[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