[Federal Register Volume 67, Number 74 (Wednesday, April 17, 2002)]
[Rules and Regulations]
[Pages 18796-18805]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-9329]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 951

[No. 2002-15]
RIN 3069-AB14


Affordable Housing Program Amendments

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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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: making the requirements for approval of post-
completion project modifications the same as the current requirements 
for pre-completion project modifications; allowing the Federal Home 
Loan Banks (Banks) to define ``homeless household'' for purposes of 
scoring applications for AHP subsidies to finance housing for such 
households; allowing the Banks to award scoring points to projects 
using Federal government properties, and to projects using non-Federal 
government properties conveyed for an amount significantly below their 
fair market value; permitting the Banks to allow members or project 
sponsors to re-use repaid AHP direct subsidy to assist another AHP-
eligible household to purchase or rehabilitate an owner-occupied unit 
in the same project; permitting a Bank to allocate up to the greater of 
$3 million or 25 percent of its annual required AHP contribution for 
the subsequent year to the current year's AHP competitive application 
program; adding the Federal Financial Institutions Examination Council 
as a source of area median income data that may be used to determine 
household income eligibility; removing the requirement that the amount 
of AHP subsidies offered by a Bank in each funding period must be 
comparable; removing the requirement that the Banks must determine the 
feasibility of projects before their applications may be scored; and 
allowing the Banks up to one year and 120 days after completion of a 
rental project to review the documentation received from the project 
owner for project compliance.

EFFECTIVE DATE: The final rule shall be effective on May 17, 2002.

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 12 U.S.C. 1430(j)(1), (9). 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 (August 4, 1997) (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. The Banks, members, project sponsors and 
Finance Board staff have, over the course of implementation of the AHP, 
identified additional amendments that it is believed would improve the 
operation and effectiveness of the AHP. On December 27, 2001, the 
Finance Board published in the Federal Register a proposed rule that 
would amend the AHP regulation to improve the operation and 
effectiveness of the AHP. See 66 FR 66813 (December 27, 2001). The 
proposed rule provided for a 60-day comment period.
    The Finance Board received comments on the proposed rule from 41 
parties. Commenters included: 9 Banks; 2 Bank Affordable Housing 
Advisory Councils; 1 financial services holding company representing a 
Bank member; 25 Native American tribal housing authorities, tribally 
designated housing entities, and tribes; 1 Native American housing 
trade association; 1 community development lender; 1 nonprofit housing 
lender; and 1 community development corporations trade association. 
Commenters generally supported some or all of the proposed amendments. 
Comments that raised issues beyond the scope of the proposed 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 proposed rule on which significant comments were 
received are discussed below.

II. Analysis of Final Rule

A. Definitions--Sec. 951.1

1. Removal of Definition of ``Homeless Household''--Sec. 951.1
    For the reasons discussed in section F. below, the final rule 
removes the definition of ``homeless household'' in Sec. 951.1 of the 
AHP regulation, and allows each Bank to define the term for purposes of 
scoring applications for AHP subsidy to finance housing for

[[Page 18797]]

homeless households under Sec. 951.6(b)(4)(iv)(D).
2. Inclusion of FFIEC in Definition of ``Median Income for the Area''--
Sec. 951.1
    Under the AHP regulation, households are eligible for AHP subsidies 
if they have an income at or below the targeted income level, expressed 
as a percentage of median income for the area, specified in the AHP 
application. See 12 CFR 951.5(b)(1), 951.6(b)(4)(iv)(C). Section 951.1 
of the AHP regulation defines ``median income for the area'' generally 
as one or more of the following, as determined by the Bank:
    a. The median income for the area, as published annually by the 
U.S. Department of Housing and Urban Development (HUD);
    b. The applicable median family income, as determined under 26 
U.S.C. 143(f) and published by a state mortgage revenue bond program;
    c. The median income for the area, as published by the U.S. 
Department of Agriculture; or
    d. The median income for any definable geographic area, as 
published by a Federal, state or local government entity for purposes 
of that entity's housing programs, and approved by the Finance Board, 
at the request of a Bank, for use under the AHP. See 12 CFR 951.1.
    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, the Federal Financial Institutions Examination Council 
(FFIEC) is a Federal government source that publishes updated median 
income data for areas, based on existing HUD median income data. Since 
the FFIEC median income data is derived from existing HUD data, which 
is a permissible source of area median income data for determining the 
income eligibility of households under the AHP regulation, the Finance 
Board believes that the Banks should also be able to use such FFIEC 
data for determining household income eligibility. This change would be 
consistent with the Finance Board's recent amendment to the definition 
of ``median income for the area'' in its Community Investment Cash 
Advance (CICA) Programs Regulation to include FFIEC as a source of 
median income data that may be used to determine income eligibility for 
projects and households funded under CICA programs. See 66 FR 50293 
(October 3, 2001) (codified at 12 CFR 952.3).
    Therefore, under the proposed rule, new paragraphs (1)(ii) and 
(2)(ii) would be added to the existing definition of ``median income 
for the area'' in Sec. 951.1 to include FFIEC as a data source, and the 
remaining paragraphs would be renumbered accordingly. Commenters 
generally supported this proposed change.
    Accordingly, the final rule adopts, without change, the proposed 
amendments to Sec. 951.1 to include FFIEC as a source of median income 
data.

B. Permitting Banks to Allocate AHP Funds From the Subsequent Year's 
Required Annual AHP Contribution to the Current Year's Competitive 
Application Program--Sec. 951.3(a)(2)

    The AHP regulation provides that in cases where the amount of AHP 
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 million or 25 percent of its annual required AHP 
contribution for the subsequent year to the current year's 
homeownership set-aside programs. See 12 CFR 951.3(a)(1). The AHP 
regulation does not allow the Banks to make a similar allocation of AHP 
funds from the subsequent year's required annual AHP contribution to 
the current year's AHP competitive application program. See 12 CFR 
951.3(a)(2).\1\
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    \1\ Each Bank is required generally to contribute annually to 
its AHP 10 percent of its net earnings for the previous year. If the 
aggregate amount of such annual payments by all of the Banks is not 
at least $100 million, each Bank must contribute to its AHP its pro 
rata share of $100 million. See 12 U.S.C. 1430(j)(5).
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    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, a number of Banks have indicated that there may be 
special circumstances in which it would be beneficial to have the 
flexibility to allocate a portion of the subsequent year's required AHP 
contribution to fund additional applications in the current year under 
the competitive application program. Such special circumstances could 
include natural or man-made disasters or other emergencies, or sudden 
changes in market conditions or demand caused by significant economic 
changes, that increase the need for funds for affordable housing 
projects in the current year. Another circumstance might be a demand 
for additional AHP funds for use in conjunction with a special 
allocation of housing funds made by a Federal, state or local 
government agency in the current year.
    Several Banks also have raised the issue that a change in generally 
accepted accounting principles in the United States, contained in 
Statement of Financial Accounting Standards (SFAS) 133, could cause 
fluctuations in a Bank's net earnings and thereby cause fluctuations in 
the Bank's required AHP contributions from year to year. Allowing the 
Banks to allocate AHP funds from the subsequent year's required AHP 
contribution to the current year under the competitive application 
program would give the Banks flexibility to mitigate some of these 
year-to-year fluctuations in required AHP contributions.
    The Finance Board agrees that allowing allocation of AHP funds from 
the subsequent year's required AHP contribution to the current year's 
competitive application program could be beneficial to the AHP. The 
Finance Board recognizes that allowing such allocation of AHP funds may 
result in fewer AHP funds available for the subsequent year. However, 
the overall amount of AHP funds available would not decrease; a portion 
of the funds would simply be available in the current year rather than 
in the subsequent year. Moreover, there is no guarantee in any case 
that the amount of AHP funds available in a given year will be the same 
as the amount available in the previous year, given fluctuations in 
Bank net earnings from year to year.
    Therefore, under the proposed amendment to Sec. 951.3(a)(2), a 
Bank, in its discretion, could allocate up to the greater of $3 million 
or 25 percent of its annual required AHP contribution for the 
subsequent year to the current year's competitive application program. 
This authority would be separate from and in addition to a Bank's 
existing authority to allocate up to the greater of $3 million or 25 
percent of its annual required AHP contribution for the subsequent year 
to the current year's homeownership set-aside programs at such Bank. 
See 12 CFR 951.3(a)(1). As with the homeownership set-aside programs, a 
Consumer Price Index (CPI) adjustment provision would be included in 
the regulation for the maximum dollar limit under the competitive 
application program. Commenters generally supported these proposed 
changes.
    Accordingly, the final rule adopts, without change, the proposed 
amendments to Sec. 951.3(a)(2) to allow a Bank to allocate up to the 
greater of $3 million or 25 percent of its annual required AHP 
contribution for the subsequent year to the current year's competitive 
application program, as well as the CPI adjustment provision.

C. Removal of Requirement that Banks Offer Comparable Amounts of AHP 
Subsidies in Each Funding Period--Sec. 951.6(b)(1)

    The AHP regulation provides that the amount of AHP subsidies 
offered by a Bank in each funding period under the

[[Page 18798]]

competitive application program shall be comparable. See 12 CFR 
951.6(b)(1). As discussed in the SUPPLEMENTARY INFORMATION section of 
the proposed rule, a number of Banks have suggested that this 
requirement be removed, in order to give the Banks flexibility to offer 
different amounts of AHP funds in each funding period to coincide with 
the funding cycles of other key funding sources in the Bank's district, 
or with different demands based on market or housing construction 
cycles. The Finance Board agrees that it would be beneficial for the 
Banks to have greater flexibility to manage their AHP funding in this 
way.
    Therefore, under the proposed rule, the requirement in 
Sec. 951.6(b)(1) that the amount of AHP subsidies offered in each 
Bank's funding period must be comparable would be removed. Commenters 
generally supported this proposed change.
    Accordingly, the final rule adopts, without change, the proposed 
amendment to Sec. 951.6(b)(1) removing the requirement that the amount 
of AHP subsidies offered in each Bank's funding period must be 
comparable.

D. Removal of Requirement that Banks Determine Compliance of AHP 
Applications With Eligibility Requirements Before Scoring 
Applications--Sec. 951.6(b)(4)(i)

    The AHP regulation provides that projects receiving AHP subsidies 
pursuant to a Bank's competitive application program must meet the 
eligibility requirements of the regulation. See 12 CFR 951.5(b). The 
AHP regulation further provides that a Bank shall score only those 
applications meeting the eligibility requirements of Sec. 951.5(b). See 
12 CFR 951.6(b)(4)(i). This means that a Bank must first determine 
whether each application received satisfies all of the regulatory 
eligibility requirements, including an assessment of each project's 
financial feasibility, before the Bank may score the application.
    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, a number of Banks have maintained that, given the high 
volume of applications received, it is burdensome and time consuming to 
have to determine the eligibility, and in particular, the financial 
feasibility, of each application before the application may be scored, 
especially when many of the applications determined to be eligible end 
up scoring too low to be awarded AHP funds. The Banks have suggested 
that it would be more efficient to be able to score the applications 
first, and then determine their eligibility starting with the highest 
scoring applications and continuing on down the list, until all of the 
AHP subsidy is committed. The Finance Board agrees that the Banks 
should have the discretion to determine which approach works best for 
that Bank. Section 951.5(b) would still require that AHP subsidy may 
only be awarded to projects meeting the regulatory eligibility 
requirements, including financial feasibility. See 12 CFR 951.5(b).
    Therefore, under the proposed rule, the requirement in 
Sec. 951.6(b)(4)(i) that the Bank score only those applications meeting 
the regulatory eligibility requirements would be removed. Commenters 
generally supported this proposed change.
    Accordingly, the final rule adopts, without change, the proposed 
amendment to Sec. 951.6(b)(4)(i) removing the requirement that the Bank 
score only those applications meeting the regulatory eligibility 
requirements.

E. Permitting Banks to Award Scoring Points to Projects Using 
Properties Conveyed by the Federal Government, and to Projects Using 
Properties Conveyed by Non-Federal Government Entities for an Amount 
Substantially Below Their Fair Market Value--Sec. 951.6(b)(4)(iv)(A)

    The AHP regulation includes, as one of nine criteria for scoring 
AHP applications, 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. See 12 CFR 951.6(b)(4)(iv)(A). A ``nominal'' price 
is defined in the regulation as a small, negligible amount, most often 
one dollar, and may be accompanied by modest expenses related to the 
conveyance of the property for use by the project. See 12 CFR 
951.6(b)(4)(iv)(A). Scoring points, therefore, may not be awarded to 
projects using Federal government or non-Federal government properties 
that were conveyed for more than a ``nominal'' price.
1. Properties Donated or Conveyed by the Federal Government
    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, in a number of markets throughout the country, there are 
substantial quantities of foreclosed housing units owned by HUD and 
other Federal government agencies. Allowing the Banks to award scoring 
points for projects using properties conveyed by the Federal 
government, regardless of the amounts charged for their conveyance, 
would be consistent with the Bank Act provisions encouraging the use of 
AHP funds in projects involving housing owned or held by the Federal 
government, and coordination of the AHP with other Federal or 
federally-subsidized affordable housing activities to the maximum 
extent possible. See 12 U.S.C. 1430(j)(3)(B), (j)(9)(G).
    Therefore, under the proposed rule, Sec. 951.6(b)(4)(iv)(A) would 
have been amended to provide that a Bank may award scoring points to 
projects using a significant proportion of housing units conveyed by 
the Federal government or any agency or instrumentality thereof, 
``regardless of the amount charged for such conveyance.'' Commenters 
generally supported this proposed change. A Bank commenter and Bank 
Affordable Housing Advisory Council commenter argued that projects that 
limit acquisition costs are better positioned to charge low rents and, 
therefore, serve very low-income households, and should be able to 
receive more scoring points on that basis. Consequently, these 
commenters did not want the Banks to be required to give the same 
number of scoring points to projects using Federal government 
properties conveyed at market value as are given to projects using 
properties conveyed at below-market value. The commenters recommended 
allowing the Banks to decide, in their discretion, whether to award 
variable scoring points that would give more points for projects using 
properties conveyed for an amount significantly below their fair market 
value, whether conveyed by a Federal or non-Federal government entity.
    The regulation currently allows the Banks to designate a scoring 
criterion as a variable-point criterion if there are varying degrees to 
which an application satisfies the criterion. See 12 CFR 
951.6(b)(4)(iii). The Finance Board agrees that the Banks should have 
discretion to determine whether to award variable scoring points for 
projects using properties conveyed by the Federal government, as well 
as non-Federal government entities, depending on the amount charged for 
such properties. The language in proposed Sec. 951.6(b)(4)(iv)(A)(3) 
would not prohibit variable scoring for non-Federal government 
properties, but the ``regardless of the price of conveyance'' language 
in proposed Sec. 951.6(b)(4)(iv)(A)(2) for Federal government 
properties could be interpreted to prohibit such variable scoring for 
projects using Federal government properties.

[[Page 18799]]

    Accordingly, consistent with the proposed rule, the final rule 
removes the ``nominal'' price requirement for properties conveyed by 
Federal government entities in Sec. 951.6(b)(4)(iv)(A)(2), and the 
language is clarified to allow for variable scoring depending on the 
amount charged for the conveyance of such properties. The final rule 
also corrects an oversight in the proposed rule by allowing scoring 
points to be awarded for projects using a significant proportion of 
land conveyed by a Federal government entity.
2. Properties Donated or Conveyed by Non-Federal Government Entities
    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, a number of Banks also have maintained that the 
definition of ``nominal'' in the existing regulation may be too 
restrictive in not recognizing the variety of ways in which properties 
are being conveyed by non-Federal government entities to affordable 
housing project sponsors under different local market conditions in 
each Bank district. For example, properties may be conveyed to project 
sponsors for a price of one dollar, for a price that is more than one 
dollar but significantly below the property's fair market value, or for 
payment of liens on the property such as back taxes, or the 
administrative costs of transferring the property, which may be more 
than one dollar but significantly below the property's fair market 
value. The Banks have suggested that the regulation should explicitly 
allow scoring points to be awarded for properties conveyed from non-
Federal government entities under these circumstances, where the 
amounts paid for the properties are significantly below their fair 
market value. The Finance Board agrees that this could be beneficial to 
the AHP, and that the Banks should have the discretion to define what 
is an amount significantly below the fair market value of the property, 
since these amounts may vary depending on local market conditions in 
each Bank district.
    Therefore, under the proposed rule, Sec. 951.6(b)(4)(iv)(A) would 
be amended by removing the ``nominal price'' requirement and adding 
language clarifying that a Bank may award scoring points for projects 
using a significant proportion of properties conveyed by a non-Federal 
government entity at an amount that is significantly below their fair 
market value, as defined by the Bank in its AHP implementation plan. As 
noted above, the language in proposed Sec. 951.6(b)(4)(iv)(A)(3) does 
not prohibit variable scoring for non-Federal government properties, 
based on the amount charged for conveyance of the property. Commenters 
generally supported the proposed change.
    Accordingly, consistent with the proposed rule, the final rule 
adopts the proposed amendment to Sec. 951.6(b)(4)(iv)(A)(3) removing 
the ``nominal price'' requirement and providing that a Bank may award 
scoring points for projects using a significant proportion of 
properties conveyed by a non-Federal government entity at an amount 
that is significantly below their fair market value, as defined by the 
Bank in its AHP implementation plan. The final rule also corrects an 
oversight in the proposed rule by allowing scoring points to be awarded 
for projects using a significant proportion of land conveyed by a non-
Federal government entity for an amount significantly below its fair 
market value.

F. Removal of Definition of ``Homeless Household'' for Purposes of the 
Homeless Households Scoring Criterion--Sec. 951.6(b)(4)(iv)(D)

    The AHP regulation also includes as a scoring criterion the 
creation of housing for homeless households, as further described in 
the regulation. See 12 CFR 951.6(b)(4)(iv)(D). The term ``homeless 
household'' is defined in the regulation as a household made up of one 
or more individuals, other than individuals imprisoned or otherwise 
detained pursuant to state or federal law, who:
    1. Lack a fixed, regular and adequate nighttime residence; or
    2. Have a primary nighttime residence that is:
    a. A supervised publicly or privately operated shelter designed to 
provide temporary living accommodations (including welfare hotels, 
congregate shelters, and transitional housing for the mentally ill);
    b. An institution that provides a temporary residence for 
individuals intended to be institutionalized; or
    c. A public or private place not designed for, or ordinarily used 
as, a regular sleeping accommodation for human beings.
    See 12 CFR 951.1.
    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, a number of Banks have maintained that this definition 
of ``homeless household'' should include persons in certain additional 
situations who may be viewed as homeless, or at imminent risk of 
homelessness. For example, although the current definition covers 
victims of domestic violence living in organized shelters, it does not 
cover victims of domestic violence in rural areas where there are no 
organized shelters and the victims may have no alternative but to live 
in the homes of their abusers. Nor does the definition cover persons 
living in shared overcrowded housing in extremely cold climates where 
there is a shortage of organized shelters and it is impossible to 
survive living on the streets or in cars. Other situations may include 
children living in foster care who are about to reach the age of 18 and 
must leave the foster care system, and households facing imminent loss 
of their homes due to condemnation or eviction. The Finance Board 
agrees that the Banks should be able to award scoring points for 
projects serving these additional types of households. The Finance 
Board believes that the Banks should have the discretion to define what 
is a ``homeless household,'' since the types of homeless households may 
vary depending on local conditions in each Bank district. Allowing the 
Banks to define what is a ``homeless household'' would be consistent 
with the discretionary authority the Banks already have under the 
scoring criteria in the AHP regulation to define and provide 
preferences for other targeted groups, such as special needs households 
or first-time homebuyers. See 12 CFR 951.6(b)(4)(iv)(F)(1), (3).
    Therefore, under the proposed rule, the definition of ``homeless 
household'' in Sec. 951.1 would be removed and Sec. 951.6(b)(4)(iv)(D) 
would be amended to provide that, for purposes of scoring applications 
that reserve units for ``homeless households,'' a ``homeless 
household'' shall have the meaning as defined by the Bank in its AHP 
implementation plan. Commenters generally supported this proposed 
change.
    Accordingly, the final rule adopts, without change, the proposed 
amendments removing the definition of ``homeless household'' from 
Sec. 951.1, and providing in Sec. 951.6(b)(4)(iv)(D) that, for purposes 
of scoring applications that reserve units for ``homeless households,'' 
a ``homeless household'' shall have the meaning as defined by the Bank 
in its AHP implementation plan.

G. Making the Requirements for Post-Completion Modifications the Same 
as the Current Requirements for Pre-Completion Modifications--
Secs. 951.7, 951.9

    1. The AHP regulation sets forth different requirements that must 
be satisfied in order for a Bank to approve, in its discretion, a 
modification to the terms of a project's approved

[[Page 18800]]

application, depending on whether the modification would be made prior 
to or after the project's completion. The regulation provides that a 
Bank, in its discretion, may approve a modification request, including 
requests for additional AHP subsidy, made prior to project completion, 
provided that:
    a. The project, incorporating any such changes, would meet the 
regulatory eligibility requirements;
    b. The application, as reflective of such changes, continues to 
score high enough to have been approved in the funding period in which 
it was originally scored and approved by the Bank; and
    c. There is good cause for the modification.
    See 12 CFR 951.7.
    2. A Bank, in its discretion, may approve modification requests, 
not including requests for additional AHP subsidy, made after project 
completion, provided that:
    a. The project, incorporating any material changes, would meet the 
regulatory eligibility requirements;
    b. The application, as reflective of such changes, continues to 
score high enough to have been approved in the funding period in which 
it was originally scored and approved by the Bank;
    c. The project is in financial distress, or is at substantial risk 
of falling into such distress (financial distress requirement); and
    d. The project sponsor or owner has made best efforts to avoid 
noncompliance with the terms of the application for subsidy and the 
requirements of the regulation.
    See 12 CFR 951.9.
    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, because a Bank may not approve additional AHP subsidy 
for a post-completion modification of a project, projects seeking 
additional AHP subsidy would have to submit a new application for 
subsidy in a regular competitive application funding period and score 
highly enough to be approved in that funding period. Projects may be 
unable to score successfully in the new funding period because the 
scoring criteria and priorities in the new funding period may not be 
the same as those applicable in the funding period when the projects 
were originally approved. Some Banks have argued that they should be 
able to approve modifications of completed projects for good cause even 
when the project is not faced with financial distress. A number of 
Banks also have indicated that the inability to provide additional AHP 
subsidy to completed but troubled projects makes it difficult or 
impossible for the Banks to participate with other funding sources in 
workout arrangements to help such projects retain their affordable 
units or forestall financial distress. The projects may then fail to 
comply with their AHP regulatory requirements or application 
commitments, subjecting them to possible recapture of the AHP subsidy. 
See 12 CFR 951.12. The Finance Board believes that it would be 
beneficial for such projects if the Banks had more flexibility to 
participate in such workouts.
    Therefore, under the proposed rule, Sec. 951.9, including the 
financial distress requirement, would be removed, and Sec. 951.7 would 
be amended to include authorization for the Banks, in their discretion, 
to approve increases in subsidy after project completion and to 
otherwise make the post-completion modification requirements the same 
as those currently applicable to pre-completion modifications. 
Commenters generally supported these proposed changes.
    The SUPPLEMENTARY INFORMATION section of the proposed rule included 
a discussion of the requirement in Sec. 951.7(a)(2) that a project, as 
proposed to be modified, must continue to score high enough to have 
been approved in the funding period in which it was originally scored 
and approved by the Bank, in order to be approved for a modification. 
In some cases, the project may need to be modified because of changed 
market conditions, but the project, as modified, would not continue to 
score high enough to have been approved in its original funding period. 
While recognizing this issue, the Finance Board expressed concern about 
the potential that modifications offer for an applicant to manipulate 
the scoring system by making overly optimistic commitments in its AHP 
application that it knows it cannot reasonably meet in order to score 
successfully, with the anticipation of getting a modification after 
approval to reduce those commitments. The Finance Board noted that it 
has a waiver process that would enable the Finance Board, upon a 
showing of good cause, to waive the rescoring requirement for a 
modification, on a case-by-case basis. See 12 CFR 907.2. Based on these 
concerns, under the proposed rule, the rescoring requirement in 
Sec. 951.7(a)(2) would be retained.
    Commenters generally supported, and one Bank in particular strongly 
endorsed, retaining the rescoring requirement. One Bank commenter 
opposed retaining the rescoring requirement for post-completion 
modification requests, on the basis that other limitations could be 
incorporated into the AHP regulation to address the concerns about 
scoring manipulation. The Bank suggested the adoption of three 
standards for assessing post-completion modification requests for 
projects that cannot rescore successfully, including a requirement that 
the Bank make a factual determination that no intentional manipulation 
occurred or over-commitments were made in the initial AHP application. 
In the alternative, the Bank recommended that rescoring only be 
required for modification requests received during the first year after 
project completion.
    The Finance Board's objective in amending the AHP regulation is to 
give the Banks greater flexibility in determining how to deal with 
post-completion modifications. The Finance Board's view is that the 
circumstances surrounding an individual request for a post-completion 
modification may vary widely, and the regulatory standards proposed by 
the Bank are likely to reduce the Bank's flexibility rather than to 
increase it. For example, it may be difficult for a Bank to make a 
factual determination that there was no intentional overcommitting in 
the application. Moreover, there may be instances where a post-
completion modification would be appropriate even if the project 
sponsor is shown to have overcommitted in the application, such as 
where affordable units would be lost and their low- or moderate-income 
occupants displaced if the modification were not approved. The Bank 
always has the discretion to set its own standards, within the existing 
regulatory framework, for approving or denying modification requests 
that can successfully rescore. In the case of modification requests 
that cannot rescore successfully, a showing of good cause could form 
the basis for requesting a waiver of the rescoring requirement from the 
Finance Board. The Finance Board does not believe that requiring a Bank 
to obtain a waiver from the Finance Board if a modification request 
cannot rescore successfully would impose such an undue burden on the 
Bank as to warrant a change in the long-standing requirement for 
rescoring of modification requests. The Finance Board also does not 
agree that the Bank's alternative proposal of a one-year time limit for 
the rescoring requirement will eliminate the possible incentive to 
manipulate the scoring system. Therefore, the final rule does not adopt 
the Bank's suggestions to remove the rescoring requirement, or to limit 
the

[[Page 18801]]

time period for rescoring of post-completion modification requests.
    Accordingly, the final rule adopts, without change, the proposed 
amendment removing Sec. 951.9, including the financial distress 
requirement, and the proposed amendment to Sec. 951.7 authorizing the 
Banks, in their discretion, to approve increases in AHP subsidy after 
project completion and otherwise making the post-completion 
modification requirements the same as those currently applicable to 
pre-completion modifications.

H. Providing the Banks With Up to One Year and 120 Days From Rental 
Project Completion to Complete the Initial Monitoring of Such Project--
Sec. 951.10(c)(2)

    1. The AHP regulation provides that within the first year after 
completion of a rental project, the project owner must:
    a. Certify to the Bank that the services and activities committed 
to in the AHP application have been provided in connection with the 
project; and
    b. Provide a list of actual tenant rents and incomes to the Bank, 
and certify that the tenant rents and incomes are accurate and in 
compliance with the rent and income targeting commitments made in the 
AHP application, and that the project is habitable.
See 12 CFR 951.10(a)(2)(ii).
    2. The regulation further provides that each Bank must take the 
steps necessary to determine that:
    a. Within the first year after completion of a rental project, the 
services and activities committed to in the AHP application have been 
provided in connection with the project; and
    b. The AHP subsidies were used for eligible purposes, the project's 
actual costs were reasonable and customary in accordance with the 
Bank's project feasibility guidelines, and the subsidies were necessary 
for the financial feasibility of the project, as currently structured.

See 12 CFR 951.10(c)(2).
    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, a number of Banks have indicated that if a rental 
project owner does not provide its certifications and other 
documentation to the Bank until late in the first year after project 
completion, the Bank may not be able to complete its reviews of the 
documentation and make its determinations of compliance under 
Sec. 951.10(c)(2) by the end of that year, as prescribed by the 
regulation. The suggestion has been made that the Banks be given some 
additional reasonable period of time after receipt of the project 
owners' documentation to conduct their own review and compliance 
determinations.
    The Finance Board concurs that the Banks should have sufficient 
time to complete the compliance reviews. The Finance Board also 
believes that this time period should apply not only for completing the 
services and activities review, but also for the review of eligible 
purposes, actual costs and feasibility required under existing 
Sec. 951.10(c)(2)(ii).
    Therefore, Sec. 951.10(c)(2) of the proposed rule would have been 
amended to require each Bank to complete the compliance reviews 
required thereunder within 120 days after receiving the rental project 
owner documentation.
    Commenters generally supported this proposed change. One Bank 
commenter supported the change, provided the Banks would still have up 
to one year from project completion to complete the compliance review. 
The Finance Board agrees that, consistent with the existing regulatory 
monitoring framework for rental projects, the review period should 
commence from the date of project completion rather than from the date 
of receipt of the project documentation. The Finance Board also has 
determined that, regardless of when the documentation is received 
during the first year after project completion, for ease of 
implementation, the Banks should have up to one year and 120 days from 
the date of project completion to complete their compliance reviews.
    Accordingly, the final rule revises Sec. 951.10(c)(2) to provide 
that each Bank must complete the compliance reviews required thereunder 
within one year and 120 days after rental project completion.

I. Bank Authority To Allow Re-Use by Members or Project Sponsors of 
Repaid AHP Direct Subsidies in the Same Owner-Occupied Project--
Secs. 951.3(b)(1)(ix); 951.8(b)(2), (c)(5); 951.10(a)(1)(i), 
(b)(1)(ii), (c)(1); 951.12(e)(2); 951.13(d)(1)

1. Authority of Banks, in Their Discretion, To Adopt Re-Use Programs 
For Repaid AHP Direct Subsidy--Secs. 951.3(b)(1)(ix), 951.12(e)(2)
    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, prior to 1995, sponsors of owner-occupied projects were 
allowed to re-use repaid AHP direct subsidies to provide the same kind 
of direct subsidy assistance to other eligible households in the same 
project in accordance with the project sponsor's approved AHP 
application. In 1995, the Finance Board discontinued authorization of 
AHP direct subsidy re-use programs for new AHP projects, pending a 
comprehensive review and revision of the AHP regulation.
    The current AHP regulation, which went into effect in 1998, 
continues to prohibit such re-use of repaid AHP direct subsidies by 
members or project sponsors. Specifically, Sec. 951.13(d)(1) of the AHP 
regulation provides generally that a member must ensure that an owner-
occupied unit that is purchased, constructed, or rehabilitated with the 
proceeds of an AHP direct subsidy is subject to a deed restriction or 
other retention agreement requiring that if the unit is sold to an 
income-ineligible household or refinanced prior to the end of the five-
year retention period and is no longer subject to a deed restriction, a 
pro rata share of the subsidy shall be repaid to the Bank. See 12 CFR 
951.13(d)(1). The Bank must use these repaid AHP subsidies to fund 
project modifications, interest-rate increases in approved projects, 
homeownership set-aside applications, or an approved alternate project 
if sufficient other funds are available. See 12 CFR 951.8(c)(4), 
951.12(e), 951.14(a)(2).
    A number of Banks and project sponsors have requested that the 
Finance Board allow members, in the case of AHP direct subsidies 
provided through a homeownership set-aside program, or project 
sponsors, in the case of AHP direct subsidies provided through the 
competitive application program, to re-use repaid AHP direct subsidies 
in the same project in the ways described above. The Banks and project 
sponsors maintain that allowing such re-use of repaid direct subsidies 
can be an efficient use of AHP subsidies. The amounts repaid generally 
would be quite small, the project sponsor would receive no additional 
AHP subsidy from the Bank, and the re-used AHP subsidy would continue 
to assist other AHP-eligible households in the same project in 
accordance with the original AHP application commitments. Any household 
assisted through the re-use of repaid direct subsidy would be subject 
to a new five-year retention agreement. See 12 CFR 951.5(a)(5), 
951.13(d)(1). Permitting such re-use of repaid direct subsidies could 
help those project sponsors whose projects are aimed at maintaining a 
core of homeowners in particular areas to promote neighborhood 
stabilization and revitalization in those areas. For the reasons 
discussed above, the Finance Board agrees that the Banks should have 
the authority to allow the re-use of repaid AHP subsidies in the same 
project.

[[Page 18802]]

    Therefore, under Sec. 951.12(e)(2) of the proposed rule, members or 
project sponsors would be able to re-use repaid AHP direct subsidies in 
the same project if authorized by the Bank, in its discretion, in its 
AHP implementation plan and within the time period specified by the 
Bank in the plan. Commenters generally supported this proposed change.
    Accordingly, consistent with the proposed rule, Sec. 951.12(e)(2) 
of the final rule generally authorizes each Bank to adopt AHP direct 
subsidy re-use programs. The final rule makes some technical changes to 
the language in Sec. 951.12(e)(2) to provide greater clarity, and makes 
a conforming change to Sec. 951.3(b)(1) by adding paragraph (ix), which 
requires each Bank to include in its AHP implementation plan any 
requirements, including time limits, for re-use of AHP direct 
subsidies.
2. Inclusion of Rehabilitation Costs as Eligible Re-Use Costs--
Sec. 951.12(e)(2)
    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, the Finance Board intended that repaid AHP direct 
subsidy be eligible for re-use for the same purposes as the original 
use of the subsidy, i.e., for downpayment, closing cost, rehabilitation 
or interest rate buydown assistance. A commenter noted that the 
language in proposed Sec. 951.12(e)(2) did not specifically include 
rehabilitation costs as an eligible use of repaid AHP subsidy.
    Accordingly, Sec. 951.12(e)(2) of the final rule corrects this 
omission by adding rehabilitation costs as an eligible use of repaid 
AHP direct subsidy.
3. Authority of Banks, in Their Discretion, to Require Return of Repaid 
AHP Direct Subsidy to the Bank For Re-Use, or to Permit Member or 
Project Sponsor to Retain Repaid AHP Direct Subsidy For Re-Use--
Secs. 951.12(e)(2), 951.13(d)(1)
    As discussed in the SUPPLEMENTARY INFORMATION section of the 
proposed rule, because of concerns about members or project sponsors 
being able to earn interest on idle repaid direct subsidies pending 
their re-use, the proposed rule would have retained the current 
regulatory requirement that any repaid AHP direct subsidy must be 
returned to the Bank. See 12 CFR 951.13(d)(1). The Bank then would re-
disburse the subsidy to the member or project sponsor for another 
eligible household in the same project. Several Bank commenters opposed 
this requirement on the basis that it would be so cumbersome, 
inefficient and costly to administer as to negate the benefit that 
might otherwise be realized from an AHP subsidy re-use program. One 
Bank stated that the amount of interest earned on modest amounts of 
repaid AHP direct subsidy over relatively brief periods of time would 
be minimal and, therefore, the repaid subsidy should not have to be 
returned to the Bank. Another Bank recommended adopting a 
``materiality'' test under which the Banks would be allowed to 
determine, in their AHP implementation plans, whether to require the 
return to the Bank of repaid AHP subsidy of $5,000 or less, provided 
that repaid subsidy not returned to the Bank be held by the member or 
project sponsor in a non-interest-bearing account pending re-use. 
Another Bank stated that any concerns about idle repaid subsidy could 
be addressed by requiring the Banks to establish in their AHP 
implementation plans appropriate accounting and use controls, such as 
additional reporting requirements, certifications by members or project 
sponsors, or the right to audit members' or project sponsors' books and 
records. The Bank noted that such safeguards, coupled with the existing 
provisions of Sec. 951.13(d)(1), which require the execution of new 
five-year retention agreements for each new household assisted with AHP 
subsidy, should ensure that repaid AHP subsidy is re-used both promptly 
and appropriately.
    The Finance Board agrees that existing monitoring requirements, as 
well as new disbursement and monitoring requirements included in the 
final rule and discussed further below in section I.4., should ensure 
that any repaid AHP subsidy retained by a member or project sponsor 
will be re-used promptly and in compliance with the requirements of the 
AHP regulation and the commitments of the approved AHP application.
    Accordingly, Sec. 951.12(e)(2) of the final rule provides that the 
Bank shall have discretion, as provided in its AHP implementation plan, 
to determine whether to allow members and project sponsors to retain 
repaid AHP direct subsidies for re-use in the same project, or to 
require their repayment to the Bank for subsequent disbursement by the 
Bank to the members or project sponsors for re-use in the same project. 
If a Bank should decide to allow members or project sponsors to retain 
repaid AHP direct subsidies for re-use, the Bank would have the 
discretion to determine any requirements to place on the project 
sponsor's administration of those funds during the period before their 
re-use.
    The final rule also makes conforming changes to Sec. 951.13(d)(1), 
which requires execution of a five-year retention agreement for each 
new household assisted with AHP direct subsidy, including re-used AHP 
direct subsidy, to incorporate the repayment obligations to the Bank, 
or to the member or project sponsor, depending on whether or not the 
Bank has authorized retention and re-use of repaid AHP direct subsidy 
by the member or project sponsor.
4. Disbursement and Initial Monitoring Requirements for Re-Use of 
Repaid AHP Direct Subsidies--Secs. 951.8(b)(2), (c)(5); 
951.10(a)(1)(ii), (b)(1)(ii), (c)(1)

a. Notice to Bank and Member of Disbursement of Repaid AHP Direct 
Subsidies Under Homeownership Set-Aside Program and Competitive 
Application Program--Sec. 951.8(b)(2), (c)(5)

    In order to ensure the timely use of repaid AHP direct subsidies, 
Sec. 951.12(e)(2) of the final rule, consistent with the proposed rule, 
requires a Bank to specify in its AHP implementation plan the time 
period within which the repaid subsidies must be re-used for an 
eligible household. Under the proposed rule, the repaid subsidies would 
have been repaid to the Bank. Since the Bank would have been re-
disbursing the repaid subsidies to the member for re-use under both the 
homeownership set-aside program and the competitive application 
program, the Bank would have been able to verify, upon its disbursement 
of the repaid subsidies, whether the re-use was in compliance with the 
requirements of the AHP regulation and the commitments of the approved 
AHP application.
    However, under Sec. 951.12(e)(2) of the final rule, a member or 
project sponsor, pursuant to the homeownership set-aside program or 
competitive application program, respectively, may, if authorized by 
the Bank, retain the repaid subsidies for re-use rather than return 
them to the Bank for subsequent disbursement. Under the current AHP 
regulation, prior to initial disbursement of homeownership set-aside 
funds by a Bank to a member, the Bank must require the member to 
certify that the funds will be provided to a household meeting the 
eligibility requirements of Sec. 951.5(a)(2) and that they will be 
provided in accordance with the homebuyer counseling requirements of 
Sec. 951.5(a)(7), if applicable. In order for the Bank to be able to 
verify compliance of the re-use of homeownership set-aside funds that 
have been repaid to and retained by a member, the Bank would need to 
receive a certification from the

[[Page 18803]]

member prior to disbursement by the member of the repaid subsidy.
    Accordingly, the final rule amends Sec. 951.8(b)(2) by adding a 
requirement that prior to disbursement by a member of homeownership 
set-aside funds repaid to and retained by such member, the Bank shall 
require the member to provide a certification to the Bank on household 
eligibility and homebuyer counseling requirements, if applicable.
    In addition, in order for the Bank and the member to be able to 
verify compliance of the re-use of subsidies repaid to and retained by 
the project sponsor under the competitive application program (see 
further discussion of initial monitoring requirements in sections 
I.4.c. and d. below), the Bank and member would need to be notified of 
when the repaid subsidies are being re-used by the project sponsor.
    Accordingly, the final rule amends Sec. 951.8 by adding paragraph 
(c)(5), which requires that, prior to disbursement by a project sponsor 
of AHP subsidy repaid to and retained by such project sponsor, the 
project sponsor shall provide written notice to the member and the Bank 
of its intent to disburse the repaid subsidy to a household satisfying 
the requirements of the AHP regulation and the commitments in the 
approved AHP application.

b. Initial Monitoring Requirements for Project Sponsors Under 
Competitive Application Program--Sec. 951.10(a)(1)(i)

    Under the initial monitoring requirements of the existing AHP 
regulation, where AHP subsidies are used under the competitive 
application program to finance the purchase of owner-occupied units, 
project sponsors must maintain household income verification 
documentation available for review by the member or the Bank. See 12 
CFR 951.10(a)(1)(i). The final rule makes this provision applicable 
where AHP subsidies are used initially under the competitive 
application program to finance the rehabilitation of owner-occupied 
units, a technical oversight in the existing regulation. This provision 
also applies where AHP subsidies approved under the competitive 
application program are repaid and provided to new eligible households 
in the same project, pursuant to a Bank's subsidy re-use program.

c. Initial Monitoring Requirements for Members Under Competitive 
Application Program--Sec. 951.10(b)(1)(ii)

    Under the initial monitoring requirements of the existing AHP 
regulation, within one year after disbursement to an owner-occupied 
project of all approved AHP subsidies under the competitive application 
program, the member must review the project documentation and certify 
to the Bank that:
    (i) The AHP subsidies have been used according to the commitments 
made in the approved AHP application; and
    (ii) The AHP-assisted units are subject to deed restrictions or 
other legally enforceable retention agreements or mechanisms meeting 
the requirements of Sec. 951.13(d)(1). See 12 CFR 951.10(b)(1)(ii). 
This one-year time frame would not be feasible under a subsidy re-use 
program, where AHP subsidies may be repaid and re-used at any time. 
Under a subsidy re-use program, the member should be reviewing the 
project documentation and making the required certifications within 
some reasonable period of time after each re-use of repaid subsidy. The 
Finance Board believes that 60 days would be such a reasonable time 
period.
    Accordingly, the final rule amends Sec. 951.10(b)(1)(ii) to provide 
that, within 60 days after receipt of a notice of disbursement of 
repaid subsidy provided by the project sponsor pursuant to 
Sec. 951.8(c)(5), the member must review the project documentation and 
make the certification on re-use of the AHP subsidy and existence of 
the retention agreement.

d. Initial Monitoring Requirements for Banks Under Competitive 
Application Program--Sec. 951.10(c)(1)

    The initial monitoring requirements of the existing AHP regulation 
provide generally that a Bank must take the steps necessary to 
determine, based on a review of the documentation for a sample of 
projects and units within one year of receiving the member 
certifications described above, that:
    (i) The households receiving the AHP subsidies under the 
competitive application program were income-eligible;
    (ii) The AHP subsidies were used for eligible purposes, the 
project's actual costs were reasonable and customary in accordance with 
the Bank's project feasibility guidelines, and the subsidies were 
necessary for the financial feasibility of the project; and
    (iii) The AHP-assisted units are subject to legally enforceable 
retention agreements meeting the requirements of Sec. 951.13(d)(1).

See 12 CFR 951.10(c)(1). As discussed above, this one-year time frame 
would not be feasible under a subsidy re-use program, nor is the 
sampling approach appropriate, where AHP subsidies may be repaid and 
re-used, and accompanying certifications received from members, at any 
time. Rather, the Bank should be reviewing the project documentation 
and member certification for each re-use of repaid subsidy upon receipt 
by the Bank of such certification.
    Accordingly, the final rule amends Sec. 951.10(c)(1) to provide 
that the Bank must review the project documentation and member 
certification for each disbursement of repaid AHP subsidy under a 
subsidy re-use program, upon receipt of such certification.

J. AHP Subsidy Re-Use Programs Involving Loan Pools

    Proposed Sec. 951.13(c)(1)(iii) would have allowed the Banks to 
authorize the re-use of the unused AHP interest rate subsidy of prepaid 
mortgage loans to subsidize the interest rate on another mortgage loan 
to an eligible household that replaced the prepaid mortgage loan in a 
pool of mortgage loans held by the member. The only comments received 
on this proposal were from four entities that currently participate 
together in a particular type of AHP-assisted loan pool transaction in 
one Bank district. The commenters indicated that the actual loan pool 
structure used in this transaction is different from the structure set 
forth in the proposed rule. The commenters recommended that the final 
rule authorize the re-use of unused AHP subsidy in the type of loan 
pool structure used by the commenters. The commenters also recommended 
that the current regulatory five-year retention period requirement for 
owner-occupied projects, which applies to individual mortgage loans 
within the pool, be amended to apply broadly to a pool of AHP-assisted 
mortgage loans. See 12 CFR 951.13(c)(4), (d)(1).
    The commenters' loan pool proposal differs significantly from the 
loan pool proposal set forth in the proposed rule, and Finance Board 
staff has determined that additional information is needed on the 
nature of this proposal before a determination can be made on whether 
to authorize the re-use of unused AHP subsidy in such a transaction.

III. Paperwork Reduction Act

    The 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.

IV. Regulatory Flexibility Act

    The final rule applies only to the Banks, which do not come within 
the meaning of ``small entities,'' as defined

[[Page 18804]]

in the Regulatory Flexibility Act (RFA). See 5 U.S.C. 601(6). Thus, in 
accordance with section 605(b) of the RFA, 5 U.S.C. 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. Amend Sec. 951.1 by:
    a. Removing the definition of ``Homeless household''; and
    b. In the definition of ``Median income for the area'', 
redesignating paragraphs (1)(ii) through (1)(iv) and paragraph (2)(ii) 
as paragraphs (1)(iii) through (1)(v) and paragraph (2)(iii), 
respectively; and adding new paragraphs (1)(ii) and (2)(ii).

    The revisions read as follows:


Sec. 951.1  Definitions.

* * * * *
    Median income for the area.
    (1) * * *
    (ii) The median income for the area obtained from the Federal 
Financial Institutions Examination Council;
* * * * *
    (2) * * *
    (ii) The median income for the area obtained from the Federal 
Financial Institutions Examination Council;
* * * * *

    3. Amend Sec. 951.3 by:
    a. Revising paragraph (a)(2);
    b. In paragraph (b)(1)(vii), removing the word ``and'' at the end 
of the paragraph;
    c. In paragraph (b)(1)(viii), removing the period at the end of the 
paragraph and adding ``; and'' in its place; and
    d. Adding paragraph (b)(1)(ix).
    The additions and revisions read as follows:


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

    (a) * * *
    (2) Competitive application program. That portion of a Bank's 
required annual AHP contribution that is not set aside to fund 
homeownership set-aside programs shall be provided to members through a 
competitive application program, pursuant to the requirements of this 
part. A Bank may allocate up to the greater of $3 million or 25 percent 
of its annual required AHP contribution for the subsequent year to the 
current year's competitive application program. Beginning in 2002 and 
for subsequent years, the maximum dollar limit set forth in this 
paragraph (a)(2) 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 limit on the maximum competitive application dollar amount.
    (b) * * *
    (1) * * *
    (ix) Any requirements, including time limits, for re-use of repaid 
AHP direct subsidy, adopted by the Bank pursuant to Sec. 951.12(e)(2).
* * * * *

    4. Amend Sec. 951.6 by:
    a. Removing the last sentence in paragraph (b)(1);
    b. Removing the first sentence in paragraph (b)(4)(i);
    c. Revising paragraph (b)(4)(iv)(A); and
    d. Revising paragraph (b)(4)(iv)(D).
    The revisions read as follows:


Sec. 951.6  Procedure for approval of applications for funding.

* * * * *
    (b) * * *
    (4) * * *
    (iv) * * *
    (A) Use of donated or conveyed government-owned or other 
properties. The creation of housing using a significant proportion of:
    (1) Land or units donated or conveyed by the Federal government or 
any agency or instrumentality thereof; or
    (2) Land or units donated or conveyed by any other party for an 
amount significantly below the fair market value of the property, as 
defined by the Bank in its AHP implementation plan.
* * * * *
    (D) Housing for homeless households. The creation of rental 
housing, excluding overnight shelters, reserving at least 20 percent of 
the units for homeless households, the creation of transitional housing 
for homeless households permitting a minimum of six months occupancy, 
or the creation of permanent owner-occupied housing reserving at least 
20 percent of the units for homeless households. For purposes of this 
paragraph, the term ``homeless households'' shall have the meaning as 
defined by the Bank in its AHP implementation plan.
* * * * *


Sec. 951.7  [Amended]

    5. Amend Sec. 951.7 by:
    a. In the section heading, adding the words ``or after'' between 
the words ``to'' and ``project''; and
    b. In the introductory text of paragraph (a), adding the words ``or 
after'' between the words ``to'' and ``final''.

    6. Amend Sec. 951.8 by:
    a. Revising paragraphs (b)(2) introductory text, (b)(2)(i) and 
(b)(2)(iii); and
    b. Adding paragraph (c)(5).
    The revisions and addition read as follows:


Sec. 951.8  Procedure for funding.

* * * * *
    (b) * * *
    (2) Member certification upon disbursement. Prior to disbursement 
by a Bank to a member of homeownership set-aside funds, or prior to 
disbursement by a member of homeownership set-aside funds repaid to and 
retained by such member pursuant to a subsidy re-use program authorized 
by the Bank under Sec. 951.12(e)(2), the Bank shall require the member 
to certify that:
    (i) The funds received by the member will be provided to a 
household meeting the eligibility requirements of Sec. 951.5(a)(2);
    (ii) * * *
    (iii) Funds received by the member for homebuyer counseling costs 
will be provided according to the requirements of Sec. 951.5(a)(7).
    (c) * * *
    (5) Project sponsor notification of re-use of repaid AHP direct 
subsidy. Prior to disbursement by a project sponsor of AHP direct 
subsidy repaid to and retained by such project sponsor pursuant to a 
subsidy re-use program authorized by the Bank under Sec. 951.12(e)(2), 
the project sponsor shall provide written notice to the member and the 
Bank of its intent to disburse the repaid subsidy to a household 
satisfying the requirements of this part and the commitments in the 
approved AHP application.


Sec. 951.9  [Removed]

    7. Remove Sec. 951.9.
    8. Amend Sec. 951.10 by:
    a. In paragraph (a)(1)(ii), inserting the words ``or 
rehabilitation'' between the words ``purchase'' and ``of'';
    b. Revising paragraph (b)(1)(ii) introductory text;

[[Page 18805]]

    c. Revising paragraph (c)(1) introductory text; and
    d. Revising paragraph (c)(2) introductory text and paragraph 
(c)(2)(i).
    The revisions read as follows:


Sec. 951.10  Initial monitoring requirements.

* * * * *
    (b) * * *
    (1) * * *
    (ii) Within one year after disbursement to a project of all 
approved AHP subsidies, or in the case of a re-use of repaid AHP direct 
subsidy pursuant to Sec. 951.12(e)(2), within 60 days after receipt of 
a notice of disbursement of such repaid subsidy provided by a project 
sponsor pursuant to Sec. 951.8(c)(5), the member must review the 
project documentation and certify to the Bank that:
* * * * *
    (c) Requirements for Banks--(1) Owner-occupied projects. Each Bank 
must take the steps necessary to determine, based on a review of the 
documentation for a sample of projects and units within one year of 
receiving the member certifications described in paragraph (b)(1)(ii) 
of this section, or, in the case of a re-use of repaid AHP direct 
subsidy pursuant to Sec. 951.12(e)(2), based on a review of the 
documentation for the re-use upon receipt of the member certification 
for such re-use described in paragraph (b)(1)(ii) of this section, 
that:
* * * * *
    (2) Rental projects. Each Bank must take the steps necessary to 
determine that, based on a review of the documentation described in 
paragraph (a)(2)(ii) of this section within one year and 120 days after 
completion of a rental project:
    (i) The services and activities committed to in the AHP application 
have been provided in connection with the project; and
* * * * *

    9. Amend Sec. 951.12 by:
    a. In paragraphs (a)(1)(ii), (a)(2)(i)(B) and (b)(2), removing the 
phrase ``Secs. 951.7 or 951.9'' wherever it appears, and adding, in its 
place, the phrase ``Sec. 951.7''; and
    b. Revising paragraph (e).
    The revision reads as follows:


Sec. 951.12  Remedial actions for noncompliance.

* * * * *
    (e) Use of repaid subsidies--(1) Use of repaid AHP subsidies in 
other AHP-eligible projects. Except as provided in paragraph (e)(2) of 
this section, amounts of AHP subsidy, including any interest, repaid to 
a Bank pursuant to this part shall be made available by the Bank for 
other AHP-eligible projects.
    (2) Re-use of repaid AHP direct subsidies in same project. AHP 
direct subsidy, including any interest, repaid to a member or project 
sponsor under a homeownership set-aside program or the competitive 
application program, respectively, may be repaid by such parties to the 
Bank for subsequent disbursement to and re-use by such parties, or 
retained by such parties for subsequent re-use, as authorized by the 
Bank, in its discretion, in its AHP implementation plan, provided all 
of the following requirements are satisfied:
    (i) The member or the project sponsor originally provided the 
direct subsidy as downpayment, closing cost, rehabilitation or interest 
rate buydown assistance to an eligible household to purchase or 
rehabilitate an owner-occupied unit pursuant to an approved AHP 
application;
    (ii) The AHP direct subsidy, including any interest, was repaid to 
the member or project sponsor as a result of a sale by the household of 
the unit prior to the end of the retention period to a purchaser that 
is not a low-or moderate-income household; and
    (iii) The repaid AHP direct subsidy is made available by the member 
or project sponsor, within the period of time specified by the Bank in 
its AHP implementation plan, to another AHP-eligible household to 
purchase or rehabilitate an owner-occupied unit in the same project in 
accordance with the terms of the approved AHP application.
* * * * *

    10. Revise Sec. 951.13(d)(1)(ii), (d)(1)(iii) and (d)(1)(iv), to 
read as follows:


Sec. 951.13  Agreements.

* * * * *
    (d) * * *
    (1) * * *
    (ii) In the case of a sale of the unit prior to the end of the 
retention period, an amount equal to a pro rata share of the direct 
subsidy that financed the purchase, construction, or rehabilitation of 
the unit, reduced for every year the seller owned the unit, shall be 
repaid to the following parties, as applicable, from any net gain 
realized upon the sale of the unit after deduction for sales expenses, 
unless the purchaser is a low-or moderate-income household:
    (A) To the Bank: If the Bank has not authorized re-use of the 
repaid subsidy pursuant to Sec. 951.12(e)(2); if the Bank has 
authorized re-use of the repaid subsidy but not retention of such 
subsidy by the member or project sponsor pursuant to Sec. 951.12(e)(2); 
or if the Bank has authorized retention and re-use of such subsidy by 
the member or project sponsor pursuant to Sec. 951.12(e)(2) and the 
repaid subsidy is not re-used in accordance with the requirements of 
the Bank and Sec. 951.12(e)(2); or
    (B) To the member or project sponsor for re-use by such member or 
project sponsor, if the Bank has authorized retention and re-use of 
such subsidy by the member or project sponsor pursuant to 
Sec. 951.12(e)(2);
    (iii) In the case of a refinancing prior to the end of the 
retention period, an amount equal to a pro rata share of the direct 
subsidy that financed the purchase, construction, or rehabilitation of 
the unit, reduced for every year the occupying household has owned the 
unit, shall be repaid to the following parties, as applicable, from any 
net gain realized upon the refinancing, unless the unit continues to be 
subject to a deed restriction or other legally enforceable retention 
agreement or mechanism described in this paragraph (d)(1):
    (A) To the Bank: If the Bank has not authorized re-use of the 
repaid subsidy pursuant to Sec. 951.12(e)(2); if the Bank has 
authorized re-use of the repaid subsidy but not retention of such 
subsidy by the member or project sponsor pursuant to Sec. 951.12(e)(2); 
or if the Bank has authorized retention and re-use of such subsidy by 
the member or project sponsor pursuant to Sec. 951.12(e)(2) and the 
repaid subsidy is not re-used in accordance with the requirements of 
the Bank and Sec. 951.12(e)(2); or
    (B) To the member or project sponsor for re-use by such member or 
project sponsor, if the Bank has authorized retention and re-use of 
such subsidy by the member or project sponsor pursuant to 
Sec. 951.12(e)(2); and
    (iv) The obligation to repay AHP subsidy to the Bank, or to the 
member or project sponsor, as applicable, shall terminate after any 
foreclosure.
* * * * *

    Dated: April 10, 2002.

    By the Board of Directors of the Federal Housing Finance Board.

John T. Korsmo,
Chairman.
[FR Doc. 02-9329 Filed 4-16-02; 8:45 am]
BILLING CODE 6725-01-P