[Federal Register Volume 61, Number 196 (Tuesday, October 8, 1996)]
[Proposed Rules]
[Pages 52727-52734]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25663]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 935
[No. 96-62]
Advances To Nonmembers
AGENCY: Federal Housing Finance Board.
ACTION: Proposed rule.
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SUMMARY: The Board of Directors of the Federal Housing Finance Board
(Finance Board) is proposing to amend its regulation on Federal Home
Loan Bank (FHLBank) advances to nonmembers. The proposed rule
establishes uniform eligibility requirements and review criteria for
determining whether an entity may be certified as a nonmember mortgagee
eligible to receive FHLBank advances and devolves responsibility for
making
[[Page 52728]]
that determination from the Finance Board to the FHLBanks. The Finance
Board also is proposing to revise the definition of the term ``state
housing finance agency'' (SHFA) to include all Indian housing
authorities (IHAs). The proposed rule is part of the Finance Board's
continuing effort to devolve management and governance responsibilities
to the FHLBanks and is consistent with the goals of the National
Homeownership Strategy and the Regulatory Reinvention Initiative of the
National Performance Review.
DATES: The Finance Board will accept comments on this proposed rule in
writing on or before December 9, 1996.
ADDRESSES: Mail comments to Elaine L. Baker, Executive Secretary,
Federal Housing Finance Board, 1777 F Street, N.W., Washington, D.C.
20006. Comments will be available for public inspection at this
address.
FOR FURTHER INFORMATION CONTACT: Laura K. St. Claire, Financial
Analyst, Financial Management Division, Office of Policy, 202/408-2811,
Christine M. Freidel, Assistant Director, Financial Management
Division, Office of Policy, 202/408-2976, or, Janice A. Kaye, Attorney-
Advisor, Office of General Counsel, 202/408-2505, Federal Housing
Finance Board, 1777 F Street, N.W., Washington, D.C. 20006.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
Section 10b of the Federal Home Loan Bank Act (Bank Act)
establishes the requirements for access by nonmember mortgagees to
FHLBank advances. See 12 U.S.C. 1430b. In order to be certified as a
nonmember mortgagee, an entity must: (1) be approved by the Department
of Housing and Urban Development (HUD) as a ``mortgagee'' under title
II of the National Housing Act; (2) be chartered under law and have
succession; (3) be subject to the inspection and supervision of a
governmental agency; and (4) lend its own funds as its principal
activity in the mortgage field. Id. section 1430b(a).
Under section 10b(a) of the Bank Act, advances to nonmember
mortgagees are not subject to the general collateral requirements of
section 10(a) of the Bank Act. Id. Instead, a FHLBank may make advances
to nonmember mortgagees only upon the security of mortgages insured by
the Federal Housing Administration (FHA) under title II of the National
Housing Act. Id. The amount of any advance may not exceed 90 percent of
the unpaid principal of the collateral pledged as security for the
advance. Id.
The Bank Act imposes less restrictive collateral requirements on
certain advances to nonmember mortgagees that are SHFAs. Id. section
1430b(b). Under section 10b(b) of the Bank Act, advances to SHFA
nonmember mortgagees that facilitate mortgage lending to low- or
moderate-income individuals and families (meeting the income
requirements in section 142(d) or 143(f) of the Internal Revenue Code,
generally up to 115 percent of the area median income) need not be
secured by FHA-insured mortgage loans if the advances otherwise meet
the requirements of section 10(a) of the Bank Act and any real estate
collateral pledged to secure the advances is comprised of single- or
multi-family residential mortgages. Id. sections 1430b(b), 1430(a); 26
U.S.C. 142(d), 143(f). Under section 10(a), four categories of
collateral are eligible to secure advances to members. See 12 U.S.C.
1430(a). The four categories are: (1) fully disbursed whole first
mortgage loans on improved residential real property or securities
representing a whole interest in such mortgages; (2) securities issued,
insured, or guaranteed by the United States government or any agency
thereof; (3) deposits of a FHLBank; and (4) other real estate related
collateral if such collateral has a readily ascertainable value and the
FHLBank can perfect its interest therein.\1\
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\1\ Id. section 1430(a)(1)-(4). Other acceptable real estate
related collateral includes, but is not limited to: privately issued
mortgage-backed securities other than those eligible under category
1; second mortgage loans, including home equity loans; commercial
real estate loans; and mortgage loan participations. See 12 CFR
935.9(a)(4)(ii). The aggregate amount of outstanding advances
secured by such collateral may not exceed 30 percent of a FHLBank
member's GAAP capital. See 12 U.S.C. 1430(a)(4); 12 CFR
935.9(a)(4)(iii).
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The Finance Board originally sought public comments concerning the
qualifications for nonmember mortgagees and the terms and conditions
under which FHLBanks may make advances to certified nonmember
mortgagees in October 1992. See 57 FR 45338 (Oct. 1, 1992) (proposed
rule). The Finance Board received four comment letters. Because
Congress enacted legislation affecting advances to nonmember mortgagees
shortly after publication of the proposed rule, see Housing and
Community Development Act of 1992, Pub. L. 102-550, Title XIII, section
1392(b), 106 Stat. 4009 (Oct. 28, 1992), the Finance Board again sought
public comments in May 1993. See 58 FR 29474 (May 20, 1993), codified
at 12 CFR 935.1, 935.20-935.22 (interim final rule with request for
comments). In response to this second request, the Finance Board
received six comment letters. Given the passage of time since the
original notices, the experiences of the FHLBanks in administering the
nonmember mortgagee advance programs during that period, and the
Finance Board's effort to devolve corporate governance authority to the
FHLBanks, the Board of Directors of the Finance Board has decided to
reopen the advances to nonmembers regulation for comment. The Finance
Board will consider all comments it receives before taking final
action, including comments received in response to the interim final
rule published in May 1993 and this notice of proposed rulemaking.
However, those who submitted comments in response to the interim final
rule may wish to update their earlier submissions.
II. Analysis of the Proposed Rule
A.Definitions
The proposed rule amends the definition of the term ``state housing
finance agency'' that appears currently in Sec. 935.1 of the Finance
Board's regulations. See 12 CFR 935.1. The Finance Board proposes to
retain the current meaning as the first paragraph of the new definition
and add a second paragraph that includes IHAs established under tribal
law as SHFAs. Currently, only IHAs chartered under state law are
eligible for certification as SHFA nonmember mortgagees. According to
HUD's Office of Native American Programs, of the 209 IHAs it currently
recognizes, approximately 39 are chartered under state law and the
remaining 170 are chartered under tribal law. Proposed paragraph two,
which is based on the definition found in the Indian Self Determination
and Education Assistance Act of 1968, see 25 U.S.C. 450b, will equalize
the treatment accorded to IHA nonmember mortgagees, regardless of
whether the IHA is chartered under tribal law or state law. This will
permit every IHA nonmember mortgagee that makes mortgage loans to low-
and moderate-income members of the Indian community to take advantage
of the more flexible collateral rules for securing advances to SHFA
nonmember mortgagees provided by section 10b(b) of the Bank Act. See
supra section I; 12 U.S.C. 1430b(b). The purpose of the proposal is to
expand homeownership opportunities for Native Americans by increasing
the flow of mortgage credit to Native lands. This is consistent with
the goals of the National Homeownership Strategy and the Finance
Board's commitments under its National Partners For Homeownership
Partnership Agreement.
[[Page 52729]]
To make certain that the proposed definition of the term ``state
housing finance agency'' is as inclusive as possible, the Finance Board
solicits comments regarding whether the definition should be expanded
to include any groups other than Indian tribes, bands, groups, nations,
or communities, and Alaska Native villages, whose sovereign authority
is recognized currently by the United States.
B. Advances to the Savings Association Insurance Fund
Proposed Sec. 935.20, which implements section 31(k) of the Bank
Act, restates without substantive change the provision that appears
currently at Sec. 935.21 of the Finance Board's regulations. See 12
U.S.C. 1431(k), 12 CFR 935.21. It provides that a FHLBank may make
advances to the Federal Deposit Insurance Corporation for the use of
the Savings Association Insurance Fund under certain circumstances and
subject to specific conditions.
C. Scope
Proposed Sec. 935.21 provides that advances to nonmember mortgagees
generally are subject to subpart A of part 935, which governs advances
to FHLBank members. See 12 CFR 935.1-935.19. The purpose of this
provision is to ensure that nonmember mortgagee advance programs
operate within the same regulatory framework as FHLBank member advance
programs. The FHLBanks must continue to apply to nonmember mortgagees
the advance application requirements, credit underwriting standards,
collateral and safekeeping procedures, restrictions on lending to
institutions without positive tangible capital, advance maturity
requirements, prepayments fees, and most other measures applicable to
FHLBank members under subpart A of part 935 and the Finance Board's
policy guidelines.
Proposed Sec. 935.21 includes several exceptions to this general
requirement. The proposed rule includes the exceptions provided in the
current rule as well as an exception to the non-qualified thrift lender
(non-QTL) provisions of the Finance Board's advances regulation. See
id. Sec. 935.13. Since the statutory limit on aggregate FHLBank lending
applies only to advances to non-QTL members, see 12 U.S.C. 1430(e)(2)
(emphasis added), and nonmember mortgagees are not FHLBank members, the
Finance Board believes that advances to nonmember mortgagees need not
be included in the aggregate limit on advances to non-QTLs.
D. Nonmember Mortgagee Eligibility Requirements
1. In general. Proposed Sec. 935.22(a) restates the current
authority of a FHLBank to make advances to an entity that is not a
member of the FHLBank if the entity is certified by the FHLBank as a
nonmember mortgagee.
Proposed Sec. 935.22(b) incorporates the statutory eligibility
requirements for certification as a nonmember mortgagee. In addition to
the four statutory eligibility criteria, discussed in section 1 of the
Supplementary Information, to ensure the safety and soundness of the
FHLBanks, the Finance Board has incorporated a financial condition
criterion that would require an applicant's financial condition to be
such that a FHLBank may safely lend to it. This is the same financial
condition criterion that applies currently to applicants for membership
in a FHLBank. See id. section 1424(a)(2)(B); 12 CFR 933.6(a)(4).
Proposed Sec. 935.22(c) establishes uniform review criteria to be
used to determine whether an applicant meets the eligibility
requirements for certification as a nonmember mortgagee. The review
criteria are based on the standards the Finance Board and FHLBanks
apply currently in considering applications for certification as a
nonmember mortgagee. The Finance Board specifically requests comments
as to whether the regulation should include examples of additional or
alternative review criteria.
Under the proposed rule, if an applicant fulfills each criterion to
the satisfaction of the FHLBank to which it has applied, it will be
deemed to meet the eligibility requirements. Conversely, failure to
fulfill each criterion to the satisfaction of the FHLBank will render
the applicant ineligible, subject to appeal to the Finance Board, to be
certified as a nonmember mortgagee.
Under proposed Sec. 935.22(c)(1), an applicant is deemed to meet
the requirement that it be approved under title II of the National
Housing Act if it submits a current HUD Yearly Verification Report or
other documentation issued by HUD stating that the applicant is an
approved FHA mortgagee.
Under proposed Sec. 935.22(c)(2), an applicant is deemed to meet
the requirement that it be a chartered institution having succession if
it provides documentary evidence satisfactory to the FHLBank that it is
a government agency, or is chartered under state, federal, local,
tribal, or Alaska Native village law as a corporation or other entity
that has rights, characteristics, and powers similar to those granted a
corporation. Acceptable documentary evidence generally consists of a
copy of the statute(s) and/or regulation(s) under which the applicant
was created.
Under proposed Sec. 935.22(c)(3), an applicant is deemed to meet
the requirement that it be subject to the inspection and supervision of
some governmental agency if it provides documentary evidence
satisfactory to the FHLBank that, pursuant to statute or regulation, it
is subject to the inspection and supervision of a federal, state,
local, tribal, or Alaska Native village government agency. To afford
flexibility, the proposed rule provides that inspection by a government
agency includes, but is not limited to, a statutory or regulatory
requirement that the applicant's books and records be audited or
examined periodically by such agency or an external auditor.
Supervision by a government agency includes, but is not limited to,
statutory or regulatory authority for such agency to remove an
applicant's officers or directors for malfeasance or misfeasance.
Copies of the relevant statutory and/or regulatory provisions should
constitute adequate documentary evidence.
Under proposed Sec. 935.22(c)(4), an applicant is deemed to meet
the mortgage activity requirement if it provides documentary evidence
satisfactory to the FHLBank that it lends its own funds as its
principal activity in the mortgage field. For purposes of this
requirement, the Finance Board considers the purchase of whole mortgage
loans tantamount to ``lending'' an applicant's funds. In the case of a
federal, state, local, tribal, or Alaska Native village government
agency, the Finance Board considers appropriated funds to be an
applicant's ``own funds.'' An applicant will be deemed to satisfy this
requirement even though the majority of its operations are unrelated to
mortgage lending if its mortgage activity conforms to the regulatory
criteria. A financial statement that includes mortgage loan assets and
their funding liabilities generally will provide adequate documentary
evidence. The proposed rule provides that an applicant that acts
principally as a broker for others making mortgage loans, or whose
principal activity is to make mortgage loans for the account of others,
does not meet this requirement.
Under proposed Sec. 935.22(c)(5), an applicant that provides such
financial or other information as the FHLBank may require to determine
that advances may
[[Page 52730]]
be extended safely to the applicant is deemed to meet the financial
condition requirement in Sec. 935.22(b)(5) of the proposed rule. This
requirement is not intended to replace, or be a substitute for, the in-
depth financial review a FHLBank should undertake before making
specific lending decisions. Nor is it meant to be a presumption that
any applicant with eligible collateral is in adequate financial
condition.
2. State housing finance agencies. Under Sec. 935.22(d) of the
proposed rule, any applicant seeking to take advantage of the more
flexible collateral requirements provided by section 10b(b) of the Bank
Act and Sec. 935.24(b)(2) of the proposed rule for advances used to
facilitate residential or commercial mortgage lending to certain low-
and moderate-income families or individuals, in addition to meeting the
requirements in proposed Sec. 935.22(b), must provide documentary
evidence satisfactory to the FHLBank that it is a SHFA. The proposed
definition of the term ``state housing finance agency'' is discussed in
section II(A) of the Supplementary Information. Satisfactory
documentary evidence generally consists of a copy of the statutory and/
or regulatory provisions that outline the applicant's structure and
responsibilities.
E. Nonmember Mortgagee Application Process
The Finance Board and the FHLBanks have been considering ways to
transfer a variety of management and governance responsibilities from
the Finance Board to the FHLBanks since the completion of studies
required by the Housing and Community Development Act of 1992,
including the Finance Board's own study completed in April 1993. See
Pub. L. 102-550, Sec. 1393, 106 Stat. 3672; Report on the Structure and
Role of the FHLBank System at 153 (Apr. 28, 1993). The Finance Board,
which believes that the FHLBanks should be allowed broad discretion to
manage their affairs as long as they comply with the Bank Act and
Finance Board regulations, has identified nonmember mortgagee
application approval as one of the management functions that should be
devolved from the Finance Board to the FHLBanks. Accordingly,
Sec. 935.23(a) of the proposed rule authorizes the FHLBanks to approve
or deny all applications for certification as a nonmember mortgagee,
subject to the requirements of the Bank Act and Finance Board
regulations.
The remainder of proposed Sec. 935.23 sets forth the procedures for
submission and review of nonmember mortgagee applications. Proposed
Sec. 935.23(b) requires an applicant to submit an application that
satisfies the requirements of this subpart to the FHLBank of the
district in which the applicant's principal place of business, as
defined in 12 CFR 933.18, is located.
To ensure expeditious action on applications for certification as a
nonmember mortgagee, proposed Sec. 935.23(c)(1) requires a FHLBank to
act on an application within 60 calendar days of the date the FHLBank
deems the application complete. To make certain that the time period
provided for review is not unduly restrictive, the proposed rule deems
an application complete, thus triggering the 60-day time period, only
after the FHLBank has obtained all of the information required by this
subpart and any other information it considers necessary to process the
application. The proposed rule also permits the FHLBank to stop the 60-
day period if it determines during the review process that additional
information is necessary to process the application. The FHLBank must
restart the 60-day time period where it left off upon receiving the
additional required information. The FHLBank must notify applicants in
writing when the 60-day time period begins, stops, and starts again.
Proposed Sec. 935.23(c)(2) requires the board of directors of a
FHLBank to approve or deny each application for certification as a
nonmember mortgagee by a written decision resolution that states the
grounds for the decision. A FHLBank must provide a copy of the decision
resolution to the applicant and the Finance Board within 3 business
days of the FHLBank's decision on an application.
Proposed Sec. 935.23(c)(3) establishes a process by which
applicants may appeal FHLBank certification denials to the Finance
Board. The appeal procedure is intended to ensure that the nonmember
mortgagee certification criteria are applied uniformly and fairly by
the FHLBanks and that similarly situated applicants are treated in a
consistent manner. Within 90 calendar days of the date of a FHLBank's
certification denial, an applicant may submit a written appeal to the
Finance Board with a copy to the FHLBank. The appeal must include the
FHLBank's decision resolution and a statement of the basis for the
appeal with sufficient facts, information, analysis, and explanation to
support the applicant's position. The FHLBank whose action has been
appealed must submit to the Finance Board a complete copy of the
applicant's application for certification as a nonmember mortgagee as
well as any relevant new materials it receives while the appeal is
pending. The proposed rule authorizes the Finance Board to request any
additional information or supporting arguments it may require to decide
the appeal. The Finance Board must make its decision within 90 calendar
days of the date the appeal is filed by the applicant.
F. Advances to Nonmember Mortgagees
Proposed Sec. 935.24 establishes the terms and conditions under
which a FHLBank may make advances to a nonmember mortgagee. Under
proposed Sec. 935.24(a), a FHLBank may lend only to a nonmember
mortgagee whose principal place of business is located in the FHLBank's
district.
Proposed Sec. 935.24(b) sets forth the collateral requirements for
advances to nonmember mortgagees. Pursuant to section 10b(a) of the
Bank Act, 12 U.S.C. 1430b(a), and Sec. 935.24(b)(1)(i) of the proposed
rule, a FHLBank may make advances to a nonmember mortgagee upon the
security of FHA-insured mortgages. Section 935.24(b)(1)(ii) of the
proposed rule includes securities representing a whole interest in a
pool of FHA-insured mortgages as eligible collateral. If a nonmember
mortgagee wishes to pledge such securities, it first must provide to
the FHLBank evidence that the securities are backed solely by
qualifying mortgages.
As discussed in section 1 of the Supplementary Information, under
section 10b(b) of the Bank Act, 12 U.S.C. 1430b(b), advances to a SHFA
nonmember mortgagee, the proceeds of which will be used to facilitate
mortgage lending that benefits certain low- and moderate-income
individuals or families, are subject to less restrictive collateral
requirements than those imposed on other advances to nonmember
mortgagees. Section 935.24(b)(2) of the proposed rule implements these
collateral requirements. Under proposed Sec. 935.24(b)(2), a FHLBank
may make such advances upon the security of the collateral described
above; collateral eligible under categories 1 or 2 of Bank Act section
10(a), 12 U.S.C. 1430(a)(1)-(2), as described in 12 CFR 935.9(a)(1) or
(2); or collateral eligible under category 4 of Bank Act section 10(a),
12 U.S.C. 1430(a)(4), as described in 12 CFR 935.9(a)(4), provided that
such collateral is comprised of mortgage loans on one-to-four or multi-
family residential property and the acceptance of such collateral will
not increase the total amount of advances outstanding to the SHFA
secured by such collateral beyond 30 percent of its GAAP capital, as
computed by the FHLBank. Since a
[[Page 52731]]
FHLBank may accept deposits only from FHLBank members, other FHLBanks,
or other instrumentalities of the United States, see 12 U.S.C.
1431(e)(1), SHFA nonmember mortgagees would not have any category 3
collateral available to secure FHLBank advances. If a SHFA nonmember
mortgagee wishes to pledge other than FHA-insured collateral, it first
must certify in writing to the FHLBank that the proceeds of the advance
so secured will be used to facilitate qualifying mortgage lending. The
proposed rule clarifies that qualifying mortgage lending includes both
residential and commercial mortgage lending.
Proposed Sec. 935.24(c) outlines the terms and conditions for
advances to nonmember mortgagees. Under proposed Sec. 935.24(c)(1), a
FHLBank may exercise its discretion to determine whether, and on what
terms, it will make advances to nonmember mortgagees. Proposed
Sec. 935.24(c)(2) addresses advance pricing. Paragraph (c)(2)(i)
requires a FHLBank to price nonmember mortgagee advances to cover the
funding, operating, and administrative costs associated with making the
advance. Paragraph (c)(2)(ii) permits, but does not require, a FHLBank
to price advances to reflect the credit risk of lending to nonmember
mortgagees. Paragraph (c)(2)(iii) authorizes a FHLBank to apply other
reasonable differential pricing criteria, provided that the FHLBank
applies the criteria equally to all of its member and nonmember
mortgagee borrowers. This is intended to ensure that any pricing
criteria other than cost and credit risk are applied to nonmember
mortgagee advances in the same way as to member advances. The Finance
Board requests public comments concerning whether, and on what basis,
any pricing distinctions should be permitted between member and
nonmember borrowers.
The Finance Board proposes to delete the requirement that appears
currently in Sec. 935.22(e)(2)(B)(ii) that a FHLBank price nonmember
mortgagee advances to compensate the FHLBank for the lack of a capital
stock investment in the FHLBank by the nonmember mortgagee. See 12 CFR
935.22(e)(2)(B)(ii). The Finance Board believes that requiring such
compensation is unnecessary since the additional earnings achieved
through advances not supported by capital should enhance a FHLBank's
return on equity.
Proposed Sec. 935.24(c)(3) limits the principal amount of any
advance made to a nonmember mortgagee to 90 percent of the unpaid
principal of the mortgage loans or securities pledged as security for
the advance. This limit does not apply to advances made to SHFA
nonmember mortgagees for the purpose of facilitating qualifying low-
and moderate-income mortgage lending under Sec. 935.24(b)(2) of the
proposed rule.
Under certain circumstances an entity that has been certified as a
nonmember mortgagee may be deemed ineligible to receive FHLBank
advances. Section 935.24(d)(1) of the proposed rule requires a
nonmember mortgagee that applies for an advance to agree first in
writing that it will promptly notify the FHLBank of any change in its
status as a nonmember mortgagee. Section 935.24(d)(2) of the proposed
rule permits a FHLBank, from time to time, to require a nonmember
mortgagee to provide evidence that it continues to satisfy all of the
statutory and regulatory eligibility requirements. If the FHLBank
determines that the nonmember mortgagee no longer meets these
eligibility requirements, proposed Sec. 935.24(d)(3) prohibits the
FHLBank from extending a new advance or renewing an existing advance
until the entity provides evidence satisfactory to the FHLBank that it
is in compliance with such requirements.
III. Regulatory Flexibility Act
The proposed rule implements statutory requirements binding on all
FHLBanks and all nonmember mortgagee applicants and certified nonmember
mortgagees. The Finance Board is not at liberty to make adjustments in
those requirements to accommodate small entities. The Finance Board has
not imposed any additional regulatory requirements that will have a
disproportionate impact on small entities. Thus, in accordance with the
provisions of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.,
the Board of Directors of 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.
Id. section 605(b).
IV. Paperwork Reduction Act
The Finance Board has submitted to the Office of Management and
Budget (OMB) an analysis of the collection of information contained in
Secs. 935.22 through 935.24 of the proposed rule, described more fully
in part II of the Supplementary Information. The FHLBanks and, where
appropriate, the Finance Board, will use the information collection to
determine whether an entity satisfies the statutory and regulatory
eligibility requirements to be certified as a nonmember mortgagee
eligible to receive FHLBank advances. See 12 U.S.C. 1430b; 12 CFR
935.21-935.24. A FHLBank may make advances to an entity that is not a
member of the FHLBank only after the entity has satisfied the
eligibility requirements to be a nonmember mortgagee. See 12 U.S.C.
1430b. Responses are required to obtain or retain a benefit. See id.
The Finance Board and FHLBanks will maintain the confidentiality of
information obtained from respondents pursuant to the collection of
information as required by applicable statute, regulation and agency
policy. Books or records relating to these collection of information
must be retained as provided in the regulation or proposed rule.
Likely respondents and/or recordkeepers will be entities, including
SHFAs and IHAs, that seek access to FHLBank advances but are not
eligible to become members of a FHLBank, the FHLBanks, and the Finance
Board. Potential respondents are not required to respond to the
collection of information unless the regulation collecting the
information displays a currently valid control number assigned by the
OMB. See 44 U.S.C. 3512(a).
The estimated annual reporting and recordkeeping hour burden is:
a. Number of respondents: 10
b. Total annual responses: 10
Percentage of these responses collected electronically: 0%
c. Total annual hours requested: 100
d. Current OMB inventory: 100
e. Difference: 0
The estimated annual reporting and recordkeeping cost burden is:
a. Total annualized capital/startup costs: $0
b. Total annual costs (O&M): $0
c. Total annualized cost requested: $6,250
d. Current OMB inventory: $6,250
e. Difference: $0
Comments concerning the accuracy of the burden estimates and
suggestions for reducing the burden may be submitted to the Finance
Board in writing at the address listed above.
The Finance Board has submitted the collection of information to
OMB for review in accordance with section 3507(d) of the Paperwork
Reduction Act of 1995, codified at 44 U.S.C. 3507(d). Comments
regarding the proposed collection of information may be submitted in
writing to the Office of Information and Regulatory Affairs of the
Office of Management and Budget, Attention: Desk Officer for Federal
Housing Finance Board, Washington, D.C. 20503 by December 9, 1996.
[[Page 52732]]
List of Subjects in 12 CFR Part 935
Credit, Federal home loan banks, Reporting and recordkeeping
requirements.
Accordingly, the Board of Directors of the Federal Housing Finance
Board hereby proposes to amend part 935, chapter IX, title 12, Code of
Federal Regulations, as follows:
PART 935--ADVANCES
1. The authority citation for part 935 is revised to read as
follows:
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1426, 1429, 1430,
1430b, and 1431.
2. Section 935.1 is amended by revising the definition for ``State
housing finance agency'' to read as follows:
Sec. 935.1 Definitions.
* * * * *
State housing finance agency or SHFA means:
(1) A public agency, authority, or publicly sponsored corporation
that serves as an instrumentality of any state or political subdivision
of any state, and functions as a source of residential mortgage loan
financing in that state; or
(2) A legally established agency, authority, corporation, or
organization that serves as an instrumentality of any Indian tribe,
band, group, nation, community, or Alaska Native village recognized by
the United States or any state, and functions as a source of
residential mortgage loan financing for the Indian or Alaska Native
community.
* * * * *
3. Subpart B is revised to read as follows:
Subpart B--Advances to Nonmembers
Sec.
935.20 Advances to the Savings Association Insurance Fund.
935.21 Scope.
935.22 Nonmember mortgagee eligibility requirements.
935.23 Nonmember mortgagee application process.
935.24 Advances to nonmember mortgagees.
Subpart B--Advances to Nonmembers
Sec. 935.20 Advances to the Savings Association Insurance Fund.
(a) Authority. Upon receipt of a written request from the FDIC, a
Bank may make advances to the FDIC for the use of the Savings
Association Insurance Fund. The Bank shall provide a copy of such
request to the Board.
(b) Requirements. Advances to the FDIC for the use of the Savings
Association Insurance Fund shall:
(1) Bear a rate of interest not less than the Bank's marginal cost
of funds, taking into account the maturities involved and reasonable
administrative costs;
(2) Have a maturity acceptable to the Bank;
(3) Be subject to any prepayment, commitment, or other appropriate
fees of the Bank; and
(4) Be adequately secured by collateral acceptable to the Bank.
Sec. 935.21 Scope.
With the exception of Sec. 935.13, and except as otherwise provided
in Sec. 935.20 and Sec. 935.24, the requirements of subpart A of this
part apply to this subpart.
Sec. 935.22 Nonmember mortgagee eligibility requirements.
(a) Authority. Subject to the provisions of the Act and this
subpart, a Bank may make advances to an entity that is not a member of
the Bank if the entity is certified by the Bank as a nonmember
mortgagee.
(b) Eligibility requirements. A Bank may certify as a nonmember
mortgagee any applicant that meets the following requirements:
(1) The applicant is approved under title II of the National
Housing Act (12 U.S.C. 1707, et seq.);
(2) The applicant is a chartered institution having succession;
(3) The applicant is subject to the inspection and supervision of
some governmental agency;
(4) The principal activity of the applicant in the mortgage field
consists of lending its own funds; and
(5) The financial condition of the applicant is such that advances
may be safely made to it.
(c) Satisfaction of eligibility requirements.
(1) HUD approval requirement. An applicant shall be deemed to meet
the requirement in section 10b(a) of the Act and paragraph (b)(1) of
this section that it be approved under title II of the National Housing
Act if it submits a current HUD Yearly Verification Report or other
documentation issued by HUD stating that the applicant has been
approved as a mortgagee by the Federal Housing Administration of HUD.
(2) Charter requirement. An applicant shall be deemed to meet the
requirement in section 10b(a) of the Act and paragraph (b)(2) of this
section that it be a chartered institution having succession if it
provides documentary evidence satisfactory to the Bank, such as a copy
of the statutes and/or regulations under which the applicant was
created, that:
(i) The applicant is a government agency; or
(ii) The applicant is chartered under state, federal, local, or
tribal law as a corporation or other entity that has rights,
characteristics, and powers under applicable law similar to those
granted a corporation.
(3) Inspection and supervision requirement. An applicant shall be
deemed to meet the inspection and supervision requirement in section
10b(a) of the Act and paragraph (b)(3) of this section if it provides
documentary evidence satisfactory to the Bank, such as a copy of
relevant statutes and/or regulations, that, pursuant to statute or
regulation, the applicant is subject to the inspection and supervision
of a federal, state, local, tribal, or Alaskan native village
government agency. Inspection by a government agency includes, but is
not limited to, a statutory or regulatory requirement that the
applicant be audited or examined periodically by such agency or by an
external auditor. Supervision by a government agency includes, but is
not limited to, statutory or regulatory authority for such agency to
remove an applicant's officers or directors for cause.
(4) Mortgage activity requirement. An applicant shall be deemed to
meet the mortgage activity requirement in section 10b(a) of the Act and
paragraph (b)(4) of this section if it provides documentary evidence
satisfactory to the Bank, such as a financial statement or other
financial documents that include the applicant's mortgage loan assets
and their funding liabilities, that it lend its own funds as its
principal activity in the mortgage field. Lending funds includes, but
is not limited to, the purchase of whole mortgage loans. In the case of
a federal, state, local, tribal, or Alaska Native village government
agency, appropriated funds shall be considered an applicant's own
funds. An applicant shall be deemed to satisfy this requirement
notwithstanding that the majority of its operations are unrelated to
mortgage lending if its mortgage activity conforms to this requirement.
An applicant that acts principally as a broker for others making
mortgage loans, or whose principal activity is to make mortgage loans
for the account of others, does not meet this requirement.
(5) Financial condition requirement. An applicant shall be deemed
to meet the financial condition requirement in paragraph (b)(5) of this
section if it provides such financial or other information as the Bank
may require to determine that advances may be safely made to the
applicant.
(d) State housing finance agencies. In addition to meeting the
requirements in paragraph (b) of this section, any
[[Page 52733]]
applicant that seeks access to advances as a SHFA pursuant to
Sec. 935.24(b)(2) shall provide documentary evidence satisfactory to
the Bank, such as a copy of the statutes and/or regulations that
describe the applicant's structure and responsibilities, that the
applicant is a state housing finance agency as defined in Sec. 935.1.
(e) Ineligibility. Except as otherwise provided in this subpart, if
an applicant does not satisfy the requirements of this subpart, the
applicant is ineligible to be certified as a nonmember mortgagee.
Sec. 935.23 Nonmember mortgagee application process.
(a) Authority. The Banks are authorized to approve or deny all
applications for certification as a nonmember mortgagee, subject to the
requirements of the Act and this subpart.
(b) Application requirements. An applicant for certification as a
nonmember mortgagee shall submit an application that satisfies the
requirements of this subpart to the Bank of the district in which the
applicant's principal place of business, as defined in part 933 of this
chapter, is located.
(c) Application process--(1) Action on applications. A Bank shall
approve or deny an application for certification as a nonmember
mortgagee within 60 calendar days of the date the Bank deems the
application to be complete. A Bank shall deem an application complete,
and so notify the applicant in writing, when it has obtained all of the
information required by this subpart and any other information it deems
necessary to process the application. If a Bank determines during the
review process that additional information is necessary to process the
application, the Bank may deem the application incomplete and stop the
60-day time period by providing written notice to the applicant. When
the Bank receives the additional information, it shall again deem the
application complete, so notify the applicant in writing, and resume
the 60-day time period where it left off.
(2) Decision on applications. The board of directors of a Bank
shall approve or deny each application for certification as a nonmember
mortgagee by a written decision resolution stating the grounds for the
decision. Within 3 business days of a Bank's decision on an
application, the Bank shall provide the applicant and the Board's
Executive Secretary with a copy of the Bank's decision resolution.
(3) Appeals. Within 90 calendar days of the date of a Bank's
decision to deny an application for certification as a nonmember
mortgagee, the applicant may submit a written appeal to the Board that
includes the Bank's decision resolution and a statement of the basis
for the appeal with sufficient facts, information, analysis, and
explanation to support the applicant's position. Appeals shall be sent
to the Executive Secretary, Federal Housing Finance Board, 1777 F
Street, N.W., Washington D.C. 20006, with a copy to the Bank.
(i) Record for appeal. Upon receiving a copy of an appeal, the Bank
whose action has been appealed shall provide to the Board a complete
copy of the applicant's application for certification as a nonmember
mortgagee. Until the Board resolves the appeal, the Bank shall promptly
provide to the Board any relevant new materials it receives. The Board
may request additional information or further supporting arguments from
the applicant, the Bank, or any other party that the Board deems
appropriate.
(ii) Deciding appeals. Within 90 calendar days of the date an
applicant files an appeal with the Board, the Board shall consider the
record for appeal described in paragraph (c)(3)(i) of this section and
resolve the appeal based on the requirements of the Act and this
subpart.
Sec. 935.24 Advances to nonmember mortgagees.
(a) Authority. Subject to the provisions of the Act and this
subpart, a Bank may make advances only to a nonmember mortgagee whose
principal place of business, as defined in part 933 of this chapter, is
located in the Bank's district.
(b) Collateral requirements--(1) Advances to nonmember mortgagees.
A Bank may make an advance to any nonmember mortgagee upon the security
of the following collateral:
(i) Mortgage loans insured by the Federal Housing Administration of
HUD under title II of the National Housing Act; or
(ii) Securities representing an interest in the principal and
interest payments due on a pool of mortgage loans insured by the
Federal Housing Administration of HUD under title II of the National
Housing Act. A Bank may only accept as collateral the securities
described in this paragraph if the nonmember mortgagee provides
evidence that such securities are backed solely by mortgages of the
type described in paragraph (b)(1)(i) of this section.
(2) Certain advances to SHFAs. (i) In addition to the collateral
described in paragraph (b)(1) of this section, a Bank may make an
advance to a nonmember mortgagee that has satisfied the requirements of
Sec. 935.22(d) for the purpose of facilitating residential or
commercial mortgage lending that benefits individuals or families
meeting the income requirements set forth in section 142(d) or 143(f)
of the Internal Revenue Code (26 U.S.C. 142(d) or 143(f)) upon the
security of the following collateral:
(A) The collateral described in Sec. 935.9(a)(1) or (2); or
(B) The real estate-related collateral described in
Sec. 935.9(a)(4), provided that such collateral is comprised of
mortgage loans on one-to-four family or multifamily residential
property and the acceptance of such collateral will not increase the
total amount of advances outstanding to the SHFA secured by such
collateral beyond 30 percent of its GAAP capital, as computed by the
Bank.
(ii) Prior to making an advance pursuant to this paragraph (b)(2),
a Bank shall obtain a written certification from the SHFA that the
proceeds of the advance shall be used for the purposes described in
paragraph (b)(2)(i) of this section.
(c) Terms and conditions--(1) General. Subject to the provisions of
this paragraph (c), a Bank, in its discretion, shall determine whether,
and on what terms, it will make advances to a nonmember mortgagee.
(2) Advance pricing. Each Bank making an advance to a nonmember
mortgagee:
(i) Shall price the advance to cover the funding, operating, and
administrative costs associated with making the advance;
(ii) May price the advance to reflect the credit risk of lending to
the nonmember mortgagee; and
(iii) May apply other reasonable differential pricing criteria,
provided that the Bank applies such pricing criteria equally to all of
its member and nonmember mortgagee borrowers.
(3) Limit on advances. The principal amount of any advance made to
a nonmember mortgagee may not exceed 90 percent of the unpaid principal
of the mortgage loans or securities pledged as security for the
advance. This limit does not apply to an advance made to a SHFA under
paragraph (b)(2) of this section.
(d) Loss of eligibility--(1) Notification of status changes. A Bank
shall require a nonmember mortgagee that applies for an advance to
agree in writing that it will promptly inform the Bank of any change in
its status as a nonmember mortgagee.
(2) Verification of eligibility. A Bank may, from time to time,
require a nonmember mortgagee to provide evidence that it continues to
satisfy all
[[Page 52734]]
of the eligibility requirements of the Act and this subpart.
(3) Loss of eligibility. A Bank shall not extend a new advance or
renew an existing advance to a nonmember mortgagee that no longer meets
the eligibility requirements of the Act and this subpart until the
entity has provided evidence satisfactory to the Bank that it is in
compliance with such requirements.
By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairperson.
[FR Doc. 96-25663 Filed 10-7-96; 8:45 am]
BILLING CODE 6725-01-U