[Federal Register Volume 62, Number 246 (Tuesday, December 23, 1997)]
[Rules and Regulations]
[Pages 66977-66980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33254]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 960
[No. 97-N-10]
Questions and Answers Regarding The Affordable Housing Program
AGENCY: Federal Housing Finance Board.
ACTION: Staff interpretation of affordable housing regulations.
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SUMMARY: The Federal Housing Finance Board (Finance Board) is
publishing Questions and Answers regarding the Affordable Housing
Program (AHP). The Questions and Answers have been prepared by staff of
the Finance Board in response to questions about changes in the Finance
Board's regulation governing the AHP that will go into effect on
January 1, 1998. The Questions and Answers constitute informal staff
guidance for Finance Board personnel, the Federal Home Loan Banks
(Bank), Bank members, and program participants. The Answers are
intended to be interpretive of the Finance Board's regulation governing
the AHP, and are not statements of agency policy. The Questions and
Answers have not been considered or approved by the Board of Directors
of the Finance Board.
FOR FURTHER INFORMATION CONTACT: Richard Tucker, Deputy Director,
Compliance Assistance Division, (202) 408-2848, or Janet M.
Fronckowiak, Program Analyst, Compliance Assistance Division, (202)
408-2575, or Diane E. Dorius, Associate Director, Program Development
Division, (202) 408-2576, Office of Policy, Federal Housing Finance
Board, 1777 F Street, N.W., Washington, D.C. 20006.
SUPPLEMENTARY INFORMATION: On August 4, 1997, the Finance Board
published a final rule amending its existing regulation governing the
AHP. See 62 FR 41812 (Aug. 4, 1997). The final rule will become
effective on January 1, 1998. In the months following publication of
the final rule, the Finance Board has provided training to the staffs
of the Banks to assist them in making a smooth transition to operation
under the amended AHP regulation. A number of questions of regulatory
interpretation were raised by Bank staff as a result of the Finance
Board's training sessions. The staff of the Finance Board has prepared
answers to the most frequently asked questions. The Questions and
Answers constitute informal interpretive guidance for Finance Board
personnel, the Banks, Bank members, and program participants. The
Answers are intended to be interpretative of the AHP regulation, not
statements of agency policy, and they have not been considered or
approved by the Board of Directors of the Finance Board.
The Questions and Answers are grouped by the provision of the AHP
regulation that they discuss and are presented in the same order as the
regulatory provisions. The text of the Questions and Answers follows:
Text of the Questions and Answers
Questions and Answers Regarding the AHP
Definitions (Sec. 960.1)
Low- and Moderate-Income and Very Low-Income Household Eligibility
for Current Occupants:
Q1. When a rental project involves both purchase and
rehabilitation, which point in time should be used for purposes of
determining household eligibility?
A1. The regulation permits a choice of determining income
eligibility either at the time of completion of the purchase or at the
time of completion of the rehabilitation.
Q2. In the case of projects involving the purchase or
rehabilitation of rental housing with current occupants, can an
occupying household that is a very low-income or a low- or moderate-
income household at the time the AHP application is submitted to the
Bank be deemed to be a very low-income or a low- or moderate-income
household at
[[Page 66978]]
the time the purchase or rehabilitation of the housing is completed?
A2. Yes.
Median Income for the Area:
Q3. How can median income standards published by the U.S.
Department of Agriculture (USDA) be available for all projects in a
Bank's District if USDA publishes median income standards only for
rural areas?
A3. USDA income standards would be applicable only to the rural
areas identified in the USDA standards. A Bank selecting this median
income standard would have to select another income standard to be used
in non-rural areas.
Sponsor:
Q4. Does the definition of ``sponsor'' include a not-for-profit
organization that owns a for-profit entity that is the general partner
in the partnership that owns an AHP-eligible rental project?
A4. Yes.
Advisory Councils (Sec. 960.4)
Terms (section 960.4(d)):
Q1. Is each Advisory Council member required to be appointed for a
three-year term?
A1. Yes.
Q2. Do terms already served or which currently are being served by
Advisory Council members who are in office on January 1, 1998, count
toward the limit of three consecutive terms?
A2. No. Only terms that begin on or after January 1, 1998, the
effective date of the revised AHP regulation, count toward the limit of
three consecutive terms.
Minimum Eligibility Standards for AHP Projects (Sec. 960.5)
Experienced Counseling Organization (section 960.5(a)(2)(ii)):
Q1. What is a homebuyer or homeowner counseling program provided
by, or based on one provided by, an organization recognized as
experienced in homebuyer or homeowner counseling?
A1. A program such as one that is provided by a counseling
organization approved by HUD or a state or local agency would qualify.
Programs that are based on counseling guides such as those provided by
the American Homeowners Education and Counseling Institute also would
meet this requirement.
Homeownership Set-Aside Incentives (section 960.5(a)(6)):
Q2. What are financial or other incentives to a household that are
required of a member that provides mortgage financing?
A2. A Bank may determine what it considers to be financial or other
incentives. For example, financial incentives could include lower (or
foregone) origination fees, other discounted fees, reduced interest
rates, lower downpayment requirements, or reductions in other closing
costs. Two examples of other non-financial incentives are using
underwriting standards that are more flexible than the member's usual
practice, and making loans with longer terms than the member usually
makes.
Counseling Costs (Sec. 960.5(a)(7)):
Q3. Under what circumstances can counseling costs be paid by AHP
subsidies?
A3. For the competitive application program, counseling costs may
be paid with AHP subsidies if the costs are incurred in connection with
counseling of homebuyers who actually purchase an AHP-assisted unit and
the cost of the counseling has not been covered by another funding
source, including the member.
For the homeownership set-aside program, counseling costs may be
paid with AHP subsidies if the costs are incurred in connection with
counseling of homebuyers who actually purchase an AHP-assisted unit;
the cost of the counseling has not been covered by another funding
source, including the member; and the AHP subsidies are used to pay
only for the amount of such reasonable and customary costs that exceed
the highest amount the member has spent annually on homebuyer
counseling costs within the preceding three years. A member may certify
to the amount it spent, including in-house costs, over the preceding
three years. If a member is not covering the cost of counseling and has
not paid for counseling costs in the previous three years, AHP
subsidies may be used to pay for reasonable and customary counseling
costs incurred in connection with counseling of homebuyers who actually
purchase an AHP-assisted unit.
Direct Subsidy Processing Fees (Sec. 960.5(b)(4)(iii)):
Q4. Does the prohibition on using AHP funds to pay for direct
subsidy processing fees cover fees for costs incurred by a member in
order to pass on the subsidy, such as legal and underwriting costs?
A4. Yes.
Member Subsidy Limits (Sec. 960.5(b)(10)):
Q5. A Bank may establish certain eligibility requirements for its
AHP. May the limitation on the amount of AHP subsidy available per
member be based on a percentage of a member's assets or a percentage of
the total available AHP funds?
A5. District eligibility requirements must apply equally to all
members. A limitation based on a percentage of a member's assets would
result in larger members being eligible to compete for more AHP funds
than smaller members; therefore, such a limitation would not be
permitted. However, since limiting each member to no more than a
certain percentage of total available AHP funds would apply equally to
each member, such a limitation would be permitted.
Procedure for Approval of AHP Applications for Funding (Sec. 960.6)
Scheduled Funding Periods (Sec. 960.6(b)(1)):
Q1. If a Bank schedules one funding period per year, but is unable
to allocate its entire annual AHP contribution in that period, may the
Bank hold a second funding period to allocate the remaining subsidies,
even if the second funding period does not have a comparable amount of
funds?
A1. Yes. The concept of allocating comparable amounts in each
funding period is based on the premise that a Bank schedules more than
one funding period a year. If a Bank plans one funding period and an
insufficient number of qualifying applications are approved in that
period, a Bank may hold a second funding period to allocate the unused
subsidies and that period does not have to be comparable in amount to
the first period.
Nominal Price (Sec. 960.6(b)(4)(iv)(A)):
Q2. Regarding the conveyance of government-owned or other
properties for a ``nominal'' price, what is a ``nominal'' price?
A2. A small, negligible amount, most often one dollar, is a nominal
price. Modest expenses related to the conveyance of the property may
also be paid.
Not-for-profit Organization/Government Entity Sponsor Scoring
Criterion (Sec. 960.6(b)(4)(iv)(B)):
Q3. Does the definition of ``sponsor'' in Sec. 960.1 apply to the
not-for-profit organization/government entity sponsor scoring criterion
such that a not-for-profit or government entity sponsor of a rental
project must have an ownership interest in the project in order for the
project to get any points under that criterion?
A3. Yes.
First District Priority (Sec. 960.6(b)(4)(iv)(F)):
Q4. If a Bank chooses more than one criterion for which an AHP
application may receive points under the First District Priority
scoring category, how are points to be allocated among those criteria?
[[Page 66979]]
A4. If a Bank permits applications to receive points for meeting
more than one criterion under the First District Priority scoring
category, the Bank must split the total number of points for the First
District Priority among those criteria. The sum of the points allocated
to each of the criteria must equal the total number of points allocated
to the First District Priority. Each application must be scored
according to the extent to which it meets each of the criteria. An
application cannot receive more than the total number of points
allocated to a particular criterion if the application meets that
criterion. If an application meets all the criteria under the First
District Priority, the application cannot receive more than the total
number of points allocated to the First District Priority.
Subsidy-Per-Unit (Sec. 960.6(b)(4)(iv)(H)):
Q5. Is subsidy-per-unit based on AHP-targeted units only?
A5. Yes. The project is scored based on the extent to which the
project proposes to use the least amount of AHP subsidy per AHP-
targeted unit. AHP-targeted units are any units that will be purchased
by, or reserved for occupancy by and affordable for, households with
incomes of 80 percent or less of area median income.
Funding Alternates (Sec. 960.6(b)(5)(i)):
Q6. If sufficient AHP funds are recovered or repaid from previously
committed AHP awards, must they be used to fund projects approved as
alternates in a previous funding period?
A6. No. Recovered and repaid AHP subsidies must be returned to a
Bank's AHP fund. A Bank may, but is not required to, fund alternate
projects from recovered or repaid AHP funds.
Board of Directors Approval (Sec. 960.6(b)(5)(ii)):
Q7. May responsibility to approve or disapprove AHP applications be
delegated by the board of directors of a Bank to a committee of the
board?
A7. Yes. Such delegation should be done on an annual basis.
Modification of AHP Applications Prior to Project Completion
(Sec. 960.7)
Material Change (Sec. 960.7(a)):
Q1. For purposes of modifications to AHP applications prior to
project completion, what constitutes a change in a project that
``materially'' affects the facts under which the project's application
was originally scored and approved for AHP funding?
A1. A change that materially affects the facts under which an AHP
application was originally scored and approved is any change that has
the potential for rendering the project ineligible or for changing the
score that the project received in the funding period in which it was
originally scored, had the changed facts been operative at that time.
Examples include changes in the level of income targeting or the number
of targeted units in a project.
Procedures for Funding (Sec. 960.8)
Direct Subsidy Changes (Sec. 960.8(c)(3)(i)):
Q1. When a Bank has approved a direct subsidy for an interest rate
or principal write-down, is the Bank required to reduce the amount of
the direct subsidy when interest rates decrease?
A1. Yes. The Bank must reduce the amount of AHP subsidy when
interest rates have decreased from the time of the approval of the AHP
application to the time of funding. However, the Bank does have the
discretion to process a project modification under Sec. 960.7 to cover
additional amounts of subsidy required due to increased project costs
or the loss or reduction of other funding sources. The modification
could be approved by the Bank's staff, rather than the Bank's board of
directors, if the amount of AHP subsidy required does not exceed the
amount of the originally approved subsidy.
Modification of AHP Applications After Project Completion (Sec. 960.9)
Material Change (Sec. 960.9):
Q1. For purposes of modifications to AHP applications after project
completion, what constitutes a change in a project that ``materially''
affects the facts under which the project's application was originally
scored and approved for AHP funding?
A1. A change that materially affects the facts under which an AHP
application was originally scored and approved is any change that has
the potential for rendering the project ineligible or for changing the
score that the project received in the funding period in which it was
originally scored, had the changed facts been operative at that time.
Examples include changes in the level of income targeting or the number
of targeted units in a project.
Financial Distress (Sec. 960.9(a)):
Q2. May a completed project qualify for a modification if it is at
risk of falling into financial distress?
A2. Yes. A project must provide sufficient information for the Bank
to determine that it either is in financial distress or is at
substantial risk of falling into financial distress. This section is
intended to provide flexibility to modify the commitments made in the
approved AHP application if those modifications will help to avert the
potential financial distress. However, if a completed project needs
additional AHP funds, it must compete for those additional funds.
Initial Monitoring Requirements (Sec. 960.10)
Verification of Reasonable and Customary Costs
(Sec. Sec. 960.10(c)(1)(ii) and (c)(2)(ii)):
Q1. What types of documentation may a Bank rely on in order to
establish that a project's actual costs were reasonable and customary
in accordance with the Bank's project feasibility guidelines?
A1. If a project is funded by other funding sources (such as
Federal Low-Income Housing Tax Credits, FHA) that require a cost
certification upon completion of construction or rehabilitation, the
Bank may rely upon that cost certification to make its own
determination whether the costs are reasonable and customary. If a cost
certification is unavailable, the Bank shall review the final statement
of sources and uses of funds to make that determination.
Verification of Provision of Activities and Services
(Sec. 960.10(c)(2)(i)):
Q2. Is a site visit necessary to confirm that the services and
activities committed to in an AHP rental housing application have been
provided?
A2. A site visit is not necessary if the Bank has a certification
and sufficient documentation to provide the Bank with reasonable
assurance that the services and activities have been provided.
Long-Term Monitoring (Sec. 960.11)
Reasonable Sampling Plan (Sec. 960.11(a)(3)(iii)(C)):
Q1. What would be considered a reasonable sampling plan for the
selection of projects to be monitored by a Bank each year?
A1. A Bank, working with its internal auditors, may develop a
sampling methodology that is designed to assure that all projects are
monitored according to the schedule established in
Sec. 960.11(a)(3)(iii) of the revised AHP regulation.
Remedial Action for Noncompliance (Sec. 960.12)
Reasonable Collection Efforts (Sec. 960.12(a)(2)(ii)):
Q1. What are reasonable collection efforts in the recovery of AHP
subsidy by a member from the project sponsor or owner?
A1. Reasonable collection efforts will depend on the facts and
circumstances of a given situation, including, but not limited to, the
expected cost of recovery of the AHP subsidy and the amount of subsidy
to be recovered. Reasonable
[[Page 66980]]
collection efforts may involve negotiation and pursuit of legal
remedies against a project sponsor or owner, in addition to the
enforcement of a member's rights under a mortgage or other lien on the
project.
Use of Recovered Interest for AHP-Eligible Projects
(Sec. 960.12(c)(1)(i)):
Q2. If AHP subsidy and interest are recovered by a Bank from a
member, does the interest, as well as the AHP subsidy, have to be made
available for other AHP-eligible projects under Sec. 960.12(e)?
A2. Yes.
Other Issues
Project Completion (Sec. Sec. 960.1, 960.10 and 960.11):
Q1. When is ``project completion'' to be determined for monitoring
purposes?
A1. The date on which a certificate of occupancy is issued is one
way to determine project completion. In areas that do not require
certificates of occupancy, a Bank should identify in its monitoring
procedures alternative ways that it will use to determine that a
project is completed.
Use of AHP Funds for Otherwise Eligible Costs (Sec. 960.5):
Q2. May a Bank prohibit the use of AHP funds for certain types of
costs that are otherwise eligible under the statute and revised AHP
regulation?
A2. No.
Retention and Monitoring Requirements Applicable to Projects
Approved Prior to January 1, 1998 (Sec. Sec. 960.1, 960.11, and
960.16):
Q3. What are the retention and monitoring periods for projects
approved prior to January 1, 1998?
A3. The retention and monitoring periods for projects approved
prior to January 1, 1998, are 5 years from project completion for
owner-occupied housing and 15 years from project completion for rental
housing.
Dated: December 12, 1997.
William W. Ginsberg,
Managing Director.
[FR Doc. 97-33254 Filed 12-22-97; 8:45 am]
BILLING CODE 6725-01-U