[Federal Register Volume 60, Number 145 (Friday, July 28, 1995)]
[Proposed Rules]
[Pages 38768-38771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18424]



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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 960

[No. 95-N-07]


Amendment of Affordable Housing Program Regulation

AGENCY: Federal Housing Finance Board.

ACTION: Proposed rule.

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SUMMARY: The Federal Housing Finance Board (Board) is soliciting 
comments on a proposal to amend its regulation governing the operation 
of the Affordable Housing Program (AHP or Program). The proposed rule 
would add a new provision authorizing a Federal Home Loan Bank (Bank) 
to set aside a limited portion of its available AHP subsidies to assist 
first-time homebuyers pursuant to a program meeting specific 
requirements set forth in the proposed rule. In addition, the proposed 
rule would permit a Bank to establish a first-time homebuyer program 
with requirements different from those specifically set forth, subject 
to prior approval of the Board.

DATES: Comments on this proposed rule must be received in writing on or 
before August 28, 1995.

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

FOR FURTHER INFORMATION CONTACT: Sharon B. Like, Attorney-Advisor, 
Office of General Counsel, (202) 408-2930, or Diane E. Dorius, Deputy 
Director, Office of Housing Finance, 

[[Page 38769]]
(202) 408-2576, Federal Housing Finance Board, 1777 F Street, NW., 
Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    Section 10(j)(1) of the Federal Home Loan Bank Act (Bank Act) 
requires each Bank to establish a Program to subsidize the interest 
rate on advances to members of the Federal Home Loan Bank System (Bank 
System) engaged in lending for long-term, low- and moderate-income, 
owner-occupied and affordable rental housing at subsidized interest 
rates. See 12 U.S.C. 1430(j)(1). The Board is required to promulgate 
regulations governing the Program. See 12 U.S.C. 1430(j)(9); 12 CFR 
part 960.
    Under the Board's AHP regulation, each Bank must make a specified 
annual contribution to fund its Program. See 12 CFR 960.10. During each 
calendar year, each Bank accepts applications for funds from its 
members during two of four quarterly funding periods, or ``rounds.'' 
See 12 CFR 960.4. Applications are reviewed and recommended, and AHP 
funds are awarded to applicants through, a competitive scoring process 
set forth in the AHP regulation. See 12 CFR 960.5. AHP funds are 
awarded to the applicants whose applications score the highest among 
all the applications received by the Bank in that funding round. See 
id.

II. Analysis of the Proposed Rule

    The Board believes that promoting homeownership for first-time 
homebuyers is a significant part of the mission of the Bank System. In 
furtherance of that goal, the Board and the Banks recently joined a 
partnership agreement to promote the President's National Homeownership 
Strategy to expand homeownership to millions of households by the year 
2000. The Board believes that permitting the Banks to direct a portion 
of their AHP contribution to assist low- and moderate-income, first-
time homebuyers is consistent with its commitment to the National 
Homeownership Strategy.
    The proposed rule would amend the AHP regulation to authorize a 
Bank to set aside up to the greater of $1 million or 10 percent of its 
annual required AHP contribution to fund a Matched Savings First-Time 
Homebuyers' Initiative (Initiative), through which the Bank would 
assist low- and moderate-income, first-time homebuyers to purchase 
homes.
    Members may be pre-approved by their Bank for participation in an 
Initiative if they: have established a savings account program offering 
dedicated savings accounts to eligible households; have established a 
first-time homebuyer policy that defines the qualifications for being a 
``first-time'' homebuyer and that includes financial or other 
incentives for such homebuyers; and have established or sponsor a 
homebuyer counseling program. Eligible households must have incomes at 
or below 80 percent of area median income. Participating households 
must make regular deposits in dedicated savings accounts maintained 
with the members according to an agreed upon schedule of savings for a 
minimum of 10 months, and must complete the required homebuyer 
counseling program. Each dollar of a household's savings will be 
matched by the member with up to three dollars of Bank AHP funds. Each 
Bank may determine the appropriate ratio of AHP funds-to-savings of a 
participating household (with a maximum of three-to-one), which ratio 
shall apply to all households participating in the Bank's initiative. 
The total amount of AHP funds received by a household may not exceed 
$5,000. The household is expected to use the funds within one year of 
its acceptance into the Initiative to pay for downpayment and closing 
costs in connection with its first-time purchase of a one-to-four 
family, owner-occupied property (including a condominium or cooperative 
housing unit) to be used as its primary residence.
    A home purchased by a participating household with funds received 
under an Initiative must be subject to a deed restriction, ``soft'' 
second mortgage or other legally enforceable mechanism, pursuant to the 
requirements set forth in the proposed rule, that would enable the Bank 
to recapture from the member or directly from the seller a pro rata 
portion of those funds if the home is sold by the initial household to 
a household that is not low- or moderate-income, within 5 years (or 
longer, at the discretion of the Bank) from the date of purchase by the 
participating household. The proposed rule would allow for Bank waiver 
of the recapture requirement if its imposition would cause undue 
hardship on the seller.
    Since the requirements governing the eligibility of households and 
the uses of set-aside funds under the Initiative are to be uniformly 
applied, funding of such Initiatives will not be subject to the 
competitive scoring process applicable to regular AHP applications 
under the regulation. Instead, a Bank would make set-aside funds 
available to an Initiative on a rolling, first come, first-served 
basis. In addition, the proposed rule would allow a Bank to make 
available up to $1 million of additional AHP funds from the next year's 
Initiative set-aside if demand for funds under the Initiative exceeds 
the amount set aside in the current year.
    In order to allow the Banks to implement an Initiative as soon as 
possible, the Board's proposal would allow a Bank to establish an 
Initiative meeting the specific requirements set forth in the proposed 
rule without obtaining prior Board approval. However, the Board 
recognizes that the Banks may develop strategies for implementing 
first-time homebuyer programs that differ from the model in the 
proposed rule, but which may be equally, or more, effective. The Board 
believes that the Banks should have flexibility for innovation and the 
ability to respond to local conditions in providing assistance for 
first-time homebuyers. Therefore, proposed Sec. 960.5(g)(2) would 
permit Banks to establish first-time homebuyer programs that are 
different from that described in the proposed rule, with prior Board 
approval.
    While public comment is being requested on all aspects of the 
proposed rule, the Board is requesting specific comment on several 
issues of note.
    First, the Bank Act requires that owner-occupied housing financed 
under the AHP must be ``long-term.'' See 12 U.S.C. 1430(j)(1). 
Commenters should be aware that the Board specifically has requested 
comment on the appropriate ``long-term'' period applicable generally to 
owner-occupied housing financed under the AHP in a previously published 
proposal. See 59 FR 1323 (Jan. 10, 1994). In the preamble to that 
proposal, the Board discussed alternative proposals to set the ``long-
term'' requirement at 5 years or 30 years. The Board here has proposed 
5 years as the minimum ``long-term'' requirement that would be 
applicable solely to homes purchased with funds provided under an 
Initiative, but that would not apply to AHP projects receiving funding 
through the regular AHP competitive scoring process set forth in 
Secs. 960.4 and 960.5 of the AHP regulation. See 12 CFR 960.4, 960.5. 
In making this proposal, it is not the Board's intention to preclude 
continuing dialogue on the issue of ``long-term'' retention in this or 
any other context, but rather is to encourage a full discussion. 
Therefore, the Board specifically requests comment on the appropriate 
length of the ``long term'' requirement for homes purchased through an 
Initiative.
    Second, the proposal would allow a Bank to commit, in any year, a 
portion of its future AHP contributions if 

[[Page 38770]]
demand for Initiative funds in that year exceeded that year's set-
aside. The commitment in the current year of future AHP contributions 
currently is not permitted under the AHP regulation. The Board 
specifically requests comment on this aspect of the proposed rule as 
well.
    Third, the Board specifically solicits comment on whether other, 
non-conforming set-aside programs proposed by a Bank under proposed 
Sec. 960.5(g)(2) should be limited to programs that assist first-time 
homebuyers, or whether it would be practicable to broaden the language 
of the proposal to allow for assistance to be provided to other 
categories of activities related to homeownership that promote the 
National Homeownership Strategy, such as improving and rehabilitating 
existing homes and encouraging homeownership strategies that revitalize 
distressed communities.
    Finally, the Board specifically, requests comment on whether the 
funding limit of the greater of $1 million or 10 percent of a Bank's 
annual required AHP contribution: (a) is appropriate generally; and (b) 
should apply to other, non-conforming set-aside programs under proposed 
Sec. 960.5(g)(2), or whether the funding limits for such other programs 
should be left to the discretion of the Board.

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 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.

List of Subjects for 12 CFR Part 960
    Banks, Banking, Credit, Federal home loan banks, Housing.

    Accordingly, part 960, chapter IX, title 12, subchapter E, Code of 
Federal Regulations, is hereby proposed to be amended as follows:

SUBCHAPTER E--AFFORDABLE HOUSING

PART 960--AFFORDABLE HOUSING PROGRAM

    1. The authority citation for part 960 is revised to read as 
follows:

    Authority: 12 U.S.C. 1422a, 1422b, 1430(j).

    2. Section 960.4 is amended by revising the first sentence of 
paragraph (a) to read as follows:


Sec. 960.4  Applications for funding.

    (a) Except as provided in Sec. 960.5(g), the Program is based on 
District-wide competitions administered by the Board. * * *
* * * * *
    3. Section 960.5 is amended by adding a new paragraph (g) and by 
revising paragraph (a)(1) to read as follows:


Sec. 960.5  Project scoring and funding.

    (a) General. (1) Each Bank will evaluate all applications received 
pursuant to Sec. 960.4(a) from its members that satisfy the use 
provisions identified in Sec. 960.3(b).
* * * * *
    (g) Set-Aside programs.--(1) Programs exempt from prior board 
approval. Without the prior approval of the Board, a Bank may set aside 
annually up to the greater of $1 million or 10 percent of its annual 
required Affordable Housing Program contribution to implement a matched 
savings first-time homebuyers' initiative that meets all of the 
following requirements:
    (i) Announcement of available bank funds. The Bank shall notify its 
members of the amount of annual funds available under the initiative;
    (ii) Pre-approval of member participants. The Bank shall approve a 
member's participation in the initiative if the member has:
    (A) Established a savings account program offering dedicated 
savings accounts to eligible households;
    (B) Established a first-time homebuyer policy that defines the 
qualifications for being a ``first-time homebuyer'' and that includes 
financial or other incentives for such first-time homebuyers;
    (C) Established a homebuyer counseling program based on those 
offered by or in conjunction with a not-for-profit housing agency or 
other recognized counseling organization;
    (D) Committed that the Bank or member participant will be entitled 
to recapture of the equivalent amount of the matching funds, as 
provided in paragraph (g)(1)(ix) of this section;
    (iii) Approval of initial enrollment of households. The Bank shall 
approve the initial enrollment, through the approved member 
participant, of a household as a potential beneficiary in the 
initiative, if the household:
    (A) Is low- or moderate-income, as defined in Sec. 960.1(g);
    (B) Has opened a dedicated savings account with the member 
participant and established a schedule of savings into the account;
    (C) Meets the requirements of the member participant's first-time 
homebuyer policy;
    (D) Has enrolled in a homebuyer counseling program established by 
the member participant that is based on those offered by or in 
conjunction with a not-for-profit housing agency or other recognized 
counseling organization;
    (E) Has agreed to obtain mortgage financing from the member 
participant for the purchase of a home;
    (iv) Bank program acceptance six months after initial enrollment 
and reservation of bank matching funds. The Bank shall accept a 
household into its initiative, shall reserve, in the name of the 
household, matching funds as targeted in the household's schedule of 
savings for a period of one year, and shall notify the member 
participant and household of such acceptance, if, six months after the 
initial enrollment date of the household, the member participant 
certifies to the Bank that the household is progressing satisfactorily 
by participating in the homebuyer counseling program and systematically 
depositing funds to its dedicated savings account according to its 
agreed schedule of savings;
    (v) Verification of household progress. The Bank shall require the 
member participant to verify, every six months from a household's 
acceptance date into the initiative, the household's progress in 
completing the homebuyer counseling program and making deposits to its 
dedicated savings account according to its agreed schedule of savings;
    (vi) Approval of matching funds drawdown. The Bank shall approve a 
request from a member participant for matching funds, in an amount 
equal to, in the Bank's discretion, up to three times the amount of a 
household's savings in its dedicated savings account, up to a maximum 
of $5,000 per household, and shall credit such funds to the member 
participant's account, if the member participant certifies to the Bank 
that:
    (A) The household made deposits to its dedicated savings account 
according to its agreed schedule of savings for a minimum of ten 
months;
    (B) Closing on the sale of a home to the household has occurred 
within one year of the household's acceptance date into the initiative, 
or a later period if the Bank determines that reasonable circumstances 
justified extending such time period for the use of the funds;
    (C) The household has completed the required homebuyer counseling 
program;
    (D) The household has received the financial or other incentives 
committed by the member participant pursuant to its first-time 
homebuyer policy; 

[[Page 38771]]

    (E) A deed restriction, ``soft'' second mortgage or other legally 
enforceable mechanism exists on the household's home that entitles the 
Bank or member participant to recapture of the equivalent amount of the 
matching funds, as provided in paragraph (g)(1)(ix) of this section;
    (vii) Eligible uses of funds. Households receiving funds under an 
initiative may use such funds only for the payment of downpayment or 
closing costs in connection with the household's purchase of a one-to-
four family, owner-occupied residential property (including a 
condominium or cooperative housing unit) to be used as its primary 
residence;
    (viii) Availability of funds. (A) The Bank shall make its 
initiative funds available on a rolling, first come, first-served 
basis;
    (B) The Bank may reserve the option, if needed because demand for 
its funds in a given year exceeds the amount of set-aside funds 
available for that year, to:
    (i) Make available up to an additional $1 million from the next 
year's set-aside of funds under such initiative; or
    (ii) Establish a waiting list or other process by which households 
would be approved by the Bank to receive funds under the initiative;
    (ix) Long-term requirement--Recapture of funds upon resale. The 
Bank shall require that a home purchased using funds under an 
initiative be subject to a deed restriction, ``soft'' second mortgage 
or other legally enforceable mechanism that requires that, if the home 
is sold prior to the end of a period of not less than 5 years from the 
date of purchase by the initial household, to a household that is not 
low- or moderate-income:
    (I) The Bank or its designee be given notice of the sale; and
    (II) The seller be required to repay a pro rata share, except for 
de minimis amounts determined by the Bank, of the funds provided under 
the initiative, reduced for every year the seller owned the home, to be 
repaid from any net gain from the sale of the home after deduction for 
sales expenses, and to be returned to the Bank to be made available for 
other Affordable Housing Program projects, except that the Bank in its 
discretion may waive such repayment requirement if its imposition would 
cause undue hardship on the seller, as defined by the Bank;
    (x) Each Bank may establish its own procedures for further 
implementation of the requirements of this paragraph (g)(1).
    (2) Other programs. A Bank may set aside a portion of its annual 
required Affordable Housing Program contribution to implement a first-
time homebuyer program that does not meet the requirements of 
Sec. 960.5(g)(1), provided the program otherwise satisfies the 
requirements of 12 U.S.C. 1430(j), and receives the prior approval of 
the Board.

    Dated: July 13, 1995.

    By the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.
[FR Doc. 95-18424 Filed 7-27-95; 8:45 am]
BILLING CODE 6725-01-P