Advances To Nonmembers

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 935

[No. 96-62]

Advances To Nonmembers

AGENCY: Federal Housing Finance Board.

ACTION: Proposed rule.

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SUMMARY: The Board of Directors of the Federal Housing Finance Board

(Finance Board) is proposing to amend its regulation on Federal Home

Loan Bank (FHLBank) advances to nonmembers. The proposed rule

establishes uniform eligibility requirements and review criteria for

determining whether an entity may be certified as a nonmember mortgagee

eligible to receive FHLBank advances and devolves responsibility for

making

[[Page 52728]]

that determination from the Finance Board to the FHLBanks. The Finance

Board also is proposing to revise the definition of the term ``state

housing finance agency'' (SHFA) to include all Indian housing

authorities (IHAs). The proposed rule is part of the Finance Board's

continuing effort to devolve management and governance responsibilities

to the FHLBanks and is consistent with the goals of the National

Homeownership Strategy and the Regulatory Reinvention Initiative of the

National Performance Review.

DATES: The Finance Board will accept comments on this proposed rule in

writing on or before December 9, 1996.

ADDRESSES: Mail comments to Elaine L. Baker, Executive Secretary,

Federal Housing Finance Board, 1777 F Street, N.W., Washington, D.C.

20006. Comments will be available for public inspection at this

address.

FOR FURTHER INFORMATION CONTACT: Laura K. St. Claire, Financial

Analyst, Financial Management Division, Office of Policy, 202/408-2811,

Christine M. Freidel, Assistant Director, Financial Management

Division, Office of Policy, 202/408-2976, or, Janice A. Kaye, Attorney-

Advisor, Office of General Counsel, 202/408-2505, Federal Housing

Finance Board, 1777 F Street, N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

Section 10b of the Federal Home Loan Bank Act (Bank Act)

establishes the requirements for access by nonmember mortgagees to

FHLBank advances. See 12 U.S.C. 1430b. In order to be certified as a

nonmember mortgagee, an entity must: (1) be approved by the Department

of Housing and Urban Development (HUD) as a ``mortgagee'' under title

II of the National Housing Act; (2) be chartered under law and have

succession; (3) be subject to the inspection and supervision of a

governmental agency; and (4) lend its own funds as its principal

activity in the mortgage field. Id. section 1430b(a).

Under section 10b(a) of the Bank Act, advances to nonmember

mortgagees are not subject to the general collateral requirements of

section 10(a) of the Bank Act. Id. Instead, a FHLBank may make advances

to nonmember mortgagees only upon the security of mortgages insured by

the Federal Housing Administration (FHA) under title II of the National

Housing Act. Id. The amount of any advance may not exceed 90 percent of

the unpaid principal of the collateral pledged as security for the

advance. Id.

The Bank Act imposes less restrictive collateral requirements on

certain advances to nonmember mortgagees that are SHFAs. Id. section

1430b(b). Under section 10b(b) of the Bank Act, advances to SHFA

nonmember mortgagees that facilitate mortgage lending to low- or

moderate-income individuals and families (meeting the income

requirements in section 142(d) or 143(f) of the Internal Revenue Code,

generally up to 115 percent of the area median income) need not be

secured by FHA-insured mortgage loans if the advances otherwise meet

the requirements of section 10(a) of the Bank Act and any real estate

collateral pledged to secure the advances is comprised of single- or

multi-family residential mortgages. Id. sections 1430b(b), 1430(a); 26

U.S.C. 142(d), 143(f). Under section 10(a), four categories of

collateral are eligible to secure advances to members. See 12 U.S.C.

1430(a). The four categories are: (1) fully disbursed whole first

mortgage loans on improved residential real property or securities

representing a whole interest in such mortgages; (2) securities issued,

insured, or guaranteed by the United States government or any agency

thereof; (3) deposits of a FHLBank; and (4) other real estate related

collateral if such collateral has a readily ascertainable value and the

FHLBank can perfect its interest therein.\1\

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\1\ Id. section 1430(a)(1)-(4). Other acceptable real estate

related collateral includes, but is not limited to: privately issued

mortgage-backed securities other than those eligible under category

1; second mortgage loans, including home equity loans; commercial

real estate loans; and mortgage loan participations. See 12 CFR

935.9(a)(4)(ii). The aggregate amount of outstanding advances

secured by such collateral may not exceed 30 percent of a FHLBank

member's GAAP capital. See 12 U.S.C. 1430(a)(4); 12 CFR

935.9(a)(4)(iii).

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The Finance Board originally sought public comments concerning the

qualifications for nonmember mortgagees and the terms and conditions

under which FHLBanks may make advances to certified nonmember

mortgagees in October 1992. See 57 FR 45338 (Oct. 1, 1992) (proposed

rule). The Finance Board received four comment letters. Because

Congress enacted legislation affecting advances to nonmember mortgagees

shortly after publication of the proposed rule, see Housing and

Community Development Act of 1992, Pub. L. 102-550, Title XIII, section

1392(b), 106 Stat. 4009 (Oct. 28, 1992), the Finance Board again sought

public comments in May 1993. See 58 FR 29474 (May 20, 1993), codified

at 12 CFR 935.1, 935.20-935.22 (interim final rule with request for

comments). In response to this second request, the Finance Board

received six comment letters. Given the passage of time since the

original notices, the experiences of the FHLBanks in administering the

nonmember mortgagee advance programs during that period, and the

Finance Board's effort to devolve corporate governance authority to the

FHLBanks, the Board of Directors of the Finance Board has decided to

reopen the advances to nonmembers regulation for comment. The Finance

Board will consider all comments it receives before taking final

action, including comments received in response to the interim final

rule published in May 1993 and this notice of proposed rulemaking.

However, those who submitted comments in response to the interim final

rule may wish to update their earlier submissions.

II. Analysis of the Proposed Rule

A.Definitions

The proposed rule amends the definition of the term ``state housing

finance agency'' that appears currently in Sec. 935.1 of the Finance

Board's regulations. See 12 CFR 935.1. The Finance Board proposes to

retain the current meaning as the first paragraph of the new definition

and add a second paragraph that includes IHAs established under tribal

law as SHFAs. Currently, only IHAs chartered under state law are

eligible for certification as SHFA nonmember mortgagees. According to

HUD's Office of Native American Programs, of the 209 IHAs it currently

recognizes, approximately 39 are chartered under state law and the

remaining 170 are chartered under tribal law. Proposed paragraph two,

which is based on the definition found in the Indian Self Determination

and Education Assistance Act of 1968, see 25 U.S.C. 450b, will equalize

the treatment accorded to IHA nonmember mortgagees, regardless of

whether the IHA is chartered under tribal law or state law. This will

permit every IHA nonmember mortgagee that makes mortgage loans to low-

and moderate-income members of the Indian community to take advantage

of the more flexible collateral rules for securing advances to SHFA

nonmember mortgagees provided by section 10b(b) of the Bank Act. See

supra section I; 12 U.S.C. 1430b(b). The purpose of the proposal is to

expand homeownership opportunities for Native Americans by increasing

the flow of mortgage credit to Native lands. This is consistent with

the goals of the National Homeownership Strategy and the Finance

Board's commitments under its National Partners For Homeownership

Partnership Agreement.

[[Page 52729]]

To make certain that the proposed definition of the term ``state

housing finance agency'' is as inclusive as possible, the Finance Board

solicits comments regarding whether the definition should be expanded

to include any groups other than Indian tribes, bands, groups, nations,

or communities, and Alaska Native villages, whose sovereign authority

is recognized currently by the United States.

B. Advances to the Savings Association Insurance Fund

Proposed Sec. 935.20, which implements section 31(k) of the Bank

Act, restates without substantive change the provision that appears

currently at Sec. 935.21 of the Finance Board's regulations. See 12

U.S.C. 1431(k), 12 CFR 935.21. It provides that a FHLBank may make

advances to the Federal Deposit Insurance Corporation for the use of

the Savings Association Insurance Fund under certain circumstances and

subject to specific conditions.

C. Scope

Proposed Sec. 935.21 provides that advances to nonmember mortgagees

generally are subject to subpart A of part 935, which governs advances

to FHLBank members. See 12 CFR 935.1-935.19. The purpose of this

provision is to ensure that nonmember mortgagee advance programs

operate within the same regulatory framework as FHLBank member advance

programs. The FHLBanks must continue to apply to nonmember mortgagees

the advance application requirements, credit underwriting standards,

collateral and safekeeping procedures, restrictions on lending to

institutions without positive tangible capital, advance maturity

requirements, prepayments fees, and most other measures applicable to

FHLBank members under subpart A of part 935 and the Finance Board's

policy guidelines.

Proposed Sec. 935.21 includes several exceptions to this general

requirement. The proposed rule includes the exceptions provided in the

current rule as well as an exception to the non-qualified thrift lender

(non-QTL) provisions of the Finance Board's advances regulation. See

id. Sec. 935.13. Since the statutory limit on aggregate FHLBank lending

applies only to advances to non-QTL members, see 12 U.S.C. 1430(e)(2)

(emphasis added), and nonmember mortgagees are not FHLBank members, the

Finance Board believes that advances to nonmember mortgagees need not

be included in the aggregate limit on advances to non-QTLs.

D. Nonmember Mortgagee Eligibility Requirements

1. In general. Proposed Sec. 935.22(a) restates the current

authority of a FHLBank to make advances to an entity that is not a

member of the FHLBank if the entity is certified by the FHLBank as a

nonmember mortgagee.

Proposed Sec. 935.22(b) incorporates the statutory eligibility

requirements for certification as a nonmember mortgagee. In addition to

the four statutory eligibility criteria, discussed in section 1 of the

Supplementary Information, to ensure the safety and soundness of the

FHLBanks, the Finance Board has incorporated a financial condition

criterion that would require an applicant's financial condition to be

such that a FHLBank may safely lend to it. This is the same financial

condition criterion that applies currently to applicants for membership

in a FHLBank. See id. section 1424(a)(2)(B); 12 CFR 933.6(a)(4).

Proposed Sec. 935.22(c) establishes uniform review criteria to be

used to determine whether an applicant meets the eligibility

requirements for certification as a nonmember mortgagee. The review

criteria are based on the standards the Finance Board and FHLBanks

apply currently in considering applications for certification as a

nonmember mortgagee. The Finance Board specifically requests comments

as to whether the regulation should include examples of additional or

alternative review criteria.

Under the proposed rule, if an applicant fulfills each criterion to

the satisfaction of the FHLBank to which it has applied, it will be

deemed to meet the eligibility requirements. Conversely, failure to

fulfill each criterion to the satisfaction of the FHLBank will render

the applicant ineligible, subject to appeal to the Finance Board, to be

certified as a nonmember mortgagee.

Under proposed Sec. 935.22(c)(1), an applicant is deemed to meet

the requirement that it be approved under title II of the National

Housing Act if it submits a current HUD Yearly Verification Report or

other documentation issued by HUD stating that the applicant is an

approved FHA mortgagee.

Under proposed Sec. 935.22(c)(2), an applicant is deemed to meet

the requirement that it be a chartered institution having succession if

it provides documentary evidence satisfactory to the FHLBank that it is

a government agency, or is chartered under state, federal, local,

tribal, or Alaska Native village law as a corporation or other entity

that has rights, characteristics, and powers similar to those granted a

corporation. Acceptable documentary evidence generally consists of a

copy of the statute(s) and/or regulation(s) under which the applicant

was created.

Under proposed Sec. 935.22(c)(3), an applicant is deemed to meet

the requirement that it be subject to the inspection and supervision of

some governmental agency if it provides documentary evidence

satisfactory to the FHLBank that, pursuant to statute or regulation, it

is subject to the inspection and supervision of a federal, state,

local, tribal, or Alaska Native village government agency. To afford

flexibility, the proposed rule provides that inspection by a government

agency includes, but is not limited to, a statutory or regulatory

requirement that the applicant's books and records be audited or

examined periodically by such agency or an external auditor.

Supervision by a government agency includes, but is not limited to,

statutory or regulatory authority for such agency to remove an

applicant's officers or directors for malfeasance or misfeasance.

Copies of the relevant statutory and/or regulatory provisions should

constitute adequate documentary evidence.

Under proposed Sec. 935.22(c)(4), an applicant is deemed to meet

the mortgage activity requirement if it provides documentary evidence

satisfactory to the FHLBank that it lends its own funds as its

principal activity in the mortgage field. For purposes of this

requirement, the Finance Board considers the purchase of whole mortgage

loans tantamount to ``lending'' an applicant's funds. In the case of a

federal, state, local, tribal, or Alaska Native village government

agency, the Finance Board considers appropriated funds to be an

applicant's ``own funds.'' An applicant will be deemed to satisfy this

requirement even though the majority of its operations are unrelated to

mortgage lending if its mortgage activity conforms to the regulatory

criteria. A financial statement that includes mortgage loan assets and

their funding liabilities generally will provide adequate documentary

evidence. The proposed rule provides that an applicant that acts

principally as a broker for others making mortgage loans, or whose

principal activity is to make mortgage loans for the account of others,

does not meet this requirement.

Under proposed Sec. 935.22(c)(5), an applicant that provides such

financial or other information as the FHLBank may require to determine

that advances may

[[Page 52730]]

be extended safely to the applicant is deemed to meet the financial

condition requirement in Sec. 935.22(b)(5) of the proposed rule. This

requirement is not intended to replace, or be a substitute for, the in-

depth financial review a FHLBank should undertake before making

specific lending decisions. Nor is it meant to be a presumption that

any applicant with eligible collateral is in adequate financial

condition.

2. State housing finance agencies. Under Sec. 935.22(d) of the

proposed rule, any applicant seeking to take advantage of the more

flexible collateral requirements provided by section 10b(b) of the Bank

Act and Sec. 935.24(b)(2) of the proposed rule for advances used to

facilitate residential or commercial mortgage lending to certain low-

and moderate-income families or individuals, in addition to meeting the

requirements in proposed Sec. 935.22(b), must provide documentary

evidence satisfactory to the FHLBank that it is a SHFA. The proposed

definition of the term ``state housing finance agency'' is discussed in

section II(A) of the Supplementary Information. Satisfactory

documentary evidence generally consists of a copy of the statutory and/

or regulatory provisions that outline the applicant's structure and

responsibilities.

E. Nonmember Mortgagee Application Process

The Finance Board and the FHLBanks have been considering ways to

transfer a variety of management and governance responsibilities from

the Finance Board to the FHLBanks since the completion of studies

required by the Housing and Community Development Act of 1992,

including the Finance Board's own study completed in April 1993. See

Pub. L. 102-550, Sec. 1393, 106 Stat. 3672; Report on the Structure and

Role of the FHLBank System at 153 (Apr. 28, 1993). The Finance Board,

which believes that the FHLBanks should be allowed broad discretion to

manage their affairs as long as they comply with the Bank Act and

Finance Board regulations, has identified nonmember mortgagee

application approval as one of the management functions that should be

devolved from the Finance Board to the FHLBanks. Accordingly,

Sec. 935.23(a) of the proposed rule authorizes the FHLBanks to approve

or deny all applications for certification as a nonmember mortgagee,

subject to the requirements of the Bank Act and Finance Board

regulations.

The remainder of proposed Sec. 935.23 sets forth the procedures for

submission and review of nonmember mortgagee applications. Proposed

Sec. 935.23(b) requires an applicant to submit an application that

satisfies the requirements of this subpart to the FHLBank of the

district in which the applicant's principal place of business, as

defined in 12 CFR 933.18, is located.

To ensure expeditious action on applications for certification as a

nonmember mortgagee, proposed Sec. 935.23(c)(1) requires a FHLBank to

act on an application within 60 calendar days of the date the FHLBank

deems the application complete. To make certain that the time period

provided for review is not unduly restrictive, the proposed rule deems

an application complete, thus triggering the 60-day time period, only

after the FHLBank has obtained all of the information required by this

subpart and any other information it considers necessary to process the

application. The proposed rule also permits the FHLBank to stop the 60-

day period if it determines during the review process that additional

information is necessary to process the application. The FHLBank must

restart the 60-day time period where it left off upon receiving the

additional required information. The FHLBank must notify applicants in

writing when the 60-day time period begins, stops, and starts again.

Proposed Sec. 935.23(c)(2) requires the board of directors of a

FHLBank to approve or deny each application for certification as a

nonmember mortgagee by a written decision resolution that states the

grounds for the decision. A FHLBank must provide a copy of the decision

resolution to the applicant and the Finance Board within 3 business

days of the FHLBank's decision on an application.

Proposed Sec. 935.23(c)(3) establishes a process by which

applicants may appeal FHLBank certification denials to the Finance

Board. The appeal procedure is intended to ensure that the nonmember

mortgagee certification criteria are applied uniformly and fairly by

the FHLBanks and that similarly situated applicants are treated in a

consistent manner. Within 90 calendar days of the date of a FHLBank's

certification denial, an applicant may submit a written appeal to the

Finance Board with a copy to the FHLBank. The appeal must include the

FHLBank's decision resolution and a statement of the basis for the

appeal with sufficient facts, information, analysis, and explanation to

support the applicant's position. The FHLBank whose action has been

appealed must submit to the Finance Board a complete copy of the

applicant's application for certification as a nonmember mortgagee as

well as any relevant new materials it receives while the appeal is

pending. The proposed rule authorizes the Finance Board to request any

additional information or supporting arguments it may require to decide

the appeal. The Finance Board must make its decision within 90 calendar

days of the date the appeal is filed by the applicant.

F. Advances to Nonmember Mortgagees

Proposed Sec. 935.24 establishes the terms and conditions under

which a FHLBank may make advances to a nonmember mortgagee. Under

proposed Sec. 935.24(a), a FHLBank may lend only to a nonmember

mortgagee whose principal place of business is located in the FHLBank's

district.

Proposed Sec. 935.24(b) sets forth the collateral requirements for

advances to nonmember mortgagees. Pursuant to section 10b(a) of the

Bank Act, 12 U.S.C. 1430b(a), and Sec. 935.24(b)(1)(i) of the proposed

rule, a FHLBank may make advances to a nonmember mortgagee upon the

security of FHA-insured mortgages. Section 935.24(b)(1)(ii) of the

proposed rule includes securities representing a whole interest in a

pool of FHA-insured mortgages as eligible collateral. If a nonmember

mortgagee wishes to pledge such securities, it first must provide to

the FHLBank evidence that the securities are backed solely by

qualifying mortgages.

As discussed in section 1 of the Supplementary Information, under

section 10b(b) of the Bank Act, 12 U.S.C. 1430b(b), advances to a SHFA

nonmember mortgagee, the proceeds of which will be used to facilitate

mortgage lending that benefits certain low- and moderate-income

individuals or families, are subject to less restrictive collateral

requirements than those imposed on other advances to nonmember

mortgagees. Section 935.24(b)(2) of the proposed rule implements these

collateral requirements. Under proposed Sec. 935.24(b)(2), a FHLBank

may make such advances upon the security of the collateral described

above; collateral eligible under categories 1 or 2 of Bank Act section

10(a), 12 U.S.C. 1430(a)(1)-(2), as described in 12 CFR 935.9(a)(1) or

(2); or collateral eligible under category 4 of Bank Act section 10(a),

12 U.S.C. 1430(a)(4), as described in 12 CFR 935.9(a)(4), provided that

such collateral is comprised of mortgage loans on one-to-four or multi-

family residential property and the acceptance of such collateral will

not increase the total amount of advances outstanding to the SHFA

secured by such collateral beyond 30 percent of its GAAP capital, as

computed by the FHLBank. Since a

[[Page 52731]]

FHLBank may accept deposits only from FHLBank members, other FHLBanks,

or other instrumentalities of the United States, see 12 U.S.C.

1431(e)(1), SHFA nonmember mortgagees would not have any category 3

collateral available to secure FHLBank advances. If a SHFA nonmember

mortgagee wishes to pledge other than FHA-insured collateral, it first

must certify in writing to the FHLBank that the proceeds of the advance

so secured will be used to facilitate qualifying mortgage lending. The

proposed rule clarifies that qualifying mortgage lending includes both

residential and commercial mortgage lending.

Proposed Sec. 935.24(c) outlines the terms and conditions for

advances to nonmember mortgagees. Under proposed Sec. 935.24(c)(1), a

FHLBank may exercise its discretion to determine whether, and on what

terms, it will make advances to nonmember mortgagees. Proposed

Sec. 935.24(c)(2) addresses advance pricing. Paragraph (c)(2)(i)

requires a FHLBank to price nonmember mortgagee advances to cover the

funding, operating, and administrative costs associated with making the

advance. Paragraph (c)(2)(ii) permits, but does not require, a FHLBank

to price advances to reflect the credit risk of lending to nonmember

mortgagees. Paragraph (c)(2)(iii) authorizes a FHLBank to apply other

reasonable differential pricing criteria, provided that the FHLBank

applies the criteria equally to all of its member and nonmember

mortgagee borrowers. This is intended to ensure that any pricing

criteria other than cost and credit risk are applied to nonmember

mortgagee advances in the same way as to member advances. The Finance

Board requests public comments concerning whether, and on what basis,

any pricing distinctions should be permitted between member and

nonmember borrowers.

The Finance Board proposes to delete the requirement that appears

currently in Sec. 935.22(e)(2)(B)(ii) that a FHLBank price nonmember

mortgagee advances to compensate the FHLBank for the lack of a capital

stock investment in the FHLBank by the nonmember mortgagee. See 12 CFR

935.22(e)(2)(B)(ii). The Finance Board believes that requiring such

compensation is unnecessary since the additional earnings achieved

through advances not supported by capital should enhance a FHLBank's

return on equity.

Proposed Sec. 935.24(c)(3) limits the principal amount of any

advance made to a nonmember mortgagee to 90 percent of the unpaid

principal of the mortgage loans or securities pledged as security for

the advance. This limit does not apply to advances made to SHFA

nonmember mortgagees for the purpose of facilitating qualifying low-

and moderate-income mortgage lending under Sec. 935.24(b)(2) of the

proposed rule.

Under certain circumstances an entity that has been certified as a

nonmember mortgagee may be deemed ineligible to receive FHLBank

advances. Section 935.24(d)(1) of the proposed rule requires a

nonmember mortgagee that applies for an advance to agree first in

writing that it will promptly notify the FHLBank of any change in its

status as a nonmember mortgagee. Section 935.24(d)(2) of the proposed

rule permits a FHLBank, from time to time, to require a nonmember

mortgagee to provide evidence that it continues to satisfy all of the

statutory and regulatory eligibility requirements. If the FHLBank

determines that the nonmember mortgagee no longer meets these

eligibility requirements, proposed Sec. 935.24(d)(3) prohibits the

FHLBank from extending a new advance or renewing an existing advance

until the entity provides evidence satisfactory to the FHLBank that it

is in compliance with such requirements.

III. Regulatory Flexibility Act

The proposed rule implements statutory requirements binding on all

FHLBanks and all nonmember mortgagee applicants and certified nonmember

mortgagees. The Finance Board is not at liberty to make adjustments in

those requirements to accommodate small entities. The Finance Board has

not imposed any additional regulatory requirements that will have a

disproportionate impact on small entities. Thus, in accordance with the

provisions of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.,

the Board of Directors of the Finance 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.

Id. section 605(b).

IV. Paperwork Reduction Act

The Finance Board has submitted to the Office of Management and

Budget (OMB) an analysis of the collection of information contained in

Secs. 935.22 through 935.24 of the proposed rule, described more fully

in part II of the Supplementary Information. The FHLBanks and, where

appropriate, the Finance Board, will use the information collection to

determine whether an entity satisfies the statutory and regulatory

eligibility requirements to be certified as a nonmember mortgagee

eligible to receive FHLBank advances. See 12 U.S.C. 1430b; 12 CFR

935.21-935.24. A FHLBank may make advances to an entity that is not a

member of the FHLBank only after the entity has satisfied the

eligibility requirements to be a nonmember mortgagee. See 12 U.S.C.

1430b. Responses are required to obtain or retain a benefit. See id.

The Finance Board and FHLBanks will maintain the confidentiality of

information obtained from respondents pursuant to the collection of

information as required by applicable statute, regulation and agency

policy. Books or records relating to these collection of information

must be retained as provided in the regulation or proposed rule.

Likely respondents and/or recordkeepers will be entities, including

SHFAs and IHAs, that seek access to FHLBank advances but are not

eligible to become members of a FHLBank, the FHLBanks, and the Finance

Board. Potential respondents are not required to respond to the

collection of information unless the regulation collecting the

information displays a currently valid control number assigned by the

OMB. See 44 U.S.C. 3512(a).

The estimated annual reporting and recordkeeping hour burden is:

a. Number of respondents: 10

b. Total annual responses: 10

Percentage of these responses collected electronically: 0%

c. Total annual hours requested: 100

d. Current OMB inventory: 100

e. Difference: 0

The estimated annual reporting and recordkeeping cost burden is:

a. Total annualized capital/startup costs: $0

b. Total annual costs (O&M): $0

c. Total annualized cost requested: $6,250

d. Current OMB inventory: $6,250

e. Difference: $0

Comments concerning the accuracy of the burden estimates and

suggestions for reducing the burden may be submitted to the Finance

Board in writing at the address listed above.

The Finance Board has submitted the collection of information to

OMB for review in accordance with section 3507(d) of the Paperwork

Reduction Act of 1995, codified at 44 U.S.C. 3507(d). Comments

regarding the proposed collection of information may be submitted in

writing to the Office of Information and Regulatory Affairs of the

Office of Management and Budget, Attention: Desk Officer for Federal

Housing Finance Board, Washington, D.C. 20503 by December 9, 1996.

[[Page 52732]]

List of Subjects in 12 CFR Part 935

Credit, Federal home loan banks, Reporting and recordkeeping

requirements.

Accordingly, the Board of Directors of the Federal Housing Finance

Board hereby proposes to amend part 935, chapter IX, title 12, Code of

Federal Regulations, as follows:

PART 935--ADVANCES

1. The authority citation for part 935 is revised to read as

follows:

Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1426, 1429, 1430,

1430b, and 1431.

2. Section 935.1 is amended by revising the definition for ``State

housing finance agency'' to read as follows:

Sec. 935.1 Definitions.

* * * * *

State housing finance agency or SHFA means:

(1) A public agency, authority, or publicly sponsored corporation

that serves as an instrumentality of any state or political subdivision

of any state, and functions as a source of residential mortgage loan

financing in that state; or

(2) A legally established agency, authority, corporation, or

organization that serves as an instrumentality of any Indian tribe,

band, group, nation, community, or Alaska Native village recognized by

the United States or any state, and functions as a source of

residential mortgage loan financing for the Indian or Alaska Native

community.

* * * * *

3. Subpart B is revised to read as follows:

Subpart B--Advances to Nonmembers

Sec.

935.20 Advances to the Savings Association Insurance Fund.

935.21 Scope.

935.22 Nonmember mortgagee eligibility requirements.

935.23 Nonmember mortgagee application process.

935.24 Advances to nonmember mortgagees.

Subpart B--Advances to Nonmembers

Sec. 935.20 Advances to the Savings Association Insurance Fund.

(a) Authority. Upon receipt of a written request from the FDIC, a

Bank may make advances to the FDIC for the use of the Savings

Association Insurance Fund. The Bank shall provide a copy of such

request to the Board.

(b) Requirements. Advances to the FDIC for the use of the Savings

Association Insurance Fund shall:

(1) Bear a rate of interest not less than the Bank's marginal cost

of funds, taking into account the maturities involved and reasonable

administrative costs;

(2) Have a maturity acceptable to the Bank;

(3) Be subject to any prepayment, commitment, or other appropriate

fees of the Bank; and

(4) Be adequately secured by collateral acceptable to the Bank.

Sec. 935.21 Scope.

With the exception of Sec. 935.13, and except as otherwise provided

in Sec. 935.20 and Sec. 935.24, the requirements of subpart A of this

part apply to this subpart.

Sec. 935.22 Nonmember mortgagee eligibility requirements.

(a) Authority. Subject to the provisions of the Act and this

subpart, a Bank may make advances to an entity that is not a member of

the Bank if the entity is certified by the Bank as a nonmember

mortgagee.

(b) Eligibility requirements. A Bank may certify as a nonmember

mortgagee any applicant that meets the following requirements:

(1) The applicant is approved under title II of the National

Housing Act (12 U.S.C. 1707, et seq.);

(2) The applicant is a chartered institution having succession;

(3) The applicant is subject to the inspection and supervision of

some governmental agency;

(4) The principal activity of the applicant in the mortgage field

consists of lending its own funds; and

(5) The financial condition of the applicant is such that advances

may be safely made to it.

(c) Satisfaction of eligibility requirements.

(1) HUD approval requirement. An applicant shall be deemed to meet

the requirement in section 10b(a) of the Act and paragraph (b)(1) of

this section that it be approved under title II of the National Housing

Act if it submits a current HUD Yearly Verification Report or other

documentation issued by HUD stating that the applicant has been

approved as a mortgagee by the Federal Housing Administration of HUD.

(2) Charter requirement. An applicant shall be deemed to meet the

requirement in section 10b(a) of the Act and paragraph (b)(2) of this

section that it be a chartered institution having succession if it

provides documentary evidence satisfactory to the Bank, such as a copy

of the statutes and/or regulations under which the applicant was

created, that:

(i) The applicant is a government agency; or

(ii) The applicant is chartered under state, federal, local, or

tribal law as a corporation or other entity that has rights,

characteristics, and powers under applicable law similar to those

granted a corporation.

(3) Inspection and supervision requirement. An applicant shall be

deemed to meet the inspection and supervision requirement in section

10b(a) of the Act and paragraph (b)(3) of this section if it provides

documentary evidence satisfactory to the Bank, such as a copy of

relevant statutes and/or regulations, that, pursuant to statute or

regulation, the applicant is subject to the inspection and supervision

of a federal, state, local, tribal, or Alaskan native village

government agency. Inspection by a government agency includes, but is

not limited to, a statutory or regulatory requirement that the

applicant be audited or examined periodically by such agency or by an

external auditor. Supervision by a government agency includes, but is

not limited to, statutory or regulatory authority for such agency to

remove an applicant's officers or directors for cause.

(4) Mortgage activity requirement. An applicant shall be deemed to

meet the mortgage activity requirement in section 10b(a) of the Act and

paragraph (b)(4) of this section if it provides documentary evidence

satisfactory to the Bank, such as a financial statement or other

financial documents that include the applicant's mortgage loan assets

and their funding liabilities, that it lend its own funds as its

principal activity in the mortgage field. Lending funds includes, but

is not limited to, the purchase of whole mortgage loans. In the case of

a federal, state, local, tribal, or Alaska Native village government

agency, appropriated funds shall be considered an applicant's own

funds. An applicant shall be deemed to satisfy this requirement

notwithstanding that the majority of its operations are unrelated to

mortgage lending if its mortgage activity conforms to this requirement.

An applicant that acts principally as a broker for others making

mortgage loans, or whose principal activity is to make mortgage loans

for the account of others, does not meet this requirement.

(5) Financial condition requirement. An applicant shall be deemed

to meet the financial condition requirement in paragraph (b)(5) of this

section if it provides such financial or other information as the Bank

may require to determine that advances may be safely made to the

applicant.

(d) State housing finance agencies. In addition to meeting the

requirements in paragraph (b) of this section, any

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applicant that seeks access to advances as a SHFA pursuant to

Sec. 935.24(b)(2) shall provide documentary evidence satisfactory to

the Bank, such as a copy of the statutes and/or regulations that

describe the applicant's structure and responsibilities, that the

applicant is a state housing finance agency as defined in Sec. 935.1.

(e) Ineligibility. Except as otherwise provided in this subpart, if

an applicant does not satisfy the requirements of this subpart, the

applicant is ineligible to be certified as a nonmember mortgagee.

Sec. 935.23 Nonmember mortgagee application process.

(a) Authority. The Banks are authorized to approve or deny all

applications for certification as a nonmember mortgagee, subject to the

requirements of the Act and this subpart.

(b) Application requirements. An applicant for certification as a

nonmember mortgagee shall submit an application that satisfies the

requirements of this subpart to the Bank of the district in which the

applicant's principal place of business, as defined in part 933 of this

chapter, is located.

(c) Application process--(1) Action on applications. A Bank shall

approve or deny an application for certification as a nonmember

mortgagee within 60 calendar days of the date the Bank deems the

application to be complete. A Bank shall deem an application complete,

and so notify the applicant in writing, when it has obtained all of the

information required by this subpart and any other information it deems

necessary to process the application. If a Bank determines during the

review process that additional information is necessary to process the

application, the Bank may deem the application incomplete and stop the

60-day time period by providing written notice to the applicant. When

the Bank receives the additional information, it shall again deem the

application complete, so notify the applicant in writing, and resume

the 60-day time period where it left off.

(2) Decision on applications. The board of directors of a Bank

shall approve or deny each application for certification as a nonmember

mortgagee by a written decision resolution stating the grounds for the

decision. Within 3 business days of a Bank's decision on an

application, the Bank shall provide the applicant and the Board's

Executive Secretary with a copy of the Bank's decision resolution.

(3) Appeals. Within 90 calendar days of the date of a Bank's

decision to deny an application for certification as a nonmember

mortgagee, the applicant may submit a written appeal to the Board that

includes the Bank's decision resolution and a statement of the basis

for the appeal with sufficient facts, information, analysis, and

explanation to support the applicant's position. Appeals shall be sent

to the Executive Secretary, Federal Housing Finance Board, 1777 F

Street, N.W., Washington D.C. 20006, with a copy to the Bank.

(i) Record for appeal. Upon receiving a copy of an appeal, the Bank

whose action has been appealed shall provide to the Board a complete

copy of the applicant's application for certification as a nonmember

mortgagee. Until the Board resolves the appeal, the Bank shall promptly

provide to the Board any relevant new materials it receives. The Board

may request additional information or further supporting arguments from

the applicant, the Bank, or any other party that the Board deems

appropriate.

(ii) Deciding appeals. Within 90 calendar days of the date an

applicant files an appeal with the Board, the Board shall consider the

record for appeal described in paragraph (c)(3)(i) of this section and

resolve the appeal based on the requirements of the Act and this

subpart.

Sec. 935.24 Advances to nonmember mortgagees.

(a) Authority. Subject to the provisions of the Act and this

subpart, a Bank may make advances only to a nonmember mortgagee whose

principal place of business, as defined in part 933 of this chapter, is

located in the Bank's district.

(b) Collateral requirements--(1) Advances to nonmember mortgagees.

A Bank may make an advance to any nonmember mortgagee upon the security

of the following collateral:

(i) Mortgage loans insured by the Federal Housing Administration of

HUD under title II of the National Housing Act; or

(ii) Securities representing an interest in the principal and

interest payments due on a pool of mortgage loans insured by the

Federal Housing Administration of HUD under title II of the National

Housing Act. A Bank may only accept as collateral the securities

described in this paragraph if the nonmember mortgagee provides

evidence that such securities are backed solely by mortgages of the

type described in paragraph (b)(1)(i) of this section.

(2) Certain advances to SHFAs. (i) In addition to the collateral

described in paragraph (b)(1) of this section, a Bank may make an

advance to a nonmember mortgagee that has satisfied the requirements of

Sec. 935.22(d) for the purpose of facilitating residential or

commercial mortgage lending that benefits individuals or families

meeting the income requirements set forth in section 142(d) or 143(f)

of the Internal Revenue Code (26 U.S.C. 142(d) or 143(f)) upon the

security of the following collateral:

(A) The collateral described in Sec. 935.9(a)(1) or (2); or

(B) The real estate-related collateral described in

Sec. 935.9(a)(4), provided that such collateral is comprised of

mortgage loans on one-to-four family or multifamily residential

property and the acceptance of such collateral will not increase the

total amount of advances outstanding to the SHFA secured by such

collateral beyond 30 percent of its GAAP capital, as computed by the

Bank.

(ii) Prior to making an advance pursuant to this paragraph (b)(2),

a Bank shall obtain a written certification from the SHFA that the

proceeds of the advance shall be used for the purposes described in

paragraph (b)(2)(i) of this section.

(c) Terms and conditions--(1) General. Subject to the provisions of

this paragraph (c), a Bank, in its discretion, shall determine whether,

and on what terms, it will make advances to a nonmember mortgagee.

(2) Advance pricing. Each Bank making an advance to a nonmember

mortgagee:

(i) Shall price the advance to cover the funding, operating, and

administrative costs associated with making the advance;

(ii) May price the advance to reflect the credit risk of lending to

the nonmember mortgagee; and

(iii) May apply other reasonable differential pricing criteria,

provided that the Bank applies such pricing criteria equally to all of

its member and nonmember mortgagee borrowers.

(3) Limit on advances. The principal amount of any advance made to

a nonmember mortgagee may not exceed 90 percent of the unpaid principal

of the mortgage loans or securities pledged as security for the

advance. This limit does not apply to an advance made to a SHFA under

paragraph (b)(2) of this section.

(d) Loss of eligibility--(1) Notification of status changes. A Bank

shall require a nonmember mortgagee that applies for an advance to

agree in writing that it will promptly inform the Bank of any change in

its status as a nonmember mortgagee.

(2) Verification of eligibility. A Bank may, from time to time,

require a nonmember mortgagee to provide evidence that it continues to

satisfy all

[[Page 52734]]

of the eligibility requirements of the Act and this subpart.

(3) Loss of eligibility. A Bank shall not extend a new advance or

renew an existing advance to a nonmember mortgagee that no longer meets

the eligibility requirements of the Act and this subpart until the

entity has provided evidence satisfactory to the Bank that it is in

compliance with such requirements.

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

Bruce A. Morrison,

Chairperson.

[FR Doc. 96-25663 Filed 10-7-96; 8:45 am]

BILLING CODE 6725-01-U