Community Support Requirements

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 936

[No. 96-78]

Community Support Requirements

AGENCY: Federal Housing Finance Board.

ACTION: Proposed rule.

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

to amend its regulation on community support requirements. The proposed

rule replaces the existing review process with uniform community

support standards all Federal Home Loan Bank (FHLBank) members must

meet in order to maintain access to long-term FHLBank advances, and

review criteria the Finance Board must apply when determining a

member's compliance with the statutory and regulatory standards.

Consistent with the goals of the Regulatory Reinvention Initiative of

the National Performance Review, the proposed rule streamlines the

regulatory requirements to reduce the time spent by FHLBank members to

prepare and submit, and the Finance Board to review and process,

community support submissions.

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

writing on or before January 27, 1997.

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: Penny S. Bates, Program Analyst,

Community Support Program, Office of Supervision, 202/408-2574, 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 10(g)(1) of the Federal Home Loan Bank Act (Bank Act)

requires the Finance Board to promulgate regulations establishing

standards of community investment or service that FHLBank members must

meet in order to maintain access to long-term advances. See 12 U.S.C.

1430(g)(1). The regulations promulgated by the Finance Board must take

into account factors such as the FHLBank member's performance under the

Community Reinvestment Act of 1977 (CRA), 12 U.S.C. 2901, et seq., and

record of lending to first-time homebuyers. See 12 U.S.C. 1430(g)(2).

In accordance with section 10(g)(1) of the Bank Act, the Board of

Directors of the Finance Board approved a final community support rule,

which appears at part 936 of the Finance Board's regulations, in

November 1991. See 56 FR 58639 (Nov. 21, 1991), codified at 12 CFR part

936. The current rule establishes a process under which an FHLBank

member submits a community support statement, and in some cases, a

community support action plan or amended action plan, first to the

member's FHLBank and then to the Finance Board for review.

By its terms, the current rule applies to every FHLBank member,

although in practice, the Finance Board has applied its requirements

only to members that are subject to the CRA. In September 1993, the

Finance Board sought public comments concerning application of the

community support rule, particularly the CRA factor, to FHLBank members

that are not subject to the CRA, that is, credit unions and insurance

companies. See 58 FR 46569 (Sept. 2, 1993) (advance notice of proposed

rulemaking). Notwithstanding that the Finance Board received 31

comments in response to the advance notice of proposed rulemaking, it

is again specifically seeking comments on how it may apply the CRA

factor to FHLBank members that are not subject to the CRA. The Finance

Board will consider all comments it receives before taking final

action, including comments received in response to the advance notice

of proposed rulemaking published in September 1993 and this notice of

proposed rulemaking.

Although the Bank Act requires the Finance Board to develop

community support standards, see 12 U.S.C. 1430(g)(1), the current rule

provides neither definitive standards an FHLBank member must meet in

order to maintain access to long-term advances, nor review criteria the

Finance Board must apply to decide whether a member has satisfied the

statutory or regulatory community support requirements. See 12 CFR part

936. Further, although the number of FHLBank members and community

support submissions Finance Board staff must review has increased

substantially (from approximately 2,970 to 6,000 members, and 370 to

750 submissions per calendar quarter), the number of Finance Board

staff available to review those submissions has not changed. In order

to provide appropriate standards and review criteria for determining

compliance with section 10(g) of the Bank Act and to ensure adequate

review by Finance Board staff, the Finance Board has decided to

streamline the regulatory requirements by replacing the existing review

process with uniform community support standards and review criteria,

thereby reducing the time spent by FHLBank members to prepare and

submit, and the Finance Board to review and process, community support

submissions. In addition, consistent with section 10(g) of the Bank

Act, the proposed community support rule will apply to every FHLBank

member regardless of whether the member is subject to the CRA.

II. Analysis of the Proposed Rule

A. Community Support Requirement

Proposed Sec. 936.2 establishes the basic requirement that a

FHLBank member selected for community support review must submit a

community support statement (statement) to the Finance Board. The

Finance Board anticipates selecting a FHLBank member for community

support review about once every two years. Consistent with current

practice, the Finance Board will select approximately one-eighth of the

[[Page 60230]]

members in each FHLBank district for community support review each

calendar quarter. To the extent practicable, the Finance Board will

select members that are subject to the CRA based on the chronological

sequence of their CRA evaluations, and members that are not subject to

the CRA based on the chronological sequence of their admittance to

membership in the FHLBank System. In any case, the Finance Board will

review an institution only after it has been a FHLBank member for one

year.

1. Notice Provisions

Proposed Sec. 936.2(b) sets out the notice requirements and the

deadline by which members must submit statements to the Finance Board

for review. Consistent with current practice, Sec. 936.2(b)(1)(i) of

the proposed rule requires the Finance Board to notify each FHLBank of

the members within its district that must submit a statement during the

calendar quarter. At the same time, the Finance Board must publish a

notice in the Federal Register that includes the name and address of

each member required to submit a statement during the calendar quarter,

and the deadline for submission of the statement to the Finance Board.

To provide sufficient time for the member to prepare the required

statement, the deadline for submission to the Finance Board must be no

less than 45 calendar days from the date of publication of the Federal

Register notice. Section 936.2(b)(2)(ii) then requires each FHLBank to

provide written notice to its members of their selection for community

support review and of the requirement to submit a statement to the

Finance Board by the deadline stated in the Federal Register notice.

2. Required Documents

Proposed Sec. 936.2(c) describes the information a member must

include in a statement. As noted above, section 10(g)(2) of the Bank

Act requires the Finance Board to take into account a FHLBank member's

performance under the CRA. See 12 U.S.C. 1430(g)(2); supra part I.

Changes to the regulations implementing the CRA that took effect on

January 1, 1996 generally shift the focus of CRA review and evaluation

from process to performance.\1\ As of January 1, 1996, the primary

federal bank and thrift regulators began conducting revised CRA

examinations for small banks (defined in the CRA regulation as insured

depository institutions with less than $250 million in assets) that

focus on lending, investment, and service to the community. This review

process now more closely resembles the statutory review required for

purposes of community support. Approximately 80 percent of FHLBank

members are small banks reviewed currently under the revised CRA

examination procedures. The revised CRA procedures will become

applicable to the remainder of the FHLBank members that are subject to

the CRA on July 1, 1997. To accommodate these changes, eliminate

duplicative documentation, and reduce the amount of time spent by

FHLBank members in preparing and the Finance Board in reviewing and

processing community support submissions, the Finance Board intends to

place greater reliance on a member's CRA evaluation. To streamline the

review process, proposed Sec. 936.2(c)(1) requires a member subject to

the CRA to submit the portion of the public disclosure section of the

most recent CRA evaluation provided by the member's appropriate federal

financial supervisory agency that contains its CRA rating and the date

of the CRA evaluation. For consistency, under Sec. 936.1(j) of the

proposed rule, the term ``appropriate federal financial supervisory

agency'' has the same meaning as in the CRA. See 12 U.S.C. 2902(1).

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\1\ See 12 CFR parts 25 (Office of the Comptroller of the

Currency), 228 (Board of Governors of the Federal Reserve System),

391 (Federal Deposit Insurance Corporation), and 563e (Office of

Thrift Supervision).

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Under section 10(g)(2) of the Bank Act, the Finance Board also must

consider a FHLBank member's record of lending to first-time homebuyers.

See 12 U.S.C. 1430(g)(2); supra part I. This statutory factor will be

applied to every FHLBank member under the proposed rule. The Finance

Board is revising the meaning of ``first-time homebuyer'' in

Sec. 936.1(m) of the proposed rule to make it consistent with the

definition of that term in affordable housing statutes.\2\ To minimize

the burden on FHLBank members and the Finance Board, proposed

Sec. 936.2(c)(2) requires a member to provide a brief description of

its record of lending, or of the assistance it provides, to first-time

homebuyers on a Finance Board Community Support Statement Form executed

by the member's board of directors or by an individual duly authorized

to act on behalf of the member. The information required by the

Community Support Statement Form, which is included at Appendix A, is

discussed in detail below.

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\2\ See, e.g., 42 U.S.C. 12713(b)(2), (3) (standards established

by the Cranston-Gonzalez National Affordable Housing Act that must

be used to determine eligibility under any federal program to assist

first-time homebuyers); 12 U.S.C. 1701x(d)(10)(H), (M) (U.S.

Department of Housing and Urban Development's assistance to low- and

moderate-income housing program); 42 U.S.C. 1472(h)(12)(B), (C)

(U.S. Department of Agriculture's program to provide loans for

housing and buildings on adequate farms).

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3. Public Comment Process

Unlike the current rule, which imposes a limited comment acceptance

period, Sec. 936.2(d) of the proposed rule permits members of the

public to submit comments concerning a member's community support

performance to the Finance Board at any time. To encourage the

submission of comments, proposed Sec. 936.2(d)(1) retains the current

regulatory requirement that the FHLBanks notify interested parties of

the members selected for community support review. The Finance Board

will consider all public comments it has received concerning a selected

member in conducting its community support review of that member.

B. Community Support Standards

Proposed Sec. 936.3 establishes the community support standards a

FHLBank member must meet in order to maintain access to long-term

advances, and the review criteria the Finance Board must apply in

evaluating a member's community support performance. The Finance Board

proposes to include standards and criteria for the two mandatory

statutory factors--a CRA factor and a first-time homebuyer factor. The

Finance Board requests comments on whether the regulation should

establish standards and criteria for factors other than those required

by statute, such as violations of fair housing, equal credit

opportunity, or other laws that prohibit discrimination in lending.

Under the current rule, members must submit information concerning such

violations as part of their statements.

Under the proposed rule, a FHLBank member that is subject to the

CRA will satisfy the statutory and regulatory community support

requirements if it meets the performance standards for both the CRA and

first-time homebuyer factors, and a FHLBank member that is not subject

to the CRA will satisfy the statutory and regulatory community support

requirements if it meets the performance standard for the first-time

homebuyer factor.

1. CRA Factor

Section 936.3(b) establishes CRA performance standards for FHLBank

members that are subject to the requirements of the CRA. Under the

proposed rule, a member will be deemed to meet the CRA performance

[[Page 60231]]

standard if the rating in the member's most recent federal CRA

evaluation is ``Outstanding'' or ``Satisfactory.'' If the rating in a

member's most recent federal CRA evaluation is ``Needs to Improve,''

the Finance Board will place the member on probation for a one-year

period. During the probationary period, the member will be eligible to

receive long-term advances. If the member's federal CRA rating does not

improve before the probationary period ends, the Finance Board will

restrict the member's access to long term advances. If the rating in a

member's most recent federal CRA evaluation is ``Substantial

Noncompliance,'' the Finance Board will immediately restrict the

member's access to long-term advances.

2. First-Time Homebuyer Factor

Section 936.3(c) establishes first-time homebuyer standards for all

FHLBank members. 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. Under the

proposed rule, a member may demonstrate compliance with the first-time

homebuyer standards in several ways. First, a member that demonstrates

to the satisfaction of the Finance Board that it has an established

record of lending to first-time homebuyers will be deemed to meet the

first-time homebuyer standard. In order to demonstrate this aspect of

first-time homebuyer performance, part II(A) of the Community Support

Statement Form asks a member to provide the following information: (1)

the number of mortgage loans it has made to first-time homebuyers; (2)

the dollar amount of the mortgage loans it has made to first-time

homebuyers; (3) loans made to first-time homebuyers as a percentage of

all mortgage loans it has made; and (4) dollars loaned to first-time

homebuyers as a percentage of all mortgage dollars it has loaned. The

Finance Board considered establishing bright-line numerical thresholds

for first-time homebuyer lending. However, due to the great variety of

FHLBank members in terms of size, location, and mission, application of

such thresholds might be too harsh in many instances. To take into

account the diversity of FHLBank System membership, the Finance Board

is proposing to evaluate a member's record of lending to first-time

homebuyers on a case-by-case basis. The Finance Board requests comments

as to whether the regulation should include specific numerical review

criteria or other criteria to evaluate a member's record of lending to

first-time homebuyers.

Alternatively, a member may satisfy the first-time homebuyer

standard by demonstrating to the satisfaction of the Finance Board that

it has a program under which it actively seeks to lend to first-time

homebuyers or to assist potential first-time homebuyers to qualify for

mortgage loans. In order to demonstrate this alternative, part II(B) of

the Community Support Statement Form asks a member to indicate whether

it offers, or participates in, special loan products, financial

services, programs, or activities that benefit, serve, or are targeted

to, first-time homebuyers. Qualifying activities include special credit

products that provide flexible underwriting or qualifying criteria;

participation in loan consortia for first-time homebuyer loans;

participation in federal, state, or local government homeownership or

other related programs like Federal Housing Administration or Veterans

Administration mortgage loan programs; cooperation with community or

nonprofit groups or national organizations like the Federal National

Mortgage Association (also known as Fannie Mae) or the Federal Home

Loan Mortgage Corporation (also known as Freddie Mac); counseling

programs or other homeownership education activities; marketing plans

and related outreach programs; or technical assistance to organizations

that assist first-time homebuyers. A member may, but is not required

to, attach to the Community Support Statement Form a one-page

description of other first-time homebuyer programs or activities in

which it is involved. In the one-page attachment, a member may also

describe factors that affect its ability to assist first-time

homebuyers. The Finance Board solicits comments on whether the

regulation or Community Support Statement Form should include any

additional or different criteria for evaluating the assistance a member

provides to first-time homebuyers or potential first-time homebuyers.

Finally, a member may satisfy the first-time homebuyer standard if

it demonstrates to the satisfaction of the Finance Board that it meets

a combination of the elements discussed above.

If the Finance Board deems the evidence of first-time homebuyer

performance provided by the member to be unsatisfactory, the Finance

Board will place the member on probation for a one-year period. During

the probationary period, the member will be eligible to receive long-

term advances. If the member does not satisfy the first-time homebuyer

performance standard before the probationary period ends, the Finance

Board will restrict the member's access to long-term advances. The

Finance Board will immediately restrict a member's access to long-term

advances if the member fails to provide any evidence of its record of

lending to first-time homebuyers.

C. Decisions on Community Support Statements

Proposed Sec. 936.4 sets forth the procedures for review of

statements by the Finance Board. To ensure expeditious action on

statements, proposed Sec. 936.4(a) requires the Finance Board to act on

a statement within 75 calendar days of the date it deems the statement

complete. To make certain that the time period provided for review is

not unduly restrictive, the proposed rule deems a statement complete,

thus triggering the 75-day time period, only after the Finance Board

has obtained all of the information required by this part and any other

information it considers necessary to process the statement. The

proposed rule also permits the Finance Board to stop the 75-day time

period if it determines during the review process and notifies the

member in writing that additional information is necessary to process

the statement. The Finance Board must restart the 75-day time period

where it stopped upon receiving the additional required information.

The Finance Board will have an additional 10 calendar days to process a

statement if it receives additional information on or after the

seventieth day of the 75-day time period.

Proposed Sec. 936.4(b) requires the Finance Board to notify a

member and the appropriate FHLBank in writing of its determination

regarding the member's statement. The notice will identify specifically

the reasons for the Finance Board's determination.

D. Restrictions On Access to Long-Term Advances

1. Imposing Restrictions

Proposed Sec. 936.5 sets forth the procedures by which the Finance

Board may restrict a FHLBank member's access to long-term advances.

Consistent with the current rule, for purposes of this part the term

``long-term advance'' means an advance with a term to maturity greater

than one year. Under Sec. 936.5(a) of the proposed rule, the Finance

Board will restrict a FHLBank member's access to long-term advances if

it determines that the member:

(1) has not complied with the requirements of part 936;

[[Page 60232]]

(2) has submitted a statement that was not approved by the Finance

Board;

(3) has not received a CRA rating of ``Outstanding'' or

``Satisfactory'' before the end of the one-year probationary period

described in Sec. 936.3(b)(2) of the proposed rule; or

(4) has not provided first-time homebuyer evidence satisfactory to

the Finance Board before the end of the one-year probationary period

described in Sec. 936.3(c)(2) of the proposed rule.

Under proposed Sec. 936.5(b), the Finance Board must promptly

notify a member and the appropriate FHLBank of its determination to

restrict the member's access to long-term advances. The Finance Board

must send the notice to the member by certified mail, return receipt

requested, and to the FHLBank by regular mail. Proposed Sec. 936.5(c)

provides that a restriction on access to long-term advances will become

effective automatically on the date the decision notices are mailed.

2. Removing Restrictions

Section 936.5(d) of the proposed rule sets forth the bases for

removing restrictions on access to long-term advances imposed by the

Finance Board under this part. The Finance Board, in its sole

discretion, may remove a restriction on a member's access to long-term

advances under two circumstances. First, the Finance Board may remove a

restriction if it determines that application of the restriction may

adversely affect the safety and soundness of the member. Second, the

Finance Board may remove a restriction if it determines that the member

subsequently has complied with the requirements of part 936. Since the

primary purpose for imposing a restriction on access to long-term

advances is to encourage FHLBank members to comply with the community

support regulation, the Finance Board believes it should remove such

restrictions as soon as the member can demonstrate that it is in full

compliance with the regulatory requirements. Therefore, the Finance

Board proposes to eliminate the mandatory 180-day waiting period

provided in the current rule.

Under the proposed rule, a member may submit a detailed written

request to the Finance Board to remove a restriction on access to long-

term advances. If a reinstatement request is based on safety and

soundness concerns, the request must include a statement from the

member's primary federal regulator that application of the restriction

may adversely affect the safety and soundness of the member. Proposed

Sec. 936.5(d)(3) requires the Finance Board to notify a member and the

appropriate FHLBank of its decision to remove a restriction within 30

calendar days of receipt of the member's request. The Finance Board

must send the notice to the member by certified mail, return receipt

requested, and to the FHLBank by regular mail. The Finance Board's

decision to remove a restriction will become effective automatically on

the date the decision notices are mailed.

3. Effect of Restrictions on the Affordable Housing and Community

Investment Programs

Under proposed Sec. 936.5(e), if the Finance Board has restricted a

member's access to long-term advances under this part, the member will

not be eligible to participate in either the Affordable Housing Program

(AHP) or the Community Investment Program (CIP). The Finance Board

believes that it should not offer a member the opportunity to

participate in community lending programs subsidized by the FHLBanks

until the member has demonstrated a willingness to use its own

resources to meet community lending needs. Accordingly, unlike the

current rule, the Finance Board is proposing to limit participation in

the AHP and CIP only to members that have met the statutory and

regulatory community support requirements. The Finance Board

specifically asks for comments on this proposed change.

E. FHLBank Community Support Programs

Under proposed Sec. 936.6(a) and (b), each FHLBank must consult

with its Advisory Council to develop and implement initiatives to

increase community-oriented mortgage lending and affordable housing

finance activities. For purposes of the proposed regulation, the term

``community-oriented mortgage lending'' has the same meaning as in

section 10(i)(2) of the Bank Act. See 12 U.S.C. 1430(i)(2). Consistent

with current practice, the proposed rule also requires each FHLBank to

establish and maintain a community support program that: (1) provides

technical assistance to members; (2) promotes and expands community-

oriented mortgage lending and affordable housing finance; (3)

identifies opportunities for members to expand financial and credit

services in underserved neighborhoods and communities; and (4)

encourages members to increase their community-oriented mortgage

lending and affordable housing finance activities through the use of

monetary and nonmonetary incentives. Examples of appropriate incentives

include discounts or preferred terms on advances to members or awards

or technical assistance to nonprofit housing developers or community

groups that have outstanding records of participation in community-

oriented mortgage lending and affordable housing finance activities.

These examples are meant to be illustrative, not exclusive.

To motivate FHLBank members to meet the community support

requirements, Sec. 936.5(c) of the proposed rule requires each FHLBank

to provide a yearly report to its members that identifies AHP, CIP, and

other FHLBank activities, and summarizes community-oriented mortgage

lending and affordable housing finance activities undertaken by

members, nonprofit housing developers, community groups, or other

entities in the FHLBank district, that may provide opportunities for a

member to meet the community support requirements. To reduce the

regulatory burden imposed on the FHLBanks, the Finance Board has

decided to cut the reporting frequency in half.

F. Reports

Section 10(j)(11) of the Bank Act requires each FHLBank Advisory

Council to submit annually a report to the Finance Board analyzing the

low-income housing activity of its FHLBank. See 12 U.S.C. 1430(j)(11).

Since the concept of community support includes initiatives related to

affordable housing, the Finance Board believes that the annual report

each Advisory Council submits should include an analysis of the

community support program and activities of its FHLBank. The Finance

Board has included this requirement in Sec. 936.7 of the proposed rule.

Pursuant to section 10(j)(12) of the Bank Act, the Finance Board

annually must prepare and submit to Congress a report on FHLBank

support of, and use of advances for, low-income housing and community

development. See 12 U.S.C. 1430(j)(12)(A). The Finance Board's annual

report to Congress must include the annual Advisory Council reports to

the Finance Board on the low income housing activity of the FHLBanks.

Id. 1430(j)(12)(B). The Finance Board intends to include also in its

annual report to Congress an analysis of the FHLBanks community support

programs and activities.

III. Regulatory Flexibility Act

The proposed rule implements statutory requirements binding on all

FHLBank members, regardless of their size. The Finance Board is not at

liberty to make adjustments in those

[[Page 60233]]

requirements to accommodate small entities. The Finance Board has not

imposed any additional regulatory requirements that will have a

disproportionate impact on small entities. By streamlining the

regulatory requirements, the Finance Board has, to the maximum extent

possible, reduced the costs FHLBank members, the FHLBanks, and Finance

Board will incur to produce, review, and process the submissions the

Finance Board requires in determining whether a FHLBank member has

complied with the statutory and regulatory community support

requirements. Thus, in accordance with the provisions of the Regulatory

Flexibility Act, 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. See 5 U.S.C.

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. 936.2 through 936.7 of the proposed rule, described more fully in

part II of the Supplementary Information. The Finance Board uses the

information collection to determine whether FHLBank members satisfy the

statutory and regulatory community support requirements. See 12 U.S.C.

1430(g); 12 CFR part 936. Only FHLBank members that meet these

standards may maintain access to long-term FHLBank advances. See 12

U.S.C. 1430(g). Responses are required to obtain or retain a benefit.

See id. The Finance Board 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 this collection of information

must be retained as provided in the regulation.

Likely respondents and/or recordkeepers will be institutions that

are members of a FHLBank 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 OMB. See 44 U.S.C. 3512(a).

The estimated annual reporting and recordkeeping hour burden is:

a. Number of respondents...........................................3000

b. Total annual responses..........................................3000

Percentage of these responses collected electronically................0

c. Total annual hours requested....................................4010

d. Current OMB inventory..........................................20475

e. Difference.....................................................16465

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................................................$155,800.62

d. Current OMB inventory..............................................0

e. Difference...............................................$155,800.62

The Finance Board will accept written comments concerning the

accuracy of the burden estimates and suggestions for reducing the

burden 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 OMB,

Attention: Desk Officer for Federal Housing Finance Board, Washington,

D.C. 20503 by January 27, 1997.

List of Subjects in 12 CFR Part 936

Credit, Federal home loan banks, Housing, Reporting and

recordkeeping requirements.

Accordingly, the Finance Board hereby proposes to revise title 12,

chapter IX, part 936, of the Code of Federal Regulations, to read as

follows:

PART 936--COMMUNITY SUPPORT REQUIREMENTS

Sec.

936.1 Definitions.

936.2 Community support requirement.

936.3 Community support standards.

936.4 Decision on community support statements.

936.5 Restrictions on access to long-term advances.

936.6 Bank community support programs.

936.7 Reports.

Appendix A to Part 936--Community Support Statement Form

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

1430.

Sec. 936.1 Definitions.

For purposes of this part:

(a) Act means the Federal Home Loan Bank Act, as amended (12 U.S.C.

1421, et seq.).

(b) Advance means a loan from a Bank that is:

(1) Provided pursuant to a written agreement;

(2) Supported by a note or other written evidence of the borrower's

obligation; and

(3) Fully secured by collateral in accordance with the Act and part

935 of this chapter.

(c) Advisory Council means the Advisory Council each Bank is

required to establish pursuant to section 10(j)(11) of the Act and part

960 of this chapter.

(d) Affordable Housing Program or AHP means the program each Bank

is required to establish pursuant to section 10(j) of the Act and part

960 of this chapter.

(e) Appropriate federal financial supervisory agency means the

Office of the Comptroller of the Currency for national banks; the Board

of Governors of the Federal Reserve System for state chartered banks

that are members of the Federal Reserve System and bank holding

companies; the Federal Deposit Insurance Corporation for state

chartered banks and savings banks that are not members of the Federal

Reserve System and the deposits of which are insured by the Federal

Deposit Insurance Corporation; and the Office of Thrift Supervision for

savings associations the deposits of which are insured by the Federal

Deposit Insurance Corporation and savings and loan holding companies.

(f) Bank or Banks means a Federal Home Loan Bank or the Federal

Home Loan Banks.

(g) Community Investment Program or CIP means the program each Bank

is required to establish pursuant to section 10(i) of the Act.

(h) Community-oriented mortgage lending has the same meaning as in

section 10(i)(2) of the Act.

(i) CRA means the Community Reinvestment Act of 1977, as amended

(12 U.S.C. 2901, et seq.).

(j) CRA evaluation means the public disclosure portion of the CRA

performance evaluation provided by a member's appropriate Federal

financial supervisory agency.

(k) Finance Board means the agency established as the Federal

Housing Finance Board.

(l) First-time homebuyer means:

(1) An individual and his or her spouse, if any, who has had no

present ownership interest in a principal residence during the three-

year period prior to purchase of a principal residence.

(2) A displaced homemaker who, except for owning a residence with

his or her spouse or residing in a residence owned by his or her

spouse, meets the requirements of paragraph (l)(1) of this section. For

purposes of this paragraph (l)(2), the term displaced homemaker means

an adult who has not worked full-time, full-year in the labor force for

a number of years and, during that period, worked primarily without

remuneration to care for a home and family, and currently is unemployed

or

[[Page 60234]]

underemployed and is experiencing difficulty in obtaining or upgrading

employment.

(3) A single parent who, except for owning a residence with his or

her spouse or residing in a residence owned by his or her spouse, meets

the requirements of paragraph (l)(1) of this section. For purposes of

this paragraph (l)(3), the term single parent means an individual who

is unmarried or legally separated from a spouse and has custody or

joint custody of one or more minor children or is pregnant.

(m) Long-term advance means an advance with a term to maturity

greater than one year.

(n) Member means an institution admitted to membership and owning

capital stock in a Bank.

Sec. 936.2 Community support requirement.

(a) Selection for community support review. The Finance Board shall

select a member for community support review approximately once every

two years.

(b) Notice.--(1) By the Finance Board. The Finance Board

concurrently shall:

(i) Notify each Bank of the members within its district that are

required to submit community support statements during the calendar

quarter; and

(ii) Publish a notice in the Federal Register that includes the

name and address of each member required to submit a community support

statement during the calendar quarter, and the deadline for submission

of the community support statement to the Finance Board. The deadline

for submission of a community support statement shall be no earlier

than 45 calendar days after the date of publication of the Federal

Register notice.

(2) By the Banks. Within 15 calendar days of the date of

publication of the Federal Register notice required by paragraph

(b)(1)(ii) of this section, a Bank shall provide written notice to each

member within its district that is named in the Federal Register

notice, that the member is required to submit a community support

statement to the Finance Board by the deadline stated in the Federal

Register notice.

(c) Required documents. Each member selected for community support

review shall submit a community support statement to the Finance Board

that includes the following:

(1) CRA evaluation. For members subject to the CRA, the page or

pages of the most recent CRA evaluation that contain the member's CRA

rating and the date of the CRA evaluation.

(2) First-time homebuyer certification. For all members, a

completed Community Support Statement Form executed by the member's

board of directors or by an individual duly authorized to act on behalf

of the member's board of directors.

(d) Public comments.--(1) Notice. Within 15 calendar days of the

date of publication of the Federal Register notice required by

paragraph (b)(1)(ii) of this section, a Bank shall provide written

notice to its Advisory Council and nonprofit housing developers,

community groups, and other interested parties in its district of the

name and address of each member within its district that is required to

submit a community support statement during the calendar quarter.

(2) Review. In reviewing a member for community support, the

Finance Board shall take into consideration any public comments it has

received concerning the member.

Sec. 936.3 Community support standards.

(a) Standards. In reviewing a community support statement, the

Finance Board shall take into account a member's performance under the

CRA if the member is subject to the requirements of the CRA, and the

member's record of lending to first-time homebuyers.

(b) CRA factor.--(1) Adequate performance. A member that is subject

to the requirements of the CRA shall be deemed to meet the CRA standard

if the rating in the member's most recent CRA evaluation is

``Outstanding'' or ``Satisfactory.''

(2) Probationary performance. A member that is subject to the

requirements of the CRA shall be subject to a one-year probationary

period if the rating in the member's most recent CRA evaluation is

``Needs to Improve.'' During the probationary period, the member will

be eligible to receive long-term advances. If the member does not meet

the CRA standard before the probationary period ends, the Finance Board

shall restrict the member's access to long-term advances in accordance

with Sec. 936.5.

(3) Inadequate performance. A member's access to long-term advances

shall be restricted in accordance with Sec. 936.5 if the rating in the

member's most recent CRA evaluation is ``Substantial Noncompliance.''

(c) First-time homebuyer factor. (1) Adequate performance. In

determining whether a member meets the first-time homebuyer standard,

the Finance Board shall consider a member's description of its efforts

to assist first-time or potential first-time homebuyers or its

explanation of factors that affect its ability to assist first-time or

potential first-time homebuyers. A member shall be deemed to meet the

first-time homebuyer standard if the member demonstrates to the

satisfaction of the Finance Board that it:

(i) Has an established record of lending to first-time homebuyers;

(ii) Has a program whereby it actively seeks to lend to first-time

homebuyers, including, but not limited to, the following:

(A) Flexible underwriting standards for first-time homebuyers;

(B) Participation in federal, state, or local government, or

nationwide homeownership lending programs that serve first-time

homebuyers; or

(C) Participation in loan consortia for first-time homebuyer loans;

or

(iii) Has a program whereby it actively seeks to assist potential

first-time homebuyers to qualify for mortgage loans, including, but not

limited to, the following:

(A) Special counseling programs or other homeownership education

activities that benefit first-time homebuyers;

(B) Marketing plans and related outreach programs targeted to

first-time homebuyers; or

(C) Technical assistance to organizations that assist first-time

homebuyers; or

(D) Participation with community or nonprofit groups that assist

first-time homebuyers; or

(iv) Has any combination of the elements described in paragraphs

(c)(1) (i), (ii), or (iii) of this section.

(2) Probationary performance. If the evidence of first-time

homebuyer performance is deemed to be unsatisfactory by the Finance

Board, the member shall be subject to a one-year probationary period.

During the probationary period, the member will be eligible to receive

long-term advances. If the member does not meet the first-time

homebuyer standard before the probationary period ends, the Finance

Board shall restrict the member's access to long-term advances in

accordance with Sec. 936.5.

(3) Inadequate performance. A member's access to long-term advances

shall be restricted in accordance with Sec. 936.5 if the member

provides no evidence of first-time homebuyer performance.

Sec. 936.4 Decision on community support statements.

(a) Action on community support statements. The Finance Board shall

act on each community support statement in accordance with the

requirements of Sec. 936.3 within 75 calendar days of the date the

Finance Board deems the

[[Page 60235]]

community support statement to be complete. The Finance Board shall

deem a community support statement complete when it has obtained all of

the information required by this part and any other information it

deems necessary to process the community support statement. If the

Finance Board determines during the review process that additional

information is necessary to process the community support statement,

the Finance Board may deem the community support statement incomplete

and stop the 75-day time period by providing written notice to the

member. When the Finance Board receives the additional information, it

shall again deem the community support statement complete and resume

the 75-day time period where it stopped. The Finance Board shall have

10 calendar days in addition to the 75-day time period to act on a

community support statement if the Finance Board receives the

additional information on or after the seventieth day of the 75-day

time period.

(b) Decision on community support statements. The Finance Board

shall provide written notice to the member and the member's Bank of its

determination regarding the community support statement submitted by

the member. The notice shall identify the reasons for the Finance

Board's determination.

Sec. 936.5 Restrictions on access to long-term advances.

(a) Requirement. The Finance Board shall restrict a member's access

to long-term advances if the member:

(1) Failed to comply with the requirements of this part;

(2) Submitted a community support statement that was not approved

by the Finance Board;

(3) Did not receive a rating in a CRA evaluation of ``Outstanding''

or ``Satisfactory'' before the end of the one-year probationary period

described in Sec. 936.3(b)(2); or

(4) Failed to provide evidence satisfactory to the Finance Board of

its first-time homebuyer performance before the end of the one-year

probationary period described in Sec. 936.3(c)(2).

(b) Notice. The Finance Board shall provide written notice to a

member and the member's Bank of its determination to restrict the

member's access to long-term advances, the member by certified mail,

return receipt requested, and the member's Bank by regular mail.

(c) Effective date. Restrictions on access to long-term advances

shall take effect on the date the notices required under paragraph (b)

of this section are mailed.

(d) Removing restrictions. The Finance Board may remove

restrictions on a member's access to long-term advances imposed under

this section:

(1) If the Finance Board determines that application of the

restriction may adversely affect the safety and soundness of the

member. A member may submit a written request to the Finance Board to

remove a restriction on access to long-term advances under this

paragraph (d)(1). A written request submitted under this paragraph

(d)(1) shall contain a clear and concise statement of the basis for the

request and a statement from the member's appropriate federal financial

supervisory agency that application of the restriction may adversely

affect the safety and soundness of the member.

(2) If the Finance Board determines that the member subsequently

has complied with the requirements of this part. A member may submit a

written request to the Finance Board to remove a restriction on access

to long-term advances under this paragraph (d)(2). A written request

submitted under this paragraph (d)(2) shall state with specificity how

the member has complied with the requirements of this part.

(3) Within 30 calendar days of receipt of a request submitted by a

member under paragraph (d)(1) or (d)(2) of this section, the Finance

Board shall provide written notice to the member and the member's Bank

of its determination, the member by certified mail, return receipt

requested, and the member's Bank by regular mail. The Finance Board's

determination shall take effect on the date the notices are mailed.

(e) AHP and CIP. A member that is subject to a restriction on

access to long-term advances under this part shall not be eligible to

participate in the Affordable Housing Program or the Community

Investment Program.

Sec. 936.6 Bank community support programs.

(a) Requirement. Consistent with the safe and sound operation of

the Bank, each Bank shall establish and maintain a community support

program. A Bank's community support program should:

(1) Provide technical assistance to members;

(2) Promote and expand community-oriented mortgage lending and

affordable housing finance;

(3) Identify opportunities for members to expand financial and

credit services in underserved neighborhoods and communities; and

(4) Encourage members to increase their community-oriented mortgage

lending and affordable housing finance activities by providing

incentives such as awards or technical assistance to nonprofit housing

developers or community groups with outstanding records of

participation in community-oriented lending or affordable housing

finance partnerships with members.

(b) Advisory Councils. A Bank shall consult with its Advisory

Council to develop and implement initiatives to increase community-

oriented mortgage lending and affordable housing finance activities in

the Bank district.

(c) Notice. A Bank shall provide annually to each of its members a

written notice:

(1) Identifying AHP, CIP, and other Bank activities that may

provide opportunities for a member to meet the community support

requirements; and

(2) Summarizing community-oriented mortgage lending and affordable

housing finance activities undertaken by members, nonprofit housing

developers, community groups, or other entities in the Bank's district,

that may provide opportunities for a member to meet the community

support requirements.

Sec. 936.7 Reports.

The annual report Advisory Councils are required to submit to the

Finance Board pursuant to section 10(j)(11) of the Act shall include an

analysis of the appropriate Bank's community support program and

activities.

BILLING CODE 6725-01-U-AA

[[Page 60236]]

Appendix A to Part 936--Community Support Statement Form

[GRAPHIC] [TIFF OMITTED] TP27NO96.015

BILLING CODE 6725-01-C

[[Page 60237]]

Community Support Statement Instructions

Purpose: To maintain continued access to long-term advances,

section 10(g) of the Federal Home Loan Bank Act [12 U.S.C.

Sec. 1430(g)] requires the Federal Housing Finance Board (Finance

Board) to take into account a Federal Home Loan Bank member's

performance under the Company Reinvestment Act of 1977 [12 U.S.C.

Sec. 2901 et seq.] (CRA) and its record of lending to first-time

homebuyers.

Part I (CRA Factor): All members subject to CRA must complete this

section. Indicate your institution's most recent federal CRA evaluation

rating and date, and attach to this form the page(s) of that evaluation

showing the rating and date. Do not attach the entire CRA evaluation.

[If your institution is not subject to CRA, indicate this in the CRA

evaluation field on this form.]

If a member's most recent federal CRA evaluation is rated ``Needs

to Improve,'' the Finance Board will place that member on a one-year

probation, during which it will retain access to long-term advances. If

the member does not receive an improved CRA rating before the end of

the one-year probation period, its access to long-term advances will be

restricted.

If a member's most recent federal CRA rating is ``Substantial Non-

compliance,'' the Finance Board immediately will take action to

restrict that member's access to long term advances. The restriction

will remain in effect until the member's rating improves. (For purposes

of Community Support review, the term ``long-term advances'' means

advances with a term to maturity greater than one year).

Part II (First-time Homebuyer Factor): All members must complete

this section. An institution may demonstrate assistance to first-time

homebuyers in many ways, but the Finance Board is particularly

interested in actual loans, products, and services to first-time

homebuyers. Although completion of both Section A and Section B is

requested, you may satisfy the first-time homebuyer factor by

demonstrating adequate lending performance (Section A), by

demonstrating participation in programs that assist first-time

homebuyers (Section B), or by a combination of both factors. If the

information requested in Part II is inadequate to reflect your

institution's compliance with the first-time homebuyer factor, you may

attach a one-page description of your efforts to assist first-time

homebuyers and/or an explanation of factors affecting your

institution's ability to assist first-time homebuyers. No other

information beyond this one-page description will be considered.

If a member does not submit evidence of assistance to first-time

homebuyers, the Finance Board immediately will take action to restrict

that member's access to long term advances. The restriction will remain

in effect until the member submits information satisfactory to the

Finance Board. (For purposes of Community Support review, the term

``long-term advances'' means advances with a maturity greater than one

year).

Part III (Certification): All members must complete this section.

Your institution's board of directors, or an individual duly authorized

to act on behalf of the board of directors, must certify that the

information in this Community Support Statement and the attachments is

correct to the best of its knowledge.

Assistance: Your Federal Home Loan Bank has a Community Support

Program that can assist you in preparing your Community Support

Statement.

Once you have completed this form, please submit it, along with all

attachments, to the Federal Housing Finance Board, Office of

Supervision, 1777 F Street, N.W., Washington, D.C. 2006.

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

Bruce A. Morrison,

Chairperson.

[FR Doc. 96-29747 Filed 11-26-96; 8:45 am]

BILLING CODE 6725-01-U