Mission Achievement by the Federal Home Loan Banks

FEDERAL HOUSING FINANCE BOARD

12 CFR Chapter IX

[No. 97-35]

Mission Achievement by the Federal Home Loan Banks

AGENCY: Federal Housing Finance Board.

ACTION: Advance notice of proposed rulemaking (ANPRM).

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

requesting public comment on ways in which the Federal Home Loan Banks

(Banks) can further achieve their statutory mission to support housing

finance and community investment and ways in which the Finance Board,

as regulator of the Federal Home Loan Bank System (Bank System), could

measure and ensure that the Banks achieve their mission.

DATES: Comments must be received in writing on or before May 9, 1997.

ADDRESSES: Comments should be mailed to: Elaine L. Baker, Secretary to

the Board, Federal Housing Finance Board, 1777 F Street, N.W.,

Washington, D.C. 20006. Comments will be available for public

inspection at this address.

FOR FURTHER INFORMATION CONTACT: Jonathan Curtis, Senior Financial

Analyst, Office of Policy, (202) 408-2866, or Brandon B. Straus,

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. Background and General Issues

A. Introduction

The Finance Board has a statutory mandate to supervise the Banks in

order to ensure that they carry out their housing finance mission. See

12 U.S.C. 1422a(a)(3). The Federal Home Loan Bank Act (Bank Act)

authorizes, and in some instances requires, the Banks to make advances

and other credit products available to member and nonmember borrowers

to support both housing finance and community investment. See id.

sections 1430, 1430b. For instance, section 10(a) of the Bank Act

authorizes the Banks to make advances to provide members with a source

of funding to support housing finance. See id. section 1430(a).

Sections 10(i) and 10(j) of the Bank Act require the Banks to establish

two specific advances programs, an Affordable Housing Program (AHP) and

a Community Investment Program (CIP), to promote affordable housing and

community investment finance. See id. section 1430(j), (i). Section

10(j)(10) of the Bank Act authorizes the Banks to establish community

investment cash advance programs in addition to the AHP and CIP. See

id. section 1430(j)(10). In sum, the Finance Board believes it is clear

from the Bank Act that the mission of the Banks is to support and

promote housing finance and community investment.

The Finance Board is in the process of devolving to the Banks

functions currently performed by the Finance Board in a number of areas

that are more appropriately viewed as Bank

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management and governance functions. As part of that process, the

Finance Board has established clear regulatory standards within which

the Banks must operate in making management decisions. The Finance

Board believes this approach may be appropriate for regulation of the

Banks' achievement of their mission. Comments are requested on whether

the Finance Board should define and measure mission fulfillment for the

Banks through a regulation. Could the goals of the Finance Board in

promoting more focused mission activities by the Banks be fully

achieved through some means other than a regulation, such as a policy

statement including a non-exclusive list of activities that the Banks

may undertake in order to achieve their statutory mission?

Should the Banks establish annual plans setting out their goals for

identifying and implementing mission-focused activities, including the

identification of unmet credit needs in the Bank's district? Should

such plans serve as the benchmark for determining whether or not a Bank

is fulfilling its mission? Are there other possible options for the

identification and achievement of mission by a particular Bank and the

Bank System, as a whole?

The Banks currently fulfill their mission, in part, through many of

the advances the Banks make and through their activities under the AHP

and the CIP. As further discussed below, the Finance Board believes

that the Banks have an obligation to use their statutory powers to

assist member and nonmember borrowers in meeting housing finance and

community investment needs through means other than advances, the AHP,

and the CIP. Several of the Banks have made efforts to fulfill this

obligation through the establishment of pilot programs under the Banks'

investment and incidental authorities, with the approval of the Finance

Board, designed to assist members in meeting unmet credit needs in

specific segments of the housing finance and community investment

market. These initiatives are important first steps towards fulfillment

of the Banks' broader mission, and the Finance Board continues to

encourage the Banks to bring innovative programs to the agency. In

addition, the Finance Board wishes to facilitate all of the Banks'

establishing additional programs to support affordable housing and

community investment finance by member and nonmember borrowers through

community investment cash advance programs, through the Bank's

investment and credit activities, and by providing technical

assistance. The Bank's efforts should focus on assisting member and

nonmember borrowers in meeting the housing and community investment

needs in their communities, including the credit needs of low- or

moderate-income families and small businesses.

The Finance Board recognizes that housing and community investment

credit needs may be different in each Bank's district, and the Banks

are in the best position to identify those needs. Furthermore, each

Bank may have proven and innovative strategies to help member and

nonmember borrowers meet those needs. Consequently, the Finance Board

does not intend to substitute its judgment for the Banks on these

matters. Among the purposes of this notice is to solicit comments,

generally, on: (1) How the Banks could identify and meet unmet credit

needs, and (2) how the Finance Board shall ensure that the Banks

identify and meet those unmet credit needs.

B. Defining Mission-Focused Activities

There are five broad categories of activities through which the

Banks carry out their mission. The Finance Board requests comments on

the following questions related to these five categories of activities.

1. Regular Advances

Many of the Banks' regular advances support our nation's housing

finance system in ways not otherwise provided by the mortgage markets.

These regular advances further the Banks' mission. While the Finance

Board wishes to find ways beyond regular advances for the Banks to

focus their housing and community investment mission, there are special

programs or products that may be offered through the traditional

advances mechanism, such as discounts or rebates for members meeting

certain affordable housing or community investment goals or advance-

related donations to affordable housing providers. What kinds of

special programs structured using regular advances, including letters

of credit, should qualify as mission-focused activities?

2. AHP

Because the income limits (80 percent of area median income, or

AMI) and the annual subsidy amount of the AHP are fixed by statute and

full participation is required by all of the Banks, the Banks' AHP

activities are by definition mission-focused activities. See 12 U.S.C.

1430(j). It is the Finance Board's belief that the Banks' statutory

mission responsibilities cannot be satisfied solely by participating in

the AHP.

3. CIP

The general parameters of the CIP, including income-targeting (115

percent of AMI) and pricing benefits, are also set by statute and are

by definition a minimum standard of mission achievement, which the

Finance Board seeks to expand beyond. See id. section 1430(i). The Bank

Act does not prescribe the volume of CIP credit that the Banks must

extend on an annual basis. The Finance Board specifically requests

comment on whether and how the CIP could be used more aggressively in

mission fulfillment.

4. Investments

The Banks may have the greatest flexibility for increased and more

focused financial support of housing and community investment

activities through their investment authority. The Finance Board has

revised the Financial Management Policy for the Bank System to permit

double-A investments, such as state housing finance agency bonds, that

further the Banks' mission. In addition, the Finance Board recently

approved three pilot programs that allow several Banks to purchase

participations in targeted mixed-use and multifamily project loans and

to purchase whole single-family loans from member institutions. The

Finance Board specifically requests comment on what other types of

investments the Banks could make that would be mission-focused and what

types of housing and community credit needs are not being met that

could be assisted through investment, rather than advance, products.

5. Other Activities

The Finance Board wishes to promote opportunities for the Banks to

achieve their mission in non-financial or non-balance-sheet activities,

for example, by offering technical assistance, educational programs and

business development for affordable housing, or by offering grants or

awards out of earnings to housing organizations. The Finance Board

specifically requests comments on whether--and if so, what kinds of--

non-financial, charitable or other non-balance sheet funding could be

considered as mission-focused and included in determining a Bank's

mission fulfillment.

II. Issues For Consideration

A. Specific Characteristics of Mission-Focused Activities

There are a variety of activities that the Banks might engage in as

a means of carrying out their mission. The following is only a partial

list of

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alternatives from which the Banks might choose. Should the following

activities be considered ways in which the Banks achieve their mission:

(1) Providing products that are targeted to meet multiple policy

objectives, such as low-income housing and mixed-income community

revitalization; (2) pricing Bank products to encourage member

institutions to be active in affordable housing and community

revitalization; (3) developing strategies to encourage partnerships

among and between members, nonmembers, housing and community

development organizations, and government agencies; (4) providing

technical and educational assistance to members and affordable housing

and community development organizations?

The Finance Board also requests comment on how the Banks could use

their cooperative structure to assist members in acquiring, developing,

and implementing emerging technologies.

B. Measurement of Mission Achievement

The Finance Board requests comment on ways in which the Banks'

mission achievement can or should be measured. One option would be for

the Finance Board to establish, or require the Banks to establish,

quantitative targets for specific mission-related activities undertaken

by the Banks. However, the Finance Board understands that the efficacy

of some mission-related activities, such as promoting public-private

partnerships, may be difficult to measure quantitatively. Therefore,

comments are requested on what other methods of measurement, such as

qualitative measurements, may be appropriate for these kinds of

activities. Comments also are requested on whether and through what

medium the results of a Bank's performance in achieving its mission

should be communicated to the public.

C. Role of Advisory Councils

Comments are requested on what role the Banks' Advisory Councils

should play in achievement of the Banks' mission. Under statute, it is

the role of the Advisory Council to provide guidance to a Bank on the

low- and moderate-income housing programs and needs in the Bank's

district and on the utilization of advances to meet these needs. See

id. section 1430(j)(11). If the Banks were required to establish

mission achievement plans, as discussed above, one option would be to

require each Bank to provide its Advisory Council a reasonable period

of time to review the mission achievement plan and provide its

recommendations to the Bank's board of directors.

Comments received in response to this ANPRM will be reviewed and

considered by the Finance Board in preparation of further action in

connection with the issues discussed in this ANPRM. In addition, the

Finance Board expects to hold a public hearing on these issues in the

near future.

Dated: April 2, 1997.

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

Bruce A. Morrison,

Chairman.

[FR Doc. 97-9049 Filed 4-8-97; 8:45 am]

BILLING CODE 6725-01-U