[Federal Register Volume 63, Number 228 (Friday, November 27, 1998)]
[Rules and Regulations]
[Pages 65536-65548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31489]
=======================================================================
-----------------------------------------------------------------------
FEDERAL HOUSING FINANCE BOARD
12 CFR Parts 932, 935, 936 and 970
[No. 98-48]
RIN 3069-AA75
Community Investment Cash Advance Programs
AGENCY: Federal Housing Finance Board.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Federal Housing Finance Board (Finance Board) is adopting
a final rule establishing a general framework under which the Federal
Home Loan Banks (Banks) may offer Community Investment Cash Advance
(CICA) programs in addition to their Affordable Housing Programs (AHP)
and Community Investment Programs (CIP). CICA programs other than AHP
and CIP are entirely optional on the part of the Banks. The final rule
is intended to provide the Banks with an array of specific standards
for projects, targeted beneficiaries and targeted income levels that
the Finance Board has determined support community lending under all
CICA programs, including CIP. The final rule, however, does not apply
to a Bank's AHP, which is governed specifically by part 960 of the
Finance Board's regulations. A Bank may offer CICA programs, called
Rural Development Advance (RDA) and Urban Development Advance (UDA)
programs, for community lending using the specified standards for
targeted beneficiaries or targeted income levels, without prior Finance
Board approval. A Bank also may offer other CICA programs for projects,
targeted beneficiaries and targeted income levels established by the
Bank with prior Finance Board approval.
EFFECTIVE DATE: December 28, 1998.
FOR FURTHER INFORMATION CONTACT: Charles E. McLean, Deputy Director,
Market Research, (202) 408-2537, Stanley Newman, Associate Director,
Market Research, (202) 408-2812, or Diane E. Dorius, Associate
Director, Program Development, (202) 408-2576, Office of Policy; or Roy
S. Turner, Jr., Attorney-Advisor, (202) 408-2512, Sharon B. Like,
Senior Attorney-Advisor, (202) 408-2930, or Deborah F. Silberman,
General Counsel, (202) 408-2570, Office of General Counsel, Federal
Housing Finance Board, 1777 F Street, N.W., Washington, D.C. 20006.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
The Banks currently have broad authority under section 10(a) of the
Federal Home Loan Bank Act (Bank Act) and part 935 of the Finance
Board's regulations to make advances in support of housing finance,
including housing for very low-, low- and moderate-income families. See
12 U.S.C. 1430(a); 12 CFR part 935. In the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 (FIRREA), Congress
required the Banks to offer two programs, the AHP and the CIP, to
provide advances in support of unmet housing finance and economic
development credit needs. See Pub. L. 101-73, Sec. 721, 103 Stat. 183
(Aug. 9, 1989).
The AHP is a subsidy program through which the Banks support the
finance of affordable owner-occupied and rental housing. See 12 U.S.C.
1430(j). The Finance Board first issued implementing regulations for
the AHP in 1990. See 12 CFR part 960.
The CIP is a program through which the Banks provide advances to
members at cost to support the financing of housing benefiting families
with incomes at or below 115 percent of the area median income, and
economic development activities benefiting families with incomes at or
below 80 percent of the area median income. See 12 U.S.C. 1430(i)(2).
The Finance Board previously has not promulgated regulations
implementing the CIP.
Section 10(j)(10) of the Bank Act authorizes the Banks to establish
CICA programs in addition to the CIP and the AHP to support ``community
investment.'' See id. section 1430(j)(10). The Finance Board has not
previously promulgated regulations or other specific guidance on what
kinds of Bank lending are permitted under this authority.
Since the enactment of the Banks' statutory authority to make
advances for community investment under FIRREA, the Banks have provided
relatively less long-term credit for economic development projects than
for housing, and all of the verifiable targeted economic development
lending by the Banks has been done under their CIP authority, as
opposed to their authority to establish other CICA programs. In the
past eight years, the Banks have provided $18.1 billion in CIP advances
to finance 368,359 housing units. Only 25 percent of those units have
been rental units that often provide housing for lower-income families
and are usually more difficult to finance than single-family owner-
occupied housing. In addition, only $751 million or 4 percent of CIP
advances have financed economic development projects. Furthermore, CIP
advances are not available to the Banks' nonmember borrowers. See id.
section 1430(i)(1).
The Finance Board believes there is a need for long-term financing
for economic development that is not being met by the financial
community generally, nor by members using the CIP specifically. The
Banks can help to meet this need through the establishment of other
CICA programs to provide long-term financing for economic development.
In order to facilitate and encourage such community lending, the
Finance Board issued a proposed rule to establish uniform standards for
all CICA programs defining the kinds of housing and economic
development projects and activities, targeted beneficiaries and
targeted income levels that would constitute ``community investment''
eligible to be financed by advances under section 10(j)(10) of the Bank
Act. This proposed rule was published in the Federal Register on May 8,
1998, with a 90-day period for public comment that closed on August 6,
1998. See 63 FR 25718 (May 8, 1998).
[[Page 65537]]
The Finance Board received 31 comment letters on the proposed rule.
Commenters included: eleven Banks, a Bank board of directors, a Bank
member thrift, three Bank Advisory Councils, five government entities,
an organization representing government entities, five trade
associations, and an investment advisor.
In the proposed rule, the Finance Board requested comment on
whether it should establish CICA standards, in whole or in part, in the
form of a regulation or a policy statement or guidelines. See 63 FR
25718. The Finance Board asked whether a policy statement or guidelines
would be a more effective means of achieving the goal of promoting the
Bank's support of community investment financing. Commenters supporting
issuance of CICA standards via a regulation stated that the proposed
rule contained sufficient flexibility and discretion to enable the
Banks to promote community investment in response to the needs of their
individual districts. Commenters noted that the establishment of clear
and specific CICA standards would be more likely to increase economic
development activities in targeted communities, and would make CICA
programs easier to implement and monitor. The Finance Board agrees with
these commenters and has determined to issue a final rule.
Commenters preferring issuance of a policy statement or guidelines
stated that regulatory standards and reporting requirements would
increase the cost of implementing CICA programs and might discourage
members and others from participating in such programs. Commenters also
suggested that policy guidelines could be modified more quickly than a
regulation to respond to changing markets and project needs. There
appears to be little merit in these arguments. First, the standards and
reporting requirements would exist regardless of the form of the
guidance. This argument implies that such standards and requirements
could be more easily ignored if the guidance existed in the form of a
policy statement, since a policy statement is not legally enforceable
by the agency. Such arguments only serve to demonstrate why a
regulation is preferable to a policy statement. Second, changing a
policy statement requires action by the Board of Directors of the
Finance Board, as does changing a regulation. The only real difference
in timing is the public comment process required for a rulemaking
procedure. Once again, this only serves to demonstrate why the
regulatory route is preferable.
Under the Administrative Procedures Act (APA), regulations are
subject to a wide-ranging notice and public comment process, which
enables the regulatory agency to obtain the broadest possible input
from the regulated industry, program users, and the public in
developing the standards and other requirements to be incorporated into
such regulations. See 5 U.S.C. 553. In addition, as noted above, unlike
policy statements and guidelines which do not have the force of law and
therefore are not legally binding, regulations are legally enforceable
by the agency. In order to provide the most certainty for the agency,
the Banks and their members, the Finance Board has determined that it
is most appropriate to issue the CICA program standards in a regulation
rather than as a policy statement or guidelines.
II. Analysis of Final Rule
The final rule adds a new part 970 to the Finance Board's
regulations. Part 970 establishes a general framework whereby the Banks
may offer CICA programs to provide advances to members and nonmember
borrowers, who in turn can use the advances to provide financing for
housing and economic development projects or activities for targeted
beneficiaries with incomes at or below a targeted income level, to
address unmet economic development credit needs. Projects with unmet
credit needs are those for which financing is not generally available,
or is available at lower levels or under less attractive terms. The
final rule does not require a Bank to establish a CICA program (other
than AHP and CIP, which are required by statute). The final rule is
intended to provide the Banks with the parameters for what the Finance
Board has determined will meet the statutory requirement for
``community investment'' under section 10(j)(10). See 12 U.S.C.
1430(j)(10).
As further described below, the final rule has been substantially
reorganized from the proposed rule to provide greater clarity.
A. Scope--Sec. 970.1
Section 970.1 of the final rule states that part 970 establishes
requirements for all CICA programs offered by a Bank, except for a
Bank's AHP, which is governed specifically by part 960 of the Finance
Board's regulations (Affordable Housing Program Regulation, 12 CFR part
960).
B. Purpose--Sec. 970.2
Section 970.2 of the final rule states that the purpose of part 970
is to identify community lending projects or activities (as defined in
Sec. 970.3 and discussed further below) that the Banks may support
through the establishment of CICA programs. A Bank may offer the
following CICA programs in support of community lending: Rural
Development Advance (RDA) programs; Urban Development Advance (UDA)
programs; and any other CICA programs that meet the requirements of
part 970. In addition, a Bank is required to offer CICA programs under
section 10(i) of the Bank Act (CIP) (12 U.S.C. 1430(i)), and under
section 10(j) of the Bank Act (AHP) (12 U.S.C. 1430(j)).
C. Community Lending Plan--Sec. 970.4
Section 970.4 of the final rule requires each Bank to develop and
adopt an annual Community Lending Plan pursuant to Sec. 936.6 of the
Finance Board's Community Support Regulation (12 CFR 936.6). As further
discussed below, a Bank's Community Lending Plan shall contain
quantitative community lending performance goals, and the initiatives
and incentives the Bank intends to offer to promote community lending
and affordable housing finance by the Bank's borrowers.
1. Proposed Budget and Strategy Process
The final rule does not adopt the budget and strategy process for
establishing community lending goals that was set forth in the proposed
rule. Proposed Sec. 970.3 would have authorized the Banks to establish
an annual budget for the cumulative discount the Bank intended to make
available under its CIP and other CICA programs (excluding AHP) the
Bank established. The budget was to be based on the Bank's projected
annual totals of CIP advances and other CICA advances that the Bank
intended to make, and the extent to which the Bank intended to provide
a pricing discount, if any, for such other CICA advances. If a Bank
chose to establish a budget, the Bank was urged to establish standards
for allocating the discount among specific types of eligible community
lending activities. In the absence of such a budget, the Bank was
required to fund requests from qualified borrowers for any advances
that otherwise met the requirements of the Bank's CIP or any other CICA
program the Bank offered. The proposed rule also would have required
each Bank to establish a strategy, after consultation with the Bank's
Advisory Council and economic development organizations in the Bank's
district, for providing CIP advances to support financing for community
lending that is otherwise not generally available, or is available at
[[Page 65538]]
lower levels or under less attractive terms.
The proposal was meant to encourage the Banks to engage in a
deliberate decisionmaking process about how much community lending
credit they intended to make available each year, through their CIP and
other CICA programs, and the kinds of projects to which that credit
should be directed. As discussed above, the Banks' community lending
efforts to date have been through volume lending under the CIP in
support of home mortgage loans, to the relative exclusion of economic
development financing. The Banks' concentration on volume funding of
CIP-eligible home mortgage loans may have been encouraged by the CIP
target system established in the past by the Finance Board, which was
based on a Bank's average annual outstanding CIP advances. The Finance
Board wishes to reverse this trend and to shift the Banks' focus from
volume of CIP lending to maximizing the impact of individual advances.
The proposed rule made clear that each Bank had authority to determine
the appropriate amount of CIP credit to make available on an annual
basis. However, the Finance Board believed that the authority to limit
the amount of available CIP credit imposed an obligation for the Bank
to target how the opportunity cost associated with CIP advances is to
be used most effectively in relation to the kinds of CIP projects the
Bank funds.
One Bank commenter specifically supported the necessity of having a
Bank System-wide basis for determining the dollar value of the discount
for specific advances, in order to ensure that all of the Banks budget
their cumulative discounts consistently, regardless of the actual CICA
programs and discounts offered. The commenter stated that capital
limitations should be included as a factor which Banks could consider
in the cumulative discount budgeting process, since CIP and other CICA
advances must be funded under the statutory 20-to-1 capital leverage
limits, just as regular advances are funded. See id. section
1426(b)(2). One Bank commenter added that it should be clarified that
the Banks are dependent on lenders to decide whether to originate
specific types of loans and to finance them with Bank advances and,
therefore, the Banks should have flexibility to adjust their budgets in
response to changing market realities.
Other commenters stated that the budget dollar amount selected by
the Bank would be an inaccurate and unrelated measure of a Bank's
commitment to community lending and should not be used by the Finance
Board as a proxy for such lending. Commenters claimed that it would be
nearly impossible for the Banks to demonstrate that a CICA advance to
support projects is ``otherwise not generally available or is available
at lower levels or under less attractive terms.'' A Bank commenter
questioned how the Finance Board would treat Banks that do not
``spend'' all of their annual CICA budget, or spend more or budget less
than the Finance Board desires. Another commenter expressed concern
that the proposed annual budget requirement could result in a Bank
having to make all of its advances at cost, without any profit, which
would be burdensome and unworkable. One commenter also noted that the
proposed budget requirement could create uncertainty rather than a
stable source of discounted funding for eligible projects. For example,
if the volume of CICA advances were to decline, discounts offered near
the end of the budget period may be more significant that those offered
earlier in the year in order for the Banks to fulfill their volume or
discount quota under the proposed rule. Conversely, in order to meet
volume or discount quota, Banks may offer aggressive discounts early in
the year, to the detriment of worthy projects needing funding later in
the year that may not receive as favorable terms.
A Bank commenter recommended deletion of the proposed provision
that in determining projected annual totals for CIP and other CICA
program advances, a Bank should take into account its earnings, fearing
that this would become the primary measure for establishing a CICA
budget, rather than taking into account market conditions, product
demand, and other variables that typically are considered in developing
budget projections.
Several Bank commenters suggested that the proposed requirement
that the Bank must fund CICA advance requests in the absence of a CICA
budget adopted by the Bank be deleted as inconsistent with safe and
sound business practices, and contrary to the statutory language
granting the Banks' boards of directors discretionary authority to deny
or condition approval of an advance. See id. section 1429.
Several commenters suggested instead that each Bank's board of
directors, in consultation with its Advisory Council, should be
required to establish specific annual measurable goals or performance
standards for CIP and CICA advances, such as volume targets or dollar
targets, based on assessment of critical community lending needs in the
Bank's district. One Bank commenter suggested evaluating a Bank's CICA
performance taking into account its marketing efforts, technical
assistance activities and other information on CICA programs.
A commenter suggested that the Banks be encouraged to adopt one
CICA plan covering the AHP, CIP, Community Support and other CICA
programs, rather than separate plans for each program.
A commenter suggested clarification of the need for a CIP strategy
statement where the Bank will not be establishing a budget but intends
to fund all qualified requests for CIP advances. Several commenters
supported requiring consultation with economic development
organizations, in addition to Advisory Councils, in developing CIP
strategies. Other commenters suggested that consultation with such
organizations should be encouraged but not required, as the Advisory
Councils are very capable of providing input in the development of CICA
programs, and representatives of such organizations often are members
of the Advisory Councils.
The Finance Board believes that many of these comments have merit,
and has sought in the final rule to address the concerns expressed by
the commenters while maintaining the essence of the proposal in a less
burdensome manner. Accordingly, the budget and strategy provisions of
proposed Sec. 970.3 have not been adopted in the final rule. Instead, a
number of the comments have been incorporated into the final rule
through amendment of Sec. 936.6 of the Finance Board's Community
Support Regulation, as further discussed below.
2. Community Lending Plan
There is already established in the Finance Board's Community
Support Regulation (12 CFR 936) a requirement that the Banks provide
technical assistance and engage in outreach to their members for
affordable housing and certain community lending. See id. Sec. 936.6.
The final rule amends Sec. 936.6 to require the Banks to expand the
scope of the existing marketing activities required under their
Community Support Programs to encourage community lending by their
borrowers, and include in their Community Support Programs an annual
Community Lending Plan containing quantitative community lending
performance goals. As further discussed below, ``community lending'' is
defined in the final rule as ``providing financing for economic
development projects for targeted beneficiaries.'' See Sec. 970.3.
Specifically, the final rule amends Sec. Sec. 936.6(a) and (b) of
the Community Support Regulation (to be codified in
[[Page 65539]]
Sec. 936.6(a)), to provide that a Bank's Community Support Program
should:
(1) Promote and expand affordable housing finance;
(2) Encourage members to increase their community lending and
affordable housing finance activities by providing incentives, as
provided therein;
(3) Include an annual Community Lending Plan, approved by the
Bank's board of directors and subject to modification, which shall
require the Bank to:
(i) Conduct market research in the Bank's district;
(ii) Describe how the Bank will address the identified credit needs
and market opportunities in the Bank's district for community lending;
(iii) Consult with its Advisory Council and with members, nonmember
borrowers, and public and private economic development organizations in
the Bank's district in developing and implementing its Community
Lending Plan; and
(iv) Establish quantitative community lending performance goals.
The Community Lending Plan is intended not as a burden, but as a
tool to assist the Banks in identifying credit needs and business
opportunities within the Bank's district and in crafting viable
business responses to those needs and opportunities. Market research is
the methodology through which the Banks may discover the opportunities
available and thereby may develop an informed Community Lending Plan.
No formal methodology is required by the final rule; each Bank,
therefore, is responsible for determining what market research activity
will be sufficient to enable the Bank to identify the community lending
credit needs and market opportunities in its district and develop
programs to address those needs and opportunities.
3. CICA Program Information Dissemination
In the proposed rule, the Finance Board requested comment on how
information about a Bank's CIP and other CICA programs could best be
disseminated to Bank members and nonmember borrowers, as well as to
other interested members of the public. See 63 FR 25719. Several
commenters stated that existing Bank information dissemination
procedures under the Banks' other affordable housing and community
lending programs are adequate for CICA purposes. The Finance Board
agrees with these commenters and has included in the final rule a CICA
information dissemination requirement as a part of the existing
Community Support information dissemination process. Specifically, the
final rule amends Sec. 936.6(c) of the Finance Board's Community
Support Regulation (to be codified in Sec. 936.6(b)) to require that
the Banks provide annually to each of their members a written notice:
(1) Identifying CICA programs and other Bank activities that may
provide opportunities for a member to meet the community support
requirements and to engage in community lending; and
(2) Summarizing community lending and affordable housing activities
undertaken by members, nonmember borrowers, 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 and to engage in community lending.
D. Community Investment Cash Advance Programs--Sec. 970.5
1. Types of CICA Programs
The final rule defines a ``CICA program'' as a Bank's AHP, CIP, RDA
or UDA program using any combination of the standards specified in
Sec. 970.3, and any other program for community lending offered by a
Bank using standards other than those specified in Sec. 970.3, with
prior Finance Board approval. See Sec. 970.3.
2. ``Community Lending''
Section 970.5 of the final rule provides that Bank advances offered
under CICA programs must be made for ``community lending'' and eligible
housing projects at the appropriate ``targeted income levels.'' See
also 12 CFR 935.1 (as amended by the final rule) (definition of
``community investment cash advance''). ``Community lending'' is a new
term in the final rule, which is defined as ``providing financing'' for
``economic development projects'' for ``targeted beneficiaries.'' See
Sec. 970.3.
In response to a commenter, the Finance Board wishes to clarify
that CICA loans may be used for affordable housing, but that only the
CIP and AHP CICA programs have targeting requirements for affordable
housing under CICA. The fact that CICA loans may be made for targeted
economic development financing does not negate the fact that CICA loans
also may be made for affordable housing. CICA loans also may be used
for mixed-use projects involving both community lending and affordable
housing, although only the community lending portion of the project
would be subject to targeting under CICA (except for CIP projects). See
Sec. 970.5(b). Nothing in this final rule diminishes the Banks'
authority to provide advances to fund loans for affordable housing
projects pursuant to their regular advances authority under section
10(a) of the Bank Act. See 12 U.S.C. 1430(a).
In the proposed rule, the Finance Board requested comment on
defining targeted income levels for CICA programs based upon area
median income data other than that published annually by HUD. See 63 FR
25720. A number of commenters favored allowing the Banks to choose
among the median income standards identified in the Finance Board's AHP
regulation (12 CFR 960.1). Accordingly, targeted income levels in the
final rule are based on the ``median income for the area,'' as defined
in Sec. 970.3, consistent with the definition in the AHP regulation,
which will provide uniformity between the AHP and other CICA programs.
In addition, in response to commenters, the median income for the area
may be adjusted for family size, rather than just for a family of four.
The final rule specifically defines the component terms of
``community lending,'' as further discussed below.
a. ``Providing financing''
``Providing financing'' means:
(1) Originating loans;
(2) Purchasing a participation interest, or providing financing to
participate, in a loan consortium for CICA-eligible housing or economic
development projects;
(3) Making loans to entities that, in turn, make loans for CICA-
eligible housing or economic development projects;
(4) Purchasing mortgage revenue bonds or mortgage-backed
securities, where all of the loans financed by such bonds and all of
the loans backing such securities, respectively, meet the eligibility
requirements of the CICA program under which the member or nonmember
borrower receives an advance;
(5) Creating or maintaining a secondary market for loans, where all
such loans are mortgage loans meeting the eligibility requirements of
the CICA program under which the member or nonmember borrower receives
an advance;
(6) Originating CICA-eligible loans within 3 months prior to
receiving the CICA advance; or
(7) purchasing low-income housing tax credits. See Sec. 970.3.
Bank commenters specifically supported the inclusion of purchasing
qualifying mortgage revenue bonds and mortgage-backed securities, and
creating
[[Page 65540]]
or maintaining a secondary market for qualifying loans. The financing
techniques listed in paragraphs (2), (3), (6) and (7) were added in
response to commenters' suggestions, in order to provide additional
flexibility for the Banks to use various financing strategies to
support community lending.
A Bank commenter recommended that the proposed list of eligible
financing techniques be revised to permit other appropriate activities
as determined by the Bank, which the Bank may submit to the Finance
Board for approval. The Finance Board believes that the list of
eligible activities in the final rule, which has been expanded to
include commenters' suggestions, is sufficiently inclusive to take into
account anticipated community lending financing.
b. ``Economic development projects''
``Economic development projects'' are:
(1) Commercial, industrial, manufacturing, social service, and
public facility projects and activities; and
(2) Public or private infrastructure projects, such as roads,
utilities, and sewers. See Sec. 970.3.
In response to a Bank comment, the final rule adds industrial
projects, which were not included in the proposed rule.
c. ``Targeted beneficiaries''
``Targeted beneficiaries'' are beneficiaries determined by the
geographical area in which a project is located (Geographically Defined
Beneficiaries), by the individuals who benefit from a project as
employees or service recipients (Individual Beneficiaries), or by the
nature of the project itself (Activity Beneficiaries). See Sec. 970.3.
A list of targeted beneficiaries appeared under the definition of
``benefit'' in Sec. 970.4 of the proposed rule. Targeted beneficiaries
as defined in the final rule are composed of three groups:
(1) Geographically Defined Beneficiaries:
(i) The project is located in a neighborhood with a median income
at or below the targeted income level. Thus, for CIP-funded projects,
the targeted income level must be 80 percent of area median income; for
RDA-funded projects (defined in Sec. 970.3), the targeted income level
is 115 percent of area median income; and for UDA-funded projects
(defined in Sec. 970.3), the targeted income level is 100 percent of
area median income;
(ii) The project is located in a rural Champion Community, or a
rural Empowerment Zone or rural Enterprise Community, as designated by
the Secretary of the U.S. Department of Agriculture (USDA);
(iii) The project is located in an urban Champion Community, or an
urban Empowerment Zone or urban Enterprise Community, as designated by
the Secretary of the Department of Housing and Urban Development (HUD);
(iv) The project is located in an Indian area, as defined by the
Native American Housing Assistance and Self-Determination Act of 1996
(25 U.S.C. 4101 et seq.), Alaskan Native Village, or Native Hawaiian
Home Land;
(v) The project is located in an area and involves a property
eligible for a Brownfield Tax Credit;
(vi) The project is located in an area affected by a military base
closing and is a ``community in the vicinity of the installation'' as
defined by the Department of Defense at 32 CFR part 176;
(vii) The project is located in a designated community under the
Community Adjustment and Investment Program as defined under 22 U.S.C.
290m-2;
(viii) The project is located in a Federally declared disaster
area; or (ix) the project is located in a state declared disaster area,
or qualifies for assistance under another Federal or state targeted
economic development program, approved by the Finance Board.
One Bank commenter suggested that projects located in state
declared disaster areas be included as eligible for CICA advances.
Another Bank commenter recommended including state-designated
Empowerment and Enterprise Zones in order to provide greater
flexibility in addressing local needs of the targeted income group.
Other commenters suggested allowing the Banks the discretion to select
other areas not listed in the rule that are designated for targeted
economic development. In response to these comments, paragraph (ix) was
added to enable the Banks to fund projects located in state declared
disaster areas, or qualifying for assistance under another Federal or
state targeted economic development program not specifically listed in
the final rule, with prior approval of the Finance Board. This will
enable the Finance Board to determine, on a case-by-case basis, whether
specific state declared disaster areas or economic development programs
are defined by specific standards and are sufficiently targeted to be
considered a CICA program.
(2) Individual Beneficiaries:
(i) The annual salaries for at least 51 percent of the permanent
full-and part-time jobs, computed on a full-time equivalent basis,
created or retained by the project, other than construction jobs, are
at or below the targeted income level (job creation or retention
project); or
(ii) At least 51 percent of the families who otherwise benefit from
(other than through employment), or are provided services by, the
project have incomes at or below the targeted income level.
The Finance Board requested comment in the proposed rule on whether
measuring the salaries of jobs created by a project is an effective way
to determine whether the project benefits families with incomes at or
below a targeted income level. See 63 FR 25720. Several Bank commenters
supported measuring such salaries as a reasonable method of determining
whether a project benefits households with incomes at or below a
targeted income level. A Bank commenter noted that jobs with modest
salaries are typically entry level or for people with limited job
skills, and are an important link in upward mobility of low-income
people. Other commenters stated that the proposed job salary measure
gives the appearance of promoting lower-paying jobs when it would be
preferable to promote an increase in the number and quality of
employment opportunities, and could prevent worthy projects that could
not meet the standard from being eligible for CICA funds.
Some commenters recommended lowering the target for eligible job
creation or retention projects from 75 percent in the proposed rule
(see 63 FR 25724 (definition of ``benefit'')) to 50 or 51 percent.
Commenters stated that projects meeting the lower standard still would
be creating or retaining a significant number of jobs in the community,
and would provide more career and income potential and may be more
viable, given the mix of incomes, than projects with a higher
percentage of the jobs at or below the targeted income level.
Commenters stated that a 50 percent standard would maintain consistency
with other targets in the proposed rule, as well as with targets used
by other Federal housing and economic development programs. One
commenter suggested changing the target to a ``significant number'' of
jobs created or retained by the project, with the threshold number
determined by each Bank in its community investment-affordable housing
plan. Another Bank commenter recommended that the Banks have the
discretion to set the target for the number of jobs created or retained
by the project, taking into account the individual needs of the Bank's
district.
[[Page 65541]]
The final rule retains the proposed measure of salaries of jobs
created or retained by a project which, as noted by a number of
commenters, should be an effective method to determine whether the
project benefits families with incomes at or below a targeted income
level. However, in response to the comments, the final rule changes the
target for job creation or retention projects in the proposed rule from
75 percent to 51 percent of the total number of jobs created or
retained. The 51 percent standard should ensure that projects eligible
for CICA funding have a substantial number of jobs at the targeted
salary level, while not excluding a large number of worthy projects in
credit needy areas. The 51 percent standard also is consistent with the
targeting requirements of other Federal housing and economic
development programs.
(3) Activity Beneficiaries:
Projects that qualify as small businesses, as defined in
Sec. 970.3.
(4) Other Targeted Beneficiaries:
A Bank may designate, with the prior approval of the Finance Board,
other targeted beneficiaries for its community lending.
A number of commenters were concerned that the list of CICA-
eligible projects in the definition of ``benefit'' in the proposed rule
was too limited and did not allow the Banks flexibility to fund other
types of worthy projects, thereby limiting innovation by the Banks. The
final rule addresses this concern by allowing the Banks, with the prior
approval of the Finance Board, to designate other types of projects as
eligible for CICA funding.
Section 970.3 of the final rule further provides that only targeted
beneficiaries identified in paragraphs (1)(i) through (iv), and (2)(i)
and (ii) are eligible for CIP advances. This is necessary in order to
ensure satisfaction of the statutory CIP targeting requirements. See 12
U.S.C. 1430(i)(2).
3. AHP
Section 970.5(a)(1) of the final rule reiterates the statutory
requirement that each Bank shall offer an AHP, in accordance with part
960 of the Finance Board's regulations. See 12 U.S.C. 1430(j); 12 CFR
part 960.
4. CIP
Section 970.5(a)(2) of the final rule provides that each Bank shall
offer a CIP, as required by statute (see 12 U.S.C. 1430(i)), to
``provide financing'' for ``housing projects'' and for eligible
``community lending'' at the appropriate ``targeted income levels.''
Under the statute, the Banks are required to provide funding for
members who, in turn, ``provide loans'' to finance CIP-eligible
activities. See id. Most of the Banks have implemented this statutory
requirement by providing advances to members to fund the origination of
loans financing CIP-eligible activities. Consistent with the proposed
rule, the final rule adopts a more expansive reading of the meaning of
the statutory language authorizing CIP advances to be used by members
to ``provide loans.'' See id. section 1430(i)(2). Specifically, the
final rule authorizes CIP advances and other CICA advances to be used
not only to fund CICA-eligible loan originations, but also for other
types of financing activities as set forth in the definition of
``providing financing'' in Sec. 970.3. The Finance Board believes that
these are additional means of providing loans for the financing of CIP-
and other CICA-eligible activities, in accordance with the intent of
the statute, because they create liquidity in the market for CIP- and
other CICA-eligible loans.
Section 970.3 of the final rule defines ``housing projects'' to
mean projects or activities that involve the purchase, construction or
rehabilitation of, or predevelopment financing for:
(1) Individual owner-occupied housing units, each of which is
purchased or owned by a family with an income at or below the targeted
income level;
(2) Projects involving multiple units of owner-occupied housing in
which at least 51 percent of the units are owned or are intended to be
purchased by families with incomes at or below the targeted income
level;
(3) Rental housing where at least 51 percent of the units in the
project are occupied by, or the rents are affordable to, families with
incomes at or below the targeted income level; or
(4) Manufactured housing parks where:
(i) At least 51 percent of the units in the project are occupied
by, or the rents are affordable to, families with incomes at or below
the targeted income level; or
(ii) The project is located in a neighborhood with a median income
at or below the targeted income level.
In response to comments, the final rule adds as eligible CIP
projects any projects involving rehabilitation of owner-occupied
housing units, construction of rental housing and manufactured housing
parks, or predevelopment financing for housing projects, which were
omitted from the proposed rule.
The final rule clarifies in paragraph (2) that projects involving
multiple units of owner-occupied housing, i.e., condominium,
cooperative and single-family detached housing projects, that meet the
51 percent test are eligible for CIP funding. Thus, single-family
detached owner-occupied housing projects with a mix of incomes, Planned
Unit Developments, and other mixed income projects, would be eligible
for CIP advances.
In response to comments, the final rule changes the requirement in
the proposed rule that ``substantially all'' of the resident families
in a manufactured housing park have incomes at or below the targeted
incomes, to a requirement that at least 51 percent of the units in the
project are occupied by, or the rents are affordable to, families
meeting the targeted income level. This makes the occupancy/
affordability standard for manufactured housing parks consistent with
the 51 percent standard for rental housing projects, and is a clearer
standard to meet than the proposed standard.
Most occupants of manufactured housing parks own their homes but
rent the space on which their homes are located. Verification of income
is not a usual practice in the course of renting space to the owner of
a manufactured home. Therefore, it is difficult to verify that the
resident families in a manufactured housing park are income-eligible.
The criterion in the final rule that the manufactured housing park be
located in a neighborhood with a median income at or below the targeted
income level is intended as a proxy for the requirement that each
resident family be income-eligible.
The ``targeted income level'' for CICA advances provided under CIP
for housing projects and economic development projects is incomes at or
below 115 percent and 80 percent of the median income for the area,
respectively, both as adjusted for family size in accordance with the
methodology of the applicable area median income standard or, at the
option of the Bank, for a family of four. See id.
5. RDA and UDA Programs
Section 970.5(a)(3) of the final rule provides that each Bank may
offer RDA or UDA programs, or both, for community lending using the
targeted beneficiaries or targeted income levels specified in
Sec. 970.3, without prior Finance Board approval. ``RDA programs'' and
``UDA programs'' are programs offered by a Bank for community lending
in ``rural'' or ``urban'' areas, respectively. See Sec. 970.3.
``Targeted income levels'' for RDA and UDA programs, where applicable,
are incomes at or below 115 percent and 100 percent of the median
income for
[[Page 65542]]
the area, respectively, both as adjusted for family size in accordance
with the methodology of the applicable area median income standard or,
at the option of the Bank, for a family of four. See Sec. 970.3. These
income limits are higher than those required under CIP or AHP, and are
intended to benefit families not targeted by those programs. Due to
generally higher median incomes in urban areas, the UDA income
eligibility limit, although numerically lower than the RDA income
eligibility limit, reaches families with higher incomes.
A number of commenters specifically supported the income limits
established for RDA and UDA programs. Several Bank commenters stated
that these income limits do not go far enough to address the income
level imbalances between rural and urban areas. Several commenters
suggested that the RDA and UDA programs both should have the same
income limit of 115 percent, on the basis that while income ranges are
lower in rural areas, urban areas have higher costs of living. A trade
association commenter supported the establishment of such programs
generally, but expressed concern that the higher income limits of these
programs would divert financing from lower income and minority
neighborhoods to neighborhoods where residents are either mostly
middle-income or in the upper range of moderate-income. If a Bank
determines that the higher income limits of the RDA or UDA programs are
not appropriate for a particular CICA program it wishes to offer in its
district, under the final rule the Bank may adopt other income limits
upon prior Finance Board approval. See Sec. 970.3 (definition of
``targeted income level'').
Section 970.3 of the final rule defines ``urban area'' as: (1) a
unit of general local government with a population of more than 25,000;
or (2) an unincorporated area within a Metropolitan Statistical Area
(MSA) that does not qualify for housing or economic development
assistance from the USDA.
A Bank commenter recommended that ``rural area'' be defined as any
town with a population of 30,000 that is not attached to a central
city. Another Bank commenter suggested deletion of the proposed 30,000
reference, recommending instead that ``rural area'' be defined as any
county located outside an MSA, consistent with the definition in other
Federal housing programs. In response to these comments, ``rural area''
is defined in Sec. 970.3 as: (1) a unit of general local government
with a population of 25,000 or less; (2) an unincorporated area outside
an MSA; or (3) an unincorporated area within an MSA that qualifies for
housing or economic development assistance from the USDA. The
population number of 30,000 was changed to 25,000 in order to be
consistent with the definition of rural used in USDA housing programs.
Paragraph (3) of the definition takes into account a comment that the
proposed definition should not have excluded large areas within MSAs
that are predominantly rural in nature.
6. Other CICA Programs Requiring Finance Board Approval
Section 970.5(a)(4) of the final rule provides that each Bank may
offer CICA programs for community lending using targeted beneficiaries
and targeted income levels other than those specified in Sec. 970.3,
established by the Bank with the prior approval of the Finance Board.
In response to comments, this provision is intended to give the Banks
greater flexibility, in response to market needs and demands, to offer
CICA programs that may not use one of the enumerated targeted
beneficiaries or targeted income levels included in the final rule, to
better reflect the needs of the individual Bank's district.
7. Mixed-Use Projects
a. CICA programs other than CIP
Section 970.5(b)(1) of the final rule provides that for projects
funded under CICA programs other than CIP, involving a combination of
housing projects and economic development projects, only the economic
development components of the project must meet the appropriate
targeted income level for the respective CICA program.
b. CIP programs
Section 970.5(b)(2) of the final rule provides that for projects
funded under CIP, both the housing and economic development components
of the project must meet the appropriate targeted income levels. This
is necessary to ensure satisfaction of the statutory CIP targeting
requirements for housing and economic development projects. See 12
U.S.C. 1430(i)(2).
8. Refinancing
Section 970.5(c) of the final rule provides that CICA advances
other than AHP may be used to refinance economic development and
housing projects, provided that any equity proceeds of the refinancing
of rental housing and manufactured housing park projects are used to
rehabilitate the projects or to preserve affordability for current
residents.
A trade association commenter specifically supported allowing the
use of CICA advances for refinancing of economic development projects.
Several commenters opposed the proposed restriction on the use of CICA
advances for refinancing as unnecessary and difficult to enforce from a
compliance standpoint. One commenter stated that the restriction in
proposed Secs. 970.5(d)(2) and 970.7(d) on owner-occupied refinancing
would penalize low-income families vis a vis upper-income families who
face no such limitations on their right to refinance their homes. The
Finance Board agrees that targeted homeowners should be able to take
advantage of all the incidents of home ownership, including accessing
any equity that has accumulated, that other homeowners may use.
Accordingly, the proposed refinancing restriction for owner-occupied
housing has been omitted from the final rule. In response to a
commenter's request for clarification, the final rule's reference to
``any'' equity proceeds makes clear that there is no restriction on
refinancing that results in no ``equity proceeds,'' i.e., refinancing
with no cash out to achieve a lower debt service. The Finance Board
believes that the restriction on refinancing of rental housing and
manufactured housing park projects is necessary to ensure that
occupants of such projects are not adversely affected by a refinancing,
such as taking equity out of a project resulting in an increase in
rents to cover the repayment of the financing.
9. Pricing and Availability of CICA Advances
a. Advances to members
Consistent with proposed Sec. 970.7(f)(1), Sec. 970.5(d)(1) of the
final rule provides that for CICA programs other than AHP and CIP, a
Bank shall price advances to members as provided in Sec. 935.6 of the
Finance Board's Advances Regulation (12 CFR 935.6), and may price such
advances at rates below the price of advances of similar amounts,
maturities and terms made pursuant to section 10(a) of the Bank Act (12
U.S.C. 1430(a)). Permitting the Banks to price such CICA advances as
regular advances may provide the Banks with a financial incentive to
make such advances. Banks still have the option to provide reduced
pricing for such advances in order to provide borrowers with a
financial incentive to undertake community lending.
[[Page 65543]]
b. Pricing of CIP advances
Consistent with the statutory requirement, Sec. 970.5(d)(2) of the
final rule provides that the price of CICA advances made under CIP
shall not exceed the Bank's cost of issuing consolidated obligations of
comparable maturity, taking into account reasonable administrative
costs. See id. section 1430(i)(1). The CIP pricing provision formerly
appeared at Sec. 935.7 of the Finance Board's Advances Regulation (12
CFR 935.7).
Section 970.5(f)(1) of the proposed rule would have allowed the
Banks, in pricing CIP advances, to take into account only those
administrative costs necessary for the operation of the CIP. A trade
association commenter specifically supported this pricing restriction,
stating that it would ensure that the prices of CIP advances are lower
than prices of other similar regular advances. A Bank commenter pointed
out that it currently prices CIP advances by adding a minimal markup
based on the overall cost of putting advances on its books, not based
on unique CIP costs. The commenter noted that if unique CIP costs are
singled out and spread only over the relatively small CIP advances
portfolio, the resulting price markup may actually be greater than the
current CIP markup. In response to the latter comment, the final rule
does not include the pricing restriction of the proposed rule.
In the proposed rule, the Finance Board requested comment on
whether the rule should contain a list of factors that could be the
basis for deeper CIP discounts by the Banks. See 63 FR 25721. The
proposed rule noted that several Banks vary CIP pricing based on the
kinds of projects being financed and the income levels of the
households benefiting from the project, such as projects that benefit
families with incomes at or below 80 percent of the area median income.
One Bank provided lower pricing for members that have been assigned a
rating of outstanding under the Community Reinvestment Act. See 12
U.S.C. 2901 et seq. A Bank commenter supported inclusion of such a list
in the rule in order to provide special incentives for borrowers to use
CIP advances for projects that are difficult to develop. A trade
association commenter and Bank commenter supported inclusion of a list
of such factors in the rule as long as adoption of the factors was
optional for the Banks. A number of Bank commenters opposed inclusion
of a list of such factors, stating that the adoption of such pricing
factors should be left to the discretion of the Banks in order to
ensure greater flexibility and creativity on the part of the Banks.
The Finance Board found these comments to be extremely useful. In
response to these comments, Sec. 970.5(d)(6) of the final rule
authorizes each Bank to establish a fund (Discount Fund), as discussed
further below, which the Bank may use to reduce the price of CIP or
CICA advances below the advance prices provided by part 970. The
Finance Board believes the Discount Fund authorized by the final rule
will be a more productive method of addressing the points raised by the
commenters than the inclusion of a list of factors for a Bank to
consider contained in the proposal.
c. Pricing of AHP advances
Section 970.5(d)(3) of the final rule provides that a Bank shall
price CICA advances made under AHP in accordance with parts 935 and 960
of the Finance Board's regulations (12 CFR parts 935, 960).
d. Advances to nonmember borrowers
Section 970.5(d)(4)(i) of the final rule provides that a Bank may
offer advances under CICA programs to nonmember borrowers at the Bank's
option, except for AHP and CIP, which are available only to members.
Consistent with proposed Sec. 970.7(f)(2), Sec. 970.5(d)(4)(ii) of
the final rule provides that a Bank shall price advances to nonmember
borrowers as provided in Sec. 935.24 of the Finance Board's Advances
Regulation (12 CFR 935.24), and may price such advances at rates below
the price of advances of similar amounts, maturities and terms made
pursuant to section 10b of the Bank Act (12 U.S.C. 1430b).
A consumer mortgage trade association and a member thrift expressed
their opinion that the Banks do not have authority to provide advances
to nonmembers under section 10(j)(10) of the Bank Act. The trade
association also stated that the rule would allow the Banks to compete
with well-functioning private markets, thereby destabilizing those
markets. The Finance Board disagrees.
Section 10(j)(10) of the Bank Act provides that ``[n]o provision of
this subsection or subsection (i) of this section shall preclude any
Bank from establishing additional community investment cash advance
programs or contributing additional sums to the Affordable Housing
Reserve Fund.'' See id. section 1430(j)(10) (emphasis added). While
advances under AHP and CIP are restricted by statute to members,
section 10(j)(10) states that the Banks may establish ``additional''
community investment cash programs, i.e., programs in addition to those
specified in the Bank Act. There is nothing in the plain language of
section 10(j)(10) to suggest or require that Bank advances under
``additional'' CICA programs be restricted solely to members. The
Finance Board has determined that the statutory language is
sufficiently broad to be reasonably interpreted to allow Bank lending
to nonmembers, especially since the Banks already are authorized to
lend to nonmember borrowers pursuant to section 10b of the Bank Act.
See id. section 1430b. The final rule does not require that the Banks
offer CICA programs to nonmember borrowers, but merely provides for
such an option, if a Bank should choose to do so.
e. Pricing pass-through
Section 970.5(d)(5) of the final rule provides that a Bank may
require that borrowers receiving CICA advances pass through the benefit
of any price reduction from regular advance pricing to their borrowers.
This provision extends the pricing pass-through option for CIP advances
in proposed Sec. 970.5(g) to all CICA advances, which was recommended
by a trade association commenter. As suggested by commenters, the
benefit of a price reduction may be passed through in a number of ways
other than as a reduction in the interest rate on the end loan, such as
through reduced fees or downpayment requirements on the end loan.
The statutory provisions governing CIP do not require members that
obtain CIP advances to pass on the benefit of the pricing differential
between CIP advances and regular Bank advances to the owners or
occupants of CIP-financed projects. See 12 U.S.C. 1430(i)(1). A 1996
survey of the Banks' CIP pricing policies indicated that two Banks
specifically required such a pass-through and four Banks encouraged a
pass-through.
f. Discount Fund
As discussed above, the Finance Board in the proposed rule
requested comment on whether the rule should contain a list of factors
that could be the basis for deeper CIP discounts by the Banks. See 63
FR 25721. A number of commenters opposed including an exclusive list of
such factors in the rule. In lieu of that approach, Sec. 970.5(d)(6) of
the final rule provides that a Bank may establish a Discount Fund which
the Bank may use to reduce the price of CIP or other CICA advances
below the advance prices provided for by part 970. Price reductions
made through the
[[Page 65544]]
Discount Fund must be made in accordance with a fair distribution
scheme. This authority is intended to encourage the Banks to find
sources of income both from within the Bank and from third party
partners to be used to reduce the cost of financing for community
lending. One Bank currently has established such a fund with monies
received from a third party partner which the Bank uses to reduce the
cost of CIP advances, with discounts below the CIP rate ranging from 50
to 300 basis points for maturities up to 20 years.
E. Reporting--Sec. 970.6
Section 970.6(a) of the final rule requires each Bank, by July 1,
1999, to provide to the Finance Board an initial assessment of the
credit needs and market opportunities in a Bank's district for
community lending.
Section 970.6(b) provides that, effective in 2000, each Bank
annually shall provide to the Finance Board, on or before January 31, a
Community Lending Plan (as outlined in Sec. 936.6(a) (as amended by
this final rule)).
Section 970.6(c) requires each Bank to provide such other reports
concerning its CICA programs as the Finance Board may request from time
to time.
F. Documentation--Sec. 970.7
Section 970.7(a) of the final rule provides that each Bank shall
require the borrower to certify to the Bank that each project funded by
a CICA advance (other than AHP) meets the respective targeting
requirements of the CICA program. Such certification shall include a
description of how the project meets the requirements, and where
appropriate, a statistical summary or list of incomes of the borrowers,
rents for the project, or salaries of jobs created or retained. The
certification requirement is based on current documentation practices
employed by the Banks for their CIPs.
Section 970.7(b) provides that for those CICA-funded projects that
also receive funds from another targeted Federal economic development
program that has income targeting requirements that are the same as, or
more restrictive than, the targeting requirements of the applicable
CICA program, the Bank shall permit the borrower to certify that
compliance with the criteria of such Federal economic development
program will meet the requirements of the respective CICA program.
Section 970.7(c) provides that such certifications shall satisfy
the Bank's obligations to document compliance with the CICA lending
provisions of part 970. Finance Board examination of the Banks for
compliance with part 970 will be satisfied by demonstration of
compliance with the documentation requirements of Sec. 970.7.
Examination as to whether any Bank's level of community lending is
consistent with the carrying out of such Bank's mission would be
undertaken pursuant to separate regulatory standards to be developed by
the Finance Board in the future.
Several commenters recommended that the rule include specific CICA
documentation and monitoring requirements in order to avoid
discouraging member participation due to lack of clear requirements as
to any reporting and monitoring burdens. Another Bank commenter stated
that the proposed rule contained reporting requirements that would
discourage program users from participating in CICA programs. The
documentation requirements contained in the final rule should provide
the clarity requested by the commenter without being so burdensome as
to discourage participation by borrowers in CICA programs.
G. Conforming Amendments to the Finance Board's Advances Regulation and
Incentive Compensation Regulation
The final rule makes several conforming amendments to other
regulations. First, the final rule amends the Finance Board's Advances
Regulation in order to make clear that a Bank may make long-term
advances for the purpose of financing community lending and affordable
housing finance activities that meet the requirements of a CICA
program. Specifically, the final rule amends the existing definition of
``residential housing finance assets'' in Sec. 935.1 of the Advances
Regulation to include loans or investments financed by CICA advances.
See 12 CFR 935.1 (as amended). The final rule also revises certain
provisions of the Advances Regulation regarding the use of long-term
advances under the CIP in order to make clear that these provisions
apply to all CICA programs, not just the CIP. See id.
Secs. 935.13(a)(5), 935.14(b)(2) (as amended). In addition, the final
rule replaces the definition of ``Community Investment Program'' in the
Advances Regulation with a new definition of ``Community Investment
Cash Advance,'' which, as discussed above, includes advances made under
CICA programs, including the CIP. See id. Sec. 935.1.
Second, the final rule replaces a reference to CIP with a reference
to CICA in Sec. 932.41(c)(2)(ii) of the Finance Board's Compensation
Regulation, see id. Sec. 932.41(c)(2)(ii) (as amended by the final
rule), and deletes references to ``growth'' in the activities to be
considered to encourage quality over volume as the appropriate
standard.
III. Regulatory Flexibility Act
The final rule applies only to the Banks, which do not come within
the meaning of ``small entities,'' as defined in the Regulatory
Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance
with section 605(b) of the RFA, see id. Sec. 605(b), the Finance Board
hereby certifies that this final rule will not have a significant
economic impact on a substantial number of small entities.
List of Subjects
12 CFR Part 932
Banks, Banking, Conflicts of interest, Elections, Ethical conduct,
Federal home loan banks, Financial disclosure, Reporting and
recordkeeping requirements.
12 CFR Part 935
Credit, Federal home loan banks, Reporting and recordkeeping
requirements.
12 CFR Part 936
Credit, Federal home loan banks, Housing, Reporting and
recordkeeping requirements.
12 CFR Part 970
Credit, Federal home loan banks, Housing, Reporting and
recordkeeping requirements.
Accordingly, chapter IX, title 12, Code of Federal Regulations, is
hereby amended as set forth below:
SUBCHAPTER B--FEDERAL HOME LOAN BANK SYSTEM
PART 932--ORGANIZATION OF THE BANKS
1. The authority citation for part 932 continues to read as
follows:
Authority: 12 U.S.C. 1422a, 1422b, 1426, 1427, 1432; 42 U.S.C.
8101 et seq.
2. Amend Sec. 932.41 by revising the first sentence of paragraph
(c)(2)(ii) to read as follows:
Sec. 932.41 Compensation.
* * * * *
(c) Incentive payments for Bank employees.
* * * * *
(2) * * *
(ii) At least fifty percent of the Bank President's incentive
payment shall be based on the extent to which the Bank meets reasonable
numerical performance targets established by the Bank's board of
directors related to the
[[Page 65545]]
Bank's achievement of its housing finance mission, which shall include
substantial consideration of innovative products directed at unmet
credit needs, Community Investment Cash Advances (including Community
Investment Program advances) as defined in Sec. 935.1 of this chapter,
non-advance credit support and risk management products for members, as
well as advances, including long-term advances. * * *
* * * * *
PART 935--ADVANCES
1. The authority citation for part 935 continues to read as
follows:
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1426, 1429, 1430,
1430b, and 1431.
2. Section 935.1 is amended by adding in alphabetical order the
following definition of Community Investment Cash Advance, by removing
the definition of Community Investment Program, and in the definition
of Residential housing finance assets by republishing the introductory
text and revising paragraph (4) to read as follows:
Sec. 935.1 Definitions.
* * * * *
Community Investment Cash Advance or CICA means any advance made
through a program offered by a Bank under section 1430 of the Act and
parts 960 and 970 of this chapter to provide advances for community
lending and affordable housing, including advances made under: a Bank's
Rural Development Advance (RDA) program, offered under section
1430(j)(10) of the Act; a Bank's Urban Development Advance (UDA)
program, offered under section 1430(j)(10) of the Act; a Bank's
Affordable Housing Program (AHP), offered under section 1430(j) of the
Act; a Bank's Community Investment Program (CIP), offered under section
1430(i) of the Act; or any other program offered by a Bank that meets
the requirements of part 970 of this chapter.
* * * * *
Residential housing finance assets means any of the following:
* * * * *
(4) Loans or investments financed by advances made pursuant to a
CICA program;
* * * * *
Sec. 935.7 [Removed and reserved]
3. Section 935.7 is removed and reserved.
4. Section 935.13 is amended by revising paragraph (a)(5) to read
as follows:
Sec. 935.13 Restrictions on advances to members that are not qualified
thrift lenders.
(a) * * *
(5) The requirements of paragraph (a)(2) of this section shall not
apply to applications from non-savings association members for CICA
advances.
* * * * *
5. Section 935.14 is amended by revising paragraph (b)(2) to read
as follows:
Sec. 935.14 Limitations on long-term advances.
* * * * *
(b) * * *
(2) Applications for CICA advances are exempt from the requirements
of paragraph (b)(1) of this section.
PART 936--COMMUNITY SUPPORT REQUIREMENTS
1. The authority citation for part 936 continues to read as
follows:
Authority: 12 U.S.C. 1422a(a)(3)(B), 1422b(a)(1), 1429, and
1430.
2. Amend Sec. 936.1 by revising paragraphs (g) and (h) to read as
follows:
Sec. 936.1 Definitions.
* * * * *
(g) CICA or Community Investment Cash Advance has the same meaning
as in Sec. 935.1 of this chapter.
(h) Community lending has the same meaning as in Sec. 970.3 of this
chapter.
* * * * *
3. Amend Sec. 936.5 by revising paragraph (e) to read as follows:
Sec. 936.5 Restrictions on access to long-term advances.
* * * * *
(e) CICA. A member that is subject to a restriction on access to
long-term advances under this part shall not be eligible to participate
in a CICA program offered under parts 960 and 970 of this chapter. The
restriction in this paragraph (e) shall not apply to CICA applications
or funding approved before the date the restriction is imposed.
* * * * *
4. Amend Sec. 936.6 by revising paragraphs (a) introductory text,
(a)(2) and (a)(4), removing paragraph (b), redesignating paragraph (c)
as paragraph (b) and revising it, and adding paragraph (a)(5) to read
as follows:
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 shall:
* * * * *
(2) Promote and expand affordable housing finance;
* * * * *
(4) Encourage members to increase their community 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
lending or affordable housing finance partnerships with members;
(5) Include an annual Community Lending Plan, approved by the
Bank's board of directors and subject to modification, which shall
require the Bank to:
(i) Conduct market research in the Bank's district;
(ii) Describe how the Bank will address identified credit needs and
market opportunities in the Bank's district for community lending;
(iii) Consult with its Advisory Council and with members, nonmember
borrowers, and public and private economic development organizations in
the Bank's district in developing and implementing its Community
Lending Plan; and
(iv) Establish quantitative community lending performance goals.
(b) Notice. A Bank shall provide annually to each of its members a
written notice:
(1) Identifying CICA programs and other Bank activities that may
provide opportunities for a member to meet the community support
requirements and to engage in community lending; and
(2) Summarizing community lending and affordable housing activities
undertaken by members, nonmember borrowers, 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 and to engage in community lending.
5. Revise Sec. 936.7 to read as follows:
Sec. 936.7 Reports.
Each Advisory Council annual report required to be submitted to the
Finance Board pursuant to section 10(j)(11) of the Act shall include an
analysis of the Bank's community lending and affordable housing
activities.
6. Subchapter F, consisting of part 970, is added to chapter IX to
read as follows:
[[Page 65546]]
SUBCHAPTER F--COMMUNITY INVESTMENT
PART 970--Community Investment Cash Advance Programs
Sec.
970.1 Scope.
970.2 Purpose.
970.3 Definitions.
970.4 Community Lending Plan.
970.5 Community Investment Cash Advance Programs.
970.6 Reporting.
970.7 Documentation.
Authority: 12 U.S.C. 1422b(a)(1) and 1430.
Sec. 970.1 Scope.
Section 10(j)(10) of the Act authorizes the Banks to offer
Community Investment Cash Advance (CICA) programs. (See 12 U.S.C.
1430(j)(10)). This part establishes requirements for all CICA programs
offered by a Bank, except for a Bank's Affordable Housing Program
(AHP), which is governed specifically by part 960 of this chapter.
Sec. 970.2 Purpose.
The purpose of this part is to identify community lending projects
that the Banks may support through the establishment of CICA programs
under section 10(j)(10) of the Act. (12 U.S.C. 1430(j)(10)). Pursuant
to this part, a Bank may offer Rural Development Advance (RDA) or Urban
Development Advance (UDA) programs, or both, for community lending
using the targeted beneficiaries or targeted income levels specified in
Sec. 970.3 of this part, without prior Finance Board approval. A Bank
also may offer other CICA programs for community lending using targeted
beneficiaries and targeted income levels other than those specified in
Sec. 970.3 of this part, established by the Bank with the prior
approval of the Finance Board. In addition, a Bank shall offer CICA
programs under section 10(i) of the Act (Community Investment Program
(CIP), 12 U.S.C. 1430(i)), and section 10(j) of the Act (Affordable
Housing Program (AHP), 12 U.S.C. 1430(j)).
Sec. 970.3 Definitions.
As used in this part:
Act means the Federal Home Loan Bank Act, as amended (12 U.S.C.
1421 et seq.).
Advance has the same meaning as in Sec. 935.1 of this chapter.
AHP means the Affordable Housing Program, the CICA program required
to be offered pursuant to section 10(j) of the Act (12 U.S.C. 1430(j))
and part 960 of this chapter.
Bank means a Federal Home Loan Bank established under the authority
of the Act.
Board of Directors means the Board of Directors of the Finance
Board.
Champion Community means a community which developed a strategic
plan and applied for designation by either the Secretary of HUD or the
Secretary of the USDA as an Empowerment Zone or Enterprise Community,
but was designated a Champion Community.
CICA or Community Investment Cash Advance has the same meaning as
in Sec. 935.1 of this chapter.
CICA program or Community Investment Cash Advance program means:
(1) A Bank's AHP;
(2) A Bank's CIP;
(3) REA Bank's RDA program or UDA program using any combination of
the targeted beneficiaries and targeted income levels specified in
Sec. 970.3 of this part; and
(4) Any other program offered by a Bank using targeted
beneficiaries and targeted income levels other than those specified in
Sec. 970.3 of this part, established by the Bank with the prior
approval of the Finance Board.
CIP means the Community Investment Program, a CICA program required
to be offered pursuant to section 10(i) of the Act (12 U.S.C. 1430(i)).
Community lending means providing financing for economic
development projects for targeted beneficiaries.
Economic development projects means:
(1) Commercial, industrial, manufacturing, social service, and
public facility projects and activities; and
(2) Public or private infrastructure projects, such as roads,
utilities, and sewers.
Family means one or more persons living in the same dwelling unit.
Finance Board means the agency established as the Federal Housing
Finance Board.
Housing projects means projects or activities that involve the
purchase, construction or rehabilitation of, or predevelopment
financing for:
(1) Individual owner-occupied housing units, each of which is
purchased or owned by a family with an income at or below the targeted
income level;
(2) Projects involving multiple units of owner-occupied housing in
which at least 51% of the units are owned or are intended to be
purchased by families with incomes at or below the targeted income
level;
(3) Rental housing where at least 51% of the units in the project
are occupied by, or the rents are affordable to, families with incomes
at or below the targeted income level; or
(4) Manufactured housing parks where:
(i) At least 51% of the units in the project are occupied by, or
the rents are affordable to, families with incomes at or below the
targeted income level; or
(ii) The project is located in a neighborhood with a median income
at or below the targeted income level.
HUD means the United States Department of Housing and Urban
Development.
Median income for the area. (1) Owner-occupied housing projects and
economic development projects. For purposes of owner-occupied housing
projects and economic development projects, median income for the area
means one or more of the following, as determined by the Bank:
(i) The median income for the area, as published annually by HUD;
(ii) The applicable median family income, as determined under 26
U.S.C. 143(f) (Mortgage Revenue Bonds) and published by a State agency
or instrumentality;
(iii) The median income for the area, as published by the USDA; or
(iv) The median income for any definable geographic area, as
published by a Federal, state, or local government entity for purposes
of that entity's housing and economic development programs, and
approved by the Board of Directors, at the request of a Bank, for use
under the Bank's CICA programs.
(2) Rental housing projects. For purposes of rental housing
projects, median income for the area means one or more of the
following, as determined by the Bank:
(i) The median income for the area, as published annually by HUD;
or
(ii) The median income for any definable geographic area, as
published by a Federal, state, or local government entity for purposes
of that entity's housing programs, and approved by the Board of
Directors, at the request of a Bank, for use under the Bank's CICA
programs.
Member means an institution that has been approved for membership
in a Bank and has purchased capital stock in the Bank in accordance
with Sec. Sec. 933.20 and 933.25 of this chapter.
MSA means a Metropolitan Statistical Area as designated by the
Office of Management and Budget.
Neighborhood means:
(1) A census tract or block numbering area;
(2) A unit of local government with a population of 25,000 or less;
(3) A rural county; or
(4) A geographic location designated in comprehensive plans,
ordinances, or other local documents as a
[[Page 65547]]
neighborhood, village, or similar geographic designation that is within
the boundary of but does not encompass the entire area of a unit of
general local government.
Nonmember borrower means an entity that has been approved as a
nonmember mortgagee pursuant to Subpart B of part 935 of this chapter.
Provide financing means:
(1) Originating loans;
(2) Purchasing a participation interest, or providing financing to
participate, in a loan consortium for CICA-eligible housing or economic
development projects;
(3) Making loans to entities that, in turn, make loans for CICA-
eligible housing or economic development projects;
(4) Purchasing mortgage revenue bonds or mortgage-backed
securities, where all of the loans financed by such bonds and all of
the loans backing such securities, respectively, meet the eligibility
requirements of the CICA program under which the member or nonmember
borrower receives an advance;
(5) Creating or maintaining a secondary market for loans, where all
such loans are mortgage loans meeting the eligibility requirements of
the CICA program under which the member or nonmember borrower receives
an advance;
(6) Originating CICA-eligible loans within 3 months prior to
receiving the CICA advance; and
(7) Purchasing low-income housing tax credits.
RDA or Rural Development Advance means an advance made pursuant to
an RDA program.
RDA program or Rural Development Advance program means a program
offered by a Bank for community lending in rural areas.
Rural area means:
(1) A unit of general local government with a population of 25,000
or less;
(2) An unincorporated area outside an MSA; or
(3) An unincorporated area within an MSA that qualifies for housing
or economic development assistance from the USDA.
Small business means a ``small business concern,'' as that term is
defined by section 3(a) of the Small Business Act (15 U.S.C. 632(a))
and implemented by the Small Business Administration under 13 CFR part
121, or any successor provisions.
Targeted beneficiaries means beneficiaries determined by the
geographical area in which a project is located (Geographically Defined
Beneficiaries), by the individuals who benefit from a project as
employees or service recipients (Individual Beneficiaries), or by the
nature of the project itself (Activity Beneficiaries), as follows:
(1) Geographically Defined Beneficiaries:
(i) The project is located in a neighborhood with a median income
at or below the targeted income level;
(ii) The project is located in a rural Champion Community, or a
rural Empowerment Zone or rural Enterprise Community, as designated by
the Secretary of the USDA;
(iii) The project is located in an urban Champion Community, or an
urban Empowerment Zone or urban Enterprise Community, as designated by
the Secretary of HUD;
(iv) The project is located in an Indian area, as defined by the
Native American Housing Assistance and Self-Determination Act of 1996
(25 U.S.C. 4101 et seq.), Alaskan Native Village, or Native Hawaiian
Home Land;
(v) The project is located in an area and involves a property
eligible for a Brownfield Tax Credit;
(vi) The project is located in an area affected by a military base
closing and is a ``community in the vicinity of the installation'' as
defined by the Department of Defense at 32 CFR part 176;
(vii) The project is located in a designated community under the
Community Adjustment and Investment Program as defined under 22 U.S.C.
290m-2;
(viii) The project is located in a Federally declared disaster
area; or
(ix) The project is located in a state declared disaster area, or
qualifies for assistance under another Federal or state targeted
economic development program, approved by the Finance Board.
(2) Individual Beneficiaries:
(i) The annual salaries for at least 51% of the permanent full- and
part-time jobs, computed on a full-time equivalent basis, created or
retained by the project, other than construction jobs, are at or below
the targeted income level; or
(ii) At least 51% of the families who otherwise benefit from (other
than through employment), or are provided services by, the project have
incomes at or below the targeted income level.
(3) Activity Beneficiaries: Projects that qualify as small
businesses.
(4) Other Targeted Beneficiaries. A Bank may designate, with the
prior approval of the Finance Board, other targeted beneficiaries for
its community lending.
(5) Only targeted beneficiaries identified in paragraphs (1)(i)
through (1)(iv), and (2)(i) and (2)(ii) of this definition are eligible
for CIP advances.
Targeted income level means:
(1) For rural areas, incomes at or below 115 percent of the median
income for the area, as adjusted for family size in accordance with the
methodology of the applicable area median income standard or, at the
option of the Bank, for a family of four;
(2) For urban areas, incomes at or below 100 percent of the median
income for the area, as adjusted for family size in accordance with the
methodology of the applicable area median income standard or, at the
option of the Bank, for a family of four;
(3) For CICA advances provided under CIP:
(i) For economic development projects, incomes at or below 80
percent of the median income for the area; or
(ii) For housing projects, incomes at or below 115 percent of the
median income for the area, both as adjusted for family size in
accordance with the methodology of the applicable area median income
standard or, at the option of the Bank, for a family of four; or
(4) For CICA advances provided under any other CICA program offered
by a Bank, a targeted income level established by the Bank with the
prior approval of the Finance Board.
UDA or Urban Development Advance means an advance made pursuant to
a UDA program.
UDA program or Urban Development Advance program means a program
offered by a Bank for community lending in urban areas.
Urban area means:
(1) A unit of general local government with a population of more
than 25,000; or
(2) An unincorporated area within an MSA that does not qualify for
housing or economic development assistance from the USDA.
USDA means the United States Department of Agriculture.
Sec. 970.4 Community Lending Plan
Each Bank shall develop and adopt an annual Community Lending Plan
pursuant to Sec. 936.6 of this chapter.
Sec. 970.5 Community Investment Cash Advance Programs.
(a) In general.
(1) Each Bank shall offer an AHP in accordance with part 960 of
this chapter.
(2) Each Bank shall offer a CIP to provide financing for housing
projects and for eligible community lending at the appropriate targeted
income levels.
(3) Each Bank may offer RDA programs or UDA programs, or both, for
[[Page 65548]]
community lending using the targeted beneficiaries or targeted income
levels specified in Sec. 970.3 of this part, without prior Finance
Board approval.
(4) Each Bank may offer CICA programs for community lending using
targeted beneficiaries and targeted income levels other than those
specified in Sec. 970.3 of this part, established by the Bank with the
prior approval of the Finance Board.
(b) Mixed-use projects. (1) For projects funded under CICA programs
other than CIP, involving a combination of housing projects and
economic development projects, only the economic development components
of the project must meet the appropriate targeted income level for the
respective CICA program.
(2) For projects funded under CIP, both the housing and economic
development components of the project must meet the appropriate
targeted income levels.
(c) Refinancing. CICA advances other than AHP may be used to
refinance economic development projects and housing projects, provided
that any equity proceeds of the refinancing of rental housing and
manufactured housing parks are used to rehabilitate the projects or to
preserve affordability for current residents.
(d) Pricing and Availability of CICA advances.
(1) Advances to members. For CICA programs other than AHP and CIP,
a Bank shall price advances to members as provided in Sec. 935.6 of
this chapter, and may price such advances at rates below the price of
advances of similar amounts, maturities and terms made pursuant to
section 10(a) of the Act. (12 U.S.C. 1430(a)).
(2) Pricing of CIP advances. The price of CICA advances made under
CIP shall not exceed the Bank's cost of issuing consolidated
obligations of comparable maturity, taking into account reasonable
administrative costs.
(3) Pricing of AHP advances. A Bank shall price CICA advances made
under AHP in accordance with parts 935 and 960 of this chapter.
(4) Advances to nonmember borrowers. (i) A Bank may offer advances
under CICA programs to nonmember borrowers at the Bank's option, except
for AHP and CIP, which are available only to members.
(ii) A Bank shall price advances to nonmember borrowers as provided
in Sec. 935.24 of this chapter, and may price such advances at rates
below the price of advances of similar amounts, maturities and terms
made pursuant to section 10b of the Act. (12 U.S.C. 1430b).
(5) Pricing pass-through. A Bank may require that borrowers
receiving CICA advances pass through the benefit of any price reduction
from regular advance pricing to their borrowers.
(6) Discount Fund. (i) A Bank may establish a fund which the Bank
may use to reduce the price of CIP or other CICA advances below the
advance prices provided for by this part.
(ii) Price reductions made through the Discount Fund shall be made
in accordance with a fair distribution scheme.
Sec. 970.6 Reporting.
(a) By July 1, 1999, each Bank shall provide to the Finance Board
an initial assessment of the credit needs and market opportunities in a
Bank's district for community lending.
(b) Effective in 2000, each Bank annually shall provide to the
Finance Board, on or before January 31, a Community Lending Plan.
(c) Each Bank shall provide such other reports concerning its CICA
programs as the Finance Board may request from time to time.
Sec. 970.7 Documentation.
(a) A Bank shall require the borrower to certify to the Bank that
each project funded by a CICA advance (other than AHP) meets the
respective targeting requirements of the CICA program. Such
certification shall include a description of how the project meets the
requirements, and where appropriate, a statistical summary or list of
incomes of the borrowers, rents for the project, or salaries of jobs
created or retained.
(b) For those CICA-funded projects that also receive funds from
another targeted Federal economic development program that has income
targeting requirements that are the same as, or more restrictive than,
the targeting requirements of the applicable CICA program, the Bank
shall permit the borrower to certify that compliance with the criteria
of such Federal economic development program will meet the requirements
of the respective CICA program.
(c) Such certifications shall satisfy the Bank's obligations to
document compliance with the CICA lending provisions of this part.
Dated: October 28, 1998.
By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.
[FR Doc. 98-31489 Filed 11-25-98; 8:45 am]
BILLING CODE 6725-01-P