Amendment of Affordable Housing Program Regulation

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 960

[No. 95-N-07]

Amendment of Affordable Housing Program Regulation

AGENCY: Federal Housing Finance Board.

ACTION: Proposed rule.

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SUMMARY: The Federal Housing Finance Board (Board) is soliciting

comments on a proposal to amend its regulation governing the operation

of the Affordable Housing Program (AHP or Program). The proposed rule

would add a new provision authorizing a Federal Home Loan Bank (Bank)

to set aside a limited portion of its available AHP subsidies to assist

first-time homebuyers pursuant to a program meeting specific

requirements set forth in the proposed rule. In addition, the proposed

rule would permit a Bank to establish a first-time homebuyer program

with requirements different from those specifically set forth, subject

to prior approval of the Board.

DATES: Comments on this proposed rule must be received in writing on or

before August 28, 1995.

ADDRESSES: Comments should be mailed to: Federal Housing Finance Board,

Executive Secretariat, 1777 F Street, NW., Washington, DC 20006.

Comments will be available for public inspection at this address.

FOR FURTHER INFORMATION CONTACT: Sharon B. Like, Attorney-Advisor,

Office of General Counsel, (202) 408-2930, or Diane E. Dorius, Deputy

Director, Office of Housing Finance,

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(202) 408-2576, Federal Housing Finance Board, 1777 F Street, NW.,

Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

Section 10(j)(1) of the Federal Home Loan Bank Act (Bank Act)

requires each Bank to establish a Program to subsidize the interest

rate on advances to members of the Federal Home Loan Bank System (Bank

System) engaged in lending for long-term, low- and moderate-income,

owner-occupied and affordable rental housing at subsidized interest

rates. See 12 U.S.C. 1430(j)(1). The Board is required to promulgate

regulations governing the Program. See 12 U.S.C. 1430(j)(9); 12 CFR

part 960.

Under the Board's AHP regulation, each Bank must make a specified

annual contribution to fund its Program. See 12 CFR 960.10. During each

calendar year, each Bank accepts applications for funds from its

members during two of four quarterly funding periods, or ``rounds.''

See 12 CFR 960.4. Applications are reviewed and recommended, and AHP

funds are awarded to applicants through, a competitive scoring process

set forth in the AHP regulation. See 12 CFR 960.5. AHP funds are

awarded to the applicants whose applications score the highest among

all the applications received by the Bank in that funding round. See

id.

II. Analysis of the Proposed Rule

The Board believes that promoting homeownership for first-time

homebuyers is a significant part of the mission of the Bank System. In

furtherance of that goal, the Board and the Banks recently joined a

partnership agreement to promote the President's National Homeownership

Strategy to expand homeownership to millions of households by the year

2000. The Board believes that permitting the Banks to direct a portion

of their AHP contribution to assist low- and moderate-income, first-

time homebuyers is consistent with its commitment to the National

Homeownership Strategy.

The proposed rule would amend the AHP regulation to authorize a

Bank to set aside up to the greater of $1 million or 10 percent of its

annual required AHP contribution to fund a Matched Savings First-Time

Homebuyers' Initiative (Initiative), through which the Bank would

assist low- and moderate-income, first-time homebuyers to purchase

homes.

Members may be pre-approved by their Bank for participation in an

Initiative if they: have established a savings account program offering

dedicated savings accounts to eligible households; have established a

first-time homebuyer policy that defines the qualifications for being a

``first-time'' homebuyer and that includes financial or other

incentives for such homebuyers; and have established or sponsor a

homebuyer counseling program. Eligible households must have incomes at

or below 80 percent of area median income. Participating households

must make regular deposits in dedicated savings accounts maintained

with the members according to an agreed upon schedule of savings for a

minimum of 10 months, and must complete the required homebuyer

counseling program. Each dollar of a household's savings will be

matched by the member with up to three dollars of Bank AHP funds. Each

Bank may determine the appropriate ratio of AHP funds-to-savings of a

participating household (with a maximum of three-to-one), which ratio

shall apply to all households participating in the Bank's initiative.

The total amount of AHP funds received by a household may not exceed

$5,000. The household is expected to use the funds within one year of

its acceptance into the Initiative to pay for downpayment and closing

costs in connection with its first-time purchase of a one-to-four

family, owner-occupied property (including a condominium or cooperative

housing unit) to be used as its primary residence.

A home purchased by a participating household with funds received

under an Initiative must be subject to a deed restriction, ``soft''

second mortgage or other legally enforceable mechanism, pursuant to the

requirements set forth in the proposed rule, that would enable the Bank

to recapture from the member or directly from the seller a pro rata

portion of those funds if the home is sold by the initial household to

a household that is not low- or moderate-income, within 5 years (or

longer, at the discretion of the Bank) from the date of purchase by the

participating household. The proposed rule would allow for Bank waiver

of the recapture requirement if its imposition would cause undue

hardship on the seller.

Since the requirements governing the eligibility of households and

the uses of set-aside funds under the Initiative are to be uniformly

applied, funding of such Initiatives will not be subject to the

competitive scoring process applicable to regular AHP applications

under the regulation. Instead, a Bank would make set-aside funds

available to an Initiative on a rolling, first come, first-served

basis. In addition, the proposed rule would allow a Bank to make

available up to $1 million of additional AHP funds from the next year's

Initiative set-aside if demand for funds under the Initiative exceeds

the amount set aside in the current year.

In order to allow the Banks to implement an Initiative as soon as

possible, the Board's proposal would allow a Bank to establish an

Initiative meeting the specific requirements set forth in the proposed

rule without obtaining prior Board approval. However, the Board

recognizes that the Banks may develop strategies for implementing

first-time homebuyer programs that differ from the model in the

proposed rule, but which may be equally, or more, effective. The Board

believes that the Banks should have flexibility for innovation and the

ability to respond to local conditions in providing assistance for

first-time homebuyers. Therefore, proposed Sec. 960.5(g)(2) would

permit Banks to establish first-time homebuyer programs that are

different from that described in the proposed rule, with prior Board

approval.

While public comment is being requested on all aspects of the

proposed rule, the Board is requesting specific comment on several

issues of note.

First, the Bank Act requires that owner-occupied housing financed

under the AHP must be ``long-term.'' See 12 U.S.C. 1430(j)(1).

Commenters should be aware that the Board specifically has requested

comment on the appropriate ``long-term'' period applicable generally to

owner-occupied housing financed under the AHP in a previously published

proposal. See 59 FR 1323 (Jan. 10, 1994). In the preamble to that

proposal, the Board discussed alternative proposals to set the ``long-

term'' requirement at 5 years or 30 years. The Board here has proposed

5 years as the minimum ``long-term'' requirement that would be

applicable solely to homes purchased with funds provided under an

Initiative, but that would not apply to AHP projects receiving funding

through the regular AHP competitive scoring process set forth in

Secs. 960.4 and 960.5 of the AHP regulation. See 12 CFR 960.4, 960.5.

In making this proposal, it is not the Board's intention to preclude

continuing dialogue on the issue of ``long-term'' retention in this or

any other context, but rather is to encourage a full discussion.

Therefore, the Board specifically requests comment on the appropriate

length of the ``long term'' requirement for homes purchased through an

Initiative.

Second, the proposal would allow a Bank to commit, in any year, a

portion of its future AHP contributions if

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demand for Initiative funds in that year exceeded that year's set-

aside. The commitment in the current year of future AHP contributions

currently is not permitted under the AHP regulation. The Board

specifically requests comment on this aspect of the proposed rule as

well.

Third, the Board specifically solicits comment on whether other,

non-conforming set-aside programs proposed by a Bank under proposed

Sec. 960.5(g)(2) should be limited to programs that assist first-time

homebuyers, or whether it would be practicable to broaden the language

of the proposal to allow for assistance to be provided to other

categories of activities related to homeownership that promote the

National Homeownership Strategy, such as improving and rehabilitating

existing homes and encouraging homeownership strategies that revitalize

distressed communities.

Finally, the Board specifically, requests comment on whether the

funding limit of the greater of $1 million or 10 percent of a Bank's

annual required AHP contribution: (a) is appropriate generally; and (b)

should apply to other, non-conforming set-aside programs under proposed

Sec. 960.5(g)(2), or whether the funding limits for such other programs

should be left to the discretion of the Board.

III. Regulatory Flexibility Act

The proposed rule applies only to the Banks, which do not come

within the meaning of ``small entities,'' as defined in the Regulatory

Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance

with section 605(b) of the RFA, see id. section 605(b), the Board

hereby certifies that this proposed rule, if promulgated as a final

rule, will not have a significant economic impact on a substantial

number of small entities.

List of Subjects for 12 CFR Part 960

Banks, Banking, Credit, Federal home loan banks, Housing.

Accordingly, part 960, chapter IX, title 12, subchapter E, Code of

Federal Regulations, is hereby proposed to be amended as follows:

SUBCHAPTER E--AFFORDABLE HOUSING

PART 960--AFFORDABLE HOUSING PROGRAM

1. The authority citation for part 960 is revised to read as

follows:

Authority: 12 U.S.C. 1422a, 1422b, 1430(j).

2. Section 960.4 is amended by revising the first sentence of

paragraph (a) to read as follows:

Sec. 960.4 Applications for funding.

(a) Except as provided in Sec. 960.5(g), the Program is based on

District-wide competitions administered by the Board. * * *

* * * * *

3. Section 960.5 is amended by adding a new paragraph (g) and by

revising paragraph (a)(1) to read as follows:

Sec. 960.5 Project scoring and funding.

(a) General. (1) Each Bank will evaluate all applications received

pursuant to Sec. 960.4(a) from its members that satisfy the use

provisions identified in Sec. 960.3(b).

* * * * *

(g) Set-Aside programs.--(1) Programs exempt from prior board

approval. Without the prior approval of the Board, a Bank may set aside

annually up to the greater of $1 million or 10 percent of its annual

required Affordable Housing Program contribution to implement a matched

savings first-time homebuyers' initiative that meets all of the

following requirements:

(i) Announcement of available bank funds. The Bank shall notify its

members of the amount of annual funds available under the initiative;

(ii) Pre-approval of member participants. The Bank shall approve a

member's participation in the initiative if the member has:

(A) Established a savings account program offering dedicated

savings accounts to eligible households;

(B) Established a first-time homebuyer policy that defines the

qualifications for being a ``first-time homebuyer'' and that includes

financial or other incentives for such first-time homebuyers;

(C) Established a homebuyer counseling program based on those

offered by or in conjunction with a not-for-profit housing agency or

other recognized counseling organization;

(D) Committed that the Bank or member participant will be entitled

to recapture of the equivalent amount of the matching funds, as

provided in paragraph (g)(1)(ix) of this section;

(iii) Approval of initial enrollment of households. The Bank shall

approve the initial enrollment, through the approved member

participant, of a household as a potential beneficiary in the

initiative, if the household:

(A) Is low- or moderate-income, as defined in Sec. 960.1(g);

(B) Has opened a dedicated savings account with the member

participant and established a schedule of savings into the account;

(C) Meets the requirements of the member participant's first-time

homebuyer policy;

(D) Has enrolled in a homebuyer counseling program established by

the member participant that is based on those offered by or in

conjunction with a not-for-profit housing agency or other recognized

counseling organization;

(E) Has agreed to obtain mortgage financing from the member

participant for the purchase of a home;

(iv) Bank program acceptance six months after initial enrollment

and reservation of bank matching funds. The Bank shall accept a

household into its initiative, shall reserve, in the name of the

household, matching funds as targeted in the household's schedule of

savings for a period of one year, and shall notify the member

participant and household of such acceptance, if, six months after the

initial enrollment date of the household, the member participant

certifies to the Bank that the household is progressing satisfactorily

by participating in the homebuyer counseling program and systematically

depositing funds to its dedicated savings account according to its

agreed schedule of savings;

(v) Verification of household progress. The Bank shall require the

member participant to verify, every six months from a household's

acceptance date into the initiative, the household's progress in

completing the homebuyer counseling program and making deposits to its

dedicated savings account according to its agreed schedule of savings;

(vi) Approval of matching funds drawdown. The Bank shall approve a

request from a member participant for matching funds, in an amount

equal to, in the Bank's discretion, up to three times the amount of a

household's savings in its dedicated savings account, up to a maximum

of $5,000 per household, and shall credit such funds to the member

participant's account, if the member participant certifies to the Bank

that:

(A) The household made deposits to its dedicated savings account

according to its agreed schedule of savings for a minimum of ten

months;

(B) Closing on the sale of a home to the household has occurred

within one year of the household's acceptance date into the initiative,

or a later period if the Bank determines that reasonable circumstances

justified extending such time period for the use of the funds;

(C) The household has completed the required homebuyer counseling

program;

(D) The household has received the financial or other incentives

committed by the member participant pursuant to its first-time

homebuyer policy;

[[Page 38771]]

(E) A deed restriction, ``soft'' second mortgage or other legally

enforceable mechanism exists on the household's home that entitles the

Bank or member participant to recapture of the equivalent amount of the

matching funds, as provided in paragraph (g)(1)(ix) of this section;

(vii) Eligible uses of funds. Households receiving funds under an

initiative may use such funds only for the payment of downpayment or

closing costs in connection with the household's purchase of a one-to-

four family, owner-occupied residential property (including a

condominium or cooperative housing unit) to be used as its primary

residence;

(viii) Availability of funds. (A) The Bank shall make its

initiative funds available on a rolling, first come, first-served

basis;

(B) The Bank may reserve the option, if needed because demand for

its funds in a given year exceeds the amount of set-aside funds

available for that year, to:

(i) Make available up to an additional $1 million from the next

year's set-aside of funds under such initiative; or

(ii) Establish a waiting list or other process by which households

would be approved by the Bank to receive funds under the initiative;

(ix) Long-term requirement--Recapture of funds upon resale. The

Bank shall require that a home purchased using funds under an

initiative be subject to a deed restriction, ``soft'' second mortgage

or other legally enforceable mechanism that requires that, if the home

is sold prior to the end of a period of not less than 5 years from the

date of purchase by the initial household, to a household that is not

low- or moderate-income:

(I) The Bank or its designee be given notice of the sale; and

(II) The seller be required to repay a pro rata share, except for

de minimis amounts determined by the Bank, of the funds provided under

the initiative, reduced for every year the seller owned the home, to be

repaid from any net gain from the sale of the home after deduction for

sales expenses, and to be returned to the Bank to be made available for

other Affordable Housing Program projects, except that the Bank in its

discretion may waive such repayment requirement if its imposition would

cause undue hardship on the seller, as defined by the Bank;

(x) Each Bank may establish its own procedures for further

implementation of the requirements of this paragraph (g)(1).

(2) Other programs. A Bank may set aside a portion of its annual

required Affordable Housing Program contribution to implement a first-

time homebuyer program that does not meet the requirements of

Sec. 960.5(g)(1), provided the program otherwise satisfies the

requirements of 12 U.S.C. 1430(j), and receives the prior approval of

the Board.

Dated: July 13, 1995.

By the Federal Housing Finance Board.

Bruce A. Morrison,

Chairman.

[FR Doc. 95-18424 Filed 7-27-95; 8:45 am]

BILLING CODE 6725-01-P