Amendment of Affordable Housing Program Regulation

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 960

[No. 99-26]

RIN 3069-AA-82

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 clarifying

Program requirements and improving the operation of the AHP.

DATES: The interim final rule shall be effective on June 4, 1999. The

Finance Board will accept written comments on this interim final rule

on or before July 6, 1999.

ADDRESSES: Mail comments to Elaine L. Baker, Secretary to the Board,

Federal Housing Finance Board, 1777 F Street, NW, Washingon DC 20006.

Comments will be available for inspection at this address.

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, NW,

Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

Section 10(j)(1) of the Federal Home Loan Bank Act (Bank 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 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 operation of the Program. See

id.

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

regulation adopting comprehensive revisions to the Program, see 12 CFR

part 960, 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). On May 20,

1998, the Finance Board published an interim final rule amending the

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 was adopted as a final rule,

with several changes, and will become effective June 1, 1999.

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 additional technical issues whose

resolution would clarify Program requirements and improve the

effectiveness of the Program. This interim final rule addresses those

issues. Although the interim final rule will become effective 30 days

after the date of publication in the Federal Register, the Finance

Board requests comment on all aspects of the interim final rule during

a 60-day comment period.

[[Page 24026]]

II. Analysis of the Interim Final Rule

A. Timing of Submission of Amendments to Bank AHP Implementation Plans

to the Finance Board--Sec. 960.3(b)(4)

Section 960.3(b)(1) of the AHP regulation requires each Bank's

board of directors to adopt a written AHP implementation plan setting

forth the requirements specified in the regulation. See 12 CFR

960.3(b)(1). Each Bank is required to provide its Advisory Council an

opportunity to review and make recommendations on the Bank's AHP

implementation plan and any subsequent amendments to the plan prior to

adoption of the plan or amendments. See id. Sec. 960.3(b)(3). Section

960.3(b)(4) of the AHP regulation provides that:

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.

See id. Sec. 960.3(b)(4). The Banks adopted their initial plans under

the revised AHP regulation for the first AHP funding period in 1998,

and have been submitting amendments to such plans to the Finance Board

for subsequent AHP funding periods.

The 60-day requirement in the regulation was intended to give the

Advisory Councils and the Finance Board sufficient time to review the

implementation plans and amendments prior to distribution by the Banks

of AHP application materials to the public. However, the Banks have

indicated that the 60-day requirement is unworkable as a practical

matter because, among other reasons, the Banks' Advisory Councils

generally meet only quarterly. By the time the Advisory Councils have

met and made their recommendations to the Banks' boards, and the Banks'

boards have adopted the amendments, the Banks are approaching their

target dates for sending out AHP application materials to the public.

Requiring the Banks then to send their final plan amendments to the

Finance Board and the Advisory Councils 60 days prior to the

distribution of the AHP application materials to the public would delay

distribution of the AHP application materials, which in turn would

deprive potential applicants of adequate notice of the AHP application

requirements before the applications would be due at the Bank. To avoid

this result, the Finance Board in 1998 issued a number of waivers of

the 60-day requirement so that the Banks could meet their target AHP

application distribution dates.

While the 60-day period was useful for the initial plan review

under the newly revised AHP regulation, Finance Board staff's

experience has been that subsequent amendments to the plans have not

required a 60-day review period. In any case, the administrative

convenience afforded by a 60-day review period is outweighed by the

needs of the users of the Program for timely distribution of AHP

application materials. Therefore, the Finance Board has decided to

amend the AHP regulation to correct this timing problem. Accordingly,

the interim final rule amends Sec. 960.3(b)(4) to require that the

Banks submit any amendments of their AHP implementation plans to the

Finance Board within 30 days after the date the Bank's board of

directors approves the amendments. The interim final rule also deletes

the requirement that the Banks' final plan amendments be sent to the

Advisory Councils 60 days prior to the Banks' distribution of the AHP

application materials, since the Advisory Councils already will have

had an opportunity to review the proposed plan amendments pursuant to

Sec. 960.3(b)(3).

B. Timing of Appraisals for Member Real Estate Owned (REO) Properties

and Properties Upon Which a Member Holds a Mortgage or Lien--

Sec. 960.5(b)(2)(ii)(B)

Section 960.5(b)(2)(ii)(B) of the AHP regulation provides that:

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.

See id. Sec. 960.5(b)(2)(ii)(B) (emphasis added).

Section 960.5(b)(2)(ii)(B) is intended to ensure that the AHP

subsidy is passed on to the ultimate borrower (subsidy pass-through

requirement), as required by the Bank Act, and thus that the project

has a need for the AHP subsidy, by requiring that the purchase price of

the property not exceed its current market value (i.e., that the

subsidy is not recouped by the member to discharge its mortgage or lien

through an excessive purchase price paid for the property by the

project). See 12 U.S.C. 1430(j)(9)(E); 12 CFR 960.5(b)(2)(ii)(B). The

AHP regulation requires this determination to be made based on an

appraisal of the market value of the property performed within six

months prior to the date the purchase price of the property was agreed

upon (i.e., the sales contract). See 12 CFR 960.5(b)(2)(ii)(B). If the

purchase price of the property exceeds the current market value, then

the project sponsor is paying more than necessary for the property, the

member is receiving more than necessary, and the project does not need

the AHP subsidy.

In 1998, several Banks received applications for AHP funding

involving member REO property or property upon which the member held a

mortgage or lien, for which no independent appraisals of the property

had been performed within six months prior to the date the purchase

price for the property was agreed upon, as required by

Sec. 960.5(b)(2)(ii)(B). In some instances, the sponsors had agreed to

a purchase price for the property or had purchased the property two to

three years before the AHP application due date, with no anticipation

that they later would be applying for AHP funds in connection with the

property. Due to the fees of $5,000 or more typically charged for

independent appraisals and the limited predevelopment funds available

to pay for such appraisals, many non-profit sponsors with limited

financial resources conduct in-house analyses or rely upon tax

assessment values to determine the market value of properties. Sponsors

are especially reluctant to obtain an independent appraisal when they

may never exercise the option to purchase the property. In short, given

the way many sponsors acquire property, the requirements of

Sec. 960.5(b)(2)(ii)(B) for obtaining an independent appraisal of the

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

property was agreed upon are not practical or cost effective in the

affordable housing industry.

A reasonable alternative is to require that the sponsor obtain an

independent appraisal of the property within six months prior to the

date the Bank disburses AHP subsidies to the project. This would avoid

the timing problem discussed above but still require a current

appraisal to ensure that the purchase price of the property does not

exceed its current market value.

Accordingly, the interim final rule amends Sec. 960.5(b)(2)(ii)(B)

to require that the independent appraisal of the

[[Page 24027]]

property obtained by the sponsor be performed within six months prior

to the date the Bank disburses AHP subsidy to the project. The interim

final rule also amends this section to require that the independent

appraisal be completed by a State certified or licensed appraiser, as

defined in 12 CFR 564.2(j) and (k), in order to ensure a more accurate

evaluation of the property value.

C. Inclusion of the Creation of Permanent Owner-Occupied Housing Under

the Housing for Homeless Households Scoring Criterion--

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

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

may receive scoring points if it involves 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. See id. Sec. 960.6(b)(4)(iv)(D). The regulation

inadvertently omitted the creation of permanent owner-occupied housing,

which was included in the proposed rule amending the AHP regulation.

See 61 FR 57799, 57824 (Nov. 8, 1996). There have been a number of

innovative and successful initiatives to move households directly from

homeless shelters into permanent homeownership through self-help and

other social services programs. Citing such programs, a Bank commenting

on the May 20, 1998 interim final rule urged the Finance Board to

endorse the inclusion of the creation of permanent owner-occupied

housing under the housing for homeless households scoring criterion.

Accordingly, the interim final rule amends Sec. 960.6(b)(4)(iv)(D)

to include the creation of permanent owner-occupied housing reserving

at least 20 percent of the units for homeless households under the

housing for homeless households scoring criterion.

D. Specific Inclusion of the Creation of ``Visitable'' Housing Under

the Special Needs Scoring Criterion--Sec. 960.6(b)(4)(iv)(F)(1)

Under Sec. 960.6(b)(4)(iv)(F)(1) of the AHP regulation, a Bank may

choose as one of its scoring criteria under the First District Priority

scoring category the following:

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.

See 12 CFR 960.6(b)(4)(iv)(F)(1) (emphasis added). The use of the words

``such as'' indicates that the specific list of special needs housing

in the regulation is not exclusive, allowing a Bank the option to

select other types of special needs housing not specifically mentioned

but of the general types included in the list.

The creation of housing that is ``visitable'' by persons with

physical disabilities who are not occupants of such housing may be

considered a type of special needs housing that a Bank has the option

of adopting under the special needs scoring criterion. Although

amendment of the AHP regulation to allow a Bank to adopt such a

``visitable'' housing criterion is not necessary, the interim final

rule amends Sec. 960.6(b)(4)(iv)(F)(1) to specifically include

``visitable'' housing because the Finance Board believes it is

important to increase awareness of this significant special needs

housing as an option for the Banks to consider in adopting their

scoring criteria under the First District Priority scoring category.

The interim final rule amends Sec. 960.1 to include a definition of

``visitable,'' based on the definition of ``visitable'' adopted by the

Department of Housing and Urban Development, which is as follows:

In either owner-occupied or rental housing, at least one

entrance is at-grade (no steps) and approached by an accessible

route such as a sidewalk, and the entrance door and all interior

passage doors are at least 2 feet, 10 inches wide, offering 32

inches of clear passage space.

III. Regulatory Flexibility Act

Because no notice of proposed rulemaking is required for this

interim final rule, the provisions of the Regulatory Flexibility Act (5

U.S.C. 601 et seq.) do not apply.

IV. Paperwork Reduction Act

This interim 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.

V. Notice and Public Participation

The Finance Board for good cause finds that the notice and public

comment procedure required by the Administrative Procedure Act is

impracticable, unnecessary or contrary to the public interest in this

instance, because the changes made by this interim final rule are

technical in nature and apply only to the Banks. See 5 U.S.C.

553(b)(3)(B).

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. Section 960.1 is amended by adding in alphabetical order the

following definition to read as follows:

Sec. 960.1 Definitions.

* * * * *

Visitable means, in either owner-occupied or rental housing, at

least one entrance is at-grade (no steps) and approached by an

accessible route such as a sidewalk, and the entrance door and all

interior passage doors are at least 2 feet, 10 inches wide, offering 32

inches of clear passage space.

3. Section 960.3 is amended by revising paragraph (b)(4) to read as

follows:

Sec. 960.3 Operation of Program and adoption of AHP implementation

plan.

* * * * *

(b) * * *

(4) Submission of plan amendments to the Finance Board. A Bank

shall submit any amendments of its AHP implementation plan to the

Finance Board within 30 days after the date the Bank's board of

directors approves such amendments.

* * * * *

4. Section 960.5 is amended by revising the second sentence of

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

Sec. 960.5 Minimum eligibility standards for AHP projects.

* * * * *

(b) * * *

(2) * * *

(ii) * * *

(B) * * * 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 by a

State certified or licensed appraiser, as defined in 12 CFR 564.2(j)

and (k), within six months prior to the date the

[[Page 24028]]

Bank disburses AHP subsidy to the project.

* * * * *

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

and (b)(4)(iv)(F)(1) 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, the creation of transitional housing

for homeless households permitting a minimum of six months occupancy,

or the creation of permanent owner-occupied housing reserving at least

20 percent of the units for homeless households.

* * * * *

(F) * * *

(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; or the creation of housing that is

``visitable'' by persons with physical disabilities who are not

occupants of such housing;

* * * * *

Dated: April 14, 1999.

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

Bruce A. Morrison,

Chairman.

[FR Doc. 99-11250 Filed 5-4-99; 8:45 am]

BILLING CODE 6725-01-P