposed rule.
II. Analysis of the Proposed Rule
A. Definitions: Proposed Sec. 951.1
The proposed rule would revise certain of the existing AHP definitions and would define a number of other terms that are used throughout the regulation. See 12 CFR 951.1. Proposed new definitions are discussed in the context of specific regulatory requirements. The more substantive changes are described below.
Affordable. The existing definition would be revised by adding a reference, consistent with the AHP statutory term, to ``rent charged to a household,'' which would be defined to mean the rent that is actually paid by the household occupying the unit. See 12 U.S.C. 1430(j)(13)(D). The existing regulatory language may not be clear on this point and could be read to mean the amount of rent charged by the owner for the unit, which would be greater than the rent actually paid by the occupants if the occupants receive financial assistance for rent payments from other sources.
The proposed rule also would add a new paragraph (2), which would address units that are subsidized with lowincome housing assistance under the Department of Housing and Urban Development (HUD) Section 8 program. See 42 U.S.C. 1437f. This provision is intended to clarify that rents charged to a household under a Section 8 agreement will be deemed to be ``affordable'' for AHP purposes, even if the rent increases after initial occupancy, if the rent met the AHP definition of ``affordable'' upon initial household occupancy and thereafter has continued to comply with the Section 8 agreement for that household. This provision would be applicable for purposes of the annual adjustment of targeting commitments after initial occupancy under proposed Sec. 951.7(a)(3) (which is redesignated from current Sec. Sec. 951.10(d) and 951.11(b)).
AHP project. The proposed rule would add a new definition, which would apply to both owneroccupied and rental projects that have been awarded or have received AHP subsidy through the competitive application program. This is intended to codify existing practice and clarify that the term ``project'' does not apply to direct subsidies, i.e., grants, to households made pursuant to the homeownership set aside program. The term would apply to both singlefamily and multifamily projects. The proposed rule also would make conforming changes to the definitions of ``owneroccupied project'' and ``rental project.''
Low or moderateincome household and very lowincome household. The existing regulation defines ``low or moderateincome household'' to mean a household that has an income of 80 percent or less of the median income for the area, with the income limit adjusted for family (i.e., household) size, in a Bank's discretion, in accordance with the methodology of the applicable median income standard. The proposed rule would amend the householdsize adjustment provisions in paragraph (3) of the existing definition of ``low or moderateincome household'' and (and similarly for the definition of ``very lowincome household'') by changing the householdsize adjustment from an optional to a mandatory requirement, provided that if the source for the area median income data has no methodology to adjust the household income limit for household size, the Bank is not required to make such an adjustment. This change would bring the AHP into conformance with other federal programs that adjust for household size.
As further discussed below, the proposed rule would relocate certain provisions of the existing definitions relating to when a household's income must be determined, to proposed Sec. Sec. 951.5(c)(1) and 951.6(c)(2)(i) for the competitive application program and the homeownership setaside program, respectively.
Median income for the area. The existing definition lists a number of median income standards that a Bank may adopt for purposes of determining household income eligibility. The regulation also provides that a Bank may request Finance Board approval of a median income for any definable geographic area, as published by a federal, state, or local government entity for purposes of that entity's housing programs. The proposed rule would remove the language ``for purposes of that entity's housing programs.'' This would enable the Finance Board to approve, upon a Bank's request, median income standards from sources, such as the Census Bureau, that publish median income data but do not have their own housing programs.
Owneroccupied project and rental project. The proposed rule would
amend the existing definitions by clarifying that they apply only to
the competitive application program and by deleting language requiring the project to involve ``the purchase, construction, or
rehabilitation'' of owneroccupied housing or rental housing,
respectively. That requirement would be relocated to the provisions
addressing the eligibility requirements for the use of AHP subsidy, at
proposed Sec. 951.5(c)(1)(i) and (ii). The proposed rule also would
add manufactured housing to the types of owneroccupied housing and
emergency shelters and singleroom occupancy (SRO) housing as types of
rental housing, which are explicitly referenced in the rule.
Retention period. The proposed rule would amend the existing definition to clarify that, in the case of rehabilitated units that currently are occupied by the owner and do not involve a closing, the retention period would commence on the date of completion of the rehabilitation.
Sponsor. The proposed rule would amend the existing definition by
authorizing a Bank to define certain terms in its AHP Implementation
Plan and by adding 2 entities to the definition. The terms ``ownership
interest'' and ``integrally involved'' are key terms in the existing
definition of ``sponsor.'' The proposed rule would retain those terms
but would require each Bank to define what they mean in its AHP
Implementation Plan. Under the existing definition, a Bank must
consider a ``sponsor'' to include any entity that has an ownership
interest in a rental project, regardless of how small or temporary such
ownership interest is. Requiring a Bank to define ``ownership
interest'' in its AHP Implementation Plan would allow it to address
concerns that some rental projects may manipulate ownership interests
in order to receive points as notforprofit sponsors under the
competitive application program's scoring system. The proposed rule
also would expand the definition to include revolving loan funds or
entities that establish loan pools. Those terms would be used for
purposes of implementing proposed amendments to the competitive application program rules, which would
[[Page 76940]]
deal with revolving loan funds and loan pools, respectively.
Subsidy. The proposed rule would revise the existing definition,
principally by deleting the provisions that specify the dates as of
which the amount of the subsidy is to be determined. The substance of
those provisions would be incorporated into the section that sets forth
the eligibility requirements relating to the competitive application
program, at proposed Sec. 951.5(c)(12). The proposed rule also would
remove the term ``homeownership setaside funds'' from the definition
of ``subsidy'' because they are direct subsidies, which are included within the definition of ``subsidy.''
B. Required Annual AHP Contributions; Allocation of Contributions: Proposed Sec. 951.2
Annual AHP contributions: Proposed Sec. 951.2(a). Under the Bank Act, each Bank annually must contribute to its AHP an amount equal to the greater of 10 percent of the Bank's previous year's net income or such prorated amount as is required to assure that the aggregate contribution of the 12 Banks is no less than $100 million. 12 U.S.C. 1430(j)(5)(C). In recent years, the Banks have not used the pro rata allocation method because the annual contributions based on the 10 percent of income formula have exceeded $100 million. Nonetheless, proposed Sec. 951.2(a)(2) would revise the existing provisions to clarify that if the pro rata formula were to be used in any future year, the required annual contribution for any Bank could not exceed its net earnings for the previous year. This is primarily intended as a safety and soundness measure to avoid the possibility that a Bank might otherwise be required to contribute an amount in excess of its income, thereby reducing its regulatory capital.
Net earnings of a Bank. Proposed Sec. 951.1 would revise the existing definition to clarify existing practice with respect to how a Bank's earnings are determined for purposes of calculating its required AHP contribution. See 12 CFR 951.1. Pursuant to registration of its equity securities with the Securities and Exchange Commission (SEC), each Bank must present its financial statements in its SEC filings in accordance with Generally Accepted Accounting Principles in the United States (GAAP). The application of Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS 150), to the Banks requires them to categorize capital stock subject to a mandatory redemption request as a liability on the statement of condition and requires that they treat the dividends on capital stock subject to a mandatory redemption request as interest expense. The Bank Act provisions related to the AHP provide that each Bank shall make an annual contribution equal to 10 percent of its net earnings for the previous year after reduction for any payment required under 12 U.S.C. 1441b (regarding the Resolution Funding Corporation) and before declaring any dividend. 12 U.S.C. 1430(j)(8). Because the Bank Act requires that the AHP contribution be calculated before the declaration of dividends, net earnings for purposes of calculating the AHP contribution should not be reduced by any dividend declaration, including those associated with mandatorilyredeemable stock, even though those dividends may be treated as interest expense in the calculation of GAAP net income.
Allocation of contributions: Proposed Sec. 951.2(b). The proposed rule would relocate the allocation of contributions provisions for the competitive application program and homeownership setaside program in existing Sec. 951.3(a) to proposed Sec. 951.2(b), as they relate to the requirements for AHP contributions, which are set forth in proposed Sec. 951.2.
Homeownership setaside allocation: Proposed Sec. 951.2(b)(2). AHP subsidies are disbursed through a Bank's competitive application program and its homeownership setaside program. Under the existing rules, a Bank may set aside annually up to the greater of $3 million or 25 percent of its annual required AHP contribution to provide funds to members through its homeownership setaside programs. See 12 CFR 951.3(a)(1)(i). If member demand in a given year exceeds the AHP subsidy amount available for that year, a Bank may accelerate or ``borrow'' additional amounts from the following year's AHP contribution, up to the greater of $3 million or 25 percent of the Bank's projected contribution for the following year, to the current year's setaside program.
In addition to those amounts, a Bank may set aside annually up to
the greater of $1.5 million or 10 percent of its annual required AHP
contribution to fund a setaside program to be used solely to provide financial assistance to firsttime homebuyers. See 12 CFR
951.3(a)(1)(ii). If member demand for that setaside program exceeds
the amount of available AHP subsidy for a particular year, a Bank may
accelerate or ``borrow'' additional amounts from the following year's
AHP contribution, up to the greater of $1.5 million or 10 percent of
the Bank's projected contribution for the following year, to the
current year's firsttime homebuyer setaside program. These maximum
allowable dollar amounts are adjusted annually by the Finance Board to
reflect any percentage increase in the preceding year's Consumer Price Index (CPI). See 12 CFR 951.3(a)(1)(iii).
The proposed rule would remove the annual CPI adjustment of the caps on the dollar amounts that may be allocated to the setaside programs, principally because it has the potential over time to increase the amounts allocated to the setaside programs at the expense of the competitive application program. As such, the CPI adjustment could potentially affect the balance between amounts allocated to owneroccupied housing and rental housing, respectively. Similarly, because the provision allowing acceleration of the maximum allowable dollar allocation under the competitive application program into the current year from the subsequent year would be eliminated, the provision authorizing a CPI adjustment of the accelerated amount, as provided under existing Sec. 951.3(a)(2), would be eliminated as a conforming amendment.
The Finance Board is proposing to make a number of other changes regarding the allocation of AHP funds to the homeownership setaside programs, as noted below.
Consolidation of separate program authorities: Proposed Sec.
951.2(b)(2). Proposed Sec. 951.2(b)(2) would retain the maximum
allowable aggregate allocation of AHP dollars to the homeownership set
aside programs, i.e., the greater of $4.5 million or 35 percent of a
Bank's annual required AHP contribution, but would eliminate the first
time homebuyer setaside program authority as a separate and distinct
authority. See 12 CFR 951.3(a)(1). The proposed rule would replace the
separate firsttime homebuyer setaside program provision with a
requirement that at least onethird of a Bank's aggregate annual
homeownership setaside allocation be targeted for firsttime
homebuyers, which should be functionally equivalent to the results
under the current structure. The Finance Board understands that most of
the Banks currently dedicate a substantial portion of their general
homeownership setaside allocation to firsttime homebuyers before
setting aside funds under the separate homeownership setaside
authority that specifically targets firsttime homebuyers. Therefore, the Finance
[[Page 76941]]
Board believes the proposed change would simplify the regulation but
would not cause a substantive change in the allocation of homeownership setaside funds to firsttime homebuyers.
Removal of acceleration authority. The Finance Board also is proposing to remove the existing provisions that permit a Bank to accelerate or ``borrow'' AHP funds from the subsequent year to fund the current year's homeownership setaside programs. See 12 CFR 951.3(a)(1)(i) and (ii). The Banks have not often used that authority (in 2004 only two Banks did so) and it presents operational difficulties because it requires the Banks to project future earnings in order to determine how much they may accelerate into the current year, and these projections may not prove to be accurate. Deleting this provision would eliminate some unnecessary complexity to the administration and monitoring of the AHP fund as well as to a Bank's balance sheet. For much the same reason, the Finance Board is proposing to eliminate the provision allowing acceleration of competitive application program allocations, as provided under existing Sec. 951.3(a)(2).
C. AHP Implementation Plan: Proposed Sec. 951.3
Proposed Sec. 951.3(a) would reorganize and streamline requirements for a Bank's AHP Implementation Plan to conform them to amendments that are being proposed to other parts of the AHP regulation. See 12 CFR 951.3(b). The proposed amendments to the specific program operating requirements for AHP Implementation Plans are discussed elsewhere in this preamble in the context of the particular operating requirements. The proposed rule also would add a requirement that the AHP Implementation Plan include the Banks' retention agreement requirements.
Proposed Sec. 951.3(c) would require a Bank to notify the Finance Board within 30 days of amending its AHP Implementation Plan and proposed Sec. 951.3(d) would require a Bank to make the amended Plan publicly available through its Web site within 30 days after adoption of the amendments. Under the current rules, the Bank must submit all amendments to the Finance Board and must make its Plan available to members of the public upon request. See 12 CFR 951.3(b)(4)(5). Making the AHP Implementation Plan available through the Banks' websites is intended to provide the public with easy access to important information about the AHP as well as to promote greater transparency and accountability in the program.
D. Advisory Councils: Proposed Sec. 951.4
The proposed rule would make a number of revisions to the provisions dealing with the Advisory Councils of the Banks, many of which are intended to clarify but not change the substance of the existing rule. See 12 CFR 951.4. The provisions that have a substantive effect are described below.
Terms of Advisory Council members: Proposed Sec. 951.4(b). Section 951.4(b) of the proposed rule is intended to enhance the effectiveness of the Advisory Councils by lessening the likelihood that the terms of more than onethird of the Advisory Council members will expire in any 1 year. To that end, the proposed rule would require each Bank to adopt policies governing how it would conduct the appointment process and would require each Bank to appoint members to terms of ``up to'' 3 years. The intent of the latter change is to allow the Banks to appoint some individuals to terms of 1 or 2 years as a means of ensuring an appropriate balance of experience and service among members of the Council as a whole. Under the current rules, the Banks must appoint members of the Council for a 3 year term. See 12 CFR 951.4(d).
Election of officers: Proposed Sec. 951.4(c). Section 951.4(c) would impose on the Advisory Council an affirmative obligation to elect certain officers, which is intended to ensure that each Advisory Council has in place a chairman and vice chairman. The current rule permits, but does not require, such officers. See 12 CFR 951.4(e).
Duties: meetings with the Banks: Proposed Sec. 951.4(d)(1). Section 951.4(d)(1) of the proposed rule would revise the duties of the Advisory Council principally by adding a list of specific matters on which the Advisory Council must provide recommendations to the Bank's board of directors. See 12 CFR 951.4(f)(1). Those matters include: the relative allocation of AHP subsidy between the competitive application and homeownership setaside programs; eligibility criteria for each program; scoring criteria and related definitions for the competitive application program; any priority criteria for the homeownership set aside program; and the AHP Implementation Plan.
Proposed Sec. 951.4(d)(3) also would extend the deadline by which the Advisory Council must submit its annual analysis of the low and moderateincome housing and community lending activity of the Bank to the Finance Board. See 12 CFR 951.4(f)(3). The proposed rule would extend that deadline from March 1 to May 1 and would require each Bank to publish the analysis on a publicly available website within 30 days of its submission to the Finance Board. The proposed change in the due date responds to requests received from some of the Advisory Councils, which meet quarterly, for additional time after the end of each calendar year to prepare, review, and approve their report. Making the Advisory Councils' analyses available to the public through the Banks' websites is intended to promote greater transparency and accountability in the Banks' AHP and in the work of the Banks' Advisory Councils.
No delegation: Proposed Sec. 951.4(f). Proposed Sec. 951.4(f) would prohibit a Bank's board of directors from delegating to Bank officers or other Bank employees its responsibility for appointing Advisory Council members or for meeting with the Advisory Council. This provision is intended to ensure that each board of directors fulfills its statutory obligations with regard to its interaction with the Advisory Council and is consistent with findings of the Finance Board's Horizontal Review, which indicated that Bank boards in general could improve how they interact with their Advisory Councils. See 12 U.S.C. 1430(j)(11).
E. Competitive Application Program: Proposed Sec. 951.5
The proposed rule would consolidate existing regulatory provisions governing the operation of the competitive application program into a single section of the AHP ruleproposed Sec. 951.5. Under the current regulation, a number of those provisions are located in different sections of the AHP regulations. The principal revisions to the existing regulatory structure are described below.
Eligible applicants: Proposed Sec. 951.5(b)(2). Section 951.5(b)(2) of the proposed rule would eliminate the current provision that allows a Bank to accept AHP applications from institutions that are not members of the Bank, but that have applied for membership. See 12 CFR 951.6(b)(1). At one time, that provision may have encouraged institutions to become members of their district Bank but the Finance Board believes that given the growth in membership in recent years such an incentive is no longer necessary.
Eligibility requirements: Proposed Sec. 951.5(c). Under the
proposed rule, Sec. 951.5(c) would set out all of the various
eligibility requirements that may apply in connection with the [[Page 76942]]
receipt of AHP subsidies under the competitive application program.
Timing of household incomeeligibility determination: Proposed Sec. 951.5(c)(1). With regard to the timing of when a household's income eligibility must be determined, the proposed rule would relocate the current provisions from the definitions of ``low or moderate income household'' and ``very lowincome household'' in Sec. 951.1 to proposed Sec. 951.5(c)(1). The proposed rule also would incorporate into this section, without change, the requirements in the existing definitions of ``owneroccupied project'' and ``rental project'' that the AHP subsidy be used for the purchase, construction, or rehabilitation of owneroccupied or rental housing.
Need for subsidy, project costs, project feasibility: Proposed
Sec. Sec. 951.5(c)(2), 951.5(c)(3), and 951.5(c)(4). The proposed rule
would make several changes to the project eligibility requirements
applicable to the Banks in determining whether a project is eligible
for funding. The Banks currently review projects to assess their ``need for subsidy,'' reasonableness of ``project costs,'' and
``feasibility.'' In determining a project's eligibility, the existing
regulation requires that the project demonstrate a need for the
subsidy, based on its estimated total sources and uses of funds. See 12
CFR 951.5(b)(2). The proposed rule would maintain this requirement but
eliminate a related requirement that the estimated sources and uses of
funds analysis include estimates of the market value of inkind
donations and volunteer professional labor or services. See 12 CFR
951.5(b)(2)(i)(B). Experience since 1998 indicates that estimates of
noncash costs generally do not affect the amount of subsidy needed for
a project. Elimination of this requirement also would obviate the need
for the Finance Board's Regulatory Interpretation 199903, which
addresses noncash sources and uses.\2\ The proposed rule also would
make the need for subsidy requirement independent of the project
developmental and operational feasibility requirements. The changes are
intended to provide the Banks with more opportunities to assist smaller
projects and projects with higher production or operating costs, such as projects with services or more common space.
\2\ Regulatory Interpretation 19903 is available in the Freedom
of Information Act Reading Room on the Finance Board's Web site:
http://www.thib.gov/Default.aspx?Page=59&ListCategory=8#8.
Section 951.5(c)(3)(i) of the proposed rule would clarify that the determination of project costs is a separate eligibility requirement and would remove a requirement that project costs be ``customary'' and determined according to ``industry standards'' in accordance with the Bank's project feasibility guidelines. See 12 CFR 951.5(b)(2)(ii). In lieu of that requirement, the proposal would require a Bank to determine whether a project's costs are reasonable by taking into account the location of the project, development conditions, and other nonfinancial household or project characteristics, such as housing for the elderly or for persons with disabilities. The changes are intended to make the eligibility review process more adaptive to deeply subsidized projects such as those serving special needs populations.
The existing regulation does not differentiate between the developmental feasibility of a project and, in the case of rental housing, the operational feasibility of the project over time. The proposed rule, at Sec. 951.5(c)(4), would separate these two aspects of project feasibility. Proposed Sec. 951.5(c)(4)(i) would require that a project be developmentally feasible, which is defined as the likelihood that the project will be completed and occupied, based on relevant factors contained in the Bank's project feasibility guidelines, including the project's development budget, market analysis, and the sponsor's experience in providing the requested assistance to households. Proposed Sec. 951.5(c)(4)(ii) would require that a rental project be operationally feasible, which is defined as the ability of the project to operate in a financially sound manner, in accordance with the Bank's project feasibility guidelines, as projected in the project's operating pro forma or similar statement of operational feasibility.
Financing costs: Proposed Sec. 951.5(c)(5). The proposed rule would make a technical reorganizing change by relocating the provision regarding interest rates, points, fees, and other charges for loans financing the project from existing Sec. 951.5(b)(2)(iii) to proposed Sec. 951.5(c)(5). See 12 CFR 951.5(b)(2)(iii).
Refinancing: Proposed Sec. 951.5(c)(8). Proposed Sec. 951.5(c)(8) would make a technical change regarding the use of AHP subsidies in connection with a refinancing of a project. See 12 CFR 951.5(b)(6). The proposal would clarify that such refinancing is permitted only if it generated equity proceeds and if the proceeds are used to purchase, construct, or rehabilitate eligible housing units. The proposal also would clarify that the requirement regarding use of the equity proceeds applies only to an amount of equity proceeds that is at least equal to the amount of AHP subsidy in the project.
Project sponsor qualifications: Proposed Sec. 951.5(c)(10). Proposed Sec. 951.5(c)(10) would revise existing Sec. 951.5(b)(8) by requiring a Bank to adopt written policies regarding the project sponsor qualifications for revolving loan funds and loan pools, which issues are discussed separately below. See 12 CFR 951.5(b)(8).
Calculation of AHP subsidy: Proposed Sec. 951.5(c)(12). Proposed Sec. 951.5(c)(12), which relates to the calculation of the AHP subsidy, would incorporate, without change, the provisions regarding the time at which the calculation of subsidy is to be made. Those provisions are currently included as part of the definition of ``subsidy'' in Sec. 951.1.
Use of AHP subsidy by revolving loan funds and loan pools: Proposed
Sec. Sec. 951.5(c)(13) and 951.5(c)(14). The proposed rule would
explicitly authorize the Banks, at their discretion, to allow two uses
of AHP subsidy under their competitive application program, which would
be for revolving loans funds and loan pools. The current rule defines
the term ``sponsor'' to include certain organizations or public
entities that have an ownership interest in a rental project, or that
are integrally involved in an owneroccupied project. See 12 CFR 951.1.
As noted previously, the proposed rule would expand that definition to
add revolving loan funds and entities that establish loan pools to the
list of eligible sponsors. A revolving loan fund is a capital fund that
makes loans that comply with the requirements of the AHP rule, and then
uses the proceeds received from principal payments on those loans to
make additional loans to other borrowers. A loan pool is a group of
AHPeligible loans that are purchased, held in trust, and pledged as
security for a financial instrument, such as a mortgagebacked
security. Definitions of the two terms would be added in proposed Sec.
951.1. Such entities that specialize in community development lending
are able to leverage additional funds for lowincome borrowers or bring
added value to the services provided by nonprofit corporations and
local governments. These entities also may provide technical assistance
in packaging loans, or may service loans, manage affordable housing
revolving loan funds, or purchase and sell loans that cannot otherwise
be sold in the mainstream secondary market due to their unique characteristics. Proposed
[[Page 76943]]
Sec. 951.5(c)(13) and (c)(14) would establish limitations on how such
revolving loan funds and loan pools, respectively, may use the AHP subsidies, as described below.
Use of AHP subsidy by revolving loan funds: Proposed Sec. 951.5(c)(13). The proposal would authorize the Banks to accept applications from members for projects in which the sponsor would use the AHP subsidy in a revolving loan fund, which in turn would make AHP loans to eligible projects. In order to exercise this authority, a Bank first must consult with its Advisory Council and then must adopt written policies and procedures governing the disbursement of the AHP subsidy through this type of entity. Both the initial loans made by the revolving loan fund, as well as any subsequent loans made with amounts received from repayments of the initial loans, must meet all of the applicable AHP eligibility requirements. The intent in referring to ``applicable'' AHP eligibility requirements is to make clear that those regulatory requirements that apply to AHP applications that involve a specific project, such as cost and feasibility requirements, will not automatically be applied to an AHP application from a revolving loan fund, which may not have identified a specific project at the outset.
The revolving loan fund also must assure that the initial loans are made to projects and households that meet the commitments in the approved AHP application and that they will be met for the full AHP retention period. Any subsequent lending of repaid AHP subsidy must be used for lowor moderateincome households (in the case of owner occupied projects) or for rental projects where 20 percent or more of the units are occupied by and affordable for very lowincome households, subject to the AHP retention period, monitoring and recapture requirements that the Bank must adopt. As a result of those requirements, AHP funds disbursed through a revolving loan fund may not be used for other purposes, such as to pay for operating costs or other uses unrelated to the purchase, construction, or rehabilitation of housing. In general, the Finance Board requests comment on how the revolving loan fund authority could be used within the requirements of the AHP.
Use of AHP subsidy in loan pools: Proposed Sec. 951.5(c)(14). The proposed rule would authorize a Bank to provide AHP subsidies to its members under circumstances in which another entity would receive the subsidy and then commit to purchase AHPeligible loans in order to pool them and sell interests in the pool of loans, such as through loan participations or a mortgagebacked security. For example, the proposed rule would allow a Bank to make a subsidized advance to a member with the understanding that the member would make a subsidized loan to another entity, which would commit to purchase similarly subsidized loans from other originators. In order to exercise this authority, a Bank first must consult with its Advisory Council, and then must adopt written policies and procedures governing the disbursement of the AHP subsidy through this type of arrangement. The proposed rule includes a number of provisions that are intended to ensure that subsidies disbursed through a loan pool actually benefit AHPeligible households. Specifically, the proposal would require that a loan pool sponsor demonstrate that its use of the subsidy will meet all applicable eligibility requirements under the AHP regulation. The loan pool sponsor must provide to the Bank the acceptance standards that it intends to use in determining which loans to include in the pool, as well as the underwriting characteristics for such loans, and the number of eligible households (including their income levels) that have obtained loans over a given time period. The proposal would prohibit the use of AHP funds for the loan pool's operating costs, for secondary market transaction costs, or for providing liquidity to the originators or holders of the purchased loans.
In order to ensure that the AHP subsidy benefits eligible households, the proposed rule would require that the manager or trustee of the loan pool purchase the loans pursuant to a forward commitment that identifies the characteristics of the loans to be originated with principal or interest rate reductions, as specified in the approved AHP application. Where AHP direct subsidy is being used, the AHP subsidy must be used for a standard upfront buydown of the interest rate or a reduction in the principal of the loans in the pool, as specified in the approved AHP application. All loans purchased by the loan pool, including both the initial loans and any subsequent loans that are intended to replace loans that have been paid off, must conform to the terms of the forward commitment. In general, the Finance Board requests comment on how the loan pool authority could be used within the requirements of the AHP. The proposed rule is silent on the length of time that a project sponsor would have, as specified in the forward commitment, for the sponsor to expend the full amount of the AHP subsidy. The Finance Board requests comment on whether it is preferable to establish a time limit by regulation and if so, the duration of that time limit, or to allow a Bank to establish a time limit as part of its AHP Implementation Plan, as proposed.
In the alternative, the loan pool would be permitted to purchase an initial round of loans that are not purchased pursuant to a forward commitment, provided that the entities from which the loans are purchased are required to use the proceeds from the initial loan purchases within time limits specified in the Bank's AHP Implementation Plan. The proceeds must assist households that are incomeeligible under the approved AHP application during subsequent rounds of lending, and the assistance must be provided in the form of a principal reduction or a belowmarket AHP subsidized interest rate, as specified in the approved AHP application.
In addition, each AHPassisted owneroccupied unit receiving AHP direct subsidy would be required to be subject to an AHP 5year retention agreement. As currently written, the proposed rule explicitly permits the use of AHP subsidy in loan pools backed by owneroccupied units. The Finance Board requests comment on whether, in addition to loans for AHPassisted owneroccupied units, rental housing loans should also be eligible under the AHP loan pool authority, and if so, what kinds of loans and activities, consistent with the AHP requirements, should be eligible.
Outofdistrict projects eligibility requirement: Proposed Sec. 951.5(c)(15). The proposed rule would remove the existing provision that allows a Bank, at its discretion, to require as an eligibility requirement that a project assisted with AHP subsidy must be located in the Bank's district. See 12 CFR 951.5(b)(10)(i)(B). Proposed Sec. 951.5(c)(17) also would prohibit a Bank from establishing an eligibility requirement that a project must be located in the Bank's district. See the further discussion of this issue below, under AHP projects outside the district.
Minimum Bank credit product usage requirement: Proposed Sec.
951.5(c)(15). The current rule authorizes a Bank to require its members
to have used a minimum amount of the Bank's other credit products
within the previous 12 months as a condition to applying for additional
amounts of AHP subsidy. See 12 CFR 951.5(b)(10)(i)(C). The Finance
Board is proposing to remove this requirement in the belief that AHP funding should go, without restriction,
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to applications from members that score highest under a Bank's competitive application scoring criteria.
Counseling requirement: Proposed Sec. 951.5(c)(15)(ii). The proposed rule would authorize a Bank to require homebuyer or homeowner counseling as an optional eligibility requirement for owneroccupied projects under the competitive application program. Under such a requirement, the Banks could limit AHP subsidies to owneroccupied projects that provide this resource for low or moderateincome households. Such counseling can contribute to successful, longterm homeownership, which the Finance Board has recognized in supporting such counseling for low or moderateincome households receiving home purchase assistance under the AHP homeownership setaside program. See 12 CFR 951.5(a)(2)(ii).
Prohibited use of AHP subsidy: prepayment fees: Proposed Sec. 951.5(c)(16)(i). The current rule allows a project to use AHP subsidy to pay prepayment fees imposed by a Bank on a member if the member prepays a subsidized advance, provided that the project continues to comply with the terms of the approved AHP application for the duration of the original retention period and any unused AHP subsidy is returned to the Bank and made available for other AHP projects. See 12 CFR 951.5(b)(4)(i). The proposed rule would eliminate this provision, consistent with the principle that AHP funds should be used for purchase, construction, or rehabilitation of housing.
Changes to the scoring system: Proposed Sec. 951.5(d). The proposed rule would retain the current provisions that require each Bank to adopt written scoring guidelines for its AHP applications and to allocate 100 points among 9 scoring criteria. See 12 CFR 951.6(b)(4). The proposal would not make any substantive changes to those criteria, except for those relating to disaster areas and outof district projects, but would make a number of technical revisions to the current rules and would codify certain staff interpretations.
The proposed rule would retain the provisions relating to fixed point and variablepoint scoring criteria, but would make technical changes to the latter, the effect of which would be to codify a current staff interpretation that allows a Bank to implement variablepoint scoring criteria either through a fixed scale or on a scale relative to the other applications that are to be scored in the same funding round. See 12 CFR 951.6(b)(4)(iii). That provision would be located at Sec. 951.5(d)(3)(ii) of the proposed rule.
Section 951.5(d)(5)(iii)(A) of the proposed rule would remove a
provision of the existing rule, which allows a Bank to score rental
projects according to the targeting commitments made by the project to
a governmental or taxcredit allocating entity that provides funds or tax credits, respectively, to the project. See 12 CFR
951.6(b)(4)(iv)(C)(1). That provision would no longer be necessary
because of other proposed changes to the rule, to be located at Sec.
951.7(a)(2)(ii)(B), discussed further below, which would allow a Bank
to rely on monitoring by governmental or taxcredit monitoring agencies.
The proposed rule also would clarify regulatory practice relating
to the scoring criterion for income targeting in owneroccupied projects. That provision, which would be located at Sec.
951.5(d)(5)(iii)(B), would clarify that a Bank may determine in its AHP
Implementation Plan how to award scoring points on a declining scale,
taking into consideration the percentages of units and targeted income levels.
Disaster areas and displaced households scoring criterion: Proposed Sec. 951.5(d)(5)(vi)(E). The current regulation permits the Banks to award scoring points to the financing of housing that is located in federally declared disaster areas. See 12 CFR 951.6(b)(4)(iv)(F)(5). Because disasters may displace families from their homes, the Finance Board believes that this criterion should be expanded to address such situations. Accordingly, in order to accommodate families that have been displaced from a disaster area, Sec. 951.5(d)(5)(vi)(E) of the proposed rule would permit a Bank to award scoring points for applications that would provide housing for persons located in a disaster area, as well as for applications proposing to provide housing for low or moderateincome households that have been displaced from a federally declared disaster area due to a disaster, irrespective of the household's current residential location.
AHP projects outside the district: Proposed Sec. Sec. 951.5(c)(17)
and 951.5(d)(5)(vii). Under the current regulation, a Bank may, at its
discretion, deny consideration of applications to the AHP competitive
application program from members proposing to fund projects located
outside a Bank's district. Another provision of the current rule
permits a Bank to give scoring point preference to the creation of housing located within the Bank's district. See 12 CFR
951.5(b)(10)(i)(B) and 951.6(b)(4)(iv)(F)(12). The proposed rule would
rescind the Banks'' authority to prohibit or restrict applications to
fund projects located outside a Bank's district. This authority may
have been appropriate when all Bank members did business only within
the boundaries of a state within the Bank's district. As a result of
interstate branching, however, many members now do business in
communities outside their Bank district. The authority to restrict AHP
projects to the Bank's district, if exercised, would limit a member's
ability to support otherwise eligible AHP projects in certain of the
communities that it serves solely because those communities were located outside the Bank's district boundaries.
The Bank Act does not set up the AHP as a geographically targeted program. Rather, it requires each Bank to establish a program to provide subsidized funding to its members. See 12 U.S.C. 1430(j)(1). Restrictions on outofdistrict projects can disadvantage members with geographically dispersed operations to the extent the Bank limits funding of projects outside of its boundaries, irrespective of the market areas served by its members. Such restrictions could also serve to disadvantage communities that are served by financial institutions headquartered in a state located in a different Bank district. The Finance Board believes that AHP projects should be awarded funds based on the merits of each particular application. If an application has sufficient merit to compete successfully, it should be awarded AHP funds irrespective of the project location, so long as the project is within a community served by a member.
Finally, the existing authority in the current AHP regulation has not been extensively invoked by the Banks. In 2004, only one Bank prohibited the use of AHP funds for outofdistrict projects and only two Banks elected to give scoring preference to indistrict projects. Nor has there been a significant outflow of AHP funds as a result of member financing of projects outside the district. Out of 10,391 AHP projects funded since the beginning of the program in 1990, only 323 projects, or 3.1 percent, have been located outside a Bank's district. These findings support a conclusion that funding of outofdistrict projects has a minimal impact on the AHP. Therefore, a prohibition against outofdistrict projects or a preference for projects within a district may not be warranted.
As a result of all these considerations, the proposed rule would eliminate the two provisions in the existing regulation
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that preclude or limit the ability of a member to receive AHP subsidies
for projects located outside its district, and proposed Sec.
951.5(c)(17) would expressly prohibit a Bank from requiring that a
project be located within its district. In addition, proposed Sec.
951.5(d)(5)(vii) would prohibit a Bank from adopting as its Second
District Priority a scoring preference for projects located in the Bank's district. See 12 CFR 951.6(b)(4)(iv)(G).
Modifications of approved applications: Proposed Sec. 951.5(f). The proposed rule would codify current practice by adding a requirement that a Bank must document in writing its analysis and justification for any modification of a previously approved project. See 12 CFR 951.7(a).
Progress towards use of AHP subsidies: Proposed Sec. 951.5(g)(2). The proposed rule would require each Bank to establish policies and procedures, such as time limits, for determining whether progress is being made towards drawdown and use of AHP subsidies by approved projects, and whether to cancel an application approval for lack of such progress. Progress requirements must be included in the Bank's AHP Implementation Plan. Affordable housing projects often may encounter delays due to changes in funding, legal, or community challenges, or other events. These delays may affect the ability of a project to progress towards its scheduled drawdown and use of the AHP subsidy. The current AHP regulation requires a Bank to specify a time period in its AHP Implementation Plan for the drawdown and use of the AHP subsidy. If a project does not do so within such period, the Bank must cancel its approval of the application. See 12 CFR 951.8(c)(1). The rigidity of this requirement sometimes has impaired the ability of the Banks to determine whether the delays are significant enough to affect a particular project's ability to draw down and use the subsidy. While the Banks have extended the time period for certain projects in an effort to take into account such delays, the requirement that a fixed time period be stated in the AHP Implementation Plan limits a Bank's ability to manage this process. Accordingly, the proposed rule would give the Banks greater capacity to manage this process by requiring them to adopt policies and procedures that address how they will make such determinations.
Compliance upon disbursement: Proposed Sec. 951.5(g)(3). Section 951.5(g)(3) of the proposed rule would require a Bank to establish policies and procedures for determining, prior to initial disbursement of AHP subsidy, and prior to subsequent disbursement if the need for AHP subsidy has changed, whether the project continues to meet the applicable eligibility requirements and all obligations committed to in the approved AHP application. The Bank's requirements must be included in its AHP Implementation Plan. Under the current AHP regulation, a Bank is required to verify compliance with eligibility requirements and application commitments prior to each disbursement of AHP subsidy. See 12 CFR 951.8(c)(2). The requirement to repeatedly verify project compliance during every stage of the disbursement process may be more than is necessary to ensure compliance with the rules, and effectively precludes a Bank from using its best judgment to determine whether the circumstances of a particular AHP project warrant repeated verification of compliance with the rules. The proposed amendment would give the Banks greater latitude in determining when it is appropriate to verify compliance prior to disbursing AHP funds.
Bank board of directors duties and delegation: Proposed Sec. 951.5(h). The proposed rule would set forth the Bank board of directors' various duties regarding establishment and implementation of the competitive application program requirements in one section, proposed Sec. 951.5(h), and would reiterate that the Bank's board cannot delegate these responsibilities to Bank officers or other Bank employees.
F. Homeownership SetAside Program: Proposed Sec. 951.6
The proposed rule would reorganize the existing regulation, generally by combining various homeownership setaside program provisions into one section, to be located at proposed Sec. 951.6.
Eligible applicants: Proposed Sec. 951.6(b). The existing AHP regulations permit a Bank to accept applications for homeownership set aside program subsidies from an institution that is not a member of the Bank, but which has pending an application for membership. See 12 CFR 951.6(a). The proposed rule would eliminate this provision and would require an applicant to be a member of the Bank at the time that it submits an AHP application. The rationale for this revision was discussed in connection with a similar amendment that is proposed for the competitive application program.
Timing of household incomeeligibility determination: Proposed Sec. 951.6(c)(2)(i). Section 951.6(c)(2)(i) of the proposed rule would clarify that a household's income eligibility is to be determined at the time that it is enrolled in the setaside program. This change is intended to address confusion with respect to the income eligibility, for example, of a household that is enrolled in a matched savings account program, an Individual Development Account program, a Welfare toWork program, or any other similar empowerment program designed to assist lowincome households accumulate assets. The existing regulation has been interpreted by some Banks as requiring that the household's income qualification for purposes of the AHP be determined at the time that the household is qualified for a loan. See 12 CFR 951.1 and 951.5(a)(2)(i). The proposal would permit income eligibility to be determined at the time that the household is accepted by the member and the Bank to enroll in the AHP setaside program, even though at that time the household may not qualify for a mortgage. This clarification is consistent with existing Finance Board policy and reflects the Finance Board's understanding that the purpose of these programs is to prepare households for homeownership. Activities designed to qualify low or moderateincome households for mortgages should be encouraged. Such programs, however, require careful administration by a Bank and the participating member and should be subject to reasonable Bank policies and procedures on the timely use of AHP subsidy. Moreover, it is the Finance Board's expectation that Bank policies will preclude use of the program by individuals whose low or moderateincome eligibility is a temporary condition, such as students, who would ordinarily have a reasonable prospect for a substantial increase in income upon entering the workforce.
Counseling: Proposed Sec. 951.6(c)(2)(ii). Under the existing
regulation, all households receiving AHP funds under a Bank's
homeownership setaside program must complete a homeowner or homebuyer
counseling program. See 12 CFR 951.5(a)(2)(ii). The Finance Board is
proposing to make this an option rather than a requirement, for
obtaining subsidies under the homeownership setaside program. As a
practical matter, not all households will necessarily require such
counseling. Moreover, there are some areas of the country in which such
counseling may not be readily available, and the quality of the
counseling can also vary. Accordingly, Sec. 951.6(c)(2)(ii) of the
proposed rule would allow each Bank to determine whether to include
counseling as an eligibility requirement in its AHP Implementation Plan. These
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revisions are consistent with the proposed change that would allow a
Bank to adopt such a counseling requirement under its competitive application program, which is located at proposed Sec.
951.5(c)(15)(ii). Notwithstanding the change, the Finance Board
encourages the Banks to consider requiring homeowner and homebuyer
counseling when they believe it to be appropriate. Proposed Sec.
951.6(c)(8) would retain the current provision that allows
homeownership setaside funds to be used to pay for the costs of
obtaining such counseling for those homebuyers that actually purchase an AHPassisted unit. See 12 CFR 951.5(a)(7).
Member financial incentives: Proposed Sec. 951.6(c)(6). The proposed rule would revise the existing regulation by requiring a Bank to establish incentives for members to provide financial or other assistance in connection with providing the homeownership setaside subsidy. Under existing Sec. 951.5(a)(6), a member that provides mortgage financing to a participating household under the setaside program must also provide financial or other incentives in connection with the mortgage financing. See 12 CFR 951.5(a)(6). Some Banks have observed that this requirement may place small members, such as those located in rural areas, at a disadvantage and may encourage them to pass the AHP subsidy to a larger institution, which may or may not be a member of that Bank. The existing requirement may thus place a greater obligation to provide subsidized financing on a member than on a nonmember mortgage provider and may result in a disincentive for member financing. The Finance Board specifically requests comment on: (1) Whether it should require all originators of AHPassisted mortgage loans to provide financial or other incentives in connection with the mortgage financing, irrespective of whether the originator is a member or nonmember; (2) whether the current financial incentive requirement should remain as a mandatory requirement or be made a matter of discretion for the Bank, as a preferential selection criterion for its homeownership setaside program(s); and (3) whether additional incentives should be required, such as a matching funds requirement, memberprovided financing, or preference to a member working in partnership with a nonprofit sponsor assisting firsttime homebuyers to qualify for a mortgage.
Financing costs: Proposed Sec. 951.6(c)(7). Section 951.5(a)(6) of the current regulations requires that the rate of interest, points, fees, and other charges imposed by the member not exceed a reasonable market rate. See 12 CFR 951.5(a)(6). As currently worded, the requirement applies only to situations in which the member provides the financing, but not if a third party does so. The Finance Board is concerned that the existing language has the potential to create opportunities for using AHP funds in conjunction with the origination of loans with interest rates, points, fees, and other charges that exceed a reasonable market rate, if the loans are originated by a nonmember. In order to avoid that possibility, Sec. 951.6(c)(7) of the proposed rule would revise the regulation to state that such charges that are ``used directly or indirectly in conjunction with the AHP direct subsidy'' must not exceed a reasonable market rate. That revision is consistent with the statutory requirement that Finance Board regulations must ``ensure that subsidies provided by Banks to member institutions * * * are passed on to the ultimate borrower.'' See 12 U.S.C. 1430(j)(9)(E).
Progress towards use of AHP subsidy: Proposed Sec. 951.6(c)(9). For reasons similar to those discussed above under the competitive application program, proposed Sec. 951.6(c)(9) would revise the existing regulation by requiring that progress be made towards draw down and use of the AHP direct subsidies by eligible households pursuant to policies and procedures adopted by the Bank. See 12 CFR 951.5(a)(8).
Cash backs: Proposed Sec. 951.6(c)(10). The Finance Board's Horizontal Review identified problems in the operations of the homeownership setaside programs at some of the Banks. Although those problems were limited to a few situations, the proposed rule seeks to address them by clearly identifying ineligible uses of AHP setaside funds. Therefore, Sec. 951.6(c)(10) of the proposed rule would expressly prohibit a member from providing cash back to a household at the closing on the mortgage loan and would require a member to use any AHP subsidy beyond what is needed for closing costs and the approved mortgage amount to further reduce the principal of the mortgage loan.
Progress towards use of AHP subsidies: Proposed Sec. 951.6(e)(2). For reasons similar to those discussed above under the competitive application program, proposed Sec. 951.6(e)(2) would require a Bank to establish policies and procedures, such as time limits, for determining whether progress is being made towards drawdown and use of homeownership setaside funds by eligible households, and whether to cancel application approvals for lack of such progress. See 12 CFR 951.8(b)(1). The requirements must be specified in the Bank's AHP Implementation Plan. A Bank would be required to determine, pursuant to such policies and procedures, whether progress is being made by eligible households, and whether to cancel any application approvals for lack of progress.
G. Monitoring: Proposed Sec. 951.7
The proposed rule would retain the current requirement for annual
certifications by rental project owners to the Bank under the
competitive application program, but would make a number of changes to
the monitoring provisions under both the competitive application and
homeownership setaside programs. A number of the current monitoring
provisions are prescriptive in nature and set deadlines by which the
Bank and other parties must undertake certain actions. See 12 CFR
951.10 and 951.11. The proposed rule would replace those provisions
with more broadly stated performance objectives, which are intended to
allow the Banks more latitude in determining the type and frequency of
reports and certifications that are best suited for monitoring a
particular project's compliance with the AHP rules. The proposed
amendments would accomplish this goal by requiring the Banks to adopt
policies and procedures for monitoring progress made towards project completion and compliance with other AHP requirements.
1. Monitoring Requirements for the Competitive Application Program: Proposed Sec. 951.7(a)
Initial monitoring policies and procedures: Proposed Sec. 951.7(a)(1). For both owneroccupied and rental projects under the competitive application program, the proposed rule would require each Bank to adopt written policies and procedures for monitoring AHP projects prior to, and within a reasonable period of time after, project completion. Specifically, a Bank's monitoring polices and procedures mus
FOR FURTHER INFORMATION CONTACT
Charles E. McLean, Associate Director, Office of Supervision, by electronic mail at mcleanc@fhfb.gov or by telephone at 2024082537; Sylvia C. Martinez, Senior Advisor, Office of Supervision, by electronic mail at martinezs@fhfb.gov or by telephone at 2024082825; or Sharon B. Like, Senior Attorney, Office of General Counsel, by electronic mail at likes@fhfb.gov or by telephone at 2024082930. You can send regular mail to the Federal Housing Finance Board, 1625 Eye Street, NW., Washington, DC 20006.