[Federal Register Volume 64, Number 82 (Thursday, April 29, 1999)]
[Rules and Regulations]
[Pages 23014-23016]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10160]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 960

[No. 99-25]
RIN 3069-AA-73


Amendment of Affordable Housing Program Regulation

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is adopting 
as final, with several changes, the Interim Final Rule which amended 
its regulation governing the operation of the Affordable Housing 
Program (AHP or Program) to make certain technical revisions clarifying 
Program requirements and improving the operation of the AHP.

EFFECTIVE DATE: The final rule shall be effective on June 1, 1999.

FOR FURTHER INFORMATION CONTACT: Richard Tucker, Deputy Director, (202) 
408-2848, or Janet M. Fronckowiak, Associate Director, (202) 408-2575, 
Program Assistance Division, Office of Policy, Research and Analysis; 
or Sharon B. Like, Senior Attorney-Advisor, (202) 408-2930, Office of 
General Counsel, Federal Housing Finance Board, 1777 F Street, N.W., 
Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Regulatory Background

    On August 4, 1997, the Finance Board published a final rule 
adopting comprehensive revisions to the AHP regulation, see 12 CFR part 
960, which, among other changes, authorized the 12 Federal Home Loan 
Banks (Banks), rather than the Finance Board, to approve applications 
for AHP subsidies beginning January 1, 1998. See 62 FR 41812 (Aug. 4, 
1997) (1997 AHP Regulation). On May 20, 1998, the Finance Board 
published an Interim Final Rule amending the 1997 AHP Regulation to 
make certain technical revisions clarifying Program requirements and 
improving the operation of the AHP. See 63 FR 27668 (May 20, 1998). The 
Interim Final Rule provided for a 60-day comment period.
    The Finance Board received nine comment letters on the Interim 
Final Rule. Commenters included: three Banks, two Bank Advisory 
Councils, one Bank member, and one financial institutions trade 
association. Because the purpose of the Interim Final Rule was to make 
certain technical clarifying revisions, comments that raised issues 
beyond the scope of the Interim Final Rule changes are not addressed in 
this final rule, but will be considered by the Finance Board in any 
future rulemaking under the AHP. The provisions of the Interim Final 
Rule on which significant comments were received are discussed below.

II. Analysis of Final Rule

A. Minimum Credit Product Usage Limit--Secs. 960.5(b)(10)(i)(C), (ii)

    Section 960.5(b)(10)(i)(C) of the 1997 AHP Regulation authorized a 
Bank, in its discretion, after consultation with its Advisory Council, 
to establish a requirement that a member submitting an AHP application 
have made use of ``a credit product'' offered by the Bank, other than 
AHP or Community Investment Program (CIP) credit products, within the 
previous 12 months (single credit product usage limit). One of the 
arguments the Finance Board considered in determining to allow 
imposition of such a limit was that AHP subsidies are derived from a 
Bank's earnings and, therefore, fairness suggests that availability of 
subsidies may be linked to the extent to which a member contributes to 
the Bank's earnings through the single purchase of a Bank credit 
product. The Finance Board determined, after weighing the arguments, 
that giving the Banks the discretion, after consultation with their 
Advisory Councils, to adopt a single credit product usage limit would 
enable the Banks to be most responsive to the needs and views in their 
Districts. However, in the course of the Banks' implementation of this 
change under the AHP, the Banks indicated to the Finance Board that a 
member's single use of a Bank credit product does not make a meaningful 
contribution to Bank earnings, from which AHP subsidies are derived. 
The Banks argued instead for authority to adopt a credit product usage 
limit based on the member's use of a minimum amount of a Bank's credit 
product. The Banks also proposed that the required level of credit 
product usage be linked to a member's asset size.
    In response to these arguments, the Interim Final Rule revised 
Sec. 960.5(b)(10)(i)(C) to permit a Bank, after consultation with its 
Advisory Council, to establish a requirement that a member submitting 
an AHP application must have made use of a minimum amount of a credit 
product offered by the Bank, other than AHP or CIP credit products, 
within the previous 12 months, provided that such a minimum threshold 
for credit product usage established by a Bank shall not exceed 1.5 
percent of the member's total assets, and all members shall have access 
to some amount of AHP subsidy, as determined by the Bank, regardless of 
whether they meet the Bank's minimum threshold for credit product usage 
(minimum credit product usage limit).
    Two commenters opposed this change, for some of the same reasons 
evaluated and discussed by the Finance Board in the 1997 AHP 
rulemaking. See 61 FR 57799, 57808-09 (Nov. 8, 1996); 62 FR 41812, 
41819 (August 4, 1997); see also, 60 FR 55487, 55490-91 (Nov. 1, 1995). 
The commenters have not presented new arguments that were not 
considered by the Finance Board in the 1997 AHP rulemaking. The Finance 
Board continues to believe that the Banks should have the discretion, 
after consultation with their Advisory Councils, to adopt a minimum 
credit product usage limit as appropriate based on the needs and views 
in the Bank's District. Accordingly, the minimum credit product usage 
limit provision contained in the Interim Final Rule is adopted without 
change in the final rule.
    The Interim Final Rule also clarified in Sec. 960.5(b)(10)(ii) that 
``[a]ny limit on the amount of AHP subsidy available per member must 
result in equal amounts of AHP subsidy available to all members.'' This 
requirement is intended to ensure that such limits are not structured 
or applied in a discriminatory manner. A commenter pointed out that, 
under a technical reading of this language, a Bank would have to make 
an equal amount of AHP subsidy available to all members, regardless of 
whether the member meets the minimum threshold requirement for credit 
product usage. This was not the intent of the amended language in 
Sec. 960.5(b)(10)(ii). Accordingly, the language has been clarified in 
the final rule to provide that any limit on the amount of AHP subsidy 
available per member must result in equal amounts of AHP subsidy 
available to all members receiving subsidy pursuant to such limit.

B. Procedure for Approval of Applications for Funding--Sec. 960.6

1. Scoring Criterion for Use of Donated Government-Owned or Other 
Properties--Sec. 960.6(b)(4)(iv)(A)
    Under Sec. 960.6(b)(4)(iv)(A) of the Interim Final Rule, an 
application may

[[Page 23015]]

receive scoring points if it involves the creation of housing using a 
significant proportion of units or land donated or conveyed for a 
nominal price by the federal government or any agency or 
instrumentality thereof, or by any other party. The Interim Final Rule 
added language to Sec. 960.6(b)(4)(iv)(A) clarifying that a ``nominal 
price'' is a small, negligible amount, most often one dollar, and may 
be accompanied by modest expenses related to the conveyance of the 
property.
    A commenter objected to the definition of ``nominal price,'' 
stating that it should be defined as up to 10 percent of the fair 
market value of the units or land. By defining ``nominal price'' as 
``most often one dollar,'' the Interim Final Rule left some discretion 
to the Banks to determine, on a case-by-case basis, whether a price 
higher than one dollar may qualify as nominal. The Finance Board 
continues to believe that this case-specific approach is preferable to 
establishing a general standard in the regulation that would apply to 
all transactions anywhere in the country, regardless of possible 
variances in what may be considered nominal from region to region and 
transaction to transaction. Accordingly, the comment is not adopted in 
the final rule.
    Another commenter stated that the term ``modest expenses'' should 
be defined. Again, the Finance Board believes that a case-specific 
approach is more appropriate than establishing a national standard for 
the definition of ``modest expenses.'' Accordingly, the final rule does 
not define the term, leaving it to the discretion of each Bank to 
determine what are modest conveyance expenses for particular 
transactions in its District.
2. Scoring Criterion for Housing for Homeless Households--
Sec. 960.6(b)(4)(iv)(D)
    Under Sec. 960.6(b)(4)(iv)(D) of the Interim Final Rule, an 
application may receive scoring points if it involves ``[t]he creation 
of rental housing reserving at least 20 percent of the units for 
homeless households, or the creation of transitional housing for 
homeless households permitting a minimum of six months occupancy.'' See 
12 CFR 960.6(b)(4)(iv)(D). The Interim Final Rule omitted the express 
exclusion of overnight shelters contained in the 1997 AHP Regulation, 
because it is clear that overnight shelters do not come within the 
category of housing permitting a minimum of six months occupancy. The 
Interim Final Rule also clarified that ``rental projects,'' as defined 
in Sec. 960.1, include overnight shelters. The intention was to make 
clear that while overnight shelters are eligible for AHP funding, they 
may not receive scoring points under Sec. 960.6(b)(4)(iv)(D). However, 
by defining ``rental projects'' to include overnight shelters, the 
Interim Final Rule unintentionally made overnight shelters eligible for 
such scoring points under the first clause dealing with rental 
projects. Accordingly, the final rule revises the first clause in 
Sec. 960.6(b)(4)(iv)(D) to expressly exclude overnight shelters for 
homeless households.
3. Scoring Criterion for Economic Diversity--Sec. 960.6(b)(4)(iv)(F)(8)
    The Interim Final Rule revised the second alternative requirement 
in Sec. 960.6(b)(4)(iv)(F)(8) to provide that applications may receive 
scoring points for ``Economic Diversity'' if they involve the creation 
of housing that provides very low- or low- or moderate-income 
households with housing opportunities in neighborhoods or cities where 
the median income exceeds the median income for the larger surrounding 
area--such as the city, county, or Primary Metropolitan Statistical 
Area--in which the neighborhood or city is located. The general intent 
of this requirement is to promote housing opportunities for very low- 
and low- or moderate-income households in areas that are wealthier 
relative to the surrounding areas to avoid isolation of such 
households.
    A commenter suggested allowing scoring points to be awarded under 
this criterion for housing in areas where the median income equals or 
exceeds the median income for the larger surrounding area. The Finance 
Board believes that this change would meet the general intent of the 
requirement and, therefore, has revised the language in the final rule 
accordingly.

C. Modifications of Applications After Project Completion--Sec. 960.9

    The Interim Final Rule amended Sec. 960.9 of the AHP regulation to 
clarify the types of changes to an approved AHP project after project 
completion that would justify a modification to the terms of the 
approved AHP application. See id. Sec. 960.9. The amendment 
inadvertently omitted the language limiting such modifications to 
changes ``other than an increase in the amount of subsidy approved for 
the project.'' This limiting language has been restored in the final 
rule.

III. Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required for this final 
rule, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.) do not apply. Moreover, 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. See id. section 601(6).

IV. Paperwork Reduction Act

    This final rule does not contain any collections of information 
pursuant to the Paperwork Reduction Act of 1995. See 44 U.S.C. 3501 et 
seq. Therefore, the Finance Board has not submitted any information to 
the Office of Management and Budget for review.

List of Subjects in 12 CFR Part 960

    Credit, Federal home loan banks, Housing, Reporting and 
recordkeeping requirements. Accordingly, the Interim Final Rule 
amending 12 CFR part 960, published at 63 FR 27668 (May 20, 1998), is 
adopted as final with the following changes:

PART 960--AFFORDABLE HOUSING PROGRAM

    1. The authority citation for part 960 continues to read as 
follows:

    Authority: 12 U.S.C. 1430(j).

    2. Section 960.5 is amended by revising paragraph (b)(10)(ii) to 
read as follows:


Sec. 960.5  Minimum eligibility standards for AHP projects.

* * * * *
    (b) * * *
    (10) District eligibility requirements.
    (ii) Any limit on the amount of AHP subsidy available per member 
must result in equal amounts of AHP subsidy available to all members 
receiving subsidy pursuant to such limit.
    3. Section 960.6 is amended by revising paragraphs (b)(4)(iv)(D) 
and (b)(4)(iv)(F)(8) to read as follows:


Sec. 960.6  Procedure for approval of applications for funding.

* * * * *
    (b) * * *
    (4) * * *
    (iv) * * *
    (D) Housing for homeless households. The creation of rental 
housing, excluding overnight shelters, reserving at least 20 percent of 
the units for homeless households, or the creation of transitional 
housing for homeless households permitting a minimum of six months 
occupancy.
* * * * *
    (F) * * *
    (8) Economic diversity. The creation of housing that is part of a 
strategy to end isolation of very low-income households by providing 
economic diversity through mixed-income housing in low- or moderate-
income

[[Page 23016]]

neighborhoods, or providing very low- or low- or moderate-income 
households with housing opportunities in neighborhoods or cities where 
the median income equals or exceeds the median income for the larger 
surrounding area--such as the city, county, or Primary Metropolitan 
Statistical Area--in which the neighborhood or city is located;
* * * * *
    4. Section 960.9 is amended by revising the introductory text to 
read as follows:


Sec. 960.9  Modifications of applications after project completion.

    Modification procedure. If, after final disbursement of funds to a 
project from all funding sources, there is or will be a change in the 
project that would change the score that the project application 
received in the funding period in which it was originally scored and 
approved, had the changed facts been operative at that time, a Bank, in 
its discretion, may approve in writing a modification to the terms of 
the approved application, other than an increase in the amount of 
subsidy approved for the project, provided that:
* * * * *
    By the Board of Directors of the Federal Housing Finance Board.

    Dated: April 13, 1999.
Bruce A. Morrison,
Chairman.
[FR Doc. 99-10160 Filed 4-28-99; 8:45 am]
BILLING CODE 6725-01-P