[Federal Register Volume 83, Number 50 (Wednesday, March 14, 2018)]
[Proposed Rules]
[Pages 11344-11390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-04745]
[[Page 11343]]
Vol. 83
Wednesday,
No. 50
March 14, 2018
Part III
Federal Housing Finance Agency
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12 CFR Parts 1290 and 1291
Affordable Housing Program Amendments; Proposed Rule
Federal Register / Vol. 83 , No. 50 / Wednesday, March 14, 2018 /
Proposed Rules
[[Page 11344]]
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FEDERAL HOUSING FINANCE AGENCY
12 CFR Parts 1290 and 1291
RIN 2590-AA83
Affordable Housing Program Amendments
AGENCY: Federal Housing Finance Agency.
ACTION: Proposed rule.
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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing notice
and providing an opportunity for the public to comment on proposed
amendments to its regulation on the Federal Home Loan Banks' (Banks)
Affordable Housing Program (AHP or Program). The proposed amendments
would provide the Banks additional authority to allocate their AHP
funds; authorize the Banks to establish special competitive funds that
target specific affordable housing needs in their districts; provide
the Banks authority to design and implement their own project selection
scoring criteria, subject to meeting certain FHFA-prescribed outcome
requirements; remove the requirement for retention agreements for
owner-occupied units; further align the project monitoring requirements
with those of other federal government funding programs; clarify the
provisions on remediating AHP noncompliance; clarify certain
operational requirements; and streamline and reorganize the regulation.
DATES: Written comments must be received on or before May 14, 2018.
ADDRESSES: You may submit your comments on the proposed rule,
identified by regulatory information number (RIN) 2590-AA83, by any one
of the following methods:
Agency Website: www.fhfa.gov/open-for-comment-or-input.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments. If you submit your
comment to the Federal eRulemaking Portal, please also send it by email
to FHFA at [email protected] to ensure timely receipt by FHFA.
Include the following information in the subject line of your
submission: Comments/RIN 2590-AA83.
Hand Delivered/Courier: The hand delivery address is:
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA83,
Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW,
Washington, DC 20219. Deliver the package at the Seventh Street
entrance Guard Desk, First Floor, on business days between 9 a.m. and 5
p.m.
U.S. Mail, United Parcel Service, Federal Express, or
Other Mail Service: The mailing address for comments is: Alfred M.
Pollard, General Counsel, Attention: Comments/RIN 2590-AA83, Federal
Housing Finance Agency, Eighth Floor, 400 Seventh Street SW,
Washington, DC 20219. Please note that all mail sent to FHFA via U.S.
Mail is routed through a national irradiation facility, a process that
may delay delivery by approximately two weeks. For any time-sensitive
correspondence, please plan accordingly.
FOR FURTHER INFORMATION CONTACT: Ted Wartell, Manager, Office of
Housing and Community Investment, 202-649-3157, [email protected];
Marcea Barringer, Senior Policy Analyst, Office of Housing and
Community Investment, 202-649-3275, [email protected]; Marshall
Adam Pecsek, Senior Counsel, Office of General Counsel, 202-649-3380,
[email protected]; or Sharon Like, Managing Associate General
Counsel, Office of General Counsel, 202-649-3057, [email protected].
These are not toll-free numbers. The mailing address is: Federal
Housing Finance Agency, 400 Seventh Street SW, Washington, DC 20219.
The telephone number for the Telecommunications Device for the Hearing
Impaired is (800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Comments
FHFA invites comments on all aspects of the proposed rule and will
take all comments into consideration before issuing a final rule. A
list of FHFA's requests for comments on specific issues appears in
Section V. Please identify the specific request for comment to which
you are responding by its request number. Copies of all comments will
be posted without change, and will include any personal information you
provide such as your name, address, email address, and telephone
number, on the FHFA website at http://www.fhfa.gov. In addition, copies
of all comments received will be available for examination by the
public through the electronic rulemaking docket for this proposed rule
also located on the FHFA website.
II. Background
A. Overview of Current Program
The Federal Home Loan Bank Act (Bank Act) requires each Bank to
establish an affordable housing program, the purpose of which is to
enable Bank members to provide subsidies for long-term, low- and
moderate-income, owner-occupied and affordable rental housing.\1\ The
Banks may provide AHP subsidies to finance: Homeownership by families
with incomes at or below 80 percent of area median income (AMI); and
the purchase, construction, or rehabilitation of rental housing, at
least 20 percent of the units of which will be occupied by and
affordable for very low-income households.\2\ ``Affordable for very
low-income households'' is defined to mean that rents charged to
tenants for units made available for occupancy by low-income families
shall not exceed 30 percent of the adjusted income of a family whose
income equals 50 percent of AMI, with adjustment for family size.\3\
FHFA's regulation implementing the Bank Act's AHP requirements is set
forth at 12 CFR part 1291.
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\1\ 12 U.S.C. 1430(j)(1).
\2\ 12 U.S.C. 1430(j)(2).
\3\ 12 U.S.C. 1430(j)(13)(D).
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The AHP has played an important role in facilitating the Banks'
support of their members' efforts to meet the affordable housing needs
of their communities. Between 1990 and 2016, the Banks awarded
approximately $5.4 billion in AHP subsidies to assist the financing of
over 827,000 housing units through two programs--the Competitive
Application Program and the Homeownership Set-Aside Program. From 1990
to 2016, the Banks awarded approximately $4.4 billion under the
Competitive Application Program, assisting over 660,000 units, 71
percent of which were for very low-income households. From 1995 to
2016, the Banks awarded almost $1 billion under the Homeownership Set-
Aside Program, assisting the financing of approximately 167,000 owner-
occupied units.\4\ AHP subsidies have proven effective in funding
projects that present underwriting challenges, such as projects for the
homeless and special needs populations, including persons with
disabilities and the elderly. One strength of the AHP is its capacity
to leverage additional public and private resources for affordable
housing. For example, the AHP has been used effectively by project
sponsors with a number of different federal and state funding sources,
including Low-Income Housing Tax Credits (LIHTC or tax credits), an
important funding source for rental housing for very low-income
households.
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\4\ The Competitive Application Program began in 1990, and the
Homeownership Set-Aside Program began in 1995.
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B. AHP Regulatory History
FHFA and one of its predecessor agencies, the Federal Housing
Finance Board (Finance Board), have engaged in
[[Page 11345]]
numerous rulemakings over the years to revise, clarify, and streamline
the AHP requirements as the program has evolved and housing markets
have changed. In the early years of the Program, the Finance Board
designed the AHP regulation to address affordable housing needs from a
national policy perspective. The regulation contained scoring criteria
(referred to as ``regulatory priorities'') that represented specific
housing needs existing in all of the Bank districts that the Finance
Board viewed as national policy priorities. The Banks would review and
forward the AHP applications to the Finance Board's Board of Directors,
who would approve eligible applications in accordance with the
regulation's competitive scoring system. Subsequent AHP rulemakings
progressively devolved specific approval and governance authorities to
the Banks in order to enhance the ability of the Banks to address
specific affordable housing needs in their respective districts.
Highlighted among these regulatory amendments are the following:
1995--The rule authorized the Banks to establish
Homeownership Set-Aside Programs to provide grants for households
purchasing or rehabilitating homes. The Finance Board increased the
maximum permissible annual funding allocation for these optional
programs several times after 1995.
1997--The rule transferred approval authority over the AHP
applications from the Finance Board to the Banks. The rule also
substantially modified the scoring system, including establishing five
regulatory priorities selected by the Finance Board, and allowing the
Banks greater input in selecting scoring criteria and scoring points
allocations based on their district housing needs. This included
authority to select ``Bank First District Priority'' scoring criteria
(from a list of specific housing needs identified in the regulation)
and a ``Bank Second District Priority'' scoring criterion (a specific
district housing need identified by the Bank), which together accounted
for a maximum of 50 scoring points out of 100. The regulation also
established specific initial and long-term project monitoring
requirements.
2006--The rule provided the Banks with more discretion to
establish project monitoring and other requirements and authorized the
use of AHP subsidies with revolving loan funds and loan pools.
2009--The rule expanded the Banks' authority to target
specific affordable housing needs in their districts by allowing the
Banks to identify and include multiple district housing needs under
their Bank Second District Priority scoring criterion.
The AHP regulation currently authorizes the Banks to establish and
administer two programs: A mandatory Competitive Application Program;
and an optional Homeownership Set-Aside Program. Each Bank generally is
required to allocate annually at least 65 percent of its required
annual AHP contribution to its Competitive Application Program.\5\
Under the Competitive Application Program, Bank members apply to the
Banks for AHP subsidies on behalf of project sponsors, which are
typically nonprofit affordable housing developers, but may include for-
profit organizations. The regulation requires the Banks to develop and
implement a Competitive Application Program scoring system subject to
requirements in the regulation, which serves as a tool for evaluating
and selecting the project applications that will receive a limited
supply of AHP subsidies. During the 28 years that the Programs have
operated, the demand for the AHP subsidies has always exceeded the
amount available. In 2016, the Banks approved, on average, 43 percent
of applications received. In total, the Banks awarded $283.4 million in
AHP subsidies under their Competitive Application Programs in 2016 to
help finance the purchase, construction, or rehabilitation of 25,530
rental and owner-occupied housing units.
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\5\ Where a Bank allocates the alternative maximum amount of
$4.5 million to its Homeownership Set-Aside Program, the Bank may
allocate less than 65 percent of its total AHP funds to its
Competitive Application Program.
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The regulation also provides that each Bank may allocate annually
up to the greater of $4.5 million or 35 percent of its required annual
AHP contribution to fund its Homeownership Set-Aside Program. Under
this program, members apply to the Banks for AHP subsidies, which are
provided to low- or moderate-income homebuyers or homeowners for the
purchase or rehabilitation of homes. In 2016, the Banks provided
members a combined total of $85.5 million through their Homeownership
Set-Aside Programs, which assisted 13,555 low- or moderate-income
homebuyers or homeowners.
C. Bank and Stakeholder Input
In accordance with FHFA's five-year regulatory review plan, FHFA
published a Notice of Regulatory Review in the Federal Register in 2013
requesting comment on FHFA's existing regulations for purposes of
improving their effectiveness and reducing their burden.\6\ In
response, the Banks jointly submitted a letter to FHFA commenting on
the AHP and other FHFA regulations.\7\ Addressing the AHP regulation,
the letter argued that prescriptive, outdated, or ambiguous provisions
of the regulation created inefficiencies and uncertain risk exposures,
and recommended that FHFA review the regulation and consider
clarifications and enhancements to further empower the Banks in the
management of their Programs.
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\6\ See 78 FR 23507 (April 19, 2013).
\7\ See Comment Letter from 12 Banks to FHFA, dated June 18,
2013.
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In response to the Banks' recommendations, FHFA undertook a
comprehensive review of the AHP regulation, including AHP issues on
which FHFA had provided regulatory guidance. To further inform the
review, FHFA held a number of discussions separately or jointly with
the Banks' Community Investment Officers (CIOs), the Bank Presidents'
Housing Committee, leadership of the Banks' Affordable Housing Advisory
Councils, and other AHP stakeholders including Bank member institutions
and representatives of several national and regional nonprofit housing
organizations. The Banks and stakeholders uniformly expressed support
for the AHP, viewing the program's affordable housing mission favorably
and acknowledging its longstanding reputation as a well-managed program
and the critical role it plays in affordable housing initiatives
throughout the country.
At the same time, the CIOs and stakeholders offered a number of
specific recommendations to improve the operation of the AHP. The
recommendations were directed largely at (1) expanding the Banks'
authority to allocate their AHP funds; (2) providing the Banks
authority to devise their own project selection methods, including the
use of non-competitive processes; (3) clarifying the requirements for
determining a project's need for AHP subsidy; (4) aligning the project
monitoring requirements with those of other major funding sources; (5)
clarifying the Banks' authorities to resolve project noncompliance; (6)
clarifying certain operational requirements; and (7) codifying FHFA
regulatory guidance in the regulation. Although a majority of the CIOs
and stakeholders expressed the view that the existing regulatory
requirements for scoring AHP applications limit a Bank's ability to
effectively target specific housing needs within its district, others
stated that the project scoring system
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provides the Banks sufficient scoring flexibility and does not need
revision.
After reviewing all of the specific recommendations, FHFA
determined that a number of the recommended changes are already
permissible under the current regulation and, therefore, do not require
regulatory amendments. A number of other recommendations are clearly
impermissible under the Bank Act and, therefore, cannot be authorized
in the AHP regulation without statutory amendments. The remaining
recommendations generally require revisions to the AHP regulation. FHFA
analyzed these recommendations to determine whether they were
appropriate from a policy standpoint and consistent with the statutory
requirements. FHFA also considered the impact that adopting these
recommendations would have on populations in greatest need of
affordable housing assistance, the AHP's reputation as a well-managed
program, and FHFA's ability to supervise, examine, and monitor the
Banks' Programs. Based on FHFA's analyses of the recommendations and
its review of the Programs, FHFA is proposing to amend the AHP
regulation as further discussed below.
The proposed rule would authorize the Banks to develop and
implement an ``outcome-based approach'' for administering their
competitive application programs (the proposed General Fund and any
Targeted Funds established by a Bank discussed below). This approach
would differ significantly from the existing project selection scoring
process, which requires Banks to allocate a majority of the points for
scoring applications to several pre-determined housing needs
priorities. Instead, the proposed rule would require each Bank to
design and implement its own system to address specific housing needs
in its district. However, the scoring system would need to result in
the Bank awarding a majority of its AHP funds to certain regulatory
priorities established by FHFA as well as the housing priorities
specified in the Bank Act. The Banks would be required to support their
reasons for choosing specific housing needs with empirical data in
their Targeted Community Lending Plans.
FHFA is also proposing to provide the Banks additional flexibility
to allocate their total annual AHP funds. The Banks would be authorized
to allocate a portion of their total annual AHP funds to a maximum of
three competitive Targeted Funds that enhance the Banks' ability to
target specific affordable housing needs within their districts that
are unmet, have proven difficult to address through the existing
Competitive Application Program, or align with objectives identified in
the strategic plans adopted by each Bank's board of directors. The
amount each Bank could allocate to its Targeted Funds would be limited
to a maximum of 40 percent of the Bank's total annual AHP funds. The
Banks would be required to establish and support the need for the
Targeted Funds in their Targeted Community Lending Plans.
In addition, the proposed rule would increase the percentage of
total annual AHP funds that the Banks could allocate to their
noncompetitive Homeownership Set-Aside Programs. The current regulation
authorizes each Bank to allocate annually up to the greater of 35
percent of its total annual AHP funds or $4.5 million to fund its
Homeownership Set-Aside Programs. The proposed rule would increase the
maximum allocation percentage to 40 percent, while retaining the
alternate $4.5 million threshold. To account for high-cost areas and
high rehabilitation costs, as well as housing price appreciation since
the last time the set-aside percentage threshold was increased, the
maximum set-aside grant that a Bank could provide to a household would
increase from $15,000 to $22,000 and would be subject to annual
increases according to FHFA's Housing Price Index.
FHFA is also proposing to further align the AHP project monitoring
requirements with those of other government funding programs. The
proposed rule would remove certain back-up documentation requirements
for the initial monitoring of AHP projects that have received LIHTC
funding. It would also remove certain back-up documentation
requirements for initial and long-term monitoring of AHP projects that
have received funding under other federal government programs, which
would be specified in FHFA guidance.
FHFA is also proposing to clarify the responsibilities of the
various parties in the event of AHP noncompliance.
III. Analysis of the Proposed Rule
Reorganization of Regulatory Text
To provide greater clarity for users of the AHP regulation and to
take into account the proposed new provisions, the proposed rule would
reorganize the current regulation. Existing and new regulatory sections
would be grouped under new Subpart headings according to similar
subject matter, which would result in renumbering of most sections of
the current regulation. In addition, the numbering of the sections
would not be consecutive from Subpart to Subpart in order to reserve
room within Subparts for the addition of new sections in the future, as
necessary. Specific organizational changes are discussed below under
the applicable regulatory amendments.
Subpart A--General
Proposed Sec. 1291.1 Definitions
Proposed Sec. 1291.1 would retain most of the definitions
currently in Sec. 1291.1. The proposed rule would revise some of the
definitions and add definitions, which are discussed below in the
context of the related regulatory amendments.
In addition, the proposed rule would make the following technical
changes:
A definition of ``AHP'' would be added, which means the
Affordable Housing Program required to be established by the Banks
pursuant to 12 U.S.C. 1430(j) and this part.
The definition of ``Homeownership Set-Aside Program''
would include a reference that establishment of such a program is in
the Bank's discretion and is a noncompetitive program.
The definition of ``net earnings of a Bank'' would be
revised by removing the requirement to deduct the Bank's annual
contribution to the Resolution Funding Corporation, as the Banks are no
longer required to make annual contributions to the Resolution Funding
Corporation.\8\
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\8\ 12 U.S.C. 1441b.
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In the definition of ``rental project,'' the term
``manufactured housing'' would be changed to ``manufactured housing
communities,'' which more accurately describes this type of housing in
the context of rental projects.
References to the ``competitive application program''
would be changed to the General Fund and any Targeted Funds established
by the Bank. References to the ``homeownership set-aside programs''
would be capitalized and would highlight that they are discretionary
and noncompetitive.
Subpart B--Program Administration and Governance
Proposed Sec. 1291.10 Required Annual AHP Contribution
Consistent with current Sec. 1291.2(a), proposed Sec. 1291.10(a)
would contain the Bank Act requirement that each Bank contribute
annually to its AHP 10 percent of its net income for the preceding
year, subject to a minimum annual combined contribution by all of the
Banks of $100 million.\9\
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\9\ See 12 U.S.C. 1430(j)(5)(C).
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Proposed Sec. 1291.11 Temporary Suspension of AHP Contributions
Existing Sec. 1291.11 on the temporary suspension of AHP
contributions would not be changed.
Proposed Sec. 1291.12 Allocation of Required Annual AHP Contribution
Proposed Sec. 1291.12 would revise existing Sec. 1291.2(b)
governing the required and permissible allocations of the Banks'
required annual AHP contributions. Section 1291.2(b)(1) currently
requires each Bank to allocate annually to its Competitive Application
Program that portion of its required annual AHP contribution that is
not set aside by the Bank to fund Homeownership Set-Aside Programs.
Section 1291.2(b)(2) provides that each Bank may allocate annually, in
the aggregate, up to the greater of $4.5 million or 35 percent of its
annual required AHP contribution to Homeownership Set-Aside Programs.
Therefore, a Bank generally is required to allocate at least 65 percent
of its required annual AHP contribution to its Competitive Application
Program depending on the amount of AHP funds it allocates, if any, to
Homeownership Set-Aside Programs.\10\
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\10\ As noted earlier, where a Bank allocates the alternate
maximum amount of $4.5 million to its Homeownership Set-Aside
Programs, the Bank may allocate less than 65 percent of its total
AHP funds to its Competitive Application Program.
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The proposed rule would revise the required and permissible annual
maximum AHP funding allocations as follows:
(1) General Fund--A Bank must allocate annually at least 50 percent
of its required annual AHP contribution to a General Fund (a mandatory
competitive application program but with significant changes from the
current Competitive Application Program, as further discussed below);
(2) Homeownership Set-Aside Programs--A Bank may allocate annually,
in the aggregate, up to the greater of $4.5 million or 40 percent of
its required annual AHP contribution to Homeownership Set-Aside
Programs (the same optional Homeownership Set-Aside Programs as in the
current regulation but with proposed changes discussed below);
(3) Targeted Funds--A Bank may allocate annually, in the aggregate,
up to 40 percent of its required annual AHP contribution to a maximum
of three Targeted Funds (a new type of optional competitive application
program discussed below).
If a Bank chooses not to establish Homeownership Set-Aside Programs
or Targeted Funds in a given year, it would allocate 100 percent of its
required annual AHP contribution to its General Fund. If a Bank chooses
to allocate the maximum 40 percent to Homeownership Set-Aside Programs,
it could allocate up to 10 percent for Targeted Funds (after allocating
the required 50 percent for the General Fund). If a Bank chooses to
allocate the maximum 40 percent to Targeted Funds, it could allocate up
to 10 percent for Homeownership Set-Aside Programs (after allocating
the required 50 percent for the General Fund).
The proposed rule would provide that a Bank's board of directors
may not delegate to a committee of the board, Bank officers, or other
Bank employees the responsibility for adopting the policies for its
General Fund and any Targeted Funds and Homeownership Set-Aside
Programs established by the Bank. The purpose of this provision is to
encourage increased engagement in the AHP and increased integration of
the Banks' low-income housing and community development activities and
issues, as well as Advisory Council input, into the overall strategic
planning of the Bank. FHFA anticipates the board committee's work to
remain largely the same as it is currently, but also for the full board
to have more engagement with the board committee's recommendations. The
full board could still delegate limited responsibilities to the board
committee for non-strategic types of AHP issues that a board committee
is well suited to address within the parameters of its delegation of
authority, such as project modification requests for AHP subsidy
increases.
The reasons for the proposed AHP funding allocations are discussed
below.
Allocation to General Fund. The proposed rule would reduce the
minimum percentage of a Bank's required annual AHP contribution that
must be allocated annually to the General Fund to 50 percent. All
projects would be eligible to apply for AHP subsidies under the General
Fund, as under the current Competitive Application Program. FHFA
believes that the Banks should be required to continue administering a
competitive application program that attracts numerous applications
that address a broad array of affordable housing needs. The proposed 50
percent threshold would still ensure that at least half of the AHP
funds are made available to address a broad spectrum of affordable
housing needs within the Bank district, while enabling a Bank to
simultaneously target additional specific affordable housing needs in
its district through allocation of up to an additional 40 percent of
the total AHP funds to Targeted Funds or Homeownership Set-Aside
Programs. FHFA considered whether to allow the Banks complete
discretion regarding the allocation of their AHP funds but rejected
this approach for the reasons in the discussion of proposed Sec.
1291.25.
Allocation to Homeownership Set-Aside Programs
Maximum permissible AHP funding allocation. FHFA is proposing to
increase the maximum percentage allocation amount for the Homeownership
Set-Aside Program from 35 to 40 percent, and to retain the alternative
maximum allocation amount at $4.5 million.
The Homeowner Set-Aside Programs have helped expand homeownership
opportunities for very low-, and low- or moderate-income households
since 1995. From 1995 through 2016, the programs provided approximately
$953 million in grants, supporting approximately 167,000 households. In
2016, the 11 Banks, in the aggregate, allocated approximately 27
percent of their total annual required AHP contributions to
Homeownership Set-Aside Programs. A number of Banks consistently
allocate the maximum permissible amount of 35 percent or $4.5 million.
For example, in 2016, four Banks allocated 35 percent, and one Bank
allocated $4.5 million. In 2015, six Banks allocated the maximum
permissible amount. FHFA considered whether to eliminate or raise the
maximum permissible allocation amounts because the demand for set-aside
funds has far exceeded the amount the Banks are currently authorized to
allocate to these programs.
Authorizing the Banks to allocate more funds to Homeownership Set-
Aside Programs would enable the Banks and their members to meet more of
the demand for set-aside funds and to provide more assistance to low-
or moderate-income homebuyers and homeowners, including first-time
homebuyers, than occurs under the Competitive Application Program. The
current regulation allows Banks to establish more than one
Homeownership Set-Aside Program. A number of Banks establish multiple
Homeownership Set-Aside Programs each year to address the homeownership
needs of different populations, such as military veterans or disaster
victims. The proposed changes to the regulation would enable the Banks
to serve even more low- or moderate-income homebuyers and homeowners.
[[Page 11348]]
The Homeownership Set-Aside Programs not only assist low- or
moderate-income households by providing grants for home purchase or
rehabilitation, but assist Bank members by providing them a way to
access a wider customer base and originate new mortgages for low- or
moderate-income households. Member participation in the program can
result in new potential household customers and increased goodwill for
Bank members. Members' participation in the AHP, including the
Homeownership Set-Aside Program, also enables them to receive favorable
consideration under the federal Community Reinvestment Act. Increasing
the maximum permissible percentage allocation could result in more
opportunities for members to fulfill those obligations.
In addition, the lack of a competitive scoring process and minimal
monitoring requirements at subsidy disbursement make the Homeownership
Set-Aside Programs easy to administer and cost-effective. Further, no
long-term monitoring is required because the AHP-assisted households
currently are only subject to five-year retention agreements governing
the sale or refinancing of the home, although determining and managing
the repayments of AHP subsidies by households who sell or refinance
their homes during the five-year period entails some administrative
responsibilities on the Banks and members. As discussed below, FHFA is
proposing to remove the requirement for retention agreements on owner-
occupied units.
Increasing the maximum percentage amount for the Homeownership Set-
Aside Program would enable the Banks to allocate less funds to their
Competitive Application Programs, resulting potentially in less funding
of rental projects, which are funded under those programs. However, in
light of the significant demand for set-aside funds, which exceeds the
current maximum percentage amount, FHFA believes that increasing this
amount would be a reasonable approach to address the demand. As noted
above, one of the main goals of the proposed rule is to enhance the
Banks' ability to target specific housing needs in their districts
through the AHP. Each Bank would weigh the specific homeownership and
rental housing needs in its district and determine what the appropriate
relative funding allocations should be for those needs under its AHP.
FHFA is not proposing to remove the maximum permissible allocation
limits for the Homeownership Set-Aside Program because this could
result in the Banks allocating all of their annual AHP funds to the
Homeownership Set-Aside Program, which would be contrary to the
statutory intent that both homeownership and rental projects be funded.
The proposed rule would continue to require that the Banks allocate the
majority of their total annual AHP funds (at least 60 percent under the
proposed rule) to competitive application programs--the proposed
General Fund and any Targeted Funds, which are likely to be targeted to
more types of housing needs including rental housing. This may ensure
that a significant percentage of AHP funds continue to support rental
projects.\11\ FHFA believes that it is extremely important that a
substantial portion of AHP funds continue to assist in the development
of rental housing for lower income households given the need for more
affordable rental housing throughout the nation.
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\11\ A Bank would be required to allocate at least 50 percent of
its total annual AHP funds to its General Fund, and may allocate up
to 40 percent of its total annual AHP funds to Homeownership Set-
Aside Programs. If the Bank allocates the maximum 40 percent to the
latter programs, then it has 10 percent remaining for allocation to
its General Fund and any Targeted Funds. That amounts to 60 percent
if only a General Fund is established, or 60 percent total for both
the General Fund and any Targeted Funds established.
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FHFA is proposing to retain the existing alternative maximum
allocation amount of $4.5 million because it has enabled smaller Banks,
as well as some larger Banks with lower earnings, to provide more funds
than would be permissible under the maximum percentage limit to their
Homeownership Set-Aside Programs to address district housing needs. For
these Banks, $4.5 million may be greater than 35 or 40 percent. FHFA
analyzed the impact that a proposed increase from 35 to 40 percent
would have on each Bank, using each Bank's annual total AHP funding
allocations for 2016 and 2017, to determine whether revisions to the
$4.5 million limit would be necessary in conjunction with the
percentage increase. FHFA found that the proposed increase from 35 to
40 percent would not have altered the Banks' need for, or use of, the
$4.5 million maximum during those two years. Accordingly, FHFA is not
proposing an increase in the $4.5 million maximum.
One-third first-time homebuyer allocation requirement. The current
regulation also requires that at least one-third of a Bank's aggregate
annual funding allocation to its Homeownership Set-Aside Programs be to
assist first-time homebuyers. The proposed rule would make a technical
revision to clarify that the one-third allocation requirement applies
to the amount of set-aside funds ``allocated'' by the Bank for first-
time homebuyers, not the amount of set-aside funds actually used by
them, because the Bank cannot control whether sufficient numbers of
first-time homebuyers ultimately request set-aside funds in a given
year. If an insufficient number of first-time homebuyers request set-
aside subsidies, a Bank would not be considered in violation of the
allocation requirement as long as it allocated the required amount.
In addition, the proposed rule would make a substantive revision to
the one-third allocation requirement to allow the Banks to include
owner-occupied rehabilitation as a permissible use within the one-third
allocation. FHFA considered whether to eliminate the one-third first-
time homebuyer allocation requirement, which would enable Banks, in
their discretion, to provide additional set-aside funds to households
for owner-occupied rehabilitation. While the Banks currently may
establish specific Homeownership Set-Aside Programs for owner-occupied
rehabilitation using some or all of the remaining two-thirds set-aside
funding allocation, eliminating the one-third first-time homebuyer
allocation would enable allocation of even more set-aside funds for
owner-occupied rehabilitation. A substantial need for owner-occupied
rehabilitation funds exists in many Bank districts, and demand is
likely to increase as the country's population ages.\12\ Expanding the
scope of the one-third allocation requirement to include owner-occupied
rehabilitation could facilitate additional funding for home repairs and
accessibility modifications for households including the elderly,
persons with disabilities, and military veterans.
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\12\ Housing America's Older Adults, Harvard Joint Center for
Housing Studies, September 2, 2014. http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs-housing_americas_older_adults_2014-ch4.pdf.
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While FHFA recognizes the substantial need for more funds for
owner-occupied rehabilitation for low- or moderate-income households,
it is also important that all Banks continue to support the entry of
first-time homebuyers into the homeownership market. The national
homeownership rate has fallen from its peak of 69.2 percent at the end
of 2004 to 63.9 percent as of September 30, 2017.\13\ The
[[Page 11349]]
significant need for funding for first-time homebuyers is demonstrated
by the fact that the Banks consistently have exceeded the one-third
allocation requirement for first-time homebuyers since 1995, the year
Homeownership Set-Aside Programs were first authorized by regulation.
The 11 Banks have provided more than 80 percent of their set-aside
funds each year to first-time homebuyers. In 2016, approximately 90
percent of the households receiving set-aside funds were first-time
homebuyers.
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\13\ Quarterly Residential Vacancies and Homeownership, Third
Quarter 2017, October 31, 2017, U.S. Census Bureau. https://www.census.gov/housing/hvs/files/currenthvspress.pdf.
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Accordingly, rather than eliminating the one-third first-time
homebuyer allocation requirement, the proposed rule would expand the
scope of the requirement to include households for owner-occupied
rehabilitation. While the proposed change could allow a Bank to
allocate its entire one-third allocation to households for owner-
occupied rehabilitation, FHFA believes this is highly unlikely in light
of the Banks' record of allocating most of their set-aside funds to
first-time homebuyers. Notably, in 2016, the Banks allocated only 10
percent of their total set-aside funds for owner-occupied
rehabilitation. The proposed change could encourage Banks to increase
their set-aside funding allocations for owner-occupied rehabilitation,
while continuing their support for first-time homebuyers.
The proposed rule would also provide that a Bank's board of
directors may not delegate to a committee of the board the
responsibility for adopting its Homeownership Set-Aside Program
policies, for the reasons discussed earlier.
Allocation to Targeted Funds. Proposed Sec. 1291.12(c)(1) would
provide the Banks with a new authority to allocate annually, in the
aggregate, up to 40 percent of a Bank's required annual AHP
contribution to a maximum of three Targeted Funds established by the
Bank. Targeted Funds would be administered through a competitive
application scoring process developed by each Bank, pursuant to the
requirements in proposed Sec. 1291.25. The purpose of the Targeted
Funds is to enable a Bank to target specific affordable housing needs
within its district that are either unmet, have proven difficult to
address through the existing Competitive Application Program, or align
with objectives identified in the Bank's strategic plan. Proposed Sec.
1291.12(c)(2) would require the Banks to transfer any uncommitted
Targeted Fund amounts to the General Fund for awards to alternates in
the General Fund in the same calendar year.
Permitting the Banks to establish Targeted Funds would help address
challenges the Banks experience when trying to target specific
affordable housing needs within their districts, especially in a single
AHP funding period. Banks report that the existing regulatory scoring
requirements can affect their efforts to fully address affordable
housing needs within their districts. For example, Banks have indicated
that they would like greater ability to target the affordable housing
needs of specific geographic areas or populations, or to act in
response to a disaster. The use of Targeted Funds focused on a specific
geographic area or population or in response to a disaster could serve
this purpose.
FHFA's regulations require each Bank's board of directors to adopt
a strategic business plan that describes how its business activities
will achieve its mission. The regulations require that each plan
describe how the Bank will maximize activities that further the Bank's
housing finance and community lending mission.\14\ The Banks would be
able to use Targeted Funds to improve their ability to address their
strategic objectives related to affordable housing.
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\14\ 12 CFR 1239.31.
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The current regulation already provides the Banks a degree of
flexibility to address multiple housing priorities within a given AHP
funding period. The Banks can allocate up to 50 points out of a total
of 100 under the Bank First and Second District Priorities to emphasize
multiple housing needs in their districts. However, some Banks have
indicated that they find it difficult to allocate points, test, adjust,
and balance the different scoring criteria in a manner that enables
them to award subsidies to multiple housing priorities in the same
funding period. Establishing a Targeted Fund with a dedicated funding
allocation, for example, to a particular housing need, would guarantee
that projects serving that housing need receive awards pursuant to the
competitive process under that Fund, while other projects would receive
awards under the competitive General Fund, thereby serving multiple
housing needs in the same funding period.
FHFA believes that the use of Targeted Funds would be appropriate
provided they are operated pursuant to a competitive scoring process to
ensure a transparent and objective process for awarding funds. FHFA
also believes that limitations should be imposed on the size of the
Targeted Funds to ensure that funds continue to be available to address
a broad spectrum of affordable housing needs within each district under
the General Fund. Accordingly, the proposed rule would authorize each
Bank to allocate annually up to 40 percent of its total annual AHP
funds to Targeted Funds subject to a phase-in period.
FHFA is mindful that the use of Targeted Funds could introduce new
risks to the Banks given the targeted nature of each Fund. Proposed
Sec. 1291.20(c)(1) would require the Banks adopt and implement
controls for ensuring that each Targeted Fund is designed to receive
sufficient numbers of applicants for the amount of AHP funds allocated
to the Targeted Fund to facilitate a genuinely competitive scoring
process so that specific project sponsors or members are not specially
advantaged. To further address the potential new risks, proposed Sec.
1291.20(b) would authorize each Bank to establish initially only one
Targeted Fund, but would enable the Bank to increase the number of its
Targeted Funds to a maximum of three pursuant to a phase-in period. In
addition, as provided in proposed Sec. 1291.13(a) and (b), a Bank
would not be allowed to establish or administer a Targeted Fund unless
at least 12 months have passed since the publication of the Targeted
Community Lending Plan and the Bank identifies in the Plan the
affordable housing needs to be addressed by that Targeted Fund. This
advance notice would help ensure that the Targeted Fund is designed in
an open and objective manner to generate sufficient interest for
holding a competitive scoring funding round. The advance notice also
may serve to encourage potential sponsors to consider developing
projects that address the affordable housing needs set by the Targeted
Fund and submit applications to the Fund.
Although FHFA is not proposing that the Banks' Targeted Community
Lending Plans be subject to approval by FHFA, FHFA may request that the
Banks submit an advance copy to FHFA before releasing it to the public.
This would provide FHFA an opportunity to review the Plans and provide
comments as needed, particularly in the initial years of the Funds.
Proposed Sec. 1290.6(c) would also require that the Targeted Community
Lending Plans be published on the Banks' public websites, consistent
with current practice at most Banks.
The Banks would identify in their Targeted Community Lending Plans
the specific affordable housing needs, supported by empirical data,
that the Targeted Funds will address. The Banks' AHP Implementation
Plans would describe how the Targeted Funds will address these housing
needs
[[Page 11350]]
through the specific funding allocations and scoring criteria.
FHFA specifically requests comments on the benefits and risks of
allowing the Banks to establish Targeted Funds. FHFA also requests
comments on whether the proposed allocation of 40 percent of total
annual AHP funds to Targeted Funds is an appropriate percentage, or
whether the percentage should be higher or lower.
Acceleration of funding. Current Sec. 1291.2(b)(3) containing the
discretionary authority for a Bank to accelerate future required annual
AHP contributions to its current year's Program would move unchanged to
proposed Sec. 1291.12(d) except for certain clarifying technical
edits.
Proposed Sec. 1291.13 Targeted Community Lending Plan; AHP
Implementation Plan
Targeted Community Lending Plan. The Banks' boards of directors
currently are required to adopt Targeted Community Lending Plans as
part of their community support programs under FHFA's Community Support
regulation. These Plans are focused largely on targeted economic
development needs in the Banks' districts. As discussed, the proposed
rule would amend Sec. 1290.6(a)(5) of the Community Support regulation
\15\ to require the Banks to include in their Plans market research on
affordable housing needs in their districts, and their identification
and assessment of those affordable housing needs that are significant.
The Banks would be required to specify, from among those identified
needs, the affordable housing needs they will address through their
funding allocations and scoring criteria under their General Funds and
any Bank Targeted Funds and Homeownership Set-Aside Programs, as
further discussed under the AHP Implementation Plans below. The
identified needs to be addressed through the Banks' General Funds and
Homeownership Set-Aside Programs must be included in their Targeted
Community Lending Plans at least six months before the beginning of the
Plan year.
---------------------------------------------------------------------------
\15\ See 12 CFR 1290.6(a)(5).
---------------------------------------------------------------------------
In addition, the proposed rule would amend the Community Support
regulation to provide that a Bank's board of directors may not delegate
to a committee of the board, Bank officers, or other Bank employees the
responsibility to adopt or amend the Targeted Community Lending Plan as
previously discussed.
The proposed rule would also make technical changes to the language
in Sec. 1290.6(a)(5) to clarify the Plan requirements.
The proposed changes discussed above would ensure that the Targeted
Community Lending Plans are results-oriented and useful to FHFA in
assessing the Banks' progress towards addressing the housing challenges
of low- or moderate-income households in their districts. The proposed
changes would increase the emphasis on accountability and results in
the Targeted Community Lending Plans.
FHFA specifically requests comments on the benefits of the proposed
expansion of the contents of the Targeted Community Lending Plans and
their linkage to the AHP Implementation Plans. In addition, FHFA
requests comments on whether the proposed expansion of the contents of
the Targeted Community Lending Plans will impede the Banks' ability to
respond to disasters through the AHP.
AHP Implementation Plan
Requirements for each Fund. The current provision containing the
requirements for the Banks' AHP Implementation Plans would move from
Sec. 1291.3 to proposed Sec. 1291.13(b). Currently, each Bank must
include in its AHP Implementation Plan its requirements for its
Competitive Application Program, including its scoring methodology, and
any Homeownership Set-Aside Programs. The proposed rule would require a
Bank to include those requirements in its AHP Implementation Plan for
its General Fund and any Targeted Funds established by the Bank. For a
Targeted Fund, a Bank would also be required to include in its AHP
Implementation Plan controls that ensure the Targeted Fund is designed
to receive sufficient numbers of applicants for the amount of AHP funds
allocated to the Fund to facilitate a genuinely competitive scoring
process, as required in Sec. 1291.20(c)(1).
Linkage to Targeted Community Lending Plan. The proposed rule would
require that a Bank include in its AHP Implementation Plan the specific
funding allocation amounts for its General Fund and any Bank Targeted
Funds and Homeownership Set-Aside Program, including how the one-third
allocation for the Homeownership Set-Aside Program will be apportioned
with respect to first-time homebuyers and households for owner-occupied
rehabilitation. The Banks' scoring criteria for each Fund must flow
logically from the analyses and identified housing needs in the Banks'
Targeted Community Lending Plans, which should lead ultimately to AHP
awards meeting those housing needs.
Applications to multiple Funds. The proposed rule would require a
Bank to include in its AHP Implementation Plan the Bank's policy on how
it will decide under which Fund to approve a project that applies to
more than one Fund and is competitive under all of them, pursuant to
Sec. 1291.24(d).
Optional Bank district eligibility requirements. Consistent with
the existing requirement in Sec. 1291.5(c)(15), the proposed rule
would also provide in the AHP Implementation Plan section of the
regulation (proposed Sec. 1291.13(b)(7)) that a Bank must include in
its AHP Implementation Plan any optional Bank district eligibility
requirements adopted by the Bank pursuant to proposed Sec. 1291.24(c).
Re-use of repaid AHP direct subsidy. The requirement in current
Sec. 1291.3(a)(7) for a Bank to include in its AHP Implementation Plan
its requirements for re-use of repaid AHP direct subsidy, if adopted by
the Bank pursuant to current Sec. 1291.8(f)(2), would be removed.
Repayment of subsidy under Sec. 1291.8(f)(2) depends upon an AHP-
assisted household selling its home during the AHP five-year retention
period, as required under the AHP owner-occupied retention agreement.
As elaborated below under the Agreements section, FHFA is proposing to
remove the owner-occupied retention agreement requirement. Therefore,
there would be no repayment of subsidy by the household and Sec.
1291.8(f)(2) would become moot.
Retention agreements. As noted above, because FHFA is proposing to
remove the owner-occupied retention agreement requirement, the Banks'
requirements for such retention agreements would no longer be required
to be included in the AHP Implementation Plan. The Banks' retention
agreement requirements for rental projects would continue to be
included in the AHP Implementation Plan.
No delegation. Current Sec. 1291.3(a) prohibits a Bank's board of
directors from delegating to Bank officers or other Bank employees the
responsibility to adopt, and make any amendments to, the AHP
Implementation Plan. The proposed rule would also provide that the
Bank's board of directors may not delegate these responsibilities to a
committee of the board.
Proposed Sec. 1291.14 Advisory Councils
The current provisions addressing the membership and duties of the
Banks'
[[Page 11351]]
Advisory Councils would move from Sec. 1291.4 to proposed Sec.
1291.14, with several clarifications.
Representatives from for-profit organizations. The Bank Act
requires that each Bank appoint an Advisory Council of persons drawn
from ``community and not-for-profit organizations'' actively involved
in providing or promoting low- and moderate-income housing in its
district.\16\ Consistent with long-standing agency guidance, the
proposed rule would clarify that ``community organizations'' may
include for-profit organizations.
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\16\ See 12 U.S.C. 1430(j)(11).
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Recommendations on Bank Targeted Community Lending Plans. FHFA's
Community Support regulation requires the Banks to consult with their
Advisory Councils and other groups in developing and implementing their
Targeted Community Lending Plans. See 12 CFR 1290.6(a)(5)(iii).
Proposed Sec. 1291.14(d)(1)(ii)(A) would include the parallel
requirement for the Advisory Councils to provide recommendations to the
Banks on their Targeted Community Lending Plans, and any amendments
thereto.
No delegation. The proposed rule would clarify that a Bank's board
of directors may delegate to a committee of the board, but not to Bank
officers or other Bank employees, the responsibility to appoint persons
as members of the Advisory Council. However, for the reasons discussed
above, the proposed rule would provide that a Bank's board of directors
may not delegate to a committee of the board, Bank officers, or other
Bank employees the responsibility to meet with the Advisory Council at
the quarterly meetings required by the Bank Act.\17\
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\17\ 12 U.S.C. 1430(j)(11).
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Proposed Sec. 1291.15 Agreements
Current Sec. 1291.9 governing the AHP contractual agreements that
must be in place between the Banks and members, and between the members
and project sponsors or project owners, would move to proposed Sec.
1291.15. The proposed rule would make a number of changes and
clarifications to the provisions in this section, as discussed below.
Notice to Bank of LIHTC project noncompliance. Current Sec.
1291.9(a)(5)(ii) requires that members' AHP agreements with project
sponsors state that such parties shall meet the AHP project monitoring
requirements. The AHP monitoring requirements do not require the Banks
to conduct monitoring of AHP projects that received LIHTCs during the
AHP 15-year retention period. Nor are LIHTC project sponsors required
to send reports to the Banks of LIHTC noncompliance. Noncompliance with
LIHTC income-targeting and rent requirements is the same as or
substantially equivalent to noncompliance with AHP income-targeting and
rent requirements. Although LIHTC project noncompliance is rare,
instances of noncompliance with LIHTC income-targeting or rent
requirements can occur during the AHP retention period, which would
mean that the projects' incomes or rents likely are also in
noncompliance with similar AHP requirements. However, the noncompliance
would not come to the attention of a Bank during the AHP retention
period because it is not monitoring the projects.
To address the possibility of such noncompliance by LIHTC projects,
proposed Sec. 1291.15(a)(5)(ii) would require the members' AHP
agreements with LIHTC project sponsors to include a provision requiring
the sponsors to agree to provide prompt written notice to the Bank if
the project is in noncompliance with the LIHTC income-targeting or rent
requirements at any time during the AHP 15-year retention period. A
corresponding requirement that the Bank review such LIHTC project
noncompliance notices received from project sponsors during the AHP
retention period would be included in proposed Sec. 1291.50(c)(1)(ii).
FHFA specifically requests comments on the practicality of this
requirement, and whether it should also be required of project sponsors
in the event of noncompliance by projects with the income-targeting or
rent requirements of the government housing programs discussed under
Monitoring below.
Owner-occupied retention agreements. The proposed rule would
eliminate the requirement in current Sec. 1291.9(a)(7) for a retention
agreement under which AHP-assisted households must repay AHP subsidy to
the Bank if they sell or refinance their homes under certain
circumstances during the AHP five-year retention period. The proposed
rule would also make conforming changes to remove references to the
owner-occupied retention agreements elsewhere in the regulation.
The owner-occupied retention agreement provides, specifically, that
in the event of a sale or refinancing of the home by the AHP-assisted
household during the five-year retention period, an amount equal to a
pro rata share of the AHP subsidy that financed the purchase or
rehabilitation of the unit, reduced for every year the household owned
the unit, shall be repaid by the household to the Bank from any net
gain realized upon the sale or refinancing, unless:
(A) The unit was assisted with a permanent mortgage loan funded by
an AHP subsidized advance;
(B) the unit is sold to a very low-, or low- or moderate-income
household; or
(C) following a refinancing, the unit continues to be subject to a
deed restriction or other legally enforceable retention agreement or
mechanism described in this paragraph.
The purpose of the retention agreement is to discourage
``flipping'' of the home by requiring households to repay AHP subsidy
if they sell the home during the AHP retention period, unless one of
the exceptions applies. The AHP provides subsidies which enable very
low- and low- or moderate-income households to purchase or rehabilitate
their homes and reap the benefits of wealth creation from
homeownership. The AHP subsidy is not intended to be used by investors
or landlords to purchase or rehabilitate and quickly sell homes to take
advantage of rapidly appreciating housing prices in a neighborhood. The
AHP retention agreement requirement is consistent with the retention
agreement requirements of other government housing programs, such as
HUD's HOME Investment Partnerships Program (HOME), for households
receiving subsidy for purchasing or rehabilitating owner-occupied
units.
FHFA recognizes the moral hazard risk that may be associated with
using subsidy intended to provide housing to low- or moderate-income
households to flip properties. However, homes purchased by AHP-assisted
households, by virtue of their low prices, are not typically located in
neighborhoods with rapidly appreciating housing prices that would
encourage flipping, especially given the low amount of AHP subsidy
provided to the households--averaging $6,311 per household in 2016--
although exceptions may exist. Most AHP-assisted households do not sell
their homes during the five-year retention period and, if they do, they
usually sell to another low- or moderate-income household or have no
net gain, so the retention agreement does not apply in most situations,
making its value questionable. Moreover, the underlying policy of the
AHP has always been that the purpose of the AHP subsidy is to enable
low- or moderate-income households to receive the benefits of
homeownership including appreciation in the value of their homes and,
thus, to minimize any AHP subsidy repayments. Repayments of AHP subsidy
may be a financial burden on the households.
[[Page 11352]]
The Banks have also cited the administrative burdens on themselves
and their members of having to obtain and track repayments of generally
very small amounts of subsidy, obtaining the documentation to calculate
whether there is a ``net gain'' on the sale, and determining whether
the subsequent purchaser is a low- or moderate-income household. In
particular, the Banks have noted the complications of trying to
determine the net gain where a household used the AHP subsidy to
rehabilitate its home without an accompanying purchase.
These considerations appear to outweigh the potential for deterring
rare instances of flipping. Accordingly, FHFA is proposing to eliminate
the retention agreement requirement for owner-occupied units. FHFA
specifically requests comments on whether a retention agreement of some
duration is necessary or desirable to ensure that AHP funds are being
used for the statutorily-intended purposes and whether there are viable
ways to deter potential flipping and address moral hazard risks other
than through retention agreements (e.g., a prohibition against flipping
in the AHP subsidy documentation). FHFA also requests comments on
whether the proposed increase in the maximum permissible grant to
households from $15,000 to $22,000 under the Homeownership Set-Aside
Program, discussed below, should impact this decision.
If, based on the comments received and other relevant factors, FHFA
decides to retain an owner-occupied retention agreement requirement in
the final rule, FHFA is raising a number of issues below for
consideration.
Notice to the Bank. FHFA requests comments on whether a retention
agreement, if retained in the final rule, should require that notice of
a sale or refinancing be provided to both the Bank and its designee
(typically the member), rather than to one or the other. This would
facilitate Program operations by giving the Bank simultaneous notice.
Also, it could facilitate repayment of AHP subsidy to the Bank in cases
where a member subsequently fails and is subject to receivership
actions by other federal agencies. Some Banks already require notice to
the Bank.
AHP subsidy repayment calculation. FHFA requests comments on what
subsidy repayment method should be required, if a retention agreement
requirement is retained in the final rule. The current regulation
requires the household to repay a pro rata portion of the subsidy from
any net gain (unless an exception applies), but does not define ``net
gain.'' A majority of the Banks calculate the net gain as the sales
price minus the original purchase price, purchaser and seller paid
costs, and capital improvement costs, and then apply the pro rata
repayment requirement. Other Banks calculate the subsidy repayment
amount using net proceeds identified on the Closing Statement,
deducting the outstanding senior mortgage debt from the sales price,
but adding the full amount of the AHP subsidy originally provided to
the household. The calculation does not credit the household with its
investments (principal payments, down payment, and substantive capital
improvements), meaning there are always net proceeds (i.e., the amount
of the AHP subsidy).
FHFA reviewed the subsidy repayment requirements of other
government housing programs and, in particular, HUD's HOME Investment
Partnership Program (HOME). One approach under this program calculates
net proceeds as the sales price minus outstanding superior debt and
seller paid costs, with the household recovering its entire investment
first from the net proceeds, the Bank then recovering the subsidy on a
pro rata basis, and any remaining net proceeds returned to the
household. FHFA requests comments on the merits and disadvantages of
this approach and the net gain approach discussed above from the
standpoint of the AHP-assisted households and the Banks, and whether
there are other subsidy repayment approaches FHFA should consider if a
retention agreement requirement is retained in the final rule.
Proxies for determining that a subsequent purchaser is low- or
moderate-income. FHFA also requests comments on what approaches should
be specified in the retention agreement, if retained in the final rule,
that would provide a reasonable basis to assume that the subsequent
purchaser of an AHP-assisted unit is likely to be low- or moderate-
income, including proxies that could serve this purpose. The subsequent
purchaser of an AHP-assisted unit is not receiving any AHP subsidy and,
therefore, has no reason or obligation to provide income documentation
to the Bank or member indicating whether it is low- or moderate-income.
This has made it difficult for the Banks and their members to determine
subsequent purchaser incomes in order to apply the subsidy repayment
exception.
FHFA requests comments on what proxies would be reasonable for
assuming a subsequent purchaser's income, including the following:
Certification from the subsequent purchaser or a third party that the
subsequent purchaser's income is at or below the low- or moderate-
income limit; evidence that the subsequent purchaser is receiving
direct homebuyer assistance from another government program with
household income targeting requirements substantially equivalent to
those of the AHP; purchase price of the AHP-assisted unit is less than
the median home price in the area; the AHP-assisted unit is located in
a census tract or block group where at least 51 percent of the
households are low- or moderate-income; or Federal Housing
Administration (FHA) or other underwriting standards indicate that the
income required to purchase the AHP-assisted unit at the purchase price
is low- or moderate-income.
AHP subsidy repayment exception for $1,000 amount. FHFA also
requests comments on whether there should be an exception to subsidy
repayment in the retention agreement, if retained in the final rule,
where the amount of AHP subsidy subject to repayment, after calculating
the net proceeds or net gain, is $1,000 or less.
As discussed above, maintaining a subsidy repayment requirement in
the retention agreement could help deter potential, but rare, flipping
during the retention period. Setting a de minimis threshold of $1,000
may promote the goal of deterring flipping, while at the same time not
financially burdening low- or moderate-income borrowers who may opt to
sell their homes during their retention periods. It would also reduce
the administrative obligations of the Banks and members associated with
calculating and collecting pro rata shares of the AHP subsidies.
Termination of AHP subsidy repayment obligation. FHFA also requests
comments on whether, if a retention agreement requirement is retained
in the final rule, the rule should clarify that the obligation to repay
AHP subsidy to a Bank shall terminate not only after any event of
foreclosure, but also after transfer by deed in lieu of foreclosure,
assignment of an FHA mortgage to HUD, or death of the owner(s) of the
unit, which would be consistent with agency guidance.
Retention agreements for rental projects. The AHP 15-year retention
agreement requirement for rental projects in current Sec. 1291.9(a)(8)
would be retained in proposed Sec. 1291.15(a)(7), with several
proposed changes discussed below. Current Sec. 1291.9(a)(8) provides
that if a rental project is sold or refinanced during the 15-year
retention period, the full amount of the
[[Page 11353]]
AHP subsidy must be repaid to the Bank, unless the project continues to
be subject to a retention agreement incorporating the income-
eligibility and affordability restrictions committed to in the AHP
application for the duration of the retention period, or the households
are relocated under certain circumstances specified in the regulation.
The requirement to repay the full amount of AHP subsidy, instead of a
pro rata amount, is intended to discourage rental projects from being
sold before the end of the retention period and converted to projects
with market rate rents that low- or moderate-income households can no
longer afford.
Notice to the Bank. As with owner-occupied agreements discussed
above, FHFA requests comments on whether the retention agreement for
rental projects should require that notice of a sale or refinancing of
the rental project during the AHP 15-year retention period be provided
to both the Bank and its designee, rather than to one or the other.
This would facilitate Program operations by giving the Bank
simultaneous notice, and could facilitate repayment of AHP subsidy to
the Bank in cases where a member subsequently fails and is subject to
receivership actions by other federal agencies.
Transfer or assignment. Proposed 1291.15(a)(7) would clarify that
the retention agreement would apply not only to a sale of the rental
project, but also to a transfer or assignment of title or deed, during
the retention period, as these forms of conveyance are the functional
equivalent of sales.
Project sponsor qualifications. Current Sec. 1291.5(c)(10)
provides that a project sponsor must be qualified and able to perform
its responsibilities as committed to in the AHP application. Proposed
Sec. 1291.21(b) on eligible applicants would clarify that a project
sponsor includes all affiliates and team members such as the general
contractor.
In addition, the proposed rule would add a requirement in the
Agreements section at proposed Sec. 1291.15(b)(2) that the Bank's AHP
subsidy application or other related form include project sponsor
qualifications criteria that evaluate the ability of the project
sponsor (including all affiliates and team members such as the general
contractor) to perform the responsibilities committed to in the AHP
application. The project sponsor qualifications section of the form
would be required to include a requirement for the project sponsor to
provide certifications or respond to specific questions about whether
the project sponsor (and affiliates and team members such as the
general contractor) have engaged in misconduct as defined and imputed
in FHFA's Suspended Counterparty Program regulation,\18\ or as defined
by the Bank. The Bank's AHP subsidy disbursement or other related form
would also be required to include a requirement for similar
certifications or questions for the project sponsor to complete prior
to each disbursement of AHP subsidy.
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\18\ 12 CFR part 1227.
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The purpose of these requirements is to enable a Bank to identify
any misconduct by the project sponsor so that the Bank can determine
whether it should accept the AHP application or approve requests from
the sponsor for disbursement of AHP subsidy. The proposed rule would
provide that the project sponsor's affiliates and team members such as
the general contractor must also meet the project sponsor qualification
requirements in order for the project sponsor to be eligible for AHP
subsidy.
The Suspended Counterparty Program regulation defines ``covered
misconduct'' generally to mean a conviction or administrative sanction
imposed by a federal agency involving fraud, embezzlement, theft,
conversion, forgery, bribery, perjury, making false statements or
claims, tax evasion, obstruction of justice, or any similar offense, in
connection with a mortgage, mortgage business, mortgage securities, or
other lending product. For AHP project sponsor qualifications purposes,
a Bank may choose to define ``covered misconduct'' more broadly to also
include, for example, convictions or administrative sanctions imposed
by a state agency, pending investigations, noncompliance by the project
sponsor (and affiliates and team members such as the general
contractor) with other funders' requirements, pending claims, pending
litigation, settlements of criminal or administrative charges, or
criminal activity involving financial transactions more generally.
Application to existing AHP projects and units. Current Sec.
1291.9(c) on the application of AHP regulatory amendments to existing
AHP projects would move to proposed Sec. 1291.15(c). Under this
section, the provisions of the AHP regulation, as they may be amended
from time to time, are deemed incorporated into all agreements between
Banks, members, project sponsors, and project owners receiving AHP
subsidies. However, no amendment to the regulation affects the legality
of actions taken prior to the effective date of the amendment. Thus, if
the owner-occupied retention agreements are eliminated in the final
rule, households that currently have such agreements would no longer be
subject to them upon the effective date of the final rule. Where
households repaid AHP subsidy prior to the effective date of the final
rule, they would not be entitled to a refund of their payments because
the final rule would not have retroactive effect.
Proposed Sec. 1291.16 Conflicts of Interest
Current Sec. 1291.10 addressing conflicts of interest by Bank
directors, Bank employees and Advisory Council members would move
unchanged to proposed Sec. 1291.16.
Subpart C--General Fund and Targeted Funds
Proposed Sec. 1291.20 Establishment of Programs
General Fund. Proposed Sec. 1291.20 would replace existing Sec.
1291.5(a) by requiring that instead of establishing a Competitive
Application Program, each Bank would be required to establish a General
Fund pursuant to the requirements of this part.
Targeted Funds. Proposed Sec. 1291.20(b) would provide that a Bank
may establish, in its discretion, a maximum of three Targeted Funds
pursuant to the requirements of this part.
To address the risks of Targeted Funds, given their targeted
nature, the proposed rule would include phase-in requirements for the
Funds. Specifically, unless otherwise directed by FHFA, a Bank would be
permitted to establish:
(1) One Targeted Fund;
(2) Two Targeted Funds to be administered concurrently, provided
that the Bank administered at least one Targeted Fund in any preceding
year; or
(3) Three Targeted Funds to be administered concurrently, provided
that the Bank administered at least two Targeted Funds in any preceding
year.
In addition, as discussed under the funding allocation provisions
in proposed Sec. 1291.12(c)(1) above, the allocations to Targeted
Funds would be subject to phase-in requirements.
Eligibility requirements. As discussed earlier, proposed Sec.
1291.20(c)(1) would require the Bank to adopt and implement controls,
as specified in its AHP Implementation Plan, for ensuring that each
Targeted Fund is designed to receive sufficient numbers of applicants
for the amount of AHP funds allocated to the Targeted Fund to
facilitate a genuinely competitive scoring process.
[[Page 11354]]
In addition, as under the current regulation, a Bank would not be
authorized to adopt additional eligibility requirements for the General
Fund and any Targeted Funds established by the Bank except as
specifically authorized in the regulation.
Proposed Sec. 1291.21 Eligible Applicants
Member applicants. The eligibility requirement for member
applicants in existing Sec. 1291.5(b)(2) would move unchanged to
proposed Sec. 1291.21(a), with the exception that the reference to the
Competitive Application Program would be replaced with references to
the General Fund and any Targeted Funds established by the Bank.
Project sponsor qualifications. The eligibility requirements in
existing Sec. 1291.5(c)(10) for project sponsors applying for AHP
funds in conjunction with members would move to proposed Sec.
1291.21(b), with the addition of the proposed documentation
requirements discussed in the Agreements section above under proposed
Sec. 1291.15(b)(2). The purpose of these requirements is to enable a
Bank to identify any misconduct by the project sponsor so that the Bank
can determine whether it should accept the AHP application or approve
requests from the sponsor for disbursement of AHP subsidy. The proposed
rule would provide that the project sponsor's affiliates and team
members such as the general contractor must also meet the project
sponsor qualification requirements for the project sponsor to be
eligible for AHP subsidy.
Proposed Sec. 1291.22 Funding Periods; Application Process
The funding period and application process requirements in existing
Sec. 1291.5(b)(1), (b)(3), and (b)(4) would move unchanged to proposed
Sec. 1291.22.
Proposed Sec. 1291.23 Eligible Projects
Eligibility requirements. Proposed Sec. 1291.23 would be a new
section setting forth the eligibility requirements for AHP projects,
but comprising a number of existing provisions related to what
constitutes an eligible project in current Sec. 1291.5(c). This
section would include the eligibility requirements for owner-occupied
and rental housing projects, project feasibility, timing of AHP subsidy
use, retention agreements for rental projects, and compliance with fair
housing laws. The existing eligibility requirement for a five-year
retention agreement for owner-occupied projects in Sec.
1291.5(c)(9)(i) would be removed, as discussed earlier.
Tenant income qualification in rental projects. FHFA considered
altering the requirement in current Sec. 1291.5(c)(1)(ii) for tenant
income qualification in rental projects that are occupied at the time
of the application for AHP subsidy. Under the current provision, for
rental projects that are not occupied at the time of application and
are approved for AHP subsidy, the households must have incomes meeting
the income targeting commitments in the approved AHP application upon
initial occupancy of the rental units. For projects involving the
purchase or rehabilitation of rental housing that are occupied at the
time of AHP application, the households must have incomes meeting the
income targeting commitments in the approved AHP application at the
time of the AHP application. The purpose of qualifying current
occupants' incomes at the time of AHP application is to discourage
displacement of occupants whose incomes are higher than the income
commitments in the approved AHP application.
FHFA considered allowing occupied projects to satisfy income
targeting commitments at initial occupancy as with unoccupied projects.
This change would increase the chances of occupied projects scoring
successfully under the AHP where they target lower incomes than the
current income mix of the occupants in the project. This could
encourage more AHP subsidy awards for preservation of affordable rental
housing through purchase or rehabilitation, which is an important
housing priority in many areas. It would also account for tenant moves
during the renovation process and the fact that new residents at
different income levels may occupy the project at initial occupancy,
when the rehabilitation is complete.
At the same time, FHFA is concerned that such a change could
encourage displacement of current occupants whose incomes exceed those
committed to in the approved AHP application because the project
sponsor must meet its income targeting commitments. To mitigate this
concern, proposed Sec. 1291.23(a)(2)(ii) would provide that, in order
for the project to satisfy the income targeting commitments at initial
occupancy, the project must have a relocation plan for those occupants
not meeting the income targeting commitments that is approved by one of
the project's primary funders. In the absence of a relocation plan, the
households in the project must satisfy the income targeting commitments
at the time of AHP application, as required in the current regulation.
FHFA specifically requests comments on how to encourage
preservation of rental projects through the AHP while discouraging
displacement of current occupants with higher incomes, including
whether the proposed requirement for a relocation plan approved by the
primary funder is reasonable.
Proposed Sec. 1291.24 Eligible Uses
Eligible uses of AHP subsidy. Proposed Sec. 1291.24 would group
together a number of provisions in current Sec. 1291.5(c) related to
the eligible uses of AHP subsidy. These include the use of the AHP
subsidy for purchase, construction, or rehabilitation of owner-occupied
or rental housing, the need for AHP subsidy determination, reasonable
project costs determinations, reasonable financing costs
determinations, eligible counseling costs, eligible refinancing,
optional Bank district eligibility requirements, and calculation of the
AHP subsidy.
Prohibited uses of AHP subsidy. Proposed Sec. 1291.24 would also
include the prohibited uses of AHP subsidy set forth in current Sec.
1291.5(c)(16). These prohibited uses are certain prepayment fees, fees
for Bank cancellation of a subsidized advance commitment, and
processing fees charged by members for providing AHP direct subsidies
to a project.
Proposed Sec. 1291.24(b)(4) would add that, consistent with
current practice, capitalized reserves, periodic deposits to reserve
accounts, operating expenses, and supportive services expenses are not
eligible uses of AHP subsidy.
Need for AHP subsidy. The need for AHP subsidy eligibility
requirement in current Sec. 1291.5(c)(2) would move to proposed Sec.
1291.24(a)(3), with clarifying changes. The current regulation requires
that to be eligible for AHP subsidy, rental projects must demonstrate:
(1) A need for the AHP subsidy; (2) developmental and operational
feasibility; and (3) cost reasonableness. The regulation states that
the estimated sources of funds for a project must equal its estimated
uses of funds, as reflected in the project's development budget. Where
the project's uses of funds exceed its sources of funds, the difference
demonstrates a funding gap and a need for AHP subsidy.
Some stakeholders have pointed to the regulatory language, as well
as preamble language from an earlier AHP rulemaking, to support their
contention that, for rental projects, the Banks are only required to
review the project's development budget and not its operating pro forma
in determining its need for AHP subsidy. However, long-standing policy
and practice has been that the Banks review both the project
[[Page 11355]]
development budget and the operating pro forma in determining the
project's need for AHP subsidy.
As a policy matter, it is important for the Banks to review a
rental project's operating pro forma as well as its development budget.
The Bank must review the project's development budget to confirm a
funding gap between the sources and uses of funds. The Bank must review
the project's operating pro forma to assess the reasonableness of cash
flow. A debt coverage ratio or cash flow amount that exceeds the Bank's
feasibility standards can indicate that the project does not need the
full amount of AHP subsidy requested, especially in cases where the
primary funder's requirements or special project circumstances do not
explain or justify the excess.
The following discussion clarifies how the Banks should evaluate
under the proposed rule that a project's cash flow and costs are
reasonable, and how the Banks should perform the need for subsidy
analysis in cases where (1) capitalized reserves exceed a Bank's
project cost guidelines; (2) supportive services are provided; and (3)
the cash flow or debt coverage ratio exceeds a Bank's project cost
guidelines.
Capitalized Reserves in Projects' Development Budgets. Development
budgets frequently include capitalized reserves, although AHP subsidy
may not be used to fund such reserves under the Bank Act and AHP
regulation. At reasonable levels, capitalized reserves are appropriate
to ensure that projects remain viable throughout their AHP 15-year
retention periods. Project development budgets must incorporate all
capitalized costs, including reserves.
When capitalized reserves exceed the project cost guidelines
established by a Bank, the Bank must evaluate the reasonableness of
these reserves. Such analysis includes assessing whether the
capitalized reserves are required by the project's primary funders.
However, the Bank has the discretion to determine that the reserves are
not reasonable even if they are required or permitted by a project's
primary funders.
In very rare instances with non-LIHTC projects, a Bank may allow a
project to exceed the Bank's project cost guidelines for capitalized
reserves even when the primary funders do not require additional
reserves. For LIHTC projects, the limited partnership agreement
typically serves as the final determinant on the maximum allowable
amount of capitalized reserves.
Supportive Services Expenses in Operating Pro Formas. AHP subsidy
may not fund supportive services expenses under the Bank Act and AHP
regulation. As part of the project application review, FHFA expects the
Banks to require a separate supportive services budget that captures
income and expenses for all supportive services activities to ensure
they can be reasonably offered. However, for projects where a
government entity provides operating subsidies that fund both housing
operating costs and supportive services and these operating subsidies
cannot be readily bifurcated, the supportive services income and
expenses should be captured in the project's operating pro forma.
When a project expects to pay for supportive services expenses from
cash flow, the supportive services budget should indicate project cash
flow as the income source. A Bank must review the supportive services
budget to determine whether there is adequate income to pay for the
supportive services.
Cash Flow and Its Impact on Need for AHP Subsidy. In instances
where a project's operating pro forma reflects cash flow or a debt
coverage ratio that exceeds the Bank's feasibility guidelines, the Bank
must assess whether the excess cash flow could have reasonably been
used for debt service on a larger loan and thereby could supplant part,
or all, of the AHP subsidy. FHFA acknowledges that it is difficult for
a completed affordable housing project to obtain an increase in its
debt commitments. In such cases, the Bank should determine if the
project continues to require the full amount of the AHP subsidy and
recapture subsidy as appropriate. A project may exceed a Bank's
feasibility guidelines for cash flow or debt coverage ratio when the
underwriting guidelines of the primary funder of the project require
higher thresholds and the Bank concurs that the requirements are
reasonable or when reasonable written support from the project sponsor
demonstrates that circumstances require additional cash flow or a
higher debt coverage ratio to maintain the operational viability of the
project.
In summary, FHFA proposes to clarify in the regulation that the
Banks must base the need for AHP subsidy determination for rental
projects on both the project's development budget and its operating pro
forma. This will help ensure that projects will not be over-subsidized
through AHP funds.
Sponsor-provided permanent financing to homeowners. The
requirements in current Sec. 1291.5(c)(2)(ii) for sponsor-provided
permanent financing would move unchanged to proposed Sec.
1291.24(a)(3)(ii). The regulation provides that when a Bank determines
the need for AHP subsidy in homeownership projects where the sponsor
extends permanent financing to the homebuyer, the sponsor's cash
contribution (which is included in the project's cash sources of funds)
shall include the present value of any payments the sponsor is to
receive from the buyer, including any cash down payment from the buyer,
plus the present value of any purchase note the sponsor holds on the
unit. If the note carries a market interest rate commensurate with the
credit quality of the buyer, the present value of the note equals the
face value of the note. If the note carries an interest rate below the
market rate, the present value of the note shall be determined using
the market rate to discount the cash flows.
Some stakeholders requested that FHFA remove this provision, citing
the complexity of the calculation. Others suggested that the sponsors
should be treated like revolving loan funds under the regulation, as
their financing model essentially operates as a revolving loan fund. As
further discussed below under proposed Sec. 1291.29, FHFA is
considering undertaking a separate rulemaking for revolving loan funds,
which could include sponsor-provided permanent financing. FHFA
specifically requests comments on whether the current AHP requirements
for sponsor-provided permanent financing are reasonable, including
whether the sponsors have a need for AHP subsidy in light of their
particular financing model, and whether the current method in the
regulation for determining their need for AHP subsidy understates or
overstates the amount of AHP subsidy needed. FHFA also requests
comments on whether sponsors using this financing model should be
considered revolving loan funds and, if so, whether they should be
subject to current or different AHP revolving loan fund requirements.
Optional Bank district eligibility requirements--maximum subsidy
limits. Proposed Sec. 1291.24(c) would retain the provision in current
Sec. 1291.5(c)(15) allowing a Bank, in its discretion, to adopt a
requirement that the amount of AHP subsidy requested for a project does
not exceed limits established by the Bank as to the maximum amount of
AHP subsidy available per member, per project, or per project unit in a
single AHP funding period, with several proposed changes. Any such
eligibility requirements adopted by a Bank would be required to be
included in its AHP Implementation Plan.
Maximum subsidy limit per member each year. The proposed rule would
remove the reference to ``per member
[[Page 11356]]
each year'' as unnecessary because it can be factored into the subsidy
limit per member in a single AHP funding period, especially as no Bank
currently conducts more than one AHP funding period per year.
Maximum subsidy limit per project sponsor. The proposed rule would
revise the regulation to allow a Bank to adopt a maximum subsidy limit
per project sponsor in a single AHP funding period. A Bank might choose
to establish such a limit in order to provide opportunities for smaller
or less experienced project sponsors to compete successfully for AHP
subsidies. On the other hand, a project sponsor limit could prevent
worthy projects developed by larger, more experienced sponsors from
receiving AHP subsidy. FHFA specifically requests comments on the
potential advantages and disadvantages of allowing the Banks to impose
a maximum subsidy limit per project sponsor.
Number of maximum subsidy limits per Fund. Consistent with agency
guidance for the Competitive Application Program, the proposed rule
would provide that a Bank may establish only one maximum AHP subsidy
limit per member, per project, or per project unit for the General Fund
and for each Targeted Fund, which shall apply to all applicants to the
specific Fund. This would also apply to the proposed maximum subsidy
limit per sponsor. The purpose of this requirement is to ensure
consistency, clarity, and a level playing field for all applicants to a
specific Fund, and reduce administrative burden for the Banks in trying
to determine different subsidy limits for different regions or types of
projects.
The proposed rule would further provide that the maximum AHP
subsidy limit per project or per project unit may differ for each Fund.
This is intended to allow the Banks to create maximum subsidy limits
for each Fund that address the specific characteristics of project
applicants for that Fund. For instance, a Bank may want to establish a
higher maximum subsidy limit per project for a Targeted Fund focused on
certain geographies or development types in light of differences in
housing development costs, such as high-cost areas or projects where
most units contain three or more bedrooms to accommodate larger
households.
Applications to multiple Funds--subsidy amount. Proposed Sec.
1291.24(d) would provide that if an AHP application for the same
project is submitted to more than one Fund in the same AHP funding
period, each application must be for the same amount of AHP subsidy.
This would ensure that the project demonstrates the same need for
subsidy in each application. If the project sponsor applied for a
different amount of subsidy in each application, it would raise
questions about whether the project would be over-subsidized if awarded
the higher amount of subsidy.
Proposed Sec. 1291.25 Scoring Methodology
Bank scoring methodology. The proposed rule would revise current
Sec. 1291.5(d) by removing the required scoring framework specified in
the regulation, with its mandatory scoring criteria, minimum scoring
points allocations and related definitions, and requiring each Bank to
devise its own scoring methodology. Each Bank's scoring methodology
would be required to set forth competitive application scoring
criteria, related definitions and point allocations under a 100-point
scale for the Bank's General Fund and any Targeted Fund. The Bank would
be required to score applications received for a particular Fund
pursuant to the applicable scoring methodology for that Fund.
The Bank's scoring methodology may be different for each Fund. The
Bank's scoring criteria for each Fund must be justified in the Bank's
Targeted Community Lending Plan and specified in its AHP Implementation
Plan. The Bank would need to design its scoring criteria and point
allocations to ensure that the Bank will meet the outcome requirements
for the statutory and regulatory priorities under proposed Sec.
1291.48, as further discussed below. Each scoring methodology may
include scoring criteria addressing specific affordable housing needs
in the Bank's district (Bank district priorities) that differ from the
affordable housing needs specified under the statutory and regulatory
priorities, as long as the outcome requirements specified in proposed
Sec. 1291.48 are achieved.
FHFA considered whether to allow the Banks complete discretion to
determine how to allocate and award their AHP funds by removing the
scoring criteria for the current Competitive Application Program and
the current minimum and maximum AHP funding allocation requirements for
that program and the Homeownership Set-Aside Program. While such
discretion might enable the Banks to better target specific affordable
housing needs in their districts, it is not included in the proposed
rule for several reasons.
First, it would allow a Bank to allocate and approve all of its AHP
funds through noncompetitive processes. In contrast, the current
regulation requires each Bank generally to award at least 65 percent of
its total AHP funds through the Competitive Application Program,\19\
which helps ensure access to the limited pool of AHP funds available
each year for a wide variety of applicants. Second, it would allow a
Bank to allocate all of the AHP funds for only one purpose, such as
homeownership or rental housing, which would be inconsistent with the
statute which requires that both homeownership and rental housing be
funded.\20\ Third, it would contravene the statutory requirement that
FHFA establish priorities for the use of the AHP funds, as only the
Banks would be establishing such priorities.\21\
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\19\ As discussed previously, if a Bank with lower earnings
allocates the alternative maximum amount of $4.5 million to its
Homeownership Set-Aside Programs, it may allocate less than 65
percent of its total AHP funds through its Competitive Application
Program.
\20\ 12 U.S.C. 1430(j).
\21\ 12 U.S.C. 1430(j)(9)(B).
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In-district projects. The proposed rule would retain the option
under the Bank First District Priority in current Sec.
1291.5(d)(5)(vi)(L) for a Bank to adopt in its scoring methodology a
scoring criterion for housing located in the Bank's district, but would
provide at proposed Sec. 1291.25(c) that a Bank shall not use the
scoring criterion as a way to exclude all out-of-district projects from
its General Fund. This provision strengthens the statement in the
preamble to the 2006 AHP final rule that a Bank should not use the
scoring criterion in this way by explicitly prohibiting it in the
regulation.
Scoring tie-breaker policy. The proposed rule would require the
Banks to establish scoring tie-breaker policies to address the
possibility of two or more applications receiving identical scores in
the same AHP funding period where there is insufficient AHP subsidy to
approve all of the tied applications. The proposed requirements for the
scoring tie-breaker policies are consistent with guidance FHFA has
provided to the Banks.
Proposed Sec. 1291.26 Approval of AHP Applications
Approvals generally. Consistent with the application approval
requirements in the current regulation, the proposed rule would provide
generally that a Bank's board of directors shall approve (i.e., award)
applications for AHP subsidy under the General Fund and any Bank
Targeted Funds that meet all of the applicable AHP eligibility
requirements, in descending order
[[Page 11357]]
starting with the highest scoring application until the total funding
amount for the particular AHP funding period, except for any amount
insufficient to fund the next highest scoring application, has been
approved.
Alternates. As under the current Competitive Application Program,
for the General Fund, the Bank's board of directors would be required
to approve at least the next four highest scoring applications as
alternates, but in a change from the current regulation, would be
required to fund those alternates within one year of approval if any
previously committed AHP subsidies become available. This is intended
to ensure that Banks award AHP funds to alternates in the General Fund
as opposed to selecting alternates but transferring AHP funds from the
General Fund to the Bank's Homeownership Set-Aside Program or Targeted
Funds instead. The Banks may need to consider selecting more than four
alternates under their General Fund in order to be able to fully commit
any uncommitted funds that transfer from their Targeted Funds to their
General Fund. For any Bank Targeted Funds, the Bank may, in its
discretion, approve alternates.
As discussed above under the scoring tie-breaker policies in
proposed Sec. 1291.25(d), and consistent with current FHFA guidance to
the Banks, where there is insufficient AHP subsidy to approve all tied
applications, the Bank must approve a tied application as an alternate
if it does not prevail under the scoring tie-breaker methodology, or if
it is tied with another application but requested more subsidy than the
amount of AHP funds that remain to be awarded.
Applications to multiple Funds--approval under one Fund. The
proposed rule would provide that if an application for the same project
is submitted to more than one Fund at a Bank in an AHP funding period
and the application scores high enough to be approved under each Fund,
the Bank shall approve the application under only one of the Funds,
which the Bank shall select pursuant to the Bank's policy established
in its AHP Implementation Plan. For example, a Bank's policy could
provide that any project that is competitive in multiple Funds will be
approved under the General Fund.
Re-ranking of scored applications and alternates. To satisfy the
outcome requirements for the statutory and regulatory priorities in
proposed Sec. 1291.48, a Bank would be permitted to deviate from the
normal descending ranking selection order only to the minimum extent
necessary by re-ranking scored applications and alternates meeting the
outcome requirements above the lowest scoring applications and
alternates not meeting the outcome requirements. A Bank would be
required to describe the possibility of re-ranking in its AHP
Implementation Plan.
FHFA specifically requests comments on possible approaches for re-
ranking applications to meet the outcome requirements while at the same
time maximizing the extent to which the highest scoring applications
are approved.
No delegation. The proposed rule would provide that a Bank's board
of directors may not delegate to a committee of the board the
responsibility to approve or disapprove the AHP subsidy applications
and alternates under the Bank's General Fund and any Targeted Funds,
for the reasons discussed above.
Proposed Sec. 1291.27 Modifications of Approved AHP Applications
The provisions for modifications of approved AHP applications would
be moved from current Sec. 1291.5(f) to proposed Sec. 1291.27, and
would include a number of clarifying and other changes.
Approval of modifications. The proposed rule would provide that if
the requirements for a modification (other than a request for AHP
subsidy increase) are satisfied, the Bank must approve the modification
request. This a change from the current regulation which allows for
Bank discretion in approving a modification request. One of the
requirements for approving a modification is that the project, as
modified, must rescore successfully in its original AHP funding period.
If a project rescores successfully and other modification requirements
are satisfied, there should be no reason for the Bank to fail to
approve the modification.
Cure of noncompliance. The proposed rule would add a requirement
that before a Bank may approve a modification request, it must have
first requested that the project cure any AHP noncompliance, and
subsequent to the request, the cure was unsuccessful within a
reasonable period of time. This is consistent with the proposed new
``waterfall'' provisions for remedying project noncompliance discussed
in the Remedial Actions for Noncompliance section. The proposed
waterfall provision would provide that in the event of project
noncompliance, a project must first attempt to cure the noncompliance
within reasonable period of time before the Bank may consider approving
a project modification or recapturing AHP subsidy from the project.
Rescoring of application. The current regulation includes a
requirement that the application, as reflective of the changes
requested, 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. Questions have arisen as to what it means to score high
enough where a Bank also approved applications as alternates during the
original funding period. The proposed rule would clarify that the
application must continue to score as high as the lowest ranking
alternate that was not just selected as an alternate but approved for
funding by the Bank in the application's original funding period.
Good cause. The current regulation also requires that there be good
cause for a modification, with the Bank's analysis and justification
for the modification documented in writing. The proposed rule would
clarify that remediation of project noncompliance is not, in and of
itself, good cause for a modification. There must be some other
reasonable justification for the modification, such as a change in
market conditions, or loss of a major employer in the community, that
makes it difficult to find households at the incomes committed to in
the project's AHP application to occupy the targeted units in the
project. Otherwise, there would be less of an incentive to cure
noncompliance if project sponsors knew they could simply request a
modification of the project terms to no longer be in noncompliance.
The proposed rule would also make technical changes to the language
to clarify any ambiguity about the requirement that requests for
subsidy increase modifications must also meet the requirements for
approval in paragraph (a) of this section.
Proposed Sec. 1291.28 Procedures for Funding
The procedures for AHP funding would carry over from existing Sec.
1291.5(g) to proposed Sec. 1291.28 with two proposed changes.
Notification under subsidy re-use programs. Current Sec.
1291.5(g)(6) requiring project sponsor notification to the Bank and
member of the reuse of repaid AHP direct subsidy where the Bank has
authorized a subsidy re-use program under Sec. 1291.8(f)(2) would be
removed. Subsidy re-use programs would no longer be operable if subsidy
repayment obligations are removed in conjunction with discontinuation
of the owner-occupied retention agreements.
[[Page 11358]]
Bank board duties and delegation. Current Sec. 1291.5(h)
addressing Bank board duties and delegations would be removed as the
duties and delegations would be addressed elsewhere in the proposed
rule.
Proposed Sec. 1291.29 Lending and Re-Lending of AHP Direct Subsidy by
Revolving Loan Funds
Current Sec. 1291.5(c)(13) addressing the requirements for lending
and re-lending of AHP direct subsidies by revolving loan funds would
move to proposed Sec. 1291.29, with proposed changes related to the
proposed elimination of the owner-occupied retention agreement
requirement and other issues discussed below.
The authority for the Banks to provide AHP direct subsidies to
revolving loan funds for purposes of lending and re-lending was added
in the AHP regulation in 2006. The revolving loan fund provisions were
designed for distinct projects in specific locations, or for pipelines
of expected projects meeting specific criteria that the revolving loan
fund anticipates funding and that would be specified in its AHP
application. Under the regulation, the revolving loan fund may be
scored on the specific criteria it establishes in its AHP application
for its pipeline of projects, without having to actually identify
specific projects in the AHP application.
These types of revolving loan funds that were expected to be able
to participate in the AHP either no longer exist or have evolved into
different financing models. Current revolving loan funds are financing
programs that utilize interest and principal payments on current loans
to make new loans. The sources and uses of revolving loan funds are
typically hypothetical in nature, based on future lending expectations,
and the prospective households requiring assistance are yet to be
determined. Revolving loan funds have faced challenges meeting certain
AHP eligibility requirements, such as the subsidy repayment requirement
under the five-year owner-occupied retention agreement, and receiving
sufficient numbers of points under certain scoring criteria to receive
an AHP award for purposes of lending and re-lending the grant.
Revolving loan funds have received AHP grants for use as a one-time
pass-through to identified projects, not for lending and re-lending of
the subsidy to such projects or anticipated future projects.
To address these challenges, FHFA is considering undertaking a
separate rulemaking on the current AHP revolving loan funds provisions.
FHFA requests comments on the current AHP revolving loan fund
provisions and how the financing mechanisms of revolving loan funds
could be used successfully with AHP subsidies. FHFA specifically
requests comments on why certain AHP scoring criteria have been
difficult to meet, how the AHP retention periods could be satisfied,
how AHP subsidy would be repaid in the event of project noncompliance,
and how the revolving loan fund can demonstrate a need for the AHP
subsidy. FHFA also requests comments on whether and how the proposed
outcome requirements for the statutory and regulatory priorities
discussed under proposed Sec. 1291.48 might facilitate use of AHP
subsidies by revolving loan funds.
The proposed rule would eliminate the requirement for retention
agreements for all owner-occupied units, including those funded by
revolving loan funds. FHFA specifically requests comments on the
potential positive or negative impacts of eliminating the owner-
occupied retention agreement requirement for revolving loan funds.
Proposed Sec. 1291.30 Use of AHP Subsidy in Loan Pools
Current Sec. 1291.5(c)(14) addressing the requirements for use of
AHP subsidies in loan pools would move to proposed Sec. 1291.30, with
the proposed change to remove the requirement for owner-occupied
retention agreements in current paragraph Sec. 1291.5(c)(14)(iii).
The authority for the Banks to provide AHP subsidy to loan pools
was added in the AHP regulation in 2006. The regulation establishes
specific conditions under which a Bank may provide AHP subsidies under
its Competitive Application Program for the origination of first
mortgage loans or rehabilitation loans with subsidized interest rates
to AHP-eligible households through a purchase commitment by an entity
that will purchase and pool the loans.
FHFA is not aware that any loan pools meeting these conditions have
applied for AHP subsidy since the regulatory authority was added in
2006. FHFA is also unaware of any loan pools of this type currently
existing in the housing market. Therefore, FHFA is considering removing
the loan pool provisions from the regulation. FHFA specifically
requests comments on whether there are loan pools currently operating
in the market that meet the conditions in the regulation, how the loan
pools are addressing current housing market needs, and the potential
positive or negative impacts of eliminating the owner-occupied
retention agreement requirement for loan pools.
Subpart D--Homeownership Set-Aside Programs
Proposed Sec. 1291.40 Establishment of Programs
The current provision addressing Bank establishment of
Homeownership Set-Aside Programs would move from Sec. 1291.6(a) to
proposed Sec. 1291.40. The proposed rule would emphasize that these
programs are optional by adding that a Bank may establish such programs
``in its discretion.'' The proposed rule would also include a
requirement that a Bank's justifications for establishing such programs
be included in its Targeted Community Lending Plan, as provided in
proposed Sec. 1291.13(a).
Proposed Sec. 1291.41 Eligible Applicants
The proposed rule would move the current provision on applications
from members unchanged from Sec. 1291.6(b) to proposed Sec. 1291.41.
Proposed Sec. 1291.42 Eligibility Requirements
The provisions in current Sec. 1291.6(c) on eligibility
requirements would move to proposed Sec. 1291.42, with several
proposed changes discussed below.
Adoption of additional eligibility requirements. FHFA has provided
informal guidance to Banks about the extent to which the Banks may
adopt eligibility requirements under their Homeownership Set-Aside
Programs beyond those set forth in this section. Consistent with the
guidance, the proposed rule would clarify that the Banks may not adopt
additional eligibility requirements under their Homeownership Set-Aside
Programs except those related to household eligibility, pursuant to
proposed Sec. 1291.42(b)(3).
One-third allocation requirement--first-time homebuyers and owner-
occupied rehabilitation. As discussed in the funding allocation section
under proposed Sec. 1291.12(b) above, the current regulation requires
that at least one-third of a Bank's annual Homeownership Set-Aside
Program funding allocation be for first-time homebuyers. The proposed
rule would authorize the Banks to include first-time homebuyers and
households receiving set-aside funds for owner-occupied rehabilitation
in the one-third allocation. Conforming language for households
receiving set-aside funds for owner-occupied rehabilitation would be
added in this section of the proposed rule.
[[Page 11359]]
Maximum grant amount. Current Sec. 1291.6(c)(3) states that
members may provide set-aside grants to households in an amount up to a
maximum of $15,000 per household, as established by the Bank in its AHP
Implementation Plan, which limit shall apply to all households. The
proposed rule would authorize the Banks to provide up to $22,000 per
household, subject to automatic annual upward adjustment in accordance
with FHFA's Housing Price Index (HPI).
The purpose of the proposed increase in the subsidy limit is to
respond to increases in the costs associated with buying or
rehabilitating homes in high cost areas, as well as the high costs of
certain types of rehabilitation generally. It would also bring the
subsidy limit in line with changes in the HPI since 2002, when the
$15,000 subsidy limit was established in the regulation. For example,
the HPI shows that $15,000 in January 2002 has approximately the same
buying power as $21,500 today.\22\ The proposed rule would also clarify
that a Bank may establish a different maximum subsidy per household
limit for each Homeownership Set-Aside Program it establishes.
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\22\ See FHFA HPI, https://www.fhfa.gov/DataTools/Downloads/pages/house-price-index.aspx.
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Many of the Banks have set their subsidy limits below $15,000, with
a number of Banks at $5,000. In 2016, the average set-aside grant per
household was $6,311. Several stakeholders recommended that FHFA
increase the subsidy limit due to increases in the costs associated
with buying or rehabilitating homes in high cost areas, which in some
areas are substantially higher than the rest of the country. Banks
located in high cost areas are more likely to take advantage of a
higher subsidy limit because of the higher costs in their districts.
Increasing the subsidy limit could also have a significant impact
on housing rehabilitation in all districts. The demand for
rehabilitation is likely to increase as the country's population
ages.\23\ Expenses for certain types of rehabilitation, such as
replacing a roof, windows, doors, or HVAC system, or installing a
wheelchair ramp, often exceed $15,000. The older a home, the more
likely it needs repairs and systems replaced. According to the U.S.
Census Bureau, 18.7 percent of all housing units in the United States
were built before 1950 and are, therefore, more likely to require
rehabilitation.\24\ A higher subsidy limit would increase the Banks'
ability to address high costs associated with buying and rehabilitating
homes. While lower subsidy limits help ensure that more households have
access to set-aside subsidies, the households may need to find
additional sources of funds to help them pay for the full costs
associated with buying or rehabilitating a home.
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\23\ Housing America's Older Adults, Harvard Joint Center for
Housing Studies, September 2, 2014. http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs-housing_americas_older_adults_2014-ch4.pdf.
\24\ See U.S. Census Bureau, 2015 American Community Survey,
https://www.census.gov/programs-surveys/ahs/.
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Bank adoption of the proposed higher subsidy limit could result in
fewer households receiving set-aside subsidies, but Banks could choose
to offset this by increasing the maximum amount of AHP funds they
allocate to their set-aside programs from 35 to 40 percent, as would be
permitted under the proposed rule. In addition, most Banks have
established subsidy limits below the current $15,000 limit. Thus, FHFA
believes that an increase in the subsidy limit to $22,000 is not likely
to result in a significant overall reduction in the number of
households assisted by the Banks under their set-aside programs.
The proposed rule would provide that the $22,000 subsidy limit
would be subject to an automatic annual upward adjustment only, in
accordance with the HPI. As noted above, the current $15,000 subsidy
limit was established in the regulation in 2002. The regulation does
not provide for an automatic HPI adjustment. Increasing the subsidy
limit to $22,000 would reflect increases in the HPI since that time.
Rather than periodically revise the subsidy limit by regulation to
account for future housing price increases, the proposed rule would
provide for automatic HPI upward adjustments to the subsidy limit. The
subsidy limit would adjust upward, but not downward, in response to
changes in the HPI. In the event of a decrease in the HPI, the subsidy
limit would remain at its then-current level until the HPI increased
above the subsidy limit, at which point the subsidy limit would adjust
to that higher level. FHFA would notify the Banks annually of the
maximum subsidy amount based on the HPI.
FHFA specifically requests comments on any potential positive and
negative impacts of increasing the subsidy limit from $15,000 to
$22,000, including whether the subsidy limit should be higher or lower.
FHFA also requests comments on use of the HPI to automatically adjust
the subsidy limit upward over time, and whether other housing price
adjustment indices would be preferable and why.
Proposed Sec. 1291.43 Approval of AHP Applications
Current Sec. 1291.6(d) would move unchanged to proposed Sec.
1291.43. It provides that a Bank shall approve applications for AHP
direct subsidy under its Homeownership Set-Aside Program in accordance
with the Bank's criteria governing the allocation of funds.
Proposed Sec. 1291.44 Procedures for Funding
Current Sec. 1291.6(e) on the procedures for funding would move
unchanged to proposed Sec. 1291.44.
Subpart E--Outcome Requirements for Statutory and Regulatory Priorities
Proposed Sec. 1291.48 Outcome Requirements for Statutory and
Regulatory Priorities
The current regulation's point-based project selection system
serves as a means of ensuring that project awards reflect housing
priorities established by the Bank Act.\25\ The regulation achieves
prioritization of these statutory priorities by requiring each Bank, in
developing its 100-point scoring system, to allocate at least 5 points
each to two statutory priorities--a combined 10 points minimum.\26\ The
Bank Act also requires that FHFA establish priorities for the use of
the AHP funds.\27\ To implement this requirement, the current
regulation includes five regulatory priorities addressing specific
housing needs, with each such scoring criterion required to receive a
minimum of 5 points, except for one scoring criterion receiving a
minimum of 20 points--a combined 40 points minimum. The remaining
maximum of 50 points are allocated by the Banks to priority housing
needs in the Banks' district that are selected by the Banks.
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\25\ 12 U.S.C. 1430(j)(3).
\26\ 12 CFR 1291.5(d)(5)(i), (ii).
\27\ 12 U.S.C. 1430(j)(9)(B).
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There are a number of benefits associated with the current scoring
system. It establishes a degree of uniformity among various scoring
criteria that all of the Banks must include, thereby prioritizing
certain pressing affordable housing needs existing throughout the
country, and facilitating project sponsors' applications for AHP
subsidy at multiple Banks. In addition, it provides flexibility for the
Banks in how they allocate the points beyond the required minimums to
target specific housing needs in their districts, the ability to
[[Page 11360]]
choose which types of populations to target within certain scoring
criteria, and the ability to include other district housing needs
selected by the Banks, which may be allocated up to half of all points.
After considering input from Bank CIOs and stakeholders, FHFA
believes that the Banks may be able to more effectively target specific
housing needs in their districts through a more flexible scoring
system. FHFA considered how to incorporate in the regulation greater
flexibility for the Banks to design their own scoring systems, while at
the same time to ensure that FHFA is establishing priorities for the
use of the AHP funds as required by the statute. FHFA believes that the
proposed rule would achieve an appropriate balance between these two
objectives by authorizing the Banks to design their own scoring
systems, subject to each Bank's AHP awards under its scoring system
meeting specific outcome requirements established by FHFA in the
regulation. The Banks would be required to demonstrate satisfaction of
the outcome requirements each year. FHFA notes that comparable housing
programs (e.g., HUD's HOME Investment Partnerships Program and Housing
Opportunities for Persons with HIV/AIDS) are administered pursuant to
outcome-based evaluation criteria. The proposed AHP outcome
requirements are further discussed below.
Statutory Priorities for Government Properties and Project Sponsorship
Proposed Sec. 1291.48(a) would require that, each year, each Bank
must award at least 55 percent of the total AHP funds allocated to its
General Fund and any Bank Targeted Funds to projects that meet the
priority for the use of donated or conveyed government-owned or other
properties (``government properties priority''), or the priority for
projects sponsored by a not-for-profit organization or government
entity (``project sponsorship priority''). These priorities, which
correspond to those established by the Bank Act,\28\ would be retained
unchanged from current Sec. 1291.5(d)(5)(i), (ii). While certain
projects may meet both of these priorities, any awards counted towards
meeting one of the priorities could not also be counted towards meeting
the other priority, in order not to distort the calculation of the 55
percent.
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\28\ 12 U.S.C. 1430(j)(3)(B), (C).
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Under the proposed standard, a Bank could satisfy the outcome
requirement if it awarded 55 percent or more of total funds to projects
meeting one of the priorities, and none to the other priority. FHFA
considered requiring a Bank to award a specified minimum percentage of
total funds to each priority. However, in the Program's experience, a
relatively limited number of projects satisfy the government properties
priority. During the period 2012 through 2016, for example, only 2.5
percent of total AHP funds were awarded to projects that used
properties meeting the government properties priority. Most AHP
projects currently meet the project sponsorship priority. Accordingly,
FHFA expects that the overwhelming majority of projects that would
satisfy the proposed outcome requirement would do so by meeting the
project sponsorship priority.
FHFA also considered requiring a Bank to award at least 55 percent
of its required annual AHP contribution (which includes the funds
allocated not only to its General Fund and any Bank Targeted Funds but
also to any Bank Homeownership Set-Aside Programs) to these two
statutory priorities. FHFA anticipates that most Banks will take
advantage of the opportunity to expand their allocations of AHP funds
to their Homeownership Set-Aside Programs if the proposed increase in
the annual set-aside allocation from 35 to 40 percent is adopted in the
final rule. However, grant recipients under the Homeownership Set-Aside
Program are households, not project sponsors, and therefore cannot meet
the project sponsorship priority. In addition, the households generally
do not purchase government properties. Thus, funds awarded under
Homeownership Set-Aside Programs generally could not be counted towards
meeting these statutory priorities. To enable the Banks to take full
advantage of the proposed higher set-aside allocation, the proposed
rule would limit this proposed outcome requirement to 55 percent of
total funds allocated to the General Fund and any Bank Targeted Funds.
Statutory Priority for Purchase of Homes by Low- or Moderate-Income
Households
Proposed Sec. 1291.48(b) would require that, each year, each Bank
must award at least 10 percent of its annual required AHP contribution
to low- or moderate-income households, or to projects targeting such
households, for the purchase by such households of homes under any or
some combination of the Bank's General Fund, any Bank Targeted Funds,
and any Bank Homeownership Set-Aside Programs. This is consistent with
the priority in the Bank Act for the purchase of homes by low- or
moderate-income families (``home purchase priority'').\29\
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\29\ 12 U.S.C. 1430(j)(3)(A).
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Based on the Banks' widespread use of Homeownership Set-Aside
Programs since their authorization, the home purchase priority has been
consistently prioritized by the Banks, and FHFA expects this to
continue given the continuing and significant demand by households for
set-aside funds for home purchases. However, because the establishment
of Homeownership Set-Aside Programs is optional for the Banks, and
under the proposed regulatory priorities outcome requirements discussed
below, a Bank would have discretion not to choose home purchase as a
housing need in its scoring system, the proposed rule would require
that at least 10 percent of a Bank's annual required AHP contribution
be awarded to home purchases by low- or moderate-income households.
FHFA specifically requests comments on whether 10 percent of a
Bank's annual required AHP contribution constitutes sufficient
prioritization for the home purchase priority or whether the percentage
should be higher or lower.
Regulatory Priority for Very Low-Income Targeting for Rental Units
The proposed rule would establish an outcome requirement for a
regulatory priority for very low-income targeting for rental units.
Proposed Sec. 1291.48(c) would provide that, each year, each Bank must
ensure that at least 55 percent of all rental units in rental projects
receiving AHP awards under the Bank's General Fund and any Bank
Targeted Funds are targeted to very low-income households (households
with incomes at or below 50 percent of AMI). Targeting for very low-
income renters is prioritized in the current regulation through the
income-targeting scoring criterion.\30\ The proposed rule would
maintain a priority for such households through this proposed income-
targeting outcome approach.
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\30\ 12 CFR 1291.5(d)(5)(iii).
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FHFA specifically requests comments on the utility of this proposed
outcome approach, including whether the proposed 55 percent threshold,
applicability solely to rental units, and income-targeting at 50
percent of AMI are appropriate.
[[Page 11361]]
Regulatory Priorities for Underserved Communities and Populations;
Creating Economic Opportunities; and Affordable Housing Preservation
Proposed Sec. 1291.48(d) would establish outcome requirements for
three regulatory priorities for housing needs that FHFA considers
current and pressing throughout the country. These regulatory
priorities are underserved communities and populations; creating
economic opportunities; and affordable housing preservation. The
proposed outcome requirements for these regulatory priorities would
satisfy the statutory requirement that FHFA establish priorities for
the use of the AHP funds. Each regulatory priority would comprise a
number of specified housing needs identified by FHFA, some of which are
in the current regulation. FHFA could also identify other specific
housing needs under the regulatory priorities by separate guidance, as
new housing needs arise.
The proposed rule would provide that, every year, each Bank shall
ensure that at least 55 percent of the Bank's required annual AHP
contribution is awarded under the Bank's General Fund and any Bank
Targeted Funds to projects that, in the aggregate, meet at least two of
the three regulatory priorities by meeting one or more of the specified
housing needs included under the regulatory priority, and awarding at
least 10 percent of the funds to projects meeting each of such
regulatory priorities. If an awarded project meets more than one of the
regulatory priorities, it may be counted towards meeting only one of
them. If an awarded project meets more than one specified housing need
under a regulatory priority, it may be counted towards meeting only one
of those housing needs. In addition, an award to a project may not be
counted towards meeting a regulatory priority unless the specified
housing need that it meets is identified in the Bank's Targeted
Community Lending Plan as an affordable housing need the Bank indicated
it would address through its AHP scoring criteria.
The specified housing needs proposed under each regulatory priority
are described below.
1. Underserved Communities and Populations
Housing for Homeless Households
The current regulation includes housing for homeless households as
a mandatory scoring criterion. The proposed rule would retain this
housing need under this proposed regulatory priority, but increase the
minimum threshold for the number of units reserved for homeless
households from 20 to 50 percent to encourage projects dedicated to
serving the needs of homeless households. FHFA specifically requests
comments on whether this proposed increase is appropriate.
Housing for Special Needs Populations
The current regulation includes housing for special needs
populations as one of the eligible housing needs under the Bank First
District Priority. The proposed rule would retain this housing need
under this proposed regulatory priority, with the following changes.
The proposed rule would include only projects that provide supportive
services or access to supportive services for the specific special
needs populations being served.
These populations have special needs associated with their
particular life circumstances that could be addressed by targeted
supportive services. Research by the Corporation for Supportive Housing
estimates that 1.1 million homes are required for people with special
needs, not including the need for units for households experiencing
homelessness.\31\ The proposed rule also would increase the minimum
threshold for the number of units reserved for households with a
specific special need from 20 to 50 percent to encourage projects
dedicated to serving these populations. FHFA specifically requests
comments on whether this proposed increase is appropriate.
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\31\ http://www.csh.org/wp-content/uploads/2016/10/Total-10-12-16.pdf.
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The proposed rule would continue to include the elderly, persons
recovering from physical abuse or alcohol or drug abuse, persons with
AIDS, persons with disabilities, and housing that is visitable by
persons with physical disabilities who are not occupants of such
housing as special need populations. The proposed rule would expand the
list of special needs populations to include formerly incarcerated
persons; victims of domestic violence, dating violence, sexual assault
or stalking; and unaccompanied youth. These populations could
particularly benefit from housing with supportive services targeted to
address their specific needs.
In addition, the proposed rule would update the reference to
``persons with AIDS'' to ``persons with HIV/AIDS'' to more closely
align it with common nomenclature and in recognition of the fact that
persons with HIV experience comparable housing needs to persons with
AIDS. The term ``mentally or physically disabled persons'' in the
current regulation would similarly be updated to ``persons with
disabilities,'' to reflect more commonly acceptable terminology.
Housing for Other Targeted Populations
The proposed rule would also include housing for other targeted
populations under this proposed regulatory priority. In contrast to
housing for special needs populations, this housing need would include
housing that does not necessarily provide supportive services or access
to supportive services, as there are specific populations in need of
housing who may not require such services. The proposed rule would
include as other targeted populations--agricultural workers, military
veterans, persons with disabilities, Native Americans, multi-
generational households, and households requiring large units. The
proposed rule would set the minimum threshold for the number of units
reserved for such targeted populations at 50 percent to encourage
projects dedicated to serving the needs of these populations. FHFA
specifically requests comments on whether the proposed minimum 50
percent threshold is appropriate.
The inclusion of agricultural workers and Native Americans would
align with other FHFA goals and programs, specifically, FHFA's Duty to
Serve regulation that applies to Fannie Mae and Freddie Mac, under
which agricultural workers and Native Americans are identified as high-
needs rural populations.\32\ Agricultural workers face significant
housing challenges due in large part to their low income levels.\33\
Migrant and seasonal agricultural workers often have difficulty finding
adequate housing and are likely to live in over-crowded conditions.\34\
Native Americans also have significant housing needs. According to the
U.S. Interagency Council on the Homeless, nearly one in
[[Page 11362]]
five people residing on tribal lands live in overcrowded conditions.
Native Americans also disproportionally live in shelters relative to
their population size.\35\
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\32\ See generally, 12 CFR part 1282.
\33\ Sixteen percent of workers earned less than $10,000 from
agricultural employment during the previous calendar year, 33
percent had earnings of $10,000 to $19,999, 22 percent earned 20,000
to 29,999, and eight percent earned $30,000 or more. Sixteen percent
of respondents reported no income from agricultural employment the
previous year. See https://www.doleta.gov/naws/pages/research/docs/NAWS_Research_Report_12.pdf.
\34\ Crowding is often an issue within agricultural worker
housing, as an estimated 31 percent of non-dormitory/barrack-style
farmworker housing units are crowded--meaning there is more than one
occupant per room, excluding bathrooms. This estimate is over six
times the national rate of crowded housing units. Agricultural
workers and their families are also more likely to encounter
pesticide-related environmental hazards when compared to other
populations. http://www.ruralhome.org/storage/documents/farmworkers.pdf.
\35\ https://www.usich.gov/resources/uploads/asset_library/Expert_Panel_on_Homelessness_among_American_Indians%2C_Alaska_Natives%2C_and_Native_Hawaiians.pdf.
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Persons with disabilities would be included as other targeted
populations in recognition of the benefits that features such as
wheelchair-accessibility and enhancements for people with visual or
hearing impairments can provide so that persons with disabilities can
live independently.
Military veterans would be included as other targeted populations
due to their significant housing needs. The Veterans Administration's
January 2017 Point in Time counted over 40,000 veterans who were
experiencing homelessness on a single night in January 2017. Further,
there has been a 1.5 percent increase in the estimated number of
homeless veterans nationwide since 2016.\36\
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\36\ https://www.va.gov/HOMELESS/pit_count.asp.
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Households requiring large units would be included as other
targeted populations in light of the scarcity of affordable 3-, 4- and
5-bedroom unit apartments required to adequately house large
households, for example, families with more than three children or with
several related adult members.
Finally, multi-generational households would be included as other
targeted populations because of their special housing needs. For
example, grandparents raising grandchildren may benefit from housing
that includes features of elderly projects (such as handrails in
bathrooms and hallways) as well as features of family housing (such as
outdoor play spaces).
Housing in Rural Areas
The current regulation includes housing in rural areas as one of
the eligible housing needs under the Bank First District Priority, and
the Banks have discretion to define ``rural area.'' The proposed rule
would retain this housing need under this regulatory priority, but
would define ``rural area'' according to the definition in FHFA's Duty
to Serve regulation in order to align with other FHFA goals and
programs.\37\ Rural populations generally experience significant and
particularized housing needs. According to data in the Housing
Assistance Council's Rural Data Portal, the poverty rate for
individuals in rural areas is 17.7 percent, compared to 15.4 percent
for individuals in the United States as a whole.\38\ The Harvard Joint
Center for Housing Studies' report, America's Rental Housing 2017,
notes that despite the fact that housing costs tend to be lower in
rural areas, 40 percent of rural renters across the country are cost
burdened.\39\
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\37\ 12 CFR 1282.1.
\38\ http://www.ruraldataportal.org/search.aspx.
\39\ http://www.jchs.harvard.edu/americas-rental-housing.
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Rental Housing for Extremely Low-Income Households
The proposed rule would include rental projects in which at least
20 percent of the units are reserved for extremely low-income
households under this proposed regulatory priority. A definition of
``extremely low-income household'' would be added in Sec. 1291.1 to
mean a household with an income at or below 30 percent of AMI.
According to HUD's 2017 Worst Case Housing Needs Report to Congress,
households at the extremely low-income level have severe challenges in
obtaining affordable housing. The report notes that only 38 of every
100 affordable units are available for extremely low-income renters,
and that the vacancy rate for units affordable to renters with
extremely low incomes was less than 4 percent.\40\
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\40\ See https://www.huduser.gov/portal/sites/default/files/pdf/Worst-Case-Housing-Needs.pdf.
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This housing need would be measured in dollars awarded to AHP
projects in which at least 20 percent of the units are reserved for
extremely low-income households to conform to the other housing needs
under this proposed regulatory priority, which are also measured in
dollars. In contrast, the regulatory priority in proposed Sec.
1291.48(c) for very low-income targeting for rental units, described
above, would be measured in the number of rental units reserved for
very low-income households. FHFA specifically requests comments on
whether the proposed 20 percent minimum threshold for units reserved
for extremely low-income households is appropriate.
2. Creating Economic Opportunity
Promotion of Empowerment
The current regulation includes promotion of empowerment as a
mandatory scoring criterion. The proposed rule would retain this
housing need under this proposed regulatory priority, with the
following changes. The proposed rule would add to the list of
empowerment services--child care; adult daycare services; afterschool
care; tutoring; health services; and workforce preparation and
integration.
The current regulation includes daycare as an eligible empowerment
service. The proposed rule would replace daycare with child care, which
encompasses daycare but is broader in that it includes programs offered
not only during the day but outside of work hours and during summers,
and programs that target older children. Residents of AHP projects may
benefit from having such programs for their children depending on their
work schedules and other commitments, thereby enabling them to work and
improve their economic situations. Where child care programs are
education-based, they may enhance the future economic opportunities of
the children residing in AHP projects.
The proposed rule would add adult daycare services as an eligible
empowerment service. These services can assist residents in AHP
projects who may be caring for parents, or adult children with
disabilities, who require supervised care so that the residents may
work outside of the home.
Afterschool care would be added as an eligible empowerment service
in recognition of the benefits of supervised afterschool programs for
children and teens residing in AHP projects. For example, these
programs may increase younger residents' future economic opportunities
by assisting with schoolwork, encourage interest in the arts or
community service, or teach job skills. Further, adult residents may
benefit from the knowledge that their children are supervised in the
hours before they return from work.
Tutoring would be included as an eligible empowerment service in
light of the benefits that supplemental academic assistance may provide
to children and teens for educational attainment. Tutoring may also be
beneficial to adult residents who require tutoring in basic remedial
education or English for limited-English-proficiency residents, for
example, in order to obtain or retain work.
Health services would be added as an eligible empowerment service
based on the research demonstrating the benefits of integrating health
services into affordable housing, thereby enabling residents to stay
healthy and continue to work. For example, early findings from a three-
year research study by the Center for Outcomes Research and Education
and Providence Health and Services in 145 affordable housing projects
in Oregon found that integration of health care services (including
access to healthy food, health care, nutrition counseling, and mental
and behavioral health services) led to a
[[Page 11363]]
12 percent decrease in health costs per resident per month.\41\
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\41\ See https://www.nhchc.org/wp-content/uploads/2016/06/linking-health-and-housing-improving-resident-health-and-reducing-health-care-costs-through-affordable-housing-saul.pdf.
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Finally, workforce preparation and integration services would be
included as eligible empowerment services because of the benefit that
these programs may yield to residents to obtain and retain work.
Workforce integration services may help residents with disabilities
obtain and retain jobs. Workforce preparation may assist residents with
no previous work experience in obtaining skills helpful to securing a
job, such as interviewing techniques or other communication techniques,
and skills necessary to retain work, such as conflict resolution
strategies.
Residential Economic Diversity
The current regulation includes economic diversity as one of the
eligible housing needs under the Bank First District Priority. The
proposed rule would retain this housing need as empowerment, but would
refer to it as ``residential economic diversity'' to align with the
usage in FHFA's Duty to Serve regulation and would define it in
accordance with the Duty to Serve definition and FHFA's Duty to Serve
Evaluation Guidance.
3. Affordable Housing Preservation
Affordable Rental Housing Preservation
The current regulation does not include any scoring criteria
specifically for affordable rental housing preservation, but some Banks
have included this housing need under their Bank Second District
Priority. The proposed rule would include this housing need under the
this proposed regulatory priority, and would include the specific
affordable rental housing preservation programs and housing needs
identified in FHFA's Duty to Serve regulation in order to align with
related FHFA goals and programs. These are:
(a) Rental housing with energy or water efficiency improvements;
(b) Section 8. The project-based and tenant-based rental assistance
housing programs under section 8 of the U.S. Housing Act of 1937; \42\
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\42\ 42 U.S.C. 1437f.
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(c) Section 236. The rental and cooperative housing program for
lower income families under section 236 of the National Housing Act;
\43\
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\43\ 12 U.S.C. 1715z-1.
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(d) Section 221(d)(4). The housing program for moderate-income and
displaced families under section 221(d)(4) of the National Housing Act;
\44\
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\44\ 12 U.S.C. 1715l.
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(e) Section 202. The supportive housing program for the elderly
under section 202 of the Housing Act of 1959; \45\
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\45\ 12 U.S.C. 1701q.
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(f) Section 811. The supportive housing program for persons with
disabilities under section 811 of the Cranston-Gonzalez National
Affordable Housing Act; \46\
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\46\ 42 U.S.C. 8013.
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(g) McKinney-Vento Homeless Assistance. Permanent supportive
housing projects subsidized under Title IV of the McKinney-Vento
Homeless Assistance Act; \47\
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\47\ 42 U.S.C. 11361, et seq.
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(h) Section 515. The rural rental housing program under section 515
of the Housing Act of 1949; \48\
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\48\ 42 U.S.C. 1485.
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(i) Low-income housing tax credits. Low-income housing tax credits
under section 42 of the Internal Revenue Code of 1986; \49\ and
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\49\ 26 U.S.C. 42.
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(j) Other comparable state or local affordable housing programs.
Affordable Homeownership Preservation
The current regulation does not include scoring criteria
specifically for affordable homeownership preservation, but some Banks
have included this housing need, e.g., housing with energy efficiency
features, under their Bank Second District Priority. The proposed rule
would include this housing need under this proposed regulatory
priority, and would specify certain affordable preservation programs
that are included in FHFA's Duty to Serve regulation--shared equity
homeownership programs and owner-occupied housing with energy or water
efficiency improvements.
FHFA specifically requests comments on whether the three proposed
regulatory priorities--underserved communities and populations,
creating economic opportunities, and affordable housing preservation--
constitute significant housing priorities that should be included in
the regulation, or whether other housing priorities should be included.
FHFA also requests comments on whether the specified housing needs
identified under each regulatory priority, or other specific housing
needs, should be included in the regulation.
Annual Report
Proposed Sec. 1291.48(e) would require each Bank to submit an
annual report to FHFA demonstrating the Bank's compliance with the
outcome requirements.
Proposed Sec. 1291.49 Determination of Compliance With Outcome
Requirements; Notice of Determination
Under proposed Sec. 1291.49, the Director of FHFA would be
required to determine annually each Bank's compliance with the outcome
requirements for the statutory and regulatory priorities under proposed
Sec. 1291.48. Proposed Sec. 1291.49 would establish procedures,
including time periods, for the compliance determination process. These
procedures would include issuance of a notice of preliminary
determination, an opportunity for the Bank to respond, and issuance of
a final determination and whether compliance was feasible, taking into
consideration market and economic conditions and the financial
condition of the Bank. These proposed procedures are generally
analogous to those in the Enterprise Housing Goals regulation.\50\
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\50\ 12 CFR 1282.21.
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Requests for Comments on Current Regulatory Scoring System
As discussed above, in determining whether to revise the current
AHP regulatory scoring system, FHFA considered how the current
mandatory and discretionary scoring criteria address housing priorities
established by FHFA and impact the Banks' ability to address specific
housing needs in their districts. FHFA requests comments on whether the
Banks have sufficient flexibility under the current scoring system to
target specific housing needs in their districts, including awarding
subsidy to address multiple housing needs in a single AHP funding
period. If they do, FHFA requests comments on whether the current
regulatory scoring system should be maintained without change, or
whether any of the current mandatory scoring criteria and minimum
required point allocations should be modified to reflect other specific
housing needs. FHFA also requests comments on whether the Bank First
and Second District Priorities should be combined and the list of
housing needs in the Bank First District Priority eliminated. FHFA
notes that the Banks do not currently allocate the full 45 points
available to their Bank Second District Priority, and they include
multiple housing needs under this Priority, resulting in no one housing
need effectively receiving priority under the current scoring system.
[[Page 11364]]
Subpart F--Monitoring
Proposed Sec. 1291.50 Monitoring Under General Fund and Targeted Funds
The Bank Act requires the AHP regulation to ensure that adequate
long-term monitoring is available to guarantee that affordability
standards and other AHP requirements are satisfied.\51\ The Bank Act
also requires the AHP regulation to coordinate AHP activities with
other Federal or federally-subsidized affordable housing activities to
the maximum extent possible.\52\ The current regulation's requirements
for long-term monitoring of AHP rental projects are based on those
statutory provisions.
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\51\ 12 U.S.C. 1430(j)(9)(C).
\52\ 12 U.S.C. 1430(j)(9)(G).
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Specifically, the current regulation requires the Banks to adopt
written policies for monitoring projects and households awarded AHP
subsidies under both the Competitive Application Program and
Homeownership Set-Aside Programs.
For initial monitoring under the Competitive Application Program,
the regulation requires the Banks to monitor owner-occupied and rental
projects prior to, and within a reasonable period after, project
completion by:
Reviewing documentation to determine whether AHP
eligibility requirements have been satisfied, services and activities
committed in the approved AHP application have been provided, and AHP
retention agreements are in place; and
Reviewing back-up project documentation (such as rent
rolls and households' W-2 forms) on a risk-based sampling basis, of
household incomes and rents maintained by the project sponsors to
verify that the household incomes and rents comply with the commitments
in the approved AHP applications. In practice, for initial monitoring,
the Banks review the project sponsor documentation and rent rolls at
initial monitoring, and review other back-up documentation on a risk-
basis.
For long-term monitoring under the Competitive Application Program,
the regulation generally requires the Banks to monitor completed AHP
rental projects commencing in the second year after project completion
to determine, at a minimum, whether household incomes and rents comply
with the income targeting and rent commitments in the approved AHP
applications during the AHP 15-year retention period by:
Reviewing annual project owner certifications of household
incomes and rents for compliance with the AHP application commitments,
which may be reviewed on a risk-based sampling basis; and
Reviewing back-up project documentation for incomes and
rents, including project rent rolls, maintained by the project owner,
which may also be reviewed on a risk-based sampling basis pursuant to
the Bank's risk-based sampling plan.
In practice, for long-term monitoring, the Banks review all of the
annual project sponsor certifications but review the rent rolls and
other back-up documentation on a risk basis.
The regulation provides that a Bank's written monitoring policies
must take into account risk factors such as the amount of AHP subsidy
in the project, type of project, size of project, location of project,
sponsor experience, and any monitoring of the project provided by a
federal, state, or local government entity.
The regulation permits the Banks to develop and implement
reasonable sampling plans to monitor rental projects that receive
subsidies under the Competitive Application Program as well as
households that receive subsidies under the Homeownership Set-Aside
Program. The regulation permits the Banks to use the sampling plans to
monitor back-up documentation of household incomes and rents. The
regulation does not permit the use of sampling plans for monitoring
member certifications under the Homeownership Set-Aside Program.
The regulation makes some exceptions to the long-term monitoring
requirements for certain types of AHP rental projects. Specifically,
for AHP projects that also receive LIHTC, the Banks may rely on the
long-term monitoring of LIHTC household incomes and rents performed by
state-designated housing credit agencies that administer LIHTC, and the
Banks do not have to review any monitoring documentation.
The regulation also makes an exception to the long-term monitoring
requirements for AHP rental projects that received funds from federal,
state, or local government entities provided the Bank is able to
demonstrate the following: (1) The compliance profile of the program is
substantively equivalent to AHP requirements; (2) the governmental
entity has the ability to monitor the project; (3) the governmental
entity agrees to provide reports to the Bank on the project's incomes
and rents for the full AHP 15-year retention period; and (4) the Bank
reviews the reports from the governmental entity to confirm compliance
with its monitoring policies. However, this monitoring option has not
proved feasible for the Banks.
Initial monitoring of AHP projects receiving LIHTC. The proposed
rule would retain the initial monitoring requirement that the Banks
review certifications from LIHTC project sponsors that the residents'
incomes and the rents comply with the income-targeting and rent
commitments in the approved AHP application. The proposed rule would
also include a requirement, consistent with Bank practice, that the
Banks review the project's rent rolls. However, the proposed rule would
remove the requirement that the Banks review other back-up
documentation on incomes and rents at initial monitoring for LIHTC
projects. The proposed rule would also streamline the LIHTC monitoring
provisions for greater conciseness.
In 2016, 51 percent of AHP projects received LIHTC allocations,
comprising 62 percent of total AHP competitive funds awarded. The
current regulation has allowed the Banks to rely on the long-term
monitoring of LIHTC projects by state-designated housing tax credit
allocation agencies since 2006 because the LIHTC income, rent, and
long-term retention period requirements are the same as or
substantially equivalent to those of the AHP, and because LIHTC
projects rarely go out of compliance with those requirements. As noted
by some stakeholders, the same analysis for long-term monitoring of
LIHTC projects could be applied to initial monitoring of LIHTC projects
and, therefore, the Banks should also be permitted to rely at initial
monitoring upon the income and rent monitoring performed by the state-
designated tax credit allocation agencies.
The initial rationale for allowing the Banks to rely on monitoring
of LIHTC projects by the state-designated tax credit allocation
agencies continues to hold true--the LIHTC income, rent, and long-term
retention period requirements are substantially equivalent to those of
the AHP, the state-designated tax credit allocation agencies monitor
the projects, and LIHTC projects rarely go out of compliance with the
income and rent requirements.\53\ Further, multiple
[[Page 11365]]
parties retain a strong incentive to monitor LITHC projects for income
and rent compliance.
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\53\ A minimum of 40 percent of units in an LIHTC project must
be affordable to tenants earning 60 percent of AMI, or a minimum of
20 percent of units in an LIHTC project must be affordable to
tenants earning 50 percent of AMI. However, the vast majority of
LIHTC units serve residents at 50 percent of AMI or below. A HUD
report published in December 2016, Data on Tenants in LIHTC Units as
of December 31, 2014, indicates that the median income for LIHTC
households was $17,152. Of all LIHTC units, 81 percent serve
households at 50 percent of AMI or below, while 11 percent serve
households between 50.1 percent and 60 percent of AMI. See https://www.huduser.gov/portal/publications/LIHTCTenantReport-2014.html.
Further, LIHTC projects rarely go out of compliance, with analysis
showing that the average LIHTC investor has realized 98 percent of
its promised credits, and a cumulative foreclosure rate for 9
percent credits between 1986 and 2014 at 0.04 percent. See A
CohnReznick Webinar, The Low Income Housing Tax Credit Program at
Year 30: A Performance Update, January 21, 2016. Slides 24 and 35.
http://ahic.org/images/downloads/Research_and_Education/cohnreznick_lihtc_performance_study.pdf. Finally, LIHTC carries more
stringent retention requirements than the AHP. LIHTC projects must
remain affordable for an initial 15-year retention period, and an
additional 15-year extended use period.
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LIHTC project owners bear responsibility for ensuring that their
projects comply with the program's income, rent, and retention period
requirements. The owners face severe consequences for noncompliance,
which serve as a substantial deterrent to noncompliance. Because LIHTC
investors cannot receive the benefits of the tax credits for units that
are not in compliance, LIHTC project owners guarantee to their
investors that their projects remain in compliance, or must repay
investors the amount of tax credits lost plus any penalties or interest
levied by the Internal Revenue Service.
LIHTC projects are monitored not only by the state-designated tax
credit allocation agencies, but also annually by the LIHTC project
owners and LIHTC investors. LIHTC project owners must certify the
income of each household at move-in, and must re-certify the income of
each household annually.
As noted above, the Banks currently may review LIHTC back-up
documentation at initial monitoring on a risk basis. Given the low
risks of noncompliance by LIHTC projects, the Banks can establish
review schedules for the back-up documentation that are not especially
burdensome. For example, a Bank might choose to review LIHTC back-up
documentation once or twice during the project's 15-year AHP retention
period. Although the administrative burden on the project sponsors to
provide, and the Banks to review, LIHTC back-up documentation may not
be significant, FHFA believes that eliminating this monitoring
requirement would benefit the Banks and project sponsors by reducing
their administrative costs.
Notice Requirement for LIHTC Project Noncompliance during AHP
Retention Period. Notwithstanding the infrequent instances of LIHTC
project noncompliance, in the event of such noncompliance during the
AHP 15-year retention period, a Bank likely would not become aware of
the noncompliance because the Banks do not monitor LIHTC projects
during the retention period. FHFA is proposing to add a requirement, as
discussed under proposed Sec. 1291.15(a)(5)(ii) above, that members'
monitoring agreements with project sponsors and owners require such
parties to provide prompt written notice to the Bank if the LIHTC
project goes out of compliance with the applicable LIHTC income-
targeting or rent requirements during the AHP 15-year retention period.
The proposed rule would add a corresponding requirement in the
monitoring section of the regulation that the Banks must review LIHTC
project noncompliance notices received from project sponsors or owners
during the AHP 15-year retention period. In this way, the Banks would
become aware of any noncompliance and could take remedial actions with
respect to the project.
The proposed rule would not require that the Bank's AHP agreement
with the member or project sponsor or owner include a provision for the
project sponsor or owner to send written notice of noncompliance with
other government programs to the Banks. As discussed below, the Banks
would be receiving other information that would help inform them of
potential or actual project noncompliance. The Banks would be required
to obtain information from project sponsors or owners on their
projects' compliance with these other government programs, as well as
the projects' on-going financial viability (``enhanced
certifications''), which the Banks obtain currently but to varying
degrees. The Banks would also continue to review annual project sponsor
certifications. In addition, the noncompliance rates for projects under
these other government programs are low.
Initial and long-term monitoring of AHP projects funded by certain
other government programs specified in FHFA guidance. The proposed rule
would also provide that, for AHP projects funded by certain other
government programs specified in separate FHFA guidance, the Banks
would only be required to review project sponsor certifications and
rent rolls, and not any other back-up documentation, at initial
monitoring. For long-term monitoring, the Banks would only be required
to review annual project sponsor certifications on incomes and rents,
and would not be required to review any back-up documentation for
incomes and rents, including rent rolls. FHFA would include in the
guidance only government programs that have the same or substantially
equivalent rent, income, and retention period requirements as the AHP,
very low occurrences of noncompliance with those requirements, and
where the monitoring entity has demonstrated and continues to
demonstrate its ability to monitor the program. The proposed rule would
specify that other compatible government programs, for monitoring
purposes, will be set forth in FHFA guidance. FHFA will employ the
guidance to remain current with federal program developments.
The FHFA guidance initially would specify the following federal
government programs as eligible for this reduced monitoring:
[cir] HUD Section 202 Program for the Elderly;
[cir] HUD Section 811 Program for Housing the Disabled;
[cir] USDA Section 515 Rural Multifamily Program; and
[cir] USDA Section 514 Farmworker Multifamily Program.
Stakeholders requested that FHFA allow the Banks to rely upon the
income qualification tests performed by USDA Rural Development and HUD-
funded projects at initial monitoring. Further, stakeholders requested
that FHFA allow a Bank, in its discretion, for purposes of long-term
monitoring, to rely upon the monitoring conducted by HUD and USDA Rural
Development, as the Banks are currently allowed to rely on the
monitoring of the agency administering LIHTC.
In 2016, approximately two-thirds of AHP projects received funding
from other federal programs. FHFA analyzed the extent to which AHP
projects also receive subsidies from HUD and USDA programs to determine
the extent to which Banks could conceivably rely on HUD and USDA
monitoring for these projects. In 2016, 26 percent of AHP projects
received HOME Investment Partnerships Program (HOME) financing, 8
percent received Community Development Block Grant (CDBG) funds, and 12
percent received other federal financing, including from USDA. FHFA
then analyzed HUD and USDA programs to determine which programs have
substantially equivalent rent, income, and retention requirements to
the AHP, very low noncompliance rates, and where the monitoring entity
has demonstrated and continues to demonstrate its ability to monitor
the program. These programs are further discussed below.
HUD Section 202 and 811 Programs. The income, rent and retention
period standards for HUD's Section 202 Program for the Elderly and
Section 811
[[Page 11366]]
for Housing the Disabled meet or exceed the AHP standards.\54\ Further,
HUD monitors eligibility for rental assistance on an annual basis, and
has demonstrated and continues to demonstrate its ability to monitor
the programs. The Banks have indicated to FHFA that in their
experience, there are very low or no instances of noncompliance with
AHP-funded Section 202 or Section 811 projects. Congress has not
appropriated capital advances for the Sections 202 and 811 programs
since 2011. Thus, the proposed reduction in monitoring would only apply
to Section 202 and 811 projects in the Banks' existing portfolios or to
Section 202 or 811 projects seeking rehabilitation funding.
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\54\ Section 811 projects are funded by a capital advance that
requires a project to be occupied only by very low-income persons
with disabilities (at or below 50 percent of AMI). Section 202
projects must be occupied by low- or very low-income elderly people.
In 2017, 98% of households in Section 811 units had incomes at or
below 50 percent of AMI. See https://www.huduser.gov/portal/datasets/assthsg.html. Residents of Section 202 and 811 programs pay
30 percent or less of their monthly adjusted income for rent. These
requirements are the same, and in some cases more stringent, than
the AHP's 30 percent of income standard for rents. See Section 811
Supportive Housing for Persons with Disabilities Handbook (4571.2)
https://www.hud.gov/sites/documents/45712C1HSGH.PDF and HUD Handbook
4571.3. In both the Section 202 and 811 programs, the affordability
term is 40 years. HUD has demonstrated the ability to monitor both
Section 202 and Section 811 projects. The low default rates in both
these programs are indicative that that HUD's monitoring has been
effective. See 811 Operating Costs Needs, Ken Lam, Jill Khadduri,
March 2007, https://www.huduser.gov/portal/publications/pubasst/Sec_202_811.html, and Brauner, Bill, (2016) A First Look at
Supportive Housing for the Elderly (Section 202) Housing in
Massachusetts and Haley, Barbara and Robert Gray (June, 2008)
Section 202 Supportive Housing for the Elderly: Program Status and
Performance Measurement, https://www.huduser.gov/portal/publications/sec_202_1.pdf.
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USDA Section 515 and 514 Programs. There are some differences in
the income-eligibility and rent requirements between the Section 515
rural multifamily projects and Section 514 farmworker multifamily
projects and those of the AHP. However, in practice, the household
incomes served and rents are substantially similar to the AHP
standards.\55\ Further, USDA has demonstrated and continues to
demonstrate its ability to monitor the programs.\56\ USDA 514 and 515
projects have low delinquency rates,\57\ and the Banks have indicated
to FHFA that in their experience, there are very low or no instances of
noncompliance with AHP-funded Section 515 and 514 projects. An
additional argument in favor of aligning the AHP with USDA's monitoring
is that this might encourage more USDA-funded projects to apply for AHP
funds, thus increasing the proportion of rural families served by the
AHP.
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\55\ While incomes in Section 515 projects may go up to 80
percent of AMI plus $5,500 and incomes in Section 514 projects may
rise to 80 percent of AMI, in actuality household incomes are much
lower. In 2015, 92 percent of households in Section 515 and 514
projects had very low incomes, and the average rent for units in all
states is below the 50 percent of AMI adjusted rent level. Tenants
pay basic rent or 30 percent of adjusted income, whichever is
greater. USDA Section 521 Rental Assistance subsidy can be used to
limit tenants' payments to 30 percent of their income. Tenants may
receive rent subsidies from other sources as well. Most tenants pay
no more than 30 percent of their income in rent (88 percent of
Section 515 households, and 97 percent of Section 514 households in
2016). See 7 CFR 3560.203. A USDA report published in December 2016,
Results of the 2016 Multi-Family Housing Annual Fair Housing
Occupancy Report, found that in FY 2016, 92.3 percent of units were
occupied by very low-income households--a percentage consistent with
past years. In Section 514 projects 77.1 percent of units were
occupied by very low income households, and 19.73 percent of units
were occupied by low income households. See http://www.ruralhome.org/storage/documents/rd_obligations/mfh-occupancy/occupancymfh2016.pdf. The standard term for an initial Section 515
loan is 30 years with a 50-year amortization period. The term for
subsequent (made to an existing Section 515 project for subsequent
rehabilitation or repairs to the project) and loans for special
types of properties, such as manufactured housing, may be made for a
shorter term based on the project's expected useful life; and, the
loans are amortized over 50 years.
\56\ USDA field staff performs careful monitoring of Section 515
and 514 projects, including on-site physical inspections, on-site
tenant file review and management review, annual project budget
review, and project financial statement review. All reviews are
performed by USDA area office staff.
\57\ USDA Section 515 and 514 projects perform well: Section 515
projects had a 2.4 percent delinquency rate for the ten years ending
2014, while Section 514 projects had a 3.4 delinquency rate. See
Statement of Tony Hernandez, Administrator Before the Subcommittee
on Housing and Insurance Committee on Financial Services. May 19,
2015. https://www.rd.usda.gov/files/testimony/USDA_Rural%20Housing_May%2019_15.pdf.
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FHFA also reviewed HUD's HOME Program, CDBG Program, Rental
Assistance Demonstration Program, Housing Trust Fund, and Project-Based
Rental Assistance (PBRA) Section 8 Program, as well as single-family
mortgage revenue bond financing programs. FHFA found that each program
has some standards that differ from the AHP in income, rent or
retention periods, varying monitoring practices around the country, or
a lack of available data on the projects' noncompliance rates (in the
case of the PBRA Section Program). Therefore, relying on the monitoring
of these other government funding programs is not currently feasible
for the AHP.
Because the income, rent, and retention period standards,
monitoring practices, and compliance profiles of government housing
subsidy programs may change over time, FHFA is proposing to include a
list of federal government programs that currently meet the
requirements discussed above in separate guidance, which FHFA could
occasionally revise in the event that programs' requirements become
compatible or incompatible with the AHP requirements, or new programs
are established that have compatible requirements.
The proposed monitoring changes would create a modest decrease in
the Banks' administrative responsibilities by expanding their ability
to rely on other government programs for both initial and long-term
monitoring. The Banks currently have an average of 260 AHP rental
projects per Bank to monitor, although the monitoring is reduced
significantly by the Banks' ability to conduct long-term monitoring of
the projects on a risk-basis.
FHFA specifically requests comments on whether the proposed
reductions in the Banks' monitoring responsibilities are reasonable,
taking into consideration the risks of noncompliance and the costs of
project monitoring. FHFA also requests comments on whether data is
available on the noncompliance rates of projects funded under the PBRA
Section 8 Program.
Enhanced long-term monitoring certifications. Proposed Sec.
1291.50(c)(1) would codify existing Bank best practices that require
submission by project sponsors of annual project certifications that
include not only the required household income and rent information,
but also information on the on-going financial viability of the
project, such as whether the project is current on property taxes and
loan payments, its vacancy rate, or whether it is in compliance with
its commitments to other funding sources.
During long-term monitoring, the Banks are only required to monitor
projects for compliance with the household income-targeting and rent
commitments in their AHP applications. Reviewing income and rent
information alone limits the ability of the Banks to determine whether
projects are experiencing operational challenges or in danger of
foreclosure. Thus, in addition to obtaining household income and rent
information, Banks have, to varying degrees, been requesting additional
information from project sponsors in order to discover project issues
before they escalate. This additional information enables the Banks to
work with other funders to address project concerns and any
noncompliance, including attempting remediation through workout
strategies or recovery of AHP subsidy for noncompliance. It also
mitigates the risk
[[Page 11367]]
that Banks may be less aware of noncompliance by AHP projects that are
also funded by the federal programs for which FHFA may determine
through guidance that the Banks may reduce their long-term monitoring.
The proposed change may slightly increase the monitoring requirement
for project sponsors and the Banks that are not currently requiring
such enhanced certifications.
Accordingly, the proposed rule would require the Banks to obtain
such ``enhanced'' annual certifications from project sponsors during
the AHP 15-year retention period that include information on the
ongoing financial viability of the project.
Proposed Sec. 1291.51 Monitoring Under Homeownership Set-Aside
Programs
The current monitoring provisions for the Homeownership Set-Aside
Program would move from Sec. 1291.7(b) to proposed Sec. 1291.51. The
requirement to monitor compliance with the owner-occupied retention
agreement requirement would be removed because FHFA is proposing to
eliminate this requirement.
Subpart G--Remedial Actions for Noncompliance
The current provisions addressing remedial actions for AHP
noncompliance in Sec. 1291.8 would move to proposed Subpart G, and
each type of noncompliance--project sponsor or owner, member, or Bank--
would be included in a separate section so that the responsibilities
and potential liabilities of each party are clear. Substantive changes
would also be made regarding the order in which certain remedial
actions must be taken.
Subpart G would also include a new section addressing remedies for
Bank noncompliance with the proposed outcome requirements for the
statutory and regulatory priorities, including housing plans and
reimbursement of the AHP fund.
The proposed changes are discussed below.
Proposed Sec. 1291.60 Remedial Actions for Project Noncompliance
Proposed Sec. 1291.60 would address AHP project noncompliance. The
language would be revised and streamlined to provide greater clarity on
the scope of the section and the responsibilities of the various
parties. The proposed rule would also make substantive changes by
establishing an order of remedial steps that a Bank would be required
to follow before recovering AHP subsidy. The proposed rule would
clarify factors for Bank consideration in determining whether to settle
for less than the full amount of AHP subsidy due. These changes are
discussed below.
Scope. Proposed Sec. 1291.60 would apply to noncompliance by an
AHP-assisted project with its AHP application commitments and the
requirements of the regulation, including any use of AHP subsidy by the
project sponsor or owner for purposes other than those committed to in
the AHP application. Consistent with the current regulation, the
proposed rule would clarify that this section would not apply to
individual AHP-assisted households, or to the sale or refinancing by
such households of their homes, as there is no ongoing Bank monitoring
of households once they purchase their homes, and sale or refinancing
during the AHP five-year retention period is not considered
noncompliance.
Elimination of project noncompliance. The current regulation
provides for three types of remedies for project noncompliance without
mandating the order in which they must be attempted--cure of the
noncompliance; project modification; and recovery of AHP subsidy or
settlement. Because the objective of the AHP is to provide affordable
housing for eligible households for the duration of the AHP retention
period, recovery of AHP subsidy should be the last resort. Accordingly,
the proposed rule would require that certain remedial actions be
attempted before subsidy is recaptured, as discussed further below.
Cure. The project sponsor or owner would first be required to cure
the project noncompliance within a reasonable period of time. Banks
generally follow this practice currently. For example, if a project has
a certain number of households with incomes exceeding the AHP
application's income-targeting commitments, cure would be achieved by
renting the next available vacant units to that number of income-
eligible households. If the noncompliance is cured, then no AHP subsidy
would be required to be repaid by the project sponsor or owner to the
Bank.
Project modification. If the project noncompliance cannot be cured
within a reasonable period of time, the Bank would be required to
determine whether the circumstances of the noncompliance could be
eliminated through a project modification under proposed Sec. 1291.27.
If so, then the Bank would be required to approve the modification, and
the project sponsor or owner would not be required to repay AHP subsidy
to the Bank.
Under proposed Sec. 1291.27(a), a modification must be approved by
the Bank if the project, as modified, meets all of the modification
requirements in that section, including that there is good cause for
the modification that is not solely eliminating the noncompliance, and
that the project rescores as high as the lowest ranking alternate
approved for funding by the Bank in the project's original AHP funding
period. In the above example, if the project sponsor or owner were not
able to find enough households meeting its income-targeting commitments
to occupy the next available vacant units, the Bank would determine
whether the project could be modified to target those units to higher
income (but still AHP income-eligible) households by rescoring the
project based on the number of units to be targeted to the higher
incomes. If the project rescored successfully, then the project would
be modified, thereby eliminating the circumstances of the
noncompliance, and no subsidy recovery would be required.
Reasonable collection efforts, including settlement. If the
circumstances of a project's noncompliance cannot be eliminated through
a cure or modification, the Bank, or the member if delegated the
responsibility, would be required to first make a demand on the project
sponsor or owner for repayment of the full amount of the subsidy not
used in compliance with the commitments in the AHP application or the
requirements of the regulation. This is intended to ensure that the
Banks attempt to recover all of the subsidy due before considering
settlements. The proposed rule would clarify that if the noncompliance
is occupancy by over-income households, the amount of AHP subsidy due
is calculated based on the number of units in noncompliance, the length
of the noncompliance, and the portion of the AHP subsidy attributable
to the noncompliant units.
If the demand for repayment of the full amount of subsidy due is
unsuccessful, then the member, in consultation with the Bank, would be
required to make reasonable efforts to collect the subsidy from the
project sponsor or owner. Members have this role under the current
regulation. The proposed rule would clarify that members would carry
out these efforts in consultation with the Bank, consistent with
current practice.
Under the current regulation, reasonable collection efforts may
include settlement for less than the full amount of subsidy due, taking
into account the facts and circumstances of the noncompliance,
including the
[[Page 11368]]
degree of culpability of the noncomplying parties and the extent of the
Bank's recovery efforts. The proposed rule would clarify that the facts
and circumstances to consider also include the financial capacity of
the project sponsor or owner, assets securing the AHP subsidy, and
other assets of the project sponsor or owner.
As under the current regulation, the proposed rule would require
that a settlement be supported by sufficient documentation showing that
the sum agreed to be repaid is reasonably justified, based on the facts
and circumstances of the noncompliance discussed above. FHFA
specifically requests comments on whether those facts and circumstances
are appropriate for consideration during reasonable collection efforts,
and whether there are other factors that should be considered as well.
The proposed rule would eliminate current Sec. 1291.8(d)(2), which
provides Banks the option to seek prior approval from FHFA of a
proposed subsidy settlement. Since inception of this option, only one
Bank has used it and for two similar cases. The Banks may enter into
subsidy settlements, in their discretion, provided the settlements are
supported by reasonable justifications. The Banks have made these types
of business decisions for many years without seeking prior FHFA
approval. Moreover, the proposed rule would further clarify the factors
the Banks should consider in deciding whether to settle with the
project sponsor or owner. Accordingly, there is no need to retain this
prior approval provision in the regulation.
Proposed Sec. 1291.61 Recovery of Subsidy for Member Noncompliance
Proposed Sec. 1291.61 would address member noncompliance, which is
currently addressed in Sec. 1291.8(b)(1). As under the current
regulation, if a member uses AHP subsidy for purposes other than those
committed to in the AHP application or the requirements of the
regulation, the Bank would be required to recover from the member the
amount of subsidy used for such impermissible purposes.
Proposed Sec. 1291.62 Bank Reimbursement of AHP Fund
Current Sec. 1291.8(e), which addresses circumstances where a Bank
would be required to reimburse its AHP fund, would move to proposed
Sec. 1291.62, with no substantive changes.
Proposed Sec. 1291.63 Suspension and Debarment
Current Sec. 1291.8(g) addressing suspension or debarment of
members, project sponsors, or project owners would move unchanged to
proposed Sec. 1291.63.
Proposed Sec. 1291.64 Use of Repaid AHP Subsidies for Other AHP-
Eligible Projects and Households
Proposed Sec. 1291.64 would include current Sec. 1291.8(f)(1),
which provides that AHP subsidy repaid to a Bank under the AHP
regulation must be made available by the Bank for other AHP-eligible
projects. The proposed rule would clarify that the repaid subsidy may
also be made available by the Bank for AHP-eligible households.
The proposed rule would remove the provision in current Sec.
1291.8(f)(2) providing for re-use of repaid AHP direct subsidies in the
same project because it applies where AHP subsidy is repaid by a
household due to sale or refinancing of the home to a household that is
not low- or moderate-income household during the retention period, and
FHFA is proposing to eliminate this subsidy repayment requirement in
connection with elimination of the owner-occupied retention agreement
requirement.
Proposed Sec. 1291.65 Remedial Actions for Bank Noncompliance With
Outcome Requirements
Proposed new Sec. 1291.65 would provide that if the Director of
FHFA determines that a Bank has failed to comply with an outcome
requirement for the statutory and regulatory priorities and compliance
was feasible, the Director may require the Bank to take actions to
remedy the noncompliance, including but not limited to, reimbursement
by the Bank of its AHP fund for the difference in the amount of AHP
funds required to be awarded to meet the outcome requirement and the
amount the Bank actually awarded, or implementation of a housing plan.
A housing plan would describe the specific actions the Bank would take
to comply with the outcome requirements for the next calendar year. The
proposed procedures, including time periods, for submission, review and
approval of a proposed housing plan, are generally analogous to those
under the Enterprise Housing Goals regulation.\58\
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\58\ 12 CFR 1282.21.
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Proposed Sec. 1291.66 Transfer of Program Administration
The proposed rule would move current Sec. 1291.8(h), which
addresses transfer of a Bank's Program to another Bank in the event of
mismanagement of its Program, to proposed Sec. 1291.66 with no
changes.
Removal of Obsolete Provision
The proposed rule would rescind current Sec. 1291.8(i) because the
provision refers to a now-repealed Finance Board regulatory provision
that was intended to establish a formal process for review by the Board
of Directors of the Finance Board of certain types of supervisory
decisions, which FHFA opted not to adopt.\59\ Though it is not directly
comparable to the repealed Finance Board provision, FHFA's Ombudsman
regulation provides an avenue for the Banks to present complaints and
appeals to the agency about their regulation or supervision.\60\
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\59\ 12 CFR 907.9.
\60\ See 12 CFR part 1213.
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Subpart H--Affordable Housing Reserve Fund
Proposed Sec. 1291.70 Affordable Housing Reserve Fund
Current Sec. 1291.12 addressing the requirements for an Affordable
Housing Reserve Fund would move to proposed Sec. 1291.70. In the 28
years of the Program, there has never been cause for the agency to
establish an Affordable Housing Reserve Fund because the demand for AHP
funds at each Bank has always exceeded the amount available, and no
Bank has failed to use or commit in full its required annual AHP
contribution.
The proposed rule would revise the current provision by requiring
that amounts remaining unused or uncommitted at year-end would be
deemed to be used or committed if, in combination with AHP funds that
have been returned to the Bank or de-committed from canceled projects,
they are insufficient to fund the next highest scoring AHP applications
in the Bank's final funding period of the year for its General Fund
first and then for any Targeted Funds established by the Bank.
IV. List of Specific Requests for Comments
In addition to requesting comments on the entire proposed rule,
FHFA is listing below, for ease of reference, the specific requests for
comments included throughout the preamble above. Please identify the
specific request for
[[Page 11369]]
comment to which you are responding by its request number.
Subpart B--Program Administration and Governance
1. What are the benefits and risks of allowing the Banks to
establish Targeted Funds?
2. Is the proposed allocation of 40 percent of total AHP funds to
Targeted Funds an appropriate percentage, or should the percentage be
higher or lower?
3. Would the proposed expansion of the contents of the Targeted
Community Lending Plans impede the Banks' ability to respond to
disasters through the AHP?
4. What are the benefits of the proposed expansion of the contents
of the Targeted Community Lending Plans and their linkage to the AHP
Implementation Plans?
5. Is the requirement that members' AHP agreements with LIHTC
project sponsors include a provision requiring the sponsors to provide
prompt written notice to the Bank if the project is in noncompliance
with the LIHTC income-targeting or rent requirements at any time during
the AHP 15-year retention period practical, and should it also be
required of project sponsors in the event of noncompliance by their
projects with the income-targeting or rent requirements of the
government housing programs discussed under the Monitoring section?
6. What are the advantages and disadvantages of an AHP owner-
occupied retention agreement, would eliminating it impact FHFA's
ability to ensure that AHP funds are being used for the statutorily
intended purposes, and are there ways to deter flipping other than a
retention agreement?
7. Should the proposed increase in the maximum permissible grant to
households from $15,000 to $22,000 under the Homeownership Set-Aside
Program impact the decision on whether to eliminate the retention
agreement?
8. Should the current provision in retention agreements requiring
that notice of a sale or refinancing during the retention period be
provided to either the Bank or its designee (typically the member) be
revised to require that the notice be provided to both the Bank and its
designee if a retention agreement requirement is retained in the final
rule?
9. Should the AHP retention agreement, if retained in the final
rule, require the AHP-assisted household to repay AHP subsidy to the
Bank from any net proceeds on the sale or refinancing of the home or
from the net gain?
10. What are the merits and disadvantages of the net proceeds and
net gain calculations from the standpoint of the AHP-assisted
households and the Banks, and are there other subsidy repayment
approaches FHFA should consider, if the AHP retention agreement
requirement is retained in the final rule?
11. What approaches would provide a reasonable basis to assume that
the subsequent purchaser of an AHP-assisted unit is likely to be low-
or moderate-income, including proxies that could serve this purpose?
12. What proxies would be reasonable for assuming a subsequent
purchaser's income, including the following or others: Certification
from the subsequent purchaser or a third party that the subsequent
purchaser's income is at or below the low- or moderate-income limit;
evidence that the subsequent purchaser is receiving direct homebuyer
assistance from another government program with household income
targeting requirements substantially equivalent to those of the AHP;
the purchase price of the AHP-assisted unit is less than the median
home price in the area; the AHP-assisted unit is located in a census
tract. or block group where at least 51 percent of the households are
low- or moderate-income; or FHA or other underwriting standards
indicating that the income required to purchase the AHP-assisted unit
at the purchase price is low- or moderate-income?
13. Should there be an exception to the AHP subsidy repayment
requirement in the AHP retention agreement, if retained in the final
rule, where the amount of AHP subsidy subject to repayment, after
calculating the net proceeds or net gain, is $1,000 or less?
14. If the AHP retention agreement is retained in the final rule,
should the rule clarify that the obligation to repay AHP subsidy to a
Bank shall terminate not only after any event of foreclosure, but also
after transfer by deed in lieu of foreclosure, assignment of an FHA
mortgage to HUD, or death of the owner(s) of the unit?
Subpart C--General Fund and Targeted Funds
15. How should preservation of rental projects be encouraged
through the AHP while discouraging displacement of current occupants
with higher incomes than those targeted in the AHP application
submitted to the Bank for approval, and is the proposed requirement for
a relocation plan approved by the primary funder reasonable?
16. Are the current AHP requirements for sponsor-provided permanent
financing reasonable, do the sponsors have a need for AHP subsidy in
light of their particular financing model, and does the current method
in the regulation for determining their need for AHP subsidy understate
or overstate the amount of AHP subsidy needed?
17. Should sponsors using the sponsor-provided permanent financing
model be considered revolving loan funds and, if so, should they be
subject to the current or different AHP revolving loan fund
requirements?
18. What are the potential advantages and disadvantages of allowing
the Banks to impose a maximum subsidy limit per project sponsor?
19. What are possible approaches for re-ranking applications to
meet the outcome requirements while at the same time maximizing the
extent to which the highest scoring applications are approved?
20. Are the current AHP revolving loan fund provisions reasonable,
and how could the financing mechanisms of revolving loan funds be used
successfully with AHP subsidies?
21. Why have certain AHP scoring criteria for revolving loan funds
been difficult to meet, how would AHP subsidy be repaid in the event of
project noncompliance, and how can a revolving loan fund demonstrate a
need for the AHP subsidy?
22. Would the proposed outcome requirements for the statutory and
regulatory priorities facilitate use of AHP subsidies by revolving loan
funds, and if so, how?
23. What are the potential positive or negative impacts of
eliminating the owner-occupied retention agreement requirement for
revolving loan funds?
24. Are there loan pools currently existing in the market that meet
the conditions in the current regulation, how are the loan pools
addressing current housing market needs, and what are the potential
positive or negative impacts of eliminating the owner-occupied
retention agreement requirement for loan pools?
Subpart D--Homeownership Set-Aside Programs
25. Are there any potential positive and negative impacts of
increasing the subsidy limit per household from $15,000 to $22,000, and
should the subsidy limit be higher or lower?
26. Is the proposed use of FHFA's Housing Price Index to
automatically adjust the subsidy limit upward over time appropriate, or
are there other housing price adjustment indices that would be
preferable and why?
[[Page 11370]]
Subpart E--Outcome Requirements for Statutory and Regulatory Priorities
27. Does the proposed outcome requirement of 10 percent of a Bank's
total AHP funds constitute prioritization for the home purchase
priority, or should the percentage be higher or lower?
28. What is the utility of the proposed outcome approach to income
targeting, and are the proposed 55 percent threshold, its applicability
solely to rental units, and income-targeting at 50 percent of AMI
appropriate?
29. Is the proposed increase in the minimum threshold from 20 to 50
percent for the number of units reserved for homeless households
appropriate?
30. Is the proposed increase in the minimum threshold from 20 to 50
percent for the number of units in a project reserved for households
with a specific special need appropriate?
31. Is the proposed 50 percent minimum threshold for the number of
units in a project reserved for other targeted populations appropriate?
32. Is the proposed 20 percent minimum threshold for the number of
units in a project reserved for extremely low-income households
appropriate?
33. Do the three proposed regulatory priorities described in
proposed Sec. 1291.48--underserved communities and populations,
creating economic opportunities, and affordable housing preservation--
constitute significant housing priorities that should be included in
the regulation, or should other housing priorities be included?
34. Should the specific housing needs identified under each
regulatory priority be included, or are there other specific housing
needs that should be included?
35. Do the Banks have sufficient flexibility under the current
scoring system to target specific housing needs in their districts,
including awarding subsidy to address multiple housing needs in a
single AHP funding period?
36. Should the current regulatory scoring system be maintained
without change?
37. Should any of the current mandatory scoring criteria and
minimum required point allocations be modified to reflect other
specific housing needs?
38. Should the current Bank First and Second District Priorities be
combined and the list of housing needs in the Bank First District
Priority eliminated?
Subpart F--Monitoring
39. Are the proposed reductions in the Banks' monitoring
requirements reasonable, taking into consideration the risks of
noncompliance and the costs of project monitoring?
40. Is data available on the noncompliance rates of projects funded
under the PBRA Section 8 Program?
Subpart G--Remedial Actions for Noncompliance
41. Are the facts and circumstances described in proposed Sec.
1291.60 appropriate for consideration by a Bank during reasonable
subsidy collection efforts, and are there other factors that should be
considered as well?
V. Consideration of Differences Between the Banks and the Enterprises
Section 1313(f) of the Federal Housing Enterprises Financial Safety
and Soundness Act of 1992 requires the Director of FHFA, when
promulgating regulations relating to the Banks, to consider the
differences between the Banks and the Enterprises (Fannie Mae and
Freddie Mac) as they relate to the Banks': Cooperative ownership
structure; mission of providing liquidity to members; affordable
housing and community development mission; capital structure; and joint
and several liability. The proposed rule would apply only to the Banks.
It would amend the current regulation to provide additional authority
to the Banks regarding certain Program operations, streamline project
monitoring requirements, clarify various parties' responsibilities
regarding noncompliance, and clarify certain operational requirements.
There is no direct Enterprise-specific analog to the Banks' AHP. In
preparing this proposed rule, the Director considered the differences
between the Banks and the Enterprises as they relate to the above
factors, and determined that the rule is appropriate. FHFA requests
comments regarding whether differences related to those factors should
result in any revisions to the proposed rule.
VI. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq.,
requires that Federal agencies, including FHFA, consider the impact of
paperwork and other information collection burdens imposed on the
public. Under the PRA, no agency may conduct or sponsor, and no person
is required to respond to, an information collection unless it displays
a currently valid Office of Management and Budget (OMB) control number.
Existing part 1291 contains a number of requirements that constitute
collections of information under the PRA. These collections have been
approved by OMB and assigned OMB control number 2590-0007 (entitled
``Affordable Housing Program''), which expires on March 31, 2020. As
detailed below, the proposed rule would modify some of the information
collection requirements in part 1291 and would make other changes to
the regulation requiring FHFA to revise the burden estimates approved
by OMB when the control number was last renewed in early 2017. FHFA
intends to submit the revised information collection to OMB for review
and approval of a three-year extension of the control number.
A. Comments on Paperwork Burden Requested
FHFA is soliciting comments on: (1) Whether the collection of
information is necessary for the proper performance of FHFA functions,
including whether the information has practical utility; (2) the
accuracy of FHFA's estimates of the burden of the collection of
information; (3) ways to enhance the quality, utility and clarity of
the information collected; and (4) ways to minimize the burden of the
collection of information on Bank members, project sponsors, and
project owners, including through the use of automated collection
techniques or other forms of information technology.
You may submit written comments on the information collection
requirements on or before May 14, 2018 and should direct them to the
Office of Information and Regulatory Affairs of the Office of
Management and Budget, Attention: Desk Officer for the Federal Housing
Finance Agency, Washington, DC 20503, Fax: (202) 395-3047, Email:
[email protected]. Please also submit copies of comments on
information collection issues to FHFA, identified by ``Proposed
Collection; Comment Request: `Affordable Housing Program (RIN 2590-
AA83)' '' by any of the methods listed above in the ADDRESSES section.
B. Background
Part 1291 requires the Banks to collect various types of
information relating to their AHPs from their members and (both
directly and indirectly) from AHP project sponsors and owners. Those
information collection requirements fall into six categories: (1) AHP
Competitive Applications; (2) compliance submissions for approved
Competitive Application projects at AHP subsidy disbursement; (3)
modification requests for approved Competitive Application projects;
(4) initial monitoring submissions for approved Competitive Application
projects; (5) long-term monitoring submissions for approved Competitive
Application projects; and (6) Homeownership Set-Aside Program
applications and certifications. As revised by the proposed rule, the
collections of information under part
[[Page 11371]]
1291 would continue to fall into the foregoing six basic categories,
but would be somewhat modified as described below.
The proposed rule would eliminate the existing requirement that
each Bank establish a Competitive Application Program. As revised, part
1291 would instead require each Bank to establish a General Fund, and
authorize each Bank to establish up to three Targeted Funds (subject to
a phase-in period), each of which would be subject to a competitive
application process similar to that required for the Banks' Competitive
Application Programs under the current regulation. Projects funded
under the Banks' General Fund and any Targeted Funds established would
be subject to requirements regarding subsidy disbursements,
modification requests, and initial and long-term monitoring that are
similar to those that currently apply to their Competitive Application
Programs. Thus, the descriptions of the first five of the six
information collection categories, which relate to the Banks'
Competitive Application Programs, would be modified to refer instead to
the Banks' General Funds and Targeted Funds. The description of the
sixth category, relating to the Banks' Homeownership Set-Aside
Programs, would remain the same.
C. Burden Estimates for Respondents
FHFA has analyzed each of the six categories of information that
would be collected under part 1291, as revised by the proposed rule, in
order to estimate the hour burdens that the collection would impose
upon Bank members and AHP project sponsors and owners annually over the
three years following the effective date of the final rule. Based on
that analysis, FHFA estimates that the total annual hour burden will be
127,605. This represents an increase of 11,855 hours over the estimate
of 115,750 made in connection with the most recent renewal of the OMB
control number. This increase is attributable to an expected increase
in the number of AHP competitive applications received by the Banks due
to some of the proposed revisions, as well as an expected increase in
the number of AHP competitive projects and Homeownership Set-Aside
direct subsidies approved because of anticipated higher required annual
AHP contributions arising from projected higher Bank incomes. On
balance, the proposed rule would not increase information collection
burdens on a per-submission basis.
The method FHFA used to determine the annual hour burden for each
category of information collected is explained in detail below. Set
forth for each category are: (1) A summary of the existing information
collection requirement, including the types of respondents and
frequency of collection; (2) a short description of the manner in which
the proposed regulatory amendments would affect the requirement and the
associated burden estimates; (3) the need for and use of the
information to be collected; and (4) the new annualized hourly burden
estimates, as compared to the estimates made in the PRA submissions
that are the basis for the current clearance.
1. Competitive Applications for AHP Subsidy Under General Funds and
Targeted Funds
(a) Existing requirement: Each Bank must establish a Competitive
Application Program under which the Bank accepts applications for AHP
subsidies submitted by its members on behalf of non-member entities
having a significant connection to the projects for which subsidy is
being sought (project sponsors or owners).\61\ Each Bank accepts
applications for AHP subsidy under its Competitive Application Program
during a specified number of funding periods each year, as determined
by the Bank.\62\ The Bank must score each application according to an
AHP regulatory and Bank-specific scoring methodology, and approve the
highest scoring projects within that funding period for AHP
subsidy.\63\
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\61\ See 12 CFR 1291.5.
\62\ See 12 CFR 1291.5(b)(1).
\63\ See 12 CFR 1291.5(d).
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(b) Effect of proposed rule: The proposed rule would allow the
Banks substantially more flexibility to devise their own competitive
application scoring criteria for selecting the projects to be approved
for AHP subsidies under their General Fund and any Targeted Funds
established. In revising the scoring criteria for their General Funds,
the Banks would likely also revise their application requirements to
reflect the new criteria. In addition, Banks that establish one or more
Targeted Funds would likely also develop application requirements for
each of those Funds that are different from both their current
competitive application requirements and the General Fund application
requirements they would establish under the revised regulation. Because
of the greater flexibility the Banks would have under the proposed
rule, it is not possible at this point to determine precisely how the
Banks' competitive application processes would change or to estimate
with any accuracy the effect that any such changes would have on the
average amount of time needed to complete the competitive application
process.
The proposed rule would, to a minor extent, require the Banks to
obtain from Bank members and project sponsors and owners applying for
AHP subsidies certain information when evaluating AHP applications that
they are not expressly required to evaluate under the current
regulation. Under the proposed rule, the Banks would be required to
obtain from all AHP applicants information needed to evaluate whether
the project sponsor (including all affiliates and team members such as
the general contractor) is able to perform the responsibilities
committed to in the AHP application, as well as information needed to
provide assurance that those parties have not engaged in certain types
of misconduct. The proposed rule would also require the Banks to obtain
from applicants for rental project subsidies the project's operating
pro forma (in addition to the project's development budget, which is
expressly required under the current regulation) for use in confirming
the need for the AHP subsidy. FHFA anticipates that these submission
requirements may be met with materials that have already been prepared
for other purposes and that, therefore, they will not materially add to
the time required to prepare an AHP competitive application.
To the extent that Banks choose to establish Targeted Funds, as
would be permitted under the proposed rule, they could see an increase
in AHP applications in connection with projects that would be unlikely
to be approved under the existing scoring criteria for their
Competitive Application Programs. Based on this expectation, FHFA
estimates that the number of AHP competitive applications received by
the Banks annually would increase by 10 percent--from 1,350 to 1,485--
over the estimates made in FHFA's most recent submissions to OMB for
the information collection requirements under part 1291.
(c) Use: The Banks would use the information collected during the
competitive application process to determine whether projects for which
Bank members and project sponsors and owners are seeking subsidies
under the Banks' General Funds and Targeted Funds satisfy the
applicable regulatory requirements and score highly enough in
comparison with other applications submitted during the same funding
period to be approved for AHP subsidies.
(d) Revised burden estimates: For the reasons stated above, FHFA is
increasing its estimate as to the average
[[Page 11372]]
number of competitive applications for AHP subsidies that Bank members,
on behalf of project sponsors and owners, would submit to the Banks
annually from 1,350 to 1,485. The estimate for the average preparation
time for each application would remain at 24 hours. Thus, FHFA's
estimate for the total annual hour burden on members and project
sponsors and owners in connection with the preparation and submission
of applications under the Banks' General Funds and Targeted Funds is
35,640 hours (1,485 applications x 24 hours).
2. Compliance Submissions for Approved General Fund and Targeted Fund
Projects at AHP Subsidy Disbursement
(a) Existing requirement: The current regulation provides that,
prior to each disbursement of AHP subsidy for a project approved under
a Bank's Competitive Application Program, the Bank must confirm that
the project continues to meet the AHP regulatory eligibility
requirements, as well as all commitments made in the approved AHP
application.\64\ As part of this process, Banks typically require that
the member and project sponsor provide documentation demonstrating
continuing compliance.
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\64\ See 12 CFR 1291.5(g)(3).
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(b) Effect of proposed rule: The proposed rule would add a
requirement that, prior to each AHP subsidy disbursement, Banks obtain
and review certifications and other information needed to provide
assurance that the project sponsor (including all affiliates and team
members such as the general contractor) have not engaged in certain
types of misconduct since providing similar information at the
application stage or in connection with a prior subsidy disbursement.
FHFA anticipates that these additional requirements will not materially
add to the time required to prepare a compliance submission.
(c) Use: The Banks would use the compliance submissions to
determine whether projects approved under their General Funds and
Targeted Funds continue to meet the applicable requirements and to
comply with the commitments made in the approved AHP applications each
time subsidy is disbursed.
(d) Revised burden estimates: FHFA is increasing its estimate as to
the annual average number of compliance submissions made by Bank
members, on behalf of project sponsors and owners, from 700 to 715 to
reflect anticipated higher amounts of funds being available for the AHP
due to higher projected Bank incomes (and therefore more projects
approved). The estimate for the average preparation time for each
submission would remain at 1 hour. Thus, FHFA's estimate for the total
annual hour burden on members and project sponsors and owners in
connection with the preparation and submission of these compliance
submissions for projects approved under the Banks' General Funds and
Targeted Funds is 715 hours (715 submissions x 1 hour).
3. Modification Requests for Approved General Fund and Targeted Fund
Projects
(a) Existing requirement: The current regulation permits a Bank to
approve a modification to the terms of an approved competitive
application that would change the score that the application received
in the funding period in which it was originally scored and approved,
had the changed facts been operative at that time. In order to be
considered for a modification: (i) The project, incorporating the
changes, must continue to meet the regulatory eligibility requirements;
(ii) the application, as reflective of the changes, must continue to
score high enough to have been approved in the funding period in which
it was originally scored and approved; and (iii) there must be good
cause for the modification, and the analysis and justification for the
modification must be documented by the Bank in writing.\65\ Banks
typically require the member and project sponsor or owner requesting a
modification to provide a written analysis and justification as part of
their modification request.
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\65\ See 12 CFR 1291.5(f).
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(b) Effect of proposed rule: The proposed rule would add a
requirement that before a Bank may approve a modification request, it
must have first requested that the project cure any AHP noncompliance
and that the cure was unsuccessful after a reasonable period of time.
FHFA estimates that this revision will result in about five percent
fewer approved AHP projects requesting modifications. The proposed rule
would have no effect on the amount of time needed to prepare and submit
a modification request and any supporting materials.
(c) Use: The Banks would use the information submitted to determine
whether requests for modifications of approved projects under their
General Funds and Targeted Funds meet the regulatory requirements for
approval.
(d) Revised burden estimates: FHFA is decreasing its estimate as to
the annual average number of modification requests made by Bank
members, on behalf of project sponsors and owners, from 300 to 290.
This takes into account both the estimated five percent decrease in the
percentage of approved projects requesting modifications arising from
the effects of the proposed rule and an estimated two percent increase
in the number of approved projects due to higher projected Bank income.
The estimate for the average preparation time for each submission would
remain at 2.5 hours. Thus, FHFA's estimate for the total annual hour
burden on members and project sponsors and owners in connection with
the preparation and submission of these modification requests is 725
hours (290 requests x 2.5 hours).
4. Initial Monitoring Submissions for Approved General Fund and
Targeted Fund Projects
(a) Existing requirement: The current regulation requires generally
that a Bank monitor each owner-occupied and rental project receiving
AHP subsidy under its Competitive Application Program prior to and
after project completion. For initial monitoring, a Bank must determine
whether the project is making satisfactory progress towards completion,
in compliance with the commitments made in the approved AHP
application, Bank policies, and the AHP regulatory requirements.
Following project completion, the Bank must determine whether
satisfactory progress is being made towards occupancy of the project by
eligible households, and whether the project meets the regulatory
requirements and the commitments made in the approved AHP
application.\66\
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\66\ See 12 CFR 1291.7(a)(1).
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(b) Effect of proposed rule: In the case of approved projects that
also receive funding through LIHTCs, the proposed rule would retain the
initial monitoring requirement that project sponsors certify to the
Banks that the residents' incomes and the rents comply with the income-
targeting and rent commitments in the approved AHP application. The
proposed rule would also include a requirement, consistent with Bank
practice, that the Banks obtain and review the project's rent rolls, a
type of back-up documentation. However, the proposed rule would remove
the requirement that the Banks obtain and review other back-up
documentation on incomes and rents, such as W-2 forms, at initial
monitoring for LIHTC projects, which they are currently required to
review on a risk basis.
[[Page 11373]]
The proposed rule would also provide that, for AHP projects funded
by certain other government programs specified in separate FHFA
guidance, the Banks would be required to obtain and review only project
sponsor certifications and rent rolls at the initial monitoring stage.
For such projects, the Banks would not be required to review any back-
up documentation for incomes and rents, as is generally required at the
initial monitoring stage.
FHFA estimates that these proposed revisions would decrease the
average amount of time needed for Bank members and project sponsors or
owners to prepare and submit materials related to the initial
monitoring of approved projects by ten percent.
(c) Use: The Banks would use the information collected in
connection with their initial monitoring of approved General Fund and
Targeted Fund projects to determine whether the projects are making
satisfactory progress towards completion, and following project
completion, are making satisfactory progress towards occupancy of the
project by eligible households, in compliance with the commitments made
in the approved AHP applications, Bank policies, and the regulatory
requirements.
(d) Revised burden estimates: FHFA is increasing its estimate as to
the annual average number of submissions related to the initial
monitoring of in-progress and recently completed AHP projects from 500
to 510, which reflects an estimated two percent increase in the number
of approved projects due to projected higher Bank incomes. FHFA is
decreasing its estimate for the average preparation time for each
submission from 5 hours to 4.5 hours, which reflects the effects of the
proposed rule, as described above. Thus, FHFA's estimate for the total
annual hour burden on members and project sponsors and owners in
connection with the preparation and submission of documentation
required for initial monitoring of the Banks' General Fund and Targeted
Fund projects is 2,295 hours (510 submissions x 4.5 hours).
5. Long-Term Monitoring Submissions for Approved General Fund and
Targeted Fund Projects
(a) Existing requirement: The current regulation requires that for
long-term monitoring of rental projects, subject to certain exceptions,
a Bank must determine whether, during the 15-year retention period, the
household incomes and rents comply with the income-targeting and rent
commitments made in the approved AHP application.\67\ A Bank must
obtain and review appropriate documentation maintained by the project
sponsor or owner.
---------------------------------------------------------------------------
\67\ See 12 CFR 1291.7(a)(4).
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(b) Effect of proposed rule: The proposed rule would implement a
number of changes to streamline certain aspects of the long-term
monitoring process. Under the proposed rule, as under the current
regulation, project sponsors or owners of LIHTC projects would not be
required to submit compliance reports for such projects to the Bank
during the AHP retention period. The proposed rule, however, would add
a requirement that the members' AHP agreements with project sponsors
and owners include a provision requiring the party to notify the Bank
if a LIHTC project is noncompliant with the LIHTC income-targeting or
rent requirements at any time during the AHP 15-year retention period.
The proposed rule would also provide that, for AHP projects funded by
certain other government programs, the Banks would be required to
review only project sponsor certifications each year during the long-
term retention period. The Banks would not be required to review any
back-up documentation for incomes and rents, including rent rolls, for
those projects, as they are generally required to do on a risk basis.
The proposed rule would codify existing Bank best practices that
require submission by project sponsors of annual project certifications
during the AHP 15-year retention period that include not only the
required household income and rent information, but also information on
the ongoing financial viability of the project, such as whether the
project is current on property taxes and loan payments, its vacancy
rate, or whether it is in compliance with its commitments to other
funding sources.
FHFA estimates that the net effect of the above-described revisions
would be to decrease the average amount of time needed for Bank members
and project sponsors or owners to prepare and submit materials related
to the long-term monitoring of approved projects by ten percent.
(c) Use: The Banks would use the information collected as part of
their long-term monitoring to determine whether during the 15-year
retention period, completed rental projects under their General Funds
and Targeted Funds continue to comply with the household income-
targeting and rent commitments made in the approved AHP applications.
(d) Revised burden estimates: FHFA is increasing its estimate as to
the annual average number of submissions related to the long-term
monitoring of completed AHP rental projects from 4,800 to 4,900, which
reflects an estimated two percent increase in the number of approved
projects due to projected higher Bank incomes. FHFA is decreasing its
estimate for the average preparation time for each submission from 3
hours to 2.7 hours, which reflects the effects of the proposed rule, as
described above. Thus, FHFA's estimate for the total annual hour burden
on members and project sponsors and owners in connection with the
preparation and submission of documentation required for long-term
monitoring of completed rental projects approved under the Banks'
General Funds and Targeted Funds is 13,230 hours (4,900 submissions x
2.7 hours).
6. Homeownership Set-Aside Program Applications and Certifications
(a) Existing requirement: The current regulation authorizes each
Bank, in its discretion, to allocate up to the greater of $4.5 million
or 35 percent of its annual required AHP contribution to establish
Homeownership Set-Aside Programs for the purpose of promoting
homeownership for low- or moderate-income households.\68\ Under these
Homeownership Set-Aside Programs, a Bank provides to its members AHP
direct subsidies, which are provided by the members to eligible
households as grants to pay for down payment, closing cost, counseling
cost, or rehabilitation assistance in connection with the household's
purchase of a primary residence or rehabilitation of an owner-occupied
residence.\69\ Prior to the Bank's disbursement of a direct subsidy
under its Homeownership Set-Aside Program, the member must provide a
certification that the subsidy will be provided in compliance with all
applicable regulatory eligibility requirements.\70\
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\68\ See 12 CFR 1291.2(b)(2); 1291.6.
\69\ See 12 CFR 1291.6(c)(4).
\70\ See 12 CFR 1291.7(b)(2).
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(b) Effect of proposed rule: The proposed rule would increase the
maximum permissible percentage allocation amount for each Bank's
Homeownership Set-Aside Program from 35 to 40 percent of the Bank's
annual required AHP contribution, while retaining the existing
alternative maximum permissible allocation amount of $4.5 million. In
addition, the proposed rule would increase the maximum permissible
direct subsidy amount that a Bank could provide to a
[[Page 11374]]
household from $15,000 to $22,000, which would be adjusted annually to
reflect increases in FHFA's Housing Price Index. While adoption of the
proposed higher subsidy limit could result in fewer households
receiving set-aside subsidies, Banks could choose to offset this by
increasing the maximum amount of AHP funds they allocate to their
Homeownership Set-Aside Programs from 35 to 40 percent. Notwithstanding
that the Banks would be authorized to adopt a higher subsidy limit than
is permitted under the current regulation, FHFA expects that most Banks
will continue to establish lower subsidy limits in order to serve a
greater number of households. Accordingly, FHFA anticipates that the
proposed regulatory revisions may cause the Banks to provide a higher
number of set-aside subsidies annually.
None of the proposed revisions would affect the amount of time
needed for a Bank member to prepare a Homeownership Set-Aside Program
application or monitoring certification.
(c) Use: The Banks would use the information collected in
connection with their Homeownership Set-Aside Programs to determine
whether applications for direct subsidy under those programs were
approved, and the direct subsidies disbursed, in accordance with the
regulatory requirements.
(d) Revised burden estimates: FHFA is increasing its estimate as to
the annual average number of applications and required certifications
for AHP direct subsidies under the Banks' Homeownership Set-Aside
Programs from 13,000 to 15,000 to reflect anticipated higher amounts of
funds being available for the AHP due to projected higher Bank incomes,
in addition to the effect of the proposed increase--from 35 to 40
percent--in the percentage of their AHP contributions that the Banks
may allocate to their Homeownership Set-Aside Programs. The estimate
for the average preparation time for each submission would remain at 5
hours. Thus, FHFA's estimate for the total annual hour burden on
members in connection with the preparation and submission of
Homeownership Set-Aside Program applications and certifications is
75,000 hours (15,000 applications/certifications x 5 hours).
VII. Regulatory Flexibility Act
The Regulatory Flexibility Act \71\ requires that a regulation that
has a significant economic impact on a substantial number of small
entities, small businesses, or small organizations must include an
initial regulatory flexibility analysis describing the regulation's
impact on small entities. Such an analysis need not be undertaken if
the agency has certified that the regulation will not have a
significant economic impact on a substantial number of small
entities.\72\ FHFA has considered the impact of the proposed rule under
the Regulatory Flexibility Act. The General Counsel of FHFA certifies
that the proposed rule, if adopted as a final rule, is not likely to
have a significant economic impact on a substantial number of small
entities because the regulation applies to the Banks, which are not
small entities for purposes of the Regulatory Flexibility Act.
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\71\ 5 U.S.C. 601 et seq.
\72\ 5 U.S.C. 605(b).
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List of Subjects
12 CFR Part 1290
Banks and banking, Credit, Federal home loan banks, Housing,
Mortgages, Reporting and recordkeeping requirements.
12 CFR Part 1291
Community development, Credit, Federal home loan banks, Housing,
Low- and moderate-income housing, Mortgages, Reporting and
recordkeeping requirements.
For the reasons stated in the preamble, FHFA proposes to amend
parts 1290 and 1291 of Title 12 of the Code of Federal Regulations as
follows:
PART 1290--COMMUNITY SUPPORT REQUIREMENTS
0
1. The authority citation for part 1290 is revised to read as follows:
Authority: 12 U.S.C. 1430(g).
0
2. Amend Sec. 1290.6 by revising paragraph (a)(5) and adding
paragraphs (c) and (d) to read as follows:
Sec. 1290.6 Bank community support programs.
(a) * * *
(5) Include an annual Targeted Community Lending Plan, approved by
the Bank's board of directors and subject to modification. The Bank's
board of directors shall not delegate to a committee of the board, Bank
officers, or other Bank employees the responsibility to adopt or amend
the Targeted Community Lending Plan. The Targeted Community Lending
Plan shall:
(i) Reflect market research conducted in the Bank's district;
(ii) Describe how the Bank will address identified credit needs and
market opportunities in the Bank's district for targeted community
lending;
(iii) Be developed in consultation with (and may only be amended
after consultation with) its Advisory Council and with members, housing
associates, and public and private economic development organizations
in the Bank's district in developing and implementing its Targeted
Community Lending Plan;
(iv) Establish quantitative targeted community lending performance
goals; and
(v) Describe how the Bank will address identified significant
affordable housing needs in its district through its Affordable Housing
Program, reflecting:
(A) Market research conducted or obtained by the Bank on affordable
housing needs in the Bank's district;
(B) Identification and assessment of significant affordable housing
needs in the Bank's district, supported by empirical data; and
(C) Specification, from among the identified affordable housing
needs, of the specific affordable housing needs the Bank will address
through its funding allocations and scoring criteria under its General
Fund and any Bank Targeted Funds and Homeownership Set-Aside Programs,
as set forth in its AHP Implementation Plan pursuant to 12 CFR
1291.13(b).
* * * * *
(c) Public access. A Bank shall publish its current Targeted
Community Lending Plan on its publicly available website, and shall
publish any amendments to its Targeted Community Lending Plan on the
website within 30 days after the date of their adoption by the Bank's
board of directors. Publication of the Targeted Community Lending Plan
on the website shall be at least six months before the beginning of the
Plan year.
(d) Notification of Plan amendments to FHFA. A Bank shall notify
FHFA of any amendments to its Targeted Community Lending Plan within 30
days after the date of their adoption by the Bank's board of directors.
PART 1291--FEDERAL HOME LOAN BANKS' AFFORDABLE HOUSING PROGRAM
0
3. Revise part 1291 to read as follows:
PART 1291--FEDERAL HOME LOAN BANKS' AFFORDABLE HOUSING PROGRAM
Subpart A--General
Sec.
1291.1 Definitions.
[[Page 11375]]
Subpart B--Program Administration and Governance
1291.10 Required annual AHP contribution.
1291.11 Temporary suspension of AHP contributions.
1291.12 Allocation of required annual AHP contribution.
1291.13 Targeted Community Lending Plan; AHP Implementation Plan.
1291.14 Advisory Councils.
1291.15 Agreements.
1291.16 Conflicts of interest.
Subpart C--General Fund and Targeted Funds
1291.20 Establishment of programs.
1291.21 Eligible applicants.
1291.22 Funding periods; application process.
1291.23 Eligible projects.
1291.24 Eligible uses.
1291.25 Scoring methodology.
1291.26 Approval of AHP applications.
1291.27 Modifications of approved AHP applications.
1291.28 Procedures for funding.
1291.29 Lending and re-lending of AHP direct subsidy by revolving
loan funds.
1291.30 Use of AHP subsidy in loan pools.
Subpart D--Homeownership Set-Aside Programs
1291.40 Establishment of programs.
1291.41 Eligible applicants.
1291.42 Eligibility requirements.
1291.43 Approval of AHP applications.
1291.44 Procedures for funding.
Subpart E--Outcome Requirements for Statutory and Regulatory Priorities
1291.48 Outcome requirements for statutory and regulatory
priorities.
1291.49 Determination of compliance with outcome requirements;
notice of determination.
Subpart F--Monitoring
1291.50 Monitoring under General Fund and Targeted Funds.
1291.51 Monitoring under Homeownership Set-Aside Programs.
Subpart G--Remedial Actions for Noncompliance
1291.60 Remedial actions for project noncompliance.
1291.61 Recovery of subsidy for member noncompliance.
1291.62 Bank reimbursement of AHP fund.
1291.63 Suspension and debarment.
1291.64 Use of repaid AHP subsidies for other AHP-eligible projects
and households.
1291.65 Remedial actions for Bank noncompliance with outcome
requirements.
1291.66 Transfer of Program administration.
Subpart H--Affordable Housing Reserve Fund
1291.70 Affordable Housing Reserve Fund.
Authority: 12 U.S.C. 1430(j).
Subpart A--General
Sec. 1291.1 Definitions.
As used in this part:
Affordable means that:
(1) The rent charged to a household for a unit that is to be
reserved for occupancy by a household with an income at or below 80
percent of the median income for the area, does not exceed 30 percent
of the income of a household of the maximum income and size expected,
under the commitment made in the AHP application, to occupy the unit
(assuming occupancy of 1.5 persons per bedroom or 1.0 persons per unit
without a separate bedroom); or
(2) The rent charged to a household, for rental units subsidized
with Section 8 assistance under 42 U.S.C. 1437f or subsidized under
another assistance program where the rents are charged in the same way
as under the Section 8 Program, if the rent complied with this
definition at the time of the household's initial occupancy and the
household continues to be assisted through the Section 8 or another
assistance program, respectively.
AHP means the Affordable Housing Program required to be established
by the Banks pursuant to 12 U.S.C. 1430(j) and this part.
AHP project means a single-family or multifamily housing project
for owner-occupied or rental housing that has been awarded or has
received AHP subsidy under a Bank's General Fund and any Targeted Funds
established by the Bank.
Cost of funds means, for purposes of a subsidized advance, the
estimated cost of issuing Bank System consolidated obligations with
maturities comparable to that of the subsidized advance.
Direct subsidy means an AHP subsidy in the form of a direct cash
payment.
Eligible household means a household that meets the income limits
and other requirements specified by a Bank for its General Fund and any
Targeted Funds and Homeownership Set-Aside Programs established by the
Bank, provided that:
(1) In the case of owner-occupied housing, the household's income
may not exceed 80 percent of the median income for the area; and
(2) In the case of rental housing, the household's income in at
least 20 percent of the units may not exceed 50 percent of the median
income for the area.
Eligible project means a project eligible to receive AHP subsidy
pursuant to the requirements of this part.
Extremely low-income household means a household that has an income
at or below 30 percent of the median income for the area, with the
income limit adjusted for household size in accordance with the
methodology of the applicable median income standard selected from
those enumerated in the definition of ``median income for the area,''
unless such median income standard has no household size adjustment
methodology.
Family member means any individual related to a person by blood,
marriage, or adoption.
Funding period means a time period, as determined by a Bank, during
which the Bank accepts AHP applications for subsidy under the Bank's
General Fund and any Targeted Funds established by the Bank.
General Fund means a program required to be established by a Bank
under which the Bank approves (i.e., awards) applications for AHP
subsidy through a competitive application scoring process developed by
the Bank and disburses the subsidy, pursuant to the requirements of
this part.
Homeownership Set-Aside Program means a program established by a
Bank, in its discretion, under which the Bank approves (i.e., awards)
applications for AHP direct subsidy through a noncompetitive process
developed by the Bank and disburses the subsidy, pursuant to the
requirements of this part.
Loan pool means a group of mortgage or other loans meeting the
requirements of this part that are purchased, pooled, and held in
trust.
Low- or moderate-income household means a household that has an
income of 80 percent or less of the median income for the area, with
the income limit adjusted for household size in accordance with the
methodology of the applicable median income standard selected from
those enumerated in the definition of ``median income for the area,''
unless such median income standard has no household size adjustment
methodology.
Low- or moderate-income neighborhood means any neighborhood in
which 51 percent or more of the households have incomes at or below 80
percent of the median income for the area.
Median income for the area means one or more of the following
median income standards as determined by a Bank, after consultation
with its Advisory Council, in its AHP Implementation Plan:
(1) The median income for the area, as published annually by HUD;
(2) The median income for the area obtained from the Federal
Financial Institutions Examination Council;
[[Page 11376]]
(3) The applicable median family income, as determined under 26
U.S.C. 143(f) (Mortgage Revenue Bonds) and published by a state agency
or instrumentality;
(4) The median income for the area, as published by the United
States Department of Agriculture; or
(5) The median income for an applicable definable geographic area,
as published by a federal, state, or local government entity, and
approved by FHFA, at the request of a Bank, for use under the AHP.
Multifamily building means a structure with five or more dwelling
units.
Net earnings of a Bank means the net earnings of a Bank for a
calendar year before declaring or paying any dividend under section 16
of the Bank Act (12 U.S.C. 1436). For purposes of this part,
``dividend'' includes any dividends on capital stock subject to a
redemption request even if under GAAP those dividends are treated as an
``interest expense.''
Owner-occupied project means, for purposes of a Bank's General Fund
and any Targeted Funds established by the Bank, one or more owner-
occupied units in a single-family or multifamily building, including
condominiums, cooperative housing, and manufactured housing.
Owner-occupied unit means a dwelling unit occupied by the owner of
the unit. Housing with two to four dwelling units consisting of one
owner-occupied unit and one or more rental units is considered a single
owner-occupied unit.
Program means the Affordable Housing Program established pursuant
to this part.
Regulatory priority means underserved communities and populations,
creating economic opportunity, or affordable housing preservation, as
described in Sec. 1291.48(d)(1), (d)(2), or (d)(3), respectively.
Rental project means, for purposes of a Bank's General Fund and any
Targeted Funds established by the Bank, one or more dwelling units for
occupancy by households that are not owner-occupants, including
overnight and emergency shelters, transitional housing for homeless
households, mutual housing, single-room occupancy housing, and
manufactured housing communities.
Retention period means fifteen years from the date of completion
for a rental project.
Revolving loan fund means a capital fund established to make
mortgage or other loans whereby loan principal is repaid into the fund
and re-lent to other borrowers.
Single-family building means a structure with one to four dwelling
units.
Sponsor means a not-for-profit or for-profit organization or public
entity that:
(1) Has an ownership interest (including any partnership interest),
as defined by the Bank in its AHP Implementation Plan, in a rental
project;
(2) Is integrally involved, as defined by the Bank in its AHP
Implementation Plan, in an owner-occupied project, such as by
exercising control over the planning, development, or management of the
project, or by qualifying borrowers and providing or arranging
financing for the owners of the units;
(3) Operates a loan pool; or
(4) Is a revolving loan fund.
Statutory priority means use of donated or conveyed government-
owned or other properties, project sponsorship by a not-for-profit
organization or government entity, or purchase of homes by low- or
moderate-income households, as described in Sec. 1291.48(a)(1),
(a)(2), or (b), respectively.
Subsidized advance means an advance to a member at an interest rate
reduced below the Bank's cost of funds by use of a subsidy.
Subsidy means:
(1) A direct subsidy, provided that if a direct subsidy is used to
write down the interest rate on a loan extended by a member, sponsor,
or other party to a project, the subsidy must equal the net present
value of the interest foregone from making the loan below the lender's
market interest rate; or
(2) The net present value of the interest revenue foregone from
making a subsidized advance at a rate below the Bank's cost of funds.
Targeted Fund means a program established by a Bank, in its
discretion, under which the Bank approves (i.e., awards) applications
for AHP subsidy through a competitive application scoring process
developed by the Bank and disburses the subsidy, pursuant to the
requirements of this part.
Very low-income household means a household that has an income at
or below 50 percent of the median income for the area, with the income
limit adjusted for household size in accordance with the methodology of
the applicable median income standard selected from those enumerated in
the definition of ``median income for the area,'' unless such median
income standard has no household size adjustment methodology.
Visitable means, in either owner-occupied or rental housing, at
least one entrance is at-grade (no steps) and approached by an
accessible route such as a sidewalk, and the entrance door and all
interior passage doors are at least 2 feet, 10 inches wide, offering 32
inches of clear passage space.
Subpart B--Program Administration and Governance
Sec. 1291.10 Required annual AHP contribution.
Each Bank shall contribute annually to its Program the greater of:
(a) 10 percent of the Bank's net earnings for the previous year; or
(b) That Bank's pro rata share of an aggregate of $100 million to
be contributed in total by the Banks, such proration being made on the
basis of the net earnings of the Banks for the previous year, except
that the required annual AHP contribution for a Bank shall not exceed
its net earnings in the previous year.
Sec. 1291.11 Temporary suspension of AHP contributions.
(a) Request to FHFA. If a Bank finds that the contributions
required pursuant to Sec. 1291.10 are contributing to the financial
instability of the Bank, the Bank may apply in writing to FHFA for a
temporary suspension of such contributions.
(b) Director review.--(1) In determining the financial instability
of a Bank, the Director shall consider such factors as:
(i) Severely depressed Bank earnings;
(ii) A substantial decline in Bank membership capital; and
(iii) A substantial reduction in Bank advances outstanding.
(2) Limitations on grounds for suspension. The Director shall not
suspend a Bank's annual AHP contributions if it determines that the
Bank's reduction in earnings is due to:
(i) A change in the terms of advances to members that is not
justified by market conditions;
(ii) Inordinate operating and administrative expenses; or
(iii) Mismanagement.
Sec. 1291.12 Allocation of required annual AHP contribution.
Each Bank, after consultation with its Advisory Council and
pursuant to written policies adopted by the Bank's board of directors,
shall meet the following requirements for allocation of its required
annual AHP contribution.
(a) General Fund. Each Bank shall allocate annually at least 50
percent of its required annual AHP contribution to provide funds to
members through a General Fund established and
[[Page 11377]]
administered by the Bank pursuant to the requirements of this part.
(b) Homeownership Set-Aside Programs. A Bank may, in its
discretion, allocate annually, in the aggregate, up to the greater of
$4.5 million or 40 percent of its required annual AHP contribution to
provide funds to members participating in Homeownership Set-Aside
Programs established and administered by the Bank pursuant to the
requirements of this part, provided that at least one-third of the
Bank's aggregate annual set-aside allocation to such programs is
allocated to assist first-time homebuyers or households for owner-
occupied rehabilitation.
(c) Targeted Funds.--(1) Phase-in requirements for funding
allocations. Unless otherwise directed by FHFA and subject to the
phase-in requirements for the number of Targeted Funds in Sec.
1291.20(b), a Bank may, in its discretion, allocate annually, up to:
(i) 20 percent, in the aggregate, of its required annual AHP
contribution to any Targeted Funds;
(ii) 30 percent, in the aggregate, of its required annual AHP
contribution to any Targeted Funds, provided that it allocated at least
20 percent, in the aggregate, of its required annual AHP contribution
to one or more Targeted Funds in any preceding year; or
(iii) 40 percent, in the aggregate, of its required annual AHP
contribution to any Targeted Funds, provided that it allocated at least
30 percent, in the aggregate, of its required annual AHP contribution
to one or more Targeted Funds in any preceding year.
(2) Transfer of uncommitted funds. A Bank shall transfer any
uncommitted Targeted Fund amounts to its General Fund for awards to
alternates under the General Fund in the same calendar year.
(d) Acceleration of funding. A Bank may, in its discretion,
accelerate to its current year's Program from future required annual
AHP contributions an amount up to the greater of $5 million or 20
percent of its required annual AHP contribution for the current year.
The Bank may credit the amount of the accelerated contribution against
required AHP contributions under this part 1291 over one or more of the
subsequent five years.
(e) No delegation. A Bank's board of directors shall not delegate
to a committee of the board, Bank officers, or other Bank employees the
responsibility for adopting the Bank's policies for its General Fund
and any Bank Targeted Funds and Homeownership Set-Aside Programs.
Sec. 1291.13 Targeted Community Lending Plan; AHP Implementation
Plan.
(a) Targeted Community Lending Plan. Pursuant to the requirements
of 12 CFR 1290.6(a)(5)(v), a Bank's annual Targeted Community Lending
Plan adopted under its community support program shall, among other
things, identify the significant affordable housing needs in its
district that will be addressed through its General Fund and any Bank
Targeted Funds and Homeownership Set-Aside Programs, as set forth in
its AHP Implementation Plan.
(b) AHP Implementation Plan. Each Bank's board of directors, after
consultation with its Advisory Council, shall adopt a written AHP
Implementation Plan, and shall not amend the AHP Implementation Plan
without first consulting its Advisory Council. The Bank's board of
directors shall not delegate to a committee of the board, Bank
officers, or other Bank employees the responsibility for such prior
consultations with the Advisory Council or the responsibility for
adopting or amending the AHP Implementation Plan. The AHP
Implementation Plan shall set forth, at a minimum:
(1) The applicable median income standard or standards adopted by
the Bank consistent with the definition of median income for the area
in Sec. 1291.1.
(2) For the General Fund established by the Bank pursuant to Sec.
1291.20(a), the Bank's requirements for the General Fund, including the
specific funding allocation pursuant to Sec. 1291.12(a), the Bank's
scoring criteria, including its scoring tie-breaker policy, adopted
pursuant to Sec. 1291.25(d), and the possibility of re-ranking scored
applications and alternates pursuant to Sec. 1291.26.
(3) For each Targeted Fund established by the Bank, if any,
pursuant to Sec. 1291.20(b), the Bank's requirements for the Targeted
Fund, including the specific funding allocation pursuant to Sec.
1291.12(c), the Bank's scoring criteria, including its scoring tie-
breaker policy, adopted pursuant to Sec. 1291.25(d), the possibility
of re-ranking scored applications and alternates pursuant to Sec.
1291.26, and the controls adopted pursuant to Sec. 1291.20(c)(1).
(4) The Bank's policy on how it will decide under which Fund to
approve a project that scores high enough to be approved under multiple
Funds, pursuant to Sec. 1291.26(d).
(5) For each Homeownership Set-Aside Program established by the
Bank, if any, pursuant to Sec. 1291.40, the Bank's requirements for
the program, including the specific funding allocation, how the one-
third allocation requirement is apportioned with respect to first-time
homebuyers and households for owner-occupied rehabilitation pursuant to
Sec. 1291.12(b), and the Bank's application and subsidy disbursement
methodology.
(6) The Bank's retention agreement requirements for rental projects
under its General Fund and any Bank Targeted Funds pursuant to Sec.
1291.15(a)(7).
(7) Any optional Bank district eligibility requirements adopted by
the Bank pursuant to Sec. 1291.24(c).
(8) The Bank's requirements for funding revolving loan funds, if
adopted by the Bank pursuant to Sec. 1291.29;
(9) The Bank's requirements for funding loan pools, if adopted by
the Bank pursuant to Sec. 1291.30;
(10) The Bank's requirements for monitoring under its General Fund
and any Bank Targeted Funds and Homeownership Set-Aside Programs
pursuant to Sec. Sec. 1291.50 and 1291.51.
(c) Advisory Council review. Prior to the amendment of a Bank's AHP
Implementation Plan, the Bank shall provide its Advisory Council an
opportunity to review the document, and the Advisory Council shall
provide its recommendations to the Bank's board of directors for its
consideration.
(d) Notification of Plan amendments to FHFA. A Bank shall notify
FHFA of any amendments made to its AHP Implementation Plan within 30
days after the date of their adoption by the Bank's board of directors.
(e) Public access. A Bank shall publish its current AHP
Implementation Plan on its publicly available website, and shall
publish any amendments to the AHP Implementation Plan on the website
within 30 days after the date of their adoption by the Bank's board of
directors.
Sec. 1291.14 Advisory Councils.
(a) Appointment.--(1) Each Bank's board of directors shall appoint
an Advisory Council of 7 to 15 persons who reside in the Bank's
district and are drawn from community and not-for-profit organizations
that are actively involved in providing or promoting low- and moderate-
income housing, and community and not-for-profit organizations that are
actively involved in providing or promoting community lending, in the
district. Community organizations include for-profit organizations.
(2) Each Bank shall solicit nominations for membership on the
Advisory Council from community and not-for-profit organizations
pursuant to a nomination process that is as broad
[[Page 11378]]
and as participatory as possible, allowing sufficient time for
responses.
(3) The Bank's board of directors shall appoint Advisory Council
members from a diverse range of organizations so that representatives
of no one group constitute an undue proportion of the membership of the
Advisory Council, giving consideration to the size of the Bank's
district and the diversity of low- and moderate-income housing and
community lending needs and activities within the district.
(b) Terms of Advisory Council members. Pursuant to policies adopted
by the Bank's board of directors, Advisory Council members shall be
appointed by the Bank's board of directors to serve for terms of three
years, which shall be staggered to provide continuity in experience and
service to the Advisory Council, except that Advisory Council members
may be appointed to serve for terms of one or two years solely for
purposes of reconfiguring the staggering of the three-year terms. No
Advisory Council member may be appointed to serve for more than three
full consecutive terms. An Advisory Council member appointed to fill a
vacancy shall be appointed for the unexpired term of his or her
predecessor in office.
(c) Election of officers. Each Advisory Council shall elect from
among its members a chairperson, a vice chairperson, and any other
officers the Advisory Council deems appropriate.
(d) Duties--(1) Meetings with the Banks.--(i) The Advisory Council
shall meet with representatives of the Bank's board of directors at
least quarterly to provide advice on ways in which the Bank can better
carry out its housing finance and community lending mission, including,
but not limited to, advice on the low- and moderate-income housing and
community lending programs and needs in the Bank's district, and on the
use of AHP subsidies, Bank advances, and other Bank credit products for
these purposes.
(ii) The Advisory Council's advice shall include recommendations
on:
(A) The Bank's Targeted Community Lending Plan, and any amendments
thereto, adopted by the Bank pursuant to 12 CFR 1290.6(a)(5)(iii);
(B) The amount of AHP funds to be allocated to the Bank's General
Fund and any Bank Targeted Funds, and the amount of AHP funds to be
allocated to any Bank Homeownership Set-Aside Programs, including the
apportionment of the funds between first-time homebuyers and households
for owner-occupied rehabilitation under the one-third allocation
requirement in Sec. 1291.12(b);
(C) The AHP Implementation Plan and any subsequent amendments
thereto;
(D) The Bank's scoring criteria, related definitions, and any
additional optional district eligibility requirements for the Bank's
General Fund and any Bank Targeted Funds; and
(E) The eligibility requirements and any priority criteria for any
Bank Homeownership Set-Aside Programs.
(2) Summary of AHP applications. The Bank shall comply with
requests from the Advisory Council for summary information regarding
AHP applications from prior funding periods.
(3) Annual analysis; public access--(i) Each Advisory Council
annually shall submit to FHFA by May 1 its analysis of the low- and
moderate-income housing and community lending activity of the Bank by
which it is appointed.
(ii) Within 30 days after the date the Advisory Council's annual
analysis is submitted to FHFA, the Bank shall publish the analysis on
its publicly available website.
(e) Expenses. The Bank shall pay Advisory Council members' travel
expenses, including transportation and subsistence, for each day
devoted to attending meetings with representatives of the board of
directors of the Bank and meetings requested by FHFA.
(f) No delegation. A Bank's board of directors may delegate to a
committee of the board, but not to Bank officers or other Bank
employees, the responsibility to appoint persons as members of the
Advisory Council. A Bank's board of directors may not delegate to a
committee of the board, Bank officers, or other Bank employees the
responsibility to meet with the Advisory Council at the quarterly
meetings required by the Bank Act (12 U.S.C. 1430(j)(11)).
Sec. 1291.15 Agreements.
(a) Agreements between Banks and members. A Bank shall have in
place with each member receiving an AHP subsidized advance or AHP
direct subsidy an agreement or agreements containing, at a minimum, the
following provisions, where applicable:
(1) Notification of member. The member has been notified of the
requirements of this part as they may be amended from time to time, and
all Bank policies relevant to the member's approved application for AHP
subsidy.
(2) AHP subsidy pass-through. The member shall pass on the full
amount of the AHP subsidy to the project or household, as applicable,
for which the subsidy was approved.
(3) Use of AHP subsidy--(i) Use of AHP subsidy by the member. The
member shall use the AHP subsidy in accordance with the terms of the
member's approved application for the subsidy and the requirements of
this part.
(ii) Use of AHP subsidy by the project sponsor or owner. The member
shall have in place an agreement with each project sponsor or project
owner in which the project sponsor or project owner agrees to use the
AHP subsidy in accordance with the terms of the member's approved
application for the subsidy and the requirements of this part.
(4) Repayment of AHP subsidies in case of noncompliance.--(i)
Noncompliance by the member. The member shall repay AHP subsidies to
the Bank in accordance with the requirements of Sec. 1291.61.
(ii) Noncompliance by a project sponsor or project owner.--(A)
Agreement. The member shall have in place an agreement with each
project sponsor or project owner in which the project sponsor or
project owner agrees to repay AHP subsidies to the member or the Bank
in accordance with the requirements of Sec. 1291.60.
(B) Recovery of AHP subsidies.--(i) Noncompliance by the member.
The member shall recover from the project sponsor or project owner and
repay to the Bank AHP subsidy in accordance with the requirements of
Sec. 1291.60 (if applicable).
(5) Project monitoring--(i) Monitoring by the member. The member
shall comply with the monitoring requirements applicable to it, as
established by the Bank in its monitoring policies pursuant to
Sec. Sec. 1291.50 and 1291.51.
(ii) Agreement. The member shall have in place an agreement with
each project sponsor and project owner, in which the project sponsor
and project owner agree to comply with the monitoring requirements
applicable to such parties, as established by the Bank in its
monitoring policies pursuant to Sec. 1291.50, which shall also include
agreeing to provide prompt written notice to the Bank if the project
also received tax credits under the Low-Income Housing Tax Credit
Program and the project is in noncompliance with the income targeting
or rent requirements applicable under the Low-Income Housing Tax Credit
Program at any time during the AHP 15-year retention period.
(6) Transfer of AHP obligations--(i) To another member. The member
shall make best efforts to transfer its obligations under the approved
[[Page 11379]]
application for AHP subsidy to another member in the event of its loss
of membership in the Bank prior to the Bank's final disbursement of AHP
subsidies.
(ii) To a nonmember. If, after final disbursement of AHP subsidies
to the member, the member undergoes an acquisition or a consolidation
resulting in a successor organization that is not a member of the Bank,
the nonmember successor organization assumes the member's obligations
under its approved application for AHP subsidy, and where the member
received an AHP subsidized advance, the nonmember assumes such
obligations until prepayment or orderly liquidation by the nonmember of
the subsidized advance.
(7) Retention agreements for rental projects. The member shall
ensure that an AHP-assisted rental project is subject to a deed
restriction or other legally enforceable retention agreement or
mechanism requiring that:
(i) The project's rental units, or applicable portion thereof, must
remain occupied by and affordable for households with incomes at or
below the levels committed to be served in the approved AHP application
for the duration of the retention period;
(ii) The Bank and its designee is to be given notice of any sale,
transfer, assignment of title or deed, or refinancing of the project
during the retention period;
(iii) In the case of a sale, transfer, assignment of title or deed,
or refinancing of the project by the owner during the retention period,
the full amount of the AHP subsidy received by the owner shall be
repaid to the Bank, unless:
(A) The project continues to be subject to a deed restriction or
other legally enforceable retention agreement or mechanism
incorporating the income-eligibility and affordability restrictions
committed to in the approved AHP application for the duration of the
retention period; or
(B) If authorized by the Bank, in its discretion, the households
are relocated, due to the exercise of eminent domain, or for expansion
of housing or services, to another property that is made subject to a
deed restriction or other legally enforceable retention agreement or
mechanism incorporating the income-eligibility and affordability
restrictions committed to in the approved AHP application for the
remainder of the retention period; and
(iv) The income-eligibility and affordability restrictions
applicable to the project shall terminate after any foreclosure.
(8) Lending of AHP direct subsidies. If a member or a project
sponsor lends AHP direct subsidy to a project, any repayments of
principal and payments of interest received by the member or the
project sponsor must be paid forthwith to the Bank, unless the direct
subsidy is being both lent and re-lent by a revolving loan fund
pursuant to Sec. 1291.29(d).
(9) Special provisions where members obtain AHP subsidized
advances.--(i) Repayment schedule. The term of an AHP subsidized
advance shall be no longer than the term of the member's loan to the
project funded by the advance, and at least once in every 12-month
period, the member shall be scheduled to make a principal repayment to
the Bank equal to the amount scheduled to be repaid to the member on
its loan to the project in that period.
(ii) Prepayment fees. Upon a prepayment of an AHP subsidized
advance, the Bank shall charge a prepayment fee only to the extent the
Bank suffers an economic loss from the prepayment.
(iii) Treatment of loan prepayment by project. If all or a portion
of the loan or loans financed by an AHP subsidized advance are prepaid
by the project to the member, the member may, at its option, either:
(A) Repay to the Bank that portion of the advance used to make the
loan or loans to the project, and be subject to a fee imposed by the
Bank sufficient to compensate the Bank for any economic loss the Bank
experiences in reinvesting the repaid amount at a rate of return below
the cost of funds originally used by the Bank to calculate the interest
rate subsidy incorporated in the advance; or
(B) Continue to maintain the advance outstanding, subject to the
Bank resetting the interest rate on that portion of the advance used to
make the loan or loans to the project to a rate equal to the cost of
funds originally used by the Bank to calculate the interest rate
subsidy incorporated in the advance.
(b) Agreements between Banks and project sponsors or project
owners.--(1) A Bank may have in place an agreement with each project
sponsor or project owner, in which the project sponsor or project owner
agrees to repay AHP subsidies directly to the Bank in accordance with
the requirements of Sec. 1291.60.
(2) Project sponsor qualifications. A Bank's AHP subsidy
application form or other related document must include project sponsor
qualification criteria that evaluate the ability of the project sponsor
(including all affiliates and team members such as the general
contractor) to perform the responsibilities committed to in the
application. The application form or other related document shall
include a requirement for the project sponsor to provide certifications
or respond to specific questions about whether the project sponsor (and
affiliates and team members such as the general contractor) have
engaged in misconduct as defined in FHFA's Suspended Counterparty
Program regulation (12 CFR part 1227), or as defined by the Bank. A
Bank's AHP subsidy disbursement form or other related form shall
include a requirement for similar certifications or questions for the
project sponsor to complete prior to each disbursement of AHP subsidy.
(c) Application to existing AHP projects and units. The
requirements of section 10(j) of the Bank Act (12 U.S.C. 1430(j)) and
the provisions of this part, as amended, are incorporated into all
agreements between Banks, members, project sponsors, and project owners
receiving AHP subsidies under the General Fund and any Bank Targeted
Funds, and between Banks, members and unit owners under any Bank
Homeownership Set-Aside Programs. To the extent the requirements of
this part are amended from time to time, such agreements are deemed to
incorporate the amendments to conform to any new requirements of this
part. No amendment to this part shall affect the legality of actions
taken prior to the effective date of such amendment.
Sec. 1291.16 Conflicts of interest.
(a) Bank directors and employees.--(1) Each Bank's board of
directors shall adopt a written policy providing that if a Bank
director or employee, or such person's family member, has a financial
interest in, or is a director, officer, or employee of an organization
involved in, a project that is the subject of a pending or approved AHP
application, the Bank director or employee shall not participate in or
attempt to influence decisions by the Bank regarding the evaluation,
approval, funding, monitoring, or any remedial process for such
project.
(2) If a Bank director or employee, or such person's family member,
has a financial interest in, or is a director, officer, or employee of
an organization involved in, an AHP project such that he or she is
subject to the requirements in paragraph (a)(1) of this section, such
person shall not participate in or attempt to influence decisions by
the Bank regarding the evaluation, approval, funding, monitoring, or
any remedial process for such project.
[[Page 11380]]
(b) Advisory Council members.--(1) Each Bank's board of directors
shall adopt a written policy providing that if an Advisory Council
member, or such person's family member, has a financial interest in, or
is a director, officer, or employee of an organization involved in, a
project that is the subject of a pending or approved AHP application,
the Advisory Council member shall not participate in or attempt to
influence decisions by the Bank regarding the approval for such
project.
(2) If an Advisory Council member, or such person's family member,
has a financial interest in, or is a director, officer, or employee of
an organization involved in, an AHP project such that he or she is
subject to the requirements in paragraph (b)(1) of this section, such
person shall not participate in or attempt to influence decisions by
the Bank regarding the approval for such project.
(c) No delegation. A Bank's board of directors shall not delegate
to Bank officers or other Bank employees the responsibility to adopt
the conflict of interest policies required by this section.
Subpart C--General Fund and Targeted Funds
Sec. 1291.20 Establishment of programs.
(a) General Fund. A Bank shall establish a General Fund pursuant to
the requirements of this part.
(b) Targeted Funds.--(1) Number of Funds. A Bank may establish, in
its discretion, a maximum of three Targeted Funds pursuant to the
requirements of paragraph (b)(2) of this section, the phase-in funding
allocation requirements in Sec. 1291.12(c)(1), and any other
applicable requirements of this part. A Bank may not establish or
administer a Targeted Fund unless at least 12 months have passed since
the publication of the Targeted Community Lending Plan in which the
Bank identifies the specific housing needs to be addressed by that
Targeted Fund.
(2) Phase-in requirements for number of Funds. Unless otherwise
directed by FHFA, a Bank may establish:
(i) One Targeted Fund;
(ii) Two Targeted Funds to be administered concurrently, provided
that the Bank administered at least one Targeted Fund in any preceding
year; or
(iii) Three Targeted Funds to be administered concurrently,
provided that the Bank administered at least two Targeted Funds in any
preceding year.
(c) Eligibility requirements.--(1) A Bank shall adopt and implement
controls, which shall be included in its AHP Implementation Plan, for
ensuring that each Targeted Fund is designed to receive sufficient
numbers of applicants for the amount of AHP funds allocated to the
Targeted Fund to enable the Bank to facilitate a genuinely competitive
scoring process.
(2) A Bank may not adopt additional eligibility requirements for
its General Fund and any Targeted Funds except as specifically
authorized in this part.
Sec. 1291.21 Eligible applicants.
(a) Member applicants. A Bank shall accept applications for AHP
subsidy under its General Fund and any Bank Targeted Funds only from
institutions that are members of the Bank at the time the application
is submitted to the Bank.
(b) Project sponsor qualifications--(i) In general. A project
sponsor, including all affiliates and team members such as the general
contractor, must be qualified and able to perform its responsibilities
as committed to in the application for AHP subsidy funding the project.
(ii) Revolving loan fund. Pursuant to written policies adopted by a
Bank's board of directors, a revolving loan fund sponsor that intends
to use AHP direct subsidy in accordance with Sec. 1291.29 shall:
(A) Provide audited financial statements that its operations are
consistent with sound business practices; and
(B) Demonstrate the ability to re-lend AHP subsidy repayments on a
timely basis and track the use of the AHP subsidy.
(iii) Loan pool. Pursuant to written policies adopted by a Bank's
board of directors, a loan pool sponsor that intends to use AHP subsidy
in accordance with Sec. 1291.30 shall:
(A) Provide evidence of sound asset/liability management practices;
(B) Provide audited financial statements that its operations are
consistent with sound business practices; and
(C) Demonstrate the ability to track the use of the AHP subsidy.
Sec. 1291.22 Funding periods; application process.
(a) Funding periods. A Bank may accept applications for AHP subsidy
under its General Fund and any Bank Targeted Funds during a specified
number of funding periods each year, as determined by the Bank.
(b) Submission of applications. Except as provided in Sec.
1291.29(a), a Bank shall require applications for AHP subsidy to
contain information sufficient for the Bank to:
(1) Determine that the proposed AHP project meets the eligibility
requirements of this part; and
(2) Evaluate the application pursuant to the scoring methodology
adopted by the Bank pursuant to Sec. 1291.25.
(c) Review of applications submitted. Except as provided in Sec.
1291.29(b), a Bank shall review the applications for AHP subsidy to
determine that the proposed AHP project meets the eligibility
requirements of this part, and shall evaluate the applications pursuant
to the Bank's scoring methodology adopted pursuant to Sec. 1291.25.
Sec. 1291.23 Eligible projects.
Projects receiving AHP subsidies pursuant to a Bank's General Fund
and any Bank Targeted Funds must meet the following eligibility
requirements:
(a) Owner-occupied or rental housing. The AHP subsidy shall be used
exclusively for:
(1) Owner-occupied housing. The purchase, construction, or
rehabilitation of an owner-occupied project by or for very low-income
or low- or moderate-income households, where the housing is to be used
as the household's primary residence. A household must have an income
meeting the income targeting commitments in the approved AHP
application at the time it is qualified by the project sponsor for
participation in the project;
(2) Rental housing. The purchase, construction, or rehabilitation
of a rental project, where at least 20 percent of the units in the
project are occupied by and affordable for very low-income households.
(i) Projects that are not occupied. For a rental project that is
not occupied at the time the AHP application is submitted to the Bank
for approval, a household must have an income meeting the income
targeting commitments in the approved AHP application upon initial
occupancy of the rental unit.
(ii) Projects that are occupied. For a rental project involving
purchase or rehabilitation that is occupied at the time the AHP
application is submitted to the Bank for approval, a household must
have an income meeting the income targeting commitments in the approved
AHP application at the time of such submission. If the project has a
plan approved by one of its primary funders to relocate the households
not meeting the income targeting commitments, a household must have an
income meeting the income targeting commitments upon initial occupancy
of the rental unit.
(b) Project feasibility--(1) Developmental feasibility. The project
must be likely to be completed and occupied, based on relevant factors
contained in the Bank's project
[[Page 11381]]
feasibility guidelines, including, but not limited to, the development
budget, market analysis, and project sponsor's experience in providing
the requested assistance to households.
(2) Operational feasibility of rental projects. A rental project
must be able to operate in a financially sound manner, in accordance
with the Bank's project feasibility guidelines, as projected in the
project's operating pro forma.
(c) Timing of AHP subsidy use. Some or all of the AHP subsidy must
be likely to be drawn down by the project or used by the project to
procure other financing commitments within 12 months of the date of
approval of the application for AHP subsidy funding the project.
(d) Retention agreements for rental projects. AHP-assisted rental
projects are, or are committed to be, subject to a 15-year retention
agreement as described in Sec. 1291.15(a)(7).
(e) Fair housing. The project, as proposed, must comply with
applicable federal and state laws on fair housing and housing
accessibility, including, but not limited to, the Fair Housing Act, the
Rehabilitation Act of 1973, the Americans with Disabilities Act of
1990, and the Architectural Barriers Act of 1969, and must demonstrate
how the project will be affirmatively marketed.
Sec. 1291.24 Eligible uses.
(a) Eligible uses of AHP subsidy. AHP subsidies shall be used only
for:
(1) Owner-occupied housing. The purchase, construction, or
rehabilitation of owner-occupied housing.
(2) Rental housing. The purchase, construction, or rehabilitation
of rental housing.
(3) Need for AHP subsidy--(i) Review of project development budget
and operating pro forma--(A) In the case of an owner-occupied project,
a Bank shall review the project's development budget in determining its
need for AHP subsidy. The project's estimated sources of funds must
equal its estimated uses of funds, as reflected in the project's
development budget. The difference between the project's sources of
funds and uses of funds is the project's need for AHP subsidy, which is
the maximum amount of AHP subsidy the project may receive.
(B) In the case of a rental project, a Bank shall review both the
project's development budget and operating pro forma in determining its
need for AHP subsidy. Where the project's uses of funds exceed its
sources of funds, the difference demonstrates a funding gap and
provides support for the project's need for AHP subsidy, provided that
the project's cash flow and costs are reasonable. This is the maximum
amount of AHP subsidy that the project may receive.
(C) A Bank, in its discretion, may permit a project's sources of
funds to include or exclude the estimated market value of in-kind
donations and voluntary professional labor or services (excluding the
value of sweat equity), provided that the project's uses of funds also
include or exclude, respectively, the value of such estimates.
(ii) Cash sources of funds. A project's cash sources of funds shall
include any cash contributions by the sponsor, any cash from sources
other than the sponsor, and estimates of funds the project sponsor
intends to obtain from other sources but which have not yet been
committed to the project. In the case of homeownership projects where
the sponsor extends permanent financing to the homebuyer, the sponsor's
cash contribution shall include the present value of any payments the
sponsor is to receive from the buyer, which shall include any cash down
payment from the buyer, plus the present value of any purchase note the
sponsor holds on the unit. If the note carries a market interest rate
commensurate with the credit quality of the buyer, the present value of
the note equals the face value of the note. If the note carries an
interest rate below the market rate, the present value of the note
shall be determined using the market rate to discount the cash flows.
(iii) Cash uses. A project's cash uses are the actual outlay of
cash needed to pay for materials, labor, and acquisition or other costs
of completing the project. Cash costs do not include in-kind donations,
voluntary professional labor or services, or sweat equity.
(4) Project costs.--(i) In general.--(A) Taking into consideration
the geographic location of the project, development conditions, and
other non-financial household or project characteristics, a Bank shall
determine that a project's costs, as reflected in the project's
development budget, are reasonable, in accordance with the Bank's
project cost guidelines.
(B) For purposes of determining the reasonableness of a developer's
fee for a project as a percentage of total development costs, a Bank
may, in its discretion, include estimates of the market value of in-
kind donations and volunteer professional labor or services (excluding
the value of sweat equity) committed to the project as part of the
total development costs.
(ii) Cost of property and services provided by a member. The
purchase price of property or services, as reflected in the project's
development budget, sold to the project by a member providing AHP
subsidy to the project, or, in the case of property, upon which such
member holds a mortgage or lien, may not exceed the market value of
such property or services as of the date the purchase price was agreed
upon. In the case of real estate owned property sold to a project by a
member providing AHP subsidy to the project, or property sold to the
project upon which the member holds a mortgage or lien, the market
value of such property is deemed to be the ``as-is'' or ``as-
rehabilitated'' value of the property, whichever is appropriate. That
value shall be reflected in an independent appraisal of the property
performed by a state certified or licensed appraiser, as defined in 12
CFR 564.2(j) and (k), within 6 months prior to the date the Bank
disburses AHP subsidy to the project.
(5) Financing costs. The rate of interest, points, fees, and any
other charges for all loans that are made for the project in
conjunction with the AHP subsidy shall not exceed a reasonable market
rate of interest, points, fees, and other charges for loans of similar
maturity, terms, and risk.
(6) Counseling costs. Counseling costs, provided:
(i) Such costs are incurred in connection with counseling of
homebuyers who actually purchase an AHP-assisted unit; and
(ii) The cost of the counseling has not been covered by another
funding source, including the member.
(7) Refinancing. Refinancing of an existing single-family or
multifamily mortgage loan, provided that the refinancing produces
equity proceeds and such equity proceeds up to the amount of the AHP
subsidy in the project shall be used only for the purchase,
construction, or rehabilitation of housing units meeting the
eligibility requirements of this part.
(8) Calculation of AHP subsidy.--(i) Where an AHP direct subsidy is
provided to a project to write down the interest rate on a loan
extended by a member, sponsor, or other party to a project, the net
present value of the interest foregone from making the loan below the
lender's market interest rate shall be calculated as of the date the
application for AHP subsidy is submitted to the Bank, and subject to
adjustment under Sec. 1291.28(d).
(ii) Where an AHP subsidized advance is provided to a project, the
net present value of the interest revenue foregone from making a
subsidized advance at a rate below the Bank's cost of funds shall be
determined as of the earlier of the date of disbursement of the
[[Page 11382]]
subsidized advance or the date prior to disbursement on which the Bank
first manages the funding to support the subsidized advance through its
asset/liability management system, or otherwise.
(b) Prohibited uses of AHP subsidy. AHP subsidy may not be used to
pay for:
(1) Certain prepayment fees. Prepayment fees imposed by a Bank on a
member for a subsidized advance that is prepaid, unless:
(i) The project is in financial distress that cannot be remedied
through a project modification pursuant to Sec. 1291.27;
(ii) The prepayment of the subsidized advance is necessary to
retain the project's affordability and income targeting commitments;
(iii) Subsequent to such prepayment, the project will continue to
comply with the terms of the approved AHP application and the
requirements of this part for the duration of the original retention
period;
(iv) Any unused AHP subsidy is returned to the Bank and made
available for other AHP projects; and
(v) The amount of AHP subsidy used for the prepayment fee may not
exceed the amount of the member's prepayment fee to the Bank;
(2) Cancellation fees. Cancellation fees and penalties imposed by a
Bank on a member for a subsidized advance commitment that is canceled;
(3) Processing fees. Processing fees charged by members for
providing AHP direct subsidies to a project; or
(4) Reserves and certain expenses. Capitalized reserves, periodic
deposits to reserve accounts, operating expenses, or supportive
services expenses.
(c) Optional Bank district eligibility requirements. A Bank may
require a project receiving AHP subsidies to meet one or more of the
following additional eligibility requirements adopted by the Bank's
board of directors and included in its AHP Implementation Plan after
consultation with its Advisory Council:
(1) AHP subsidy limits. A requirement that the amount of AHP
subsidy requested for the project does not exceed limits established by
the Bank as to the maximum amount of AHP subsidy available per member,
per project sponsor, per project, or per project unit in a single AHP
funding period. A Bank may establish only one maximum subsidy limit per
member, per sponsor, per project, or per project unit for the General
Fund and for each Targeted Fund, which shall apply to all applicants to
the specific Fund, but the maximum subsidy limit per project or per
project unit may differ for each Fund; or
(2) Homebuyer or homeowner counseling. A requirement that a
household must complete a homebuyer or homeowner counseling program
provided by, or based on one provided by, an organization recognized as
experienced in homebuyer or homeowner counseling, respectively.
(d) Applications to multiple Funds. If an application for the same
project is submitted to multiple Funds in an AHP funding period, each
application must be for the same amount of AHP subsidy.
Sec. 1291.25 Scoring methodology.
(a) Scoring methodology. A Bank shall establish a written scoring
methodology for its General Fund and each Targeted Fund it establishes,
and shall score applications received for a particular Fund pursuant to
the scoring methodology for that Fund. The scoring methodology may be
different for each Fund. The scoring methodology shall set forth the
Bank's competitive application scoring criteria, related definitions
and point allocations, and shall reflect the affordable housing needs
that the Bank identified in its Targeted Community Lending Plan would
be addressed under its Funds. The Bank shall design its scoring
methodology for the General Fund and each Targeted Fund to ensure that
the Bank will meet the outcome requirements for the statutory and
regulatory priorities in Sec. 1291.48. The scoring methodology may
include scoring criteria adopted by the Bank to address specific
affordable housing needs in the Bank's district (Bank district
priorities) that differ from the housing needs specified under the
statutory and regulatory priorities in Sec. 1291.48, as long as the
outcome requirements specified in Sec. 1291.48 are achieved.
(b) Point allocations. A Bank shall allocate 100 points among its
scoring criteria for its General Fund and for each Targeted Fund.
(c) In-district projects. If a Bank adopts a scoring criterion
under its General Fund for housing located in the Bank's district, the
Bank shall not allocate points to the scoring criterion in such a way
as to exclude all out-of-district projects from its General Fund.
(d) Scoring tie-breaker policy. A Bank shall establish a scoring
tie-breaker policy to address the possibility of two or more
applications to a Fund having identical scores in the same AHP funding
period and there is insufficient AHP subsidy to approve all of the tied
applications. A Bank shall meet the following requirements in
establishing its scoring tie-breaker policy:
(1) The Bank shall consult with its Advisory Council prior to
adoption of its policy;
(2) The Bank shall adopt the policy in advance of an AHP funding
period and include it in its AHP Implementation Plan;
(3) The policy shall include the methodology used to break a
scoring tie, which may differ for each Fund, and which shall be drawn
from the particular Fund's scoring criteria adopted in the Bank's AHP
Implementation Plan;
(4) The scoring tie-breaker methodology shall be reasonable,
transparent, verifiable, and impartial;
(5) The scoring tie-breaker methodology shall be used solely to
break a scoring tie and may not affect the eligibility of the
applications, including financial feasibility, or their scores and
resultant rankings;
(6) The Bank shall approve a tied application as an alternate
pursuant to Sec. 1291.26(c) if the application does not prevail under
the scoring tie-breaker methodology, or if the application is tied with
another application but requested more subsidy than the amount of AHP
funds that remain to be awarded; and
(7) The Bank shall document in writing its analysis and results for
each use of the scoring tie-breaker methodology.
Sec. 1291.26 Approval of AHP applications.
(a) Approval of applications. Except as provided in paragraphs (c),
(d), and (e) of this section, a Bank's board of directors shall approve
applications for AHP subsidy under its General Fund and any Bank
Targeted Funds that meet all of the applicable AHP eligibility
requirements in this part, in descending order starting with the
highest scoring application until the total funding amount for the
particular AHP funding period, except for any amount insufficient to
fund the next highest scoring application, has been approved.
(b) Alternates. For the General Fund, the Bank's board of directors
also shall approve at least the next four highest scoring applications
as alternates and, within one year of approval, must approve such
alternates for funding if any previously committed AHP subsidies become
available. For any Bank Targeted Funds, the Bank may, in its
discretion, approve alternates.
(c) Tied applications. Where two or more applications to a Fund
have identical scores in the same AHP funding period and there is
insufficient AHP subsidy to approve all of the tied
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applications, a Bank shall approve the tied application that prevails
under the Bank's scoring tie-breaker methodology in its policy adopted
pursuant to Sec. 1291.25(d). The Bank must approve a tied application
as an alternate if it does not prevail under the scoring tie-breaker
methodology, or if it is tied with another application but requested
more subsidy than the amount of AHP funds that remain to be awarded
under the Fund.
(d) Applications to multiple Funds. If an application for the same
project is submitted to more than one Fund at a Bank in an AHP funding
period and the application scores high enough to be approved under each
Fund, the Bank shall approve the application under only one of the
Funds pursuant to the Bank's policy established in its AHP
Implementation Plan.
(e) Re-ranking of scored applications and alternates. To satisfy
the outcome requirements of Sec. 1291.48, a Bank may deviate from the
ranking order after scoring applications and alternates under this
section, but only to the minimum extent necessary by re-ranking scored
applications and alternates meeting the outcome requirements above the
lowest scoring applications and alternates not meeting the outcome
requirements. A Bank shall describe the possibility of re-ranking in
its AHP Implementation Plan.
(f) No delegation. A Bank's board of directors may not delegate to
a committee of the board, Bank officers, or other Bank employees the
responsibility to approve or disapprove the AHP subsidy applications
and alternates under the Bank's General Fund and any Bank Targeted
Funds.
Sec. 1291.27 Modifications of approved AHP applications.
(a) Modification procedure. Except as provided in paragraph (b) of
this section for modification requests for AHP subsidy increases, if,
prior to or after final disbursement of funds to a project from all
funding sources, in order to remedy noncompliance or receive additional
subsidy, there is or will be a change in the project that would change
the score that the project application received in the funding period
in which it was originally scored and approved, had the changed facts
been operative at that time, a Bank shall approve in writing a request
for a modification to the terms of the approved application, provided
that:
(1) The Bank first requested that the project cure any
noncompliance and the cure was not successful after a reasonable period
of time;
(2) The project, incorporating any such changes, would meet the
eligibility requirements of this part;
(3) The application, as reflective of such changes, continues to
score as high as the lowest ranking alternate that was approved for
funding by the Bank in the AHP funding period in which the application
was originally scored and approved by the Bank; and
(4) There is good cause for the modification, which may not be
solely remediation of noncompliance, and the analysis and justification
for the modification are documented by the Bank in writing.
(b) AHP subsidy increases; no delegation.--(1) AHP subsidy
increases. A Bank's board of directors may, in its discretion, approve
or disapprove requests for modifications involving an increase in AHP
subsidy in accordance with the requirements of paragraph (a) of this
section.
(2) No delegation. The authority to approve or disapprove requests
for modifications involving an increase in AHP subsidy shall not be
delegated by the Bank's board of directors to Bank officers or other
Bank employees.
Sec. 1291.28 Procedures for funding.
(a) Disbursement of AHP subsidies to members.--(1) A Bank may
disburse AHP subsidies only to institutions that are members of the
Bank at the time they request a draw-down of the subsidies.
(2) If an institution with an approved application for AHP subsidy
loses its membership in a Bank, the Bank may disburse AHP subsidies to
a member of such Bank to which the institution has transferred its
obligations under the approved AHP application, or the Bank may
disburse AHP subsidies through another Bank to a member of that Bank
that has assumed the institution's obligations under the approved AHP
application.
(b) Progress towards use of AHP subsidy. A Bank shall establish and
implement policies, including time limits, for determining whether
progress is being made towards draw-down and use of AHP subsidies by
approved projects, and whether to cancel AHP application approvals for
lack of such progress. If a Bank cancels any AHP application approvals
due to lack of such progress, the Bank shall make the AHP subsidies
available for other AHP-eligible projects.
(c) Compliance upon disbursement of AHP subsidies. A Bank shall
establish and implement policies for determining, prior to its initial
disbursement of AHP subsidies for an approved project, and prior to
each subsequent disbursement if the need for AHP subsidy has changed,
that the project meets the eligibility requirements of this part and
all obligations committed to in the approved AHP application. If a Bank
cancels any AHP application approvals due to noncompliance with
eligibility requirements of this part, the Bank shall make the AHP
subsidies available for other AHP-eligible projects.
(d) Changes in approved AHP subsidy amount where a direct subsidy
is used to write down prior to closing the principal amount or interest
rate on a loan. If a member is approved to receive AHP direct subsidy
to write down prior to closing the principal amount or the interest
rate on a loan to a project, and the amount of AHP subsidy required to
maintain the debt service cost for the loan decreases from the amount
of AHP subsidy initially approved by the Bank due to a decrease in
market interest rates between the time of approval and the time the
lender commits to the interest rate to finance the project, the Bank
shall reduce the AHP subsidy amount accordingly. If market interest
rates rise between the time of approval and the time the lender commits
to the interest rate to finance the project, the Bank, in its
discretion, may increase the AHP subsidy amount accordingly.
(e) AHP outlay adjustment. If a Bank reduces the amount of AHP
subsidy approved for a project, the amount of such reduction shall be
returned to the Bank's AHP fund. If a Bank increases the amount of AHP
subsidy approved for a project, the amount of such increase shall be
drawn first from any currently uncommitted or repaid AHP subsidies and
then from the Bank's required AHP contribution for the next year.
Sec. 1291.29 Lending and re-lending of AHP direct subsidy by
revolving loan funds.
Pursuant to written policies established by a Bank's board of
directors after consultation with its Advisory Council, a Bank, in its
discretion, may provide AHP direct subsidy under its General Fund or
any Bank Targeted Funds for eligible projects and households involving
both the lending of the subsidy and subsequent lending of subsidy
principal and interest repayments by a revolving loan fund, provided
the following requirements are met:
(a) Submission of application.--(1) An application for AHP subsidy
under this section shall include the revolving loan fund's criteria for
the initial lending of the subsidy, identification of and information
on a specific proposed AHP project if required in the Bank's
discretion, the revolving loan fund's
[[Page 11384]]
criteria for subsequent lending of subsidy principal and interest
repayments, and any other information required by the Bank.
(2) The information in the application shall be sufficient for the
Bank to:
(i) Determine that the criteria for the initial lending of the
subsidy, the specific proposed project if applicable, and the criteria
for subsequent lending of subsidy principal and interest repayments,
meet the eligibility requirements of Sec. 1291.23; and
(ii) Evaluate the criteria for the initial lending of the subsidy,
and the specific proposed project if applicable, pursuant to the
scoring methodology established by the Bank pursuant to Sec.
1291.25(a).
(b) Review of application. A Bank shall review the application for
AHP subsidy to determine that the criteria for the initial lending of
the subsidy, the specific proposed project if applicable, and the
criteria for subsequent lending of subsidy principal and interest
repayments, meet the eligibility requirements of Sec. 1291.23, and
shall evaluate the criteria for the initial lending of the subsidy and
the specific proposed project, if applicable, pursuant to the scoring
methodology established by the Bank pursuant to Sec. 1291.25(a).
(c) Initial lending of subsidy.--(1) The revolving loan fund's
initial lending of the AHP subsidy shall meet the eligibility
requirements of paragraph (a) of this section, shall be to projects or
households meeting the commitments in the approved application for AHP
subsidy, and shall be subject to the requirements in Sec. Sec. 1291.15
and 1291.50, respectively.
(2) If a project funded under this paragraph (c) is in
noncompliance with the commitments in the approved AHP application, or
is sold or refinanced prior to the end of the applicable AHP retention
period, the required amount of AHP subsidy shall be repaid to the
revolving loan fund in accordance with Sec. Sec. 1291.15(a)(8) and
1291.60, and the revolving loan fund shall re-lend such repaid subsidy,
excluding the amounts of AHP subsidy principal already repaid to the
revolving loan fund, to another project meeting the initial lending
requirements of this paragraph (c) for the remainder of the retention
period.
(d) Subsequent lending of AHP subsidy principal and interest
repayments--(1) AHP subsidy principal and interest repayments received
by the revolving loan fund from the initial lending of the AHP direct
subsidy shall be re-lent by the revolving loan fund in accordance with
the requirements of this paragraph (d), except that the revolving loan
fund, in its discretion, may provide part or all of such repayments as
nonrepayable grants to eligible projects in accordance with the
requirements of this paragraph (d).
(2) The revolving loan fund's subsequent lending of AHP subsidy
principal and interest repayments shall be for the purchase,
construction, or rehabilitation of owner-occupied projects for
households with incomes at or below 80 percent of the median income for
the area, or of rental projects where at least 20 percent of the units
are occupied by and affordable for households with incomes at or below
50 percent of the median income for the area, and shall meet all other
eligibility requirements of this paragraph (d).
(3) A Bank may, in its discretion, require the revolving loan
fund's subsequent lending of subsidy principal and interest repayments
to be subject to retention period, monitoring, and recapture
requirements for rental projects, as defined by the Bank in its AHP
Implementation Plan.
(e) Return of unused AHP subsidy. The revolving loan fund shall
return to the Bank any AHP subsidy that will not be used according to
the requirements in this section.
Sec. 1291.30 Use of AHP subsidy in loan pools.
Pursuant to written policies established by a Bank's board of
directors after consultation with its Advisory Council, a Bank, in its
discretion, may provide AHP subsidy under its General Fund or any Bank
Targeted Funds for the origination of first mortgage or rehabilitation
loans with subsidized interest rates to AHP-eligible households through
a purchase commitment by an entity that will purchase and pool the
loans, provided the following requirements are met:
(a) Eligibility requirements. The loan pool sponsor's use of the
AHP subsidies shall meet the requirements under this section, and shall
not be used for the purpose of providing liquidity to the originator or
holder of the loans, or paying the loan pool's operating or secondary
market transaction costs.
(b) Forward commitment--(1) The loan pool sponsor shall purchase
the loans pursuant to a forward commitment that identifies the loans to
be originated with interest-rate reductions as specified in the
approved application for AHP subsidy to households with incomes at or
below 80 percent of the median income for the area. Both initial
purchases of loans for the AHP loan pool and subsequent purchases of
loans to substitute for repaid loans in the pool shall be made pursuant
to the terms of such forward commitment and subject to time limits on
the use of the AHP subsidy as specified by the Bank in its AHP
Implementation Plan and the Bank's agreement with the loan pool
sponsor, which shall not exceed 1 year from the date of approval of the
AHP application.
(2) As an alternative to using a forward commitment, the loan pool
sponsor may purchase an initial round of loans that were not originated
pursuant to an AHP-specific forward commitment, provided that the
entities from which the loans were purchased are required to use the
proceeds from the initial loan purchases within time limits on the use
of the AHP subsidy as specified by the Bank in its AHP Implementation
Plan and the Bank's agreement with the loan pool sponsor, which shall
not exceed 1 year from the date of approval of the AHP application. The
proceeds shall be used by such entities to assist households that are
income-eligible under the approved AHP application during subsequent
rounds of lending, and such assistance shall be provided in the form of
a below-market AHP-subsidized interest rate as specified in the
approved AHP application.
(c) Each AHP-assisted rental project receiving AHP direct subsidy
or a subsidized advance shall be subject to the requirements of
Sec. Sec. 1291.15, 1291.50(a), and 1291.60, respectively.
(d) Where AHP direct subsidy is being used to buy down the interest
rate of a loan or loans from a member or other party, the loan pool
sponsor shall use the full amount of the AHP direct subsidy to buy down
the interest rate on a permanent basis at the time of closing on such
loan or loans.
Subpart D--Homeownership Set-Aside Programs
Sec. 1291.40 Establishment of programs.
A Bank may establish, in its discretion, one or more Homeownership
Set-Aside Programs pursuant to the requirements of this part. The
Bank's analyses supporting establishment of such programs shall be
included in its Targeted Community Lending Plan, as provided in Sec.
1291.13(a).
Sec. 1291.41 Eligible applicants.
A Bank shall accept applications for AHP direct subsidy under its
Homeownership Set-Aside Programs only from institutions that are
members of the Bank at the time the application is submitted to the
Bank.
Sec. 1291.42 Eligibility requirements.
A Bank's Homeownership Set-Aside Programs shall meet the
eligibility requirements set forth in this section. A
[[Page 11385]]
Bank may not adopt additional eligibility requirements for its
Homeownership Set-Aside Programs except for eligible households
pursuant to paragraph (b) of this section.
(a) Member allocation criteria. AHP direct subsidies shall be
provided to members pursuant to allocation criteria established by the
Bank in its AHP Implementation Plan.
(b) Eligible households. Members shall provide AHP direct subsidies
only to households that:
(1) Have incomes at or below 80 percent of the median income for
the area at the time the household is accepted for enrollment by the
member in the Bank's Homeownership Set-Aside Program, with such time of
enrollment by the member defined by the Bank in its AHP Implementation
Plan;
(2) Complete a homebuyer or homeowner counseling program provided
by, or based on one provided by, an organization experienced in
homebuyer or homeowner counseling, in the case of households that are
first-time homebuyers; and
(3) Are first-time homebuyers or households receiving AHP subsidy
for the purpose of owner-occupied rehabilitation, in the case of
households receiving subsidy pursuant to the one-third set-aside
funding allocation requirement in Sec. 1291.12(b), and meet such other
eligibility criteria that may be established by the Bank in its AHP
Implementation Plan, such as a matching funds requirement, homebuyer or
homeowner counseling requirement for households that are not first-time
homebuyers, or criteria that give priority for the purchase or
rehabilitation of housing in particular areas or as part of a disaster
relief effort.
(c) Maximum grant amount. Members shall provide AHP direct
subsidies to households as a grant, in an amount up to a maximum
established by the Bank, not to exceed $22,000 per household, which
limit shall automatically adjust upward on an annual basis in
accordance with increases in FHFA's Housing Price Index (HPI). In the
event of a decrease in the HPI, the subsidy limit shall remain at its
then-current level until the HPI increases above the subsidy limit, at
which point the subsidy limit shall adjust to that higher level. FHFA
will notify the Banks annually of the maximum subsidy amount, based on
the HPI. A Bank may establish a different maximum grant amount for each
Homeownership Set-Aside Program it establishes. A Bank's maximum grant
amount for each such program shall be included in its AHP
Implementation Plan, which limit shall apply to all households in the
specific program for which it is established.
(d) Eligible uses of AHP direct subsidy. Households shall use the
AHP direct subsidies to pay for down payment, closing cost, counseling,
or rehabilitation assistance in connection with the household's
purchase or rehabilitation of an owner-occupied unit, including a
condominium or cooperative housing unit or manufactured housing, to be
used as the household's primary residence.
(e) Financial or other concessions. The Bank may, in its
discretion, require members and other lenders to provide financial or
other concessions, as defined by the Bank in its AHP Implementation
Plan, to households in connection with providing the AHP direct subsidy
or financing to the household.
(f) Financing costs. The rate of interest, points, fees, and any
other charges for all loans made in conjunction with the AHP direct
subsidy shall not exceed a reasonable market rate of interest, points,
fees, and other charges for loans of similar maturity, terms, and risk.
(g) Counseling costs. The AHP direct subsidies may be used to pay
for counseling costs only where:
(1) Such costs are incurred in connection with counseling of
homebuyers who actually purchase an AHP-assisted unit; and
(2) The cost of the counseling has not been covered by another
funding source, including the member.
(h) Cash back to household. A member may provide cash back to a
household at closing on the mortgage loan in an amount not exceeding
$250, as determined by the Bank in its AHP Implementation Plan, and a
member shall use any AHP direct subsidy exceeding such amount that is
beyond what is needed at closing for closing costs and the approved
mortgage amount as a credit to reduce the principal of the mortgage
loan or as a credit toward the household's monthly payments on the
mortgage loan.
Sec. 1291.43 Approval of AHP applications.
A Bank shall approve applications for AHP direct subsidy in
accordance with the Bank's criteria governing the allocation of funds.
Sec. 1291.44 Procedures for funding.
(a) Disbursement of AHP direct subsidies to members--(1) A Bank may
disburse AHP direct subsidies only to institutions that are members of
the Bank at the time they request a draw-down of the subsidies.
(2) If an institution with an approved application for AHP direct
subsidy loses its membership in a Bank, the Bank may disburse AHP
direct subsidies to a member of such Bank to which the institution has
transferred its obligations under the approved AHP application, or the
Bank may disburse AHP direct subsidies through another Bank to a member
of that Bank that has assumed the institution's obligations under the
approved AHP application.
(b) Reservation of homeownership set-aside subsidies. A Bank shall
establish and implement policies for reservation of homeownership set-
aside subsidies for households enrolled in the Bank's Homeownership
Set-Aside Program. The policies shall provide that set-aside subsidies
be reserved no more than two years in advance of the Bank's time limit
in its AHP Implementation Plan for draw-down and use of the subsidies
by the household and the reservation of subsidies be made from the set-
aside allocation of the year in which the Bank makes the reservation.
(c) Progress towards use of AHP direct subsidy. A Bank shall
establish and implement policies, including time limits, for
determining whether progress is being made towards draw-down and use of
the AHP direct subsidies by eligible households, and whether to cancel
AHP application approvals for lack of such progress. If a Bank cancels
any AHP application approvals due to lack of such progress, it shall
make the AHP direct subsidies available for other applicants for AHP
direct subsidies under the Homeownership Set-Aside Program or for other
AHP-eligible projects.
Subpart E--Outcome Requirements for Statutory and Regulatory
Priorities
Sec. 1291.48 Outcome requirements for statutory and regulatory
priorities.
(a) Statutory priorities--government properties; project
sponsorship. Each year, each Bank shall award at least 55 percent of
the total AHP funds allocated, in the aggregate, to the Bank's General
Fund and any Bank Targeted Funds to projects that meet paragraph (a)(1)
or paragraph (a)(2) of this section. If an awarded project meets both
paragraphs, it may be counted towards meeting only one of the
paragraphs.
(1) Use of donated or conveyed government-owned or other
properties. The financing of housing that uses a significant
proportion, as defined by the Bank in its AHP Implementation Plan, of:
(i) Land or units donated or conveyed by the federal government or
any agency or instrumentality thereof; or
[[Page 11386]]
(ii) 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.
(2) Sponsorship by a not-for-profit organization or government
entity. Project sponsorship by a not-for-profit organization, a state
or political subdivision of a state, a state housing agency, a local
housing authority, a Native American Tribe, an Alaskan Native Village,
or the government entity for Native Hawaiian Home Lands.
(b) Statutory priority--purchase of homes by low- or moderate-
income households. Each year, each Bank shall award at least 10 percent
of its required annual AHP contribution to low- or moderate-income
households, or to projects targeting such households, for the purchase
by such households of homes under any or some combination of the Bank's
General Fund, any Bank Targeted Funds, and any Bank Homeownership Set-
Aside Programs.
(c) Regulatory priority--very low-income targeting for rental
units. Each year, each Bank shall ensure that at least 55 percent of
all rental units in rental projects receiving AHP awards under the
Bank's General Fund and any Bank Targeted Funds are reserved for very
low-income households.
(d) Regulatory priorities--Underserved Communities and Populations;
Creating Economic Opportunity; and Affordable Housing Preservation.
Each year, each Bank shall ensure that at least 55 percent of the
Bank's required annual AHP contribution is awarded under the Bank's
General Fund and any Bank Targeted Funds to projects that, in the
aggregate, meet at least two of the three regulatory priorities in this
paragraph (d) (paragraphs (d)(1), (d)(2), and (d)(3)) by meeting one or
more of the specified housing needs included under the regulatory
priority, and awarding at least 10 percent of the funds to projects
meeting each of such regulatory priorities. If an awarded project meets
more than one of the regulatory priorities, it may be counted towards
meeting only one of them. If an awarded project meets more than one
specified housing need under a regulatory priority, it may be counted
towards meeting only one of those housing needs. An award to a project
may not be counted towards meeting a regulatory priority in this
paragraph (d) unless the specified housing need that it meets is
identified in the Bank's Targeted Community Lending Plan as an
affordable housing need the Bank indicated it would address through its
AHP scoring criteria.
(1) Regulatory priority--Underserved Communities and Populations.
The financing of housing for underserved communities or populations, by
addressing one or more of the following specific housing needs:
(i) Housing for homeless households. The financing of rental
housing, excluding overnight shelters, reserving at least 50 percent of
the units for homeless households, the creation of transitional housing
for homeless households permitting a minimum of 6 months occupancy, or
the creation of permanent owner-occupied housing reserving at least 50
percent of the units for homeless households, with the term ``homeless
households'' as defined by the Bank in its AHP Implementation Plan.
(ii) Housing for special needs populations. The financing of
housing in which at least 50 percent of the units are reserved for, and
provide supportive services or access to supportive services for,
households with specific special needs, such as: The elderly; persons
with disabilities; formerly incarcerated persons; persons recovering
from physical abuse or alcohol or drug abuse; victims of domestic
violence, dating violence, sexual assault or stalking; persons with
HIV/AIDS; or unaccompanied youth; or the financing of housing that is
visitable by persons with physical disabilities who are not occupants
of such housing.
(iii) Housing for other targeted populations. The financing of
housing, not necessarily with supportive services, in which at least 50
percent of the units are reserved for populations specifically in need
of housing, such as agricultural workers, military veterans, Native
Americans, multigenerational households, persons with disabilities, or
households requiring large units.
(iv) Rural housing. The financing of housing located in rural areas
(with the term ``rural area'' as defined in 12 CFR 1282.1).
(v) Rental housing for extremely low-income households. The
financing of rental projects in which at least 20 percent of the units
are reserved for extremely low-income households.
(vi) Other. The financing of other housing addressing specific
housing needs of underserved communities or populations as FHFA may
provide by guidance.
(2) Regulatory priority--Creating Economic Opportunity. The
financing of housing that facilitates economic opportunity for the
residents by addressing one or more of the following specific housing
needs:
(i) Promotion of empowerment. The provision of housing in
combination with a program offering services that assist residents in
attaining life skills or moving toward better economic opportunities,
such as: Employment; education; training; homebuyer, homeownership or
tenant counseling; child care; adult daycare services; afterschool
care; tutoring; health services; resident involvement in decision
making affecting the creation of operation of the project; or workforce
preparation and integration.
(ii) Residential economic diversity. The financing of either
affordable housing in a high opportunity area, or mixed-income housing
in an area of concentrated poverty (as those terms are defined in 12
CFR 1282.1 and FHFA's Duty to Serve Evaluation Guidance).
(iii) Other. The financing of other housing that facilitates
economic opportunity as FHFA may provide by guidance.
(3) Regulatory priority--Affordable Housing Preservation. The
financing of affordable rental housing preservation or homeownership
preservation, by addressing one or more of the following specific
housing needs:
(i) Affordable rental housing preservation. Providing financing
that preserves affordable rental housing such as existing housing in
need of rehabilitation as indicated by deteriorating physical
condition, high vacancy rates, or poor financial performance,
affordable rental housing with energy or water efficiency improvements
(meeting the requirements of 12 CFR 1282.34(d)(2)), and affordable
housing under the following programs: Section 8 (42 U.S.C. 1437f),
Section 236 (12 U.S.C. 1715z-1), Section 221(d)(4) (12 U.S.C. 1715l),
Section 202 (12 U.S.C. 1701q), Section 811 (42 U.S.C. 8013), McKinney-
Vento Homeless Assistance (42 U.S.C. 11361 et seq.), Section 515 (42
U.S.C. 1485), Low-Income Housing Tax Credits (26 U.S.C. 42), HUD Choice
Neighborhoods Initiative (42 U.S.C. 1437v); HUD Rental Assistance
Demonstration program (42 U.S.C. 1437f note), or other state or local
affordable housing programs comparable to the foregoing housing
programs.
(ii) Affordable homeownership preservation. The financing of
housing that preserves affordable homeownership, including owner-
occupied rehabilitation, shared equity programs, owner-occupied housing
with energy or water efficiency improvements (meeting the requirements
of 12 CFR 1282.34(d)(3)), or other housing finance strategies to
preserve homeownership.
(iii) Other. The financing of other mechanisms for affordable
rental
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housing preservation or affordable homeownership preservation as FHFA
may provide by guidance.
(e) Annual report. Each Bank shall submit an annual report to FHFA,
at a time and in a form designated by FHFA, demonstrating compliance
with this section.
Sec. 1291.49 Determination of compliance with outcome requirements;
notice of determination.
(a) Determination of compliance. On an annual basis, the Director
shall determine each Bank's compliance with the outcome requirements in
Sec. 1291.48.
(b) Noncompliance with outcome requirements. If the Director
preliminarily determines that a Bank has failed to comply with Sec.
1291.48, the Director shall notify the Bank in writing of such
preliminary determination. Any notification to a Bank of such
preliminary determination shall provide the Bank with an opportunity to
respond in writing in accordance with the following procedures:
(1) Notice. The Director shall provide written notice to the Bank
of the preliminary determination, the reasons for such determination,
and the information on which the Director based the determination.
(2) Response period--(i) In general. During the 30-day period
beginning on the date on which notice is provided under paragraph
(b)(1) of this section, the Bank may submit to the Director any written
information that the Bank considers appropriate for consideration by
the Director in finally determining whether such noncompliance has
occurred or whether compliance with Sec. 1291.48 was feasible.
(ii) Extended period. The Director may extend the period under
paragraph (b)(2)(i) of this section for good cause for not more than 30
additional days.
(iii) Shortened period. The Director may shorten the period under
paragraph (b)(2)(i) of this section for good cause.
(iv) Failure to respond. The failure of a Bank to provide
information during the response period shall waive any right of the
Bank to comment on the proposed determination or action of the
Director.
(3) Consideration of information and final determination--(i)
Considerations. In making a final determination under paragraph
(b)(3)(ii) of this section, the Director shall take into consideration
any relevant information submitted by the Bank during the response
period.
(ii) Notice of final determination. After the expiration of the
response period or receipt of information provided during such period
by the Bank, the Director shall provide written notice to the Bank
within a reasonable period of time of the final determination of:
(A) Whether the Bank has failed to comply with Sec. 1291.48; and
(B) Whether, taking into consideration market and economic
conditions and the financial condition of the Bank, compliance with
Sec. 1291.48 was feasible.
Subpart F--Monitoring
Sec. 1291.50 Monitoring under General Fund and Targeted Funds.
(a) Initial monitoring policies for owner-occupied and rental
projects. A Bank shall adopt written policies pursuant to which the
Bank shall monitor each AHP owner-occupied project and rental project
approved under its General Fund and any Bank Targeted Funds prior to,
and within a reasonable period of time after, project completion to
verify, at a minimum, satisfaction of the requirements in this section.
(1) Satisfactory progress. The Bank shall determine that:
(i) The project is making satisfactory progress towards completion,
in compliance with the commitments made in the approved AHP
application, Bank policies, and the requirements of this part; and
(ii) Following completion of the project, satisfactory progress is
being made towards occupancy of the project by eligible households.
(2) Project sponsor or owner certification, rent roll and other
documentation; backup and other project documentation. Within a
reasonable period of time after project completion, the Bank shall
review a certification from the project sponsor or owner, the project
rent roll, and any other documentation to verify that the project meets
the following requirements, at a minimum:
(i) The AHP subsidies were used for eligible purposes according to
the commitments made in the approved AHP application;
(ii) The household incomes and rents comply with the income
targeting and rent commitments made in the approved AHP application;
(iii) The project's actual costs were reasonable in accordance with
the Bank's project cost guidelines, and the AHP subsidies were
necessary for the completion of the project as currently structured, as
determined pursuant to Sec. 1291.24(a)(4);
(iv) Each rental project is subject to an AHP retention agreement
that meets the requirements of Sec. 1291.15(a)(7); and
(v) The services and activities committed in the approved AHP
application have been provided in connection with the project.
(3) Back-up and other project documentation. The Bank's written
monitoring policies shall include requirements for:
(i) Bank review within a reasonable period of time after project
completion of back-up project documentation regarding household incomes
and rents (not including the rent roll) maintained by the project
sponsor or owner, except for projects that received funds from other
federal, state or local government entities whose programs meet the
requirements in paragraphs (b)(1) and (2) of this section as specified
in separate FHFA guidance, or projects that have also been allocated
federal Low-Income Housing Tax Credits; and
(ii) Maintenance and Bank review of other project documentation in
the Bank's discretion.
(4) Sampling plan. The Bank shall not use a sampling plan to select
the projects to be monitored under this paragraph (a), but may use a
reasonable risk-based sampling plan to review the back-up project
documentation.
(b) Long-term monitoring--reliance on other governmental monitoring
for certain rental projects. For completed AHP rental projects that
also received funds other than federal Low-Income Housing Tax Credits
from federal, state, or local government entities, a Bank may, in its
discretion, for purposes of long-term AHP monitoring under its General
Fund and any Bank Targeted Funds, rely on the monitoring by such
entities of the income targeting and rent requirements applicable under
their programs, provided that the Bank can show that:
(1) The compliance profiles regarding income targeting, rent, and
retention period requirements of the AHP and the other programs are
substantively equivalent;
(2) The entity has demonstrated and continues to demonstrate its
ability to monitor the project;
(3) The entity agrees to provide reports to the Bank on the
project's incomes and rents for the full 15-year AHP retention period;
and
(4) The Bank reviews the reports from the monitoring entity to
confirm that they comply with the Bank's monitoring policies.
(c) Long-term monitoring policies for rental projects. In cases
where a Bank does not rely on monitoring by a federal, state, or local
government entity pursuant to paragraph (b) of this section, pursuant
to written policies established by the Bank, the Bank shall monitor
completed AHP rental projects approved under its General Fund and
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any Bank Targeted Funds, commencing in the second year after project
completion through the AHP 15-year retention period, to verify, at a
minimum, satisfaction of the requirements in this section.
(1) Annual project sponsor or owner certifications; backup and
other project documentation. A Bank's written monitoring policies shall
include requirements for:
(i) Bank review of annual certifications by project sponsors or
owners to the Bank that household incomes and rents are in compliance
with the commitments made in the approved AHP application during the
AHP 15-year retention period, along with information on the ongoing
financial viability of the project, including whether the project is
current on its property taxes and loan payments, its vacancy rate, and
whether it is in compliance with its commitments to other funding
sources;
(ii) Bank review of back-up project documentation regarding
household incomes and rents, including the rent rolls, maintained by
the project sponsor or owner, except for projects that also received
funds from other federal, state or local government entities whose
programs meet the requirements in paragraphs (b)(1) and (2) of this
section as specified in separate FHFA guidance, or projects that have
also been allocated federal Low-Income Housing Tax Credits (LIHTC),
provided that the Bank shall review any notices received from project
sponsors or owners pursuant to Sec. 1291.15(a)(5)(ii) that an AHP
project is in noncompliance with LIHTC income-targeting or rent
requirements during the AHP 15-year retention period; and
(iii) Maintenance and Bank review of other project documentation in
the Banks' discretion.
(2) Risk factors and other monitoring--(i) Risk factors; other
monitoring. A Bank's written monitoring policies shall take into
account risk factors such as the amount of AHP subsidy in the project,
type of project, size of project, location of project, sponsor
experience, and any monitoring of the project provided by a federal,
state, or local government entity.
(ii) Risk-based sampling plan. A Bank may use a reasonable, risk-
based sampling plan to select the rental projects to be monitored under
this paragraph (c), and to review the back-up and any other project
documentation. The risk-based sampling plan and its basis shall be in
writing.
(d) Annual adjustment of targeting commitments. For purposes of
determining compliance with the targeting commitments in an approved
AHP application for both initial and long-term AHP monitoring purposes
under a Bank's General Fund and any Bank Targeted Funds, such
commitments shall be considered to adjust annually according to the
current applicable median income data. A rental unit may continue to
count toward meeting the targeting commitment of an approved AHP
application as long as the rent charged to a household remains
affordable, as defined in Sec. 1291.1, for the household occupying the
unit.
Sec. 1291.51 Monitoring under Homeownership Set-Aside Programs.
(a) Adoption and implementation. Pursuant to written policies
adopted by a Bank, the Bank shall monitor compliance with the
requirements of its Homeownership Set-Aside Programs, including
monitoring to determine, at a minimum, whether:
(1) The AHP subsidy was provided to households meeting all
applicable eligibility requirements in Sec. 1291.42(b) and the Bank's
Homeownership Set-Aside Program policies; and
(2) All other applicable eligibility requirements in Sec. 1291.42
and the Bank's Homeownership Set-Aside Program policies are met.
(b) Member certifications; back-up and other documentation. The
Bank's written monitoring policies shall include requirements for:
(1) Bank review of certifications by members to the Bank, prior to
disbursement of the AHP subsidy, that the subsidy will be provided in
compliance with all applicable eligibility requirements in Sec.
1291.42;
(2) Bank review of back-up documentation regarding household
incomes maintained by the member; and
(3) Maintenance and Bank review of other documentation in the
Bank's discretion.
(c) Sampling plan. The Bank may use a reasonable sampling plan to
select the households to be monitored, and to review the back-up and
any other documentation received by the Bank, but not the member
certifications required in paragraph (b) of this section. The sampling
plan and its basis shall be in writing.
Subpart G--Remedial Actions for Noncompliance
Sec. 1291.60 Remedial actions for project noncompliance.
(a) Scope. This section applies to noncompliance of an AHP-assisted
project with the commitments made in its application for AHP subsidies
and the requirements of this part, including any use of AHP subsidy by
the project sponsor or project owner for purposes other than those
committed to in the AHP application. This section does not apply to
individual AHP-assisted households or to the sale or refinancing by
such households of their homes.
(b) Elimination of project noncompliance--(1) Cure. In the event of
project noncompliance, the project sponsor or owner must cure the
noncompliance within a reasonable period of time. If the noncompliance
is cured within a reasonable period of time, no AHP subsidy is required
to be repaid to the Bank by the project sponsor or owner.
(2) Project modification. If the project sponsor or project owner
cannot cure the noncompliance within a reasonable period of time, the
Bank shall determine whether the circumstances of the noncompliance can
be eliminated through a modification of the terms of the AHP
application pursuant to Sec. 1291.27. If the circumstances of the
noncompliance can be eliminated through a modification, the Bank shall
approve the modification and no AHP subsidy is required to be repaid to
the Bank by the project sponsor or owner.
(c) Reasonable collection efforts--(1) Demand for repayment. If the
circumstances of a project's noncompliance cannot be eliminated through
a cure or modification, the Bank, or the member if delegated the
responsibility, shall make a demand on the project sponsor or owner for
repayment of the full amount of the AHP subsidy not used in compliance
with the commitments in the AHP application or the requirements of this
part (plus interest, if appropriate). If the noncompliance is occupancy
by households with incomes exceeding the income-targeting commitments
in the AHP application, the amount of AHP subsidy due is calculated
based on the number of units in noncompliance, the length of the
noncompliance, and the portion of the AHP subsidy attributable to the
noncompliant units.
(2) Settlement--(i) If the demand for repayment of the full amount
due is unsuccessful, the member, in consultation with the Bank, shall
make reasonable efforts to collect the subsidy from the project sponsor
or project owner, which may include settlement for less than the full
amount due, taking into account factors such as the financial capacity
of the project sponsor or project owner, assets securing the AHP
subsidy, other assets of the project sponsor or project owner, the
degree of culpability of the project sponsor or
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project owner, and the extent of the Bank's or member's collection
efforts.
(ii) The settlement with the project sponsor or owner must be
supported by sufficient documentation showing that the sum agreed to be
repaid under the settlement is reasonably justified, based on the facts
and circumstances of the noncompliance, including any factors in
paragraph (c)(2)(i) of this section that were considered in reaching
the settlement.
Sec. 1291.61 Recovery of subsidy for member noncompliance.
If a member uses AHP subsidy for purposes other than those
committed to in the AHP application or the requirements of this part,
the Bank shall recover from the member the amount of subsidy used for
such impermissible purposes.
Sec. 1291.62 Bank reimbursement of AHP fund.
(a) By the Bank. A Bank shall reimburse its AHP fund in the amount
of any AHP subsidies (plus interest, if appropriate) not used in
compliance with the commitments in an AHP application or the
requirements of this part as a result of the actions or omissions of
the Bank.
(b) By FHFA order. FHFA may order a Bank to reimburse its AHP fund
in an appropriate amount upon determining that:
(1) The Bank has failed to reimburse its AHP fund as required under
paragraph (a) of this section; or
(2) The Bank has failed to recover the full amount of AHP subsidy
due from a project sponsor, project owner or member pursuant to the
requirements of Sec. Sec. 1291.60 and 1291.61, and has not shown that
such failure is reasonably justified, considering factors such as those
in Sec. 1291.60(c)(2)(i).
Sec. 1291.63 Suspension and debarment.
(a) At a Bank's initiative. A Bank may suspend or debar a member,
project sponsor, or project owner from participation in the Program if
such party shows a pattern of noncompliance, or engages in a single
instance of flagrant noncompliance, with the terms of an approved
application for AHP subsidy or the requirements of this part.
(b) At FHFA's initiative. FHFA may order a Bank to suspend or debar
a member, project sponsor, or project owner from participation in the
Program if such party shows a pattern of noncompliance, or engages in a
single instance of flagrant noncompliance, with the terms of an
approved application for AHP subsidy or the requirements of this part.
Sec. 1291.64 Use of repaid AHP subsidies for other AHP-eligible
projects and households.
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 or households.
Sec. 1291.65 Remedial actions for Bank noncompliance with outcome
requirements.
If the Director determines, pursuant to Sec. 1291.49, that a Bank
has failed to comply with an outcome requirement in Sec. 1291.48 and
that compliance was feasible, the Director may require the Bank to take
actions to remedy the noncompliance, which may include, but are not
limited to, the following actions:
(a) Housing plan. The Director may require the Bank to submit a
housing plan for approval by the Director.
(1) Nature of plan. If the Director requires a housing plan, the
housing plan shall:
(i) Be feasible;
(ii) Be sufficiently specific to enable the Director to monitor
compliance periodically;
(iii) Describe the specific actions that the Bank will take to
comply with Sec. 1291.48 for the next calendar year; and
(iv) Address any additional matters relevant to the plan as
required, in writing, by the Director.
(2) Deadline for submission. The Bank shall submit the housing plan
to the Director within 45 days after issuance of a notice requiring the
Bank to submit a housing plan under this section. The Director may
extend the deadline for submission of a plan, in writing and for a time
certain, to the extent the Director determines an extension is
necessary.
(3) Review of housing plan. The Director shall review and approve
or disapprove a housing plan under this section as follows:
(i) Approval. The Director shall review each submission by a Bank,
including a housing plan submitted under this section and approve or
disapprove the plan or other action within a reasonable time. The
Director shall approve any plan that the Director determines is likely
to succeed and conforms with the Bank Act, this part, and any other
applicable provision of law.
(ii) Notice of approval and disapproval. The Director shall provide
written notice to a Bank submitting a housing plan under this section
of the approval or disapproval of the plan, which shall include the
reasons for any disapproval of the plan, and of any extension of the
period for approval or disapproval.
(iii) Resubmission. If the Director disapproves an initial housing
plan submitted by a Bank under this section, the Bank shall submit an
amended plan acceptable to the Director not later than 30 days after
the Director's disapproval of the initial plan. The Director may extend
the deadline if the Director determines an extension is in the public
interest. If the amended plan is not acceptable to the Director, the
Director may afford the Bank 15 days to submit a new plan.
(b) Reimbursement of AHP fund. FHFA may order the Bank to reimburse
its AHP fund for the difference in the amount of AHP funds required to
be awarded to meet the outcome requirement and the amount the Bank
actually awarded.
Sec. 1291.66 Transfer of Program administration.
Without limitation on other remedies, FHFA, upon determining that a
Bank has engaged in mismanagement of its Program, may designate another
Bank to administer all or a portion of the first Bank's annual AHP
contribution, for the benefit of the first Bank's members, under such
terms and conditions as FHFA may prescribe.
Subpart H--Affordable Housing Reserve Fund
Sec. 1291.70 Affordable Housing Reserve Fund.
(a) Deposits. If a Bank fails to use or commit the full amount it
is required to contribute to the Program in any year pursuant to Sec.
1291.10(a), 90 percent of the unused or uncommitted amount shall be
deposited by the Bank in an Affordable Housing Reserve Fund established
and administered by FHFA. The remaining 10 percent of the unused and
uncommitted amount retained by the Bank should be fully used or
committed by the Bank during the following year, and any remaining
portion shall be deposited in the Affordable Housing Reserve Fund.
(b) Use or commitment of AHP funds. Approval of applications for
AHP funds from members sufficient to exhaust the amount a Bank is
required to contribute pursuant to Sec. 1291.10(a) shall constitute
use or commitment of funds. Amounts remaining unused or uncommitted at
year-end are deemed to be used or committed if, in combination with AHP
funds that have been returned to the Bank or de-committed from canceled
projects, they are insufficient to fund:
(1) The next highest scoring AHP applications in the Bank's final
funding period of the year for its General Fund first and then for any
Targeted Funds established by the Bank;
[[Page 11390]]
(2) Pending applications for funds under the Bank's Homeownership
Set-Aside Programs, if any; and
(3) Project modifications for AHP subsidy increases approved by the
Bank pursuant to the requirements of this part.
(c) Carryover of insufficient amounts. Such insufficient amounts as
described in paragraph (b) of this section shall be carried over for
use or commitment in the following year in the Bank's General Fund, and
any Targeted Funds or Homeownership Set-Aside Programs established by
the Bank.
Dated: March 1, 2018.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2018-04745 Filed 3-13-18; 8:45 am]
BILLING CODE 8070-01-P