[Federal Register Volume 66, Number 192 (Wednesday, October 3, 2001)]
[Rules and Regulations]
[Pages 50296-50302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-24586]


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

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 951

[No. 2001-18]
RIN 3069-AB04


Affordable Housing Program Amendments

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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

SUMMARY: The Federal Housing Finance Board (Finance Board) is amending 
its regulation governing the operation of the Affordable Housing 
Program (AHP) to improve the operation and effectiveness of the AHP. 
The changes include: increasing the maximum amount of money that may be 
set aside annually, in the aggregate, under a Federal Home Loan Bank's 
(Bank) homeownership set-aside programs to the greater of $3.0 million 
or 25 percent of the Bank's annual required AHP contribution; removing 
one of the criteria for use of homeownership set-aside funds to pay for 
counseling costs in order to equalize the criteria with that of the 
competitive AHP application program; permitting members drawn from 
community and not-for-profit organizations actively involved in 
providing or promoting community lending in a Bank's district to serve 
on the Bank's Advisory Council; making the AHP outlay adjustment 
requirements applicable to any reduction or increase in the amount of 
AHP subsidy approved for a project, regardless of whether a direct 
subsidy writedown is involved; removing the requirement for annual 
project sponsor certifications on household income eligibility for 
owner-occupied projects; removing the requirements for project sponsor 
certifications to the member and member certifications to the Bank on 
tenant income and rent targeting commitments and project habitability 
within the first year of completion of a rental project; and allowing 
projects modifications to be eligible for AHP funds that remain 
uncommitted or unused by the end of the year.

EFFECTIVE DATE: The final rule shall be effective on November 2, 2001.

FOR FURTHER INFORMATION CONTACT: Charles E. McLean, Deputy Director, 
(202) 408-2537, Melissa L. Allen, Program Analyst, (202) 408-2524, 
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, NW., Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    Section 10(j)(1) of the Federal Home Loan Bank Act (Bank Act) 
requires each Bank to establish a program to subsidize the interest 
rate on advances to members of the Bank System engaged in lending for 
long-term, low- and moderate-income, owner-occupied and affordable 
rental housing at subsidized interest rates. See 12 U.S.C. 1430(j)(1). 
The Finance Board is required to promulgate regulations governing the 
AHP. See id. The Finance Board's existing regulation governing the 
operation of the AHP, which made comprehensive revisions to the AHP, 
was adopted in August 1997 and became effective January 1, 1998. See 62 
FR 41812 (Aug. 4, 1997) (now codified at 12 CFR part 951).
    Various amendments have been made to the AHP regulation since 1998 
in order to clarify AHP requirements and improve the operation and 
effectiveness of the AHP. Over the course of implementation of the AHP, 
the Banks and Finance Board staff have identified additional amendments 
that could improve the operation and effectiveness of the AHP. 
Accordingly, on May 10, 2001, the Finance Board published a proposed 
rule requesting comment on these proposed amendments to the AHP 
regulation. See 66 FR 23864 (May 10, 2001). The proposed rule provided 
for a 30-day comment period, which closed on June 11, 2001.
    The Finance Board received 23 comment letters on the proposed rule. 
Commenters included: 5 Banks; 3 Bank Advisory Councils; 6 trade 
associations; and 9 nonprofit housing developers. Comments that raised 
issues beyond the scope of the proposed rule 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 proposed rule on

[[Page 50297]]

which significant comments were received are discussed below.

II. Analysis of Final Rule

A. Homeownership Set-Aside Programs--Secs. 951.3(a)(1), 
951.5(a)(7)(iii)

1. Increase in Maximum Allowable Annual Homeownership Set-Aside 
Amount--Sec. 951.3(a)(1)
    Section 951.3(a)(1) of the existing AHP regulation provides that 
each Bank, after consultation with its Advisory Council, may set aside 
annually, in the aggregate, up to the greater of $1.5 million or 15 
percent of its annual required AHP contribution to provide funds to 
members participating in the Bank's homeownership set-aside programs. 
12 CFR 951.3(a)(1). In cases where the amount of homeownership set-
aside funds applied for by members in a given year exceeds the amount 
available for that year, a Bank may allocate up to the greater of $1.5 
million or 15 percent of its annual required AHP contribution for the 
subsequent year to the current year's homeownership set-aside programs. 
Id. Section 951.3(a)(1) of the proposed rule would increase the maximum 
allowable annual homeownership set-aside amount to the greater of $3.0 
million or 25 percent of a Bank's annual required AHP contribution. In 
addition, in cases where the amount of homeownership set-aside funds 
applied for by members in a given year exceeds the amount available for 
that year, the proposed rule would allow a Bank to allocate up to the 
greater of $3.0 million or 25 percent of its annual required AHP 
contribution for the subsequent year to the current year's 
homeownership set-aside programs.
    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, AHP homeownership set-aside programs have proven to be 
an efficient and effective means for the Banks and their members to 
provide homeownership opportunities for low- and moderate-income 
households, consistent with the goals of the Bank System and the AHP. 
Ten Banks currently offer homeownership set-aside programs, eight of 
which set aside the maximum amount allowable under the current AHP 
regulation.
    Experience with the homeownership set-aside programs over the past 
two years has shown that the demand for homeownership set-aside funds 
for low- and moderate-income families is such that an increase in the 
maximum allowable annual homeownership set-aside amount is warranted. 
The Banks have demonstrated that there is market demand and member 
demand for financing for low- and moderate-income homeownership, with 
most homeownership set-aside programs being oversubscribed within the 
first three to seven months of the year. In 2000, the Finance Board 
approved a waiver request from one Bank to increase its maximum 
allowable homeownership set-aside amount to 25 percent of its total 
annual AHP contribution. A similar waiver for 2001 was approved for all 
Banks to implement at their discretion.
    The homeownership set-aside programs also are consistent with the 
cooperative structure of the Bank System, by involving members in 
financing the mortgages of low- and moderate-income households 
receiving downpayment assistance with homeownership set-aside funds. 
The homeownership set-aside programs can provide an important Bank 
service for members by enabling a greater number of members to become 
involved in the AHP, by helping members to establish banking 
relationships with new customers, and by exposing more members to 
opportunities to help meet low- and moderate-income housing needs in 
their markets.
    The homeownership set-aside programs also are consistent with the 
goals of the Bank System and the AHP to help finance affordable housing 
in underserved areas and for underserved households. Homeownership set-
aside funds often are the only way to effectively meet scattered-site, 
affordable housing needs in rural areas or tribal areas, which have 
difficulty scoring well under the competitive AHP application program 
and where rental projects are not feasible. In addition, homeownership 
set-aside funds often are the only way to meet the need for 
homeownership opportunities for very low-income families, which require 
larger per-unit subsidies and, therefore, may not score well under the 
competitive AHP application program. Homeownership set-aside programs 
also allow a member to use AHP funds to finance housing for individual 
eligible households on an as-needed basis, even if it is only for one 
household in the member's market area. These are households that the 
competitive AHP application program might not otherwise reach.
    Most commenters supported the proposed increase in the maximum 
allowable annual homeownership set-aside amount. Commenters cited: the 
increasing demand for homeownership funds that, in some cases, has 
exhausted the Banks' annual set-aside allocation within months; the 
efficient and effective delivery of subsidy under the set-aside 
program; greater member achievement of Community Reinvestment Act (CRA) 
goals; and the positive impacts of homeownership on communities.
    One commenter suggested that an increase in homeownership set-aside 
funds above 15 percent should require written approval of a majority of 
the Advisory Council membership and not just consultation with the 
Advisory Council. The Finance Board supports Advisory Council input 
into the Banks' implementation of the AHP. The Banks' boards of 
directors, however, have ultimate responsibility for the AHP and, 
therefore, should make the ultimate decisions on how much AHP funds to 
allocate to homeownership set-aside programs.
    Several commenters opposed the proposed increase in the maximum 
allowable annual homeownership set-aside amount on the basis that the 
need for affordable rental housing is rising, especially in certain 
Bank districts, and an increase in the annual allocation of AHP funds 
to homeownership set-aside funds could result in less funding of rental 
housing under the competitive application program. The decision whether 
or not to establish homeownership set-aside programs is within the 
discretion of each Bank. Thus, a Bank, in consultation with its 
Advisory Council, may decide not to establish homeownership set-aside 
programs if it determines that such programs are inappropriate for its 
district, or, if a Bank decides to establish such programs, it need not 
allocate to the programs the maximum amount allowable under the 
regulation.
    Another commenter recommended that, as a way to balance the goals 
of homeownership and rental funding, the Banks be allowed to increase 
their homeownership set-aside allocation provided they agree to hold 
the allocations to their AHP competitive application program to at 
least the funding levels of 2001. Historically, approximately two-
thirds of affordable housing units funded under the AHP competitive 
application program have been rental units. The commenter's proposal 
would not ensure that AHP funding for rental projects under the 
competitive application program would remain at 2001 levels. In 
addition, the comment presumes that annual AHP contributions will 
always increase each year, which has not always been the case.
    A number of commenters suggested that the regulation include a 
priority for homeownership projects that remain affordable in 
perpetuity for future buyers without additional future

[[Page 50298]]

subsidies, such as projects involving land trusts. The AHP regulation 
requires a fixed retention period of five years for homeownership 
projects, which does not allow for a scoring priority for projects with 
retention periods longer than five years. See id. Secs. 951.1, 
951.5(b)(7)(i), 951.13(c)(4), 951.13(d)(1). A Bank, under its second 
district scoring priority, could choose to adopt a scoring priority for 
homeownership projects that use land trusts, but the retention period 
would still have to be five years. See id. Sec. 951.6(b)(4)(iv)(G).
    Accordingly, for the reasons discussed above, the final rule adopts 
without change the proposed amendment to Sec. 951.3(a)(1) increasing 
the maximum allowable annual homeownership set-aside amount.
2. CPI Adjustment--Sec. 951.3(a)(1)
    Section 951.3(a)(1) of the proposed rule also provided that, 
beginning in 2002 and for subsequent years, the maximum homeownership 
set-aside dollar limits would be adjusted annually by the Finance Board 
to reflect any percentage increase in the preceding year's Consumer 
Price Index (CPI) for all urban consumers, as published by the 
Department of Labor. Each year, as soon as practicable after the 
publication of the previous year's CPI, the Finance Board would be 
required to publish notice by Federal Register, distribution of a 
memorandum, or otherwise, of the CPI-adjusted limits on the maximum 
set-aside dollar amount.
    A number of commenters supported the proposed CPI adjustment 
provision, with one commenter stating that indexing the dollar limit 
increase to the rate of inflation will help cause the supply of 
available funds to more closely match the needs of Bank members and 
customers.
    Accordingly, the final rule adopts the proposed CPI adjustment 
amendment to Sec. 951.3(a)(1) without change.
3. Removal of Criterion for Funding of Counseling Costs--
Sec. 951.5(a)(7)(iii)
    Section 951.5(a)(7) of the existing AHP regulation provides that 
homeownership set-aside funds may be used to pay for counseling costs 
only where:
    (i) Such costs are incurred in connection with counseling of 
homebuyers who actually purchase an AHP-assisted unit;
    (ii) the cost of the counseling has not been covered by another 
funding source, including the member; and
    (iii) the homeownership set-aside funds are used to pay only for 
the amount of such reasonable and customary costs that exceeds the 
highest amount the member has spent annually on homebuyer counseling 
costs within the preceding three years. Id. Sec. 951.5(a)(7).
    By contrast, Sec. 951.5(b)(5) of the existing AHP regulation 
requires satisfaction of only the first two of the above three criteria 
in authorizing the use of AHP subsidies to pay for counseling costs 
under the competitive application program. Id. Sec. 951.5(b)(5). As 
discussed in the SUPPLEMENTARY INFORMATION section of the proposed 
rule, the criterion in paragraph (a)(7)(iii) was intended to prevent 
homeownership set-aside funds from being used to pay for counseling 
costs that, in the absence of such funds, customarily would be funded 
by members participating in a homeownership set-aside program. In this 
way, AHP funds would be used to expand the pool of resources available 
to pay for counseling costs, rather than simply replace existing 
sources of funding for counseling costs.
    The Banks have suggested that the criterion in paragraph 
(a)(7)(iii) be removed, so that the criteria applicable to the use of 
AHP funds for counseling costs would be the same under both the 
homeownership set-aside and competitive application programs. Because 
the competitive application program does not have a comparable 
counseling costs criterion, it is possible that AHP subsidies are 
already being used under that program to pay for counseling costs that 
the member, project sponsor or another funding source otherwise would 
have funded. Further, contrary to the intent of the criterion, the 
criterion may actually be inducing members not to pay for homebuyer 
counseling costs in order to be eligible for AHP funding of the 
counseling costs. In addition, the Banks have maintained that it can be 
difficult to determine the amount that members have spent over a three-
year period on counseling costs, especially where the costs are 
indirect or combined with the costs of other services also provided to 
the homebuyer. The potential to be cited for noncompliance with the AHP 
regulation if the accounting for the costs is not accurate could 
discourage members from paying any counseling costs themselves. 
Requiring that the Banks monitor these costs, which generally are small 
in amount, arguably is not an efficient use of the Banks' resources. 
Homebuyer counseling is vital to ensuring that AHP subsidies are used 
successfully to provide homeownership opportunities to low- and 
moderate-income households. The Finance Board believes that the 
assurance that homebuyers will get such counseling, regardless of how 
it is funded, outweighs any concerns that AHP subsidies may be funding 
counseling costs that otherwise would be paid for by the member. For 
all of these reasons, the proposed rule would remove the homeownership 
set-aside counseling criterion in Sec. 951.5(a)(7)(iii).
    A number of commenters supported the proposed amendment, citing 
various reasons discussed above. One commenter opposed the proposed 
change, arguing that it would result in AHP funds being used as a 
substitute for other funds that were being used in the past for 
counseling costs, and urged instead that the counseling costs criterion 
be added to the competitive application program. As discussed above, 
the Finance Board believes that assuring homebuyers will get such 
counseling, regardless of how it is funded, outweighs the commenter's 
concern. Accordingly, the final rule adopts without change the proposed 
amendment removing Sec. 951.5(a)(7)(iii).

B. Advisory Council Membership--Sec. 951.4

    Section 951.4(f) of the existing AHP regulation uses two terms--
``community investment'' and ``community development''--in describing 
the role of the Advisory Councils in this area. See id. Sec. 951.4(f). 
Specifically, Sec. 951.4(f)(1) provides that representatives of the 
board of directors of each Bank shall meet with the Advisory Council at 
least quarterly to obtain the Advisory Council's advice on ways in 
which the Bank can better carry out its housing finance and community 
investment mission, including advice on the low- and moderate-income 
housing and community investment programs and needs in the Bank's 
district. Id. Sec. 951.4(f)(1). Section 951.4(f)(3) provides that each 
Advisory Council shall submit to the Finance Board annually by March 1 
its analysis of the low- and moderate-income housing and community 
development activity of the Bank by which it is appointed. Id. 
Sec. 951.4(f)(3).
    The proposed rule would replace the terms ``community investment'' 
and ``community development,'' wherever they appear in Sec. 951.4, with 
the term ``community lending,'' which encompasses both terms and is the 
term used in the Finance Board's recently adopted mission statement for 
the Banks. See id. Sec. 940.2.\1\ ``Community

[[Page 50299]]

lending'' is defined in part 900 of the Finance Board's existing 
regulations as ``providing financing for economic development projects 
for targeted beneficiaries, and, for community financial institutions, 
purchasing or funding small business loans, small farm loans or small 
agri-business loans, as defined in Sec. 950.1 of this chapter.'' Id. 
Sec. 900.1. ``Providing financing'' is defined to include various 
lending activities and purchases of eligible assets. Id. Sec. 952.3.
---------------------------------------------------------------------------

    \1\ Section 940.2 states:
    The mission of the Banks is to provide to their members and 
[housing] associates financial products and services, including but 
not limited to advances, that assist and enhance such members' and 
[housing] associates' financing of:
    (a) Housing, including single-family and multi-family housing 
serving consumers at all income levels; and
    (b) Community lending.
    Id. Sec. 940.2 (emphasis added).
---------------------------------------------------------------------------

    In addition, because the Advisory Councils are required to give 
advice on community lending, as well as housing finance, matters, the 
proposed rule would revise Sec. 951.4(a) to provide that members shall 
be drawn from community and not-for-profit organizations actively 
involved in providing or promoting low- and moderate-income housing, 
and community and not-for-profit organizations actively involved in 
providing or promoting community lending, in the Bank's district. The 
proposed rule also would revise Sec. 951.4(b) to provide that, in 
appointing Advisory Council members, a Bank shall give consideration to 
the diversity of low- and moderate-income housing, as well as community 
lending, needs and activities within the Bank's district.
    A number of commenters supported the proposed changes, on the basis 
that they would add expertise in community lending to the Advisory 
Council, thereby enabling the Advisory Council to address broader 
community needs, consistent with the Bank's housing finance and 
community lending mission.
    One commenter opposed the proposed changes, stating that they would 
dilute the role of affordable housing practitioners and advocates on 
the Advisory Councils and potentially diminish the Advisory Councils' 
focus on housing. Because the regulation requires that the Advisory 
Council membership include persons drawn from a diverse range of 
organizations with no undue proportionate membership for any one group, 
and that the Advisory Council provide advice on both housing finance 
and community lending, this concern appears to be unwarranted. See id. 
Sec. 951.4(c), (f)(1).
    Another commenter interpreted the term ``community lending'' as 
narrower than the terms ``community investment'' and ``community 
development,'' limiting the Advisory Council's role to advice on 
lending. In fact, the definition of ``community lending'' encompasses a 
wide range of economic development activities beyond just lending. See 
id. Secs. 900.1, 952.3.
    One commenter recommended that the final rule clarify that private, 
for-profit providers of affordable housing are eligible to serve on the 
Advisory Councils. Under the existing AHP regulation, such housing 
providers are eligible to serve on the Advisory Councils, and the 
Finance Board has previously provided this clarification to the Banks. 
Accordingly, the final rule adopts the proposed amendments to 
Sec. 951.4 without change.

C. AHP Outlay Adjustment--Sec. 951.8(c)(4)

    Section 951.8(c)(3)(ii) of the existing AHP regulation provides 
that if a Bank reduces the amount of AHP subsidy approved for a 
project, the amount of such reduction shall be returned to the Bank's 
AHP fund. Id. Sec. 951.8(c)(3)(ii). If a Bank increases the amount of 
AHP subsidy approved for a project, the amount of such increase shall 
be drawn first from any currently uncommitted or repaid AHP subsidies, 
and then from the Bank's required AHP contribution for the next year. 
Id. This section is included under the overall heading for paragraph 
(c)(3), which addresses changes in the approved AHP subsidy amount 
where a direct subsidy is used to write down prior to closing the 
principal amount or interest rate on a loan. Therefore, the 
requirements in paragraph (c)(3)(ii) would appear to apply only in 
cases where a direct subsidy is used to write down prior to closing the 
principal amount or interest rate on a loan. As discussed in the 
SUPPLEMENTARY INFORMATION section of the proposed rule, in practice, 
the Banks have returned to the AHP fund the amount of any reduction in 
AHP subsidy approved for a project under the competitive application 
program, regardless of the reason for the reduction, such as a project 
modification. The question arose whether the provision in paragraph 
(c)(3)(ii) regarding the funding of a subsidy increase should apply to 
an increase in approved AHP subsidy for a project modification that 
does not involve a direct subsidy writedown of principal or interest. A 
Bank has indicated that, in its district, demand for increases in 
approved AHP subsidies for project modifications not involving direct 
subsidy writedowns is now exceeding the amount of repaid or uncommitted 
AHP subsidies available to fund such modifications. Therefore, the Bank 
would like to be able to fund such subsidy increases from the Bank's 
required AHP contribution for the next year. Accordingly, the proposed 
rule would make Sec. 951.8(c)(3)(ii) applicable to any reduction or 
increase in the amount of AHP subsidy approved for a project, 
regardless of whether a direct subsidy writedown is involved, by taking 
the paragraph out from under the paragraph (c)(3) heading and 
redesignating it as Sec. 951.8(c)(4). The Banks, therefore, would be 
able to fund subsidy increases for project modifications using 
subsidies drawn first from any currently uncommitted or repaid AHP 
subsidies, and then from the Bank's required AHP contribution for the 
next year.
    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, if a Bank is permitted to use uncommitted AHP funds from 
the following year, before such funds are made available under the 
competitive application program for that year, there will be fewer AHP 
funds available for new projects to be approved under the competitive 
application program for that year. The overall effect on the amount of 
AHP funds available for the following year, however, is not likely to 
be significant. Moreover, funding a new project in the next year, as 
opposed to funding a modification of an existing project from a prior 
year, would not necessarily result in producing more affordable 
housing. It would be beneficial to have AHP funding available for 
modifications of existing projects that are meeting the goals of the 
AHP. The existing AHP regulation already allows the Banks to commit AHP 
funds from the following year's homeownership set-aside allocation to 
fund current year needs under the Banks' homeownership set-aside 
programs, and the Banks arguably should have similar flexibility in 
funding subsidy increases for project modifications approved under the 
competitive application program. Finally, the decision whether to 
approve an increase in AHP subsidy for a project modification is within 
the discretion of each Bank. See id. Sec. 951.7. If a Bank does not 
want to fund project modifications with subsidies from the next year's 
AHP allocation, it can choose to approve the project modifications only 
if additional repaid or uncommitted funds become available.
    A number of commenters supported the proposed change because of the 
additional flexibility it would provide the Banks to fund subsidy 
increases for project modifications. One commenter

[[Page 50300]]

stated that the proposed change should not be made until the Finance 
Board has studied past trends in uncommitted funds and past success 
rates of new projects and makes projections as to the impact of the 
proposed change based on those figures. Because the conditions 
applicable to each project differ significantly, the Finance Board 
believes that the Banks are the best judges of whether or not to 
approve subsidy increases for project modifications from the required 
AHP contribution for the next year.
    Several commenters also expressed concern that the proposed change 
would enable project sponsors to game the scoring system by seeking 
modifications to their low-income targeting commitments after approval. 
Because the AHP regulation provides that approved projects seeking 
additional AHP subsidy must, as modified, continue to score 
successfully in the funding period in which they were originally 
approved, gaming of the scoring system should not be a problem. See id.
    Accordingly, for the reasons discussed above, the final rule adopts 
the proposed amendment making newly redesignated Sec. 951.8(c)(4) 
applicable to any reduction or increase in the amount of AHP subsidy 
approved for a project, regardless of whether a direct subsidy 
writedown is involved. In addition, in order to more accurately reflect 
the nature of the adjustments addressed in Sec. 951.8(c)(4), the final 
rule removes the paragraph heading ``Reconciliation of AHP fund'' and 
adds, in its place, the revised heading ``AHP outlay adjustment''.

D. Initial Monitoring Requirements--Sec. 951.10

1. Removal of Requirement for Annual Owner-Occupied Project Sponsor 
Certifications--Sec. 951.10(a)(1)(ii)
    Section 951.10(a)(1)(ii) of the existing AHP regulation provides 
that where AHP subsidies are used to finance the purchase of owner-
occupied units, the project sponsor must certify annually to the member 
and the Bank, until all approved AHP subsidies are provided to eligible 
households in the project, that those households receiving AHP 
subsidies during the year were eligible households, and such 
certifications shall be supported by household income verification 
documentation maintained by the project sponsor and available for 
review by the member or the Bank. Id. Sec. 951.10(a)(1)(ii).
    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, the Banks maintain that this project sponsor 
certification requirement is not necessary because the certification 
merely reiterates more extensive documentation of income eligibility 
previously provided by the project sponsor to the Bank and member at 
the time of each request for disbursement of AHP funds from the Bank. 
Under the existing AHP regulation, a Bank is required to verify prior 
to each disbursement of AHP subsidies for an approved project that the 
project meets the eligibility requirements of Sec. 951.5(b) and all 
obligations committed to in the approved AHP application. See id. 
Secs. 951.5(b), 951.8(c)(2). Because the project sponsor's annual 
certification is based on the information provided to the Bank at the 
time of disbursement requests, the certification requirement in 
Sec. 951.10(a)(1)(ii) does not add any new information or independent 
verification to the monitoring process. For these reasons, the proposed 
rule would remove the requirement for annual owner-occupied project 
sponsor certifications from Sec. 951.10(a)(1)(ii). A number of 
commenters supported the proposed change on the basis that it would 
remove redundant monitoring requirements. The proposed rule would 
retain the requirement in Sec. 951.10(a)(1)(ii) that the project 
sponsor maintain household income verification documentation available 
for review by the member or the Bank. A number of commenters supported 
retention of this requirement.
    Accordingly, the final rule adopts without change the proposed 
amendment to Sec. 951.10(a)(1)(ii) removing the requirement for annual 
owner-occupied project sponsor certifications.
2. Removal of Requirements for Project Owner Certification to Member 
and Member Certification to Bank Within the First Year of Rental 
Project Completion-- Secs. 951.10(a)(2)(ii), 951.10(b)(2)(ii)
    Section 951.10(a)(2)(ii) of the existing AHP regulation provides 
that within the first year after completion of an AHP-assisted rental 
project, the project owner must make a certification to the member and 
the Bank on services and activities commitments, tenant income 
targeting and rent commitments, and project habitability. See Id. 
Sec. 951.10(a)(2)(ii). Section 951.10(b)(2)(ii) of the existing AHP 
regulation provides that within the first year after completion of an 
AHP-assisted rental project, the member must review the project 
documentation and make a certification to the Bank on tenant income 
targeting and rent commitments, and project habitability. See Id. 
Sec. 951.10(b)(2)(ii). The Banks maintain that this member 
certification requirement is essentially redundant with the requirement 
in Sec. 951.10(a)(2)(ii) that the project owners make a certification 
to the member and the Bank on the same items. See Id. 
Sec. 951.10(a)(2)(ii).
    Because the member is essentially duplicating the certification 
already made by the project owner to the member and the Bank, it seems 
reasonable to eliminate the requirements for project owner 
certification to the member and member certification to the Bank, and 
simply retain the requirement for project owner certification directly 
to the Bank. Accordingly, the proposed rule would remove the 
requirements for project owner certification to the member and member 
certification to the Bank in Secs. 951.10(a)(2)(ii) and 
951.10(b)(2)(ii), respectively. A number of commenters supported the 
proposed changes on the basis that they would remove redundant 
monitoring requirements.
    Accordingly, the final rule adopts the proposed amendments to 
Secs. 951.10(a)(2)(ii) and 951.10(b)(2)(ii) without change.

E. Uncommitted or Unused AHP Funds--Sec. 951.15(a)(2)

    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, a higher allowable annual homeownership set-aside amount 
increases the possibility that demand for such funds may not exhaust 
the available funds by the end of the year. Under section 10(j)(7) of 
the Bank Act, 90 percent of such uncommitted or unused AHP funds 
generally would be required to be deposited by the Bank in an 
Affordable Housing Reserve Fund established and administered by the 
Finance Board. See 12 U.S.C. 1430(j)(7); 12 CFR 951.15(a)(2). No such 
Reserve Fund has been established to date. In order to minimize the 
possibility of having to create such a Reserve Fund, the proposed rule 
would have amended Sec. 951.3(a)(1) to clarify that any homeownership 
set-aside funds that are not committed or used by the end of the year 
in which they were set aside shall be committed or used by the end of 
such year to fund project modifications or the next highest scoring AHP 
applications in the Bank's final funding period of the year for its 
competitive application program. A number of commenters generally 
supported the proposed amendment. Several commenters recommended 
allowing uncommitted or unused homeownership set-aside funds to be 
carried over for use in the Bank's

[[Page 50301]]

homeownership set-aside programs during the following year.
    Because Sec. 951.15(a)(2) of the existing AHP regulation already 
addresses the treatment of uncommitted or unused AHP funds in general, 
the final rule amends that section instead of Sec. 951.3(a)(1). See 12 
CFR 951.15(a)(2). Section 951.15(a)(2) currently provides that any 
homeownership set-aside or competitive application funds that remain 
uncommitted or unused at year-end are deemed to be used or committed 
if, in combination with AHP subsidies that have been returned to the 
Bank or de-committed from canceled projects, they are insufficient to 
fund: (i) the next highest scoring AHP applications in the Bank's final 
funding period of the year for its competitive application program; or 
(ii) pending applications for funds under the Bank's homeownership set-
aside programs. See Id. The insufficient amounts shall be carried over 
for use or commitment during the following year. See Id. Because there 
also may be uncommitted or unused funds remaining at year-end under the 
competitive application program, it is reasonable to amend the 
regulation to provide that approved competitive application projects 
seeking modifications shall be eligible for such remaining competitive 
application funds, in addition to being eligible for any remaining 
homeownership set-aside funds. The final rule adopts this amendment in 
Sec. 951.15(a)(2)(iii). In addition, while the current regulation does 
not restrict the carried over amounts to commitment or use in specific 
AHP programs, the final rule amends the last paragraph of 
Sec. 951.15(a)(2) to clarify that such carried over amounts may be 
committed or used in either the Bank's competitive application program 
or homeownership set-aside programs during the following year.

III. Paperwork Reduction Act

    As part of the proposed rulemaking, the Finance Board published a 
request for comments concerning the proposed revisions to the 
collection of information in Secs. 951.3(a)(1), 951.10(a)(1)(ii), and 
951.10(b)(2)(ii) of the proposed rule. See 66 FR 23864, 23867. The 
Finance Board submitted the proposed revisions to the information 
collection, and accompanying analysis, to the Office of Management and 
Budget (OMB) for review in accordance with section 3507(d) of the 
Paperwork Reduction Act of 1995. See 44 U.S.C. 3507(d). The Finance 
Board received no comments on the proposed revisions to the information 
collection. OMB has approved the proposed revisions to the information 
collection without conditions and assigned control number 3069-0006 
with an expiration date of June 30, 2004.
    Likely respondents and/or record keepers are Banks, Bank members, 
project sponsors, and project owners. The Banks will use the 
information collection to determine whether respondents satisfy 
statutory and regulatory requirements under the AHP. Responses are 
mandatory and are required to obtain or retain a benefit. The final 
rule does not substantively or materially modify the approved 
information collection. Potential respondents are not required to 
respond to the collection of information unless the regulation 
collecting the information displays a currently valid control number 
assigned by OMB. See Id. section 3512(a). The final rule revises the 
statements in the AHP regulation displaying the OMB control number to 
reflect the new expiration date. The title, description of need and 
use, and a description of the information collection requirements in 
the final rule are discussed in parts I and II of the SUPPLEMENTARY 
INFORMATION section of the final rule.
    The following is the estimated annual reporting and recordkeeping 
hour burden as approved by OMB:
    a. Number of respondents: 7,720.
    b. Total annual responses: 10,749. Percentage of these responses 
collected electronically: 0.
    c. Total annual hours requested: 65,461.
    d. Current OMB inventory: 64,274.
    3. Difference: 1,187.
    The following is the estimated annual reporting and recordkeeping 
cost burden as approved by OMB:
    a. Total annualized capital/startup costs: 0.
    b. Total annual costs (O&M): 0.
    c. Total annualized cost requested: $2,169,795.
    d. Current OMB inventory: $2,118,170.
    e. Difference: $51,625.
    Comments regarding the collection of information may be submitted 
in writing to the Federal Housing Finance Board at 1777 F Street, NW., 
Washington, DC 20006, and to the Office of Information and Regulatory 
Affairs of OMB, Attention: Desk Officer for Federal Housing Finance 
Board, Washington, DC 20503.

IV. 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). Thus, in accordance with 
section 605(b) of the RFA, id. section 605(b), the Finance Board hereby 
certifies that the final rule will not have a significant economic 
impact on a substantial number of small entities.

List of Subjects in 12 CFR Part 951

    Community development, Credit, Federal home loan banks, Housing, 
Reporting and recordkeeping requirements.

    Accordingly, the Finance Board hereby amends part 951, title 12, 
chapter IX, Code of Federal Regulations, as follows:

PART 951--AFFORDABLE HOUSING PROGRAM

    1. The authority citation for part 951 continues to read as 
follows:

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


    2. In part 951, remove the date ``January 31, 2003'' wherever it 
appears and, in its place, add the date ``June 30, 2004''.

    3. Amend Sec. 951.3 by revising paragraph (a)(1) to read as 
follows:


Sec. 951.3  Operation of Program and adoption of AHP implementation 
plan.

    (a) Allocation of AHP contributions--(1) Homeownership set-aside 
programs. Each Bank, after consultation with its Advisory Council, may 
set aside annually, in the aggregate, up to the greater of $3.0 million 
or 25 percent of its annual required AHP contribution to provide funds 
to members participating in the Bank's homeownership set-aside 
programs, pursuant to the requirements of this part. In cases where the 
amount of homeownership set-aside funds applied for by members in a 
given year exceeds the amount available for that year, a Bank may 
allocate up to the greater of $3.0 million or 25 percent of its annual 
required AHP contribution for the subsequent year to the current year's 
homeownership set-aside programs pursuant to written policies adopted 
by the Bank's board of directors. Beginning in 2002 and for subsequent 
years, the maximum dollar limits set forth in this paragraph shall be 
adjusted annually by the Finance Board to reflect any percentage 
increase in the preceding year's Consumer Price Index (CPI) for all 
urban consumers, as published by the Department of Labor. Each year, as 
soon as practicable after the publication of the previous year's CPI, 
the Finance Board shall publish notice by Federal Register, 
distribution of a memorandum, or otherwise, of the CPI-adjusted limits 
on the maximum set-aside dollar amount. A Bank may establish one or 
more homeownership

[[Page 50302]]

set-aside programs pursuant to written policies adopted by the Bank's 
board of directors. A Bank's board of directors shall not delegate to 
Bank officers or other Bank employees the responsibility for adopting 
such policies.
* * * * *


Sec. 951.4  [Amended]

    4. Amend Sec. 951.4 by:
    a. In paragraph (a), after the term ``housing'', adding the words 
``, and community and not-for-profit organizations actively involved in 
providing or promoting community lending,'';
    b. In paragraph (b), after the term ``housing'', adding the term 
``and community lending'';
    c. In paragraph (f)(1), removing the term ``community investment'' 
wherever it appears and adding, in its place, the term ``community 
lending''; and
    d. In paragraph (f)(3), removing the term ``community development'' 
and adding, in its place, the term ``community lending''.


Sec. 951.5  [Amended]

    5. Amend Sec. 951.5 by removing paragraph (a)(7)(iii).


Sec. 951.8  [Amended]

    6. Amend Sec. 951.8(c)(3) by:
    a. Removing the heading for paragraph (c)(3)(i);
    b. Removing paragraph designation (c)(3)(i); and
    c. Redesignating paragraph (c)(3)(ii) as paragraph (c)(4); and 
removing the paragraph heading ``Reconciliation of AHP fund'' and 
adding, in its place, the revised heading ``AHP outlay adjustment''.

    7. Amend Sec. 951.10 by:
    a. Revising paragraph (a)(1)(ii);
    b. In paragraph (a)(2)(ii), removing the words ``the member and'' 
and the words ``the member or'' wherever they appear; and
    c. In paragraph (b)(2), removing paragraph (b)(2)(ii), and removing 
paragraph designation (b)(2)(i).
    The revision reads as follows:


Sec. 951.10  Initial monitoring requirements.

    (a) * * *
    (1) * * *
    (ii) Where AHP subsidies are used to finance the purchase of owner-
occupied units, the project sponsor must maintain household income 
verification documentation available for review by the member or the 
Bank.
* * * * *

    8. Amend Sec. 951.15(a)(2) by:
    a. In paragraph (a)(2)(ii), removing the period and adding a 
semicolon in its place;
    b. Adding a paragraph (a)(2)(iii); and
    c. Redesignating the last sentence of the section as paragraph 
(a)(3) and revising it.
    The addition and revisions read as follows:


Sec. 951.15  Affordable Housing Reserve Fund.

    (a) * * *
    (2) * * *
    (iii) Project modifications approved by the Bank pursuant to the 
requirements of this part.
    (3) Carryover of insufficient amounts. Such insufficient amounts as 
described in paragraph (a)(2) of this section shall be carried over for 
use or commitment in the following year in the Bank's competitive 
application program or homeownership set-aside programs.
* * * * *

    Dated: September 26, 2001.

    By the Board of Directors of the Federal Housing Finance Board.
J. Timothy O'Neill,
Chairman.
[FR Doc. 01-24586 Filed 10-2-01; 8:45 am]
BILLING CODE 6725-01-P