[Federal Register Volume 62, Number 103 (Thursday, May 29, 1997)]
[Rules and Regulations]
[Pages 28983-28993]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13690]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Part 936
[No. 97-39]
RIN 3069-AA35
Community Support Requirement
AGENCY: Federal Housing Finance Board.
ACTION: Final rule.
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SUMMARY: The Federal Housing Finance Board (Finance Board) is amending
its regulation on the community support requirement. The rule replaces
the existing review process with uniform community support standards
all Federal Home Loan Bank (FHLBank) members must meet in order to
maintain access to long-term FHLBank advances, and review criteria the
Finance Board must apply when determining a member's compliance with
the standards. Consistent with the goals of the Regulatory Reinvention
Initiative of the National Performance Review, the rule streamlines the
regulatory requirements to reduce the time spent by FHLBank members to
prepare and submit, and the Finance Board to review and process,
community support submissions.
EFFECTIVE DATE: The final rule will become effective June 30, 1997.
FOR FURTHER INFORMATION CONTACT: Penny S. Bates, Program Analyst,
Community Support Program, Office of Supervision, 202/408-2574, 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 10(g)(1) of the Federal Home Loan Bank Act (Bank Act)
requires the Finance Board to promulgate regulations establishing
standards of community investment or service that FHLBank members must
meet in order to maintain access to long-term advances. See 12 U.S.C.
1430(g)(1). The regulations promulgated by the Finance Board must take
into account factors such as the FHLBank member's performance under the
Community Reinvestment Act of 1977 (CRA), 12 U.S.C. 2901, et seq., and
record of lending to first-time homebuyers. See 12 U.S.C. 1430(g)(2).
In November 1996, the Finance Board published for notice and
comment a proposed rule that would streamline the current regulatory
requirements by replacing the existing community support review process
with uniform standards and review criteria for determining compliance
with section 10(g) of the Bank Act. See 61 FR 60229 (Nov. 27, 1996).
The 60-day public comment period closed on January 27, 1997. See id.
The Finance Board received a total of 56 comments in response to the
proposed rule, 13 from FHLBanks, 14 from credit unions, 9 from credit
union trade associations, 7 from financial institutions other than
credit unions, 5 from trade associations representing financial
institutions other than credit unions, 3 from insurance companies, 1
from an insurance company trade association, 2 from community groups,
and 1 each from a state banking commissioner and an individual. Most of
the commenters supported streamlining the community support process by
implementing uniform standards members must meet, and review criteria
the Finance Board must apply, in order for members to maintain access
to long-term advances. Specific comments are discussed in Part II of
the Supplementary Information.
II. Analysis of Public Comments and the Final Rule
A. Community Support Requirement
1. Selection For Community Support Review
Section 936.2(a) establishes the basic requirement that a FHLBank
member selected for community support review must submit a community
support statement (statement) to the Finance Board. Two commenters
thought the Finance Board should select a member for review only after
it has applied for a long-term advance. The Finance Board views the
requirement imposed by section 10(g) of the Bank Act, i.e., that
members must meet standards of community investment or service
established by the Finance Board in order to maintain access to a
service of the FHLBanks--long-term advances, as an obligation of
FHLBank membership, regardless of whether the member has borrowed or
plans to borrow long-term advances.
The rule provides that the Finance Board will select approximately
one-eighth of the members in each FHLBank district for community
support review each calendar quarter so that it will review each
FHLBank member about once every two years. Two commenters suggested
decreasing the frequency of community support review. The Finance Board
believes a two-year review cycle is appropriate both for administrative
convenience and because the streamlined review process has minimized to
the fullest extent possible the compliance burden on members. Four
commenters supported the statement in the preamble to the proposed rule
that the Finance Board will review an institution only after it has
been a FHLBank member for one year.
2. Notice Provisions
Section 936.2(b) sets out the notice requirements and the deadline
by which members must submit statements to the Finance Board for
review. Section 936.2(b)(1)(i) requires the Finance Board to notify
each FHLBank of the members within its district that must submit a
statement during the calendar quarter. At the same time, the Finance
Board must publish a notice in the Federal Register that includes the
name and address of each member required to
[[Page 28984]]
submit a statement during the calendar quarter, and the deadline for
submission of the statement to the Finance Board. To provide sufficient
time for the member to prepare the required statement, the deadline for
submission to the Finance Board must be no less than 45 calendar days
from the date of publication of the Federal Register notice. Two
commenters suggested extending the deadline for statement submission
from 45 to 60 days after the date of publication of the Federal
Register notice. On the basis of past experience and in light of the
significantly reduced documentation requirements, the Finance Board
believes that the time period provided in the rule is adequate.
Section 936.2(b)(2)(ii) requires each FHLBank to provide written
notice to its members of their selection for community support review
and of the requirement to submit a statement to the Finance Board by
the deadline stated in the Federal Register notice. Two commenters
suggested requiring notice to members concurrent with publication of
the Federal Register notice. Since the time provided for submission of
statements is adequate, concurrent notice is not required. Two
commenters opposed any FHLBank role in the community support process.
The Finance Board believes the FHLBanks' limited role, i.e., notifying
members of their selection for community support review, is appropriate
because it does not place the FHLBanks in a regulatory or supervisory
role, but does provides an opportunity for the FHLBanks to offer
information about community lending programs and assistance in
preparing statements.
3. Required Documents
Section 936.2(c) requires a member to submit to the Finance Board a
statement and any other information the Finance Board may require to
determine whether the member meets the community support standards.
Three commenters suggested permitting members to submit statements
electronically. The Finance Board will permit members to submit
statements electronically upon establishment of an Internet address for
such submissions. The Finance Board will include the electronic mail
address on the Community Support Statement Form (Form) as soon as it is
available.
Section 10(g)(2) of the Bank Act requires the Finance Board to take
into account a FHLBank member's performance under the CRA. See 12
U.S.C. 1430(g)(2); supra part I. To streamline the review process, the
proposed rule would have required members to submit the portion of the
public disclosure section of the most recent CRA evaluation provided by
the member's appropriate federal financial supervisory agency that
contains its CRA rating and the date of the CRA evaluation. Twelve
commenters supported reliance on a member's federal CRA rating. One
commenter suggested using also state CRA ratings. The Finance Board has
decided to rely only upon federal CRA ratings in order to maintain a
uniform standard. To eliminate duplicative documentation and reduce the
burden on members and the Finance Board, the final rule will not
require a member to submit its federal CRA rating since the Finance
Board is able to obtain the rating directly from the member's
appropriate federal financial supervisory agency. Two commenters
recommended this approach.
Pursuant to section 10(g)(2) of the Bank Act, the rule provides
that the Finance Board also shall consider a FHLBank member's record of
lending to first-time homebuyers. See 12 U.S.C. 1430(g)(2); supra part
I. The proposed rule revised the definition of ``first-time homebuyer''
in Sec. 936.1(l) to make it consistent with the definition of that term
in affordable housing statutes.1 Six commenters supported
the revised definition. Three commenters thought the definition was too
complex. The Finance Board believes the definition is appropriate as
written because it is substantially similar to the definitions used in
various other federal statutes that address housing issues.
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\1\ See, e.g., 42 U.S.C. 12713(b)(2), (3) (standards established
by the Cranston-Gonzalez National Affordable Housing Act that must
be used to determine eligibility under any federal program to assist
first-time homebuyers); 12 U.S.C. 1701x(d)(10)(H), (M) (U.S.
Department of Housing and Urban Development's assistance to low-and
moderate-income housing program); 42 U.S.C. 1472(h)(12)(B), (C)
(U.S. Department of Agriculture's program to provide loans for
housing and buildings on adequate farms).
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To minimize the burden on FHLBank members and the Finance Board,
Sec. 936.2(c)(2) requires a member to provide a brief description of
its record of lending, or of the assistance it provides, to first-time
homebuyers on the Form. Five commenters said the requirement for
certification of the Form by a member's board of directors would impose
an unnecessary administrative burden and delay the process. The Finance
Board agrees that the requirement is unnecessarily burdensome and has
deleted it from the final rule. Instead, the rule requires an
appropriate senior officer of the member to execute the Form. The
information required by the Form, which is included at Appendix A, is
discussed in detail below.
4. Public Comment Process
Section 936.2(d) permits members of the public to submit comments
concerning a member's community support performance to the Finance
Board at any time. The Finance Board will consider all public comments
it has received concerning a selected member in conducting its
community support review of that member. One commenter supported an
open-ended comment process. Four commenters thought the public comment
process was no longer necessary because it duplicates other available
public comment processes. The Finance Board believes providing the
opportunity for open-ended public comment is necessary and valuable
because it may provide useful information specific to community support
review.
Section 936.2(d)(1) requires each FHLBank to notify its Advisory
Council and nonprofit housing developers, community groups, and other
interested parties in its district of the members selected for
community support review. One commenter thought the rule should require
a FHLBank to provide notice only to its Advisory Council because the
cost of public notice was not justified by the number of comments
received and interested parties still received notice via the Federal
Register. The Finance Board disagrees because the costs imposed are not
excessive and the notice encourages the submission of public comments.
B. Community Support Standards
Section 936.3 establishes the community support standards a FHLBank
member must meet in order to maintain access to long-term advances, and
the review criteria the Finance Board must apply in evaluating a
member's community support performance. The Finance Board has included
standards and criteria for the two statutory factors--CRA performance
and record of lending to first-time homebuyers. Three commenters agreed
that the rule should establish standards only for the factors in
section 10(g) of the Bank Act. Twelve commenters argued that section
10(g) of the Bank Act does not require establishment of standards for
both or either CRA performance or lending to first-time homebuyers, or
only for those factors. Thirteen commenters said the Finance Board
should not establish a standard for factors other than those provided
in the Bank Act, such as violations of fair housing, equal credit
opportunity, or other laws that prohibit discrimination
[[Page 28985]]
in lending. Four commenters thought the Finance Board should review
information concerning illegal credit practices even though a member's
primary regulator already reviews and enforces such practices. For
instance, under the CRA regulation, a member's appropriate federal
financial supervisory agency must consider the member's response to
written complaints and the effect of evidence of discriminatory or
other illegal credit practices. See, e.g., 12 CFR 25.26(a)(5), 25.28(c)
(Office of the Comptroller of the Currency (OCC)). In order to limit
the burden imposed on members, the Finance Board has decided to
establish standards only for the two factors mentioned in the Bank Act.
Accordingly, Sec. 936.3(a) requires the Finance Board to take into
account both the CRA performance and record of lending to first-time
homebuyers of FHLBank members that are subject to the CRA, and only the
record of lending to first-time homebuyers of FHLBank members that are
not subject to the CRA.
1. CRA Standard
Section 936.3(b) establishes the CRA performance standard for
FHLBank members that are subject to the requirements of the CRA. Twelve
commenters supported application of the CRA standard only to members
that are subject to the CRA. Ten commenters supported applying the CRA
standard or a CRA-like standard to members that are not subject to the
CRA. As stated above, the Finance Board has determined not to formulate
a new CRA-like factor for members not subject to the CRA; rather, it is
adopting only those factors referenced in the Bank Act.
A member subject to the CRA will be deemed to meet the CRA
performance standard in the community support regulation if the rating
in the member's most recent federal CRA evaluation is ``outstanding''
or ``satisfactory.'' If the rating in a member's most recent federal
CRA evaluation is ``needs to improve,'' the Finance Board will place
the member on probation. The proposed rule provided for a one-year
probationary period. Seven commenters suggested extending the
probationary period since the period between CRA evaluations may be
longer than one year. The Finance Board agrees with the commenters and
the final rule provides that the probationary period will extend until
the member's next federal CRA evaluation. During the probationary
period, the member will be eligible to receive long-term advances. If
the member's federal CRA rating does not improve at the end of the
probationary period, the Finance Board will restrict the member's
access to long-term advances. One commenter recommended immediate
termination of access to long-term advances for a member with a ``needs
to improve'' CRA rating instead of probation. The Finance Board
believes that a member with a ``needs to improve'' CRA rating should be
given the opportunity to improve its performance. The Finance Board
also wants to distinguish between members with ``needs to improve'' and
``substantial noncompliance'' CRA ratings.
If the rating in a member's most recent federal CRA evaluation is
``substantial noncompliance,'' the Finance Board will immediately
restrict the member's access to long-term advances. Four commenters
suggested subjecting a member with a ``substantial noncompliance'' CRA
rating to a one-year probationary period rather than immediate
termination of access to long-term advances. One commenter said that
only members with prior unacceptable CRA ratings should be subject to
immediate termination. The Finance Board has considered these
arguments, but continues to believe that members with ``substantial
noncompliance'' CRA ratings have not met the CRA standard and, at least
in that respect, their activities are not advancing the mission of the
FHLBanks. In addition, the penalty for a member with a ``substantial
noncompliance'' CRA rating should be more severe than that imposed on a
member with a ``needs to improve'' CRA rating.
2. First-Time Homebuyer Standard
Section 936.3(c) establishes the first-time homebuyer performance
standard for all FHLBank members. 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.
Twelve commenters thought the proposed standard might be inconsistent
with their mission or applicable statutory or regulatory constraints,
as discussed more fully below. Seven commenters thought the Finance
Board should establish a third standard for members that might not be
able to meet the first-time homebuyer standard. To accommodate these
concerns, the Finance Board has included additional examples of
activities that will satisfy the first-time homebuyer standard in the
final rule and on the Form. These additions are discussed in detail
below. With the inclusion of additional, flexible criteria, the Finance
Board feels that all members should be able to meet the first-time
homebuyer standard.
Nine commenters thought the Finance Board should give more weight
to the CRA standard than the first-time homebuyer standard because CRA
review includes first-time homebuyer lending. Six of those commenters
suggested that a member that meets the CRA standard should be deemed to
meet the community support requirement, i.e., the member should not
also have to meet a separate first-time homebuyer standard. In
evaluating CRA compliance, a member's appropriate federal financial
supervisory agency must take into account some of the criteria the
Finance Board considers when reviewing a member's first-time homebuyer
performance, such as innovative or flexible lending practices and home-
mortgage loans to low- and moderate-income individuals. See, e.g., 12
CFR 25.22(b)(5), 22.5(b)(3)(i) (OCC). The Finance Board believes these
comments have merit and that it can place some reliance on the notion
that a member with an ``outstanding'' CRA rating will have performed
adequately in meeting the first-time homebuyer standard. Therefore, the
final rule provides that in the absence of public comments or other
information to the contrary, a member whose most recent federal CRA
rating is ``outstanding'' will be presumed to have met the first-time
homebuyer standard without a separate showing of compliance. If a
public comment or other information that may come to the attention of
the Finance Board raises concerns regarding the first-time homebuyer
performance of a member with an ``outstanding'' federal CRA rating, the
Finance Board may require the member to submit compliance information.
Eight commenters support allowing members to demonstrate compliance
with the first-time homebuyer standard in one of several ways. First, a
member that demonstrates to the satisfaction of the Finance Board that
it has an established record of lending to first-time homebuyers will
be deemed to meet the first-time homebuyer standard. In order to
demonstrate this aspect of first-time homebuyer performance, part II(A)
of the Form asks a member to provide the following information: (1) the
number of mortgage loans it has made to first-time homebuyers; (2) the
dollar amount of the mortgage loans it has made to first-time
homebuyers; (3) loans made to first-time homebuyers as a percentage of
all mortgage loans it has made; or (4) dollars loaned to first-time
homebuyers as a percentage of all mortgage dollars it has loaned. The
[[Page 28986]]
Finance Board specifically requested comments regarding establishment
of bright-line numerical thresholds for first-time homebuyer lending.
Twenty commenters opposed establishing either a numeric reporting
requirement or bright-line numerical thresholds. Fourteen commenters
said evaluation of first-time homebuyer performance should be on a
case-by-case basis, taking into account the member's market, resources,
and applicable statutory and regulatory constraints. Only two
commenters supported numerical thresholds. The Finance Board has not
established a numeric reporting requirement or bright-line numerical
thresholds in the final rule for two reasons. First, it will be
difficult for most members to collect accurate data regarding the
volume of first-time homebuyer loans. Second, reasonable, uniformly
applicable thresholds cannot easily be established due to the great
variety of FHLBank members in terms of institution size, location,
purpose, and function. For the same reasons the Finance Board did not
establish pass/fail criteria for the first-time homebuyer standard, as
suggested by four commenters.
A member also may satisfy the first-time homebuyer standard by
demonstrating to the satisfaction of the Finance Board that it has a
program under which it actively seeks to lend or support lending to
first-time homebuyers or to assist or support organizations that assist
potential first-time homebuyers to qualify for mortgage loans. In order
to demonstrate this alternative, part II(B) of the Form asks a member
to indicate whether it offers, participates in, or otherwise supports
special loan products, financial services, programs, or activities that
benefit, serve, or are targeted to, first-time homebuyers. Twelve
commenters suggested including additional examples of activities that
will satisfy the first-time homebuyer standard in the final rule and on
the Form. The Finance Board has incorporated these suggestions in the
following list of activities: (1) providing special credit products
with flexible underwriting or qualifying criteria, which includes non-
conforming loans; (2) participating in loan consortia for first-time
homebuyer loans or loans that serve predominately low- or moderate-
income borrowers; (3) participating in federal, state, or local
government homeownership or other related programs, like Federal
Housing Administration or Veterans Administration mortgage loan
programs; (4) participating in programs offered by community or
nonprofit groups or national organizations like the Federal National
Mortgage Association (also known as Fannie Mae) or the Federal Home
Loan Mortgage Corporation (also known as Freddie Mac); (5) providing,
participating in, or supporting counseling programs or other
homeownership education activities; (6) providing, participating in, or
supporting outreach programs; (7) providing technical assistance or
financial support to organizations that assist first-time homebuyers;
(8) investments or loans that support first-time homebuyer programs;
(9) holding mortgage-backed securities that may include a pool of loans
to low- and moderate-income homebuyers; (10) participating or investing
in service organizations that assist credit unions in providing
mortgages; or (11) participating in FHLBank community lending programs.
This list is meant to be illustrative, not exclusive.
A member may, but is not required to, attach to the Form a one-page
description of other first-time homebuyer programs or activities in
which it is involved. In the one-page attachment, a member may also
describe factors that may adversely affect its ability to assist first-
time homebuyers, like field of membership restrictions for credit
unions or business constraints applicable to insurance companies.
A member also may satisfy the first-time homebuyer standard if it
demonstrates to the satisfaction of the Finance Board that it meets a
combination of the elements discussed above. In response to several
comments, the Finance Board has clarified both the rule and the Form to
make clear that a member may meet the standard by meeting one, both, or
a combination of the factors described above.
If the Finance Board deems the evidence of first-time homebuyer
performance provided by the member to be unsatisfactory, the Finance
Board will place the member on probation for a one-year period. One
commenter suggested lengthening the probationary period. The Finance
Board believes that the time provided is sufficient for a member to
comply with the first-time homebuyer standard. During the probationary
period, the member will be eligible to receive long-term advances. If
the member does not satisfy the first-time homebuyer performance
standard before the probationary period ends, the Finance Board will
restrict the member's access to long-term advances. The Finance Board
will immediately restrict a member's access to long-term advances if
the member must show compliance with the first-time homebuyer standard
but fails to provide any evidence of its record of lending to first-
time homebuyers.
C. Decisions on Community Support Statements
Section 936.4 sets forth the procedures for review of statements by
the Finance Board. To ensure expeditious action on statements,
Sec. 936.4(a) requires the Finance Board to act on a statement within
75 calendar days of the date it deems the statement complete. To make
certain that the time period provided for review is not unduly
restrictive, the rule deems a statement complete, thus triggering the
75-day time period, only after the Finance Board has obtained all of
the information required by this part and any other information it
considers necessary to process the statement. The rule also permits the
Finance Board to stop the 75-day time period if it determines during
the review process and notifies the member in writing that additional
information is necessary to process the statement. The Finance Board
must restart the 75-day time period where it stopped upon receiving the
additional required information. The Finance Board will have an
additional 10 calendar days to process a statement if it receives
additional information on or after the seventieth day of the 75-day
time period.
Section 936.4(b) requires the Finance Board to notify a member and
the appropriate FHLBank in writing of its determination regarding the
member's statement. The notice will identify specifically the reasons
for the Finance Board's determination. One commenter supported the
requirement that the Finance Board provide specific reasons for its
determination.
D. Restrictions On Access To Long-Term Advances
1. Imposing Restrictions
Section 936.5 sets forth the procedures by which the Finance Board
may restrict a FHLBank member's access to long-term advances. One
commenter suggested clarifying the meaning of a restriction on access
to long-term advances. The Finance Board has added a definition at
Sec. 936.1(o). For purposes of this part, ``restriction on access to
long-term advances'' means a member may not borrow long-term advances
or renew any maturing advance for a term to maturity greater than one
year. One commenter thought the definition of the term ``long-term
advance,'' which means an advance with a term to maturity greater than
one year, should be the same for all purposes under the Bank Act. See,
e.g.,
[[Page 28987]]
12 CFR 935.1 (for purposes of the Finance Board's advances regulation,
the term ``long-term advance'' means an advance with a term to maturity
greater than five years). The meaning of the term ``long-term
advances'' for purposes of community support is the same in the
proposed rule as it was under the current community support regulation;
the Finance Board did not propose changing, nor has it changed, the
definition. The reasons underlying this definition are explained in
detail in the preamble to the adoption of the current rule. See 56 FR
58639, 58642 (Nov. 21, 1991). The Finance Board continues to believe
that it has the legal authority to interpret the same term differently
for different purposes in order to fulfill its statutory obligations.
See 12 U.S.C. 1422b(a)(1).
Under Sec. 936.5(a), the Finance Board will restrict a FHLBank
member's access to long-term advances if it determines that the member:
(1) Has not complied with the requirements of part 936;
(2) Has submitted a statement that was not approved by the Finance
Board;
(3) Has not received a CRA rating of ``outstanding'' or
``satisfactory'' at the end of the probationary period described in
Sec. 936.3(b)(2); or
(4) Has not provided first-time homebuyer evidence satisfactory to
the Finance Board before the end of the probationary period described
in Sec. 936.3(c)(2).
Under Sec. 936.5(b), the Finance Board promptly must notify a
member and the appropriate FHLBank of its determination to restrict the
member's access to long-term advances. The proposed rule provided that
the Finance Board would send the notice to the member by certified
mail, return receipt requested, and to the FHLBank by regular mail. Six
commenters said the FHLBanks should receive notice of a restriction
before the member so the FHLBank does not inadvertently provide long-
term advances to an ineligible borrower. To accommodate this concern,
the final rule provides that the Finance Board will notify the FHLBank
by facsimile and by regular mail.
Section 936.5(c) of the proposed rule provided that a restriction
on access to long-term advances would become effective automatically on
the date the decision notices are mailed. One commenter thought there
should be a 30-day delay before a restriction takes affect. The Finance
Board agrees that a 30-day delay is appropriate. The Finance Board's
goal is to encourage compliance with the community support requirement.
Past experience indicates that many members will comply with the
requirement upon receiving a 30-day notice. The 30-day period will also
allow the FHLBanks to take administrative steps that may be necessary
in order to restrict a member's access to long-term advances.
2. Removing Restrictions
Section 936.5(d) sets forth the bases for removing restrictions on
access to long-term advances imposed by the Finance Board under this
part. The Finance Board, in its sole discretion, may remove a
restriction on a member's access to long-term advances under two
circumstances. First, the Finance Board may remove a restriction if it
determines that application of the restriction may adversely affect the
safety and soundness of the member. Second, the Finance Board may
remove a restriction if it determines that the member subsequently has
complied with the requirements of part 936. The Finance Board has
eliminated the mandatory 180-day waiting period before reinstatement.
Six commenters supported the deletion while one commenter though the
waiting period should be at least two years. Since the Finance Board's
primary goal is to encourage FHLBank members to comply with the
community support regulation, removal of the waiting period is
appropriate.
The rule permits a member to submit a detailed written request to
the Finance Board to remove a restriction on access to long-term
advances. The Finance Board must consider these requests within 30
calendar days of receipt. If a member bases a reinstatement request on
safety and soundness concerns, the request must include a statement
from the member's primary federal regulator that application of the
restriction may adversely affect the safety and soundness of the
member.
In order to acknowledge a member's efforts to improve its CRA
performance, Sec. 936.5(d)(2) requires the Finance Board to place a
member on probation in accordance with Sec. 936.3(b)(2), if: (1) the
member's access to long-term advances was restricted on the basis of
the member's inadequate performance under the CRA standard, i.e., the
rating in the member's most recent federal CRA evaluation was
``substantial noncompliance;'' (2) the rating in the member's
subsequent CRA evaluation is ``needs to improve;'' and (3) the member
did not receive either a ``substantial noncompliance'' CRA rating or a
``needs to improve'' CRA rating immediately preceding the CRA rating on
which the member's inadequate performance under the CRA standard was
based.
To ensure that a FHLBank receives notice of the Finance Board's
decision to remove a restriction before the member, Sec. 936.5(d)(3) of
the final rule provides for notice to the FHLBanks by facsimile and by
regular mail. The proposed rule would have required the Finance Board
to send the notice to the member by certified mail, return receipt
requested, and to the FHLBank by regular mail. The Finance Board's
decision to remove a restriction will become effective automatically on
the date the decision notices are mailed.
3. Effect of Restrictions on the Affordable Housing and Community
Investment Programs
Under Sec. 936.5(e), if the Finance Board has restricted a member's
access to long-term advances under this part, the member will not be
eligible to participate in either the Affordable Housing Program (AHP)
or the Community Investment Program (CIP). Two commenters supported
imposing restrictions on access to AHP and CIP advances for members
that fail to meet the community support requirement. Six commenters
said a restriction should not be imposed because the member otherwise
could use the AHP and CIP to improve its community support performance.
However, the Finance Board continues to believe that it should not
offer a member the opportunity to participate in community lending
programs subsidized by the FHLBanks until the member has demonstrated a
willingness to use its own resources to meet community lending needs.
Accordingly, the final rule limits participation in the AHP and CIP
only to members that have met the community support requirement.
Four commenters said the rule should clarify that the restriction
applies only to AHP or CIP applications made after the date the
restriction is imposed and not to previously approved AHP or CIP
funding. The Finance Board has included clarifying language in the
final rule.
E. FHLBank Community Support Programs
Under Secs. 936.6 (a) and (b), each FHLBank must consult with its
Advisory Council to develop and implement initiatives to increase
community-oriented mortgage lending and affordable housing finance
activities. The rule also requires each FHLBank to establish and
maintain a community support program that: (1) provides technical
assistance to members; (2) promotes and expands community-oriented
mortgage lending and affordable housing finance; (3)
[[Page 28988]]
identifies opportunities for members to expand financial and credit
services in underserved neighborhoods and communities; and (4)
encourages members to increase their community-oriented mortgage
lending and affordable housing finance activities through the use of
monetary and nonmonetary incentives. Examples of appropriate incentives
include discounts or preferred terms on advances to members or awards
or technical assistance to nonprofit housing developers or community
groups that have outstanding records of participation in community-
oriented mortgage lending and affordable housing finance activities.
These examples are meant to be illustrative, not exclusive.
To provide motivation for FHLBank members to meet the community
support requirements, Sec. 936.5(c) requires each FHLBank to provide a
yearly report to its members that identifies AHP, CIP, and other
FHLBank activities, and summarizes community-oriented mortgage lending
and affordable housing finance activities undertaken by members,
nonprofit housing developers, community groups, or other entities in
the FHLBank district, that may provide opportunities for a member to
meet the community support requirements. Two commenters supported
reducing the frequency of required reports from twice to once a year.
F. Reports
Section 10(j)(11) of the Bank Act requires each FHLBank Advisory
Council to submit annually a report to the Finance Board analyzing the
low-income housing activity of its FHLBank. See 12 U.S.C. 1430(j)(11).
Since the concept of community support includes initiatives related to
affordable housing, the Finance Board believes that the annual report
each Advisory Council submits should include an analysis of the
community support program and activities of its FHLBank. The Finance
Board has included this requirement in Sec. 936.7.
Pursuant to section 10(j)(12) of the Bank Act, the Finance Board
annually must prepare and submit to Congress a report on FHLBank
support of, and use of advances for, low-income housing and community
development. See 12 U.S.C. 1430(j)(12)(A). The Finance Board's annual
report to Congress must include the annual Advisory Council reports to
the Finance Board on the low income housing activity of the FHLBanks.
Id. 1430(j)(12)(B). The Finance Board intends to include also in its
annual report to Congress an analysis of the FHLBanks community support
programs and activities.
III. Regulatory Flexibility Act
The final rule implements statutory requirements binding on all
FHLBank members, regardless of their size. 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. By streamlining the regulatory requirements, the Finance
Board has, to the maximum extent possible, reduced the costs FHLBank
members, the FHLBanks, and Finance Board will incur to produce, review,
and process the submissions the Finance Board requires to determine
whether a FHLBank member has complied with the community support
requirement. Thus, in accordance with the provisions of the Regulatory
Flexibility Act, the Finance Board hereby certifies that this final
rule will not have a significant economic impact on a substantial
number of small entities. See 5 U.S.C. 605(b).
IV. Paperwork Reduction Act
As part of the notice of proposed rulemaking, the Finance Board
published a request for comments concerning the collection of
information contained in Secs. 936.2 through 936.7 of the proposed
rule. See 61 FR 60233. The Finance Board received two comments. Both
commenters thought the reporting and recordkeeping burden might be
underestimated. The Finance Board continues to believe that the burden
estimates are accurate. The Finance Board also submitted an analysis of
the information collection to the Office of Management and Budget (OMB)
for review in accordance with section 3507(d) of the Paperwork
Reduction Act of 1995. See 44 U.S.C. 3507(d). OMB assigned a control
number, 3069-0003, and approved the information collection without
conditions with an expiration date of December 31, 1999. 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 id. 3512(a).
Although the final rule does not substantively or materially modify the
approved information collection, it reduces the reporting and
recordkeeping burden imposed on many respondents by eliminating the
requirement that members subject to the CRA submit portions of their
CRA evaluation, see 12 CFR 936.2(c)(1), and the submission of
information about first-time homebuyer activities for members with
``outstanding'' CRA ratings. See id. Sec. 936.3(c)(1). The title,
description of need and use, and a description of the information
collection requirements in the final rule are discussed in parts I and
II of the Supplementary Information.
The following table discloses the estimated annual reporting and
recordkeeping burden:
a. Number of respondents...........................................3000
b. Total annual responses..........................................3000
Percentage of these responses collected electronically...............0%
c. Total annual hours requested....................................4010
d. Current OMB inventory..........................................20475
e. Difference.....................................................16465
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...............................................$155,800.62
d. Current OMB inventory..............................................0
e. Difference...............................................$155,800.62
Any comments concerning the information collection should be submitted
to Elaine L. Baker, Executive Secretary, Federal Housing Finance Board,
1777 F Street, N.W., Washington, D.C. 20006, and 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.
List of Subjects in 12 CFR Part 936
Credit, Federal home loan banks, Housing, Reporting and
recordkeeping requirements.
Accordingly, the Federal Housing Finance Board hereby revises title
12, chapter IX, part 936 of the Code of Federal Regulations to read as
follows:
PART 936--COMMUNITY SUPPORT REQUIREMENTS
Sec.
936.1 Definitions.
936.2 Community support requirement.
936.3 Community support standards.
936.4 Decision on community support statements.
936.5 Restrictions on access to long-term advances.
936.6 Bank community support programs.
936.7 Reports.
Authority: 12 U.S.C. 1422a(a)(3)(B), 1422b(a)(1), 1429, and
1430.
Sec. 936.1 Definitions.
For purposes of this part:
(a) Act means the Federal Home Loan Bank Act, as amended (12 U.S.C.
1421, et seq.).
(b) Advance has the same meaning as in Sec. 935.1 of this chapter.
[[Page 28989]]
(c) Advisory Council means the Advisory Council each Bank is
required to establish pursuant to section 10(j)(11) of the Act and part
960 of this chapter.
(d) Affordable Housing Program or AHP means the program each Bank
is required to establish pursuant to section 10(j) of the Act and part
960 of this chapter.
(e) Appropriate federal financial supervisory agency means the
Office of the Comptroller of the Currency for national banks; the Board
of Governors of the Federal Reserve System for state chartered banks
that are members of the Federal Reserve System and bank holding
companies; the Federal Deposit Insurance Corporation for state
chartered banks and savings banks that are not members of the Federal
Reserve System and the deposits of which are insured by the Federal
Deposit Insurance Corporation; and the Office of Thrift Supervision for
savings associations the deposits of which are insured by the Federal
Deposit Insurance Corporation and savings and loan holding companies.
(f) Bank or Banks means a Federal Home Loan Bank or the Federal
Home Loan Banks.
(g) Community Investment Program or CIP means the program each Bank
is required to establish pursuant to section 10(i) of the Act.
(h) Community-oriented mortgage lending has the same meaning as in
section 10(i)(2) of the Act.
(i) CRA means the Community Reinvestment Act of 1977, as amended
(12 U.S.C. 2901, et seq.).
(j) CRA evaluation means the public disclosure portion of the CRA
performance evaluation provided by a member's appropriate federal
financial supervisory agency.
(k) Finance Board means the agency established as the Federal
Housing Finance Board.
(l) First-time homebuyer means:
(1) An individual and his or her spouse, if any, who has had no
present ownership interest in a principal residence during the three-
year period prior to purchase of a principal residence.
(2) A displaced homemaker who, except for owning a residence with
his or her spouse or residing in a residence owned by his or her
spouse, meets the requirements of paragraph (l)(1) of this section. For
purposes of this paragraph (l)(2), the term displaced homemaker means
an adult who has not worked full-time, full-year in the labor force for
a number of years and, during that period, worked primarily without
remuneration to care for a home and family, and currently is unemployed
or underemployed and is experiencing difficulty in obtaining or
upgrading employment.
(3) A single parent who, except for owning a residence with his or
her spouse or residing in a residence owned by his or her spouse, meets
the requirements of paragraph (l)(1) of this section. For purposes of
this paragraph (l)(3), the term single parent means an individual who
is unmarried or legally separated from a spouse and has custody or
joint custody of one or more minor children or is pregnant.
(m) Long-term advance means an advance with a term to maturity
greater than one year.
(n) Member means an institution admitted to membership and owning
capital stock in a Bank.
(o) Restriction on access to long-term advances means a member may
not borrow long-term advances or renew any maturing advance for a term
to maturity greater than one year.
Sec. 936.2 Community support requirement.
(a) Selection for community support review. The Finance Board shall
select a member for community support review approximately once every
two years.
(b) Notice--(1) By the Finance Board. The Finance Board
concurrently shall:
(i) Notify each Bank of the members within its district that are
required to submit community support statements during the calendar
quarter; and
(ii) Publish a notice in the Federal Register that includes the
name and address of each member required to submit a community support
statement during the calendar quarter, and the deadline for submission
of the community support statement to the Finance Board. The deadline
for submission of a community support statement shall be no earlier
than 45 calendar days after the date of publication of the notice in
the Federal Register.
(2) By the Banks. Within 15 calendar days of the date of
publication in the Federal Register of the notice required by paragraph
(b)(1)(ii) of this section, a Bank shall provide written notice:
(i) To each member within its district that is named in the Federal
Register notice, that the member is required to submit a community
support statement to the Finance Board by the deadline stated in the
Federal Register notice; and
(ii) Its Advisory Council and nonprofit housing developers,
community groups, and other interested parties in its district of the
name and address of each member within its district that is required to
submit a community support statement during the calendar quarter.
(c) Required documents. Each member selected for community support
review shall submit a completed Community Support Statement Form
executed by an appropriate senior officer to the Finance Board and any
other information the Finance Board may require to determine whether a
member meets the community support standards.
(d) Public comments. In reviewing a member for compliance with the
community support requirement, the Finance Board shall take into
consideration any public comments it has received concerning the
member.
(The Office of Management and Budget approved the information
collection requirements contained in this section and assigned
control number 3069-0003 with an expiration date of December 31,
1999.)
Sec. 936.3 Community support standards.
(a) In general. In reviewing a community support statement, the
Finance Board shall take into account a member's performance under the
CRA if the member is subject to the requirements of the CRA, and the
member's record of lending to first-time homebuyers.
(b) CRA standard--(1) Adequate performance. A member that is
subject to the requirements of the CRA shall be deemed to meet the CRA
standard if the rating in the member's most recent CRA evaluation is
``outstanding'' or ``satisfactory.''
(2) Probationary performance. A member that is subject to the
requirements of the CRA shall be subject to a probationary period if
the rating in the member's most recent CRA evaluation is ``needs to
improve.'' The probationary period shall extend until the member's
appropriate federal financial supervisory agency completes its next CRA
evaluation and issues a rating. The member will be eligible to receive
long-term advances during the probationary period. If the member does
not meet the CRA standard at the end of the probationary period, the
Finance Board shall restrict the member's access to long-term advances
in accordance with Sec. 936.5.
(3) Inadequate performance. A member's access to long-term advances
shall be restricted in accordance with Sec. 936.5 if the rating in the
member's most recent CRA evaluation is ``substantial noncompliance.''
(c) First-time homebuyer standard--(1) Adequate performance. In the
absence of public comments or other information to the contrary, a
member shall be presumed to meet the first-time
[[Page 28990]]
homebuyer standard if the member is subject to the requirements of the
CRA and the rating in the member's most recent CRA evaluation is
``outstanding.'' In determining whether other members meet the first-
time homebuyer standard, the Finance Board shall consider a member's
description of its efforts to assist first-time or potential first-time
homebuyers or its explanation of factors that affect its ability to
assist first-time or potential first-time homebuyers. A member shall be
deemed to meet the first-time homebuyer standard if the member
otherwise demonstrates to the satisfaction of the Finance Board that
it:
(i) Has an established record of lending to first-time homebuyers;
or
(ii) Has a program whereby it actively seeks to lend or support
lending to first-time homebuyers, including, but not limited to, the
following:
(A) Providing special credit products with flexible underwriting
standards for first-time homebuyers;
(B) Participating in federal, state, or local government, or
nationwide homeownership lending programs that benefit, serve, or are
targeted to, first-time homebuyers;
(C) Participating in loan consortia for first-time homebuyer loans
or loans that serve predominantly low- or moderate-income borrowers; or
(iii) Has a program whereby it actively seeks to assist or support
organizations that assist potential first-time homebuyers to qualify
for mortgage loans, including, but not limited to, the following:
(A) Providing, participating in, or supporting special counseling
programs or other homeownership education activities that benefit,
serve, or are targeted to, first-time homebuyers;
(B) Providing or participating in marketing plans and related
outreach programs targeted to first-time homebuyers;
(C) Providing technical assistance of financial support to
organizations that assist first-time homebuyers;
(D) Participating with or financially supporting community or
nonprofit groups that assist first-time homebuyers;
(E) Holding investments or making loans that support first-time
homebuyer programs;
(F) Holding mortgage-backed securities that may include a pool of
loans to low- and moderate-income homebuyers;
(G) Participating or investing in service organizations that assist
credit unions in providing mortgages; or
(H) Participating in Bank community lending programs; or
(iv) Has any combination of the elements described in paragraphs
(c)(1)(i), (ii), or (iii) of this section.
(2) Probationary performance. If the evidence of first-time
homebuyer performance is deemed to be unsatisfactory by the Finance
Board, the member shall be subject to a one-year probationary period.
The member will be eligible to receive long-term advances during the
probationary period. If the member does not demonstrate compliance with
the first-time homebuyer standard before the probationary period ends,
the Finance Board shall restrict the member's access to long-term
advances in accordance with Sec. 936.5.
(3) Inadequate performance. A member's access to long-term advances
shall be restricted in accordance with Sec. 936.5 if the member
provides no evidence of first-time homebuyer performance.
(The Office of Management and Budget approved the information
collection requirements contained in this section and assigned
control number 3069-0003 with an expiration date of December 31,
1999.)
Sec. 936.4 Decision on community support statements.
(a) Action on community support statements. The Finance Board shall
act on each community support statement in accordance with the
requirements of Sec. 936.3 within 75 calendar days of the date the
Finance Board deems the community support statement to be complete. The
Finance Board shall deem a community support statement complete when it
has obtained all of the information required by this part and any other
information it deems necessary to process the community support
statement. If the Finance Board determines during the review process
that additional information is necessary to process the community
support statement, the Finance Board may deem the community support
statement incomplete and stop the 75-day time period by providing
written notice to the member. When the Finance Board receives the
additional information, it shall again deem the community support
statement complete and resume the 75-day time period where it stopped.
The Finance Board shall have 10 calendar days in addition to the 75-day
time period to act on a community support statement if the Finance
Board receives the additional information on or after the seventieth
day of the 75-day time period.
(b) Decision on community support statements. The Finance Board
shall provide written notice to the member and the member's Bank of its
determination regarding the community support statement submitted by
the member. The notice shall identify the reasons for the Finance
Board's determination.
Sec. 936.5 Restrictions on access to long-term advances.
(a) Requirement. The Finance Board shall restrict a member's access
to long-term advances if the member:
(1) Failed to comply with the requirements of this part;
(2) Submitted a community support statement that was not approved
by the Finance Board;
(3) Did not receive a rating in a CRA evaluation of ``outstanding''
or ``satisfactory'' at the end of the probationary period described in
Sec. 936.3(b)(2); or
(4) Failed to provide evidence satisfactory to the Finance Board of
its first-time homebuyer performance before the end of the probationary
period described in Sec. 936.3(c)(2).
(b) Notice. The Finance Board shall provide written notice to a
member and the member's Bank of its determination to restrict the
member's access to long-term advances, the member by certified mail,
return receipt requested, and the member's Bank by facsimile and by
regular mail.
(c) Effective date. Restrictions on access to long-term advances
shall take effect 30 days after the date the notices required under
paragraph (b) of this section are mailed unless the member complies
with the requirements of this part before the end of the 30-day period.
(d) Removing restrictions. (1) The Finance Board may remove
restrictions on a member's access to long-term advances imposed under
this section:
(i) If the Finance Board determines that application of the
restriction may adversely affect the safety and soundness of the
member. A member may submit a written request to the Finance Board to
remove a restriction on access to long-term advances under this
paragraph (d)(1)(i). Such written request submitted shall contain a
clear and concise statement of the basis for the request and a
statement from the member's appropriate federal financial supervisory
agency that application of the restriction may adversely affect the
safety and soundness of the member. The Finance Board shall consider
each written request within 30 calendar days of receipt.
(ii) If the Finance Board determines that the member subsequently
has complied with the requirements of this part. A member may submit a
written request to the Finance Board to remove a restriction on access
to long-term
[[Page 28991]]
advances under this paragraph (d)(1)(ii). Such written request shall
state with specificity how the member has complied with the
requirements of this part. The Finance Board shall consider each
written request within 30 calendar days of receipt.
(2) The Finance Board shall place a member on probation in
accordance with Sec. 936.3(b)(2), if:
(i) The member's access to long-term advances was restricted on the
basis of the member's inadequate performance under the CRA standard, as
described in Sec. 936.3(b)(3);
(ii) The rating in the member's subsequent CRA evaluation is
``needs to improve;'' and
(iii) The member did not receive either a ``substantial
noncompliance'' CRA rating or a ``needs to improve'' CRA rating
immediately preceding the CRA rating on which the member's inadequate
performance under the CRA standard was based.
(3) The Finance Board shall provide written notice to the member
and the member's Bank of its determination under this paragraph (d),
the member by certified mail, return receipt requested, and the
member's Bank by facsimile and by regular mail. The Finance Board's
determination shall take effect on the date the notices are mailed.
(e) AHP and CIP. A member that is subject to a restriction on
access to long-term advances under this part shall not be eligible to
participate in the Affordable Housing Program or the Community
Investment Program. The restriction in this paragraph (e) shall not
apply to AHP or CIP applications or funding approved before the date
the restriction is imposed.
(The Office of Management and Budget approved the information
collection requirements contained in this section and assigned
control number 3069-0003 with an expiration date of December 31,
1999.)
Sec. 936.6 Bank community support programs.
(a) Requirement. Consistent with the safe and sound operation of
the Bank, each Bank shall establish and maintain a community support
program. A Bank's community support program should:
(1) Provide technical assistance to members;
(2) Promote and expand community-oriented mortgage lending and
affordable housing finance;
(3) Identify opportunities for members to expand financial and
credit services in underserved neighborhoods and communities; and
(4) Encourage members to increase their community-oriented mortgage
lending and affordable housing finance activities by providing
incentives such as awards or technical assistance to nonprofit housing
developers or community groups with outstanding records of
participation in community-oriented lending or affordable housing
finance partnerships with members.
(b) Advisory Councils. A Bank shall consult with its Advisory
Council to develop and implement initiatives to increase community-
oriented mortgage lending and affordable housing finance activities in
the Bank district.
(c) Notice. A Bank shall provide annually to each of its members a
written notice:
(1) Identifying AHP, CIP, and other Bank activities that may
provide opportunities for a member to meet the community support
requirements; and
(2) Summarizing community-oriented mortgage lending and affordable
housing finance activities undertaken by members, nonprofit housing
developers, community groups, or other entities in the Bank's district,
that may provide opportunities for a member to meet the community
support requirements.
Sec. 936.7 Reports.
The annual report Advisory Councils are required to submit to the
Finance Board pursuant to section 10(j)(11) of the Act shall include an
analysis of the appropriate Bank's community support program and
activities.
By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairperson.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix--Community Support Statement Form
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