Federal Register: April 16, 2008 (Volume 73, Number 74)
DOCID: fr16ap08-11 FR Doc E8-7949
FEDERAL HOUSING FINANCE BOARD
Federal Housing Finance Board
CFR Citation: 12 CFR Part 951
RIN ID: RIN 3069-AB35
DOCUMENT ID: [No. 2008-09]
NOTICE: PROPOSED RULES
DOCID: fr16ap08-11
DOCUMENT ACTION: Proposed rule.
SUBJECT CATEGORY:
Affordable Housing Program Amendments
DATES: The Finance Board will accept written comments on this proposed rule that are received on or before June 16, 2008.
DOCUMENT SUMMARY:
The Federal Housing Finance Board (Finance Board) is proposing to amend its Affordable Housing Program (AHP) regulation to authorize the Federal Home Loan Banks (Banks) to establish AHP homeownership set aside programs for the purpose of refinancing or restructuring eligible households' nontraditional or subprime owneroccupied mortgage loans. The new authority would expire on June 30, 2011.
SUMMARY:
Affordable Housing Program Amendments,
SUPPLEMENTAL INFORMATION
I. Background
A. Statutory and Regulatory Background
Section 10(j) of the Federal Home Loan Bank Act (Bank Act) requires each Bank to establish an affordable housing program, the purpose of which is to enable a Bank's members to finance homeownership by households with incomes at or below 80 percent of the area median income (low or moderateincome households), and to finance the purchase, construction or rehabilitation of rental projects in which at least 20 percent of the units will be occupied by and affordable for households earning 50 percent or less of the area median income (very lowincome households). See 12 U.S.C. 1430(j)(1) and (2). The Bank Act requires each Bank to contribute 10 percent of its previous year's net earnings to its AHP annually, subject to a minimum annual combined contribution by the 12 Banks of $100 million. See 12 U.S.C. 1430(j)(5)(C).
The Finance Board has promulgated a regulation implementing these provisions of the Bank Act, which is codified at 12 CFR part 951. The AHP regulation requires that each Bank establish a competitive application program under which the Bank's members may apply for AHP subsidies pursuant to eligibility requirements and scoring criteria set forth in the regulation and implemented through Bank policies. See 12 CFR 951.5. In addition, the AHP regulation authorizes a Bank, in its discretion, to set aside a portion of its annual required AHP contribution to establish homeownership setaside programs for the purpose of promoting homeownership for lowor moderateincome households. See 12 CFR 951.6. Under the homeownership setaside programs, AHP direct subsidy (grants) may be provided to members to pay for down payment assistance, closing costs, and counseling costs in connection with a household's purchase of its primary residence, and for rehabilitation assistance in connection with a household's rehabilitation of an owneroccupied residence. See 12 CFR 951.6(c)(4). The Finance Board periodically has increased the Banks' maximum allowable homeownership setaside allocation. Currently, as established in amendments to the AHP regulation effective January 1, 2007, a Bank may allocate up to the greater of $4.5 million or 35 percent of its annual required AHP contribution to homeownership setaside programs in that year, provided that at least onethird of the Bank's annual set aside allocation is targeted to firsttime homebuyers. See 12 CFR 951.2(b)(2).
From 1990 to 2007, the Banks awarded approximately $3.27 billion in AHP subsidy under both the competitive application and homeownership setaside programs. The Banks awarded $2.97 billion of this amount through the competitive application program, assisting more than 556,000 units of owneroccupied and rental housing. The Banks' homeownership setaside programs have provided more than $297 million to assist households, most of which were firsttime homebuyers, to purchase and rehabilitate 67,103 owneroccupied units. In 2007, the Banks awarded AHP subsidy through their homeownership setaside programs to over 9,200 low or moderateincome households to purchase or rehabilitate their primary residences.
B. Subprime Mortgage Crisis
Current distress in the owneroccupied housing market has made it
difficult for many low and moderateincome households to sustain
homeownership, particularly those with homes financed with subprime [[Page 20553]]
adjustablerate mortgages (ARMs) or nontraditional mortgage products.
For these households, the interest rates on their subprime ARMs or the
principal and interest payments on their nontraditional mortgages have
increased substantially or will do so in the near future.\1\ About 1.5
million subprime ARMs are scheduled to reset upward in 2008.\2\ After
these mortgages reset, many low and moderateincome households will
experience an unaffordable increase in their mortgage payments. Many of
these low and moderateincome households are not able to sustain
homeownership without a reduction in their monthly mortgage payments.
Many of these households also cannot sell their homes or refinance into
more affordable mortgages because declines in home values have left
them without sufficient equity to qualify for new mortgages. The
resulting payment shocks, high housingcosttoincome ratios, and the
inability to refinance have already led, and will likely continue to
lead, to foreclosures in many cases. More than 20 percent of the
roughly 3.6 million subprime ARMs outstanding at the end of 2007 either were in foreclosure or 90 days or more past due.\3\
\1\ Subprime ARMs include, for example, ``2/28'' and ``3/27''
loans, in which the household pays an introductory, often a low
``teaser'' interest rate, fixed for the first two or three years,
after which the rate becomes adjustable, usually on an annual basis.
Principal and interest payments increase because they are typically
``recast'' on two common types of nontraditional loans: Interest
only loans and option ARMs. For an interestonly loan, the household
pays only interest for a specified period, e.g., five years.
Payments are then recast to include the loan's principal, which is
amortized over the remaining term of the loan. With an option ARM,
the household has the monthly option of paying less than the fully
amortizing principal and interest payment, and it may pay as little
as a minimum payment that includes no principal and less than the
full amount of interest. Unpaid interest is added to the loan
balance resulting in ``negative amortization.'' In most option ARMs,
the lender recasts the payment to reamortize the increased
principal and interest either periodically, e.g., every 5 years, or
whenever the negative amortization reaches a specified cap,
typically 125% of the original loan amount. Nontraditional loans may
have adjustable interest rates, which can compound the increase in
the amount of the monthly payments and the amount of negative amortization.
\2\ Speech by Ben S. Bernanke, Chairman, Federal Reserve Board,
``Fostering Sustainable Homeownership,'' at the National Community
Reinvestment Coalition Annual Meeting, Washington DC (March 14, 2008) (Bernanke Speech).
\3\ See Bernanke Speech.
The problem is compounded by the fact that subprime and
nontraditional mortgages are often concentrated geographically.\4\
Experts believe that a higher than average number of foreclosures and
unoccupied homes in a community adversely affect the home values and
quality of life of other homeowners in the same neighborhood. In a
March 2008 speech, the Chairman of the Federal Reserve Board stated
that one in five outstanding subprime ARMs is seriously delinquent and
that clusters of foreclosures may destabilize neighborhoods.\5\ The
same conclusion was reached by a Homeownership Preservation Foundation
study, coauthored by former Federal Housing Administration (FHA)
Commissioner William C. Apgar \6\ and by the Federal Reserve Bank of
Chicago,\7\ which found that boardedup houses and empty lots can
decrease the values of homes in the same vicinity. The Center for
Responsible Lending has estimated that the values of millions of homes
not financed with subprime or nontraditional loans will be adversely
affected by foreclosures resulting from subprime and nontraditional mortgages that are no longer affordable.\8\
\4\ ``Subprime Lending and Alternative Financial Service
Providers: A Literature Review and Empirical Analysis,'' U.S. Department of Housing and Urban Development (March 2006).
\5\ See Bernanke Speech.
\6\ ``The Municipal Costs of Foreclosures: A Chicago Case
Study,'' Housing Finance Policy Research Paper Number 20051, Homeownership Preservation Foundation (February 27, 2005).
\7\ Hatcher, Desiree, ``Foreclosure Alternatives: A Case for
Preserving Homeownership,'' Profitwise News and Views, Federal Reserve Bank of Chicago (February 2006).
\8\ ``The Impact of CourtSupervised Modification of Subprime
Foreclosures,'' Center for Responsible Lending (February 25, 2008). C. Bank Actions To Address Crisis
A number of the Banks have instituted special Community Investment Program (CIP) advances to provide member banks and thrifts with lower cost funds to refinance households into longterm, fixedrate mortgages under existing statutory and regulatory authority. See 12 U.S.C. 1430(i); 12 CFR part 952. The Banks offer CIP advances at their cost of funds with either a small or no markup for administrative costs, and thus provide members with a way to fund longterm, fixedrate mortgages at a somewhat lower cost than regular advances or other sources of funds. However, to date, member demand for these CIP advances has been limited, largely due to the fact that households that need to refinance often have difficulty qualifying for a new mortgage when their homes are devalued or their housing debt ratios are high.
The Finance Board is considering other options for how the Banks could assist households faced with unaffordable mortgage payments due to interestrate increases or payment recasts in their subprime and nontraditional mortgages. Specifically, pursuant to a request by the Federal Home Loan Bank of San Francisco (San Francisco Bank) on January 15, 2008, the Finance Board, through Resolution Number 200801, approved waivers of certain homeownership setaside program provisions of the AHP regulation to allow the San Francisco Bank to establish a temporary pilot program to provide AHP direct subsidy to enable a household with a subprime or nontraditional loan held by a San Francisco Bank member to refinance or restructure that loan into an affordable, longterm fixedrate mortgage. The purpose of the pilot program is to provide households with stable mortgage payments for the life of the mortgage. Members receiving AHP subsidy must refinance or restructure existing mortgages so the resulting mortgages are fixed rate, fully amortizing first mortgages with a term of at least 30 years. Members also must match the amount of AHP direct subsidy to each household on a twotoone basis. The authority will expire on December 31, 2009. The Bank's submission raised a legal issue as to the permissible uses of AHP subsidy under the Bank Act; i.e., whether the subsidy could be used to pay costs associated with the refinancing or restructuring of an existing mortgage loan to an otherwise AHPeligible household. The legal issue is discussed in the Legal Authority section below.
D. Legal Authority
Section 10(j) of the Bank Act requires each Bank to establish,
pursuant to Finance Board regulations, an affordable housing program to
subsidize the interest rates on advances to members engaged in lending
for longterm low or moderateincome owneroccupied and affordable
rental housing at subsidized interest rates. The Bank Act further
provides that Finance Board regulations must permit Bank members to use
AHP advances to: (A) Finance homeownership by families with incomes at
or below 80 percent of the median income for the area; or (B) finance
the purchase, construction, or rehabilitation of rental housing in
which at least 20 percent of the units are for and occupied by
households with incomes at or below 50 percent of the median income for
the area. 12 U.S.C. 1430(j)(1) and (2). When Congress first enacted
these provisions, the accompanying Conference Committee Report \9\ included language regarding
[[Page 20554]]
the permissible use of AHP subsidy on which the Finance Board has long
relied in construing the Bank Act to limit permissible AHP uses to the
purchase, construction, or rehabilitation of affordable housing.\10\
\9\ See H.R. Conf. Rep. No. 101222, 101st Cong., 1st Sess.
(1989) (accompanying the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA)).
\10\ See 62 FR 41812, 41819 (Aug. 4, 1997) (citing 12 U.S.C.
1430(j)(2) in support of statement that use of AHP subsidies for
refinancing would be prohibited by the Bank Act). The relevant
Conference Committee Report language on which the Finance Board relied provided as follows:
The House bill directed each Bank to establish a program to
subsidize interest rates on advances to member institutions that
make loans for longterm affordable low and moderateincome housing
at subsidized interest rates. The House bill required each member
institution receiving advances under the program to report to the
Bank on the use of program advances. The conference report contains
the House bill with an amendment that provides standards that limit
subsidized advances to (1) loans to finance homeownership purchases
or rehabilitation by families with incomes at or below 80% of the median; and (2) to finance the purchase, construction or
rehabilitation of rental housing in which at least 20% of the units
will be occupied by and affordable for very low income households
for the remaining useful life of the property or the mortgage term. See H.R. Conf. Rep. at 43031.
The Finance Board's implementing AHP regulation does not expressly
address the use of AHP subsidy to assist members in refinancing or
restructuring mortgage loans to otherwise eligible households, although
it does implicitly bar such use by not explicitly including loan
refinancing or restructuring among the permissible uses. For example,
section 951.6(c)(4) establishes the permissible uses of AHP direct
subsidy under the homeownership setaside program, providing that AHP
subsidy may be used for down payment, closing cost, counseling, or
rehabilitation assistance in connection with a household's purchase or
rehabilitation of an owneroccupied unit. 12 CFR 951.6(c)(4).
Similarly, section 951.5(c)(1) establishes the permissible uses of AHP
subsidy under the competitive application program, providing that the
AHP subsidy may be used exclusively for the purchase, construction or
rehabilitation of eligible owneroccupied or rental housing projects.
Each of these regulatory provisions reflects a longstanding Finance
Board interpretation of section 10(j)(2) of the Bank Act that AHP
subsidy may be used only for the purchase, construction, or rehabilitation of affordable housing.\11\
\11\ Notwithstanding that longstanding interpretation, the
Finance Board has permitted the use of AHP subsidy to refinance
loans in certain narrow circumstances. Thus, section 951.5(c)(8) allows a project to use AHP subsidy under the competitive
application program to refinance an existing mortgage loan so long
as the transaction produces equity proceeds and those proceedsup
to the amount of the AHP subsidy in the projectare used for the
purchase, construction, or rehabilitation of eligible housing units.
12 CFR 951.5(c)(8). In a similar fashion, sections 951.5(c)(7) and
951.6(c)(8) permit the use of AHP subsidy to pay for counseling
costs, but only where those costs are incurred in connection with a
household's actual purchase of an AHPassisted unit. See 12 CFR
951.5(c)(7) and 951.6(c)(8). These provisions reflect an earlier
interpretation that counseling costs may qualify as ``financing
homeownership'' under section 10(j)(2)(A) of the Bank Act if they
are linked to the authorized use of purchasing a unit with AHP assistance.
On January 15, 2008, the Finance Board approved a request from the San Francisco Bank to waive certain provisions of the AHP regulation to permit the use of AHP subsidy to assist certain otherwise eligible households to refinance or restructure their existing residential mortgage loans. See Resolution No. 200801 (Jan. 15, 2008). The waiver also permitted the San Francisco Bank to use AHP subsidy to pay for homeownership or credit counseling costs incurred in connection with the loan refinancing or restructuring. That submission raised a legal issue as to the permissible uses of AHP subsidy under the Bank Act, i.e., whether the subsidy could be used to pay costs associated with the refinancing or restructuring of an existing mortgage loan to an otherwise AHPeligible household. In granting the waiver, the Finance Board considered the relevant statutory language, its legislative history, and the Finance Board's prior interpretations and concluded that the Bank Act does not direct the Finance Board to confine the use of AHP subsidy exclusively to the purchase, construction, or rehabilitation of affordable housing. Because the use of AHP subsidy to assist members of the San Francisco Bank in refinancing or restructuring mortgage loans represented a departure from past practice, however, the Finance Board committed to undertaking a rulemaking in order to consider whether it should amend its regulations to permit all of the Banks to use AHP subsidy for this purpose.
The Finance Board believes that it has the legal authority to amend its regulations to permit the Banks to use AHP subsidy to pay for costs associated with refinancing or restructuring existing mortgage loans, which costs may include homeownership or credit counseling costs incurred in connection with the transaction. In reaching that conclusion, the Finance Board has looked to the whole of section 10(j) of the Bank Act, which deals exclusively with the AHP, for guidance. As described previously, section 10(j) does not expressly prohibit (or otherwise address) the use of AHP subsidy to refinance or restructure mortgage loans. Section 10(j)(2) does establish general standards for the AHP, by requiring Finance Board regulations to allow members to use AHP subsidy to ``finance homeownership'' and to ``finance the purchase, construction, or rehabilitation'' of rental housing. Although the Finance Board has construed this provision narrowly, the Bank Act's language is in fact permissive in nature and can be construed more broadly than has been done in the past. Similarly, although there are multiple references elsewhere in section 10(j) to the purchase, construction, or rehabilitation of affordable housing that could be read to suggest a congressional intent to confine the permissible uses of the AHP subsidy to those purposes, the Finance Board believes that the Bank Act does not compel one to reach that conclusion. For example, the references in section 10(j)(3) to purchase or rehabilitation appear in the context of language that establishes certain priorities for those uses of the AHP funds, which suggests that there must be other eligible, but subordinate, uses. Arguably, that provision could mean simply that purchase and rehabilitation are to be given priority over construction of affordable housing, as that is the one other clearly specified use. In the Finance Board's view, however, the language used in establishing this priority for purchase and rehabilitation also can be read to mean that Congress contemplated that there could be other permissible uses over which purchase and rehabilitation would have priority.
Indeed, it appears clear that Congress, by enacting section
10(j)(9)(A), contemplated that the Finance Board could create other
permissible uses for the AHP subsidy. That provision explicitly directs
the Finance Board to adopt regulations that ``specify activities
eligible to receive subsidized advances from the Banks under this
program.'' 12 U.S.C. 1430(j)(9)(A). The fact that Congress expressly
has delegated to the Finance Board the authority to specify activities
that may be eligible to receive AHP subsidy is compelling evidence that
the universe of potentially eligible AHP activities need not, as a
matter of law, be confined to the purchase, construction, or
rehabilitation of affordable housing, the three uses expressly
identified in section 10(j)(2)(B). If those were the only legally
permissible uses for the AHP subsidy, Congress likely would not have
authorized the Finance Board to adopt regulations specifying the eligible AHP
[[Page 20555]]
activities, as was done in section 10(j)(9)(A).
In reading these several provisions of the Bank Act as a whole, the
Finance Board has concluded that although Congress has mandated that
the regulations must permit the use of AHP subsidy for the purposes
specified in section 10(j)(2), i.e., to finance homeownership, or the
purchase, construction, or rehabilitation of affordable rental housing,
it also has granted to the Finance Board the authority to specify other
eligible affordable housing activities. Because Congress has left open
the possibility for the Finance Board to designate additional
affordable housing activities that may be eligible for AHP subsidy, and
because Congress has not expressly addressed loan refinancing or
restructuring anywhere within section 10(j), the Finance Board believes
that the Bank Act does not require the AHP regulation to prohibit
(either expressly or by implication) the use of AHP subsidy to
refinance or restructure existing owneroccupied mortgage loans, or to
pay for homeownership or credit counseling costs incurred in connection
with such transactions. Accordingly, the Finance Board believes that it
has the authority under section 10(j)(9)(A) to amend the AHP regulation
to allow the use of AHP subsidy for owneroccupied loan refinancing or
restructuring, and is issuing this proposed rule to aid it in
determining whether, as a policy matter, it should adopt a final rule
to that effect and, if it were to do so, what limitations might be appropriate.\12\
\12\ In this regard, the Finance Board is mindful of the
previouslyquoted Conference Committee Report and the extent to
which it may have relied on that language in determining to exclude
loan refinancing or restructuring from the list of eligible uses for
AHP subsidy. Nonetheless, because Congress also delegated to the
Finance Board the authority to specify additional permissible uses
for the AHP subsidy, the Finance Board believes that it must give
precedence to the language that Congress used in the statute, rather
than the language of the Conference Committee Report. Thus, the
Finance Board does not believe that the Conference Committee Report
precludes it from exercising the authority to establish additional permissible uses for the AHP subsidy.
E. Proposed New Loan Refinancing or Restructuring Authority
In proposing the amendments to the AHP regulation, the Finance Board would temporarily extend the authority to use AHP direct subsidy to refinance or restructure mortgages to all of the Banks. The Finance Board has based the requirements of the proposed rule generally on the refinancing or restructuring setaside program as authorized for the San Francisco Bank in Resolution Number 200801. The specific requirements in the proposed rule are discussed in the Analysis of Proposed Rule section below.
The Finance Board requests comment on whether it generally is appropriate for the AHP to provide subsidies for refinancing or restructuring existing owneroccupied mortgage loans. The Finance Board also requests comment on whether the use of AHP subsidy for such loan refinancing or restructuring should be limited to specific circumstances, such as for assisting low and moderateincome households with subprime or nontraditional mortgages that are at risk of losing their homes due to unaffordable increased monthly payments after interest rate resets or principalandinterest payment recasts. In addition, the Finance Board seeks comment on other ways in which AHP direct subsidy might be used to assist households at risk of foreclosure because of increasing monthly payments due to interestrate increases or payment recasts of principal and interest.
The proposed rule would authorize a Bank to establish a program targeted to refinancing or restructuring existing subprime and nontraditional loans held by members or their affiliates. The Finance Board requests comment on whether the program authority should be extended to assist households with subprime and nontraditional mortgages that are held by lenders that are not affiliated with the member or mortgages that collateralize mortgagebacked securities (nonaffiliated lenders), and, if so, whether the lender should be obligated to reduce the loan principal, waive fees, or otherwise contribute to the assistance being provided to the homeowner. Currently, the AHP regulation permits members to access AHP direct subsidy to provide down payment and closing cost assistance to households purchasing a home, regardless of whether the household is financing the purchase with the member providing the assistance, with another member, or with a nonaffiliated lender. A Bank, in its discretion, may require a member to make the mortgage on the assisted home purchase.
Under the proposed rule, a member using AHP subsidy to refinance or restructure its own or an affiliate's loan would have to pay, directly or indirectly, an amount equal to at least two times the amount of AHP subsidy toward eligible uses of the subsidy. Moreover, the proposed rule would prohibit members from charging certain costs associated with refinancing, such as prepayment penalties and fees. The same requirement could be difficult to impose upon a nonaffiliated lender as a condition of the household receiving AHP direct subsidy, especially where the mortgage is included in a pool collateralizing a mortgage backed security. Consequently, the lender could be relieved of a problem loan without any financial consequences. At the same time, households with loans that are not held in portfolio by financial institutions have few options and little flexibility for working out or restructuring their mortgages. Such households may be in greater need of assistance than households that can work directly as customers with the local depository institutions that hold their loans.
The Finance Board requests comment on whether, if the AHP subsidy could be used to assist households to refinance loans held by nonaffiliated lenders, there should still be prohibitions on certain uses of AHP subsidy, for example, for prepayment penalties and payoff fees to the nonaffiliated lender. If the AHP could not be used to pay prepayment penalties and payoff fees to nonaffiliated lenders, then the Finance Board requests comment on how a household would pay such costs in order to refinance its mortgage.
In considering the use of AHP subsidy to refinance eligible
households with loans held by nonaffiliated lenders rather than
members, the Finance Board also requests comment on how else the
subsidy could be used to assist households. For example, many
households with subprime and nontraditional loans cannot refinance into
lowercost, 30year fixedrate mortgages because the values of their
homes declined and the households no longer have sufficient equity to
qualify, or because the household's loan payments would exceed the
maximum debttoincome ratios of the new lender. The Finance Board
requests comment on whether AHP direct subsidy should be used to pay
down principal or to provide equity, similar to down payment
assistance, in order to allow the household to qualify for a new loan
from a member or another entity, especially from federal, state, and
local government entities with programs specifically targeted to
refinancing subprime and nontraditional mortgages such as FHASecure,
and state or local bond programs. For example, if a household did not
have the necessary 3 percent equity to qualify to refinance with an FHA
or FHASecure mortgage with a maximum loantovalue ratio of 97 percent,
then the AHP subsidy could be used to reduce the principal in order to
achieve the qualifying loantovalue ratio. Alternatively, the AHP subsidy could be used to reduce the principal
[[Page 20556]]
amount of the loan to a level that would result in monthly payments
that would meet the lender's underwriting ratios for household debt and
expenses. Such an approach has the benefit of leveraging and enhancing
refinancing initiatives by the U.S. Department of Housing and Urban
Development (HUD) and state and local housing finance agencies aimed at
preventing foreclosures and helping to stabilize communities. The
Finance Board requests comment on how AHP subsidy could be used in
conjunction with federal, state, and local programs designed to assist
households in refinancing subprime and nontraditional mortgages.
As discussed earlier, extensive foreclosures and vacant properties can have an adverse effect on a community. The impact of preventing multiple foreclosures concentrated in one community may be greater than that of preventing the same number of foreclosures spread across multiple communities. Because of the nature of the housing problems that have given rise to the Finance Board proposing to allow the temporary use of AHP direct subsidy for refinancing or restructuring existing mortgages, the Finance Board requests comment on whether such refinancing or restructuring assistance should be targeted to households located within neighborhoods and communities that may be at higher risk for defaults and foreclosures. Given the concentration of subprime and nontraditional mortgage products in many low or moderate income communities, it may be possible to help the households that are affected directly by unaffordable mortgage payments while indirectly assisting their neighbors by mitigating the negative spillover effects of foreclosures. Many of these neighborhoods are served by community based organizations that are participating in homeownership and foreclosure prevention counseling programs and have been certified by HUD and the National Foreclosure Mitigation Counseling Program.
Many such communitybased organizations serve welldefined areas, have knowledge of the local housing structure and market, have expertise in financing resources and requirements, and currently have counseling relationships with households at risk of foreclosure. These organizations routinely help households obtain the necessary combinations of subsidies and longterm, fixedrate financing in order to purchase and rehabilitate homes and prevent the loss of their homes. The Finance Board requests comment on whether members should be able to apply for AHP direct subsidies under a refinancing setaside program on behalf of communitybased organizations, rather than households directly, and whether doing so could facilitate the use of AHP subsidy to help stabilize communities that are weakened by higher rates of foreclosures.
The Finance Board intends to publish a comprehensive final rule
that incorporates reasonable and appropriate suggestions from
commenters. At the same time, the Finance Board recognizes that there
may be other ways in which to refinance atrisk households, which are
not covered in the specific proposed rule or in this discussion and may
not be raised by commenters. The Finance Board requests comment on
whether a final rule should include a provision allowing a Bank to
apply to the Finance Board for prior approval to establish an AHP refinancing program not covered by a final rule.
II. Analysis of Proposed Rule
A. Loan Refinancing or Restructuring Programs: Proposed Section 951.6(f)(1)
1. General
The proposed rule would add a new paragraph (f) under the existing
homeownership setaside program provisions of section 951.6 of the AHP
regulation, which would authorize a Bank, in its discretion, to
establish one or more homeownership setaside programs for the use of
AHP direct subsidy by its members to refinance or restructure eligible
households' nontraditional or subprime mortgage loans. As a general
proposition, the Finance Board is proposing that any new program must
comply with the existing requirements in section 951.6, except for
certain specified provisions, as well as with the requirements of part
951. Thus, the existing provisions in section 951.6 governing eligible
member applicants, member allocation criteria, household income
eligibility, Bank discretionary authority to adopt additional household
eligibility requirements, maximum subsidy per household, fiveyear
retention agreements, financial or other concessions, financing costs,
de minimis cash backs, application approvals, funding procedures,
reservation of subsidies, and progress towards use of the subsidy, all
would apply to a Bank's loan refinancing or restructuring program. See
12 CFR 951.6(b), (c)(1), (c)(2)(i), (c)(2)(iii), (c)(3), (c)(5)(c)(7),
(c)(9), (d), and (e). Similarly, a Bank's loan refinancing or
restructuring program must otherwise meet the requirements of part 951,
including the monitoring, recapture and agreements provisions in
sections 951.7, 951.8, and 951.9, respectively. The proposal also
provides, however, that the requirements in section 951.6(c)(2)(ii),
(c)(4), and (c)(8) do not apply to the new programs, nor does the
provision of section 951.6(c)(2)(iii) that relates to firsttime homebuyers.\13\
\13\ Existing section 951.6(c)(4) sets forth the eligible uses
of AHP subsidy under a Bank's homeownership setaside program, which do not include loan refinancing or restructuring. 12 CFR
951.6(c)(4). Existing section 951.6(c)(8) provides that AHP set
aside subsidies may be used to pay for counseling costs only where
the costs are incurred in connection with a homebuyer's purchase of an AHPassisted unit. See 12 CFR 951.6(c)(8).
2. Funding Allocation
A Bank's loan refinancing or restructuring program, as a
homeownership setaside program under section 951.6, would be subject
to the maximum funding allocation limits applicable to setaside
programs under existing section 951.2(b)(2). Thus, under section
951.2(b)(2), a Bank, in its discretion, may set aside annually, in the
aggregate, up to the greater of $4.5 million or 35 percent of the
Bank's annual required AHP contribution to provide funds to members
participating in all homeownership setaside programs, including loan
refinancing or restructuring programs established by the Bank, provided
that at least onethird of the Bank's aggregate annual setaside
allocation to such programs is targeted to assist firsttime
homebuyers.\14\ In maintaining the onethird allocation requirement for
firsttime homebuyers, the proposed rule ensures that the Bank
continues to provide assistance to low and moderateincome firsttime
homebuyers. The Finance Board requests comment on whether the rule
should continue to require that a Bank using its setaside authority
under proposed new paragraph (f) meet the firsttime homebuyer
requirement. Alternatively, the Finance Board seeks comment on whether
the amount of a Bank's allocation to its refinancing or restructuring
program should be excluded from the total setaside allocation prior to
calculating the onethird requirement for assistance to firsttime homebuyers.
\14\ See 12 CFR 951.2(b)(2). A Bank also may allot to its
current year's AHP from its annual required AHP contribution for the
subsequent year, an amount up to the greater of $2 million or 20
percent of its annual required AHP contribution for the current year. 12 CFR 951.2(b)(3).
The Finance Board also requests comment on whether to permit a Bank
to allocate to a refinancing or restructuring program, as proposed, a
portion of its annual AHP contribution in excess of the maximum permitted for
[[Page 20557]]
allocation to the homeownership setaside programs. Doing so would
decrease the amount of the Bank's annual AHP contribution that would be
available to projects, including rental projects, which access the
program through the competitive application process and serve other
housing needs of very low and low or moderateincome households. At
the same time, the scope of the current need for refinancing or
restructuring of subprime and nontraditional mortgages may justify such an increase in the allocation.
B. Definitions: Proposed Section 951.6(f)(2)
Proposed paragraph (f)(2) would add two new definitions of terms
related to the loan refinancing or restructuring authority as used in
paragraph (f). The proposed definitions are discussed below in the context of specific regulatory requirements.
C. Member Allocation Criteria: Proposed Section 951.6(f)(3)
Proposed paragraph (f)(3) would require that if a Bank opts to allocate AHP subsidy under its loan refinancing or restructuring program through a procedure in which members reserve upfront allocations prior to enrolling households, rather than one in which members reserve AHP subsidy as they enroll individual households, the Bank must establish a period of time during which all members may apply for the subsidy. At the end of that period, the Bank must determine the amount of the AHP subsidy it will reserve for each participating member, based on the number and amount of member requests, a member's capacity to perform under the terms of the program, and the amount of AHP direct subsidy available.
Currently, some Banks use the upfront member reservation procedure,
while other Banks use the member reservation upon household enrollment
procedure in allocating AHP subsidy to members. The standards in the
proposed rule for the upfront member reservation procedure are intended
to ensure that the funds are reserved in a fair and equitable manner
and that a Bank does not favor particular members by allowing them to
reserve access to the program upfront on a member firstcome, first
served basis to the exclusion of other members. This is because, under
the proposed program, members are already holding the loans that they
will refinance or restructure and can estimate demand, while, under the
homeownership setaside program for down payment or rehabilitation
assistance, members do not know what the demand will be. Typically,
under those homeownership setaside programs, if a member reserves an
upfront allocation, even on a member firstcome, firstserved basis,
and does not commit its entire reserved subsidy by a certain date, the
amount reverts to the pool which the Bank makes available for other
members. Under the proposed program, however, a member will know that
it can refinance or restructure enough loans in its portfolio to use up
its entire reservation, thus, the first members to reserve funds on a
member firstcome, firstserved basis would effectively exclude all
other members from access to the program. Consequently, the proposed
rule would require that, if a Bank chooses to permit members to reserve
upfront allocations of AHP funds, the Bank may not do so on a member
firstcome, firstserved basis, but must do so by determining the
demand by all interested members and allocating the funds fairly and
equitably based on the estimates of individual members' need for funding and the amount of subsidy available.
D. Household Access and Notification: Proposed Section 951.6(f)(4)
Proposed paragraph (f)(4)(ii) would require that members
participating in a Bank's loan refinancing or restructuring program
make the AHP direct subsidy available to eligible households on a firstcome, firstserved basis. This is consistent with the
implementation of the homeownership setaside program when AHP subsidy
is used for purchase or rehabilitation assistance. This requirement is
specified in the proposed rule to ensure that the member does not
select those loans in its portfolio that would most benefit the member
if they were refinanced or restructured with AHP assistance.
Consequently, proposed paragraph (f)(4)(i) would require participating members to inform all mortgage loan customers of the availability of AHP direct subsidy under the program to assist in such loan refinancing or restructuring, in order to ensure that potentially eligible households are aware of the program and can independently seek assistance from the member. The member could do so by including a notification in regular mailings or statements to its mortgage customers, or by posting the information prominently on its Web site. E. Eligible Loans: Proposed Section 951.6(f)(5)
Proposed paragraph (f)(5) would provide that a loan is eligible to
be refinanced or restructured with AHP direct subsidy if it meets all of the requirements discussed below.
(i) Member or affiliate loan. Under the proposed rule, the loan
refinancing or restructuring program must be limited to loans
originated and/or held by Bank members or their affiliates. One reason
for including this limitation is that it allows the Bank to require a
member to contribute its own funds or other resources as a condition to
receiving the AHP subsidy. Nonetheless, the Finance Board requests
comment on whether it is appropriate to provide AHP subsidy to such
members because doing so also could be perceived as using AHP subsidy
to mitigate the losses of members that made or purchased the nontraditional or subprime loans.
As in Section I.E., above, the Finance Board also requests comment on whether it would be appropriate to allow a member to use AHP subsidy to refinance owneroccupied mortgage loans that are held by other entities. Such a situation could arise, for example, if a household were to apply to a member to refinance a mortgage that is held by a third party, such as another financial institution or an issuer of mortgagebacked securities. In that case, although the household would benefit from the AHP subsidy by obtaining an affordable loan, the refinancing would also benefit the entity holding the loan by removing an ``at risk'' loan from its books without having any obligation to pay for or otherwise absorb any of the costs of the refinancing. Many of these thirdparty lenders or loan servicers for mortgages that have been sold into the secondary market may not have the same obligation or incentive to renegotiate their loans or forego any increase in the interest rate on their loans, as would a member that holds these loans in portfolio.
In approving the waiver for the San Francisco Bank, the Finance
Board accepted the requirement that the members participating in the
program also must contribute to the costs of the refinancing, and has
retained that approach in the proposed rule. Nevertheless, before
adopting a final rule that would retain that restriction, the Finance
Board believes that it should solicit public comment on whether the
concerns about the possibility of a ``windfall'' to such entities that
own the loans should be overridden by the demonstrated need of
households that would benefit from the receipt of AHP subsidy and that
may not otherwise be able to negotiate a refinancing or restructuring of their loans.
(ii) Owneroccupied. Under the proposed rule, the loan to be refinanced
[[Page 20558]]
must be secured by an owneroccupied unit that is the primary residence
for the household. This is consistent with the existing requirements of
the homeownership setaside program for purchase assistance, and with
the existing requirements for homeownership projects under the AHP
competitive application program, which do not permit AHP subsidy
assistance for the purchase, construction or rehabilitation of second
homes such as vacation homes. 12 CFR 951.5(c)(1)(i) and 951.6(c)(4).
(iii) Nontraditional or subprime loan. Under the proposed rule,
only a mortgage that is a nontraditional mortgage loan as defined by
the Interagency Guidance on Nontraditional Mortgage Product Risks,
issued October 4, 2006 (published at 71 FR 58609) (Interagency
Guidance), or an ARM to a subprime borrower with features described in
the Interagency Final Statement on Subprime Mortgage Lending, effective
July 10, 2007 (published at 72 FR 37569) (Interagency Final Statement),
is eligible. An ARM is a mortgage loan with an interest rate that
fluctuates in accordance with a designated market indicator over the life of the loan.
The Interagency Guidance defines a nontraditional mortgage loan as a residential mortgage loan product that allows the borrower to defer repayment of principal or interest, including ``interestonly'' mortgages where a borrower pays no loan principal for the first few years of the loan, and ``payment option'' ARMs where a borrower has flexible payment options with the potential for negative amortization. Nontraditional mortgages do not include: Fully amortizing residential mortgage loan products; reverse mortgages; and closedend secondlien or home equity lines of credit (HELOCs) unless they were originated simultaneously with the first lien mortgage loan. Specifically, the Interagency Guidance defines an interestonly loan as a nontraditional mortgage on which, for a specified number of years (e.g., three or five years), the borrower is required to pay only the interest due on the loan during which time the rate may fluctuate or may be fixed. After the interestonly period, the rate may be fixed or fluctuate based on the prescribed index and payments include both principal and interest. The Interagency Guidance defines a payment option ARM as a nontraditional mortgage that allows the borrower to choose from a number of different monthly payment options, such as a minimum payment option based on a ``start'' or introductory interest rate, an interest only payment option based on the fully indexed interest rate, or a fully amortizing principal and interest payment option based on a 15 or 30year loan term, plus any required escrow payments. The minimum payment option can be less than the interest accruing on the loan, resulting in negative amortization when the unpaid interest is added to the loan's principal. If the loan reaches a certain negative amortization cap, the required monthly payment amount is recast to establish a payment level that would fully amortize the outstanding balance over the remaining loan term, although the household would still have the option of paying less than the fully amortizing amount each month. The interestonly option avoids negative amortization but does not provide for principal amortization. After a specified number of years, the household must start paying the principal, and the required monthly payment amount is recast to require payments that will fully amortize the outstanding balance over the remaining loan term of the loan.
The Interagency Final Statement defines a subprime borrower as a borrower displaying one or more credit risk characteristics at the time of loan origination or purchase, as set forth in the Interagency Expanded Guidance for Subprime Lending Programs (Expanded Guidance) (Jan. 31, 2001), and LCU 04CU13Specialized Lending Activities for federally insured credit unions. A subprime loan is a loan to such a borrower. According to the Expanded Guidance, subprime borrowers typically are borrowers with weakened credit histories that include payment delinquencies and possibly more severe problems such as charge offs, judgments, and bankruptcies. Subprime borrowers also may display reduced repayment capacity as measured by credit scores, debttoincome ratios, or other criteria such as incomplete credit histories. The Expanded Guidance includes an illustrative list of specific credit risk characteristics displayed by subprime borrowers. Subprime loans have a higher risk of default than loans to prime borrowers.
The Finance Board requests comment on whether loans eligible to be
refinanced with AHP subsidy should be limited to purchase money
mortgages, or should also include nonpurchase money first mortgages
that the household used to refinance a previous loan and in which the
household took out equity as part of the transaction. If the AHP were
used to refinance such nonpurchase money first mortgages, then the
Finance Board also requests comment on whether there should be a limit
as to how much equity the household has taken out of the home through
previous refinancing and, if so, what that limit should be. In this
regard, the Finance Board also requests comment on whether, and under
what circumstances, the proposed refinancing authority should permit
the refinancing of separate first and second mortgages into a single
combined new mortgage assisted with AHP subsidy, where the second mortgage was used to take equity out of the home.
(iv) Origination date. Under the proposed rule, the loan must have
been originated on or before July 10, 2007. This date is the effective
date of the Interagency Final Statement. Consequently, any subprime
loans made after that date should not be eligible for AHP subsidy. The
proposed rule would make nontraditional loans subject to this effective date as well.
The proposed rule does not include a requirement that the loan to
be refinanced or restructured must have been originated after a certain
cutoff date in the past. For example, both the Presidential initiative
to freeze interest rates on subprime loans (December 6, 2007) and the
``FHA Housing Stabilization and Homeownership Retention Act of 2008''
proposed by the Chairman of the House Committee on Financial Services
in March 2008, require that the loan to be refinanced must have been
originated on or after January 1, 2005. Subprime lending expanded
significantly after 2003, with recordbreaking origination volumes in
2005, when subprime loans accounted for about 23 percent of total
residential mortgage originations.\15\ The interest rates on most of
these loans will have begun adjusting in 2007 and 2008. The Finance
Board requests comment on whether such a cutoff date should be included in the rule.
\15\ ``A Short History of Subprime,'' Brenda B. White, Mortgage Banking (March 1, 2006).
(v) Adjustment. The proposed rule would require that in order to be
eligible for AHP subsidy, the interest rate on a loan must have reset,
or the principal and interest payments under the loan must have been
recast, prior to the date of the household's enrollment in the program;
or the interest rate must be scheduled to reset, or the principal and
interest payments under the loan must be scheduled to be recast, within
120 days after the date of the household's enrollment in the program.
Loan limit. The proposed rule would not establish a limit on the
outstanding principal balance of the loan to be refinanced. In Resolution Number 2008
[[Page 20559]]
01, the Finance Board required that the loan have an outstanding
principal balance of $417,000 or less to be eligible for refinancing.
This amount is the conforming loan limit for Federal National Mortgage
Association (Fannie Mae) and Federal Home Loan Mortgage Corporation
(Freddie Mac) purchases of mortgages on owneroccupied units that was
in effect at the time of Resolution Number 200801. In addition, under
Resolution Number 200801, eligible loans had to be originated on or
before July 10, 2007. Consequently, the conforming loan limit at the
time of the origination of an eligible loan would not have exceeded
$417,000. The Finance Board requests comment on whether loans eligible
for refinancing or restructuring with AHP assistance should be subject
to a maximum amount. If a limit is appropriate, the Finance Board
requests comment on what that limit should be, such as the Fannie Mae/
Freddie Mac conforming limit in place at the time at the time of
Resolution Number 200801, or the higher conforming loan limits authorized by the Economic Stimulus Act of 2008.
F. Eligible Households: Proposed Section 951.6(f)(6)
Proposed paragraph (f)(6) would provide that a household is
eligible to receive AHP direct subsidy for the refinancing or
restructuring of its loan if the household meets all of the
requirements discussed below. The Finance Board requests comment on
whether these eligibility criteria are appropriate, and whether any
other eligibility criteria should be required for selection of households to participate in the program.
(i) Delinquency prior to adjustment. The proposed rule would
require that the household has not been more than 30 days delinquent on
its loan payments prior to the adjustment in the interest rate or
principal and interest payments. The purpose of the proposed program is
to assist households that can no longer afford, or will no longer be
able to afford, their mortgage payments solely because of a recent or
forthcoming increase in payments resulting from an interestrate
increase or a recast of principal and interest. The proposed
requirement would help to ensure that the household can maintain its
mortgage obligation after the refinancing or restructuring. The Finance
Board requests comment on whether a household should be eligible if it
was more than 30 days delinquent on its loan payments prior to the
adjustment. The Finance Board also requests comment on whether a
household should be eligible only if the cause of its existing or
potential delinquency is the adjustment, and not other personal financial setbacks, such as job loss, illness or divorce.
(ii) Unsustainable loan payments after adjustment. The proposed
rule would require that, as a result of the adjustment in the interest
rate or principal and interest payments, the household has or will have
a total housing cost ratio exceeding 45 percent. Proposed paragraph
(f)(2) would define ``total housing cost ratio'' to mean the
household's total monthly principal and interest payments, mortgage
insurance premiums, property taxes, hazard insurance premiums, flood
insurance premiums, and homeowner association or condominium fees as a
percentage of the household's gross monthly income. On September 4,
2007, the Federal Deposit Insurance Corporation (FDIC), the Conference
of State Bank Supervisors, and the American Association of Residential
Mortgage Regulators issued a joint statement cautioning lenders that a
household monthly debttoincome ratio, which they describe as
including principal, interest, taxes, and insurance, above 50 percent
increases the likelihood of future difficulties on repayment and
delinquencies or defaults. In addition to establishing a total housing
cost ratio of 45 percent as a threshold to determine household
eligibility for AHPassisted refinancing, the proposed rule would
permit the use of AHP subsidy to achieve a new loan with a total
housing cost ratio no greater than 45 percent for the assisted
household. The Finance Board requests comment on whether the 45 percent
ratio limit is an appropriate threshold for assessing whether a payment
is sustainable for a low or moderateincome household. The Finance
Board also requests comment on whether it would be a reasonable use of
AHP subsidy to allow a Bank to establish a maximum total housing cost ratio lower than 45 percent.
The proposed rule is predicated on the fact that the household was current on its mortgage payments prior to the interestrate increase or payment recast, and can no longer afford its monthly housing payments solely as a result of the interestrate increase or payment recast. Under the proposed rule, it may be possible that an eligible household already had a total housing cost ratio higher than 45 percent under the terms of its original loan prior to the adjustment to the interest rate or principal and interest payments, and past performance would indicate that the household could have sustained its payments at that initial level if the loan payments had not adjusted upward. In this case, the proposed refinancing or restructuring, by using AHP subsidy to reduce the household's total housing cost ratio below 45 percent of its income, would make the household better off financially than it was prior to the adjustment by refinancing the household into a loan with lower payments than the household's initial payments.
The Finance Board requests comment on whether it is appropriate to
use AHP subsidy to assist a household to refinance into a longterm,
fixedrate mortgage with total housing cost payments that are lower
than the payments the household had prior to the interestrate or
principalandinterest adjustments that the proposed program seeks to mitigate.
(iii) Maximum home equity. The proposed rule would provide that the
household's equity in the home may not exceed the greater of $50,000 or
20 percent of the newly appraised value of the home. Under the current
homeownership setaside program provisions of the AHP regulation, the
issue of household equity does not arise for home purchase assistance,
and household equity is not included as an eligibility standard for
rehabilitation of owneroccupied units. The nature of the refinancing
or restructuring transaction raises the issue of whether there should
be a limit on the amount of a household's equity in the home. In many
cases, the existence of significant equity in a home could enable a
household to qualify for refinancing without AHP assistance.
Substantial equity also represents a financial resource that the
household could draw upon to assist in addressing its mortgage
obligations. The Finance Board requests comment on whether maximum
household equity is an appropriate eligibility requirement and, if so, whether the proposed maximum amount is appropriate.
(iv) Maximum household financial assets. The proposed rule would
provide that the household may not have more than $35,000 in total
financial assets, excluding equity in the home being refinanced or
restructured, taxdeferred retirement and education savings, and assets
liquidated by the household to pay for eligible uses of AHP subsidy as
defined in paragraph (f)(7). In proposing this requirement, the Finance
Board intends that the AHP assistance be available to households that
have limited other financial resources with which to mitigate or
resolve their financial problems related to their level of mortgage payments. The Finance Board requests comment on
[[Page 20560]]
whether it is reasonable to include limitations on the amount of wealth
a household may have to be eligible, whether the limitations should be
based on home equity and total financial assets or net worth, and
whether the proposed limitations are appropriate. In particular, the
Finance Board requests comment on whether the determination of maximum
total financial assets should exclude all or a portion of a household's
taxdeferred retirement and education savings, as these may represent
significant accrued wealth that the household might otherwise be
expected to draw upon to address financial problems. The Finance Board
also requests comment on whether a household should be required to
contribute to the costs of the refinancing or restructuring of its
loan. Under the homeownership setaside program for purchase or
rehabilitation, for example, ten Banks require that the household make
a minimum contribution to the purchase or rehabilitation of the home,
or award subsidy to the household based on the amount of the
household's contribution to the down payment, closing costs or rehabilitation assistance.
(v) Homeownership counseling. Under the proposed rule, the
household must complete a homeownership or credit counseling program
provided by, or based on one provided by, an organization experienced
in homeownership or credit counseling. The Finance Board believes that
an AHPassisted household should receive such counseling in connection
with the loan refinancing or restructuring in order to help the
household avoid delinquency or foreclosure through poor financial
management or unsuitable future refinancing or restructuring of the AHPassisted loan.
G. Eligible Uses of AHP Direct Subsidy: Proposed Section 951.6(f)(7)
Proposed paragraph (f)(7) would require members participating in a
Bank's refinancing or restructuring program to provide the AHP direct
subsidy for the purpose of paying for one or more of the eligible uses discussed below.
(i) Interest rate buydown. Under the proposed rule, the AHP subsidy
may be used to buy down permanently the interest rate of the
household's loan. The interestrate buydown must be calculated as the
amount of AHP direct subsidy necessary to reduce the Freddie Mac
Primary Mortgage Market Survey weekly national average 30year fixed
rate mortgage rate (Freddie Mac national average rate) to a rate that
will achieve, in conjunction with the use of the subsidy for principal
reduction as applicable, a household total housing cost ratio of 45
percent or less. The Finance Board proposes that the calculation of the
amount of subsidy needed for the buydown be based on the net present
value of the earnings difference between the household's reduced
interest rate and the higher Freddie Mac national average rate for 10
years because most residential mortgages prepay within the first 10
years of the loan. This requirement also would be consistent with the
pilot program previously approved for the San Francisco Bank.
(ii) Principal reduction. Under the proposed rule, the AHP subsidy
may be used for reduction in the principal balance of the household's
loan, calculated as the amount of AHP direct subsidy necessary to
reduce the principal to achieve: (A) In conjunction with the use of the
subsidy for an interest rate buydown as applicable, a household total
housing cost ratio of 45 percent or less; and (B) a maximum loanto
value ratio of 97 percent based on the home's newly appraised value.
The Finance Board requests comment on whether an eligible use of the
AHP subsidy should be to pay down loan principal that is the result of
negative amortization (adding unpaid interest to the loan principal) on
loans, such as option ARMs, that allowed the household the choice each
month of paying less than the minimum amount necessary to pay the interest on the loan with no repayment of principal.
(iii) Qualifying loan refinancing or restructuring costs. Under the
proposed rule, the AHP subsidy may be used to pay for qualifying loan
refinancing or restructuring costs, reduced by the amount of any
household or other third party contributions towards such costs.
``Qualifying loan refinancing or restructuring costs'' are defined in
proposed paragraph (f)(2) as the following costs incurred in connection
with a member's refinancing or restructuring of a household's loan:
Property taxes and insurance payments previously paid by the lender on
behalf of the household; accrued interest on the loan; and reasonable
closing costs for the new AHPassisted refinanced loan paid to bona
fide third parties, as documented on a HUD1A Settlement Statement. The
Finance Board requests comment on whether these costs are appropriate for the use of AHP subsidy.
(iv) Homeownership counseling costs. Under the proposed rule, the
AHP subsidy may be used for homeownership or credit counseling costs
incurred by the household in connection with the refinancing or
restructuring of its loan. The Finance Board believes that this is a
reasonable use of AHP subsidy as such counseling will help the
household avoid delinquency or foreclosure through poor financial
management or unsuitable future refinancing or restructuring of the AHPassisted loan.
H. Maximum Subsidy Amount; Required Member Payments: Proposed Section 951.6(f)(8)
In this proposal, the Finance Board would require each member receiving AHP subsidy to contribute from its own resources an amount at least equal to two times the amount of the AHP subsidy received towards the eligible uses of the AHP subsidy. Proposed paragraph (f)(8) also would require that a member provide the AHP direct subsidy as a grant, in an amount up to a maximum of $15,000 per household, as established by the Bank in its AHP Implementation Plan, which limit applies to all households. The member may not count toward meeting this obligation the value of any fees or compensation that the member may not charge under proposed paragraphs (f)(9)(i) and (ii)(B).
The proposed maximum subsidy limit of $25,000 is consistent with
the maximum subsidy limit the Finance Board approved in Resolution
Number 200801 for the San Francisco Bank refinancing program. The
Finance Board believes that the need for assistance for refinancing or
restructuring subprime and nontraditional loans warrants a temporary
increase in the current AHP homeownership setaside limit of $15,000 in
order to allow for such assistance. Despite the current maximum of
$15,000 per household, in 2007 the actual amount of subsidy provided to
a household averaged approximately $5,400 under the homeownership set
aside program, and $7,915 for homeownership projects under the
competitive application program. The Finance Board requests comment on
whether $25,000 is the appropriate limit on the amount of AHP subsidy
that may be provided per household under the proposed refinancing or restructuring program.
I. Loan Refinancing or Restructuring Requirements: Proposed Section 951.6(f)(9)
(i) Original loan. Proposed paragraph (f)(9)(i)(A) would require
that members waive any prepayment fees for the household's prepayment
FOR FURTHER INFORMATION CONTACT
Karen Walter, Associate Director, Office of Supervision, by electronic mail at walterk@fhfb.gov or by telephone at 2024082829; Charles E. McLean, Associate Director, Office of Supervision, by electronic mail at mcleanc@fhfb.gov or by telephone at 2024082537; Melissa L. Allen, Senior Program Analyst, Office of Supervision, by electronic mail at allenm@fhfb.gov or by telephone at 2024082524; or Sharon B. Like, Senior AttorneyAdvisor, 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.