Amendment of Affordable Housing Program Regulation

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 960

[No. 98-18]

RIN 3069-AA73

Amendment of Affordable Housing Program Regulation

AGENCY: Federal Housing Finance Board.

ACTION: Interim 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) to make certain technical revisions to the

regulation that would clarify Program requirements and improve the

operation of the AHP.

EFFECTIVE DATE: The interim final rule shall be effective on June 19,

1998. The Finance Board will accept written comments on this interim

final rule on or before July 20, 1998.

ADDRESSES: Mail comments 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: Richard Tucker, Deputy Director,

Compliance Assistance Division, Office of Policy, (202) 408-2848, or

Sharon B. Like, Senior Attorney-Advisor, (202) 408-2930, or Roy S.

Turner, Attorney-Advisor, (202) 408-2512, 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 Federal Home Loan Bank (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

(AHP regulation). See 12 CFR part 960.

On August 4, 1997, the Finance Board published a final rule

adopting comprehensive revisions to the AHP regulation, which, among

other changes, authorized the 12 Banks, rather than the Finance Board,

to approve applications for AHP subsidies beginning January 1, 1998.

See 62 FR 41812 (Aug. 4, 1997).

In the course of implementing the changes to the Program under the

recent revisions to the AHP regulation, the Banks and Finance Board

staff have identified a number of technical issues whose resolution

would clarify Program requirements and improve the effectiveness of the

Program. The Finance Board previously published a list of Questions and

Answers prepared by Finance Board staff in order to provide guidance on

some of these issues. See 62 FR 66977 (Dec. 23, 1997). This interim

final rule codifies portions of the Finance Board staff guidance

contained in the Questions and Answers and addresses additional

technical issues that have arisen in the course of implementing the

1997 revisions to the AHP regulation. Although the interim final rule

will become effective 30 days after publication in the Federal

Register, the Finance Board requests comment on all aspects of the rule

during a 60-day comment period.

II. Analysis of Interim Final Rule

A. Definitions--Section 960.1

1. Definition of ``Affordable''

Under Sec. 960.5(b)(1) of the current AHP regulation, in order for

rental housing to be eligible to be financed by an AHP subsidy, at

least 20 percent of the units must be occupied by and affordable for

very low-income households. See 12 CFR 960.1, 960.5(b)(1). Section

960.1 of the current AHP regulation 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).'' See id. Sec. 960.1 This definition is

intended to make clear that the 30 percent-of-income limitation on rent

applies to all units in a project which, according to the commitments

made in the AHP application, are to be reserved for occupancy by

households with incomes at or below 80 percent of the median income for

the area. However, subsequent to the adoption of the definition,

questions have arisen as to which units in a rental project are subject

to the 30 percent-of-income limitation. The revised definition of

``affordable'' is intended to clarify this issue. The interim final

rule defines ``affordable'' to mean that ``the rent charged for a unit

which is to be reserved for occupancy by a household with an income at

or below 80 percent of the median income for the area, 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).''

[[Page 27669]]

2. Definitions of ``Low- or Moderate-Income Household'' and ``Very Low-

Income Household'' for Housing With Current Occupants

Under Sec. 960.1 of the current AHP regulation, in the case of

projects involving the purchase or rehabilitation of occupied rental

housing, a household occupying such housing is deemed to be a ``very

low-income household'' if, at the time the purchase or rehabilitation

of the housing is completed, the household has an income at or below 50

percent of the median income for the area. See id. This provision may

make it difficult for the sponsor of such a project to commit to

reserve a specific proportion of units for very low-income households

because of the uncertainty as to how many of the current occupants will

qualify as very low-income households at some future date when the

project purchase or rehabilitation is completed. Consequently, the

interim final rule provides that current occupants will be deemed to by

very low-income households if they have incomes at or below 50 percent

of the median income for the area at the time the application for AHP

subsidy is submitted to the Bank. The interim final rule makes a

parallel change to the definition of ``low- or moderate-income

household'' in Sec. 960.1 of the current AHP regulation.

3. Definition of ``Owner-Occupied Unit'' as Including Two-to-Four

Family Housing

Section 960.1 of the current AHP regulation defines ``owner-

occupied unit'' as a unit in an ``owner-occupied project,'' which is

defined as 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. See id. Sec. 960.1. The interim final clarifies that two-

to-four family owner-occupied housing consisting of one owner-occupied

unit and one or more rental units constitutes a single owner-occupied

unit for purposes of the AHP. The income eligibility and affordability

requirements of the AHP regulation do not apply to the rental units in

two-to-four family housing.

4. Definition of ``Rental Project'' as Including Overnight Shelters for

Homeless Households

Under Sec. 960.1 of the current AHP regulation, a ``rental

project'' is defined to include ``transitional housing for homeless

households.'' See id. The interim final rule clarifies that overnight

shelters for homeless households also are considered rental housing

under the AHP.

B. Terms of Advisory Council Members--Section 960.4(d)

Section 960.4(d) of the current AHP regulation provides that a

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. See id. Sec. 960.4(d). The interim

final rule restates this requirement to make clear that, as intended by

the current AHP regulation, an Advisory Council member's individual

term must be three years. The interim final rule also adds language to

clarify that an Advisory Council member appointed to fill a vacancy

shall be appointed for the unexpired term of his or her predecessor in

office and that appointments for the unexpired term of a predecessor

shall not count toward the three-term limit.

C. Minimum Eligibility Standards For AHP Projects--Section 960.5

1. Fair Housing Compliance--Sec. 960.5(b)(9)

Section 960.5(b)(9) of the interim final rule clarifies the

requirement in the current AHP regulation that projects, as proposed,

must comply with applicable fair housing law requirements and

demonstrate how the project will be affirmatively marketed in order to

be eligible to receive AHP funds. See id. Sec. 960.5(b)(9). The interim

final rule is intended to clarify that compliance with any applicable

fair housing laws includes compliance with applicable federal and state

laws on housing accessibility for the disabled, as well as affirmative

marketing requirements under the Fair Housing Act, as they relate to

disabled persons.

There are a number of federal and state fair housing laws relating

to persons with disabilities that may apply to AHP projects, depending

upon: the type of housing or housing design (single-family,

multifamily, homeless shelters, buildings with or without elevators, or

mixed use buildings); whether the project involves acquisition,

rehabilitation or new construction; and whether the project involves

federal or state funds. Given the number of different laws governing

fair housing and accessibility requirements for the disabled, it is

recommended that the appropriate enforcing agencies be consulted for

clarification on any specific issue relating to compliance.

2. District Eligibility Requirements--Section 960.5(b)(10)

Section 960.5(b)(10)(i) of the current AHP regulation authorizes a

Bank, after consultation with its Advisory Council, to establish one or

more of the following additional eligibility requirements for AHP

applications: (1) 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; (2) a requirement that the project is located in the Bank's

District; or (3) a requirement that the member submitting the

application has made use of a credit product offered by the Bank, other

than AHP or Community Investment Program (CIP) credit products, within

the previous 12 months. See id. Sec. 960.5(b)(10)(i). Section

960.5(b)(10)(ii) further provides that District eligibility

requirements must apply equally to all members. See id.

Sec. 960.5(b)(10)(ii).

Several of the Banks would like to have the option to make the use

of a minimum amount of Bank credit products a prerequisite for applying

for large amounts of AHP subsidy. Under Sec. 960.5(b)(10)(i)(C) of the

current AHP regulation, which authorizes the Banks to condition the

availability of AHP subsidy upon a member's use of ``a'' credit

product, this option is not now available. See id.

Sec. 960.5(b)(10)(i)(C). Further, these Banks have proposed that the

required level of credit product usage be linked to a member's asset

size. For example, a Bank proposes to allow all members to have access

to up to $50,000 of AHP subsidy per year, but require members wishing

to apply for more than $50,000 to have outstanding average daily

balances of Bank credit products in an amount equal to at least 1.5

percent of the member's total assets. In support of this kind of

requirement, the Banks have argued that because AHP subsidies are

derived from a Bank's earnings, fairness requires that availability of

subsidies be linked to the extent to which a member contributes to the

Bank's earnings through the purchase of other Bank credit products.

These Banks argue that a member's use of a single Bank credit product

does not make a meaningful contribution to Bank earnings.

Accordingly, the interim final rule revises the language of

Sec. 960.5(b)(10)(i)(C) of the current AHP regulation to permit a Bank

to establish a requirement that a member submitting an AHP application

has made use of a minimum amount of a credit product

[[Page 27670]]

offered by the Bank, other than AHP or CIP credit products, within the

previous 12 months, provided that such a minimum threshold for credit

product usage established by a Bank shall not exceed 1.5 percent of a

member's total assets, and all members shall have access to some amount

of AHP subsidy, as determined by the Bank, regardless of whether they

meet the Bank's minimum threshold for credit product usage.

Section 960.5(b)(10)(ii) of the current AHP regulation provides

that ``District eligibility requirements must apply equally to all

members.'' See id. Sec. 960.5(b)(10)(ii). The interim final rule

revises this language to clarify that ``[a]ny limit on the amount of

AHP subsidy available per member must result in equal amounts of AHP

subsidy available to all members.'' This requirement is intended to

ensure that such limits are not structured or applied in a

discriminatory manner.

D. Procedure for Approval of Applications for Funding--Section 960.6

1. Instructions for the Competitive Scoring Process--Section

960.6(b)(4)(ii) and (iii)

The interim final rule adds specific references to the targeting

and subsidy-per-unit scoring criteria to clarify the cross references

in Secs. 960.6(b)(4)(ii) and (iii) of the current AHP regulation. See

id. Secs. 960.6(b)(4)(ii), (iii).

2. Scoring Criterion on Use of Donated Government-Owned or Other

Properties--Section 960.6(b)(4)(iv)(A)

Under Sec. 960.6(b)(4)(iv)(A) of the current AHP regulation, an

application may receive points if it involves 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

instrumentality thereof, or by any other party. See id.

Sec. 960.6(b)(4)(iv)(A). Questions have arisen as to what should be

considered a ``nominal price.'' The interim final rule adds language to

Sec. 960.6(b)(4)(iv)(A) clarifying that a nominal price is a small,

negligible amount, most often one dollar, and may be accompanied by

modest expenses related to the conveyance of the property.

3. Targeting Score for Owner-Occupied Projects--Section

960.6(b)(4)(iv)(C)(2)

The first sentence of Sec. 960.6(b)(4)(iv)(C)(2) of the current AHP

regulation provides that 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. See id. Sec. 960.6(b)(4)(iv)(C)(2). The

wording of this sentence creates the erroneous implication that an AHP

owner-occupied project may contain one or more units for households

with incomes above 80 percent of the median income for the area. Under

the Act, AHP subsidies may be used only to finance owner-occupied

housing for households with incomes at or below 80 percent of the

median income for the area. See 12 U.S.C. 1430(j)(2)(A). Consequently,

the interim final rule deletes the first sentence of

Sec. 960.6(b)(4)(iv)(C)(2) of the current AHP regulation. Applications

for owner-occupied projects shall be awarded points based 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.

4. Scoring Criterion for Housing for Homeless Households--Section 960.6

(b)(4)(iv)(D)

Under Sec. 960.6(b)(4)(iv)(D) of the current AHP regulation, an

application may receive points if it involves ``[t]he 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.'' Id. Sec. 960.6(b)(4)(iv)(D). The interim

final rule restates this provision in order to clarify the language. No

substantive change is intended. The revised language omits the express

exclusion of overnight shelters contained in the current language,

because it is clear that overnight shelters do not come within the

category of housing permitting a minimum of six months occupancy.

5. Scoring Criterion for Economic Diversity--Section

960.6(b)(4)(iv)(F)(8)

Under Sec. 960.6(b)(4)(iv)(F)(8) of the current AHP regulation,

applications for AHP subsidy may receive points for meeting the

``Economic Diversity'' scoring criterion if they involve the creation

of housing that either: (1) 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 (2)

provides 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. Id.

Sec. 960.6(b)(4)(iv)(F)(8).

One of the Banks has pointed out an ambiguity in the second

alternative described above, which makes that alternative unworkable.

Specifically, assuming the word ``area'' refers to the same area each

time it appears in the following phrase, it will always be the case

that a project provides ``housing opportunities in areas where the

median household income exceeds 80 percent of the median income for the

area,'' because the median income for an area, by definition, always

exceeds 80 percent of the median income for that area.

The general intent of the second alternative requirement in the

``Economic Diversity'' criterion is to promote housing opportunities

for very low- and low- or moderate-income households in areas that are

wealthier relative to the surrounding areas. Therefore, the interim

final rule revises the second alternative to provide that applications

may receive points for ``Economic Diversity'' if they involve the

creation of housing that provides very low- or low- or moderate-income

households with housing opportunities in neighborhoods or cities where

the median income exceeds the median income for the larger area--such

as the city, county, or Primary Metropolitan Statistical Area--in which

the neighborhood or city is located.

6. Scoring Criterion for Community Involvement--Section

960.6(b)(4)(iv)(F)(10)

Under Sec. 960.6(b)(4)(iv)(F)(10) of the current AHP regulation, an

application for AHP subsidy may receive points for meeting the

``Community Involvement'' scoring criterion if it shows demonstrated

support for the AHP 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. Id. Sec. 960.6 (b)(4)(iv)(F)(10). Several

of the Banks have requested clarification of what constitutes a donated

good or service from a local government. For example, local governments

may provide support to housing projects in the form of property tax

deferment or abatement, zoning changes or variances, infrastructure

improvements, or fee waivers. Each of these forms of local government

initiatives constitutes the kind of non-cash support for the project

that merits scoring credit under the ``Community Involvement''

criterion. Therefore, the interim final rule specifies that these items

and any similar types of non-cash support for a project by local

government are to be

[[Page 27671]]

considered under the ``Community Involvement'' criterion.

E. Modifications of Applications--Sections 960.7 and 960.9

Sections 960.7 and 960.9 of the current AHP regulation govern

modifications to approved AHP applications prior to and subsequent to

project completion, respectively. See id. Sec. Sec. 960.7, 960.9. Each

of these sections provides that as a threshold requirement for the

approval of a modification, it must be shown that ``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 * * * .'' See id. Sec. Sec. 960.7(a),

960.9. A number of the Banks have requested clarification of what

constitutes a ``material change'' affecting the facts under which the

application was originally scored and approved. Accordingly, the

interim final rule revises Sec. Sec. 960.7 and 960.9 of the current AHP

regulation by replacing the ``material change'' requirement with

language clarifying that a modification is triggered where there is or

will be a change to a project that would change the score that the

project application received in the funding period in which it was

originally scored and approved, had the changed facts been operative at

that time.

F. Use of Repaid Subsidies--Section 960.12(e)

Under Secs. 960.12(a) and (b) of the current AHP regulation, which

set forth the requirements for the recovery of AHP subsidy in cases of

noncompliance with AHP requirements, interest on AHP subsidies must be

recovered, where appropriate. See id. Sec. 960.12(a), (b). Section

960.12(e) of the current AHP regulation provides that amounts repaid to

a Bank as a result of noncompliance with AHP requirements shall be made

available for other AHP-eligible projects. See id. Sec. 960.12(e). The

interim final rule clarifies that any recovered interest on such

amounts also must be made available for other AHP-eligible projects.

G. Agreements--Section 960.13

1. Retention Agreements for Owner-Occupied Units Constructed or

Rehabilitated With AHP-Assisted Financing--Sections 960.13(c)(4) and

(d)(1)

Section 960.13(c)(4) of the current AHP regulation sets forth the

required elements for retention agreements for AHP-assisted owner-

occupied units financed by a loan from the proceeds of a subsidized

advance. See id. Sec. 960.13(c)(4). Specifically, it requires such

units to be subject to a deed restriction or other legally enforceable

retention agreement or mechanism requiring that: (1) the Bank or its

designee is to be given notice of any sale or refinancing of the unit

occurring prior to the end of the retention period; and (2) in the case

of a refinancing prior to the end of the retention period, the full

amount of the interest rate subsidy received by the owner, based on the

pro rata portion of the interest rate subsidy imputed to the subsidized

advance during the period the owner occupied the unit prior to

refinancing, shall be repaid to the Bank from any net gain realized

upon the refinancing, unless the unit continues to be subject to a deed

restriction or other legally enforceable retention agreement or

mechanism for the remainder of the 5-year retention period. See id.

The retention agreement described in Sec. 960.13(c)(4) is intended

to be used in situations where a member uses the proceeds of a

subsidized advance to provide permanent financing for the purchase of

individual units. Because each permanent loan is funded by a subsidized

advance, the permanent loan incorporates some level of interest rate

subsidy that the household purchasing a unit benefits from during the

term of the loan. Thus, there is a direct link between the subsidized

advance and the permanent financing for the unit.

Section 960.13(c)(4) does not address the situation where a member

uses a subsidized advance to finance a loan to a housing developer to

build or rehabilitate owner-occupied units, which then are purchased by

households with permanent financing from another source. In this

situation, the purchaser essentially receives a pro rata portion of the

interest rate subsidy in the construction or rehabilitation loan in the

form of a lump-sum reduction in the purchase price resulting from the

subsidized financing. The amount of the reduction in the purchase price

can be determined by spreading the total value of the AHP subsidy

across all the units financed by the construction or rehabilitation

loan, and apportioning the subsidy on a pro rata basis based upon the

relative prices of the units. In effect, the units are financed with

AHP subsidy in a similar manner to units purchased by homebuyers who

receive a direct subsidy in the form of downpayment assistance.

Under Sec. 960.13(d)(1) of the current AHP regulation, where a

purchaser uses a direct subsidy in the form of downpayment assistance

to purchase a unit, the unit must be subject to a deed restriction or

other legally enforceable retention agreement or mechanism requiring

that: (1) The Bank or its designee is to be given notice of any sale or

refinancing of the unit occurring prior to the end of the retention

period; (2) in the case of a sale prior to the end of the retention

period, an amount equal to a pro rata share of the direct subsidy,

reduced for every year the seller owned the unit, shall be repaid to

the Bank from any net gain realized upon the sale of the unit after

deduction for sales expenses, unless the purchaser is a low-or

moderate-income household; and (3) in the case of a refinancing prior

to the end of the retention period, an amount equal to a pro rata share

of the direct subsidy, reduced for every year the occupying household

has owned the unit, shall be repaid to the Bank from any net gain

realized upon the refinancing, unless the unit continues to be subject

to a deed restriction or other legally enforceable retention agreement

or mechanism for the remainder of the retention period. See id.

Sec. 960.13(d)(1).

In sum, the AHP interest rate subsidy in a construction or

rehabilitation loan can be viewed as the functional equivalent of a

lump-sum reduction in the ultimate purchase prices of all the units

financed by such loan. This is similar to the situation where units are

purchased by homebuyers who receive a direct subsidy in the form of

downpayment assistance. Therefore, the Finance Board proposes to add a

new paragraph (c)(4)(ii) to Sec. 960.13(c)(4) of the current AHP

regulation requiring owner-occupied units financed by AHP-subsidized

construction or rehabilitation loans to be subject to retention

agreements similar to those required by Sec. 960.13(d)(1) for owner-

occupied units financed by a direct subsidy.

The interim final rule also revises the language of

Sec. 960.13(d)(1) to address situations parallel to those discussed

above, but which involve an AHP direct subsidy. For example, in some

situations, a housing developer may receive the proceeds of a direct

subsidy to finance the construction or rehabilitation of owner-occupied

units, which then are purchased by households with permanent financing

from another source. As in the case where such units are constructed or

rehabilitated with an AHP-subsidized loan, the purchasers of the units

essentially receive a pro rata portion of the direct subsidy used to

finance the construction or rehabilitation of the units, in the form of

a lump-sum reduction in the units' purchase price. The interim final

rule is intended to make clear that, although the purchasers

[[Page 27672]]

of the units do not directly receive the proceeds of the direct

subsidy, the units must be subject to AHP retention/recapture

mechanisms.

2. Termination of AHP Income-Eligibility and Affordability Restrictions

After Foreclosure--Sections 960.13(c)(5)(iv) and (d)(2)(iv)

Under Secs. 960.13(c)(5)(iv) and (d)(2)(iv) of the current AHP

regulation, a retention agreement for an AHP rental project must

incorporate a provision providing that the income-eligibility and

affordability restrictions applicable to the project may terminate upon

foreclosure or transfer in lieu of foreclosure. See id.

Secs. 960.13(c)(5)(iv), (d)(2)(iv). The purpose of this provision is to

ensure that in cases where an AHP project goes into foreclosure, the

AHP income-eligibility and affordability restrictions do not impede

transfer of the project after foreclosure. As currently worded,

Secs. 960.13(c)(5)(iv) and (d)(2)(iv) could be read mistakenly to mean

that upon the initiation of foreclosure, AHP income-eligibility and

affordability restrictions automatically terminate. This is not the

intended meaning of these provisions. Rather, the Finance Board intends

that AHP income-eligibility and affordability restrictions incorporated

in any lien on a project will be extinguished in the foreclosure

process in connection with the repayment, if any, of AHP subsidy.

Similarly, the Finance Board intends that any deed restriction on the

project incorporating AHP income-eligibility and affordability

requirements will be extinguished after foreclosure. Consequently, the

interim final rule replaces the word ``upon'' in Secs. 960.13(c)(5)(iv)

and (d)(2)(iv) of the current AHP regulation with ``after,'' so that

the regulation provides for the termination of AHP income-eligibility

and affordability restrictions after foreclosure.

In addition, the interim final rule deletes the reference to

transfers in lieu of foreclosure, because transfers in lieu of

foreclosure do not extinguish liens on the property transferred other

than the lien of the transferee. Consequently, when an AHP project is

transferred in lieu of foreclosure, the transferee must foreclose on

the project to remove any remaining AHP lien and the income-eligibility

and affordability restrictions incorporated in the lien. After such

foreclosure, Secs. 960.13(c)(5)(iv) and (d)(2)(iv) provide for the

termination of the AHP income-eligibility and affordability

restrictions. The interim final rule adds similar language to the

provisions of the AHP regulation governing retention agreements for

AHP-assisted owner-occupied projects. See id. Secs. 960.13(c)(4),

(d)(1).

III. Regulatory Flexibility Act

Because no notice of proposed rulemaking is required for this

regulation, the provisions of the Regulatory Flexibility Act (5 U.S.C.

601 et seq.) do not apply.

List of Subjects in 12 CFR Part 960

Credit, Federal home loan banks, Housing, Reporting and

recordkeeping requirements. Accordingly, the Finance Board hereby

amends title 12, chapter IX, part 960, Code of Federal Regulations, as

follows.

PART 960--AFFORDABLE HOUSING PROGRAM

1. The authority citation for part 960 continues to read as

follows:

Authority: 12 U.S.C. 1430(j).

2. Amend Sec. 960.1, by revising the definitions of ``Affordable'',

``Low-or moderate-income household'' paragraph (2)(ii), ``Owner-

occupied unit'', ``Rental project'', and ``Very low-income household''

paragraph (2)(ii) to read as follows:

Sec. 960.1 Definitions.

* * * * *

Affordable means that the rent charged for a unit which is to be

reserved for occupancy by a household with an income at or below 80

percent of the median income for the area, 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).

* * * * *

Low- or moderate-income household.

* * * * *

(2) * * *

(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 with an income at or below 80 percent of the median income

for the area at the time an application for AHP subsidy is submitted to

the Bank.

* * * * *

Owner-occupied unit means a unit in an owner-occupied project.

Housing with two to four dwelling units consisting of one owner-

occupied unit and one or more rental units shall be considered a single

owner-occupied unit.

Rental project means a project involving the purchase,

construction, or rehabilitation of rental housing, including overnight

shelters and 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.

* * * * *

Very low-income household.

* * * * *

(2) * * *

(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 with

an income at or below 50 percent of the median income for the area at

the time an application for AHP subsidy is submitted to the Bank.

* * * * *

3. Section 960.4 is amended by revising paragraph (d) to read as

follows:

Sec. 960.4 Advisory Councils.

* * * * *

(d) Terms of Advisory Council members. Advisory Council members

shall be appointed by the Bank's board of directors to serve for terms

of three years, and such terms shall be staggered to provide continuity

in experience and service to the Advisory Council. An Advisory Council

member appointed to fill a vacancy shall be appointed for the unexpired

term of his or her predecessor in office. No Advisory Council member

may be appointed to serve for more than three consecutive terms.

Appointments for the unexpired term of a predecessor shall not count

toward the three-term limit.

* * * * *

4. Section 960.5 is amended by revising paragraphs (b)(9),

(b)(10)(i)(C), and (b)(10)(ii) to read as follows:

Sec. 960.5 Minimum eligibility standards for AHP projects.

* * * * *

(b) * * *

(9) Fair housing. The project, as proposed, must comply with

applicable federal and state laws on fair housing and housing

accessibility, including, but not limited to, the Fair Housing Act, the

Rehabilitation Act of 1973, the Americans with Disabilities Act of

1990, and the Architectural Barriers Act of 1969, and must demonstrate

how the project will be affirmatively marketed.

(10) District eligibility requirements. (i) * * *

(C) A requirement that the member submitting the application has

made use of a minimum amount of a credit

[[Page 27673]]

product offered by the Bank, other than AHP or CIP credit products,

within the previous 12 months, provided that such a minimum threshold

for credit product usage established by a Bank shall not exceed 1.5

percent of a member's total assets, and all members shall have access

to some amount of AHP subsidy, as determined by the Bank, regardless of

whether they meet the Bank's minimum threshold for credit product

usage.

(ii) Any limit on the amount of AHP subsidy available per member

must result in equal amounts of AHP subsidy available to all members.

5. Section 960.6 is amended by revising the second sentence of

paragraph (b)(4)(ii), the fourth sentence of paragraph (b)(4)(iii), and

paragraphs (b)(4)(iv)(A), (b)(4)(iv)(C)(2), (b)(4)(iv)(D),

(b)(4)(iv)(F)(8), and (b)(4)(iv)(F)(10) to read as follows:

Sec. 960.6 Procedure for approval of applications for funding.

* * * * *

(b) * * *

(4) * * *

(ii) Point allocations. * * * The scoring criterion for targeting

identified in paragraph (b)(4)(iv)(C) of this section shall be

allocated at least 20 points. * * *

(iii) Satisfaction of scoring criteria. * * * A Bank shall

designate the targeting and subsidy-per-unit scoring criteria

identified in paragraphs (b)(4)(iv)(C) and (H), respectively, of this

section as variable-point criteria. * * *

(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 instrumentality thereof, or by any other party. For

purposes of this paragraph, a nominal price is a small, negligible

amount, most often one dollar, and may be accompanied by modest

expenses related to the conveyance of the property for use by the

project.

* * * * *

(C) * * *

(2) Owner-occupied projects. Applications for owner-occupied

projects shall be awarded points based 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.

* * * * *

(D) Housing for homeless households. The creation of rental housing

reserving at least 20 percent of the units for homeless households, or

the creation of transitional housing for homeless households permitting

a minimum of six months occupancy.

* * * * *

(F) * * *

(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 neighborhoods or cities where

the median income exceeds the median income for the larger surrounding

area--such as the city, county, or Primary Metropolitan Statistical

Area--in which the neighborhood or city is located;

* * * * *

(10) Community involvement. Demonstrated support for the project by

local government, other than as a project sponsor, in the form of

property tax deferment or abatement, zoning changes or variances,

infrastructure improvements, fee waivers, or other similar forms of

non-cash assistance, or demonstrated support for the project by

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;

* * * * *

6. Section 960.7 is amended by revising paragraph (a) to read as

follows:

Sec. 960.7 Modifications of applications prior to project completion.

(a) Modification procedure. If, prior to final disbursement of

funds to a project from all funding sources, there is or will be a

change in the project that would change the score that the project

application received in the funding period in which it was originally

scored and approved, had the changed facts been operative at that time,

a Bank, in its discretion, may approve in writing a modification to the

terms of the approved application, provided that:

* * * * *

7. Section 960.9 is amended by revising the introductory text to

read as follows:

Sec. 960.9 Modifications of applications after project completion.

Modification procedure. If, after final disbursement of funds to a

project from all funding sources, there is or will be a change in the

project that would change the score that the project application

received in the funding period in which it was originally scored and

approved, had the changed facts been operative at that time, a Bank, in

its discretion, may approve in writing a modification to the terms of

the approved application, provided that:

* * * * *

8. Section 960.12 is amended by revising paragraph (e) to read as

follows:

Sec. 960.12 Remedial actions for noncompliance.

* * * * *

(e) Use of repaid subsidies. Amounts repaid to a Bank pursuant to

this section, including any interest, shall be made available for other

AHP-eligible projects.

* * * * *

9. Section 960.13 is amended by revising paragraphs (c)(4),

(c)(5)(iv), (d)(1), and (d)(2)(iv) to read as follows:

Sec. 960.13 Agreements.

* * * * *

(c) * * *

(4) Retention agreements for owner-occupied units. (i) Units with

AHP-assisted permanent financing. The member shall ensure that an

owner-occupied unit with permanent financing obtained from the proceeds

of a subsidized advance is subject to a deed restriction or other

legally enforceable retention agreement or mechanism requiring that:

(A) The Bank or its designee is to be given notice of any sale or

refinancing of the unit occurring prior to the end of the retention

period;

(B) In the case of a refinancing prior to the end of the retention

period, the full amount of the interest rate subsidy received by the

owner, based on the pro rata portion of the interest rate subsidy

imputed to the subsidized advance during the period the owner occupied

the unit prior to refinancing, shall be repaid to the Bank from any net

gain realized upon the refinancing, unless the unit continues to be

subject to a deed restriction or other legally enforceable retention

agreement or mechanism described in this paragraph (c)(4)(i); and

(C) The obligation to repay AHP subsidy to the Bank shall terminate

after any foreclosure.

(ii) Units constructed or rehabilitated with AHP-assisted

financing. The member shall ensure that an owner-occupied unit

constructed or rehabilitated with a loan from the proceeds of a

subsidized advance but which does not have permanent financing from the

proceeds of a subsidized advance, is subject to a deed restriction or

other legally enforceable retention agreement or mechanism requiring

that:

[[Page 27674]]

(A) The Bank or its designee is to be given notice of any sale or

refinancing of the unit occurring prior to the end of the retention

period;

(B) In the case of a sale prior to the end of the retention period,

an amount equal to the pro rata portion of the interest rate subsidy

imputed to the subsidized advance that financed the construction or

rehabilitation loan for the unit, reduced for every year the seller

owned the unit, shall be repaid to the Bank from any net gain realized

upon the sale of the unit after deduction for sales expenses, unless

the purchaser is a low- or moderate-income household;

(C) In the case of a refinancing prior to the end of the retention

period, an amount equal to the pro rata portion of the interest rate

subsidy imputed to the subsidized advance that financed the

construction or rehabilitation loan for the unit, reduced for every

year the owner occupied the unit, shall be repaid to the Bank from any

net gain realized upon the refinancing, unless the unit continues to be

subject to a deed restriction or other legally enforceable retention

agreement or mechanism described in this paragraph (c)(4)(ii); and

(D) The obligation to repay AHP subsidy to the Bank shall terminate

after any foreclosure.

(5) * * *

(iv) The income-eligibility and affordability restrictions

applicable to the project terminate after any foreclosure.

* * * * *

(d) Special provisions where members obtain direct subsidies. (1)

Retention agreements for owner-occupied units. The member shall ensure

that an owner-occupied unit that is purchased, constructed, or

rehabilitated with the proceeds of a direct subsidy is subject to a

deed restriction or other legally enforceable retention agreement or

mechanism requiring that:

(i) The Bank or its designee is to be given notice of any sale or

refinancing of the unit occurring prior to the end of the retention

period;

(ii) In the case of a sale prior to the end of the retention

period, an amount equal to a pro rata share of the direct subsidy that

financed the purchase, construction, or rehabilitation of the unit,

reduced for every year the seller owned the unit, shall be repaid to

the Bank from any net gain realized upon the sale of the unit after

deduction for sales expenses, unless the purchaser is a low- or

moderate-income household;

(iii) In the case of a refinancing prior to the end of the

retention period, an amount equal to a pro rata share of the direct

subsidy that financed the purchase, construction, or rehabilitation of

the unit, reduced for every year the occupying household has owned the

unit, shall be repaid to the Bank from any net gain realized upon the

refinancing, unless the unit continues to be subject to a deed

restriction or other legally enforceable retention agreement or

mechanism described in this paragraph (d)(1); and

(iv) The obligation to repay AHP subsidy to the Bank shall

terminate after any foreclosure.

(2) * * *

(iv) The income-eligibility and affordability restrictions

applicable to the project terminate after any foreclosure.

* * * * *

Dated: April 22, 1998.

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

Bruce A. Morrison,

Chairman.

[FR Doc. 98-13428 Filed 5-19-98; 8:45 am]

BILLING CODE 6725-01-P