Rule: Affordable Housing Program Amendments

Friday,
October 6, 2006
Part III
Federal Housing
Finance Board
12 CFR Part 951
Affordable Housing Program
Amendments; Final Rule
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59262 Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Rules and Regulations
FEDERAL HOUSING FINANCE BOARD financing projects that present assistance organizations; 3 State housing
underwriting challenges, such as finance agencies; 3 for-profit housing
12 CFR Part 951 projects for the homeless and special developers; 3 community development
needs populations, which may include financial institutions; 3 individuals; 2
[No. 2006–17]
persons with disabilities and the wholesale financial intermediary and
RIN 3069–AB26 elderly. The AHP also has been used assistance organizations; and 1
effectively in conjunction with Low- secondary market entity for home
Affordable Housing Program Income Housing Tax Credits (LIHTC or purchase and rehabilitation mortgages.
Amendments tax credits), which are important The Finance Board has considered all of
funding sources for rental housing for the comments it received on the
AGENCY: Federal Housing Finance
very-low income households. proposed rule, and has determined to
Board. The AHP also serves as an important adopt a final rule amending the AHP,
ACTION: Final rule. resource for low- or moderate-income with a number of revisions to the
homeowners and first-time homebuyers. proposed rule, as further discussed
SUMMARY: The Federal Housing Finance
From 1990 through 2005, the program below. Comments received that were
Board (Finance Board) is amending its
assisted in the financing of over 126,000 relevant to the issues raised in the
Affordable Housing Program regulation
owner-occupied units under the Banks’ proposed rule are discussed below.
to remove prescriptive requirements,
competitive application programs, and Comments that raised issues beyond the
clarify certain operational requirements, over 47,000 units under their
provide additional discretionary scope of the proposed rule are not
homeownership set-aside programs. addressed in this final rule, but may be
authority in certain areas, remove Some of the units address specific
certain authorities, and otherwise considered by the Finance Board at a
housing needs, such as expanding future date.
streamline and reorganize the homeownership opportunities for
regulation. underserved households. III. Analysis of the Final Rule
DATES: The final rule is effective on As discussed in the SUPPLEMENTARY
II. Proposed Rule
January 1, 2007. INFORMATION section of the proposed
FOR FURTHER INFORMATION CONTACT:
The Finance Board’s regulation
rule, the amendments to the AHP
Charles E. McLean, Associate Director, implementing the AHP provisions of the
regulation are intended to address the
Office of Supervision, mcleanc@fhfb.gov Bank Act is codified at 12 CFR part 951.
following principal changes.
or 202–408–2537; Sylvia C. Martinez, The regulation generally has reflected a
prescriptive approach, which was 1. The final rule incorporates
Senior Advisor, Office of Supervision, additional definitions into the
appropriate for rules implementing a
martinezs@fhfb.gov or 202–408–2825; regulation at § 951.1. These definitions
newly created program. As the program
Melissa L. Allen, Program Analyst, establish the precise meaning of key
has matured, the Finance Board
Office of Supervision, allenm@fhfb.gov terms that are used in the regulation.
periodically has revised the AHP
or 202–408–2524; or Sharon B. Like, 2. The final rule reorganizes the
regulation, to provide greater authority
Senior Attorney Advisor, Office of regulatory text so that operational
to the Banks in managing their
General Counsel, likes@fhfb.gov or 202– provisions relating to the competitive
individual programs and codify lessons
408–2930. You can send regular mail to application program and the
learned through oversight of the Banks’
the Federal Housing Finance Board, homeownership set-aside program,
operation of their programs. The
1625 Eye Street, NW., Washington DC respectively, are fully contained within
Finance Board believes, based in part on
20006. separate sections of the regulation.
its review of the AHP on a System-wide
SUPPLEMENTARY INFORMATION: level, Report of the Horizontal Review of Section 951.5 addresses the competitive
the Affordable Housing Programs of the application program, while § 951.6
I. Background addresses the homeownership set-aside
Federal Home Loan Banks (March 15,
Section 10(j)(1) of the Federal Home 2005) (Horizontal Review), that there are program. The reorganization is intended
Loan Bank Act (Bank Act) requires each a number of areas in which it can revise to make it easier for program sponsors
Federal Home Loan Bank (Bank) to the regulation to provide for additional and other interested parties to
establish an affordable housing program enhancement of the program.1 understand the individual operation of
(AHP), the purpose of which is to enable Accordingly, on December 28, 2005, the the competitive application and
Bank members to provide subsidized Finance Board published proposed homeownership set-aside programs.
financing for long-term, low- and amendments to the AHP in the Federal 3. The final rule authorizes the Banks,
moderate-income, owner-occupied and Register for a 120-day comment period, in their discretion, to provide AHP
affordable rental housing. See 12 U.S.C. which closed on April 27, 2006. See 70 direct subsidies under the competitive
1430(j)(1). The AHP has played an FR 76938 (Dec. 28, 2005). The Finance application program for eligible projects
important role in facilitating Bank Board received a total of 59 comment and households involving both the
support of their members’ efforts to letters on the proposed rule, lending of the subsidy and subsequent
meet the housing needs of their representing 61 commenters.2 re-lending of subsidy principal and
communities. The strength of the AHP Commenters included: All 12 Banks; 4 interest repayments by a revolving loan
lies in its capacity to leverage additional Bank Affordable Housing Advisory fund. This change is intended to expand
public and private resources for Councils; 3 Bank members; 13 trade the eligible means of supporting
housing. Since the inception of the associations; 9 not-for-profit housing affordable housing through the program.
program in 1990, the Banks have developers; 5 housing advocacy and 4. The final rule specifies the
awarded more than $2.5 billion in AHP conditions under which a Bank, in its
subsidies to assist nearly 472,000 1 The Horizontal Review is available on the
discretion, may provide AHP subsidy
housing units. Seventy percent of the Housing Programs page of the Finance Board’s Web under the competitive application
site: http://www.fhfb.gov/Default.aspx?Page=47.
units receiving AHP subsidies were for 2 Letters from 2 of the Banks also incorporate the program to loan pools. This change is
very low-income households. AHP comments of those Banks’ respective Affordable intended to provide additional clarity
subsidies have proven effective in Housing Advisory Councils. for Banks that may wish to use such
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Rules and Regulations 59263
funding vehicles to support affordable A. Definitions: § 951.1 that the commenter’s suggestion has
housing through the program. Consistent with the proposed rule, the merit, and that the provision should
5. The final rule eliminates the final rule revises certain of the existing include not only rents under the USDA
existing discretionary authority for a AHP definitions and defines a number program, but rents under any other
Bank to prohibit applications for AHP of other terms that are used throughout assistance program that are charged in
subsidy for projects located outside a the regulation. See 12 CFR 951.1. New the same way as under the Section 8
Bank’s district. This change is in definitions are discussed below in the program. Accordingly, the final rule
response to the expansion of interstate context of specific regulatory adopts the proposed language as
banking, which has resulted in many requirements. The more substantive expanded to include rents under other
Bank members operating in markets changes are described below. assistance programs that are charged in
outside a Bank’s district boundaries. Affordable. Consistent with the the same way as under the Section 8
However, in response to comments proposed rule, the final rule revises the program.
received, the final rule retains the AHP project. Consistent with the
existing definition of ‘‘affordable’’ by
current discretionary scoring preference proposed rule, the final rule adds a new
adding a reference, consistent with the
definition—‘‘AHP project’’—that applies
for in-district projects under the First AHP statutory term, to ‘‘rent charged to
to both owner-occupied and rental
District Priority, and continues to allow a household,’’ which is defined to mean
projects that have been awarded or have
a Bank to adopt such a scoring the rent that is actually paid by the
received AHP subsidy through the
preference under its Second District household occupying the unit. See 12 competitive application program. This
Priority. U.S.C. 1430(j)(13)(D). The change is intended to codify existing practice
6. In response to comments received, clarifies the existing regulatory and clarify that the term ‘‘project’’ does
the final rule retains the Banks’ current language, which could be read to mean not apply to direct subsidies, i.e., grants,
authority to draw on AHP funds from the amount of rent charged by the owner to households made pursuant to the
the subsequent year to fund the current for the unit, which would be greater homeownership set-aside program. The
year’s AHP, but limits the amount that than the rent actually paid by the term applies to both single-family and
may be drawn to an amount up to the occupants if the occupants receive multifamily projects. Consistent with
greater of $2 million or 20 percent of the financial assistance for rent payments the proposed rule, the final rule also
Bank’s annual required AHP from other sources. One commenter makes conforming changes to the
contribution for the current year, which supported the proposed revision, noting definitions of ‘‘owner-occupied project’’
the Bank would deduct from the annual that the change acknowledges an and ‘‘rental project.’’ Several
required AHP contribution for the important distinction between unit rent commenters supported the proposed
subsequent year. This change responds and the household’s rent payment. changes.
to the fact that Banks have, at times, The final rule also adds a new Low- or moderate-income household
found this authority to be useful for paragraph (2) to address rents charged and very low-income household.
addressing housing needs in their for units that are subsidized with low- Consistent with the proposed rule, the
districts. income housing assistance under the final rule amends the household-size
Department of Housing and Urban adjustment provisions in paragraph (3)
7. The final rule removes provisions
Development (HUD) Section 8 program, of the existing definition of ‘‘low- or
in the regulation that would increase
see 42 U.S.C. 1437f, as well as rents moderate-income household’’ (and
annually the maximum allowable dollar
under other assistance programs that are similarly for the definition of ‘‘very low-
amount of a Bank’s allocation to its
charged in the same way as under the income household) by changing the
homeownership set-aside program, and
Section 8 program. This provision is household-size adjustment from an
maximum allowable dollar amount
intended to clarify that rents charged to optional to a mandatory requirement,
drawn on the subsequent year’s
a household under such programs will provided that if the source for the area
allocation under a Bank’s
be deemed to be ‘‘affordable’’ for AHP median income data has no
homeownership set-aside and
purposes, even if the rent increases after methodology to adjust the household
competitive application program, based
initial occupancy, if the rent complied income limit for household size, the
on the annual inflation rate. This change
with the AHP definition of ‘‘affordable’’ Bank is not required to make such an
addresses the potential for inflation to
upon initial household occupancy and adjustment. The existing regulation
increase the allocation of AHP
thereafter the household continues to be defines ‘‘low- or moderate-income
contributions to the homeownership set-
assisted through the program. This household’’ to mean a household that
aside program relative to the
provision is applicable for purposes of has an income of 80 percent or less of
competitive application program.
the annual adjustment of targeting the median income for the area, with the
8. The final rule replaces certain commitments after initial occupancy income limit adjusted for family (i.e.,
prescriptive monitoring requirements in under § 951.7(a)(5) of the final rule household) size, in a Bank’s discretion,
the current regulation, which detail (which is re-designated from current in accordance with the methodology of
specific monitoring and control §§ 951.10(d) and 951.11(b)). the applicable median income standard.
processes with which a Bank must The proposed rule would have The change in the final rule is intended
comply, with broadly stated monitoring applied this paragraph (2) only to the to bring the AHP into conformance with
objectives to be accomplished through Section 8 program. Several commenters other federal programs that adjust for
the Bank’s adoption and supported the change, with 1 household size. Several commenters
implementation of written monitoring commenter adding that the United supported the proposed change, stating
policies for its competitive application States Department of Agriculture that it would ensure consistency when
and homeownership set-aside programs. (USDA) Rural Rental Assistance the AHP is used with other federal
These principal changes relative to Program, at 7 CFR part 3560, charges programs.
the current rule, and other provisions of rents in the same way as Section 8, and As discussed below, the final rule,
the final rule, including significant recommending that rents under that consistent with the proposed rule, also
changes from the proposed rule, are program be included in the AHP relocates certain provisions of the
discussed in greater detail below. provision. The Finance Board believes existing definitions relating to when a
household’s income must be projects under the competitive retention period commences for
determined, to §§ 951.5(c)(1)(i) and (ii) application program and owner- rehabilitated units that are currently
and 951.6(c)(2)(i) for the competitive occupied units under the occupied by the owner and do not
application program and the homeownership set-aside programs. involve a closing.
homeownership set-aside program, Accordingly, the final rule adds the Sponsor. Consistent with the
respectively. term ‘‘manufactured housing’’ not only proposed rule, the final rule amends the
Median income for the area. to the definition of ‘‘owner-occupied existing definition of ‘‘sponsor’’ by
Consistent with the proposed rule, the project’’ but also to the definition of requiring a Bank to define in its AHP
final rule removes the language ‘‘for ‘‘rental project’’ and to the provision on Implementation Plan the terms
purposes of that entity’s housing eligible uses of AHP direct subsidy ‘‘ownership interest’’ and ‘‘integrally
programs’’ in the existing definition of under the homeownership set-aside involved,’’ which are part of the
‘‘median income for the area,’’ which program (§ 951.6(c)(4)). However, as definition of ‘‘sponsor.’’ Under the
will enable the Finance Board to noted by 1 commenter, whether existing definition, a Bank must
approve, upon a Bank’s request, median manufactured housing is treated as an consider a ‘‘sponsor’’ to include any
income standards from sources, such as owner-occupied unit or a rental project entity that has an ownership interest in
the U.S. Census Bureau, that publish depends on the actual use of the AHP a rental project, regardless of how small
median income data but do not have subsidy.3 or temporary such ownership interest is.
their own housing programs. The Several commenters suggested that Requiring a Bank to define ‘‘ownership
existing definition lists a number of the Finance Board restrict the types of interest’’ in its AHP Implementation
median income standards that a Bank manufactured housing that would be Plan would allow the Bank to address
may adopt for purposes of determining eligible housing under the AHP, for concerns that some rental project
household income eligibility. See 12 example, by requiring that the housing sponsors may manipulate ownership
CFR 951.1. The regulation also provides be on a permanent foundation. The interests in order to receive points as
that a Bank may request Finance Board Finance Board recognizes the benefits of not-for-profit sponsors under the
approval for use of a median income for placing a manufactured home on a competitive application program’s
any definable geographic area, as permanent foundation. However, the scoring system. Several commenters
published by a federal, state, or local Finance Board is not adopting such a agreed that the proposal would address
government entity for purposes of that requirement, because the various types concerns about sponsors that are only
entity’s housing programs. One of manufactured housing provide nominally or initially involved in a
commenter supported the change, citing different and significant sources of project. Commenters concurred with the
the additional flexibility it would affordable housing stock, including Finance Board that the proposal would
provide. temporary shelters during an emergency allow the Banks to address projects that
Owner-occupied project and rental following a natural disaster. attempt to ‘‘game’’ the scoring system by
project. The final rule adopts the Retention period. The final rule using minimally involved not-for-profit
proposed amendments to the existing revises the proposed definition of sponsors to get points under the scoring
definitions of ‘‘owner-occupied project’’ ‘‘retention period’’ to provide that, in criterion for sponsorship by a not-for-
and ‘‘rental project’’ by clarifying that the case of rehabilitated units that profit or government entity.
they apply only to the competitive currently are occupied by the owner and Consistent with the proposed rule, the
application program, and by deleting do not involve a closing, the retention final rule also expands the definition of
language requiring the project to involve period shall commence on the date ‘‘sponsor’’ to include revolving loan
‘‘the purchase, construction, or established by the Bank in its AHP funds or entities that operate loan pools.
rehabilitation’’ of owner-occupied Implementation Plan. Those terms are used for purposes of
housing or rental housing, respectively. The proposed rule would have implementing amendments to the
That requirement is relocated to the provided that the retention period competitive application program rules
provisions addressing the eligibility commenced on the date of completion that address revolving loan funds and
requirements for the use of AHP of the rehabilitation. One commenter loan pools, respectively.
subsidy, at § 951.5(c)(1)(i) and (ii). No supported the proposal, while a number Subsidy. The final rule adopts the
commenters addressed these technical of commenters opposed it, pointing out proposed revisions to the existing
changes. that it can be difficult to determine with definition of ‘‘subsidy.’’ Specifically, the
The proposed rule also would have specificity the date that rehabilitation of provisions specifying the dates as of
added manufactured housing to the an already owner-occupied unit is which the amount of the subsidy is to
types of owner-occupied housing, and complete. The comments indicated that be determined are deleted, and the
emergency shelters and single-room Banks have adopted different dates for substance of those provisions is
occupancy (SRO) housing as types of the commencement of the retention incorporated into § 951.5(c)(12), which
rental housing, which are explicitly period, based on local rehabilitation and sets forth the eligibility requirements
referenced in the rule. In all cases, these real estate practices, and suggested that relating to the competitive application
types of housing have been eligible the Banks be given the discretion to program. In addition, the term
under the AHP since its inception, and establish the date. The Finance Board ‘‘homeownership set-aside funds’’ is
the proposed rule sought to clarify this finds merit in the commenters’ removed from the definition of
fact in the proposed language. However, suggestions and, consequently, has ‘‘subsidy’’ because homeownership set-
some commenters misunderstood the revised the language in the final rule to aside funds are direct subsidies, which
proposed changes as indicating that require a Bank to specify in its AHP are included within the definition of
these types of housing currently are not Implementation Plan the date that the ‘‘subsidy.’’ No commenters addressed
eligible for AHP funding. Based on the these technical changes.

comments, the Finance Board has 3 See, e.g., Finance Board Regulatory
determined that the eligibility of Interpretation 2000–RI–04 (May 26, 2000) (available B. Required Annual AHP Contributions;
manufactured housing should be further in the FOIA Reading Room on the Finance Board Allocation of Contributions: § 951.2
Web site at http://www.fhfb.gov/
clarified as eligible for all AHP funding, Default.aspx?Page=59&ListYear=2000& Required annual contribution:
including owner-occupied and rental ListCategory=8#8\2000). § 951.2(a). Under the Bank Act, each
Bank annually must contribute to its even though those dividends are treated the existing provision authorizing an
AHP an amount equal to the greater of as interest expense in the calculation of annual CPI adjustment of the caps on
10 percent of the Bank’s previous year’s GAAP net income. One commenter the dollar amounts, including amounts
net income or such prorated amount as supported the change. allotted from the subsequent year, that
is required to assure that the aggregate Allocation of contributions: § 951.2(b). may be allocated to the homeownership
contribution of the 12 Banks is no less Consistent with the proposed rule, the set-aside programs, principally because
than $100 million. 12 U.S.C. final rule relocates the allocation of it has the potential over time to increase
1430(j)(5)(C); 12 CFR 951.2. The pro rata contributions provisions for the disproportionately the amounts
allocation method has not been needed competitive application program and allocated to the homeownership set-
since the Banks’ annual contributions homeownership set-aside program in aside programs versus the competitive
based on the 10 percent of income existing § 951.3(a) to § 951.2(b), as they application program. See 12 CFR
formula have exceeded $100 million. relate to the requirements for AHP 951.3(a)(1)(iii). In addition, the
Nonetheless, consistent with the contributions, which are set forth in provision authorizing a CPI adjustment
proposed rule, § 951.2(a)(2) of the final § 951.2. No comments addressed this of any amount allotted from the
rule revises the existing provision to technical change. subsequent year under the competitive
clarify that if the pro rata allocation AHP subsidies are disbursed through application program, as provided under
method is used in any future year, the a Bank’s competitive application existing § 951.3(a)(2), is eliminated.
required annual contribution for any program and its homeownership set- Several commenters supported the
Bank shall not exceed its net earnings aside program. Under the existing changes, with 1 commenter stating that
for the previous year. This primarily is regulation, a Bank may set aside the changes are needed to ensure some
intended as a safety and soundness annually up to the greater of $3 million parity between the homeownership set-
measure to avoid the possibility that a or 25 percent of its annual required AHP aside and competitive application
Bank might otherwise be required to contribution to provide funds to programs.
contribute an amount in excess of its members through its homeownership Consolidation of separate
income, thereby reducing its regulatory set-aside programs. See 12 CFR homeownership set-aside program
capital. Several commenters supported 951.3(a)(1)(i). If member demand in a authorities: § 951.2(b)(2). Consistent
the change. given year exceeds the AHP subsidy with the proposed rule, § 951.2(b)(2) of
amount available for that year, a Bank the final rule retains the maximum
Net earnings of a Bank: § 951.1. may allot (or accelerate) additional allowable aggregate allocation of AHP
Consistent with the proposed rule, amounts from the subsequent year’s dollars to the homeownership set-aside
§ 951.1 of the final rule revises the AHP contribution, up to the greater of programs, i.e., the greater of $4.5 million
existing definition of ‘‘net earnings of a $3 million or 25 percent of the Bank’s or 35 percent of a Bank’s annual
Bank’’ to clarify existing practice with annual required AHP contribution for required AHP contribution, but
respect to how a Bank’s earnings are the following year, to the current year’s eliminates the first-time homebuyer set-
defined for purposes of calculating its homeownership set-aside program. aside program authority as a separate
required AHP contribution. See 12 CFR In addition to those amounts, under and distinct authority. See 12 CFR
951.1. Each Bank must present its the current regulation, a Bank may set 951.3(a)(1). The final rule replaces the
financial statements in accordance with aside annually up to the greater of $1.5 existing separate first-time homebuyer
Generally Accepted Accounting million or 10 percent of its annual set-aside program provision with a
Principles in the United States (GAAP). required AHP contribution to fund a requirement that at least one-third of a
The application of Statement of homeownership set-aside program to be Bank’s aggregate annual
Financial Accounting Standards No. used solely to provide financial homeownership set-aside allocation be
150, Accounting for Certain Financial assistance to first-time homebuyers. See targeted for first-time homebuyers,
Instruments with Characteristics of Both 12 CFR 951.3(a)(1)(ii). If member which reflects a comparable
Liabilities and Equity (SFAS 150), demand for that homeownership set- commitment to first-time homebuyers.
requires the Banks to classify capital aside program exceeds the amount of The Finance Board understands that
stock subject to a mandatory redemption available AHP subsidy for a particular most of the Banks currently dedicate a
request as a liability on the statement of year, a Bank may allot an additional substantial portion of their general
condition and requires that they treat amount from the subsequent year’s AHP homeownership set-aside allocation to
the dividends on capital stock subject to contribution, up to the greater of $1.5 first-time homebuyers before allocating
a mandatory redemption request as million or 10 percent of the Bank’s funds under the separate
interest expense on the statement of annual required AHP contribution for homeownership set-aside authority that
income. The Bank Act provisions the subsequent year, to the current specifically targets first-time
related to the AHP provide that each year’s first-time homebuyer set-aside homebuyers. Therefore, the Finance
Bank shall make an annual contribution program. Under the competitive Board believes the change will simplify
equal to 10 percent of its net earnings application program, a Bank currently the regulation without causing a
for the previous year after reduction for may allot up to the greater of $3 million material change in the allocation of
any payment required under 12 U.S.C. or 25 percent of its annual required AHP homeownership set-aside funds to first-
1441b (the Resolution Funding contribution for the subsequent year, to time homebuyers.
Corporation obligations) and before the current year’s competitive A number of commenters supported
declaring any dividend. 12 U.S.C. application program. These maximum the change. One commenter requested
1430(j)(8). Because the Bank Act allowable dollar amounts are adjusted clarification on whether one-third of
requires that the AHP contribution be annually by the Finance Board to reflect any amount allocated and not actually
calculated before the declaration of any percentage increase in the disbursed by a Bank for its
dividends, net earnings for purposes of preceding year’s Consumer Price Index homeownership set-aside programs in a
calculating the AHP contribution should (CPI). See 12 CFR 951.3(a)(1)(iii), (a)(2). given year must be targeted to first-time
not be reduced by any dividend Removal of CPI adjustment homebuyers. Consistent with current
declaration, including those associated provisions. Consistent with the practice, the ‘‘allocation’’ language in
with mandatorily redeemable stock, proposed rule, the final rule removes the rule makes clear that the one-third
requirement applies to the amount contributions in a given year. Several Notification of Plan amendments:
allocated and not to the amount actually commenters suggested that the Finance § 951.3(c). Section 951.3(c) of the final
disbursed. Board retain the authority provision but rule adopts the proposed requirement
Several commenters suggested that further limit the amount of AHP funds that a Bank notify the Finance Board
the one-third allocation include that may be allotted from the within 30 days of amending its AHP
households displaced by natural subsequent year. Implementation Plan. Several
disasters, rather than be limited to first- Based on the comments, the Finance commenters supported the change.
time homebuyers. The Banks may use Board recognizes that the authority may Public access: § 951.3(d). Section
their remaining allocation of be helpful for Banks in responding to § 951.3(d) of the final rule adopts the
homeownership set-aside funding to housing needs in their districts and the proposed requirement that a Bank make
assist households displaced by natural need for emergency housing and the amended AHP Implementation Plan
disasters. In addition, a Bank may rehabilitation following natural publicly available through its Web site
request a waiver from the Finance Board disasters, but believes that the authority within 30 days after adoption of the
to use its first-time homebuyer should be limited in scope and amendments. Under the current rule,
allocation for other purposes. calculated based on the current year’s the Bank must submit all amendments
Additional funding authority: required AHP contribution to minimize to the Finance Board and make its AHP
§ 951.2(b)(3). Section 951.2(b)(3) of the potential operational and compliance Implementation Plan available to
final rule revises the proposal by difficulties with the subsequent year’s members of the public upon request.
providing that a Bank may draw on AHP allocation requirement. A Bank could See 12 CFR 951.3(b)(4), (b)(5). Making
funds from the subsequent year to fund request a waiver from the Finance Board the AHP Implementation Plan available
the current year’s AHP, up to an amount of the funding limits in the event that through the Banks’ Web sites is
equal to the greater of $2 million or 20 those limits are not sufficient to address intended to provide the public with
percent of the Bank’s annual required specific housing needs in the Bank’s easy access to important information
AHP contribution for the current year. district. Consequently, the final rule about the AHP, as well as to promote
The Bank would deduct the amount allows a Bank to allot AHP funds from greater transparency and accountability
from the annual required AHP the subsequent year to fund the current in the program. A number of
contribution for the subsequent year. year’s AHP, up to an amount equal to commenters supported the change as
The proposed rule would have removed the greater of $2 million or 20 percent increasing transparency and
the 2 existing provisions authorizing of its annual required AHP contribution accountability and noted that most of
such allotment for the competitive for the current year, which the Bank the Banks have now placed their AHP
application and homeownership set- would deduct from its annual required Implementation Plans on their Web
aside programs. See 12 CFR AHP contribution for the subsequent sites.
951.3(a)(1)(i) and (ii) and (a)(2). The year.
Banks have not often used this D. Advisory Councils: § 951.4
authority, although 1 or 2 Banks may do C. AHP Implementation Plan: § 951.3 The final rule makes a number of
so in a year. The existing authority may Adoption of Plan: § 951.3(a). revisions to the existing provisions
present operational difficulties because Consistent with the proposed rule, addressing the Advisory Councils of the
it may require the Banks to project § 951.3(a) of the final rule reorganizes Banks, many of which are intended to
future earnings in order to determine and streamlines requirements for a clarify, but not change the substance of,
how much they may allot to the current Bank’s AHP Implementation Plan to the existing rule. See 12 CFR 951.4. The
year, and these projections may fall conform them to amendments to other provisions that have a substantive effect
short. Basing the authority on the parts of the AHP regulation. See 12 CFR are described below.
known amount of the current year’s 951.3(b). The changes to the specific Terms of Advisory Council members:
contribution eliminates uncertainty program operating requirements for § 951.4(b). Section 951.4(b) of the final
about the maximum permissible amount AHP Implementation Plans are rule adopts the proposed requirement
that the Bank may allot from the discussed elsewhere in this preamble in that each Bank adopt policies governing
subsequent year’s required AHP the context of the particular operating the appointment process for Advisory
contribution to the current year’s AHP requirements. The final rule also adopts Council members. In addition, the final
funding levels. the proposed requirement that the AHP rule requires each Bank to appoint
A number of commenters supported Implementation Plan include the Banks’ Advisory Council members to terms of
eliminating this authority from the retention agreement requirements. 3 years, except that a Bank may appoint
homeownership set-aside and A number of commenters supported members for terms of 1 or 2 years as a
competitive application programs, citing the changes to the requirements for the transitional measure solely for purposes
operational difficulties. However, a AHP Implementation Plan, but of achieving the necessary staggering of
Bank and its Advisory Council stated expressed concern that they would the 3-year terms.
that the Bank has not found the require a Bank to include all of its Proposed § 951.4(b) would have
authority to be difficult to administer. A policies and procedures in its Plan, required each Bank to appoint members
number of other commenters favored which would make for a cumbersome to terms of ‘‘up to’’ 3 years. This
retaining the authority, stating that it document and complicate the Bank’s proposal was intended to enhance the
has been an important tool for the Banks process for amending the policies and effectiveness of the Advisory Councils
to meet housing demand and to respond procedures. The Finance Board intends by lessening the likelihood that the
to the need for emergency owner- that a Bank’s program requirements, terms of more than one-third of the
occupied housing and rehabilitation such as its scoring guidelines, but not its Advisory Council members will expire
following natural disasters. Commenters implementing operating procedures, be in any 1 year, by allowing the Banks to
also noted that some Banks have used included in the Plan. A Bank may appoint as a transitional measure some
the authority to ensure some minimum reference its operating procedures in the individuals to terms of 1 or 2 years as
availability of AHP funding when Plan so that AHP participants will be a means of ensuring an appropriate
reduced Bank earnings cause a aware of their existence and make them balance of experience and service
significant decrease in AHP available upon request. among members of the Advisory
Council as a whole while achieving matters include: The relative allocation interactions with their Advisory
appropriate staggering of terms. Under of AHP subsidies between the Councils. See 12 U.S.C. 1430(j)(11);
the current rule, the Banks must appoint competitive application and Horizontal Review at 23.
members of the Advisory Council to 3- homeownership set-aside programs; the Several commenters supported the
year terms. See 12 CFR 951.4(d). AHP Implementation Plan; eligibility proposal, stating that it would improve
A number of commenters supported criteria for each program; scoring the Bank board’s understanding of
the proposal, stating that it would allow criteria and related definitions for the affordable housing issues. A Bank and
for better balance of expiring terms and competitive application program; and its Advisory Council opposed the
provide greater continuity of the any priority criteria for the proposal, believing it would add to the
Advisory Council membership. Other homeownership set-aside program. A duties and responsibilities of the Bank’s
commenters raised concerns that the number of commenters supported the board and apply to Advisory Council
proposal would allow the Banks as a changes, stating they would strengthen meetings beyond the quarterly meetings
routine matter to appoint Advisory communication among the Bank’s with the Bank’s board that are required
Council members to terms of 1 year and board, the Advisory Council, and the by the Bank Act. It was not the Finance
2 years in addition to 3 years, creating public. Board’s intent to prohibit Bank staff
positions of unequal power and Annual Advisory Council analysis; from meeting with the Advisory
resulting in greater turnover and loss of public access: § 951.4(d)(3). Section Councils at times other than the Bank
members with AHP knowledge and 951.4(d)(3)(i) of the final rule adopts the boards’ quarterly meetings with the
expertise. The Finance Board’s intent in proposed extension of the deadline by Advisory Councils. Consequently, the
proposing the change was to allow the which the Advisory Council must language is revised in the final rule to
Banks the flexibility to appoint submit its annual analysis of the Bank’s clarify that the prohibited delegation
members to shorter terms when low- and moderate-income housing and applies only to the statutorily-required
necessary as a transitional measure to community lending activity to the quarterly meetings between the Banks’
reconfigure the staggering of the 3-year Finance Board from March 1 to May 1. boards and their Advisory Councils.
terms on the Advisory Councils. See 12 CFR 951.4(f)(3). The proposed
Although the Banks originally set change in the due date was intended to E. Competitive Application Program:
staggering of the 3-year terms beginning respond to requests received from some § 951.5
in January 1998, when the current AHP of the Advisory Councils, which meet at Consistent with the proposed rule, the
regulation became effective, the Banks least quarterly, for additional time after final rule consolidates existing
have found it necessary to reset the the end of each calendar year to prepare,
regulatory provisions governing the
staggering from time to time. The review, and approve their report. A
operation of the competitive application
Finance Board has acted on a number of number of commenters supported the
program into a single section of the AHP
Bank requests, through waivers or no- change in the due date, with 1
rule—§ 951.5. Under the current
action letters, to allow the Banks to commenter stating that it would offer
regulation, some of those provisions are
readjust staggering by appointing some the Advisory Council a better
located in different sections of the
members to terms of less than 3 years. opportunity to summarize the
regulation. A number of commenters
The Finance Board recognizes the accomplishments of the year.
Section 951.4(d)(3)(ii) of the final rule supported the proposed reorganization,
concerns of the commenters, but also
adopts the proposed requirement that streamlining, and consolidation of the
recognizes the need of the Banks for
flexibility to stagger the Advisory each Bank publish the Advisory Council regulatory provisions. Commenters
Council member terms. Consequently, analysis on its publicly available Web stated that these technical revisions
the language is revised in the final rule site within 30 days of its submission to would be helpful for the Banks,
to provide that Advisory Council terms the Finance Board. Making the Advisory members, and sponsors in
shall be for 3 years, except that a Bank Councils’ analyses available to the understanding the specific requirements
may appoint members for terms of 1 or public through the Banks’ Web sites is of the competitive application and
2 years as a transitional measure solely intended to promote greater homeownership set-aside programs. The
for purposes of achieving the necessary transparency and accountability in the principal revisions to the existing
staggering of the 3-year terms. Banks’ AHP and in the work of the regulatory structure are described
Election of officers: § 951.4(c). Banks’ Advisory Councils. A number of below.
Consistent with the proposed rule, commenters supported the change, Removal of optional nonmember
§ 951.4(c) of the final rule imposes on stating that it would increase applicants provision: § 951.5(b)(2).
the Advisory Council an affirmative transparency and accountability. Consistent with the proposed rule,
obligation to elect certain officers, No delegation: § 951.4(f). Section § 951.5(b)(2) of the final rule eliminates
which is intended to ensure that each 951.4(f) of the final rule prohibits a the current discretionary authority for a
Advisory Council has in place a Bank’s board of directors from Bank to accept AHP applications from
chairman and vice chairman. The delegating to Bank officers or other Bank institutions that are not members of the
current rule permits, but does not employees its responsibility for Bank, but that have applied for
require, election of such officers. See 12 appointing Advisory Council members membership. See 12 CFR 951.6(b)(1). A
CFR 951.4(e). Several commenters and meeting with the Advisory Council trade association opposed the proposed
supported the change. at the quarterly meetings required by the change, stating that the AHP offers an
Duties: Meetings with the Banks: Bank Act. See 12 U.S.C. 1430(j)(11). incentive for nonmember institutions to
§ 951.4(d)(1)(ii). Consistent with the This provision is intended to ensure join the Banks and the current
proposed rule, § 951.4(d)(1)(ii) of the that each board of directors fulfills its regulatory provision remains an
final rule revises the duties of the statutory obligations with regard to its important membership recruitment tool
Advisory Council principally by adding interaction with the Advisory Council for the Banks. The Finance Board notes
a list of specific matters on which the and is consistent with findings of the that the AHP would remain a
Advisory Council must provide Finance Board’s Horizontal Review, membership recruitment tool under the
recommendations to the Bank’s board of which indicated that in general the final rule as the institution can apply for
directors. See 12 CFR 951.4(f)(1). Those Bank boards could improve their AHP funds once it is a member.
A Bank opposed the proposal, stating donations and volunteer professional determining the sponsor’s cash sources
that where a member that intends to labor or services (excluding the value of of funds. Several commenters were
submit AHP applications on behalf of sweat equity) as sources of funds. See 12 concerned that rescinding 1999–RI–03
sponsors is merged into a nonmember, CFR 951.5(b)(2)(i)(B). By focusing the also would remove a provision relating
and the nonmember intends to apply for analysis on cash sources and uses, the to the determination of cash sources of
Bank membership, the proposal would sponsor can streamline the analysis, as funds for such sponsors. The Regulatory
prohibit the nonmember from non-cash contributions are exactly offset Interpretation provides that, in
continuing the process of submitting to by the amount of non-cash expenses performing the cash sources and uses of
the Bank the AHP applications for those they cover and, therefore, cancel out of funds analysis, the sponsor’s cash
sponsors for an imminent funding the comprehensive sources and uses of contribution must include the present
round. The Bank noted that this would funds analysis. For example, a value, rather than the face value, of any
result in the AHP activities of the contribution of materials (in-kind) is a payments the sponsor is to receive from
nonmember being prohibited for as source that reduces the need for cash the homebuyer, i.e., any cash down
much as 180 days. See 12 CFR payments by exactly its value. The payment from the buyer plus the
925.24(b). The Finance Board believes Finance Board stated in the present value of any below-market
that such an event would be rare, and SUPPLEMENTARY INFORMATION section of purchase note the sponsor holds on the
the Bank has alternatives to address the the proposed rule that experience since unit. If such a note carries a market
matter so that the sponsors could 1998 indicated that estimates of non- interest rate commensurate with the
compete for funding at that time, such cash costs generally do not affect the credit quality of the borrower (market
as by assisting the sponsors in amount of subsidy needed for a project, rate), the present value of the note
identifying another member to submit and that eliminating this requirement equals the face value of the note. If the
the application. also would obviate the need for note carries an interest rate below the
Eligibility requirements: § 951.5(c). Regulatory Interpretation 1999–RI–03 market rate, the present value of the
Consistent with the proposed rule, (Jan. 26, 1999),4 which already had note can be determined using the
§ 951.5(c) of the final rule sets out the eliminated this requirement for self-help market rate to discount the cash flows.
eligibility requirements that apply in homeownership projects involving such The commenters stated that, without
connection with the receipt of AHP non-cash costs. the provision in 1999–RI–03, such
subsidies under the competitive One commenter opposed the sponsors would be required to include
application program. proposal, stating that if estimates of the face value of the mortgage payments
Timing of household income- non-cash costs generally do not affect received rather than the discounted
eligibility determination: § 951.5(c)(1). the amount of subsidy needed for a amount, which would result in the
Consistent with the proposed rule, the project, then it should not matter development budget for these types of
final rule relocates the current whether or not a project includes non- projects showing cash sources of funds
provisions on timing of household cash sources and uses in its in excess of cash uses, i.e., no need for
income eligibility from the definitions development budget, and the rule AHP subsidy, thereby making such
of ‘‘low- or moderate-income should leave it to the Bank’s discretion projects ineligible to receive AHP
household’’ and ‘‘very low-income whether the development budget may subsidy. The Finance Board concurs
household’’ in § 951.1 to § 951.5(c)(1). In include such items. This commenter that the provision related to the use of
addition, consistent with the proposed stated that sponsors must make these the net present value should continue to
rule, the final rule incorporates into this estimates as line items in their budgets apply to sponsor-financed self-help
section, without change, the housing, and the final rule codifies the
for funding from certain federal
requirements in the existing definitions 1999–RI–03 provision in
programs such as Low-Income Housing
of ‘‘owner-occupied project’’ and ‘‘rental § 951.5(c)(2)(ii).
Tax Credits and Community
project’’ that the AHP subsidy be used The final rule also adopts the
Development Block Grants, and the
for the purchase, construction, or proposal that would make the need for
regulation should not require them to do
rehabilitation of owner-occupied or subsidy requirement independent of the
separate budgets for the AHP. The
rental housing. project developmental and operational
Need for subsidy: § 951.5(c)(2). The Finance Board finds the comment
feasibility requirements. These
final rule permits a Bank, in its persuasive. Accordingly, the final rule
feasibility requirements are separate
discretion, to permit a project’s sources provides a Bank with the discretion to assessments and, therefore, should not
of funds to include or exclude the determine whether estimates of market be linked to the need for subsidy
estimated market value of in-kind value of in-kind donations and requirement. The Finance Board stated
donations and voluntary professional voluntary professional labor or services in the SUPPLEMENTARY INFORMATION
labor or services (excluding the value of (excluding the value of sweat equity) section of the proposed rule that this
sweat equity), provided that the may be a required component in change also may have the effect of more
project’s uses of funds also include or determining a project’s source of funds competition by smaller projects and
exclude, respectively, the value of such along with the identical value included projects with higher production or
estimates. The existing regulation as a use of funds. operating costs, such as projects with
requires that, for purposes of Section 951.5(c)(2)(ii) of the final services or more common space, and
determining a project’s eligibility, the regulation also includes a requirement several commenters agreed that this
project must demonstrate a need for the for how a self-help homeownership could be a result of the proposed
subsidy, based on its estimated total sponsor that provides permanent change.
sources and uses of funds. See 12 CFR financing must account for the value of Project costs: § 951.5(c)(3). Section
951.5(b)(2). The proposed rule would cash payments that it will receive from 951.5(c)(3)(i) of the final rule adopts the
have maintained this requirement, but the purchaser of the home when proposed clarification that the
would have eliminated a related 4 1999–RI–03 is available in the FOIA Reading
determination of project costs is a
requirement that the estimated sources Room on the Finance Board Web site at http://
separate eligibility requirement, and
and uses of funds analysis include www.fhfb.gov/ removes an existing requirement that
estimates of the market value of in-kind Default.aspx?Page=59&ListCategory=8#8. project costs be ‘‘customary’’ and
determined according to ‘‘industry professional labor or services as part of CFR 951.5(b)(6). The change clarifies
standards’’ in accordance with the total development costs in the budget. that refinancing is permitted only if it
Bank’s project feasibility guidelines. See The Finance Board believes the generated equity proceeds and if the
12 CFR 951.5(b)(2)(ii). In lieu of that comments have merit. Accordingly, proceeds are used to purchase,
requirement, a Bank is still required to § 951.5(c)(3)(i)(B) of the final rule allows construct, or rehabilitate eligible
establish feasibility and cost guidelines a Bank to include estimates of the housing units. The change also clarifies
as a basis for evaluating project costs, market value of in-kind donations and that the requirement regarding use of
but must determine whether an volunteer professional labor or services the equity proceeds applies only to an
individual project’s costs are reasonable (excluding the value of sweat equity) in amount of equity proceeds that is at
by taking into account the geographic total development costs for purposes of least equal to the amount of AHP
location of the project, development calculating the developer’s fee. The subsidy in the project. No comments
conditions, and other non-financial Bank would continue to be required to addressed this technical change.
household or project characteristics, determine, after calculating the fee, that Project sponsor qualifications:
such as housing for the elderly or for it is a reasonable fee pursuant to the § 951.5(c)(10). Consistent with the
persons with disabilities, which affect Bank’s project cost guidelines, as proposed rule, § 951.5(c)(10)(ii) and (iii)
the project’s costs. The changes are required by § 951.5(c)(3)(i)(A) of the of the final rule revises existing
intended to make the eligibility review final rule. § 951.5(b)(8) by requiring a Bank to
process more adaptive to projects such Project feasibility: § 951.5(c)(4). adopt written policies regarding the
as those serving special needs Consistent with the proposed rule, project sponsor qualifications for
populations, and other projects that may § 951.5(c)(4) of the final rule separates revolving loan funds and loan pools.
require special architectural features or the 2 aspects of project feasibility— See 12 CFR 951.5(b)(8). These issues are
other amenities appropriate to their developmental feasibility of a project discussed separately below under the
location. and, in the case of rental housing, sections addressing use of the AHP
Several commenters supported the operational feasibility of the project over subsidy by revolving loan funds and
proposal as providing additional time—and defines the terms. These 2 loan pools.
flexibility for a Bank to assess project types of project feasibility are not Calculation of AHP subsidy:
costs based on the characteristics of differentiated in the existing rule. § 951.5(c)(12). Consistent with the
individual projects, taking into Section 951.5(c)(4)(i) requires that a proposed rule, § 951.5(c)(12) of the final
consideration factors that could increase project be developmentally feasible, rule, which relates to the calculation of
costs in determining whether a project’s which is defined as the likelihood that the AHP subsidy, incorporates, without
costs are reasonable. Some commenters the project will be completed and change, the existing provisions
stated, however, that the proposed occupied, based on relevant factors regarding the time at which the
language could be read to require a contained in the Bank’s project calculation of subsidy is to be made,
Bank’s feasibility guidelines to reflect a feasibility guidelines, including the which currently is included as part of
variety of characteristics for different project’s development budget, market the definition of ‘‘subsidy’’ in § 951.1.
project types. This was not the intent of analysis, and the sponsor’s experience No comments addressed this technical
the proposal. Accordingly, the language in providing the requested assistance to change.
in the final rule is reworded to state that households. Section 951.5(c)(4)(ii) Lending and re-lending of AHP direct
the Bank’s feasibility guidelines requires that a rental project be subsidy by revolving loan funds:
themselves need not include operationally feasible, which is defined § 951.5(c)(13). General requirements:
characteristics for different project as the ability of the project to operate in Consistent with the proposed rule, the
types. a financially sound manner, in final rule authorizes a Bank, in its
As discussed above under Need for accordance with the Bank’s project discretion, to provide AHP direct
Subsidy, the proposed rule would have feasibility guidelines, as projected in the subsidy under its competitive
eliminated the existing provision in project’s operating pro forma. application program for eligible projects
§ 951.5(b)(2)(i)(B) that requires, for A Bank and its Advisory Council and households involving both the
purposes of a Bank’s sources and uses supported the proposal, stating that it lending of the subsidy and subsequent
of funds analysis, that the Bank include would allow the Banks more flexibility lending of subsidy principal and
as sources of funds estimates of the in addressing project needs based on a interest repayments by a revolving loan
market value of in-kind donations and variety of factors that can influence fund. The final rule further provides
volunteer professional labor or services development costs and operational that both the initial loans made by the
(excluding the value of sweat equity) budgets. revolving loan fund, as well as any
committed to the project. See 12 CFR Financing costs: § 951.5(c)(5). subsequent loans made with amounts
951.5(b)(2)(i)(B). Several commenters Consistent with the proposed rule, the received from repayments of the initial
objected that removal of this provision final rule makes a technical change by loans, would have to meet AHP
would result in payment of a lower relocating the provision regarding eligibility requirements, as applicable
developer’s fee where the fee is interest rates, points, fees, and other depending on whether the subsidy is
calculated as a percentage of the charges for loans financing the project used for initial lending or for
project’s total development costs, as the from existing § 951.5(b)(2)(iii) to subsequent lending, as discussed below.
total development costs amount would § 951.5(c)(5) of the final rule. See 12 The revolving loan fund also would
be lower. One commenter stated that CFR 951.5(b)(2)(iii). The final rule also have to assure that the initial loans are
this consequence would be particularly clarifies that this provision applies to made to projects and households that
difficult for small, not-for-profit housing loans made for the project in meet the commitments made in the
producers, especially in rural areas, that conjunction with the AHP subsidy. approved AHP application, and that
rely on income from the developer’s fee Refinancing: § 951.5(c)(8). Section they will be met for the full AHP
for their continuing operations. 951.5(c)(8) of the final rule adopts a retention period. In order to exercise
Commenters stated that the Banks proposed technical change regarding the this authority, a Bank would have to
should be given discretion to include in- use of AHP subsidies in connection consult with its Advisory Council and
kind donations and volunteer with a refinancing of a project. See 12 then adopt written policies governing
the disbursement of the AHP direct whether members would qualify as would have to ensure that the actual
subsidy through this type of entity. revolving loan funds under the rule, project or projects eventually funded
A number of commenters supported noting that if members could not with the initial lending of subsidy
allowing the Banks to provide AHP qualify, the rule would give revolving would meet those scoring criteria. If,
direct subsidy to revolving loan funds as loan funds an unfair competitive upon initial monitoring of the project,
proposed, stating that it could maximize advantage over members in access to the Bank found that the project did not
the impact of the direct subsidy because AHP funds. Members are eligible to meet the scoring criteria and could not
using loans rather than grants allows the apply for AHP subsidy as revolving loan be modified under § 951.5(f), then the
financial benefit of the subsidy to be funds if they meet the definition of revolving loan fund would have to
leveraged many times over. One ‘‘revolving loan fund’’ and the project repay the AHP subsidy to the Bank.
commenter stated that it would meet a sponsor qualifications requirement in Many revolving loan funds operating for
need for small, flexible-term loans for a the final rule. the purpose of financing housing for
broad range of purposes. Another The Finance Board notes that very low- and low- or moderate-income
commenter stated that it would benefit revolving loan funds currently can and households either restrict their funding
rural areas that are losing affordable do apply as sponsors under the to projects with certain requirements,
housing, as revolving loan funds are competitive application program for such as housing for the elderly, or have
better able to match the capital needs of AHP subsidy for funding specified a pipeline of potential projects.
smaller scale, scattered-site projects. Under § 951.5(c)(13)(i) of the Consequently, the Finance Board
development efforts typical in rural final rule, in a Bank’s discretion, a believes that an application can be
areas. revolving loan fund would be able to scored based on the proposed
Other commenters opposed the apply for direct subsidy to lend to a characteristics of an unspecified project.
proposal, stating that it would be specified or an unspecified project (or An application with unspecified
unworkable because of difficulties with projects) meeting the requirements of project(s) must still meet the eligibility
scoring, monitoring and compliance. A the competitive application program requirement in § 951.5(c)(6) that the
commenter stated that lending the AHP and to re-lend repayments of that project must be likely to begin drawing
direct subsidy would erode the value of subsidy to subsequent projects that meet down some or all of the AHP subsidy or
the AHP grants. Several commenters certain minimum eligibility use it to procure other financing
stated that revolving loan funds charge requirements. A number of commenters commitments within 12 months of the
interest or fees that increase project stated that it was not clear how an date of the application’s approval. The
costs, thereby effectively reducing the application for an unspecified project Finance Board does not intend that
amount of AHP subsidy passing through could meet the eligibility requirements approved AHP subsidy lay idle for
to the project, and projects that cannot for project feasibility and project costs. significant periods of time.
support debt service would not be able To address these issues, § 951.5(c)(13)(i) Section 951.5(c)(13)(iv) of the final
to benefit from revolving loan funds and (ii) of the final rule provides that an rule also provides that payments of
using direct subsidy as loan principal application for an unspecified project to interest on the lending of the AHP direct
instead of grants. The Finance Board be funded through a revolving loan fund subsidy must be used by the revolving
acknowledges these potential concerns, must include the revolving loan fund’s loan fund in accordance with the
but notes that under the regulation no criteria for lending of the subsidy, requirements for subsequent lending of
Bank would be obligated to accept including its project cost and project AHP direct subsidy in that section.
applications from a revolving loan fund. feasibility guidelines, which the Bank Some commenters opposed allowing
The authority in the rule is permissive, will evaluate according to the AHP interest earned on the lending of the
not mandatory. The Finance Board eligibility requirements, including the AHP subsidy to be used for general
believes that revolving loan funds can Bank’s project cost and project operating support of the revolving loan
provide opportunities for the benefits of feasibility guidelines. See § 951.5(c)(3) fund or the sponsor, and the Finance
the AHP to reach harder-to-serve and (c)(4) of final rule. Pursuant to Board concurs. Under § 951.13(d)(3) of
populations, such as those in rural areas § 951.7(a)(1) of the final rule, upon the current AHP regulation, a member
or those with special needs. By allowing initial monitoring of the actual project(s) or sponsor that lends AHP direct
revolving loan funds to lend and re-lend funded with the initial lending of subsidy to a project must pay any
direct subsidy, the regulation will subsidy, the Bank will have to repayments of principal and payments
enable entities specializing in determine that the actual project costs of interest forthwith to the Bank for use
community development lending to were reasonable in accordance with the by other AHP-eligible projects. See 12
leverage additional funds for low- Bank’s project cost guidelines, and that CFR 951.13(d)(3). Requiring a revolving
income borrowers, or bring added value the subsidy was needed in accordance loan fund to return interest payments to
to the services provided by not-for-profit with § 951.5(c)(2). its lending fund and use them for AHP-
corporations and local governments, Section 951.5(c)(13)(ii) of the final eligible purposes in accordance with the
and provide technical assistance that rule provides that a Bank shall review subsequent lending provisions is
can contribute to project success and an application from a revolving loan consistent with this existing
help develop capacity of small, not-for- fund to evaluate the project or criteria requirement. In addition, § 951.9(a)(9) of
profit housing producers. for the initial lending of the subsidy, as the final rule revises existing
As noted previously, § 951.1 of the applicable, pursuant to the Bank’s § 951.13(d)(3) to provide for an
final rule expands the definition of scoring guidelines. Some commenters exception to the requirement that
‘‘sponsor’’ to specify revolving loan questioned how an application for an repayments of principal and payments
funds in the list of eligible sponsors. unspecified project(s) could be scored of interest must be paid to the Bank in
Section 951.1 of the final rule defines a against other applications for projects. the case of lending and re-lending of
‘‘revolving loan fund’’ as a capital fund Under § 951.5(c)(13)(i), an application direct subsidy by a revolving loan fund.
established to make mortgage or other with nonspecific project(s) would have Initial lending of AHP direct subsidy:
loans whereby loan principal is repaid to propose how the project(s) will meet § 951.5(c)(13)(iii): Section
into the fund and re-lent to other various applicable scoring criteria and, 951.5(c)(13)(iii)(A) of the final rule
borrowers. Commenters questioned if approved, the revolving loan fund provides that, once its application is
approved, a revolving loan fund may area, and must meet all other eligibility that a revolving loan fund can charge;
lend direct AHP subsidy to 1 or more requirements in § 951.5(c). Section however, a revolving loan fund’s
projects or households, as needed to use 951.5(c)(13)(iv)(C) provides that a Bank interest rates must be reasonable and
the full amount of subsidy approved, may, in its discretion, require the comply with the financing costs
that meet the eligibility criteria of revolving loan fund’s subsequent requirement of § 951.5(c)(5).
§ 951.5(c) and the commitments made in lending of AHP subsidy principal and Revolving loan fund sponsor
the approved AHP application. Like all interest repayments to be subject to qualifications: § 951.5(c)(10(ii):
other approved projects, the project or retention period, monitoring, and Consistent with the proposed rule,
projects funded as part of the revolving recapture requirements as defined by § 951.5(c)(10)(ii) of the final rule
loan fund’s initial lending of the AHP the Bank in its AHP Implementation provides that, pursuant to written
direct subsidy are subject to AHP Plan. A number of commenters policies adopted by a Bank’s board, a
retention agreements, and to initial and expressed concerns about the revolving revolving loan fund sponsor that
long-term monitoring, as applicable loan fund sponsor having to monitor intends to use the AHP subsidy in
according to whether the housing is revolved payments of AHP subsidy over accordance with this section must:
owner-occupied or rental. The revolving the long-term retention period. Some (i) Provide audited financial statements
loan fund may re-lend subsidy principal commenters stated that the monitoring that its operations are consistent with
and interest repayments received in requirements would be extremely sound business practices; and (ii)
accordance with the ‘‘subsequent difficult or unworkable, and would be demonstrate the ability to re-lend AHP
lending’’ requirements described below. different than those applicable under subsidy repayments on a timely basis
Section 951.5(c)(13)(iii)(B) of the final the final rule for projects that do not and track the use of the AHP subsidy.
rule provides that if an initial-lending involve revolving loan funds. Several commenters recommended that
project or owner-occupied unit is not in Commenters recommended various the regulation give priority to
compliance with the commitments in approaches to the monitoring of the community development financial
the approved AHP application, or is revolved subsidy, including that: The institutions as qualified revolving loan
sold or refinanced prior to the end of the Bank have flexibility to determine fund sponsors, because of their
applicable AHP retention period, the whether to require monitoring over a experience and controls and reporting
required amount of AHP subsidy must long-term period (as proposed); the systems for the lending of funds.
be repaid to the revolving loan fund in sponsor be allowed to commingle the Another commenter suggested that a
accordance with §§ 951.8 and 951.9 of AHP funds with its other funds but be revolving loan fund sponsor should
the final rule. The revolving loan fund required to separately account for the have to have a minimum of 2 years’
must re-lend such repaid subsidy, AHP funds through an annual A–133 experience successfully operating a
excluding the amounts of AHP subsidy type audit; the Bank be allowed to revolving loan fund in order to be
principal already repaid to the revolving monitor the performance of the considered an eligible sponsor. The
loan fund, to another project or owner- revolving loan fund rather than the Finance Board does not believe it is
occupied unit meeting the initial individual households or properties; appropriate to give preference in the
lending requirements for the remainder and the monitoring period be limited to regulation to any particular type of
of the retention period. For example, if 5 years or until the AHP direct subsidy sponsor or indicator of experience. The
an initial-lending rental project is sold is rolled over twice. The Finance Board AHP is a competitive application
after 8 years and the buyer does not recognizes the potential problems that process and, during the application
commit to maintain the AHP income- monitoring for subsequent lending of review process, a Bank must evaluate a
targeting and affordability the repaid subsidy could entail. As sponsor’s experience in determining
commitments, then the revolving loan discussed above, only projects funded whether the sponsor has the
fund must re-lend the repaid subsidy to with the revolving loan fund’s initial qualifications to be eligible to
another eligible project meeting the lending of subsidy would be subject to participate in the competitive
initial lending requirements that will the monitoring requirements applicable application process. Those sponsors that
have a retention period of 7 years in to all projects under the competitive can demonstrate such qualifications will
order to complete the full 15-year application program. The Bank, in its be eligible to participate in the
retention period required for an initial- discretion, may decide what, if any, competitive application process.
lending rental project. In this case, the monitoring, retention, or recapture Other issues: Several commenters also
amount of subsidy that must be used for requirements should apply to recommended that the Banks be allowed
another initial-lending project does not subsequent lending of the repaid AHP to fund revolving loan funds as a
include the amounts of AHP subsidy subsidy. separate set-aside, rather than under the
principal already repaid to the revolving Section 951.5(c)(13)(iv)(A) of the final competitive application program, and
loan fund. rule also provides that a revolving loan that the Banks be allowed to establish
Subsequent lending of AHP subsidy fund, in its discretion, may provide part the governing policies for their
principal and interest repayments: or all of the AHP subsidy principal and revolving loan fund programs. The
§ 951.5(c)(13)(iv): Section interest repayments as nonrepayable Finance Board does not believe that it
951.5(c)(13)(iv)(B) of the final rule grants to eligible projects under the is appropriate to set aside AHP funds for
provides that subsequent lending of ‘‘subsequent lending’’ requirements. specific types of sponsors. The AHP is
AHP subsidy principal and interest Under § 951.5(c)(13)(v), the revolving primarily a competitive program that
repayments must be for the purchase, loan fund must return to the Bank any awards funds based on the merits of the
construction, or rehabilitation of owner- AHP subsidy that will not be used for application, regardless of sponsorship.
occupied units for households with AHP-eligible purposes. Under the final rule, AHP funds
incomes at or below 80 percent of the Several commenters wanted to ensure disbursed through a revolving loan fund
median income for the area, or of rental that the Finance Board or the Banks may not be used for purposes, such as
projects where at least 20 percent of the would not set the interest rate that a to pay for operating costs, that are
units are occupied by and affordable for revolving loan fund could charge for unrelated to the purchase, construction,
households with incomes at or below 50 lending the AHP direct subsidy. The or rehabilitation of housing. Several
percent of the median income for the final rule does not set the interest rates commenters stated that AHP subsidy
should be able to be used for operating to the Bank, as is required under the entities that operate loan pools in the
costs, citing the more intensive current regulation. Because of this new list of eligible sponsors. Consistent with
servicing needed for higher-risk, low- reuse authority, the Finance Board has the proposed rule, § 951.1 of the final
income loans. A commenter proposed determined that each Bank should have rule defines a ‘‘loan pool’’ as a group of
that revolving loan funds be able to use the discretion to determine whether to AHP-eligible loans that are purchased,
interest earned on lending the AHP fund AHP applications for loan pools pooled, and held in trust. Consistent
direct subsidy and on short-term under its competitive application with the proposed rule, and in light of
investment of the AHP subsidy for program. The Bank would determine the new authority to reuse repaid
servicing and related functions and whether there is a market need for such subsidy for new AHP-assisted loans to
investments. The Finance Board funding in its district as part of its substitute in the loan pools,
believes that use of AHP subsidy for determination whether to permit § 951.5(c)(10)(iii) of the final rule
operating costs and investment of the funding of applications for loan pool provides that, pursuant to written
subsidy would not be consistent with sponsors. In order to make available the policies adopted by a Bank’s board, a
the requirement in the Bank Act that loan pool authority under its project sponsor that operates a loan pool
AHP subsidy only be used for the competitive application program, a must: (i) Provide evidence of sound
financing of purchase, construction, or Bank would have to consult with its asset/liability management practices;
rehabilitation of affordable housing and, Advisory Council and then adopt (ii) provide audited financial statements
as discussed above, that interest earned written policies governing the that its operations are consistent with
on the lending of the subsidy should disbursement of the AHP subsidy sound business practices; and
also be used for AHP-eligible purposes. through this type of funding (iii) demonstrate the ability to track the
See 12 U.S.C. 1430(j)(2). arrangement. use of the AHP subsidy. Several
Some commenters also stated that A number of commenters generally commenters recommended that only
revolving loan funds should be allowed supported the use of AHP subsidy by loan pool sponsors that have previously
to lend AHP subsidy to fund loan pool sponsors, stating that greater received AHP funds should be
predevelopment costs for rental use of secondary market operations considered eligible sponsors. For the
housing, or short-term construction could help sponsors provide same reasons discussed above under
loans. The Finance Board notes that homeownership to more low-or Revolving Loan Funds, the Finance
lending for short-term construction moderate-income households in their Board does not believe it is appropriate
loans is an eligible use of AHP subsidy, communities. Commenters also to give preference in the regulation to
provided that the resulting housing supported the discretionary nature of particular types of sponsors or
complies with the AHP retention the proposal. Other commenters indicators of experience. However, a
requirements. The Finance Board has opposed the proposal, citing a number Bank may take into consideration a
determined that predevelopment costs of reasons, including that loan pools sponsor’s experience in determining its
are not an eligible use of AHP subsidy may not be addressing a specific market qualifications and the eligibility of the
if no eligible housing is produced as a need. The Finance Board notes that loan project to participate in the AHP
result. Under the AHP, a project that pool entities are already eligible competitive application process.
meets the eligibility requirements, sponsors for AHP-assisted projects Commenters also questioned whether
including developmental and provided that the loan originations members could qualify as loan pool
operational feasibility requirements, through the purchase commitments sponsors under the rule, noting that if
may include previously incurred meet the requirements of the current members could not qualify, the
predevelopment costs in its uses of AHP regulation. However, prepayments proposed rule could give secondary
funds. of loans prior to the end of the retention market entities an unfair competitive
Three years after promulgation of the period required that AHP subsidy be advantage over members that are
new revolving loan fund authority, the returned to the Bank in accordance with engaged in originating loans for their
Finance Board intends to conduct a the retention agreements. One Bank portfolios or for sale. The Finance Board
program review of the use of the stated that it has received applications believes that members, like any other
authority to determine how the program for AHP subsidy from a loan pool entity, should be eligible to apply for
is working and to address any issues sponsor in its district, but was unsure AHP subsidy as loan pool sponsors if
that have arisen. how loan pool operations could meet they meet the definition of ‘‘loan pool’’
Use of AHP subsidy in loan pools: the AHP requirements, especially when sponsor and the project sponsor
§ 951.5(c)(14). General requirements: loans in the pool prepaid. The Finance qualifications requirement in the final
Consistent with the proposed rule, Board believes that loan pools can rule.
§ 951.5(c)(14) of the final rule specifies facilitate the origination of AHP- Eligibility requirements; forward
the conditions under which a Bank, in subsidized home purchase mortgage commitment: § 951.5(c)(14)(i), (ii)(A):
its discretion, may provide AHP loans, owner-occupied rehabilitation The final rule adopts a number of
subsidies under its competitive loans, and rental property loans for proposed provisions intended to ensure
application program for the origination eligible households. Consequently, that AHP subsidies disbursed through a
of first mortgage loans or rehabilitation consistent with the proposed rule, the loan pool sponsor actually benefit AHP-
loans with subsidized interest rates to final rule specifies the criteria that the eligible households. Specifically,
AHP-eligible households through a Finance Board has determined meet the § 951.5(c)(14)(i) provides that the loan
purchase commitment by an entity that requirements of the AHP, especially in pool’s use of the AHP subsidy must
will purchase and pool the loans. The the areas of retention, eligible uses, need meet the requirements of § 951.5(c)(14),
final rule also allows a loan pool for subsidy, pass through of the subsidy and shall not be used for the purpose of
sponsor to use repaid AHP subsidy to the ultimate borrower, and providing liquidity to the originator or
resulting from prepayments of a loan in substitution of prepaid loans. holder of the purchased loans, or paying
the pool for the origination of another Loan pool sponsor qualifications: the loan pool’s operating or secondary
AHP-assisted loan as substitution for the § 951.5(c)(10)(iii): As noted previously, market transaction costs. The loan pool
prepaid loan in the pool, rather than § 951.1 of the final rule specifically sponsor must purchase the loans
requiring the return of the AHP subsidy includes in the definition of ‘‘sponsor’’ pursuant to a forward commitment that
conforms to the approved AHP with terms in the approved AHP loan pool programs. As discussed above
application. Subsequent purchases of application and subject to AHP under Revolving Loan Funds, the
loans to substitute for repaid loans in retention agreements. Finance Board does not believe that it
the pool also must be made pursuant to Retention agreements and other is appropriate to set aside AHP funds for
the terms of the approved AHP requirements: § 951.5(c)(14)(iii): Section specific types of sponsors such as loan
application. The use of a forward 951.5(c)(14)(iii) of the final rule requires pool sponsors. The AHP is primarily a
commitment ensures that the loan that each AHP-assisted owner-occupied competitive program that funds projects
originators will originate the end loans unit and rental property receiving AHP based on their individual merits,
in accordance with the requirements of direct subsidy or a subsidized advance regardless of sponsorship.
the sponsor’s approved AHP application shall be subject to the requirements for The Finance Board requested
and the requirements of the AHP, such monitoring and remedial action for comment in the proposed rule on
that each end loan will have the noncompliance in the final rule, as well whether, in addition to loans for AHP-
prescribed interest rate and term and be as the requirement for an AHP 5-year or assisted owner-occupied units, rental
subject to a retention agreement and that 15-year retention agreement, housing loans should be eligible under
each household will meet the income- respectively. The proposed rule the AHP loan pool authority, and if so,
eligibility commitments in the approved inadvertently omitted the requirement what kinds of loans and activities,
AHP application. for such a retention agreement in the consistent with the AHP requirements,
The Finance Board requested case of loans financed with the proceeds should be eligible. Several commenters
comment in the proposed rule on of a subsidized advance. Consistent stated generally that rental housing
whether it is preferable to establish by with the proposed rule, loans should be eligible under the loan
regulation a time limit, to be specified § 951.9(a)(7)(ii)(A) of the final rule pool authority, with 1 commenter
in the forward commitment, within eliminates current § 951.13(c)(4)(i)(B), stating that this would help maximize
which a project sponsor would have to such that households receiving the Bank’s ability to meet housing needs
expend the full amount of the AHP permanent mortgage loans through the in its district. The Finance Board
subsidy and, if so, the duration of that use of a subsidized advance would not recognizes that there may not be a
time limit, or whether to allow a Bank have to repay any AHP subsidy in the sizable market at the current time for
to establish the time limit as part of its case of a refinancing of the owner- purchase and pooling of rental housing
AHP Implementation Plan, as proposed. occupied unit prior to the end of the loans. Nevertheless, the Finance Board
Several commenters stated that the Bank retention period. However, the final rule does not want to foreclose the potential
should have the discretion to establish continues to require such households to use of AHP subsidy for this purpose
the time limit, noting that different time have retention agreements in place, should such opportunities arise.
limits may be appropriate depending on because the retention agreement Accordingly, the final rule allows rental
the type, complexity, and specific contains the requirements for notice to housing loans to be eligible under the
funding needs of the loan pool, as well the Bank of any sale or refinancing of AHP loan pool authority.
as legal and regulatory factors that may the unit. Several commenters favored Out-of-district projects eligibility
affect the pool. The Finance Board not requiring a retention agreement for requirement: § 951.5(c)(15). Consistent
recognizes the need for some flexibility owner-occupied units assisted with with the proposed rule, § 951.5(c)(15) of
in this regard. The time limit should subsidized advances, and recommended the final rule removes the existing
reflect the loan pool sponsor’s market that a retention agreement also not be provision that allows a Bank, in its
volume, considering the size and required where owner-occupied units discretion, to require as an eligibility
capacity of the network of originators are assisted with direct subsidies. The requirement that a project receiving
that the loan pool sponsor uses to Finance Board believes that households AHP subsidy must be located in the
produce the AHP-assisted loans. funded with AHP-assisted mortgage Bank’s district. See 12 CFR
However, the Finance Board believes loans and rehabilitation loans whose 951.5(b)(10)(i)(B). In addition, proposed
that the time period should be no longer origination was funded by a loan pool § 951.5(c)(17) would have prohibited a
than 1 year because the use of the sponsor should be subject to the same Bank from establishing an eligibility
subsidy is interest-rate sensitive. requirements as households receiving requirement that a project receiving
Accordingly, the final rule allows a AHP-assisted loans or direct subsidies AHP subsidy must be located in the
Bank to determine the time limit, to be from other sponsors. Bank’s district. This provision is
specified in the forward commitment, Use of AHP subsidy as interest-rate unnecessary and is omitted from the
for use of the AHP subsidy, provided buy down: § 951.5(c)(14)(iv): Section final rule, as a Bank in any case may not
that such limit may not exceed 1 year 951.5(c)(14)(iv) of the final rule provides adopt additional eligibility requirements
from the date of approval of the AHP that where AHP direct subsidy is being not specifically authorized under the
application. used to buy down the interest rate of a AHP regulation. See the further
Section 951.5(c)(14)(ii)(B) of the final loan or loans from a member or other discussion of the out-of-district projects
rule provides that, as an alternative to lender, the loan pool sponsor must use issue below, under AHP Projects
using a forward commitment, a loan the full amount of the AHP direct Outside the District.
pool sponsor may purchase an initial subsidy to buy down the interest rate at Removal of discretionary minimum
round of loans that were not originated the time of closing on such loan or loans Bank credit product usage requirement.
pursuant to an AHP-specific forward to achieve the permanent below-market Consistent with the proposed rule, the
commitment, provided that the entities interest rate on the loan as specified in final rule removes the existing provision
from which the loans were purchased the approved AHP application. that authorizes a Bank, in its discretion,
are required to use the proceeds from Other issues: A number of to require its members to have used a
these purchases within the time limits commenters recommended that the minimum amount of the Bank’s other
specified in the Bank’s AHP Banks be allowed to fund loan pools as credit products within the previous 12
Implementation Plan, which shall not a separate set-aside, rather than under months as a condition to applying for
exceed 1 year from the date of approval the competitive application program, additional amounts of AHP subsidy. See
of the AHP application. The proceeds and that the Banks be allowed to 12 CFR 951.5(b)(10)(i)(C). A number of
must be used by such entities for loans establish the governing policies for their commenters opposed elimination of this
discretionary authority, stating that application program, nor was such a purchase, construction, or rehabilitation
members who use a Bank’s credit proposal noticed for comment in the of housing, as required by the Bank Act.
products contribute to the Bank’s proposed rule. Nevertheless, the Banks, A number of other commenters opposed
earnings, thereby generating more funds in their discretion, may require elimination of the authority, citing
for the AHP, and a credit product usage homebuyer or homeownership potential adverse consequences for
requirement can be an incentive to counseling, such as counseling for first- ongoing project retention and
encourage borrowing by members. The time homebuyers. affordability. A Bank stated that when a
Finance Board believes that AHP Several commenters also suggested project is in financial distress and
funding should be provided, without that the Finance Board set minimum cannot maintain the AHP debt service,
restriction, to projects that score highest standards for homeownership sale of the project or injection of
under a Bank’s competitive application counseling. The Finance Board believes additional equity or grant funds and
scoring criteria without regard to a that the Banks have better knowledge of subsequent repayment of the
member’s Bank credit product usage. what counseling is available in their outstanding AHP subsidized advance
Accordingly, the final rule eliminates districts and, under the final rule, the may be its only recourse, with
the authority. Banks have the discretion to set prepayment of the AHP subsidy
Discretionary homebuyer or minimum counseling requirements. The allowing the project to be feasible
homeowner counseling requirement: Finance Board does not believe that it provided it agrees to continue to meet
§ 951.5(c)(15)(ii). Section 951.5(c)(15)(ii) is appropriate to set national the AHP requirements. The Bank
of the final rule adopts the proposed requirements in the rule that may create asserted that such use of the AHP
provision authorizing a Bank, in its challenges in delivery for some local subsidy constitutes use of the subsidy
discretion, to require homebuyer or jurisdictions. for purchase, construction, or
homeowner counseling as an eligibility Several commenters also rehabilitation, as required by the Bank
requirement for owner-occupied recommended that the Finance Board Act. Other commenters stated that the
projects under the competitive permit the use of AHP funds for proposal appears to place members
application program. Under such a counseling even when the counseled using AHP subsidized advances at a
requirement, a Bank could limit AHP household does not purchase an AHP- disadvantage over members using direct
subsidies to owner-occupied projects assisted unit. The Finance Board subsidies, by placing a greater burden
that provide this resource for low- or believes that allowing this would not be on members that would likely pass
moderate-income households. Such consistent with the statutory some or all of the burden on to
counseling, particularly for first-time requirement that AHP funds be used for homeowners, project owners, and
homebuyers, can contribute to the purchase, construction, or sponsors, thereby having a potentially
successful long-term homeownership, rehabilitation of eligible housing. See 12 chilling effect on member participation
which the Finance Board has recognized U.S.C. 1430(j)(2).
in the AHP. A Bank stated that the
in supporting such counseling for low- Prohibited use of AHP subsidy:
proposal would limit members’ use of
or moderate-income households prepayment fees: § 951.5(c)(16)(i).
Section 951.5(c)(16)(i) of the final rule AHP subsidized advances because of the
receiving home purchase assistance increased exposure to prepayment fees,
under the AHP homeownership set- revises the current provision by
allowing a project to use AHP subsidy and noted that subsidized advances
aside program. See 12 CFR provide long-term benefits to members
951.5(a)(2)(ii); see also discussion of to pay prepayment fees imposed by a
Bank on a member if the member and projects. The commenters also
counseling below under
prepays a subsidized advance, provided stated that prepayment fees are a
Homeownership Set-Aside Program.
that: (i) The project is in financial customary part of financing costs for the
A number of commenters supported
allowing the Banks to require distress that cannot be remedied purchase, construction, or rehabilitation
homeownership counseling as an through a project modification pursuant of housing and, therefore, should be
eligibility requirement for to § 951.5(f); (ii) the prepayment of the allowed as an eligible use of AHP
homeownership projects under the subsidized advance is necessary to subsidy.
competitive application program, with retain the project’s affordability and Based on the comments, the Finance
some commenters stating that the income targeting commitments; (iii) Board believes that in the limited
Finance Board should go further by subsequent to such prepayment, the circumstances where a project is in
making homeownership counseling project will continue to comply with the financial distress that cannot be
mandatory under the competitive terms of the approved AHP application remedied through a project modification
application program. However, several and the requirements of the AHP pursuant to § 951.5(f), and prepayment
commenters pointed out that there are regulation for the duration of the of the AHP subsidized advance is
situations, such as rehabilitation of original retention period; (iv) any necessary to retain the project’s
currently owner-occupied units or unused AHP subsidy is returned to the affordability and income targeting
homeownership for households that are Bank and made available for other AHP commitments, the AHP subsidy should
not first-time homebuyers, such as projects; and (v) the amount of AHP be able to be used to pay the
disaster victims, in which it is subsidy used for the prepayment fee prepayment fee. Subsequent to
unnecessary or impractical to require may not exceed the amount of the prepayment, the project would have to
counseling. It is for this reason that the member’s prepayment fee to the Bank. continue to comply with the terms of
Finance Board also proposed to make The existing provision does not include the approved AHP application and the
the currently mandatory counseling the restrictions in (i), (ii), and (v) above. requirements of the AHP regulation for
requirement under the homeownership See 12 CFR 951.5(b)(4)(i). The proposed the duration of the original retention
set-aside program discretionary for rule would have prohibited AHP period, and any unused AHP subsidy
households that are not first-time subsidy from being used for prepayment would have to be returned to the Bank
homebuyers (see § 951.6(c)(2)(iii)). The fees under all circumstances. and made available for other AHP
Finance Board does not believe that it One commenter supported projects. In addition, the amount of AHP
is appropriate to mandate counseling for elimination of the authority, stating that subsidy used for the prepayment fee
all projects under the competitive AHP subsidy should be used only for may not exceed the amount of the
member’s prepayment fee to the Bank. the project intends to exceed such AHP projects outside the district:
Accordingly, the final rule allows AHP targeting commitments in practice. No §§ 951.5(d)(5)(vi)(L), 951.5(d)(5)(vii).
subsidy to be used for prepayment fees comments addressed elimination of this Consistent with the proposed rule, the
under these limited circumstances. scoring provision. final rule rescinds the Bank’s existing
Changes to the scoring system: discretionary authority to prohibit
Owner-occupied project income-
§ 951.5(d). Section 951.5(d)(1) and (2) of applications to fund projects located
targeting scoring: § 951.5(d)(5)(iii)(B):
the final rule retains the current outside a Bank’s district. However, in
Section 951.5(d)(5)(iii)(B) of the final
provisions that require each Bank to contrast to the proposed rule, the final
rule adopts the proposed language
adopt written scoring guidelines for its rule retains, at § 951.5(d)(5)(vi)(L), the
clarifying regulatory practice relating to
competitive application program, and to Bank’s current discretionary authority to
the scoring criterion for income
allocate 100 points among 9 scoring give a scoring preference under the First
criteria. See 12 CFR 951.6(b)(4). The targeting in owner-occupied projects.
The provision clarifies that a Bank may District Priority to applications to fund
proposal would not have made any projects located in the Bank’s district. In
substantive changes to those criteria, determine in its AHP Implementation
Plan how to award scoring points on a addition, under § 951.5(d)(5)(vii) of the
except for those relating to disaster areas final rule, a Bank continues to have the
and out-of-district projects, but declining scale, taking into
consideration the percentages of units discretion to adopt a Second District
proposed a number of technical Priority for in-district projects.
revisions to the current rules and and targeted income levels. One
commenter supported the change. Under the current regulation, a Bank,
codification of certain staff in its discretion, may deny
interpretations. Disaster areas and displaced consideration of applications to the
Variable-point scoring: households scoring criterion: AHP competitive application program
§ 951.5(d)(3)(ii): Section 951.5(d)(3)(ii) § 951.5(d)(5)(vi)(E). Section from members proposing to fund
of the final rule adopts the proposal to 951.5(d)(5)(vi)(E) of the final rule adopts projects located outside a Bank’s
retain the provisions relating to fixed- the proposed language permitting a district. See 12 CFR 951.5(b)(10)(i)(B).
point and variable-point scoring criteria, Bank to award scoring points for Another provision of the current
but makes technical changes to the applications that would finance housing regulation permits a Bank to give
latter, the effect of which is to codify a located in a federally declared disaster scoring point preference to applications
current staff interpretation that allows a area, as well as for applications that proposing to finance housing located
Bank to implement variable-point would finance housing for low-or within the Bank’s district. See 12 CFR
scoring criteria either through a fixed moderate-income households that have 951.6(b)(4)(iv)(F)(12). The proposed rule
scale or on a scale relative to the other been displaced from a federally declared would have eliminated both provisions.
applications that are to be scored in the disaster area due to a disaster,
same funding round. See 12 CFR In addition, proposed § 951.5(d)(5)(vii)
irrespective of the household’s current would have prohibited a Bank from
951.6(b)(4)(iii). Several commenters residential location. The current
supported the proposal, with 1 adopting as its Second District Priority
regulatory provision on disaster area a scoring preference for projects located
commenter stating that the flexibility scoring permits the Banks to award
ensures that a Bank can meet effectively in the Bank’s district. See 12 CFR
scoring points only to the financing of 951.6(b)(4)(iv)(G).
the housing needs in its district. housing located in federally declared
Removal of optional income-targeting The Bank Act does not set up the AHP
disaster areas. See 12 CFR
scoring provision for projects receiving as a geographically targeted program.
951.6(b)(4)(iv)(F)(5). Because disasters
government funds or tax credits: Rather, it requires each Bank to
may displace families from their homes,
§ 951.5(d)(5)(iii)(A): Consistent with the establish a program to provide
as in the case of Hurricane Katrina in
proposed rule, § 951.5(d)(5)(iii)(A) of the subsidized funding to its members. See
2005, the Finance Board believes that
final rule removes a provision of the 12 U.S.C. 1430(j)(1). The existing
this scoring criterion should be
existing regulation that allows a Bank, discretionary authority to prohibit
expanded to address such situations. A
in its discretion, to score rental projects applications for out-of-district projects
number of commenters supported the
according to the targeting commitments was adopted at a time when all Bank
change, stating that it would be
made by the project to a government or members generally conducted business
consistent with other federal initiatives.
tax credit allocating entity that provides only within the boundaries of a state
One Bank recommended that the
funds or tax credits, respectively, to the within the Bank’s district. As a result of
Finance Board eliminate income-
project. See 12 CFR 951.6(b)(4)(iv)(C)(1). interstate branching, however, many
eligibility requirements for displaced
That provision is no longer necessary members now do business in
households, or codify in the regulation
because of the changes to the rule, communities outside their Bank district.
its No-Action Letter 2005–NAL–01
located at § 951.7(a)(2) and (a)(3), The authority to restrict AHP projects to
(Sept. 9, 2005),5 which temporarily
discussed further below, that allow a the Bank’s district, if exercised, would
suspended income-eligibility
Bank, in its discretion, to rely for AHP limit a member’s ability to support
requirements for existing AHP rental
long-term monitoring purposes on otherwise eligible AHP projects in
projects that provide vacant units for
monitoring by government or tax credit certain of the communities that it serves
households displaced by Hurricane
monitoring entities, and the new risk- solely because those communities are
Katrina. However, the AHP income-
based monitoring authority that will located outside the Bank’s district
eligibility limits are required by the
enable a Bank to adopt risk-based boundaries. This restriction also could
Bank Act, and suspension of these
monitoring requirements for such disadvantage communities served by
limits only should be done on a case-by-
projects even if the projects’ targeting financial institutions that move their
case basis in extraordinary

commitments differ from those of the headquarters to a state located in a
circumstances.
government or tax credit allocating different Bank district. The Finance
entity. This does not preclude a project 5 2005–NAL–01 is available in the FOIA Reading
Board believes that a Bank should not
from using the targeting commitments of Room on the Finance Board Web site at http://
prohibit applications for AHP projects
another housing program when www.fhfb.gov/Default.aspx?Page=59& simply because the projects are located
applying for AHP subsidy, even when ListYear=2005&ListCategory=7#72005. outside the Bank’s district, so long as
they are in communities in which a Banks to provide some scoring points does not do so within such period, the
member does business. for in-district projects for at least a Bank must cancel its approval of the
In addition, the existing authority in portion of their AHP funds, to ensure application. See 12 CFR 951.8(c)(1). The
the current AHP regulation has not been that those members that do not operate rigidity of this requirement sometimes
extensively invoked by the Banks. In out-of-district have access to some share has impaired the ability of the Banks to
2004, only 1 Bank prohibited the use of of AHP funds. determine whether the delays are
AHP funds for out-of-district projects, The Finance Board continues to significant enough to affect a particular
and only 2 Banks elected to give scoring believe that the Banks should not be project’s ability to draw down and use
preference to in-district projects. Nor authorized to prohibit applications for the subsidy. While the Banks have
has there been a significant outflow of AHP funding for out-of-district projects, extended the time period for certain
AHP funds as a result of member because the AHP should be available to projects in an effort to take into account
financing of projects outside the district. all members and each Bank has such delays, the current cancellation
Of over 10,000 AHP projects funded members with branches located outside requirement limits a Bank’s ability to
since the beginning of the program in the district boundaries. However, the manage this process.
1990, approximately 300 projects, or 3.0 Finance Board is persuaded by the The final rule gives the Banks greater
percent, have been located outside a comments that there is merit in capacity to manage this process by
Bank’s district. retaining the current discretionary requiring them to adopt policies that
A number of commenters supported authority for the Banks to give scoring address how they will make such
elimination of the 2 provisions, stating preference to in-district projects. determinations. Several commenters
that the proposal recognized the Consequently, the final rule eliminates supported the change as providing
changing nature of member operations the existing discretionary authority to increased flexibility.
resulting from interstate mergers and prohibit out-of-district projects, but Compliance upon disbursement:
acquisitions, and would allow members retains the existing discretionary scoring § 951.5(g)(3). Section 951.5(g)(3) of the
to obtain the benefits of the AHP for criterion for in-district projects under final rule adopts the proposed
their entire market areas. Some the First District Priority. The final rule requirement that a Bank establish and
commenters pointed out that the also retains the existing language in the implement policies for determining,
proposal would enable developers and Second District Priority, thereby prior to initial disbursement of AHP
communities to continue established allowing a Bank, in its discretion, to subsidy, and prior to each subsequent
relationships with financial institutions adopt a scoring preference for in-district disbursement if the need for AHP
even when mergers and acquisitions projects under that scoring category. subsidy has changed, that the project
result in a change in the Bank district However, the Finance Board intends meets the applicable eligibility
of which the institution is a member. that a Bank should not use the scoring requirements and all obligations
Other commenters opposed elimination criteria as a way to exclude out-of- committed to in the approved AHP
of the 2 provisions, citing a number of district projects from the competitive application. The final rule also states
reasons, including increased monitoring application program. that if a Bank cancels any AHP
costs, less familiarity with out-of-district Modifications of approved AHP application approvals due to failure to
projects and their market areas, and the applications: § 951.5(f). Section 951.5(f) meet the eligibility requirements, the
concern that large, multiregional of the final rule adopts the proposed Bank shall make the AHP subsidies
members would have access to more codification of current practice by available for other AHP-eligible projects.
projects outside of the district that could adding a requirement that a Bank must The Bank’s requirements must be
compete for funds more effectively than document in writing its analysis and included in its AHP Implementation
projects in the district, putting local, justification for any modification of a Plan.
state-chartered members at a previously approved project. See 12 Under the current regulation, a Bank
disadvantage. Several Banks stated that CFR 951.7(a). One commenter must verify compliance with eligibility
their Advisory Councils and members supported the proposed language. requirements and application
preferred to keep the district’s resources Progress towards use of AHP commitments prior to each
within the district where they can help subsidies: § 951.5(g)(2). Section disbursement of AHP subsidy. See 12
meet local needs, especially when other 951.5(g)(2) of the final rule requires each CFR 951.8(c)(2). The requirement to
resources for affordable housing may be Bank to establish and implement repeatedly verify project compliance
less available to local projects. policies, including time limits, for during every stage of the disbursement
The remaining commenters on the determining whether progress is being process may be more than is necessary
proposal stated that they would not made towards draw-down and use of to ensure compliance with the rules,
object to requiring the Banks to permit AHP subsidies by approved projects, and effectively precludes a Bank from
applications for out-of-district projects, and whether to cancel an AHP using its best judgment to determine
provided the regulation retained the application approval for lack of such whether the circumstances of a
current discretionary scoring preference progress. Progress requirements must be particular AHP project warrant repeated
for in-district projects under the First included in the Bank’s AHP verification of compliance with the
District Priority. These commenters Implementation Plan. rules. The change gives the Banks
stated that this discretionary scoring Affordable housing projects often may greater latitude in determining when it
priority preserves a geographic balance encounter delays due to changes in is appropriate to verify compliance prior
by spreading projects across and among funding, legal requirements, community to disbursing AHP funds. Several
the different Bank districts, and challenges, or other events. These commenters supported the change as
eliminating the priority may eventually delays may affect the ability of a project providing additional Bank discretion to
divert projects from districts with fewer to progress towards its scheduled draw- establish appropriate compliance
or smaller members to districts with down and use of the AHP subsidy. The procedures.
large, multibillion dollar members. A current regulation requires a Bank to Bank board of directors duties and
trade association representing local specify a time period in its AHP delegation: § 951.5(h). The final rule
member institutions encouraged the Implementation Plan for the draw-down consolidates provisions of the current
Finance Board to continue to permit the and use of the AHP subsidy. If a project and proposed rules addressing the Bank
board of directors’’ various duties ‘‘low- or moderate-income household’’); enroll with a member, even though the
regarding establishment and 951.5(a)(2)(i). Such an interpretation has household may not meet the
implementation of the competitive posed problems for certain households requirements of the Bank’s
application program requirements in participating in empowerment homeownership set-aside program for a
one section, § 951.5(h). Specifically, programs, such as multi-year job number of years because the household
§ 951.5(h)(1) states that a Bank’s board, training or savings or welfare-to-work is participating in an empowerment
after consultation with its Advisory programs, that are designed to assist program. The Finance Board believes
Council, shall be responsible for very low- and low- or moderate-income the individual Bank should establish the
adoption of the AHP Implementation households accumulate assets over a policies for enrollment of households by
Plan, and for approving or disapproving number of years, including households members in the Bank’s homeownership
the applications for AHP subsidy. that might not otherwise qualify for a set-aside program. Accordingly, the
Section 951.5(h)(2) reiterates that the mortgage loan. The problem has been final rule provides that income
Bank’s board may not delegate these that by the time the household eligibility is to be determined as of the
responsibilities to Bank officers or other completes such a program and can date the household is enrolled by the
Bank employees. No comments qualify for a mortgage loan, the member in the Bank’s homeownership
addressed these changes. household may no longer qualify as set-aside program, with the time of
low- or moderate-income as required enrollment by the member defined by
F. Homeownership Set-Aside Program:
under the AHP homeownership set- the Bank in its AHP Implementation
§ 951.6
aside program. Plan.
The final rule adopts the proposed In response to the concern that Reservation of set-aside subsidies:
reorganization of the existing regulation, participants in empowerment programs § 951.6(e)(2): In the past, the Finance
generally by combining various be able to depend on receipt of Board generally has considered a
homeownership set-aside program anticipated closing cost or down household to be enrolled in the AHP
provisions into one section, located at payment assistance when they are ready homeownership set-aside program at the
§ 951.6. A number of commenters to purchase a home, such as offered by time the member or the Bank reserves
supported these technical changes, homeownership set-aside funding, the set-aside funds for the household so
stating that they would be helpful for § 951.6(c)(2) of the proposed rule would that the funds will be available when
the Banks, members, and sponsors in have provided that the household’s the household closes on its home
understanding the different income eligibility be determined at the purchase. While such a process might
requirements of the competitive time the household is enrolled by the ensure that the set-aside funds will be
application and homeownership set- member and the Bank in the available when all program
aside programs. homeownership set-aside program. This requirements have been met for
Removal of optional nonmember was intended to clarify that once a households participating in job-training
applicants provision: § 951.6(b). household is enrolled in an or other empowerment programs, such a
Consistent with the proposed rule, empowerment program, the household’s process could result in many years
§ 951.6(b) of the final rule eliminates the income eligibility for the elapsing between the time of enrollment
existing provision permitting a Bank, in homeownership set-aside program is of the households in the
its discretion, to accept applications for assured. This clarification was intended homeownership set-aside program and
homeownership set-aside program to be consistent with the belief that such the disbursement of the set-aside funds
subsidies from an institution that is not assurance is important to achieving the to that household. Such a delay is
a member of the Bank, but which has purpose of such programs to prepare inconsistent with the intent of
pending an application for membership. households for homeownership. § 951.6(e)(3), which requires progress to
See 12 CFR 951.6(a). Thus, an applicant This provision in the proposed rule, be made towards draw-down and use of
would have to be a member of the Bank however, caused some confusion among the AHP direct subsidies by eligible
at the time that it submits an AHP commenters, because the process of households pursuant to the
application. The rationale for this ‘‘enrollment’’ was not described in the requirements in the Bank’s policies.
revision was discussed above in rule. Several commenters pointed out The homeownership set-aside
connection with a similar amendment that under some existing Bank program requires careful administration
for the competitive application program. homeownership set-aside programs, by a Bank and the participating member
Timing of household income- members and Banks enroll households and should be subject to reasonable
eligibility determination; reservation of at different times; e.g., a member may Bank policies on the reservation and
set-aside funds; qualification of enroll a household for participation in timely use of AHP subsidy. In those
students: § 951.6(c)(2)(i), (e)(2). Timing the homeownership set-aside program at cases in which members enroll
of household enrollment: the member level, but not notify the households that may take a number of
§ 951.6(c)(2)(i): Section 951.6(c)(2)(i) of Bank of the household’s participation years to complete the program
the final rule provides that a until the household has met the requirements, the Bank should not
household’s income eligibility is to be requirements of the Bank’s reserve funds for these households at
determined at the time the member homeownership set-aside program, such the time of enrollment by the member
enrolls the household in the Bank’s as saving for a specified period or in the homeownership set-aside
homeownership set-aside program, with receiving homeownership counseling. program, but should anticipate the
the time of enrollment by the member This process recognizes that any timing of disbursement and manage
to be defined by the Bank in its AHP number of households enrolled by the future set-aside allocations based on
Implementation Plan. The existing member will not complete the program that. The Finance Board believes that, in
regulation has been interpreted by some before completing program managing future set-aside allocations, it
Banks as requiring that the household’s requirements, and minimizes the would be reasonable for a Bank to
income qualification for purposes of the administrative requirements of reserve set-aside funds up to 2 years in
AHP be determined at the time that the processing them at the Bank level. advance of the Bank’s time limit for the
household is qualified for a mortgage The Finance Board wants to ensure draw-down and use of the funds by the
loan. See 12 CFR 951.1 (definition of that a Bank may allow a household to household. The Bank should reserve
such funds from the set-aside allocation the proposed rule, believing that it was matter, not all households will require
of the year in which the Bank makes the intended to address households already such counseling. Moreover, there are
reservation. For example, a household in the workforce with low- or moderate- some areas of the country in which
enrolling with a member at the same incomes that a Bank would have to counseling may not be readily available,
time it enrolls in the Family Self determine were ‘‘temporary.’’ Rather, and the quality of the counseling also
Sufficiency (FSS) Program has 5 years in this principle refers to a potential may vary. Accordingly, the proposed
which to complete the requirements of misuse of AHP funds available through rule would have made counseling for all
the FSS. In this case, a member may the homeownership set-aside program, households receiving set-aside funds
enroll a household in 2006, but the in which member institutions qualify under the homeownership set-aside
Bank should not reserve 2006 set-aside students as income-eligible based on program an optional requirement for the
funds for the household. Rather, the part-time or no income, but who have a Bank.
Bank should anticipate funding that reasonable expectation or knowledge A number of commenters concurred
household from a future year’s set-aside that, upon graduation, the student will with the Finance Board that it is
allocation, with such future reservation have income substantially above the unnecessary or impractical to require
of funds being no more than 2 years AHP income limit. For example, a counseling for households that are not
prior to the expected disbursement to member should not qualify a full-time first-time homebuyers. Other
the household. In this case, the Bank law school student with little or no commenters generally opposed the
could reserve funds from its 2009 set- income, knowing that the student proposal, emphasizing that
aside allocation for a household that has already has secured a position with a homeownership counseling is critical to
until 2011 to complete its FSS law firm upon graduation that will pay a household’s short-term and long-term
requirements and purchase its home. It considerably more than the AHP income success in avoiding foreclosure. While
is expected that the Bank will work with limit of 80 percent of the area median the Finance Board continues to believe
members that enroll such households in income. This principle is not intended that it is not appropriate to mandate
order to determine whether households to apply to households participating in homebuyer or homeowner counseling
are likely to meet the FSS requirements empowerment programs, such as multi- for all households under the
in fewer than 5 years and to manage the year job training or savings or welfare- homeownership set-aside program, the
reservation of funds to accommodate to-work programs, that are designed to Finance Board concurs with
such households. This provision will assist very low- and low- or moderate- commenters that counseling is
not affect the operations of the current income households accumulate assets important for first-time homebuyers.
homeownership set-aside programs of over a number of years. Accordingly, § 951.6(c)(2)(ii) of the final
most of the Banks, which already Homebuyer or homeowner rule retains the existing requirement
require a household to draw down the counseling: § 951.6(c)(2)(ii), (c)(2)(iii). that first-time homebuyers must
AHP subsidy within 24 months or less Section 951.6(c)(2)(ii) of the final rule complete a homebuyer or homeowner
of enrollment in their homeownership retains the existing requirement that counseling program in order to be
set-aside programs. first-time homebuyers must complete a eligible for homeownership set-aside
Accordingly, § 951.6(e)(2) of the final homebuyer or homeowner counseling assistance, but § 951.6(c)(2)(iii) allows a
rule provides that a Bank must establish program in order to be eligible for Bank to determine, in its discretion,
and implement policies for reservation homeownership set-aside assistance, but whether to require households that are
of set-aside subsidies for households § 951.6(c)(2)(iii) revises the existing not first-time homebuyers to complete a
enrolled in the Bank’s homeownership requirement by authorizing a Bank to homebuyer or homeowner counseling
set-aside program. These must provide decide, in its discretion, whether to program in order to be eligible for
that set-aside subsidies be reserved no require households that are not first- homeownership set-aside assistance.
more than 2 years in advance of the time homebuyers to complete a Financial or other concessions:
Bank’s time limit in its AHP homebuyer or homeowner counseling § 951.6(c)(6). Bank discretionary
Implementation Plan for draw-down program in order to be eligible for authority: Section 951.6(c)(6) of the final
and use of the funds by the households homeownership set-aside assistance. rule provides that a Bank may, in its
and the reservation of subsidies be made Under the existing regulation, all discretion, require members and other
from the set-aside allocation of the year households receiving AHP lenders to provide financial or other
in which the Bank makes the homeownership set-aside funds must concessions, as defined by the Bank in
reservation. complete a homeowner or homebuyer its AHP Implementation Plan, to
Qualification of students: It is the counseling program. See 12 CFR households in connection with
Finance Board’s expectation that Bank 951.5(a)(2)(ii). At its inception, the providing the AHP direct subsidy or
policies for the homeownership set- homeownership set-aside program was a financing to the household.
aside program will be designed to assist home-purchase program for first-time Under existing § 951.5(a)(6), a
AHP income-eligible households who, homebuyers only. As a result, the member that provides mortgage
but for receipt of the AHP subsidy, Finance Board required each assisted financing to a participating household
would not be able to afford to purchase household to obtain homebuyer under the homeownership set-aside
or rehabilitate a home. This would counseling in order to obtain AHP program also must provide financial or
preclude qualification of students with assistance. The Finance Board later other incentives to that household in
part-time or no income while in school amended the homeownership set-aside connection with the mortgage financing.
who ordinarily would have a reasonable authority to permit the Banks to use See 12 CFR 951.5(a)(6). The existing
prospect for a substantial increase in homeownership set-aside funds to requirement may place small members,
income exceeding the AHP income- finance housing other than for first-time such as those located in rural areas, at
eligibility limit upon entering the homebuyers, such as rehabilitation of a disadvantage compared with larger
workforce full-time. already owner-occupied units or members, which may have more
Several commenters appeared to homeownership for disaster victims, financial and market resources, and may
misunderstand the manner in which and required that each assisted place a number of members at a
this principle was expressed in the household obtain homebuyer or disadvantage compared with
SUPPLEMENTARY INFORMATION section of homeowner counseling. As a practical nonmember lenders, which do not have
to provide any financial or other that the concessions are to be provided members. Several commenters stated
concessions to the borrowing by the members to the households, not generally that requiring nonmembers, as
household. The Finance Board by the Bank to the members. well as members, to provide financial or
requested comment in the proposed rule In reviewing the comments, the other concessions would level the
on whether the authority to require Finance Board concluded that the word playing field. Other commenters
member financial or other concessions ‘‘incentives’’ used in the proposed rule objected to putting members in the
to households should be mandatory or in connection with the member position of having to monitor
discretionary for the Banks. Most requirements created confusion, because nonmembers and their concessions for
commenters addressing this issue these are not intended to encourage adherence to Bank guidelines, which
preferred that the Banks have households to use the homeownership they stated could discourage members
discretionary authority, stating that a set-aside program. Access to AHP down from participating in the AHP, and
mandatory requirement could place payment and closing cost assistance is raises issues regarding how to enforce
smaller, community, and rural members the incentive for household such requirements again nonmembers.
at a disadvantage vis-à-vis larger participation in the program. The term The Finance Board believes that
members with the resources to provide ‘‘concessions’’ more accurately households would benefit from
concessions and with nonmembers that describes the types of reduced costs or additional opportunities to receive
do not have to provide concessions to fee waivers provided by the member in financial or other concessions from
the household. The Finance Board order to meet the requirements of this nonmember lenders, and that the Banks
agrees that a mandatory requirement provision. Accordingly, the final rule are in the best position to determine
could disadvantage smaller, community, uses the word ‘‘concessions’’ rather than whether such a requirement would be
and rural members, and that each Bank the word ‘‘incentives.’’ appropriate in their respective districts.
is in the best position to determine The proposed rule also would have Accordingly, the final rule provides the
whether such a requirement is removed the existing requirement that a Banks with discretionary authority to
appropriate for the members in its member provide financial or other require lenders other than members to
district. Accordingly, in contrast to the concessions if it is providing mortgage provide financial or other concessions
proposed rule, the final rule makes the financing to a participating household. in conjunction with their lending to
authority to require member financial or This proposal was intended to level the households receiving AHP assistance
other concessions discretionary for the playing field among members offering under the homeownership set-aside
Banks. homeownership set-aside assistance, program.
Bank establishment of concessions: and to help avoid situations in which Bank discretionary authority to
The current regulation does not the member might require the establish member preferences. In
prescribe or define the types of financial household to obtain a mortgage loan addition, the Finance Board requested
or other concessions the member must from another lender in order to avoid comment in the proposed rule on
provide, leaving it to the member’s having to provide financial or other whether the Banks should have to
discretion to determine what kind of concessions to the household. The establish preferences for member
concessions meet the requirement. proposal also was intended to provide priority access to homeownership set-
Under the proposed rule, each Bank, the homebuyers additional aside funds, such as a preference for a
rather than the member, would establish opportunities to benefit from financial member working in partnership with a
the specific types of financial incentives concessions, whether or not they are not-for-profit sponsor assisting first-time
or other assistance that the member getting their mortgage loans from the homebuyers to qualify for a mortgage
would have to provide in order to meet member. As discussed above, loan. One commenter supported
the requirement for providing financial commenters generally supported requiring the Banks to give priority to
or other concessions to the households. allowing Bank discretion in the members that provide financial
The Finance Board requested comment establishment of member financial or assistance to not-for-profit sponsors for
in the proposed rule on whether the other concessions. The Finance Board program development, especially for
regulation itself should specify believes that the Banks are in the best homeownership counseling assisting
particular financial or other concessions position to determine whether the first-time homebuyers, stating that not-
that a member must provide to existing requirement would be for-profit participation in
households, such as matching funds or appropriate in their respective districts. homeownership programs is key to
member-provided financing. Several Accordingly, consistent with the households’ long-term success in
commenters generally supported having proposed rule, the final rule does not keeping their homes. Another
the Bank establish the specific types of require a member providing mortgage commenter supported a preference for
eligible financial or other concessions financing to a participating household members working with not-for-profit
that the member must provide to the to also provide financial or other sponsors that have a long-term
homebuyers. Accordingly, consistent concessions to the household in commitment to the creation of
with the proposed rule, the final rule connection with the mortgage financing. affordable housing. The Finance Board
provides for the Bank to establish the Bank discretionary authority to believes that the Banks are in the best
specific types of financial or other require concessions from nonmembers: position to determine whether such
concessions that members must provide The Finance Board also requested preferences for members would be
to households. comment in the proposed rule on appropriate in their respective districts.
Some commenters also stated that the whether the regulation should require Accordingly, the final rule does not
wording of the proposal could be all originators of mortgage loans to require the Banks to establish particular
interpreted to mean that the Banks must households receiving homeownership preferences for members.
provide financial concessions to the set-aside funding to provide financial or Financing costs: § 951.6(c)(7).
members to participate in the other concessions in connection with Consistent with the proposed rule,
homeownership set-aside program. As their mortgage financing, irrespective of § 951.6(c)(7) of the final rule provides
discussed above, this was not the intent whether the originator is a member or that the rate of interest, points, fees, and
of the proposed language. The language nonmember. The proposed rule would any other charges for all loans made in
is reworded in the final rule to clarify have applied this requirement only to conjunction with the AHP direct
subsidy shall not exceed a reasonable The Finance Board’s Horizontal lender have to recalculate the mortgage
market rate of interest, points, fees and Review identified problems in the amount and terms and generate new
other charges for loans of similar operations of the homeownership set- consumer disclosures at closing. Rather,
maturity, terms, and risk. aside programs at some of the Banks. the additional AHP subsidy may be
Under the existing regulation, the Although those problems were limited applied as a credit to the outstanding
requirement applies only to situations to a few situations, the proposed rule principal following execution of the
in which the member provides the sought to address them by clearly note and thereby increase the
financing, but not if a third party does identifying ineligible uses of AHP set- household’s equity in the home. In this
so. See 12 CFR 951.5(a)(6). The existing aside funds. A number of commenters way, the additional AHP subsidy would
language has the potential to create supported the proposal, but pointed out decrease the amount of principal
opportunities for using AHP funds in that implementing the prohibition on outstanding on the original note without
conjunction with the origination of cash backs to households could pose an affecting the monthly payments and,
loans with interest rates, points, fees, unnecessary administrative burden if thereby, not creating an administrative
and other charges that exceed a the terms of the loan and the loan burden at closing. This does not
reasonable market rate, if the loans are documents would need to be changed at preclude the permanent lender from
originated by a nonmember. In order to closing. These commenters applying the additional AHP subsidy as
avoid that possibility, § 951.6(c)(7) of recommended that the final rule allow additional down payment and revising
the proposed rule would have revised a de minimis amount of cash back at the loan terms and consumer
the regulation to state that charges that closing to the household. The Finance disclosures accordingly, either prior to
are used directly or indirectly in Board believes that the comments have or at closing. The final rule also
conjunction with the AHP direct merit, and accordingly, the final rules provides that, in the alternative, the
subsidy must not exceed a reasonable provides for a de minimis amount of excess AHP subsidy may be applied as
market rate. That revision is consistent cash back of up to $250 per household, a credit toward the household’s monthly
with the statutory requirement that as determined by the Bank in its AHP payments on the mortgage loan.
Finance Board regulations must ‘‘ensure Implementation Plan. Procedure for funding: § 951.6(e).
that subsidies provided by Banks to Some commenters were concerned Reservation of homeownership set-aside
member institutions under this program that the proposal would prevent the use subsidies: § 951.6(e)(2). As discussed
are passed on to the ultimate borrower.’’ of any of the AHP subsidy to reimburse above under Reservation of Set-Aside
See 12 U.S.C. 1430(j)(9)(E). the household for closing costs paid Subsidies, § 951.6(e)(2) of the final rule
The majority of commenters on this outside of closing or for rehabilitation addresses requirements for Bank
issue supported extending application work that is part of the closing. The reservation of homeownership set-aside
of the provision to nonmembers, stating Finance Board has always allowed AHP subsidies for households enrolled in the
that this would help guard against the subsidy to be used to reimburse Bank’s homeownership set-aside
imposition of excessive financing costs households that have paid some out-of- program.
on low- or moderate-income households pocket closing costs prior to the actual Progress towards use of AHP direct
by a third-party lender. A Bank and its closing, and the final rule does not subsidy: § 951.6(e)(3): For reasons
Advisory Council opposed the proposal prevent that. However, the Finance similar to those discussed above under
on the basis that it would require Board does not believe that AHP the competitive application program,
members to regulate other lenders even subsidy should reimburse a household § 951.6(e)(3) of the final rule, consistent
though the members are not making the for any down payment, or earnest with the proposed rule, requires a Bank
loans. The Finance Board believes that money or deposit applied to the down to establish and implement policies,
any member that receives AHP subsidy payment, especially where the Bank including time limits, for determining
and passes it through to another lender awards AHP subsidy based on a match whether progress is being made towards
has a responsibility to assure that the of the household’s own down payment draw-down and use of homeownership
lender is not imposing excessive savings. The prohibition on cash back to set-aside funds by eligible households,
financing costs on the household the household does not apply to cash and whether to cancel AHP application
receiving the AHP subsidy. Under that is being placed in escrow or paid approvals for lack of such progress. See
§ 951.8(b)(1) of the final rule, the to a third party for purposes of planned 12 CFR 951.8(b)(1). The Bank’s
member would be liable to the Bank for rehabilitation of the property after requirements adopted pursuant to this
repayment of the amount of any closing, for example, as would be paragraph (e)(3) shall be included in its
excessive financing costs imposed by reflected on a HUD–1A closing AHP Implementation Plan. One Bank
the lender if imposition of these costs statement. However, a Bank could not expressed concern that this proposal
resulted from the member’s actions or provide AHP subsidy directly to the could require the Bank to track
omissions. household for improvements that are homebuyers’ progress toward closing on
Cash back to household: § 951.6(c)(9). not part of the home purchase. a home between the time of the
Section 951.6(c)(9) of the final rule Some commenters also were household’s enrollment and the end of
provides that a member may provide concerned that requiring excess AHP the time period for draw-down and use
cash back to a household at closing on subsidy to be used to reduce the loan of the subsidy, and that doing so would
the mortgage loan in an amount not principal would result in an create unnecessary administrative costs
exceeding $250, as determined by the administrative burden at closing of reporting each homebuyer’s status.
Bank in its AHP Implementation Plan, because loan documents including the The Finance Board’s intent in proposing
and a member must use any AHP note and lender’s check, and other the change was not to require tracking
subsidy exceeding such amount that is required consumer disclosures, would of a household’s progress in meeting the
beyond what is needed at closing for have been prepared prior to closing. In requirements of the homeownership set-
closing costs and the approved mortgage requiring that any amount of AHP aside program during the period prior to
amount as a credit to reduce the subsidy in excess of what is needed at the end of the Bank’s time limit
principal of the mortgage loan or as a closing be applied as a credit to reduce specified in its AHP Implementation
credit toward the household’s monthly the principal of the mortgage loan, the Plan, but to allow the Banks greater
payments on the mortgage loan. Finance Board does not intend that the flexibility for dealing with a household
that has not used the assistance by the must monitor project habitability, and requirements applicable under the
end of the time period, rather than also removes the definition of LIHTC program. The Bank would not
having to cancel the commitment of ‘‘habitable’’ from the existing need to obtain and review reports from
homeownership set-aside funds to the definitions. See 12 CFR 951.1; such agency or otherwise monitor the
household at that time. Another Bank 951.10(a)(2)(ii)(B)(2), (c)(2). projects’ long-term AHP compliance.
stated that, in the case of a A number of commenters supported Under the existing regulation, in the
homeownership set-aside program in the monitoring proposal, citing its case of AHP rental projects that receive
which the Bank reserves a portion of increased flexibility and the likelihood tax credits, a Bank may rely on the
homeownership set-aside funds for use that it would result in streamlined monitoring conducted by the
by an individual member, the provision procedures. Several commenters government entity providing the tax
should apply to the member’s progress specifically supported removing the credits, provided that: (i) The income
in drawing down its homeownership existing requirement to monitor ‘‘project targeting, rent, and retention period
set-aside allocation. The Finance Board habitability.’’ Some commenters requirements monitored by such entity
believes that a Bank’s method for recommended that the regulation define for its own program are the same as, or
members’ access to the homeownership ‘‘reasonable period of time’’ in order to more restrictive than, those committed
set-aside funds, either through lump- avoid differing interpretations. The to in the approved AHP application; (ii)
sum allocation or first-come, first-serve Finance Board believes that such the entity agrees to provide monitoring
according to its qualified household determinations are best made by the reports to the Bank on any rent, income
customers, is irrelevant to the Banks based on the types of projects to and project habitability noncompliance;
underlying purpose of this provision, be monitored. Some commenters also and (iii) the entity demonstrates its
which is the household’s draw-down requested that the Finance Board review ability to carry out monitoring under its
and use of the subsidy. and approve the Banks’ policies for own program and the Bank does not
initial monitoring. The Finance Board have information that such monitoring
G. Monitoring: § 951.7 intends to review the Banks’ initial is not occurring or is inadequate. See 12
Consistent with the proposed rule, the monitoring policies as a part of its CFR 951.11(a)(1). The existing
final rule replaces prescriptive examination program. regulation also provides that if the
monitoring provisions in the existing Back-up and other project income targeting, rent, and retention
regulation with more broadly stated documentation; sampling plan: period requirements monitored by such
monitoring objectives that are intended § 951.7(a)(1)(ii), (a)(1)(iii): Section entity for its own program are less
to allow the Banks more latitude in 951.7(a)(1)(ii) of the final rule adopts the restrictive than those committed to in
determining the type and frequency of proposed requirement that a Bank’s the approved AHP application, a Bank
reports and certifications that are best monitoring policies include may rely on the monitoring conducted
suited for monitoring a particular requirements for Bank review of back- by such entity only if the entity agrees
project’s compliance with its AHP up project documentation regarding to monitor the project for compliance
application commitments and the AHP household incomes and rents with the AHP standards and provide
regulation. The final rule also maintained by the project sponsor or monitoring reports to the Bank on any
reorganizes the proposed monitoring owner, and requirements for rent, income and project habitability
provisions to provide greater clarity. maintenance and Bank review of other noncompliance. See 12 CFR
Monitoring Requirements for the project documentation in the Bank’s 951.11(a)(2).
Competitive Application Program: discretion. Several commenters The LIHTC, which often is used by
§ 951.7(a). Initial monitoring policies: supported the proposal, provided the projects that receive some form of AHP
§ 951.7(a)(1): Adoption and regulation allows the Banks to use subsidy, has 2 elective eligibility
implementation: § 951.7(a)(1)(i): Section project sampling for initial monitoring, standards related to the units in the
951.7(a)(1)(i) of the final rule adopts the rather than having to conduct initial project and the income of the
proposed requirement that a Bank adopt monitoring of each project. Section households occupying the units: (1) 20
and implement written policies for 951.7(a)(1)(iii) of the final rule prohibits percent of the units must be occupied
monitoring of each AHP owner- a Bank from using a sampling plan to by households with incomes at or below
occupied and rental project under its select the projects to be monitored, but 50 percent of the area median income;
competitive application program prior allows a Bank to use a reasonable risk- or (2) 40 percent of the units must be
to, and within a reasonable period of based sampling plan to review the back- occupied by households with incomes
time after, project completion. The up project documentation. Section at or below 60 percent of the area
Bank’s requirements for initial 951.7(a)(1)(iii) reflects the importance of median income. See 26 U.S.C. 42(g)(1).
monitoring shall be included in its AHP determining that all completed projects The Bank Act imposes similar limits on
Implementation Plan. Specifically, a are starting out on a solid basis and in the use of AHP subsidies for rental
Bank’s monitoring policies must enable compliance with the commitments housing, i.e., eligible rental projects
it to determine, at a minimum, whether: made in their approved AHP must have at least 20 percent of the
the project is making satisfactory applications and the AHP regulation. units occupied by households with
progress toward completion; the Reliance on long-term tax credit incomes at or below 50 percent of the
completed project is making satisfactory monitoring for rental projects: area median income. See 12 U.S.C.
progress towards occupancy by eligible § 951.7(a)(2): Consistent with the 1430(j)(2)(B). Because this AHP income-
households; and the completed project proposed rule, § 951.7(a)(2) of the final eligibility standard is identical to the
meets the commitments made in the rule provides that for completed AHP first tax credit income-eligibility
approved AHP application and is rental projects that have been allocated standard, for AHP-assisted tax credit
otherwise in compliance with tax credits, a Bank may, in its projects that employ the first standard,
applicable AHP requirements within a discretion, for purposes of long-term the current AHP regulation permits a
reasonable period of time after project AHP monitoring, rely on the monitoring Bank to accept the project monitoring
completion. Consistent with the by the state-designated housing credit that is conducted by the government
proposed rule, the final rule removes agency administering the tax credits of agencies providing the tax credits for
the existing requirement that the Banks the income targeting and rent their own programs.
With respect to AHP-assisted tax 1430(j)(2)(B), (j)(13)(D); 26 U.S.C. discretion, for purposes of long-term
credit projects that employ the second 42(g)(2). AHP monitoring, rely on the monitoring
standard, under which 40 percent of the All commenters on this proposal by such entities of the income targeting
units must be occupied by households strongly supported allowing a Bank to and rent requirements applicable under
with incomes at or below 60 percent of rely on the long-term monitoring their programs, provided the Bank can
the area median income, the current performed by the tax credit agency, show that: (i) The compliance profiles
AHP regulation allows a Bank to rely on usually a state housing finance agency, regarding income targeting, rent, and
monitoring conducted by the and thereby exclude these rental retention period requirements of the
government entity administering the tax projects from the Bank’s long-term AHP and the other programs are
credits only if the entity also monitors monitoring plan. Commenters substantively equivalent; (ii) the entity
the project for compliance with the AHP supported the reduction in duplicative has demonstrated and continues to
income-eligibility standard. See 12 CFR monitoring as easing the administrative demonstrate its ability to monitor the
951.11(a)(2). Because this tax credit burdens on project owners, members, project; (iii) the entity agrees to provide
income-eligibility standard differs from and Banks, without sacrificing project reports to the Bank on the project’s
the AHP income-eligibility standard, accountability and quality. Commenters incomes and rents for the full 15-year
under the existing AHP regulation a noted that other funding sources often AHP retention period; and (iv) the Bank
Bank must have an agreement with the are involved in AHP projects at a much reviews the reports from the monitoring
government entity to conduct its higher funding level, and that state entity to confirm that they comply with
monitoring of the AHP project for agencies are more than capable of the Bank’s monitoring policies.
compliance with the AHP standard. providing high quality monitoring. In the case of AHP rental projects that
Such additional monitoring entails Other commenters stated that the receive governmental funds other than
additional costs to the Bank, which a proposal would make the AHP more tax credits, the existing regulation
number of the Banks have contended is compatible with the LIHTC program. applies the same requirements for
not an effective means of monitoring the Some commenters suggested that the reliance on monitoring by the
project, as it is largely duplicative of Finance Board clarify whether each government entity providing the funds
existing monitoring conducted by other Bank must make a determination that as are applicable for AHP rental projects
parties. A number of AHP users also the compliance profiles for income receiving tax credits under the existing
have contended that this level of targeting, affordability, and retention regulation, as discussed above. See 12
monitoring is superfluous and adds under the LIHTC program are CFR 951.11(a)(1), (a)(2). The proposed
unnecessary burdens to the project. substantively equivalent to those under rule would have included requirements
the AHP. Commenters interpreted the similar to the existing requirements for
As discussed in the SUPPLEMENTARY conditional language ‘‘provided that the reliance on monitoring by other
INFORMATION section of the proposed
compliance profiles of the AHP and the government entities, and would have
rule, after reviewing several studies on LIHTC program continue to be provided that the income targeting, rent,
the performance of the LIHTC, the substantively equivalent’’ in the and retention period requirements for
Finance Board has concluded that the proposed rule as requiring the Banks to the other programs be substantively
overwhelming majority of these tax make a determination whether the equivalent to those of the AHP. The
credit projects—irrespective of their standards are satisfied before the Bank final rule provides that it is the
income eligibility standard—meet the could rely on LIHTC monitoring. As compliance profiles regarding income
AHP income-eligibility standard in a discussed above, in the SUPPLEMENTARY targeting, rent, and retention period
substantively equivalent manner. A INFORMATION section of the proposed requirements of the AHP and the other
1997 General Accounting Office study rule, the Finance Board has made the programs that must be substantively
found that 75 percent of households in determination, based on studies of the equivalent.
tax credit projects had incomes under occupancy and rents of LIHTC projects, A majority of commenters on the
50 percent of the area median income, that these standards currently are being proposal supported allowing the Banks
which would be well within the AHP met. The Banks, therefore, will not need to rely on other non-LIHTC
requirement that 20 percent of units be to make such a determination with governmental monitoring as proposed.
occupied by households with incomes respect to AHP-assisted LIHTC projects. Several commenters noted, however,
at or below 50 percent of the area The final rule clarifies this point by that without determinations by the
median income. Other subsequent eliminating the conditional language Finance Board that certain programs,
studies, such as those prepared by Abt ‘‘provided that the compliance profiles such as those administered by HUD, are
Associates for HUD, and one by Ernst of the AHP and the LIHTC program substantively equivalent to the AHP,
and Young, have reached similar continue to be substantively Banks would be reluctant to make the
conclusions regarding the targeting of equivalent.’’ determinations themselves and,
tax credit projects to very low-income Some commenters also requested therefore, would not take advantage of
households. Noncompliance with the clarification whether any initial this provision. At this time, the Finance
income-eligibility requirements by tax monitoring requirements continue to Board does not have data available to it
credit projects is relatively rare, as it apply to AHP-assisted LIHTC projects. that would allow it to make
would lead to adverse tax consequences Under the final rule, all of the initial determinations that the compliance
for investors in such projects. In monitoring requirements continue to profiles with respect to income
addition, the length of the retention apply to AHP-assisted LIHTC projects. targeting, rent, and retention period
periods for AHP rental projects and tax Reliance on other long-term requirements of any other government
credit projects is the same, and the governmental monitoring for rental housing programs other than the federal
affordability standard for tax credit projects: § 951.7(a)(3): Section LIHTC program currently are
projects, i.e., the rent requirement, is 951.7(a)(3) of the final rule provides substantively equivalent to those of the
substantively equivalent to the AHP rent that, for completed AHP rental projects AHP. Accordingly, a Bank will need to
requirement that the rents charged may that received funds from federal, state, make such determinations if it wishes to
not exceed 30 percent of the targeted or local government entities other than rely on the monitoring by such other
household income. See 12 U.S.C. under the LIHTC, a Bank may, in its government programs.
Long-term monitoring policies for optimal approach for such matters, that inclusion of this requirement would
rental projects: § 951.7(a)(4). Adoption irrespective of the risk characteristics complicate providing housing for
and implementation: § 951.7(a)(4)(i): that may be associated with a particular households displaced by disasters.
Consistent with the proposed rule, AHP project or the compliance record of Accordingly, the final rule does not
§ 951.7(a)(4)(i) of the final rule provides the participating member, sponsor, or require that populations served by the
that in cases where a Bank does not rely project owner. projects be subject to long-term
on monitoring by a federal, state, or A number of commenters specifically monitoring.
local government entity pursuant to supported the proposal’s increased Consistent with the proposed rule, the
§ 951.7(a)(2) or (a)(3), a Bank must flexibility, risk-based scheme, and final rule also removes the existing
establish and implement written sampling authority. Some commenters requirement that the Banks monitor
policies for risk-based monitoring of stated that monitoring costs could be project habitability for the full AHP
completed AHP rental projects, reduced for in-district projects under retention period. See 12 CFR
commencing in the second year after the proposal, without increasing the 951.11(a)(3). Several commenters
project completion and continuing for Bank’s compliance, financial, or supported removing the requirement to
the full 15-year retention period. The reputation risk. A Bank and its Advisory monitor project habitability.
Bank’s requirements for long-term Council opposed the proposal in its Annual project owner certifications;
monitoring under this section shall be entirety, stating that the current backup and other project
included in its AHP Implementation regulatory monitoring requirements documentation: § 951.7(a)(4)(ii): Section
Plan. The monitoring policies must have served the intended purposes, and 951.7(a)(4)(ii) of the final rule adopts the
enable the Bank to determine, at a changes in those requirements are not proposed requirement that the Bank’s
minimum, whether household income necessary or appropriate. The monitoring policies include
and rents comply with the respective commenters stated that monitoring requirements for: (i) Bank review of
commitments made in the approved objectives could vary from Bank to annual certifications by project owners
AHP applications. Bank, which could cause confusion to the Bank that household incomes and
among members, sponsors and project rents comply with the commitments
The current regulation requires the made in the approved AHP application;
owners that use AHP funds in multiple
Banks to select from 1 of 3 approved (ii) Bank review of back-up project
districts. Several commenters objected
methods for long-term monitoring of documentation regarding household
to the reference in the SUPPLEMENTARY
rental projects: (1) Monitoring by a incomes and rents maintained by the
INFORMATION section of the proposed
federal, state, or local government entity rule to ‘‘outcome-based’’ monitoring, project owner; and (iii) maintenance
in connection with a project that also is stating that it may be inconsistent with and Bank review of other project
receiving tax credits or funds from that the risk-based monitoring requirement documentation in the Bank’s discretion.
entity, subject to certain other limits and could result in numerous Finance Several commenters supported
stated in the rule; (2) monitoring by the Board examination findings. In order to requiring the Banks to establish written
Bank, its members, and project owners; avoid confusion in this regard, the final requirements for back-up
or (3) monitoring by a third party rule does not use this term. A Bank documentation from members and
contractor that carries out the Bank’s suggested that long-term monitoring not project owners. A Bank and one of its
monitoring obligations under the long- be required to commence until the third members opposed the annual project
term monitoring requirements of year after project completion. Another owner certification requirement, stating
existing § 951.11(a)(3)(iii). See 12 CFR commenter suggested that the rule that obtaining the certifications is a
951.11(a). The existing regulation retain the current monitoring labor-intensive process that has little or
contains prescriptive procedural requirement for projects receiving AHP no positive influence on long-term
requirements for projects monitored by subsidy over $500,000. Under the compliance. The Finance Board believes
the Banks, their members, and project monitoring provisions of the final rule, that the annual project owner
owners under the second and third a Bank would have the discretion to certification, which is retained from the
options. It requires a Bank to review include such requirements. Some current rule, remains an important tool
project documentation from various commenters also requested that the under the new risk-based long-term
parties and verify compliance with rent, Finance Board review and approve the monitoring for ensuring that the project
income, and project habitability Banks’ long-term monitoring policies. has regular contact with the Bank. See
requirements according to a schedule The Finance Board intends to review 12 CFR 951.11(a)(3)(i). The Finance
based on the amount of AHP subsidy the Banks’ long-term monitoring Board notes that the rule only requires
received by a project, such that projects policies as a part of its examination that the project owner provide such a
receiving greater amounts of subsidy program. certification to the Bank, and this
have more stringent and frequent The final rule does not include the requirement does not involve the
monitoring requirements. See 12 CFR proposed requirement that the Bank member unless the Bank chooses to do
951.11(a)(3)(iii). Such prescriptive monitor the populations served by the so in its monitoring plan.
monitoring requirements do not project over the long-term retention Risk factors and other monitoring;
necessarily promote accurate period. A number of commenters risk-based sampling plan:
assessments of program effectiveness or opposed the proposed requirement, § 951.7(a)(4)(iii): Consistent with the
take into account the true risks to the pointing out that the annual project proposed rule, § 951.7(a)(4)(iii) of the
Bank’s AHP. The existing monitoring owner certification requirement does final rule requires a Bank’s written
requirements may fail to capture not include a requirement to certify policies to take into account risk factors
adequately the operational risk, location compliance with targeted population such as the amount of AHP subsidy in
risk, or other relevant performance commitments, referring only to incomes the project, type, size, and location of
factors affecting the Bank’s AHP project and rents of the project households, and the project, sponsor experience, and any
portfolio. The prescriptive nature of the targeted populations are not subject to monitoring of the project provided by a
regulation implies that the particular long-term monitoring under the current federal, state, or local government
approach to monitoring that is regulation. The Finance Board finds entity. The final rule further provides
embodied in the regulation is the merit in these comments, and also notes that a Bank may use a reasonable, risk-
based sampling plan to select the rental and any other documentation, but not the Board of Directors of the Finance
projects to be monitored under this the member certifications. One Bank Board for such settlements. See 12 CFR
section, and to review the annual requested clarification whether the 951.12(c)(2)(ii). Several commenters
project owner certifications, back-up, Bank’s sampling plan may be risk-based, supported the proposal, with 1
and any other project documentation. and whether the sample must be commenter noting that it would allow
The risk-based sampling plan and its statistically valid. Unlike sampling AHP claims to be settled more
basis shall be in writing. under the competitive application efficiently.
Several commenters suggested that program, sampling under the Bank reimbursement of AHP fund:
the Finance Board provide more homeownership set-aside program may § 951.8(e)(1). Section 951.8(e)(1) of the
detailed guidance on the monitoring not be risk-based, because there is no final rule adopts the proposed new
requirements, including defining basis on which to vary risk of provision requiring a Bank to reimburse
‘‘reasonable risk-based sampling plan.’’ noncompliance when grants are its AHP fund in the amount of any AHP
One Bank requested clarification provided through members directly to subsidies (plus interest, if appropriate)
whether the Bank must select its sample households for home purchase or misused as a result of the Bank’s actions
of rental projects from different types of rehabilitation assistance. The final rule or omissions, even without a Finance
rental projects, and whether the sample does not specifically require that the Board order to do so. Where
must be statistically valid. The final rule sample be statistically valid, but noncompliance with AHP requirements
does not specifically require these Finance Board examiners will review is the result of a Bank’s actions or
standards, but Finance Board examiners the Bank’s sampling plans to ensure that omissions, the Bank should reimburse
will review the Bank’s sampling plans they are reasonable. its AHP fund without the Finance Board
to ensure that they are reasonable. having to order it to do so as under the
Several commenters also stated that the H. Remedial Actions for existing regulation. See 12 CFR
Banks should be able to use a risk-based Noncompliance: § 951.8 951.12(c)(3).
sampling model to select not only the Reorganization and streamlining. One commenter objected to the
rental projects, but also the specific Consistent with the proposed rule, proposal, stating that even in the case of
units in the projects, to be sampled. The § 951.8 of the final rule reorganizes and misuse of funds resulting from Bank
language under the proposed and final streamlines the language in the existing error, the Bank should not have to
rules allows for such risk-based regulation regarding remedial actions automatically reimburse the AHP fund.
sampling of units as well as projects. for noncompliance with the Instead, the Bank’s board should be
Monitoring Requirements for the commitments made in the approved required to make an affirmative
Homeownership Set-Aside Program: AHP application and the AHP determination whether or not it must
§ 951.7(b). Adoption and regulation, in order to eliminate reimburse its AHP fund. If Finance
implementation: § 951.7(b)(1): redundancy and provide greater clarity. Board examiners objected to the board’s
Consistent with the proposed rule, See 12 CFR 951.12. No commenters decision, then the full Board of
§ 951.7(b)(1) of the final rule requires a addressed these technical revisions. Directors of the Finance Board could
Bank to adopt and implement written Repayment of AHP subsidy by project order the reimbursement after notice
monitoring policies for determining sponsor or owner: § 951.8(b)(2). Section and a hearing. The Finance Board
compliance with the requirements of its 951.8(b)(2) of the final rule adopts the believes that the Bank already has
homeownership set-aside programs. See proposed provision allowing a Bank to ample opportunity to negotiate the
12 CFR 951.8(b)(2). The Bank’s determine whether a project sponsor or amount of reimbursement through the
requirements for monitoring under its owner must repay AHP subsidies examination process and discussions
homeownership set-aside programs directly to the Bank or to the member, with the Finance Board.
shall be included in its AHP which would then repay the Bank, in Parties to enforcement proceedings.
Implementation Plan. A Bank and its the event that the project fails to comply Consistent with the proposed rule, the
Advisory Council supported the with any AHP requirements. Under the final rule removes existing § 951.12(d),
proposal. existing regulation, project sponsors or which allows a Bank, in its discretion,
Member certifications; back-up and owners are required to repay AHP to enter into a written agreement with
other documentation: § 951.7(b)(2): subsidies to the member, which in turn a member, project sponsor, or project
Section 951.7(b)(2) of the final rule is required to repay the subsidies to the owner under which such member,
retains the existing requirement that a Bank. See 12 CFR 951.12(b). The change sponsor or owner consents to be a party
Bank review certifications by members will give the Banks greater flexibility in to any Finance Board enforcement
to the Bank, prior to disbursement of the managing how AHP subsidies are proceeding regarding the repayment of
AHP subsidy, that the subsidy will be required to be repaid in the event of AHP subsidies received by such party,
provided in compliance with all AHP noncompliance. Several or to suspension or debarment of such
applicable eligibility requirements of commenters supported the change, with party, provided that such party has
the homeownership set-aside program. one commenter noting that it would agreed to be bound by the Finance
See 12 CFR 951.8(b)(2). The Bank’s allow for a more efficient repayment Board’s final determination in the
monitoring policies also must include process. enforcement proceeding. See 12 CFR
requirements for the Bank to review Finance Board approval of 951.12(d). A Bank opposed removal of
back-up documentation regarding settlements: § 951.8(d)(2). Consistent the provision, stating that without the
household incomes maintained by the with the proposed rule, § 951.8(d)(2) of provision, third parties would not
member, and maintenance and Bank the final rule allows a Bank to obtain willingly consent to enter into such an
review of other documentation in the approval from ‘‘the Finance Board’’ to agreement. However, such agreements
Bank’s discretion. settle a disputed claim regarding an are voluntary under the existing
Sampling plan: § 951.7(b)(3): Section AHP subsidy, which will allow Finance regulation, and regulatory authorization
951.7(b)(3) of the final rule provides that Board staff to approve the Bank’s is not necessary for a Bank to enter into
a Bank may use a reasonable sampling proposed settlements relating to the such an agreement.
plan to select the households to be AHP subsidy. The existing regulation Re-use of repaid AHP direct subsidies
monitored, and to review the back-up requires a Bank to obtain approval from in same project: § 951.8(f)(2). Section
951.8(f)(2) of the final rule adopts the Banks’ monitoring policies. Instead, the the AHP subsidy received (i.e., the value
proposed language clarifying that a final rule allows the Banks to reference of the interest rate subsidy for the time
Bank must consult with its Advisory their monitoring policies in the the household has been paying on the
Council in determining whether to monitoring agreements. A number of mortgage loan) from any net gain
allow the re-use of AHP direct subsidies commenters opposed requiring realized upon the refinancing, unless
in the same project, as is authorized inclusion of the Banks’ specific the unit continues to be subject to a
under this section. See 12 CFR monitoring policies and procedures in retention agreement. The change is
951.12(e)(2). That provision also their monitoring agreements, as the consistent with the existing regulatory
clarifies that a Bank’s board of directors Banks revise their monitoring policies provision providing that a household
shall not delegate to Bank officers or and procedures with some regularity, subsidized with AHP direct subsidy that
other Bank employees the responsibility which could require frequent refinances an owner-occupied unit must
to adopt any Bank policies on re-use of modifications to the agreements. repay only the amount of AHP subsidy
repaid AHP direct subsidies in the same Commenters suggested that the Banks be that has not been used (i.e., the subsidy
project under this section. No comments allowed to reference the applicable required to be repaid is reduced for
addressed these technical revisions. monitoring policies and procedures, as every year the household owned the
they may be amended from time to time, unit). See 12 CFR 951.13(d)(1)(iii). In
I. Agreements: § 951.9
in the monitoring agreements. The addition, the change should help
Section 951.9 of the final rule adopts Finance Board agrees that the Banks remove a possible deterrent to
proposed revisions to the existing should not have to modify their refinancing by households that seek to
regulation, which requires each Bank to monitoring agreements every time they make their units more affordable or
have in place with each member that revise their monitoring policies or obtain equity for purposes of their
receives AHP subsidies a written procedures. Accordingly, the final rule economic betterment. No comments
agreement that includes certain revises the proposal by removing the specifically addressed this change.
provisions set out in the regulation. See language ‘‘(and set forth in the
12 CFR 951.13. The revisions are Relocation of households in rental
agreement).’’ projects: § 951.9(a)(8)(iii)(B). Section
intended to eliminate redundancy and In addition, the final rule adopts the
provide greater clarity. No comments 951.9(a)(8)(iii)(B) of the final rule
proposed provision that the agreements
addressed these specific technical revises the proposal and the existing
shall require the member to have in
revisions. regulation by providing that, in the case
place an agreement with each project
Notification of member: § 951.9(a)(1). sponsor and project owner setting forth of a sale or refinancing of an AHP-
Consistent with the proposed rule, the specific monitoring responsibilities assisted rental project prior to the end
§ 951.9(a)(1) of the final rule adds a of those sponsors and owners, as of the retention period, a Bank may, in
provision requiring the AHP agreements required under the Banks’ monitoring its discretion, determine not to require
to acknowledge that the member has policies, but with the revision that the repayment of the AHP subsidy to the
been notified of the AHP requirements Bank’s monitoring policies would not Bank if, due to the exercise of eminent
and all Bank policies relevant to the have to be included in such agreement. domain, or for expansion of housing or
member’s approved AHP application. One commenter stated that a member services, the households are relocated to
Several commenters supported the should not be required to maintain a another property that is made subject to
proposal, but requested clarification that separate monitoring agreement with a deed restriction or other legally
the AHP agreements may include each project sponsor and owner, as this enforceable retention agreement or
references to the Bank’s detailed would increase the cost and mechanism incorporating the income-
policies and procedures, as they may be administrative burden of participating eligibility and affordability restrictions
amended from time to time, rather than in the program. The commenter stated committed to in the approved AHP
be required to include the actual that it supports the format currently application for the remainder of the
policies and procedures themselves. used at some Banks, where all parties retention period. This new authority is
Commenters pointed out that the Banks execute a single agreement. The consistent with the current regulatory
otherwise would have to change the language in the rule is consistent with provision allowing sale of a project to
AHP agreements every time the policies the language in the current regulation another owner without requiring
or procedures were modified. The and, as drafted, does not prohibit all repayment of the subsidy, where the
proposal was not intended to require the parties from executing one agreement. new owner agrees to maintain the
AHP agreements to include the Bank’s Refinancing of owner-occupied units: income-eligibility and affordability
detailed policies and procedures. The § 951.9(a)(7)(ii)(A). Consistent with the requirements for the remainder of the
rule requires only that the agreement proposed rule, § 951.9(a)(7)(ii)(A) of the retention period. Currently, the AHP
include a provision stating that the final rule revises existing regulation treats these situations as a
member has been notified of the Bank’s § 951.13(c)(4)(i)(B) by providing that, in sale that requires the repayment of the
policies. the case of a refinancing prior to the end entire amount of AHP subsidy, thereby
Monitoring agreements: § 951.9(a)(5). of the 5-year retention period of a releasing the project from its AHP
Consistent with the proposed rule, permanent mortgage loan that was commitments and making the AHP
§ 951.9(a)(5) of the final rule revises the funded by an AHP subsidized advance, subsidy available for other AHP-eligible
existing provisions relating to the household does not have to repay projects, unless the property continues
monitoring agreements in order to the AHP subsidy it already used in the to be subject to a deed restriction or
conform them to the changes made unit. See 12 CFR 951.13(c)(4)(i)(B). The other legally enforceable retention
elsewhere to the substantive monitoring final rule still requires that such agreement or mechanism incorporating
requirements. See 12 CFR 951.13(b)(4). households have retention agreements the income-eligibility and affordability
The final rule also revises the proposal in place, because of the agreements’ restrictions committed to in the
that would have required the Banks’ requirements for notice to the Bank of approved AHP application for the
agreements with their members to set any sale or refinancing of the unit. remainder of the retention period. See
forth the members’ specific monitoring The existing regulation requires the 12 CFR 951.13(c)(5)(iii),
responsibilities, as required under the household to repay the full amount of 951.13(d)(2)(iii). Allowing project
sponsors to transfer the AHP subsidies, Application to existing AHP projects the total amount of funds, if any,
along with the corresponding income- and units: § 951.9(c). Consistent with available in the Reserve Fund. See 12
eligibility and affordability the proposed rule, § 951.9(c) of the final CFR 951.15. The Finance Board has
commitments, to another property will rule streamlines the language in existing never had to establish a Reserve Fund
result in the retention of the affordable § 951.16, which addresses the and does not expect to do so in the
units for the duration of the original application of the regulation to existing future, given the high demand for AHP
retention period and ensure that AHP projects, and relocates the funds that has always exceeded the
existing tenants are not adversely provision to this section. See 12 CFR amount of AHP funds available. In
affected. 951.16. A Bank requested clarification addition, information on the amount of
The proposed rule would have whether this provision continues to any unused and uncommitted AHP
required a Bank to allow the relocation apply to units funded under the funds would be readily obtainable by
of tenants without repayment of AHP homeownership set-aside program as the Finance Board without such a
subsidy where the retention agreement well as to competitive application regulatory mandate. One commenter
is maintained. A number of commenters projects, as the heading in the proposed supported the proposal.
recommended that the relocation rule referred to ‘‘projects’’ and not units.
This provision is intended to apply to IV. Paperwork Reduction Act
authority be at the discretion of a Bank
in order to prevent abuse, and that it not both projects and units under both Elsewhere in this issue of the Federal
be a regulatory authorization for programs. Accordingly, the language in Register, the Finance Board is
sponsors of rental projects to relocate at the final rule clarifies this by including publishing a notice concerning the
their option and in all circumstances. references to units where appropriate. information collection entitled
Some commenters were concerned that J. Conflicts of Interest: § 951.10 ‘‘Affordable Housing Program (AHP)’’.
the proposal could encourage owners to The Finance Board is submitting the
Consistent with the proposed rule, information collection to the Office of
relocate tenants to less desirable
§ 951.10 of the final rule relocates the Management and Budget for review and
properties in order to develop the
provisions governing the adoption of approval of a 3 year extension of the
subject property for market use, or allow
conflict of interest policies from existing OMB control number, 3069–0006,
a noncompliant owner to delay or
§ 951.3(c) to this section. See 12 CFR which is due to expire on July 31, 2007.
escape repayment of misused subsidy.
951.3(c). The final rule also adds new
The Finance Board agrees that providing V. Regulatory Flexibility Act
provisions that prohibit Bank directors
the Banks with discretion on whether to
or employees, Advisory Council The final rule applies only to the
approve a project relocation could
members, and their family members, Banks, which do not come within the
prevent abuses of the type raised by the
from engaging in the conflicts of interest meaning of small entities for purposes
commenters, and the final rule makes
prohibited by the Bank’s conflict of of the Regulatory Flexibility Act (RFA).
the authority discretionary rather than
interest policies. Section 951.10(c) See 5 U.S.C. 601(6). Therefore, in
mandatory. In addition, in response to
prohibits a Bank’s board of directors accordance with section 605(b) of the
the comments, the final rule specifically
from delegating to Bank officers or other RFA, 5 U.S.C. 605(b), the Finance Board
includes the exercise of eminent domain
Bank employees its responsibility to hereby certifies that the final rule will
and expansion of housing or services as
adopt the conflict of interest policies. not have a significant economic impact
the limited circumstances under which
Several commenters supported the on a substantial number of small
the authority may be used.
changes. entities.
Agreements between Banks and
project sponsors or owners: § 951.9(b). K. Temporary Suspension of AHP List of Subjects in 12 CFR Part 951
As discussed above, § 951.8(b)(2) of the Contributions: § 951.11
Community development, Credit,
final rule allows a Bank to determine Section 951.11 of the final rule adopts Federal home loan banks, Housing,
whether to require a project sponsor or the proposal to remove various Reporting and recordkeeping
owner to repay AHP subsidies directly procedural requirements in existing requirements.
to the Bank in the event of § 951.14, leaving these decisions to the
noncompliance, in contrast to the ■ For the reasons stated in the preamble,
discretion of the Finance Board in the
existing regulation which requires the Finance Board hereby revises 12
event an application is received from a
project sponsors or owners to repay CFR, chapter IX, part 951, to read as
Bank for a temporary suspension of its
AHP subsidies to the member, which in follows:
required annual AHP contribution. See
turn repays the subsidies to the Bank. 12 CFR 951.14. In addition, certain of PART 951—AFFORDABLE HOUSING
Under § 951.9(b) of the final rule, the information required to be provided PROGRAM
consistent with the proposed rule, if a by the Banks is readily obtainable by the
Bank intends to require project sponsors Finance Board without the necessity of Sec.
or project owners to repay AHP a regulatory requirement. One 951.1 Definitions.
subsidies directly to the Bank, the Bank commenter supported the changes. 951.2 Required annual AHP contributions;
first must have in place an agreement allocation of contributions.
with each project sponsor and project L. Affordable Housing Reserve Fund: 951.3 AHP Implementation Plan.
owner in which the party agrees to § 951.12 951.4 Advisory Councils.
951.5 Competitive application program.
repay the AHP subsidies directly to the Section 951.12 of the final rule adopts 951.6 Homeownership set-aside programs.
Bank. A Bank and its Advisory Council the proposal to remove the requirements 951.7 Monitoring.
requested clarification whether a tri- in existing § 951.15 that a Bank report 951.8 Remedial actions for noncompliance.
party agreement would be permissible by January 15th of each year the amount 951.9 Agreements.
under this provision. The language in of any unused and uncommitted AHP 951.10 Conflicts of interest.
the rule is consistent with the language funds from the prior year that will be 951.11 Temporary suspension of AHP
in the current regulation and, as drafted, deposited in an Affordable Housing contributions.
does not prohibit all parties to execute Reserve Fund (Reserve Fund), and that 951.12 Affordable Housing Reserve Fund.
a single agreement. the Finance Board notify the Banks of Authority: 12 U.S.C. 1430(j).
§ 951.1 Definitions. Funding period means a time period, Owner-occupied project means, for
As used in this part: as determined by a Bank, during which purposes of the competitive application
Affordable means that: the Bank accepts AHP applications for program, one or more owner-occupied
(1) The rent charged to a household subsidy. units in a single-family or multifamily
for a unit that is to be reserved for Homeownership set-aside program building, including condominiums,
occupancy by a household with an means a program established by a Bank cooperative housing, and manufactured
income at or below 80 percent of the under which the Bank disburses AHP housing.
median income for the area, does not direct subsidy pursuant to the Owner-occupied unit means a
exceed 30 percent of the income of a requirements of § 951.6 of this part. dwelling unit occupied by the owner of
household of the maximum income and Loan pool means a group of mortgage the unit. Housing with 2 to 4 dwelling
size expected, under the commitment or other loans meeting the requirements units consisting of one owner-occupied
made in the AHP application, to occupy of this part that are purchased, pooled, unit and one or more rental units is
the unit (assuming occupancy of 1.5 and held in trust. considered a single owner-occupied
persons per bedroom or 1.0 persons per Low- or moderate-income household unit.
unit without a separate bedroom); or means a household that has an income Program means the Affordable
(2) The rent charged to a household, of 80 percent or less of the median Housing Program established pursuant
for rental units subsidized with Section income for the area, with the income to this part.
8 assistance under 42 U.S.C. 1437f or limit adjusted for household size in Rental project means, for purposes of
subsidized under another assistance accordance with the methodology of the the competitive application program,
program where the rents are charged in applicable median income standard, one or more dwelling units for
the same way as under the Section 8 unless such median income standard occupancy by households that are not
program, if the rent complied with this has no household size adjustment owner-occupants, including overnight
§ 951.1 of this part at the time of the methodology. and emergency shelters, transitional
household’s initial occupancy and the Low- or moderate-income housing for homeless households,
household continues to be assisted neighborhood means any neighborhood mutual housing, single-room occupancy
through the Section 8 or another in which 51 percent or more of the housing, and manufactured housing.
assistance program, respectively. households have incomes at or below 80 Retention period means:
AHP project means a single-family or percent of the median income for the (1) Five years from closing for an
multifamily housing project for owner- area. AHP-assisted owner-occupied unit, or
occupied or rental housing that has been Median income for the area means in the case of rehabilitation of a unit
awarded or has received AHP subsidy one or more of the following median currently occupied by the owner where
under the competitive application income standards as determined by a there is no closing, 5 years from the date
program. Bank, after consultation with its established by the Bank in its AHP
Competitive application program Advisory Council, in its AHP Implementation Plan; and
means a program established by a Bank Implementation Plan: (2) Fifteen years from the date of
under which the Bank awards and (1) The median income for the area, project completion for a rental project.
disburses AHP subsidy through a as published annually by HUD; Revolving loan fund means a capital
competitive application scoring process (2) The median income for the area fund established to make mortgage or
pursuant to the requirements of § 951.5 obtained from the Federal Financial other loans whereby loan principal is
of this part. Institutions Examination Council; repaid into the fund and re-lent to other
Cost of funds means, for purposes of (3) The applicable median family borrowers.
a subsidized advance, the estimated cost income, as determined under 26 U.S.C. Single-family building means a
of issuing Bank System consolidated 143(f) (Mortgage Revenue Bonds) and structure with 1 to 4 dwelling units.
obligations with maturities comparable published by a state agency or Sponsor means a not-for-profit or for-
to that of the subsidized advance. instrumentality; profit organization or public entity that:
Direct subsidy means an AHP subsidy (4) The median income for the area, (1) Has an ownership interest
in the form of a direct cash payment. as published by the United States (including any partnership interest), as
Eligible household means a household Department of Agriculture; or defined by the Bank in its AHP
that meets the income limits and other (5) The median income for an Implementation Plan, in a rental project;
requirements specified by a Bank for its applicable definable geographic area, as (2) Is integrally involved, as defined
competitive application program and published by a federal, state, or local by the Bank in its AHP Implementation
homeownership set-aside programs, government entity, and approved by the Plan, in an owner-occupied project,
provided that: Finance Board, at the request of a Bank, such as by exercising control over the
(1) In the case of owner-occupied for use under the AHP. planning, development, or management
housing, the household’s income may Multifamily building means a of the project, or by qualifying
not exceed 80 percent of the median structure with 5 or more dwelling units. borrowers and providing or arranging
income for the area; and Net earnings of a Bank means the net financing for the owners of the units;
(2) In the case of rental housing, the earnings of a Bank for a calendar year (3) Operates a loan pool; or
household’s income in at least 20 after deducting the Bank’s annual (4) Is a revolving loan fund.
percent of the units may not exceed 50 contribution to the Resolution Funding Subsidized advance means an
percent of the median income for the Corporation required under section 21B advance to a member at an interest rate
area. of the Act (12 U.S.C. 1441b), and before reduced below the Bank’s cost of funds
Eligible project means a project declaring or paying any dividend under by use of a subsidy.
eligible to receive AHP subsidy section 16 of the Act (12 U.S.C. 1436). Subsidy means:
pursuant to the requirements of this For purposes of this part, ‘‘dividend’’ (1) A direct subsidy, provided that if
part. includes any dividends on capital stock a direct subsidy is used to write down
Family member means any individual subject to a redemption request even if the interest rate on a loan extended by
related to a person by blood, marriage, under GAAP those dividends are treated a member, sponsor, or other party to a
or adoption. as an ‘‘interest expense.’’ project, the subsidy must equal the net
present value of the interest foregone at least one-third of the Bank’s aggregate homeownership set-aside programs,
from making the loan below the lender’s annual set-aside allocation to such pursuant to § 951.9(a)(7) and (a)(8) of
market interest rate; or programs shall be to assist first-time this part.
(2) The net present value of the homebuyers, pursuant to the (b) Advisory Council review. Prior to
interest revenue foregone from making a requirements of this part. the amendment of a Bank’s AHP
subsidized advance at a rate below the (ii) No delegation. A Bank’s board of Implementation Plan, the Bank shall
Bank’s cost of funds. directors shall not delegate to Bank provide its Advisory Council an
Very low-income household means a officers or other Bank employees the opportunity to review the document,
household that has an income at or responsibility for adopting its and the Advisory Council shall provide
below 50 percent of the median income homeownership set-aside program its recommendations to the Bank’s
for the area, with the income limit policies. board of directors for its consideration.
adjusted for household size in (3) Additional funding. A Bank may (c) Notification of Plan amendments
accordance with the methodology of the allot to its current year’s Program from to the Finance Board. A Bank shall
applicable median income standard, its annual required AHP contribution notify the Finance Board of any
unless such median income standard for the subsequent year, an amount up amendments made to its AHP
has no household size adjustment to the greater of $2 million or 20 percent Implementation Plan within 30 days
methodology. of its annual required AHP contribution after the date of their adoption by the
Visitable means, in either owner- for the current year. Bank’s board of directors.
occupied or rental housing, at least one (d) Public access. A Bank shall
entrance is at-grade (no steps) and § 951.3 AHP Implementation Plan. publish its current AHP Implementation
approached by an accessible route such (a) Adoption; no delegation. Each Plan on its publicly available Web site,
as a sidewalk, and the entrance door Bank, after consultation with its and shall publish any amendments to
and all interior passage doors are at least Advisory Council, shall adopt a written the AHP Implementation Plan on the
2 feet, 10 inches wide, offering 32 AHP Implementation Plan, and shall not Web site within 30 days after the date
inches of clear passage space. amend the AHP Implementation Plan of their adoption by the Bank’s board of
without first consulting its Advisory directors.
§ 951.2 Required annual AHP Council. The Bank’s board of directors
contributions; allocation of contributions. shall not delegate to Bank officers or § 951.4 Advisory Councils.
(a) Annual AHP contributions. Each other Bank employees the responsibility (a) Appointment. (1) Each Bank’s
Bank shall contribute annually to its to consult with the Advisory Council board of directors shall appoint an
Program the greater of: prior to adopting or amending the AHP Advisory Council of 7 to 15 persons
(1) 10 percent of the Bank’s net Implementation Plan. The AHP who reside in the Bank’s District and are
earnings for the previous year; or Implementation Plan shall set forth, at drawn from community and not-for-
(2) That Bank’s pro rata share of an a minimum: profit organizations that are actively
aggregate of $100 million to be (1) The applicable median income involved in providing or promoting low-
contributed in total by the Banks, such standard or standards adopted by the and moderate-income housing, and
proration being made on the basis of the Bank consistent with the definition of community and not-for-profit
net earnings of the Banks for the median income for the area in § 951.1 of organizations that are actively involved
previous year, except that the required this part; in providing or promoting community
annual AHP contribution for a Bank (2) The Bank’s requirements for its lending, in the District.
shall not exceed its net earnings in the competitive application program (2) Each Bank shall solicit
previous year. established pursuant to § 951.5 of this nominations for membership on the
(b) Allocation of contributions. Each part; Advisory Council from community and
Bank, after consultation with its (3) The Bank’s requirements for its not-for-profit organizations pursuant to
Advisory Council and pursuant to homeownership set-aside programs, if a nomination process that is as broad
written policies adopted by the Bank’s adopted by the Bank pursuant to § 951.6 and as participatory as possible,
board of directors, shall allocate its of this part; allowing sufficient time for responses.
annual required AHP contribution as (4) The Bank’s requirements for (3) The Bank’s board of directors shall
follows: funding revolving loan funds, if adopted appoint Advisory Council members
(1) Competitive application program. by the Bank pursuant to § 951.5(c)(13) of from a diverse range of organizations so
Each Bank shall allocate annually that this part; that representatives of no one group
portion of its annual required AHP (5) The Bank’s requirements for constitute an undue proportion of the
contribution that is not set aside to fund funding loan pools, if adopted by the membership of the Advisory Council,
homeownership set-aside programs Bank pursuant to § 951.5(c)(14) of this giving consideration to the size of the
under paragraph (b)(2) of this section, to part; Bank’s District and the diversity of low-
provide funds to members through a (6) The Bank’s requirements for and moderate-income housing and
competitive application program, monitoring under its competitive community lending needs and activities
pursuant to the requirements of this application program and any Bank within the District.
part. homeownership set-aside programs, (b) Terms of Advisory Council
(2) Homeownership set-aside pursuant to § 951.7 of this part; members. Pursuant to policies adopted
programs. (i) Allocation amount; first- (7) The Bank’s requirements, by the Bank’s board of directors,
time homebuyers. A Bank, in its including time limits, for re-use of Advisory Council members shall be
discretion, may set aside annually, in repaid AHP direct subsidy, if adopted appointed by the Bank’s board of
the aggregate, up to the greater of $4.5 by the Bank pursuant to § 951.8(f)(2) of directors to serve for terms of 3 years,
million or 35 percent of the Bank’s this part; and which shall be staggered to provide
annual required AHP contribution to (8) The retention agreement continuity in experience and service to
provide funds to members participating requirements for projects and the Advisory Council, except that
in homeownership set-aside programs households under the competitive Advisory Council members may be
established by the Bank, provided that application program and any Bank appointed to serve for terms of 1 or 2
years solely for purposes of (f) No delegation. A Bank’s board of (ii) Rental housing. The purchase,
reconfiguring the staggering of the 3- directors shall not delegate to Bank construction, or rehabilitation of a rental
year terms. No Advisory Council officers or other Bank employees the project, where at least 20 percent of the
member may be appointed to serve for responsibility to appoint persons as units in the project are occupied by and
more than 3 full consecutive terms. An members of the Advisory Council, or to affordable for very low-income
Advisory Council member appointed to meet with the Advisory Council at the households. A household must have an
fill a vacancy shall be appointed for the quarterly meetings required by the Act income meeting the income targeting
unexpired term of his or her predecessor (12 U.S.C. 1430(j)(11)). commitments in the approved AHP
in office. application upon initial occupancy of
(c) Election of officers. Each Advisory § 951.5 Competitive application program. the rental unit, or for projects involving
Council shall elect from among its (a) Establishment of program. A Bank the purchase or rehabilitation of rental
members a chairperson, a vice shall establish a competitive application housing that already is occupied, at the
chairperson, and any other officers the program pursuant to the requirements of time the application for AHP subsidy is
Advisory Council deems appropriate. this part. submitted to the Bank for approval.
(d) Duties. (1) Meetings with the (b) Funding periods and application (2) Need for subsidy. (i) The project’s
Banks. (i) The Advisory Council shall process. (1) Funding periods. A Bank estimated sources of funds shall equal
meet with representatives of the Bank’s may accept applications for AHP its estimated uses of funds, as reflected
board of directors at least quarterly to subsidy under its competitive in the project’s development budget.
provide advice on ways in which the application program during a specified The difference between the project’s
Bank can better carry out its housing number of funding periods each year, as sources of funds and uses of funds is the
finance and community lending determined by the Bank. project’s need for AHP subsidy, which
mission, including, but not limited to, (2) Eligible applicants. A Bank shall is the maximum amount of AHP subsidy
advice on the low- and moderate- accept applications for AHP subsidy the project may receive. A Bank, in its
income housing and community lending under its competitive application discretion, may permit a project’s
programs and needs in the Bank’s program only from institutions that are sources of funds to include or exclude
District, and on the use of AHP members of the Bank at the time the the estimated market value of in-kind
subsidies, Bank advances, and other application is submitted to the Bank. donations and voluntary professional
Bank credit products for these purposes. (3) Submission of applications. Except labor or services (excluding the value of
(ii) The Advisory Council’s advice as provided in paragraph (c)(13)(i) of sweat equity), provided that the
shall include recommendations on: this section, a Bank shall require project’s uses of funds also include or
(A) The amount of AHP subsidies to applications for AHP subsidy to contain exclude, respectively, the value of such
be allocated to the Bank’s competitive information sufficient for the Bank to: estimates.
application program and any Bank (i) Determine that the proposed AHP (ii) A project’s cash sources of funds
homeownership set-aside programs; project meets the eligibility shall include any cash contributions by
(B) The AHP Implementation Plan requirements of paragraph (c) of this the sponsor, any cash from sources
and any subsequent amendments section; and other than the sponsor, and estimates of
thereto; (ii) Evaluate the application pursuant funds the project sponsor intends to
(C) The scoring criteria, related to the scoring guidelines adopted by the obtain from other sources but which
definitions, and any additional optional Bank pursuant to paragraph (d) of this have not yet been committed to the
District eligibility requirements for the section. project. In the case of homeownership
competitive application program; and (4) Review of applications submitted. projects where the sponsor extends
(D) The eligibility requirements and Except as provided in paragraph permanent financing to the homebuyer,
any priority criteria for any Bank (c)(13)(ii) of this section, a Bank shall the sponsor’s cash contribution shall
homeownership set-aside programs. review the applications for AHP subsidy include the present value of any
(2) Summary of AHP applications. to determine that the proposed AHP payments the sponsor is to receive from
The Bank shall comply with requests project meets the eligibility the buyer, which shall include any cash
from the Advisory Council for summary requirements of paragraph (c) of this down payment from the buyer, plus the
information regarding AHP applications section, and shall evaluate the present value of any purchase note the
from prior funding periods. applications pursuant to the Bank’s sponsor holds on the unit. If the note
(3) Annual analysis; public access. (i) scoring guidelines adopted pursuant to carries a market interest rate
Each Advisory Council annually shall paragraph (d) of this section. commensurate with the credit quality of
submit to the Finance Board by May 1 (c) Minimum eligibility requirements. the buyer, the present value of the note
its analysis of the low- and moderate- Projects receiving AHP subsidies equals the face value of the note. If the
income housing and community lending pursuant to a Bank’s competitive note carries an interest rate below the
activity of the Bank by which it is application program must meet the market rate, the present value of the
appointed. following eligibility requirements: note shall be determined using the
(ii) Within 30 days after the date the (1) Owner-occupied or rental housing. market rate to discount the cash flows.
Advisory Council’s annual analysis is The AHP subsidy shall be used (iii) A project’s cash uses are the
submitted to the Finance Board, the exclusively for: actual outlay of cash needed to pay for
Bank shall publish the analysis on its (i) Owner-occupied housing. The materials, labor, and acquisition or other
publicly available Web site. purchase, construction, or rehabilitation costs of completing the project. Cash
(e) Expenses. The Bank shall pay of an owner-occupied project by or for costs do not include in-kind donations,
Advisory Council members’ travel very low-income or low- or moderate- voluntary professional labor or services,
expenses, including transportation and income households. A household must or sweat equity.
subsistence, for each day devoted to have an income meeting the income (3) Project costs. (i) In general. (A)
attending meetings with representatives targeting commitments in the approved Taking into consideration the
of the board of directors of the Bank and AHP application at the time it is geographic location of the project,
meetings requested by the Finance qualified by the project sponsor for development conditions, and other non-
Board. participation in the project. financial household or project
characteristics, a Bank shall determine to be drawn down by the project or used (C) Demonstrate the ability to track
that a project’s costs, as reflected in the by the project to procure other financing the use of the AHP subsidy.
project’s development budget, are commitments within 12 months of the (11) Fair housing. The project, as
reasonable, in accordance with the date of approval of the application for proposed, must comply with applicable
Bank’s project cost guidelines. AHP subsidy funding the project. federal and state laws on fair housing
(B) For purposes of determining the (7) Counseling costs. AHP subsidies and housing accessibility, including, but
reasonableness of a developer’s fee for a may be used to pay for counseling costs not limited to, the Fair Housing Act, the
project as a percentage of total only where: Rehabilitation Act of 1973, the
development costs, a Bank may, in its (i) Such costs are incurred in Americans with Disabilities Act of 1990,
discretion, include estimates of the connection with counseling of and the Architectural Barriers Act of
market value of in-kind donations and homebuyers who actually purchase an 1969, and must demonstrate how the
volunteer professional labor or services AHP-assisted unit; and project will be affirmatively marketed.
(excluding the value of sweat equity) (ii) The cost of the counseling has not (12) Calculation of AHP subsidy. (i)
committed to the project as part of the been covered by another funding source, Where an AHP direct subsidy is
total development costs. including the member. provided to a project to write down the
(ii) Cost of property and services (8) Refinancing. The project may use interest rate on a loan extended by a
provided by a member. The purchase AHP subsidies to refinance an existing member, sponsor, or other party to a
price of property or services, as reflected single-family or multi-family mortgage project, the net present value of the
in the project’s development budget, loan, provided that the refinancing interest foregone from making the loan
sold to the project by a member produces equity proceeds and such below the lender’s market interest rate
providing AHP subsidy to the project, equity proceeds up to the amount of the shall be calculated as of the date the
or, in the case of property, upon which AHP subsidy in the project shall be used application for AHP subsidy is
such member holds a mortgage or lien, only for the purchase, construction, or submitted to the Bank, and subject to
may not exceed the market value of rehabilitation of housing units meeting adjustment under paragraph (g)(4) of
such property or services as of the date the eligibility requirements of this this section.
the purchase price was agreed upon. In paragraph (c). (ii) Where an AHP subsidized
the case of real estate owned property (9) Retention. (i) Owner-occupied advance is provided to a project, the net
sold to a project by a member providing projects. Each AHP-assisted unit in an present value of the interest revenue
AHP subsidy to the project, or property owner-occupied project is, or is foregone from making a subsidized
sold to the project upon which the committed to be, subject to a 5-year advance at a rate below the Bank’s cost
member holds a mortgage or lien, the retention agreement described in of funds shall be determined as of the
market value of such property is § 951.9(a)(7) of this part. earlier of the date of disbursement of the
deemed to be the ‘‘as-is’’ or ‘‘as- (ii) Rental projects. AHP-assisted subsidized advance or the date prior to
rehabilitated’’ value of the property, rental projects are, or are committed to disbursement on which the Bank first
whichever is appropriate. That value be, subject to a 15-year retention manages the funding to support the
shall be reflected in an independent agreement described in § 951.9(a)(8) of subsidized advance through its asset/
appraisal of the property performed by this part. liability management system, or
a state certified or licensed appraiser, as (10) Project sponsor qualifications. (i) otherwise.
defined in 12 CFR 564.2(j) and (k), In general. A project’s sponsor must be (13) Lending and re-lending of AHP
within 6 months prior to the date the qualified and able to perform its direct subsidy by revolving loan funds.
Bank disburses AHP subsidy to the responsibilities as committed to in the Pursuant to written policies established
project. application for AHP subsidy funding the by a Bank’s board of directors after
(4) Project feasibility. (i) project. consultation with its Advisory Council,
Developmental feasibility. The project (ii) Revolving loan fund. Pursuant to a Bank, in its discretion, may provide
must be likely to be completed and written policies adopted by a Bank’s AHP direct subsidy under its
occupied, based on relevant factors board of directors, a revolving loan fund competitive application program for
contained in the Bank’s project sponsor that intends to use AHP direct eligible projects and households
feasibility guidelines, including, but not subsidy in accordance with involving both the lending of the
limited to, the development budget, § 951.5(c)(13) of this part shall: subsidy and subsequent lending of
market analysis, and project sponsor’s (A) Provide audited financial subsidy principal and interest
experience in providing the requested statements that its operations are repayments by a revolving loan fund,
assistance to households. consistent with sound business provided the following requirements are
(ii) Operational feasibility of rental practices; and met:
projects. A rental project must be able (B) Demonstrate the ability to re-lend (i) Submission of application. (A) An
to operate in a financially sound AHP subsidy repayments on a timely application for AHP subsidy under this
manner, in accordance with the Bank’s basis and track the use of the AHP paragraph (c)(13) shall include the
project feasibility guidelines, as subsidy. revolving loan fund’s criteria for the
projected in the project’s operating pro (iii) Loan pool. Pursuant to written initial lending of the subsidy,
forma. policies adopted by a Bank’s board of identification of and information on a
(5) Financing costs. The rate of directors, a loan pool sponsor that specific proposed AHP project if
interest, points, fees, and any other intends to use AHP subsidy in required in the Bank’s discretion, the
charges for all loans that are made for accordance with § 951.5(c)(14) of this revolving loan fund’s criteria for
the project in conjunction with the AHP part shall: subsequent lending of subsidy principal
subsidy shall not exceed a reasonable (A) Provide evidence of sound asset/ and interest repayments, and any other
market rate of interest, points, fees, and liability management practices; information required by the Bank.
other charges for loans of similar (B) Provide audited financial (B) The information in the application
maturity, terms, and risk. statements that its operations are shall be sufficient for the Bank to:
(6) Timing of AHP subsidy use. Some consistent with sound business (1) Determine that the criteria for the
or all of the AHP subsidy must be likely practices; and initial lending of the subsidy, the
specific proposed project if applicable, the requirements of this paragraph agreement with the loan pool sponsor,
and the criteria for subsequent lending (c)(13)(iv). which shall not exceed 1 year from the
of subsidy principal and interest (B) The revolving loan fund’s date of approval of the AHP application.
repayments, meet the eligibility subsequent lending of AHP subsidy (B) As an alternative to using a
requirements of paragraph (c) of this principal and interest repayments shall forward commitment, the loan pool
section; and be for the purchase, construction, or sponsor may purchase an initial round
(2) Evaluate the criteria for the initial rehabilitation of owner-occupied of loans that were not originated
lending of the subsidy, and the specific projects for households with incomes at pursuant to an AHP-specific forward
proposed project if applicable, pursuant or below 80 percent of the median commitment, provided that the entities
to the scoring guidelines established by income for the area, or of rental projects from which the loans were purchased
the Bank pursuant to paragraph (d) of where at least 20 percent of the units are are required to use the proceeds from
this section. occupied by and affordable for the initial loan purchases within time
(ii) Review of application. A Bank households with incomes at or below 50 limits on the use of the AHP subsidy as
shall review the application for AHP percent of the median income for the specified by the Bank in its AHP
subsidy to determine that the criteria for area, and shall meet all other eligibility Implementation Plan and the Bank’s
the initial lending of the subsidy, the requirements of this paragraph (c). agreement with the loan pool sponsor,
specific proposed project if applicable, (C) A Bank may, in its discretion, which shall not exceed 1 year from the
and the criteria for subsequent lending require the revolving loan fund’s date of approval of the AHP application.
of subsidy principal and interest subsequent lending of subsidy principal The proceeds shall be used by such
repayments, meet the eligibility and interest repayments to be subject to entities to assist households that are
requirements of paragraph (c) of this retention period, monitoring, and income-eligible under the approved
section, and shall evaluate the criteria recapture requirements as defined by AHP application during subsequent
for the initial lending of the subsidy and the Bank in its AHP Implementation rounds of lending, and such assistance
the specific proposed project, if Plan. shall be provided in the form of a
applicable, pursuant to the scoring (v) Return of unused AHP subsidy. below-market AHP-subsidized interest
guidelines established by the Bank The revolving loan fund shall return to rate as specified in the approved AHP
pursuant to paragraph (d) of this the Bank any AHP subsidy that will not application.
section. be used according to the requirements (iii) Each AHP-assisted owner-
(iii) Initial lending of subsidy. (A) The in this paragraph (c)(13). occupied unit and rental project
revolving loan fund’s initial lending of (14) Use of AHP subsidy in loan receiving AHP direct subsidy or a
the AHP subsidy shall meet the pools. Pursuant to written policies subsidized advance shall be subject to
eligibility requirements of this established by a Bank’s board of the requirements of § 951.7(a), 951.8,
paragraph (c), shall be to projects or directors after consultation with its and 951.9, respectively, of this part.
households meeting the commitments Advisory Council, a Bank, in its (iv) Where AHP direct subsidy is
in the approved application for AHP discretion, may provide AHP subsidy being used to buy down the interest rate
subsidy, and shall be subject to the under its competitive application of a loan or loans from a member or
requirements of §§ 951.7(a) and 951.9 of program for the origination of first other party, the loan pool sponsor shall
this part, respectively. mortgage or rehabilitation loans with use the full amount of the AHP direct
(B) If a project or owner-occupied unit subsidized interest rates to AHP-eligible subsidy to buy down the interest rate on
funded under this paragraph (c)(13)(iii) households through a purchase a permanent basis at the time of closing
is in noncompliance with the commitment by an entity that will on such loan or loans.
commitments in the approved AHP purchase and pool the loans, provided (15) Optional District eligibility
application, or is sold or refinanced the following requirements are met: requirements. A Bank may require a
prior to the end of the applicable AHP (i) Eligibility requirements. The loan project receiving AHP subsidies to meet
retention period, the required amount of pool sponsor’s use of the AHP subsidies one or more of the following additional
AHP subsidy shall be repaid to the shall meet the requirements under this eligibility requirements adopted by the
revolving loan fund in accordance with paragraph (c)(14), and shall not be used Bank’s board of directors and included
§§ 951.8 and 951.9 of this part, and the for the purpose of providing liquidity to in its AHP Implementation Plan after
revolving loan fund shall re-lend such the originator or holder of the loans, or consultation with its Advisory Council:
repaid subsidy, excluding the amounts paying the loan pool’s operating or (i) AHP subsidy limits. A requirement
of AHP subsidy principal already repaid secondary market transaction costs. that the amount of AHP subsidy
to the revolving loan fund, to another (ii) Forward commitment. (A) The requested for the project does not
project or owner-occupied unit meeting loan pool sponsor shall purchase the exceed limits established by the Bank as
the initial lending requirements of this loans pursuant to a forward to the maximum amount of AHP
paragraph (c)(13)(iii) for the remainder commitment that identifies the loans to subsidy available per member each year,
of the retention period. be originated with interest-rate or per member, per project, or per
(iv) Subsequent lending of AHP reductions as specified in the approved project unit in a single funding period;
subsidy principal and interest application for AHP subsidy to or
repayments. (A) AHP subsidy principal households with incomes at or below 80 (ii) Homebuyer or homeowner
and interest repayments received by the percent of the median income for the counseling. A requirement that a
revolving loan fund from the initial area. Both initial purchases of loans for household must complete a homebuyer
lending of the AHP direct subsidy shall the AHP loan pool and subsequent or homeowner counseling program
be re-lent by the revolving loan fund in purchases of loans to substitute for provided by, or based on one provided
accordance with the requirements of repaid loans in the pool shall be made by, an organization recognized as
this paragraph (c)(13)(iv), except that pursuant to the terms of such forward experienced in homebuyer or
the revolving loan fund, in its commitment and subject to time limits homeowner counseling, respectively.
discretion, may provide part or all of on the use of the AHP subsidy as (16) Prohibited uses of AHP subsidies.
such repayments as nonrepayable grants specified by the Bank in its AHP The project shall not use AHP subsidies
to eligible projects in accordance with Implementation Plan and the Bank’s to pay for:
(i) Certain prepayment fees. criteria, with the number of points that reserved for households with incomes at
Prepayment fees imposed by a Bank on may be awarded to an application for or below 80 percent of the median
a member for a subsidized advance that meeting the criterion varying, income for the area.
is prepaid, unless: depending on the extent to which the (B) Owner-occupied projects.
(A) The project is in financial distress application satisfies the criterion, based Applications for owner-occupied
that cannot be remedied through a on a fixed scale or on a scale relative to projects shall be awarded points based
project modification pursuant to the other applications being scored. A on a declining scale to be determined by
§ 951.5(f) of this part; Bank shall designate the targeting and the Bank in its AHP Implementation
(B) The prepayment of the subsidized subsidy-per-unit scoring criteria Plan, taking into consideration
advance is necessary to retain the identified in paragraphs (d)(5)(iii) and percentages of units and targeted
project’s affordability and income (d)(5)(viii), respectively, of this section, income levels.
targeting commitments; as variable-point criteria. (C) Separate scoring. For purposes of
(C) Subsequent to such prepayment, (4) Satisfaction of scoring criteria. A this scoring criterion, applications for
the project will continue to comply with Bank shall award scoring points to owner-occupied projects and rental
the terms of the approved AHP applications for proposed projects based projects may be scored separately.
application and the requirements of this on satisfaction of the scoring criteria (iv) Housing for homeless households.
part for the duration of the original adopted by the Bank pursuant to The financing of rental housing,
retention period; paragraph (d)(5) of this section. excluding overnight shelters, reserving
(D) Any unused AHP subsidy is (5) Scoring criteria. An application for at least 20 percent of the units for
returned to the Bank and made available a proposed project may receive scoring homeless households, the creation of
for other AHP projects; and points based on satisfaction of the transitional housing for homeless
(E) The amount of AHP subsidy used following 9 scoring criteria: households permitting a minimum of 6
for the prepayment fee may not exceed (i) Use of donated or conveyed
months occupancy, or the creation of
the amount of the member’s prepayment government-owned or other properties.
permanent owner-occupied housing
fee to the Bank. The financing of housing using a
reserving at least 20 percent of the units
(ii) Cancellation fees. Cancellation significant proportion, as defined by the
for homeless households, with the term
fees and penalties imposed by a Bank on Bank in its AHP Implementation Plan,
‘‘homeless households’’ as defined by
a member for a subsidized advance of:
(A) Land or units donated or the Bank in its AHP Implementation
commitment that is canceled. Plan.
(iii) Processing fees. Processing fees conveyed by the federal government or
any agency or instrumentality thereof; (v) Promotion of empowerment. The
charged by members for providing AHP
or provision of housing in combination
direct subsidies to a project.
(d) Scoring of applications. (1) In (B) Land or units donated or conveyed with a program offering: employment;
general. A Bank shall establish written by any other party for an amount education; training; homebuyer,
scoring guidelines setting forth the significantly below the fair market value homeownership, or tenant counseling;
Bank’s AHP competitive application of the property, as defined by the Bank daycare services; resident involvement
program scoring criteria and related in its AHP Implementation Plan. in decision making affecting the
definitions and point allocations, and (ii) Sponsorship by a not-for-profit creation or operation of the project; or
implementing other applicable organization or government entity. other services that assist residents to
requirements pursuant to this paragraph Project sponsorship by a not-for-profit move toward better economic
(d). A Bank shall not adopt additional organization, a state or political opportunities, such as welfare to work
scoring criteria or point allocations, subdivision of a state, a state housing initiatives.
except as specifically authorized under agency, a local housing authority, a (vi) First District priority. The
this paragraph (d). Native American Tribe, an Alaskan satisfaction of one of the following
(2) Point allocations. (i) A Bank shall Native Village, or the government entity criteria, or one of a number of the
allocate 100 points among the 9 scoring for Native Hawaiian Home Lands. following criteria, adopted by the Bank
criteria identified in paragraph (d)(5) of (iii) Targeting. The extent to which a and set forth in the Bank’s AHP
this section. project provides housing for very low- Implementation Plan, as long as the
(ii) The scoring criterion for targeting and low- or moderate-income total points available for meeting the
identified in paragraph (d)(5)(iii) of this households, as follows: criterion or criteria adopted under this
section shall be allocated at least 20 (A) Rental projects. An application for category do not exceed the total points
points. a rental project shall be awarded the allocated to this category:
(iii) The remaining scoring criteria maximum number of points available (A) Special needs. The financing of
shall be allocated at least 5 points each. under this scoring criterion if 60 percent housing in which at least 20 percent of
(3) Fixed point and variable point or more of the units in the project are the units are reserved for occupancy by
scoring criteria. A Bank shall designate reserved for occupancy by households households with special needs, such as
each scoring criterion as either a fixed- with incomes at or below 50 percent of the elderly, mentally or physically
point or a variable-point criterion, the median income for the area. disabled persons, persons recovering
defined as follows: Applications for projects with less than from physical abuse or alcohol or drug
(i) Fixed-point scoring criteria are 60 percent of the units reserved for abuse, or persons with AIDS; or the
those which cannot be satisfied in occupancy by households with incomes financing of housing that is visitable by
varying degrees and are either satisfied at or below 50 percent of the median persons with physical disabilities who
or not, with the total number of points income for the area shall be awarded are not occupants of such housing;
allocated to the criterion awarded by the points on a declining scale based on the (B) Community development. The
Bank to an application meeting the percentage of units in a project that are financing of housing meeting housing
criterion; and reserved for households with incomes at needs documented as part of a
(ii) Variable-point criteria are those or below 50 percent of the median community revitalization or economic
where there are varying degrees to income for the area, and on the development strategy approved by a
which an application can satisfy the percentage of the remaining units unit of a state or local government;
(C) First-time homebuyers. The in its AHP Implementation Plan. The (ii) The application, as reflective of
financing of housing for first-time Bank may, but is not required to, use such changes, continues to score high
homebuyers; one of the criteria listed in paragraph enough to have been approved in the
(D) Member financial participation. (d)(5)(vi) of this section, provided it is funding period in which it was
Member financial participation different from the criterion or criteria originally scored and approved by the
(excluding the pass-through of AHP adopted by the Bank under such Bank; and
subsidy) in the project, such as paragraph. (iii) There is good cause for the
providing market rate or concessionary (viii) AHP subsidy per unit. (A) modification, and the analysis and
financing, fee waivers, or donations; Amount of subsidy. The extent to which justification for the modification are
(E) Disaster areas and displaced a project proposes to use the least documented by the Bank in writing.
households. The financing of housing amount of AHP subsidy per AHP- (2) AHP subsidy increases; no
located in federally declared disaster targeted unit. In the case of an delegation. Modifications involving an
areas, or for households displaced from application for a project financed by a increase in AHP subsidy shall be
federally declared disaster areas due to subsidized advance, the total amount of approved or disapproved by a Bank’s
a disaster; AHP subsidy used by the project shall board of directors. The authority to
(F) Rural. The financing of housing be estimated based on the Bank’s cost of approve or disapprove such requests
located in rural areas; funds as of the date on which all shall not be delegated to Bank officers
(G) Urban. The financing of urban applications are due for the funding or other Bank employees.
infill or urban rehabilitation housing; period in which the application is (g) Procedure for funding. (1)
(H) Economic diversity. The financing submitted. Disbursement of AHP subsidies to
of housing that is part of a strategy to (B) Separate scoring. For purposes of members. (i) A Bank may disburse AHP
end isolation of very low-income this scoring criterion, applications for subsidies only to institutions that are
households by providing economic owner-occupied projects and rental members of the Bank at the time they
diversity through mixed-income projects may be scored separately. request a draw-down of the subsidies.
housing in low- or moderate-income (ix) Community stability. The (ii) If an institution with an approved
neighborhoods, or providing very low- promotion of community stability, such application for AHP subsidy loses its
or low- or moderate-income households as by rehabilitating vacant or abandoned membership in a Bank, the Bank may
with housing opportunities in properties, being an integral part of a disburse AHP subsidies to a member of
neighborhoods or cities where the neighborhood stabilization plan such Bank to which the institution has
median income equals or exceeds the approved by a unit of state or local transferred its obligations under the
median income for the larger government, and not displacing low- or approved AHP application, or the Bank
surrounding area, such as the city, moderate-income households, or if such may disburse AHP subsidies through
county, or Primary Metropolitan displacement will occur, assuring that another Bank to a member of that Bank
Statistical Area, in which the such households will be assisted to that has assumed the institution’s
neighborhood or city is located; minimize the impact of such obligations under the approved AHP
(I) Fair housing remedy. The financing displacement. application.
of housing as part of a remedy (e) Approval of AHP applications. (1) (2) Progress towards use of AHP
undertaken by a jurisdiction adjudicated A Bank shall approve applications for subsidy. A Bank shall establish and
by a Federal, State, or local court to be AHP subsidy in descending order implement policies, including time
in violation of title VI of the Civil Rights starting with the highest scoring limits, for determining whether progress
Act of 1964 (42 U.S.C. 2000d et seq.), application until the total funding is being made towards draw-down and
the Fair Housing Act (42 U.S.C. 3601 et amount for the particular funding use of AHP subsidies by approved
seq.), or any other Federal, State, or period, except for any amount projects, and whether to cancel AHP
local fair housing law, or as part of a insufficient to fund the next highest application approvals for lack of such
settlement of such claims; scoring application, has been allocated. progress. If a Bank cancels any AHP
(J) Community involvement. (2) The Bank also shall approve at application approvals due to lack of
Demonstrated support for the project by least the next 4 highest scoring such progress, the Bank shall make the
local government, other than as a project applications as alternates and, within 1 AHP subsidies available for other AHP-
sponsor, in the form of property tax year of approval, may fund such eligible projects.
deferment or abatement, zoning changes alternates if any previously committed (3) Compliance upon disbursement of
or variances, infrastructure AHP subsidies become available. AHP subsidies. A Bank shall establish
improvements, fee waivers, or other (f) Modifications of approved AHP and implement policies for determining,
similar forms of non-cash assistance, or applications. (1) Modification prior to its initial disbursement of AHP
demonstrated support for the project by procedure. If, prior to or after final subsidies for an approved project, and
community organizations or disbursement of funds to a project from prior to each subsequent disbursement
individuals, other than as project all funding sources, there is or will be if the need for AHP subsidy has
sponsors, through the commitment by a change in the project that would changed, that the project meets the
such entities or individuals of donated change the score that the project eligibility requirements of paragraph (c)
goods and services, or volunteer labor; application received in the funding of this section and all obligations
(K) Lender consortia. The period in which it was originally scored committed to in the approved AHP
involvement of financing by a and approved, had the changed facts application. If a Bank cancels any AHP
consortium of at least 2 financial been operative at that time, a Bank, in application approvals due to
institutions; or its discretion, may approve in writing a noncompliance with eligibility
(L) In-District projects. The financing modification to the terms of the requirements of paragraph (c) of this
of housing located in the Bank’s District. approved application, provided that: section, the Bank shall make the AHP
(vii) Second District priority: defined (i) The project, incorporating any such subsidies available for other AHP-
housing need in the District. The changes, would meet the eligibility eligible projects.
satisfaction of a housing need in the requirements of paragraph (c) of this (4) Changes in approved AHP subsidy
Bank’s District, as defined by the Bank section; amount where a direct subsidy is used
to write down prior to closing the pursuant to the requirements of this rehabilitated using AHP direct subsidy
principal amount or interest rate on a part. shall be subject to a 5-year retention
loan. If a member is approved to receive (b) Eligible applicants. A Bank shall agreement described in § 951.9(a)(7) of
AHP direct subsidy to write down prior accept applications for AHP direct this part.
to closing the principal amount or the subsidy under its homeownership set- (6) Financial or other concessions.
interest rate on a loan to a project, and aside programs only from institutions The Bank may, in its discretion, require
the amount of AHP subsidy required to that are members of the Bank at the time members and other lenders to provide
maintain the debt service cost for the the application is submitted to the Bank. financial or other concessions, as
loan decreases from the amount of AHP (c) Minimum eligibility requirements. defined by the Bank in its AHP
subsidy initially approved by the Bank A Bank’s homeownership set-aside Implementation Plan, to households in
due to a decrease in market interest programs shall meet the following connection with providing the AHP
rates between the time of approval and eligibility requirements: direct subsidy or financing to the
the time the lender commits to the (1) Member allocation criteria. AHP household.
interest rate to finance the project, the direct subsidies shall be provided to (7) Financing costs. The rate of
Bank shall reduce the AHP subsidy members pursuant to allocation criteria interest, points, fees, and any other
amount accordingly. If market interest established by the Bank in its AHP charges for all loans made in
rates rise between the time of approval Implementation Plan. conjunction with the AHP direct
and the time the lender commits to the (2) Eligible households. Members subsidy shall not exceed a reasonable
interest rate to finance the project, the shall provide AHP direct subsidies only market rate of interest, points, fees, and
Bank, in its discretion, may increase the to households that: other charges for loans of similar
AHP subsidy amount accordingly. (i) Have incomes at or below 80 maturity, terms, and risk.
percent of the median income for the (8) Counseling costs. The AHP direct
(5) AHP outlay adjustment. If a Bank
area at the time the household is subsidies may be used to pay for
reduces the amount of AHP subsidy
accepted for enrollment by the member counseling costs only where:
approved for a project, the amount of
in the Bank’s homeownership set-aside (i) Such costs are incurred in
such reduction shall be returned to the
program, with such time of enrollment connection with counseling of
Bank’s AHP fund. If a Bank increases
by the member defined by the Bank in homebuyers who actually purchase an
the amount of AHP subsidy approved
its AHP Implementation Plan; AHP-assisted unit; and
for a project, the amount of such (ii) Complete a homebuyer or (ii) The cost of the counseling has not
increase shall be drawn first from any homeowner counseling program been covered by another funding source,
currently uncommitted or repaid AHP provided by, or based on one provided including the member.
subsidies and then from the Bank’s by, an organization experienced in (9) Cash back to household. A
required AHP contribution for the next homebuyer or homeowner counseling, member may provide cash back to a
year. in the case of households that are first- household at closing on the mortgage
(6) Project sponsor notification of time homebuyers; and loan in an amount not exceeding $250,
reuse of repaid AHP direct subsidy. (iii) Are first-time homebuyers, in the as determined by the Bank in its AHP
Prior to disbursement by a project case of households receiving funds Implementation Plan, and a member
sponsor of AHP direct subsidy repaid to pursuant to the first-time homebuyer shall use any AHP direct subsidy
and retained by such project sponsor requirement in § 951.2(b)(2) of this part, exceeding such amount that is beyond
pursuant to a subsidy re-use program and meet such other eligibility criteria what is needed at closing for closing
authorized by the Bank under that may be established by the Bank in costs and the approved mortgage
§ 951.8(f)(2) of this part, the project its AHP Implementation Plan, such as a amount as a credit to reduce the
sponsor shall provide written notice to matching funds requirement, principal of the mortgage loan or as a
the member and the Bank of its intent homebuyer or homeowner counseling credit toward the household’s monthly
to disburse the repaid AHP subsidy to requirement for households that are not payments on the mortgage loan.
a household satisfying the requirements first-time homebuyers, or criteria that (d) Approval of AHP applications. A
of this part and the commitments made give priority for the purchase or Bank shall approve applications for
in the approved AHP application. rehabilitation of housing in particular AHP direct subsidy in accordance with
(h) Bank board duties and delegation. areas or as part of a disaster relief effort. the Bank’s criteria governing the
(1) Duties. A Bank’s board of directors, (3) Maximum grant amount. Members allocation of funds.
after consultation with its Advisory shall provide AHP direct subsidies to (e) Procedure for funding. (1)
Council, shall be responsible for: households as a grant, in an amount up Disbursement of AHP direct subsidies to
(i) Adoption of the AHP to a maximum of $15,000 per members. (i) A Bank may disburse AHP
Implementation Plan required pursuant household, as established by the Bank direct subsidies only to institutions that
to § 951.3 of this part; and in its AHP Implementation Plan, which are members of the Bank at the time
(ii) Approving or disapproving the limit shall apply to all households. they request a draw-down of the
applications for AHP subsidy pursuant (4) Eligible uses of AHP direct subsidies.
to § 951.5(e) of this part. subsidy. Households shall use the AHP (ii) If an institution with an approved
(2) No delegation. The Bank’s board of direct subsidies to pay for down application for AHP direct subsidy loses
directors shall not delegate to Bank payment, closing cost, counseling, or its membership in a Bank, the Bank may
officers or other Bank employees the rehabilitation assistance in connection disburse AHP direct subsidies to a
responsibilities set forth in paragraph with the household’s purchase or member of such Bank to which the
(h)(1) of this section. rehabilitation of an owner-occupied institution has transferred its obligations
unit, including a condominium or under the approved AHP application, or

§ 951.6 Homeownership set-aside cooperative housing unit or the Bank may disburse AHP direct
programs. manufactured housing, to be used as the subsidies through another Bank to a
(a) Establishment of program. A Bank household’s primary residence. member of that Bank that has assumed
may establish one or more (5) Retention agreement. An owner- the institution’s obligations under the
homeownership set-aside programs occupied unit purchased or approved AHP application.
(2) Reservation of homeownership set- Bank’s project cost guidelines, and the (ii) The entity has demonstrated and
aside subsidies. A Bank shall establish AHP subsidies were necessary for the continues to demonstrate its ability to
and implement policies for reservation completion of the project as currently monitor the project;
of homeownership set-aside subsidies structured; (iii) The entity agrees to provide
for households enrolled in the Bank’s (4) Each AHP-assisted unit of an reports to the Bank on the project’s
homeownership set-aside program. The owner-occupied project and rental incomes and rents for the full 15-year
policies shall provide that set-aside project is subject to AHP retention AHP retention period; and
subsidies be reserved no more than 2 agreements that meet the requirements (iv) The Bank reviews the reports
years in advance of the Bank’s time of § 951.9(a)(7) or (a)(8), respectively, of from the monitoring entity to confirm
limit in its AHP Implementation Plan this part; and that they comply with the Bank’s
for draw-down and use of the subsidies (5) The services and activities monitoring policies.
by the household and the reservation of (4) Long-term monitoring policies for
committed to in the approved AHP
subsidies be made from the set-aside rental projects. (i) Adoption and
application have been provided in
allocation of the year in which the Bank implementation. In cases where a Bank
connection with the project.
makes the reservation. does not rely on monitoring by a federal,
(ii) Back-up and other project state, or local government entity
(3) Progress towards use of AHP direct
documentation. The Bank’s written pursuant to paragraphs (a)(2) or (a)(3) of
subsidy. A Bank shall establish and
monitoring policies shall include this section, pursuant to written policies
implement policies, including time
requirements for: established by the Bank, the Bank shall
limits, for determining whether progress
is being made towards draw-down and (A) Bank review of back-up project monitor completed AHP rental projects
use of the AHP direct subsidies by documentation regarding household under its competitive application
eligible households, and whether to incomes and rents maintained by the program, commencing in the second
cancel AHP application approvals for project sponsor or owner; and year after project completion to
lack of such progress. If a Bank cancels (B) Maintenance and Bank review of determine, at a minimum, whether
any AHP application approvals due to other project documentation in the during the full 15-year retention period,
lack of such progress, it shall make the Bank’s discretion. the household incomes and rents
AHP direct subsidies available for other (iii) Sampling plan. The Bank shall comply with the income targeting and
applicants for AHP direct subsidies not use a sampling plan to select the rent commitments, respectively, made
under the homeownership set-aside projects to be monitored under this in the approved AHP applications.
program or for other AHP-eligible paragraph (a)(1), but may use a (ii) Annual project owner
projects. reasonable risk-based sampling plan to certifications; backup and other project
review the back-up project documentation. A Bank’s written
§ 951.7 Monitoring. documentation. monitoring policies shall include
(a) Competitive application program. (2) Reliance on long-term tax credit requirements for:
(1) Initial monitoring policies for owner- monitoring for rental projects. For (A) Bank review of annual
occupied and rental projects. (i) completed AHP rental projects that have certifications by project owners to the
Adoption and implementation. been allocated federal Low-Income Bank that household incomes and rents
Pursuant to written policies established Housing Tax Credits (tax credits), a are in compliance with the
by a Bank, the Bank shall monitor each Bank may, in its discretion, for purposes commitments made in the approved
AHP owner-occupied and rental project of long-term AHP monitoring under its AHP application;
under its competitive application competitive application program, rely (B) Bank review of back-up project
program prior to, and within a on the monitoring by the state- documentation regarding household
reasonable period of time after, project designated housing credit agency incomes and rents maintained by the
completion to determine, at a minimum, administering the tax credits of the project owner; and
whether: (C) Maintenance and Bank review of
income targeting and rent requirements
(A) The project is making satisfactory other project documentation in the
applicable under the Low-Income
progress towards completion, in Banks’ discretion.
Housing Tax Credit Program, and the (iii) Risk factors and other monitoring.
compliance with the commitments Bank need not obtain and review reports
made in the approved AHP application, (A) Risk factors; other monitoring. A
from such agency or otherwise monitor Bank’s written monitoring policies shall
Bank policies, and the requirements of the projects’ long-term AHP compliance.
this part; take into account risk factors such as the
(B) Following completion of the (3) Reliance on other long-term amount of AHP subsidy in the project,
project, satisfactory progress is being governmental monitoring for rental type of project, size of project, location
made towards occupancy of the project projects. For completed AHP rental of project, sponsor experience, and any
by eligible households; and projects that received funds other than monitoring of the project provided by a
(C) Within a reasonable period of time tax credits from federal, state, or local federal, state, or local government
after project completion, the project government entities, a Bank may, in its entity.
meets the following requirements, at a discretion, for purposes of long-term (B) Risk-based sampling plan. A Bank
minimum: AHP monitoring under its competitive may use a reasonable, risk-based
(1) The AHP subsidies were used for application program, rely on the sampling plan to select the rental
eligible purposes according to the monitoring by such entities of the projects to be monitored under this
commitments made in the approved income targeting and rent requirements paragraph (a)(4), and to review the
AHP application; applicable under their programs, annual project owner certifications,
(2) The household incomes and rents provided that the Bank can show that: back-up, and any other project
comply with the income targeting and (i) The compliance profiles regarding documentation. The risk-based
rent commitments made in the income targeting, rent, and retention sampling plan and its basis shall be in
approved AHP application; period requirements of the AHP and the writing.
(3) The project’s actual costs were other programs are substantively (5) Annual adjustment of targeting
reasonable in accordance with the equivalent; commitments. For purposes of
determining compliance with the subsidies (plus interest, if appropriate) AHP fund in the amount of any AHP
targeting commitments in an approved that are not used in compliance with the subsidies (plus interest, if appropriate)
AHP application for both initial and commitments made in the approved misused as a result of the actions or
long-term AHP monitoring purposes application for AHP subsidy and the omissions of the Bank.
under a Bank’s competitive application requirements of this part, if the misuse (2) By Finance Board order. The
program, such commitments shall be is the result of the actions or omissions Finance Board may order a Bank to
considered to adjust annually according of the member, the project sponsor, or reimburse its AHP fund in an
to the current applicable median income the project owner. appropriate amount upon determining
data. A rental unit may continue to (b) Responsible party for repayment of that:
count toward meeting the targeting AHP subsidies. Except as provided in (i) The Bank has failed to reimburse
commitment of an approved AHP paragraph (c) of this section: its AHP fund as required under
application as long as the rent charged (1) If the member causes the AHP paragraph (e)(1) of this section; or
to a household remains affordable, as subsidies to be misused through its (ii) The Bank has failed to recover
defined in § 951.1 of this part, for the actions or omissions, the member shall AHP subsidy from a member, project
household occupying the unit. repay the AHP subsidies to the Bank. sponsor, or project owner pursuant to
(b) Homeownership set-aside (2) If the project sponsor or owner the requirements of paragraph (a) of this
programs: Monitoring policies. (1) causes the AHP subsidies to be misused section, and has not shown that such
Adoption and implementation. through its actions or omissions, the failure is reasonably justified,
Pursuant to written policies adopted by following shall apply, as determined by considering factors such as the extent of
a Bank, the Bank shall monitor the Bank in its discretion: the Bank’s recovery efforts.
compliance with the requirements of its (i) The member shall recover the AHP (f) Use of repaid AHP subsidies. (1)
homeownership set-aside programs, subsidies from the project sponsor or Use of repaid AHP subsidies in other
including monitoring to determine, at a owner and repay them to the Bank; or AHP-eligible projects. Except as
minimum, whether: (ii) The project sponsor or owner shall provided in paragraph (f)(2) of this
(i) The AHP subsidy was provided to repay the AHP subsidies directly to the section, amounts of AHP subsidy,
households meeting all applicable Bank. including any interest, repaid to a Bank
eligibility requirements in § 951.6(c)(2) (c) Recovery not required. Recovery of
pursuant to this part shall be made
of this part and the Bank’s the AHP subsidies is not required if:
(1) The member, project sponsor, or available by the Bank for other AHP-
homeownership set-aside program eligible projects.
policies; and project owner cures the noncompliance
within a reasonable period of time; (2) Re-use of repaid AHP direct
(ii) All other applicable eligibility subsidies in same project. (i)
requirements in § 951.6(c) of this part (2) The circumstances of
noncompliance are eliminated through a Requirements. AHP direct subsidy,
and the Bank’s homeownership set- including any interest, repaid to a
aside program policies are met, modification of the terms of the
approved application for AHP subsidy member or project sponsor under a
including that the AHP-assisted units homeownership set-aside program or
are subject to retention agreements pursuant to § 951.5(f) of this part; or
(3) The member is unable to collect the competitive application program,
required under § 951.6(c)(5) of this part. respectively, may be repaid by such
(2) Member certifications; back-up the AHP subsidy after making
reasonable efforts to collect it. parties to the Bank for subsequent
and other documentation. The Bank’s disbursement to and re-use by such
written monitoring policies shall (d) Settlements. A Bank may settle a
claim for AHP subsidies that it has parties, or retained by such parties for
include requirements for: subsequent re-use, as authorized by the
(i) Bank review of certifications by against a member, project sponsor, or
project owner for less than the full Bank, in its discretion, after
members to the Bank, prior to consultation with its Advisory Council,
disbursement of the AHP subsidy, that amount due. If a Bank enters into such
a settlement, the Finance Board may in its AHP Implementation Plan,
the subsidy will be provided in provided all of the following
compliance with all applicable require the Bank to reimburse its AHP
fund in the amount of any shortfall requirements are satisfied:
eligibility requirements in § 951.6(c) of
under paragraph (e)(2) of this section, (A) The member or the project
this part;
unless: sponsor originally provided the AHP
(ii) Bank review of back-up
(1) The Bank has sufficient direct subsidy as down payment,
documentation regarding household
documentation showing that the sum closing cost, rehabilitation, or interest
incomes maintained by the member;
agreed to be repaid under the settlement rate buy down assistance to an eligible
and
(iii) Maintenance and Bank review of is reasonably justified, based on the household to purchase or rehabilitate an
other documentation in the Bank’s facts and circumstances of the owner-occupied unit pursuant to an
discretion. noncompliance (including the degree of approved AHP application;
(3) Sampling plan. The Bank may use culpability of the non-complying parties (B) The AHP direct subsidy, including
a reasonable sampling plan to select the and the extent of the Bank’s recovery any interest, was repaid to the member
households to be monitored, and to efforts); or or project sponsor as a result of a sale
review the back-up and any other (2) The Bank obtains a determination by the household of the unit prior to the
documentation received by the Bank, from the Finance Board that the sum end of the retention period to a
but not the member certifications agreed to be repaid under the settlement purchaser that is not a low-or moderate-
required in paragraph (b)(2) of this is reasonably justified, based on the income household; and
section. The sampling plan and its basis facts and circumstances of the (C) The repaid AHP direct subsidy is
shall be in writing. noncompliance (including the degree of made available by the member or project
culpability of the non-complying parties sponsor, within the period of time
§ 951.8 Remedial actions for and the extent of the Bank’s recovery specified by the Bank in its AHP
noncompliance. efforts). Implementation Plan, to another AHP-
(a) Recovery of AHP subsidies. A Bank (e) Reimbursement of AHP fund. (1) eligible household to purchase or
shall recover the amount of any AHP By the Bank. A Bank shall reimburse its rehabilitate an owner-occupied unit in
the same project in accordance with the member shall use the AHP subsidy in in a successor organization that is not a
terms of the approved AHP application. accordance with the terms of the member of the Bank, the nonmember
(ii) No delegation. A Bank’s board of member’s approved application for the successor organization assumes the
directors shall not delegate to Bank subsidy and the requirements of this member’s obligations under its
officers or other Bank employees the part. approved application for AHP subsidy,
responsibility to adopt any Bank (ii) Use of AHP subsidy by the project and where the member received an AHP
policies on re-use of repaid AHP direct sponsor or owner. The member shall subsidized advance, the nonmember
subsidies in the same project pursuant have in place an agreement with each assumes such obligations until
to paragraph (f)(2)(i) of this section. project sponsor or project owner in prepayment or orderly liquidation by
(g) Suspension and debarment. (1) At which the project sponsor or project the nonmember of the subsidized
a Bank’s initiative. A Bank may suspend owner agrees to use the AHP subsidy in advance.
or debar a member, project sponsor, or accordance with the terms of the (7) Retention agreements for owner-
project owner from participation in the member’s approved application for the occupied units. The member shall
Program if such party shows a pattern subsidy and the requirements of this ensure that an AHP-assisted owner-
of noncompliance, or engages in a single part. occupied unit is subject to a deed
instance of flagrant noncompliance, (4) Repayment of AHP subsidies in restriction or other legally enforceable
with the terms of an approved case of noncompliance. (i) retention agreement or mechanism
application for AHP subsidy or the Noncompliance by the member. The requiring that:
requirements of this part. member shall repay AHP subsidies to (i) The Bank or its designee is to be
(2) At the Finance Board’s initiative. the Bank in accordance with the given notice of any sale or refinancing
The Finance Board may order a Bank to requirements of § 951.8(b)(1) of this of the unit occurring prior to the end of
suspend or debar a member, project part. the retention period;
sponsor, or project owner from (ii) Noncompliance by a project
(ii) In the case of a sale or refinancing
participation in the Program if such sponsor or owner. (A) Agreement. The
of the unit prior to the end of the
party shows a pattern of member shall have in place an
retention period, an amount equal to a
noncompliance, or engages in a single agreement with each project sponsor or
pro rata share of the AHP subsidy that
instance of flagrant noncompliance, project owner in which the project
financed the purchase, construction, or
with the terms of an approved sponsor or project owner agrees to repay
rehabilitation of the unit, reduced for
application for AHP subsidy or the AHP subsidies to the member or the
every year the seller owned the unit,
requirements of this part. Bank in accordance with the
shall be repaid to the Bank from any net
(h) Transfer of Program requirements of § 951.8(b)(2)(i) or
gain realized upon the sale or
administration. Without limitation on (b)(2)(ii) of this part, respectively (as
refinancing, unless:
other remedies, the Finance Board, applicable).
(B) Recovery of AHP subsidies. The (A) The unit was assisted with a
upon determining that a Bank has permanent mortgage loan funded by an
engaged in mismanagement of its member shall recover from the project
sponsor or project owner and repay to AHP subsidized advance;
Program, may designate another Bank to (B) The unit is sold to a very low-, or
administer all or a portion of the first the Bank any AHP subsidy in
accordance with the requirements of low- or moderate-income household; or
Bank’s annual AHP contribution, for the (C) Following a refinancing, the unit
benefit of the first Bank’s members, § 951.8(b)(2)(i) of this part (if
applicable). continues to be subject to a deed
under such terms and conditions as the restriction or other legally enforceable
Finance Board may prescribe. (5) Project monitoring. (i) Monitoring
by the member. The member shall retention agreement or mechanism
(i) Finance Board actions under this
comply with the monitoring described in this paragraph (a)(7); and
section. Except as provided in
requirements applicable to it, as (iii) In the case of a direct subsidy,
paragraph (d)(2) of this section, actions
established by the Bank in its such repayment of AHP subsidy shall be
taken by the Finance Board under this
monitoring policies pursuant to § 951.7 made:
section are reviewable under § 907.9 of
of this part. (A) To the Bank. If the Bank has not
this chapter.
(ii) Agreement. The member shall authorized re-use of the repaid AHP
§ 951.9 Agreements. have in place an agreement with each subsidy or has authorized re-use of the
(a) Agreements between Banks and project sponsor and project owner, in repaid subsidy but not retention of such
members. A Bank shall have in place which the project sponsor and project repaid subsidy by the member or project
with each member receiving an AHP owner agree to comply with the sponsor pursuant to § 951.8(f)(2) of this
subsidized advance or AHP direct monitoring requirements applicable to part, or has authorized retention and re-
subsidy an agreement or agreements such parties, as established by the Bank use of such repaid subsidy by the
containing, at a minimum, the following in its monitoring policies pursuant to member or project sponsor pursuant to
provisions, where applicable: § 951.7 of this part. such section and the repaid subsidy is
(1) Notification of member. The (6) Transfer of AHP obligations. (i) To not re-used in accordance with the
member has been notified of the another member. The member shall requirements of the Bank and such
requirements of this part as they may be make best efforts to transfer its section; or
amended from time to time, and all obligations under the approved (B) To the member or project sponsor.
Bank policies relevant to the member’s application for AHP subsidy to another To the member or project sponsor for
approved application for AHP subsidy. member in the event of its loss of reuse by such member or project
(2) AHP subsidy pass-through. The membership in the Bank prior to the sponsor, if the Bank has authorized
member shall pass on the full amount of Bank’s final disbursement of AHP retention and re-use of such subsidy by
the AHP subsidy to the project or subsidies. the member or project sponsor pursuant
household, as applicable, for which the (ii) To a nonmember. If, after final to § 951.8(f)(2); and
subsidy was approved. disbursement of AHP subsidies to the (iv) The obligation to repay AHP
(3) Use of AHP subsidy. (i) Use of member, the member undergoes an subsidy to the Bank shall terminate after
AHP subsidy by the member. The acquisition or a consolidation resulting any foreclosure.
(8) Retention agreements for rental (ii) Prepayment fees. Upon a pending or approved AHP application,
projects. The member shall ensure that prepayment of an AHP subsidized the Bank director or employee shall not
an AHP-assisted rental project is subject advance, the Bank shall charge a participate in or attempt to influence
to a deed restriction or other legally prepayment fee only to the extent the decisions by the Bank regarding the
enforceable retention agreement or Bank suffers an economic loss from the evaluation, approval, funding,
mechanism requiring that: prepayment. monitoring, or any remedial process for
(i) The project’s rental units, or (iii) Treatment of loan prepayment by such project.
applicable portion thereof, must remain project. If all or a portion of the loan or (2) If a Bank director or employee, or
occupied by and affordable for loans financed by an AHP subsidized such person’s family member, has a
households with incomes at or below advance are prepaid by the project to financial interest in, or is a director,
the levels committed to be served in the the member, the member may, at its officer, or employee of an organization
approved AHP application for the option, either: involved in, an AHP project such that
duration of the retention period; (A) Repay to the Bank that portion of he or she is subject to the requirements
(ii) The Bank or its designee is to be the advance used to make the loan or in paragraph (a)(1) of this section, such
given notice of any sale or refinancing loans to the project, and be subject to a person shall not participate in or
of the project occurring prior to the end fee imposed by the Bank sufficient to attempt to influence decisions by the
of the retention period; compensate the Bank for any economic Bank regarding the evaluation, approval,
(iii) In the case of a sale or refinancing loss the Bank experiences in reinvesting funding, monitoring, or any remedial
of the project prior to the end of the the repaid amount at a rate of return process for such project.
retention period, the full amount of the below the cost of funds originally used (b) Advisory Council members. (1)
AHP subsidy received by the owner by the Bank to calculate the interest rate Each Bank’s board of directors shall
shall be repaid to the Bank, unless: subsidy incorporated in the advance; or adopt a written policy providing that if
(A) The project continues to be (B) Continue to maintain the advance an Advisory Council member, or such
subject to a deed restriction or other outstanding, subject to the Bank person’s family member, has a financial
legally enforceable retention agreement resetting the interest rate on that portion interest in, or is a director, officer, or
or mechanism incorporating the of the advance used to make the loan or employee of an organization involved
income-eligibility and affordability loans to the project to a rate equal to the in, a project that is the subject of a
restrictions committed to in the cost of funds originally used by the pending or approved AHP application,
approved AHP application for the Bank to calculate the interest rate the Advisory Council member shall not
duration of the retention period; or subsidy incorporated in the advance. participate in or attempt to influence
(B) If authorized by the Bank, in its (b) Agreements between Banks and decisions by the Bank regarding the
discretion, the households are relocated, project sponsors or owners. A Bank approval for such project.
due to the exercise of eminent domain, shall have in place an agreement with (2) If an Advisory Council member, or
or for expansion of housing or services, each project sponsor or project owner, such person’s family member, has a
to another property that is made subject in which the project sponsor or project financial interest in, or is a director,
to a deed restriction or other legally owner agrees to repay AHP subsidies officer, or employee of an organization
enforceable retention agreement or directly to the Bank in accordance with involved in, an AHP project such that
mechanism incorporating the income- the requirements of § 951.8(b)(2)(ii) of he or she is subject to the requirements
eligibility and affordability restrictions this part (if applicable). in paragraph (b)(1) of this section, such
committed to in the approved AHP (c) Application to existing AHP person shall not participate in or
application for the remainder of the projects and units. The requirements of attempt to influence decisions by the
retention period; and section 10(j) of the Act (12 U.S.C. Bank regarding the approval for such
(iv) The income-eligibility and 1430(j)) and the provisions of this part, project.
affordability restrictions applicable to as amended, are incorporated into all (c) No delegation. A Bank’s board of
the project shall terminate after any agreements between Banks, members, directors shall not delegate to Bank
foreclosure. project sponsors, and project owners officers or other Bank employees the
(9) Lending of AHP direct subsidies. If receiving AHP subsidies under the responsibility to adopt the conflict of
a member or a project sponsor lends competitive application program, and interest policies required by this
AHP direct subsidy to a project, any between Banks, members and unit section.
repayments of principal and payments owners under the homeownership set-
of interest received by the member or aside program. To the extent the § 951.11 Temporary suspension of AHP
the project sponsor must be paid requirements of this part are amended contributions.
forthwith to the Bank, unless the direct from time to time, such agreements are (a) Request to Finance Board. If a
subsidy is being both lent and re-lent by deemed to incorporate the amendments Bank finds that the contributions
a revolving loan fund pursuant to to conform to any new requirements of required pursuant to § 951.2(a) of this
§ 951.5(c)(13) of this part. this part. No amendment to this part part are contributing to the financial
(10) Special provisions where shall affect the legality of actions taken instability of the Bank, the Bank may
members obtain AHP subsidized prior to the effective date of such apply in writing to the Finance Board
advances. (i) Repayment schedule. The amendment. for a temporary suspension of such
term of an AHP subsidized advance contributions.
shall be no longer than the term of the § 951.10 Conflicts of interest. (b) Board of Directors review. (1) In
member’s loan to the project funded by (a) Bank directors and employees. (1) determining the financial instability of a
the advance, and at least once in every Each Bank’s board of directors shall Bank, the Board of Directors shall
12-month period, the member shall be adopt a written policy providing that if consider such factors as:
scheduled to make a principal a Bank director or employee, or such (i) Severely depressed Bank earnings;
repayment to the Bank equal to the person’s family member, has a financial (ii) A substantial decline in Bank
amount scheduled to be repaid to the interest in, or is a director, officer, or membership capital; and
member on its loan to the project in that employee of an organization involved (iii) A substantial reduction in Bank
period. in, a project that is the subject of a advances outstanding.
(2) Limitations on grounds for percent of the unused and uncommitted (2) Pending applications for funds
suspension. The Board of Directors shall amount retained by the Bank should be under the Bank’s homeownership set-
not suspend a Bank’s annual AHP fully used or committed by the Bank aside programs; and
contributions if it determines that the during the following year, and any (3) Project modifications approved by
Bank’s reduction in earnings is due to: remaining portion shall be deposited in
the Bank pursuant to the requirements
(i) A change in the terms of advances the Affordable Housing Reserve Fund.
(b) Use or commitment of funds. of this part.
to members that is not justified by
market conditions; Approval of applications for AHP (c) Carryover of insufficient amounts.
(ii) Inordinate operating and subsidies from members sufficient to Such insufficient amounts as described
administrative expenses; or exhaust the amount a Bank is required in paragraph (b) of this section shall be
(iii) Mismanagement. to contribute pursuant to § 951.2(a) of carried over for use or commitment in
this part shall constitute use or the following year in the Bank’s
§ 951.12 Affordable Housing Reserve commitment of funds. Amounts competitive application program or
Fund. remaining unused or uncommitted at homeownership set-aside programs.
(a) Deposits. If a Bank fails to use or year-end are deemed to be used or
commit the full amount it is required to committed if, in combination with AHP Dated: September 13, 2006.
contribute to the Program in any year subsidies that have been returned to the By the Board of Directors of the Federal
pursuant to § 951.2(a) of this part, 90 Bank or de-committed from canceled Housing Finance Board.
percent of the unused or uncommitted projects, they are insufficient to fund: Ronald A. Rosenfeld,
amount shall be deposited by the Bank (1) The next highest scoring AHP Chairman.
in an Affordable Housing Reserve Fund application in the Bank’s final funding [FR Doc. 06–8492 Filed 10–5–06; 8:45 am]
established and administered by the period of the year for its competitive
BILLING CODE 6725–01–P
Finance Board. The remaining 10 application program;

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eligible for AHP funding. Based on the these technical changes.

case basis in extraordinary

unit, including a condominium or under the approved AHP application, or

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