[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

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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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[FR Doc. 97-13690 Filed 5-28-97; 8:45 am]
BILLING CODE 6725-01-C