[Federal Register Volume 64, Number 46 (Wednesday, March 10, 1999)]
[Notices]
[Pages 12040-12061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-5861]



[[Page 12039]]

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Part IV





Department of Housing and Urban Development





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Fiscal Year 1999 Notice of Funding Availability; Secondary Market for 
Non-Conforming Loans to Low-Wealth Borrowers Demonstration Program; 
Notice

  Federal Register / Vol. 64, No. 46 / Wednesday, March 10, 1999 / 
Notices  

[[Page 12040]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4348-N-02]


Fiscal Year 1999 Notice of Funding Availability; Secondary Market 
for Non-Conforming Loans to Low-Wealth Borrowers Demonstration Program

AGENCY: Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner, HUD.

ACTION: Notice of funding availability (NOFA) for Fiscal Year 1999.

-----------------------------------------------------------------------

SUMMARY: This NOFA announces the availability of $10,000,000 in funding 
for grants to qualified nonprofit organizations to demonstrate methods 
of expanding the secondary market for non-conforming home mortgage 
loans to low-wealth borrowers. The NOFA is issued under the HOME 
Investment Partnership Program.
    Purpose. To enhance homeownership opportunities for low-wealth 
borrowers by enabling nonprofit intermediaries (including Community 
Development Financial Institutions) to purchase non-conforming home 
loans from conventional lenders, document the performance of these 
pools of affordable mortgages, and thereby encourage the secondary 
market and institutional investors to expand purchases of, or 
investments in, loans made to low-income home buyers. The goal of the 
demonstration is to expand the secondary market by ensuring that non-
conforming loans have a receptive and dependable outlet.
    Available Funding. $10,000,000.

APPLICATION DUE DATE: Requests for funding must be physically received 
by 4:30 p.m. Eastern Time on May 10, 1999. It is NOT sufficient for a 
request to bear a postmark within the deadline. Requests for funding 
sent by facsimile (FAX) will not be accepted. The deadline is firm as 
to date and hour, and HUD will treat as ineligible for consideration 
requests for funding received after the deadline. Respondents should 
take this policy into account and consider early submission to avoid 
any risk of loss of eligibility brought about by any unanticipated or 
delivery-related problems.

ADDRESS FOR SUBMITTING REQUESTS FOR FUNDING: One original and two 
copies of the request for funding must be submitted to HUD 
Headquarters, Office of Insured Single Family Housing, Room 9266, 451 
Seventh Street, SW, Washington, DC 20410, ATTN: Secondary Market 
Demonstration Program.

FOR FURTHER INFORMATION CONTACT: Vance T. Morris, Director, Home 
Mortgage Insurance Division, Department of Housing and Urban 
Development, Room 9266, 451 Seventh Street, SW, Washington, DC 20410; 
telephone (202) 708-2700, ext. 2204. (This is not a toll-free number.) 
Hearing-or speech-impaired individuals may access this number via TTY 
by calling the toll-free Federal Information Relay Service at 1-800-
877-8339.

SUPPLEMENTARY INFORMATION:

I. Background--Building on the Advance Notice of Demonstration 
Program

    On August 4, 1998 (63 FR 41703), HUD published an Advance Notice of 
Demonstration in the Federal Register. In this notice, HUD advised the 
public of its intent to establish a program that would demonstrate 
methods of expanding homeownership opportunities for low-income 
borrowers by expanding the secondary market for non-conforming home 
mortgage loans to low-wealth borrowers. In this notice, HUD also 
presented questions to solicit public comment on several issues. Public 
comments were received from seven entities. HUD's questions and a 
summary of the comments received are set forth below.
    Question 1: What should be the desired and expected outcomes of the 
demonstration program?
    Responses:
    (a) The program should be developed to ensure that new/additional 
loans are made to low-wealth borrowers rather than just providing for 
additional liquidity for lenders.
    (b) Other goals include increasing the number of:
    (i) Lenders engaged in non-conforming lending; and
    (ii) Non-conforming loans made by private lenders and purchased by 
secondary market providers.
    Question 2: How should HUD define a ``low-wealth'' borrower for 
this demonstration program?
    Responses:
    (a) Use an asset test.
    (b) Require that borrowers have liquid assets of less than 80% of 
the national median net worth.
    (c) Define a low-wealth borrower to be a borrower who:
    (i) Is a first-time homebuyer;
    (ii) Has a loan-to value ratio of 95% or more; and
    (iii) Has income at or below 80% of area median income.
    (d) Limit using demo funds for borrowers under 80% of area median 
income families, but strongly recommended studying borrowers at or 
below 115% of area median income.
    (e) Pay particular attention to families with incomes under $20,000 
a year.
    Question 3: What would be the characteristics of an effective 
strategy?
    Responses:
    (a) Commenters listed the following characteristics:
    (i) Obtains a great deal of data;
    (ii) Leverages demonstration funds;
    (iii) Results in a significant level of additional loans to low-
wealth borrowers;
    (iv) Provides thorough documentation of loan performance;
    (v) Provides pre-purchase and post-purchase housing counseling.
    (b) Should involve current secondary mortgage makers whose 
recordkeeping and administrative systems would lend credibility to the 
results.
    Question 4: What are the best measures to assess a strategy's 
potential impact on the future availability of private credit to low-
wealth borrowers?
    Responses: Long term, it (the program) should be able to measure 
and account for the results in a predictable manner. Shorter term, it 
should measure the number of additional non-conforming loans made by 
participating lenders that would not otherwise have been made.
    Question 5: What factors might HUD consider in defining 
``experience working with lenders'' for this demonstration program? 
What factors might be more (or less) relevant in an applicant's 
experience working with lenders?
    Responses:
    (a) Commenters indicated that relevant legal agreements, such as 
loan sale and loan servicing agreements, could be indicators of 
experience.
    (b) Other factors include:
    (i) Number of years the secondary market provider has worked with 
private lenders;
    (ii) Total number of non-conforming loans purchased and the extent 
to which a participating private lender's underwriting criteria is 
influenced by the secondary market provider's purchase requirements.
    Question 6: A ``non-conforming loan'' is generally defined as a 
loan that does not meet Fannie Mae and Freddie Mac underwriting 
criteria. Should other definitions be considered?
    Responses:
    (a) For a demonstration, the definition should be as expansive as 
possible. It should be any loan that is so classified by the 
originating lender at time of origination and which they would 
otherwise hold in portfolio.

[[Page 12041]]

    (b) The demonstration should not include a loan which at time of 
purchase has a poor payment record.
    (c) The following loans are inappropriate for the demonstration:
    (i) Unseasoned loan;
    (ii) A loan that may require a second mortgage loan committee 
review; or
    (iii) A loan that does not meet conventional appraisal standards.
    (d) Should include lack of mortgage insurance because the existing 
secondary market does not buy loans without mortgage insurance.
    Question 7: How should HUD assess the applicant's experience in 
expanding the secondary market for such loans for this demonstration 
program?
    Responses:
    (a) Assessment should be based on experience in expanding the 
secondary market for non-conforming loans based on originating, 
purchasing and selling non-conforming loans. Applicant should have 
experience with 3 of the following:
    (i) Fannie Mae;
    (ii) Freddie Mac;
    (iii) The capital markets; and
    (iv) Private mortgage insurance companies.
    (b) Should include direct experience in operating a secondary 
market by factors such as:
    (i) Volume of loans purchased;
    (ii) Geographic diversity; and
    (iii) Performance of portfolio.
    (c) Should include current experience evidenced by special loan 
products offered by the secondary market.
    (d) Should include experience of applicant or its affiliates in 
originating non-conforming loans by factors such as:
    (i) Volume;
    (ii) Loan performance record; and
    (iii) Geographic diversity, including urban and rural mix.
    Question 8: The House Report indicates that the demonstration 
portfolios should consist of loans that are non-conforming due to high 
loan-to-value ratio, missed payments, credit blemishes, or a lack of 
credit. Are these factors adequate, or are there other factors that HUD 
should evaluate?
    Responses:
    (a) Should not include missed payments on the loan involved. Should 
maintain a distinction between ``nonperforming'' loans and ``non-
conforming'' loans. HUD should consider front and back debt ratios, 
amount of down payment and the property location.
    (b) Other factors could include loans for properties that the 
secondary market might regard as obsolete, loans in neighborhoods that 
may be regarded as high-risk, or loans to borrowers with low credit 
scores.
    (c) The entire list of common reasons that Fannie Mae, Freddie Mac, 
and private mortgage insurance companies decline loans should be 
candidates for evaluation.
    Question 9: Are there any compensating characteristics among such 
borrowers that are not criteria recognized in conventional or standard 
underwriting guidelines?
    Responses: The demonstration could consider macro compensating 
characteristics such as:
    (a) Lower default rates among low-income homebuyers as compared to 
middle-and high-income families; and
    (b) Benefits of pre-and post-purchase homeownership counseling and 
early foreclosure prevention intervention.
    Question 10: How should HUD determine ``demonstrated success'' for 
this program?
    Responses:
    (a) By evidence of actual receipt of non-Federal grants and actual 
loan closing on concessionary terms to support secondary market-related 
activities during a two-year period;
    (b) By documenting performance and loss characteristics on loans 
made or facilitated; and
    (c) By examining working relationships with lenders who make non-
conforming loans to low-income borrowers.
    Question 11: For purposes of the demonstration program, is there a 
preferred use of the funds? Should the efficiency of leverage in the 
use of the funds be a requirement?
    Responses:
    (a) There should be a 10:1 leverage ratio with the preferred use of 
funds being as capital reserves. Demonstration funds should not be used 
solely to originate or purchase loans. Using these funds for capital 
reserves, loan guarantees, and loan loss reserves would generate more 
funding through leveraging.
    (b) The preferred use of funds should not be established at the 
application stage.
    Question 12: The FY 1998 Appropriations Act also requires that the 
selected applicant must ``have demonstrated the ability to provide data 
on the performance of such loans sufficient to allow for future 
analysis of the investment risk of such loans.'' What information does 
HUD need to collect?
    Responses: 
    (a) Recommended that awardees collect the following information:
    (i) Demographics of borrower;
    (ii) Reasons why loan is classified as non-conforming;
    (iii) Front-end and back-end debt ratios;
    (iv) Age of loan at time of purchase;
    (v) Whether borrower received pre-purchase counseling;
    (vi) Who provided the counseling and the type/extent of counseling;
    (vii) Delinquencies (number of loans and percentage of portfolio at 
30, 60, and 90 days);
    (viii) For loans at least 60 days delinquent, actions taken or 
planned to address loan delinquency;
    (ix) Number of loans and percentage of portfolio in default (more 
than 90 days delinquent);
    (x) Actions taken to correct default;
    (xi) Number and percentage of loans restructured;
    (xii) For each loan restructured, the specific terms of the 
restructuring; and
    (xiii) For each loan in default an indication whether the borrower 
received post-purchase counseling.
    (b) Information to be tracked should be predefined and ultimately 
uniform, but HUD should let the awardees develop the content and 
specific format.
    (c) The information used should be standard data used by the 
secondary market.
    Question 13: How frequently and for how long a duration of time 
should this information be reported?
    Responses:
    (a) The information should be reported annually in an aggregated 
manner.
    (b) The information should be maintained and collected for at least 
8 years.
    (c) Awardees should be able to use a modest portion of the grant to 
defray additional administrative costs during the reporting period.
    Question 14: In order to maximize the credibility and impact of the 
demonstration, the conferees expect HUD to give priority to applicants 
that have ``sophisticated existing data collection capabilities, 
including adequate loan portfolio monitoring and analysis.'' How might 
HUD assess data collection capability?
    Responses:
    (a) HUD can assess the capability through a narrative section of 
the application which would include:
    (i) A statement of whether the applicant or affiliate has a 
designated data collection unit where data collection and analysis 
rests;
    (ii) The number of staff directly responsible for these task and 
their percentage of time;
    (iii) The qualifications of data collection and analysis managers 
and staff; and
    (iv) A detailed statement of the types of data currently collected, 
the

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frequency of collection, and an explanation of how the data are 
collected, maintained and used.
    (b) HUD may consider a statement from the applicant which includes:
    (i) The applicant's hardware and software capabilities;
    (ii) The number of loans in the applicant's system;
    (iii) The current data collection mechanisms;
    (iv) The staff capacity for data collection responsibilities;
    (v) The applicant's experience with formal reporting on lending 
activities; and
    (vi) The ability to provide a longitudinal analysis that is based 
upon years of lending experience.
    Question 15: The conferees expect the Secretary to give priority to 
organizations that have statewide or multi-state service areas, and 
have a mix of urban and rural loans. How important is a diversified 
portfolio in assessing investment risk for purposes of the criterion 
described above?
    Responses: Two commenters stressed geographic diversity and urban, 
suburban and rural representation. One commenter recommended that at 
least 80 percent of a portfolio be from inner cities and rural areas.
    Question 16: Should automated mortgage finance tools, such as 
credit or mortgage scoring, be evaluated in this demonstration? Are 
there other tools that should be examined?
    Responses: Commenters gave both answers: No, because the scale of 
the program is too small and the length of the program is too short to 
reach any conclusion on credit or mortgage scoring. Yes, because the 
objective should be to determine the degree to which the average scores 
and mortgage scores on approved loans in a study differ from those on a 
similar category of approved loans by the secondary market providers.

II. The Demonstration Program for Secondary Market for Non-
Conforming Loans to Low-Wealth Borrowers--Purpose and Substantive 
Description

    (A) Authority. The Departments of Veterans Affairs and Housing and 
Urban Development, and Independent Agencies Appropriations Act, 1998 
(Pub.L. 105-65, 111 Stat. 1344, 1359, approved October 27, 1997) (the 
``FY 1998 Appropriations Act'') set aside $10 million from the HOME 
Investment Partnerships program for grants for up to three 
organizations (including Community Development Financial Institutions) 
that are exempt from Federal taxation under section 501(a) pursuant to 
section 501 (c)(3) of the Internal Revenue Code of 1986, selected on a 
competitive basis, to demonstrate methods of expanding homeownership 
opportunities for low-wealth borrowers through expanding the secondary 
market for non-conforming home mortgage loans. No separate implementing 
regulations will be issued.
    (B) Purpose of the Demonstration Program and Requirements. As noted 
earlier, the Secondary Market Demonstration Program is intended to 
demonstrate methods of expanding homeownership opportunities for low-
income borrowers through expanding the secondary market for non-
conforming home mortgage loans made to low-wealth borrowers. The 
applicant is required to go beyond addressing the immediate credit 
needs of lower-income borrowers to one of developing a strategy for 
expanding the secondary market for affordable home mortgage loans. The 
use of loan loss pools to support the purchase, holding and subsequent 
sale of non-conforming loans from lenders is highly desirable. The goal 
is for the lenders involved in this demonstration to use the proceeds 
from such sales to make additional non-conforming loans to low-wealth 
borrowers. Because of the demonstration nature of this project, 
successful grantees must be able to show the ability to adequately 
collect data on the underwriting and performance of the loans 
purchased.
    (C) Applicable Definitions for Purposes of this Demonstration.
    Low Wealth means a borrower who:
    (1) Is a first-time homebuyer;
    (2) Has a loan-to-value ratio of 95% or more;
    (3) Has income at or below 80% of area median income; and
    (4) Has insufficient funds required for downpayment and closing 
costs associated with the mortgage transaction.
    Non-conforming mortgages are defined to include loans which are 
classified by the originating lender at the time of origination as non-
conforming and which the lender would otherwise plan to hold in 
portfolio because there is not a predictable secondary market outlet 
for it. Examples of non-conforming loans include, but are not limited 
to, loans in neighborhoods that may be regarded as high-risk, a 
unseasoned loan, or loans to borrowers with low credit scores. It does 
not include loans that have, at the time of purchase, missed payments 
on that particular loan.
    (D) Eligibility Criteria. In selecting the grantees for this 
demonstration program, the FY 1998 Appropriations Act provides the 
criteria for participating in this demonstration program. The applicant 
must address each in its proposal:
    (1) Verification that the applicant is exempt from Federal Taxation 
under section 501(a) pursuant to 501(c)(3) of the Internal Revenue Code 
of 1986;
    (2) Experience working with lenders who make non-conforming loans 
to low-wealth borrowers;
    (3) Experience in expanding the secondary market for such loans (to 
low-wealth borrowers);
    (4) Demonstrated success in carrying out such activities, including 
raising non-Federal grants and capital on concessionary terms for the 
purpose of expanding the secondary market for loans in the previous two 
years in amounts equal or exceeding the amount awarded; and
    (5) Demonstrated ability to collect and provide data on the 
performance of such loans purchased, and sufficient enough in size to 
allow for future analysis of the investment risk of such loans.
    (E) Threshold Requirements. Applicants must provide proof/
certification of:
    (1) Exempt from Federal Taxation. The applicant must submit proof 
that it is exempt from Federal Taxation under section 501 (a) pursuant 
to section 501 (c)(3) of the Internal Revenue Code of 1986.
    (2) Compliance with Fair Housing and Civil Rights Laws. Applicants 
must comply with all fair housing and civil rights laws, statutes, 
regulations, and executive orders as enumerated in 24 CFR 5.105(a). If 
an applicant: (a) has been charged with a systemic violation of the 
Fair Housing Act by the Secretary alleging ongoing discrimination; (b) 
is the defendant in a Fair Housing Act lawsuit filed by the Department 
of Justice alleging an ongoing pattern or practice of discrimination; 
or (c) has received a letter of noncompliance findings under Title VI 
of the Civil Rights Act, section 504 of the Rehabilitation Act of 1973, 
or section 109 of the Housing and Community Development Act, the 
application will not be evaluated under this NOFA if, prior to the 
application deadline, the charge, lawsuit, or letter of findings has 
not been resolved to the satisfaction of the Department. HUD's decision 
regarding whether a charge, lawsuit, or a letter of findings has been 
satisfactorily resolved will be based upon whether appropriate actions 
have been taken necessary to address allegations of ongoing 
discrimination in the policies or practices involved in the charge, 
lawsuit, or letter of findings.

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    (3) Additional Nondiscrimination Requirements. Applicants also must 
comply with the Americans with Disabilities Act, and Title IX of the 
Education Amendments Act of 1972, as applicable.
    (4) Affirmatively Furthering Fair Housing. Successful applicants 
have a duty to affirmatively further fair housing. Applicants should 
include in their work plans the specific steps that they will take to 
promote fair housing rights and fair housing choice.
    (5) Forms, Certifications and Assurances. Applicants are required 
to submit signed copies of the standard forms, certifications, and 
assurances that are included as attachments to this NOFA.
    (6) OMB Circulars. The policies, guidance, and requirements of OMB 
Circular No. A-122 (Cost Principles for Nonprofit Organizations) and 
OMB Circular No. A-133 (Audits of States, Local Governments, and Non-
Profit Organizations), and the requirements of 24 CFR part 84 (Grants 
and Agreements with Institutions of Higher Education, Hospitals, and 
other Non-Profit Organizations) apply to the award, acceptance and use 
of assistance under this NOFA, and to the remedies for noncompliance, 
except when inconsistent with the provisions of the FY 1998 HUD 
Appropriations Act, other Federal statutes or the provisions of this 
NOFA. Copies of the OMB Circulars may be obtained from EOP 
Publications, Room 2200, New Executive Office Building, Washington, DC 
10503, telephone (202) 395-7332 (this is not a toll free number).
    (7) Coastal Barriers and Flood Insurance. Pursuant to the Coastal 
Barriers Resources Act (16 U.S.C. 3501), recipients may not use funds 
provided under this NOFA to purchase mortgages on properties located 
within the Coastal Barriers Resource System.
    Pursuant to the Flood Disaster Protection Act of 1973 (42 U.S.C. 
4001-4128), recipients may not use funds provided under this NOFA to 
purchase mortgages on properties located in special flood hazard areas 
designated by the Federal Emergency Management Agency (FEMA) unless:
    (1) The community in which the property is located is participating 
in the National Flood Insurance Program, or less than one year has 
passed since FEMA notification regarding such hazards; and
    (2) Where the community is participating in the National Flood 
Insurance Program, flood insurance covering the building or mobile home 
and any personal property has been obtained and is a condition of the 
mortgage.
    Review of Eligibility Criteria and Threshold Requirements. HUD will 
review each application to determine whether the application meets all 
of the eligibility criteria and threshold requirements listed in 
Sections II.D and E of this NOFA and will conduct a review of the 
required certifications and information listed in this section. HUD may 
check to independently verify information contained in the request for 
funding or request additional information from the respondent. HUD may 
contact the applicant, however, to clarify an item in the application 
or to correct technical deficiencies. HUD may not seek clarification of 
items or responses that improve the substantive quality of the 
applicant's response to any eligibility or selection factors. Examples 
of curable (correctable) technical deficiencies include the failure to 
submit the proper certifications or the failure to submit an 
application that contains an original signature by an authorized 
official. In each case, HUD will notify the applicant in writing by 
describing the clarification or technical deficiency. HUD will notify 
applicants by facsimile or by return receipt requested. Applicants must 
submit clarifications or corrections of technical deficiencies in 
accordance with the information provided by HUD by no later than 4:30 
p.m. (eastern time) on the 14th calendar day after the date of receipt 
of the HUD notification. If the deficiency is not corrected within this 
time period, HUD will reject the application as incomplete, and it will 
not be considered for funding.
    (F) Application Selection Process. Applicants that meet the 
threshold review described above, will have their proposal reviewed and 
scored by HUD Headquarters staff based on selection factors listed in 
Section II.H below. Applications will be funded in rank order.
    (G) Number of Applicants to be Selected. Up to three applicants 
meeting the requirements outlined in this NOFA will be selected for 
funding. Funding may not be awarded in equal amounts if more than one 
applicant is selected. HUD reserves the right to fund less than the 
full amount requested in any application to ensure the fair 
distribution of the funds and ensure that the purposes of the 
demonstration are met. HUD may choose not to fund portion of the 
applications that are ineligible for funding under applicable statutory 
requirements or which do not meet the demonstration requirements. If 
funds remain after funding the highest ranking applications, HUD may 
fund part of the next highest ranking application. If the applicant 
turns down the award offer, HUD will make the same determination for 
the next highest ranking application.
    (H) Rating and Ranking Factors.
    Rating factor 1: Experience of the Applicant as determined by HUD 
(25 points).
    Applicants will be rated on the narrative and supporting materials 
which document the experience level of the applicant.
    (1) The applicant should provide substantive examples of its 
experience working with lenders who make non-conforming loans to low-
wealth borrowers. Substantive examples means that the applicant 
describes previous projects (and outcomes) relevant to this 
demonstration. (10 points)
    (2) The applicant should describe the demographic data on the 
pool(s) of loans purchased or otherwise obtained, including, number of 
loans (pool size), target markets and explanations of why purchased 
along with characteristics of selected areas (median income, etc.), 
Borrower demographics (income, age, sex, race, national origin, 
familial status, and persons with disabilities) and collateral 
characteristics (property value). (10 points)
    (3) The applicant should describe the origination requirements 
(required ratios, downpayment requirements, loan-to-value, etc.), 
counseling requirements, both pre- and post purchase and servicing 
intervention techniques, a provide the default rate on these loans (if 
available). (3 points)
    (4) The applicant should describe how previous programs have 
specifically benefited borrowers. (2 points)

The applicant will receive higher scores for narratives which include 
projects with several lenders and include large pools with loans in 
statewide or multi-state areas and both urban and rural areas. In 
addition, higher scores will be granted for those applicants 
demonstrating specific counseling requirements and servicing 
intervention techniques.
    Rating Factor 2: Data Collection and Analysis Capabilities of the 
Applicant as determined by HUD (20 points).
    Applicants will be rated on the narrative and supporting materials 
which clearly document the data collection and analytical capabilities 
of the applicant. The applicant must provide a description of:
    (1) The applicant's experience with formal reporting on lending 
activities and samples of reports currently used (or a format for the 
reports which will

[[Page 12044]]

be submitted to the Department) to capture the information needed for 
this demonstration and for reports to Congress. (6 points)
    (2) A description of the current data collection capabilities; (6 
points)
    (3) The professional staff available for data collection and 
analysis; (3 points)
    (4) The applicant's hardware and software capabilities; (3 points)
    (5) The number of loans currently in the applicant's system. (2 
points)

Applicants will receive higher scores for demonstrating existing data 
collection capabilities including loan portfolio and monitoring/
analysis systems. In addition, the applicant must have professional 
staff on hand, adequate computer systems (Pentium or higher processor) 
and present samples of reports which indicate that the applicant is 
able to efficiently collect and report data on this demonstration.
    Rating Factor 3: Adequacy of the activities proposed by the 
applicant in response to this NOFA (35 points).
    The applicant will be rated on the narrative and supporting 
materials which document how the grant funds will be used, if awarded, 
to expand the secondary market. The applicant must provide:
    (1) The extent to which the funds awarded will be used. A 
comprehensive approach is preferable to an approach which simply 
provides only for the purchase or origination of loans). A description 
of the proposed program and how it will operate, (e.g., how it will be 
used to purchase, hold, and/or sell non-conforming loans or how a loan 
loss reserve will be used). The materials should provide information on 
the following:
    (a) Target market to be reached (both the location of borrowers and 
their demographic characteristics);
    (b) How the proposed program meets a market niche (for example, an 
explanation of how the target borrowers are underserved by both 
conventional and governmental loan programs);
    (c) Origination, servicing, loss mitigation, counseling 
requirements; the Department requires the applicant to maintain a 
record of credit scores for all loans involved in this demonstration. 
The credit score should not be used to qualify borrowers. This 
information will be used to determine if there is a correlation between 
credit scores and loan performance;
    (d) Credit enhancements;
    (e) Investor requirements, if applicable and;
    (f) A description of the expected characteristics of loans in the 
portfolio it will evaluate in its proposal (i.e., those elements that 
make the loans non-conforming), and describe how it will determine if 
there are compensating factors associated with those mortgages in the 
portfolio that are not recognized in traditional or standard 
underwriting. (20 points)
    (2) How the funds awarded will be matched with non-Federal funds. 
(5 points)
    (3) How the funds will be leveraged (lender commitments are 
expected). (5 points)
    (4) A sample of the proposed quarterly report which will be 
submitted to the Department and other aspects of the program must be 
described including, but not limited to, the administrative structure 
and program monitoring and the identification of participating lenders. 
The program description must be complete and demonstrate that the 
respondent can fulfill programmatic obligations within 24 months. 
Reports on the loan performance are required for an additional 60 
months. In describing the program, respondents must include a program 
schedule and performance benchmarks for the 24 month period of the 
grant agreement. Finally, a budget which includes the sources and uses 
of all funds, including program income and accrued interest, a 
description of the respondent's cash management system and proposed 
distribution of funds among participating organizations. (3 points)
    (5) Key staff who will be responsible for implementing the program 
must be identified along with adequate descriptions of their 
qualifications. (2 points)

Applicants will be given higher scores for comprehensive approaches, 
lender commitments to participate with the applicant in this program, 
and a plan which indicates a specific market niche to be reached and 
how the applicant's program meets that market. Applicants will lose 
points if they do not indicate that they will collect credit scores for 
analytical purposes.
    Rating Factor 4: Evidence of success in carrying out activities 
such as these including raising non-Federal grants and capital on 
concessionary terms for the purpose of expanding the secondary market 
for loans in the previous two years in amounts equal to or exceeding 
the amount awarded (20 points).
    (1) The applicant will be rated on the narrative and supporting 
documentation which support at least two years experience in leveraging 
non-Federal funds. (10 points)
    (2) The applicant must show evidence of the prior financial 
commitments (letters and written agreements) that were used to 
administer previous programs. These letters and agreements should 
indicate the date of award, the amount of funds awarded and information 
regarding how these funds were used to expand the secondary market. (10 
points)
    Applicants will be given higher scores for demonstrating a longer 
track record of leveraging public sector funds and a willingness to 
match funds awarded under this demonstration with non-Federal funds.
    (I) Other Federal Requirements. HUD may reject an application from 
further funding consideration if the activities or projects proposed in 
the application are not eligible activities and projects, or HUD may 
eliminate the ineligible activities from funding consideration and 
reduce the grant amount accordingly.
    (J) Unused and Recaptured Funds. HUD will recapture undisbursed 
amounts from the grantees who fail to substantially fulfill, or 
improperly fulfill, these obligations within 24 months. Reports will be 
required for 60 additional months. The successful grantees will be paid 
according to a draw schedule that will allocate between 25-50% of the 
funds at the time of grant award and the remainder following the 
receipt and detailed reviews of quarterly reports outlining the 
progress of the demonstration. If the grantee fails to fulfill, or 
improperly fulfills its obligations, HUD at its discretion may either:
    (1) Recapture the funds and use for other purposes (as permitted);
    (2) Readvertise availability of funds that have been recaptured; or
    (3) Choose to fund alternate applicants that submitted requests for 
funding in response to this NOFA in accordance with the selection 
process described elsewhere in this document.

III. Request for Funding-Organization of the Proposal Package

    Application Submission Requirements. The information submitted to 
HUD should be placed in a three ring binder, tabbed appropriately and 
appear in the following order:
    (1) Evidence of the respondent's nonprofit status, such as a copy 
of a current IRS ruling that the respondent is exempt from taxation 
under section 501(a) pursuant to section 501(c)(3) of the Internal 
Revenue Code of 1986.
    (2) Required certifications (listed below):
    (a) Evidence of adequate existing financial control procedures, 
indicating how it meets 24 CFR 84.21, ``Standards for Financial 
Management Systems.'' In

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addition, respondents must provide a copy of their most recent audit.
    (b) OMB Standard Form 424, Request for Federal Assistance.
    (c) Form HUD-2880, Applicant/Recipient Disclosure Update Report as 
required under subpart C of 24 CFR part 4, subpart A, ``Accountability 
in the Provision of HUD Assistance.''
    (d) Standard Form 424B, Assurances-Non-Construction Programs.
    (e) Certification Concerning Use of Federal Funds for Lobbying, 
Form SF-LLL.
    (f) Form HUD-2992 regarding the employment, engagement of services, 
awarding of contracts, subgrants, or funding of any recipients, or 
contractors or subcontractors, during any period of debarment, 
suspension, or placement in ineligibility status.
    (3) Information to address the experience level of the applicant 
(Rating Factor 1);
    (4) Information to address the data capabilities of the applicant 
(Rating Factor 2);
    (5) Information to address the adequacy of the proposed activities 
of the applicant (Rating Factor 3) and;
    (6) Information to address the applicant's success in raising non-
Federal grant and capital on concessionary terms (Rating Factor 4).

IV. Findings and Certifications

Paperwork Reduction Act Statement

    The information collection requirements contained in this NOFA have 
been reviewed by the Office of Management and Budget in accordance with 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and 5 CFR 
1320.13 and have been assigned OMB control number 2502-0535. In 
accordance with the Paperwork Reduction Act, HUD may not conduct or 
sponsor, and a person is not required to respond to, a collection 
unless the collection displays a valid control number.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
has been made for the program in accordance with HUD regulations at 24 
CFR part 50, which implements section 102(2)(C) of the National 
Environmental Policy Act of 1969. The Finding is available for public 
inspection between 7:30 a.m. and 5:30 p.m. weekdays in the Office of 
the Rules Docket Clerk, Office of the General Counsel, Department of 
Housing and Urban Development, Room 10276, 451 Seventh Street, SW, 
Washington, DC 20410.

Conflicts of Interest

    If the selection or non-selection of any applicant under this NOFA 
affects the individual's financial interests set forth in 18 U.S.C. 208 
or involves any party with whom the individual has a covered 
relationship under 5 CFR 2635.502, that individual must, prior to 
participating in any matter regarding this NOFA, disclose this fact to 
the General Counsel or the Ethics Law Division.

Federalism Executive Order

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this NOFA will not have substantial direct effects on 
States or their political subdivisions, or on the relationship between 
the Federal Government and the States, or on the distribution of power 
and responsibilities among the various levels of government. 
Specifically, the NOFA solicits applicants to demonstrate methods of 
expanding the secondary market for non-conforming home mortgage loans 
to low-wealth borrowers, and does not impinge upon the relationships 
between the Federal government and State and local governments. As a 
result, the NOFA is not subject to review under the Order.

Section 102 of the HUD Reform Act; Documentation and Public Access 
Requirements

    Section 102 of the Department of Housing and Urban Development 
Reform Act of 1989 (42 U.S.C. 3545) (HUD Reform Act) and the 
regulations codified in 24 CFR part 4, subpart A, contain a number of 
provisions that are designed to ensure greater accountability and 
integrity in the provision of certain types of assistance administered 
by HUD. On January 14, 1992 (57 FR 1942), HUD published a notice that 
also provides information on the implementation of section 102. The 
documentation, public access, and disclosure requirements of section 
102 apply to assistance awarded under this NOFA as follows:
    (1) Documentation and public access requirements. HUD will ensure 
that documentation and other information regarding each application 
submitted pursuant to this NOFA are sufficient to indicate the basis 
upon which assistance was provided or denied. This material, including 
any letters of support, will be made available for public inspection 
for a 5-year period beginning not less than 30 days after the award of 
the assistance. Material will be made available in accordance with the 
Freedom of Information Act (5 U.S.C. 552) and HUD's implementing 
regulations in 24 CFR part 15.
    (2) Disclosures. HUD will make available to the public for 5 years 
all applicant disclosure reports (HUD Form 2880) submitted in 
connection with this NOFA. Update reports (also Form 2880) will be made 
available along with the applicant disclosure reports, but in no case 
for a period less than 3 years. All reports--both applicant disclosures 
and updates--will be made available in accordance with the Freedom of 
Information Act (5 U.S.C. 552) and HUD's implementing regulations at 24 
CFR part 5.

Section 103 HUD Reform Act

    HUD's regulations implementing section 103 of the Department of 
Housing and Urban Development Reform Act of 1989 (42 U.S.C. 3537a), 
codified in 24 CFR part 4, apply to this funding competition. The 
regulations continue to apply until the announcement of the selection 
of successful applicants. HUD employees involved in the review of 
applications and in the making of funding decisions are limited by the 
regulations from providing advance information to any person (other 
than an authorized employee of HUD) concerning funding decisions, or 
from otherwise giving any applicant an unfair competitive advantage. 
Persons who apply for assistance in this competition must confine their 
inquiries to the subject areas permitted under 24 CFR part 4.
    Applicants or employees who have ethics related questions should 
contact the HUD Ethics Law Division at (202) 708-3815. (This is not a 
toll-free number.) For HUD employees who have specific program 
questions, the employee should contact the appropriate field office 
counsel, or Headquarters counsel for the program to which the question 
pertains.

Prohibition Against Lobbying Activities

    Applicants for funding under this NOFA are subject to the 
provisions of Section 319 of the Department of Interior and Related 
Agencies Appropriation Act for Fiscal Year 1991, 31 U.S.C. Section 1352 
(the Byrd Amendment) and to the provisions of the Lobbying Disclosure 
Act of 1995, P.L. 104-65 (December 19, 1995).
    The Byrd Amendment, which is implemented in regulations at 24 CFR 
Part 87, prohibits applicants for Federal contracts and grants from 
using appropriated funds to attempt to influence Federal Executive or 
legislative officers or employees in connection with obtaining such

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assistance, or with its extension, continuation, renewal, amendment or 
modification. The Byrd Amendment applies to the funds that are the 
subject of this NOFA. Therefore, applicants must file a certification 
stating that they have not made and will not make any prohibited 
payments and, if any payments or agreement to make payments of 
nonappropriated funds for these purposes have been made, a form SF-LLL 
disclosing such payments must be submitted. The certification and the 
SF-LLL are included in the application package.
    The Lobbying Disclosure Act of 1995, P.L. 104-65 (December 19, 
1995), which repealed Section 112 of the HUD Reform Act and resulted in 
the elimination of the regulations at 24 CFR Part 86, requires all 
persons and entities who lobby covered Executive or Legislative Branch 
officials to register with the Secretary of the Senate and the Clerk of 
the House of Representatives and file reports concerning their lobbying 
activities.

Catalog of Federal Domestic Assistance Number

    The Catalog of Federal Domestic Assistance number for the 
Program is 14.196.

    Date: March 3, 1999.
William C. Apgar,
Assistant Secretary for Housing-Federal Housing Commissioner.

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[FR Doc. 99-5861 Filed 3-9-99; 8:45 am]
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