[Federal Register Volume 59, Number 6 (Monday, January 10, 1994)]
[Proposed Rules]
[Pages 1323-1360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-412]


[[Page Unknown]]

[Federal Register: January 10, 1994]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 960

[No. 93-94]

 

Affordable Housing Program

AGENCY: Federal Housing Finance Board.

ACTION: Proposed rule.

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SUMMARY: The Federal Housing Finance Board (Board) is proposing to 
amend in its entirety its regulation governing the operation of the 
Affordable Housing Program (AHP or Program). The proposed rule modifies 
or carries forward requirements of the Board's existing AHP regulation, 
adds new provisions, and incorporates, with modifications, the 
provisions of the Board's existing policy guidelines governing the 
award of funds to loan funds and loan consortia.

DATES: Comments on this proposed rule must be received in writing on or 
before March 11, 1994.

ADDRESSES: Comments should be mailed to: Federal Housing Finance Board, 
Executive Secretary, 1777 F Street, NW., Washington, DC 20006. Comments 
will be available for public inspection at this address.

FOR FURTHER INFORMATION CONTACT: Diane E. Dorius, Deputy Director, or 
Sylvia C. Martinez, Director, Housing Finance Directorate, (202) 408-
2576, or Sharon B. Like, Attorney-Advisor, (202) 408-2930, or Brandon 
B. Straus, Attorney-Advisor, (202) 408-2589, Office of Legal & External 
Affairs-Legal Division, Federal Housing Finance Board, 1777 F Street, 
NW., Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

A. General

    Section 10(j)(1) of the Federal Home Loan Bank Act (Act) requires 
each Federal Home Loan Bank (Bank) to establish a Program to subsidize 
the interest rate on advances to members of the Federal Home Loan Bank 
System (Bank System) engaged in lending for long-term, low- and 
moderate-income, owner-occupied and affordable rental housing at 
subsidized interest rates. The Board is required to promulgate 
regulations governing the Program. 12 U.S.C. 1430(j)(1). The Board's 
existing regulation governing the operation of the AHP appears at part 
960 of the Board's regulations. 12 CFR part 960.
    This proposed rule amends the Board's existing AHP regulation to 
address operational issues that have arisen during the three and one-
half years that the AHP has been in existence. The proposed amendments 
are intended to make the AHP more responsive to low-income housing 
needs in each of the twelve Federal Home Loan Bank Districts 
(Districts), to increase efficiency in the administration of the 
Program, and to enhance coordination of the AHP with other housing 
programs whose funds are used in conjunction with AHP funds. These 
issues are discussed in greater detail below in the Analysis of 
Proposed Rule section.

II. Analysis of Proposed Rule

A. AHP Application Approval Process

    The proposed rule makes a fundamental change to the AHP by vesting 
the Banks, instead of the Board, with the authority to approve AHP 
applications. The current application approval process implemented by 
the Board's existing AHP regulation may be briefly described as 
follows. The Banks receive AHP applications and first evaluate them for 
satisfaction of certain threshold requirements contained in the 
existing regulation. See 12 CFR 960.5(a)(1), (2). Those applications 
meeting the threshold requirements are evaluated by the Banks to 
determine if they meet at least three of the priorities contained in 
the existing regulation. If they do, they are scored by the Banks on 
the priorities and on other scoring objectives contained in the 
existing regulation before applications that meet fewer than three 
priorities. See id. Sec. 960.5(a)(3), (b) through (e). Under the 
existing regulation, the Bank then forwards to the Board the highest 
scoring applications, and submits a summary of such applications. See 
id. Sec. 960.5(f)(1), (2). The Board reviews the applications to ensure 
consistency with the threshold, priorities and scoring requirements, 
and makes final funding decisions on the applications. See id. 
Sec. 960.5(f)(3).
    While section 10(j) of the Act requires each Bank to establish an 
AHP, and vests in the Board broad authority to regulate the Banks' AHP 
activities through regulations implementing the Act, section 10(j) does 
not specifically assign the responsibility of operating the AHP to the 
Board. See 12 U.S.C. 1430(j). The Board does have other statutorily 
designated duties, including issuing regulations that specify 
activities eligible to receive subsidized advances under the AHP, 
ensuring advances are used to assist projects for which adequate long-
term monitoring is available, ensuring that a preponderance of 
assistance provided under the AHP is ultimately received by low- and 
moderate-income households, and ensuring that AHP subsidies provided by 
Banks to members are passed on to the ultimate borrower. See id. 
Section 1430(j)(9) (A), (C), (D), (E). However, section 10(j) does not 
specify what entity is responsible for administering the AHP, and what 
entity is responsible for determining which AHP applications are 
approved for funding.
    For the following reasons, the Board is proposing that the Banks 
assume the responsibility for determining which AHP applications are 
approved for funding. First, the Banks have had three and one-half 
years of experience with the AHP, which experience has included 
processing AHP applications, scoring the applications, and recommending 
applications for approval to the Board as described above. 
Consequently, the Banks are already processing and reviewing 
applications under the existing system.
    Second, decentralization of the AHP is consistent with the Bank 
System's Strategic Plan, which calls for decentralization of a number 
of functions currently conducted by the Board, with the exception of 
those Board activities involving oversight and supervision of the 
Banks. See ``System 2000: A Long-Term Strategic Plan For The Federal 
Home Loan Bank System.''
    The details of the proposed new application approval process are 
discussed further below.
    The Board specifically requests comments as to whether the Banks 
should be given the authority to approve and disapprove AHP 
applications.
    The proposed rule also revises the Board's existing AHP regulation 
by allowing each Bank to define more specifically its own priorities 
and scoring criteria, subject to certain overall priority and scoring 
parameters established in the proposed rule. The Bank would be required 
to include such proposed priorities and scoring criteria in its AHP 
implementation plan which must be approved by the Board. Under the 
Board's existing AHP regulation, the Banks have much less flexibility 
in defining priorities and scoring criteria. See 12 CFR 960.5 (a) 
through (e). In addition, under the proposed rule, certain point values 
for scoring categories would be revised.
    The details of the proposed revisions for adopting priorities and 
scoring criteria are discussed further below under the scoring of AHP 
applications section.

B. Bank Establishment of AHP and Adoption of AHP Implementation Plan

    Section 960.2(a) of the proposed rule generally reiterates the 
statement in Sec. 960.2(a) of the Board's existing AHP regulation that 
it is the policy of the Board and the Banks to promote decent and safe 
affordable housing and to address critical affordable housing needs 
through providing subsidized advances and direct subsidies to members 
pursuant to the AHP. See 12 CFR 960.2(a).
    Section 960.2(b) of the proposed rule provides that each Bank's 
board of directors shall establish an AHP, which shall be funded 
pursuant to the requirements of Sec. 960.18 of the proposed rule. (See 
discussion below under the required annual AHP contributions section.) 
The Bank is required to make subsidized advances to applicants pursuant 
to its AHP and to operate its AHP in conformity with an annual AHP 
implementation plan and the requirements of this part. Direct subsidies 
provided by a Bank to applicants pursuant to its AHP also shall be 
provided in conformity with the Bank's AHP implementation plan and the 
requirements of this part. Each Bank's AHP implementation plan shall be 
approved by the Board before it is effective.
    Section 960.2(b) of the proposed rule further provides that the AHP 
implementation plan must meet the requirements of this part, and shall 
include:
    (1) The Bank's AHP funding cycle schedule, including application 
due dates, as required by proposed Sec. 960.6(a)(1);
    (2) The Bank's priorities, and scoring criteria for applications, 
as required by proposed Secs. 960.8(a) and 960.10;
    (3) The Bank's procedures to ensure satisfaction of the long-term 
requirement, as required by proposed Sec. 960.5 (a)(1) and (b);
    (4) The Bank's requirements for and verification procedures 
concerning (i) the use of subsidized advances or direct subsidies 
within a reasonable period of time after approval of an AHP 
application, as required by proposed Sec. 960.12(a), or (ii) the use of 
loans or grants within a reasonable period of time after repayment of 
such funds to a loan fund or loan consortium, as required by proposed 
Sec. 960.17(c)(5);
    (5) The Bank's verification procedures upon initial disbursement of 
subsidized advances or direct subsidies, as required by proposed 
Sec. 960.13;
    (6) The Bank's monitoring plan, as required by proposed 
Sec. 960.14(b);
    (7) The Bank's reporting requirements for applicants during the 
construction or rehabilitation phase, as required by proposed 
Sec. 960.15(b)(2);
    (8) An explanation of circumstances justifying undue hardship 
waivers by the Bank of imposition of remedial actions, as required by 
proposed Sec. 960.16 (c)(1) and (d)(1); and
    (9) The Bank's determination regarding the number of persons that 
may serve on the Bank's Advisory Council and their terms, as required 
by proposed Sec. 960.21(a)(1) and (4).
    Section 960.2(c) of the proposed rule provides that the Bank's 
proposed AHP implementation plan shall be submitted to its Advisory 
Council at least 45 calendar days before it is considered by the Bank's 
board of directors. The Advisory Council shall review the proposed plan 
and submit its recommendations to the Bank's board of directors at 
least seven calendar days before the Bank's board of directors is 
scheduled to vote on the proposed plan. The Bank's board of directors 
shall vote on the proposed AHP implementation plan, and shall submit 
its approved plan to the Board for action. The Board shall approve or 
disapprove the proposed plan within 60 calendar days of receipt. The 
Bank's plan is not effective until it is approved by the Board, and it 
must become effective at least 45 calendar days before the due date for 
AHP applications established by the Bank. Each Bank must submit its AHP 
implementation plan to the Board for approval no later than 180 
calendar days after the publication of this rule as a final rule in the 
Federal Register.
    Section 960.2(d) of the proposed rule provides that the Bank's 
approved AHP implementation plan shall be made available by the Bank to 
the public upon request.
    Section 960.2(e) of the proposed rule provides that the Board will 
approve or disapprove proposed amendments to a Bank's approved AHP 
implementation plan submitted by the Bank within 60 calendar days of 
receipt.

C. Authorized and Required Uses of AHP Subsidized Advances or Direct 
Subsidies

    Section 960.3 of the proposed rule states the general authorized 
uses of AHP subsidized advances and direct subsidies by applicants, 
Sec. 960.4 provides specific examples of such authorized and 
unauthorized uses and other use requirements, and Sec. 960.5 sets forth 
the long-term income-eligibility, affordability and income-targeting 
requirements for such uses. These proposed sections are discussed 
further below.
1. Authorized Uses of Subsidized Advances or Direct Subsidies
    Section 960.3 of the proposed rule, consistent with Sec. 960.3(b) 
(1) and (2) of the Board's existing AHP regulation, provides that 
applicants may use subsidized advances or direct subsidies received 
from a Bank under the AHP to either:
    (a) Finance the purchase, construction or rehabilitation of owner-
occupied housing units by or for low- or moderate-income households; or
    (b) Finance the purchase, construction or rehabilitation of rental 
housing units, at least 20 percent of the units of which will be 
occupied by and affordable for very low-income households. See 12 CFR 
960.3(b) (1) and (2).
2. Specific Use Requirements for Subsidized Advances or Direct 
Subsidies
    Section 960.3(c) of the Board's existing AHP regulation provides 
that ``Program funds may only be used for direct costs required to 
produce and/or finance affordable housing units.'' 12 CFR 960.3(c). A 
number of questions have arisen as to whether specific types of costs 
associated with the financing or production of housing may be 
considered ``direct costs'' for purposes of the Board's regulation. 
Because of the confusion in this area, the Board believes that it would 
be helpful to set forth in the rule examples of specific types of costs 
it considers to be authorized and unauthorized for AHP purposes. 
Accordingly, Sec. 960.4(a) (1) and (2) of the proposed rule sets forth 
examples of specific costs related to the purchase, construction or 
rehabilitation of housing that are authorized and unauthorized uses of 
AHP subsidized advances or direct subsidies. However, because it is 
impossible to anticipate all types of costs that may arise in the 
course of financing or producing housing, the list of authorized and 
unauthorized costs in proposed Sec. 960.4(a) is not exclusive. Other 
costs not included arguably may or may not qualify as costs of 
financing the purchase, construction or rehabilitation of housing. If 
an applicant seeks to use funds under the AHP to pay for costs not 
specifically included in this rule, it should consult with the Bank 
before submitting its application for approval. The Board specifically 
asks for comments as to whether these authorized and unauthorized costs 
are appropriate.
    Specifically, Sec. 960.4(a)(1) of the proposed rule provides that 
authorized uses of subsidized advances or direct subsidies include, but 
are not limited to, the following costs related to the purchase, 
construction or rehabilitation of housing:
    (i) Real property purchase and improvement costs;
    (ii) Construction or rehabilitation costs, including labor and 
materials, and contractor profit and overhead allowances;
    (iii) Costs integral to the purchase or development of housing 
including, but not limited to, project-related: Architectural, 
inspection and engineering fees; local building permit and planning 
fees; accounting costs; survey costs; appraisal fees; title insurance 
and other insurance costs; performance bond and other bond fees; 
recording fees; credit report fees; property taxes; residential 
relocation costs where such costs are part of a relocation plan; legal 
fees; syndication fees; costs of translating resident documents to 
another language; loan commitment, loan origination and other loan 
financing fees for administrative costs other than costs of 
administering the AHP award; developer's fees; and marketing costs;
    (iv) Prepayment fees imposed by the Bank on an applicant for a 
subsidized advance that is prepaid in connection with the purchase, 
construction or rehabilitation of housing, if the applicant requires 
the borrower to pay such fee;
    (v) Capitalization of reserve fund(s) necessary for the successful 
operation of rental housing projects, including replacement reserves, 
rent-up reserves, operating deficit reserves, and sinking fund reserves 
used for the transfer of the project to nonprofit ownership when 
associated with a low income housing tax credit transaction (26 U.S.C. 
42);
    (vi) Cancellation fees imposed by the Bank on an applicant for a 
subsidized advance commitment that is canceled and converted to and 
disbursed as a direct subsidy in connection with the purchase, 
construction or rehabilitation of housing, if the applicant requires 
the borrower to pay such fee;
    (vii) Refinancing of an existing loan in conjunction with the 
purchase, construction or rehabilitation of housing, provided the 
subsidized advance or direct subsidy and the proceeds of the 
refinancing are used only to retire existing debt and to benefit low- 
or moderate-income households and, in the case of refinancing in order 
to rehabilitate a project, there is a minimum of $2,500 per unit spent 
on such rehabilitation; and
    (viii) Tenant services, tenant counseling and homeowner counseling 
costs that are a condition imposed by a lender to obtain financing from 
such lender and which are necessary for the successful operation of the 
project.
    Cancellation fees identified in paragraph (vi) above, where there 
is purchase, construction or rehabilitation of housing and the borrower 
is required to pay the fee, are a cost of financing such purchase, 
construction or rehabilitation and therefore are authorized uses of 
funds under the AHP. Because the advance would be converted to a direct 
subsidy, such cancellation fees would be payable only if the 
application also meets the requirements for modification of 
applications contained in Sec. 960.11 of the proposed rule. (These 
requirements are discussed in greater detail in the modification 
section below.) However, AHP subsidized advances or direct subsidies 
may not be used to pay for cancellation fees in situations where the 
cancellation of the advance is not part of a restructuring that results 
in the purchase, construction or rehabilitation of housing.
    The conditions identified in paragraph (vii) above on the use of 
funds under the AHP for refinancing are intended to ensure that the 
funds are not used by the borrower to take out its equity in the 
project and to ensure that the funds are used for authorized purposes 
under the AHP. The Board specifically requests comments on whether the 
$2,500 minimum per unit is a reasonable minimum amount to be required 
to be spent on rehabilitation in conjunction with a refinancing.
    Questions have arisen as to whether funds under the AHP should be 
used to pay for pre-development costs that may or may not result in the 
purchase, construction or rehabilitation of AHP housing. Pre-
development costs are costs incurred prior to the closing of a 
purchase, construction or rehabilitation loan for the purpose of 
determining the feasibility of a proposed project. Examples of pre-
development costs include architectural and engineering fees, legal 
fees, the costs of surveys and appraisals, local building permit and 
planning fees, and earnest money deposits. Since AHP applications are 
required to meet the threshold feasibility requirement provided in 
proposed Sec. 960.9(d) in order to be scored, authorizing the use of 
funds for pre-development costs raises the question how applications 
for such costs can or should be scored since the funds would be 
disbursed to applicants before the feasibility of a proposed project 
could be established.
    In addition, there is a greater likelihood that costs incurred 
during the pre-feasibility period, rather than during the post-
feasibility period, will not result in the purchase, construction or 
rehabilitation of housing. Thus, if applications for AHP funds to 
finance pre-development costs are approved, AHP funds in perhaps 
significant amounts could go towards pre-development costs that do not 
result in the financing or production of housing. If such costs are 
authorized, one option for dealing with this concern could be to cap 
the total amount of AHP funds that may be used for pre-development 
costs at a specific dollar amount or percentage, such as the lesser of 
$200,000 or 5 percent of the Bank's total AHP contributions for the 
year. These funds could be set aside and disbursed in a separate 
competitive process.
    The Board specifically requests comments on whether funds under the 
AHP should be used for pre-development costs, how applications for such 
costs can or should be scored, and what limits, if any, should be 
placed on the amount of funds used for such purposes under the AHP.
3. Use of Funds Requirements
    Section 960.4(b)(1)(i) of the proposed rule provides that the total 
amount of a direct subsidy provided by the Bank to an applicant under 
the AHP must be passed on by the applicant to the recipient. Consistent 
with Sec. 960.9(c) of the Board's existing AHP regulation, 
Sec. 960.4(b)(1)(ii) of the proposed rule provides that an applicant 
receiving a subsidized advance shall extend credit to the borrower at a 
rate of interest equal to the rate of interest charged on the 
subsidized advance plus an interest rate spread approved by the Bank. 
See 12 CFR 960.9(c). These provisions implement section 10(j)(9)(E) of 
the Act, which provides that the Board's AHP regulation shall ensure 
that AHP subsidies provided by Banks to applicants are passed on to the 
ultimate borrower. See 12 U.S.C. 1430(j)(9)(E).
    Section 960.4(b)(2) of the proposed rule provides that if an 
applicant receives a subsidized advance or direct subsidy from a Bank 
or prepayment of a loan originally made under the AHP, any interest or 
other income earned by the applicant on such funds, not including any 
approved fee or interest rate spread charged to the borrower, must be 
forwarded to the Bank to be used for additional AHP projects, except 
for interest or other income earned by the applicant within 30 calendar 
days of receiving the subsidized advance or direct subsidy or of 
receiving prepayment of a loan originally made under the AHP.
    Section 960.4(b)(3) of the proposed rule provides that a direct 
subsidy received by an applicant from a Bank that is provided by such 
applicant to a sponsor may be lent by the sponsor in connection with an 
AHP rental housing project involving low-income housing tax credits 
(LIHTC), provided the subsidy is lent by the sponsor for a term of not 
less than 30 years, with all principal and interest payments deferred 
until the end of such term. If such a loan is repaid before the end of 
the 30-year term, the entire amount of the direct subsidy must be 
repaid to the Bank.
    For various tax reasons, sponsors prefer to structure LIHTC 
projects so that the AHP direct subsidy is lent to the project for a 
specific long-term period, with principal and interest payments 
deferred until the end of such term. The lending of a direct subsidy by 
a sponsor raises the question whether the subsidy is being passed on to 
the ultimate recipient, as required under section 10(j)(9)(E) of the 
Act and proposed Sec. 960.4(b)(1)(i), since the subsidy ultimately is 
being repaid to the Bank. See 12 U.S.C. 1430(j)(9)(E). The Board 
believes that the lending of a direct subsidy for the long-term period 
of income eligibility and affordability required by Sec. 960.5 of the 
proposed rule, with all principal and interest payments deferred until 
the end of such term, satisfies section 10(j)(9)(E) and proposed 
Sec. 960.4(b)(1)(i), because the project will have had the use of such 
funds for the period the project must remain occupied by and affordable 
for low- or moderate-income households, even though the funds may be 
repaid at the end of such term. As discussed below, Sec. 960.5(a)(1) of 
the proposed rule defines this long-term period generally as not less 
than 30 years for rental housing projects. Accordingly, the direct 
subsidy must be lent for a term of 30 years or more, with all principal 
and interest payments deferred until the end of such term.
    Section 960.4(b)(4) of the proposed rule provides that if an 
applicant receives a subsidized advance or a direct subsidy from a 
Bank, and in turn provides both a loan and a grant to a borrower and 
charges an origination fee for providing the loan, then any fee charged 
by the applicant for providing the grant may not be paid with the AHP 
subsidized advance or direct subsidy. The fee may not be paid with the 
AHP subsidized advance because the applicant has already covered the 
underwriting costs for the loan and the grant in its origination fee 
for the loan. The fee may not be paid with the direct subsidy because 
otherwise the entire amount of the AHP subsidy would not be passed 
through to the borrower, as required by section 10(j)(9)(E) of the Act 
and proposed Sec. 960.4(b)(1)(i). See 12 U.S.C. 1430(j)(9)(E).
4. Long-term Requirements
    a. Owner-occupied housing units. (1) Long-term requirement. Section 
10(j)(1) of the Act states that pursuant to regulations promulgated by 
the Board, each Bank shall establish a Program to subsidize the 
interest rate on advances to members engaged in lending for long-term, 
low- and moderate-income, owner-occupied housing at subsidized interest 
rates. Id. Sec. 1430(j)(1). In addition, section 10(j)(2)(A) of the Act 
states that the Board's regulations shall permit Bank members to use 
subsidized advances received from the Banks to finance homeownership by 
families with incomes at or below 80 percent of the median income for 
the area. Id. Sec. 1430(j)(2)(A).
    The Act permits more than one possible interpretation of the 
requirement that owner-occupied housing must be ``long-term.'' One way 
to interpret this requirement is that owner-occupied housing units 
assisted under the AHP must be added to and retained as part of the 
stock of affordable housing for a long-term period. Alternatively, the 
Act may be interpreted to require that under the AHP, assistance must 
be provided to low- or moderate-income households to make owner-
occupied housing units affordable to such households for as long as 
they own the unit. These two possible interpretations are incorporated 
in options A and B described below. The Board specifically requests 
comments on these two options.
    Option A. Under option A, the long-term requirement would be met by 
providing that owner-occupied housing units be required to be retained 
as affordable units for 30 years or, at the election of the sponsor, 
the remaining useful life of the units, regardless of changes in 
occupancy. In order to enforce this retention requirement, owner-
occupied units assisted with a loan or a grant under the AHP would have 
to be subject to a deed restriction or other legally enforceable 
mechanism restricting transfer of the unit to a low- or moderate-income 
household if the unit were sold within 30 years of the purchase, 
construction, or rehabilitation or prior to the end of the remaining 
useful life of the unit, as the case may be.
    A household purchasing such a unit would have to qualify as a low- 
or moderate-income household only at the time of purchase or at the 
time of closing on the financing for the unit. A household 
rehabilitating a unit would have to qualify as a low- or moderate-
income household only at the time the household received a commitment 
for funding through the AHP.
    If an owner-occupied unit assisted by a loan under the AHP were 
sold prior to the end of the 30-year period or the remaining useful 
life of the unit, as the case may be, to a household that was not a 
low- or moderate-income household, then the applicant would have to 
either: (1) Repay to the Bank that portion of the advance used to make 
the loan to the seller, or (2) convert that portion of the advance used 
to make the loan to the seller to a market rate advance with an 
interest rate equal to the market rate of interest at the time the 
advance was made, and any unused AHP subsidy which had been set aside 
by the Bank to subsidize that portion of the advance used to make the 
loan to the seller would be made available by the Bank for additional 
AHP projects.
    If an owner-occupied unit assisted by a grant under the AHP were 
sold prior to the end of the 30-year period or the remaining useful 
life of the unit, as the case may be, to a household that was not a 
low- or moderate-income household, then the seller would have to repay 
to the applicant a pro rata portion of the grant from any profit 
realized upon the sale of the unit, and any amount repaid to the 
applicant would have to be forwarded to the Bank and made available for 
additional AHP projects. The Bank would have the discretion to waive 
this recapture requirement if imposition of the requirement would cause 
undue hardship on the seller, as defined in the Bank's AHP 
implementation plan. In addition, for owner-occupied units assisted by 
a grant, the Bank would have to monitor the unit during the required 
long-term period by reviewing land title records or reports or 
certifications from the sponsor or a regulatory agency, as determined 
by each Bank in its AHP implementation plan, to determine whether the 
unit had been sold to a household whose income exceeded a low-or 
moderate-income.
    As an alternative to requiring that each owner-occupied unit 
assisted by a grant be subject to a restriction on transfer, the Bank 
could have a legally binding agreement with the sponsor providing that 
if such unit were sold prior to the end of the required long-term 
period to a household that was not a low- or moderate-income household, 
the sponsor would make another unit available to a low- or moderate-
income household.
    Option B. Under option B, the long-term requirement would be met by 
providing that an owner-occupied unit assisted by a grant or a loan 
under the AHP must be affordable for the initial household for the 
duration of that household's occupancy of the unit. However, to 
minimize opportunities for speculation, the unit would have to be 
subject to a deed restriction or other legally enforceable mechanism 
restricting transfer of the unit to a low- or moderate-income household 
if the unit were sold within five years of the purchase, construction, 
or rehabilitation of the unit.
    As under option A, a household purchasing such a unit under option 
B would have to qualify as a low- or moderate-income household only at 
the time of purchase or at the time of closing on the financing for the 
unit, and a household rehabilitating a unit would have to qualify as a 
low- or moderate-income household only at the time the household 
received a commitment for funding through the AHP.
    If an owner-occupied unit assisted by a loan under the AHP were 
sold prior to the end of the five-year period to a household that was 
not a low- or moderate-income household, then the applicant would have 
to either: (1) Repay to the Bank that portion of the advance used to 
make the loan to the seller, or (2) convert that portion of the advance 
used to make the loan to the seller to a market rate advance with an 
interest rate equal to the market rate of interest at the time the 
advance was made, and any unused AHP subsidy which had been set aside 
by the Bank to subsidize that portion of the advance used to make the 
loan to the seller would be made available by the Bank for additional 
AHP projects.
    If an owner-occupied unit assisted by a grant under the AHP were 
sold prior to the end of the five-year period to a household that was 
not a low- or moderate-income household, then the seller would have to 
repay to the applicant a pro rata portion of the grant from any profit 
realized upon the sale of the unit, and any amount repaid to the 
applicant would have to be forwarded to the Bank and made available for 
additional AHP projects. The Bank would have the discretion to waive 
this recapture requirement if imposition of the requirement would cause 
undue hardship on the seller, as defined in the Bank's AHP 
implementation plan. In addition, for owner-occupied units assisted by 
a grant, the Bank would have to monitor the unit during the required 
long-term period by reviewing land title records or reports or 
certifications from the sponsor or a regulatory agency, as determined 
by each Bank in its AHP implementation plan, to determine whether the 
unit had been sold to a household whose income exceeded a low or 
moderate income.
    As under option A, as an alternative to requiring that each owner-
occupied unit assisted by a grant be subject to a restriction on 
transfer, the Bank under option B could have a legally binding 
agreement with the sponsor providing that if such unit were sold prior 
to the end of the required long-term period to a household that was not 
a low- or moderate-income household, the sponsor would make another 
unit available to a low- or moderate-income household.
    (2) Definitions of ``low- or moderate-income household'' and ``very 
low-income household''. Section 10(j)(13)(A) of the Act defines the 
term ``low- or moderate-income household'' as a household which has an 
income of 80 percent or less of the area median. 12 U.S.C. 
1430(j)(13)(A). Section 10(j)(13)(B) of the Act defines the term ``very 
low-income household'' as a household that has an income of 50 percent 
or less of the area median. Id. section 1430(j)(13)(B). Thus, the term 
low- or moderate-income household incorporates households that meet the 
definition of very low-income household.
    The Board's existing AHP regulation defines ``low- and moderate-
income households'' as households for which the aggregate income is 80 
percent or less of the area median income, and ``very low-income 
households'' as households for which the aggregate income is 50 percent 
or less of the area median income. See 12 CFR 960.1(g), (o). ``Median 
income'' is defined as ``the median family income for an area as 
determined and published by the U.S. Department of Housing and Urban 
Development.'' Id. Sec. 960.1(h). ``Area'' is defined as ``a 
metropolitan statistical area, a county, or a nonmetropolitan area, as 
established by the U.S. Office of Management and Budget.'' Id. 
Sec. 960.1(c).
    (i) Adjustments of income limit. On November 5, 1993, the Board 
published a proposed rule to amend the definitions of these terms. See 
58 FR 58988 (November 5, 1993). As discussed in the preamble to the 
proposed amendment, under section 3 of the United States Housing Act of 
1937, the Secretary of the U.S. Department of Housing and Urban 
Development (Secretary) establishes income limits to be used in 
determining whether a family qualifies as a ``low-income family'' or as 
a ``very low-income family'' that is eligible to receive assistance 
under the Department of Housing and Urban Development's (HUD) housing 
programs. See 42 U.S.C. 1437a(b)(2). These income limits are calculated 
as a percentage of the median income of a four-person family living in 
a particular area. In general, the income limit for qualifying as a 
``low-income family'' is set at 80 percent of the area median income, 
and the income limit for qualifying as a ``very low-income family'' is 
set at 50 percent of the area median income.
    The Secretary may adjust the income limits for very low-income 
families and low-income families upward or downward to take into 
account unusually high or low family incomes in an area. See id. In 
addition, the income limit for low-income families may be adjusted to 
take into account prevailing levels of construction costs. See id. Then 
an adjustment in this figure is made to establish the comparable income 
limits for larger and smaller families living in the area. See id.
    In 31 higher-income metropolitan statistical areas (MSAs) and 18 
counties, the Secretary adjusts the area-based income limit for a four-
person, low-income family downward if it would otherwise exceed the 
U.S. median income for a four-person family. In these areas, the 
Secretary caps the income limit for a four-person, low-income family at 
the U.S. median income for a four-person family.
    In four MSAs and 107 counties, the Secretary adjusts the area-based 
income limit for four-person, very low- and low-income families 
downward because housing costs are low compared to incomes.
    Adjusting the income limit downward decreases the number of 
households in an area that are eligible to receive assistance under 
HUD's housing programs.
    As discussed in the proposed amendment, the Board believes that 
affordable housing financed through the AHP should be available to the 
greatest number of households possible, within the limits established 
by the Act. Further, households should not be excluded from affordable 
housing in a particular local market on the basis that housing costs 
are lower or household incomes are higher in that market than in other 
regions of the United States.
    Applying the income limits that have been adjusted downward for 
prevailing construction costs, low housing costs, or unusually high 
household incomes for purposes of administering the AHP reduces the 
number of households eligible to live in affordable housing financed 
through the AHP. This limits a member's ability to use funds under the 
AHP to fulfill its obligation under the Community Reinvestment Act. See 
12 U.S.C. 2901 et seq. It also limits a member's ability to use funds 
under the AHP to meet the ``community investment or service'' 
requirement of section 10(g) of the Act, 12 U.S.C. 1430(g), and the 
Board's Community Support Regulation, 12 CFR part 936.
    Accordingly, the Board is proposing that in administering the AHP 
and in defining the standards governing the ``community investment or 
service'' requirement of the Act, the income limits used to determine 
whether a household in a particular area qualifies as a ``very low-
income household'' or as a ``low- or moderate-income household'' should 
not be adjusted downward based on prevailing construction costs, low 
housing costs, or unusually high household incomes.
    Therefore, as set forth in the Board's proposed amendment, 
Sec. 960.1 of this proposed rule defines ``low- or moderate-income 
household'' as a household which has an income of 80 percent or less of 
the median income for the area, as adjusted and published by HUD, 
except in areas where the Secretary adjusts this figure downward 
because of prevailing construction costs, low housing costs, or 
unusually high household incomes. For areas where the Secretary makes 
this downward adjustment, ``low- or moderate-income household'' would 
be defined to mean a household which has an income of 80 percent or 
less of the median income for the area, as published by HUD, with 
adjustment for household size, but without the adjustments made by the 
Secretary for prevailing construction costs, low housing costs, or 
unusually high household incomes.
    In addition, as set forth in the Board's proposed amendment, 
Sec. 960.1 of this proposed rule defines ``very low-income household'' 
as a household which has an income of 50 percent or less of the median 
income for the area, as adjusted and published by HUD, except in areas 
where the Secretary adjusts this figure downward because of prevailing 
construction costs, low housing costs, or unusually high household 
incomes. For areas where the Secretary makes this downward adjustment, 
``very low-income household'' would be defined to mean a household 
which has an income of 50 percent or less of the median income for the 
area, as published by HUD, with adjustment for household size, but 
without the adjustments made by the Secretary for prevailing 
construction costs, low housing costs, or unusually high household 
incomes.
    While HUD publishes tables with adjusted income information that 
incorporates the adjustments for family size, prevailing construction 
costs, low housing costs, and unusually high family incomes, it does 
not publish tables with income information that adjusts only for family 
size and not these other factors. Therefore, as set forth in the 
Board's proposed amendment, Sec. 960.1 of this proposed rule adds a 
definition of ``adjustment for household size'' in order to provide 
additional guidance in calculating this adjustment.
    An adjustment for household size is made by taking a specified 
percentage of the income limit of a four-person household for a 
particular area, according to the following scale: 

------------------------------------------------------------------------
            No. persons                       Percent adjustment        
------------------------------------------------------------------------
1..................................  70.                                
2..................................  80.                                
3..................................  90.                                
4..................................  Base.                              
5..................................  108.                               
6..................................  116.                               
7..................................  124.                               
8..................................  132.                               
------------------------------------------------------------------------


    For each person in excess of eight, eight percent of the four-
person household base income limit should be added to the income limit 
for an eight-person household for the area. These adjustment factors 
are the same as those used by HUD in administering its housing 
programs.
    Section 960.1 of the proposed rule retains the definition of 
``area'' from the Board's existing AHP regulation. See 12 CFR 960.1(c). 
``Area'' means, for purposes of defining ``median income for the 
area,'' a metropolitan statistical area, a county, or a nonmetropolitan 
area, as established by the U.S. Office of Management and Budget. 
Consistent with the proposed amendment, Sec. 960.1 of this proposed 
rule does not include a definition of ``median income'' because it is 
included in the proposed definitions of ``very low-income household'' 
and ``low- or moderate-income household.''
    (ii) Definition of ``income''. The Act is silent on how to define 
the term ``income,'' i.e., what are eligible sources of household 
income that should be considered in determining whether the household 
satisfies the definition of ``low- or moderate-income household'' or 
``very low-income household.'' The Board has determined not to define 
the term ``income'' in the proposed rule. Homeownership projects 
typically involve the participation of a lender which provides 
permanent financing for the homeowner over an extended period of time. 
The lender generally verifies a household's income prior to issuing a 
financing commitment during the underwriting of the loan. Eligible 
sources of income are identified by the lender during the mortgage 
underwriting process. Identifying eligible sources of income in the 
rule could cause inconsistency with lenders' customary and usual 
underwriting practices, or with the standards applied by the entity 
providing the major source of financing for the project.
    b. Rental housing units. Section 960.5(a)(1) of the proposed rule 
provides generally that at least 20 percent of the rental housing units 
in a project financed under the AHP with subsidized advances or direct 
subsidies shall remain affordable for and occupied by very low-income 
households for a minimum period of 30 years or, at the election of the 
sponsor, the remaining useful life of such units.
    Proposed Sec. 960.5(a)(1) implements section 10(j)(2)(B) of the 
Act, which provides that Bank members may use subsidized advances 
received from the Banks to finance the purchase, construction, or 
rehabilitation of rental housing, at least 20 percent of the units of 
which will be occupied by and affordable for very low-income households 
for the remaining useful life of such housing or the mortgage term. 12 
U.S.C. 1430(j)(2)(B).
    Proposed Sec. 960.5(a)(1) provides that the applicant and project 
sponsor shall state in the AHP application their commitment regarding 
satisfaction of the long-term income-eligibility, affordability and 
income-targeting requirements. In addition, an applicant may commit to 
maintain additional units as affordable for and occupied by low- or 
moderate-income households, which commitment shall be a minimum period 
of 30 years or, at the election of the sponsor, the remaining useful 
life of such units.
    (1) Long-term requirement. Section 10(j) of the Act does not define 
``remaining useful life'' as used in section 10(j)(2)(B) of the Act. 
See 12 U.S.C. 1430(j). However, the legislative history of section 
21A(c) of the Act regarding residential properties sold by the 
Resolution Trust Corporation (RTC), which was enacted as part of the 
same legislation that enacted section 10(j), states that the remaining 
useful life of such RTC property is intended to cover the property as 
long as it is habitable and assumes good faith efforts by the purchaser 
to maintain the property and to rehabilitate it as necessary. See Joint 
Explanatory Statement of the Committee of the Conference, H.R. Conf. 
Rep. No. 101-222, 101st Cong., 1st Sess., 419 (1989) (FIRREA Conference 
Report); 12 U.S.C. 1441a(c). The RTC has in fact adopted a specific 
uniform period of useful life for all buildings instead of a period of 
useful life based on physical habitability. See 12 CFR 1609.2(kk). The 
legislative history of a recently enacted affordable housing statute, 
the Low Income Housing Preservation and Residential Homeownership Act 
(LIHPRHA), provides further support for a definition of ``remaining 
useful life'' based on the period of physical habitability of a 
property by explicitly rejecting the RTC's regulatory definition.
    Accordingly, Sec. 960.1 of the proposed rule defines ``remaining 
useful life'' as the period during which the housing remains in a 
condition suitable for occupancy, assuming normal maintenance and 
repairs are made and major systems and capital components are replaced 
or repaired as becomes necessary.
    Section 10(j) of the Act does not define ``mortgage term'' as used 
in section 10(j)(2)(B) of the Act. See 12 U.S.C. 1430(j). The 
legislative history of section 10(j) states that the conferees expect 
that the Board will encourage the use of the longest practicable 
mortgage term in order to aid in making the housing affordable for very 
low-income households. See FIRREA Conference Report at 431. 
Accordingly, the Board believes that ``mortgage term'' should be 
defined as the mortgage term only of long-term mortgage loans and 
believes that 30 years is consistent with Congress' intent in section 
10(j)(2)(B) of the Act to ensure that AHP-assisted rental housing 
projects remain occupied by and affordable for income-eligible 
households for a long-term period.
    (2) Definitions of ``low- or moderate-income household'' and ``very 
low-income household''. The definitions of ``low- or moderate-income 
household'' and ``very low-income household'' discussed above for AHP-
assisted owner-occupied housing projects apply for AHP-assisted rental 
housing projects as well.
    With respect to the definition of ``income,'' rental housing 
projects typically have multiple providers of financing, each of which 
may specify the eligible sources of income, which sometimes conflict 
with each other. However, as with AHP-assisted owner-occupied housing 
projects, the Board has determined that the proposed rule should not 
specify the eligible sources of income for rental housing projects, but 
rather that applicants should be permitted to follow their usual 
underwriting guidelines, or may follow those of the predominant source 
of financing in the project.
    (3) Increase in household income or sale of project before end of 
required long-term period. (i) Increase in household income. Section 
960.5(a)(2) of the proposed rule provides that all households occupying 
a rental housing unit subject to the income-targeting requirement of 
paragraph (a)(1) of this section must satisfy the income-eligibility 
requirement applicable to such income-targeted unit, as committed to in 
the AHP application, upon initial occupancy. The household may continue 
to occupy the income-targeted unit even if its income increases above 
the income-eligibility requirement for such unit. The unit may continue 
to count toward meeting the income-targeting requirement committed to 
in the AHP application, provided the rent charged remains affordable to 
the household as defined in proposed Sec. 960.1 (as further discussed 
below). However, if the household's income rises above 140 percent of 
the income-targeting level committed to in the AHP application, the 
sponsor must make the next available rental housing unit in the project 
affordable to and available for occupancy by a household whose income 
is at or below the income-targeting level committed to in the AHP 
application for the original unit. Once the next available rental 
housing unit is so occupied, the rent charged on the unit occupied by 
the household whose income has risen shall no longer be subject to the 
requirement that it be affordable for households at the income-
targeting level committed to in the AHP application.
    This approach is consistent with the approach followed in the LIHTC 
program. Under the LIHTC program, a unit is in compliance with the 
occupancy requirements until the tenant's income has risen to 140 
percent of the qualifying income. See 26 U.S.C. Sec. 42(g)(2)(D)(i). 
The next available unit must then be rented to an income-eligible 
tenant at an affordable rent. See id. Section 42(g)(2)(D)(ii). This 
approach allows the household to achieve stability by allowing 
increases in income without fear of displacement or increased rents. In 
addition, it does not cause destabilization of the project's cash flow 
by having the project sponsor provide additional income-eligible units 
with reduced rents that may reduce the income of the project. It also 
would be consistent with the treatment of rents under the AHP's 20 
percent requirement (also known as the maximum subsidy rule), which is 
currently an interim rule of the Board, and which is incorporated in 
Sec. 960.9(c) of this proposed rule. (See discussion of 20 percent 
requirement below.)
    Section 960.1 of the proposed rule defines ``affordable for very 
low-income households'' to mean:
    (1) For purposes of rental housing units, that rents, including 
reasonable utility costs, charged to households for such units do not 
exceed 30 percent of the income of a household (assuming a household 
size of 1.5 persons per bedroom or 1.0 person per unit without a 
separate bedroom) which has an income of 50 percent of the median 
income for the area, as adjusted and published by HUD, except that in 
areas where the Secretary adjusts this income figure downward because 
of prevailing construction costs, low housing costs, or unusually high 
household incomes, then ``affordable for very low-income households'' 
means that rents, including reasonable utility costs, charged to 
households for such units do not exceed 30 percent of the income of a 
household which has an income of 50 percent of the median income for 
the area, as published by HUD, with adjustment for household size, but 
without the adjustments made by the Secretary for prevailing 
construction costs, low housing costs, or unusually high household 
incomes;
    (2) If a rental unit is targeted to a household whose income is 
less than 50 percent of the median income for the area, then 
``affordable for very low-income households'' means that the rent, 
including reasonable utility costs, charged to a household for such 
unit does not exceed 30 percent of the maximum qualifying income of the 
targeted households of the size expected to occupy the unit.
    This proposed definition implements section 10(j)(13)(D) of the 
Act, which defines ``affordable for very low-income households'' to 
mean that rents charged to tenants for units made available for 
occupancy by low-income families shall not exceed 30 percent of the 
adjusted income of a family whose income equals 50 percent of the 
income for the area (as determined by the Secretary of HUD) with 
adjustment for family size. 12 U.S.C. 1430(j)(13)(D). Section 960.1(b) 
of the Board's existing AHP regulation contains a definition of the 
term that is similar to the statutory definition. See 12 CFR 960.1(b).
    The Board has determined that an estimate for reasonable utility 
costs should be included in the determination of rents charged to 
households under this section, if they are not already included in the 
projected rents. Including utility costs would reduce the housing cost 
burden for very low-income households under the AHP, and would allow 
all rental projects to be treated equally, since some projects include 
the cost of utilities in the rent, while others do not include such 
costs in the rent. Including utility costs would be consistent with the 
treatment of rents in other federal housing programs, such as HUD's 
Section 8 program and the LIHTC program. It also would be consistent 
with the treatment of rents under the AHP's 20 percent requirement, 
which is currently an interim rule of the Board, and which is 
incorporated in Sec. 960.9(c) of this proposed rule. (See discussion of 
20 percent requirement below.)
    The definition of ``affordable for low- or moderate-income 
households'' in Sec. 960.1 of the proposed rule is similar to the above 
definition, except that the household must have an income of 80 
percent, instead of 50 percent, of the median income for the area, 
since the Act defines a ``low- or moderate-income household'' as any 
household which has an income of 80 percent or less of the area median. 
12 U.S.C. 1430(j)(13)(A).
    (ii) Sale of AHP-assisted rental housing project. Section 
960.5(a)(3) of the proposed rule provides that an owner of an AHP-
assisted rental housing project may sell the project prior to the end 
of the long-term period during which the project's rental units, or 
applicable portion thereof, must remain affordable for and occupied by 
households with incomes at or below the levels committed to in the AHP 
application; however, either:
    a. The purchaser must agree to continue the project's rental units, 
or applicable portion thereof, as affordable for and occupied by 
households with incomes at or below the levels committed to in the AHP 
application for the remainder of the long-term period committed to in 
the AHP application, and must agree to be subject to the same 
restrictions on resale that applied to the seller; or
    b. If the purchaser does not satisfy the requirements in paragraph 
a. above, and if the Bank provided a direct subsidy to the applicant 
which was passed on as a grant to the seller, the seller must repay a 
pro rata portion of the grant as provided in Sec. 960.16(d)(1); or
    c. If the purchaser does not satisfy the requirements in paragraph 
a. above, and if the Bank provided a subsidized advance to the 
applicant which in turn provided a below market rate loan to the 
seller, then the provisions of Sec. 960.16(d)(2) shall apply.
    Proposed Sec. 960.5(b) further provides that the Bank's AHP 
implementation plan shall permit the owner of an AHP-assisted rental 
housing project to sell such project as provided for in paragraph 
(a)(3).
    D. Establishment of AHP Funding Cycles and Available AHP Subsidies
    Section 960.6(a)(1) of the proposed rule requires each Bank to 
establish at least two but no more than four AHP funding cycles per 
year during which applications for AHP subsidized advances or direct 
subsidies will be accepted. This is a change from the Board's existing 
AHP regulation, which provides that the Banks may accept AHP 
applications during two of four quarterly periods each year. See 12 CFR 
960.4(a).
    Section 960.6(a)(1) of the proposed rule also provides that the AHP 
funding cycle schedule, including application due dates, is to be 
determined by the Bank in its discretion, but shall allow for 
sufficient time intervals to ensure an adequate pool of applicants to 
compete in each funding cycle. The funding cycles schedule, including 
application due dates, shall be described in detail in the Bank's AHP 
implementation plan. This is also a change from the Board's existing 
AHP regulation, which sets forth specific application due dates. See 12 
CFR 960.4(a).
    Section 960.6(a)(2) of the proposed rule provides that each Bank 
shall inform the general public and its members of the number and dates 
of its AHP funding cycles for the year and the approximate amount of 
available AHP subsidies for each funding cycle at least 45 calendar 
days before the due date for AHP applications for the first funding 
cycle for the year. This is a change from the Board's existing AHP 
regulation, which requires each Bank to announce its funding cycles by 
December 1 of the preceding year, and to notify only its members of the 
approximate amount of AHP subsidies to be offered in each funding 
cycle. See 12 CFR 960.4(a), (b).
    Consistent with Sec. 960.4(b) of the Board's existing AHP 
regulation, Sec. 960.6(b) of the proposed rule provides that each Bank 
shall allocate comparable amounts of AHP subsidies for each AHP funding 
cycle during the year. See 12 CFR 960.4(b).

E. Specific Application and Scoring Requirements

1. Application Requirements
    The proposed rule does not mandate use of a uniform AHP application 
form by all of the Banks. Rather, the Board believes that, consistent 
with current practice under the AHP, each Bank should continue to 
devise its own AHP application form, because each Bank will have its 
own special information requirements as a result of the specific 
priorities and scoring criteria adopted by the Bank.
    However, as discussed further below, all AHP applications must 
satisfy certain threshold requirements in order to be considered for 
scoring under the proposed rule. Thus, certain information from 
applicants must be received by all Banks in order for the Banks to be 
able to determine whether the applications satisfy the threshold 
requirements in the proposed rule and to score the applications under 
the scoring criteria. Accordingly, Sec. 960.7(a) of the proposed rule 
provides that each Bank shall require applicants for subsidized 
advances or direct subsidies under the AHP to submit to the Bank an 
application which, at a minimum, contains all of the information 
described below and any other information which the Bank determines is 
necessary in order to take action on such application, including the 
following:
    (1) A concise description of the purpose of the request and 
proposed uses of the funds, and its relationship to the priorities 
identified in proposed Sec. 960.10(d), the targeting criterion 
identified in proposed Sec. 960.10(e), and the other objectives 
identified in proposed Sec. 960.10(f);
    (2) A statement of how the project will satisfy the authorized uses 
and long-term requirements, including a description of legal mechanisms 
to be used to ensure compliance by the project with such requirements, 
contained in proposed Secs. 960.3 and 960.5;
    (3) A statement of how the project will comply with the fair 
housing law requirement contained in proposed Sec. 960.9(b);
    (4) A statement of how the project will satisfy the feasibility 
requirement contained in proposed Sec. 960.9(d);
    (5) A statement of how the project's sponsor satisfies the 
qualification requirement contained in proposed Sec. 960.9(e);
    (6) A statement of whether a subsidized advance or direct subsidy 
has been requested and the amount of such funds requested;
    (7) A disclosure of whether or not the applicant has a direct or 
indirect interest in the property or project. If the applicant has an 
interest in the property and the application is approved, then prior to 
the transfer of AHP funds to the project, an independent current 
appraisal of the fair market value of such property must be provided, 
unless the applicant demonstrates that the property is being sold or 
otherwise transferred to the sponsor at a price substantially below the 
fair market value;
    (8) A statement of the project's costs; and
    (9) A certification from the applicant's, the sponsor's and the 
loan fund's or loan consortium's board of directors, or president or 
senior officer if so delegated by the board of directors, that the 
applicant, the sponsor and the loan fund or loan consortium will comply 
with all requirements of this part and all obligations committed to in 
the AHP application.
    Section 960.4(c) of the Board's existing AHP regulation also 
generally requires an applicant to include in its AHP application the 
information identified in paragraphs (3) through (6) above, as well as 
any other information the Bank may require. See 12 CFR 960.4(c).
    Section 960.4(c)(6) of the Board's existing AHP regulation also 
requires an applicant to disclose in its AHP application any direct or 
indirect interest of the applicant in the property or project. See 12 
CFR 960.4(c)(6). Under Sec. 960.7(a)(7) of the proposed rule, if such 
an interest exists and the application is approved, then prior to the 
transfer of AHP funds to the project, the applicant generally is 
required to provide an appraisal of the property or project. This is to 
ensure that the sales price of such property or project owned by the 
applicant has not been inflated and that the applicant is not receiving 
the benefit of the AHP subsidy.
    Section 960.4(c)(7) of the Board's existing AHP regulation requires 
the applicant to include in its AHP application an explanation of how 
the applicant intends to monitor the use of any funds received under 
the AHP, including an explanation of how the structure of the project 
ensures that a preponderance of the subsidy is ultimately received by 
the targeted beneficiaries. See 12 U.S.C. 1430(j)(9)(D); 12 CFR 
960.4(c)(7). As discussed in greater detail in the monitoring section 
below, as long as adequate monitoring is otherwise provided for, the 
proposed rule does not require the applicant in all instances to 
monitor the AHP-assisted project for compliance with the long-term 
requirement of the proposed rule. Accordingly, this provision of the 
existing regulation is deleted in the proposed rule.
    Section 960.4(c)(8) of the Board's existing AHP regulation requires 
the applicant to certify that the maximum subsidy limitation 
requirements of the AHP rule will not be violated. See 12 CFR 
960.4(c)(8). However, since the maximum subsidy limitation requirements 
are threshold requirements that all AHP applications must satisfy (see 
discussion below of the 20 percent requirement), this requirement is 
incorporated into proposed Sec. 960.7(a)(9), which provides generally 
that the applicant and sponsor must certify that all requirements of 
the AHP regulation will be satisfied.
    Section 960.4(c)(8) of the Board's existing AHP regulation also 
requires the applicant to explain in its AHP application how any AHP 
subsidy that exceeds the maximum subsidy requirements will be 
recaptured. See 12 CFR 960.4(c)(8). Since AHP applications must satisfy 
the threshold maximum subsidy limitation requirements at the outset in 
order to be scored and approved for AHP funding, this issue does not 
arise and therefore has been deleted in the proposed rule.
    As discussed above, the requirement in Sec. 960.4(c)(9) of the 
Board's existing AHP regulation that the applicant's managing officer 
must certify that the AHP subsidy shall be only for authorized uses is 
expanded in proposed Sec. 960.7(a)(9) to require a certification by the 
applicant, the sponsor and the loan fund or loan consortium not only 
that funds received under the AHP will be used for authorized uses, but 
also a certification of compliance with all requirements of the AHP 
regulation and all obligations committed to in the AHP application. See 
12 CFR 960.4(c)(9). In addition, the proposed rule requires the 
applicant, the sponsor and the loan fund or loan consortium, not just 
the applicant, as in the Board's existing AHP regulation, to make the 
certification in the AHP application. This change is proposed because 
the applicant, the sponsor and the loan fund or loan consortium are all 
subject to specific requirements under the AHP and therefore should be 
required to certify that they will comply with such requirements.
2. Action on Applications
    As discussed above, the proposed rule makes a major change in the 
Board's existing AHP regulation by taking the Board out of the approval 
process for AHP applications. Section 960.7(b)(1) of the proposed rule 
provides that each Bank shall review, score and take action on an AHP 
application pursuant to the requirements contained in proposed 
Secs. 960.8, 960.9 and 960.10, and shall notify the applicant of such 
action no later than 60 calendar days after the application due date 
for the AHP funding cycle. Section 960.5(f)(1) of the existing 
regulation requires the Banks to forward to the Board their recommended 
applications no later than 30 days after each offering deadline. See 12 
CFR 960.5(f)(1). Since the Banks would have greater responsibilities in 
the approval process under the proposed rule, the 30-day period is 
proposed to be extended to 60 calendar days.
    Section 960.7(b)(2) of the proposed rule provides specifically that 
the board of directors of each Bank shall have the authority to approve 
or disapprove AHP applications received, and may delegate such 
authority to the president or other senior officers of the Bank.
    Section 960.7(b)(3) of the proposed rule provides that within 30 
calendar days of each Bank's approval of the AHP applications for a 
given AHP funding cycle, the Bank shall forward to the Board a summary 
of each approved AHP application. The summary shall:
    (i) Briefly describe the project, including the applicant, the loan 
fund or loan consortium, if applicable, and the sponsor--whether 
nonprofit, for-profit or public agency, the type of housing, the 
location, the long-term period committed to, the number of housing 
units including the number of units affordable for very low-, low- or 
moderate-income households or for households at any other income levels 
committed to in the AHP application, the development cost, other 
financing sources, and special needs populations served;
    (ii) State the reason for the points awarded under each of the 
Bank's scoring criteria for the project;
    (iii) Indicate whether a subsidized advance or direct subsidy was 
approved by the Bank for the project, the use of such funds, and the 
amount of such funds approved; if a subsidized advance was approved, 
the summary shall indicate the amount of the advance, the advance rate, 
the amortization schedule for the advance, the term to maturity, the 
applicable cost of funds, and the date as of which the cost of funds 
was determined;
    (iv) Indicate whether the project received approval in a prior AHP 
funding cycle, or whether the project is an extension, expansion, 
continuation or reconfiguration of a previously approved AHP project;
    (v) Describe how the project will be monitored and by what entity;
    (vi) Describe the legal mechanisms to be used to ensure compliance 
by the project with the long-term requirement contained in Sec. 960.5 
of the proposed rule;
    (vii) Include a summary in chart form showing all AHP applications 
received by the Bank in the particular AHP funding cycle, with the 
score each application received for each scoring criterion, and the 
total score received by each project; and
    (viii) Include any other information required by the Board.
    The Board has general oversight responsibility over the AHP under 
section 10(j) of the Act. See 12 U.S.C. 1430(j). In addition, section 
10(j)(12)(A) of the Act requires the Board to monitor and report 
annually to the Congress and the Advisory Council for each Bank the 
support of low-income housing and community development by the Banks 
and the utilization of advances for these purposes. Id. 
Sec. 1430(j)(12)(A). Since the Board would no longer be receiving and 
approving AHP applications under the proposed rule, the Board would no 
longer have these applications as a source of data to assist the Board 
in exercising its oversight and monitoring responsibilities and 
preparing the annual report to the Congress and the Advisory Councils. 
Accordingly, the Board will need the Banks to provide this additional 
information to the Board in the summary, as required in proposed 
Sec. 960.7(b)(3).

F. Requirements For Approval of AHP Applications

1. General
    Section 960.8(a) of the proposed rule provides that each Bank shall 
evaluate the AHP applications received to determine if they satisfy the 
threshold criteria in proposed Sec. 960.9. All applications that meet 
the threshold criteria shall be scored pursuant to the criteria 
contained in proposed Sec. 960.10 as set forth in the Bank's approved 
AHP implementation plan.
    Section 960.8(b) of the proposed rule provides that the Bank shall 
approve the applications in descending order starting with the highest 
scoring application until the total AHP funding amount for the 
particular funding cycle, except for any amount insufficient to fund 
the next highest scoring project, has been allocated. The Bank also may 
approve the next four highest scoring applications as alternates and, 
within one year of approval by the Bank, may fund such alternates if 
any previously committed AHP funds become available.
2. Threshold Criteria for Approval of AHP Applications
    Section 960.9 of the proposed rule provides that an AHP application 
must meet all of the threshold criteria set forth in a. through f. 
below in order to be considered for scoring under proposed Sec. 960.10 
and for AHP funding approval. These criteria are discussed in detail 
below.
    a. Authorized and required uses requirements. The AHP application 
must indicate that the use of the subsidized advance or direct subsidy 
set forth in the AHP application for the proposed project will comply 
with the requirements for authorized and required uses of such funds 
contained in proposed Secs. 960.3, 960.4 and 960.5. See proposed 
Sec. 960.9(a).
    This proposed provision is consistent with the intent of 
Sec. 960.5(a)(1) of the Board's existing AHP regulation. See 12 CFR 
960.5(a)(1).
    b. Fair housing law requirements. The AHP application must indicate 
that the project sponsor will comply with any applicable fair housing 
law requirements and must indicate how the sponsor proposes to 
affirmatively further compliance with such requirements. See proposed 
Sec. 960.9(b).
    This proposed provision is consistent with the requirement of 
compliance with fair housing laws contained in Sec. 960.5(a)(2)(i) of 
the Board's existing AHP regulation, and the requirement under existing 
practice that applications indicate how the sponsor proposes to 
affirmatively further such compliance. See 12 CFR 960.5(a)(2)(i).
    c. The twenty percent requirement and alternatives. Section 
960.9(c) of the proposed rule incorporates the existing maximum subsidy 
limitation requirement and alternatives contained in Sec. 960.9 of the 
Board's interim rule, with minor changes in language and one 
substantive modification discussed below. See 12 CFR 960.9 (58 FR 17968 
(April 7, 1993)). The 20 percent requirement and the alternatives 
discussed below implement the maximum subsidy limitation requirement 
contained in section 10(j)(9)(F) of the Act. See 12 U.S.C. 
1430(j)(9)(F). Since the 20 percent requirement or an alternative must 
be satisfied by all AHP applications to avoid over-subsidization of a 
project, it is set forth as a threshold requirement in the proposed 
rule.
    (i) The twenty percent requirement. Section 960.9(c)(1)(i) of the 
proposed rule provides generally that a Bank shall not offer subsidized 
advances or direct subsidies to applicants in excess of that amount 
needed to reduce the monthly housing costs for income-eligible 
households, as committed to in the AHP application, to 20 percent of 
the household's gross monthly income (the 20 percent requirement). In 
projects where other forms of federal, state, local or private 
subsidized assistance are being used in conjunction with AHP subsidized 
advances or direct subsidies, the total amount of subsidized 
assistance, including funds provided under the AHP, shall not be in 
excess of the amount needed to reduce the monthly housing costs for the 
income-eligible households, as committed to in the AHP application, to 
20 percent of the household's gross monthly income.
    Monthly housing costs are defined in proposed Sec. 960.9(c)(1)(ii) 
as:
    (1) For households in AHP-assisted owner-occupied housing units, 
mortgage principal and interest payments, real property taxes, 
homeowners' insurance, a reasonable estimate of utility costs excluding 
telephone service, and for households in AHP-assisted condominium, 
cooperative, mutual housing or other housing projects involving common 
ownership, those portions of any regular operating assessment or fee 
allocated for principal and interest payments, taxes, insurance and a 
reasonable estimate of utilities attributable to the household's share 
of the common area and/or the individual unit; and
    (2) For households in AHP-assisted rental housing units, rent 
payments, and where they are not already included in rent payments, a 
reasonable estimate of utility costs excluding telephone service.
    Section 960.9(c)(1)(iii) of the proposed rule provides that a 
household subject to the 20 percent requirement is required to meet 
such requirement only at the time it initially purchases or occupies a 
unit.
    (ii) Alternative requirements. Section 960.9(c)(2)(i) of the 
proposed rule provides that the 20 percent requirement shall not apply 
where a Bank provides subsidized advances or direct subsidies to an 
applicant for a rental housing project, which project also receives 
funds from a federal or state rental housing program that requires 
qualifying households to pay as rent a certain percentage of their 
monthly income or a designated amount, provided that the household 
meets the housing payment requirements of the other program.
    Section 960.9(c)(2)(ii)(A) of the proposed rule provides that the 
20 percent requirement shall not apply where the total amount of AHP 
funds provided through a Bank subsidized advance or direct subsidy used 
to finance rehabilitation of a housing unit by a very low-income 
household that already owns and occupies the housing unit is $10,000 or 
less per such household. In addition, proposed Sec. 960.9(c)(2)(ii)(B) 
provides that the 20 percent requirement shall not apply where the 
total amount of AHP funds provided through a Bank subsidized advance or 
direct subsidy used to finance the purchase of a housing unit by a very 
low-income household is $5,000 or less per such household. This is a 
change from the interim rule which permits this alternative to the 20 
percent requirement only for households that are above the threshold 
income level for very low-income households and at or below the income 
level to qualify as low- or moderate-income households. The Board did 
not intend to exclude very low-income households from taking advantage 
of this alternative when it adopted the interim rule. Accordingly, 
proposed Sec. 960.9(c)(2)(ii)(B) corrects this error.
    Section 960.9(c)(2)(iii) of the proposed rule provides that the 20 
percent requirement shall not apply where the total amount of AHP funds 
provided through a Bank subsidized advance or direct subsidy used to 
finance rehabilitation or purchase of a housing unit by a low- or 
moderate-income household is $5,000 or less per such household.
    Section 960.9(c)(2)(iv) of the proposed rule provides that the 20 
percent requirement shall not apply where a Bank provides subsidized 
advances or direct subsidies ultimately benefiting a household with an 
income at or below the level committed to in the AHP application, which 
is participating in a self-help, sweat equity or similar housing 
program. Under the proposed rule, the household is required to 
contribute its skilled or unskilled labor valued at a minimum of $2,000 
per household. The household must work cooperatively with others to 
construct or rehabilitate housing which the household or other program 
participants are purchasing or already own and occupy, and the program 
must involve supervision of the work performed by skilled builders or 
rehabilitators.
    d. Project feasibility. The AHP application must indicate that the 
proposed project is feasible. This determination must be based on an 
analysis of project sources and uses of funds, project multi-year 
operating pro formas for rental housing projects, projections of sales 
and prices for owner-occupied housing units, and local market 
conditions. The analysis must show that the project is financially 
viable and likely to be completed within a reasonable period of time, 
and is likely to operate or sell and remain affordable to the 
designated income-eligible households over the long-term period 
committed to in the AHP application. See proposed Sec. 960.9(d).
    A feasibility requirement also is contained in Sec. 960.5(a)(2)(ii) 
of the Board's existing AHP regulation. See 12 CFR 960.5(a)(2)(ii).
    e. Qualifications of sponsor. The AHP application must indicate 
that the sponsor has the qualifications and ability to perform its 
responsibilities as committed to in the AHP application. See proposed 
Sec. 960.9(e).
    This proposed provision is not included as a threshold requirement 
in the Board's existing AHP regulation, although it is required under 
the regulation to be included by an applicant in its AHP application. 
See 12 CFR 960.4(c)(4). The Board believes that this provision should 
be included as a threshold requirement, since a project should not be 
funded if the sponsor lacks the qualifications and ability to undertake 
the project.
    f. Creditworthiness of applicant. Consistent with the Board's 
existing AHP regulation, Sec. 960.9(f) of the proposed rule provides 
that the applicant must have the ability to qualify for an advance from 
the Bank to fund the project described in the AHP application. See 12 
CFR 960.5(a)(2)(iii).
    The Board's existing AHP regulation also includes as a threshold 
requirement the ability of the project to begin using Bank assistance 
within 12 months. See 12 CFR 960.5(a)(2)(iv). Since this involves the 
use of funds after a project has been approved for funding, it does not 
belong as a threshold requirement and has been omitted in this section 
of the proposed rule. The requirements under the proposed rule for use 
of funds under the AHP within a reasonable period of time after 
approval of the application are discussed below in the use and 
verification section.
    Finally, it has been suggested that a threshold criterion should be 
added requiring that the project costs set forth in the AHP application 
are reasonable and appropriate for the type and location of the 
housing.
    Section 10(j)(9)(F) of the Act requires the Board to establish 
maximum subsidy limitations under the AHP. 12 U.S.C. 1430(j)(9)(F). 
Section 10(j)(9)(D) of the Act also requires the Board to ensure that a 
preponderance of assistance provided under the AHP is ultimately 
received by low- and moderate-income households. Id. Section 
1430(j)(9)(D). Requiring that project costs be reasonable is one way of 
controlling the amount of AHP subsidies that fund a project in order to 
keep the project from being over-subsidized, and to ensure that a 
preponderance of the funds are being received by the ultimate 
households by lowering their housing costs and not providing undue 
benefit to the intermediaries in the development process.
    A project costs requirement is not explicitly prescribed in the 
threshold requirements under the Board's existing AHP regulation, 
although some Banks do currently review project costs to determine if 
they are reasonable under the feasibility requirement in the existing 
regulation. See 12 CFR 960.5(a)(2)(ii). The feasibility requirement as 
defined in the proposed rule would not incorporate a project costs 
limit requirement.
    The Board specifically requests comments on how the Banks currently 
deal with applications with excessive project costs, whether the 
project costs option discussed above should be required as a threshold 
criterion in approving AHP applications, and how such a requirement 
could be implemented by the Banks.
3. Scoring of AHP Applications
    Section 960.10(a) of the proposed rule provides that the Bank shall 
score AHP applications that satisfy all of the threshold criteria in 
proposed Sec. 960.9 according to the scoring methodology set forth in 
proposed Sec. 960.10, which shall be included in the Bank's approved 
AHP implementation plan. Section 960.10 of the proposed rule modifies 
the existing scoring methodology, and the Board specifically requests 
comments on this proposed new scoring methodology.
    a. Priority treatment and scoring. Section 960.10(b) of the 
proposed rule provides that each application is first evaluated to 
determine if it will receive priority treatment. The Board's existing 
AHP regulation contains seven priorities: Homeownership projects; 
rental projects; projects using government properties; projects with a 
non-profit or public agency sponsor; projects promoting empowerment; 
homeless housing projects; and projects meeting a Bank priority. Under 
the existing AHP regulation, an application must meet at least three of 
the seven priorities to receive priority treatment. The proposed rule 
would contain only five priorities. The proposed rule would eliminate 
the priorities for homeownership and rental properties because a 
project must be either a rental or homeownership project in order to 
qualify for AHP funding. The proposed rule would replace the 
empowerment and homeless housing priorities with a priority for 
``special needs'' housing. In addition, the proposed rule would add a 
new priority for projects promoting economic mobility.
    Under Sec. 960.10(b) of the proposed rule, for purposes of 
determining priority, an application can receive a maximum of eight 
points for each of the five priority categories described below. A Bank 
in its AHP implementation plan shall define more specifically each of 
the five priority categories and explain specifically how points will 
be awarded for satisfying each category. An application will be deemed 
to meet a particular priority category if it is awarded at least four 
points for that priority category. Applications meeting at least two 
priority categories shall receive priority treatment.
    Section 960.10(c) of the proposed rule provides that applications 
that qualify for such priority treatment shall be scored before 
applications that do not qualify for priority treatment. The 
applications that do not qualify for priority treatment will not be 
scored unless there are insufficient priority treatment applications to 
utilize the total AHP funding amount for the funding cycle. Under the 
proposed rule, the total points available for the priorities would be 
increased from 25 to 40. Section 960.10(d) of the proposed rule 
provides that the Bank shall total the points received by each 
applicant for purposes of determining priority for all of the five 
priority categories and shall award 40 points to the application(s) 
that receive the highest number of total points, and the remaining 
application scores shall be adjusted and awarded points on a declining 
scale basis.
    The five priority categories are set forth below.
    (1) Government-owned properties. Applications for projects that 
finance the purchase or rehabilitation of housing owned or held by the 
United States Government or any agency or instrumentality of the United 
States, including but not limited to HUD, the RTC, Farmers Home 
Administration, Veterans Administration, Federal National Mortgage 
Association, or Federal Home Loan Mortgage Corporation. (See proposed 
Sec. 960.10(d)(1).)
    (2) Nonprofit or state or local government sponsored projects. 
Applications for projects that finance the purchase, construction or 
rehabilitation of housing sponsored by a nonprofit organization, a 
state or political subdivision of a state, a local housing authority or 
a state housing finance agency. (See proposed Sec. 960.10(d)(2).)
    (3) Special needs projects. Applications for projects that address 
special needs, which shall be defined by the Bank in its AHP 
implementation plan, which special needs may include but are not 
limited to:
    (i) Empowering the households or residents through programs such as 
resident management of the property, self-help housing, homesteading, 
and sweat equity;
    (ii) Providing housing for special needs populations such as 
homeless persons, abused or battered persons, persons with AIDS, 
mentally or physically disabled persons, or persons with substance 
abuse problems;
    (iii) Providing housing in rural areas or areas targeted by local, 
state or federal governments for community development or 
revitalization through the development of affordable housing or 
economic investment; or
    (iv) Providing housing with special services to meet the needs of 
low- or moderate-income households including, but not limited to, child 
care, job training, medical care, substance abuse programs, independent 
living skill training, and rental household and homeowner household 
counseling. (See proposed Sec. 960.10(d)(3).)
    In defining the special needs priority in its AHP implementation 
plan, a Bank is not required to include all of the special needs listed 
as examples above. Rather, a Bank may be selective in giving priority 
to some special needs and not others in devising its scoring system. In 
addition, the Bank may select other special needs not listed as 
examples above if the special needs chosen are similar in nature to 
such examples.
    (4) District Bank priority. Applications for projects that meet one 
or more priorities recommended by the Bank's Advisory Council and 
adopted by the Bank's board of directors that each address a housing 
need in the Bank's district and are consistent with the purposes of 
this part. The Bank shall describe in its AHP implementation plan how 
the points for the priority or priorities will be distributed. (See 
proposed Sec. 960.10(d)(4).)
    (5) Economic mobility priority. Applications for projects that 
provide housing for low- or moderate-income households that move from 
low- or moderate-income neighborhoods or housing projects to 
neighborhoods, mixed-income buildings or owner-occupied housing 
developments in which at least 50 percent of the households have 
incomes above the median income for the area, as published by the U.S. 
Department of Housing and Urban Development. (See proposed 
Sec. 960.10(d)(5).)
    b. Scoring for objectives. The Board's existing AHP regulation 
contains the following ``objectives'' scoring criteria: Targeting; 
long-term retention; effectiveness; community involvement; community 
stability; and innovation. The proposed rule makes long-term retention 
a threshold criteria and adds a new objective called ``applicant 
participation.'' A description of this new objective and the other 
criteria are set forth below.
    c. Scoring for targeting objective. Section 960.10(e) of the 
proposed rule provides that an application can receive a maximum of 20 
points for the targeting objective category. This is an increase from 
15 points under the existing regulation. The proposed rule provides 
that the Bank shall award points to applications based on the extent to 
which the project(s) serve(s) the greatest percentage of very low-, 
low- and moderate-income households, in that priority order. In the 
alternative, if a weighted-average scoring methodology is provided in 
the Bank's AHP implementation plan, the Bank shall award points to an 
application based on the extent to which the project has the lowest 
weighted-average income determined by multiplying the percentage of 
units reserved for households at certain income levels by those incomes 
expressed as a percentage of median income, and adding the totals. 
Applications shall be scored relative to each other with the maximum 
number of points allowable awarded to the application(s) that best 
achieve(s) the targeting objective, and the remaining application 
scores shall be adjusted and awarded points on a declining scale basis. 
However, owner-occupied housing projects shall be scored as one group 
and rental housing projects shall be scored as a separate group.
    d. Scoring for other objectives. Section 960.10(f) of the proposed 
rule sets forth five other objectives categories for scoring AHP 
applications. The proposed rule requires the Bank in its AHP 
implementation plan to define more specifically each of the five other 
objectives categories and explain specifically how points will be 
awarded for satisfying each category. For each category, the Bank shall 
award the maximum number of points allowable for such category to the 
application(s) that best achieve(s) the objective, and the remaining 
application scores shall be adjusted and awarded points on a declining 
scale basis. The five other objectives categories are set forth below.
    (1) AHP subsidy per unit. An application can receive a maximum of 
10 points for this category. The Bank shall award points to 
applications based on the extent to which the project proposes to use 
the least amount of AHP subsidy per AHP-subsidized unit. Projects 
should be scored relative to each other; however, owner-occupied 
housing projects shall be scored as one group and rental housing 
projects shall be scored as a separate group. This scoring criterion 
may not include a leveraging criterion whereby the application is 
scored based on the percentage of the project's total development cost 
that is to be financed with the AHP subsidy. This replaces the 
effectiveness criterion that can receive a maximum of 15 points in the 
existing scoring methodology.
    (2) Applicant participation. An application can receive a maximum 
of five points for this category. The Bank shall award points to 
applications based on the extent to which the project involves 
participation by applicants other than the receipt of a subsidized 
advance or direct subsidy under the AHP. Such participation can be 
financial or non-financial, including but not limited to debt or equity 
financing of the project, grants to the project, applicant involvement 
on the boards of nonprofit sponsors, and applicant provision of 
technical assistance to the nonprofit sponsors for the project. This is 
a new scoring criterion.
    (3) Community involvement. An application can receive a maximum of 
10 points for this category. The Bank shall award points to 
applications based on the extent to which there is demonstrated support 
for the project by local community organizations and individuals other 
than as project sponsors, such as through the commitment by such 
organizations and individuals of funds, goods and services, and 
volunteer labor. The Banks should not award points for this category 
based solely on the number of letters of support received for the 
project.
    (4) Community stability. An application can receive a maximum of 10 
points for this category. The Bank shall award points to applications 
based on the extent to which the project(s) maximize(s) community 
stability, such as by: committing to maintain a greater long-term 
period pursuant to Sec. 960.5; revitalizing vacant or abandoned 
properties or being integrally part of a neighborhood stabilization 
plan, if such revitalization or stabilization is not identified as a 
special needs category by the Bank pursuant to Sec. 960.10(d)(3)(iii); 
and not displacing low- or moderate-income households, or if such 
displacement will occur, indicating how such households will be 
assisted to minimize the impact of such displacement.
    (5) Innovation. An application can receive a maximum of five points 
for this category. This is a reduction from 10 points under the 
existing regulation. The Bank shall award points to applications based 
on the extent to which the project(s) involve(s) a particularly new or 
unusual approach, either financial or non-financial, for meeting the 
requirements of this part.

G. Modifications of Approved AHP Applications

    Section 960.11(a) of the proposed rule provides that an applicant 
that seeks a modification of an approved AHP application before 
completion and occupancy of the project must submit a request for such 
modification in writing to the Bank for review and approval. A 
modification is any change that affects or could potentially affect the 
material facts under which the application was originally evaluated and 
scored. Modifications are changes in the specifics of an application 
such as requests for additional AHP subsidy or changes in approved 
income targeting.
    Section 960.11(b) of the proposed rule provides that a request for 
a modification of an approved AHP application must include, at a 
minimum:
    1. A description of how the proposed modification differs from the 
original application;
    2. The reason for the proposed modification; and
    3. Any other information that the Bank determines is necessary to 
review the proposed modification.
    Section 960.11(c)(1) of the proposed rule provides that the Bank 
shall review the request for modification, shall re-score the 
application as proposed to be modified according to the scoring 
criteria used in the AHP funding cycle in which the application was 
originally approved, and may approve such request if the following 
factors are satisfied:
    1. The project as proposed to be modified continues to meet all of 
the requirements of this part; and
    2. The project as proposed to be modified continues to score high 
enough that it would have been approved in its AHP funding cycle.
    Section 960.11(c)(2) of the proposed rule provides that if the 
application does not satisfy the requirements in paragraph (c)(1), the 
Bank in its discretion may approve the request for modification if the 
reason for the modification is due to circumstances outside the control 
of the applicant or sponsor.
    Section 960.11(d) of the proposed rule provides that the Bank shall 
forward to the Board a detailed summary of any modification of an AHP 
application approved by the Bank, including how the Bank re-scored the 
project, within 30 calendar days of the approval of such modification.

H. Use, Calculation and Verification at Initial Disbursement of AHP 
Subsidized Advances or Direct Subsidies

1. Use of Subsidized Advances or Direct Subsidies Within Reasonable 
Period of Time and Verification of Reasonable Progress
    As discussed above, the threshold requirement in the Board's 
existing AHP regulation that the project have the ability to begin 
using Bank assistance within 12 months is omitted as a threshold 
requirement in the proposed rule. See 12 CFR 960.5(a)(2)(iv). In 
addition, setting a fixed period of 12 months may not be appropriate in 
all cases, because what is a reasonable period of time will vary from 
project to project depending on the type of project and the 
circumstances of the project. However, the Board does believe that 
funds received under the AHP should be used within a reasonable period 
of time after approval of an AHP application. Because what is a 
reasonable period of time is so project specific, the Board believes 
that the determination of such periods should be left to the discretion 
of the Banks.
    Accordingly, Sec. 960.12(a) of the proposed rule provides that the 
Bank shall in its AHP implementation plan identify what constitutes 
reasonable progress by the sponsor towards using subsidized advances or 
direct subsidies within a reasonable period of time after the approval 
of an AHP application for different types of projects, and explain how 
it intends to verify such reasonable progress.
    Section 960.12(b) of the proposed rule provides that the sponsor 
must demonstrate that reasonable progress is being made towards using 
the requested funds within a reasonable period of time after approval 
of the AHP application, as determined by the Bank.
    Section 960.12(c) of the proposed rule provides that the Bank shall 
verify the efforts of the sponsor to determine whether it has satisfied 
the requirement in paragraph (b).
    Section 960.12(d) of the proposed rule provides that if the sponsor 
fails to satisfy the requirement in paragraph (b), the Bank shall 
cancel the AHP award, and shall not disburse any subsidized advances or 
direct subsidies through the applicant to the sponsor, and the full 
amount of any previously disbursed subsidized advances or direct 
subsidies shall be returned to the Bank.
2. Calculation of AHP Subsidy
    The Board is considering adopting rules on the calculation of AHP 
subsidies for subsidized advances and specifically requests comments on 
the following proposals. Under consideration is whether AHP application 
approvals should commit to provide a dollar amount of subsidy, or 
should commit to make a subsidized advance at a specific interest rate. 
Another possibility is that the Bank can select on a case-by-case basis 
to do one or the other or both but the choice must be specified in its 
approval. The rule could require the Bank's AHP implementation plan to 
describe the Bank's procedures in this area.
    The Board specifically requests comments as to whether an AHP 
approval should commit to provide a specific dollar amount of subsidy 
for a subsidized advance. If interest rates rise after the approval, 
should the interest rate on the subsidized advance be increased so that 
the present value of the amount needed to subsidize the reduction in 
interest rate is equal to the subsidy amount originally approved? 
Should the applicant be given the option of either reducing the 
principal amount of the loan and keeping the originally requested 
interest rate unchanged, or increasing the interest rate on the loan 
and keeping the principal amount of the loan unchanged? If interest 
rates fall after the approval, should the specific dollar amount of 
approved subsidy stay the same, or be adjusted?
    Alternatively, if the AHP approval commits to make a subsidized 
loan at a specified interest rate, then a number of issues are raised. 
First, should the amount of the subsidy to be charged against the AHP 
fund be calculated at the time the application is approved, or at the 
time of disbursement. If the calculation is not done at the time the 
application is approved but is done at the time of funding and interest 
rates have fallen since the approval, the amount of the subsidy 
provided to subsidize the advance would decrease and the amount of 
subsidy charged against the AHP fund would decrease. If the calculation 
is done at the time of funding and interest rates have risen since the 
approval, the amount of the subsidy provided to subsidize the advance 
would increase and the amount of subsidy charged against the AHP fund 
would increase. If the increase in subsidy is permitted to be charged 
against the AHP fund, should there be any limits on the amount of 
increase in subsidy? If the amount that could be charged against the 
AHP fund could be increased without limit, these charges could reduce 
the amount of funds available for future cycles of AHP funding. One 
option would be to put an upper limit, for example a specified number 
of basis points, as the maximum amount by which additional AHP funds 
would be provided to cover the interest rate increase. Another option 
would be to approve the amount of the subsidy as well as the interest 
rate on the advance at the time the advance is approved and permit the 
subsidy to be increased up to a specified amount. Another issue is 
whether funds from future AHP funding cycles should be used to pay for 
increased subsidies due to interest rate increases. The Board 
specifically requests comments on these options.
    The Board is concerned about the calculation of subsidies where 
non-amortizing subsidized advances are used by members to fund 
amortizing AHP loans from members to sponsors. Since principal is 
repaid on a different schedule for amortizing loans than non-amortizing 
loans, the Banks must adjust their subsidy calculation methodologies to 
ensure that they have properly adjusted for these differences. As AHP 
principal is repaid to a member but not repaid to the Bank, the benefit 
of these subsidized funds may not be passed on to the ultimate 
borrower, as required in section 10(j)(9)(E) of the Act. See 12 U.S.C. 
1430(j)(9)(E). Without proper adjustment for differences in the cash 
flows for an amortizing loan and an interest-only advance, the amount 
of subsidy actually received by a project will be less than the amount 
incurred by the Bank as an AHP expense. The Board specifically requests 
comments as to whether an amortizing advance structure is required to 
assure that the subsidy amount incurred by the Bank as an AHP expense 
matches the amount of the subsidy actually received by a sponsor. In 
addition, the Board requests comments as to whether there are 
alternative appropriate methods to deal with the discrepancy in the 
subsidy amounts where such advances are used to fund amortizing loans.
3. Verification at Initial Disbursement of Subsidized Advances or 
Direct Subsidies
    Section 960.13 of the proposed rule provides that at the time of 
initial disbursement of a subsidized advance or a direct subsidy by a 
Bank for an approved AHP application, the Bank shall verify in writing 
that the project complies with all applicable requirements contained in 
proposed Sec. 960.9 and all obligations committed to in the approved 
AHP application. The Bank shall verify the amount of subsidy being 
provided in connection with the application and being charged against 
the AHP fund. The Bank shall include in its AHP implementation plan its 
verification procedures for such purposes.

I. Monitoring Requirements

    Section 960.14 of the proposed rule sets forth the requirements for 
monitoring AHP-assisted housing projects. Section 960.14 is intended to 
implement the statutory requirement of section 10(j)(9)(C) of the Act, 
which provides that the Board's regulations shall ensure that advances 
made under the AHP be used only to assist projects for which adequate 
long-term monitoring is available. See 12 U.S.C. 1430(j)(9)(C).
    The Board's existing AHP regulation provides that each Bank must 
monitor housing projects funded through its AHP. See 12 CFR 960.7(b). 
Section 960.14(a) of the proposed rule carries forward this 
requirement, and Sec. 960.14(e) through (h) of the proposed rule sets 
forth the specific monitoring requirements for the Banks, which are 
discussed further below. Section 960.14(b) of the proposed rule 
provides that each Bank shall include in its AHP implementation plan an 
explanation of how it intends to meet the monitoring requirements of 
Sec. 960.14 of the proposed rule.
    Under Sec. 960.14(c) of the proposed rule, a Bank may contract with 
an applicant, a state housing finance agency, or another entity to 
perform the tasks required to carry out the Bank's monitoring 
responsibilities; however, the Bank remains ultimately responsible for 
meeting the monitoring requirements set forth in Sec. 960.14 (e) 
through (h) of the proposed rule. Thus, a Bank may decide in its 
monitoring plan that applicants will have no long-term monitoring 
responsibilities. Alternatively, the Bank may decide to require 
applicants to perform long-term monitoring as a condition of approval 
of an AHP award, or the Bank may determine what entity has the 
responsibility for monitoring on a project-by-project basis.
1. Applicant Monitoring of Construction or Rehabilitation
    Section 960.14(d) of the proposed rule adds a new requirement that 
if a subsidized advance or direct subsidy is used to finance 
construction or rehabilitation of a project, the Bank shall require the 
applicant to monitor the construction or rehabilitation until 
completion, and to make progress reports to the Bank. Where an 
applicant finances construction or rehabilitation, the applicant 
usually monitors the progress of the project in connection with 
approving disbursements of funds to the borrower. Therefore, the Board 
believes that where an applicant uses a subsidized advance or direct 
subsidy to make loans for construction or rehabilitation of an AHP-
assisted project, the applicant is in the best position to monitor the 
progress of such construction or rehabilitation and to make progress 
reports to the Bank.
2. Bank Monitoring Requirements
    Section 960.14 (e) through (h) of the proposed rule sets forth the 
specific aspects of an AHP project that a Bank is required to monitor. 
Section 960.14(e) of the proposed rule sets for the monitoring 
responsibilities that are long-term in nature, as required by section 
10(j)(9)(C) of the Act. See 12 U.S.C. 1430(j)(9)(C). Section 960.14(f) 
and (h) of the proposed rule sets forth the short-term monitoring 
responsibilities for compliance with the special needs and economic 
mobility priorities. Section 960.14(g) sets forth the monitoring 
responsibilities for the District Bank priority or priorities, which 
may or may not be long-term, depending on the nature of the priority 
selected by the Bank.
    a. Monitoring of long-term requirements. Section 960.14(e) of the 
proposed rule sets forth the requirements for monitoring the long-term 
requirements for owner-occupied and rental housing projects assisted 
under the AHP.
    (i) Owner-occupied housing units. Section 960.14(e)(1)(i) of the 
proposed rule provides that at the time a household enters into a 
purchase contract for an AHP-assisted housing unit or by the closing on 
the financing for such unit, or at the time a household that already 
owns the housing unit receives a commitment of a loan or a grant 
pursuant to the AHP, the Bank or its designee shall obtain a 
certification from the sponsor that the household has an income at or 
below the level committed to in the AHP application.
    Section 960.14(e)(1)(ii)(A) of the proposed rule provides that 
during the required long-term period applicable to an owner-occupied 
housing unit assisted by a grant provided under the AHP, the Bank or 
its designee shall monitor the unit to determine whether it has been 
sold to a household with an income that exceeds the level committed to 
in the AHP application.
    The Board requests comments on two proposed options for 
implementing this requirement. These options incorporate the use of 
sampling to monitor AHP-assisted projects. The Board recognizes that as 
the number of AHP-assisted projects in existence grows, the costs of 
monitoring these projects may place an undue financial burden on the 
Banks and the AHP. Monitoring AHP-assisted projects on a sample basis 
may be one way to minimize the costs of monitoring while continuing to 
meet the monitoring requirements of the Act.
    Section 960.14(e)(1)(ii)(B) of the proposed rule proposes that 
monitoring shall include, but is not limited to, periodic review of 
relevant reports or certifications obtained from the sponsor, including 
any reports or certifications received pursuant to 
Sec. 960.15(c)(1)(ii) of the proposed rule and, at least on a sample 
basis, periodic review of land title records at intervals determined by 
the Bank, based on the amount of funds received by the project pursuant 
to the AHP, the type and complexity of the project, or other factors 
deemed relevant by the Bank.
    An alternative option would be to require that the Bank only would 
have to review land title records on a sample basis, as determined by 
the Bank.
    (ii) Rental housing projects. Section 960.14(e)(2)(i) of the 
proposed rule provides that the Bank shall require an AHP-assisted 
rental housing project to be subject to a deed restriction or other 
legally enforceable mechanism which requires that upon sale of the 
project prior to the end of the long-term period during which the 
project's rental units, or portion thereof, must remain affordable for 
and occupied by households with incomes at or below the level committed 
to in the AHP application, the Bank or its designee must receive notice 
of the sale, and:
    (1) The project's rental units, or portion thereof, must continue 
to be affordable for and occupied by households with incomes at or 
below the levels committed to in the AHP application for the remainder 
of the long-term period committed to in the AHP application, and the 
purchaser agrees to be subject to the same restrictions on resale that 
applied to the seller; or
    (2) If the purchaser does not satisfy the requirements in (1) 
above, and if the Bank provided a direct subsidy to the applicant which 
was passed on as a grant to the seller, the seller must repay a pro 
rata portion of the grant to the applicant, as provided in 
Sec. 960.16(d)(1) of the proposed rule; or
    (3) If the purchaser does not satisfy the requirements in (1) 
above, and if the Bank provided a subsidized advance to the applicant 
which in turn provided a below market rate loan to the seller, then the 
provisions of Sec. 960.16(d)(2) shall apply.
    Section 960.14(e)(2)(ii) of the proposed rule provides that upon 
initial full occupancy of the units in an AHP-assisted rental housing 
project or one year after initial disbursement of the subsidized 
advance or direct subsidy, whichever occurs first, the Bank or its 
designee shall obtain a certification from the sponsor or the owner 
that the project's units, or portion thereof, are affordable for and 
occupied by households with incomes at initial occupancy at or below 
the levels committed to in the AHP application.
    Section 960.14(e)(2)(iii)(A) of the proposed rule provides that 
during the long-term period for which the units, or portion thereof, of 
a rental housing project must remain affordable for and occupied by 
households with incomes at or below the levels committed to in the AHP 
application, the Bank or its designee shall monitor the project to 
determine whether the project's units, or portion thereof, remain 
affordable for and occupied by households with incomes at or below the 
levels committed to in the AHP application. The Board requests comments 
on several options for implementing this requirement.
    Section 960.14(e)(2)(iii)(B) of the proposed rule proposes that 
monitoring shall include, but is not limited to, periodic review of 
relevant household income and rent reports or certifications obtained 
from the sponsor or the owner and, at least on a sample basis, periodic 
inspections of the project at intervals to be determined by the Bank, 
based on the amount of AHP assistance received by the project, the type 
and complexity of the project, and other factors deemed relevant by the 
Bank.
    Another option would be that where funds other than funds provided 
under the AHP are the predominant source of financing for an AHP-
assisted rental housing project and the monitoring activities of such 
other funding source are sufficient to determine the project's 
compliance with the requirements of the AHP, as committed to in the AHP 
application, the monitoring requirement would be deemed to be 
fulfilled. However, if the monitoring activities of such other funding 
source are not sufficient to determine the project's compliance with 
the requirements of the AHP, as committed to in the AHP application, 
the Bank would be required to monitor the project by conducting 
inspections, at least on a sample basis, as determined by the Bank, 
based on the amount of the funds received by the project under the AHP, 
the type and complexity of the project, or other factors deemed 
relevant by the Bank. In the alternative, if the monitoring activities 
of such other funding source are not sufficient to determine the 
project's compliance with the requirements of the AHP, as committed to 
in the AHP application, could the Bank rely on monitoring activities of 
the predominant funding source as long as it is monitoring for 
compliance with requirements that are substantially similar to the AHP 
requirements?
    The Board specifically requests comments on how random sampling 
could be used to monitor AHP-assisted rental housing projects to 
determine whether, during the long-term period committed to in the AHP 
application, the project's units continue to be affordable for and 
occupied by households with incomes at or below the levels committed to 
in the AHP application. For example, sampling could involve monitoring 
a portion of AHP-assisted rental projects at fixed intervals. The 
sampling method could be devised so that each project is monitored at 
least once during the long-term period committed to in the AHP 
application. Alternatively, the sampling method might be structured so 
that some, but not all, AHP-assisted rental projects are monitored 
during the long-term period committed to in the AHP application.
    The Act requires that the AHP regulation must ensure that the AHP 
will be used only to assist projects for which adequate long-term 
monitoring is available to guarantee that affordability standards and 
other requirements of the Act are satisfied. See 12 U.S.C. 
1430(j)(9)(C). The Board requests comments as to whether it is 
appropriate to interpret this requirement in a manner that permits 
monitoring to be done by sampling that could result in some AHP-
assisted rental projects not being monitored during the long-term 
period committed to in the AHP application. In addition, the Board 
specifically requests comments on whether there are sampling techniques 
that would ensure that each project is monitored in satisfaction of the 
monitoring requirement in the Act.
    b. Monitoring of special needs projects. Section 960.14(f) of the 
proposed rule sets forth the requirements for monitoring a project that 
commits to meet a special need pursuant to proposed Sec. 960.10(d)(3), 
either through providing units for persons with a special need or 
through providing a special service to occupants, as defined in the 
Bank's AHP implementation plan. If an applicant commits to fund a 
project that provides owner-occupied or rental housing units for 
persons with a special need, as defined in the Bank's AHP 
implementation plan, Sec. 960.14(f)(1) of the proposed rule requires 
the Bank or its designee to obtain a certification from the sponsor or 
the owner upon completion and occupancy of the project that the 
project's units, or portion thereof, are occupied by persons with such 
special need.
    If an applicant in its AHP application commits to fund a project 
that will provide a continuing special service to its occupants, as 
defined in the Bank's AHP implementation plan, such as child care, job 
training, medical care, or other services designed to meet the special 
needs of occupants, then Sec. 960.14(f)(1) of the proposed rule 
provides that the Bank or its designee shall obtain a certification 
from the sponsor or owner upon completion and occupancy of the project 
that the special service is being provided to the occupants, as 
committed to in the AHP application.
    Section 960.14(f)(2) of the proposed rule provides that, where an 
applicant in its AHP application commits to fund a housing project that 
will provide a continuing special service, the Bank or its designee 
shall monitor the project, as determined by the Bank in its AHP 
implementation plan, for at least one year from the date of initial 
full occupancy of the project to verify that the special service 
continues to be provided to the occupants, as committed to in the AHP 
application.
    c. Monitoring of District Bank priority or priorities. Section 
960.14(g) of the proposed rule sets forth the requirement for 
monitoring compliance with the District Bank priority or priorities 
established pursuant to proposed Sec. 960.10(d)(4). Section 
960.14(g)(1) of the proposed rule provides that if an applicant in its 
AHP application commits to fund a project that meets a District Bank 
priority or priorities, the Bank or its designee shall monitor the 
project to verify that it continues to meet the priority or priorities. 
Section 960.14(g)(2) of the proposed rule provides that the Bank shall 
set forth in its AHP implementation plan the nature, frequency and 
duration for monitoring compliance with the District Bank priority or 
priorities.
    d. Monitoring of economic mobility priority. Section 960.14(h) of 
the proposed rule sets forth the requirement for monitoring compliance 
with the economic mobility priority set forth under Sec. 960.5(d)(5) of 
the proposed rule. Section 960.14(h) provides that if an applicant in 
its AHP application commits to fund a project that meets the 
requirements of Sec. 960.5(d)(5), the Bank or its designee shall obtain 
a certification from the sponsor or the owner upon completion and full 
occupancy of the project, as required under Sec. 960.15(c)(4), that the 
sponsor or the owner has met such requirements, as committed to in the 
AHP application.

J. Reporting Requirements

    Section 960.15 of the proposed rule sets forth the reporting 
requirements for the Banks, the applicants, and the sponsors or owners 
of AHP-assisted projects. Section 960.15(a) of the proposed rule 
provides that each Bank shall provide accurate and timely reports and 
documentation to, and in the format requested by, the Board concerning 
the Bank's AHP, as the Board may from time to time require. See 12 CFR 
960.6(a).
1. Applicant Reporting Requirements
    Section 960.15(b)(1) of the proposed rule carries forward the 
requirement in the Board's existing AHP regulation that each Bank shall 
require an applicant receiving a subsidized advance or direct subsidy 
to report at least annually to the Bank on the manner in which it has 
used the funds, with such reports continuing until the funds have been 
fully disbursed by the applicant. See 12 CFR 960.6(b).
    The proposed rule eliminates the requirement in the Board's 
existing AHP regulation that the applicant certify that the AHP subsidy 
has been passed through to the borrower and continues to be used for 
approved purposes because, as discussed previously in the section on 
monitoring requirements, under the proposed rule applicants are not 
required to monitor the use of a subsidy in AHP-assisted projects, 
except during the period when a subsidized advance or direct subsidy is 
used to finance construction or rehabilitation of a project or where 
the applicant has agreed to undertake monitoring. See 12 CFR 960.6(c).
    Section 960.15(b)(2) of the proposed rule adds a new requirement 
that if subsidized advances or direct subsidies are used to finance 
construction or rehabilitation of an AHP-assisted project, the Bank 
shall require the applicant to report to the Bank at reasonable 
intervals determined by the Bank, and described in the Bank's AHP 
implementation plan, on the progress of the construction or 
rehabilitation, until completion. This reporting requirement coincides 
with the requirement in Sec. 960.14(d) of the proposed rule that the 
Bank shall require the applicant to monitor the construction or 
rehabilitation of an AHP-assisted project and make progress reports to 
the Bank where AHP subsidized advances or direct subsidies are used to 
finance such construction or rehabilitation.
2. Sponsor and Owner Reporting Requirements
    Section 960.15(c) of the proposed rule sets forth the reporting 
requirements for sponsors and owners. These requirements coincide with 
the monitoring requirements set forth in Sec. 960.14(e) through (h) of 
the proposed rule. Section 960.15(c)(1)(i) of the proposed rule 
provides that where a subsidized advance or direct subsidy is used to 
finance the purchase of an owner-occupied housing unit, the Bank shall 
require the sponsor to certify at the time a household enters into a 
purchase contract for such unit or at the closing on the financing for 
such unit that the unit has been sold to a household with an income at 
or below the level committed to in the AHP application. Where a 
subsidized advance or direct subsidy is used to finance the 
rehabilitation of an owner-occupied housing unit, the Bank shall 
require the sponsor to certify at the time a loan or grant is committed 
to fund such rehabilitation that the household that owns and occupies 
the unit has an income at or below the level committed to in the AHP 
application.
    Section 960.15(c)(1)(ii) of the proposed rule provides that if an 
owner-occupied housing unit assisted by a grant provided under the AHP 
is not subject to a deed restriction or other legally enforceable 
mechanism restricting transfer of ownership to a household with an 
income at or below the level committed to in the AHP application, the 
Bank shall require the sponsor to report to the Bank or its designee, 
at least annually for the required long-term period, the number of any 
such units that are sold to households whose incomes exceed the level 
committed to in the AHP application, and to certify to the Bank that it 
is continuing to satisfy its commitment pursuant to its legally binding 
agreement with the Bank.
    Section 960.15(c)(2) of the proposed rule provides that the Bank 
shall require the sponsor or the owner to certify upon initial full 
occupancy of the units in an AHP-assisted rental housing project, but 
no later than one year after initial disbursement of the subsidized 
advance or direct subsidy, and annually thereafter, that the project's 
units, or portion thereof, are affordable for and occupied by 
households with incomes at or below the levels committed to in the AHP 
application.
    Section 960.15(c)(3) of the proposed rule provides that if an 
applicant in its AHP application commits to fund a project that will 
provide housing units for persons with a special need, or will provide 
a continuing special service to occupants pursuant to Sec. 960.10(d)(3) 
of the proposed rule, the Bank shall require the sponsor or the owner 
to certify upon completion and full occupancy of the project that the 
project's units, or portion thereof, are occupied by persons with such 
special needs or that a special service is being provided to occupants, 
as committed to in the AHP application.
    Section 960.15(c)(4) of the proposed rule provides that if an 
applicant in its AHP application commits to fund a housing project that 
meets the requirements of the economic mobility priority under 
Sec. 960.10(d)(5) of the proposed rule, the Bank shall require the 
sponsor or the owner to certify upon completion and full occupancy of 
the project that the sponsor or owner has met such requirements, as 
committed to in the AHP application.
    Section 960.15(d) of the proposed rule provides that each Bank 
shall require applicants or sponsors to provide such other reports to 
the Bank, in addition to the reports and documentation required by 
Sec. 960.15 of the proposed rule, as the Bank deems necessary in order 
to fulfill its monitoring obligations under Sec. 960.14 of the proposed 
rule.

K. Corrective and Remedial Actions for Fraud or Non-Compliance With AHP 
Requirements

    Section 10(j) of the Act is silent on what specific corrective and 
remedial actions should be imposed when there is fraud or non-
compliance with the requirements of the AHP. See 12 U.S.C. 1430(j). 
Accordingly, the Board has the discretion to determine, as a matter of 
policy, what those requirements should be.
    The Board's existing AHP regulation provides that, where funds 
provided under the AHP will not be or are no longer being used for 
their approved purposes, the amount of committed but unused subsidy or 
improperly used subsidy shall be recovered and made available by the 
Bank for future AHP projects. See 12 CFR 960.8(a). The existing 
regulation requires the Bank, in recapturing such funds, to take any or 
all of the following actions, without limitation on other remedies, in 
its discretion:
    a. Reprice the advance at the interest rate charged to members on 
non-subsidized advances of comparable type and maturity at the time of 
the original advance;
    b. Call the advance;
    c. Assess a prepayment fee; or
    d. Require the member to reimburse the Bank for the amount of the 
unused or improperly used subsidy on the advance or other assistance.
    Id. Sec. 960.8(b). In addition, some Banks have adopted procedures 
that require a direct subsidy to be converted to an advance if the 
project is found to be in non-compliance with the requirements of the 
AHP regulation.
    A number of concerns have been raised about this recapture 
requirement. First, it may not be equitable to require the applicant to 
reimburse the Bank when it is the sponsor that is in non-compliance 
with the AHP requirements. Second, requiring recapture of the AHP 
subsidy could in some situations result in the applicant having to 
foreclose against a property in order to recover the funds to repay an 
advance to the Bank, thereby eliminating affordable housing units even 
when only a few of the units in the project may be out of compliance 
with AHP requirements.
    In short, it has become clear through the operation of the AHP that 
the recapture remedy may not be the appropriate remedial action in all 
circumstances. Other less severe remedial actions may be more 
appropriate depending on the nature of the non-compliance that has 
occurred. In addition, the remedial actions should be directed only at 
the parties that are in non-compliance. Accordingly, the proposed rule 
contains provisions that tailor the remedial actions required to the 
nature of the non-compliance and the party committing the non-
compliance, which are discussed further below.
1. Fraud or Willful Non-Compliance
    Fraud and willful non-compliance are the most extreme examples of 
non-compliance with the AHP requirements. Accordingly, the proposed 
rule applies the most severe remedial actions--exclusion or suspension 
from future participation in the AHP and recovery of the full amount of 
the AHP subsidy--to parties that have committed fraud or are in willful 
non-compliance with respect to the AHP requirements.
    Specifically, Sec. 960.16(a)(1) of the proposed rule provides that 
in the event of an applicant's, sponsor's or owner's fraud with respect 
to the AHP requirements, the Bank shall exclude the applicant, sponsor 
or owner, respectively, on a permanent basis, from future participation 
in the AHP. In the event of an applicant's, sponsor's or owner's 
willful non-compliance with the AHP requirements, the Bank shall 
suspend the applicant, sponsor or owner, respectively, at least on a 
temporary basis, from future participation in the AHP during the period 
such willful non-compliance continues, and may exclude such party 
permanently from future participation in the AHP. The Board 
specifically requests comments as to whether the Banks should be able 
to determine whether fraud or willful non-compliance has occurred, or 
whether such determination should be made by the Board, or by either 
the Bank or the Board.
    In addition, Sec. 960.16(a)(2) of the proposed rule provides that 
in the event of an applicant's fraud or willful non-compliance with 
respect to the AHP requirements, the Bank shall recover from the 
applicant the full amount of the AHP subsidy provided to the project.
    Section 960.16(a)(3)(i) of the proposed rule provides that in the 
event of a sponsor's or owner's fraud or willful non-compliance with 
respect to the AHP requirements, the full amount of the AHP subsidy 
shall be recovered from the sponsor or owner by the applicant and 
returned to the Bank or, if previously agreed to by the Bank, shall be 
recovered by the Bank from the sponsor or owner. If efforts to recover 
the AHP subsidy from the sponsor or owner are unsuccessful, the 
applicant shall not be liable for such funds.
    In order to be able to implement this recapture requirement, the 
applicant is required, under proposed Sec. 960.16(a)(3)(ii), to have in 
place either:
    (1) A legally binding agreement or other legally enforceable 
mechanism that permits it to recover these funds from the sponsor or 
owner; or
    (2) If the Bank agrees and such an agreement is legally 
enforceable, a three-party agreement that includes the Bank, the 
sponsor or owner and the applicant that permits the Bank to recover 
these funds from the sponsor or owner.
    Section 960.16(a)(4) of the proposed rule provides that the Board 
in its discretion may grant a waiver of any required remedial actions 
under this paragraph (a) upon written request by the Bank, applicant, 
sponsor or owner.
2. Other Types of Non-Compliance
    Non-compliance by a party with the AHP requirements, such as due to 
inadvertent errors by such party or changes in circumstances that are 
outside such party's control, does not warrant imposition of the most 
severe remedial actions since the party lacked the intent to violate 
such requirements. In addition, in many such cases, the non-compliance 
can be rectified within a reasonable period of time.
    Accordingly, Sec. 960.16(b) of the proposed rule provides that in 
the event of inadvertent non-compliance by an applicant, sponsor or 
owner, the Bank shall provide such party with a reasonable period of 
time in which to take reasonable efforts, pursuant to a compliance plan 
approved by the Bank, to remedy the non-compliance. The Bank in its 
discretion may exclude such party from participation in the AHP while 
it is under a compliance plan, or in its discretion may require the 
applicant to increase the long-term period committed to in its AHP 
application for the project by the amount of time the project has been 
in non-compliance.
    Section 960.16(b) of the proposed rule further provides that if the 
applicant, sponsor or owner takes no reasonable efforts to comply with 
the compliance plan, then such party is in willful non-compliance with 
the requirements of this part and is subject to the remedial actions 
contained in paragraph (a) of this section. If the applicant, sponsor 
or owner takes reasonable efforts pursuant to the compliance plan to 
remedy the non-compliance under paragraph (b) and such efforts are 
unsuccessful, the applicant, sponsor or owner would be subject to the 
remedial actions for fraud or willful non-compliance, but may apply to 
the Bank for a waiver of any such required remedial actions. The Bank 
shall report to the Board in writing on any waivers approved pursuant 
to paragraph (b) within 30 calendar days of such approval.
3. Sale of AHP-assisted Owner-Occupied Housing Unit to Income-
Ineligible Household
    a. Recapture requirement. Section 960.16(c) of the proposed rule 
provides generally that in the event that a household sells its AHP-
assisted owner-occupied housing unit to a household whose income 
exceeds the level committed to in the AHP application prior to the end 
of the required long-term period, then:
    (i) If the Bank provided a direct subsidy to the applicant which 
was passed on as a grant to the seller, the Bank shall require the 
seller to repay a pro rata share, except for de minimis amounts, of the 
grant received by such seller. The amount to be repaid shall be reduced 
for every year the seller owned the unit, to be repaid from any net 
gain from the sale of the unit after deduction for sales expenses, and 
to be returned to the Bank. The proposed rule provides, however, that 
the Bank in its discretion may waive such requirement if the imposition 
of such requirement will cause undue hardship on the seller, as defined 
by the Bank in its AHP implementation plan; or
    (ii) If the Bank provided a subsidized advance to the applicant and 
the applicant provided a below market rate loan to the seller, then the 
applicant shall either repay to the Bank that portion of the advance 
used to make the loan to the seller or the Bank shall convert that 
portion of the advance used to make the loan to the seller to a market 
rate advance with an interest rate equal to the market rate of interest 
at the time the advance was made, and any unused AHP subsidy which had 
been set aside by the Bank to subsidize that portion of the advance 
used to make the loan to the seller shall be made available by the Bank 
for additional AHP projects.
    b. Exception to recapture requirement. Section 960.16(c)(3) of the 
proposed rule provides that the recapture requirements described above 
shall not apply provided the sponsor, pursuant to a legally binding 
agreement with the Bank, assists another household with an income at or 
below the level committed to in the AHP application in the manner 
originally committed to in the AHP application.
    This alternative approach is discussed in greater detail above 
under the monitoring section.
4. Sale of AHP-Assisted Rental Housing Project
    Section 960.16(d) of the proposed rule provides that in the event 
that the owner of an AHP-assisted rental housing project sells the 
project prior to the end of the long-term period during which the 
project's rental units, or portion thereof, must remain affordable for 
and occupied by households with incomes at or below the levels 
committed to in the AHP application, and the purchaser does not agree 
to maintain the project according to such commitments and to be subject 
to the same restrictions on resale that applied to the seller, then:
    (i) If the Bank provided a direct subsidy to the applicant which 
was passed on as a grant to the seller, the Bank shall require the 
seller to repay a pro rata share, except for de minimis amounts, of the 
grant received by such seller, reduced for every year the seller owned 
the unit, to be repaid from any net gain from the sale of the project 
after deduction for sales expenses, and to be returned to the Bank, 
except that the Bank in its discretion may waive such requirement if 
the imposition of such requirement will cause undue hardship on the 
seller, as defined by the Bank in its AHP implementation plan; or
    (ii) If the Bank provided a subsidized advance to the applicant and 
the applicant provided a below market rate loan to the seller, then the 
applicant shall either repay the advance to the Bank or the Bank shall 
convert the advance to a market rate advance with an interest rate 
equal to the market rate of interest at the time the advance was made, 
and any unused AHP subsidy which had been set aside by the Bank to 
subsidize the advance shall be made available by the Bank for 
additional AHP projects.

L. AHP Applications Involving Loan Funds and Loan Consortia

    Section 960.17 of the proposed rule sets forth specific 
requirements governing the use of loans and grants received by loan 
funds and loan consortia pursuant to the AHP. The Board's existing AHP 
regulation does not address specifically the use of loans or grants by 
loan funds or loan consortia pursuant to the AHP. See 12 CFR part 960. 
However, the Board has adopted policy guidelines for the Banks 
governing the award of subsidized advances and direct subsidies to 
applicants that then make loans or grants to loan funds and loan 
consortia (policy guidelines). See Board Resolution No. 93-54, June 23, 
1993. The provisions in Sec. 960.17 of the proposed rule, if adopted in 
final form by the Board, would incorporate the policy guidelines, with 
some modifications.
    Section 960.17(a)(1) of the proposed rule provides generally that 
an applicant may use a subsidized advance or a direct subsidy to make a 
loan or a grant to a loan fund or loan consortium. Section 960.17(a)(2) 
of the proposed rule provides that AHP applications involving the use 
of loans or grants by loan funds or loan consortia are governed by the 
provisions of part 960, except as provided in Sec. 960.17 of the 
proposed rule.
    Section 960.17(b) of the proposed rule provides that the 
requirements for approval of an AHP application that proposes to use 
subsidized advances or direct subsidies to make a loan or a grant to a 
loan fund or loan consortium are the same as the requirements for 
approval applicable to all other AHP applications under Sec. 960.8 of 
the proposed rule, except that an AHP application that involves a loan 
fund or loan consortium will be scored on the criteria that the loan 
fund or loan consortium proposes to use to select projects that will 
ultimately receive a loan or grant from the loan fund or loan 
consortium that is subsidized by the AHP.
    This provision is intended to address the fact that loan funds and 
loan consortia do not have specific proposed projects in place at the 
time they apply for funds under the AHP. Section 960.17(b)(1) of the 
proposed rule therefore requires the Banks to score AHP applications 
involving loan funds or loan consortia based on the criteria that the 
loan fund or loan consortium commits to use when selecting the projects 
it will fund. This provision carries forward a requirement of the 
Board's existing policy guidelines.
    In addition, Sec. 960.17(b)(2) of the proposed rule provides that 
the Bank shall review and shall require the applicant to review each 
new rental housing project funded by a loan fund or loan consortium 
prior to disbursing a loan or grant to ensure that the project meets 
the threshold requirements of Sec. 960.9 of the proposed rule and the 
project selection criteria committed to in the approved AHP 
application.
    This is a change from the provision in the Board's existing policy 
guidelines that requires the Bank and the applicant to review both 
rental and owner-occupied housing projects prior to funding by a loan 
fund or loan consortium under the AHP. This change is intended to 
eliminate duplicative review of loan fund or loan consortium activities 
where funds are used to finance owner-occupied housing units under the 
AHP. However, since rental housing projects are more complex than 
owner-occupied housing projects, the Board believes that the applicant 
and the Bank should continue to review each rental housing project 
funded by a loan fund or loan consortium prior to disbursement of any 
funds to ensure that the project meets the feasibility, maximum 
subsidy, and other threshold requirements of Sec. 960.9 of the proposed 
rule.
    Section 960.17(c)(1) of the proposed rule carries forward the 
requirement in the Board's existing policy guidelines that if an 
applicant receives a subsidized advance and uses the proceeds of the 
advance to make a loan to a loan fund or loan consortium, the total 
value of the interest rate subsidy must be passed on to the borrower of 
the funds. Thus, Sec. 960.17(c)(1) provides that a loan fund or loan 
consortium shall extend credit to the borrower at a rate of interest 
equal to the rate of interest charged on the subsidized advance plus a 
reasonable interest rate spread approved by the Bank. The applicant and 
the loan fund or loan consortium may determine between themselves what 
proportion of the interest rate spread the applicant and the loan fund 
or loan consortium will share.
    Section 960.17(c)(2)(i) of the proposed rule provides that a loan 
fund or loan consortium that receives a grant from an applicant 
pursuant to the AHP must either:
    (A) Pass the entire grant on to the recipient;
    (B) Use the entire grant to lower the interest rate on a loan to 
the borrower; or
    (C) Lend the entire grant to the borrower to finance a rental 
housing project for a term of not less than 30 years, with all 
principal and interest payments deferred until the end of such term. If 
such loan is repaid before the end of the 30-year term, the entire 
amount of the grant must be repaid to the applicant, which in turn must 
forward the funds to the Bank to be used for additional AHP projects.
    This is a change from the provision in the Board's existing policy 
guidelines that prohibits a loan fund or loan consortium from using a 
grant from an applicant to make a loan to the borrower. The Board 
believes that if a loan fund or loan consortium lends a grant to a 
sponsor to finance rental housing units that will remain affordable for 
and occupied by income-eligible households for not less than 30 years, 
with all principal and interest payments deferred until the end of the 
loan term, then the loan fund or loan consortium has passed on the full 
amount of the AHP subsidy to the recipient or borrower of the funds, as 
required by section 10(j)(9)(E) of the Act. See 12 U.S.C. 
1430(j)(9)(E). However, if the borrower repays the loan before 
maturity, the entire amount of the subsidy must be repaid to the 
applicant and forwarded by the applicant to the Bank to be returned to 
the AHP fund. Therefore, a loan fund or loan consortium may use a grant 
under the AHP to make a loan to the borrower under the conditions 
specified in Sec. 960.17(c)(2)(i)(C) of the proposed rule.
    Section 960.17(c)(2)(ii) of the proposed rule provides that if a 
loan fund or loan consortium provides both a loan and a grant to the 
borrower and the loan fund or loan consortium charges an origination 
fee for providing the loan, then any fee charged by the loan fund or 
loan consortium for providing the grant may not be paid with AHP 
subsidized advances or direct subsidies. The Board does not believe 
that such funds should be used to pay a fee for providing a grant to a 
project if the loan fund or loan consortium charges a fee for 
underwriting a loan to the same project.
    Section 960.17(c)(2)(iii) of the proposed rule provides that when a 
loan fund or loan consortium receives a grant from an applicant 
pursuant to the AHP and uses the grant to lower the interest rate on a 
loan to the borrower, the interest rate calculation must be consistent 
with the procedure used by the Bank for calculating the amount of AHP 
subsidy needed for a subsidized advance, taking into account the source 
of funds used by the loan fund or loan consortium for its loans and the 
rate that normally would be charged for a loan of the type and term 
that is provided to the borrower.
    Section 960.17(c)(3) of the proposed rule provides that any 
interest or other income earned by a loan fund or loan consortium on a 
loan or a grant received from an applicant, other than any approved fee 
or interest rate spread charged to the borrower, either (i) must be 
used by the loan fund or loan consortium to provide funds for 
additional projects meeting the threshold requirements in Sec. 960.9 of 
the proposed rule and the criteria committed to in the approved AHP 
application, or (ii) must be forwarded to the applicant, which in turn 
must forward the funds to the Bank to be used for additional AHP 
projects. This is a change from the provision in the Board's existing 
policy guidelines that allows loan funds and loan consortia to earn and 
retain de minimis amounts of income on loans or grants received from 
applicants. The Board believes that accounting for de minimis amounts 
of interest or other income earned on loans or grants received from an 
applicant is no less of an administrative burden than accounting for 
all such interest or other income earned. Therefore, the proposed rule 
requires all interest or other income earned on loans or grants 
received from an applicant to be used by the loan fund or loan 
consortium for additional AHP projects or returned to the applicant.
    Section 960.17(c)(4) of the proposed rule provides that if loans or 
grants received by a loan fund or loan consortium pursuant to one AHP 
funding cycle are combined with loans or grants received by such entity 
pursuant to another AHP funding cycle in a single rental housing 
project, the loan fund or loan consortium shall require the recipient 
of the funds to follow the requirements for the use of such funds from 
the AHP funding cycle that is more restrictive as to the approved AHP 
criteria. This requirement does not apply when loans or grants received 
by a loan fund or loan consortium pursuant to separate AHP funding 
cycles are combined to finance a single owner-occupied housing project. 
The reason for this provision is that funds are more easily traceable 
to separate units in an owner-occupied housing project than to separate 
units in a rental housing project. Therefore, for purposes of owner-
occupied housing projects, it is possible to use loans or grants from 
different AHP funding cycles according to the different criteria 
approved by the Bank in each of the respective funding cycles. However, 
the loan fund or loan consortium in its discretion may require the 
recipient of the funds to follow the requirements for the use of such 
funds from the AHP funding cycle that is more restrictive as to the 
approved AHP criteria.
    Section 960.17(c)(5) of the proposed rule provides that any loans 
provided by a loan fund or loan consortium pursuant to the AHP that are 
repaid to such entity must be re-lent or provided as grants by such 
entity within a reasonable period of time after such repayments, or 
must be repaid to the applicant, which in turn must repay such funds to 
the Bank, and must be made available by the Bank for additional AHP 
projects. The Bank shall in its AHP implementation plan identify what 
constitutes a reasonable period of time for such purposes.
    Section 960.17(d) of the proposed rule sets forth the monitoring 
and reporting requirements where an applicant makes loans or grants 
pursuant to the AHP to a loan fund or loan consortium which uses the 
funds to finance owner-occupied or rental housing units. Section 
960.17(d)(1)(i) of the proposed rule requires the Bank to monitor such 
units, according to the monitoring requirements of Sec. 960.14(e) 
through (h) of the proposed rule, to determine compliance with the 
long-term requirements, as well as compliance with the special needs 
priority, the District Bank priority or priorities, and the economic 
mobility priority, where applicable. In addition, Sec. 960.17(d)(1)(ii) 
of the proposed rule provides that the Bank shall require the sponsor 
or owner of a project receiving a loan or grant from the loan fund or 
loan consortium to submit to the Bank such reports and certifications 
as are required under Sec. 960.15(c) of the proposed rule. Section 
960.17(d)(1)(iii) of the proposed rule provides that the Bank shall 
require the loan fund or loan consortium to report to the Bank any new 
loan or grant made using repayments of loans by the borrower. If a loan 
fund or loan consortium receives loans or grants from an applicant 
pursuant to separate AHP funding cycles, the use of such funds must be 
reported separately.
    Section 960.17(d)(2) of the proposed rule provides that the Bank 
may contract with either the applicant or the loan fund or loan 
consortium to meet the monitoring requirements of Sec. 960.14(e) 
through (h). Under Sec. 960.17(d)(2)(i) of the proposed rule, if the 
Bank contracts with the applicant to meet such monitoring requirements, 
the Bank shall require the applicant to monitor the AHP-assisted 
housing units according to the monitoring requirements of 
Sec. 960.14(e) through (h) of the proposed rule. The Bank also shall 
require the applicant to require the sponsor or owner of the project to 
submit to the applicant such reports and certifications as are required 
under Sec. 960.15(c) of the proposed rule. In addition, the applicant 
shall require the loan fund or loan consortium to report to the 
applicant any new loan or grant made using repayments of loans by the 
borrower. If a loan fund or loan consortium receives loans or grants 
from an applicant pursuant to separate AHP funding cycles, the use of 
such funds must be reported separately.
    Under Sec. 960.17(d)(2)(ii) of the proposed rule, if the Bank 
contracts with the loan fund or loan consortium to meet the monitoring 
requirements in Sec. 960.14(e) through (h) of the proposed rule, the 
Bank shall require the loan fund or loan consortium to monitor the AHP-
assisted housing units according to the monitoring requirements of 
Sec. 960.14(e) through (h) of the proposed rule. The Bank also shall 
require the loan fund or loan consortium to require the sponsor or 
owner of the project to submit to the loan fund or loan consortium such 
reports and certifications as are required under Sec. 960.15(c) of the 
proposed rule. In addition, the loan fund or loan consortium shall 
report to the Bank any new loan or grant made using repayments of loans 
by the borrower. If a loan fund or loan consortium receives loans or 
grants from an applicant pursuant to separate AHP funding cycles, the 
use of such funds must be reported separately.
    The monitoring and reporting requirements in Sec. 960.17(d) of the 
proposed rule are a change from the provisions on monitoring and 
reporting in the Board's existing policy guidelines, which require the 
applicant to monitor the loan fund or loan consortium and require the 
Bank to monitor the applicant. This change is intended to conform the 
monitoring and reporting requirements for projects involving loan funds 
or loan consortia with the proposed monitoring and reporting 
requirements applicable to AHP-assisted housing projects generally 
under Secs. 960.14 and 960.15 of this proposed rule.
    Section 960.17(e)(1) of the proposed rule provides that a loan fund 
or loan consortium receiving loans or grants from applicants pursuant 
to the AHP and the project sponsors and owners receiving loans or 
grants from loan funds or loan consortia are subject to the corrective 
and remedial actions contained in Sec. 960.16 of the proposed rule for 
fraud and non-compliance with respect to the AHP requirements.
    Section 960.17(e)(2)(i) of the proposed rule provides that in the 
event of a loan fund's or loan consortium's fraud or willful non-
compliance with respect to the requirements of this part, the full 
amount of the AHP subsidy shall be recovered from the loan fund or loan 
consortium by the applicant and returned to the Bank, or if previously 
agreed to by the Bank, shall be recovered by the Bank from the loan 
fund or loan consortium.
    Section 960.17(e)(2)(ii) of the proposed rule requires an applicant 
that provides a loan or a grant to a loan fund or loan consortium 
pursuant to the AHP to have in place either:
    (1) A legally binding agreement or other legally enforceable 
mechanism that permits the applicant to recover from the loan fund or 
loan consortium, in the event of fraud or willful non-compliance by the 
loan fund or loan consortium with respect to the AHP requirements, the 
full amount of the AHP subsidy; or
    (2) If the Bank agrees and such an agreement is legally 
enforceable, a three-party agreement that includes the Bank, the 
applicant, and the loan fund or loan consortium, that permits the Bank 
to recover from the loan fund or loan consortium, in the event of fraud 
or willful non-compliance by the loan fund or loan consortium with 
respect to the AHP requirements, the full amount of the AHP subsidy.
    Section 960.17(e)(3)(i) of the proposed rule provides that in the 
event of a sponsor's or owner's fraud or willful non-compliance with 
respect to the AHP requirements, the full amount of the AHP subsidy 
shall be recovered by the loan fund or loan consortium from the sponsor 
or owner to be used for additional AHP projects.
    Section 960.17(e)(3)(ii)(A) of the proposed rule provides that the 
loan fund or loan consortium shall have in place a legally binding 
agreement or other legally enforceable mechanism that permits it to 
recover from the sponsor or owner the full amount of the AHP subsidy 
provided to the project in the event of the sponsor's or owner's fraud 
or willful non-compliance with respect to the AHP requirements, and the 
applicant shall have in place a legally binding agreement or other 
legally enforceable mechanism that permits it to recover from the loan 
fund or loan consortium such amount recovered by the loan fund or loan 
consortium from the sponsor or owner.
    Section 960.17(e)(3)(ii)(B) of the proposed rule also provides that 
the applicant shall have in place, if the Bank agrees and such 
agreement is legally enforceable, a four-party agreement that includes 
the Bank, the applicant, the loan fund or loan consortium, and the 
sponsor or owner, that permits the Bank to recover from the sponsor or 
owner the full amount of the AHP subsidy provided to the project in the 
event of the sponsor's or owner's fraud or willful non-compliance with 
respect to the AHP requirements.
    Section 960.17(e)(4) of the proposed rule provides that the Board 
in its discretion may grant a waiver of any required remedial actions 
for fraud or willful non-compliance with respect to the AHP 
requirements, upon written request by the Bank, applicant, loan fund or 
loan consortium, sponsor or owner.

M. Required Annual AHP Contributions

    Section 960.18 of the proposed rule requires each Bank to fund its 
AHP annually in accordance with the formula set forth in section 
10(j)(5) of the Act. See 12 U.S.C. 1430(j)(5). Proposed Sec. 960.18 is 
consistent with Sec. 960.10 of the Board's existing AHP regulation, 
except for minor wording changes and deletion of language regarding 
required funding in 1990 through 1993 which is no longer necessary. See 
12 CFR 960.10.
    Specifically, proposed Sec. 960.18 provides that each Bank shall 
fund its AHP in accordance with the following formula:
    (a) In 1994, the greater of:
    (1) 6 percent of the Bank's net earnings for the previous year; or
    (2) That Bank's pro rata share of an aggregate of $75 million to be 
contributed in total by the Banks, such proration being made on the 
basis of the net earnings of the Banks for the previous year.
    (b) In 1995 and each year thereafter, the greater of:
    (1) 10 percent of the Bank's net earnings for the previous year; or
    (2) That Bank's pro rata share of an aggregate of $100 million to 
be contributed in total by the Banks, such proration being made on the 
basis of the net earnings of the Banks for the previous year.
    The term ``net earnings of a Bank'' is defined in proposed 
Sec. 960.1. The definition has been revised from the definition in the 
Board's existing AHP regulation in order to more accurately track its 
definition in section 10(j)(8) of the Act. See 12 CFR 960.1(j); 12 
U.S.C. 1430(j)(8).

N. Temporary Suspension of AHP Contributions

    Section 960.19 of the proposed rule sets forth the provisions 
governing temporary suspensions by Banks of their required annual AHP 
contributions. A number of revisions have been made to this section in 
the Board's existing AHP regulation in order to more accurately track 
the language in section 10(j)(6) of the Act concerning this section and 
to provide greater clarity. See 12 CFR 960.11; 12 U.S.C. 1430(j)(6).
1. Application for Temporary Suspension
    Section 960.19(a)(1) of the proposed rule provides that if a Bank 
finds that the contributions required pursuant to proposed Sec. 960.18 
are contributing to the financial instability of the Bank, the Bank 
shall notify the Board promptly, and may apply in writing to the Board 
for a temporary suspension of such contributions.
    Section 960.19(a)(2) of the proposed rule provides that a Bank's 
application for a temporary suspension of contributions shall:
    (i) State the period of time for which the Bank seeks a suspension;
    (ii) State the grounds for a suspension;
    (iii) Include a plan for returning the Bank to a financially stable 
position; and
    (iv) Be accompanied by the Bank's preceding year's annual financial 
report, if available, and the Bank's most recent quarterly and monthly 
financial statements and any other financial data the Bank wishes the 
Board to consider.
    The requirement in paragraph (ii) above is not explicitly required 
in the Board's existing AHP regulation. See 12 CFR 960.11(a).
    Paragraph (iv) above adds to the Board's existing regulation that 
the Bank may include any other financial data it wishes the Board to 
consider.
2. Board Review of Application for Temporary Suspension
    a. Grounds for approval of application. Section 960.19(b)(1) of the 
proposed rule provides that, in reviewing a Bank's application for a 
temporary suspension of contributions to determine the Bank's financial 
instability, the Board shall consider the following factors:
    (i) Whether the Bank's earnings are severely depressed. This 
language was added to track the statutory standard in section 10(j)(6) 
of the Act. See 12 U.S.C. 1430(j)(6). In addition, the Board shall 
consider the extent to which the Bank's quarterly or annual net 
earnings have decreased from the preceding quarter or year, and whether 
such decline is projected to continue;
    (ii) Whether there has been a substantial decline in the Bank's 
membership capital. The Board shall consider the extent to which the 
Bank's paid-in membership capital has declined in any given quarter or 
year, and whether such decline is projected to continue;
    (iii) Whether there has been a substantial reduction in the Bank's 
advances outstanding. The Board shall consider the extent to which the 
Bank's level of advances has declined in any given quarter or year, and 
whether such decline is projected to continue; and
    (iv) Whether any other financial condition exists with respect to 
the Bank which has resulted in, or is likely to result in, the 
financial instability of the Bank.
    b. Limitations on grounds for approval of application. Section 
960.19(b)(2) of the proposed rule provides that the Board shall 
disapprove an application for a temporary suspension if it determines 
that the Bank's reduction in earnings is a result of:
    (i) A change in the terms of advances (other than subsidized 
advances) to members which is not justified by market conditions;
    (ii) Inordinate operating and administrative expenses; or
    (iii) Mismanagement.
    The ``reduction in earnings'' language replaces the term 
``financial instability'' used in the Board's existing regulation, 
because the former is the term used in the Act. See 12 CFR 960.11(c); 
12 U.S.C. 1430(j)(6).
    In addition, the requirement in Sec. 960.11(c)(5) of the Board's 
existing regulation that the Bank shall disapprove an application if 
for any other reason the temporary suspension is not warranted, is 
deleted in the proposed rule because it is not required by the Act, and 
limits the Board's discretion to balance reasons warranting approval of 
an application for a temporary suspension. See 12 CFR 960.11(c)(5); 12 
U.S.C. 1430(j)(6).
3. Board Decision
    Section 960.19(c) of the proposed rule provides that the Board 
shall approve or disapprove a Bank's application for a temporary 
suspension within 30 calendar days of receipt of such application, and 
the Board's decision shall be in writing and shall be accompanied by 
specific findings and reasons for its action. A copy of the Board's 
decision shall be forwarded to each of the Banks.
4. Board Approval of Application for Temporary Suspension
    Section 960.19(d)(1) of the proposed rule provides that if the 
Board approves a Bank's application for a temporary suspension, the 
Board's written decision shall specify the period of time such 
suspension shall remain in effect.
    Section 960.19(d)(2) of the proposed rule provides that during the 
term of a temporary suspension approved by the Board, the affected Bank 
shall provide to the Board such financial reports as the Board shall 
require to monitor the financial condition of the Bank, and the Board 
shall continue to monitor the Bank's financial condition. The 
requirement that the Board shall monitor the Bank's financial condition 
is added because it is required by the Act. See 12 U.S.C. 
1430(j)(6)(D).
    Section 960.19(d)(3) of the proposed rule provides that if, prior 
to the conclusion of the temporary suspension period, the Board 
determines that the Bank has returned to a position of financial 
stability, the Board may, upon written notice to the Bank, terminate 
the temporary suspension.
5. Application for Extension of Temporary Suspension Period
    Section 960.19(e)(1) of the proposed rule provides that if a Bank's 
board of directors determines that the Bank has not returned to, or is 
not likely to return to, a position of financial stability at the 
conclusion of the temporary suspension period, the Bank may apply in 
writing for an extension of the temporary suspension period, stating 
the grounds for such extension.
    Proposed Sec. 960.19(e)(2) provides that the Board shall approve or 
disapprove a Bank's application for an extension of a temporary 
suspension period within 30 calendar days of receipt of such 
application.
    Proposed Sec. 960.19(e)(3) provides that the Board's decision on an 
application for an extension of a temporary suspension period shall be 
in writing, shall be accompanied by specific findings and reasons for 
such action, and shall state the effective date and time period if an 
extension is approved.
6. Notice to Congress
    Section 960.19(f)(1) of the proposed rule provides that the Board 
shall notify the Committee on Banking, Finance and Urban Affairs of the 
House of Representatives and the Committee on Banking, Housing and 
Urban Affairs of the Senate not less than 60 calendar days before any 
temporary suspension (or extension of such suspension) approved 
pursuant to this section takes effect.
    Deleted from this provision is the requirement in the Board's 
existing regulation that a copy of the Board's suspension decision 
shall be forwarded to the Congress since, as discussed above, the Act 
only requires that the Board provide notice to Congress of the 
suspension decision. See 12 CFR 960.11(f); 12 U.S.C. 1430(j)(6)(F).
    Proposed Sec. 960.19(f)(2) provides that a temporary suspension (or 
extension of such suspension) shall become effective as determined by 
the Board, unless a joint resolution of Congress is enacted 
disapproving such suspension (or extension thereof). The proposed rule 
deletes the provision in the Board's existing regulation that a 
temporary suspension extension may not take effect until at least 30 
days after the Board gives the required notice to Congress, because 
this is inconsistent with the requirement in the existing regulation 
that the Board must notify the Congress at least 60 days before such 
extension takes effect. See 12 CFR 960.11(g).
    Proposed Sec. 960.19(f)(2) also deletes from the Board's existing 
regulation the requirement that a joint resolution of Congress 
disapproving a suspension or extension of a suspension must be enacted 
prior to the Board's determined effective date, in order to track more 
closely the actual language in the Act. See 12 U.S.C. 1430(j)(6)(F).

O. Affordable Housing Reserve Fund

    Consistent with the Board's existing AHP regulation, Sec. 960.20(a) 
of the proposed rule provides that if a Bank fails to use or commit the 
full amount of its required annual contribution to the AHP, 90 percent 
of the amount that has not been used or committed in that year shall be 
deposited by the Bank in an Affordable Housing Reserve Fund established 
and administered by the Board. See 12 CFR 960.12. The 10 percent of the 
unused and uncommitted amount retained by the Bank should be fully used 
or committed by the Bank during the following year, and any remaining 
portion must be deposited in the Affordable Housing Reserve Fund. A 
Bank is deemed to have used or committed its required contribution 
where amounts are remaining at the end of the year because funding the 
next highest ranking project would exceed the Bank's required AHP 
contribution for the year. Such amounts remaining shall be combined 
with returned AHP funds to fund the next highest scoring AHP project or 
projects, or carried over by the Bank to the next year's AHP funding 
cycles.
    The language allowing these amounts to remain at the end of the 
year is added in the proposed rule to take into account situations 
where amounts remain uncommitted at the end of the year because the 
balance of required AHP contributions remaining is too small to fund 
the Bank's next highest scoring AHP application.
    The last sentence in proposed paragraph (a) also is new, making 
explicit that such amounts remaining and funds returned to the Bank 
shall fund other AHP projects and need not be transferred to the 
Affordable Housing Reserve Fund.
    Section 960.20(b) of the proposed rule provides that by January 15 
of each year, each Bank shall provide to the Board a statement 
indicating the amount of unused and uncommitted funds from the prior 
year, if any, which will be deposited in the Affordable Housing Reserve 
Fund.
    Proposed Sec. 960.20(c) provides that by January 31 of each year, 
the Board will notify the Banks of the total amount of funds, if any, 
available in the Affordable Housing Reserve Fund.
    Section 960.12(d) of the Board's existing regulation governing how 
any Reserve Funds would be made available to the Banks, is deleted in 
the proposed rule. See 12 CFR 960.12(d). The Act states that such 
provisions would be determined pursuant to regulations issued by the 
Board. See 12 U.S.C. 1430(j)(7). Since there currently are no Reserve 
Funds and it is not anticipated that there will be any Reserve Funds in 
the near future, it is not necessary at this time to include provisions 
in the proposed rule dealing with this issue. The Board can issue 
regulations on this issue at a future date if such eventuality should 
arise.

P. Advisory Councils

    Section 960.21 of the proposed rule sets forth provisions governing 
the appointment, operation, and responsibilities of the Advisory 
Councils to the Banks.
    Section 960.21(a)(1) of the proposed rule carries forward the 
requirement in the Board's existing AHP regulation that each Bank shall 
appoint an Advisory Council of seven to 15 persons who shall reside in 
the Bank's District and shall be drawn from community and nonprofit 
organizations actively involved in providing or promoting low- or 
moderate-income housing in the Bank's District. See 12 CFR 960.14(a). 
In addition, Sec. 960.21(a)(1) of the proposed rule provides that the 
size of the Advisory Council shall be stated in the Bank's AHP 
implementation plan.
    Section 960.21(a)(2) of the proposed rule carries forward the 
requirement in the Board's existing AHP regulation that the Bank must 
actively solicit nominations from Bank members and community and 
nonprofit organizations and shall allow sufficient time for response, 
so that the nomination and appointment process is as broad and as 
participatory as possible. See 12 CFR 960.14(b), (d). The Bank also 
should solicit nominations from any other interested parties. In 
addition, Sec. 960.21(a)(3) of the proposed rule provides that Advisory 
Council members shall be appointed by the Banks giving consideration to 
the size of the District and the diversity of low-income housing needs 
within the District.
    The Board's existing AHP regulation provides that officials of 
state and local housing finance agencies may serve as members of an 
Advisory Council, provided that such officials do not constitute an 
undue proportion of the membership of the Advisory Council. See 12 CFR 
960.14(c). It has been suggested that such officials should only be 
able to serve as non-voting members of an Advisory Council, unless the 
officials also are employed or associated with a private community or 
nonprofit organization actively involved in providing or promoting low- 
or moderate-income housing in the Bank's District. This suggestion is 
based on the view that the Advisory Councils are intended to serve as 
vehicles for private sector community and nonprofit organizations, not 
public agencies, to advise the Banks on low- and moderate-income 
housing programs and needs in the District and on the utilization of 
Bank advances for such purposes. See 12 U.S.C. 1430(j)(11). While 
acknowledging that officials of state and local housing finance 
agencies make valuable contributions to the Advisory Councils, the 
supporters of this viewpoint argue that these agencies have 
opportunities to influence the allocation of housing finance credit 
through means other than by voting representation on the Advisory 
Councils.
    The Board specifically requests comments on whether or not 
officials of state and local housing finance agencies should be able to 
vote on the Advisory Councils and whether their representation should 
be limited so that it does not constitute an undue proportion of the 
Advisory Council membership.
    Section 960.21(a)(4) of the proposed rule provides that Advisory 
Council members shall serve for terms of two or three years, as 
determined by the Bank and set forth in its AHP implementation plan. 
The Board is proposing to give the Banks the option of appointing 
Advisory Council members for three-year terms in order to allow the 
Banks to benefit from the experience and familiarity with the AHP that 
Advisory Council members develop the longer they serve on an Advisory 
Council. In addition, Sec. 960.21(a)(4) of the proposed rule carries 
forward the requirement in the Board's existing AHP regulation that 
terms of Advisory Council members shall be staggered to provide 
continuity and experience in service. See 12 CFR 960.14(f). The 
proposed rule requires the Banks to explain in their AHP implementation 
plans how Advisory Council member terms will be staggered.
    Section 960.21(a)(4) of the proposed rule contains a new provision 
limiting an Advisory Council member to six years of consecutive 
service. The Bank may set its own limits on consecutive terms within 
the six-year limit. This provision is intended to ensure that the 
membership of the Advisory Councils reflects the diverse and changing 
viewpoints of private sector community and nonprofit organizations on 
the low-income housing programs and needs of the Bank Districts.
    Section 960.21(a)(5) of the proposed rule provides that an Advisory 
Council member who, subsequent to appointment, is no longer employed by 
or associated with a community or nonprofit organization actively 
involved in providing or promoting low- or moderate-income housing in 
the Bank's District may continue to serve on the Advisory Council until 
the end of his or her term. Allowing the Advisory Council member to 
serve out the remainder of his or her term promotes continuity in the 
collective experience of the Advisory Council. Further, the member may 
still have relevant experience related to low-income housing needs in 
the District, which may continue to benefit the Advisory Council. 
However, the Board recognizes that the Advisory Council member may no 
longer represent the interests of the community and nonprofit sector. 
Therefore, the Board specifically requests comments on this provision 
of the proposed rule. The Board also specifically requests comments on 
whether a member who is no longer employed by or associated with a 
community or nonprofit organization should be entitled to vote on the 
Advisory Council if he or she becomes a state or local housing finance 
agency official.
    Section 960.21(b) of the proposed rule provides that each Advisory 
Council shall elect from among its voting members a chairperson and a 
vice chairperson.
    Section 960.21(c) of the proposed rule carries forward the 
requirement of the Board's existing AHP regulation that each Advisory 
Council shall designate a member, or request that a member of the 
Bank's staff be designated, to act as secretary to the Advisory 
Council. See 12 CFR 960.14(g). The secretary shall record and maintain 
the minutes of the meetings of the Advisory Council, which shall 
contain, among other things, a record of the persons present, a 
description of the matters discussed, and recommendations made. The 
person acting as secretary at a meeting shall certify to the accuracy 
of the minutes of that meeting.
    Section 960.21(d)(1) of the proposed rule adds a new requirement 
that, prior to the approval of the Bank's proposed AHP implementation 
plan by the Bank's board of directors, the Bank's Advisory Council 
shall review the proposed AHP implementation plan and provide its 
recommendations to the Bank's board of directors pursuant to the 
requirements of Sec. 960.2(c) discussed above under the section on the 
adoption of the AHP implementation plan. This provision is intended to 
give the Advisory Councils a greater role in advising the Banks on how 
AHP funds should be allocated to meet the low-income housing needs in 
their Districts.
    Section 960.21(d)(2) of the proposed rule adds a new requirement 
that upon request of the Advisory Council, the Bank shall provide the 
Advisory Council with copies of any AHP applications from prior AHP 
funding cycles. The Board is aware that some Banks have already adopted 
this practice. This requirement is intended to aid the Advisory Council 
members in evaluating how the AHP application priorities and scoring 
criteria adopted by the Bank in its AHP implementation plan affect the 
allocation of AHP funds among different types of housing projects. 
Further, this requirement is subject to any limitations of other laws 
that may require the Bank to keep information in an AHP application 
confidential. The Bank may require Advisory Council members to agree to 
keep all or parts of AHP applications confidential. The Board 
specifically requests comments on the advantages and disadvantages of 
allowing Advisory Council members to examine AHP applications received 
by the Bank in prior AHP funding cycles.
    Section 960.21(e) of the proposed rule carries forward the 
requirement in the Board's existing AHP regulation that the Advisory 
Council shall meet with representatives of the board of directors of 
the Bank at least quarterly to advise the Bank on low- and moderate-
income housing programs and needs in the Bank's District and on the 
utilization of AHP subsidized advances and direct subsidies for these 
purposes. See 12 CFR 960.14(a).
    Section 960.21(f) of the proposed rule requires each Advisory 
Council to submit to the Board annually by March 1 its analysis of the 
low-income housing activity of its Bank. This is a change from the 
January 31 date in the Board's existing AHP regulation, and is intended 
to give the Advisory Councils sufficient time after the end of the year 
to compile and evaluate year-end data in order to prepare their reports 
to the Board. See 12 CFR 960.14(j).
    Section 960.21(g)(1) of the proposed rule carries forward the 
requirement in the Board's existing AHP regulation that each Bank shall 
reimburse members of its Advisory Council for transportation and 
subsistence expenses they incur for each day devoted to attending 
quarterly meetings with representatives of the board of directors of 
the Bank. See 12 CFR 960.14(e). Section 960.21(g)(2) of the proposed 
rule adds a new requirement that each Bank shall pay members of its 
Advisory Council a fee for each day devoted to attending quarterly 
meetings with representatives of the board of directors of the Bank. 
The Board is proposing this change in light of the additional 
responsibility given to Advisory Council members under the proposed 
rule to advise the Banks on preparation of the AHP implementation 
plans. The Board specifically requests comments as to whether the Banks 
should be required to pay fees, and whether the amount to be paid 
should be set forth in the final AHP rule so that a uniform fee is paid 
to all Advisory Council members, or whether the fees should be set by 
the board of directors of each Bank.

Q. Effective Dates

    Section 960.22 of the proposed rule provides that, if published as 
a final rule, this part shall become effective 30 days from such 
publication in the Federal Register. In addition, the provisions of 
this part, or portion thereof, may be applied to projects approved for 
AHP funding prior to the effective date of the final rule to the extent 
all relevant parties agree thereto in writing. The Finance Board would 
not need to approve any such retroactive application of the final rule. 
This proposed provision is intended to allow the retroactive 
application to existing AHP projects of provisions of the revised AHP 
rule that are less restrictive than existing AHP requirements, to the 
extent all relevant parties (the Bank, the applicant, the sponsor, the 
owner, and if applicable, the loan fund or loan consortium) agree to 
such application of the new provisions. The Board specifically requests 
comments on this proposed provision.

III. Regulatory Flexibility Act

    The proposed rule applies only to the Banks, which do not come 
within the meaning of ``small entities,'' as defined in the Regulatory 
Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance 
with section 605(b) of the RFA, see id. section 605(b), the Finance 
Board hereby certifies that this proposed rule, if promulgated as a 
final rule, will not have a significant economic impact on a 
substantial number of small entities.

IV. Paperwork Reduction Act

    The information collection requirements contained in this proposed 
rule have been submitted to the Office of Management and Budget (OMB) 
for review under section 3504(h) of the Paperwork Reduction Act of 
1980, 44 U.S.C. chapter 35. The title, description of need and use, and 
the respondent description for the information collection requirements 
are discussed in the SUPPLEMENTARY INFORMATION. 
    Any comments on the proposed information collections should be sent 
to Gary Waxman, Paperwork Reduction Project, OMB, room 3208, New 
Executive Office Building, Washington, DC 20503.
    In accordance with 5 CFR 1320.12 and 1320.15, the following table 
discloses the estimated annual reporting burden for each collection of 
information in the proposed rule:

                                                            Estimated Annual Reporting Burden                                                           
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Average No. of                                                             
         Description of information collected           Average No. of    x   responses per  =    Total average    x   Average hours  =    Total average
                                                         respondents           respondent          responses           per response            hours    
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. AHP application....................................            1800  ...               1  ..            1800  ...           16.00  ..        28,800.0
2. Summary of approved AHP applications...............              12  ...               3  ..              36  ...           20.00  ..           720.0
3. Request for modification of approved AHP                        100  ...               1  ..             100  ...            2.00  ..           200.0
 application.                                                                                                                                           
4. Summary of approved modifications to approved AHP                12  ...               4  ..              48  ...            4.00  ..           192.0
 applications.                                                                                                                                          
5. Request for waiver of AHP remedial actions.........              75  ...               1  ..              75  ...           10.00  ..           750.0
6. Advisory council report............................              12  ...               1  ..              12  ...          200.00  ..         2,400.0
                                                       -------------------------------------------------------------------------------------------------
    Totals............................................           2,011  ...               2  ..           3,872  ...           8.54*  ..        33,066.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Weighted average hours per response.                                                                                                                   


List of Subjects in 12 CFR Part 960

    Credit, Federal home loan banks, Housing, Reporting and 
recordkeeping requirements.

    Accordingly, the Federal Housing Finance Board hereby proposes to 
amend chapter IX, title 12, subchapter E, Code of Federal Regulations, 
by revising part 960 to read as follows:

SUBCHAPTER E--AFFORDABLE HOUSING

PART 960--AFFORDABLE HOUSING PROGRAM

Subpart A--Definitions

Sec.
960.1  Definitions.

Subpart B--Establishment of AHP

960.2  Bank establishment of AHP and adoption of AHP implementation 
plan.
Subpart C--Authorized and Required Uses of AHP Subsidized Advances or 
Direct Subsidies
960.3  Authorized uses of AHP subsidized advances or direct 
subsidies.
960.4  Specific use requirements for AHP subsidized advances or 
direct subsidies.
960.5  Long-term requirements.
Subpart D--Applications for AHP Subsidized Advances or Direct Subsidies
960.6  Establishment of AHP funding cycles and available AHP 
subsidies.
960.7  AHP application approval process.

Subpart E--Requirements for Approval of AHP Applications

960.8  General requirements for approval of AHP applications.
960.9  Threshold criteria for approval of AHP applications.
960.10  Scoring of AHP applications.
960.11  Modifications of approved AHP applications.
Subpart F--Use and Verification at Initial Disbursement of AHP 
Subsidized Advances or Direct Subsidies
960.12  Use of AHP subsidized advances or direct subsidies within 
reasonable period of time and verification of reasonable progress.
960.13  Verification at initial disbursement of AHP subsidized 
advances or direct subsidies.

Subpart G--Monitoring and Reporting Requirements

960.14  Monitoring requirements.
960.15  Reporting requirements.
Subpart H--Corrective and Remedial Actions for Fraud or Non-Compliance 
With AHP Requirements
960.16  Corrective and remedial actions for fraud or non-compliance.
Subpart I--AHP Applications Involving Loan Funds and Loan Consortia
960.17  AHP applications involving loan funds and loan consortia.

Subpart J--Required AHP Contributions

960.18  Required annual AHP contributions.
960.19  Temporary suspension of AHP contributions.

Subpart K--Affordable Housing Reserve Fund

960.20  Affordable Housing Reserve Fund.

Subpart L--Advisory Councils

960.21  Advisory Councils.

Subpart M--Effective Dates

960.22  Effective dates.

    Authority: 12 U.S.C. 1430(j).

Subpart A--Definitions


Sec. 960.1  Definitions.

    As used in this part:
    Act means the Federal Home Loan Bank Act, as amended (12 U.S.C. 
1421 through 1449).
    Adjustment for household size means:
    (1) Adjusting the household income limit according to the following 
adjustment factors for households of more than or fewer than four 
persons: 

------------------------------------------------------------------------
             No persons                       Percent adjustment        
------------------------------------------------------------------------
1..................................  70.                                
2..................................  80.                                
3..................................  90.                                
4..................................  Base.                              
5..................................  108.                               
6..................................  116.                               
7..................................  124.                               
8..................................  132.                               
------------------------------------------------------------------------


    (2) For each person in excess of eight, eight percent of the four-
person household base income limit shall be added to the income limit 
for an eight-person household for the area.
    Advance means a loan from a Bank that is:
    (1) Provided pursuant to a written agreement;
    (2) Supported by a note or other written evidence of the borrower's 
obligation; and
    (3) Fully secured by collateral in accordance with the Act and part 
935 of this chapter.
    Affordable for low- or moderate-income households means:
    (1) For purposes of rental housing units, that rents, including 
reasonable utility costs, charged to households for such units do not 
exceed 30 percent of the income of a household (assuming a household 
size of 1.5 persons per bedroom or 1.0 person per unit without a 
separate bedroom) which has an income of 80 percent of the median 
income for the area, as adjusted and published by the U.S. Department 
of Housing and Urban Development, except that in areas where the 
Secretary of Housing and Urban Development adjusts this income figure 
downward because of prevailing construction costs, low housing costs, 
or unusually high household incomes, then ``affordable for low- or 
moderate-income households'' means that rents, including reasonable 
utility costs, charged to households for such units do not exceed 30 
percent of the income of a household which has an income of 80 percent 
of the median income for the area, as published by the U.S. Department 
of Housing and Urban Development, with adjustment for household size, 
but without the adjustments made by the Secretary of Housing and Urban 
Development for prevailing construction costs, low housing costs, or 
unusually high household incomes; or
    (2) If a rental housing unit is targeted to households whose income 
is less than 80 percent of the median income for the area, then 
``affordable for low- or moderate-income households'' means that the 
rent, including reasonable utility costs, charged to a household for 
such unit does not exceed 30 percent of the maximum qualifying income 
of the targeted households of the size expected to occupy the unit.
    Affordable for very low-income households means:
    (1) For purposes of rental housing units, that rents, including 
reasonable utility costs, charged to households for such units do not 
exceed 30 percent of the income of a household (assuming a household 
size of 1.5 persons per bedroom or 1.0 person per unit without a 
separate bedroom) which has an income of 50 percent of the median 
income for the area, as adjusted and published by the U.S. Department 
of Housing and Urban Development, except that in areas where the 
Secretary of Housing and Urban Development adjusts this income figure 
downward because of prevailing construction costs, low housing costs, 
or unusually high household incomes, then ``affordable for very low-
income households'' means that rents, including reasonable utility 
costs, charged to households for such units do not exceed 30 percent of 
the income of a household which has an income of 50 percent of the 
median income for the area, as published by the U.S. Department of 
Housing and Urban Development, with adjustment for household size, but 
without the adjustments made by the Secretary of Housing and Urban 
Development for prevailing construction costs, low housing costs, or 
unusually high household incomes.
    (2) If a rental housing unit is targeted to a household whose 
income is less than 50 percent of the median income for the area, then 
``affordable for very low-income households'' means that the rent, 
including reasonable utility costs, charged to a household for such 
unit does not exceed 30 percent of the maximum qualifying income of the 
targeted households of the size expected to occupy the unit.
    AHP means the Affordable Housing Program established pursuant to 
this part.
    Applicant means a member that applies to the Bank of which it is a 
member for AHP funds to be used pursuant to the requirements of this 
part.
    Area means, for purposes of defining ``median income for the 
area,'' a metropolitan statistical area, a county, or a nonmetropolitan 
area, as established by the U.S. Office of Management and Budget.
    Bank means a Federal Home Loan Bank established under the authority 
of the Act.
    Board means the Federal Housing Finance Board.
    Cost of funds means the estimated cost of issuing Bank System 
consolidated obligations with maturities comparable to the maturity of 
the AHP subsidized advance, as published from time to time by the Bank 
System's Office of Finance.
    Direct subsidy means the direct cash payments of AHP funds made to 
the applicant by the Bank.
    Loan consortium means:
    (1) A nonprofit or for-profit corporation whose members are 
regulated financial institutions including at least one Bank member and 
that provides housing loans that benefit low- or moderate-income 
households; or
    (2) A group of regulated financial institutions including at least 
one Bank member that have entered into a legal agreement with each 
other to jointly make loans to finance housing for low- or moderate-
income households.
    Loan fund means a nonprofit or for-profit organization that is not 
owned or controlled by a regulated financial institution and which 
aggregates capital from public and private sources to provide financing 
for housing for low- or moderate-income households.
    Low- or moderate-income household means a household which has an 
income of 80 percent or less of the median income for the area, as 
adjusted and published by the U.S. Department of Housing and Urban 
Development, except that in areas where the Secretary of Housing and 
Urban Development adjusts this figure downward because of prevailing 
construction costs, low housing costs, or unusually high household 
incomes, then ``low- or moderate-income household'' means a household 
which has an income of 80 percent or less of the median income for the 
area, as published by the U.S. Department of Housing and Urban 
Development, with adjustment for household size, but without the 
adjustments made by the Secretary of Housing and Urban Development for 
prevailing construction costs, low housing costs, or unusually high 
household incomes.
    Low- or moderate-income neighborhood means any neighborhood in 
which 51 percent or more of the households are low- or moderate-income 
households.
    Member means an institution that has been approved for membership 
in a Bank and has purchased capital stock in the Bank in accordance 
with Secs. 933.7 and 933.11 of this chapter.
    Neighborhood means a census tract; a combination of census tracts; 
or a geographic location designated in comprehensive plans, ordinances 
or other local documents as a neighborhood, village or similar 
geographical designation that is within the boundary but does not 
encompass the entire area of a unit of general local government and for 
which income information is available to determine the percentage of 
households with incomes satisfying the requirements of 
Sec. 960.10(d)(5). If the unit of general local government has a 
population under 25,000, the neighborhood may, but need not, encompass 
the entire area of a unit of general local government.
    Net earnings of a Bank means the net earnings of a Bank for a 
calendar year after deducting the Bank's pro rata share of the annual 
contribution to the Resolution Funding Corporation required under 
section 21A or 21B of the Act (12 U.S.C. 1441a, 1441b), and before 
declaring any dividend under section 16 of the Act (12 U.S.C. 1436).
    Nonprofit organization means a private organization that is a tax-
exempt entity under section 501(c) of the Internal Revenue Code of 1986 
(26 U.S.C. 501(c)), or a private nonprofit organization that is 
organized or chartered under state or local laws and has no part of its 
net earnings inuring to the benefit of any member, founder, contributor 
or individual.
    Remaining useful life means the period during which the housing 
remains in a condition suitable for occupancy, assuming normal 
maintenance and repairs are made and major systems and capital 
components are replaced or repaired as becomes necessary.
    Sponsor means a nonprofit or for-profit organization or public 
entity that is integrally involved in a rental housing project by 
owning or being the general partner of a partnership that owns the 
project, or that is integrally involved in exercising control over an 
owner-occupied housing project by developing the project or by 
qualifying borrowers and providing or arranging financing for the 
owners of the housing units.
    State means a state of the United States, the District of Columbia, 
Guam, Puerto Rico, or the U.S. Virgin Islands.
    Subsidized advance means an advance whose interest rate is reduced 
below the cost of funds, with the interest rate differential subsidized 
using AHP funds in the amount of the net present value of the 
difference between the cost of funds and the rate charged on the 
subsidized advance over the term of the advance.
    Subsidy means:
    (1) The direct cash payments of AHP funds provided by the Bank to 
the applicant; or
    (2) The amount of AHP funds necessary to compensate the Bank for 
the net present value of the difference between the cost of funds and 
the rate charged on the subsidized advance to the applicant over the 
term of the advance.
    Very low-income household means a household which has an income of 
50 percent or less of the median income for the area, as adjusted and 
published by the U.S. Department of Housing and Urban Development, 
except that in areas where the Secretary of Housing and Urban 
Development adjusts this figure downward because of prevailing 
construction costs, low housing costs, or unusually high household 
incomes, then ``very low-income household'' means a household which has 
an income of 50 percent or less of the median income for the area, as 
published by the U.S. Department of Housing and Urban Development, with 
adjustment for household size, but without the adjustments made by the 
Secretary of Housing and Urban Development for prevailing construction 
costs, low housing costs, or unusually high household incomes.

Subpart B--Establishment of AHP


Sec. 960.2  Bank establishment of AHP and adoption of AHP 
implementation plan.

    (a) It is the policy of the Board and the Banks to promote decent 
and safe affordable housing and to address critical affordable housing 
needs through providing subsidized advances and direct subsidies to 
members pursuant to this part.
    (b) Each Bank's board of directors shall establish an AHP, which 
shall be funded pursuant to the requirements of Sec. 960.18. The Bank 
shall make subsidized advances to applicants pursuant to its AHP and 
shall operate its AHP in conformity with an annual AHP implementation 
plan and the requirements of this part. Direct subsidies provided by a 
Bank to applicants pursuant to its AHP shall be provided in conformity 
with the Bank's AHP implementation plan and the requirements of this 
part. Each Bank's AHP implementation plan shall be approved by the 
Board before it is effective. The Bank's AHP implementation plan shall 
meet the requirements of this part, and shall include:
    (1) The Bank's AHP funding cycle schedule, including application 
due dates, as required by Sec. 960.6(a)(1);
    (2) The Bank's priorities, and scoring criteria for applications, 
as required by Secs. 960.8(a) and 960.10;
    (3) The Bank's procedures to ensure satisfaction of the long-term 
requirement, as required by Sec. 960.5 (a)(1) and (b);
    (4) The Bank's requirements for and verification procedures 
concerning:
    (i) The use of subsidized advances or direct subsidies within a 
reasonable period of time after approval of an AHP application, as 
required by Sec. 960.12(a); or
    (ii) The use of loans or grants within a reasonable period of time 
after repayment of such funds to a loan fund or loan consortium, as 
required by Sec. 960.17(c)(5);
    (5) The Bank's verification procedures upon initial disbursement of 
subsidized advances or direct subsidies, as required by Sec. 960.13;
    (6) The Bank's monitoring plan, as required by Sec. 960.14(b);
    (7) The Bank's reporting requirements for applicants during the 
construction or rehabilitation phase, as required by Sec. 960.15(b)(2);
    (8) An explanation of circumstances justifying undue hardship 
waivers by the Bank of imposition of remedial actions, as required by 
Sec. 960.16 (c)(1) and (d)(1); and
    (9) The Bank's determination regarding the number of persons that 
may serve on the Bank's Advisory Council and their terms, as required 
by Sec. 960.21(a) (1) and (4).
    (c) The Bank's proposed AHP implementation plan shall be submitted 
to its Advisory Council at least 45 calendar days before it is 
considered by the Bank's board of directors. The Advisory Council shall 
review the proposed AHP implementation plan and submit its 
recommendations to the Bank's board of directors at least seven 
calendar days before the Bank's board of directors is scheduled to vote 
on the AHP implementation plan. The Bank's board of directors shall 
vote on the proposed AHP implementation plan, and shall submit its 
approved plan to the Board for action. The Board shall approve or 
disapprove any proposed AHP implementation plan it receives within 60 
calendar days of receipt. A Bank's AHP implementation plan must be 
effective at least 45 calendar days before the due date for AHP 
applications. Each Bank shall submit its AHP implementation plan to the 
Board for approval no later than 180 calendar days after [the 
publication of the final rule in the Federal Register].
    (d) The Bank's AHP implementation plan adopted pursuant to this 
section shall be made available by the Bank to the public upon request.
    (e) The Board will approve or disapprove proposed amendments to a 
Bank's approved AHP implementation plan submitted by the Bank within 60 
calendar days of receipt.

Subpart C--Authorized and Required Uses of AHP Subsidized Advances 
or Direct Subsidies


Sec. 960.3  Authorized uses of AHP subsidized advances or direct 
subsidies.

    (a) General. Applicants may use subsidized advances or direct 
subsidies received from a Bank pursuant to this part only for the uses 
set forth in paragraphs (b) and (c) of this section and subject to the 
long-term requirements set forth in Sec. 960.5.
    (b) Owner-occupied housing units. Applicants may use subsidized 
advances or direct subsidies received from a Bank pursuant to this part 
to finance the purchase, construction or rehabilitation of owner-
occupied housing units by or for low- or moderate-income households.
    (c) Rental housing units. Applicants may use subsidized advances or 
direct subsidies received from a Bank pursuant to this part to finance 
the purchase, construction or rehabilitation of rental housing units, 
at least 20 percent of the units of which will be occupied by and 
affordable for very low-income households.


Sec. 960.4  Specific use requirements for AHP subsidized advances or 
direct subsidies.

    (a) Examples of specific authorized and unauthorized uses. (1) 
Authorized uses of subsidized advances or direct subsidies include, but 
are not limited to, the following costs related to the purchase, 
construction or rehabilitation of housing:
    (i) Real property purchase and improvement costs;
    (ii) Construction or rehabilitation costs, including labor and 
materials, and contractor profit and overhead allowances;
    (iii) Costs integral to the purchase or development of housing 
including, but not limited to, project-related: Architectural, 
inspection and engineering fees; local building permit and planning 
fees; accounting costs; survey costs; appraisal fees; title insurance 
and other insurance costs; performance bond and other bond fees; 
recording fees; credit report fees; property taxes; residential 
relocation costs where such costs are part of a relocation plan; legal 
fees; syndication fees; costs of translating resident documents to 
another language; loan commitment, loan origination and other loan 
financing fees for administrative costs other than costs of 
administering the AHP award; developer's fees; and marketing costs;
    (iv) Prepayment fees imposed by the Bank on an applicant for a 
subsidized advance that is prepaid in connection with the purchase, 
construction or rehabilitation of housing, if the applicant requires 
the borrower to pay such fee;
    (v) Capitalization of reserve fund(s) necessary for the successful 
operation of rental housing projects, including replacement reserves, 
rent-up reserves, operating deficit reserves, and sinking fund reserves 
used for the transfer of the project to nonprofit ownership when 
associated with a low income housing tax credit transaction (26 U.S.C. 
42);
    (vi) Cancellation fees imposed by the Bank on an applicant for a 
subsidized advance commitment that is canceled and converted to and 
disbursed as a direct subsidy in connection with the purchase, 
construction or rehabilitation of housing, if the applicant requires 
the borrower to pay such fee;
    (vii) Refinancing of an existing loan in conjunction with the 
purchase, construction or rehabilitation of housing, provided the 
subsidized advance or direct subsidy and the proceeds of the 
refinancing are used only to retire existing debt and to benefit low- 
or moderate-income households and, in the case of refinancing in order 
to rehabilitate a project, there is a minimum of $2,500 per unit spent 
on such rehabilitation; and
    (viii) Tenant services, tenant counseling and homeowner counseling 
costs that are a condition imposed by a lender to obtain financing from 
such lender and which are necessary for the successful operation of the 
project.
    (2) Uses of subsidized advances or direct subsidies that are not 
authorized include, but are not limited to, AHP administrative costs of 
the applicant or the Bank.
    (b) Use of funds requirements. (1)(i) The total amount of a direct 
subsidy provided by the Bank to an applicant under this section must be 
passed on by the applicant to the recipient.
    (ii) An applicant receiving a subsidized advance from a Bank shall 
extend credit to the borrower at a rate of interest equal to the rate 
of interest charged on the subsidized advance plus an interest rate 
spread approved by the Bank.
    (2) If an applicant receives a subsidized advance or direct subsidy 
from a Bank or prepayment of a loan originally made under the AHP, any 
interest or other income earned by the applicant on such funds, not 
including any approved fee or interest rate spread charged to the 
borrower, must be forwarded to the Bank to be used for additional AHP 
projects, except for interest or other income earned by the applicant 
within 30 calendar days of receiving the subsidized advance or direct 
subsidy or of receiving prepayment of a loan originally made under the 
AHP.
    (3) A direct subsidy received by an applicant from a Bank that is 
provided by such applicant to a sponsor may be lent by the sponsor in 
connection with an AHP rental housing project involving low-income 
housing tax credits, provided the subsidy is lent by the sponsor for a 
term of not less than 30 years, with all principal and interest 
payments deferred until the end of such term. If such a loan is repaid 
before the end of the 30-year term, the entire amount of the direct 
subsidy must be repaid to the Bank.
    (4) If an applicant receives a subsidized advance or direct subsidy 
from a Bank, and in turn provides both a loan and a grant to a borrower 
and charges an origination fee for providing the loan, then any fee 
charged by the applicant for providing the grant may not be paid with 
the AHP subsidized advance or direct subsidy.


Sec. 960.5  Long-term requirements.

    (a) Rental housing units. (1) At least 20 percent of the rental 
housing units in a project financed under the AHP with subsidized 
advances or direct subsidies shall remain affordable for and occupied 
by very low-income households for a minimum period of 30 years or, at 
the election of the sponsor, the remaining useful life of such units, 
except as provided in paragraph (a)(3) of this section. An applicant 
and the project sponsor shall state in the AHP application their 
commitment regarding satisfaction of the long-term income-eligibility, 
affordability and income-targeting requirements contained in this 
paragraph (a)(1). An applicant may commit to maintain additional units 
as affordable for and occupied by low- or moderate-income households, 
which commitment shall be for a minimum period of 30 years or, at the 
election of the sponsor, the remaining useful life of such units, 
except as provided in paragraph (a)(3) of this section. The Bank's AHP 
implementation plan shall set forth the procedures that the Bank will 
follow to effectively implement the requirements of this paragraph 
(a)(1).
    (2) A household occupying a rental housing unit subject to the 
income-targeting requirement of paragraph (a)(1) of this section is 
required to satisfy the income-eligibility requirement of such 
paragraph applicable to such income-targeted unit, as committed to in 
the AHP application, upon initial occupancy. The household may continue 
to occupy the income-targeted unit even if its income increases above 
the income-eligibility requirement for such unit. The unit may continue 
to count toward meeting the income-targeting requirement committed to 
in the AHP application, provided the rent charged remains affordable to 
the household as defined in Sec. 960.1; however, if the household's 
income rises above 140 percent of the income-targeting level committed 
to in the AHP application, the sponsor must make the next available 
rental housing unit in the project affordable to and available for 
occupancy by a household whose income is at or below the income-
targeting level committed to in the AHP application for the original 
unit, and once the next available rental housing unit is so occupied, 
the rent charged on the unit occupied by the household whose income has 
risen shall no longer be subject to the requirement that it be 
affordable for households at the income-targeting level committed to in 
the AHP application.
    (3) An owner of an AHP-assisted rental housing project may sell the 
project prior to the end of the long-term period during which the 
project's rental units, or applicable portion thereof, must remain 
affordable for and occupied by households with incomes at or below the 
levels committed to in the AHP application; however, either:
    (i) The purchaser must agree to continue the project's rental 
units, or applicable portion thereof, as affordable for and occupied by 
households with incomes at or below the levels committed to in the AHP 
application for the remainder of the long-term period committed to in 
the AHP application, and must agree to be subject to the same 
restrictions on resale that applied to the seller; or
    (ii) If the purchaser does not satisfy the requirements of 
paragraph (a)(3)(i) of this section, and if the Bank provided a direct 
subsidy to the applicant which was passed on as a grant to the seller, 
the seller must repay a pro rata portion of the grant as provided in 
Sec. 960.16(d)(1); or
    (iii) If the purchaser does not satisfy the requirements of 
paragraph (a)(3)(i) of this section, and if the Bank provided a 
subsidized advance to the applicant which in turn provided a below 
market rate loan to the seller, then the provisions of 
Sec. 960.16(d)(2) shall apply.
    (b) The Bank's AHP implementation plan shall permit the owner of an 
AHP-assisted rental housing project to sell such project as provided 
for in paragraph (a)(3) of this section.

Subpart D--Applications for AHP Subsidized Advances or Direct 
Subsidies


Sec. 960.6  Establishment of AHP funding cycles and available AHP 
subsidies.

    (a) Establishment of AHP funding cycles. (1) Each Bank shall 
establish at least two but no more than four AHP funding cycles per 
year during which applications for subsidized advances or direct 
subsidies will be accepted. The schedule for such funding cycles, 
including application due dates, is to be determined by the Bank in its 
discretion, but shall allow for sufficient time intervals to ensure an 
adequate pool of applicants to compete in each funding cycle. The 
funding cycle schedule, including application due dates, shall be 
described in detail in the Bank's AHP implementation plan.
    (2) Each Bank shall inform the general public and its members of 
the number and dates of its AHP funding cycles for the year and the 
approximate amount of available AHP subsidies for each funding cycle at 
least 45 calendar days before the due date for AHP applications for the 
first funding cycle for the year.
    (b) Available AHP subsidies. Each Bank shall allocate comparable 
amounts of AHP subsidies for each AHP funding cycle during the year.


Sec. 960.7  AHP application approval process.

    (a) Application. Each Bank shall require applicants for subsidized 
advances or direct subsidies to submit to the Bank an application 
which, at a minimum, contains all of the information described in this 
paragraph and any other information which the Bank determines is 
necessary in order to take action on such application pursuant to this 
part, including the following:
    (1) A concise description of the purpose of the request and 
proposed uses of the funds, and its relationship to the priorities 
identified in Sec. 960.10(d), the targeting criterion identified in 
Sec. 960.10(e), and the other objectives identified in Sec. 960.10(f);
    (2) A statement of how the project will satisfy the authorized uses 
and long-term requirements, including a description of legal mechanisms 
to be used to ensure compliance by the project with such requirements, 
contained in Secs. 960.3 and 960.5;
    (3) A statement of how the project will comply with the fair 
housing law requirement contained in Sec. 960.9(b);
    (4) A statement of how the project will satisfy the feasibility 
requirement contained in Sec. 960.9(d);
    (5) A statement of how the project's sponsor satisfies the 
qualification requirement contained in Sec. 960.9(e);
    (6) A statement of whether a subsidized advance or direct subsidy 
has been requested and the amount of such funds requested;
    (7) A disclosure of whether or not the applicant has a direct or 
indirect interest in the property or project. If the applicant has an 
interest in the property and the application is approved, then prior to 
the transfer of AHP funds to the project, an independent current 
appraisal of the fair market value of such property must be provided, 
unless the applicant demonstrates that the property is being sold or 
otherwise transferred to the sponsor at a price substantially below the 
fair market value;
    (8) A statement of the project's costs; and
    (9) A certification from the applicant's, the sponsor's and the 
loan fund's or loan consortium's board of directors, or president or 
senior officer if so delegated by the board of directors, that the 
applicant, the sponsor and the loan fund or loan consortium will comply 
with all requirements of this part and all obligations committed to in 
the AHP application.
    (b) Action on applications. (1) The Bank shall review, score and 
take action on an AHP application pursuant to the requirements 
contained in Secs. 960.8, 960.9 and 960.10, and shall notify the 
applicant of such action no later than 60 calendar days after the 
application due date for the AHP funding cycle.
    (2) The board of directors of each Bank shall have the authority to 
approve or disapprove AHP applications received, and may delegate such 
authority to the president or other senior officers of the Bank.
    (3) Within 30 calendar days of each Bank's approval of the AHP 
applications for a given AHP funding cycle, the Bank shall forward to 
the Board a summary of each approved AHP application. The summary 
shall:
    (i) Briefly describe the project, including the applicant, the loan 
fund or loan consortium, if applicable, and the sponsor--whether 
nonprofit, for-profit or public agency, the type of housing, the 
location, the long-term period committed to, the number of housing 
units including the number of units affordable for very low-, low- or 
moderate-income households or for households at any other income levels 
committed to in the AHP application, the development cost, other 
financing sources, and special needs populations served;
    (ii) State the reason for the points awarded under each of the 
Bank's scoring criteria for the project;
    (iii) Indicate whether a subsidized advance or direct subsidy was 
approved by the Bank for the project, the use of such funds, and the 
amount of such funds approved; if a subsidized advance was approved, 
the summary shall indicate the amount of the advance, the advance rate, 
the amortization schedule for the advance, the term to maturity, the 
applicable cost of funds, and the date as of which the cost of funds 
was determined;
    (iv) Indicate whether the project received approval in a prior AHP 
funding cycle, or if the project is an extension, expansion, 
continuation or reconfiguration of a previously approved AHP project;
    (v) Describe how the project will be monitored and by what entity;
    (vi) Describe the legal mechanisms to be used to ensure compliance 
by the project with the long-term requirement contained in Sec. 960.5;
    (vii) Include a summary in chart form showing all AHP applications 
received by the Bank in the particular AHP funding cycle, with the 
score each application received for each scoring criterion, and the 
total score received by each project; and
    (viii) Include any other information required by the Board.

Subpart E--Requirements for Approval of AHP Applications


Sec. 960.8  General requirements for approval of AHP applications.

    (a) Each Bank shall evaluate the AHP applications received to 
determine if they satisfy the threshold criteria in Sec. 960.9. All 
applications that meet the threshold criteria shall be scored pursuant 
to the criteria contained in Sec. 960.10, as set forth in the Bank's 
approved AHP implementation plan.
    (b) The Bank shall approve the applications in descending order 
starting with the highest scoring application until the total AHP 
funding amount for the particular funding cycle, except for any amount 
insufficient to fund the next highest scoring project, has been 
allocated. The Bank also may approve the next four highest scoring 
applications as alternates and, within one year of approval by the 
Bank, may fund such alternates if any previously committed AHP funds 
become available.


Sec. 960.9  Threshold criteria for approval of AHP applications.

    Threshold criteria. An AHP application must meet all of the 
threshold criteria set forth in this section in order to be considered 
for scoring under Sec. 960.10 and for AHP funding approval.
    (a) Authorized and required uses requirements. The AHP application 
must indicate that the use of the subsidized advance or direct subsidy 
set forth in the AHP application for the proposed project will comply 
with the requirements for authorized and required uses of such funds 
contained in Secs. 960.3, 960.4 and 960.5.
    (b) Fair housing law requirements. The AHP application must 
indicate that the project sponsor will comply with any applicable fair 
housing law requirements and must indicate how the sponsor proposes to 
affirmatively further compliance with such requirements.
    (c) Twenty percent requirement and alternatives.--(1) General. (i) 
Except as provided in paragraph (c)(2) of this section, a Bank shall 
not offer subsidized advances or direct subsidies to applicants in 
excess of that amount needed to reduce the monthly housing costs (as 
defined in paragraph (c)(1)(ii) of this section) for income-eligible 
households, as committed to in the AHP application, to 20 percent of 
the household's gross monthly income. In projects where other forms of 
federal, state, local or private subsidized assistance are being used 
in conjunction with AHP subsidized advances or direct subsidies, the 
total amount of subsidized assistance, including funds provided under 
the AHP, shall not be in excess of the amount needed to reduce the 
monthly housing costs (as defined in paragraph (c)(1)(ii) of this 
section) for the income-eligible households, as committed to in the AHP 
application, to 20 percent of the household's gross monthly income.
    (ii) For purposes of paragraph (c)(1) of this section, monthly 
housing costs are defined as:
    (A) For households in AHP-assisted owner-occupied housing units, 
mortgage principal and interest payments, real property taxes, 
homeowners' insurance, a reasonable estimate of utility costs excluding 
telephone service, and for households in AHP-assisted condominium, 
cooperative, mutual housing or other housing projects involving common 
ownership, those portions of any regular operating assessment or fee 
allocated for principal and interest payments, taxes, insurance and a 
reasonable estimate of utilities attributable to the household's share 
of the common area and/or the individual unit; and
    (B) For households in AHP-assisted rental housing units, rent 
payments, and where they are not already included in rent payments, a 
reasonable estimate of utility costs excluding telephone service.
    (iii) A household subject to the 20 percent requirement set forth 
in paragraph (c)(1) of this section is required to meet such 
requirement only at the time it initially purchases or occupies a unit.
    (2) Alternative requirements. (i) The requirement in paragraph 
(c)(1) of this section shall not apply where a Bank provides subsidized 
advances or direct subsidies to an applicant for a rental housing 
project, which project also receives funds from a federal or state 
rental housing program that requires qualifying households to pay as 
rent a certain percentage of their monthly income or a designated 
amount, provided that the household meets the housing payment 
requirements of the other program.
    (ii) The requirement in paragraph (c)(1) of this section shall not 
apply where:
    (A) The total amount of the AHP funds provided through a subsidized 
advance or direct subsidy used to finance rehabilitation of a housing 
unit by a very low-income household that already owns and occupies the 
housing unit is $10,000 or less per such household; or
    (B) The total amount of the AHP funds provided through a subsidized 
advance or direct subsidy used to finance the purchase of a housing 
unit by a very low-income household is $5,000 or less per such 
household.
    (iii) The requirement in paragraph (c)(1) of this section shall not 
apply where the total amount of the AHP funds provided through a 
subsidized advance or direct subsidy used to finance rehabilitation or 
purchase of a housing unit by a low- or moderate-income household is 
$5,000 or less per such household.
    (iv) The requirement in paragraph (c)(1) of this section shall not 
apply where a Bank provides subsidized advances or direct subsidies 
ultimately benefiting a household with an income at or below the level 
committed to in the AHP application, which is participating in a self-
help, sweat equity or similar housing program that requires the 
household to contribute its skilled or unskilled labor valued at a 
minimum of $2,000 per household, working cooperatively with others, to 
construct or rehabilitate housing which the household or other program 
participants are purchasing or already own and occupy, and that 
involves supervision of the work performed by skilled builders or 
rehabilitators.
    (d) Project feasibility. The AHP application must indicate that the 
proposed project is feasible in that, based on an analysis of project 
sources and uses of funds, project multi-year operating pro formas for 
rental housing projects, projections of sales and prices for owner-
occupied housing units, and local market conditions, the project is 
financially viable and likely to be completed within a reasonable 
period of time, and is likely to operate or sell and remain affordable 
to the designated income-eligible households over the long-term period 
committed to in the AHP application.
    (e) Qualifications of sponsor. The AHP application must indicate 
that the sponsor has the qualifications and ability to perform its 
responsibilities as committed to in the AHP application.
    (f) Creditworthiness of applicant. The applicant must have the 
ability to qualify for an advance from the Bank to fund the project 
described in the AHP application.


Sec. 960.10  Scoring of AHP applications.

    (a) General. The Bank shall score AHP applications that satisfy all 
of the threshold criteria in Sec. 960.9 according to the scoring 
methodology set forth in this section which shall be included in the 
Bank's approved AHP implementation plan.
    (b) Priority treatment. Each application is first evaluated to 
determine if it will receive priority treatment. For purposes of 
determining priority, an application can receive a maximum of eight 
points for each of the five priority categories set forth in paragraph 
(d) of this section. A Bank in its AHP implementation plan shall define 
more specifically each of the five priority categories and explain 
specifically how points will be awarded for satisfying each category. 
An application will be deemed to meet a particular priority category if 
it is awarded at least four points for that priority category. 
Applications meeting at least two priority categories shall receive 
priority treatment.
    (c) Order of scoring. Applications that qualify for priority 
treatment pursuant to paragraph (b) of this section shall be scored 
before applications that do not qualify for priority treatment. The 
applications that do not qualify for priority treatment will not be 
scored unless there are insufficient priority treatment applications to 
utilize the total AHP funding amount for the funding cycle.
    (d) Priorities--40 point category. The Bank shall total the points 
received by each applicant for purposes of determining priority for all 
of the five priority categories set forth in this paragraph (d); it 
shall award 40 points to the application(s) that receive the highest 
number of total points, and the remaining application scores shall be 
adjusted and awarded points on a declining scale basis. The five 
priority categories are as set forth in the following paragraphs (d)(1) 
through (5) of this section.
    (1) Government-owned properties. Applications for projects that 
finance the purchase or rehabilitation of housing owned or held by the 
United States Government or any agency or instrumentality of the United 
States, including but not limited to the Department of Housing and 
Urban Development, Resolution Trust Corporation, Farmers Home 
Administration, Veterans Administration, Federal National Mortgage 
Association, or Federal Home Loan Mortgage Corporation.
    (2) Nonprofit or state or local government sponsored projects. 
Applications for projects that finance the purchase, construction or 
rehabilitation of housing the sponsor of which is a nonprofit 
organization, a state or political subdivision of a state, a local 
housing authority or a state housing finance agency.
    (3) Special needs projects. Applications for projects that address 
special needs, which shall be defined by the Bank in its AHP 
implementation plan, which special needs may include but are not 
limited to:
    (i) Empowering the households or residents through programs such as 
resident management of the property, self-help housing, homesteading, 
and sweat equity;
    (ii) Providing housing for special needs populations such as 
homeless persons, abused or battered persons, persons with AIDS, 
mentally or physically disabled persons, or persons with substance 
abuse problems;
    (iii) Providing housing in rural areas or areas targeted by local, 
state or federal governments for community development or 
revitalization through the development of affordable housing or 
economic investment; or
    (iv) Providing housing with special services to meet the needs of 
low- or moderate-income households including, but not limited to, child 
care, job training, medical care, substance abuse programs, independent 
living skill training, and rental household and homeowner household 
counseling.
    (4) District Bank priority. Applications for projects that meet one 
or more priorities recommended by the Bank's Advisory Council and 
adopted by the Bank's board of directors that each address a housing 
need in the Bank's district and are consistent with the purposes of 
this part. The Bank shall describe in its AHP implementation plan how 
the points for the priority or priorities will be distributed.
    (5) Economic mobility priority. Applications for projects that 
provide housing for low- or moderate-income households that move from 
low- or moderate-income neighborhoods or housing projects to 
neighborhoods, mixed-income buildings or owner-occupied housing 
developments in which at least 50 percent of the households have 
incomes above the median income for the area, as published by the U.S. 
Department of Housing and Urban Development.
    (e) Targeting--20-point category. An application can receive a 
maximum of 20 points for this category. The Bank shall award points to 
applications based on the extent to which the project(s) serve(s) the 
greatest percentage of very low-, low- and moderate-income households, 
in that priority order. In the alternative, if a weighted-average 
scoring methodology is provided in the Bank's AHP implementation plan, 
the Bank shall award points to an application based on the extent to 
which the project has the lowest weighted-average income determined by 
multiplying the percentage of units reserved for households at certain 
income levels by those incomes expressed as a percentage of median 
income, and adding the totals. Applications shall be scored relative to 
each other with the maximum number of points allowable awarded to the 
application(s) that best achieve(s) the targeting objective, and the 
remaining application scores shall be adjusted and awarded points on a 
declining scale basis. However, owner-occupied housing projects shall 
be scored as one group and rental housing projects shall be scored as a 
separate group.
    (f) Other objectives. The five other objectives categories are as 
set forth in the following paragraphs (f)(1) through (5) of this 
section. The Bank in its AHP implementation plan shall define more 
specifically each of the five other objectives categories and explain 
specifically how points will be awarded for satisfying each category. 
For each category, the Bank shall award the maximum number of points 
allowable for such category to the application(s) that best achieve(s) 
the objective, and the remaining application scores shall be adjusted 
and awarded points on a declining scale basis.
    (1) AHP subsidy per unit--10-point category. An application can 
receive a maximum of 10 points for this category. The Bank shall award 
points to applications based on the extent to which the project 
proposes to use the least amount of AHP subsidy per AHP-subsidized 
unit. Projects should be scored relative to each other; however, owner-
occupied housing projects shall be scored as one group and rental 
housing projects shall be scored as a separate group. This scoring 
criterion may not include a leveraging criterion whereby the 
application is scored based on the percentage of the project's total 
development cost that is to be financed with the AHP subsidy.
    (2) Applicant participation--5-point category. An application can 
receive a maximum of 5 points for this category. The Bank shall award 
points to applications based on the extent to which the project 
involves participation by applicants other than the receipt of a 
subsidized advance or direct subsidy under the AHP. Such participation 
can be financial or non-financial, including but not limited to debt or 
equity financing of the project, grants to the project, applicant 
involvement on the boards of nonprofit sponsors, and applicant 
provision of technical assistance to the nonprofit sponsors for the 
project.
    (3) Community involvement--10-point category. An application can 
receive a maximum of 10 points for this category. The Bank shall award 
points to applications based on the extent to which there is 
demonstrated support for the project by local community organizations 
and individuals other than as project sponsors, such as through the 
commitment by such organizations and individuals of funds, goods and 
services, and volunteer labor.
    (4) Community stability--10-point category. An application can 
receive a maximum of 10 points for this category. The Bank shall award 
points to applications based on the extent to which the project(s) 
maximize(s) community stability, such as by: committing to a greater 
long-term period pursuant to Sec. 960.5; revitalizing vacant or 
abandoned properties or being integrally part of a neighborhood 
stabilization plan, if such revitalization or stabilization is not 
identified as a special needs category by the Bank pursuant to 
Sec. 960.10(d)(3)(iii); and not displacing low- or moderate-income 
households, or if such displacement will occur, indicating how such 
households will be assisted to minimize the impact of such 
displacement.
    (5) Innovation--5-point category. An application can receive a 
maximum of 5 points for this category. The Bank shall award points to 
applications based on the extent to which the project(s) involve(s) a 
particularly new or unusual approach, either financial or non-
financial, for meeting the requirements of this part.


Sec. 960.11  Modifications of approved AHP applications.

    (a) An applicant that seeks a modification of an approved AHP 
application before completion and occupancy of the project must submit 
a request for such modification in writing to the Bank for review and 
approval. A modification is any change that affects or could 
potentially affect the material facts under which the application was 
originally evaluated and scored.
    (b) A request for a modification of an approved AHP application 
must include, at a minimum:
    (1) A description of how the proposed modification differs from the 
original application;
    (2) The reason for the proposed modification; and
    (3) Any other information that the Bank determines is necessary to 
review the proposed modification.
    (c)(1) The Bank shall review the request for modification, shall 
re-score the application as proposed to be modified according to the 
scoring criteria used in the AHP funding cycle in which the application 
was originally approved, and may approve such request if the following 
factors are satisfied:
    (i) The project as proposed to be modified continues to meet all of 
the requirements of this part; and
    (ii) The project as proposed to be modified continues to score high 
enough that it would have been approved in its AHP funding cycle.
    (2) If the application does not satisfy the requirements in 
paragraph (c)(1) of this section, the Bank in its discretion may 
approve the request for modification if the reason for the modification 
is due to circumstances outside the control of the applicant or 
sponsor.
    (d) The Bank shall forward to the Board a detailed summary of any 
modification of an AHP application approved by the Bank, including how 
the Bank re-scored the project, within 30 calendar days of the approval 
of such modification.

Subpart F--Use and Verification at Initial Disbursement of AHP 
Subsidized Advances or Direct Subsidies


Sec. 960.12  Use of AHP subsidized advances or direct subsidies within 
reasonable period of time and verification of reasonable progress.

    (a) The Bank shall in its AHP implementation plan identify what 
constitutes reasonable progress by the sponsor towards using subsidized 
advances or direct subsidies within a reasonable period of time after 
the approval of an AHP application for different types of projects, and 
explain how it intends to verify such reasonable progress.
    (b) The sponsor must demonstrate that reasonable progress is being 
made towards using the requested funds within a reasonable period of 
time after approval of the AHP application, as determined by the Bank 
under paragraph (a) of this section.
    (c) The Bank shall verify the efforts of the sponsor to determine 
whether it has satisfied the requirement in paragraph (b) of this 
section.
    (d) If the sponsor fails to satisfy the requirement in paragraph 
(b) of this section, the Bank shall cancel the AHP award, and shall not 
disburse any subsidized advances or direct subsidies through the 
applicant to the sponsor, and the full amount of any previously 
disbursed subsidized advances or direct subsidies shall be returned to 
the Bank.


Sec. 960.13  Verification at initial disbursement of AHP subsidized 
advances or direct subsidies.

    At the time of initial disbursement of a subsidized advance or a 
direct subsidy by a Bank for an approved AHP application, the Bank 
shall verify in writing that the project complies with all applicable 
requirements contained in Sec. 960.9 and all obligations committed to 
in the approved AHP application. The Bank shall verify the amount of 
subsidy being provided in connection with the application and being 
charged against the AHP fund. The Bank shall include in its AHP 
implementation plan its verification procedures for such purposes.

Subpart G--Monitoring and Reporting Requirements


Sec. 960.14  Monitoring requirements.

    (a) Monitoring by the Banks. Each Bank has the responsibility to 
monitor the projects funded through its AHP according to the monitoring 
requirements described in this section.
    (b) Monitoring plan. Each Bank shall include in its AHP 
implementation plan an explanation of how it intends to meet the 
monitoring requirements of this section.
    (c) Monitoring by Bank's designee. A Bank may contract with an 
applicant, a state housing finance agency, or other entity to perform 
the tasks required to meet the monitoring requirements described in 
paragraphs (e) through (h) of this section; however, the Bank remains 
ultimately responsible for compliance with the monitoring requirements 
of this section.
    (d) Monitoring during construction or rehabilitation. If subsidized 
advances or direct subsidies are used to finance construction or 
rehabilitation of a project, the Bank shall require the applicant to 
monitor the construction or rehabilitation until completion, and to 
make progress reports to the Bank, as required under Sec. 960.15(b)(2).
    (e) Monitoring long-term requirements.--(1) Owner-occupied 
housing.--(i) Initial certification. At the time a household enters 
into a purchase contract for an AHP-assisted housing unit or at the 
closing on the financing for such unit, or at the time a household that 
already owns a housing unit receives a commitment of a loan or a grant 
pursuant to the AHP, the Bank or its designee shall obtain a 
certification from the sponsor, as required under Sec. 960.15(c)(1)(i), 
that the household has an income at or below the level committed to in 
the AHP application.
    (ii) Monitoring after initial sale. (A) During the required long-
term period applicable to an owner-occupied housing unit assisted by a 
grant provided under the AHP, the Bank or its designee shall monitor 
the unit to determine whether it has been sold to a household with an 
income that exceeds the level committed to in the AHP application.
    (B) Monitoring shall include, but is not limited to, periodic 
review of relevant reports or certifications obtained from the sponsor, 
including reports and certifications received pursuant to 
Sec. 960.15(c)(1)(ii) and, at least on a sample basis, periodic review 
of land title records at intervals to be determined by the Bank, based 
on the amount of funds received by the project pursuant to the AHP, the 
type and complexity of the project, or other factors deemed relevant by 
the Bank.
    (2) Rental housing.--(i) Restriction on transfer. The Bank shall 
require an AHP-assisted rental housing project to be subject to a deed 
restriction or other legally enforceable mechanism which requires that 
upon sale of the project prior to the end of the long-term period 
during which the project's rental units, or portion thereof, must 
remain affordable for and occupied by households with incomes at or 
below the levels committed to in the AHP application, the Bank or its 
designee receives notice of the sale, and:
    (A) The project's rental units, or portion thereof, must continue 
to be affordable for and occupied by households with incomes at or 
below the levels committed to in the AHP application for the remainder 
of the long-term period committed to in the AHP application, and the 
purchaser agrees to be subject to the same restrictions on resale that 
applied to the seller; or
    (B) If the purchaser does not satisfy the requirements in paragraph 
(e)(2)(i)(A) of this section, and if the Bank provided a direct subsidy 
to the applicant which was passed on as a grant to the seller, the 
seller must repay the grant as provided in Sec. 960.16(d)(1); or
    (C) If the purchaser does not satisfy the requirements in paragraph 
(e)(2)(i)(A) of this section, and if the Bank provided a subsidized 
advance to the applicant which in turn provided a below market rate 
loan to the seller, then the provisions of Sec. 960.16(d)(2) shall 
apply.
    (ii) Initial certification. Upon initial full occupancy of the 
units in an AHP-assisted rental housing project, or one year after 
initial disbursement of the subsidized advance or direct subsidy, 
whichever occurs first, the Bank or its designee shall obtain a 
certification from the sponsor or the owner, as required under 
Sec. 960.15(c)(2), that the project's units, or portion thereof, are 
affordable for and occupied by households with incomes at initial 
occupancy at or below the levels committed to in the AHP application.
    (iii) Monitoring after initial occupancy. (A) During the long-term 
period for which the units, or portion thereof, of an AHP-assisted 
rental housing project must remain affordable for and occupied by 
households with incomes at or below the levels committed to in the AHP 
application, the Bank or its designee shall monitor the project to 
determine whether the project's units, or portion thereof, remain 
affordable for and occupied by households with incomes at or below the 
levels committed to in the AHP application.
    (B) Monitoring shall include, but is not limited to, periodic 
review of relevant household income and rent reports or certifications 
obtained from the sponsor or the owner, including certifications 
received pursuant to Sec. 960.15(c)(2) and, at least on a sample basis, 
periodic inspections of the project at intervals to be determined by 
the Bank, based on the amount of funds received by the project pursuant 
to the AHP, the type and complexity of the project, or other factors 
deemed relevant by the Bank.
    (f) Monitoring compliance with the special needs priority. If an 
applicant in its AHP application commits to fund a housing project that 
will address a special need pursuant to Sec. 960.10(d)(3), either 
through providing units for persons with a special need, or through 
providing a special service for occupants, as defined in the Banks AHP 
implementation plan:
    (1) The Bank or its designee shall obtain a certification from the 
sponsor or owner upon completion and occupancy of the project, as 
required under Sec. 960.15(c)(3), that the project's units, or portion 
thereof, are occupied by persons with such special need, as committed 
to in the AHP application, or that a special service is being provided, 
as committed to in the AHP application; and
    (2) In the case of a special service being provided pursuant to 
Sec. 960.10(d)(3), the Bank or its designee shall monitor the project, 
as determined by the Bank in its AHP implementation plan, for at least 
one year from the date of initial full occupancy of the project, to 
verify that such special service continues to be provided to the 
households, as committed to in the AHP application.
    (g) Monitoring compliance with the District Bank priority or 
priorities. (1) If an applicant in its AHP application commits to fund 
a project that meets a District Bank priority or priorities established 
by the Bank pursuant to Sec. 960.10(d)(4), the Bank or its designee 
shall monitor the project to verify that it continues to meet the Bank 
priority or priorities.
    (2) The Bank shall set forth in its AHP implementation plan the 
nature, frequency and duration for monitoring compliance with the 
District Bank priority or priorities.
    (h) Monitoring compliance with the economic mobility priority. If 
an applicant in its AHP application commits to fund a project that 
meets the requirements of Sec. 960.10(d)(5), the Bank or its designee 
shall obtain a certification from the sponsor or the owner upon 
completion and full occupancy of the project, as required under 
Sec. 960.15(c)(4), that the sponsor or the owner has met such 
requirements as committed to in the AHP application.


Sec. 960.15  Reporting requirements.

    (a) Reporting by the Banks. Each Bank shall provide accurate and 
timely reports and documentation to, and in the format requested by, 
the Board concerning the Bank's AHP, as the Board may from time to time 
require.
    (b) Reporting by applicants. (1) Each Bank shall require an 
applicant receiving a subsidized advance or direct subsidy pursuant to 
this part to report at least annually to the Bank on the manner in 
which it has used the funds, with such reports continuing until the 
funds have been fully disbursed by the applicant.
    (2) If subsidized advances or direct subsidies are used to finance 
construction or rehabilitation of a project, the Bank shall require the 
applicant to report to the Bank at reasonable intervals determined by 
the Bank, and described in the Bank's AHP implementation plan, on the 
progress of the construction or rehabilitation until completion.
    (c) Reporting by the sponsor or owner.--(1) Owner-occupied housing 
units--(i) Initial certification. Where a subsidized advance or direct 
subsidy is used to finance the purchase of an owner-occupied housing 
unit, the Bank shall require the sponsor to certify, at the time a 
household enters into a purchase contract for such unit or at the 
closing on the financing for such unit, that the unit has been sold to 
a household with an income at or below the level committed to in the 
AHP application. Where a subsidized advance or direct subsidy is used 
to finance the rehabilitation of an owner-occupied housing unit, the 
Bank shall require the sponsor to certify at the time a loan or grant 
is committed to fund such rehabilitation that the household that owns 
and occupies the unit has an income at or below the level committed to 
in the AHP application.
    (ii) Reports of subsequent sale. If an owner-occupied housing unit 
assisted by a grant provided under the AHP is not subject to a deed 
restriction or other legally enforceable mechanism restricting transfer 
of ownership to a household with an income at or below the level 
committed to in the AHP application, the Bank shall require the sponsor 
to report to the Bank or its designee, at least annually for the 
required long-term period, the number of any such units that are sold 
to households whose incomes exceed the level committed to in the AHP 
application, and to certify to the Bank that it is continuing to 
satisfy its commitment, pursuant to its legally binding agreement with 
the Bank.
    (2) Rental housing units--certification. The Bank shall require the 
sponsor or owner to certify, upon initial full occupancy of the units 
in an AHP-assisted rental housing project but no later than one year 
after initial disbursement of the subsidized advance or direct subsidy, 
and annually thereafter, that the project's units, or portion thereof, 
are affordable for and occupied by households with incomes at or below 
the levels committed to in the AHP application.
    (3) Special needs--initial certification. If an applicant in its 
AHP application commits to fund a housing project that will provide 
housing units for persons with a special need, or will provide a 
continuing special service to occupants pursuant to Sec. 960.10(d)(3), 
the Bank shall require the sponsor or the owner to certify upon 
completion and full occupancy of the project that the project's units, 
or portion thereof, are occupied by persons with such special needs or 
that a special service is being provided to occupants, as committed to 
in the AHP application.
    (4) Economic mobility--certification. If an applicant in its AHP 
application commits to fund a housing project that meets the 
requirements for economic mobility under Sec. 960.10(d)(5), the Bank 
shall require the sponsor or the owner to certify upon completion and 
full occupancy of the project that the sponsor or owner has met such 
requirements, as committed to in the AHP application.
    (d) Other reports. The Bank shall require applicants or sponsors to 
provide such other reports as the Bank deems necessary in order to 
fulfill its monitoring obligations under Sec. 960.14.

Subpart H--Corrective and Remedial Actions for Fraud or Non-
Compliance With AHP Requirements


Sec. 960.16  Corrective and remedial actions for fraud or non-
compliance.

    (a) Fraud or willful non-compliance. (1) In the event of an 
applicant's, sponsor's or owner's fraud with respect to the 
requirements of this part, the Bank shall exclude the applicant, 
sponsor or owner, respectively, on a permanent basis, from future 
participation in the AHP. In the event of an applicant's, sponsor's or 
owner's willful non-compliance with the requirements of this part, the 
Bank shall suspend the applicant, sponsor or owner, respectively, at 
least on a temporary basis, from future participation in the AHP during 
the period such willful non-compliance continues, and may exclude such 
party permanently from future participation in the AHP.
    (2) In the event of an applicant's fraud or willful non-compliance 
with respect to the requirements of this part, the Bank shall recover 
from the applicant the full amount of the AHP subsidy provided to the 
project.
    (3)(i) In the event of a sponsor's or owner's fraud or willful non-
compliance with respect to the requirements of this part, the full 
amount of the AHP subsidy shall be recovered from the sponsor or owner 
by the applicant and returned to the Bank or, if previously agreed to 
by the Bank, shall be recovered by the Bank from the sponsor or owner. 
If efforts to recover the AHP subsidy from the sponsor or owner are 
unsuccessful, the applicant shall not be liable for such funds.
    (ii) The applicant shall have in place either:
    (A) A legally binding agreement or other legally enforceable 
mechanism that permits it to recover from the sponsor or owner the full 
amount of the AHP subsidy provided to the project in the event of a 
sponsor's or owner's fraud or willful non-compliance with respect to 
the requirements of this part; or
    (B) If the Bank agrees and such an agreement is legally 
enforceable, a three-party agreement that includes the Bank, the 
sponsor or owner and the applicant that permits the Bank to recover 
from the sponsor or owner the full amount of the AHP subsidy provided 
to the project in the event of a sponsor's or owner's fraud or willful 
non-compliance with respect to the requirements of this part.
    (4) The Board in its discretion may grant a waiver of any required 
remedial actions under this paragraph (a) upon written request by the 
Bank, applicant, sponsor or owner.
    (b) Other types of non-compliance. In the event of an applicant's, 
sponsor's or owner's non-compliance with the requirements of this part 
that is not willful, such as due to inadvertent errors by such party or 
changes in circumstances that are outside such party's control, the 
Bank shall provide the party a reasonable period of time in which to 
take reasonable efforts, pursuant to a compliance plan approved by the 
Bank, to remedy the non-compliance. The Bank in its discretion may 
exclude the applicant, sponsor or owner from participation in the AHP 
while such party is under a compliance plan, or in its discretion may 
require the applicant to increase the long-term period committed to in 
its AHP application for the project by the amount of time the project 
has been in non-compliance. If the applicant, sponsor or owner takes no 
reasonable efforts to comply with the compliance plan, then such party 
is in willful non-compliance with the requirements of this part and is 
subject to the remedial actions contained in paragraph (a) of this 
section. If the applicant, sponsor or owner takes reasonable efforts 
pursuant to the compliance plan to remedy the non-compliance under this 
paragraph (b) and such efforts are unsuccessful, the applicant, sponsor 
or owner would be subject to the remedial actions contained in 
paragraph (a) of this section, but may apply to the Bank for a waiver 
of any such required remedial actions. The Bank shall report to the 
Board in writing on any waivers approved pursuant to this paragraph (b) 
within 30 calendar days of such approval.
    (c) Sale of AHP-assisted owner-occupied housing unit to income-
ineligible household. Except as provided in paragraph (c)(3) of this 
section, in the event that a household sells its AHP-assisted owner-
occupied housing unit to a household whose income exceeds the level 
committed to in the AHP application prior to the end of the required 
long-term period, then the provisions of either paragraph (c)(1) or (2) 
of this section shall apply.
    (1) If the Bank provided a direct subsidy to the applicant which 
was passed on as a grant to the seller, the Bank shall require the 
seller to repay a pro rata share, except for de minimis amounts, of the 
grant received by such seller, reduced for every year the seller owned 
the unit, to be repaid from any net gain from the sale of the unit 
after deduction for sales expenses, and to be returned to the Bank, 
except that the Bank in its discretion may waive such requirement if 
the imposition of such requirement will cause undue hardship on the 
seller, as defined by the Bank in its AHP implementation plan.
    (2) If the Bank provided a subsidized advance to the applicant and 
the applicant provided a below market rate loan to the seller, the 
applicant shall either repay to the Bank that portion of the advance 
used to make the loan to the seller or the Bank shall convert that 
portion of the advance used to make the loan to the seller to a market 
rate advance with an interest rate equal to the market rate of interest 
at the time the advance was made, and any unused AHP subsidy which had 
been set aside by the Bank to subsidize that portion of the advance 
used to make the loan to the seller shall be made available by the Bank 
for additional AHP projects.
    (3) The requirements of paragraphs (c)(1) and (2) of this section 
shall not apply provided the sponsor, pursuant to a legally binding 
agreement with the Bank, assists another household with an income at or 
below the level committed to in the AHP application in the manner 
originally committed to in the AHP application.
    (d) Sale of AHP-assisted rental housing project. In the event that 
the owner of an AHP-assisted rental housing project sells the project 
prior to the end of the long-term period during which the project's 
rental units, or portion thereof, must remain affordable for and 
occupied by households with incomes at or below the levels committed to 
in the AHP application, and the purchaser does not agree to maintain 
the project according to such commitments and to be subject to the same 
restrictions on resale that applied to the seller, then the provisions 
of either paragraph (d)(1) or (2) of this section shall apply.
    (1) If the Bank provided a direct subsidy to the applicant which 
was passed on as a grant to the seller, the Bank shall require the 
seller to repay a pro rata share, except for de minimis amounts, of the 
grant received by such seller, reduced for every year the seller owned 
the unit, to be repaid from any net gain from the sale of the project 
after deduction for sales expenses, and to be returned to the Bank, 
except that the Bank in its discretion may waive such requirement if 
the imposition of such requirement will cause undue hardship on the 
seller, as defined by the Bank in its AHP implementation plan; or
    (2) If the Bank provided a subsidized advance to the applicant and 
the applicant provided a below market rate loan to the seller, the 
applicant shall either repay the advance to the Bank or the Bank shall 
convert the advance to a market rate advance with an interest rate 
equal to the market rate of interest at the time the advance was made, 
and any unused AHP subsidy which had been set aside by the Bank to 
subsidize the advance shall be made available by the Bank for 
additional AHP projects.

Subpart I--AHP Applications Involving Loan Funds and Loan Consortia


Sec. 960.17  AHP applications involving loan funds and loan consortia.

    (a) General. (1) An applicant may use a subsidized advance or a 
direct subsidy to make a loan or a grant to a loan fund or loan 
consortium as provided in paragraph (c) of this section.
    (2) AHP applications involving the use of loans or grants by loan 
funds or loan consortia pursuant to the AHP are governed by the 
provisions of this part, except as otherwise provided in this section.
    (b) AHP application approval requirements. The requirements for 
approval of an AHP application that proposes to use subsidized advances 
or direct subsidies to make a loan or a grant to a loan fund or a loan 
consortium are governed by the provisions of Sec. 960.8, except that:
    (1) The application will be scored on the criteria that the loan 
fund or loan consortium proposes to use to select projects that will 
ultimately receive a loan or grant from the loan fund or loan 
consortium that is subsidized by the AHP; and
    (2) The Bank shall review and shall require the applicant to review 
each new rental housing project funded by a loan fund or loan 
consortium prior to disbursing the loan or grant to ensure that:
    (i) The project meets the threshold requirements of Sec. 960.9; and
    (ii) The project meets the criteria committed to in the approved 
AHP application.
    (c) Use of funds.--(1) Subsidized advances. If an applicant 
receives a subsidized advance and uses the proceeds of the advance to 
make a loan to a loan fund or loan consortium, the loan fund or loan 
consortium shall extend credit to the borrower at a rate of interest 
equal to the rate of interest charged on the subsidized advance plus a 
reasonable interest rate spread approved by the Bank. The applicant and 
the loan fund or loan consortium may determine between themselves what 
proportion of the interest rate spread the applicant and the loan fund 
or loan consortium will share.
    (2) Direct subsidies. (i) If an applicant receives a direct subsidy 
from a Bank and in turn provides a grant to a loan fund or loan 
consortium, the loan fund or loan consortium must either:
    (A) Pass the entire grant on to the recipient;
    (B) Use the entire grant to lower the interest rate on a loan to 
the borrower; or
    (C) Lend the entire grant to the borrower to finance a rental 
housing project for a term of not less than 30 years, with all 
principal and interest payments deferred until the end of such term. If 
such loan is repaid before the end of the 30-year term, the entire 
amount of the grant must be repaid to the applicant, which in turn must 
forward the funds to the Bank to be used for additional AHP projects.
    (ii) If a loan fund or loan consortium provides both a loan and a 
grant to a borrower and the loan fund or loan consortium charges an 
origination fee for providing the loan, then any fee charged by the 
loan fund or loan consortium for providing the grant may not be paid 
with AHP subsidized advances or direct subsidies.
    (iii) Calculation of interest rate. When a loan fund or loan 
consortium receives a grant from an applicant pursuant to the AHP and 
uses the grant to lower the interest rate on a loan to the borrower, 
the interest rate calculation must be consistent with the procedure 
used by the Bank for calculating the amount of AHP subsidy needed for a 
subsidized advance, taking into account the source of funds used by the 
loan fund or loan consortium for its loans and the rate that normally 
would be charged for a loan of the type and term that is provided to 
the borrower.
    (3) Interest or other income earned on loans or grants. If an 
applicant receives a subsidized advance or direct subsidy from a Bank 
and in turn provides a loan or grant to a loan fund or loan consortium, 
any interest or other income earned by the loan fund or loan consortium 
on such funds, not including any approved fee or interest rate spread 
charged to the borrower, either:
    (i) Must be used by the loan fund or loan consortium to provide 
funds for additional projects meeting the threshold requirements in 
Sec. 960.9 and the criteria committed to in the approved AHP 
application; or
    (ii) Must be forwarded to the applicant, which in turn must forward 
the funds to the Bank to be used for additional AHP projects.
    (4) Loans or grants from multiple AHP funding cycles. If loans or 
grants received by a loan fund or loan consortium pursuant to one AHP 
funding cycle are combined with loans or grants received by such entity 
pursuant to another AHP funding cycle in a single rental housing 
project, the loan fund or loan consortium shall require the recipient 
of the funds to follow the requirements for the use of such funds from 
the AHP funding cycle that is more restrictive as to the approved AHP 
criteria. The requirement does not apply when loans or grants received 
by a loan fund or loan consortium pursuant to separate AHP funding 
cycles are combined to finance a single owner-occupied housing project; 
however, the loan fund or loan consortium in its discretion may require 
the recipient of the funds to follow the requirements for the use of 
such funds from the AHP funding cycle that is more restrictive as to 
the approved AHP criteria.
    (5) Using repayments of loans within reasonable period of time. Any 
loans provided by a loan fund or loan consortium pursuant to the AHP 
that are repaid to such entity must be re-lent or provided as grants by 
such entity within a reasonable period of time after such repayments, 
or must be repaid to the applicant, which in turn must repay such funds 
to the Bank, and must be made available by the Bank for additional AHP 
projects. The Bank shall in its AHP implementation plan identify what 
constitutes a reasonable period of time for such purposes.
    (d) Monitoring and reporting--(1) General. Where loans or grants 
are provided by an applicant pursuant to the AHP to a loan fund or loan 
consortium which uses the funds to finance owner-occupied or rental 
housing units, the Bank shall:
    (i) Monitor such units according to the monitoring requirements of 
Sec. 960.14(e) through (h);
    (ii) Require the sponsor or owner of a project receiving loans or 
grants from the loan fund or loan consortium to submit such reports and 
certifications to the Bank as are required under Sec. 960.15(c); and
    (iii) Require the loan fund or loan consortium to report to the 
Bank any new loan or grant made using the repayments of loans by the 
borrower. If a loan fund or loan consortium receives loans or grants 
from an applicant pursuant to separate AHP funding cycles, the use of 
such funds must be reported separately.
    (2) Exceptions. (i) The Bank may contract with the applicant to 
meet the monitoring requirements of Sec. 960.14 (e) through (h), in 
which case the applicant shall:
    (A) Monitor the AHP-assisted housing units according to the 
monitoring requirements of Sec. 960.14 (e) through (h);
    (B) Require the sponsor or owner of the project to submit to the 
applicant such reports and certifications as are required under 
Sec. 960.15(c); and
    (C) Require the loan fund or loan consortium to report to the 
applicant any new loan or grant made using the repayments of loans by 
the borrower. If a loan fund or loan consortium receives loans or 
grants from an applicant pursuant to separate AHP funding cycles, the 
use of such funds must be reported separately.
    (ii) The Bank may contract with the loan fund or loan consortium to 
meet the monitoring requirements of Sec. 960.14 (e) through (h), in 
which case the loan fund or loan consortium shall:
    (A) Monitor the AHP-assisted housing units according to the 
monitoring requirements of Sec. 960.14 (e) through (h);
    (B) Require the sponsor or owner of the project to submit to the 
loan fund or loan consortium such reports and certifications as are 
required under Sec. 960.15(c); and
    (C) Report to the Bank any new loan or grant made using the 
repayments of loans by the borrower. If a loan fund or loan consortium 
receives loans or grants from an applicant pursuant to separate AHP 
funding cycles, the use of such funds must be reported separately.
    (e) Corrective and remedial actions for fraud or non-compliance 
with AHP requirements. (1) A loan fund or loan consortium receiving 
loans or grants from an applicant pursuant to the AHP and the project 
sponsors or owners receiving loans or grants from a loan fund or loan 
consortium are subject to the corrective and remedial actions contained 
in Sec. 960.16 for fraud and non-compliance with respect to the 
requirements of this part.
    (2)(i) In the event of a loan fund's or loan consortium's fraud or 
willful non-compliance with respect to the requirements of this part, 
the full amount of the AHP subsidy shall be recovered from the loan 
fund or loan consortium by the applicant and returned to the Bank or, 
if previously agreed to by the Bank, shall be recovered by the Bank 
from the loan fund or loan consortium.
    (ii) An applicant that provides loans or grants to a loan fund or 
loan consortium pursuant to the AHP shall have in place either:
    (A) A legally binding agreement or other legally enforceable 
mechanism that permits it to recover from the loan fund or loan 
consortium, in the event of fraud or willful non-compliance by the loan 
fund or loan consortium with respect to the requirements of this part, 
the full amount of the AHP subsidy; or
    (B) If the Bank agrees and such an agreement is legally 
enforceable, a three-party agreement that includes the Bank, the 
applicant and the loan fund or loan consortium that permits the Bank to 
recover from the loan fund or loan consortium, in the event of fraud or 
willful non-compliance by the loan fund or loan consortium with respect 
to the requirements of this part, the full amount of the AHP subsidy.
    (3)(i) In the event of a sponsor's or owner's fraud or willful non-
compliance with respect to the requirements of this part, the full 
amount the AHP subsidy shall be recovered by the loan fund or loan 
consortium from the sponsor or owner, to be used for additional AHP 
projects.
    (ii)(A) The loan fund or loan consortium shall have in place a 
legally binding agreement or other legally enforceable mechanism that 
permits it to recover from the sponsor or owner the full amount of the 
AHP subsidy provided to the project in the event of the sponsor's or 
owner's fraud or willful non-compliance with respect to the 
requirements of this part, and the applicant shall have in place a 
legally binding agreement or other legally enforceable mechanism that 
permits it to recover from the loan fund or loan consortium such amount 
recovered by the loan fund or loan consortium from the sponsor or 
owner; or
    (B) The applicant shall have in place, if the Bank agrees and such 
agreement is legally enforceable, a four-party agreement that includes 
the Bank, the applicant, the loan fund or loan consortium and the 
sponsor or owner, that permits the Bank to recover from the sponsor or 
owner the full amount of the AHP subsidy provided to the project in the 
event of the sponsor's or owner's fraud or willful non-compliance with 
respect to the requirements of this part.
    (4) The Board in its discretion may grant a waiver of any required 
remedial actions under this paragraph (e) for fraud or willful non-
compliance with respect to the requirements of this part, upon written 
request by the Bank, applicant, loan fund or loan consortium, sponsor 
or owner.

Subpart J--Required AHP Contributions


Sec. 960.18  Required annual AHP contributions.

    Each Bank shall fund its AHP in accordance with the following 
formula:
    (a) In 1994, the greater of:
    (1) 6 percent of the Bank's net earnings for the previous year; or
    (2) That Bank's pro rata share of an aggregate of $75 million to be 
contributed in total by the Banks, such proration being made on the 
basis of the net earnings of the Banks for the previous year.
    (b) In 1995 and each year thereafter, the greater of:
    (1) 10 percent of the Bank's net earnings for the previous year; or
    (2) That Bank's pro rata share of an aggregate of $100 million to 
be contributed in total by the Banks, such proration being made on the 
basis of the net earnings of the Banks for the previous year.


Sec. 960.19  Temporary suspension of AHP contributions.

    (a) Application for temporary suspension. (1) If a Bank finds that 
the contributions required pursuant to Sec. 960.18 are contributing to 
the financial instability of the Bank, the Bank shall notify the Board 
promptly, and may apply in writing to the Board for a temporary 
suspension of such contributions.
    (2) A Bank's application for a temporary suspension of 
contributions shall:
    (i) State the period of time for which the Bank seeks a suspension;
    (ii) State the grounds for a suspension;
    (iii) Include a plan for returning the Bank to a financially stable 
position; and
    (iv) Be accompanied by the Bank's preceding year's annual financial 
report, if available, and the Bank's most recent quarterly and monthly 
financial statements and any other financial data the Bank wishes the 
Board to consider.
    (b) Board review of application for temporary suspension.--(1) 
Grounds for approval of application. In reviewing a Bank's application 
for a temporary suspension of contributions to determine the Bank's 
financial instability, the Board shall consider the following factors:
    (i) Whether the Bank's earnings are severely depressed. The Board 
shall consider the extent to which the Bank's quarterly or annual net 
earnings have decreased from the preceding quarter or year, and whether 
such decline is projected to continue;
    (ii) Whether there has been a substantial decline in the Bank's 
membership capital. The Board shall consider the extent to which the 
Bank's paid-in membership capital has declined in any given quarter or 
year, and whether such decline is projected to continue;
    (iii) Whether there has been a substantial reduction in the Bank's 
advances outstanding. The Board shall consider the extent to which the 
Bank's level of advances has declined in any given quarter or year, and 
whether such decline is projected to continue; and
    (iv) Whether any other financial condition exists with respect to 
the Bank which has resulted in, or is likely to result in, the 
financial instability of the Bank.
    (2) Limitations on grounds for approval of application. The Board 
shall disapprove an application for a temporary suspension if it 
determines that the Bank's reduction in earnings is a result of:
    (i) A change in the terms of advances (other than subsidized 
advances) to members which is not justified by market conditions;
    (ii) Inordinate operating and administrative expenses; or
    (iii) Mismanagement.
    (c) Board decision. The Board shall approve or disapprove a Bank's 
application for a temporary suspension within 30 calendar days of 
receipt of such application, and the Board's decision shall be in 
writing and shall be accompanied by specific findings and reasons for 
its action. A copy of the Board's decision shall be forwarded to each 
of the Banks.
    (d) Board approval of application for temporary suspension. (1) If 
the Board approves a Bank's application for a temporary suspension, the 
Board's written decision shall specify the period of time such 
suspension shall remain in effect.
    (2) During the term of a temporary suspension approved by the 
Board, the affected Bank shall provide to the Board such financial 
reports as the Board shall require to monitor the financial condition 
of the Bank, and the Board shall continue to monitor the Bank's 
financial condition.
    (3) If, prior to the conclusion of the temporary suspension period, 
the Board determines that the Bank has returned to a position of 
financial stability, the Board may, upon written notice to the Bank, 
terminate the temporary suspension.
    (e) Application for extension of temporary suspension period. (1) 
If a Bank's board of directors determines that the Bank has not 
returned to, or is not likely to return to, a position of financial 
stability at the conclusion of the temporary suspension period, the 
Bank may apply in writing for an extension of the temporary suspension 
period, stating the grounds for such extension.
    (2) The Board shall approve or disapprove a Bank's application for 
an extension of a temporary suspension period within 30 calendar days 
of receipt of such application.
    (3) The Board's decision on an application for an extension of a 
temporary suspension period shall be in writing, shall be accompanied 
by specific findings and reasons for such action, and shall state the 
effective date and time period if an extension is approved.
    (f) Notice to Congress. (1) The Board shall notify the Committee on 
Banking, Finance and Urban Affairs of the House of Representatives and 
the Committee on Banking, Housing and Urban Affairs of the Senate not 
less than 60 calendar days before any temporary suspension (or 
extension of such suspension) approved pursuant to this section takes 
effect.
    (2) A temporary suspension (or extension of such suspension) shall 
become effective as determined by the Board, unless a joint resolution 
of Congress is enacted disapproving such suspension (or extension 
thereof).

Subpart K--Affordable Housing Reserve Fund


Sec. 960.20  Affordable Housing Reserve Fund.

    (a) If a Bank fails to use or commit the full amount it is required 
to contribute to the AHP in any year pursuant to Sec. 960.18, 90 
percent of the amount that has not been used or committed in that year 
shall be deposited by the Bank in an Affordable Housing Reserve Fund 
established and administered by the Board. The 10 percent of the unused 
and uncommitted amount retained by the Bank should be fully used or 
committed by the Bank during the following year, and any remaining 
portion must be deposited in the Affordable Housing Reserve Fund. A 
Bank is deemed to have used or committed its required contribution 
where amounts are remaining at the end of the year because funding the 
next highest ranking project would exceed the Bank's required AHP 
contribution for the year. Such amounts remaining shall be combined 
with returned AHP funds to fund the next highest scoring AHP project or 
projects, or carried over by the Bank to the next year's AHP funding 
cycles.
    (b) By January 15 of each year, each Bank shall provide to the 
Board a statement indicating the amount of unused and uncommitted funds 
from the prior year, if any, which will be deposited in the Affordable 
Housing Reserve Fund.
    (c) By January 31 of each year, the Board will notify the Banks of 
the total amount of funds, if any, available in the Affordable Housing 
Reserve Fund.

Subpart L--Advisory Councils


Sec. 960.21  Advisory Councils.

    (a) Appointment. (1) Each Bank shall appoint an Advisory Council of 
seven to 15 persons, as provided in the Bank's AHP implementation plan. 
Advisory Council members shall reside in the Bank's district and shall 
be drawn from community and nonprofit organizations actively involved 
in providing or promoting low- or moderate-income housing in the Bank's 
District.
    (2) The Bank shall actively solicit nominations from Bank members 
and community and nonprofit organizations actively involved in 
providing or promoting low- or moderate-income housing in the Bank's 
District, and shall allow sufficient time for such organizations to 
respond, so that the nomination and appointment process is as broad and 
as participatory as possible.
    (3) Advisory Council members shall be appointed by the Banks giving 
consideration to the size of the District and the diversity of low-
income housing needs within the District.
    (4) Advisory Council members shall serve for terms of two or three 
years, and such terms shall be staggered to provide continuity and 
experience in service, as provided in the Bank's AHP implementation 
plan. An Advisory Council member may not serve for more than six years 
consecutively.
    (5) An Advisory Council member who, subsequent to appointment, is 
no longer employed by or associated with a community or nonprofit 
organization actively involved in providing or promoting low- or 
moderate-income housing in the Bank's District, may continue to serve 
on the Advisory Council until the end of his or her term.
    (b) Election of chairperson and vice chairperson. Each Advisory 
Council shall elect from among its voting members a chairperson and a 
vice chairperson.
    (c) Designation of secretary. Each Advisory Council shall designate 
a member, or request that a member of the Bank's staff be designated, 
to act as secretary of the Advisory Council. The secretary shall record 
and maintain minutes of the meetings of the Advisory Council. Minutes 
of each meeting shall contain, among other things, a record of the 
persons present, a description of the matters discussed, and 
recommendations made. The person acting as secretary at a meeting shall 
certify to the accuracy of the minutes of that meeting.
    (d) Review of Bank's proposed AHP implementation plan and prior AHP 
applications. (1) Prior to approval of the Bank's proposed AHP 
implementation plan by the Bank's board of directors, the Bank's 
Advisory Council shall review the proposed AHP implementation plan and 
provide its recommendations to the Bank's board of directors pursuant 
to the requirements in Sec. 960.2(c).
    (2) Upon request of the Advisory Council, the Bank shall provide 
the Advisory Council with copies of any AHP applications from prior AHP 
funding cycles.
    (e) Meetings with the Banks. The Advisory Council shall meet with 
representatives of the board of directors of the Bank at least 
quarterly to advise the Bank on low- and moderate-income housing 
programs and needs in the Bank's District and on the utilization of AHP 
subsidized advances or direct subsidies for these purposes.
    (f) Report to the Board. Each Advisory Council shall submit to the 
Board annually by March 1 its analysis of the low-income housing 
activity of its Bank.
    (g) Payment of expenses and compensation.--(1) Expenses. Each Bank 
shall reimburse members of its Advisory Council for transportation and 
subsistence expenses they incur for each day devoted to attending 
quarterly meetings with representatives of the board of directors of 
the Bank.
    (2) Fees. Each Bank shall pay members of its Advisory Council a fee 
for each day devoted to attending quarterly meetings with 
representatives of the board of directors of the Bank.

Subpart M--Effective Dates


Sec. 960.22  Effective dates.

    This part shall become effective [30 days after publication of the 
final rule in the Federal Register]. The provisions of this part, or 
portion thereof, may be applied to projects approved for AHP funding 
prior to [30 days after publication of the final rule in the Federal 
Register] to the extent all relevant parties (the Bank, the applicant, 
the sponsor or the owner, and if applicable, the loan fund or loan 
consortium) agree thereto in writing.

    Dated: December 15, 1993.

    By the Federal Housing Finance Board.
Philip L. Conover,
Managing Director.
[FR Doc. 94-412 Filed 1-7-94; 8:45 am]
BILLING CODE 6725-01-U