[Federal Register Volume 67, Number 182 (Thursday, September 19, 2002)]
[Rules and Regulations]
[Pages 58978-58982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-23823]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 951

[No. 2002-52]
RIN 3069-AB16


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 authorize a Federal Home Loan Bank (Bank), after 
consultation with its Advisory Council, 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

[[Page 58979]]

funding authority supplements the Banks' current discretionary 
authority to fund homeownership set-aside programs subject to the $3.0 
million or 25 percent allocation cap. The Finance Board also is 
amending the regulation to increase the maximum subsidy limit per 
household to $15,000 for homeownership set-aside programs in general. 
Under the Banks' AHP contribution requirement for 2002, the increased 
funding authority will enable the twelve Banks to provide an additional 
$24.0 million to assist 1,600 to 4,800 additional low- or moderate-
income, first-time homebuyers. This additional set-aside funding 
authority complements 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.

EFFECTIVE DATE: The final rule shall be effective on October 21, 2002.

FOR FURTHER INFORMATION CONTACT: Charles E. McLean, Associate Director, 
(202) 408-2537, Melissa L. Allen, Program Analyst, (202) 408-2524, 
Community Investment and Affordable Housing, Office of Supervision; 
Sylvia C. Martinez, Policy Analyst, (202) 408-2825, Strategic and 
System Research, Office of Supervision; 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 is codified at 12 CFR part 951.
    On June 20, 2002, the Finance Board published a proposed rule 
requesting comment on proposed amendments to the AHP regulation that 
would authorize a Bank, after consultation with its Advisory Council, 
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 (first-time 
homebuyer set-aside program), under the Bank's homeownership set-aside 
program. See 67 FR 41872 (June 20, 2002). The proposed rule provided 
for a 60-day comment period, which closed on August 19, 2002. The 
Finance Board received seven comment letters on the proposed rule. 
Commenters included: two Banks; one Bank member; three trade 
associations; and one nonprofit housing developer. Comments that raised 
issues beyond the scope of the proposed rule are not addressed in this 
final rule, but may 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. 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\ With an increase in the maximum subsidy limit per 
household to $15,000, this could assist 1,600 to 4,800 additional low- 
or moderate-income, first-time homebuyers. According to a recent study 
in the 2001 Annual Report of the Federal Reserve Bank of Minneapolis, 
cash assistance has a greater effect than other options on the ability 
of renters to afford to purchase a home. According to the report, a 
$5,000 cash grant for downpayment assistance increases the number of 
minority renters who can afford to purchase a home by as much as 13 
percent, while a $10,000 cash grant has nearly twice the effect.
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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 changes to the AHP regulation are discussed further below under 
the Analysis of Final Rule section.

III. Analysis of Final Rule

A. Current AHP Homeownership 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, after consultation with its Advisory Council, 
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

[[Page 58980]]

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

B. Amendments to the Regulation

    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. Commenters on the proposed rule 
generally supported this increased discretionary funding authority. A 
trade association commenter recommended that the proposed incremental 
set-aside increase of 10 percent of a Bank's annual required AHP 
contribution should be used only for eligible households buying newly 
constructed or substantially rehabilitated housing. The commenter 
stated that new construction technologies result in lower maintenance 
and energy costs than those associated with older homes. Although the 
Finance Board agrees that there can be potential benefits of new 
technologies in terms of long-term operating costs, the Finance Board's 
objective is to make the purchase of the unit more affordable, whether 
the housing is new or not. Moreover, the Finance Board does not believe 
that the AHP should contain requirements that restrict a household's 
ability to choose its housing under the homeownership set-aside 
program.
    Accordingly, consistent with the proposed rule, Sec.  
951.3(a)(1)(ii) of the final rule authorizes a Bank, after consultation 
with its Advisory Council, to set aside annually an additional amount, 
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. Section 951.3(a)(1)(ii) also authorizes 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 an additional amount, 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 increased discretionary funding authority will 
supplement the Banks' current discretionary authority to fund 
homeownership set-aside programs subject to the existing $3.0 million 
or 25 percent allocation cap. Consistent with the proposed rule, the 
final rule also makes 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). 
Consistent with the proposed rule, the final rule amends 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 is 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. Consistent 
with the current AHP regulation, the final 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 increased funding authority entails use of the Banks' existing 
set-aside program operations, thereby minimizing additional 
administrative costs on the Banks, and does 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, may continue their existing set-aside 
programs, and 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 increased funding 
authority is in the discretion of each Bank, after consultation with 
its Advisory Council. However, 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.
    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

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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). In the 
SUPPLEMENTARY INFORMATION section of the proposed rule, the Finance 
Board raised the question whether 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. 
The Finance Board requested 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.
    Two trade association commenters supported providing the Banks the 
discretionary authority to adopt maximum subsidy limits per household 
and the amount of such limits, with one commenter noting that housing 
and rehabilitation costs can vary significantly by geographic area and 
the needs of homebuyers can differ significantly within the low- or 
moderate-income targeting range. While most of the Banks have adopted 
subsidy per-household limits below the maximum authorized by the 
current regulation, several Banks have suggested that the current 
maximum subsidy limit per household prevents the homeownership set-
aside program from being an effective tool in helping to make 
homeownership affordable for the working poor and for households in 
areas where housing costs are exceptionally high. The Finance Board 
recognizes that there is a need for additional flexibility in the 
maximum subsidy limit. Accordingly, the Finance Board is amending Sec.  
951.5(a)(3) of the regulation to increase the maximum grant that a Bank 
is authorized to make under its homeownership set-aside programs in 
general, from $10,000 per household to $15,000 per household.
    The member commenter also recommended that the Banks be permitted 
to pay fees, such as $500 per loan closing, to nonprofit organizations 
for the administration of the program. Use of homeownership set-aside 
funds by nonprofit organizations for administrative fees would not be 
an eligible use of AHP subsidies under the Bank Act and AHP regulation. 
See 12 U.S.C. 1430(j)(2), 12 CFR 951.5(a)(4). Therefore, this 
suggestion has not been adopted in the final rule.

IV. 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.

V. 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, 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. 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, and pursuant to written policies adopted by the Bank's board 
of directors, 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

[[Page 58982]]

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. Amend Sec.  951.5 by:
    a. Revising paragraph (a)(2)(iii); and
    b. In paragraph (a)(3), removing the term ``$10,000'' and adding, 
in its place, the term ``$15,000'', 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: September 12, 2002.
    By the Board of Directors of the Federal Housing Finance Board.
John T. Korsmo,
Chairman.
[FR Doc. 02-23823 Filed 9-18-02; 8:45 am]
BILLING CODE 6725-01-P