[Federal Register Volume 62, Number 246 (Tuesday, December 23, 1997)]
[Rules and Regulations]
[Pages 66977-66980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33254]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 960

[No. 97-N-10]


Questions and Answers Regarding The Affordable Housing Program

AGENCY: Federal Housing Finance Board.

ACTION: Staff interpretation of affordable housing regulations.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is 
publishing Questions and Answers regarding the Affordable Housing 
Program (AHP). The Questions and Answers have been prepared by staff of 
the Finance Board in response to questions about changes in the Finance 
Board's regulation governing the AHP that will go into effect on 
January 1, 1998. The Questions and Answers constitute informal staff 
guidance for Finance Board personnel, the Federal Home Loan Banks 
(Bank), Bank members, and program participants. The Answers are 
intended to be interpretive of the Finance Board's regulation governing 
the AHP, and are not statements of agency policy. The Questions and 
Answers have not been considered or approved by the Board of Directors 
of the Finance Board.

FOR FURTHER INFORMATION CONTACT: Richard Tucker, Deputy Director, 
Compliance Assistance Division, (202) 408-2848, or Janet M. 
Fronckowiak, Program Analyst, Compliance Assistance Division, (202) 
408-2575, or Diane E. Dorius, Associate Director, Program Development 
Division, (202) 408-2576, Office of Policy, Federal Housing Finance 
Board, 1777 F Street, N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION: On August 4, 1997, the Finance Board 
published a final rule amending its existing regulation governing the 
AHP. See 62 FR 41812 (Aug. 4, 1997). The final rule will become 
effective on January 1, 1998. In the months following publication of 
the final rule, the Finance Board has provided training to the staffs 
of the Banks to assist them in making a smooth transition to operation 
under the amended AHP regulation. A number of questions of regulatory 
interpretation were raised by Bank staff as a result of the Finance 
Board's training sessions. The staff of the Finance Board has prepared 
answers to the most frequently asked questions. The Questions and 
Answers constitute informal interpretive guidance for Finance Board 
personnel, the Banks, Bank members, and program participants. The 
Answers are intended to be interpretative of the AHP regulation, not 
statements of agency policy, and they have not been considered or 
approved by the Board of Directors of the Finance Board.
    The Questions and Answers are grouped by the provision of the AHP 
regulation that they discuss and are presented in the same order as the 
regulatory provisions. The text of the Questions and Answers follows:

Text of the Questions and Answers

Questions and Answers Regarding the AHP

Definitions (Sec. 960.1)
    Low- and Moderate-Income and Very Low-Income Household Eligibility 
for Current Occupants:
    Q1. When a rental project involves both purchase and 
rehabilitation, which point in time should be used for purposes of 
determining household eligibility?
    A1. The regulation permits a choice of determining income 
eligibility either at the time of completion of the purchase or at the 
time of completion of the rehabilitation.
    Q2. In the case of projects involving the purchase or 
rehabilitation of rental housing with current occupants, can an 
occupying household that is a very low-income or a low- or moderate-
income household at the time the AHP application is submitted to the 
Bank be deemed to be a very low-income or a low- or moderate-income 
household at

[[Page 66978]]

the time the purchase or rehabilitation of the housing is completed?
    A2. Yes.
    Median Income for the Area:
    Q3. How can median income standards published by the U.S. 
Department of Agriculture (USDA) be available for all projects in a 
Bank's District if USDA publishes median income standards only for 
rural areas?
    A3. USDA income standards would be applicable only to the rural 
areas identified in the USDA standards. A Bank selecting this median 
income standard would have to select another income standard to be used 
in non-rural areas.
    Sponsor:
    Q4. Does the definition of ``sponsor'' include a not-for-profit 
organization that owns a for-profit entity that is the general partner 
in the partnership that owns an AHP-eligible rental project?
    A4. Yes.
Advisory Councils (Sec. 960.4)
    Terms (section 960.4(d)):
    Q1. Is each Advisory Council member required to be appointed for a 
three-year term?
    A1. Yes.
    Q2. Do terms already served or which currently are being served by 
Advisory Council members who are in office on January 1, 1998, count 
toward the limit of three consecutive terms?
    A2. No. Only terms that begin on or after January 1, 1998, the 
effective date of the revised AHP regulation, count toward the limit of 
three consecutive terms.
Minimum Eligibility Standards for AHP Projects (Sec. 960.5)
    Experienced Counseling Organization (section 960.5(a)(2)(ii)):
    Q1. What is a homebuyer or homeowner counseling program provided 
by, or based on one provided by, an organization recognized as 
experienced in homebuyer or homeowner counseling?
    A1. A program such as one that is provided by a counseling 
organization approved by HUD or a state or local agency would qualify. 
Programs that are based on counseling guides such as those provided by 
the American Homeowners Education and Counseling Institute also would 
meet this requirement.
    Homeownership Set-Aside Incentives (section 960.5(a)(6)):
    Q2. What are financial or other incentives to a household that are 
required of a member that provides mortgage financing?
    A2. A Bank may determine what it considers to be financial or other 
incentives. For example, financial incentives could include lower (or 
foregone) origination fees, other discounted fees, reduced interest 
rates, lower downpayment requirements, or reductions in other closing 
costs. Two examples of other non-financial incentives are using 
underwriting standards that are more flexible than the member's usual 
practice, and making loans with longer terms than the member usually 
makes.
    Counseling Costs (Sec. 960.5(a)(7)):
    Q3. Under what circumstances can counseling costs be paid by AHP 
subsidies?
    A3. For the competitive application program, counseling costs may 
be paid with AHP subsidies if the costs are incurred in connection with 
counseling of homebuyers who actually purchase an AHP-assisted unit and 
the cost of the counseling has not been covered by another funding 
source, including the member.
    For the homeownership set-aside program, counseling costs may be 
paid with AHP subsidies if the costs are incurred in connection with 
counseling of homebuyers who actually purchase an AHP-assisted unit; 
the cost of the counseling has not been covered by another funding 
source, including the member; and the AHP subsidies are used to pay 
only for the amount of such reasonable and customary costs that exceed 
the highest amount the member has spent annually on homebuyer 
counseling costs within the preceding three years. A member may certify 
to the amount it spent, including in-house costs, over the preceding 
three years. If a member is not covering the cost of counseling and has 
not paid for counseling costs in the previous three years, AHP 
subsidies may be used to pay for reasonable and customary counseling 
costs incurred in connection with counseling of homebuyers who actually 
purchase an AHP-assisted unit.
    Direct Subsidy Processing Fees (Sec. 960.5(b)(4)(iii)):
    Q4. Does the prohibition on using AHP funds to pay for direct 
subsidy processing fees cover fees for costs incurred by a member in 
order to pass on the subsidy, such as legal and underwriting costs?
    A4. Yes.
    Member Subsidy Limits (Sec. 960.5(b)(10)):
    Q5. A Bank may establish certain eligibility requirements for its 
AHP. May the limitation on the amount of AHP subsidy available per 
member be based on a percentage of a member's assets or a percentage of 
the total available AHP funds?
    A5. District eligibility requirements must apply equally to all 
members. A limitation based on a percentage of a member's assets would 
result in larger members being eligible to compete for more AHP funds 
than smaller members; therefore, such a limitation would not be 
permitted. However, since limiting each member to no more than a 
certain percentage of total available AHP funds would apply equally to 
each member, such a limitation would be permitted.
Procedure for Approval of AHP Applications for Funding (Sec. 960.6)
    Scheduled Funding Periods (Sec. 960.6(b)(1)):
    Q1. If a Bank schedules one funding period per year, but is unable 
to allocate its entire annual AHP contribution in that period, may the 
Bank hold a second funding period to allocate the remaining subsidies, 
even if the second funding period does not have a comparable amount of 
funds?
    A1. Yes. The concept of allocating comparable amounts in each 
funding period is based on the premise that a Bank schedules more than 
one funding period a year. If a Bank plans one funding period and an 
insufficient number of qualifying applications are approved in that 
period, a Bank may hold a second funding period to allocate the unused 
subsidies and that period does not have to be comparable in amount to 
the first period.
    Nominal Price (Sec. 960.6(b)(4)(iv)(A)):
    Q2. Regarding the conveyance of government-owned or other 
properties for a ``nominal'' price, what is a ``nominal'' price?
    A2. A small, negligible amount, most often one dollar, is a nominal 
price. Modest expenses related to the conveyance of the property may 
also be paid.
    Not-for-profit Organization/Government Entity Sponsor Scoring 
Criterion (Sec. 960.6(b)(4)(iv)(B)):
    Q3. Does the definition of ``sponsor'' in Sec. 960.1 apply to the 
not-for-profit organization/government entity sponsor scoring criterion 
such that a not-for-profit or government entity sponsor of a rental 
project must have an ownership interest in the project in order for the 
project to get any points under that criterion?
    A3. Yes.
    First District Priority (Sec. 960.6(b)(4)(iv)(F)):
    Q4. If a Bank chooses more than one criterion for which an AHP 
application may receive points under the First District Priority 
scoring category, how are points to be allocated among those criteria?

[[Page 66979]]

    A4. If a Bank permits applications to receive points for meeting 
more than one criterion under the First District Priority scoring 
category, the Bank must split the total number of points for the First 
District Priority among those criteria. The sum of the points allocated 
to each of the criteria must equal the total number of points allocated 
to the First District Priority. Each application must be scored 
according to the extent to which it meets each of the criteria. An 
application cannot receive more than the total number of points 
allocated to a particular criterion if the application meets that 
criterion. If an application meets all the criteria under the First 
District Priority, the application cannot receive more than the total 
number of points allocated to the First District Priority.
    Subsidy-Per-Unit (Sec. 960.6(b)(4)(iv)(H)):
    Q5. Is subsidy-per-unit based on AHP-targeted units only?
    A5. Yes. The project is scored based on the extent to which the 
project proposes to use the least amount of AHP subsidy per AHP-
targeted unit. AHP-targeted units are any units that will be purchased 
by, or reserved for occupancy by and affordable for, households with 
incomes of 80 percent or less of area median income.
    Funding Alternates (Sec. 960.6(b)(5)(i)):
    Q6. If sufficient AHP funds are recovered or repaid from previously 
committed AHP awards, must they be used to fund projects approved as 
alternates in a previous funding period?
    A6. No. Recovered and repaid AHP subsidies must be returned to a 
Bank's AHP fund. A Bank may, but is not required to, fund alternate 
projects from recovered or repaid AHP funds.
    Board of Directors Approval (Sec. 960.6(b)(5)(ii)):
    Q7. May responsibility to approve or disapprove AHP applications be 
delegated by the board of directors of a Bank to a committee of the 
board?
    A7. Yes. Such delegation should be done on an annual basis.
Modification of AHP Applications Prior to Project Completion 
(Sec. 960.7)
    Material Change (Sec. 960.7(a)):
    Q1. For purposes of modifications to AHP applications prior to 
project completion, what constitutes a change in a project that 
``materially'' affects the facts under which the project's application 
was originally scored and approved for AHP funding?
    A1. A change that materially affects the facts under which an AHP 
application was originally scored and approved is any change that has 
the potential for rendering the project ineligible or for changing the 
score that the project received in the funding period in which it was 
originally scored, had the changed facts been operative at that time. 
Examples include changes in the level of income targeting or the number 
of targeted units in a project.
Procedures for Funding (Sec. 960.8)
    Direct Subsidy Changes (Sec. 960.8(c)(3)(i)):
    Q1. When a Bank has approved a direct subsidy for an interest rate 
or principal write-down, is the Bank required to reduce the amount of 
the direct subsidy when interest rates decrease?
    A1. Yes. The Bank must reduce the amount of AHP subsidy when 
interest rates have decreased from the time of the approval of the AHP 
application to the time of funding. However, the Bank does have the 
discretion to process a project modification under Sec. 960.7 to cover 
additional amounts of subsidy required due to increased project costs 
or the loss or reduction of other funding sources. The modification 
could be approved by the Bank's staff, rather than the Bank's board of 
directors, if the amount of AHP subsidy required does not exceed the 
amount of the originally approved subsidy.
Modification of AHP Applications After Project Completion (Sec. 960.9)
    Material Change (Sec. 960.9):
    Q1. For purposes of modifications to AHP applications after project 
completion, what constitutes a change in a project that ``materially'' 
affects the facts under which the project's application was originally 
scored and approved for AHP funding?
    A1. A change that materially affects the facts under which an AHP 
application was originally scored and approved is any change that has 
the potential for rendering the project ineligible or for changing the 
score that the project received in the funding period in which it was 
originally scored, had the changed facts been operative at that time. 
Examples include changes in the level of income targeting or the number 
of targeted units in a project.
    Financial Distress (Sec. 960.9(a)):
    Q2. May a completed project qualify for a modification if it is at 
risk of falling into financial distress?
    A2. Yes. A project must provide sufficient information for the Bank 
to determine that it either is in financial distress or is at 
substantial risk of falling into financial distress. This section is 
intended to provide flexibility to modify the commitments made in the 
approved AHP application if those modifications will help to avert the 
potential financial distress. However, if a completed project needs 
additional AHP funds, it must compete for those additional funds.
Initial Monitoring Requirements (Sec. 960.10)
    Verification of Reasonable and Customary Costs 
(Sec. Sec. 960.10(c)(1)(ii) and (c)(2)(ii)):
    Q1. What types of documentation may a Bank rely on in order to 
establish that a project's actual costs were reasonable and customary 
in accordance with the Bank's project feasibility guidelines?
    A1. If a project is funded by other funding sources (such as 
Federal Low-Income Housing Tax Credits, FHA) that require a cost 
certification upon completion of construction or rehabilitation, the 
Bank may rely upon that cost certification to make its own 
determination whether the costs are reasonable and customary. If a cost 
certification is unavailable, the Bank shall review the final statement 
of sources and uses of funds to make that determination.
    Verification of Provision of Activities and Services 
(Sec. 960.10(c)(2)(i)):
    Q2. Is a site visit necessary to confirm that the services and 
activities committed to in an AHP rental housing application have been 
provided?
    A2. A site visit is not necessary if the Bank has a certification 
and sufficient documentation to provide the Bank with reasonable 
assurance that the services and activities have been provided.
Long-Term Monitoring (Sec. 960.11)
    Reasonable Sampling Plan (Sec. 960.11(a)(3)(iii)(C)):
    Q1. What would be considered a reasonable sampling plan for the 
selection of projects to be monitored by a Bank each year?
    A1. A Bank, working with its internal auditors, may develop a 
sampling methodology that is designed to assure that all projects are 
monitored according to the schedule established in 
Sec. 960.11(a)(3)(iii) of the revised AHP regulation.
Remedial Action for Noncompliance (Sec. 960.12)
    Reasonable Collection Efforts (Sec. 960.12(a)(2)(ii)):
    Q1. What are reasonable collection efforts in the recovery of AHP 
subsidy by a member from the project sponsor or owner?
    A1. Reasonable collection efforts will depend on the facts and 
circumstances of a given situation, including, but not limited to, the 
expected cost of recovery of the AHP subsidy and the amount of subsidy 
to be recovered. Reasonable

[[Page 66980]]

collection efforts may involve negotiation and pursuit of legal 
remedies against a project sponsor or owner, in addition to the 
enforcement of a member's rights under a mortgage or other lien on the 
project.
    Use of Recovered Interest for AHP-Eligible Projects 
(Sec. 960.12(c)(1)(i)):
    Q2. If AHP subsidy and interest are recovered by a Bank from a 
member, does the interest, as well as the AHP subsidy, have to be made 
available for other AHP-eligible projects under Sec. 960.12(e)?
    A2. Yes.
Other Issues
    Project Completion (Sec. Sec. 960.1, 960.10 and 960.11):
    Q1. When is ``project completion'' to be determined for monitoring 
purposes?
    A1. The date on which a certificate of occupancy is issued is one 
way to determine project completion. In areas that do not require 
certificates of occupancy, a Bank should identify in its monitoring 
procedures alternative ways that it will use to determine that a 
project is completed.
    Use of AHP Funds for Otherwise Eligible Costs (Sec. 960.5):
    Q2. May a Bank prohibit the use of AHP funds for certain types of 
costs that are otherwise eligible under the statute and revised AHP 
regulation?
    A2. No.
    Retention and Monitoring Requirements Applicable to Projects 
Approved Prior to January 1, 1998 (Sec. Sec. 960.1, 960.11, and 
960.16):
    Q3. What are the retention and monitoring periods for projects 
approved prior to January 1, 1998?
    A3. The retention and monitoring periods for projects approved 
prior to January 1, 1998, are 5 years from project completion for 
owner-occupied housing and 15 years from project completion for rental 
housing.

    Dated: December 12, 1997.
William W. Ginsberg,
Managing Director.
[FR Doc. 97-33254 Filed 12-22-97; 8:45 am]
BILLING CODE 6725-01-U