Amendment of Affordable Housing Program Regulation

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 960

[No. 97-44]

RIN 3069-AA28

Amendment of Affordable Housing Program Regulation

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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

its regulation governing the operation of the Affordable Housing

Program (AHP or Program). Among the significant changes made by the

final rule are: transfer of approval authority for AHP applications

from the Finance Board to the Federal Home Loan Banks (Banks);

modification of the competitive scoring process under which AHP

subsidies are allocated among housing projects; establishment of

specific standards and retention periods for monitoring of AHP-assisted

housing projects; and clarification and expansion of the types of

remedies available in the event of noncompliance with AHP requirements.

The final rule is in furtherance of the Finance Board's continuing

effort to devolve management and governance authority to the Banks. It

also is consistent with the goals of the Regulatory Reinvention

Initiative of the National Performance Review.

DATES: The final rule is effective on January 1, 1998. Compliance with

Sec. 960.3(b) shall begin on September 3, 1997.

FOR FURTHER INFORMATION CONTACT: Richard Tucker, Deputy Director,

Compliance Assistance Division, (202) 408-2848, or Diane E. Dorius,

Associate Director, Program Development Division, (202) 408-2576,

Office of Policy; or Sharon B. Like, Senior Attorney-Advisor, (202)

408-2930, or Brandon B. Straus, Senior Attorney-Advisor, (202) 408-

2589, Office of General Counsel, Federal Housing Finance Board, 1777 F

Street, N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

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

each Bank to establish a Program to subsidize the interest rate on

advances to members of the Federal Home Loan Bank System (Bank System)

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

occupied and affordable rental housing at subsidized interest rates.

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

regulations governing the Program. See id. The Finance Board's existing

regulation governing the operation of the Program is set forth in part

960 of the Finance Board's regulations. See 12 CFR part 960. The

Program has been operating successfully for approximately seven years.

As a result of the Finance Board's and the Banks' experience in

administering the Program, on January 10, 1994, the Finance Board

issued a notice of proposed rulemaking, which was published in the

Federal Register, that proposed changes to improve operation of the

Program. See 59 FR 1323 (Jan. 10, 1994). The Finance Board received

over 100 comment letters. During the following 18-month period, the

Finance Board was without a quorum and was unable to take action on the

proposed rule.

On September 25, 1995, the Finance Board published a final rule

amending the AHP regulation to permit the Banks to set aside of portion

of their required annual AHP contributions to fund homeownership set-

aside programs to provide downpayment and closing cost assistance to

low-and moderate-income homebuyers. See 60 FR 49327 (Sept. 25, 1995).

On November 1, 1995, the Finance Board published for comment a proposal

to amend the existing AHP regulation to authorize the Banks, in their

discretion, to establish limits on the maximum amount of AHP subsidy

that may be requested per member, per project application, or per

project unit, for a given funding period. See 60 FR 55487 (Nov. 1,

1995) (Subsidy Limits Proposal). The Finance Board received

[[Page 41813]]

25 comment letters on the Subsidy Limits Proposal.

Given the passage of time since the 1994 and 1995 notices of

proposed rulemaking, and the additional experience of the Finance Board

and the Banks in overseeing and administering the Program, the Finance

Board issued a new comprehensive proposal to revise the Program, which

was published in the Federal Register on November 8, 1996, with a 90-

day period for public comment. See 61 FR 57799 (Nov. 8, 1996). The

Finance Board received over 270 comments on the proposed rule.

Commenters included: all of the Banks and their Advisory Councils; Bank

members; not-for-profit organizations; trade associations; a member of

Congress; a federal agency; state and local government agencies; and

others.

II. Analysis of the Final Rule

A. In General

The final rule makes changes to a number of the aspects of the

Program that were highlighted in the notice of proposed rulemaking,

including: (1) Scoring and approval of AHP applications for funding;

(2) retention of AHP-assisted housing; (3) monitoring of AHP-assisted

housing; (4) and remedies for noncompliance with AHP requirements.

These changes are intended to provide clearer standards for operation

of the Program and reduce regulatory burden, while continuing to

identify and prevent misuse of AHP subsidies. Many of the changes

codify successful practices developed by the Banks in implementing the

Program. The amendments also should make the Program more responsive to

low- and moderate-income housing needs in each of the twelve Bank

Districts (Districts), increase efficiency in the administration of the

Program, and enhance coordination of the Program with other housing

programs whose funds are used in conjunction with AHP subsidies.

The final rule also reorganizes and streamlines the text of the

regulation. The structure of the final rule is significantly revised

from that of the proposed rule in order to, among other things: (1)

separate Program standards from procedures; (2) integrate the

provisions governing the Banks' homeownership set-aside programs with

corresponding provisions governing the Banks' competitive application

programs; (3) clarify the roles of the Banks, members, and other

parties involved in the Program; and (4) identify the kinds of

agreements that must be in place in order to ensure compliance with

Program requirements.

The Finance Board is making these changes in the larger context of

devolving to the Banks the authority to make final funding decisions

for AHP projects. Decentralization of funding decisions under the

Program is consistent with the Finance Board's ongoing efforts to

transfer to the Banks those functions performed by the Finance Board

that are related to Bank management and governance. Further, the

Finance Board believes that, in light of the Banks' seven years of

experience evaluating and processing AHP applications, the Banks are

prepared to take on this new authority. A large majority of comments on

the proposed rule supported the transfer of approval authority for AHP

applications from the Finance Board to the Banks. The Finance Board

will continue to exercise its supervisory oversight role through

examinations of each Bank's Program.

B. Effective Dates and Existing AHP-Assisted Projects

1. Dates

In order to provide the Banks sufficient time to prepare to

administer the Program under the revised AHP regulation, the provisions

of the final rule will become effective on January 1, 1998. However,

compliance with Sec. 960.3(b) shall begin on September 3, 1997. As

further discussed below, Sec. 960.3(b) requires each Bank to adopt an

AHP implementation plan setting forth key policies and procedures

governing the Bank's Program.

2. Application of the Final Rule to Existing AHP-Assisted Projects

Section 960.16 of the final rule makes clear that the provisions of

the final rule apply to all existing AHP-assisted projects. Existing

agreements between Banks, members, sponsors, or owners regarding such

parties' AHP obligations may have language that automatically

incorporates any changes to the AHP regulation that may be adopted from

time to time by the Finance Board. Section 960.16 of the final rule

makes clear that where existing agreements do not provide for automatic

conformity with AHP regulatory changes, the requirements of section

10(j) of the Act and the provisions of the AHP regulation, as amended,

are incorporated into such agreements by operation of law.

The final rule may require Banks, members, sponsors, and owners to

change their behavior prospectively to meet new regulatory

requirements. However, the changes made by the final rule are not

intended to affect the legality of actions taken prior to the effective

date of the final rule.

C. Definitions--Sec. 960.1

Changes to individual definitions in the final rule generally are

discussed in later sections of this SUPPLEMENTARY INFORMATION section

in the context of specific regulatory requirements, with the exception

of the following definitions discussed here.

1. ``Subsidized advance'' and ``Subsidy''

The final rule carries forward the provision of the proposed rule

defining ``subsidized advance'' as ``an advance to a member at an

interest rate reduced below the Bank's cost of funds, by use of a

subsidy.'' The proposed rule defined ``subsidy,'' for purposes of

determining the amount of the interest rate subsidy incorporated in a

subsidized advance, as ``the net present value of the interest revenue

foregone from making a subsidized advance at a rate below the Bank's

cost of funds, determined as of the date of disbursement of the

subsidized advance or the date prior to disbursement on which the Bank

first manages the funding to support the subsidized advance through its

asset/liability management system, or otherwise.'' The definition of

``subsidy'' in the final rule makes clear that the amount of the

interest rate subsidy in a subsidized advance is determined as of the

earlier of the two dates mentioned above.

The notice of proposed rulemaking requested comments on whether the

interest rate subsidy incorporated in a subsidized advance should be

defined by reference to a Bank's market advance rate, rather than the

Bank's cost of funds. This would allow a Bank to use AHP subsidies to

pay its regular advance mark-up where AHP subsidy is delivered to a

project through a subsidized advance, which may eliminate a perceived

disincentive to the Banks to make subsidized advances, versus direct

subsidies. A number of commenters stated that the form in which AHP

subsidies are delivered to projects, i.e., subsidized advances versus

direct subsidies, is determined by the financing structures used by

proposed projects, not by the preferences of Banks in funding such

projects. Consequently, allowing Banks to use AHP subsidies to pay

their regular advance mark-up would not affect the level of subsidized

advances made by Banks and would use more AHP subsidies to produce the

same amount of affordable housing. The Finance Board finds merit in

these arguments. Therefore, the final rule carries forward the

reference to a Bank's

[[Page 41814]]

``cost of funds'' in the definition of ``subsidy.''

2. Definitions of ``Median Income for the Area,'' ``Low-and Moderate-

Income Household,'' and ``Very Low-Income Household''

a. Median Income Standards and Family Size-Adjustments.

(i) Statutory Standards

Under section 10(j)(2)(A) of the Act, members are to use AHP

subsidies to finance owner-occupied housing for ``families with incomes

at or below 80 percent of the median income for the area.'' See 12

U.S.C. 1430(j)(2)(A). Section 10(j)(13)(A) of the Act contains a

corresponding definition of ``low-or moderate-income household'' as a

household that has an income of ``80 percent or less of the area

median.'' See id. Sec. 1430(j)(13)(A).

Under section 10(j)(2)(B) of the Act, members are to use AHP

subsidies generally to finance rental housing for ``very low-income

households.'' See id. Sec. 1430(j)(2)(B). Section 10(j)(13)(B) of the

Act defines the term ``very low-income household'' as a household that

has an income of ``50 percent or less of the area median.'' See id.

Sec. 1430(j)(13)(B).

The Act does not define ``median income for the area'' or ``area

median.'' To date, the Finance Board has interpreted these terms to

refer to the measure of median income for an area as determined and

published by the Secretary of the Department of Housing and Urban

Development (HUD) for approximately 2,700 metropolitan statistical

areas (MSAs), counties, and nonmetropolitan statistical areas,

including adjustments for various local conditions as well as for

family size. See 42 U.S.C. 1437a(b)(2); 12 CFR 960.1(h). In practice,

this required the use of income limits published by HUD corresponding

to 80 percent and 50 percent, respectively, of the median income for a

particular area, adjusted for family size.

(ii) Proposed Regulatory Amendments.

On November 5, 1993, the Finance Board published for comment a

proposal to amend the AHP regulation to redefine the AHP income limits

without certain adjustments incorporated in the HUD income limits. See

58 FR 58988 (Nov. 5, 1993). This proposal also was part of the Finance

Board's January 10, 1994 proposal. See 59 FR 1323 (Jan. 10, 1994).

The November 8, 1996 proposed rule continued to require the use of

HUD income limits, including adjustments for family size, in

determining household eligibility under the Program. The notice of

proposed rulemaking requested comments on the definitions in the

proposed rule and, alternatively, on allowing: (1) Median income to be

established using any reliable source for current area information and

to be determined for counties and other applicable state and local

subdivisions as well as MSAs; (2) any adjustment for family size to be

made in conformance with the requirements of the lead or controlling

funding source or program for the project; and (3) the use of whatever

median income standard and adjustment is being used by the sponsoring

or funding entity for the project, provided that the standard is from a

legitimate state or federal source that regularly provides such

information on income.

(iii) Final Regulatory Standards

While a number of commenters supported using HUD income limits on

the ground that they are readily understood and available, there also

was significant support for: (1) the use of median income standards,

including any family-size adjustments, established using any reliable

source for current area income data determined for counties and other

applicable state and local subdivisions as well as MSAs; or (2) the use

of whatever median income standard and adjustment is being used by the

sponsoring or funding entity for the project, provided that the

standard is from a legitimate state or federal source that regularly

provides such information on income.

While the Finance Board favors some measure of flexibility on the

issue of income limits for households participating in AHP-assisted

projects, a prerequisite for any income eligibility standard is that it

is based on data that are accepted as accurate and reliable and are

readily available. The Finance Board wishes to avoid adopting an income

eligibility standard that increases the risk of after-the-fact

discrepancies between a particular income eligibility standard and the

actual incomes of households benefiting from AHP subsidies, which

ultimately may lead to repayment of the subsidies.

In light of the support among commenters for the use of measures of

median income and family-size adjustments other than those used by HUD

in its housing programs, the final rule adds a definition of ``median

income for the area,'' and amends the definitions of ``low-or moderate-

income household'' and ``very low-income household'' to permit the use

of additional median income standards and their corresponding

adjustments for family size.

In the case of owner-occupied projects, ``median income for the

area'' means: (1) The median income for the area, as published annually

by HUD; (2) the applicable median family income, as determined under

the mortgage revenue bond program set forth in 26 U.S.C. 143(f) and

published by a State agency or instrumentality; (3) the median income

for the area, as published by the United States Department of

Agriculture (USDA); or (4) the median income for any definable

geographic area, as published by a federal, state, or local government

entity for purposes of that entity's housing programs, that has been

approved by the Board of Directors of the Finance Board for use under

the AHP.

The final rule expressly includes reference to the median income

published by the USDA in order to make clear that the Finance Board

supports the use of the AHP by members in rural areas in order to meet

homeownership needs in those areas.

Under the Internal Revenue Code, household eligibility for mortgage

financing provided by qualifying mortgage revenue bonds is based on the

``applicable median family income,'' which is the greater of: (1) The

area median gross income for the area in which a residence is located;

or (2) the statewide median gross income for the State in which the

residence is located. See 26 U.S.C. 143(f)(4). The ``applicable median

family income'' is based on income data published by HUD. See Rev.

Proc. 97-26, 1997-17 I.R.B 17.

Under the mortgage revenue bond program, the applicable median

family income may be adjusted depending on whether the residence being

financed is in a targeted versus a non-targeted area and whether the

residence is in a high housing cost area. See 26 U.S.C. 143(f)(3), (5).

Adjustments also are made for family size. See id. section

143(f)(6)(A). It should be noted that for purposes of the AHP, the

applicable median family income may be adjusted for family size, but

shall not be adjusted based on the location of a residence in a

targeted area or a high housing cost area, see id. section 143(f)(3),

(5), because in targeted areas and high housing cost areas, the

mortgage revenue bond program does not use the ``applicable median

family income'' as the basis for household income eligibility. In

targeted areas, ``applicable median family income'' is adjusted by a

factor of 120 percent based solely on the location of the residence in

a targeted area. See id. section 143(f)(3). Consequently, the baseline

measure of area median income in targeted areas is 120 percent of the

``applicable median

[[Page 41815]]

family income,'' rather than simply the ``applicable median family

income.'' As discussed above, the Act requires that the AHP income

limit be based on 80 percent of some measure of the ``median income for

the area.'' Since the mortgage revenue bond program does not use the

``applicable median family income'' as a measure of median income for

targeted areas, use of that program's income limits for targeted areas

would not be permissible under the Act.

Similarly, in cases where the income limit under the mortgage

revenue bond program is adjusted above the ``applicable median family

income'' for high housing cost areas, see id. section 143(f)(5), use of

the adjusted income limit would not be permissible under the Act. In

sum, the Finance Board believes that using the ``applicable median

family income,'' as determined under the mortgage revenue bond program

for residences in non-targeted areas, is consistent with the

requirements of the Act and is a viable alternative to the use of

income limits used under HUD's housing programs because it is based on

data that are accepted as accurate and reliable and are readily

available from state agencies and instrumentalities that publish income

limits for purposes of their mortgage revenue bond programs.

Accordingly, as applied to the AHP, in the case of a one- or two-person

household, the income limit would be 80 percent of the ``applicable

median family income,'' and for households with three or more members,

the income limit would be 80 percent of 115 percent of the ``applicable

median family income.'' See id. section 143(f)(1), (6)(A).

Under the final rule, a Bank may request approval of the Board of

Directors of the Finance Board to use a measure of median income for

AHP-assisted owner-occupied projects other than those used by HUD, the

USDA, or a state mortgage revenue bond program. Such requests will

receive prompt consideration by the Board of Directors. However, prior

to requesting approval of an alternative median income standard, a Bank

must amend its AHP implementation plan to permit the use of that

standard, conditioned on Board of Directors approval. This is intended

to ensure that a Bank receives input from its Advisory Council prior to

proposing a new median income standard for use under the AHP.

For purposes of rental projects, the final rule defines ``median

income for the area'' as: (1) The median income for the area, as

published annually by HUD; or (2) the median income for any definable

geographic area, as published by a federal, state, or local government

entity for purposes of that entity's housing programs, that has been

approved by the Board of Directors of the Finance Board for use under

the AHP.

While the Finance Board wishes to provide the opportunity for the

use of measures of median income in addition to those used by HUD for

rental projects, the Finance Board wishes to address such alternatives

on a case-by-case basis. A large majority of rental projects receiving

AHP subsidies are otherwise required to use the income limits published

by HUD for its housing programs because these projects have received

funds from HUD or have been allocated federal Low-Income Housing Tax

Credits. Consequently, there appears to be less need for flexibility at

this time with regard to income limits for rental projects.

Nonetheless, in view of the potential for an increasing flow of funds

to rental housing from bonds and other state and local programs, the

final rule permits the Banks to seek approval of alternative measures

of median income for AHP-assisted rental projects under the same

procedures that apply for owner-occupied projects, discussed above.

In cases where a Bank chooses to permit the use of more that one

median income standard (and its corresponding family-size adjustments),

such standards must be available to all proposed projects in the Bank's

District. Accordingly, the definition of ``median income for the area''

expressly states that a Bank may select a median income standard or

standards from which all projects may choose for purposes of the AHP.

Furthermore, under section 960.3(b)(1)(i) of the final rule, a Bank

must set forth in its AHP implementation plan the applicable median

income standard or standards, adopted by the Bank consistent with the

definition of ``median income for the area.'' Two members of the Board

of Directors of the Finance Board have requested that agency staff

gather data regarding the impact as of the end of 1998 of the increased

flexibility in the area median income standards.

b. Timing of Household Income Qualification.

The final rule incorporates in the definitions of ``very low-income

household'' and ``low-or moderate-income household'' provisions

governing the time at which a household's income should be examined to

determine whether it meets the income eligibility requirements for AHP-

assisted housing.

The final rule provides that in the case of owner-occupied

projects, this determination is to be made at the time the household is

qualified by the sponsor (or member, in the case of a homeownership

set-aside program) for participation in the project. This is a change

from the proposed rule, which required that the determination be made

no earlier than the date on which the application for subsidy funding

the project is submitted to the Bank for approval. Several commenters

requested this change in order to allow project sponsors more

flexibility in qualifying households. Commenters identified a number of

programs, such as sweat-equity programs, that qualify households prior

to the deadline established by the proposed rule. Under the final rule,

households may be qualified at any time, but in all cases, sponsors

must have adequate documentation to verify income eligibility.

The final rule also revised the provisions of the proposed rule

governing the timing of household income qualification for rental

projects to take into account situations where there are current

occupants in units receiving AHP assistance. The final rule provides

that where rental projects involve the purchase or rehabilitation of

units with current occupants, the income qualification determination is

to be made at the time the purchase or rehabilitation is completed.

3. Definition of ``Affordable''

The final rule provides that ``affordable'' means that the rent

charged to a household for a unit that is committed to be affordable in

an AHP application does not exceed 30 percent of the income of a

household of the maximum income and size expected, under the commitment

made in the AHP application, to occupy the unit (assuming occupancy of

1.5 persons per bedroom or 1.0 person per unit without a separate

bedroom). This language clarifies that only those units that are

committed to be affordable in an AHP application are subject to the 30

percent-of-income limitation. The revised definition also replaces the

reference in the proposed rule to a household's ``monthly housing

costs'' with a reference to the ``rent'' charged for the unit. This

change was made to exclude utility costs from the affordability

calculation where these costs are not part of the rent for a unit.

D. Operation of Program and Adoption of AHP Implementation Plan--

Sec. 960.3

1. Program Operation

The proposed rule provided that each Bank's Program shall be

governed solely

[[Page 41816]]

by the requirements set forth in 12 U.S.C. 1430(j) and part 960, and

prohibited a Bank from adopting any additional substantive AHP

requirements, except as expressly provided in part 960. This was

intended to make clear that the AHP regulation is to ``occupy the

field'' with regard to substantive requirements governing the Program.

The final rule omits this general prohibition and identifies specific

areas where the Banks are prohibited from imposing additional

substantive Program requirements, namely optional and mandatory

eligibility requirements and scoring criteria.

A significant number of commenters objected to the proposed

language on the ground that it would reduce the Banks' ability to adopt

Program requirements in addition to those in the AHP regulation in

order to address what the Banks have characterized as special

circumstances in their Districts. While the Finance Board agrees that

the Banks should have discretion in making decisions regarding Program

implementation in order to meet regional needs, the Finance Board has a

legal mandate to exercise independent judgment, in light of the public

interest, as to the purpose of the AHP and the standards needed to

effect that purpose. The Act makes clear that the authority to adopt

regulations governing the AHP rests with the Finance Board. See 12

U.S.C. 1430(j) (1) and (9). In order to address concerns about

flexibility, the Finance Board has attempted to provide the Banks

discretion in those areas of the Program that, over the past seven

years, have shown a need for flexibility.

2. Allocation of AHP Contributions

Section 960.3(a) of the final rule consolidates provisions of the

proposed rule related to the allocation of a Bank's required annual AHP

contribution to its competitive application program and homeownership

set-aside program or programs. Section 960.3(a)(1) of the final rule

provides that a Bank, after consultation with its Advisory Council, may

set aside annually, in the aggregate, up to the greater of $1.5 million

or 15 percent of its annual required AHP contribution to provide funds

to members participating in the Bank's homeownership set-aside program

or programs. This is a change from the proposed rule, which limited

homeownership program set-aside amounts to the greater of $1 million or

10 percent of a Bank's required annual AHP contribution. A number of

commenters supported an increase in the maximum set-aside amount in

light of the high demand for such funds. Moreover, the Finance Board

has approved funding as high as $1.5 million for one Bank's set-aside

program. The final rule continues to permit a Bank to allocate funds

from the subsequent year in instances where demand for funds in the

current year exceeds that year's set-aside amount.

Section 960.3(a)(2) of the final rule provides that the portion of

a Bank's required annual AHP contribution that is not set aside to fund

homeownership set-aside programs shall be provided to members through

the Bank's competitive application program.

3. AHP Implementation Plans

The proposed rule required each Bank's board of directors to adopt

an AHP implementation plan and any amendments to the plan by December 1

of each year, after providing its Advisory Council a reasonable period

of time to review the plan and any amendments and provide its

recommendations. Section 960.3(b) of the final rule carries forward

this requirement generally, but omits a specific deadline for adoption

of the plan. Once a Bank's board of directors has adopted its plan, or

any amendments, the Bank must submit the plan or amendments to the

Finance Board and the Bank's Advisory Council at least 60 days prior to

distributing requests for applications for AHP subsidies for the

funding period in which the plan, or amendments, will be effective. A

Bank's implementation plan is the vehicle through which the Bank

determines the standards for its Program, consistent with the

requirements of the final rule. Section 960.3(b)(1) of the final rule

identifies Bank procedures and other information that must be included

in a Bank's implementation plan. Compliance by the Bank with its

implementation plan will provide the basis for Finance Board

examination of the Bank's implementation of its Program.

4. Conflicts of Interest Policies

Section 960.3(c) of the final rule consolidates provisions of the

proposed rule that required the boards of directors of the Banks to

adopt conflicts of interest policies governing Bank directors and

employees and Advisory Council members. The proposed rule required each

Bank to have a policy providing that a Bank director, officer, or

employee or an Advisory Council member who has a personal interest in,

or who is a director, officer or employee of an organization involved

in, a project that is the subject of a pending or approved AHP

application, may not participate in or attempt to influence the

evaluation, approval, funding, monitoring, or any remedial process for

such project under the Program.

Section 960.3(c) of the final rule contains two substantive changes

to the proposed language. First, the reference to a ``personal

interest'' of a party in a project is replaced with a reference to a

``financial interest'' of a party or that party's ``family member.'' A

``family member'' is defined in Sec. 960.1 as any individual related to

a person by blood, marriage or adoption. This change is intended to

respond to comments requesting clarification of the scope of the

intended prohibition in this provision.

Second, the final rule no longer prohibits an interested Advisory

Council member from being involved in decisions of the Bank regarding

the evaluation, funding, monitoring or any remedial process for a

project that is the subject of a pending or approved AHP application.

As some commenters pointed out, many Advisory Council members, who by

law are drawn from community and not-for-profit organizations, may in

many cases be integrally involved in projects that are the subject of

pending or approved AHP applications. Consequently, Advisory Council

members often must work with the Banks in resolving issues related to

the evaluation, funding, monitoring, and compliance of such projects.

This is reflected in the revised language of the final rule.

E. Advisory Councils--Sec. 960.4

Section 960.4 of the final rule carries forward the provisions of

the proposed rule governing Advisory Councils, with the following

changes. First, Sec. 960.4(d) of the final rule provides that Advisory

Council members may be appointed to serve for up to three consecutive

three-year terms. The proposed rule permitted a maximum of two

consecutive three-year terms. Some commenters suggested that there be

no term limit for Advisory Council members in order to allow the Banks

to benefit from the experience and familiarity with the Program that

Advisory Council members develop the longer they serve on an Advisory

Council. The Finance Board believes permitting Advisory Council members

to serve for up to nine consecutive years will promote this goal.

Second, the final rule omits the proposed requirement that a Bank

allow Advisory Council members to examine AHP applications under the

Bank's competitive application program from prior funding periods. Some

commenters opposed this provision on the ground that it would provide

Advisory Council members who, in

[[Page 41817]]

many cases, are associated with organizations that have projects in a

Bank's competitive application program, access to information that may

give them an unfair competitive advantage. Accordingly, this provision

is deleted, but Sec. 960.4(f)(2) of the final rule retains the proposed

requirement that a Bank comply with requests from its Advisory Council

for summary information regarding AHP applications from prior funding

periods. Access to this information will aid Advisory Council members

in evaluating how a Bank's scoring guidelines affect the allocation of

AHP subsidies among different types of housing projects.

The notice of proposed rulemaking requested comments on the role,

selection, and compensation of Advisory Council members. Commenters

supported the Advisory Councils' expanded role in providing

recommendations on the Banks' AHP implementation plans. Commenters also

generally supported expanding the role of Advisory Councils to include

providing advice on ways in which the Banks can better carry out their

housing finance and community investment mission. Sections 960.3(b)(3)

and 960.4(f)(1) of the final rule, respectively, retain these

provisions of the proposed rule.

Section 960.4(b) of the final rule carries forward the proposed

provision requiring the Banks to appoint Advisory Council members

giving consideration to the size of the Banks' District and the

diversity of low- and moderate-income housing needs and activities

within the District. While the Finance Board does not believe that

there should be absolute limits on the membership of any one group on

the Advisory Councils, the Finance Board wishes to ensure a diversity

of viewpoints so that no one group consistently has a dominant voice on

an Advisory Council. Accordingly, the proposed rule required the Banks

to draw Advisory Council members from a diverse range of organizations,

provided that representatives of no one group constitute an undue

proportion of the membership of an Advisory Council. Commenters

generally supported this provision. Therefore, Sec. 960.4(c) of the

final rule carries forward the proposed provision without change.

Section 960.4(g) of the final rule carries forward the proposed

requirement, which also is a requirement of the existing regulation,

that a Bank pay Advisory Council members' travel expenses, including

transportation and subsistence, for each day devoted to attending

meetings with representatives of the board of directors of the Bank. In

addition, the final rule requires a Bank to pay Advisory Council

members' travel expenses, including transportation and subsistence, for

each day devoted to attending meetings requested by the Finance Board.

The Finance Board believes that meetings with Finance Board

representatives provide an important forum for Advisory Council members

to communicate their views to the agency. Consequently, where the

Finance Board requests such meetings, it is appropriate for the Banks

to reimburse the transportation and subsistence expenses of those

Advisory Council members who attend.

Several commenters suggested that the Banks be required to pay fees

to Advisory Council members for attending such meetings. While this is

not required by the final rule, nothing precludes the Banks, in their

discretion, from paying such fees.

F. Minimum Eligibility Standards for AHP Projects--Sec. 960.5

1. In General

As part of the reorganization of the structure of the proposed

rule, those provisions of the proposed rule that constitute minimum

eligibility standards for AHP projects have been consolidated into a

single section in the final rule, as described below.

2. Homeownership Set-Aside Programs

Under the existing regulation, Banks must establish their

homeownership set-aside programs in accordance with the specific

requirements set forth therein, unless they obtain Finance Board

approval to establish ``nonconforming'' programs. See 12 CFR 960.5(g).

The proposed rule revised the existing regulation to allow the Banks

more flexibility in establishing their homeownership set-aside

programs, including the program eligibility requirements, without

having to obtain prior Finance Board approval.

Section 960.5(a) of the final rule sets forth the minimum

eligibility standards for a Bank's homeownership set-aside programs.

The final rule carries forward the proposed eligibility standards with

the following changes. First, under Sec. 960.5(a)(3), the maximum

amount of funds available per household is increased from $5,000 to

$10,000. Several commenters suggested this change in order to serve

lower income homebuyers in high cost areas.

Second, Sec. 960.5(a)(4) of the final rule includes rehabilitation

by current homeowners as an eligible use of homeownership set-aside

funds. The language of the proposed rule limited the use of

homeownership set-aside funds to home purchases. As indicated in the

SUPPLEMENTARY INFORMATION section of the proposed rule, the Finance

Board intended to allow homeownership set-aside funds to be used also

for rehabilitation by current homeowners. See 61 FR 57799, 57813 (Nov.

8, 1996).

Third, the Finance Board received a number of comments suggesting

that homeownership set-aside funds be permitted to be used for

homebuyer counseling costs, which was prohibited by the proposed rule.

Sections 960.5 (a)(4) and (a)(7) of the final rule permit homeownership

set-aside funds to be used to pay for counseling costs where: (i) Such

costs are incurred in connection with counseling of homebuyers who

actually purchase an AHP-assisted unit; (ii) the cost of the counseling

has not been covered by another funding source, including the member;

and (iii) the homeownership set-aside funds are used to pay only for

the amount of such reasonable and customary costs that exceeds the

highest amount the member has spent annually on homebuyer counseling

costs within the preceding three years. The Finance Board believes that

if homeownership set-aside funds are to be used for counseling costs,

they should be used to expand the pool of resources available for

counseling, rather than replace existing sources of funding. These

provisions are intended to prevent homeownership set-aside funds from

being used to pay for counseling that, in the absence of such funds,

customarily would be financed by members participating in a

homeownership set-aside program.

Fourth, Sec. 960.5(a)(8) of the final rule requires homeownership

set-aside funds to be drawn down and used by eligible households within

a period of time specified by the Bank in its AHP implementation plan.

This parallels a similar requirement for a Bank's competitive

application program, as discussed further below, and is currently a

requirement in several of the Banks' existing homeownership set-aside

programs.

Fifth, the final rule omits the requirement that any program

eligibility criteria adopted by a Bank be consistent with the National

Homeownership Strategy coordinated by HUD. The minimum eligibility

requirements set forth in the final rule ensure that homeownership set-

aside funds are provided to households for uses that are consistent

with the National Homeownership Strategy. Therefore, the explicit

reference to the Strategy is omitted in the final rule.

[[Page 41818]]

3. Competitive Application Program

Section 960.5(b) of the final rule sets forth the minimum

eligibility standards for a Bank's competitive application program. The

final rule carries forward the provisions of the proposed rule, with

the following changes regarding project feasibility and need for

subsidy, and timing of subsidy use. As discussed below, the final rule

also omits the maximum subsidy requirement in the proposed rule, which

provided that no AHP-subsidized household in a project could pay less

than 20 percent of its gross monthly income toward monthly housing

costs (the 20 percent requirement).

a. Project Feasibility and Need for Subsidy.

Section 960.5(b)(2) of the final rule consolidates standards

regarding project feasibility and need for subsidy that appeared in

several different sections of the proposed rule. Many commenters

objected to those provisions of the proposed rule requiring the Banks

to adopt project cost guidelines and to evaluate the reasonableness of

the interest rates and charges involved in financing from funding

sources other than members. Commenters stated that such requirements

are duplicative of efforts undertaken by members and other funding

sources and are unnecessarily burdensome for the Banks.

The proposed rule was intended to codify the current practices of

many of the Banks in evaluating project feasibility and need for

subsidy. Due to the time constraints of the application process,

members often do not provide the level of project review necessary to

determine project feasibility and the need for AHP subsidy.

Consequently, the Finance Board believes it is in the best interest of

the Program for the Banks to have and carry out an independent duty to

scrutinize each proposed project to determine whether the requested

subsidy is necessary for the financial feasibility of the project, as

currently structured. Section 960.3(b)(1)(iii) of the final rule

requires the Banks to include in their AHP implementation plans

feasibility guidelines for determining whether proposed projects comply

with these standards.

The Finance Board is sensitive to the challenge of developing

project feasibility guidelines during the transition to operation under

the regulatory changes made by this final rule. The Finance Board

intends to create a special process under which a Bank may, at its

option, obtain prior review and approval by the Finance Board of its

initial project feasibility guidelines in order to ensure that they are

consistent with the requirements of the final rule.

With regard to a project's estimated sources of funds,

Sec. 960.5(b)(2)(i) of the final rule carries forward provisions of the

proposed rule and makes clear that such sources must include estimates

of the market value of in-kind donations and volunteer professional

labor or services committed to the project, but not the value of sweat-

equity. This provision is intended to allow sponsors that build housing

using donations of labor and material to account for such sources of

funds in their development budgets. Sweat-equity is excluded from a

project's funding sources in order to avoid requiring the purchaser of

a home who provides labor in the construction of the home to pay for

the value of his or her own labor.

The proposed rule provided that AHP subsidies may be used to pay

only for the customary and standard costs typically incurred, at fair

market prices, to purchase, construct, or rehabilitate AHP-eligible

housing. At the time of disbursement, the Bank was required to obtain a

current independent appraisal of property sold to a project where a

member had a ``direct or indirect interest'' in the property or

project. In response to requests from several commenters, the final

rule clarifies the proposed language referring to a ``direct or

indirect interest'' of a member in the property or project. Section

960.5(b)(2)(ii)(B) of the final rule provides that the purchase price

of property or services sold to a project by a member providing AHP

subsidy to the project, or, in the case of property, upon which such

member holds a mortgage or lien, may not exceed market value as of the

date the purchase price for the property or services was agreed upon.

In the case of real estate owned property sold to a project by the

member, or property sold to the project upon which the member holds a

mortgage or lien, the market value of such property is deemed to be the

``as-is'' or ``as-rehabilitated'' value of the property, whichever is

appropriate, as reflected in an independent appraisal of the property

performed within six months prior to the date the purchase price for

the property was agreed upon.

Several commenters suggested that the value of property may be

enhanced where the property is proposed to be used for affordable

housing receiving subsidized financing. In addition, there may be other

factors related to the proposed use of a property for affordable

housing that affect the property's valuation. The Finance Board

believes that it may be appropriate to take such factors into account

in determining the market value of a property. As discussed above, the

final rule provides for property to be valued either ``as-is'' or ``as

rehabilitated,'' whichever is appropriate under the circumstances.

However, the Finance Board believes that any valuation judgments

related to a property's use for affordable housing should be reflected

in an appraisal of the property. Consequently, to the extent that a

property's proposed use for affordable housing affects the property's

value, this factor should be reflected in the appraisal of the property

in order to be considered in determining the property's market value

for purposes of the AHP.

b. Timing of Subsidy Use.

The proposed rule provided that a project must be likely to be

completed within a reasonable period of time. Section 960.5(b)(3) of

the final rule provides that the AHP subsidy must be likely to be drawn

down by a project or used by the project to procure other financing

commitments within 12 months of the date of approval of the application

for subsidy financing the project. This reflects the requirement of the

existing regulation and current practice.

c. Prepayment Fees.

There may be situations where, due to declining interest rates, it

would be advantageous to a project to prepay its loan from a member and

refinance the project. However, prepayment of the member's loan may

trigger prepayment of the Bank's subsidized advance by the member, a

prepayment fee for the member, and, thus, a prepayment fee for the

project. It has been suggested that the project be permitted to

allocate the remaining AHP subsidy incorporated in the advance to pay

for the member's prepayment fee. This, in turn, would permit the member

to forego charging the project a prepayment fee, making refinancing

less costly.

The proposed rule prohibited the use of AHP subsidies for such

prepayment fees on the ground that funding such fees is an unproductive

use of AHP subsidies and does not meet the statutory requirement that

AHP subsidies be used to finance housing. Clearly, however, where a

project agrees to continue to comply with the terms of the application

for the AHP subsidy after using the subsidy to pay for a prepayment

fee, the purpose of the Program is met and the project is able to

obtain a stronger financial position. Consequently, Sec. 960.5(b)(4)(i)

of the final rule permits the use of AHP subsidies to pay for

prepayment fees

[[Page 41819]]

imposed by a Bank on a member for a prepayment of a subsidized advance,

if, subsequent to such prepayment, the project will continue to comply

with the terms of the application for the subsidy, as approved by the

Bank, and the requirements of the AHP regulation for the duration of

the original retention period, and any unused subsidy is returned to

the Bank and made available for other AHP projects.

d. Counseling Costs.

The notice of proposed rulemaking requested comments on whether AHP

subsidies should be permitted to be used to pay for counseling costs

generally, and whether AHP subsidies should be used to pay only for

counseling for homebuyers, homeowners, or tenants of AHP-assisted

units. Section 960.5(b)(5) of the final rule, which carries forward the

proposed provision, permits AHP subsidies to be used to pay for costs

incurred in connection with counseling of homebuyers as long as: (1)

The counseling is provided to a household who actually purchases an

AHP-assisted unit; and (2) the cost of the counseling has not been

covered by another funding source, including the member. While many

commenters supported the proposed provision, there was no consensus

among commenters on this issue. The Finance Board believes that if AHP

subsidies are to be used for counseling costs, they should be used to

expand the pool of resources available for counseling, rather than

replace existing sources of funding. The Finance Board wishes to

prevent AHP subsidies from being used to pay for counseling that, in

the absence of the AHP subsidy, would customarily be financed by

another source of funding for a project.

e. Refinancing.

Section 960.5(b)(6) of the final rule carries forward the proposed

requirement that if a project uses AHP subsidies to refinance an

existing single-family or multifamily mortgage loan, the equity

proceeds of the refinancing must be used only for the purchase,

construction, or rehabilitation of AHP-eligible housing. Several

commenters suggested that the final rule should permit the use of AHP

subsidies to refinance existing projects in cases where no equity is

taken out of the project and the refinancing results in a lower debt

service cost for the project. Such use of AHP subsidies would be

contrary to the Act, because there would be no resulting purchase,

construction, or rehabilitation of AHP-eligible housing. See 12 U.S.C.

1430(j)(2).

f. Project Sponsor Qualifications.

Section 960.5(b)(8) of the final rule provides that a project's

sponsor must be qualified and able to perform its responsibilities as

committed to in the AHP application. Section 960.1 of the final rule

carries forward the definition of ``sponsor'' in the proposed rule and,

in response to comments, clarifies that in the case of rental projects,

``sponsor'' includes an organization whose ownership of a project is in

the form of a partnership interest.

g. Use of AHP Subsidies for Loan Guarantees.

Several commenters suggested that the final rule permit the use of

AHP subsidies for loan guarantees or other financial mechanisms to make

affordable housing feasible. Although the Finance Board did not request

comments on this issue and has not authorized the use of AHP subsidies

for loan guarantees in the final rule, the Finance Board does find

these comments of interest and will review how such guarantees might

work under the AHP.

h. Pre-Development Expenses.

The final rule omits the language in the proposed rule expressly

prohibiting the use of AHP subsidies for pre-development expenses. The

proposed rule prohibited the use of AHP subsidies for pre-development

expenses not yet incurred by a proposed project as of the date the AHP

application is submitted to the Bank. This language was intended to

make clear that a Bank could not provide AHP subsidies for the sole

purpose of determining the feasibility of housing.

The final rule omits this language because the requirement in

Sec. 960.5(b)(2) that projects be feasible in order to receive AHP

subsidy effectively incorporates this prohibition. Proposed projects

that meet the requirements of a Bank's feasibility guidelines may

include pre-development expenses as project costs in their AHP

applications.

Several commenters supported the use of AHP subsidies for the sole

purpose of determining the feasibility of housing. The Finance Board

believes that this use of funds will not result in the actual purchase,

construction, or rehabilitation of housing, as required by the statute.

Further, since the inception of the Program, demand for AHP subsidies

for feasible projects has significantly exceeded available funds. Thus,

if AHP subsidies were to be approved for the sole purpose of

determining the feasibility of housing, potentially significant amounts

of subsidies that currently go toward completing projects might instead

be paying for activities that never result in the financing or

production of housing.

i. District Eligibility Requirements.

Section 960.5(b)(10) of the final rule carries forward the

provisions in the proposed rule governing District eligibility

requirements, which were referred to as ``District threshold

requirements'' in the proposed rule. The notice of proposed rulemaking

included an extensive discussion of the salient arguments in favor of

and against the proposed District eligibility requirements. See 61 FR

57799, 57807-57809 (Nov. 8, 1996). The comments received by the Finance

Board on these provisions either supported or objected to the proposal

on many of the grounds discussed in the notice of proposed rulemaking.

There was no consensus on two of the three optional District

eligibility requirements. Although there was more prevalent opposition

to the third requirement--that the member have used a Bank credit

product in the past 12 months--the Finance Board feels that members and

sponsors will have some influence on an individual Bank's decision

regarding this option. Consequently, the Finance Board is finalizing

the District eligibility provisions, as proposed, which provide the

Banks with discretion to determine whether to adopt these eligibility

requirements.

j. The 20 percent Requirement.

The final rule omits the provision in the proposed rule known as

``the 20 percent requirement,'' which provided that households who own

or rent AHP-assisted units shall pay no less than 20 percent of their

gross monthly income towards monthly housing costs. The proposed rule

carried forward provisions of the existing regulation and added some

exceptions to the 20 percent requirement. Commenters generally

supported the additional exceptions in the proposed rule and suggested

the adoption of several other exceptions. The 20 percent requirement

was intended to implement the maximum subsidy limitation requirement

contained in section 10(j)(9)(F) of the Act. See 12 U.S.C.

1430(j)(9)(F).

In light of the fact that most projects come within the exceptions

to the 20 percent requirement, the Finance Board believes that the 20

percent requirement no longer is an effective means of implementing the

statutory maximum subsidy limitation. Further, the requirements in the

final rule regarding project feasibility and need for subsidy are

intended to implement this statutory requirement.

G. Procedure for Approval of Applications for Funding--Sec. 960.6

As part of the reorganization of the structure of the proposed

rule, the final

[[Page 41820]]

rule consolidates and streamlines the proposed provisions governing

funding periods, application requirements, and scoring and approvals of

applications under a Bank's competitive application program. The final

rule also integrates and streamlines provisions in the proposed rule

governing funding under a Bank's homeownership set-aside programs.

1. Program Administration

Section 960.6(b)(1) of the final rule carries forward the proposed

provisions permitting a Bank to accept applications for funding under

its competitive application program during a specified number of

funding periods each year, as determined by the Bank. The notice of

proposed rulemaking requested comments on whether the Banks should be

permitted to accept AHP applications on a rolling basis, and, if so,

how applications would be scored under such a process. Of those

commenters who addressed this issue, the majority opposed the

acceptance of applications on a rolling basis. The Finance Board

believes that a competitive process has worked well and has decided to

maintain the AHP as a competitive program. Further, those commenters

who supported funding on a rolling basis offered no way to score

applications fairly under such a process.

The final rule omits the proposed provision requiring a Bank to

notify members and other interested parties of: the amount of subsidy

offered annually and in each funding period; District eligibility

requirements; scoring guidelines; and application due dates. The final

rule also omits the provisions of the proposed rule specifying the

information required to be included in AHP applications. These changes

are consistent with the Finance Board's intent to streamline the AHP

regulation and to devolve to the Banks those aspects of the Program

involving day-to-day administration. Accordingly, Sec. 960.6(b)(2) of

the final rule provides that a Bank shall require applicants for AHP

subsidies under the Bank's competitive application program to submit

information sufficient for the Bank to determine that a proposed AHP

project meets applicable eligibility requirements and to evaluate the

application pursuant to the regulatory scoring criteria.

2. Acceptance of Applications from Nonmembers

Sections 960.6(a) and (b)(1) of the final rule add provisions

authorizing a Bank, in its discretion, to accept applications for

funding under both its homeownership set-aside programs and its

competitive application program from institutions with pending

applications for membership in the Bank. This is intended to give the

Banks greater flexibility in accommodating new members that desire to

participate in the AHP before the membership application process has

been completed. As discussed further below, an institution must be a

member prior to actually receiving AHP subsidies.

3. Scoring of Applications

a. In General.

The notice of proposed rulemaking requested comments on all aspects

of the proposed scoring provisions and on ways in which the scoring

system could be simplified, such as by creating discrete scoring

categories containing criteria required by the Act, criteria

established by the Finance Board, and criteria established by the

Banks. A number of commenters generally supported the scoring

provisions as proposed and suggested limited changes. Some commenters

suggested that the Finance Board permit the Banks, in consultation with

their Advisory Councils, to establish their own scoring systems. Other

commenters recommended that the scoring system be simplified, and that

the Banks be given greater flexibility in adopting scoring criteria and

allocating points among the criteria. Commenters stated that such

changes would improve the Program's operating efficiency and enable the

Banks to tailor their scoring systems to the needs of their Districts.

While the existing scoring process generally has worked well over

the past seven years of the Program's operation and is familiar to

Program users, the Finance Board agrees with commenters that a simpler

and more flexible scoring system should improve operating efficiency

and enhance the responsiveness of the Program to local District needs.

Accordingly, Sec. 960.6(b)(4) of the final rule revises the scoring

system in the proposed rule to incorporate greater simplicity and

flexibility, as discussed below.

b. Revised Scoring System.

(i) Elimination of Two-Tiered Priority Scoring Process.

The proposed rule established six priority categories, and required

the Banks to allocate 60 of a total 100 points among those categories,

with at least 8 points allocated to each category. In addition, the

proposed rule established 4 scoring objectives categories, and required

the Banks to allocate the remaining 40 points among these categories,

with the targeting objective category receiving at least 8 points.

Applications meeting at least two of the six priorities were considered

priority applications and, as a group, were to be scored before

applications meeting fewer than two of the priorities. Priority

applications then were to be scored against each other based on the

extent to which they met the priorities and the scoring objectives.

The final rule eliminates this two-tiered system of scoring

priority applications before non-priority applications. Instead,

Sec. 960.6(b)(4) of the final rule establishes nine scoring criteria

categories, and requires a Bank to score all applications for projects

meeting the minimum eligibility requirements according to the nine

criteria. Section 960.6(b)(4)(ii) requires a Bank to allocate 100

points among the nine scoring criteria, which incorporate the scoring

priorities and objectives of the proposed rule with revisions as

discussed below. At least 5 points must be allocated to each scoring

criterion except for targeting, which must be allocated at least 20

points. Section 960.6(b)(4)(i) provides that a Bank shall not adopt

additional scoring criteria or point allocations, except as

specifically authorized under paragraph (b)(4).

(ii) Designation of Variable-and Fixed-Point Criteria.

The proposed rule designated each proposed priority category as

either a fixed-point or a variable-point criterion. Fixed-point

criteria are those which cannot be satisfied in varying degrees and are

either satisfied, or not. Variable-point criteria are those where there

are varying degrees to which an application can satisfy the criterion.

Section 960.6(b)(4)(iii) of the final rule requires each Bank to make

the designation of criteria as either fixed or variable. The targeting

criterion and the subsidy-per-unit criterion must be designated as

variable-point criteria. When determining the extent to which competing

projects satisfy a variable-point criterion, a Bank must award points

to projects in a uniform and consistent manner. The nine scoring

criteria are discussed below.

(iii) Donated Government-Owned or Other Properties Criterion.

Section 960.6(b)(4)(iv)(A) of the final rule revises the scoring

criterion in the proposed rule for projects using government-owned

property to provide scoring credit for projects using a significant

proportion of units or land donated or conveyed for a nominal price by

the federal government or any agency or instrumentality thereof, or by

any other party. The expansion of this criterion to include units or

land owned by other parties responds to a number of commenters who

pointed out that the stock of available federal government

[[Page 41821]]

properties continues to decrease. The criterion also has been revised

to encourage the donation of property for AHP projects, which should

reduce the costs of financing such housing

(iv) Not-For-Profit Organization or Government Entity Sponsor

Criterion.

Section 960.6(b)(4)(iv)(B) of the final rule revises the scoring

criterion in the proposed rule for projects sponsored by a not-for-

profit organization or government entity by expanding the list of

government entities to include Native American Tribes, Alaskan Native

Villages, and the government entity for Native Hawaiian Home Lands,

which are comparable to state or local government entities.

(v) Targeting Criterion.

Section 960.6(b)(4)(ii) of the final rule revises the proposed rule

by increasing the required minimum allocation of points for the

targeting scoring criterion from 8 to 20. This change is intended to

promote the funding of projects that commit to the targeting objective,

which the Finance Board views is an important goal of the Program.

Section 960.6(b)(4)(iv)(C)(1) of the final rule carries forward the

proposed requirement that an application for a rental project shall be

awarded the maximum number of points available under the targeting

criterion if 60 percent or more of the units in the project are

reserved for occupancy by households with incomes at or below 50

percent of the median income for the area. The final rule clarifies

that applications for projects with less than 60 percent of the units

reserved for occupancy by households with incomes at or below 50

percent of the median income for the area shall be awarded points on a

declining scale based on the percentage of units in a project that are

reserved for households with incomes at or below 50 percent of the

median income for the area, and on the percentage of the remaining

units reserved for households with incomes at or below 80 percent of

the median income for the area.

The purpose of this targeting provision is to reduce the emphasis

in the existing regulation on funding projects that are occupied solely

by very low-income households. There was support among commenters for

this goal, although commenters had different views as to whether 60

percent is the appropriate ceiling for mixed-income targeting. Several

commenters opposed reducing the current bias against mixed-income

housing in the AHP scoring system. The Finance Board believes that

mixed-income housing projects should be competitive under the Program.

Mixed-income housing promotes economic integration, which supports the

long-term financial feasibility of a project and the empowerment of

lower income residents.

The notice of proposed rulemaking requested comments on ways in

which the targeting criterion could be structured so that it is more

closely compatible with the monitoring requirements for AHP projects.

Several commenters supported coordinating the targeting criterion with

project monitoring requirements, and suggested that points under the

targeting criterion should be awarded to projects based on targeting

commitments made to funding sources other than the Banks. Section

960.6(b)(4)(iv)(C)(1) of the final rule adopts this approach as an

option for the Banks in structuring their Programs. The final rule

provides that in order to facilitate reliance on monitoring by a

federal, state, or local government entity providing funds or

allocating federal Low-Income Housing Tax Credits to a proposed

project, a Bank, in its discretion, may score each project according to

the targeting commitments made by the project to such entity, and the

Bank shall include such scoring practice in its AHP implementation

plan.

Section 960.6(b)(4)(iv)(C)(3) of the final rule provides that a

Bank, in its discretion, may score owner-occupied projects and rental

projects separately under the targeting criterion. This is a change

from the proposed rule, which required separate scoring. The purpose of

allowing separate scoring is to offset what may be an inherent bias in

the targeting criterion in favor of rental projects, which, in general,

have more units targeted to very-low income households than do owner-

occupied projects. The final rule permits the Banks to determine

whether separate scoring is appropriate for the targeting criterion.

(vi) Community Development Criterion and Empowerment Criterion.

Section 960.6(b)(4)(iv)(E) of the final rule eliminates the

proposed mandatory community development scoring criterion and replaces

it with a mandatory scoring criterion for projects promoting

empowerment. The proposed rule had a more limited version of the

empowerment criterion as an optional District priority. Under

Sec. 960.6(b)(4)(iv)(F)(2) of the final rule, the community development

criterion is now an optional District priority. Several commenters

suggested that the community development criterion is inherently biased

against rural projects and, therefore, should not be a mandatory

criterion in a Bank's scoring system. Commenters also favored a

mandatory criterion for empowerment, consistent with the existing

regulation. The Finance Board agrees that promoting empowerment is a

valuable aspect of projects and should be maintained as a mandatory

criterion.

(vii) First and Second District Priorities.

Section 960.6(b)(4)(iv)(F) of the final rule carries forward the

provision of the proposed rule requiring a Bank to select a District

priority, as recommended by the Bank's Advisory Council and set forth

in the Bank's AHP implementation plan, from a set of criteria listed in

the AHP regulation. A number of commenters suggested that the Banks

should be allowed to select criteria in addition to those listed in the

proposed rule. Section 960.6(b)(4)(iv)(G) of the final rule provides

for this by permitting a Bank to adopt a second District priority for

projects meeting a housing need in the Bank's District, as defined and

recommended by the Bank's Advisory Council and set forth in the Bank's

AHP implementation plan. Further, under the Act, the Finance Board has

a statutory mandate to promulgate regulations that specify priorities

for the use of AHP subsidies. See 12 U.S.C. 1430(j)(9)(B).

Consequently, the Finance Board may not, consistent with the statute,

allow the Banks to have total discretion to determine priorities under

the Program. Nonetheless, the Finance Board believes that the final

rule provides the Banks with a large measure of discretion in this area

by providing a relatively wide range of choices for the Banks' two

District priorities. In addition, the final rule revises the proposed

rule by allowing a Bank to adopt multiple criteria under its first

District priority, as long as the total points available for meeting

the criteria do not exceed the total points allocated to the priority.

The final rule makes clear that a Bank's second District priority need

not be chosen from the list of permissible criteria for the Bank's

first District priority.

The final rule omits from the list of optional District priorities

in Sec. 960.6(b)(4)(iv)(F) the priority for projects with retention

periods in excess of the minimum retention period required under the

project eligibility standards in Sec. 960.5(b)(7) of the final rule.

Awarding points to projects for committing to retention periods longer

than the minimum would require that such projects be monitored in

excess of the minimum required retention period. In light of changes in

the monitoring requirements, which are discussed further below, that

are intended to permit the Banks to rely on monitoring

[[Page 41822]]

by other parties for most rental projects, the priority for projects

with longer retention periods is no longer feasible.

Section 960.6(b)(4)(iv)(F)(4) of the final rule carries forward the

proposed optional District priority for projects involving member

financial participation (excluding the pass-through of AHP subsidy),

such as providing market rate or concessionary financing, fee waivers,

or donations. In the notice of proposed rulemaking, the Finance Board

requested comments on whether this should be a mandatory scoring

criterion or a project eligibility standard, and on whether a member

should be deemed to meet such a scoring criterion based on the member's

record of affordable housing lending activities apart from its lending

under the Program.

Although members have played a critical role in the Program, their

participation has not generally involved lending their own funds. Where

a member lends its own funds to a project, it is more likely to

underwrite the project for financial feasibility and monitor the

project for AHP compliance. Greater member financial involvement in

projects also builds member affordable housing lending capacity and

expertise.

A number of commenters objected to making member financial

participation a project eligibility standard or a mandatory scoring

criterion because some projects may not require or be able to sustain

additional debt. Requiring projects to have loans from a member may

create a bias against projects serving lower income households, which

often cannot support debt service because rents are too low. Further,

smaller members, which may not have the capacity to finance a project

loan, waive fees or donate funds, may be effectively precluded from

participating in the Program. The Finance Board believes these

arguments have merit. However, the Banks should be permitted to

determine whether promoting some measure of member financial

participation through the scoring system is appropriate in the Bank's

District. Consequently, the final rule retains member financial

participation as an optional District priority.

Commenters stated that favoring projects based on a member's record

of affordable housing lending activities apart from its lending under

the Program is inappropriate because the member's lending record is not

directly relevant to the evaluation of a particular application for AHP

subsidy, and a fair evaluation of a member's affordable housing record

would be difficult to accomplish. The Finance Board agrees that this

would present practical difficulties in Program administration and,

therefore, has not included this criterion in the final rule.

(viii) Community Involvement Criterion.

Section 960.6(b)(4)(iv)(F)(10) of the final rule revises the

proposed rule by removing community involvement as a mandatory scoring

criterion and including it as an optional District priority in lieu of

the proposed sweat-equity priority, which is incorporated in this

priority. The final rule also deletes the proposed language allowing a

Bank to give scoring credit under this criterion to projects receiving

commitments of funds from local sources. This change was made because

the criterion is intended to promote in-kind donations to projects.

(ix) Subsidy-Per-Unit Criterion.

Section 960.6(b)(4)(iv)(H) of the final rule carries forward the

provisions in the proposed rule governing the subsidy-per-unit

criterion, with the exception that a Bank, in its discretion, may

determine whether owner-occupied projects and rental projects should be

scored separately under this criterion. There may be an inherent bias

in the subsidy-per-unit criterion in favor of rental projects, which,

in general, have lower amounts of subsidy per unit than do owner-

occupied projects. Therefore, as under the targeting criterion, the

final rule permits the Banks to determine whether separate scoring is

appropriate for this criterion.

The subsidy-per-unit criterion, in effect, favors projects with a

shallower subsidy. A Bank may de-emphasize this effect and promote

deeper subsidies per unit by allocating as few as five points to this

criterion. The notice of proposed rulemaking requested comments on

whether this gives the Banks adequate flexibility in applying the

subsidy-per-unit criterion in their Districts. A number of commenters

supported allowing the Banks to determine the number of points to

allocate to the subsidy-per-unit criterion.

H. Modifications of Applications Prior to Project Completion--

Sec. 960.7

Section 960.7 of the final rule incorporates several revisions to

provisions in the proposed rule governing modifications of AHP

applications under a Bank's competitive application program prior to

project completion. First, the definition of ``project modification''

in the proposed rule is incorporated into the terms of Sec. 960.7, and

clarified to refer to modifications occurring prior to final

disbursement of funds to the project from all funding sources.

Second, the final rule omits the provisions of the proposed rule

specifying the information required to be included in requests for

modifications. This change is consistent with the Finance Board's

intent to streamline the AHP regulation and to devolve to the Banks

those aspects of the Program involving day-to-day administration.

Third, Sec. 960.7(a)(3) of the final rule revises the modification

standards in the proposed rule by making all proposed modifications

subject to a ``good cause'' requirement and permitting the Banks to

determine whether a ``good cause'' showing has been made in individual

cases. The proposed rule required the Banks to approve modifications

not involving subsidy increases as long as a project continued to meet

eligibility requirements and to score high enough to have been approved

in the funding period in which it was originally scored and approved by

the Bank. The purpose of this change is to give the Banks flexibility

to determine on a case-by-case basis whether changes from a project's

original AHP commitments are justified.

Fourth, the final rule omits the provision in the proposed rule

prohibiting a Bank's board of directors from delegating to Bank

officers or other Bank employees the authority to approve requests for

modifications not involving a subsidy increase. A number of commenters

supported this change, which conforms the final rule to the Banks'

current practices.

Section 960.7(a)(2) of the final rule carries forward the

requirement that, in order to receive a pre-completion modification, a

project must continue to score high enough to have been approved in the

funding period in which it was originally scored and approved by the

Bank. The Finance Board wishes to make clear that where modifications

are requested for applications that were scored and approved for

funding prior to January 1, 1998, the application shall be rescored

according to the scoring requirements in effect for the funding period

in which the application was approved.

I. Procedure for Funding--Sec. 960.8

Section 960.8 of the final rule incorporates several substantive

revisions to provisions in the proposed rule governing disbursement of

AHP subsidies under a new section entitled ``Procedure for Funding.''

First, in light of the new provisions in Sec. 960.6 permitting a

Bank to accept AHP

[[Page 41823]]

applications from institutions with pending applications for

membership, Sec. 960.8(a)(1) of the final rule makes explicit that a

Bank may disburse AHP subsidies only to institutions that are members

of the Bank at the time they request a draw-down of subsidy. Section

960.8(a)(2) also provides that if an institution with an approved

application for AHP subsidy fails to obtain or loses its membership in

the Bank, the Bank may disburse subsidies to a member of such Bank to

which the institution has transferred its obligations under the

approved application, or the Bank may disburse subsidies through

another Bank to a member of that Bank that has assumed the

institution's obligations under the approved application.

Second, the provisions in the proposed rule governing disbursement

of homeownership set-aside funds are consolidated into Sec. 960.8(b),

and a new provision is added in Sec. 960.8(b)(1) requiring a Bank to

cancel an application for homeownership set-aside funds and make the

funds available for other applicants or for other AHP-eligible projects

if the funds are not drawn down and used by eligible households within

the period of time specified by the Bank in its AHP implementation

plan. This is consistent with current Bank practices and parallels the

requirement for the Banks' competitive application programs. A new

provision also is added in Sec. 960.8(b)(2)(iii), which states that,

prior to disbursement of homeownership set-aside funds for counseling

purposes, a Bank must require the member to certify that: (i) The funds

will be used for counseling of homebuyers who actually purchase an AHP-

assisted unit; (ii) The cost of the counseling has not been covered by

another funding source, including the member; and iii) the funds will

be used to pay for only the amount of such reasonable and customary

costs that exceeds the highest amount the member has spent annually on

homebuyer counseling costs within the preceding three years.

Third, the final rule omits the requirement in the proposed rule

that a Bank obtain, and maintain in its project file, documents

sufficient to demonstrate compliance with AHP requirements prior to

making disbursements of AHP subsidy, including an independent, current

appraisal provided by the member indicating the fair market value of

the property or project if the member has a direct or indirect interest

in such property or project. This change is consistent with the Finance

Board's intent to streamline the AHP regulation. The Banks are in the

best position to determine what kinds of documents must be maintained

for purposes of the Bank's own recordkeeping and in order to support

Bank decisions in the context of examinations by the Finance Board. The

issue related to the use of AHP subsidies in projects involving real

estate owned property provided by a member is specifically addressed in

Sec. 960.5(b)(2)(ii) of the final rule, which is discussed above.

Fourth, Sec. 960.8(c)(3) of the final rule revises the provisions

in the proposed rule governing changes in a project's approved AHP

subsidy amount where a Bank provides a direct subsidy to write down the

principal amount prior to closing or the interest rate on a loan

provided by a member to a project. The final rule permits Banks not to

increase the subsidy amount where market interest rates rise between

the time the subsidy initially is approved by the Bank and the time the

lender commits to the interest rate to finance the project. Several

Banks objected to the proposed provision, which made such a subsidy

increase mandatory, on the ground that subsidy increases should be

subject to a process of negotiation between Banks, members, and

projects in order to ensure that such increases are justified. By

making such subsidy increases optional, the final rule is consistent

with the current practices of some of the Banks.

Fifth, the final rule omits the language in the proposed rule

requiring the Banks to ensure that AHP subsidies are passed on to the

ultimate borrower, and that the preponderance of AHP subsidies is

ultimately received by very low-and low-or moderate-income households.

These requirements, including the provisions for matched repayment

schedules for Bank subsidized advances and member loans, are

implemented through Sec. 960.13 of the final rule governing agreements

between Banks and members.

Sixth, the final rule omits the requirement in the proposed rule

that each Bank must ensure that the terms of any member's participation

in a transaction benefiting from an AHP subsidy are fair to the

Program. Commenters objected to this requirement on the grounds that it

is too vague and will discourage member participation in the Program.

Commenters also suggested this requirement is duplicative of other

Program requirements intended to ensure that AHP subsidies are properly

used.

Seventh, Sec. 960.5(b)(2)(iii) of the final rule incorporates the

provision in the proposed rule requiring each Bank to ensure that the

rate of interest, points, fees and any other charges for all loans

financing an AHP project do not exceed a market rate of interest,

points, fees, and other charges for loans of similar maturity, terms,

and risk. The final rule also requires a Bank to determine that AHP

subsidy is necessary for the financial feasibility of a project, as

currently structured.

Eighth, the provisions in the proposed rule governing the lending

of direct subsidies, matched repayment schedules, and prepayment fees

charged by the Banks are implemented in a revised form through

Sec. 960.13 of the final rule governing agreements between Banks and

members.

In the case of the matched repayment schedule requirement,

Sec. 960.13(c)(1) of the final rule provides that the term of a

subsidized advance shall be no longer than the term of the member's

loan to the project funded by the advance, and at least once in every

12-month period, the member shall be scheduled to make a principal

repayment to the Bank equal to the amount scheduled to be repaid to the

member on its loan to the project in that period. This is a change from

the proposed rule, which required the principal repayments received by

the member to be paid over to the Bank. According to commenters, the

language in the proposed rule was too restrictive, because it referred

to the actual principal repayments received by members and omitted

mention of a member's independent obligation to repay an advance,

without regard to the amount of principal repayments received by the

member. Consequently, the language of the final rule is revised to

clarify that the scheduled, rather than the actual, principal

repayments must be equal, in a 12-month period.

J. Modifications of Applications After Project Completion--Sec. 960.9

Section 960.9 of the final rule adds a new provision permitting

members to obtain modifications to approved AHP applications under a

Bank's competitive application program after a project has been

completed, as long as the modification does not require an increase in

the amount of AHP subsidy provided to the project. In order for a

project to obtain additional AHP subsidy after completion, such subsidy

must be approved pursuant to a Bank's competitive application program.

Under the proposed rule, modifications were available only prior to

project completion.

Section 960.9 of the final rule provides that after final

disbursement of funds to a project from all funding sources, a Bank, in

its discretion, may

[[Page 41824]]

approve in writing a modification to the terms of an approved

application for subsidy funding the project, other than an increase in

the amount of subsidy, if there is or will be a change in the project

that materially affects the facts under which the application was

originally scored and approved under the Bank's competitive application

program, provided that: (1) The project is in financial distress or is

at substantial risk of falling into such distress; (2) the project

sponsor or owner has made best efforts to avoid noncompliance with the

terms of the application for subsidy and AHP requirements; (3) the

project, incorporating any material changes, would meet Program

eligibility requirements; and (4) the application, as reflective of

such changes, continues to score high enough to have been approved in

the funding period in which it was originally scored and approved by

the Bank. The Finance Board wishes to make clear that where

modifications are requested for applications that were scored and

approved for funding prior to January 1, 1998, the application shall be

rescored according to the scoring requirements in effect for the

funding period in which the application was approved.

Section 960.9 is added in response to comments from the Banks

requesting that the final rule include an alternative to addressing

compliance issues through the AHP remedial process. See also

Sec. 960.12. Members, project sponsors, and project owners should use

the modification process, where possible, as a means of addressing

existing or potential AHP compliance issues on their own initiative

rather than waiting for such issues to be brought to light and

addressed through the remedial process.

K. Monitoring Requirements--Sec. 960.10 and Sec. 960.11

1. In General

Section 10(j)(9)(C) of the Act requires the Finance Board to issue

regulations ensuring ``that advances made under [the] program will be

used only to assist projects for which adequate long-term monitoring is

available to guarantee that affordability standards and other

requirements of [section 10(j) of the Act] are satisfied.'' See 12

U.S.C. 1430(j)(9)(C).

The existing AHP regulation requires each Bank to monitor member

and project compliance with AHP requirements, but does not establish

specific procedures, standards or documentation to assist the Banks in

meeting that requirement. See 12 CFR 960.7(b), (c). Sections 960.6(b)

and (c) of the existing regulation require members to file annual

reports and certifications on the use of AHP subsidies. See id.

Sec. 960.6(b), (c).

In the absence of specific regulatory guidance, over the seven

years that the Program has been in operation, the Banks have attempted

to comply with their monitoring obligations by developing their own

individual approaches to monitoring. This practice has led to

uncertainty about the sufficiency of any one monitoring procedure. In

addition, some members consider the certification and reporting

requirements of the existing regulation to be too burdensome. In the

notice of proposed rulemaking, the Finance Board proposed to establish

clear, uniform monitoring procedures and standards that take into

account the costs of monitoring relative to the benefits, and reduce

the overall monitoring burden, including eliminating the annual

reporting and certification requirement for members under the existing

regulation. The Finance Board's proposal was based on the principles

that: (1) Monitoring a project closely in its initial stages of

development will ensure that less monitoring is necessary in the

project's later stages of operation; (2) the degree of monitoring of

AHP-assisted projects should be directly related to the amount of AHP

subsidy funding such projects; and (3) the Banks should be permitted to

rely, to the extent feasible, on monitoring by other funding sources.

A number of commenters stated that the various monitoring

requirements in the proposed rule should be omitted or that the Banks

should be permitted to develop their own monitoring procedures. As

discussed above, the lack of clear and consistent standards may

actually contribute to a more burdensome monitoring scheme, and the

Finance Board intends to prevent this by setting standards in the

regulation. In addition, the Finance Board believes that the final rule

provides the Banks with additional flexibility by permitting them to

rely on long-term monitoring by other entities for a majority of AHP-

assisted rental projects.

2. Restructuring of the Monitoring Provisions

The final rule separates the section of the proposed rule governing

monitoring into two sections governing initial monitoring requirements

and long-term monitoring requirements, respectively. In addition,

provisions on monitoring standards have been separated from provisions

requiring that parties' obligations to comply with monitoring standards

be implemented by specific agreements. The provisions related to

monitoring agreements are incorporated in Sec. 960.13(b)(4) of the

final rule.

3. Initial Monitoring Requirements

As discussed above, the proposed provisions governing project

monitoring were based, in part, on the principle that monitoring a

project closely in its initial stages of development will ensure that

less monitoring is necessary in the project's later stages of

operation. Commenters generally supported this approach. Section 960.10

of the final rule carries forward the proposed provisions governing

monitoring in the initial stages of project development, with the

following substantive changes.

First, Sec. 960.10(a)(2)(ii)(C) of the final rule clarifies that

documentation maintained by rental project owners must include

documentation of project habitability to support the owner's

habitability certification to the Bank and the member. In response to

requests for clarification from commenters, Sec. 960.1 of the final

rule makes clear that ``habitable'' means suitable for occupancy,

taking into account local health, safety, and building codes. This

definition is consistent with that used for purposes of monitoring

projects receiving federal Low-Income Housing Tax Credits.

Second, Secs. 960.10(c)(1)(ii) and (c)(2)(ii) of the final rule

provide that for owner-occupied and rental projects, respectively, a

Bank must review project documentation at project completion to

determine that a project's actual costs were reasonable and customary

in accordance with the Bank's project feasibility guidelines, and that

the subsidies provided to the project were necessary for the financial

feasibility of the project, as currently structured. This is consistent

with the current practice of many of the Banks, which conduct closing

audits for projects. Several commenters objected to this provision on

the ground that it may discourage the use of AHP subsidies as ``first-

in'' money for a project. The concern is that subsequent funders may be

hesitant to commit funds to a project if AHP subsidies received by the

project are subject to repayment in cases where a review of the project

at completion reveals excess costs, and thus oversubsidization.

The Finance Board believes that requiring projects receiving AHP

subsidies to demonstrate that their costs are customary and reasonable

is essential to ensuring that such subsidies are used in accordance

with a project's application for funding and the requirements of the

AHP regulation. The

[[Page 41825]]

use of AHP subsidies as ``first-in'' money can be analogized to an

equity investment. While an equity investor assumes some risk by

providing ``first-in'' money, no equity holder would allow use of its

investment in a project for excessive costs. Similarly, under the final

rule, AHP subsidies that serve as ``first-in'' money will remain in a

project as long as the costs incurred by the project are reasonable and

customary. Therefore, while the final rule in no way is intended to

prevent AHP subsidies from being used as ``first-in'' money, the final

rule provides for safeguards against misuse of such subsidies,

consistent with the requirements of other funding sources.

Third, Sec. 960.10(d) of the final rule makes clear that for

purposes of determining compliance with the targeting commitments in an

AHP application, such commitments shall be considered to adjust

annually according to the current median income data.

4. Long-Term Monitoring Requirements

Section 960.11 of the final rule governing long-term monitoring

requirements after project completion applies solely to rental

projects, because owner-occupied projects are not subject to ongoing

household income requirements, and transfers of ownership are monitored

through deed restrictions. Of the 3,704 existing AHP-assisted projects,

1,752 are owner-occupied projects. Therefore, almost half of all

existing AHP-assisted projects are subject to deed restrictions in lieu

of long-term monitoring. In addition, Secs. 960.11 (a)(1) and (a)(2) of

the final rule make the changes discussed below to the proposed

provisions governing the long-term monitoring requirements for rental

projects to allow greater reliance on monitoring by third parties.

a. Reliance on Monitoring by a Federal, State or Local Government

Entity.

The proposed rule provided that for projects receiving $500,000 or

less of AHP subsidies, a Bank could rely on monitoring by a housing

credit agency providing federal Low-Income Housing Tax Credits to the

project if: (1) The income targeting requirements, the rent

requirements, and the retention period monitored by the housing credit

agency are the same as, or more restrictive than, those committed to in

the AHP application; (2) the housing credit agency agrees to inform the

Bank of instances where tenant rents or incomes are found to be in

noncompliance with the rent and income targeting requirements being

monitored by the housing credit agency or where the project is not in a

habitable condition; (3) the Bank does not have information that

monitoring by such housing credit agency is not occurring or is

inadequate; and (4) the Bank makes reasonable efforts to investigate

any complaints received about the project.

The notice of proposed rulemaking requested comments on whether the

proposed provisions permitting the Banks to rely on monitoring by other

parties could be expanded to include government entities other than

housing credit agencies. Comments also were requested on ways in which

the targeting scoring objective in the proposed rule could be modified,

or whether it should be eliminated, so that the income targeting and

rent requirements for AHP projects would be compatible with those

required and monitored by other government housing entities.

Commenters identified several other entities that undertake

monitoring for program standards that are similar, and in some cases

identical, to those under the AHP. However, it was not apparent from

the comments that there are any government entities that monitor for

compliance with requirements identical to those under the AHP on a

consistent basis.

A number of commenters suggested that the Banks should be permitted

to rely on monitoring by other entities that provide funding to a

project even if the targeting, rent, and retention commitments

monitored by the other entity do not match those made by the project

under the AHP. However, the integrity of the Program's competitive

application process depends upon projects being held to the commitments

that they make in order to receive AHP subsidies. Further, project

sponsors or owners may have a reduced incentive to comply with these

commitments over the long term where they have the knowledge that they

will not be monitored according to those commitments.

The final rule attempts to resolve the conflict discussed above by

permitting the Banks to evaluate projects under the AHP scoring process

according to the targeting commitments made by a project to a

government entity providing funds to the project. As discussed

previously, Sec. 960.6(b)(4)(iv)(C)(1) of the final rule provides that

in order to facilitate reliance on monitoring by a federal, state, or

local government entity providing funds or allocating federal Low-

Income Housing Tax Credits to a project, a Bank, in its discretion, may

score each project according to the targeting commitments made by the

project to such entity.

In accordance with this change, Sec. 960.11(a)(1) of the final rule

expands the extent to which a Bank may rely on post-completion

monitoring by government entities providing funds to a project. The

final rule provides that for those projects that receive funds from, or

are allocated federal Low-Income Housing Tax Credits by, a federal,

state, or local government entity, a Bank may rely on the monitoring by

such entity after project completion if: (1) The income targeting

requirements, the rent requirements, and the retention period monitored

by such entity for purposes of its own program are the same as, or more

restrictive than, those committed to in the AHP application; (2) the

entity agrees to inform the Bank of instances where tenant rents or

incomes are found to be in noncompliance with the requirements being

monitored by the entity or where the project is not habitable; and (3)

the entity has demonstrated and continues to demonstrate to the Bank

its ability to carry out monitoring under its own program, and the Bank

does not have information that such monitoring is not occurring or is

inadequate.

This is a change from the proposed rule which, as discussed above,

limited reliance on third-party monitoring to monitoring conducted by

housing credit agencies. In addition, the proposed rule limited such

reliance to projects receiving $500,000 or less in AHP subsidies. The

final rule also omits the requirements in the proposed rule that in

cases where a Bank relies on a housing credit agency to monitor a

project, the project owner annually must provide a list of tenant rents

and incomes to the Bank and certify that they are accurate and in

compliance with the rent and income targeting commitments made in the

AHP application.

b. Reliance on Monitoring of AHP Application Commitments By a

Contractor.

Section 960.11(a)(2) of the final rule also adds a new monitoring

option for the Banks that is intended to expand the ability of the

Banks to rely on post-completion monitoring by government entities

providing funds to a project, where the government entity has different

income targeting, rent, and retention requirements from those committed

to by the project under the AHP.

Section 960.11(a)(2) provides that, for those projects that receive

funds from, or are allocated federal Low-Income Housing Tax Credits by,

a federal, state, or local government entity that monitors for income

targeting requirements, rent requirements, or retention periods

[[Page 41826]]

under its own program that are less restrictive than those committed to

in the project's AHP application, a Bank, in its discretion, may rely

on the monitoring by such entity if: (1) The entity agrees to monitor

the income targeting requirements, the rent requirements, and the

retention period committed to in the AHP application; (2) the entity

agrees to inform the Bank of instances where tenant rents or incomes

are found to be in noncompliance with the requirements committed to in

the AHP application or where the project is not habitable; and (3) the

entity has demonstrated and continues to demonstrate to the Bank its

ability to carry out such monitoring, and the Bank does not have

information that such monitoring is not occurring or is inadequate.

c. Long-Term Monitoring Requirements Where Reliance on Government

Entities Or Contractors Is Not Permitted.

Under the final rule, where a Bank is not permitted to rely on

post-completion monitoring by a federal, state, or local government

entity, the Bank, members, and project owners must monitor projects in

accordance with the requirements of Sec. 960.11(a)(3) of the final

rule. Section 960.11(a)(3) carries forward provisions in the proposed

rule, and makes the following changes in order to reduce monitoring

costs for Banks, members, and project owners. First, the final rule

omits the requirement that a project owner annually must provide a list

of tenant rents and incomes to the Bank.

Second, the final rule omits the provision in the proposed rule

requiring the owner of a rental project to certify to the member and

the Bank that the owner regularly informs households applying for and

occupying AHP-assisted units of the address of the Bank that provided

the AHP subsidy to finance the project. The final rule also eliminates

the requirement that the Bank investigate complaints about the project.

These changes have been made in response to several comments objecting

to the above provisions on the ground that they place the Banks in the

middle of landlord-tenant disputes, which is not an appropriate role

for the Banks.

Third, under Sec. 960.11(a)(3)(ii) of the final rule, for rental

projects receiving $500,000 or less in AHP subsidy from a member, the

member must perform exterior visual inspections of projects and certify

to the Bank at least once every three, rather than two, years that the

project appears to be suitable for occupancy.

Fourth, under Sec. 960.11(a)(3)(iii)(B)(3) of the final rule, for

rental projects receiving over $500,000 in AHP subsidy, a Bank must

perform an on-site review of project documentation for a sample of the

project's units at least once every two years, rather than annually, to

verify compliance with the rent and income targeting commitments made

in the AHP application and project habitability.

Section 960.11(a)(3)(iv) of the final rule makes clear that a Bank,

in its discretion, may hire consultants or outside contractors to

perform the Bank's ongoing long-term monitoring activities as the

Bank's agents, for example, if the Bank determines that this is more

cost-effective than having its own employees administer the Bank's

monitoring responsibilities.

d. Annual Adjustment of Targeting Commitments.

As under the provisions governing initial monitoring requirements,

Sec. 960.11(b) of the final rule makes clear that for purposes of

determining compliance with the targeting commitments in an AHP

application, such commitments shall be considered to adjust annually

according to the current median income data.

L. Remedial Actions for Noncompliance--Sec. 960.12

1. In General

Section 960.12 of the final rule revises the structure of the

proposed rule governing remedies for noncompliance with AHP

requirements by separating provisions on compliance standards from

provisions requiring that compliance standards be implemented by

specific agreements. The proposed provisions on compliance standards

governing Banks, members and project sponsors and owners are retained

and clarified in Sec. 960.12, while provisions related to compliance

agreements are incorporated in Sec. 960.13 of the final rule.

2. Project Foreclosure

A number of commenters requested clarification on the liability of

members and project owners where a project goes into foreclosure prior

to the end of the retention period. Section 960.12 of the final rule

makes a party's liability for repayment of AHP subsidies contingent

upon that party's action or omission resulting in noncompliance with

AHP requirements. Therefore, if, due to circumstances that are not the

result of an action or omission of the member and project sponsor or

owner, a project goes into foreclosure prior to the end of the

project's retention period, the sponsor or owner is not liable for

repayment of subsidies, and the member is required to recover and repay

to the Bank only that amount that the member can recover through

reasonable collection efforts, by exercising its legal rights against

the project.

3. Degree of Culpability

Commenters also suggested that a project sponsor's or owner's

liability to repay AHP subsidies should apply to cases of fraud or

gross mismanagement but not simple negligence. The Finance Board

believes that determinations as to degrees of culpability are best made

on a case-by-case basis. This is reflected in Sec. 960.12(c)(2) of the

final rule, which permits Banks and members to settle claims for

noncompliance taking into account factors such as the degree of

culpability of the parties involved.

4. Provision for Members, Sponsors, and Owners to be Parties to

Enforcement Proceedings

Section 960.12(d) of the final rule adds a new provision permitting

a Bank, in its AHP implementation plan, to provide for a member,

project sponsor, or project owner to enter into a written agreement

with a Bank under which such member, sponsor, or owner consents to be a

party to any enforcement proceeding initiated by the Finance Board

regarding the repayment of AHP subsidies received by such member,

sponsor, or owner, or the suspension or debarment of such parties,

provided that the member, sponsor, or owner has agreed to be bound by

the Finance Board's final determination in the enforcement proceeding.

Under such an agreement, a member, sponsor, or owner who consents to be

subject to a final determination of the Finance Board will have the

same rights and remedies as a Bank in seeking review of such a

determination.

5. Suspension and Debarment

Section 960.12(f)(2) of the final rule revises the provision in the

proposed rule governing suspension and debarment of members and project

sponsors and owners from participation in the Program by clarifying

that suspension or debarment by the Finance Board is implemented

through an order upon a Bank.

6. Procedure for Finance Board Action

Section 960.12(h) of the final rule clarifies that, except in cases

where a Bank is seeking prior Finance Board review of a settlement

agreement with a member, any actions taken by the Finance Board

pursuant to section

[[Page 41827]]

960.12 shall be subject to the Finance Board's Procedures for Review of

Disputed Supervisory Determinations. Copies of these procedures are

available from the Finance Board upon request.

M. Agreements--Sec. 960.13

1. In General

As discussed previously, Sec. 960.13 of the final rule generally

describes the kinds of agreements Banks must have in place with members

in order to implement the various standards set forth in the final

rule, including standards governing monitoring, retention, and

repayment of subsidies. This section also describes special provisions

that must be in place where members receive subsidized advances and

direct subsidies, respectively. The final rule is not intended to

prescribe the form of agreements between Banks and members or whether

such agreements consist of one agreement or several separate

agreements. Nor is a Bank precluded from making entities in addition to

members, such as project sponsors or owners, parties to such

agreements.

2. Retention Agreements

Sections 960.13(c) (4) and (5) and (d) (1) and (2) of the final

rule incorporate and carry forward the provisions of the proposed rule

governing retention of owner-occupied and rental projects. Section

960.1 of the final rule carries forward the provisions of the proposed

rule defining the retention period as five years from closing for an

AHP-assisted owner-occupied unit, and 15 years from the date of project

completion for an AHP-assisted rental project. A number of commenters

supported these retention periods. Some commenters supported other

retention periods ranging from 3 to 25 years in the case of owner-

occupied units, and 5 to 30 years in the case of rental projects. In

light of the significant support for the proposed retention periods,

the final rule retains the proposed retention periods.

The notice of proposed rulemaking requested comments on whether

repayment of AHP subsidy should be required in all cases of refinancing

by the homeowner prior to the end of the retention period of an AHP-

assisted unit, rather than just in cases where the homeowner fails to

ensure that the unit continues to be subject to a retention mechanism

after the refinancing. Refinancing may allow the owner of an AHP-

assisted unit, in effect, to take the subsidy out of the unit prior to

the end of the five-year retention period, which may be perceived as a

windfall to the owner. However, homeowners, generally, can take

advantage of lower interest rates by refinancing their unit, and

households that purchase AHP-assisted units should not be denied this

opportunity. As long as the owner of an AHP-assisted unit ensures that

after the refinancing, the unit continues to be subject to the initial

AHP retention requirement, the goal of the Program is met.

Several commenters supported permitting refinancing without

penalty, while others suggested various permutations of repayment

requirements in this situation. The Finance Board continues to believe

that households that have AHP-assisted units should be allowed to

benefit from appreciation in the value of their homes, through

refinancing or otherwise, to the same extent as other homeowners, as

long as AHP retention requirements are satisfied. Therefore,

Sec. 960.13(d)(1)(iii) of the final rule carries forward the proposed

provision on this issue, but makes this provision parallel with

Sec. 960.13(d)(1)(ii), which provides for pro rata repayment of the AHP

subsidy upon sale of an AHP-assisted unit, unless the unit continues to

be subject to the initial AHP retention requirement.

The notice of proposed rulemaking also requested comments on

whether an owner of an AHP-assisted rental project should be required

to repay the entire amount of AHP subsidy, versus a pro rata share,

where the project is sold prior to the end of the retention period and

the subsequent owner fails to agree in writing to comply with the

income-eligibility and affordability restrictions committed to in the

AHP application. This requirement may serve to discourage the

conversion of AHP-assisted rental projects into projects that charge

market rents, prior to the end of the retention period. Several

commenters supported requiring full repayment of subsidy where an AHP-

assisted rental project is converted to market-rate housing. Despite

good arguments on both sides of the issue, the Finance Board, as a

matter of policy, has decided to retain this requirement in the final

rule as a disincentive for project conversion prior to the end of the

retention period. Therefore, Secs. 960.13 (c)(5)(iii) and (d)(2)(iii)

of the final rule carry forward the proposed provisions on this issue.

3. Termination of Income-Eligibility and Affordability Restrictions

Upon Foreclosure

Sections 960.13 (c)(5)(iv) and (d)(2)(iv) of the final rule add a

requirement that Banks include in their agreements with members a

provision that the income-eligibility and affordability restrictions

applicable to an AHP-assisted rental project may terminate upon

foreclosure or upon transfer in lieu of foreclosure. This change was

made in response to requests from commenters for clarification on this

issue.

4. Lending of Direct Subsidies

For various tax reasons, sponsors prefer to structure projects

involving federal Low-Income Housing Tax Credits so that AHP direct

subsidies are loaned to the project. This use of direct subsidies

raises the question whether the direct subsidies, which are grants, are

being passed on to the ultimate recipients, as required under section

10(j)(9)(E) of the Act, since they may be repaid by the recipients. See

12 U.S.C. 1430(j)(9)(E).

The proposed rule reflected an attempt to accommodate the needs of

sponsors and the statutory requirement governing the pass-through of

AHP subsidies. It provided that a member or a sponsor may lend a direct

subsidy in connection with an AHP-assisted rental project involving

federal Low-Income Housing Tax Credits, provided that all payments by

the borrower are deferred until the end of the loan term and no

interest is charged. Upon repayment of the loan, the entire amount of

the direct subsidy had to be repaid to the Bank.

Commenters stated that the proposed provisions did not adequately

reflect the way that rental project financing is structured in all

cases. For instance, members or sponsors may charge interest on direct

subsidies lent to projects and may not require deferral of repayments.

Section 960.13(d)(3) of the final rule is intended to broaden the

language of the provisions of the proposed rule in order to make the

final rule compatible with these financing structures. It provides that

if a member or a project sponsor lends a direct subsidy to a project,

any repayments of principal and payments of interest received by the

member or the project sponsor must be paid forthwith to the Bank. The

final rule also no longer limits lending of direct subsidies solely to

situations involving projects receiving federal Low-Income Housing Tax

Credits. This requirement is to be implemented through inclusion in

agreements between Banks, members, and project sponsors.

5. Transfer of AHP Obligations Where a Member Loses Its Membership In

the Bank

Section 960.13(b)(5) of the final rule provides that the member

must make

[[Page 41828]]

best efforts to transfer its obligations under the approved application

for AHP subsidy to another member in the event of its loss of

membership in the Bank prior to the Bank's final disbursement of AHP

subsidies.

Under Sec. 960.13(c)(6), if, after final disbursement of AHP

subsidies to the member, the member undergoes an acquisition or a

consolidation resulting in a successor organization that is not a

member of the Bank, the nonmember successor organization assumes the

member's obligations under its approved application for AHP subsidy

upon prepayment or orderly liquidation by the nonmember of the

subsidized advance. Under Sec. 960.13(d)(4), if, after final

disbursement of AHP subsidies to the member, the member undergoes an

acquisition or a consolidation resulting in a successor organization

that is not a member of the Bank, the nonmember successor organization

assumes the member's obligations under its approved application for AHP

subsidy.

III. Regulatory Flexibility Act

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

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

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

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

Board hereby certifies that the final rule will not have a significant

economic impact on a substantial number of small entities.

IV. Paperwork Reduction Act

As part of the notice of proposed rulemaking, the Finance Board

published a request for comments concerning proposed changes to the

collection of information in the existing AHP regulation, see 61 FR

57799, 57819-57820 (Nov. 8, 1996), which previously was approved by the

Office of Management and Budget (OMB) and assigned OMB control number

3096-0006. The revised collection of information was submitted to OMB

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

Reduction Act of 1995, 44 U.S.C. 3507(d). The Finance Board also

submitted to OMB for its approval an analysis of the proposed changes

to the collection of information resulting from the proposed rule. The

Finance Board received one comment on the proposed changes. The

commenter suggested that the reporting and recordkeeping burden of the

information collection may be understated on the grounds that it is not

based on current hour and cost estimates and does not take into account

the monitoring requirements in the proposed rule. The Finance Board

based the hour and cost burden estimates for the information collection

on current information available at the time the estimates were made.

Further, the Finance Board's analysis of the information collection on

file at OMB specifically sets forth hour and cost burden estimates for

those aspects of the information collection related to monitoring. The

Finance Board continues to believe that the burden estimates are

accurate.

OMB has assigned a control number 3096-0006 and approved the

revised information collection without conditions with an expiration

date of December 31, 1999. 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).

Although the final rule does not substantively or materially modify

the approved information collection, it provides additional options in

complying with long-term monitoring requirements, which may, in some

cases, reduce the reporting and recordkeeping burden on respondents.

The estimated annual reporting and recordkeeping hour burden is:

a. Number of respondents--7462.

b. Total annual responses--9949. Percentage of these responses

collected electronically--0%

c. Total annual hours requested--64,274.

d. Current OMB inventory--33,067.

e. Difference--31,207.

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--$2,117,450.00.

d. Current OMB inventory--0.

e. Difference--$2,117,450.00.

Comments concerning the information collection may be submitted to

the Finance Board in writing at the address listed above and to the

Office of Information and Regulatory Affairs of OMB, Attention: Desk

Officer for Federal Housing Finance Board, Washington, DC 20503.

List of Subjects in 12 CFR Part 960

Credit, Federal home loan banks, Housing, Reporting and

recordkeeping requirements.

Accordingly, the Finance Board hereby revises part 960 of chapter

IX, title 12, Code of Federal Regulations to read as follows.

PART 960--AFFORDABLE HOUSING PROGRAM

Sec.

960.1 Definitions.

960.2 Required annual AHP contributions.

960.3 Operation of Program and adoption of AHP implementation plan.

960.4 Advisory Councils.

960.5 Minimum eligibility standards for AHP projects.

960.6 Procedure for approval of applications for funding.

960.7 Modifications of applications prior to project completion.

960.8 Procedure for funding.

960.9 Modifications of applications after project completion.

960.10 Initial monitoring requirements.

960.11 Long-term monitoring requirements.

960.12 Remedial actions for noncompliance.

960.13 Agreements.

960.14 Temporary suspension of AHP contributions.

960.15 Affordable Housing Reserve Fund.

960.16 Application to existing AHP projects.

Authority: 12 U.S.C. 1430(j).

Sec. 960.1 Definitions.

As used in this part:

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

1421 et seq.).

Advance means a loan to a member from a Bank that is:

(1) Provided pursuant to a written agreement; (2) Supported by a

note or other written evidence of the member's obligation; and

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

935 of this chapter.

Affordable means that the rent charged to a household for a unit

that is committed to be affordable in an AHP application does not

exceed 30 percent of the income of a household of the maximum income

and size expected, under the commitment made in the AHP application, to

occupy the unit (assuming occupancy of 1.5 persons per bedroom or 1.0

person per unit without a separate bedroom).

AHP or Program means the Affordable Housing Program established

pursuant to 12 U.S.C. 1430(j) and this part.

Bank means a Federal Home Loan Bank established under the authority

of the Act.

Board of Directors means the Board of Directors of the Finance

Board.

CIP means a Bank's Community Investment Program established under

section 10(i) of the Act (12 U.S.C. 1430(i)).

Cost of funds means, for purposes of a subsidized advance, the

estimated cost of issuing Bank System consolidated obligations with

maturities comparable to that of the subsidized advance.

[[Page 41829]]

Direct subsidy means an AHP subsidy in the form of a direct cash

payment, but does not include homeownership set-aside funds.

Family member means any individual related to a person by blood,

marriage or adoption.

Finance Board means the agency established as the Federal Housing

Finance Board.

Habitable means suitable for occupancy, taking into account local

health, safety, and building codes.

Homeless household means a household made up of one or more

individuals, other than individuals imprisoned or otherwise detained

pursuant to state or federal law, who:

(1) Lack a fixed, regular, and adequate nighttime residence; or

(2) Have a primary nighttime residence that is:

(i) A supervised publicly or privately operated shelter designed to

provide temporary living accommodations (including welfare hotels,

congregate shelters, and transitional housing for the mentally ill);

(ii) An institution that provides a temporary residence for

individuals intended to be institutionalized; or

(iii) A public or private place not designed for, or ordinarily

used as, a regular sleeping accommodation for human beings.

Homeownership set-aside funds means funds provided to a member by a

Bank pursuant to a Bank's homeownership set-aside program.

HUD means the Department of Housing and Urban Development.

Low-or moderate-income household. (1) Owner-occupied projects. For

purposes of an owner-occupied project, low-or moderate-income household

means a household which, at the time it is qualified by the sponsor for

participation in the project, has an income of 80 percent or less of

the median income for the area.

(2) Rental projects. (i) In general. For purposes of a rental

project, low-or moderate-income household means a household which, upon

initial occupancy of a rental unit, has an income at or below 80

percent of the median income for the area.

(ii) Housing with current occupants. In the case of projects

involving the purchase or rehabilitation of rental housing with current

occupants, low-or moderate-income household means an occupying

household which, at the time the purchase or rehabilitation is

completed, has an income at or below 80 percent of the median income

for the area.

(3) Family-size adjustment. The income limit for low-or moderate-

income households may be adjusted for family size in accordance with

the methodology of the applicable median income standard.

Low-or moderate-income neighborhood means any neighborhood in which

51 percent or more of the households have incomes at or below 80

percent of the median income for the area.

Median income for the area. (1) Owner-occupied projects. A Bank

shall identify in its AHP implementation plan one or more of the

following median income standards from which all owner-occupied

projects may choose for purposes of the AHP:

(i) The median income for the area, as published annually by HUD;

(ii) The applicable median family income, as determined under 26

U.S.C. 143(f) (Mortgage Revenue Bonds) and published by a State agency

or instrumentality;

(iii) The median income for the area, as published by the United

States Department of Agriculture; or

(iv) The median income for any definable geographic area, as

published by a federal, state, or local government entity for purposes

of that entity's housing programs, and approved by the Board of

Directors, at the request of a Bank, for use under the AHP.

(2) Rental projects. A Bank shall identify in its AHP

implementation plan one or more of the following median income

standards from which all rental projects may choose for purposes of the

AHP:

(i) The median income for the area, as published annually by HUD;

or

(ii) The median income for any definable geographic area, as

published by a federal, state, or local government entity for purposes

of that entity's housing programs, and approved by the Board of

Directors, at the request of a Bank, for use under the AHP.

(3) Procedure for approval. Prior to requesting approval by the

Board of Directors of a median income standard, a Bank shall amend its

AHP implementation plan to permit the use of such standard, conditioned

on Board of Directors approval. Requests for approval of median income

standards shall receive prompt consideration by the Board of Directors.

Member means an institution that has been approved for membership

in a Bank and has purchased capital stock in the Bank in accordance

with Secs. 933.20 and 933.24 of this chapter.

Net earnings of a Bank means the net earnings of a Bank for a

calendar year after deducting the Bank's pro rata share of the annual

contribution to the Resolution Funding Corporation required under

sections 21A or 21B of the Act (12 U.S.C. 1441a, 1441b), and before

declaring any dividend under section 16 of the Act (12 U.S.C. 1436).

Owner-occupied project means a project involving the purchase,

construction, or rehabilitation of owner-occupied housing, including

condominiums and cooperative housing, by or for very low-or low-or

moderate-income households.

Owner-occupied unit means a unit in an owner-occupied project.

Rental project means a project involving the purchase,

construction, or rehabilitation of rental housing, including

transitional housing for homeless households and mutual housing, where

at least 20 percent of the units in the project are occupied by and

affordable for very low-income households.

Retention period means:

(1) 5 years from closing for an AHP-assisted owner-occupied unit;

and

(2) 15 years from the date of project completion for a rental

project.

Sponsor means a not-for-profit or for-profit organization or public

entity that:

(1) Has an ownership interest (including any partnership interest)

in a rental project; or

(2) Is integrally involved in an owner-occupied project, such as by

exercising control over the planning, development, or management of the

project, or by qualifying borrowers and providing or arranging

financing for the owners of the units.

State means a state of the United States, the District of Columbia,

Guam, Puerto Rico, or the U.S. Virgin Islands.

Subsidized advance means an advance to a member at an interest rate

reduced below the Bank's cost of funds, by use of a subsidy.

Subsidy means:

(1) A direct subsidy, provided that if a direct subsidy is used to

write down the interest rate on a loan extended by a member, sponsor,

or other party to a project, the subsidy shall equal the net present

value of the interest foregone from making the loan below the lender's

market interest rate (calculated as of the date the AHP application is

submitted to the Bank, and subject to adjustment under

Sec. 960.8(c)(3));

(2) The net present value of the interest revenue foregone from

making a subsidized advance at a rate below the Bank's cost of funds,

determined as of the earlier of the date of disbursement of the

subsidized advance or the date prior to disbursement on which the Bank

first manages the funding to support the subsidized advance through

[[Page 41830]]

its asset/liability management system, or otherwise; or

(3) Homeownership set-aside funds.

Very low-income household. (1) Owner-occupied projects. For

purposes of an owner-occupied project, very low-income household means

a household which, at the time it is qualified by the sponsor for

participation in the project, has an income at or below 50 percent of

the median income for the area.

(2) Rental projects. (i) In general. For purposes of a rental

project, very low-income household means a household which, upon

initial occupancy of a rental unit, has an income at or below 50

percent of the median income for the area.

(ii) Housing with current occupants. In the case of projects

involving the purchase or rehabilitation of rental housing with current

occupants, very low-income household means an occupying household

which, at the time the purchase or rehabilitation is completed, has an

income at or below 50 percent of the median income for the area.

(3) Family-size adjustment. The income limit for very low-income

households may be adjusted for family size in accordance with the

methodology of the applicable median income standard.

Sec. 960.2 Required annual AHP contributions.

Each Bank shall contribute annually to its Program the greater of:

(a) 10 percent of the Bank's net earnings for the previous year; or

(b) That Bank's pro rata share of an aggregate of $100 million to

be contributed in total by the Banks, such proration being made on the

basis of the net earnings of the Banks for the previous year.

Sec. 960.3 Operation of Program and adoption of AHP implementation

plan.

(a) Allocation of AHP contributions. (1) Homeownership set-aside

programs. Each Bank, after consultation with its Advisory Council, may

set aside annually, in the aggregate, up to the greater of $1.5 million

or 15 percent of its annual required AHP contribution to provide funds

to members participating in the Bank's homeownership set-aside

programs, pursuant to the requirements of this part. In cases where the

amount of homeownership set-aside funds applied for by members in a

given year exceeds the amount available for that year, a Bank may

allocate up to the greater of $1.5 million or 15 percent of its annual

required AHP contribution for the subsequent year to the current year's

homeownership set-aside programs. A Bank may establish one or more

homeownership set-aside programs pursuant to written policies adopted

by the Bank's board of directors. A Bank's board of directors shall not

delegate to Bank officers or other Bank employees the responsibility

for adopting such policies.

(2) Competitive application program. That portion of a Bank's

required annual AHP contribution that is not set aside to fund

homeownership set-aside programs shall be provided to members through a

competitive application program, pursuant to the requirements of this

part.

(b) AHP implementation plan. (1) Adoption of plan. Each Bank's

board of directors shall adopt a written AHP implementation plan which

shall set forth:

(i) The applicable median income standard or standards, adopted by

the Bank consistent with the definition of median income for the area

in Sec. 960.1;

(ii) The requirements for any homeownership set-aside programs

adopted by the Bank pursuant to paragraph (a)(1) of this section;

(iii) The Bank's project feasibility guidelines, adopted consistent

with Sec. 960.5(b)(2);

(iv) The Bank's schedule for AHP funding periods;

(v) Any additional District eligibility requirement, adopted by the

Bank pursuant to Sec. 960.5(b)(10);

(vi) The Bank's scoring guidelines, adopted by the Bank consistent

with Sec. 960.6(b)(4);

(vii) The Bank's time limits on use of AHP subsidies and procedures

for verifying compliance upon disbursement of AHP subsidies pursuant to

Sec. 960.8; and

(viii) The Bank's procedures for carrying out its monitoring

obligations under Secs. 960.10(c) and 960.11.

(2) No delegation. A Bank's board of directors shall not delegate

to Bank officers or other Bank employees the responsibility for

adopting the AHP implementation plan, or any subsequent amendments

thereto.

(3) Advisory Council review. Prior to adoption of the Bank's AHP

implementation plan, and any subsequent amendments thereto, the Bank

shall provide its Advisory Council an opportunity to review the plan

and any subsequent amendments, and the Advisory Council shall provide

its recommendations to the Bank's board of directors.

(4) Submission of plan to the Finance Board. A Bank shall submit

its initial AHP implementation plan, and any amendments, to the Finance

Board and the Bank's Advisory Council at least 60 days prior to

distributing requests for applications for AHP subsidies for the

funding period in which the plan, or amendments, will be effective.

(5) Public Access. A Bank's initial AHP implementation plan, and

any subsequent amendments, shall be made available to members of the

public, upon request.

(c) Conflicts of interest--(1) Bank directors and employees. Each

Bank's board of directors shall adopt a written policy providing that

if a Bank director or employee, or such person's family member, has a

financial interest in, or is a director, officer, or employee of an

organization involved in, a project that is the subject of a pending or

approved AHP application, the Bank director or employee shall not

participate in or attempt to influence decisions by the Bank regarding

the evaluation, approval, funding, monitoring or any remedial process

for such project.

(2) Advisory Council members. Each Bank's board of directors shall

adopt a written policy providing that if an Advisory Council member, or

such person's family member, has a financial interest in, or is a

director, officer, or employee of an organization involved in, a

project that is the subject of a pending or approved AHP application,

the Advisory Council member shall not participate in or attempt to

influence decisions by the Bank regarding the approval for such

project.

(3) No delegation. A Bank's board of directors shall not delegate

to Bank officers or other Bank employees the responsibility to adopt

conflicts of interest policies.

(d) Reporting. Each Bank shall provide such reports and

documentation concerning its Program as the Finance Board may request

from time to time.

Sec. 960.4 Advisory Councils.

(a) In general. Each Bank's board of directors shall appoint an

Advisory Council of from 7 to 15 persons who reside in the Bank's

District and are drawn from community and not-for-profit organizations

actively involved in providing or promoting low- and moderate-income

housing in the District.

(b) Nominations and appointments. Each Bank shall solicit

nominations for membership on the Advisory Council from community and

not-for-profit organizations pursuant to a nomination process that is

as broad and as participatory as possible, allowing sufficient time for

responses. The Bank's board of directors shall appoint Advisory Council

members giving consideration to the size of the Bank's

[[Page 41831]]

District and the diversity of low- and moderate-income housing needs

and activities within the District.

(c) Diversity of membership. In appointing the Advisory Council, a

Bank's board of directors shall ensure that the membership includes

persons drawn from a diverse range of organizations, provided that

representatives of no one group shall constitute an undue proportion of

the membership of the Advisory Council.

(d) Terms of Advisory Council members. The Bank's board of

directors shall appoint Advisory Council members to serve for no more

than three consecutive terms of three years each, and such terms shall

be staggered to provide continuity in experience and service to the

Advisory Council.

(e) Election of officers. Each Advisory Council may elect from

among its members a chairperson, a vice chairperson, and any other

officers the Advisory Council deems appropriate.

(f) Duties.--(1) Meetings with the Banks. Representatives of the

board of directors of the Bank shall meet with the Advisory Council at

least quarterly to obtain the Advisory Council's advice on ways in

which the Bank can better carry out its housing finance and community

investment mission, including, but not limited to, advice on the low-

and moderate-income housing and community investment programs and needs

in the Bank's District, and on the use of AHP subsidies, Bank advances,

and other Bank credit products for these purposes.

(2) Summary of AHP applications. The Bank shall comply with

requests from the Advisory Council for summary information regarding

AHP applications from prior funding periods.

(3) Annual report to the Finance Board. Each Advisory Council shall

submit to the Finance Board annually by March 1 its analysis of the

low- and moderate-income housing and community development activity of

the Bank by which it is appointed.

(g) Expenses. The Bank shall pay Advisory Council members travel

expenses, including transportation and subsistence, for each day

devoted to attending meetings with representatives of the board of

directors of the Bank and meetings requested by the Finance Board.

Sec. 960.5 Minimum eligibility standards for AHP projects.

(a) Homeownership set-aside programs. A Bank's homeownership set-

aside programs must meet the following requirements:

(1) Homeownership set-aside funds must be provided to members

pursuant to allocation criteria established by the Bank;

(2) Members must provide homeownership set-aside funds only to

households that:

(i) Are low-or moderate-income households, as defined in

Sec. 960.1;

(ii) Complete a homebuyer or homeowner counseling program provided

by, or based on one provided by, an organization recognized as

experienced in homebuyer or homeowner counseling, respectively; and

(iii) Meet such other eligibility criteria that may be established

by the Bank, such as a matching funds requirement or criteria that give

priority for the purchase or rehabilitation of housing in particular

areas or as part of a disaster relief effort;

(3) Members must provide homeownership set-aside funds to

households as a grant, in an amount up to a maximum of $10,000 per

household, as established by the Bank, which limit shall apply to all

households;

(4) Households must use homeownership set-aside funds to pay for

downpayment, closing cost, counseling, or rehabilitation assistance in

connection with the household's purchase or rehabilitation of an owner-

occupied housing unit, including a condominium or cooperative housing

unit, to be used as the household's primary residence;

(5) A housing unit purchased or rehabilitated using homeownership

set-aside funds must be subject to a retention agreement described in

Sec. 960.13(d)(1);

(6) If a member is providing mortgage financing to a participating

household, the member must provide financial or other incentives in

connection with such mortgage financing, and the rate of interest,

points, fees, and any other charges by the member must not exceed a

reasonable market rate of interest, points, fees, and other charges for

a loan of similar maturity, terms, and risk;

(7) Homeownership set-aside funds may be used to pay for counseling

costs only where:

(i) Such costs are incurred in connection with counseling of

homebuyers who actually purchase an AHP-assisted unit;

(ii) The cost of the counseling has not been covered by another

funding source, including the member; and

(iii) The homeownership set-aside funds are used to pay only for

the amount of such reasonable and customary costs that exceeds the

highest amount the member has spent annually on homebuyer counseling

costs within the preceding three years; and

(8) Homeownership set-aside funds must be drawn down and used by

eligible households within the period of time specified by the Bank in

its AHP implementation plan.

(b) Competitive application program. Projects receiving AHP

subsidies pursuant to a Bank's competitive application program must

meet the eligibility requirements of this paragraph (b).

(1) Owner-occupied or rental housing. A project must be either an

owner-occupied project or a rental project, as defined, respectively,

in Sec. 960.1.

(2) Project feasibility and need for subsidy--(i) Sources and uses

of funds. The project's estimated uses of funds must equal its

estimated sources of funds, as reflected in the project's development

budget. A project's sources of funds must include:

(A) Estimates of funds the project sponsor intends to obtain from

other sources but which have not yet been committed to the project; and

(B) Estimates of the market value of in-kind donations and

volunteer professional labor or services committed to the project, but

not the value of sweat-equity.

(ii) Project costs--(A) In general. Project costs, as reflected in

the project's development budget, must be reasonable and customary, in

accordance with the Bank's project feasibility guidelines, in light of:

(1) Industry standards for the location of the project; and

(2) The long-term financial needs of the project.

(B) Cost of property and services provided by a member. The

purchase price of property or services, as reflected in the project's

development budget, sold to the project by a member providing AHP

subsidy to the project, or, in the case of property, upon which such

member holds a mortgage or lien, may not exceed the market value of

such property or services as of the date the purchase price for the

property or services was agreed upon. In the case of real estate owned

property sold to a project by a member providing AHP subsidy to a

project, or property sold to the project upon which the member holds a

mortgage or lien, the market value of such property is deemed to be the

``as-is'' or ``as-rehabilitated'' value of the property, whichever is

appropriate, as reflected in an independent appraisal of the property

performed within six months prior to the date the purchase price for

the property was agreed upon.

(iii) Operational feasibility and need for subsidy. The project

must be

[[Page 41832]]

operationally feasible, in accordance with the Bank's project

feasibility guidelines, based on relevant factors including, but not

limited to, applicable financial ratios, geographic location of the

project, needs of tenants, and other non-financial project

characteristics. The requested AHP subsidy must be necessary for the

financial feasibility of the project, as currently structured, and the

rate of interest, points, fees, and any other charges for all loans

financing the project must not exceed a market rate of interest,

points, fees, and other charges for loans of similar maturity, terms,

and risk.

(3) Timing of subsidy use. The AHP subsidy must be likely to be

drawn down by the project or used by the project to procure other

financing commitments within 12 months of the date of approval of the

application for subsidy funding the project.

(4) Prepayment, cancellation, and processing fees. The project must

not use AHP subsidies to pay for:

(i) Prepayment fees imposed by a Bank on a member for a subsidized

advance that is prepaid, unless, subsequent to such prepayment, the

project will continue to comply with the terms of the application for

the subsidy, as approved by the Bank, and the requirements of this part

for the duration of the original retention period, and any unused

subsidy is returned to the Bank and made available for other AHP

projects;

(ii) Cancellation fees and penalties imposed by a Bank on a member

for a subsidized advance commitment that is canceled; or

(iii) Processing fees charged by members for providing direct

subsidies to a project.

(5) Counseling costs. AHP subsidies may be used to pay for

counseling costs only where:

(i) Such costs are incurred in connection with counseling of

homebuyers who actually purchase an AHP-assisted unit; and

(ii) The cost of the counseling has not been covered by another

funding source, including the member.

(6) Refinancing. If the project uses AHP subsidies to refinance an

existing single-family or multifamily mortgage loan, the equity

proceeds of the refinancing must be used only for the purchase,

construction, or rehabilitation of housing units meeting the

eligibility requirements of this paragraph (b).

(7) Retention--(i) Owner-occupied projects. The project's AHP-

assisted units are or are committed to be subject to a retention

agreement described in Sec. 960.13 (c)(4) or (d)(1).

(ii) Rental projects. AHP-assisted rental projects are or are

committed to be subject to a retention agreement described in

Sec. 960.13 (c)(5) or (d)(2).

(8) Project sponsor qualifications. A project's sponsor must be

qualified and able to perform its responsibilities as committed to in

the application for subsidy funding the project.

(9) Fair housing. The project, as proposed, must comply with any

applicable fair housing law requirements and demonstrate how the

project will be affirmatively marketed.

(10) District eligibility requirements. (i) A project receiving AHP

subsidies may be required by a Bank to meet one or more of the

following additional eligibility requirements adopted by a Bank's board

of directors, after consultation with its Advisory Council:

(A) A requirement that the amount of subsidy requested for the

project does not exceed limits established by the Bank as to the

maximum amount of AHP subsidy available per member each year; or per

member, per project, or per project unit in a single funding period;

(B) A requirement that the project is located in the Bank's

District; or

(C) A requirement that the member submitting the application has

made use of a credit product offered by the Bank, other than AHP or CIP

credit products, within the previous 12 months.

(ii) District eligibility requirements must apply equally to all

members.

Sec. 960.6 Procedure for approval of applications for funding.

(a) Homeownership set-aside programs. A Bank shall accept

applications for homeownership set-aside funds from members and may, in

its discretion, accept applications from institutions with pending

applications for membership in the Bank. The Bank shall approve

applications in accordance with the Bank's criteria governing the

allocation of funds.

(b) Competitive application program--(1) Funding periods; amounts

available. A Bank shall accept applications for funding under its

competitive application program from members and may, in its

discretion, accept applications from institutions with pending

applications for membership in the Bank. A Bank may accept applications

for funding during a specified number of funding periods each year, as

determined by the Bank. The amount of subsidies offered in each funding

period shall be comparable.

(2) Submission of applications. A Bank shall require applicants for

AHP subsidies to submit information sufficient for the Bank to:

(i) Determine that the proposed AHP project meets the eligibility

requirements of Sec. 960.5(b); and

(ii) Evaluate the application pursuant to the scoring criteria in

paragraph (b)(4) of this section.

(3) Review of applications for project eligibility. A Bank shall

review applications to determine that the proposed AHP project meets

the eligibility requirements of Sec. 960.5(b).

(4) Scoring of applications--(i) In general. A Bank shall score

only those applications meeting the eligibility requirements of

Sec. 960.5(b). A Bank shall not adopt additional scoring criteria or

point allocations, except as specifically authorized under this

paragraph (b)(4). A Bank shall adopt written guidelines implementing

the scoring requirements of this paragraph (b)(4).

(ii) Point allocations. A Bank shall allocate 100 points among the

nine scoring criteria identified in paragraph (b)(4)(iv) of this

section. The scoring criterion identified in paragraph (b)(4)(iv)(C) of

this section shall be allocated at least 20 points. The remaining

scoring criteria shall be allocated at least five points each.

(iii) Satisfaction of scoring criteria. A Bank shall designate each

scoring criterion as either a fixed-point or a variable-point

criterion. Variable-point criteria are those where there are varying

degrees to which an application can satisfy the criteria. The number of

points that may be awarded to an application for meeting a variable-

point criterion will vary, depending on the extent to which the

application satisfies the criterion, compared to the other applications

being scored. A Bank shall designate the scoring criteria identified in

paragraphs (b)(4)(iv) (C) and (H) of this section as variable-point

criteria. The application(s) best achieving each variable-point

criterion shall receive the maximum point score available for that

criterion, with the remaining applications scored on a declining scale.

Fixed-point criteria are those which cannot be satisfied in varying

degrees and are either satisfied, or not. An application meeting a

fixed-point criterion shall be awarded the total number of points

allocated to that criterion.

(iv) Scoring criteria. An application for a proposed project may

receive points based on satisfaction of the nine scoring criteria set

forth in this paragraph (b)(4)(iv).

(A) Use of donated government-owned or other properties. The

creation of housing using a significant proportion of units or land

donated or conveyed for a nominal price by the federal government or

any agency or

[[Page 41833]]

instrumentality thereof, or by any other party.

(B) Sponsorship by a not-for-profit organization or government

entity. Project sponsorship by a not-for-profit organization, a state

or political subdivision of a state, a state housing agency, a local

housing authority, a Native American Tribe, an Alaskan Native Village,

or the government entity for Native Hawaiian Home Lands.

(C) Targeting. The extent to which a project creates housing for

very low- and low- or moderate-income households.

(1) Rental projects. An application for a rental project shall be

awarded the maximum number of points available under this scoring

criterion if 60 percent or more of the units in the project are

reserved for occupancy by households with incomes at or below 50

percent of the median income for the area. Applications for projects

with less than 60 percent of the units reserved for occupancy by

households with incomes at or below 50 percent of the median income for

the area shall be awarded points on a declining scale based on the

percentage of units in a project that are reserved for households with

incomes at or below 50 percent of the median income for the area, and

on the percentage of the remaining units reserved for households with

incomes at or below 80 percent of the median income for the area. In

order to facilitate reliance on monitoring by a federal, state, or

local government entity providing funds or allocating federal Low-

Income Housing Tax Credits to a proposed project, a Bank, in its

discretion, may score each project according to the targeting

commitments made by the project to such entity, and the Bank shall

include such scoring practice in its AHP implementation plan.

(2) Owner-occupied projects. Applications for owner-occupied

projects shall be awarded points based on the percentage of units in

the project to be provided to households with incomes at or below 80

percent of the median income for the area. Points shall be awarded on a

declining scale, with projects having the highest percentage of units

targeted to households with the lowest percentage of median income for

the area awarded the highest number of points.

(3) Separate scoring. For purposes of this scoring criterion,

applications for owner-occupied projects and rental projects may be

scored separately.

(D) Housing for homeless households. The creation of transitional

housing, excluding overnight shelters, for homeless households

permitting a minimum of six months occupancy, or the creation of rental

housing reserving at least 20 percent of the units for homeless

households.

(E) Promotion of empowerment. The provision of housing in

combination with a program offering: employment; education; training;

homebuyer, homeownership or tenant counseling; daycare services;

resident involvement in decisionmaking affecting the creation or

operation of the project; or other services that assist residents to

move toward better economic opportunities, such as welfare to work

initiatives.

(F) First District priority. The satisfaction of one of the

following criteria, or one of a number of the following criteria, as

recommended by the Bank's Advisory Council and adopted by the Bank's

board of directors and set forth in the Bank's AHP implementation plan,

as long as the total points available for meeting the criterion or

criteria adopted under this category do not exceed the total points

allocated to this category:

(1) Special needs. The creation of housing in which at least 20

percent of the units are reserved for occupancy by households with

special needs, such as the elderly, mentally or physically disabled

persons, persons recovering from physical abuse or alcohol or drug

abuse, or persons with AIDS;

(2) Community development. The creation of housing meeting housing

needs documented as part of a community revitalization or economic

development strategy approved by a unit of a state or local government;

(3) First-time homebuyers. The financing of housing for first-time

homebuyers;

(4) Member financial participation. Member financial participation

(excluding the pass-through of AHP subsidy) in the project, such as

providing market rate or concessionary financing, fee waivers, or

donations;

(5) Disaster areas. The financing of housing located in federally

declared disaster areas;

(6) Rural. The financing of housing located in rural areas;

(7) Urban. The financing of urban in-fill or urban rehabilitation

housing;

(8) Economic diversity. The creation of housing that is part of a

strategy to end isolation of very low-income households by providing

economic diversity through mixed-income housing in low- or moderate-

income neighborhoods, or providing very low- or low- or moderate-income

households with housing opportunities in areas where the median

household income exceeds 80 percent of the median income for the area;

(9) Fair housing remedy. The financing of housing as part of a

remedy undertaken by a jurisdiction adjudicated by a federal, state, or

local court to be in violation of title VI of the Civil Rights Act of

1964 (42 U.S.C. 2000d et seq.), the Fair Housing Act (42 U.S.C. 3601 et

seq.), or any other federal, state, or local fair housing law, or as

part of a settlement of such claims;

(10) Community involvement. Demonstrated support for the project by

local government, community organizations, or individuals other than as

project sponsors through the commitment by such entities or individuals

of donated goods and services, or volunteer labor;

(11) Lender consortia. The involvement of financing by a consortium

of at least two financial institutions; or

(12) In-District projects. The creation of housing located in the

Bank's District.

(G) Second District priority--defined housing need in the District.

The satisfaction of a housing need in the Bank's District, as defined

and recommended by the Bank's Advisory Council and adopted by the

Bank's board of directors and set forth in the Bank's AHP

implementation plan. The Bank may, but is not required to, use one of

the criteria listed in paragraph (b)(4)(iv)(F) of this section,

provided it is different from the criterion or criteria adopted by the

Bank under paragraph (b)(4)(iv)(F) of this section.

(H) AHP subsidy per unit. The extent to which a project proposes to

use the least amount of AHP subsidy per AHP-targeted unit. In the case

of an application for a project financed by a subsidized advance, the

total amount of AHP subsidy used by the project shall be estimated

based on the Bank's cost of funds as of the date on which all

applications are due for the funding period in which the application is

submitted. For purposes of this scoring criterion, applications for

owner-occupied projects and rental projects may be scored separately.

(I) Community stability. The promotion of community stability, such

as by rehabilitating vacant or abandoned properties, being an integral

part of a neighborhood stabilization plan approved by a unit of state

or local government, and not displacing low- or moderate-income

households, or if such displacement will occur, assuring that such

households will be assisted to minimize the impact of such

displacement.

(5) Approval of applications--(i) Approval by Bank's board. The

board of directors of each Bank shall approve applications in

descending order

[[Page 41834]]

starting with the highest scoring application until the total funding

amount for the particular funding period, except for any amount

insufficient to fund the next highest scoring application, has been

allocated. The board of directors also shall approve at least the next

four highest scoring applications as alternates and, within one year of

approval, may fund such alternates if any previously committed AHP

subsidies become available.

(ii) No delegation. A Bank's board of directors shall not delegate

to Bank officers or other Bank employees the responsibility to approve

or disapprove AHP applications.

Sec. 960.7 Modifications of applications prior to project completion.

(a) Modification procedure. Prior to final disbursement of funds to

a project from all funding sources, a Bank, in its discretion, may

approve in writing a modification to the terms of an approved

application for subsidy funding the project if there is or will be a

change in the project that materially affects the facts under which the

application was originally scored and approved under the Bank's

competitive application program, provided that:

(1) The project, incorporating any such changes, would meet the

eligibility requirements of Sec. 960.5(b);

(2) The application, as reflective of such changes, continues to

score high enough to have been approved in the funding period in which

it was originally scored and approved by the Bank; and

(3) There is good cause for the modification.

(b) Modifications involving a subsidy increase. Modifications

involving an increase in AHP subsidy shall be approved or disapproved

by a Bank's board of directors. The authority to approve or disapprove

such requests shall not be delegated to Bank officers or other Bank

employees.

Sec. 960.8. Procedure for funding.

(a) Disbursement of subsidies to members. (1) A Bank may disburse

AHP subsidies only to institutions tha

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