[Federal Register Volume 62, Number 149 (Monday, August 4, 1997)]
[Rules and Regulations]
[Pages 41812-41839]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20046]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 960
[No. 97-44]
RIN 3069-AA28
Amendment of Affordable Housing Program Regulation
AGENCY: Federal Housing Finance Board.
ACTION: Final rule.
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SUMMARY: The Federal Housing Finance Board (Finance Board) is amending
its regulation governing the operation of the Affordable Housing
Program (AHP or Program). Among the significant changes made by the
final rule are: transfer of approval authority for AHP applications
from the Finance Board to the Federal Home Loan Banks (Banks);
modification of the competitive scoring process under which AHP
subsidies are allocated among housing projects; establishment of
specific standards and retention periods for monitoring of AHP-assisted
housing projects; and clarification and expansion of the types of
remedies available in the event of noncompliance with AHP requirements.
The final rule is in furtherance of the Finance Board's continuing
effort to devolve management and governance authority to the Banks. It
also is consistent with the goals of the Regulatory Reinvention
Initiative of the National Performance Review.
DATES: The final rule is effective on January 1, 1998. Compliance with
Sec. 960.3(b) shall begin on September 3, 1997.
FOR FURTHER INFORMATION CONTACT: Richard Tucker, Deputy Director,
Compliance Assistance Division, (202) 408-2848, or Diane E. Dorius,
Associate Director, Program Development Division, (202) 408-2576,
Office of Policy; or Sharon B. Like, Senior Attorney-Advisor, (202)
408-2930, or Brandon B. Straus, Senior Attorney-Advisor, (202) 408-
2589, Office of General Counsel, Federal Housing Finance Board, 1777 F
Street, N.W., Washington, D.C. 20006.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
Section 10(j)(1) of the Federal Home Loan Bank Act (Act) requires
each Bank to establish a Program to subsidize the interest rate on
advances to members of the Federal Home Loan Bank System (Bank System)
engaged in lending for long-term, low- and moderate-income, owner-
occupied and affordable rental housing at subsidized interest rates.
See 12 U.S.C. 1430(j)(1). The Finance Board is required to promulgate
regulations governing the Program. See id. The Finance Board's existing
regulation governing the operation of the Program is set forth in part
960 of the Finance Board's regulations. See 12 CFR part 960. The
Program has been operating successfully for approximately seven years.
As a result of the Finance Board's and the Banks' experience in
administering the Program, on January 10, 1994, the Finance Board
issued a notice of proposed rulemaking, which was published in the
Federal Register, that proposed changes to improve operation of the
Program. See 59 FR 1323 (Jan. 10, 1994). The Finance Board received
over 100 comment letters. During the following 18-month period, the
Finance Board was without a quorum and was unable to take action on the
proposed rule.
On September 25, 1995, the Finance Board published a final rule
amending the AHP regulation to permit the Banks to set aside of portion
of their required annual AHP contributions to fund homeownership set-
aside programs to provide downpayment and closing cost assistance to
low-and moderate-income homebuyers. See 60 FR 49327 (Sept. 25, 1995).
On November 1, 1995, the Finance Board published for comment a proposal
to amend the existing AHP regulation to authorize the Banks, in their
discretion, to establish limits on the maximum amount of AHP subsidy
that may be requested per member, per project application, or per
project unit, for a given funding period. See 60 FR 55487 (Nov. 1,
1995) (Subsidy Limits Proposal). The Finance Board received
[[Page 41813]]
25 comment letters on the Subsidy Limits Proposal.
Given the passage of time since the 1994 and 1995 notices of
proposed rulemaking, and the additional experience of the Finance Board
and the Banks in overseeing and administering the Program, the Finance
Board issued a new comprehensive proposal to revise the Program, which
was published in the Federal Register on November 8, 1996, with a 90-
day period for public comment. See 61 FR 57799 (Nov. 8, 1996). The
Finance Board received over 270 comments on the proposed rule.
Commenters included: all of the Banks and their Advisory Councils; Bank
members; not-for-profit organizations; trade associations; a member of
Congress; a federal agency; state and local government agencies; and
others.
II. Analysis of the Final Rule
A. In General
The final rule makes changes to a number of the aspects of the
Program that were highlighted in the notice of proposed rulemaking,
including: (1) Scoring and approval of AHP applications for funding;
(2) retention of AHP-assisted housing; (3) monitoring of AHP-assisted
housing; (4) and remedies for noncompliance with AHP requirements.
These changes are intended to provide clearer standards for operation
of the Program and reduce regulatory burden, while continuing to
identify and prevent misuse of AHP subsidies. Many of the changes
codify successful practices developed by the Banks in implementing the
Program. The amendments also should make the Program more responsive to
low- and moderate-income housing needs in each of the twelve Bank
Districts (Districts), increase efficiency in the administration of the
Program, and enhance coordination of the Program with other housing
programs whose funds are used in conjunction with AHP subsidies.
The final rule also reorganizes and streamlines the text of the
regulation. The structure of the final rule is significantly revised
from that of the proposed rule in order to, among other things: (1)
separate Program standards from procedures; (2) integrate the
provisions governing the Banks' homeownership set-aside programs with
corresponding provisions governing the Banks' competitive application
programs; (3) clarify the roles of the Banks, members, and other
parties involved in the Program; and (4) identify the kinds of
agreements that must be in place in order to ensure compliance with
Program requirements.
The Finance Board is making these changes in the larger context of
devolving to the Banks the authority to make final funding decisions
for AHP projects. Decentralization of funding decisions under the
Program is consistent with the Finance Board's ongoing efforts to
transfer to the Banks those functions performed by the Finance Board
that are related to Bank management and governance. Further, the
Finance Board believes that, in light of the Banks' seven years of
experience evaluating and processing AHP applications, the Banks are
prepared to take on this new authority. A large majority of comments on
the proposed rule supported the transfer of approval authority for AHP
applications from the Finance Board to the Banks. The Finance Board
will continue to exercise its supervisory oversight role through
examinations of each Bank's Program.
B. Effective Dates and Existing AHP-Assisted Projects
1. Dates
In order to provide the Banks sufficient time to prepare to
administer the Program under the revised AHP regulation, the provisions
of the final rule will become effective on January 1, 1998. However,
compliance with Sec. 960.3(b) shall begin on September 3, 1997. As
further discussed below, Sec. 960.3(b) requires each Bank to adopt an
AHP implementation plan setting forth key policies and procedures
governing the Bank's Program.
2. Application of the Final Rule to Existing AHP-Assisted Projects
Section 960.16 of the final rule makes clear that the provisions of
the final rule apply to all existing AHP-assisted projects. Existing
agreements between Banks, members, sponsors, or owners regarding such
parties' AHP obligations may have language that automatically
incorporates any changes to the AHP regulation that may be adopted from
time to time by the Finance Board. Section 960.16 of the final rule
makes clear that where existing agreements do not provide for automatic
conformity with AHP regulatory changes, the requirements of section
10(j) of the Act and the provisions of the AHP regulation, as amended,
are incorporated into such agreements by operation of law.
The final rule may require Banks, members, sponsors, and owners to
change their behavior prospectively to meet new regulatory
requirements. However, the changes made by the final rule are not
intended to affect the legality of actions taken prior to the effective
date of the final rule.
C. Definitions--Sec. 960.1
Changes to individual definitions in the final rule generally are
discussed in later sections of this SUPPLEMENTARY INFORMATION section
in the context of specific regulatory requirements, with the exception
of the following definitions discussed here.
1. ``Subsidized advance'' and ``Subsidy''
The final rule carries forward the provision of the proposed rule
defining ``subsidized advance'' as ``an advance to a member at an
interest rate reduced below the Bank's cost of funds, by use of a
subsidy.'' The proposed rule defined ``subsidy,'' for purposes of
determining the amount of the interest rate subsidy incorporated in a
subsidized advance, as ``the net present value of the interest revenue
foregone from making a subsidized advance at a rate below the Bank's
cost of funds, determined as of the date of disbursement of the
subsidized advance or the date prior to disbursement on which the Bank
first manages the funding to support the subsidized advance through its
asset/liability management system, or otherwise.'' The definition of
``subsidy'' in the final rule makes clear that the amount of the
interest rate subsidy in a subsidized advance is determined as of the
earlier of the two dates mentioned above.
The notice of proposed rulemaking requested comments on whether the
interest rate subsidy incorporated in a subsidized advance should be
defined by reference to a Bank's market advance rate, rather than the
Bank's cost of funds. This would allow a Bank to use AHP subsidies to
pay its regular advance mark-up where AHP subsidy is delivered to a
project through a subsidized advance, which may eliminate a perceived
disincentive to the Banks to make subsidized advances, versus direct
subsidies. A number of commenters stated that the form in which AHP
subsidies are delivered to projects, i.e., subsidized advances versus
direct subsidies, is determined by the financing structures used by
proposed projects, not by the preferences of Banks in funding such
projects. Consequently, allowing Banks to use AHP subsidies to pay
their regular advance mark-up would not affect the level of subsidized
advances made by Banks and would use more AHP subsidies to produce the
same amount of affordable housing. The Finance Board finds merit in
these arguments. Therefore, the final rule carries forward the
reference to a Bank's
[[Page 41814]]
``cost of funds'' in the definition of ``subsidy.''
2. Definitions of ``Median Income for the Area,'' ``Low-and Moderate-
Income Household,'' and ``Very Low-Income Household''
a. Median Income Standards and Family Size-Adjustments.
(i) Statutory Standards
Under section 10(j)(2)(A) of the Act, members are to use AHP
subsidies to finance owner-occupied housing for ``families with incomes
at or below 80 percent of the median income for the area.'' See 12
U.S.C. 1430(j)(2)(A). Section 10(j)(13)(A) of the Act contains a
corresponding definition of ``low-or moderate-income household'' as a
household that has an income of ``80 percent or less of the area
median.'' See id. Sec. 1430(j)(13)(A).
Under section 10(j)(2)(B) of the Act, members are to use AHP
subsidies generally to finance rental housing for ``very low-income
households.'' See id. Sec. 1430(j)(2)(B). Section 10(j)(13)(B) of the
Act defines the term ``very low-income household'' as a household that
has an income of ``50 percent or less of the area median.'' See id.
Sec. 1430(j)(13)(B).
The Act does not define ``median income for the area'' or ``area
median.'' To date, the Finance Board has interpreted these terms to
refer to the measure of median income for an area as determined and
published by the Secretary of the Department of Housing and Urban
Development (HUD) for approximately 2,700 metropolitan statistical
areas (MSAs), counties, and nonmetropolitan statistical areas,
including adjustments for various local conditions as well as for
family size. See 42 U.S.C. 1437a(b)(2); 12 CFR 960.1(h). In practice,
this required the use of income limits published by HUD corresponding
to 80 percent and 50 percent, respectively, of the median income for a
particular area, adjusted for family size.
(ii) Proposed Regulatory Amendments.
On November 5, 1993, the Finance Board published for comment a
proposal to amend the AHP regulation to redefine the AHP income limits
without certain adjustments incorporated in the HUD income limits. See
58 FR 58988 (Nov. 5, 1993). This proposal also was part of the Finance
Board's January 10, 1994 proposal. See 59 FR 1323 (Jan. 10, 1994).
The November 8, 1996 proposed rule continued to require the use of
HUD income limits, including adjustments for family size, in
determining household eligibility under the Program. The notice of
proposed rulemaking requested comments on the definitions in the
proposed rule and, alternatively, on allowing: (1) Median income to be
established using any reliable source for current area information and
to be determined for counties and other applicable state and local
subdivisions as well as MSAs; (2) any adjustment for family size to be
made in conformance with the requirements of the lead or controlling
funding source or program for the project; and (3) the use of whatever
median income standard and adjustment is being used by the sponsoring
or funding entity for the project, provided that the standard is from a
legitimate state or federal source that regularly provides such
information on income.
(iii) Final Regulatory Standards
While a number of commenters supported using HUD income limits on
the ground that they are readily understood and available, there also
was significant support for: (1) the use of median income standards,
including any family-size adjustments, established using any reliable
source for current area income data determined for counties and other
applicable state and local subdivisions as well as MSAs; or (2) the use
of whatever median income standard and adjustment is being used by the
sponsoring or funding entity for the project, provided that the
standard is from a legitimate state or federal source that regularly
provides such information on income.
While the Finance Board favors some measure of flexibility on the
issue of income limits for households participating in AHP-assisted
projects, a prerequisite for any income eligibility standard is that it
is based on data that are accepted as accurate and reliable and are
readily available. The Finance Board wishes to avoid adopting an income
eligibility standard that increases the risk of after-the-fact
discrepancies between a particular income eligibility standard and the
actual incomes of households benefiting from AHP subsidies, which
ultimately may lead to repayment of the subsidies.
In light of the support among commenters for the use of measures of
median income and family-size adjustments other than those used by HUD
in its housing programs, the final rule adds a definition of ``median
income for the area,'' and amends the definitions of ``low-or moderate-
income household'' and ``very low-income household'' to permit the use
of additional median income standards and their corresponding
adjustments for family size.
In the case of owner-occupied projects, ``median income for the
area'' means: (1) The median income for the area, as published annually
by HUD; (2) the applicable median family income, as determined under
the mortgage revenue bond program set forth in 26 U.S.C. 143(f) and
published by a State agency or instrumentality; (3) the median income
for the area, as published by the United States Department of
Agriculture (USDA); or (4) the 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, that has been
approved by the Board of Directors of the Finance Board for use under
the AHP.
The final rule expressly includes reference to the median income
published by the USDA in order to make clear that the Finance Board
supports the use of the AHP by members in rural areas in order to meet
homeownership needs in those areas.
Under the Internal Revenue Code, household eligibility for mortgage
financing provided by qualifying mortgage revenue bonds is based on the
``applicable median family income,'' which is the greater of: (1) The
area median gross income for the area in which a residence is located;
or (2) the statewide median gross income for the State in which the
residence is located. See 26 U.S.C. 143(f)(4). The ``applicable median
family income'' is based on income data published by HUD. See Rev.
Proc. 97-26, 1997-17 I.R.B 17.
Under the mortgage revenue bond program, the applicable median
family income may be adjusted depending on whether the residence being
financed is in a targeted versus a non-targeted area and whether the
residence is in a high housing cost area. See 26 U.S.C. 143(f)(3), (5).
Adjustments also are made for family size. See id. section
143(f)(6)(A). It should be noted that for purposes of the AHP, the
applicable median family income may be adjusted for family size, but
shall not be adjusted based on the location of a residence in a
targeted area or a high housing cost area, see id. section 143(f)(3),
(5), because in targeted areas and high housing cost areas, the
mortgage revenue bond program does not use the ``applicable median
family income'' as the basis for household income eligibility. In
targeted areas, ``applicable median family income'' is adjusted by a
factor of 120 percent based solely on the location of the residence in
a targeted area. See id. section 143(f)(3). Consequently, the baseline
measure of area median income in targeted areas is 120 percent of the
``applicable median
[[Page 41815]]
family income,'' rather than simply the ``applicable median family
income.'' As discussed above, the Act requires that the AHP income
limit be based on 80 percent of some measure of the ``median income for
the area.'' Since the mortgage revenue bond program does not use the
``applicable median family income'' as a measure of median income for
targeted areas, use of that program's income limits for targeted areas
would not be permissible under the Act.
Similarly, in cases where the income limit under the mortgage
revenue bond program is adjusted above the ``applicable median family
income'' for high housing cost areas, see id. section 143(f)(5), use of
the adjusted income limit would not be permissible under the Act. In
sum, the Finance Board believes that using the ``applicable median
family income,'' as determined under the mortgage revenue bond program
for residences in non-targeted areas, is consistent with the
requirements of the Act and is a viable alternative to the use of
income limits used under HUD's housing programs because it is based on
data that are accepted as accurate and reliable and are readily
available from state agencies and instrumentalities that publish income
limits for purposes of their mortgage revenue bond programs.
Accordingly, as applied to the AHP, in the case of a one- or two-person
household, the income limit would be 80 percent of the ``applicable
median family income,'' and for households with three or more members,
the income limit would be 80 percent of 115 percent of the ``applicable
median family income.'' See id. section 143(f)(1), (6)(A).
Under the final rule, a Bank may request approval of the Board of
Directors of the Finance Board to use a measure of median income for
AHP-assisted owner-occupied projects other than those used by HUD, the
USDA, or a state mortgage revenue bond program. Such requests will
receive prompt consideration by the Board of Directors. However, prior
to requesting approval of an alternative median income standard, a Bank
must amend its AHP implementation plan to permit the use of that
standard, conditioned on Board of Directors approval. This is intended
to ensure that a Bank receives input from its Advisory Council prior to
proposing a new median income standard for use under the AHP.
For purposes of rental projects, the final rule defines ``median
income for the area'' as: (1) The median income for the area, as
published annually by HUD; or (2) the 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, that has been
approved by the Board of Directors of the Finance Board for use under
the AHP.
While the Finance Board wishes to provide the opportunity for the
use of measures of median income in addition to those used by HUD for
rental projects, the Finance Board wishes to address such alternatives
on a case-by-case basis. A large majority of rental projects receiving
AHP subsidies are otherwise required to use the income limits published
by HUD for its housing programs because these projects have received
funds from HUD or have been allocated federal Low-Income Housing Tax
Credits. Consequently, there appears to be less need for flexibility at
this time with regard to income limits for rental projects.
Nonetheless, in view of the potential for an increasing flow of funds
to rental housing from bonds and other state and local programs, the
final rule permits the Banks to seek approval of alternative measures
of median income for AHP-assisted rental projects under the same
procedures that apply for owner-occupied projects, discussed above.
In cases where a Bank chooses to permit the use of more that one
median income standard (and its corresponding family-size adjustments),
such standards must be available to all proposed projects in the Bank's
District. Accordingly, the definition of ``median income for the area''
expressly states that a Bank may select a median income standard or
standards from which all projects may choose for purposes of the AHP.
Furthermore, under section 960.3(b)(1)(i) of the final rule, a Bank
must set forth in its AHP implementation plan the applicable median
income standard or standards, adopted by the Bank consistent with the
definition of ``median income for the area.'' Two members of the Board
of Directors of the Finance Board have requested that agency staff
gather data regarding the impact as of the end of 1998 of the increased
flexibility in the area median income standards.
b. Timing of Household Income Qualification.
The final rule incorporates in the definitions of ``very low-income
household'' and ``low-or moderate-income household'' provisions
governing the time at which a household's income should be examined to
determine whether it meets the income eligibility requirements for AHP-
assisted housing.
The final rule provides that in the case of owner-occupied
projects, this determination is to be made at the time the household is
qualified by the sponsor (or member, in the case of a homeownership
set-aside program) for participation in the project. This is a change
from the proposed rule, which required that the determination be made
no earlier than the date on which the application for subsidy funding
the project is submitted to the Bank for approval. Several commenters
requested this change in order to allow project sponsors more
flexibility in qualifying households. Commenters identified a number of
programs, such as sweat-equity programs, that qualify households prior
to the deadline established by the proposed rule. Under the final rule,
households may be qualified at any time, but in all cases, sponsors
must have adequate documentation to verify income eligibility.
The final rule also revised the provisions of the proposed rule
governing the timing of household income qualification for rental
projects to take into account situations where there are current
occupants in units receiving AHP assistance. The final rule provides
that where rental projects involve the purchase or rehabilitation of
units with current occupants, the income qualification determination is
to be made at the time the purchase or rehabilitation is completed.
3. Definition of ``Affordable''
The final rule provides that ``affordable'' means that the rent
charged to a household for a unit that is committed to be affordable in
an AHP application does not exceed 30 percent of the income of a
household of the maximum income and size expected, under the commitment
made in the AHP application, to occupy the unit (assuming occupancy of
1.5 persons per bedroom or 1.0 person per unit without a separate
bedroom). This language clarifies that only those units that are
committed to be affordable in an AHP application are subject to the 30
percent-of-income limitation. The revised definition also replaces the
reference in the proposed rule to a household's ``monthly housing
costs'' with a reference to the ``rent'' charged for the unit. This
change was made to exclude utility costs from the affordability
calculation where these costs are not part of the rent for a unit.
D. Operation of Program and Adoption of AHP Implementation Plan--
Sec. 960.3
1. Program Operation
The proposed rule provided that each Bank's Program shall be
governed solely
[[Page 41816]]
by the requirements set forth in 12 U.S.C. 1430(j) and part 960, and
prohibited a Bank from adopting any additional substantive AHP
requirements, except as expressly provided in part 960. This was
intended to make clear that the AHP regulation is to ``occupy the
field'' with regard to substantive requirements governing the Program.
The final rule omits this general prohibition and identifies specific
areas where the Banks are prohibited from imposing additional
substantive Program requirements, namely optional and mandatory
eligibility requirements and scoring criteria.
A significant number of commenters objected to the proposed
language on the ground that it would reduce the Banks' ability to adopt
Program requirements in addition to those in the AHP regulation in
order to address what the Banks have characterized as special
circumstances in their Districts. While the Finance Board agrees that
the Banks should have discretion in making decisions regarding Program
implementation in order to meet regional needs, the Finance Board has a
legal mandate to exercise independent judgment, in light of the public
interest, as to the purpose of the AHP and the standards needed to
effect that purpose. The Act makes clear that the authority to adopt
regulations governing the AHP rests with the Finance Board. See 12
U.S.C. 1430(j) (1) and (9). In order to address concerns about
flexibility, the Finance Board has attempted to provide the Banks
discretion in those areas of the Program that, over the past seven
years, have shown a need for flexibility.
2. Allocation of AHP Contributions
Section 960.3(a) of the final rule consolidates provisions of the
proposed rule related to the allocation of a Bank's required annual AHP
contribution to its competitive application program and homeownership
set-aside program or programs. Section 960.3(a)(1) of the final rule
provides that a Bank, after consultation with its Advisory Council, may
set aside annually, in the aggregate, up to the greater of $1.5 million
or 15 percent of its annual required AHP contribution to provide funds
to members participating in the Bank's homeownership set-aside program
or programs. This is a change from the proposed rule, which limited
homeownership program set-aside amounts to the greater of $1 million or
10 percent of a Bank's required annual AHP contribution. A number of
commenters supported an increase in the maximum set-aside amount in
light of the high demand for such funds. Moreover, the Finance Board
has approved funding as high as $1.5 million for one Bank's set-aside
program. The final rule continues to permit a Bank to allocate funds
from the subsequent year in instances where demand for funds in the
current year exceeds that year's set-aside amount.
Section 960.3(a)(2) of the final rule provides that the portion of
a Bank's required annual AHP contribution that is not set aside to fund
homeownership set-aside programs shall be provided to members through
the Bank's competitive application program.
3. AHP Implementation Plans
The proposed rule required each Bank's board of directors to adopt
an AHP implementation plan and any amendments to the plan by December 1
of each year, after providing its Advisory Council a reasonable period
of time to review the plan and any amendments and provide its
recommendations. Section 960.3(b) of the final rule carries forward
this requirement generally, but omits a specific deadline for adoption
of the plan. Once a Bank's board of directors has adopted its plan, or
any amendments, the Bank must submit the plan or amendments to the
Finance Board and the Bank's Advisory Council at least 60 days prior to
distributing requests for applications for AHP subsidies for the
funding period in which the plan, or amendments, will be effective. A
Bank's implementation plan is the vehicle through which the Bank
determines the standards for its Program, consistent with the
requirements of the final rule. Section 960.3(b)(1) of the final rule
identifies Bank procedures and other information that must be included
in a Bank's implementation plan. Compliance by the Bank with its
implementation plan will provide the basis for Finance Board
examination of the Bank's implementation of its Program.
4. Conflicts of Interest Policies
Section 960.3(c) of the final rule consolidates provisions of the
proposed rule that required the boards of directors of the Banks to
adopt conflicts of interest policies governing Bank directors and
employees and Advisory Council members. The proposed rule required each
Bank to have a policy providing that a Bank director, officer, or
employee or an Advisory Council member who has a personal interest in,
or who is a director, officer or employee of an organization involved
in, a project that is the subject of a pending or approved AHP
application, may not participate in or attempt to influence the
evaluation, approval, funding, monitoring, or any remedial process for
such project under the Program.
Section 960.3(c) of the final rule contains two substantive changes
to the proposed language. First, the reference to a ``personal
interest'' of a party in a project is replaced with a reference to a
``financial interest'' of a party or that party's ``family member.'' A
``family member'' is defined in Sec. 960.1 as any individual related to
a person by blood, marriage or adoption. This change is intended to
respond to comments requesting clarification of the scope of the
intended prohibition in this provision.
Second, the final rule no longer prohibits an interested Advisory
Council member from being involved in decisions of the Bank regarding
the evaluation, funding, monitoring or any remedial process for a
project that is the subject of a pending or approved AHP application.
As some commenters pointed out, many Advisory Council members, who by
law are drawn from community and not-for-profit organizations, may in
many cases be integrally involved in projects that are the subject of
pending or approved AHP applications. Consequently, Advisory Council
members often must work with the Banks in resolving issues related to
the evaluation, funding, monitoring, and compliance of such projects.
This is reflected in the revised language of the final rule.
E. Advisory Councils--Sec. 960.4
Section 960.4 of the final rule carries forward the provisions of
the proposed rule governing Advisory Councils, with the following
changes. First, Sec. 960.4(d) of the final rule provides that Advisory
Council members may be appointed to serve for up to three consecutive
three-year terms. The proposed rule permitted a maximum of two
consecutive three-year terms. Some commenters suggested that there be
no term limit for Advisory Council members in order to allow the Banks
to benefit from the experience and familiarity with the Program that
Advisory Council members develop the longer they serve on an Advisory
Council. The Finance Board believes permitting Advisory Council members
to serve for up to nine consecutive years will promote this goal.
Second, the final rule omits the proposed requirement that a Bank
allow Advisory Council members to examine AHP applications under the
Bank's competitive application program from prior funding periods. Some
commenters opposed this provision on the ground that it would provide
Advisory Council members who, in
[[Page 41817]]
many cases, are associated with organizations that have projects in a
Bank's competitive application program, access to information that may
give them an unfair competitive advantage. Accordingly, this provision
is deleted, but Sec. 960.4(f)(2) of the final rule retains the proposed
requirement that a Bank comply with requests from its Advisory Council
for summary information regarding AHP applications from prior funding
periods. Access to this information will aid Advisory Council members
in evaluating how a Bank's scoring guidelines affect the allocation of
AHP subsidies among different types of housing projects.
The notice of proposed rulemaking requested comments on the role,
selection, and compensation of Advisory Council members. Commenters
supported the Advisory Councils' expanded role in providing
recommendations on the Banks' AHP implementation plans. Commenters also
generally supported expanding the role of Advisory Councils to include
providing advice on ways in which the Banks can better carry out their
housing finance and community investment mission. Sections 960.3(b)(3)
and 960.4(f)(1) of the final rule, respectively, retain these
provisions of the proposed rule.
Section 960.4(b) of the final rule carries forward the proposed
provision requiring the Banks to appoint Advisory Council members
giving consideration to the size of the Banks' District and the
diversity of low- and moderate-income housing needs and activities
within the District. While the Finance Board does not believe that
there should be absolute limits on the membership of any one group on
the Advisory Councils, the Finance Board wishes to ensure a diversity
of viewpoints so that no one group consistently has a dominant voice on
an Advisory Council. Accordingly, the proposed rule required the Banks
to draw Advisory Council members from a diverse range of organizations,
provided that representatives of no one group constitute an undue
proportion of the membership of an Advisory Council. Commenters
generally supported this provision. Therefore, Sec. 960.4(c) of the
final rule carries forward the proposed provision without change.
Section 960.4(g) of the final rule carries forward the proposed
requirement, which also is a requirement of the existing regulation,
that a Bank pay Advisory Council members' travel expenses, including
transportation and subsistence, for each day devoted to attending
meetings with representatives of the board of directors of the Bank. In
addition, the final rule requires a Bank to pay Advisory Council
members' travel expenses, including transportation and subsistence, for
each day devoted to attending meetings requested by the Finance Board.
The Finance Board believes that meetings with Finance Board
representatives provide an important forum for Advisory Council members
to communicate their views to the agency. Consequently, where the
Finance Board requests such meetings, it is appropriate for the Banks
to reimburse the transportation and subsistence expenses of those
Advisory Council members who attend.
Several commenters suggested that the Banks be required to pay fees
to Advisory Council members for attending such meetings. While this is
not required by the final rule, nothing precludes the Banks, in their
discretion, from paying such fees.
F. Minimum Eligibility Standards for AHP Projects--Sec. 960.5
1. In General
As part of the reorganization of the structure of the proposed
rule, those provisions of the proposed rule that constitute minimum
eligibility standards for AHP projects have been consolidated into a
single section in the final rule, as described below.
2. Homeownership Set-Aside Programs
Under the existing regulation, Banks must establish their
homeownership set-aside programs in accordance with the specific
requirements set forth therein, unless they obtain Finance Board
approval to establish ``nonconforming'' programs. See 12 CFR 960.5(g).
The proposed rule revised the existing regulation to allow the Banks
more flexibility in establishing their homeownership set-aside
programs, including the program eligibility requirements, without
having to obtain prior Finance Board approval.
Section 960.5(a) of the final rule sets forth the minimum
eligibility standards for a Bank's homeownership set-aside programs.
The final rule carries forward the proposed eligibility standards with
the following changes. First, under Sec. 960.5(a)(3), the maximum
amount of funds available per household is increased from $5,000 to
$10,000. Several commenters suggested this change in order to serve
lower income homebuyers in high cost areas.
Second, Sec. 960.5(a)(4) of the final rule includes rehabilitation
by current homeowners as an eligible use of homeownership set-aside
funds. The language of the proposed rule limited the use of
homeownership set-aside funds to home purchases. As indicated in the
SUPPLEMENTARY INFORMATION section of the proposed rule, the Finance
Board intended to allow homeownership set-aside funds to be used also
for rehabilitation by current homeowners. See 61 FR 57799, 57813 (Nov.
8, 1996).
Third, the Finance Board received a number of comments suggesting
that homeownership set-aside funds be permitted to be used for
homebuyer counseling costs, which was prohibited by the proposed rule.
Sections 960.5 (a)(4) and (a)(7) of the final rule permit homeownership
set-aside funds to be used to pay for counseling costs where: (i) Such
costs are incurred in connection with counseling of homebuyers who
actually purchase an AHP-assisted unit; (ii) the cost of the counseling
has not been covered by another funding source, including the member;
and (iii) the homeownership set-aside funds are used to pay only for
the amount of such reasonable and customary costs that exceeds the
highest amount the member has spent annually on homebuyer counseling
costs within the preceding three years. The Finance Board believes that
if homeownership set-aside funds are to be used for counseling costs,
they should be used to expand the pool of resources available for
counseling, rather than replace existing sources of funding. These
provisions are intended to prevent homeownership set-aside funds from
being used to pay for counseling that, in the absence of such funds,
customarily would be financed by members participating in a
homeownership set-aside program.
Fourth, Sec. 960.5(a)(8) of the final rule requires homeownership
set-aside funds to be drawn down and used by eligible households within
a period of time specified by the Bank in its AHP implementation plan.
This parallels a similar requirement for a Bank's competitive
application program, as discussed further below, and is currently a
requirement in several of the Banks' existing homeownership set-aside
programs.
Fifth, the final rule omits the requirement that any program
eligibility criteria adopted by a Bank be consistent with the National
Homeownership Strategy coordinated by HUD. The minimum eligibility
requirements set forth in the final rule ensure that homeownership set-
aside funds are provided to households for uses that are consistent
with the National Homeownership Strategy. Therefore, the explicit
reference to the Strategy is omitted in the final rule.
[[Page 41818]]
3. Competitive Application Program
Section 960.5(b) of the final rule sets forth the minimum
eligibility standards for a Bank's competitive application program. The
final rule carries forward the provisions of the proposed rule, with
the following changes regarding project feasibility and need for
subsidy, and timing of subsidy use. As discussed below, the final rule
also omits the maximum subsidy requirement in the proposed rule, which
provided that no AHP-subsidized household in a project could pay less
than 20 percent of its gross monthly income toward monthly housing
costs (the 20 percent requirement).
a. Project Feasibility and Need for Subsidy.
Section 960.5(b)(2) of the final rule consolidates standards
regarding project feasibility and need for subsidy that appeared in
several different sections of the proposed rule. Many commenters
objected to those provisions of the proposed rule requiring the Banks
to adopt project cost guidelines and to evaluate the reasonableness of
the interest rates and charges involved in financing from funding
sources other than members. Commenters stated that such requirements
are duplicative of efforts undertaken by members and other funding
sources and are unnecessarily burdensome for the Banks.
The proposed rule was intended to codify the current practices of
many of the Banks in evaluating project feasibility and need for
subsidy. Due to the time constraints of the application process,
members often do not provide the level of project review necessary to
determine project feasibility and the need for AHP subsidy.
Consequently, the Finance Board believes it is in the best interest of
the Program for the Banks to have and carry out an independent duty to
scrutinize each proposed project to determine whether the requested
subsidy is necessary for the financial feasibility of the project, as
currently structured. Section 960.3(b)(1)(iii) of the final rule
requires the Banks to include in their AHP implementation plans
feasibility guidelines for determining whether proposed projects comply
with these standards.
The Finance Board is sensitive to the challenge of developing
project feasibility guidelines during the transition to operation under
the regulatory changes made by this final rule. The Finance Board
intends to create a special process under which a Bank may, at its
option, obtain prior review and approval by the Finance Board of its
initial project feasibility guidelines in order to ensure that they are
consistent with the requirements of the final rule.
With regard to a project's estimated sources of funds,
Sec. 960.5(b)(2)(i) of the final rule carries forward provisions of the
proposed rule and makes clear that such sources must include estimates
of the market value of in-kind donations and volunteer professional
labor or services committed to the project, but not the value of sweat-
equity. This provision is intended to allow sponsors that build housing
using donations of labor and material to account for such sources of
funds in their development budgets. Sweat-equity is excluded from a
project's funding sources in order to avoid requiring the purchaser of
a home who provides labor in the construction of the home to pay for
the value of his or her own labor.
The proposed rule provided that AHP subsidies may be used to pay
only for the customary and standard costs typically incurred, at fair
market prices, to purchase, construct, or rehabilitate AHP-eligible
housing. At the time of disbursement, the Bank was required to obtain a
current independent appraisal of property sold to a project where a
member had a ``direct or indirect interest'' in the property or
project. In response to requests from several commenters, the final
rule clarifies the proposed language referring to a ``direct or
indirect interest'' of a member in the property or project. Section
960.5(b)(2)(ii)(B) of the final rule provides that the purchase price
of property or services sold to a project by a member providing AHP
subsidy to the project, or, in the case of property, upon which such
member holds a mortgage or lien, may not exceed market value as of the
date the purchase price for the property or services was agreed upon.
In the case of real estate owned property sold to a project by the
member, or property sold to the project upon which the member holds a
mortgage or lien, the market value of such property is deemed to be the
``as-is'' or ``as-rehabilitated'' value of the property, whichever is
appropriate, as reflected in an independent appraisal of the property
performed within six months prior to the date the purchase price for
the property was agreed upon.
Several commenters suggested that the value of property may be
enhanced where the property is proposed to be used for affordable
housing receiving subsidized financing. In addition, there may be other
factors related to the proposed use of a property for affordable
housing that affect the property's valuation. The Finance Board
believes that it may be appropriate to take such factors into account
in determining the market value of a property. As discussed above, the
final rule provides for property to be valued either ``as-is'' or ``as
rehabilitated,'' whichever is appropriate under the circumstances.
However, the Finance Board believes that any valuation judgments
related to a property's use for affordable housing should be reflected
in an appraisal of the property. Consequently, to the extent that a
property's proposed use for affordable housing affects the property's
value, this factor should be reflected in the appraisal of the property
in order to be considered in determining the property's market value
for purposes of the AHP.
b. Timing of Subsidy Use.
The proposed rule provided that a project must be likely to be
completed within a reasonable period of time. Section 960.5(b)(3) of
the final rule provides that the AHP subsidy must be likely to be drawn
down by a project or used by the project to procure other financing
commitments within 12 months of the date of approval of the application
for subsidy financing the project. This reflects the requirement of the
existing regulation and current practice.
c. Prepayment Fees.
There may be situations where, due to declining interest rates, it
would be advantageous to a project to prepay its loan from a member and
refinance the project. However, prepayment of the member's loan may
trigger prepayment of the Bank's subsidized advance by the member, a
prepayment fee for the member, and, thus, a prepayment fee for the
project. It has been suggested that the project be permitted to
allocate the remaining AHP subsidy incorporated in the advance to pay
for the member's prepayment fee. This, in turn, would permit the member
to forego charging the project a prepayment fee, making refinancing
less costly.
The proposed rule prohibited the use of AHP subsidies for such
prepayment fees on the ground that funding such fees is an unproductive
use of AHP subsidies and does not meet the statutory requirement that
AHP subsidies be used to finance housing. Clearly, however, where a
project agrees to continue to comply with the terms of the application
for the AHP subsidy after using the subsidy to pay for a prepayment
fee, the purpose of the Program is met and the project is able to
obtain a stronger financial position. Consequently, Sec. 960.5(b)(4)(i)
of the final rule permits the use of AHP subsidies to pay for
prepayment fees
[[Page 41819]]
imposed by a Bank on a member for a prepayment of a subsidized advance,
if, subsequent to such prepayment, the project will continue to comply
with the terms of the application for the subsidy, as approved by the
Bank, and the requirements of the AHP regulation for the duration of
the original retention period, and any unused subsidy is returned to
the Bank and made available for other AHP projects.
d. Counseling Costs.
The notice of proposed rulemaking requested comments on whether AHP
subsidies should be permitted to be used to pay for counseling costs
generally, and whether AHP subsidies should be used to pay only for
counseling for homebuyers, homeowners, or tenants of AHP-assisted
units. Section 960.5(b)(5) of the final rule, which carries forward the
proposed provision, permits AHP subsidies to be used to pay for costs
incurred in connection with counseling of homebuyers as long as: (1)
The counseling is provided to a household who actually purchases an
AHP-assisted unit; and (2) the cost of the counseling has not been
covered by another funding source, including the member. While many
commenters supported the proposed provision, there was no consensus
among commenters on this issue. The Finance Board believes that if AHP
subsidies are to be used for counseling costs, they should be used to
expand the pool of resources available for counseling, rather than
replace existing sources of funding. The Finance Board wishes to
prevent AHP subsidies from being used to pay for counseling that, in
the absence of the AHP subsidy, would customarily be financed by
another source of funding for a project.
e. Refinancing.
Section 960.5(b)(6) of the final rule carries forward the proposed
requirement that if a project uses AHP subsidies to refinance an
existing single-family or multifamily mortgage loan, the equity
proceeds of the refinancing must be used only for the purchase,
construction, or rehabilitation of AHP-eligible housing. Several
commenters suggested that the final rule should permit the use of AHP
subsidies to refinance existing projects in cases where no equity is
taken out of the project and the refinancing results in a lower debt
service cost for the project. Such use of AHP subsidies would be
contrary to the Act, because there would be no resulting purchase,
construction, or rehabilitation of AHP-eligible housing. See 12 U.S.C.
1430(j)(2).
f. Project Sponsor Qualifications.
Section 960.5(b)(8) of the final rule provides that a project's
sponsor must be qualified and able to perform its responsibilities as
committed to in the AHP application. Section 960.1 of the final rule
carries forward the definition of ``sponsor'' in the proposed rule and,
in response to comments, clarifies that in the case of rental projects,
``sponsor'' includes an organization whose ownership of a project is in
the form of a partnership interest.
g. Use of AHP Subsidies for Loan Guarantees.
Several commenters suggested that the final rule permit the use of
AHP subsidies for loan guarantees or other financial mechanisms to make
affordable housing feasible. Although the Finance Board did not request
comments on this issue and has not authorized the use of AHP subsidies
for loan guarantees in the final rule, the Finance Board does find
these comments of interest and will review how such guarantees might
work under the AHP.
h. Pre-Development Expenses.
The final rule omits the language in the proposed rule expressly
prohibiting the use of AHP subsidies for pre-development expenses. The
proposed rule prohibited the use of AHP subsidies for pre-development
expenses not yet incurred by a proposed project as of the date the AHP
application is submitted to the Bank. This language was intended to
make clear that a Bank could not provide AHP subsidies for the sole
purpose of determining the feasibility of housing.
The final rule omits this language because the requirement in
Sec. 960.5(b)(2) that projects be feasible in order to receive AHP
subsidy effectively incorporates this prohibition. Proposed projects
that meet the requirements of a Bank's feasibility guidelines may
include pre-development expenses as project costs in their AHP
applications.
Several commenters supported the use of AHP subsidies for the sole
purpose of determining the feasibility of housing. The Finance Board
believes that this use of funds will not result in the actual purchase,
construction, or rehabilitation of housing, as required by the statute.
Further, since the inception of the Program, demand for AHP subsidies
for feasible projects has significantly exceeded available funds. Thus,
if AHP subsidies were to be approved for the sole purpose of
determining the feasibility of housing, potentially significant amounts
of subsidies that currently go toward completing projects might instead
be paying for activities that never result in the financing or
production of housing.
i. District Eligibility Requirements.
Section 960.5(b)(10) of the final rule carries forward the
provisions in the proposed rule governing District eligibility
requirements, which were referred to as ``District threshold
requirements'' in the proposed rule. The notice of proposed rulemaking
included an extensive discussion of the salient arguments in favor of
and against the proposed District eligibility requirements. See 61 FR
57799, 57807-57809 (Nov. 8, 1996). The comments received by the Finance
Board on these provisions either supported or objected to the proposal
on many of the grounds discussed in the notice of proposed rulemaking.
There was no consensus on two of the three optional District
eligibility requirements. Although there was more prevalent opposition
to the third requirement--that the member have used a Bank credit
product in the past 12 months--the Finance Board feels that members and
sponsors will have some influence on an individual Bank's decision
regarding this option. Consequently, the Finance Board is finalizing
the District eligibility provisions, as proposed, which provide the
Banks with discretion to determine whether to adopt these eligibility
requirements.
j. The 20 percent Requirement.
The final rule omits the provision in the proposed rule known as
``the 20 percent requirement,'' which provided that households who own
or rent AHP-assisted units shall pay no less than 20 percent of their
gross monthly income towards monthly housing costs. The proposed rule
carried forward provisions of the existing regulation and added some
exceptions to the 20 percent requirement. Commenters generally
supported the additional exceptions in the proposed rule and suggested
the adoption of several other exceptions. The 20 percent requirement
was intended to implement the maximum subsidy limitation requirement
contained in section 10(j)(9)(F) of the Act. See 12 U.S.C.
1430(j)(9)(F).
In light of the fact that most projects come within the exceptions
to the 20 percent requirement, the Finance Board believes that the 20
percent requirement no longer is an effective means of implementing the
statutory maximum subsidy limitation. Further, the requirements in the
final rule regarding project feasibility and need for subsidy are
intended to implement this statutory requirement.
G. Procedure for Approval of Applications for Funding--Sec. 960.6
As part of the reorganization of the structure of the proposed
rule, the final
[[Page 41820]]
rule consolidates and streamlines the proposed provisions governing
funding periods, application requirements, and scoring and approvals of
applications under a Bank's competitive application program. The final
rule also integrates and streamlines provisions in the proposed rule
governing funding under a Bank's homeownership set-aside programs.
1. Program Administration
Section 960.6(b)(1) of the final rule carries forward the proposed
provisions permitting a Bank to accept applications for funding under
its competitive application program during a specified number of
funding periods each year, as determined by the Bank. The notice of
proposed rulemaking requested comments on whether the Banks should be
permitted to accept AHP applications on a rolling basis, and, if so,
how applications would be scored under such a process. Of those
commenters who addressed this issue, the majority opposed the
acceptance of applications on a rolling basis. The Finance Board
believes that a competitive process has worked well and has decided to
maintain the AHP as a competitive program. Further, those commenters
who supported funding on a rolling basis offered no way to score
applications fairly under such a process.
The final rule omits the proposed provision requiring a Bank to
notify members and other interested parties of: the amount of subsidy
offered annually and in each funding period; District eligibility
requirements; scoring guidelines; and application due dates. The final
rule also omits the provisions of the proposed rule specifying the
information required to be included in AHP applications. These changes
are consistent with the Finance Board's intent to streamline the AHP
regulation and to devolve to the Banks those aspects of the Program
involving day-to-day administration. Accordingly, Sec. 960.6(b)(2) of
the final rule provides that a Bank shall require applicants for AHP
subsidies under the Bank's competitive application program to submit
information sufficient for the Bank to determine that a proposed AHP
project meets applicable eligibility requirements and to evaluate the
application pursuant to the regulatory scoring criteria.
2. Acceptance of Applications from Nonmembers
Sections 960.6(a) and (b)(1) of the final rule add provisions
authorizing a Bank, in its discretion, to accept applications for
funding under both its homeownership set-aside programs and its
competitive application program from institutions with pending
applications for membership in the Bank. This is intended to give the
Banks greater flexibility in accommodating new members that desire to
participate in the AHP before the membership application process has
been completed. As discussed further below, an institution must be a
member prior to actually receiving AHP subsidies.
3. Scoring of Applications
a. In General.
The notice of proposed rulemaking requested comments on all aspects
of the proposed scoring provisions and on ways in which the scoring
system could be simplified, such as by creating discrete scoring
categories containing criteria required by the Act, criteria
established by the Finance Board, and criteria established by the
Banks. A number of commenters generally supported the scoring
provisions as proposed and suggested limited changes. Some commenters
suggested that the Finance Board permit the Banks, in consultation with
their Advisory Councils, to establish their own scoring systems. Other
commenters recommended that the scoring system be simplified, and that
the Banks be given greater flexibility in adopting scoring criteria and
allocating points among the criteria. Commenters stated that such
changes would improve the Program's operating efficiency and enable the
Banks to tailor their scoring systems to the needs of their Districts.
While the existing scoring process generally has worked well over
the past seven years of the Program's operation and is familiar to
Program users, the Finance Board agrees with commenters that a simpler
and more flexible scoring system should improve operating efficiency
and enhance the responsiveness of the Program to local District needs.
Accordingly, Sec. 960.6(b)(4) of the final rule revises the scoring
system in the proposed rule to incorporate greater simplicity and
flexibility, as discussed below.
b. Revised Scoring System.
(i) Elimination of Two-Tiered Priority Scoring Process.
The proposed rule established six priority categories, and required
the Banks to allocate 60 of a total 100 points among those categories,
with at least 8 points allocated to each category. In addition, the
proposed rule established 4 scoring objectives categories, and required
the Banks to allocate the remaining 40 points among these categories,
with the targeting objective category receiving at least 8 points.
Applications meeting at least two of the six priorities were considered
priority applications and, as a group, were to be scored before
applications meeting fewer than two of the priorities. Priority
applications then were to be scored against each other based on the
extent to which they met the priorities and the scoring objectives.
The final rule eliminates this two-tiered system of scoring
priority applications before non-priority applications. Instead,
Sec. 960.6(b)(4) of the final rule establishes nine scoring criteria
categories, and requires a Bank to score all applications for projects
meeting the minimum eligibility requirements according to the nine
criteria. Section 960.6(b)(4)(ii) requires a Bank to allocate 100
points among the nine scoring criteria, which incorporate the scoring
priorities and objectives of the proposed rule with revisions as
discussed below. At least 5 points must be allocated to each scoring
criterion except for targeting, which must be allocated at least 20
points. Section 960.6(b)(4)(i) provides that a Bank shall not adopt
additional scoring criteria or point allocations, except as
specifically authorized under paragraph (b)(4).
(ii) Designation of Variable-and Fixed-Point Criteria.
The proposed rule designated each proposed priority category as
either a fixed-point or a variable-point criterion. Fixed-point
criteria are those which cannot be satisfied in varying degrees and are
either satisfied, or not. Variable-point criteria are those where there
are varying degrees to which an application can satisfy the criterion.
Section 960.6(b)(4)(iii) of the final rule requires each Bank to make
the designation of criteria as either fixed or variable. The targeting
criterion and the subsidy-per-unit criterion must be designated as
variable-point criteria. When determining the extent to which competing
projects satisfy a variable-point criterion, a Bank must award points
to projects in a uniform and consistent manner. The nine scoring
criteria are discussed below.
(iii) Donated Government-Owned or Other Properties Criterion.
Section 960.6(b)(4)(iv)(A) of the final rule revises the scoring
criterion in the proposed rule for projects using government-owned
property to provide scoring credit for projects using a significant
proportion of units or land donated or conveyed for a nominal price by
the federal government or any agency or instrumentality thereof, or by
any other party. The expansion of this criterion to include units or
land owned by other parties responds to a number of commenters who
pointed out that the stock of available federal government
[[Page 41821]]
properties continues to decrease. The criterion also has been revised
to encourage the donation of property for AHP projects, which should
reduce the costs of financing such housing
(iv) Not-For-Profit Organization or Government Entity Sponsor
Criterion.
Section 960.6(b)(4)(iv)(B) of the final rule revises the scoring
criterion in the proposed rule for projects sponsored by a not-for-
profit organization or government entity by expanding the list of
government entities to include Native American Tribes, Alaskan Native
Villages, and the government entity for Native Hawaiian Home Lands,
which are comparable to state or local government entities.
(v) Targeting Criterion.
Section 960.6(b)(4)(ii) of the final rule revises the proposed rule
by increasing the required minimum allocation of points for the
targeting scoring criterion from 8 to 20. This change is intended to
promote the funding of projects that commit to the targeting objective,
which the Finance Board views is an important goal of the Program.
Section 960.6(b)(4)(iv)(C)(1) of the final rule carries forward the
proposed requirement that an application for a rental project shall be
awarded the maximum number of points available under the targeting
criterion if 60 percent or more of the units in the project are
reserved for occupancy by households with incomes at or below 50
percent of the median income for the area. The final rule clarifies
that applications for projects with less than 60 percent of the units
reserved for occupancy by households with incomes at or below 50
percent of the median income for the area shall be awarded points on a
declining scale based on the percentage of units in a project that are
reserved for households with incomes at or below 50 percent of the
median income for the area, and on the percentage of the remaining
units reserved for households with incomes at or below 80 percent of
the median income for the area.
The purpose of this targeting provision is to reduce the emphasis
in the existing regulation on funding projects that are occupied solely
by very low-income households. There was support among commenters for
this goal, although commenters had different views as to whether 60
percent is the appropriate ceiling for mixed-income targeting. Several
commenters opposed reducing the current bias against mixed-income
housing in the AHP scoring system. The Finance Board believes that
mixed-income housing projects should be competitive under the Program.
Mixed-income housing promotes economic integration, which supports the
long-term financial feasibility of a project and the empowerment of
lower income residents.
The notice of proposed rulemaking requested comments on ways in
which the targeting criterion could be structured so that it is more
closely compatible with the monitoring requirements for AHP projects.
Several commenters supported coordinating the targeting criterion with
project monitoring requirements, and suggested that points under the
targeting criterion should be awarded to projects based on targeting
commitments made to funding sources other than the Banks. Section
960.6(b)(4)(iv)(C)(1) of the final rule adopts this approach as an
option for the Banks in structuring their Programs. The final rule
provides that in order to facilitate reliance on monitoring by a
federal, state, or local government entity providing funds or
allocating federal Low-Income Housing Tax Credits to a proposed
project, a Bank, in its discretion, may score each project according to
the targeting commitments made by the project to such entity, and the
Bank shall include such scoring practice in its AHP implementation
plan.
Section 960.6(b)(4)(iv)(C)(3) of the final rule provides that a
Bank, in its discretion, may score owner-occupied projects and rental
projects separately under the targeting criterion. This is a change
from the proposed rule, which required separate scoring. The purpose of
allowing separate scoring is to offset what may be an inherent bias in
the targeting criterion in favor of rental projects, which, in general,
have more units targeted to very-low income households than do owner-
occupied projects. The final rule permits the Banks to determine
whether separate scoring is appropriate for the targeting criterion.
(vi) Community Development Criterion and Empowerment Criterion.
Section 960.6(b)(4)(iv)(E) of the final rule eliminates the
proposed mandatory community development scoring criterion and replaces
it with a mandatory scoring criterion for projects promoting
empowerment. The proposed rule had a more limited version of the
empowerment criterion as an optional District priority. Under
Sec. 960.6(b)(4)(iv)(F)(2) of the final rule, the community development
criterion is now an optional District priority. Several commenters
suggested that the community development criterion is inherently biased
against rural projects and, therefore, should not be a mandatory
criterion in a Bank's scoring system. Commenters also favored a
mandatory criterion for empowerment, consistent with the existing
regulation. The Finance Board agrees that promoting empowerment is a
valuable aspect of projects and should be maintained as a mandatory
criterion.
(vii) First and Second District Priorities.
Section 960.6(b)(4)(iv)(F) of the final rule carries forward the
provision of the proposed rule requiring a Bank to select a District
priority, as recommended by the Bank's Advisory Council and set forth
in the Bank's AHP implementation plan, from a set of criteria listed in
the AHP regulation. A number of commenters suggested that the Banks
should be allowed to select criteria in addition to those listed in the
proposed rule. Section 960.6(b)(4)(iv)(G) of the final rule provides
for this by permitting a Bank to adopt a second District priority for
projects meeting a housing need in the Bank's District, as defined and
recommended by the Bank's Advisory Council and set forth in the Bank's
AHP implementation plan. Further, under the Act, the Finance Board has
a statutory mandate to promulgate regulations that specify priorities
for the use of AHP subsidies. See 12 U.S.C. 1430(j)(9)(B).
Consequently, the Finance Board may not, consistent with the statute,
allow the Banks to have total discretion to determine priorities under
the Program. Nonetheless, the Finance Board believes that the final
rule provides the Banks with a large measure of discretion in this area
by providing a relatively wide range of choices for the Banks' two
District priorities. In addition, the final rule revises the proposed
rule by allowing a Bank to adopt multiple criteria under its first
District priority, as long as the total points available for meeting
the criteria do not exceed the total points allocated to the priority.
The final rule makes clear that a Bank's second District priority need
not be chosen from the list of permissible criteria for the Bank's
first District priority.
The final rule omits from the list of optional District priorities
in Sec. 960.6(b)(4)(iv)(F) the priority for projects with retention
periods in excess of the minimum retention period required under the
project eligibility standards in Sec. 960.5(b)(7) of the final rule.
Awarding points to projects for committing to retention periods longer
than the minimum would require that such projects be monitored in
excess of the minimum required retention period. In light of changes in
the monitoring requirements, which are discussed further below, that
are intended to permit the Banks to rely on monitoring
[[Page 41822]]
by other parties for most rental projects, the priority for projects
with longer retention periods is no longer feasible.
Section 960.6(b)(4)(iv)(F)(4) of the final rule carries forward the
proposed optional District priority for projects involving member
financial participation (excluding the pass-through of AHP subsidy),
such as providing market rate or concessionary financing, fee waivers,
or donations. In the notice of proposed rulemaking, the Finance Board
requested comments on whether this should be a mandatory scoring
criterion or a project eligibility standard, and on whether a member
should be deemed to meet such a scoring criterion based on the member's
record of affordable housing lending activities apart from its lending
under the Program.
Although members have played a critical role in the Program, their
participation has not generally involved lending their own funds. Where
a member lends its own funds to a project, it is more likely to
underwrite the project for financial feasibility and monitor the
project for AHP compliance. Greater member financial involvement in
projects also builds member affordable housing lending capacity and
expertise.
A number of commenters objected to making member financial
participation a project eligibility standard or a mandatory scoring
criterion because some projects may not require or be able to sustain
additional debt. Requiring projects to have loans from a member may
create a bias against projects serving lower income households, which
often cannot support debt service because rents are too low. Further,
smaller members, which may not have the capacity to finance a project
loan, waive fees or donate funds, may be effectively precluded from
participating in the Program. The Finance Board believes these
arguments have merit. However, the Banks should be permitted to
determine whether promoting some measure of member financial
participation through the scoring system is appropriate in the Bank's
District. Consequently, the final rule retains member financial
participation as an optional District priority.
Commenters stated that favoring projects based on a member's record
of affordable housing lending activities apart from its lending under
the Program is inappropriate because the member's lending record is not
directly relevant to the evaluation of a particular application for AHP
subsidy, and a fair evaluation of a member's affordable housing record
would be difficult to accomplish. The Finance Board agrees that this
would present practical difficulties in Program administration and,
therefore, has not included this criterion in the final rule.
(viii) Community Involvement Criterion.
Section 960.6(b)(4)(iv)(F)(10) of the final rule revises the
proposed rule by removing community involvement as a mandatory scoring
criterion and including it as an optional District priority in lieu of
the proposed sweat-equity priority, which is incorporated in this
priority. The final rule also deletes the proposed language allowing a
Bank to give scoring credit under this criterion to projects receiving
commitments of funds from local sources. This change was made because
the criterion is intended to promote in-kind donations to projects.
(ix) Subsidy-Per-Unit Criterion.
Section 960.6(b)(4)(iv)(H) of the final rule carries forward the
provisions in the proposed rule governing the subsidy-per-unit
criterion, with the exception that a Bank, in its discretion, may
determine whether owner-occupied projects and rental projects should be
scored separately under this criterion. There may be an inherent bias
in the subsidy-per-unit criterion in favor of rental projects, which,
in general, have lower amounts of subsidy per unit than do owner-
occupied projects. Therefore, as under the targeting criterion, the
final rule permits the Banks to determine whether separate scoring is
appropriate for this criterion.
The subsidy-per-unit criterion, in effect, favors projects with a
shallower subsidy. A Bank may de-emphasize this effect and promote
deeper subsidies per unit by allocating as few as five points to this
criterion. The notice of proposed rulemaking requested comments on
whether this gives the Banks adequate flexibility in applying the
subsidy-per-unit criterion in their Districts. A number of commenters
supported allowing the Banks to determine the number of points to
allocate to the subsidy-per-unit criterion.
H. Modifications of Applications Prior to Project Completion--
Sec. 960.7
Section 960.7 of the final rule incorporates several revisions to
provisions in the proposed rule governing modifications of AHP
applications under a Bank's competitive application program prior to
project completion. First, the definition of ``project modification''
in the proposed rule is incorporated into the terms of Sec. 960.7, and
clarified to refer to modifications occurring prior to final
disbursement of funds to the project from all funding sources.
Second, the final rule omits the provisions of the proposed rule
specifying the information required to be included in requests for
modifications. This change is consistent with the Finance Board's
intent to streamline the AHP regulation and to devolve to the Banks
those aspects of the Program involving day-to-day administration.
Third, Sec. 960.7(a)(3) of the final rule revises the modification
standards in the proposed rule by making all proposed modifications
subject to a ``good cause'' requirement and permitting the Banks to
determine whether a ``good cause'' showing has been made in individual
cases. The proposed rule required the Banks to approve modifications
not involving subsidy increases as long as a project continued to meet
eligibility requirements and to score high enough to have been approved
in the funding period in which it was originally scored and approved by
the Bank. The purpose of this change is to give the Banks flexibility
to determine on a case-by-case basis whether changes from a project's
original AHP commitments are justified.
Fourth, the final rule omits the provision in the proposed rule
prohibiting a Bank's board of directors from delegating to Bank
officers or other Bank employees the authority to approve requests for
modifications not involving a subsidy increase. A number of commenters
supported this change, which conforms the final rule to the Banks'
current practices.
Section 960.7(a)(2) of the final rule carries forward the
requirement that, in order to receive a pre-completion modification, a
project must continue to score high enough to have been approved in the
funding period in which it was originally scored and approved by the
Bank. The Finance Board wishes to make clear that where modifications
are requested for applications that were scored and approved for
funding prior to January 1, 1998, the application shall be rescored
according to the scoring requirements in effect for the funding period
in which the application was approved.
I. Procedure for Funding--Sec. 960.8
Section 960.8 of the final rule incorporates several substantive
revisions to provisions in the proposed rule governing disbursement of
AHP subsidies under a new section entitled ``Procedure for Funding.''
First, in light of the new provisions in Sec. 960.6 permitting a
Bank to accept AHP
[[Page 41823]]
applications from institutions with pending applications for
membership, Sec. 960.8(a)(1) of the final rule makes explicit that a
Bank may disburse AHP subsidies only to institutions that are members
of the Bank at the time they request a draw-down of subsidy. Section
960.8(a)(2) also provides that if an institution with an approved
application for AHP subsidy fails to obtain or loses its membership in
the Bank, the Bank may disburse subsidies to a member of such Bank to
which the institution has transferred its obligations under the
approved application, or the Bank may disburse subsidies through
another Bank to a member of that Bank that has assumed the
institution's obligations under the approved application.
Second, the provisions in the proposed rule governing disbursement
of homeownership set-aside funds are consolidated into Sec. 960.8(b),
and a new provision is added in Sec. 960.8(b)(1) requiring a Bank to
cancel an application for homeownership set-aside funds and make the
funds available for other applicants or for other AHP-eligible projects
if the funds are not drawn down and used by eligible households within
the period of time specified by the Bank in its AHP implementation
plan. This is consistent with current Bank practices and parallels the
requirement for the Banks' competitive application programs. A new
provision also is added in Sec. 960.8(b)(2)(iii), which states that,
prior to disbursement of homeownership set-aside funds for counseling
purposes, a Bank must require the member to certify that: (i) The funds
will be used for counseling of homebuyers who actually purchase an AHP-
assisted unit; (ii) The cost of the counseling has not been covered by
another funding source, including the member; and iii) the funds will
be used to pay for only the amount of such reasonable and customary
costs that exceeds the highest amount the member has spent annually on
homebuyer counseling costs within the preceding three years.
Third, the final rule omits the requirement in the proposed rule
that a Bank obtain, and maintain in its project file, documents
sufficient to demonstrate compliance with AHP requirements prior to
making disbursements of AHP subsidy, including an independent, current
appraisal provided by the member indicating the fair market value of
the property or project if the member has a direct or indirect interest
in such property or project. This change is consistent with the Finance
Board's intent to streamline the AHP regulation. The Banks are in the
best position to determine what kinds of documents must be maintained
for purposes of the Bank's own recordkeeping and in order to support
Bank decisions in the context of examinations by the Finance Board. The
issue related to the use of AHP subsidies in projects involving real
estate owned property provided by a member is specifically addressed in
Sec. 960.5(b)(2)(ii) of the final rule, which is discussed above.
Fourth, Sec. 960.8(c)(3) of the final rule revises the provisions
in the proposed rule governing changes in a project's approved AHP
subsidy amount where a Bank provides a direct subsidy to write down the
principal amount prior to closing or the interest rate on a loan
provided by a member to a project. The final rule permits Banks not to
increase the subsidy amount where market interest rates rise between
the time the subsidy initially is approved by the Bank and the time the
lender commits to the interest rate to finance the project. Several
Banks objected to the proposed provision, which made such a subsidy
increase mandatory, on the ground that subsidy increases should be
subject to a process of negotiation between Banks, members, and
projects in order to ensure that such increases are justified. By
making such subsidy increases optional, the final rule is consistent
with the current practices of some of the Banks.
Fifth, the final rule omits the language in the proposed rule
requiring the Banks to ensure that AHP subsidies are passed on to the
ultimate borrower, and that the preponderance of AHP subsidies is
ultimately received by very low-and low-or moderate-income households.
These requirements, including the provisions for matched repayment
schedules for Bank subsidized advances and member loans, are
implemented through Sec. 960.13 of the final rule governing agreements
between Banks and members.
Sixth, the final rule omits the requirement in the proposed rule
that each Bank must ensure that the terms of any member's participation
in a transaction benefiting from an AHP subsidy are fair to the
Program. Commenters objected to this requirement on the grounds that it
is too vague and will discourage member participation in the Program.
Commenters also suggested this requirement is duplicative of other
Program requirements intended to ensure that AHP subsidies are properly
used.
Seventh, Sec. 960.5(b)(2)(iii) of the final rule incorporates the
provision in the proposed rule requiring each Bank to ensure that the
rate of interest, points, fees and any other charges for all loans
financing an AHP project do not exceed a market rate of interest,
points, fees, and other charges for loans of similar maturity, terms,
and risk. The final rule also requires a Bank to determine that AHP
subsidy is necessary for the financial feasibility of a project, as
currently structured.
Eighth, the provisions in the proposed rule governing the lending
of direct subsidies, matched repayment schedules, and prepayment fees
charged by the Banks are implemented in a revised form through
Sec. 960.13 of the final rule governing agreements between Banks and
members.
In the case of the matched repayment schedule requirement,
Sec. 960.13(c)(1) of the final rule provides that the term of a
subsidized advance shall be no longer than the term of the member's
loan to the project funded by the advance, and at least once in every
12-month period, the member shall be scheduled to make a principal
repayment to the Bank equal to the amount scheduled to be repaid to the
member on its loan to the project in that period. This is a change from
the proposed rule, which required the principal repayments received by
the member to be paid over to the Bank. According to commenters, the
language in the proposed rule was too restrictive, because it referred
to the actual principal repayments received by members and omitted
mention of a member's independent obligation to repay an advance,
without regard to the amount of principal repayments received by the
member. Consequently, the language of the final rule is revised to
clarify that the scheduled, rather than the actual, principal
repayments must be equal, in a 12-month period.
J. Modifications of Applications After Project Completion--Sec. 960.9
Section 960.9 of the final rule adds a new provision permitting
members to obtain modifications to approved AHP applications under a
Bank's competitive application program after a project has been
completed, as long as the modification does not require an increase in
the amount of AHP subsidy provided to the project. In order for a
project to obtain additional AHP subsidy after completion, such subsidy
must be approved pursuant to a Bank's competitive application program.
Under the proposed rule, modifications were available only prior to
project completion.
Section 960.9 of the final rule provides that after final
disbursement of funds to a project from all funding sources, a Bank, in
its discretion, may
[[Page 41824]]
approve in writing a modification to the terms of an approved
application for subsidy funding the project, other than an increase in
the amount of subsidy, if there is or will be a change in the project
that materially affects the facts under which the application was
originally scored and approved under the Bank's competitive application
program, provided that: (1) The project is in financial distress or is
at substantial risk of falling into such distress; (2) the project
sponsor or owner has made best efforts to avoid noncompliance with the
terms of the application for subsidy and AHP requirements; (3) the
project, incorporating any material changes, would meet Program
eligibility requirements; and (4) the application, as reflective of
such changes, continues to score high enough to have been approved in
the funding period in which it was originally scored and approved by
the Bank. The Finance Board wishes to make clear that where
modifications are requested for applications that were scored and
approved for funding prior to January 1, 1998, the application shall be
rescored according to the scoring requirements in effect for the
funding period in which the application was approved.
Section 960.9 is added in response to comments from the Banks
requesting that the final rule include an alternative to addressing
compliance issues through the AHP remedial process. See also
Sec. 960.12. Members, project sponsors, and project owners should use
the modification process, where possible, as a means of addressing
existing or potential AHP compliance issues on their own initiative
rather than waiting for such issues to be brought to light and
addressed through the remedial process.
K. Monitoring Requirements--Sec. 960.10 and Sec. 960.11
1. In General
Section 10(j)(9)(C) of the Act requires the Finance Board to issue
regulations ensuring ``that advances made under [the] program will be
used only to assist projects for which adequate long-term monitoring is
available to guarantee that affordability standards and other
requirements of [section 10(j) of the Act] are satisfied.'' See 12
U.S.C. 1430(j)(9)(C).
The existing AHP regulation requires each Bank to monitor member
and project compliance with AHP requirements, but does not establish
specific procedures, standards or documentation to assist the Banks in
meeting that requirement. See 12 CFR 960.7(b), (c). Sections 960.6(b)
and (c) of the existing regulation require members to file annual
reports and certifications on the use of AHP subsidies. See id.
Sec. 960.6(b), (c).
In the absence of specific regulatory guidance, over the seven
years that the Program has been in operation, the Banks have attempted
to comply with their monitoring obligations by developing their own
individual approaches to monitoring. This practice has led to
uncertainty about the sufficiency of any one monitoring procedure. In
addition, some members consider the certification and reporting
requirements of the existing regulation to be too burdensome. In the
notice of proposed rulemaking, the Finance Board proposed to establish
clear, uniform monitoring procedures and standards that take into
account the costs of monitoring relative to the benefits, and reduce
the overall monitoring burden, including eliminating the annual
reporting and certification requirement for members under the existing
regulation. The Finance Board's proposal was based on the principles
that: (1) Monitoring a project closely in its initial stages of
development will ensure that less monitoring is necessary in the
project's later stages of operation; (2) the degree of monitoring of
AHP-assisted projects should be directly related to the amount of AHP
subsidy funding such projects; and (3) the Banks should be permitted to
rely, to the extent feasible, on monitoring by other funding sources.
A number of commenters stated that the various monitoring
requirements in the proposed rule should be omitted or that the Banks
should be permitted to develop their own monitoring procedures. As
discussed above, the lack of clear and consistent standards may
actually contribute to a more burdensome monitoring scheme, and the
Finance Board intends to prevent this by setting standards in the
regulation. In addition, the Finance Board believes that the final rule
provides the Banks with additional flexibility by permitting them to
rely on long-term monitoring by other entities for a majority of AHP-
assisted rental projects.
2. Restructuring of the Monitoring Provisions
The final rule separates the section of the proposed rule governing
monitoring into two sections governing initial monitoring requirements
and long-term monitoring requirements, respectively. In addition,
provisions on monitoring standards have been separated from provisions
requiring that parties' obligations to comply with monitoring standards
be implemented by specific agreements. The provisions related to
monitoring agreements are incorporated in Sec. 960.13(b)(4) of the
final rule.
3. Initial Monitoring Requirements
As discussed above, the proposed provisions governing project
monitoring were based, in part, on the principle that monitoring a
project closely in its initial stages of development will ensure that
less monitoring is necessary in the project's later stages of
operation. Commenters generally supported this approach. Section 960.10
of the final rule carries forward the proposed provisions governing
monitoring in the initial stages of project development, with the
following substantive changes.
First, Sec. 960.10(a)(2)(ii)(C) of the final rule clarifies that
documentation maintained by rental project owners must include
documentation of project habitability to support the owner's
habitability certification to the Bank and the member. In response to
requests for clarification from commenters, Sec. 960.1 of the final
rule makes clear that ``habitable'' means suitable for occupancy,
taking into account local health, safety, and building codes. This
definition is consistent with that used for purposes of monitoring
projects receiving federal Low-Income Housing Tax Credits.
Second, Secs. 960.10(c)(1)(ii) and (c)(2)(ii) of the final rule
provide that for owner-occupied and rental projects, respectively, a
Bank must review project documentation at project completion to
determine that a project's actual costs were reasonable and customary
in accordance with the Bank's project feasibility guidelines, and that
the subsidies provided to the project were necessary for the financial
feasibility of the project, as currently structured. This is consistent
with the current practice of many of the Banks, which conduct closing
audits for projects. Several commenters objected to this provision on
the ground that it may discourage the use of AHP subsidies as ``first-
in'' money for a project. The concern is that subsequent funders may be
hesitant to commit funds to a project if AHP subsidies received by the
project are subject to repayment in cases where a review of the project
at completion reveals excess costs, and thus oversubsidization.
The Finance Board believes that requiring projects receiving AHP
subsidies to demonstrate that their costs are customary and reasonable
is essential to ensuring that such subsidies are used in accordance
with a project's application for funding and the requirements of the
AHP regulation. The
[[Page 41825]]
use of AHP subsidies as ``first-in'' money can be analogized to an
equity investment. While an equity investor assumes some risk by
providing ``first-in'' money, no equity holder would allow use of its
investment in a project for excessive costs. Similarly, under the final
rule, AHP subsidies that serve as ``first-in'' money will remain in a
project as long as the costs incurred by the project are reasonable and
customary. Therefore, while the final rule in no way is intended to
prevent AHP subsidies from being used as ``first-in'' money, the final
rule provides for safeguards against misuse of such subsidies,
consistent with the requirements of other funding sources.
Third, Sec. 960.10(d) of the final rule makes clear that for
purposes of determining compliance with the targeting commitments in an
AHP application, such commitments shall be considered to adjust
annually according to the current median income data.
4. Long-Term Monitoring Requirements
Section 960.11 of the final rule governing long-term monitoring
requirements after project completion applies solely to rental
projects, because owner-occupied projects are not subject to ongoing
household income requirements, and transfers of ownership are monitored
through deed restrictions. Of the 3,704 existing AHP-assisted projects,
1,752 are owner-occupied projects. Therefore, almost half of all
existing AHP-assisted projects are subject to deed restrictions in lieu
of long-term monitoring. In addition, Secs. 960.11 (a)(1) and (a)(2) of
the final rule make the changes discussed below to the proposed
provisions governing the long-term monitoring requirements for rental
projects to allow greater reliance on monitoring by third parties.
a. Reliance on Monitoring by a Federal, State or Local Government
Entity.
The proposed rule provided that for projects receiving $500,000 or
less of AHP subsidies, a Bank could rely on monitoring by a housing
credit agency providing federal Low-Income Housing Tax Credits to the
project if: (1) The income targeting requirements, the rent
requirements, and the retention period monitored by the housing credit
agency are the same as, or more restrictive than, those committed to in
the AHP application; (2) the housing credit agency agrees to inform the
Bank of instances where tenant rents or incomes are found to be in
noncompliance with the rent and income targeting requirements being
monitored by the housing credit agency or where the project is not in a
habitable condition; (3) the Bank does not have information that
monitoring by such housing credit agency is not occurring or is
inadequate; and (4) the Bank makes reasonable efforts to investigate
any complaints received about the project.
The notice of proposed rulemaking requested comments on whether the
proposed provisions permitting the Banks to rely on monitoring by other
parties could be expanded to include government entities other than
housing credit agencies. Comments also were requested on ways in which
the targeting scoring objective in the proposed rule could be modified,
or whether it should be eliminated, so that the income targeting and
rent requirements for AHP projects would be compatible with those
required and monitored by other government housing entities.
Commenters identified several other entities that undertake
monitoring for program standards that are similar, and in some cases
identical, to those under the AHP. However, it was not apparent from
the comments that there are any government entities that monitor for
compliance with requirements identical to those under the AHP on a
consistent basis.
A number of commenters suggested that the Banks should be permitted
to rely on monitoring by other entities that provide funding to a
project even if the targeting, rent, and retention commitments
monitored by the other entity do not match those made by the project
under the AHP. However, the integrity of the Program's competitive
application process depends upon projects being held to the commitments
that they make in order to receive AHP subsidies. Further, project
sponsors or owners may have a reduced incentive to comply with these
commitments over the long term where they have the knowledge that they
will not be monitored according to those commitments.
The final rule attempts to resolve the conflict discussed above by
permitting the Banks to evaluate projects under the AHP scoring process
according to the targeting commitments made by a project to a
government entity providing funds to the project. As discussed
previously, Sec. 960.6(b)(4)(iv)(C)(1) of the final rule provides that
in order to facilitate reliance on monitoring by a federal, state, or
local government entity providing funds or allocating federal Low-
Income Housing Tax Credits to a project, a Bank, in its discretion, may
score each project according to the targeting commitments made by the
project to such entity.
In accordance with this change, Sec. 960.11(a)(1) of the final rule
expands the extent to which a Bank may rely on post-completion
monitoring by government entities providing funds to a project. The
final rule provides that for those projects that receive funds from, or
are allocated federal Low-Income Housing Tax Credits by, a federal,
state, or local government entity, a Bank may rely on the monitoring by
such entity after project completion if: (1) The income targeting
requirements, the rent requirements, and the retention period monitored
by such entity for purposes of its own program are the same as, or more
restrictive than, those committed to in the AHP application; (2) the
entity agrees to inform the Bank of instances where tenant rents or
incomes are found to be in noncompliance with the requirements being
monitored by the entity or where the project is not habitable; and (3)
the entity has demonstrated and continues to demonstrate to the Bank
its ability to carry out monitoring under its own program, and the Bank
does not have information that such monitoring is not occurring or is
inadequate.
This is a change from the proposed rule which, as discussed above,
limited reliance on third-party monitoring to monitoring conducted by
housing credit agencies. In addition, the proposed rule limited such
reliance to projects receiving $500,000 or less in AHP subsidies. The
final rule also omits the requirements in the proposed rule that in
cases where a Bank relies on a housing credit agency to monitor a
project, the project owner annually must provide a list of tenant rents
and incomes to the Bank and certify that they are accurate and in
compliance with the rent and income targeting commitments made in the
AHP application.
b. Reliance on Monitoring of AHP Application Commitments By a
Contractor.
Section 960.11(a)(2) of the final rule also adds a new monitoring
option for the Banks that is intended to expand the ability of the
Banks to rely on post-completion monitoring by government entities
providing funds to a project, where the government entity has different
income targeting, rent, and retention requirements from those committed
to by the project under the AHP.
Section 960.11(a)(2) provides that, for those projects that receive
funds from, or are allocated federal Low-Income Housing Tax Credits by,
a federal, state, or local government entity that monitors for income
targeting requirements, rent requirements, or retention periods
[[Page 41826]]
under its own program that are less restrictive than those committed to
in the project's AHP application, a Bank, in its discretion, may rely
on the monitoring by such entity if: (1) The entity agrees to monitor
the income targeting requirements, the rent requirements, and the
retention period committed to in the AHP application; (2) the entity
agrees to inform the Bank of instances where tenant rents or incomes
are found to be in noncompliance with the requirements committed to in
the AHP application or where the project is not habitable; and (3) the
entity has demonstrated and continues to demonstrate to the Bank its
ability to carry out such monitoring, and the Bank does not have
information that such monitoring is not occurring or is inadequate.
c. Long-Term Monitoring Requirements Where Reliance on Government
Entities Or Contractors Is Not Permitted.
Under the final rule, where a Bank is not permitted to rely on
post-completion monitoring by a federal, state, or local government
entity, the Bank, members, and project owners must monitor projects in
accordance with the requirements of Sec. 960.11(a)(3) of the final
rule. Section 960.11(a)(3) carries forward provisions in the proposed
rule, and makes the following changes in order to reduce monitoring
costs for Banks, members, and project owners. First, the final rule
omits the requirement that a project owner annually must provide a list
of tenant rents and incomes to the Bank.
Second, the final rule omits the provision in the proposed rule
requiring the owner of a rental project to certify to the member and
the Bank that the owner regularly informs households applying for and
occupying AHP-assisted units of the address of the Bank that provided
the AHP subsidy to finance the project. The final rule also eliminates
the requirement that the Bank investigate complaints about the project.
These changes have been made in response to several comments objecting
to the above provisions on the ground that they place the Banks in the
middle of landlord-tenant disputes, which is not an appropriate role
for the Banks.
Third, under Sec. 960.11(a)(3)(ii) of the final rule, for rental
projects receiving $500,000 or less in AHP subsidy from a member, the
member must perform exterior visual inspections of projects and certify
to the Bank at least once every three, rather than two, years that the
project appears to be suitable for occupancy.
Fourth, under Sec. 960.11(a)(3)(iii)(B)(3) of the final rule, for
rental projects receiving over $500,000 in AHP subsidy, a Bank must
perform an on-site review of project documentation for a sample of the
project's units at least once every two years, rather than annually, to
verify compliance with the rent and income targeting commitments made
in the AHP application and project habitability.
Section 960.11(a)(3)(iv) of the final rule makes clear that a Bank,
in its discretion, may hire consultants or outside contractors to
perform the Bank's ongoing long-term monitoring activities as the
Bank's agents, for example, if the Bank determines that this is more
cost-effective than having its own employees administer the Bank's
monitoring responsibilities.
d. Annual Adjustment of Targeting Commitments.
As under the provisions governing initial monitoring requirements,
Sec. 960.11(b) of the final rule makes clear that for purposes of
determining compliance with the targeting commitments in an AHP
application, such commitments shall be considered to adjust annually
according to the current median income data.
L. Remedial Actions for Noncompliance--Sec. 960.12
1. In General
Section 960.12 of the final rule revises the structure of the
proposed rule governing remedies for noncompliance with AHP
requirements by separating provisions on compliance standards from
provisions requiring that compliance standards be implemented by
specific agreements. The proposed provisions on compliance standards
governing Banks, members and project sponsors and owners are retained
and clarified in Sec. 960.12, while provisions related to compliance
agreements are incorporated in Sec. 960.13 of the final rule.
2. Project Foreclosure
A number of commenters requested clarification on the liability of
members and project owners where a project goes into foreclosure prior
to the end of the retention period. Section 960.12 of the final rule
makes a party's liability for repayment of AHP subsidies contingent
upon that party's action or omission resulting in noncompliance with
AHP requirements. Therefore, if, due to circumstances that are not the
result of an action or omission of the member and project sponsor or
owner, a project goes into foreclosure prior to the end of the
project's retention period, the sponsor or owner is not liable for
repayment of subsidies, and the member is required to recover and repay
to the Bank only that amount that the member can recover through
reasonable collection efforts, by exercising its legal rights against
the project.
3. Degree of Culpability
Commenters also suggested that a project sponsor's or owner's
liability to repay AHP subsidies should apply to cases of fraud or
gross mismanagement but not simple negligence. The Finance Board
believes that determinations as to degrees of culpability are best made
on a case-by-case basis. This is reflected in Sec. 960.12(c)(2) of the
final rule, which permits Banks and members to settle claims for
noncompliance taking into account factors such as the degree of
culpability of the parties involved.
4. Provision for Members, Sponsors, and Owners to be Parties to
Enforcement Proceedings
Section 960.12(d) of the final rule adds a new provision permitting
a Bank, in its AHP implementation plan, to provide for a member,
project sponsor, or project owner to enter into a written agreement
with a Bank under which such member, sponsor, or owner consents to be a
party to any enforcement proceeding initiated by the Finance Board
regarding the repayment of AHP subsidies received by such member,
sponsor, or owner, or the suspension or debarment of such parties,
provided that the member, sponsor, or owner has agreed to be bound by
the Finance Board's final determination in the enforcement proceeding.
Under such an agreement, a member, sponsor, or owner who consents to be
subject to a final determination of the Finance Board will have the
same rights and remedies as a Bank in seeking review of such a
determination.
5. Suspension and Debarment
Section 960.12(f)(2) of the final rule revises the provision in the
proposed rule governing suspension and debarment of members and project
sponsors and owners from participation in the Program by clarifying
that suspension or debarment by the Finance Board is implemented
through an order upon a Bank.
6. Procedure for Finance Board Action
Section 960.12(h) of the final rule clarifies that, except in cases
where a Bank is seeking prior Finance Board review of a settlement
agreement with a member, any actions taken by the Finance Board
pursuant to section
[[Page 41827]]
960.12 shall be subject to the Finance Board's Procedures for Review of
Disputed Supervisory Determinations. Copies of these procedures are
available from the Finance Board upon request.
M. Agreements--Sec. 960.13
1. In General
As discussed previously, Sec. 960.13 of the final rule generally
describes the kinds of agreements Banks must have in place with members
in order to implement the various standards set forth in the final
rule, including standards governing monitoring, retention, and
repayment of subsidies. This section also describes special provisions
that must be in place where members receive subsidized advances and
direct subsidies, respectively. The final rule is not intended to
prescribe the form of agreements between Banks and members or whether
such agreements consist of one agreement or several separate
agreements. Nor is a Bank precluded from making entities in addition to
members, such as project sponsors or owners, parties to such
agreements.
2. Retention Agreements
Sections 960.13(c) (4) and (5) and (d) (1) and (2) of the final
rule incorporate and carry forward the provisions of the proposed rule
governing retention of owner-occupied and rental projects. Section
960.1 of the final rule carries forward the provisions of the proposed
rule defining the retention period as five years from closing for an
AHP-assisted owner-occupied unit, and 15 years from the date of project
completion for an AHP-assisted rental project. A number of commenters
supported these retention periods. Some commenters supported other
retention periods ranging from 3 to 25 years in the case of owner-
occupied units, and 5 to 30 years in the case of rental projects. In
light of the significant support for the proposed retention periods,
the final rule retains the proposed retention periods.
The notice of proposed rulemaking requested comments on whether
repayment of AHP subsidy should be required in all cases of refinancing
by the homeowner prior to the end of the retention period of an AHP-
assisted unit, rather than just in cases where the homeowner fails to
ensure that the unit continues to be subject to a retention mechanism
after the refinancing. Refinancing may allow the owner of an AHP-
assisted unit, in effect, to take the subsidy out of the unit prior to
the end of the five-year retention period, which may be perceived as a
windfall to the owner. However, homeowners, generally, can take
advantage of lower interest rates by refinancing their unit, and
households that purchase AHP-assisted units should not be denied this
opportunity. As long as the owner of an AHP-assisted unit ensures that
after the refinancing, the unit continues to be subject to the initial
AHP retention requirement, the goal of the Program is met.
Several commenters supported permitting refinancing without
penalty, while others suggested various permutations of repayment
requirements in this situation. The Finance Board continues to believe
that households that have AHP-assisted units should be allowed to
benefit from appreciation in the value of their homes, through
refinancing or otherwise, to the same extent as other homeowners, as
long as AHP retention requirements are satisfied. Therefore,
Sec. 960.13(d)(1)(iii) of the final rule carries forward the proposed
provision on this issue, but makes this provision parallel with
Sec. 960.13(d)(1)(ii), which provides for pro rata repayment of the AHP
subsidy upon sale of an AHP-assisted unit, unless the unit continues to
be subject to the initial AHP retention requirement.
The notice of proposed rulemaking also requested comments on
whether an owner of an AHP-assisted rental project should be required
to repay the entire amount of AHP subsidy, versus a pro rata share,
where the project is sold prior to the end of the retention period and
the subsequent owner fails to agree in writing to comply with the
income-eligibility and affordability restrictions committed to in the
AHP application. This requirement may serve to discourage the
conversion of AHP-assisted rental projects into projects that charge
market rents, prior to the end of the retention period. Several
commenters supported requiring full repayment of subsidy where an AHP-
assisted rental project is converted to market-rate housing. Despite
good arguments on both sides of the issue, the Finance Board, as a
matter of policy, has decided to retain this requirement in the final
rule as a disincentive for project conversion prior to the end of the
retention period. Therefore, Secs. 960.13 (c)(5)(iii) and (d)(2)(iii)
of the final rule carry forward the proposed provisions on this issue.
3. Termination of Income-Eligibility and Affordability Restrictions
Upon Foreclosure
Sections 960.13 (c)(5)(iv) and (d)(2)(iv) of the final rule add a
requirement that Banks include in their agreements with members a
provision that the income-eligibility and affordability restrictions
applicable to an AHP-assisted rental project may terminate upon
foreclosure or upon transfer in lieu of foreclosure. This change was
made in response to requests from commenters for clarification on this
issue.
4. Lending of Direct Subsidies
For various tax reasons, sponsors prefer to structure projects
involving federal Low-Income Housing Tax Credits so that AHP direct
subsidies are loaned to the project. This use of direct subsidies
raises the question whether the direct subsidies, which are grants, are
being passed on to the ultimate recipients, as required under section
10(j)(9)(E) of the Act, since they may be repaid by the recipients. See
12 U.S.C. 1430(j)(9)(E).
The proposed rule reflected an attempt to accommodate the needs of
sponsors and the statutory requirement governing the pass-through of
AHP subsidies. It provided that a member or a sponsor may lend a direct
subsidy in connection with an AHP-assisted rental project involving
federal Low-Income Housing Tax Credits, provided that all payments by
the borrower are deferred until the end of the loan term and no
interest is charged. Upon repayment of the loan, the entire amount of
the direct subsidy had to be repaid to the Bank.
Commenters stated that the proposed provisions did not adequately
reflect the way that rental project financing is structured in all
cases. For instance, members or sponsors may charge interest on direct
subsidies lent to projects and may not require deferral of repayments.
Section 960.13(d)(3) of the final rule is intended to broaden the
language of the provisions of the proposed rule in order to make the
final rule compatible with these financing structures. It provides that
if a member or a project sponsor lends a direct subsidy to a project,
any repayments of principal and payments of interest received by the
member or the project sponsor must be paid forthwith to the Bank. The
final rule also no longer limits lending of direct subsidies solely to
situations involving projects receiving federal Low-Income Housing Tax
Credits. This requirement is to be implemented through inclusion in
agreements between Banks, members, and project sponsors.
5. Transfer of AHP Obligations Where a Member Loses Its Membership In
the Bank
Section 960.13(b)(5) of the final rule provides that the member
must make
[[Page 41828]]
best efforts to transfer its obligations under the approved application
for AHP subsidy to another member in the event of its loss of
membership in the Bank prior to the Bank's final disbursement of AHP
subsidies.
Under Sec. 960.13(c)(6), if, after final disbursement of AHP
subsidies to the member, the member undergoes an acquisition or a
consolidation resulting in a successor organization that is not a
member of the Bank, the nonmember successor organization assumes the
member's obligations under its approved application for AHP subsidy
upon prepayment or orderly liquidation by the nonmember of the
subsidized advance. Under Sec. 960.13(d)(4), if, after final
disbursement of AHP subsidies to the member, the member undergoes an
acquisition or a consolidation resulting in a successor organization
that is not a member of the Bank, the nonmember successor organization
assumes the member's obligations under its approved application for AHP
subsidy.
III. Regulatory Flexibility Act
The final rule applies only to the Banks, which do not come within
the meaning of ``small entities,'' as defined in the Regulatory
Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance
with section 605(b) of the RFA, see id. section 605(b), the Finance
Board hereby certifies that the final rule will not have a significant
economic impact on a substantial number of small entities.
IV. Paperwork Reduction Act
As part of the notice of proposed rulemaking, the Finance Board
published a request for comments concerning proposed changes to the
collection of information in the existing AHP regulation, see 61 FR
57799, 57819-57820 (Nov. 8, 1996), which previously was approved by the
Office of Management and Budget (OMB) and assigned OMB control number
3096-0006. The revised collection of information was submitted to OMB
for review in accordance with section 3507(d) of the Paperwork
Reduction Act of 1995, 44 U.S.C. 3507(d). The Finance Board also
submitted to OMB for its approval an analysis of the proposed changes
to the collection of information resulting from the proposed rule. The
Finance Board received one comment on the proposed changes. The
commenter suggested that the reporting and recordkeeping burden of the
information collection may be understated on the grounds that it is not
based on current hour and cost estimates and does not take into account
the monitoring requirements in the proposed rule. The Finance Board
based the hour and cost burden estimates for the information collection
on current information available at the time the estimates were made.
Further, the Finance Board's analysis of the information collection on
file at OMB specifically sets forth hour and cost burden estimates for
those aspects of the information collection related to monitoring. The
Finance Board continues to believe that the burden estimates are
accurate.
OMB has assigned a control number 3096-0006 and approved the
revised information collection without conditions with an expiration
date of December 31, 1999. Potential respondents are not required to
respond to the collection of information unless the regulation
collecting the information displays a currently valid control number
assigned by the OMB. See 44 U.S.C. 3512(a).
Although the final rule does not substantively or materially modify
the approved information collection, it provides additional options in
complying with long-term monitoring requirements, which may, in some
cases, reduce the reporting and recordkeeping burden on respondents.
The estimated annual reporting and recordkeeping hour burden is:
a. Number of respondents--7462.
b. Total annual responses--9949. Percentage of these responses
collected electronically--0%
c. Total annual hours requested--64,274.
d. Current OMB inventory--33,067.
e. Difference--31,207.
The estimated annual reporting and recordkeeping cost burden is:
a. Total annualized capital/startup costs--0.
b. Total annual costs (O&M)--0.
c. Total annualized cost requested--$2,117,450.00.
d. Current OMB inventory--0.
e. Difference--$2,117,450.00.
Comments concerning the information collection may be submitted to
the Finance Board in writing at the address listed above and to the
Office of Information and Regulatory Affairs of OMB, Attention: Desk
Officer for Federal Housing Finance Board, Washington, DC 20503.
List of Subjects in 12 CFR Part 960
Credit, Federal home loan banks, Housing, Reporting and
recordkeeping requirements.
Accordingly, the Finance Board hereby revises part 960 of chapter
IX, title 12, Code of Federal Regulations to read as follows.
PART 960--AFFORDABLE HOUSING PROGRAM
Sec.
960.1 Definitions.
960.2 Required annual AHP contributions.
960.3 Operation of Program and adoption of AHP implementation plan.
960.4 Advisory Councils.
960.5 Minimum eligibility standards for AHP projects.
960.6 Procedure for approval of applications for funding.
960.7 Modifications of applications prior to project completion.
960.8 Procedure for funding.
960.9 Modifications of applications after project completion.
960.10 Initial monitoring requirements.
960.11 Long-term monitoring requirements.
960.12 Remedial actions for noncompliance.
960.13 Agreements.
960.14 Temporary suspension of AHP contributions.
960.15 Affordable Housing Reserve Fund.
960.16 Application to existing AHP projects.
Authority: 12 U.S.C. 1430(j).
Sec. 960.1 Definitions.
As used in this part:
Act means the Federal Home Loan Bank Act, as amended (12 U.S.C.
1421 et seq.).
Advance means a loan to a member from a Bank that is:
(1) Provided pursuant to a written agreement; (2) Supported by a
note or other written evidence of the member's obligation; and
(3) Fully secured by collateral in accordance with the Act and part
935 of this chapter.
Affordable means that the rent charged to a household for a unit
that is committed to be affordable in an AHP application does not
exceed 30 percent of the income of a household of the maximum income
and size expected, under the commitment made in the AHP application, to
occupy the unit (assuming occupancy of 1.5 persons per bedroom or 1.0
person per unit without a separate bedroom).
AHP or Program means the Affordable Housing Program established
pursuant to 12 U.S.C. 1430(j) and this part.
Bank means a Federal Home Loan Bank established under the authority
of the Act.
Board of Directors means the Board of Directors of the Finance
Board.
CIP means a Bank's Community Investment Program established under
section 10(i) of the Act (12 U.S.C. 1430(i)).
Cost of funds means, for purposes of a subsidized advance, the
estimated cost of issuing Bank System consolidated obligations with
maturities comparable to that of the subsidized advance.
[[Page 41829]]
Direct subsidy means an AHP subsidy in the form of a direct cash
payment, but does not include homeownership set-aside funds.
Family member means any individual related to a person by blood,
marriage or adoption.
Finance Board means the agency established as the Federal Housing
Finance Board.
Habitable means suitable for occupancy, taking into account local
health, safety, and building codes.
Homeless household means a household made up of one or more
individuals, other than individuals imprisoned or otherwise detained
pursuant to state or federal law, who:
(1) Lack a fixed, regular, and adequate nighttime residence; or
(2) Have a primary nighttime residence that is:
(i) A supervised publicly or privately operated shelter designed to
provide temporary living accommodations (including welfare hotels,
congregate shelters, and transitional housing for the mentally ill);
(ii) An institution that provides a temporary residence for
individuals intended to be institutionalized; or
(iii) A public or private place not designed for, or ordinarily
used as, a regular sleeping accommodation for human beings.
Homeownership set-aside funds means funds provided to a member by a
Bank pursuant to a Bank's homeownership set-aside program.
HUD means the Department of Housing and Urban Development.
Low-or moderate-income household. (1) Owner-occupied projects. For
purposes of an owner-occupied project, low-or moderate-income household
means a household which, at the time it is qualified by the sponsor for
participation in the project, has an income of 80 percent or less of
the median income for the area.
(2) Rental projects. (i) In general. For purposes of a rental
project, low-or moderate-income household means a household which, upon
initial occupancy of a rental unit, has an income at or below 80
percent of the median income for the area.
(ii) Housing with current occupants. In the case of projects
involving the purchase or rehabilitation of rental housing with current
occupants, low-or moderate-income household means an occupying
household which, at the time the purchase or rehabilitation is
completed, has an income at or below 80 percent of the median income
for the area.
(3) Family-size adjustment. The income limit for low-or moderate-
income households may be adjusted for family size in accordance with
the methodology of the applicable median income standard.
Low-or moderate-income neighborhood means any neighborhood in which
51 percent or more of the households have incomes at or below 80
percent of the median income for the area.
Median income for the area. (1) Owner-occupied projects. A Bank
shall identify in its AHP implementation plan one or more of the
following median income standards from which all owner-occupied
projects may choose for purposes of the AHP:
(i) The median income for the area, as published annually by HUD;
(ii) The applicable median family income, as determined under 26
U.S.C. 143(f) (Mortgage Revenue Bonds) and published by a State agency
or instrumentality;
(iii) The median income for the area, as published by the United
States Department of Agriculture; or
(iv) The 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, and approved by the Board of
Directors, at the request of a Bank, for use under the AHP.
(2) Rental projects. A Bank shall identify in its AHP
implementation plan one or more of the following median income
standards from which all rental projects may choose for purposes of the
AHP:
(i) The median income for the area, as published annually by HUD;
or
(ii) The 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, and approved by the Board of
Directors, at the request of a Bank, for use under the AHP.
(3) Procedure for approval. Prior to requesting approval by the
Board of Directors of a median income standard, a Bank shall amend its
AHP implementation plan to permit the use of such standard, conditioned
on Board of Directors approval. Requests for approval of median income
standards shall receive prompt consideration by the Board of Directors.
Member means an institution that has been approved for membership
in a Bank and has purchased capital stock in the Bank in accordance
with Secs. 933.20 and 933.24 of this chapter.
Net earnings of a Bank means the net earnings of a Bank for a
calendar year after deducting the Bank's pro rata share of the annual
contribution to the Resolution Funding Corporation required under
sections 21A or 21B of the Act (12 U.S.C. 1441a, 1441b), and before
declaring any dividend under section 16 of the Act (12 U.S.C. 1436).
Owner-occupied project means a project involving the purchase,
construction, or rehabilitation of owner-occupied housing, including
condominiums and cooperative housing, by or for very low-or low-or
moderate-income households.
Owner-occupied unit means a unit in an owner-occupied project.
Rental project means a project involving the purchase,
construction, or rehabilitation of rental housing, including
transitional housing for homeless households and mutual housing, where
at least 20 percent of the units in the project are occupied by and
affordable for very low-income households.
Retention period means:
(1) 5 years from closing for an AHP-assisted owner-occupied unit;
and
(2) 15 years from the date of project completion for a rental
project.
Sponsor means a not-for-profit or for-profit organization or public
entity that:
(1) Has an ownership interest (including any partnership interest)
in a rental project; or
(2) Is integrally involved in an owner-occupied project, such as by
exercising control over the planning, development, or management of the
project, or by qualifying borrowers and providing or arranging
financing for the owners of the units.
State means a state of the United States, the District of Columbia,
Guam, Puerto Rico, or the U.S. Virgin Islands.
Subsidized advance means an advance to a member at an interest rate
reduced below the Bank's cost of funds, by use of a subsidy.
Subsidy means:
(1) A direct subsidy, provided that if a direct subsidy is used to
write down the interest rate on a loan extended by a member, sponsor,
or other party to a project, the subsidy shall equal the net present
value of the interest foregone from making the loan below the lender's
market interest rate (calculated as of the date the AHP application is
submitted to the Bank, and subject to adjustment under
Sec. 960.8(c)(3));
(2) The net present value of the interest revenue foregone from
making a subsidized advance at a rate below the Bank's cost of funds,
determined as of the earlier of the date of disbursement of the
subsidized advance or the date prior to disbursement on which the Bank
first manages the funding to support the subsidized advance through
[[Page 41830]]
its asset/liability management system, or otherwise; or
(3) Homeownership set-aside funds.
Very low-income household. (1) Owner-occupied projects. For
purposes of an owner-occupied project, very low-income household means
a household which, at the time it is qualified by the sponsor for
participation in the project, has an income at or below 50 percent of
the median income for the area.
(2) Rental projects. (i) In general. For purposes of a rental
project, very low-income household means a household which, upon
initial occupancy of a rental unit, has an income at or below 50
percent of the median income for the area.
(ii) Housing with current occupants. In the case of projects
involving the purchase or rehabilitation of rental housing with current
occupants, very low-income household means an occupying household
which, at the time the purchase or rehabilitation is completed, has an
income at or below 50 percent of the median income for the area.
(3) Family-size adjustment. The income limit for very low-income
households may be adjusted for family size in accordance with the
methodology of the applicable median income standard.
Sec. 960.2 Required annual AHP contributions.
Each Bank shall contribute annually to its Program the greater of:
(a) 10 percent of the Bank's net earnings for the previous year; or
(b) That Bank's pro rata share of an aggregate of $100 million to
be contributed in total by the Banks, such proration being made on the
basis of the net earnings of the Banks for the previous year.
Sec. 960.3 Operation of Program and adoption of AHP implementation
plan.
(a) Allocation of AHP contributions. (1) Homeownership set-aside
programs. Each Bank, after consultation with its Advisory Council, may
set aside annually, in the aggregate, up to the greater of $1.5 million
or 15 percent of its annual required AHP contribution to provide funds
to members participating in the Bank's homeownership set-aside
programs, pursuant to the requirements of this part. In cases where the
amount of homeownership set-aside funds applied for by members in a
given year exceeds the amount available for that year, a Bank may
allocate up to the greater of $1.5 million or 15 percent of its annual
required AHP contribution for the subsequent year to the current year's
homeownership set-aside programs. A Bank may establish one or more
homeownership set-aside programs pursuant to written policies adopted
by the Bank's board of directors. A Bank's board of directors shall not
delegate to Bank officers or other Bank employees the responsibility
for adopting such policies.
(2) Competitive application program. That portion of a Bank's
required annual AHP contribution that is not set aside to fund
homeownership set-aside programs shall be provided to members through a
competitive application program, pursuant to the requirements of this
part.
(b) AHP implementation plan. (1) Adoption of plan. Each Bank's
board of directors shall adopt a written AHP implementation plan which
shall set forth:
(i) The applicable median income standard or standards, adopted by
the Bank consistent with the definition of median income for the area
in Sec. 960.1;
(ii) The requirements for any homeownership set-aside programs
adopted by the Bank pursuant to paragraph (a)(1) of this section;
(iii) The Bank's project feasibility guidelines, adopted consistent
with Sec. 960.5(b)(2);
(iv) The Bank's schedule for AHP funding periods;
(v) Any additional District eligibility requirement, adopted by the
Bank pursuant to Sec. 960.5(b)(10);
(vi) The Bank's scoring guidelines, adopted by the Bank consistent
with Sec. 960.6(b)(4);
(vii) The Bank's time limits on use of AHP subsidies and procedures
for verifying compliance upon disbursement of AHP subsidies pursuant to
Sec. 960.8; and
(viii) The Bank's procedures for carrying out its monitoring
obligations under Secs. 960.10(c) and 960.11.
(2) No delegation. A Bank's board of directors shall not delegate
to Bank officers or other Bank employees the responsibility for
adopting the AHP implementation plan, or any subsequent amendments
thereto.
(3) Advisory Council review. Prior to adoption of the Bank's AHP
implementation plan, and any subsequent amendments thereto, the Bank
shall provide its Advisory Council an opportunity to review the plan
and any subsequent amendments, and the Advisory Council shall provide
its recommendations to the Bank's board of directors.
(4) Submission of plan to the Finance Board. A Bank shall submit
its initial AHP implementation plan, and any amendments, to the Finance
Board and the Bank's Advisory Council at least 60 days prior to
distributing requests for applications for AHP subsidies for the
funding period in which the plan, or amendments, will be effective.
(5) Public Access. A Bank's initial AHP implementation plan, and
any subsequent amendments, shall be made available to members of the
public, upon request.
(c) Conflicts of interest--(1) Bank directors and employees. Each
Bank's board of directors shall adopt a written policy providing that
if a Bank director or employee, or such person's family member, has a
financial interest in, or is a director, officer, or employee of an
organization involved in, a project that is the subject of a pending or
approved AHP application, the Bank director or employee shall not
participate in or attempt to influence decisions by the Bank regarding
the evaluation, approval, funding, monitoring or any remedial process
for such project.
(2) Advisory Council members. Each Bank's board of directors shall
adopt a written policy providing that if an Advisory Council member, or
such person's family member, has a financial interest in, or is a
director, officer, or employee of an organization involved in, a
project that is the subject of a pending or approved AHP application,
the Advisory Council member shall not participate in or attempt to
influence decisions by the Bank regarding the approval for such
project.
(3) No delegation. A Bank's board of directors shall not delegate
to Bank officers or other Bank employees the responsibility to adopt
conflicts of interest policies.
(d) Reporting. Each Bank shall provide such reports and
documentation concerning its Program as the Finance Board may request
from time to time.
Sec. 960.4 Advisory Councils.
(a) In general. Each Bank's board of directors shall appoint an
Advisory Council of from 7 to 15 persons who reside in the Bank's
District and are drawn from community and not-for-profit organizations
actively involved in providing or promoting low- and moderate-income
housing in the District.
(b) Nominations and appointments. Each Bank shall solicit
nominations for membership on the Advisory Council from community and
not-for-profit organizations pursuant to a nomination process that is
as broad and as participatory as possible, allowing sufficient time for
responses. The Bank's board of directors shall appoint Advisory Council
members giving consideration to the size of the Bank's
[[Page 41831]]
District and the diversity of low- and moderate-income housing needs
and activities within the District.
(c) Diversity of membership. In appointing the Advisory Council, a
Bank's board of directors shall ensure that the membership includes
persons drawn from a diverse range of organizations, provided that
representatives of no one group shall constitute an undue proportion of
the membership of the Advisory Council.
(d) Terms of Advisory Council members. The Bank's board of
directors shall appoint Advisory Council members to serve for no more
than three consecutive terms of three years each, and such terms shall
be staggered to provide continuity in experience and service to the
Advisory Council.
(e) Election of officers. Each Advisory Council may elect from
among its members a chairperson, a vice chairperson, and any other
officers the Advisory Council deems appropriate.
(f) Duties.--(1) Meetings with the Banks. Representatives of the
board of directors of the Bank shall meet with the Advisory Council at
least quarterly to obtain the Advisory Council's advice on ways in
which the Bank can better carry out its housing finance and community
investment mission, including, but not limited to, advice on the low-
and moderate-income housing and community investment programs and needs
in the Bank's District, and on the use of AHP subsidies, Bank advances,
and other Bank credit products for these purposes.
(2) Summary of AHP applications. The Bank shall comply with
requests from the Advisory Council for summary information regarding
AHP applications from prior funding periods.
(3) Annual report to the Finance Board. Each Advisory Council shall
submit to the Finance Board annually by March 1 its analysis of the
low- and moderate-income housing and community development activity of
the Bank by which it is appointed.
(g) Expenses. The Bank shall pay Advisory Council members travel
expenses, including transportation and subsistence, for each day
devoted to attending meetings with representatives of the board of
directors of the Bank and meetings requested by the Finance Board.
Sec. 960.5 Minimum eligibility standards for AHP projects.
(a) Homeownership set-aside programs. A Bank's homeownership set-
aside programs must meet the following requirements:
(1) Homeownership set-aside funds must be provided to members
pursuant to allocation criteria established by the Bank;
(2) Members must provide homeownership set-aside funds only to
households that:
(i) Are low-or moderate-income households, as defined in
Sec. 960.1;
(ii) Complete a homebuyer or homeowner counseling program provided
by, or based on one provided by, an organization recognized as
experienced in homebuyer or homeowner counseling, respectively; and
(iii) Meet such other eligibility criteria that may be established
by the Bank, such as a matching funds requirement or criteria that give
priority for the purchase or rehabilitation of housing in particular
areas or as part of a disaster relief effort;
(3) Members must provide homeownership set-aside funds to
households as a grant, in an amount up to a maximum of $10,000 per
household, as established by the Bank, which limit shall apply to all
households;
(4) Households must use homeownership set-aside funds to pay for
downpayment, closing cost, counseling, or rehabilitation assistance in
connection with the household's purchase or rehabilitation of an owner-
occupied housing unit, including a condominium or cooperative housing
unit, to be used as the household's primary residence;
(5) A housing unit purchased or rehabilitated using homeownership
set-aside funds must be subject to a retention agreement described in
Sec. 960.13(d)(1);
(6) If a member is providing mortgage financing to a participating
household, the member must provide financial or other incentives in
connection with such mortgage financing, and the rate of interest,
points, fees, and any other charges by the member must not exceed a
reasonable market rate of interest, points, fees, and other charges for
a loan of similar maturity, terms, and risk;
(7) Homeownership set-aside funds may be used to pay for counseling
costs only where:
(i) Such costs are incurred in connection with counseling of
homebuyers who actually purchase an AHP-assisted unit;
(ii) The cost of the counseling has not been covered by another
funding source, including the member; and
(iii) The homeownership set-aside funds are used to pay only for
the amount of such reasonable and customary costs that exceeds the
highest amount the member has spent annually on homebuyer counseling
costs within the preceding three years; and
(8) Homeownership set-aside funds must be drawn down and used by
eligible households within the period of time specified by the Bank in
its AHP implementation plan.
(b) Competitive application program. Projects receiving AHP
subsidies pursuant to a Bank's competitive application program must
meet the eligibility requirements of this paragraph (b).
(1) Owner-occupied or rental housing. A project must be either an
owner-occupied project or a rental project, as defined, respectively,
in Sec. 960.1.
(2) Project feasibility and need for subsidy--(i) Sources and uses
of funds. The project's estimated uses of funds must equal its
estimated sources of funds, as reflected in the project's development
budget. A project's sources of funds must include:
(A) Estimates of funds the project sponsor intends to obtain from
other sources but which have not yet been committed to the project; and
(B) Estimates of the market value of in-kind donations and
volunteer professional labor or services committed to the project, but
not the value of sweat-equity.
(ii) Project costs--(A) In general. Project costs, as reflected in
the project's development budget, must be reasonable and customary, in
accordance with the Bank's project feasibility guidelines, in light of:
(1) Industry standards for the location of the project; and
(2) The long-term financial needs of the project.
(B) Cost of property and services provided by a member. The
purchase price of property or services, as reflected in the project's
development budget, sold to the project by a member providing AHP
subsidy to the project, or, in the case of property, upon which such
member holds a mortgage or lien, may not exceed the market value of
such property or services as of the date the purchase price for the
property or services was agreed upon. In the case of real estate owned
property sold to a project by a member providing AHP subsidy to a
project, or property sold to the project upon which the member holds a
mortgage or lien, the market value of such property is deemed to be the
``as-is'' or ``as-rehabilitated'' value of the property, whichever is
appropriate, as reflected in an independent appraisal of the property
performed within six months prior to the date the purchase price for
the property was agreed upon.
(iii) Operational feasibility and need for subsidy. The project
must be
[[Page 41832]]
operationally feasible, in accordance with the Bank's project
feasibility guidelines, based on relevant factors including, but not
limited to, applicable financial ratios, geographic location of the
project, needs of tenants, and other non-financial project
characteristics. The requested AHP subsidy must be necessary for the
financial feasibility of the project, as currently structured, and the
rate of interest, points, fees, and any other charges for all loans
financing the project must not exceed a market rate of interest,
points, fees, and other charges for loans of similar maturity, terms,
and risk.
(3) Timing of subsidy use. The AHP subsidy must be likely to be
drawn down by the project or used by the project to procure other
financing commitments within 12 months of the date of approval of the
application for subsidy funding the project.
(4) Prepayment, cancellation, and processing fees. The project must
not use AHP subsidies to pay for:
(i) Prepayment fees imposed by a Bank on a member for a subsidized
advance that is prepaid, unless, subsequent to such prepayment, the
project will continue to comply with the terms of the application for
the subsidy, as approved by the Bank, and the requirements of this part
for the duration of the original retention period, and any unused
subsidy is returned to the Bank and made available for other AHP
projects;
(ii) Cancellation fees and penalties imposed by a Bank on a member
for a subsidized advance commitment that is canceled; or
(iii) Processing fees charged by members for providing direct
subsidies to a project.
(5) Counseling costs. AHP subsidies may be used to pay for
counseling costs only where:
(i) Such costs are incurred in connection with counseling of
homebuyers who actually purchase an AHP-assisted unit; and
(ii) The cost of the counseling has not been covered by another
funding source, including the member.
(6) Refinancing. If the project uses AHP subsidies to refinance an
existing single-family or multifamily mortgage loan, the equity
proceeds of the refinancing must be used only for the purchase,
construction, or rehabilitation of housing units meeting the
eligibility requirements of this paragraph (b).
(7) Retention--(i) Owner-occupied projects. The project's AHP-
assisted units are or are committed to be subject to a retention
agreement described in Sec. 960.13 (c)(4) or (d)(1).
(ii) Rental projects. AHP-assisted rental projects are or are
committed to be subject to a retention agreement described in
Sec. 960.13 (c)(5) or (d)(2).
(8) Project sponsor qualifications. A project's sponsor must be
qualified and able to perform its responsibilities as committed to in
the application for subsidy funding the project.
(9) Fair housing. The project, as proposed, must comply with any
applicable fair housing law requirements and demonstrate how the
project will be affirmatively marketed.
(10) District eligibility requirements. (i) A project receiving AHP
subsidies may be required by a Bank to meet one or more of the
following additional eligibility requirements adopted by a Bank's board
of directors, after consultation with its Advisory Council:
(A) A requirement that the amount of subsidy requested for the
project does not exceed limits established by the Bank as to the
maximum amount of AHP subsidy available per member each year; or per
member, per project, or per project unit in a single funding period;
(B) A requirement that the project is located in the Bank's
District; or
(C) A requirement that the member submitting the application has
made use of a credit product offered by the Bank, other than AHP or CIP
credit products, within the previous 12 months.
(ii) District eligibility requirements must apply equally to all
members.
Sec. 960.6 Procedure for approval of applications for funding.
(a) Homeownership set-aside programs. A Bank shall accept
applications for homeownership set-aside funds from members and may, in
its discretion, accept applications from institutions with pending
applications for membership in the Bank. The Bank shall approve
applications in accordance with the Bank's criteria governing the
allocation of funds.
(b) Competitive application program--(1) Funding periods; amounts
available. A Bank shall accept applications for funding under its
competitive application program from members and may, in its
discretion, accept applications from institutions with pending
applications for membership in the Bank. A Bank may accept applications
for funding during a specified number of funding periods each year, as
determined by the Bank. The amount of subsidies offered in each funding
period shall be comparable.
(2) Submission of applications. A Bank shall require applicants for
AHP subsidies to submit information sufficient for the Bank to:
(i) Determine that the proposed AHP project meets the eligibility
requirements of Sec. 960.5(b); and
(ii) Evaluate the application pursuant to the scoring criteria in
paragraph (b)(4) of this section.
(3) Review of applications for project eligibility. A Bank shall
review applications to determine that the proposed AHP project meets
the eligibility requirements of Sec. 960.5(b).
(4) Scoring of applications--(i) In general. A Bank shall score
only those applications meeting the eligibility requirements of
Sec. 960.5(b). A Bank shall not adopt additional scoring criteria or
point allocations, except as specifically authorized under this
paragraph (b)(4). A Bank shall adopt written guidelines implementing
the scoring requirements of this paragraph (b)(4).
(ii) Point allocations. A Bank shall allocate 100 points among the
nine scoring criteria identified in paragraph (b)(4)(iv) of this
section. The scoring criterion identified in paragraph (b)(4)(iv)(C) of
this section shall be allocated at least 20 points. The remaining
scoring criteria shall be allocated at least five points each.
(iii) Satisfaction of scoring criteria. A Bank shall designate each
scoring criterion as either a fixed-point or a variable-point
criterion. Variable-point criteria are those where there are varying
degrees to which an application can satisfy the criteria. The number of
points that may be awarded to an application for meeting a variable-
point criterion will vary, depending on the extent to which the
application satisfies the criterion, compared to the other applications
being scored. A Bank shall designate the scoring criteria identified in
paragraphs (b)(4)(iv) (C) and (H) of this section as variable-point
criteria. The application(s) best achieving each variable-point
criterion shall receive the maximum point score available for that
criterion, with the remaining applications scored on a declining scale.
Fixed-point criteria are those which cannot be satisfied in varying
degrees and are either satisfied, or not. An application meeting a
fixed-point criterion shall be awarded the total number of points
allocated to that criterion.
(iv) Scoring criteria. An application for a proposed project may
receive points based on satisfaction of the nine scoring criteria set
forth in this paragraph (b)(4)(iv).
(A) Use of donated government-owned or other properties. The
creation of housing using a significant proportion of units or land
donated or conveyed for a nominal price by the federal government or
any agency or
[[Page 41833]]
instrumentality thereof, or by any other party.
(B) Sponsorship by a not-for-profit organization or government
entity. Project sponsorship by a not-for-profit organization, a state
or political subdivision of a state, a state housing agency, a local
housing authority, a Native American Tribe, an Alaskan Native Village,
or the government entity for Native Hawaiian Home Lands.
(C) Targeting. The extent to which a project creates housing for
very low- and low- or moderate-income households.
(1) Rental projects. An application for a rental project shall be
awarded the maximum number of points available under this scoring
criterion if 60 percent or more of the units in the project are
reserved for occupancy by households with incomes at or below 50
percent of the median income for the area. Applications for projects
with less than 60 percent of the units reserved for occupancy by
households with incomes at or below 50 percent of the median income for
the area shall be awarded points on a declining scale based on the
percentage of units in a project that are reserved for households with
incomes at or below 50 percent of the median income for the area, and
on the percentage of the remaining units reserved for households with
incomes at or below 80 percent of the median income for the area. In
order to facilitate reliance on monitoring by a federal, state, or
local government entity providing funds or allocating federal Low-
Income Housing Tax Credits to a proposed project, a Bank, in its
discretion, may score each project according to the targeting
commitments made by the project to such entity, and the Bank shall
include such scoring practice in its AHP implementation plan.
(2) Owner-occupied projects. Applications for owner-occupied
projects shall be awarded points based on the percentage of units in
the project to be provided to households with incomes at or below 80
percent of the median income for the area. Points shall be awarded on a
declining scale, with projects having the highest percentage of units
targeted to households with the lowest percentage of median income for
the area awarded the highest number of points.
(3) Separate scoring. For purposes of this scoring criterion,
applications for owner-occupied projects and rental projects may be
scored separately.
(D) Housing for homeless households. The creation of transitional
housing, excluding overnight shelters, for homeless households
permitting a minimum of six months occupancy, or the creation of rental
housing reserving at least 20 percent of the units for homeless
households.
(E) Promotion of empowerment. The provision of housing in
combination with a program offering: employment; education; training;
homebuyer, homeownership or tenant counseling; daycare services;
resident involvement in decisionmaking affecting the creation or
operation of the project; or other services that assist residents to
move toward better economic opportunities, such as welfare to work
initiatives.
(F) First District priority. The satisfaction of one of the
following criteria, or one of a number of the following criteria, as
recommended by the Bank's Advisory Council and adopted by the Bank's
board of directors and set forth in the Bank's AHP implementation plan,
as long as the total points available for meeting the criterion or
criteria adopted under this category do not exceed the total points
allocated to this category:
(1) Special needs. The creation of housing in which at least 20
percent of the units are reserved for occupancy by households with
special needs, such as the elderly, mentally or physically disabled
persons, persons recovering from physical abuse or alcohol or drug
abuse, or persons with AIDS;
(2) Community development. The creation of housing meeting housing
needs documented as part of a community revitalization or economic
development strategy approved by a unit of a state or local government;
(3) First-time homebuyers. The financing of housing for first-time
homebuyers;
(4) Member financial participation. Member financial participation
(excluding the pass-through of AHP subsidy) in the project, such as
providing market rate or concessionary financing, fee waivers, or
donations;
(5) Disaster areas. The financing of housing located in federally
declared disaster areas;
(6) Rural. The financing of housing located in rural areas;
(7) Urban. The financing of urban in-fill or urban rehabilitation
housing;
(8) Economic diversity. The creation of housing that is part of a
strategy to end isolation of very low-income households by providing
economic diversity through mixed-income housing in low- or moderate-
income neighborhoods, or providing very low- or low- or moderate-income
households with housing opportunities in areas where the median
household income exceeds 80 percent of the median income for the area;
(9) Fair housing remedy. The financing of housing as part of a
remedy undertaken by a jurisdiction adjudicated by a federal, state, or
local court to be in violation of title VI of the Civil Rights Act of
1964 (42 U.S.C. 2000d et seq.), the Fair Housing Act (42 U.S.C. 3601 et
seq.), or any other federal, state, or local fair housing law, or as
part of a settlement of such claims;
(10) Community involvement. Demonstrated support for the project by
local government, community organizations, or individuals other than as
project sponsors through the commitment by such entities or individuals
of donated goods and services, or volunteer labor;
(11) Lender consortia. The involvement of financing by a consortium
of at least two financial institutions; or
(12) In-District projects. The creation of housing located in the
Bank's District.
(G) Second District priority--defined housing need in the District.
The satisfaction of a housing need in the Bank's District, as defined
and recommended by the Bank's Advisory Council and adopted by the
Bank's board of directors and set forth in the Bank's AHP
implementation plan. The Bank may, but is not required to, use one of
the criteria listed in paragraph (b)(4)(iv)(F) of this section,
provided it is different from the criterion or criteria adopted by the
Bank under paragraph (b)(4)(iv)(F) of this section.
(H) AHP subsidy per unit. The extent to which a project proposes to
use the least amount of AHP subsidy per AHP-targeted unit. In the case
of an application for a project financed by a subsidized advance, the
total amount of AHP subsidy used by the project shall be estimated
based on the Bank's cost of funds as of the date on which all
applications are due for the funding period in which the application is
submitted. For purposes of this scoring criterion, applications for
owner-occupied projects and rental projects may be scored separately.
(I) Community stability. The promotion of community stability, such
as by rehabilitating vacant or abandoned properties, being an integral
part of a neighborhood stabilization plan approved by a unit of state
or local government, and not displacing low- or moderate-income
households, or if such displacement will occur, assuring that such
households will be assisted to minimize the impact of such
displacement.
(5) Approval of applications--(i) Approval by Bank's board. The
board of directors of each Bank shall approve applications in
descending order
[[Page 41834]]
starting with the highest scoring application until the total funding
amount for the particular funding period, except for any amount
insufficient to fund the next highest scoring application, has been
allocated. The board of directors also shall approve at least the next
four highest scoring applications as alternates and, within one year of
approval, may fund such alternates if any previously committed AHP
subsidies become available.
(ii) No delegation. A Bank's board of directors shall not delegate
to Bank officers or other Bank employees the responsibility to approve
or disapprove AHP applications.
Sec. 960.7 Modifications of applications prior to project completion.
(a) Modification procedure. Prior to final disbursement of funds to
a project from all funding sources, a Bank, in its discretion, may
approve in writing a modification to the terms of an approved
application for subsidy funding the project if there is or will be a
change in the project that materially affects the facts under which the
application was originally scored and approved under the Bank's
competitive application program, provided that:
(1) The project, incorporating any such changes, would meet the
eligibility requirements of Sec. 960.5(b);
(2) The application, as reflective of such changes, continues to
score high enough to have been approved in the funding period in which
it was originally scored and approved by the Bank; and
(3) There is good cause for the modification.
(b) Modifications involving a subsidy increase. Modifications
involving an increase in AHP subsidy shall be approved or disapproved
by a Bank's board of directors. The authority to approve or disapprove
such requests shall not be delegated to Bank officers or other Bank
employees.
Sec. 960.8. Procedure for funding.
(a) Disbursement of subsidies to members. (1) A Bank may disburse
AHP subsidies only to institutions that are members of the Bank at the
time they request a draw-down of subsidy.
(2) If an institution with an approved application for AHP subsidy
fails to obtain or loses its membership in a Bank, the Bank may
disburse subsidies to a member of such Bank to which the institution
has transferred its obligations under the approved application, or the
Bank may disburse subsidies through another Bank to a member of that
Bank that has assumed the institution's obligations under the approved
application.
(b) Homeownership set-aside programs--(1) Time limit on use of
subsidies. If homeownership set-aside funds are not drawn down and used
by eligible households within the period of time specified by the Bank
in its AHP implementation plan, the Bank shall cancel the application
for funds and make the funds available for other applicants for
homeownership set-aside funds or for other AHP-eligible projects.
(2) Member certification upon disbursement. Prior to disbursement
of homeownership set-aside funds by a Bank to a member, the Bank shall
require the member to certify that:
(i) The funds received from the Bank will be provided to a
household meeting the eligibility requirements of Sec. 960.5(a)(2);
(ii) If the member is providing mortgage financing to the
household, the member will provide financial or other incentives in
connection with such mortgage financing, and the rate of interest,
points, fees, and any other charges by the member will not exceed a
reasonable market rate of interest, points, fees, and other charges for
a loan of similar maturity, terms, and risk; and
(iii) Funds received from the Bank for homebuyer counseling costs
will be provided according to the requirements of Sec. 960.5(a)(7).
(c) Competitive application program--(1) Time limit on use of
subsidies. If AHP subsidies approved for a project under a Bank's
competitive application program are not drawn down and used by the
project within the period of time specified by the Bank in its AHP
implementation plan, the Bank shall cancel its approval of the
application for the subsidies and make the subsidies available for
other AHP-eligible projects.
(2) Compliance upon disbursement of subsidies. A Bank shall verify
prior to its initial disbursement of subsidies for an approved project,
and prior to each disbursement thereafter, that the project meets the
eligibility requirements of Sec. 960.5(b) and all obligations committed
to in the approved application.
(3) Changes in approved AHP subsidy amount where a direct subsidy
is used to write down prior to closing the principal amount or interest
rate on a loan.--(i) Change in subsidy amount. If a member is approved
to receive a direct subsidy to write down prior to closing the
principal amount or the interest rate on a loan to a project and the
amount of subsidy required to maintain the debt service cost for the
loan decreases from the amount of subsidy initially approved by the
Bank due to a decrease in market interest rates between the time of
approval and the time the lender commits to the interest rate to
finance the project, the Bank shall reduce the subsidy amount
accordingly. If market interest rates rise between the time of approval
and the time the lender commits to the interest rate to finance the
project, the Bank may, in its discretion, increase the subsidy amount
accordingly.
(ii) Reconciliation of AHP fund. If a Bank reduces the amount of
AHP subsidy approved for a project, the amount of such reduction shall
be returned to the Bank's AHP fund. If a Bank increases the amount of
AHP subsidy approved for a project, the amount of such increase shall
be drawn first from any currently uncommitted or repaid AHP subsidies
and then from the Bank's required AHP contribution for the next year.
Sec. 960.9 Modifications of applications after project completion.
Modification procedure. After final disbursement of funds to a
project from all funding sources, a Bank, in its discretion, may
approve in writing a modification to the terms of an approved
application for subsidy funding the project, other than an increase in
the amount of subsidy approved for the project, if there is or will be
a change in the project that materially affects the facts under which
the application was originally scored and approved under the Bank's
competitive application program, provided that:
(a) The project is in financial distress, or is at substantial risk
of falling into such distress;
(b) The project sponsor or owner has made best efforts to avoid
noncompliance with the terms of the application for subsidy and the
requirements of this part;
(c) The project, incorporating any material changes, would meet the
eligibility requirements of Sec. 960.5(b); and
(d) The application, as reflective of such changes, continues to
score high enough to have been approved in the funding period in which
it was originally scored and approved by the Bank.
Sec. 960.10 Initial monitoring requirements.
(a) Requirements for project sponsors and owners--(1) Owner-
occupied projects. (i) During the period of construction or
rehabilitation of an owner-occupied project, the project sponsor must
report to the member semiannually on whether reasonable
[[Page 41835]]
progress is being made towards completion of the project.
(ii) Where AHP subsidies are used to finance the purchase of owner-
occupied units, the project sponsor must certify annually to the member
and the Bank, until all approved AHP subsidies are provided to eligible
households in the project, that those households receiving AHP
subsidies during the year were eligible households, and such
certifications shall be supported by household income verification
documentation maintained by the project sponsor and available for
review by the member or the Bank.
(2) Rental projects. (i) During the period of construction or
rehabilitation of a rental project, the project owner must report to
the member semiannually on whether reasonable progress is being made
towards completion of the project.
(ii) Within the first year after project completion, the project
owner must:
(A) Certify to the member and the Bank that the services and
activities committed to in the AHP application have been provided in
connection with the project;
(B) Provide a list of actual tenant rents and incomes to the member
and the Bank and certify that:
(1) The tenant rents and incomes are accurate and in compliance
with the rent and income targeting commitments made in the AHP
application; and
(2) The project is habitable; and
(C) Maintain documentation regarding tenant rents and incomes and
project habitability available for review by the member or the Bank, to
support such certifications.
(b) Requirements for members--(1) Owner-occupied projects. (i)
During the period of construction or rehabilitation of an owner-
occupied project, the member must take the steps necessary to determine
whether reasonable progress is being made towards completion of the
project and must report to the Bank semiannually on the status of the
project.
(ii) Within one year after disbursement to a project of all
approved AHP subsidies, the member must review the project
documentation and certify to the Bank that:
(A) The AHP subsidies have been used according to the commitments
made in the AHP application; and
(B) The AHP-assisted units are subject to deed restrictions or
other legally enforceable retention agreements or mechanisms meeting
the requirements of Sec. 960.13(c)(4) or (d)(1);
(2) Rental projects. (i) During the period of construction or
rehabilitation of a rental project, the member must take the steps
necessary to determine whether reasonable progress is being made
towards completion of the project and must report to the Bank
semiannually on the status of the project.
(ii) Within the first year after project completion, the member
must review the project documentation and certify to the Bank that:
(A) The project is habitable;
(B) The project meets its income targeting commitments; and
(C) The rents charged for income-targeted units do not exceed the
maximum levels committed to in the AHP application.
(c) Requirements for Banks--(1) Owner-occupied projects. Each Bank
must take the steps necessary to determine, based on a review of the
documentation for a sample of projects and units within one year of
receiving the certifications described in paragraph (b)(1)(ii) of this
section that:
(i) The incomes of the households that own the AHP-assisted units
did not exceed the levels committed to in the AHP application at the
time the households were qualified by the sponsor to participate in the
project;
(ii) The AHP subsidies were used for eligible purposes, the
project's actual costs were reasonable and customary in accordance with
the Bank's project feasibility guidelines, and the subsidies were
necessary for the financial feasibility of the project, as currently
structured; and
(iii) The AHP-assisted units are subject to deed restrictions or
other legally enforceable retention agreements or mechanisms meeting
the requirements of Sec. 960.13(c)(4) or (d)(1).
(2) Rental projects. Each Bank must take the steps necessary to
determine that:
(i) Within the first year after completion of a rental project, the
services and activities committed to in the AHP application have been
provided in connection with the project; and
(ii) The AHP subsidies were used for eligible purposes, the
project's actual costs were reasonable and customary in accordance with
the Bank's project feasibility guidelines, and the subsidies were
necessary for the financial feasibility of the project, as currently
structured.
(d) Annual adjustment of targeting commitments. For purposes of
determining compliance with the targeting commitments in an AHP
application, such commitments shall be considered to adjust annually
according to the current applicable median income data. A rental unit
may continue to count toward meeting the targeting commitment of an
approved AHP application as long as the rent charged remains
affordable, as defined in Sec. 960.1, for the household occupying the
unit.
Sec. 960.11 Long-term monitoring requirements.
(a) Rental projects. For purposes of monitoring a rental project,
Banks, members, and project owners shall carry out their long-term
monitoring obligations pursuant to one of the three methods set forth
in this paragraph (a).
(1) Reliance on monitoring by a federal, state or local government
entity. For those projects that receive funds from, or are allocated
federal Low-Income Housing Tax Credits by, a federal, state, or local
government entity, a Bank may rely on the monitoring by such entity if:
(i) The income targeting requirements, the rent requirements, and
the retention period monitored by such entity for purposes of its own
program are the same as, or more restrictive than, those committed to
in the AHP application;
(ii) The entity agrees to inform the Bank of instances where tenant
rents or incomes are found to be in noncompliance with the requirements
being monitored by the entity or where the project is not habitable;
and
(iii) The entity has demonstrated and continues to demonstrate to
the Bank its ability to carry out monitoring under its own program, and
the Bank does not have information that such monitoring is not
occurring or is inadequate.
(2) Reliance on monitoring of AHP application commitments by a
contractor. For those projects that receive funds from, or are
allocated federal Low-Income Housing Tax Credits by, a federal, state,
or local government entity that monitors for income targeting
requirements, rent requirements, or retention periods under its own
program that are less restrictive than those committed to in the
project's AHP application, a Bank, in its discretion, may rely on the
monitoring by such entity if:
(i) The entity agrees to monitor the income targeting requirements,
the rent requirements, and the retention period committed to in the AHP
application;
(ii) The entity agrees to inform the Bank of instances where tenant
rents or incomes are found to be in noncompliance with the requirements
committed to in the AHP application or where the project is not
habitable; and
(iii) The entity has demonstrated and continues to demonstrate to
the Bank its ability to carry out such monitoring, and the Bank does
not have information that
[[Page 41836]]
such monitoring is not occurring or is inadequate.
(3) Long-term monitoring by the Banks, members, and project owners.
In cases where a Bank does not rely on monitoring by a federal, state,
or local government entity pursuant to paragraphs (a)(1) or (a)(2) of
this section, the Bank, members, and project owners shall monitor
rental projects according to the requirements in this paragraph (a)(3).
(i) Requirements for project owners. In the second year after
completion of a rental project and annually thereafter until the end of
the project's retention period, the project owner must:
(A) Certify to the Bank that:
(1) The tenant rents and incomes are in compliance with the rent
and income targeting commitments made in the AHP application; and
(2) The project is habitable; and
(B) Maintain documentation regarding tenant rents and incomes and
project habitability available for review by the Bank, to support such
certifications.
(ii) Requirements for members. For rental projects receiving
$500,000 or less in AHP subsidy from a member, during the period from
the second year after project completion to the end of the project's
retention period, the member must certify to the Bank at least once
every three years, based on an exterior visual inspection, that the
project appears to be suitable for occupancy.
(iii) Requirements for Banks--(A) Certifications received by the
Bank. Each Bank shall review certifications provided by project owners
and members regarding tenant rents and incomes and project
habitability.
(B) Review of project documentation. Each Bank shall review
documentation maintained by the project owner regarding tenant rents
and incomes and project habitability to verify compliance with the rent
and income targeting commitments in the AHP application and project
habitability, according to the following schedule:
(1) $50,001 to $250,000. For projects receiving $50,001 to $250,000
of AHP subsidies, the Bank must review project documentation for a
sample of the project's units at least once every six years;
(2) $250,001 to $500,000. For projects receiving $250,001 to
$500,000 of AHP subsidies, the Bank must review project documentation
for a sample of the project's units at least once every four years; and
(3) Over $500,000. For projects receiving over $500,000 of AHP
subsidies, the Bank must perform an on-site review of project
documentation for a sample of the project's units at least once every
two years.
(C) Sampling plan. A Bank may use a reasonable sampling plan to
select the projects monitored each year and to review the project
documentation supporting the certifications made by members and project
owners.
(iv) Monitoring by a contractor. A Bank, in its discretion, may
contract with a third party to carry out the Bank's monitoring
obligations set forth in paragraph (a)(3)(iii) of this section.
(b) Annual adjustment of targeting commitments. For purposes of
determining compliance with the targeting commitments in an AHP
application, such commitments shall be considered to adjust annually
according to the current applicable median income data. A rental unit
may continue to count toward meeting the targeting commitment of an
approved AHP application as long as the rent charged remains
affordable, as defined in Sec. 960.1, for the household occupying the
unit.
Sec. 960.12 Remedial actions for noncompliance.
(a) Repayment of subsidies by members--(1) Noncompliance by member.
A member shall repay to the Bank the amount of any subsidies (plus
interest, if appropriate) that, as a result of the member's actions or
omissions, is not used in compliance with the terms of the application
for the subsidy, as approved by the Bank, and the requirements of this
part, unless:
(i) The member cures the noncompliance within a reasonable period
of time; or
(ii) The circumstances of noncompliance are eliminated through a
modification of the terms of the application for the subsidy pursuant
to Secs. 960.7 or 960.9.
(2) Noncompliance by project sponsors or owners--(i) Duty to
recover subsidies. A member shall recover from the sponsor of an owner-
occupied project or the owner of a rental project and repay to the Bank
the amount of any subsidies (plus interest, if appropriate) that, as a
result of the sponsor's or owner's actions or omissions, is not used in
compliance with the terms of the application for the subsidy, as
approved by the Bank, and the requirements of this part, unless:
(A) The sponsor or owner cures the noncompliance within a
reasonable period of time; or
(B) The circumstances of noncompliance are eliminated through a
modification of the terms of the application for the subsidy pursuant
to Secs. 960.7 or 960.9.
(ii) Limitation on duty to recover subsidies. The member shall not
be liable to the Bank for the return of amounts that cannot be
recovered from the project sponsor or owner through reasonable
collection efforts by the member.
(b) Repayment of subsidies by project sponsors or owners. A sponsor
of an owner-occupied project and the owner of a rental project shall
repay to the member the amount of any subsidies (plus interest, if
appropriate) that, as a result of the sponsor's or owner's actions or
omissions, is not used in compliance with the terms of the application
for the subsidy, as approved by the Bank, and the requirements of this
part, unless:
(1) The sponsor or owner cures the noncompliance within a
reasonable period of time; or
(2) The circumstances of noncompliance are eliminated through a
modification of the terms of the application for the subsidy pursuant
to Secs. 960.7 or 960.9.
(c) Requirements for Banks--(1) Duty to recover subsidies. A Bank
shall recover from a member:
(i) The amount of any subsidies (plus interest, if appropriate)
that, as a result of the member's actions or omissions, is not used in
compliance with the terms of the application for the subsidy, as
approved by the Bank, and the requirements of this part; and
(ii) The amount of any subsidies recovered by a member from the
sponsor of an owner-occupied project or the owner of a rental project
pursuant to the requirements of paragraph (a)(2) of this section.
(2) Settlements. A Bank may enter into an agreement or other
arrangement with a member for the purpose of settling claims against
the member for repayment of subsidies. If a Bank enters into a
settlement that results in the return of a sum that is less than the
full amount of any AHP subsidy that is not used in compliance with the
terms of the application for the subsidy, as approved by the Bank, and
the requirements of this part, the Bank may be required by the Finance
Board to reimburse its AHP fund in the amount of any shortfall under
paragraph (c)(3) of this section, unless:
(i) The Bank has sufficient documentation showing that the sum
agreed to be repaid under the settlement is reasonably justified, based
on the facts and circumstances of the noncompliance (including the
degree of culpability of the noncomplying parties and the extent of the
Bank's recovery efforts); or
[[Page 41837]]
(ii) The Bank obtains a determination from the Board of Directors
that the sum agreed to be repaid under the settlement is reasonably
justified, based on the facts and circumstances of the noncompliance
(including the degree of culpability of the noncomplying parties and
the extent of the Bank's recovery efforts).
(3) Reimbursement of AHP fund. The Finance Board may order a Bank
to reimburse its AHP fund in an appropriate amount upon determining
that:
(i) As a result of the Bank's actions or omissions, AHP subsidy is
not used in compliance with the terms of the application for the
subsidy, as approved by the Bank, and the requirements of this part; or
(ii) The Bank has failed to recover AHP subsidy from a member
pursuant to the requirements of paragraph (c)(1) of this section, and
has not shown such failure is reasonably justified, considering factors
such as the extent of the Bank's recovery efforts.
(d) Parties to enforcement proceedings. A Bank, in its AHP
implementation plan, may provide for a member, project sponsor, or
project owner to enter into a written agreement with a Bank under which
such member, sponsor, or owner consents to be a party to any
enforcement proceeding initiated by the Finance Board regarding the
repayment of AHP subsidies received by such member, sponsor, or owner,
or the suspension or debarment of such parties, provided that the
member, sponsor, or owner has agreed to be bound by the Finance Board's
final determination in the enforcement proceeding.
(e) Use of repaid subsidies. Amounts repaid to a Bank pursuant to
this section shall be made available for other AHP-eligible projects.
(f) Suspension and debarment--(1) At a Bank's initiative. A Bank
may suspend or debar a member, project sponsor, or owner from
participation in the Program if such party shows a pattern of
noncompliance, or engages in a single instance of flagrant
noncompliance, with the terms of an application for AHP subsidy or the
requirements of this part.
(2) At the Finance Board's initiative. The Finance Board may order
a Bank to suspend or debar a member, project sponsor, or owner from
participation in the Program if such party shows a pattern of
noncompliance, or engages in a single instance of flagrant
noncompliance, with the terms of an application for AHP subsidy or the
requirements of this part.
(g) Transfer of Program administration. Without limitation on other
remedies, the Finance Board, upon determining that a Bank has engaged
in mismanagement of its Program, may designate another Bank to
administer all or a portion of the first Bank's annual AHP
contribution, for the benefit of the first Bank's members, under such
terms and conditions as the Finance Board may prescribe.
(h) Finance Board actions under this section. Except as provided in
paragraph (c)(2)(ii) of this section, actions taken by the Finance
Board pursuant to this section shall be subject to the Finance Board's
Procedures for Review of Disputed Supervisory Determinations.
Sec. 960.13 Agreements.
(a) Agreements between Banks and members. A Bank shall have in
place with each member receiving a subsidized advance or direct subsidy
an agreement or agreements containing the provisions set forth in this
section.
(b) General provisions--(1) Subsidy pass-through. The member shall
pass on the full amount of the AHP subsidy to the project, or household
in the case of homeownership set-aside funds, for which the subsidy was
approved.
(2) Use of subsidy--(i) Use of subsidy by the member. The member
shall use the AHP subsidy in accordance with the terms of the member's
application for the subsidy, as approved by the Bank, and the
requirements of this part.
(ii) Use of subsidy by the project sponsor or owner. The member
shall have in place an agreement with the sponsor of an owner-occupied
project and each owner of a rental project in which the sponsor or
owner agrees to use the AHP subsidy in accordance with the terms of the
member's application for the subsidy, as approved by the Bank, and the
requirements of this part.
(3) Repayment of subsidies in case of noncompliance--(i)
Noncompliance by the member. The member shall repay subsidies to the
Bank in accordance with the requirements of Sec. 960.12(a)(1).
(ii) Noncompliance by a project sponsor or owner--(A) Agreement.
The member shall have in place an agreement with the sponsor of an
owner-occupied project and each owner of a rental project in which the
sponsor or owner agrees to repay AHP subsidies in accordance with the
requirements of Sec. 960.12(b).
(B) Recovery of subsidies. The member shall recover from the
project sponsor or owner and repay to the Bank any subsidy in
accordance with the requirements of Sec. 960.12(a)(2).
(4) Project monitoring--(i) Monitoring by the member. The member
shall comply with the monitoring requirements of Secs. 960.10(b) and
960.11(a)(3)(ii).
(ii) Monitoring by the project sponsor. The member shall have in
place an agreement with the sponsor of an owner-occupied project in
which the sponsor agrees to comply with the monitoring requirements of
Sec. 960.10(a)(1).
(iii) Monitoring by the project owner. The member shall have in
place an agreement with the owner of a rental project in which the
owner agrees to comply with the monitoring requirements of
Secs. 960.10(a)(2) and 960.11(a)(3)(i).
(5) Transfer of AHP obligations to another member. The member will
make best efforts to transfer its obligations under the approved
application for AHP subsidy to another member in the event of its loss
of membership in the Bank prior to the Bank's final disbursement of AHP
subsidies.
(c) Special provisions where members obtain subsidized advances--
(1) Repayment schedule. The term of the subsidized advance shall be no
longer than the term of the member's loan to the project funded by the
advance, and at least once in every 12-month period, the member shall
be scheduled to make a principal repayment to the Bank equal to the
amount scheduled to be repaid to the member on its loan to the project
in that period.
(2) Prepayment fees. Upon a prepayment of the subsidized advance,
the Bank shall charge a prepayment fee only to the extent the Bank
suffers an economic loss from the prepayment.
(3) Treatment of loan prepayment by project. If all or a portion of
the loan or loans financed by a subsidized advance are prepaid by the
project to the member, the member may, at its option, either:
(i) Repay to the Bank that portion of the advance used to make the
loan or loans to the project, and be subject to a fee imposed by the
Bank sufficient to compensate the Bank for any economic loss the Bank
experiences in reinvesting the repaid amount at a rate of return below
the cost of funds originally used by the Bank to calculate the interest
rate subsidy incorporated in the advance; or
(ii) Continue to maintain the advance outstanding, subject to the
Bank resetting the interest rate on that portion of the advance used to
make the loan or loans to the project to a rate equal to the cost of
funds originally used by the Bank to calculate the interest rate
subsidy incorporated in the advance.
[[Page 41838]]
(4) Retention agreements for owner-occupied units. The member shall
ensure that an owner-occupied unit financed by a loan from the proceeds
of a subsidized advance is subject to a deed restriction or other
legally enforceable retention agreement or mechanism requiring that:
(i) The Bank or its designee is to be given notice of any sale or
refinancing of the unit occurring prior to the end of the retention
period; and
(ii) In the case of a refinancing prior to the end of the retention
period, the full amount of the interest rate subsidy received by the
owner, based on the pro rata portion of the interest rate subsidy
imputed to the subsidized advance during the period the owner occupied
the unit prior to refinancing, shall be repaid to the Bank from any net
gain realized upon the refinancing, unless the unit continues to be
subject to a deed restriction or other legally enforceable retention
agreement or mechanism described in this paragraph (c)(4).
(5) Retention agreements for rental projects. The member shall
ensure that a rental project financed by a loan from the proceeds of a
subsidized advance is subject to a deed restriction or other legally
enforceable retention agreement or mechanism requiring that:
(i) The project's rental units, or applicable portion thereof, must
remain occupied by and affordable for households with incomes at or
below the levels committed to be served in the AHP application for the
duration of the retention period;
(ii) The Bank or its designee is to be given notice of any sale or
refinancing of the project occurring prior to the end of the retention
period;
(iii) In the case of a sale or refinancing of the project prior to
the end of the retention period, the full amount of the interest rate
subsidy received by the owner, based on the pro rata portion of the
interest rate subsidy imputed to the subsidized advance during the
period the owner owned the project prior to the sale or refinancing,
shall be repaid to the Bank, unless the project continues to be subject
to a deed restriction or other legally enforceable retention agreement
or mechanism incorporating the income-eligibility and affordability
restrictions committed to in the AHP application for the duration of
the retention period; and
(iv) The income-eligibility and affordability restrictions
applicable to the project may terminate upon foreclosure or upon
transfer in lieu of foreclosure.
(6) Transfer of AHP obligations to a nonmember. If, after final
disbursement of AHP subsidies to the member, the member undergoes an
acquisition or a consolidation resulting in a successor organization
that is not a member of the Bank, the nonmember successor organization
assumes the member's obligations under its approved application for AHP
subsidy upon prepayment or orderly liquidation by the nonmember of the
subsidized advance.
(d) Special provisions where members obtain direct subsidies--(1)
Retention agreements for owner-occupied units. The member shall ensure
that an owner-occupied unit financed by the proceeds of a direct
subsidy is subject to a deed restriction or other legally enforceable
retention agreement or mechanism requiring that:
(i) The Bank or its designee is to be given notice of any sale or
refinancing of the unit occurring prior to the end of the retention
period;
(ii) In the case of a sale prior to the end of the retention
period, an amount equal to a pro rata share of the direct subsidy,
reduced for every year the seller owned the unit, shall be repaid to
the Bank from any net gain realized upon the sale of the unit after
deduction for sales expenses, unless the purchaser is a low-or
moderate-income household; and
(iii) In the case of a refinancing prior to the end of the
retention period, an amount equal to a pro rata share of the direct
subsidy, reduced for every year the occupying household has owned the
unit, shall be repaid to the Bank from any net gain realized upon the
refinancing, unless the unit continues to be subject to a deed
restriction or other legally enforceable retention agreement or
mechanism described in this paragraph (d)(1).
(2) Retention agreements for rental projects. The member shall
ensure that a rental project financed by the proceeds of a direct
subsidy is subject to a deed restriction or other legally enforceable
retention agreement or mechanism requiring that:
(i) The project's rental units, or applicable portion thereof, must
remain occupied by and affordable for households with incomes at or
below the levels committed to be served in the AHP application for the
duration of the retention period;
(ii) The Bank or its designee is to be given notice of any sale or
refinancing of the project occurring prior to the end of the retention
period;
(iii) In the case of a sale or refinancing of the project prior to
the end of the retention period, an amount equal to the full amount of
the direct subsidy shall be repaid to the Bank, unless the project
continues to be subject to a deed restriction or other legally
enforceable retention agreement or mechanism incorporating the income-
eligibility and affordability restrictions committed to in the AHP
application for the duration of the retention period; and
(iv) The income-eligibility and affordability restrictions
applicable to the project may terminate upon foreclosure or upon
transfer in lieu of foreclosure.
(3) Lending of direct subsidies. If a member or a project sponsor
lends a direct subsidy to a project, any repayments of principal and
payments of interest received by the member or the project sponsor must
be paid forthwith to the Bank.
(4) Transfer of AHP obligations to a nonmember. If, after final
disbursement of AHP subsidies to the member, the member undergoes an
acquisition or a consolidation resulting in a successor organization
that is not a member of the Bank, the nonmember successor organization
assumes the member's obligations under its approved application for AHP
subsidy.
Sec. 960.14 Temporary suspension of AHP contributions.
(a) Application for temporary suspension--(1) Notification to
Finance Board. If a Bank finds that the contributions required pursuant
to Sec. 960.2 are contributing to the financial instability of the
Bank, the Bank shall notify the Finance Board promptly, and may apply
in writing to the Finance Board for a temporary suspension of such
contributions.
(2) Contents. A Bank's application for a temporary suspension of
contributions shall include:
(i) The period of time for which the Bank seeks a suspension;
(ii) The grounds for a suspension;
(iii) A plan for returning the Bank to a financially stable
position; and
(iv) The Bank's annual financial report for the preceding year, if
available, and the Bank's most recent quarterly and monthly financial
statements and any other financial data the Bank wishes the Finance
Board to consider.
(b) Board of Directors review of application for temporary
suspension--(1) Determination of financial instability. In determining
the financial instability of a Bank, the Board of Directors shall
consider such factors as:
(i) Whether the Bank's earnings are severely depressed;
(ii) Whether there has been a substantial decline in the Bank's
membership capital; and
[[Page 41839]]
(iii) Whether there has been a substantial reduction in the Bank's
advances outstanding.
(2) Limitations on grounds for suspension. The Board of Directors
shall disapprove an application for a temporary suspension if it
determines that the Bank's reduction in earnings is a result of:
(i) A change in the terms of advances to members which is not
justified by market conditions;
(ii) Inordinate operating and administrative expenses; or
(iii) Mismanagement.
(c) Board of Directors decision. The Board of Directors' decision
shall be in writing and shall be accompanied by specific findings and
reasons for its action. If the Board of Directors approves a Bank's
application for a temporary suspension, the Board of Directors' written
decision shall specify the period of time such suspension shall remain
in effect.
(d) Monitoring. During the term of a temporary suspension approved
by the Board of Directors, the affected Bank shall provide to the Board
of Directors such financial reports as the Board of Directors shall
require to monitor the financial condition of the Bank.
(e) Termination of suspension. If, prior to the conclusion of the
temporary suspension period, the Board of Directors determines that the
Bank has returned to a position of financial stability, the Board of
Directors may, upon written notice to the Bank, terminate the temporary
suspension.
(f) Application for extension of temporary suspension period. If a
Bank's board of directors determines that the Bank has not returned to,
or is not likely to return to, a position of financial stability at the
conclusion of the temporary suspension period, the Bank may apply in
writing for an extension of the temporary suspension period, stating
the grounds for such extension.
Sec. 960.15 Affordable Housing Reserve Fund.
(a) Reserve Fund--(1) Deposits. If a Bank fails to use or commit
the full amount it is required to contribute to the Program in any year
pursuant to Sec. 960.2, 90 percent of the unused or uncommitted amount
shall be deposited by the Bank in an Affordable Housing Reserve Fund
established and administered by the Finance Board. The remaining 10
percent of the unused and uncommitted amount retained by the Bank
should be fully used or committed by the Bank during the following
year, and any remaining portion must be deposited in the Affordable
Housing Reserve Fund.
(2) Use or commitment of funds. Approval of applications for AHP
subsidies sufficient to exhaust the amount a Bank is required to
contribute pursuant to Sec. 960.2 shall constitute use or commitment of
funds. Amounts remaining unused or uncommitted at year-end are deemed
to be used or committed if, in combination with AHP subsidies that have
been returned to the Bank or de-committed from canceled projects, they
are insufficient to fund:
(i) The next highest scoring AHP application in the Bank's final
funding period of the year for its competitive application program; or
(ii) Pending applications for funds under the Bank's homeownership
set-aside programs.
Such insufficient amounts shall be carried over for use or
commitment during the following year.
(b) Annual statement. By January 15 of each year, each Bank shall
provide to the Finance Board a statement indicating the amount of
unused and uncommitted funds from the prior year, if any, which will be
deposited in the Affordable Housing Reserve Fund.
(c) Annual notification. By January 31 of each year, the Finance
Board shall notify the Banks of the total amount of funds, if any,
available in the Affordable Housing Reserve Fund.
Sec. 960.16 Application to existing AHP projects.
The requirements of section 10(j) of the Act and the provisions of
this part, as amended, are incorporated into all agreements between
Banks, members, sponsors, or owners receiving AHP subsidies. To the
extent the requirements of this part are amended from time to time,
such agreements are deemed to incorporate the amendments to conform to
any new requirements of this part. No amendment to this part shall
affect the legality of actions taken prior to the effective date of
such amendment.
By the Board of Directors of the Federal Housing Finance Board.
Dated: June 25, 1997.
Bruce A. Morrison,
Chairman.
[FR Doc. 97-20046 Filed 8-1-97; 8:45 am]
BILLING CODE 6725-01-U