[Federal Register Volume 67, Number 119 (Thursday, June 20, 2002)]
[Proposed Rules]
[Pages 41872-41875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-15626]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 951

[No. 2002-26]
RIN 3069-AB15


Affordable Housing Program Amendments

AGENCY: Federal Housing Finance Board.

ACTION: Proposed rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is proposing 
to amend its regulation governing the operation of the Affordable 
Housing Program (AHP) to authorize a Federal Home Loan Bank (Bank) to 
set aside annually an additional amount, up to the greater of $1.5 
million or 10 percent of the Bank's annual required AHP contribution, 
to assist low-or moderate-income, first-time homebuyers under the 
Bank's homeownership set-aside program. This increased discretionary 
funding authority would supplement the Banks' current discretionary 
authority to fund homeownership set-aside programs subject to the $3.0 
million or 25 percent allocation cap. Under the Banks' AHP contribution 
requirement for 2002, this increased funding authority would enable the 
twelve Banks to provide an additional $24.0 million to assist 2,400 to 
4,800 additional low-or moderate-income, first-time homebuyers. This 
additional set-aside funding authority would complement national 
housing policy initiatives to broaden first-time homeownership, 
especially among minority and immigrant households and households 
living in rural areas and on Native American tribal lands.

DATES: The Finance Board will accept written comments on the proposed 
rule that are received on or before August 19, 2002.

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ADDRESSES: Send written comments to: Elaine L. Baker, Secretary to the 
Board, at the Federal Housing Finance Board, 1777 F Street, NW., 
Washington, DC 20006. Comments will be available for inspection at this 
address.

FOR FURTHER INFORMATION CONTACT: Charles E. McLean, Deputy Director, 
(202) 408-2537, Melissa L. Allen, Program Analyst, (202) 408-2524, 
Program Assistance Division; Sylvia C. Martinez, Policy Development and 
Analysis Division, (202) 408-2825; Sharon B. Like, Office of General 
Counsel, (202) 408-2930, 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 is codified at 12 CFR part 951.

II. Goal To Broaden Homeownership

    It is widely recognized that homeownership contributes to community 
stability and upward mobility of homeowners. A key goal of national 
housing policy is to broaden homeownership, especially among minority 
and immigrant households and households living in rural areas and on 
Native American tribal lands. Based on 2000 Census data, the 
homeownership rate is approximately 66.3 percent nationwide.\1\ The 
homeownership rate for all minority groups is 48.6 percent, compared to 
72.4 percent for non-minorities. The homeownership rate for immigrant 
households is 47 percent. According to data of the Department of 
Housing and Urban Development (HUD), in fiscal year 2001, 45.1 percent 
of Federal Housing Administration (FHA) loans to first-time homebuyers 
with incomes at or below 80 percent of area median income were to 
members of minority groups.
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    \1\ According to the United States Department of Commerce, U.S. 
Census Bureau Housing Vacancies and Homeownership Survey, the fourth 
quarter 2001 national homeownership rate was approximately 67.8 
percent.
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    To achieve this goal of broadening homeownership, a number of 
initiatives for assistance to first-time homebuyers have been proposed 
or implemented, including: the Self-Help Homeownership Opportunity 
Program (SHOP); the Section 8 Homeownership Program vouchers; the HOME 
American Dream Downpayment Fund; and a new FHA hybrid adjustable-rate 
mortgage for low-or moderate-income homebuyers. HUD and state and local 
housing authorities also are seeking to assist households in achieving 
homeownership through Family Self-Sufficiency (FSS) and Individual 
Development Account (IDA) savings programs. Two of the Banks currently 
use part or all of their homeownership set-aside funding authority to 
supplement the savings of households participating in FSS and IDA 
programs.
    The Finance Board believes that, in addition to the Banks' current 
authority to set aside AHP funds for homeownership assistance, 
authorizing a Bank to set aside annually up to the greater of $1.5 
million or 10 percent of its annual required AHP contribution to assist 
low- or moderate-income, first-time homebuyers would complement these 
initiatives to broaden homeownership, especially among minority and 
immigrant households and households living in rural areas and on tribal 
lands. An increase in AHP subsidy of 10 percentage points for all 
twelve Banks would increase the total amount of potential funds 
available from the twelve Banks for downpayment and closing cost 
assistance to low- or moderate-income, first-time homebuyers by $24.0 
million in 2002.\2\ This could assist 2,400 to 4,800 additional low- or 
moderate-income, first-time homebuyers.
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    \2\ The total required AHP contribution of the twelve Banks in 
2002 is $240 million. See 12 U.S.C. 1430(j)(5)(C).
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    The proposed changes to the AHP regulation are discussed further 
below under the Analysis of Proposed Rule section. The Finance Board 
welcomes written comments on all aspects of the proposed rule.

III. Analysis of Proposed Rule

A. Current AHP Set-Aside Program Authority

    The current AHP regulation requires each of the twelve Banks to 
operate a competitive application program in its district for the 
awarding of AHP grants or subsidized advances to members to assist in 
the purchase, construction or rehabilitation of housing for very low- 
and low- or moderate-income households. See 12 CFR 951.3(a)(2), 
951.5(b), 951.6(b). In addition, the AHP regulation authorizes each 
Bank, in its discretion, to adopt homeownership set-aside programs for 
the disbursement of AHP grants to members to assist low- or moderate-
income households with the purchase or rehabilitation of owner-occupied 
housing units. See 12 CFR 951.3(a), 951.5(a), 951.6(a). ``Low- or 
moderate-income households'' are defined generally as households with 
incomes of 80 percent or less of the median income for the area. See 12 
CFR 951.1. Specifically, 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 homeownership 
set-aside programs at the Bank. 12 CFR 951.3(a)(1). 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, 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. 12 CFR 951.3(a)(1).\3\
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    \3\ The AHP regulation was amended in October 2001 to increase 
these maximum allowable annual allocations from the greater of $1.5 
million or 15 percent of the annual required AHP contribution. See 
66 FR 50296 (Oct. 3, 2001).
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    The AHP regulation provides that households must use the 
homeownership set-aside grants to pay for downpayment, closing cost, 
counseling, or rehabilitation assistance in connection with the 
household's purchase or rehabilitation of an owner-occupied housing 
unit. See 12 CFR 951.5(a)(4). The AHP regulation also provides that 
households must complete a homebuyer or homeowner counseling program, 
and must meet such other allocation and eligibility criteria as may be 
established by the Bank, such as a matching funds requirement or 
criteria that give priority for the purchase or rehabilitation of 
housing in particular areas or as part of a disaster relief effort. See 
12 CFR 951.5(a)(1), (2)(ii) and (iii). The Banks have used this 
authority over the years to adopt a variety of different eligibility 
requirements and priorities under their homeownership set-aside 
programs. In addition, a housing unit purchased or rehabilitated using 
homeownership set-aside funds must be subject to a five-year 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

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repaid to the Bank. See 12 CFR 951.5(a)(5), 951.13(d)(1).

B. Proposed Amendment

    For the reasons discussed above, the Finance Board believes that 
increasing the Banks' current maximum allowable annual homeownership 
set-aside amount, with the incremental increase targeted to low- or 
moderate-income, first-time homebuyers, would assist the national 
housing policy goal of broadening homeownership, including 
homeownership among minority and immigrant groups and households living 
in rural areas and on tribal lands. Accordingly, Sec. 951.3(a)(1)(ii) 
of the proposed rule would authorize a Bank, after consultation with 
its Advisory Council, to set aside annually up to the greater of $1.5 
million or 10 percent of its annual required AHP contribution to assist 
low- or moderate-income, first-time homebuyers (first-time homebuyer 
set-aside program). Proposed Sec. 951.3(a)(1)(ii) also would authorize 
a Bank, in cases where the amount of funds applied for by members in a 
given year under the first-time homebuyer set-aside program exceeds the 
amount available for that year, to set aside up to the greater of $1.5 
million or 10 percent of its annual required AHP contribution for the 
subsequent year to the current year's first-time homebuyer set-aside 
program. The proposed increased discretionary funding authority would 
supplement the Banks current discretionary authority to fund 
homeownership set-aside programs subject to the existing $3.0 million 
or 25 percent allocation cap. The proposed rule also would make a 
technical amendment to require that the Consumer Price Index (CPI) 
adjustments of the maximum dollar limits be made beginning in 2003 
instead of 2002.
    Under the existing AHP regulation, prior to disbursement of 
homeownership set-aside funds by a Bank to a member, the Bank must 
require the member to certify that, among other things, the funds 
received from the Bank will be provided to a household meeting the 
eligibility requirements of Sec. 951.5(a)(2). See 12 CFR 951.8(b)(2). 
The proposed rule would amend Sec. 951.5(a)(2)(iii) to include the 
first-time homebuyer requirement as an eligibility requirement under 
the first-time homebuyer set-aside program. Therefore, a member would 
be required to certify that funds to be disbursed to households under 
the first-time homebuyer set-aside program will be provided to eligible 
first-time homebuyers.
    The proposal entails use of the Banks' existing set-aside program 
operations, thereby minimizing additional administrative costs on the 
Banks. The proposal would not affect the Banks' and Advisory Councils' 
current discretionary authority regarding funding and operation of 
existing or new set-aside programs under the $3.0 million or 25 percent 
allocation cap. Thus, the Banks, in consultation with their Advisory 
Councils, could continue their existing set-aside programs, and would 
have the flexibility to adopt new set-aside programs based on local 
needs, subject to the current $3.0 million or 25 percent allocation 
cap. A determination on whether to use the proposed increased funding 
authority would be in the discretion of each Bank, after consultation 
with its Advisory Council. The proposal would require, however, that if 
a decision is made to use the increased funding authority, such 
increased funding must be targeted to low- or moderate-income, first-
time homebuyers, subject to any additional eligibility criteria adopted 
by the Bank, in its discretion, for the program. See 12 CFR 
951.5(a)(2)(iii). A Bank could, of course, choose, in its discretion, 
to also target some or all of its existing or new set-aside programs 
operating under the current $3.0 million or 25 percent allocation cap 
to low- or moderate-income, first-time homebuyers, as some Banks do 
now. Consistent with the current AHP regulation, the proposed rule does 
not define the term ``first-time homebuyer,'' leaving such 
determination to the discretion of each Bank, as set forth in its AHP 
Implementation Plan.
    The Banks' 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- or moderate-income 
homebuyers, including first-time homebuyers. Homeownership set-aside 
funds help finance affordable housing in underserved areas and for 
underserved households, and 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. 
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.
    In addition, homeownership set-aside funds often are the only way 
to meet the need for homeownership opportunities for low-income and 
very low-income households, which require larger per-unit subsidies 
and, therefore, may not score well under the competitive AHP 
application program. Set-aside funds could be made available, in 
conjunction with funds offered by other homeownership programs, to 
assist households purchasing homes under such programs. Many households 
that meet the eligibility requirements of HUD and FSS and IDA 
homeownership programs may still have difficulty meeting the financial 
demands of homeownership. Providing additional set-aside funds as 
downpayment assistance could help lower housing costs to a level that 
will improve the chances of successful homeownership for such 
households. The current AHP regulation requires members to provide 
homeownership set-aside funds as a grant, in an amount up to a maximum 
of $10,000 per household, as established by the Bank, with such limit 
applying to all households. See 12 CFR 951.5(a)(3). This $10,000 limit 
per household may impede the ability of Banks and members to assist 
eligible households that have lower incomes or live in high cost areas 
and that may require larger per-unit subsidies in the purchase or 
rehabilitation of homes. Accordingly, the Finance Board is requesting 
comment on whether the regulation should be amended to increase the 
maximum subsidy limit per household and the amount of such limit, or 
whether the Banks should be provided the authority to determine, in 
their discretion, whether to adopt a maximum subsidy limit per 
household and the amount of any such limit.

IV. Paperwork Reduction Act

    The proposed 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.

V. Regulatory Flexibility Act

    The proposed rule would apply 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, 5 U.S.C. 605(b), the Finance Board hereby 
certifies that the proposed rule, if promulgated as a final rule, will 
not

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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 proposes to amend 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. Revise Sec. 951.3(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--(i) Homeownership set-aside programs subject to $3.0 million 
or 25 percent cap. 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. A Bank may establish 
one or more homeownership set-aside programs pursuant to written 
policies adopted by the Bank's board of directors.
    (ii) Additional first-time homebuyer set-aside program subject to 
$1.5 million or 10 percent cap. In addition to the authority provided 
under paragraph (a)(1)(i) of this section, each Bank, after 
consultation with its Advisory Council, and pursuant to written 
policies adopted by the Bank's board of directors, may set aside 
annually up to the greater of $1.5 million or 10 percent of its annual 
required AHP contribution to provide funds to members participating in 
a Bank homeownership set-aside program to assist first-time homebuyers, 
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 
under such a program exceeds the amount available for that year, a Bank 
may allocate up to the greater of $1.5 million or 10 percent of its 
annual required AHP contribution for the subsequent year to the current 
year's program pursuant to written policies adopted by the Bank's board 
of directors.
    (iii) Requirements applicable to all homeownership set-aside 
programs. Beginning in 2003 and for subsequent years, the maximum 
dollar limits set forth in paragraphs (a)(1)(i) and (a)(1)(ii) of this 
section 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's board of directors 
shall not delegate to Bank officers or other Bank employees the 
responsibility for adopting its homeownership set-aside program 
policies.
* * * * *
    3. Revise Sec. 951.5(a)(2)(iii) to read as follows:


Sec. 951.5  Minimum eligibility standards for AHP projects.

    (a) * * *
    (2) * * *
    (iii) Meet the first-time homebuyer requirement, in the case of 
households receiving funds pursuant to a first-time homebuyer set-aside 
program established pursuant to Sec. 951.3(a)(1)(ii), and meet such 
other eligibility criteria that may be established by the Bank, such as 
a matching funds requirement or criteria that give priority for the 
purchase or rehabilitation of housing in particular areas or as part of 
a disaster relief effort, in the case of households receiving funds 
pursuant to homeownership set-aside programs established pursuant to 
Sec. 951.3(a)(1)(i) or (ii);
* * * * *

    Dated: June 12, 2002.
    By the Board of Directors of the Federal Housing Finance Board.
John T. Korsmo,
Chairman.
[FR Doc. 02-15626 Filed 6-19-02; 8:45 am]
BILLING CODE 6725-01-P