Amendment of Affordable Housing Program Regulation

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 960

[No. 99-25]

RIN 3069-AA-73

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 adopting

as final, with several changes, the Interim Final Rule which amended

its regulation governing the operation of the Affordable Housing

Program (AHP or Program) to make certain technical revisions clarifying

Program requirements and improving the operation of the AHP.

EFFECTIVE DATE: The final rule shall be effective on June 1, 1999.

FOR FURTHER INFORMATION CONTACT: Richard Tucker, Deputy Director, (202)

408-2848, or Janet M. Fronckowiak, Associate Director, (202) 408-2575,

Program Assistance Division, Office of Policy, Research and Analysis;

or Sharon B. Like, Senior Attorney-Advisor, (202) 408-2930, Office of

General Counsel, Federal Housing Finance Board, 1777 F Street, N.W.,

Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Regulatory Background

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

adopting comprehensive revisions to the AHP regulation, see 12 CFR part

960, which, among other changes, authorized the 12 Federal Home Loan

Banks (Banks), rather than the Finance Board, to approve applications

for AHP subsidies beginning January 1, 1998. See 62 FR 41812 (Aug. 4,

1997) (1997 AHP Regulation). On May 20, 1998, the Finance Board

published an Interim Final Rule amending the 1997 AHP Regulation to

make certain technical revisions clarifying Program requirements and

improving the operation of the AHP. See 63 FR 27668 (May 20, 1998). The

Interim Final Rule provided for a 60-day comment period.

The Finance Board received nine comment letters on the Interim

Final Rule. Commenters included: three Banks, two Bank Advisory

Councils, one Bank member, and one financial institutions trade

association. Because the purpose of the Interim Final Rule was to make

certain technical clarifying revisions, comments that raised issues

beyond the scope of the Interim Final Rule changes are not addressed in

this final rule, but will be considered by the Finance Board in any

future rulemaking under the AHP. The provisions of the Interim Final

Rule on which significant comments were received are discussed below.

II. Analysis of Final Rule

A. Minimum Credit Product Usage Limit--Secs. 960.5(b)(10)(i)(C), (ii)

Section 960.5(b)(10)(i)(C) of the 1997 AHP Regulation authorized a

Bank, in its discretion, after consultation with its Advisory Council,

to establish a requirement that a member submitting an AHP application

have 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 (single credit product usage limit). One of the

arguments the Finance Board considered in determining to allow

imposition of such a limit was that AHP subsidies are derived from a

Bank's earnings and, therefore, fairness suggests that availability of

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

the Bank's earnings through the single purchase of a Bank credit

product. The Finance Board determined, after weighing the arguments,

that giving the Banks the discretion, after consultation with their

Advisory Councils, to adopt a single credit product usage limit would

enable the Banks to be most responsive to the needs and views in their

Districts. However, in the course of the Banks' implementation of this

change under the AHP, the Banks indicated to the Finance Board that a

member's single use of a Bank credit product does not make a meaningful

contribution to Bank earnings, from which AHP subsidies are derived.

The Banks argued instead for authority to adopt a credit product usage

limit based on the member's use of a minimum amount of a Bank's credit

product. The Banks also proposed that the required level of credit

product usage be linked to a member's asset size.

In response to these arguments, the Interim Final Rule revised

Sec. 960.5(b)(10)(i)(C) to permit a Bank, after consultation with its

Advisory Council, to establish a requirement that a member submitting

an AHP application must have made use of a minimum amount of a credit

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 the 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

(minimum credit product usage limit).

Two commenters opposed this change, for some of the same reasons

evaluated and discussed by the Finance Board in the 1997 AHP

rulemaking. See 61 FR 57799, 57808-09 (Nov. 8, 1996); 62 FR 41812,

41819 (August 4, 1997); see also, 60 FR 55487, 55490-91 (Nov. 1, 1995).

The commenters have not presented new arguments that were not

considered by the Finance Board in the 1997 AHP rulemaking. The Finance

Board continues to believe that the Banks should have the discretion,

after consultation with their Advisory Councils, to adopt a minimum

credit product usage limit as appropriate based on the needs and views

in the Bank's District. Accordingly, the minimum credit product usage

limit provision contained in the Interim Final Rule is adopted without

change in the final rule.

The Interim Final Rule also clarified in Sec. 960.5(b)(10)(ii) 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. A commenter pointed out that,

under a technical reading of this language, a Bank would have to make

an equal amount of AHP subsidy available to all members, regardless of

whether the member meets the minimum threshold requirement for credit

product usage. This was not the intent of the amended language in

Sec. 960.5(b)(10)(ii). Accordingly, the language has been clarified in

the final rule to provide that any limit on the amount of AHP subsidy

available per member must result in equal amounts of AHP subsidy

available to all members receiving subsidy pursuant to such limit.

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

1. Scoring Criterion for Use of Donated Government-Owned or Other

Properties--Sec. 960.6(b)(4)(iv)(A)

Under Sec. 960.6(b)(4)(iv)(A) of the Interim Final Rule, an

application may

[[Page 23015]]

receive scoring 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. The Interim Final Rule

added 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.

A commenter objected to the definition of ``nominal price,''

stating that it should be defined as up to 10 percent of the fair

market value of the units or land. By defining ``nominal price'' as

``most often one dollar,'' the Interim Final Rule left some discretion

to the Banks to determine, on a case-by-case basis, whether a price

higher than one dollar may qualify as nominal. The Finance Board

continues to believe that this case-specific approach is preferable to

establishing a general standard in the regulation that would apply to

all transactions anywhere in the country, regardless of possible

variances in what may be considered nominal from region to region and

transaction to transaction. Accordingly, the comment is not adopted in

the final rule.

Another commenter stated that the term ``modest expenses'' should

be defined. Again, the Finance Board believes that a case-specific

approach is more appropriate than establishing a national standard for

the definition of ``modest expenses.'' Accordingly, the final rule does

not define the term, leaving it to the discretion of each Bank to

determine what are modest conveyance expenses for particular

transactions in its District.

2. Scoring Criterion for Housing for Homeless Households--

Sec. 960.6(b)(4)(iv)(D)

Under Sec. 960.6(b)(4)(iv)(D) of the Interim Final Rule, an

application may receive scoring points if it involves ``[t]he 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.'' See

12 CFR 960.6(b)(4)(iv)(D). The Interim Final Rule omitted the express

exclusion of overnight shelters contained in the 1997 AHP Regulation,

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

category of housing permitting a minimum of six months occupancy. The

Interim Final Rule also clarified that ``rental projects,'' as defined

in Sec. 960.1, include overnight shelters. The intention was to make

clear that while overnight shelters are eligible for AHP funding, they

may not receive scoring points under Sec. 960.6(b)(4)(iv)(D). However,

by defining ``rental projects'' to include overnight shelters, the

Interim Final Rule unintentionally made overnight shelters eligible for

such scoring points under the first clause dealing with rental

projects. Accordingly, the final rule revises the first clause in

Sec. 960.6(b)(4)(iv)(D) to expressly exclude overnight shelters for

homeless households.

3. Scoring Criterion for Economic Diversity--Sec. 960.6(b)(4)(iv)(F)(8)

The Interim Final Rule revised the second alternative requirement

in Sec. 960.6(b)(4)(iv)(F)(8) to provide that applications may receive

scoring 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 surrounding

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

Area--in which the neighborhood or city is located. The general intent

of this requirement is to promote housing opportunities for very low-

and low- or moderate-income households in areas that are wealthier

relative to the surrounding areas to avoid isolation of such

households.

A commenter suggested allowing scoring points to be awarded under

this criterion for housing in areas where the median income equals or

exceeds the median income for the larger surrounding area. The Finance

Board believes that this change would meet the general intent of the

requirement and, therefore, has revised the language in the final rule

accordingly.

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

The Interim Final Rule amended Sec. 960.9 of the AHP regulation to

clarify the types of changes to an approved AHP project after project

completion that would justify a modification to the terms of the

approved AHP application. See id. Sec. 960.9. The amendment

inadvertently omitted the language limiting such modifications to

changes ``other than an increase in the amount of subsidy approved for

the project.'' This limiting language has been restored in the final

rule.

III. Regulatory Flexibility Act

Because no notice of proposed rulemaking is required for this final

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

seq.) do not apply. Moreover, 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. See id. section 601(6).

IV. Paperwork Reduction Act

This final rule does not contain any collections of information

pursuant to the Paperwork Reduction Act of 1995. See 44 U.S.C. 3501 et

seq. Therefore, the Finance Board has not submitted any information to

the Office of Management and Budget for review.

List of Subjects in 12 CFR Part 960

Credit, Federal home loan banks, Housing, Reporting and

recordkeeping requirements. Accordingly, the Interim Final Rule

amending 12 CFR part 960, published at 63 FR 27668 (May 20, 1998), is

adopted as final with the following changes:

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. Section 960.5 is amended by revising paragraph (b)(10)(ii) to

read as follows:

Sec. 960.5 Minimum eligibility standards for AHP projects.

* * * * *

(b) * * *

(10) District eligibility requirements.

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

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

receiving subsidy pursuant to such limit.

3. Section 960.6 is amended by revising paragraphs (b)(4)(iv)(D)

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

Sec. 960.6 Procedure for approval of applications for funding.

* * * * *

(b) * * *

(4) * * *

(iv) * * *

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

housing, excluding overnight shelters, 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

[[Page 23016]]

neighborhoods, or providing very low- or low- or moderate-income

households with housing opportunities in neighborhoods or cities where

the median income equals or 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;

* * * * *

4. 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, other than an increase in the amount of

subsidy approved for the project, provided that:

* * * * *

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

Dated: April 13, 1999.

Bruce A. Morrison,

Chairman.

[FR Doc. 99-10160 Filed 4-28-99; 8:45 am]

BILLING CODE 6725-01-P